Lloyd's Maritime and Commercial Law Quarterly
ARBITRATION AGREEMENTS AS A SIGNPOST OF THE PROPER LAW
D. Rhidian Thomas.*
All contracts have a proper law, which is the source of their legal recognition and force, but it is not always an easy task to ascertain which system of law is to prevail as the proper law.1 Where there exists uncertainty the question arises as to the precise significance an arbitration agreement is capable of assuming in the judicial process directed towards the ascertainment of the proper law of the contract to which the arbitration agreement relates. The question and the judicial response are probably the same whether the arbitration agreement is embodied as a clause in the contract or exists outside the contract as a separate agreement. In each case the arbitration agreement is only logically comprehensible when associated with the contract to which it relates.2
By a proper law is meant the system of law which governs the validity and interpretation of the contract, the rights and obligations of the parties, and the consequences of breaches of the contract.3 The proper law therefore covers most but not necessarily all the potential legal issues.4
In English law the proper law is a function either of intention or judicial divination. In the former case the phenomenon is subjective; in the latter objective. The parties to a contract have a wide, although not an absolute, liberty to choose the law by which their contract is to be governed, and this intention may be expressed in the terms of the contract or arise by necessary inference from the language of the contract and the relevant surrounding circumstances at the time of its making.5 It is only when the
* Senior Lecturer in Law, School of Law, University of East Anglia.
1 Amin Rasheed Shipping Corp. v. Kuwait Insurance Co., The “Al Wahab”
[1983] 2 Lloyd’s Rep. 365, 368
per Lord Diplock.
2 Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. Ltd. [1981] A.C. 909, 981, 982 per Lord Diplock.
3 Compagnie d’Armement Maritime S.A. v. Compagnie Tunisienne de Navigation S.A., [1971] A.C. 572, 603; The Al Wahab, supra, pp. 367, 368.
4 See, generally, Dicey and Morris, The Conflict of Laws (10th edn.) Chap. 28; Cheshire and North’s Private International Law (10th edn.) Chap. VIII.
5 R v. International Trustee for the Protection of Bondholders A.G. [1937] A.C. 500; Vita Food Products Inc. v. Unus Shipping Co. [1939] A.C. 277, 290 per Lord Wright; Bonython v. Commonwealth of Australia [1951] A.C. 201 (P.C.); Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners Ltd. [1970] A.C. 586, 603 per Lord Reid; Copmpagnie d’Armement Maritime S.A. v. Compagnie Tunisienne de Navigation S.A., supra; Armadora Occidental S.A. v. Horace Mann Ins. Co. [1977] 1 W.L.R. 1098 (C.A.). There may on occasions also exist a statutory restriction on the freedom of choice. See, for example, Unfair Contract Terms Act 1977, s. 27(2).
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