Chapter 1: The preliminary steps towards finding the law that will determine incorporation of an arbitration clause into the bill of lading

Disputes relating to the validity, construction, and interpretation of arbitration agreements are frequently brought before arbitral tribunals internationally, since arbitration agreements mark the dawning of the jurisdiction of every arbitral tribunal. 3 In other words, the questions of whether the arbitrators have jurisdiction and whether a court is obliged to stay its proceedings in favour of arbitration, are dependent on the validity and scope of the arbitration agreement. 4 The arbitral tribunal is free to decide its own jurisdiction (this is the so-called principle of Kompetenz-Komptetenz). 5 Nevertheless, this decision should be based on the validity of the arbitration agreement, as determined by the law governing the arbitration agreement. 6

In terms of arbitration clauses in maritime contracts, the previously posed research questions may be approached more easily, if the bill of lading refers expressly to the governing law of the arbitration agreement. Otherwise, there is no international unanimity on the choice of law rule applicable to an arbitration agreement. This is also evident from the number of times the English courts have also faced this complex entanglement and the divergence of opinion. 7

Hence, if there is no definitive law governing the arbitration agreement, which law governs its validity, scope, and interpretation and which particular themes are covered in these broad terms (e.g., the questions as to who is party to the arbitration agreement or who is bound by it etc.)? 8

As it was stated before, the law governing the arbitration agreement will normally determine whether the clause remains binding on the parties even when one of them alleges that the contract is invalid. 9 This issue is one of essence, since the jurisdiction of the arbitrator is very restricted. He can assess only matters that are submitted to him as a result of the concluded agreement of the parties. It is well-known that a common way of choosing arbitration is by an ad hoc agreement, 10 or by incorporating arbitration clauses. 11 English law treats the arbitration agreement as separable 12 from and ancillary to the underlying contract. Therefore, the invalidity, non-existence, or ineffectiveness of any other agreement of which it forms part has no effect on the arbitration agreement itself. 13 In the same vein, the arbitration agreement is subject to its own governing law. Thus, it follows from the autonomy of the arbitration agreement that the law applicable to it must be determined independently from the law applicable to the substantive contract. 14 Nevertheless, it will be unfolded in what follows, that quite recently the law applicable to the main contract appears to have essentially affected the law applicable to the arbitration agreement, whilst this is not and should not always be the case. 15

Therefore, if no express specification has been made, it will become necessary to determine the law applicable to the arbitration agreement. But what are the possibilities? The first choice in terms of importance – in the absence of any express or implied choice by the parties – seems to be between the law of the seat of the arbitration and the law which governs the substantive contract. 16 Since the arbitration clause usually happens to be one of many clauses in a contract, it might seem sensible to assume that the law chosen by the parties to govern the contract will also govern the arbitration agreement. 17 The argument unfolds as follows: if the parties explicitly designate a particular law to govern their agreement, why should some other law-which the parties have not designated-be applied to merely one of the clauses in the agreement, solely as it happens to be the arbitration clause? 18 It seems rational to say, as Professor Lew has submitted that:

“There is a very strong presumption in favour of the law governing the substantive agreement which contains the arbitration clause also governing the arbitration agreement. This principle has been followed in many cases. This could even be implied as an agreement of the parties as to the law applicable to the arbitration clause”. 19

A very reputable French commentator has expressed a similar point of view: 20 that the autonomous character of the arbitration clause and of the principal contract does not mean that they are utterly independent from each other, as evidenced by the fact that acceptance of the contract necessitates acceptance of the clause, without any other formality. At this point, however, it has to be underlined that specific formalities have to be complied with for the conclusion of the arbitration agreement and its inclusion and incorporation in maritime contracts. For example, in a bill of lading, an arbitration agreement might seem a simple clause among many others, however the consequences that it carries, if given effect, are of vital importance. The deprivation of the parties’ right to be heard before the court of their jurisdiction depends on the arbitration clause’s successful incorporation and validity. Furthermore, had the specific formalities for the conclusion of the arbitration agreement not been different from the formalities requested for the conclusion of any other clause-agreement, the parties would not have been given the right to question the validity of the arbitration agreement and they would not be able to raise the case that they are indeed bound by the contract as a whole, but for the arbitration agreement. They can argue that they never agreed to that.

In other words, the view that the arbitration clause is generally governed by the same law as the rest of the contract does not take into consideration the fact that the arbitration clause is autonomous and separable from other clauses in the agreement. 21 The latter means that, if necessary, the arbitration agreement may stand alone and in the same vein, may be compared to a submission agreement. 22 It is the doctrine of separability 23 that opens the path to the possibility that the arbitration clause may be governed by a different law from that governing the main agreement. 24

Now, based on the doctrine of separability of the arbitration clause, different English cases, where a court or an arbitral tribunal has taken the law of the seat of arbitration as the most proper law to govern the parties’ arbitration agreement, will be discussed. If there is no clear choice of the law to govern either the contract as a whole or the arbitration agreement, but the parties have included the seat of the arbitration, the contract will frequently (but not necessarily) be governed by the law of that country, on the basis that the choice of the seat is to be regarded as an implied choice of the law governing the arbitration agreement. 25

There is a strong presumption that because parties selected a particular place of arbitration there was an implied choice that the law of that place should apply to the arbitration agreement. 26 In C v D, 27 the English Court of Appeal held that English law was the governing law of a London arbitration agreement even though it appeared in a contract governed by New York law. The Court of Appeal took a critical step further in deciding that the arbitration agreement should be presumed to be governed by the law of the seat, which usually coincides with the place with which the agreement to arbitrate has the “closest and most real connection”. The Court put forward the suggestion that “an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause”. 28

This suggestion is welcomed, but with some restriction, which is obvious in the following syllogism: we suppose that this generalisation was made because in that case there was no exclusive jurisdiction included in the contract, and the designation of a forum was urgent for the innocent party to bring its claim. The arbitration clause with its place specifically identified...