Introduction
One of the most pivotal decisions parties faces when entering into an arbitration agreement is selecting the governing law that will dictate the legal framework for the proceedings. This choice is not merely a procedural formality; it profoundly impacts both substantive and procedural aspects of the arbitration process. When parties are situated in different jurisdictions, the significance of this decision becomes even more pronounced, as it shapes the interpretation of contracts, the enforcement of rights, and the overall resolution of disputes.
The governing law influences how claims are presented, the burden of proof, the available remedies, and the enforceability of arbitral awards. In this context, it is also crucial to consider public policy implications, as the chosen legal framework must align with the fundamental principles of justice upheld by the jurisdictions involved. By carefully selecting an appropriate governing law, parties can not only protect their rights but also foster a more efficient and predictable arbitration process. By way of this article, the author explores the intricacies of determining governing laws for arbitration proceedings, including the role of substantive and procedural law, the implications of public policy, and the importance of clarity in legal agreements.
The Role of Substantive Law in Defining Rights and Obligations
Substantive law can be understood as a legal principle that governs the merits of a dispute, defining the rights and responsibilities of the parties involved. In other language, it is a law governing the subject matter and the merits of the dispute.
Selecting the appropriate substantive law is crucial, as it determines the ease with which a party can establish its justification for action and secure a favourable outcome. For instance, selecting a jurisdiction with well-defined contract laws enhances a party’s ability to prove a breach of contract claim, as the law will delineate what constitutes a breach and the corresponding remedies available.
Moreover, substantive law outlines the types of remedies available for a breach, including damages, specific performance, and injunctions. It governs the criteria necessary to secure those remedies, enabling parties to formulate their claims effectively while anticipating potential defences.
The scope of liability established by substantive law can also influence a party’s decision to pursue arbitration. A legal framework that limits liability may encourage parties to settle disputes amicably, while a more permissive framework may embolden parties to pursue claims aggressively, potentially prolonging the arbitration process.
Procedural Law: Lex Arbitri and Its Significance
Procedural law, often referred to as lex arbitri, governs the conduct of arbitration hearings and outlines how rights are asserted and enforced. While substantive law defines the rights and obligations of the parties, procedural law provides the framework within which these rights are realized.
Procedural law encompasses rules regarding the definition and form of an agreement to arbitrate, arbitrability of dispute, constitution of the arbitral tribunal and any grounds for challenge of that tribunal, entitlement of the arbitral tribunal to rule on its own jurisdiction (Kompetenz-Kompetenz), freedom to agree upon detailed rules of procedure, interim measures, proceedings, and validity of the arbitration award including any right to challenge it in the courts of the place of arbitration. These aspects can directly affect the outcome of the arbitration.
At its core the procedural law shapes the efficiency, costs, accessibility, and quality of arbitration outcomes. A clear understanding and careful selection of procedural rules are essential for achieving a fair resolution. For a better understanding it can be said that a well-structured procedural framework can lead to timely resolutions without wasting unnecessary time or money of the parties at dispute.
In certain circumstances, the procedural law chosen can allow for expedited hearings, resulting in a resolution within a short span of time and eventually saving cost and time.
Considerations of “Public Policy” in choosing the Governing Law
Public policy plays a critical role in the selection of governing law in arbitration. It refers to the fundamental principles and norms that a legal system inculcates to protect its citizens and ensure justice. This principle becomes particularly relevant in international arbitration, where parties from different legal cultures may have divergent views on what constitutes acceptable behaviour or fairness. while parties may have the autonomy to choose their governing law, such a choice must align with the public policy standards of the relevant jurisdictions to be enforceable.
Parties are advised to conduct sufficient due diligence of public policy before selection of the governing law and ensure that their chosen law adheres to recognized public policy principles, they can enhance the enforceability of the arbitration award and minimize the risk of legal challenges based on grounds for violation of public policy.
Conclusion and Suggestions
The absence of a specified governing law in a contract can lead to significant uncertainty and challenges during arbitration. Therefore, it is essential for parties to carefully select and clearly define their choice of law at the outset. The governing law influences the interpretation of the contract, the parties’ rights, and the resolution of substantive issues in a dispute. When the governing law is not explicitly mentioned, tribunals or courts must rely on various approaches, such as inferring intent or applying the “closest connection” test, to determine the applicable legal framework.
The choice of governing law is not merely a procedural formality; it fundamentally shapes the outcome of the dispute. A well-chosen governing law provides predictability, ensuring that the legal rules align with the parties’ expectations and that their claims are assessed within the appropriate legal context. Moreover, the choice impacts key aspects of the arbitration, such as the burden of proof, the availability of remedies, and the enforceability of the award. By selecting a favourable and arbitration-friendly legal system, parties can minimize risks, protect their rights, and efficiently resolve the dispute.
It is crucial to recognize that the choice of law also affects the procedural rules of arbitration, including the conduct of hearings and the extent of judicial intervention. When both substantive and procedural laws are meticulously chosen, the arbitration process can proceed smoothly, reducing the likelihood of disputes over the arbitration process itself. A clear choice of law prevents legal ambiguities and ensures that arbitration is conducted in a manner acceptable to both parties, thereby mitigating the risk of challenges or annulments of the arbitral award.
Author: Hiteashi Rajan Desai, Associate at R&D Law Chambers LLP
Email : info@rdlawchambers.com
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