STELLENBOSCH UNIVERSITY

FACULTY OF LAW

LLM BY COURSE WORK (2025)

INTERNATIONAL COMMERCIAL ARBITRATION (54925-813)

PART 5: SEMINAR ON THE LEGAL SYSTEMS APPLICABLE TO AN INTERNATIONAL

ARBITRATION; CONFLICT OF LAWS

Outline

5.1 Introduction
5.2 Relevant legal systems in the context of an international commercial arbitration
5.3 The law governing the arbitration agreement
5.4 The choice of substantive law
5.5 The lex arbitri – the law of the arbitral procedure
5.6 The delocalisation theory
5.7 The Ken-Ren case: court-ordered security for costs in an ICC arbitration

5.1 Introduction

In this part, we consider the various “laws”, which may arise in the context of an international
commercial arbitration. We will also examine the criteria used internationally for selecting
these laws, and the criteria in South African law, to the extent that they have been identified.
We begin by identifying which “laws” are or may be relevant. The law governing the arbitration
agreement, the law of the main contract, or the substantive merits of the dispute and the law
applicable to the arbitration procedure are then examined in more detail.

In this part, complex issues relating to conflict of laws or private international law are raised.
A detailed examination of these issues is clearly beyond the scope of this module. 1 The
purpose of this part is therefore to identify problems which may arise and to suggest possible
solutions and ways of anticipating and avoiding the problems in practice. These issues are of
course relevant to the drafting of the arbitration clause, discussed in part 6.

Some issues raised in this part will be dealt with in more detail in later parts of this module.
The challenging of the validity of an arbitration agreement and the autonomy of an arbitration
clause, where the main agreement is allegedly void, will be dealt with during part 7. The law
regarding the enforcement of an award will be dealt with in part 9. The concept “place of the
award”, which is linked to the seat of the arbitration, will also be dealt with in part 9. The
delocalisation theory, which relates to the possibility of detaching the arbitration from the curial
law of the place of the arbitration, is however considered in para 5.6 below.

1 For a detailed discussion of some of these issues from a South African perspective, see CF Forsyth Private
International Law (3 ed, Juta, 1996). A useful discussion from an arbitration perspective is contained in Blackaby
& Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.01 – 3.120 and 3.225 – 3.264. Russell
on Arbitration (24th edition, 2015) 85-99 provides a concise but helpful discussion regarding the position under
modern English law.

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5.2 Relevant legal systems in the context of an international commercial arbitration

Where an international commercial dispute is referred to a national court, the procedural law
will inevitably be that of the forum. The only choice of law issue which will therefore usually
arise is that of the law to be applied to the substantive merits of the dispute. 2 In international
commercial arbitrations, the situation is more complex.

In 2008, the International Arbitration Committee of the International Law Association issued a
report (“the ILA Report”). The primary purpose of the ILA Report was to provide principles
and rules to guide arbitrators in ascertaining the contents of the applicable rules, with a view
to promoting greater uniformity. 3 The ILA Report stated that the arbitral tribunal will generally
be required to apply, or at least to consider a wide range of legal rules and principles. These
include (a) rules governing the jurisdiction of the arbitral tribunal; (b) rules governing the
procedure; (c) conflict of laws rules; (d) rules governing the merits of the dispute; and (e) rules
governing the enforcement of the award. 4 In dealing with the relevant issue, the tribunal will
first have to decide what law or rules to apply. Having answered this question the tribunal
must decide on the contents of the relevant law: what is the meaning of the applicable law and
how is this to be ascertained? 5 This seminar deals only with the former issue, namely
ascertaining which law or rules to apply.

Although lists provided by various commentators differ, the laws which may require
consideration include the following: 6

(a) the law governing the arbitration agreement and the performance of the agreement;
(b) the law governing the parties’ capacity to enter into the arbitration agreement;
(c) the law governing the individual reference to arbitration; 7
(d) the curial law, or the law governing the arbitration procedure, often referred to as the
lex arbitri;
(e) the proper law of the main contract, or the law applying to the substantive merits of the
dispute; and
(f) the law(s) 8 applying to the recognition and enforcement of the award.

2 See Pryles “Choice of law issues in international arbitration” (1997) 63 Arbitration 200-209. This is a very
informative article on the subject.
3 See the Introduction to the Report in (2010) 26 Arbitration International 191 at 192. The Report and
recommendations on “Ascertaining the Contents of the Applicable Law in International Commercial Arbitration” is
published in (2010) 26 Arbitration International 193-220 and is also available on the ILA’s website: www.ila-hq.com.
4 See the ILA Report para I(a) in (2010) 26 Arbitration International 194-195.

5 See the ILA Report para I(a) in (2010) 26 Arbitration International 195.

6 Compare Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.05; Pryles 200;

Van Niekerk “Aspects of proper law, curial law and international commercial arbitration” (1990) 2 SA Merc LJ 117
121; Mustill & Boyd (2nd edition 1989) 61.
7 The proper law of the reference will almost always be the same as the proper law of the arbitration agreement –

see Russell on Arbitration (24th edition) para 2-124, who point out that the proper law of the reference is said to
govern the question of whether the parties are discharged from the obligation to continue a particular reference,
while leaving the arbitration agreement to refer future disputes intact. Compare the Model Law article 32(2)
regarding the termination of arbitration proceedings where the parties have agreed to terminate those proceedings.
8 It may be necessary for the successful claimant to try to enforce the award in more than one jurisdiction,

depending where the other party has assets. It follows that different national systems will apply to the attempts to
enforce the award in these circumstances.

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An international commercial dispute regarding a contract can often be resolved by the arbitral
tribunal with reference only to the written contract and the procedural rules chosen by the
parties. It must nevertheless be remembered that international commercial arbitration does
not exist in a legal vacuum, and, as the list in the previous paragraph indicates typically
involves a “complex interaction of laws”. 9

Which matters fall to be determined by each of the legal systems referred to in (a)–(f) above?
It should be noted that the answer to this question is not clear cut. Sometimes the answer to
the question as to whether a matter is a substantive or procedural issue will depend on which
legal system applies. 10 The issues referred to in (a), (c), and (e) above will often be governed
by the same legal system. The curial law and the law applying to the recognition and
enforcement of the award could easily be those of different countries. Both could again differ
from the legal system applying to the issues referred to in (a), (c), and (e) above.

Regarding (b) above, how is the capacity of the parties to arbitrate determined? What
happens, for example, if a minor in terms of the law of country A (of which the minor is a citizen
and where the minor is domiciled) enters into an arbitration agreement in country B, under the
law of which the minor has already attained the age of majority? For commercial contracts,
which include an arbitration agreement pertaining to a commercial dispute, the capacity of a
person to contract will normally be determined by the law of the place where the contract was
entered into. However, that law may, in the case of a natural person, look to the law of the
person’s domicile to determine the status of that person, for example whether a woman must
be regarded as married. Nevertheless, the incidents of that status may then be determined
by the law of the place where the contract was entered into. 11 In the case of a juristic person
or body corporate however, it appears that its status will normally be determined by the law of
the country in which it was incorporated. 12

Particular complications regarding incapacity to arbitrate can arise where one of the parties is
a state-owned or state-controlled entity. 13 The English case of Tamil Nadu Electricity Board v
ST-CMS Electric Co 14 concerned a contract for the supply of electricity from an Indian power
plant. The contract was expressly subject to Indian law, but the arbitration agreement was
explicitly stated to be governed by English law, with London as the seat of the arbitration. A
dispute arose as to the proper calculation of the tariff. The vendor commenced arbitration, but

9 Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.07 – 3.08.
10 A good example concerns prescription or limitation of actions, which in some jurisdictions is a matter of
substantive law, but in other jurisdictions is treated as a procedural issue. See the discussion of Society of Lloyd’s
v Romahn 2006 4 SA 23 (C) at the end of para 5.4 below. Also, in some legal systems an award of interest is a
matter of substantive law whereas in others it is, at least in part, a procedural matter. This matter will be considered
in part 9.
11 See Forsyth 292-6, especially 296 and compare Blackaby & Partasides Redfern and Hunter on International

Arbitration (7th ed) para 2.34. Blackaby & Partasides (7th ed) para 2.34 (citing article 13 of the Rome I Regulation
(Regulation (EC) No 593/2008 of 4 July 2008) point out that where parties conclude a contract in the same
(European) country, a natural person who would have capacity there may only invoke his or her lack of capacity
from the law of another country, if the other party was aware of that lack of capacity at the time the contract was
concluded or was not aware of the lack of capacity as a result of negligence.
12 See Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 2.35 – 2.36; Russell on

Arbitration (24th edition) 86 n 543.

13 See too part 10 below.

14 [2007] EWHC 1713 (Comm).

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the Electricity Board contended that Indian law required electricity tariffs to be determined by
a specific statutory body. The Board contended that the dispute was incapable of being
referred to arbitration as a matter of Indian law. The English court held that Indian law was
irrelevant to determining the validity of the arbitration agreement, which was regulated only by
English law. Parish argues that the capacity of the Electricity Board and its lack of capacity to
arbitrate tariff disputes were overlooked in the process, as well as the public interest of India
in the retention of the jurisdiction of a domestic regulator to fix electricity tariffs. 15

An example of the complex questions that have sometimes to be considered is provided by

West Tankers Inc v Ras Riunione Adriatica Di Sicurta Spa. 16 The insurers of the charterers
of a ship (who were also the owners of an oil refinery), brought a delictual claim against the
owner of the ship in an Italian court. The insurers were exercising their rights of subrogation
under Italian law to recover the amount paid out by them to the charterers. The court
proceedings and the arbitration proceedings between the charterers and the owners, in which
the charterers sought to recover their uninsured losses, essentially related to the same issue,
namely whether the owner of the ship was liable in delict (tort) for the losses suffered by the
charterers / owners of the refinery. 17 (In the arbitration the owner of the ship brought a claim
for declaratory relief to the effect that it was not liable for the damage.) As the delict took place
in Italy, the issue of delictual liability had to be determined by Italian law. However, the issue
of whether the delictual claim fell within the arbitration clause in the charterparty had to be
determined by the rules of construction of English law, as the arbitration agreement was
subject to English law. 18

15 Parish M “The proper law of the arbitration agreement” (2010) 76 Arbitration 661 at 675.
16 [2005] EWHC 454 (Comm). The case, which was concerned with an anti-suit injunction to stop an insurer from
continuing court proceedings in Italy in order to protect arbitration proceedings in London, subsequently went to
the House of Lords as West Tankers Inc v. RAS Riunione Adriatica di Sicurta SpA [2007] UKHL 4. The House of
Lords referred the matter to the European Court of Justice which ruled against an anti-suit injunction in the
circumstances referred to by the House of Lords: see Allianz SpA v West Tankers Inc [2009] EUECJ C-185/07 and
part 8.2 below.
17 See the judgment of the Commercial Court paras 1-6.

18 See para 31 of the judgment. Although the insurers had a right to subrogation under Italian law by virtue of the

insurance contract being subject to Italian law, this transferred right was under English law subject to the duty to
enforce it by means of arbitration proceedings. This duty was an inseperable component of the right transferred
by subrogation, in that under English law the charterers’ delictual claim was subject to the arbitration agreement
(see para 33 of the judgment).

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5.3 The law governing the arbitration agreement 19

In the absence of an express choice by the parties, a strong reason for a court or arbitral
tribunal not to apply the law governing the underlying contract to determine the validity of the
arbitration agreement occurs where the application of that law would result in the invalidity of
the arbitration agreement. In such circumstances it makes sense to apply a different law, for
example that of the place of arbitration, if the effect of applying that law will be to uphold the
validity of the arbitration agreement. The commercial purpose of the parties in choosing
arbitration was to provide an effective way of resolving disputes arising from the underlying
commercial agreement. 20

Parish uses the following practical example to demonstrate the relevance of this issue.
Assume that a contract between a German company and a Polish company provides that the
contract is subject to Polish law and that any disputes arising out of the contract shall be
referred to arbitration in London. Under Polish law, the commencement of insolvency
proceedings by a party to an arbitration agreement renders the arbitration agreement
automatically void. If the law governing the arbitration agreement is Polish law, being the law
of the contract, the arbitration agreement is void. If the law of the arbitration agreement is the
law of the seat, the agreement is valid. Ignoring for the moment the law of the arbitration
agreement, the “personal” law of the Polish party 21 and the arbitration law of the seat are
pulling in opposite directions. 22

Where the arbitration agreement takes the form of a clause in a contract, the “applicable law
clause” will usually refer only to the substantive issues in dispute. There will usually be no
express reference in the latter clause to disputes relating to the arbitration agreement. 23 It
therefore makes sense when drafting an arbitration agreement to specify its governing law. 24
Nevertheless, when the arbitration agreement is a clause in a contract, the parties may well
specify the governing law of the contract as well as the seat of the arbitration, but are
unfortunately unlikely to specify the governing law of the arbitration clause as well.

The traditional preference in England was to presume that the law governing the substantive
agreement will also govern the arbitration clause. 25 An eminent arbitration practitioner and

19 See generally Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.07 -3.41;

Van Niekerk (1990) 2 SA Merc LJ 128-132; Parish M “The proper law of the arbitration agreement” (2010) 76
Arbitration 661-679. For a detailed analysis of what can become a complex subject, see Born International
Commercial Arbitration 2nd ed (2014) ch 4 472-635 or (2009) ch 4, 409-561, particularly 489-490 (424), where he
sets out the issues that can be affected (governed) by the law applicable to the arbitration agreement. Born
International Arbitration: Law and Practice (2012) 55-58 provides a useful summary of this discussion.
20 See Born International Commercial Arbitration 2nd ed (2014) 542-545 or 1st ed (2009) 421 and 497-500.

21 Note too that under the New York Convention Article V(1)(a), a court may refuse to enforce a foreign award if a

party to the award proves that under the law applicable to it, was under some incapacity.
22 See Parish (2010) 76 Arbitration 661-663.

23 Compare however the English case of Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2020] Civ 6 paras

8, 62 and 70, where the governing law clause in a contract, in view of its particular wording in the context of the
contract as a whole (i.e. clauses 1 and 15 read together) was interpreted to constitute an express choice of the
applicable law for the arbitration clause in that contract.
24 Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.10.

25 See Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.18 – 3.24, and para

2.90 citing Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638 para 11. See
also Russell on Arbitration (24th edition) 90-92 regarding the law governing the arbitration agreement. The

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academic Professor JDM Lew has stated that “[t]here is a very strong presumption in favour
of the law governing the substantive agreement which contains the arbitration clause also
governing the arbitration agreement.” 26

However, a second view is that the law governing the validity of the arbitration agreement, in
the absence of an express choice, is the law of the seat. This view is based on the autonomy
of the arbitration clause and finds some support in the New York Convention and the Model
Law. 27 In a South African context, as Van Niekerk pointed out, the possibility of the arbitration
agreement and the main contract being governed by different legal systems could formerly
only be accepted to the extent that our law recognises the severability of the arbitration clause
from the main contract. 28 The issue of severability is considered in detail in part 7, where the
gradual change in South African judicial attitude towards severability from outright rejection to
recognition and acceptance is discussed. 29 In jurisdictions that do recognize the severability
of the arbitration clause, it is quite feasible that the arbitration agreement will be governed, in
the absence of an express provision on the point in the arbitration agreement, by the law of
the place of arbitration rather than the law governing the main contract.

There is support for the law of the seat as the governing law of the arbitration agreement in
the absence of an express choice in fairly recent English case law. In C v D, 30 the court stated
that the inquiry is to discover the law with which the agreement to arbitrate has the closest and
most real connection. Longmore LJ concluded: 31
“[I]t would be rare for the law of the (separable) arbitration agreement to be different
from the law of the seat of the arbitration. The reason is that an agreement to arbitrate
will normally have a closer and more real connection with the place where the parties
have chosen to arbitrate than with the place of the law of the underlying contract in
cases where the parties have deliberately chosen to arbitrate in one place disputes
which have arisen under a contract governed by the law of another place.”

autonomy or severability of the arbitration clause (for certain purposes) does open the way to the possibility that it
could be governed by a different law than the substantive agreement. In the absence of an express or implied
choice by the parties, the choice lies between the law of the underlying agreement and that of the seat of the
arbitration. This conclusion is supported by the New York Convention Article V(1)(a).
26 Quoted in Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.18.

27 See Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.25-3.26; the New York

Convention Article V(1)(a); the Model Law articles 34(2)(a)(i) and 36(1)(a)(i) and the LCIA Arbitration Rules (2014)
article 16.4. See too Born International Commercial Arbitration 412, who correctly points out that the application
of the separability doctrine in this context does not mean that the law applicable to the arbitration clause is
necessarily different from that applicable to the underlying contract.
28 Van Niekerk (1990) 2 SA Merc LJ 129.

29 See Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co SARL 2015 1 SA 345 (SCA),

[2014] ZASCA 160 paras 50-51, where Gorven AJA relied on the doctrine of severability to establish the supervisory
jurisdiction of the Gauteng court over arbitration proceedings, although the court may not have had jurisdiction to
decide a dispute regarding the main contract.
30 [2007] EWCA Civ 1282 par 23, a case which concerned an insurance contract subject to the laws of the state of

New York but with a London arbitration clause. Parish (2010) 76 Arbitration 667 strongly criticized the decision,
pointing out that the extract from C v D quoted in the text was obiter and against the weight of English authority.
Moreover, is it really logical that where the parties provide that their contract should be governed by say Indian law,
they intend this to mean the whole agreement, except for one isolated part, the arbitration clause? Furthermore,
the doctrine of separability (as appears from article 16(1) of the Model Law (second sentence “For this purpose”)
is not necessarily of general application. The doctrine was created to deal with problems created by an arbitration
agreement in a void or voidable main contract, not to deal with conflict of laws issues.
31 Para 26.

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The matter was subsequently considered again by the English Court of Appeal in Sulamerica
CIA Nacional De Seguros SA v Enesa Engenharia SA. 32 The case concerned an insurance
policy which provided that the policy was subject to Brazilian law and which contained both an
exclusive jurisdiction clause in favour of the Brazilian courts and a London arbitration clause.
The court had to determine the law applicable to the arbitration clause. The court stated that
separability did not provide an obvious answer to this question, which turned primarily on the
relative importance to be attached to the parties' express choice of the proper law of the policy
and their choice of London as the seat of the arbitration. 33 The court held that two propositions
were the starting point into any enquiry into the proper law of an arbitration agreement and
continued:
“The first is that, even if the agreement forms part of a substantive contract (as is commonly
the case), its proper law may not be the same as that of the substantive contract. The second
is that the proper law is to be determined by undertaking a three-stage enquiry into (i) express
choice, (ii) implied choice and (iii) closest and most real connection. As a matter of principle,
those three stages ought to be embarked on separately and in that order.” 34
On the facts, in the absence of an express choice, any assumption that the parties had made
an implied choice of Brazilian law was overturned by two factors pointing the other way. First
the choice of London as the seat of the arbitration implied an acceptance that English law
would govern the conduct of the arbitration, including provisions of the English Arbitration Act
that are more substantive than procedural in nature. Secondly, the application of Brazilian law
would apparently have the result that the arbitration agreement was enforceable only at the
option of the insured. This was contrary to clear wording of the arbitration clause which gave
either party the right to insist on arbitration. 35 The court therefore decided that the arbitration
clause had its closest and most real connection with English law.

These two cases were considered and applied in Arsanovia Ltd v Cruz City 1 Mauritius
Holdings, in relation to the following arbitration clause (clause 21.1) 36 in a shareholders’
agreement (“SHA”):
"LCIA Arbitration. 37 Any dispute arising out of or in connection with the provisions of this
Agreement, including any question regarding its validity, existence or termination, shall be
referred to and finally settled by arbitration under the London Court of International Arbitration
Rules ("Rules"), which rules are deemed to be incorporated by reference into this Clause. The
number of arbitrators shall be three. The seat or legal place of the arbitration shall be London,
England. The language to be used in the arbitral proceedings shall be English. ...

32 [2012] EWCA Civ 638. See the discussion of the case in Blackaby & Partasides Redfern and Hunter on
International Arbitration (7th ed) para 3.35.
33 See para 18 of the judgment.

34 See para 25 of the judgment. In a separate supporting judgment the Master of the Rolls stated that once it is

accepted that determining the law of the arbitration agreement involves a choice between the law applicable to the
underlying contract and the law of the seat, which is a matter of contractual interpretation, it is virtually inevitable
that the answer must depend on all the terms of the particular contract, when read in the light of the surrounding
circumstances and commercial common sense (para 51).
35 See paras 29 and 30 of the judgment. The sections of the English Act referred to as examples of provisions

having substantive rather than procedural effect were sections 5, 7, 8, 12, and 13.
36
[2012] EWHC 3702 (Comm). The case is discussed by Dundas “An old friend reappears: which law governs the
arbitration agreement?” (2013) 79 Arbitration 325-331. See also Russell on Arbitration (24th ed) 92 para 2-120.
37 Note that this case was decided on the basis of the 1998 LCIA Rules. Article 16.4 of the 2014 LCIA Rules

provides that “[t]he law applicable to the arbitration agreement and the arbitration shall be the law applicable at the
seat” to the extent that the parties have not otherwise agreed in writing. The underlined words did not appear in
the equivalent provision of the 1998 Rules, namely article 16(3).

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Notwithstanding the above, the Parties hereto specifically agree that they will not seek any
interim relief in India under the Rules or under the Arbitration and Conciliation Act, 1996 (the
"Indian Arbitration Act"), including Section 9 thereof. The provisions of Part 1 of the Indian
Arbitration Act are expressly excluded. For the avoidance of doubt, the procedure in this Clause
21 shall be the exclusive procedure for the resolution of all disputes referred to herein."

The parties had expressly agreed that the SHA was subject to the laws of India. The judge
understood the previous cases as having decided that the court should consider whether the
parties have (impliedly, if not expressly) chosen an applicable law before considering which
system of law has the closest and most real connection with the arbitration agreement (para
17). The parties chose London as the seat of their arbitration, but, as noted above, provided
that the SHA was subject to the laws of India. The judge decided that a distinguishing feature
of the arbitration agreement was that it included a specific agreement not to seek interim relief
under the Indian Arbitration and Conciliation Act, 1996 ("IACA"), including section 9 of that
Act, and that the provisions of Part 1 of IACA were expressly excluded (see para 20). The
judge concluded:
“[W]here parties have expressly excluded specific statutory provisions of a law, the natural
inference is that they understood and intended that otherwise that law would apply. Therefore
to my mind the reference to IACA in the arbitration agreement supports the claimants'
contention that the parties evinced an intention that the arbitration agreement should be
governed by Indian law (except in so far as they agreed otherwise) (para 20).”

The judge held that the parties “evinced the intention that the arbitration agreement in the SHA
be governed by the law of India: it is unimportant whether the choice is characterised as
express or implied” (para 23). The judge noted that had he been called to decide which system
of law has the closest and most real connection with the arbitration agreement, he would have
decided in favour of English law for the reasons referred to in the two cases discussed above.
However, on the facts, the case had to be decided by using either of the first two parts of the
test in the Sulamerica case, and the third part of the test was not relevant (par 24). 38

A note on the Enka 39 and Kabab-Ji SAL 40 judgments of the UK Supreme Court together with
the 2023 recommendation by the Law Commission (England & Wales) will be added here.
Add a reference to s 6A of the English Act.

In the light of the first paragraph of this section (5.3), the controversy surrounding the law
applicable to the arbitration agreement probably has its roots in the inclination of courts and
arbitrators to find an arbitration clause to be valid rather than void. 41 The Swiss legislature in
Article 178(2) of the Private International Law Act (ASA translation) shows a typically liberal
approach towards the validity of the arbitration agreement as regards its substance:

38 The judge then had to decide on the basis of Indian law who the parties to the arbitration agreement were. He

concluded that the tribunal had incorrectly decided the point and in so doing had exceeded its jurisdiction. See
Dundas (2013) 79 Arbitration 331.
39
Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.19 -3.22 discuss the
Enka case.
40 Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.15 – 3.17 discuss the

Kabab case.
41 See Born International Commercial Arbitration 2nd ed (2014) 542-545 and compare 511-514 for criticism of

applying the law of the seat of the arbitration where this law was not the parties’ presumed choice.

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“As regards its substance, the arbitration agreement shall be valid if it conforms to the
law chosen by the parties, or to the law applicable to the dispute, in particular the law
governing the main contract, or to Swiss law.”
The effect of this provision is that the arbitration clause can be upheld by the Swiss courts if it
is valid under any one of the three specified laws. 42 The Scots legislature in 2010 adopted a
different approach to that of the English courts with a view to promoting legal certainty and
avoiding unnecessary litigation: where the parties agree that Scotland is to be the seat of the
arbitration but do not specify the law which governs the arbitration agreement, then the
arbitration agreement is to be governed by Scots law, unless the parties otherwise agree. 43
This makes it unnecessary to decide which law has the closest and most real connection to
the arbitration agreement. The LCIA Rules of 2014 article 16.4 follow a similar approach by
applying the law of the seat to the arbitration agreement as the default position.

5.4 The choice of law applicable to the main contract

(Read the prescribed article by Wortmann (1998) 14 Arbitration International 97-113. (Para (ii)
at pages 101-4 on the lex mercatoria need not be studied in any detail.) 44 XXX

An arbitral tribunal must normally resolve the parties’ dispute by applying rules of substantive
law to that dispute. 45 In accordance with the principle of party autonomy, which is recognised
by most jurisdictions, the parties are free to make an express determination of which system
or rules of law should be applied. The first stage of the inquiry in determining the applicable
law is therefore to establish whether the parties have made an express choice. 46 What,
however, are the limits on party autonomy in making an express choice? 47

In the absence of an express indication, it may be possible, as a second stage of the inquiry,
to determine a tacit choice. 48 This is also sometimes referred to as an implied or inferred

42 See also Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.40 – 3.41 and
Parish (2010) 76 Arbitration 671.
43 See the Arbitration (Scotland) Act 2010 s 6; Dundas (2013) 79 Arbitration 327 n 7, 331 n 22.

44 For a detailed discussion of this subject see Gaillard & Savage International Commercial Arbitration Part 6 784-

882. See also Kessedjian C “Determination and application of relevant national and international law and rules” in
Mistelis L & Lew JDM (eds) Pervasive Problems in International Arbitration (Kluwer, 2006) 71-88; Blackaby &
Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.105 – 3.132; Van Niekerk (1990) 2 SA
Merc LJ 123-128; Born International Commercial Arbitration 2nd ed (2014) ch 19 at 2614-2778; Born International
Arbitration: Law and Practice (2012) 233-251. See also Böckstiegel KH “Applicable law in disputes concerning
economic sanctions: a procedural framework for arbitral tribunals” (2014) 30 Arb Int’l 605 609 as to the various
scenarios which can arise regarding the applicable substantive law in relation to economic sanctions.
45 Compare eg the UNCITRAL Model Law article 28(1). In part 13 we will consider the effect of the tribunal being

authorised by the parties to act as amiable compositeur under article 28(3), which is an exception to the general
principle.
46 See Yu "Three-step choice of law rule in international commercial arbitration?" (1998) 64 Arbitration 219.

47 See Wortmann 98-9. See also Gaillard & Savage International Commercial Arbitration 800-801 on the limits to

party autonomy. They argue convincingly that the parties' freedom to choose the applicable law does not extend
to determining that the contract is subject no governing law or rules of law at all. See too Blackaby & Partasides
Redfern and Hunter on International Arbitration (7th ed) 3.118 – 3.120, and the Rome I Regulation article 3,
particularly article 3(3).
48 In my view, this approach is also permitted by the wording of article 28(1) of the UNCITRAL Model Law.

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choice. However, a tacit choice should only be found if it is reasonably clear that it is a genuine
choice by the parties. 49

Where there is no express or tacit choice, how is the law applicable to the merits of the dispute
(“the proper law of the main or underlying agreement”) determined? The third stage of the
inquiry will involve the application of conflict of laws rules, in the absence of a contrary
provision in the applicable law or arbitration rules. Traditionally, the test under the conflict of
laws rules in South African law has been to determine the fictional presumed intention of the
parties. A more recent test, used by the English courts, is to determine the system with which
the contract has its closest and most real connection. 50 There is now some support for this
test among South African judges. 51 In most situations, the two tests should lead to the same
result. 52

The test, which regards the proper law of the contract as the legal system with which the
contract is most closely connected, has been criticised as being very vague and indecisive
where the circumstances point equally to two countries. 53 The Rome Regulation 1 of 2008
gives the test as to the law with the closest connection greater certainty by presuming the law
to be that of the country “where the party required to effect the characteristic performance of
the contract has his habitual residence.” 54

However, although a state court is usually bound to apply its own conflict of laws rules, is an
arbitral tribunal necessarily bound to apply the conflict of laws of the place of arbitration? This
was the position in England prior to the Arbitration Act of 1996. 55 The matter will usually be
regulated differently by modern arbitration statutes and arbitration rules.

Arbitration statutes and the rules of arbitral institutions may contain provisions relating to the
choice of a system of substantive law by the parties and provide how the arbitrators must
select the system in the absence of a choice by the parties. The provisions of the UNCITRAL
Model Law can be used as an example. In terms of article 28(1) the tribunal “shall decide the

49 Compare Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.229, citing article
3(1) of the Rome I Regulation, which requires that a choice of law “must be expressed or demonstrated with
reasonable certainty by the terms of the contract or the circumstances of the case” (emphasis added).
50 In England the applicable rules determining the proper law of the contract are those contained in the Rome

Regulation I, in terms of the Contracts (Applicable Law) Act 1990, as amended. The Rome Regulation I does not
apply to arbitration agreements: see article 1.2(e); Russell on Arbitration (24th edition) 87-89.
51 See e g Laconian Maritime Enterprises Ltd v Agromar Lineas Ltd 1986 3 SA 509 (D) 526-528, where the court

identified no less than 13 relevant factors to enable it to decide whether the law of Columbia, the United States or
England should apply. Further support is provided by Society of Lloyd’s v Romahn 2006 4 SA 23 (C) par 82, where
the court pointed out that it is a contradiction in terms to speak of a “[presumed] intention” in that a presumption is
usually determined objectively, whereas an intention occurs as a subjective expression of a person’s will. It is
therefore likely that the SCA will reconsider Standard Bank of SA Ltd v Efroiken 1924 AD 171, which followed the
presumed intention test, when the opportunity arises.
52 See Van Niekerk 124; Forsyth 284-92; Pryles 207-8.

53 See Pryles 208 quoting Lord Denning MR in Coast Lines Ltd v Hudig and Veder Chartering NV [1972] 2 QB 34

(CA) 44.
54 See article 4(2); Pryles 208. Article 4(1) contains a number of special arrangements for particular transactions,

eg the sale of goods or a contract relating to real rights in immovable property. Article 4(4) provides an escape
hatch, stating: “Where the law applicable cannot be determined pursuant to paragraphs 1 or 2, the contract shall
be governed by the law of the country with which it is most closely connected.”
55 See Redfern & Hunter (3 ed) 79 citing Sumitomo Heavy Industries v Oil and National Gas Commission [1994] 1

Lloyd's Rep 45 at 57 – this case is not in the 7th edition. The position has now changed as a result of s 46(3) of the
Arbitration Act of 1996, which is based on article 28(2) of the Model Law.

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dispute in accordance with such rules of law as are chosen by the parties”. This provision is
based on the principle of party autonomy. The expression “rules of law” makes it clear that
the parties are not limited in their choice to the rules of one legal system. 56 Moreover, the
expression is clearly wide enough to allow the parties to select the lex mercatoria. 57 The
second part of article 28(1) provides that where the parties, for example, choose English law,
this must normally be understood to be a reference to the provisions of substantive law and
not to the English conflict of laws rules.

Section 46(1)(a) of the English Arbitration Act of 1996 is narrower than the Model Law, in that
it requires the tribunal to decide “in accordance with the law chosen by the parties as
applicable to the substance of the dispute”. The Act presumes that the choice will be that of
a single state. 58 Nevertheless it is still open to parties to select the lex mercatoria in terms of
section 46(1)(b), which empowers the tribunal, if the parties so agree, to decide the dispute in
accordance with such other considerations as are agreed by them or determined by the
tribunal" (my italics). The euphemism "such other considerations" is clearly wide enough to
include the lex mercatoria. 59

Where the parties do not choose the applicable law, article 28(2) of the Model Law requires
the tribunal to apply “the law” determined by the conflict of laws rules which it considers
applicable. Article 28(2) is narrower in two respects than article 28(1). First it limits the tribunal
to choosing the law of a single national state. Secondly, it may not choose the system of
substantive law directly but only via the conflict of laws rules, which it considers to be
applicable. This latter requirement was considered to promote greater predictability and as
ensuring that tribunals would give reasons for their choice. It was also widely recognized that
the practical result would usually be the same, whether a direct choice of substantive law was
made or whether it was an indirect choice via the conflict of laws rules. 60 See also Wortmann's
article for a suggestion as to how the arbitral tribunal should go about selecting the conflict of
laws rules which it will apply in practice. 61

Whereas England, a non-Model Law jurisdiction, in section 46(3) of the 1996 Arbitration Act
followed the Model Law, Germany appears to have adapted article 28(2) in the German
version of the Model Law. Article 1051(2) of the ZPO, as substituted in 1998, provides:
“Failing any designation by the parties, the arbitral tribunal shall apply the law of the
State with which the subject-matter of the proceedings is most closely connected.” 62

56 See Holtzmann & Neuhaus 766.

57 See Gaillard & Savage International Commercial Arbitration 802-803 para 1444; Shackleton “The applicable law
in international arbitration under the new English Arbitration Act” (1997) 13 Arbitration International 375 at 376.
Compare Holtzmann & Neuhaus 768 for a contrary view.
58 See Shackleton (1997) 13 Arbitration International 376.

59 See Gaillard & Savage International Commercial Arbitration 804 n 103; Shackleton (1997) 13 Arbitration

International 377-8. See too Kessedjian in Mistelis & Lew 73 para 3-7, who states that the majority view is that the
expression includes anational norms like the UNIDROIT Principles.
60 See Holtzmann & Neuhaus 769-70.

61 See particularly the three-stage procedure suggested at 113.

62 See Kessedjian 75 who states that this wording obliges arbitrators to apply the law of a national legal system.

See however Wortmann 100 n 17 for a discussion as to whether this wording actually reflects the intention of the
legislature. In any event, the parties in their arbitration agreement providing for arbitration in Germnay may specify
a set of arbitration rules with a more liberal approach.

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The South African International Arbitration Act 15 of 2017 adopted article 28 of the Model Law
in Schedule 1 without alteration.

Compare the Model Law (particularly article 28(2)) with the more liberal provisions of the
French Arbitration Law of 2011. Article 1511 of the French statute provides that the tribunal
shall decide the dispute “in accordance with the rules of law chosen by the parties or, where
no such choice has been made, in accordance with the rules of law it considers appropriate”.
Although the first part is in line with the Model Law, the second part is more liberal in two
respects. It permits the tribunal to select more than one national system. Moreover, the
tribunal may make a direct choice and does not have to work via conflict of laws rules. 63
Compare also in this regard article 21 of the 2017 ICC Rules and article 22.3 of the 2014 LCIA
Rules.

Both article 28(1) and 28(2) of the Model Law are subject to article 28(4) which provides that
the arbitral tribunal in all cases shall decide in accordance with the terms of the contract “and
shall take into account the usages of the trade applicable to the transaction”. 64 Kessedjian
states that in the context “trade usages” can only designate “professional, technical usages
and probably not legal usages”. Trade usages certainly do not extend to “general principles
of law”. 65

The South African Law Reform Commission recommended that article 28 of the Model Law
should be adopted by South Africa without alteration. 66 An Australian commentator has said
that article 28(1) and (2) "deal cryptically and obscurely with difficult questions of conflict of
laws". 67 As the drafters of the Model Law adopted a relatively conservative position in article
28(2) with a view to promoting greater certainty, this criticism appears unnecessarily harsh.

Given the practical importance of the law applicable to the merits, it is not surprising that the
parties apparently specify the law to be applied to the merits in a substantial majority of cases.
Of the 593 new cases registered with the ICC in 2002, in 79.4% of the cases, a specific
national law was chosen, with English, Swiss and French law, in that order, being the most
commonly chosen European laws. Laws of African states were chosen in 16 contracts. Rules
other than national laws were chosen by the parties in 2.3% of the contracts, with equity being
chosen in 1.6% of the contracts. 68 The statistics for ICC arbitrations in subsequent years

63 See also the Netherlands Arbitration Act of 2015 article 1054(2), and the Swiss Private International Law Act of

1987 article 187.1,which are in similar terms; Blackaby & Partasides Redfern and Hunter on International
Arbitration (7th ed) para 3.242 – 3.245.
64 See also the ICC Rules (2012) article 21.2, which obliges the tribunal to take into account “any relevant trade

usages”.
65 See Kessedjian in Mistelis & Lew 78 para 3-17.

66 See the SA Law Reform Commission’s Report paras 2.221-2.225.

67 See Turley "The proposed rationalisation of South African arbitration law" 1999 TSAR 235 at 247. Turley was

quoting the response of a South African legal practitioner to an earlier working paper of the Law Commission on
the Model Law.
68 See "2002 Statistical Report" (2003) 14(1) ICC ICArb Bull 14. In ICC awards relating to international distribution

agreements between 1984 and 1999, the parties chose the law applicable to the merits in 85% of the cases
considered. See Truong "The law applicable to the merits in international distribution contracts: an analysis of ICC
awards (2001) ICC ICArb Bull 37.

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reveal a very similar trend. 69 Blackaby and Partasides 70 strongly recommend that the parties
should make a specific choice of law in their international commercial contract, rather than
leaving the matter to be determined by the arbitral tribunal. Where the parties fail to express
a choice, all one can infer from this is that they either forgot about it or were unable to agree. 71

It is desirable in principle that there is a generally accepted method regarding how the arbitral
tribunal should set about establishing which law(s) or rules to apply to the substantive issues
of a contractual dispute, 72 particularly as once the award has been made, a court has little
opportunity to interfere with an award only on the basis that the substantive law has been
incorrectly applied. 73

Kessidjian suggests the following approach:

• Even where the parties have made a choice and also where they have not, the tribunal
should apply the contract in its entirety, and where relevant, trade usages of which the
parties should have been aware.
• If the parties have made a choice, that choice should be respected unless the result
will be contrary to mandatory rules or public policy at the place of arbitration or the
place of the likely enforcement of the award.
• Where there is no choice by the parties, if the matter cannot be resolved under the first
norm:
 The arbitral tribunal should look to the lex arbitri to determine the approach it
should follow (i.e. a direct choice, or applying appropriate conflict of laws rules);
 In appropriate cases the arbitral tribunal should verify that the applicable law is
not in conflict with the systems referred to in the second norm above;
 In all cases the arbitral tribunal should also try to find support for its decision in
widely accepted transnational norms of which the parties should have been
aware. 74

69 Of the 566 new cases submitted to the ICC in 2001, the applicable law was specified in 78% of those cases in
the underlying contract. In 77% of the cases, a national law was specified. See “2001 Statistical Report” (2002)
13(1) ICC ICArb Bull 12. In 2003 the parties opted for a national law in 80.4% of the contracts. Although the range
of choices by region is indicated, the 2003 report contains no indication as to the relative popularity of the laws of
individual European countries. (See “2003 Statistical Report” (2004) 15(1) ICC ICArb Bull 13.) In 2004 the parties
chose a national law in 79.1% of the contracts, with the laws of England and Switzerland being the most popular
choices. The parties chose rules other than a national law in 1.3% of the contracts. (See “2004 Statistical Report”
(2005) 16(1) ICC ICArb Bull 11.) In 2005 national laws were chosen in 79.3% of the contracts (see “2005 Statistical
Report” (2006) 17(1) ICC ICArb Bull 11) and in 2006 the figure was 82.7% (see “2006 Statistical Report” (2007)
18(1) ICC ICArb Bull 11).
70 Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.225 and 3.232.

71 See Kessedjian in Mistelis & Lew 75 para 3-12. She points out that some small and medium enterprises could

well forget as they will not necessarily have the contract checked by their lawyers before signing it.
72 Different considerations apply when selecting the applicable law in a dispute arising from tort (delict) (see

Kessedjian in Mistelis & Lew par 3.25) or where the arbitration relates to an investment dispute (see Kessedjian in
Mistelis & Lew 79-80 for a discussion of the tribunal’s discretion to select the applicable laws under article 42(1) of
the Washington Convention in the absence of an agreement on this point between the parties).
73 See Kessedjian in Mistelis & Lew 85-87. Under French law, a tribunal that applies Japanese law when the

parties have chosen English law would have violated its mission, and the award could be voided or its enforcement
refused on that basis. This question is considered further in part 9.2 below.
74 See Kessedjian in Mistelis & Lew 87-88. This is a simplified version of her proposal, omitting the references to

investment arbitration.

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It is submitted that a criticism of this proposal, regarding the situation where there is no choice
by the parties, is that the arbitral tribunal should still ascertain the extent of its discretion in
terms of the arbitration rules chosen by the parties, if applicable. Compare too Kessidijan’s
approach with the three-stage procedure of Wortmann at 113 of his prescribed article.

Particular problems regarding the choice of law can arise where a defence of prescription
(limitation of actions) is raised. The situation has been discussed by South African courts in
the context of which law the court should apply to the defence of prescription against the
enforcement of a foreign judgment. An instructive example is the judgment of Van Heerden
JA in Society of Lloyd’s v Price. 75 The plaintiff sought provisional sentence in South Africa on
an English default judgment. One of the defences was that the judgment had prescribed. The
contract which gave rise to the judgment was concluded in England and the parties chose
English law to apply to their contract. English law was therefore the law of the cause (lex
causae). Under English law the Statute of Limitations of 1980 bars the enforcement of a claim
or judgment through lapse of time but does not extinguish it. Time-bars or limitations are
therefore traditionally characterized as procedural. 76 Under the South African Prescription
Act, contractual claims and judgment debts are extinguished after the relevant period has
elapsed. The South African law of prescription (the lex fori) is substantive. 77

However, according to South African rules of private international law, matters of procedure
are governed by the law of the place where the proceedings are instituted (the lex fori), i.e.
South African law. Matters of substance are governed by the law which applies to the
underlying transaction (the proper law or lex causae), i.e. English law in this case. 78 This can
result in a gap: under South African law prescription is substantive, not procedural, so that
South African law cannot apply. Under English law, the limitation provision is procedural in
nature so that the lex causae apparently does not apply either. 79 The court invoked the via
media approach to fill the gap, which requires the court to take into account policy
considerations in deciding which of the competing legal systems has the closest and most real
connection with the legal dispute in question, having regard to considerations of international
comity. The court’s conclusion was that claims which are alive and enforceable in terms of the
law of the country under which the law arose should generally be enforceable in South Africa.
The court therefore resolved to apply English law, with the result that the claims had not
become prescribed. Therefore the English default judgments could be enforced by provisional
sentence in South Africa. 80

75 Society of Lloyd’s v Price, Society of Lloyds v Lee 2006 5 SA 393 (SCA) paras 8-32. Another example is Society

of Lloyd’s v Romahn 2006 4 SA 23 (C) paras 25-94, as explained by Van Heerden JA in the Price case at para 32.
The case of Laconian Maritime Enterprises Ltd v Agromar Lineas Ltd 1986 3 SA 509 (D), which specifically dealt
with the issue of prescription in the context of a foreign arbitral award, is discussed in para 9.2.3.5 below.
76 See too s 13(1) of the English Arbitration Act, which provides that the Limitation Acts apply to arbitral proceedings

as they apply to legal proceedings. This provision does not of course by itself imply that time-bars and limitations
are a procedural issue.
77 See the Price case paras 15-17 and the South African Prescription Act 68 of 1969 s 10(1).

78 See the Price case para 10.

79 See the Price case, para 22, which also refers to the similar situation which arose in Laconian Maritime

Enterprises Ltd v Agromar Lineas Ltd above (see the Price judgment paras 22-26).
80 See the Price judgment paras 26-31. The court also noted that a trend was emerging in common-law systems,

partly as a result of the Rome Convention, to treat prescription/limitation rules as substantive.

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Section 17(1) of the South African Prescription Act 68 of 1969 states that a court cannot of its
own motion take notice of prescription, which must generally be raised as a defence in the
pleadings. It is submitted that the same rule applies in arbitration proceedings, including an
international arbitration with its seat in South Africa. (In the context, this is a procedural issue
governed by the lex arbitri.) The English Arbitration Act of 1996 appears to produce a similar
result. Statutory time limits, whether imposed by the Limitation Act 1980 or otherwise, apply in
arbitration as they do in litigation. 81 The effect of the statutory time limit “is to provide a
procedural bar to the remedy”, which should therefore be raised as a defence to the claim.
The jurisdiction of the arbitral tribunal is not affected. 82 It is submitted that prescription as a
defence can validly be waived.

5.5 The lex arbitri - the law of the arbitral procedure 83

The decision by Kerr LJ in Naviera Amazonica Peruana SA v Compania Internacional de

Seguros del Peru (generally known as the Peruvian Insurance case), 84 provides an interesting
example relating to the interpretation of an arbitration clause to determine the curial law
applicable to the arbitration and the seat of the arbitration. The dispute arose from a printed
insurance contract which contained a jurisdiction clause, in which the insured consented to
the jurisdiction of the court of Lima in Peru. The contract also contained some typed clauses
together with a provision to the effect that in the event of a conflict between the printed and
the typed clauses, the typed clauses would prevail. Among the typed clauses was an
arbitration clause, the working translation of which was “Arbitration under the Laws and
Conditions of London”. The parties were in dispute as to whether the seat of arbitration was
Lima or London. The court was prepared to accept that the substantive law of the contract
was Peruvian law. The parties were also in agreement that the substantive law of the
arbitration agreement was English law. The case turned on the procedural or curial law of the
arbitration. 85 Kerr LJ stated that “English law does not recognize the concept of a ‘de-localised’
arbitration … or of ‘arbitral procedures floating in the transnational firmament, unconnected
with any municipal system of law’.” He continued that while there is no reason in theory which
prevents parties from agreeing to their arbitration being held in country X under the arbitration
law of country Y, he was not aware of any reported case where this had occurred. He found
this unsurprising in view of “the complexities and inconveniences which such an agreement
would involve”. 86 Kerr LJ concluded that “any businessman would say that the phrase
‘arbitration according to the conditions and laws of London’ obviously means that the
arbitration is to be held in London, not by the implication of some additional term …, but simply

81 See the Arbitration Act 1996 s 13(1).

82 See Russell on Arbitration (24th ed) 201 para 5-103.
83 See further the discussion in Gaillard & Savage International Commercial Arbitration 633-653; Blackaby &

Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.42 – 3.104; Van Niekerk (1990) 2 SA
Merc LJ 134-141; Born International Arbitration: Law and Practice (2012) 111-114. See also Böckstiegel (2014) 30
Arb Int’l 609 regarding the potential effect of public policy on the procedural law applicable to international arbitration
in the context of economic sanctions.
84 [1988] 1 Lloyd’s Rep 116 (CA). See Blackaby & Partasides Redfern and Hunter on International Arbitration (7th

ed) para 3.81.

85 [1988] 1 Lloyd’s Rep 118-119.

86 [1988] 1 Lloyd’s Rep 119-120. Ironically, the South African Polysius case referred to below, which contained

such a provision, was reported in 1983.

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by giving to these words their ordinary commercial meaning.” 87 Therefore the seat of the
arbitration was London.

However, providing in the arbitration agreement for the arbitration to be held in a particular
country will not necessarily amount to a choice of the procedural law. In Braes of Doune Wind
Farm (Scotland) v Alfred McAlpine Business Services, 88 the parties provided that “the seat of
the arbitration shall be Glasgow, Scotland” (my emphasis). The parties however in their
contract made it clear that the English courts would supervise the arbitration, and both in their
contract and in the parties’ chosen rules there were several references to the English
Arbitration Act. It was therefore clear that the parties intended that England was to be the seat
of the arbitration. 89

In Exmek Pharmaceuticals SAC v Alkem Laboratories Ltd, 90 the arbitration clause stipulated
that the “arbitration shall be conducted in the UK in accordance with the provisions of the law
in the UK in effect at the time of the arbitration.” The previous clause in the contract stated that
the proper law of the contract was “the law of the UK, and the Parties submit to the exclusive
jurisdiction of the Courts of the UK”. 91 The court decided that the combined effect of these two
provisions was that the curial law was “UK law”; and the courts supervising the arbitration
would be the “UK” Courts, which would apply “UK law”, and have exclusive jurisdiction. The
reference to “UK law” was however ambiguous and ineffective. 92 The court accepted that as
the contract related to international trade, a sensible commercial interpretation of “UK law”
was that it referred to English law. 93

In principle, in accordance with the principle of party autonomy, parties should be free to apply
a system of procedural law to their arbitration, other than the arbitral law of the place where
the arbitration takes place. The definition in article 1 of the New York Convention of the awards
to which the Convention applies, also allows for this possibility. 94 This is rarely done in
practice, however, even in those countries where it is permitted. 95 An examination of the
Polysius case, where the arbitration agreement provided for an ICC arbitration in Switzerland
under South African procedural (arbitration) law, shows the impracticality of such a provision. 96

87 [1988] 1 Lloyd’s Rep 121.

88 [2008] EWHC 426 (TCC); Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para
3.76 – 3.77; Russell on Arbitration (24th ed) 96.
89 See paras 15 and 17 of the judgment. The court noted but distinguished the Peruvian Insurance case. The

English Arbitration Act of 1996 in s 3(1) states that the “seat of the arbitration” means “the juridical seat of the
arbitration”. This can inter alia be designated by the parties to the arbitration agreement or determined, “in the
absence of any such designation, having regard to the parties’ agreement and all the relevant circumstances”. As
England was the seat, the English court had jurisdiction to consider an appeal against the award on a question of
law under s 69 of the English Arbitration Act.
90 [2015] EWHC 3158 (Comm).

91 See para 2 of the judgment.

92 There are three different legal systems in the UK, which apply respectively to (a) England and Wales; (b) Scotland

and (c) Northern Ireland.

93 See paras 22-24.A post-award challenge of the arbitral tribunal’s jurisdiction under s 67 of the English Arbitration

Act was unsuccessful.

94 See Article I(1) second sentence and the SA Law Reform Commission’s Report paras 3.34, 3.35, 3.43 and 3.44.

95 See Holtzmann & Neuhaus 36. The possibility is recognised in English and Australian law (see Pryles 204-6).

However where the seat of the arbitration is England or Wales, the parties would not be able to exclude the
mandatory provisions of the Arbitration Act of 1996 (see ss 2(1) and 4(1) and Shackleton 375-6).
96 See Polysius (Pty) Ltd v Transvaal Alloys (Pty) Ltd 1983 2 SA 630 (W) at 639B-C and 652F-653A.

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If interim measures or other procedural assistance were required during the arbitration, to
which court should the party apply? On the one hand, a Swiss court may be less than
enthusiastic about applying South African arbitration law and be concerned about its ability to
do so correctly. On the other hand, a South African court may be equally concerned about
the willingness of an arbitral tribunal in Switzerland and of parties arbitrating in Switzerland to
comply with procedural directives or interim measures ordered by the South African court. As
the Swiss international arbitration legislation now basically applies the territoriality principle, 97
it is arguable that an arbitration clause like that in the Polysius case, would no longer be valid
in Switzerland, at least to the extent that South African law conflicts with mandatory provisions
of the Swiss legislation.

The Model Law is based firmly on the territoriality principle. In other words, it applies if the
place of arbitration is within the territory of the state adopting the Model Law – see article
1(2). 98 The drafters were of the view that the territoriality criterion was widely accepted, and
that even where the autonomy criterion was available, it was rarely used. Moreover, the Model
Law gives the parties wide freedom in shaping the procedure they wish to use, which would
include the freedom to apply a foreign procedural law as long as it did not conflict with
mandatory provisions of the Model Law. 99 Germany, in adopting the Model Law, now also
applies the territoriality criterion. 100

Although the authors of Russell on Arbitration oppose the notion of a delocalised arbitration,
if the procedural law and the seat are only determined after the reference to arbitration has
been initiated, a floating seat is possible until this determination is made. 101 For example, the
arbitration clause could provide for arbitration in the country of the defendant, or alternatively
that any dispute "is to be referred to arbitration in Beijing or London at the Claimant’s option”. 102

Certain courts in two jurisdictions 103 with dualistic systems of arbitration law have experienced
difficulties in interpreting the effect of the choice of institutional rules like the ICC Rules on the

97 See article 176.1. The exception in article 176.2 has no relevance to the situation under consideration. Compare
however article 182.1, read with article 182.3. The latter provision is clearly mandatory.
98 Note however, that the tribunal may meet at another place, including one in another country (article 20) and even

sign its award at a place other than the seat of the arbitration (article 31(3)).
99 Holtzmann & Neuhaus 36. This is now also the position in modern English law – see Russell on Arbitration (24th

edition) para 2-128, who correctly regard the choice by parties to arbitrate in one country under the procedural law
of another as undesirable and unattractive.
100 See the new German Arbitration Act of 1998 article 1025(1) and Böckstiegel “An introduction to the new German

Arbitration Act based on the UNCITRAL Model Law” (1998) 14 Arbitration International 19 at 23.
101 Russell on Arbitration (24th edn) paras 2-125 and 2-129. See M Frank “Where to go: the floating arbitration

agreement” (2019) 35 Arb Int’l 171-194 for a detailed discussion. See further para 13.2.2 below as to the possibility
of a procedural lex mercatoria.
102 See Frank (2019) Arb Int’l 171 179-181 and 186-189. The court in Star Shipping AS v China National Foreign

Trade Transportation Corporation [1993] 2 Lloyd’s Law Rep 445 (CA) had no particular difficulty in dealing with the
second example. However the use of the words “claimant” or “defendant” in the context of particularly the first
example creates an inherent ambiguity, leading to what Frank calls the “battle of roles”. Where there are claims
and counterclaims, the interpreter has to decide whether the parties intended the clause to be applied following the
“claim by claim” principle or the “first to file” principle. See also BG Davis “Pathological clauses: Frédéric
Eisemann’s still vital criteria” (1991) 7 Arb Int’l 365 385 -386 (prescribed for part 6) regarding the problems which
arise when the arbitration clause provides for arbitration in an unspecified third country, as long as it is not the
home country of either of the parties.
103 The two jurisdictions are Queensland, Australia and Singapore. See Rudge N & Miles CA “More than an empty

gesture: the reversal of Eisenwerken” (2011) 77 Arbitration 43 44 and 51-52.

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applicable arbitration law. In a bizarre decision in 2001, the Queensland Court of Appeal in
the Eisenwerk case, which involved a dispute between an Australian company and a German
company, decided that a provision in an arbitration agreement between the parties that any
disputes arising out of the contract should be finally settled by arbitration (in Australia) under
the ICC Rules, amounted to an implied agreement to opt out of the Model Law, 104 in order for
the parties “to avoid the, surely highly inconvenient, result” of being bound by both the Model
Law and the ICC Rules. 105 The decision was not surprisingly viewed as damaging to
Australia’s reputation as an appropriate venue for international arbitration 106 and was rectified
by a statutory amendment in 2010. 107 The decision has also been criticized judicially. Ward
J pointed out that the distinction between the lex arbitri and the procedural rules adopted
consensually by the parties (subject to any mandatory provisions of the lex arbitri) is well
recognized (in practice) and is expressly accommodated under article 19 of the Model Law. 108

5.6 The delocalisation theory

(See the prescribed article by Paulsson (1983) 32 ICLQ 53-61.) 109

The present position regarding the law applying to the arbitration proceedings is discussed in
para 5.5 above. What do you understand by the “delocalisation” theory? See the definition in
the prescribed article by Paulsson at 54. 110 Note that the theory is intended to free the
arbitration from a national procedural law rather than national substantive law. The theoretical
and practical arguments in support of the theory, particularly in the context of an ICC arbitration
(compare the 2021 ICC Rules article 19) appear from Paulsson’s article. Currently, arbitration
is subject to court control, both at the seat of the arbitration and at the place where it is sought

104 S 21 of the Australian Arbitration Act of 1974 (as adopted in 1989 and prior to its replacement in 2010) allowed
parties to an arbitration agreement subject to the Act to opt out of the Model Law. See Rudge & Miles (2011) 77
Arbitration 45.
105 Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-ing GmbH [2001] 1 Qd R 461 at 466; Rudge & Miles

(2011) 77 Arbitration 45.

106 See Rudge & Miles (2011) 77 Arbitration 43 quoting a speech by Australia’s Attorney General.

107 S 21 of the International Arbitration Act was repealed and replaced with a new version:

“21 Model Law covers the field

If the Model Law applies to an arbitration, the law of a State or Territory relating to arbitration does not apply to the
arbitration.”
The effect of this amendment is that parties to an international arbitration with its seat in Australia can no longer
contract out of the Model Law. See Buchanan R “Australia’s New Arbitration Act”
www.nortonrose.com/knowledge/publications/2010/pub31022 (accessed 25 January 2011).
108 See Cargill International SA v Peabody Australia Mining Ltd [2010] NSWSC 887 paras 84-87; Rudge & Miles

(2011) 77 Arbitration 48-49.

109 The relevant issue of the International Comparative Law Quarterly is available as an e-journal in the university

library. See also Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.86 – 3.104.
(particularly the references to literature at 3.89 n 129); Lew JDM “Achieving the dream: autonomous arbitration”
(2006) 22 Arbitration International 179-203; Van Niekerk (1990) 2 SA Merc LJ 148-149; Born International
Commercial Arbitration 2nd ed (2014) 1587-1589 or 1st ed (2009) 1299-1301.
110 In a more recent article in (2011) 60 ICLQ 291 at 298, Paulsson gives the following definition: “'Delocalisation'

refers to the possibility that an award may be accepted by the legal order of an enforcement jurisdiction
whether or not the legal order of its country of origin has also embraced it.” Compare the view of Kerr LJ
in Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru above at 119: “English law does
not recognize the concept of a ‘de-localized’ arbitration ... or of ‘arbitral procedures floating in the transnational
firmament unconnected with any municipal system of law’”. Compare also Goode R "The role of the lex loci arbitri
in international commercial arbitration" (2001) 17 Arbitration International 19 at 24-28 regarding different variants
of the delocalisation theory in the context of party autonomy.

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to recognize and enforce the award. Under the delocalisation theory as it has evolved, there
should be only one point of control, the place of enforcement. 111

Belgium in effect substantially applied the delocalisation theory to arbitrations held in Belgium
involving exclusively foreign parties between 1985 and 1998. 112 In 1985, the following
provision was added to the Belgian Geregtelijk Wetboek as article 1717.4:
"The Court of Belgium may be seized of a request for annulment [of an award] only
if at least one of the parties to the dispute decided by the arbitral award is either a
physical person having Belgian nationality or residence, or a legal entity created in
Belgium or having a branch or any other establishment in Belgium." 113

Contrary to the expected result, this appeared to discourage foreign parties from using
Belgium as an arbitration centre. 114 Why did Redfern & Hunter 115 state that lawyers acting for
the respondent would be likely to advise their clients against arbitrating in Belgium? Because
of its negative effect, article 1717.4 was substituted in 1998, giving foreign parties, as in
Switzerland, 116 the choice to opt out of court supervision of the award:
"The parties may, by an express provision in the arbitration agreement or by a
subsequent agreement, exclude any application to set aside the arbitral award when
none of the parties is either an individual having the Belgian citizenship or residing in
Belgium, or a legal person having its head office or a branch there." 117
In 2013, Belgium adopted the UNCITRAL Model Law with the 2006 amendments. Article 1717
of the amended Belgian Code now largely corresponds to article 34 of the Model Law.
Nevertheless, where the arbitration is only between non-Belgian parties, a Belgian addition to
the Model Law, namely article 1718, makes it possible for the parties to contract out of the
remedy for setting aside the award under article 1717. Article 1718 reads:
“By an explicit declaration in the arbitration agreement or by a later agreement, the
parties may exclude any application for the setting aside of an arbitral award, where
none of them is a natural person of Belgian nationality or a natural person having his
domicile or normal residence in Belgium or a legal person having its registered office, its
main place of business or a branch office in Belgium.”
A party who has contracted out of setting aside the award under article will nevertheless still
be able to resist the enforcement of the arbitral award in Belgium on the grounds in article
1721, which corresponds to article 36 of the Model Law.

111
Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.89. However, they point
out at (7th ed) para 3.95 that both the New York Convention and the Model Law recognize dual control.
112 See Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.95 But compare Van

den Berg (1992) 58 Arbitration 267 at 272 who points out that Belgian arbitration law continued to apply to an
arbitration in Belgium even where an action for setting aside the award was not available.
113 Translation in Redfern & Hunter (3 ed) 91- Not in the 7th edition

114 See Hanotiau & Block "Note: The Law of 19 May 1998 Amending Belgian Arbitration Legislation" (1999) 15

Arbitration International 97 at 99; Demeyere "1998 Amendments to Belgian Arbitration Law: an Overview" (1999)
15 Arbitration International 295 at 307-308; Goode (2001) 17 Arbitration International 30.
115 Compare Blackaby & Partasides Redfern and Hunter on International Arbitration (5th ed) 191 n 103 or 6th ed

183 n 99 – The paragraph on Belgium has been removed in the 7th edition.
116 See further the Swiss Private International Law Act article 192.1, as amended in 2021. According to Goode

(2001) 17 Arbitration International 30, most foreign parties, following the advice of leading Swiss commentators,
do not make use of the exclusion option.
117 Translation of Hanotiau & Block 99.

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As discussed in greater detail below, 118 in Dallah Real Estate and Tourism Holding Company
v Ministry of Religious Affairs, Government of Pakistan, 119 Dallah attempted to enforce an ICC
award, which it obtained in Paris against the Government of Pakistan, in England. The English
courts, at three levels, correctly decided that they had full authority to decide whether the
award could be enforced in England. They also accepted that the validity of the arbitration
agreement had to be examined under the law of the country where the award was made,
namely France. The UK Supreme Court held that the rule which recognises the validity of an
arbitration agreement provided it does not violate international public policy is an international
rule of French law and not a transnational rule. 120 There is therefore no justification for
concluding that international arbitrators derive their authority from a transnational legal order,
despite some support for this theory among French academics. 121 The UK Supreme Court
refused to enforce the award in England, as on the basis of its interpretation of French law,
the Government of Pakistan was not a party to the arbitration agreement. Ironically, a
subsequent attempt by the Government of Pakistan to have the award set aside in France
was unsuccessful. The French court refused to set aside the award because in its view the
arbitral tribunal had jurisdiction. 122 As Paulsson remarks, this result may be untidy, but there
is no inconsistency of principle. It follows from the New York Convention recognizing two
centres of control, namely by the court at the seat of the arbitration and by the court at the
place where enforcement of the award is sought. 123

The wider acceptance of the UNCITRAL Model Law will, of course, reduce the need for the
acceptance of a limited delocalisation theory. The SA Law Reform Commission accepted the
view of Van den Berg that there is no such thing as a stateless or anational award. 124 The
issue may seem academic. Nevertheless, there have been recent foreign court decisions in
which the court has been prepared to enforce a foreign arbitral award, after it has been set
aside by the court of the place of arbitration. The court setting aside the award has done so
by applying the law of its own jurisdiction. The SA Law Reform Commission also accepts that
the setting aside of an award by the court of the place of the arbitration will usually, but not
always, have extraterritorial effect. 125 Is an award, which has been set aside by the court in
the place of the arbitration, then a stateless award if it is subsequently enforced in another
jurisdiction? 126 We will return to this issue in part 9 in the context of the New York
Convention. 127

118 See para 9.2.3.6 below.

119 [2010] UKSC 46.
120 See para 16 per Lord Mance and paras 115-116 per Lord Collins. Both cite a comment by the Swiss scholars

Poudret and Besson.

121 See Paulsson The Idea of Arbitration (OUP 2013) 42-44; Blackaby & Partasides Redfern and Hunter on

International Arbitration (7th ed) para 3.97.

122 See Paulsson The Idea of Arbitration 43 n 24.

123 See Paulsson The Idea of Arbitration 43 n 24.

124 See the SA Law Reform Commission’s Report paras 3.39-3.40. See also Goode (2001) 17 Arbitration
International 39. Compare Rensmann “Anational arbitral awards – legal phenomenon or academic phantom?”
(1998) 15(2) J In’lt Arb 37-65.
125 See the SA Law Reform Commission’s Report para 3.9 n 12.

126 Compare Goode's discussion of the French case law in (2001) 17 Arbitration International 26-28 and 31. See

too Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 3.119 -3.120.
127 See para 9.2.3.6 below.

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5.7 The Ken-Ren case: court-ordered security for costs in an ICC arbitration
This judgment is no longer prescribed in view of the commencement of the IAA in 2017. This
portion of the Notes is in the process of being rewritten.

db/LLM ICA part 5 2025

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