"#$ %&$R()%* R$+($, -. (*"$R*%"(-*%/ %R0("R%"(-* !""#$%ol( *+ o( ARTICLES REALITY TEST: CURRENT STATE OF AFFAIRS IN THEORY AND PRACTICE RELATING TO “LEX ARBITRI” Loukas Mistelis∗ I. INTRODUCTION The law and rules governing international arbitration procedure (also referred to as “lex arbitri”) is the focus of this article. The references to realism are effectively references to Karl Popper and his work on verification or disproval of theories.1 The article examines in particular whether the existing dominant definition of “lex arbitri” in English law2 can be verified or disproved on the basis ∗ Clive M. Schmitthoff Professor of Transnational Commercial Law and Arbitration; Director, School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University of London. I am grateful to Dr. Stefan Kröll and Professor Julian Lew QC who shared their comments and criticism on earlier drafts of this paper. Mr. Stavros Brekoulakis read critically at the final stage of the manuscript. Errors of fact, judgment, and taste are, of course, mine. A shorter version of this paper was submitted to the Festschrift Norbert Horn. 1 KARL POPPER, LOGIK DER FORSCHUNG (1994). See, in particular, pp. 199 and 223: Zwar geben wir zu: Wir wissen nicht, sondern wir raten. Und unser Raten ist geleitet von dem unwissenschaftlichen, metaphysischen (aber biologisch erklärbaren) Glauben, daß es Gesetzmäßigkeiten gibt, die wir entschleiern, entdecken können. (We have to admit: we know nothing, simply we guess. And our guess is guided by the unscientific, metaphysical (but biologically explainable) belief, that there is some regularity (norm) that we can decode and discover.) (Translation by author). 2 ALAN REDFERN & MARTIN HUNTER WITH NIGEL BLACKABY & CONSTANTINE PARTASIDES, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION, para. th 2-08 (4 ed.) [hereinafter REDFERN & HUNTER]. The lex arbitri is: [A] body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the conduct of the arbitration. The law governing the arbitration comprises the rules governing interim measures (e.g. Court orders for the preservation or storage of goods), the rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into difficulties (e.g. filling a vacancy in the composition of the arbitral tribunal if there is no other mechanism) and the rules providing for the exercise by the Court The American Review of International Arbitration (ARIA), v17/no2, 155-181, copyright 2007 ©JurisNet LLC 156 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 17 of practice and the current law. In addition, the article examines whether this definition meets international standards. More generally, this article looks at the law governing arbitration procedure and the ways in which this law is determined. This article defines “lex arbitri,” establishes its independence from the law applicable to the merits of the dispute and delimits its scope (Section II). In addition, it distinguishes between two types of “lex arbitri”: the internal lex arbitri that regulates the arbitration procedure before the arbitral tribunal and the external lex arbitri that provides the regulatory framework for the relation of the arbitration proceedings with the courts and establishes which courts may perform a supervisory function. Next, the ways of determining the lex arbitri are looked at with particular emphasis on party autonomy and the importance of the seat of arbitration (Section III). Finally, the article draws some conclusions while looking at the impact of transnationalization on the debate on the “lex arbitri” (Section IV). II. WHAT IS THE “LEX ARBITRI”? The main task is to ascertain the meaning of “lex arbitri” and to understand how it features amongst the various rules and laws governing the arbitration. Such laws may govern procedural or substantive matters. A. Applicable Law in International Commercial Arbitration In general, a number of different legal systems or sets of rules of law become relevant during the course of an international arbitration. In the award in ICC case No. 5505 of 19873 a distinction was made between four choice-of-law issues: choice of substantive law, choice of procedural law, choice of a rule of conflict of laws, and choice of law to determine the validity and effect of the arbitration clause. A closer look at the arbitration process reveals a number of legal systems or sets of rules and standards that may be relevant: • capacity of the parties (normally a different set of rules will be relevant for each party); of its supervisory jurisdiction over arbitrations (e.g. removing an arbitrator for misconduct.) The definition was contained originally in the 2nd edition of the book in 1991 and was adopted by Steyn J. (as he then was) in Smith Ltd. v. H.& S. Int’l Holding, Inc., [1991] 2 Lloyd's Rep. 127, 130 (Com. Ct.). 3 Mozambique Buyer v. Netherlands Seller, 13 Y.B. COM. ARB. 110, para. 7 (1988). 2006] REALITY TEST: THEORY & PRACTICE RELATING TO LEX ARBITRI 157 • formal validity of the arbitration agreement; • substantive validity of the arbitration agreement; • substance (merits) of the dispute; • arbitration procedure; • conflict of laws rules to determine applicable law(s); • mandatory rules - of the law of the place of arbitration - of the law of the place most closely connected with the dispute and/or subject matter - of the law of the place of enforcement - international public policy; • recognition and enforcement of the award (again several laws may be relevant in this context). While in proceedings with limited or no foreign elements all these legal systems may coincide in one single legal system, it is not unusual that a different set of rules or a different legal system covers each of the points mentioned above. For example, in a large scale arbitration involving several European telecommunication companies, the laws of Germany, France, Italy, Belgium, Switzerland and EC law as well as ICC Rules were found to be applicable.4 These conflict of laws issues are discussed elsewhere;5 the emphasis of this article is on applicable procedural law, the law(s) or rules of law that govern the arbitration procedure. Indeed, unlike litigation where the judge is comforted with the security of the lex fori, an arbitrator faces the salient question of which procedural law should govern the arbitration procedure. This question does not arise in judicial proceedings because of the universally accepted principle that all procedural issues are governed by the lex fori,6 the law of the forum, whereas substantive issues are governed by the lex causae, which may be the law of the forum or a 4 Michael Goldhaber, The Court that Came in From the Cold (2001), available at http://www.wilmerhale.com/files/News/9d98da62-518b-4f40-939b-3e40aa2c1fe9/ Presentation/NewsAttachment/7c2db51c-9517-4d18-a292-417dd0de8191/lawcom_ born.pdf. 5 See, e.g., JULIAN D. M. LEW, LOUKAS A. MISTELIS & STEFAN M. KRÖLL, COMPARATIVE INTERNATIONAL COMMERCIAL ARBITRATION, Chs. 4, 6, 7, 9, 17, 18, 19, 24, 26 (2003) [hereinafter LEW MISTELIS & KRÖLL]; FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL ARBITRATION, paras. 1171 et seq., 1420 et seq. and passim (Emmanuel Gaillard & John Savage eds., 1999) [hereinafter FOUCHARD GAILLARD GOLDMAN]. 6 Don v. Lippman, (1837) 5 Cl. & F. 1 (per Lord Brougham). 158 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 17 foreign law. While the line between substance and procedure7 is not always clear, the distinction between the two categories is innate to conflict of laws. Hence, there are often references to the “lex arbitri,”8 the “law governing the arbitration9 procedure,”10 to “curial law,”11 or to “procedural law” which is often contrasted to the “law governing the substance” or “the merits” of the dispute. It should always be remembered, and it is widely recognized by modern arbitration statutes and rules,12 that decisions about the arbitration and the applicable law are normally made as closely as possible to carry out the intentions of the parties. Accordingly, to decide the jurisdiction whose lex arbitri will apply, the tribunal shall look first at the arbitration agreement and secondly, at the institutional rules chosen by the parties. Only to the extent that there is no express or clear reference to the lex arbitri in the arbitration agreement or the contract of the parties, will the tribunal lastly attempt to find rules applicable to the arbitration. This discretion allowed for in the various arbitration laws is fairly broad. Sometimes, where the parties have failed to make any stipulations in the contract, the determination of the lex arbitri or the applicable substantive law may take the form of a procedural order, or, more often, of an interim award on that issue. 7 PETER NORTH & JAMES FAWCETT, CHESHIRE AND NORTH’S PRIVATE th INTERNATIONAL LAW, Ch. 6 (13 ed. 1999); DICEY & MORRIS ON THE CONFLICT OF LAWS th Ch. 7 (Lawrence Collins gen. ed., 13 ed. 2000); Edgar Ailes, Substance and Procedure in the Conflict of Laws, 39 MICHIGAN L. REV. 392-418 (1941); Walter Wheeler Cook, “Substance” and “Procedure” in the Conflict of Laws, 42 YALE L. J. 333-58 (1941/42); Albrecht Mendelssohn Bartholdy, Delimitation of Right and Remedy in the Cases of Conflict of Laws, 16 B.Y.B.I.L. 20-41 (1935); Erwin Spiro, Forum Regit Processum (Procedure is Governed by the Lex Fori), 16 INT’L & COMP. L.Q. 949-60 (1969); LOUKAS MISTELIS, CHARAKTERISIERUNGEN UND QUALIFIKATION IM INTERNATIONALEN PRIVATRECHT 15, 70-74, 135-6, 178, 221 (1999). 8 REDFERN & HUNTER, supra note 2, at para. 2-04. 9 W. MICHAEL REISMAN ET AL., INTERNATIONAL COMMERCIAL ARBITRATION, CASES, MATERIALS AND NOTES ON THE RESOLUTION OF INTERNATIONAL BUSINESS DISPUTES 691 (1997). 10 FOUCHARD GAILLARD GOLDMAN, supra note 5, at paras. 1171 et seq.; Lawrence Collins, The Law Governing the Agreement and Procedure in International Arbitration in England, in CONTEMPORARY PROBLEMS OF INTERNATIONAL ARBITRATION 126 (Julian D.M.