International arbitration: substantive, procedural and mandatory rules

International arbitration is conducted all over the world against very different legal and cultural backgrounds and can provide for the quick, practical and economical settlement of cross-border disputes.

Different laws probably will govern different aspects of an international arbitration. For example, different systems of law may apply to:

• the substantive dispute that has been referred to arbitration;
• the arbitration itself including the procedure of the arbitration and the role of national courts in supervising or supporting it;
• the arbitration agreement including issues as to its scope, effect, construction or validity; and
• the award – including issues as to enforceability, validity and recognition.

This guide will focus on the difference and relationship between procedural, substantive and mandatory laws.

Procedural law

The procedural law of the arbitration is sometimes referred to as the lex arbitri or curial law. The procedural law that will apply depends on the place, or 'seat', of the arbitration.

The procedural law determines to what extent the local courts will be involved in the process, for example:

• any formalities to be complied with;
• the extent to which the arbitration agreement excludes court jurisdiction;
• how much autonomy and discretion the parties have in choosing the arbitral procedure;
• what support the court will give to the arbitration;
• whether the decision of the arbitral tribunal can be appealed, and what timescales will apply;
• enforceability of the award.

The value of the local court's involvement in the arbitration depends on the speed and quality of the courts in that particular jurisdiction.

In England and Wales, the procedural law that will apply is provided for in the Arbitration Act of 1996. This creates a general duty on the tribunal to:

• act fairly and impartially;
• give each party a reasonable opportunity to put its case and deal with that of its opponent;
• adopt suitable procedures;
• avoid unnecessary delay or expense;
• provide a fair means of resolving the matters to be decided.

Other significant aspects of the arbitration that are affected by procedural law include disclosure, witness evidence and limitation periods. The impact of the procedural law at the seat of the arbitration may be much reduced however if the arbitration uses a set of institutional rules. Although different systems take different approaches, the content of the rules tends to be quite general allowing parties and the tribunal a fair amount of discretion in the procedure to be applied.

Substantive law

The substantive law is the law governing the subject and merits of the dispute. It is sometimes described as the 'applicable law', 'governing law' or 'law of the contract'. In most jurisdictions, the parties are free to choose the law that will apply. An arbitration agreement will generally set out its governing law at the outset, and the parties' right to do so is enshrined in various international conventions and institutional rules.

For example the rules of the London Court of International Arbitration (LCIA) provide that:

"[t]he Arbitral Tribunal shall decide the parties' dispute in accordance with the law(s) or rules of law chosen by the parties as applicable to the merits of their dispute. If and to the extent that the Arbitral Tribunal determines that the parties have made no such choice, the Arbitral Tribunal shall apply the law(s) or rules of law which it considers appropriate."

For the law that will apply if this is not done in European contractual (Rome I) and non-contractual (Rome II) disputes please see our separate Out-Law guides.

Mandatory rules

Despite the freedom to choose the substantive law that will apply to their dispute as outlined above, parties to international arbitration cannot always contract out of the rules which apply at the seat of the arbitration. Mandatory rules are those rules which cannot be derogated from by way of contract. Any applicable institutional rules governing the dispute can only amend or replace the non-mandatory provisions of the procedural law at the seat of the arbitration.

Mandatory rules:

• can affect the merits of a dispute – for example, anti-corruption rules or competition rules;
• can influence procedural rules – for example, enforcement.

In a case in the United Arab Emirates, enforcement of an award was denied because a particular wording of oath, required by witnesses, was not used. Although this case was decided before the UAE signed up to the New York Convention on enforcement of arbitration awards, so that a similar case might now be decided differently, the outcome would only be known after further expensive and lengthy litigation.

The case also illustrates the importance of considering at the outset where a party might be attempting to enforce an award if it is successful in the arbitration. Parties need to consider the implications of enforcing in a particular jurisdiction very carefully as the ability to enforce an award may be dependent not only on compliance with all applicable local procedural laws but also on the support of local courts.