MARKET COMMENTARY 27
In the Singapore High Court case of Firstlink Investments Corp Ltd v GT Payment Pte Ltd [2014] SGHCR 12, the Court adopted a different approach and did not accept that the law governing the contract should automatically govern the arbitration clause. The Court found that it would be “rare” for the law of the arbitration clause to be different from the law of the seat of the arbitration because an arbitration clause has a closer andmore real connectionwith the place where the parties have chosen to arbitrate thanwith the law governing their obligations under the contract. In the case of Klöckner Pentaplast GmbH v. Advance Technology (HK) Company Limited HCA 1526/2010, the Hong Kong Court of First Instance emphasised the need to examine the surrounding circumstances to the parties entering into the contract. The substantive law of the contract in questionwas German lawand the arbitration clause provided for any disputes to be submitted to arbitration in Shanghai pursuant to the ICC Rules. In that particular case, the Court found that the substantive law of the contract governed the arbitration clause based on its review of the circumstances without establishing anymandatory principle to be applied by the Courts when considering the issue. The Indian Supreme Court was facedwith a different challenge in E nercon India v E nercon GMBH Civil Appeal No. 2086 of 2014 (14 February 2014) inwhich the arbitration clause specified its governing lawand the venue of the arbitration, but failed to specify the seat. Applying a test of the “closest andmost intimate connection”, the Supreme Court held that, as the parties had specified that Indian law governed the arbitration clause, Indiawas intended to be the seat of the arbitration and the procedural laws of India applied to the proceedings. For arbitrations seated in the UAE (outside of the Dubai International Financial Centre (the “DIFC”)), the Civil Procedure Code, which applies to such arbitrations, is silent as to the law applicable to the arbitration clause. In Dubai Cassation Petition 293/1991, the governing law of the contract was deemed to apply to the arbitration clause; however, in the absence of any systemof binding precedent and a lack of reported cases, it is uncertainwhether this principle is applied consistently. For arbitrations seated in the DIFC – a separate common law jurisdictionwithin the UAE – in the absence of an express agreement between the parties, the position adopted by the DIFC Courts when determining the parties’ choice of seat is likely to follow the approach adopted by the English Courts in Sulamérica .
PL AYING BY THE RULES During Dubai ArbitrationWeek, the DIFC-LCIA recently announced the possibility of amending its rules to be consistent with the position set out under Article 16.4 of the LCIA Rules 2014which provides that, unless the parties agree otherwise, the law of the arbitration clause will be the law of the designated seat. The announcement by the DIFC-LCIA follows an emerging trend amongst arbitral institutions to address this issue. Recently, the HKIAC amended itsmodel clause to require parties to specify the applicable lawwithin the arbitration clause itself. Therefore, rather than specifying a “default” law in the absence of the parties’ agreement – as provided in the LCIA Rules 2014 (and as will likely be adopted in the DIFC-LCIA Rules) – the HKIAC’s approach is to encourage the parties themselves to make that decision. Thesemoves have all likely been prompted by the inconsistent jurisprudence emerging from national courts and are considered a positive step towards limiting the scope of disputes arising as to the applicable law of the arbitration clause.
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