STUDENT NOTES
International Commercial Arbitration – Part 5
(Laws Applicable to International Arbitration – Stellenbosch
University LLM ICA 2025)
5.1 Introduction
In international commercial arbitration, multiple different "laws" may
apply to a single case. These include the law governing the arbitration
agreement, the law of the main contract (the merits of the dispute), and
the law that governs the arbitration procedure (the lex arbitri). Conflict of
laws issues arise because different jurisdictions may provide different
answers on key questions. While a detailed analysis of conflict of laws is
beyond this module's scope, students must understand that careful
drafting of arbitration clauses is crucial to avoid problems later. Some
specific topics, like enforcement of awards and challenging the validity of
arbitration agreements, will be explored in later parts of the module.
5.2 Relevant Legal Systems in International Arbitration
Unlike court litigation where the procedural law is always the law of the
court's country, arbitration involves a more complex mix. According to the
2008 ILA Report, an arbitral tribunal must often apply or consider
multiple layers of law: jurisdiction rules, procedural rules, conflict of laws
rules, substantive rules, and enforcement rules. The main legal systems
that may need to be considered are:
• The law governing the arbitration agreement.
• The law determining parties’ capacity to arbitrate.
• The law governing the particular reference to arbitration.
• The curial law or lex arbitri (procedural law).
• The law governing the substantive merits of the contract.
• The law(s) governing recognition and enforcement of the award.
In practice, disputes often interact with many of these systems, and the
distinctions between procedural and substantive issues can sometimes be
blurred. The minor’s capacity example shows how complex issues can
arise — the minor may be an adult under one law and a minor under
another, complicating the validity of their arbitration agreement.
5.3 The Law Governing the Arbitration Agreement
When no express choice is made by the parties, courts tend to apply a law
that upholds, rather than invalidates, the arbitration agreement.
Practically, if the main contract is governed by a law that invalidates
arbitration agreements under certain circumstances (such as insolvency
under Polish law), it would be better to apply the law of the seat (e.g.,
English law) if it preserves the arbitration agreement.
Traditionally, English courts presumed that the law of the main contract
governs the arbitration clause. However, more recent cases like C v D and
Sulamerica suggest a three-stage test:
1. Look for an express choice of law.
2. Look for an implied choice of law.
3. If neither exists, apply the law with the closest and most real
connection (often the law of the seat).
Thus, specifying the law governing the arbitration agreement separately is
advisable in contract drafting.
5.4 The Choice of Law Governing the Main Contract
Arbitral tribunals usually resolve disputes by applying a substantive legal
system. Party autonomy is central: parties may expressly choose which
law governs their contract. If no express choice is made, an implied choice
may be inferred. If there is no implied choice, the tribunal applies conflict
of laws rules to find the "proper law"—typically the law with the closest
and most real connection to the dispute.
International rules like the UNCITRAL Model Law and statutes like South
Africa’s International Arbitration Act 15 of 2017 prioritize party choice but
provide rules where no choice is made. Importantly, in most cases parties
should specify a governing law explicitly, because if left open, tribunals
must go through a longer and more uncertain process to determine the
applicable law.
5.5 Lex Arbitri (Law of the Arbitral Procedure)
The lex arbitri governs the procedural aspects of the arbitration. The seat
(legal place) of the arbitration usually determines the lex arbitri. Courts
generally assume that if the arbitration is seated in a particular country,
that country's procedural law applies—even if the substantive contract law
is different. For example, in the Peruvian Insurance Case, the arbitration
clause's reference to London meant that English law applied as the
procedural law, despite the substantive contract being governed by
Peruvian law.
However, specifying a seat does not always mean choosing its procedural
law, as shown by cases like Braes of Doune and Exmek Pharmaceuticals.
To avoid confusion, contracts must clearly state both the seat and the
procedural law if they differ.
5.6 The Delocalisation Theory
The delocalisation theory argues that arbitration should be independent
of any national legal system. However, this theory has limited practical
acceptance. Most jurisdictions, influenced by the New York Convention
and the Model Law, adopt the territoriality principle: arbitration is tied to
the law of its seat. Although it is theoretically possible for parties to choose
a different procedural law from the seat’s law, it is rare and often
problematic in practice, as shown by cases like Polysius.
5.7 The Ken-Ren Case: Court-Ordered Security for Costs in an
ICC Arbitration
The Ken-Ren case is important because it illustrates the intersection
between arbitration and court powers, particularly regarding security
for costs — an order that a party must pay a deposit or guarantee legal
fees in case they lose the case.
In Ken-Ren Chemical and Fertilizers Ltd v Conver Fertilizers Ltd (UK
House of Lords), a key issue was whether the English court could order a
party (Ken-Ren), which was in liquidation, to provide security for costs in
an ICC arbitration seated in London. The party requesting the security
(Conver) was concerned that if it won the arbitration, it would not be able
to recover its legal costs due to Ken-Ren’s financial instability.
The tribunal itself lacked the power to order security for costs under the
ICC Rules, so Conver approached the English courts. The House of Lords
ultimately upheld the court’s power to order security for costs,
even though the dispute was being arbitrated, not litigated. The reasoning
was that the arbitration was seated in London, giving English courts
supervisory jurisdiction under the Arbitration Act.
The case demonstrates two key principles:
1. National courts retain procedural control over arbitrations
seated in their jurisdiction — even in institutional arbitrations like
ICC.
2. Security for costs is a procedural measure that courts may impose
to protect the integrity and fairness of arbitration, especially when
one party is financially unstable or in liquidation.
From a practical standpoint, this case reinforces the importance of
choosing a seat of arbitration that offers strong court support when
procedural issues arise, including interim relief like security for costs.
Summary Table of Key Laws in ICA Context:
Common Governing
Type of Law What It Governs
Law
Arbitration Validity, scope, party Law of the seat or
Agreement capacity expressly chosen law
Expressly chosen law or
Substantive The main contract’s
law with closest
Merits rights/obligations
connection
Procedural Law Arbitration procedure (e.g.,
Law of the seat
(lex arbitri) appointment, interim relief)
Law(s) of the country
Enforcement of Recognition and
where enforcement is
Awards enforcement post-arbitration
sought
Ability to enter arbitration Usually law of domicile
Party Capacity
agreements or incorporation
Often same as
Terms of specific dispute
Reference Law arbitration agreement
submission
law