FAVORING VALIDITY: THE HIDDEN CHOICE OF LAW RULE FOR ARBITRATION AGREEMENTS – VOL. 27, NO. 3

Author: Peter Tzeng
Published: December 2016

Introduction

On December 21, 2000, an arbitral tribunal seated in Colombia rendered a $60 million award in favor of a contractor against a Colombian state-owned enterprise. Less than two years later, the contractor was robbed of all $60 million. The thief? The law governing the arbitration agreement.

Often difficult to identify and increasingly difficult to apprehend, the law governing the arbitration agreement (“LGAA”) has caused “extensive confusion” among commentators and practitioners of international arbitration. Its fundamental importance, however, cannot be denied. In any given arbitration, the LGAA dictates whether the arbitration agreement is valid, and hence whether the entire arbitration is valid. It can therefore convert a contractual clause into a billion-dollar asset, and can likewise transform that billion-dollar asset back into “mere waste paper.”

How does one go about determining the LGAA? In the words of one esteemed arbitrator, it’s “a magnificent confusion.” International instruments such as the New York Convention and the UNCITRAL Model Law provide uniform standards for recognizing arbitration agreements, interfering in arbitral proceedings, and enforcing arbitral awards. However, they do not provide a uniform choice of law rule for determining the LGAA. Consequently, the choice of law rules that national courts apply to determine the LGAA vary considerably across jurisdictions. This wide variation has received significant attention in recent years.

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