A Study of the Law Applicable to the Procedure
in International Commercial Arbitration
             
Mann-Long Chang*
 

Introduction

 
The statement that municipal courts are bound by the procedural laws of their legal system cannot be denied. Municipal courts are created and given authority by the national laws of their situs. They conduct proceedings according to rules contained in these national laws. A judge sitting in municipal courts are restricted in applying the conflict and procedural rules of his or her situs.[1]The court of a state normally uses the municipal law as its procedure while hearing a foreign case.[2]
There is a distinction between the international commercial arbitration and municipal courts. The reason for the parties choice of the place of arbitration is commonly considered for its convenient proceeding, and without considering the inter-relationship of the place of arbitration with the commercial transaction of the parties.[3] Thus, the grounds of applying the lex loci arbitri in the international commercial arbitration is not as firm as that of the various procedures applying the lex fori. As so often, when the parties submit disputes to the jurisdiction of a municipal court, in the meanwhile, they admit that the court will exercise its jurisdiction in conformity with the procedural rules of it. In fact, there is no particular municipal court sitting in one country conducting its proceedings according to the procedural laws of another country.[4]
Though the lex loci arbitri has the inseparable relationship with the arbitral procedure, the arbitral procedure still should be often governed by the lex loci arbitri, the place of arbitration is the most meaningful connecting element for determining the law applicable to the arbitral procedure; in general, arbitration scholars state in the “seat” theory.[5]However, many faults are found in this theory and frequently criticized, inter alia, the severe conflicts exist in the principle of applied lex loci arbitri with that of choosing freely the applicable law by the parties, which obstruct the development of international commercial arbitration.[6]
Therefore, some international scholars provide that the parties shall be free to agree upon the law applicable to the merits of dispute and applicable to the procedure, and only in the absence of any indication by the parties, the place where the arbitration tribunal shall apply the lex loci arbitri as applicable to the procedure and substantive issues, it is said that the “delocalisation” theory is used by scholars commonly.[7] Unfortunately, in practice, this theory faces many difficulties that are difficult to overcome.[8]
Judging from above, an intense debate on the “seat” theory and the “delocalization” theory were going on in international commercial arbitration, it has been the subject of controversy. That is to say there is more room for further investigation. It is for this reason that it encourages me to research this topic.
 This paper focuses on studying the current theory and practice of procedural law by means of objective comparative analysis and synthetic induction with the various theoretical doctrines, legislations and cases. The purpose of this paper is to extend that previous point and find out the advantages and disadvantages of the theory and practice in the arbitral procedure and propose the observation for enabling supplementing shortcomings of the present arbitral theories. More importantly, how to keep the balance between the doctrine of party autonomy and the lex loci arbitri, and to promote development of international commercial arbitration are invaluable to study deeply.
 
The concept and scope of procedural law
 
Procedural law governs arbitration proceedings. A state enacts its law or multilateral enactment through multilateral convention for governing arbitral procedure. Customarily, it is named curial law or lex loci arbitri. With regard to the scope of the law applicable to the procedure, the scholars have their own different views, the legislation of each state is also distinct.[9]  For instance, English scholar Wilner considers that the procedural law should include“ the system of law under which the arbitration is held will determine the rule of conflict of laws to be applied to the substance of the obligation, in addition, this law of the proceedings will determine (1) Must the arbitrator give reasons for the award? (2) Must the award be based upon substantive rules of law? (3) To what extent is the arbitrator’s decision subject to review by a court of law?”[10] US scholar Smedresman considers that the scope of lex loci arbitri is only subject to the involved procedure issues in proceedings, which is including: “the conduct of the arbitrator, and crucially, the extent of judicial supervision of arbitration.”[11] To put it briefly, the author prefers to narrow formulation in “the law of the proceedings governs how the arbitrators are appointed, the effect of failure to do so, what law the arbitrators are to challenge the proceedings.”[12]and “whether the arbitrator must give reasons for his award, whether the award must be based upon substantive rules of law, and the availability of judicial review of the award.”[13]
The above-mentioned statements are all standpoints, but not necessarily the same. Indeed, it is rather hard to be consistent with the procedural laws enacted by each state because of the different backgrounds of their history, culture and policy. But to consider the procedural law involved in the national public policy and mandatory rules, it should minimize the compulsory law, or it will reduce the convenience and resilience of the arbitration, also it will be adverse towards the development of international commercial arbitration.
 

Distinction between substance and Procedure

 
For a very long time, it was recognized that the law applicable to the procedure and the law applicable to the substantive issues both belonged to the same legal system in nature, so that the procedural law had never been regarded as a sole legal system, for example, previous judgments in US indicate that lex arbitri was a part of the law of remedies, arbitration was a substantive issue, not a procedural issue.[14] Till 1970, in  James Miller & Partners Ltd. [15] It firstly recognized that procedural law was able to apply independently and without any relation with the substantive law of legal system. On May 10, 1965, a contract was entered into between an English company and a Scottish company where the Scottish company was responsible to carry out specific conversion work at the English company’s factory in Scotland. The agreement was initially in the then standard R.I.B.A form of contract. At that time there was no R.I.B.A form of contract adapted especially for use in Scotland. Although there in common use was a Scottish form of contract drawn up by a different professional body. The normal arbitration clause in the contract provided that any dispute should be referred to by the president of the R.I.B.A. for the appointment of an arbitrator, stating that there was a submission to arbitration within the meaning of the Arbitration Act, 1950. The appointed architect was a Scottish , and the arbitration was held in Scotland following Scottish procedure. Several points of law arose, and the English company asked the arbitrator to state his award in the form of a special case for the decision of the English High Court, but the arbitrator refused to do so, holding that the arbitration was a Scottish arbitration. He subsequently issued his final award in favor of the Scottish company. On application by the English company as a rebuttal, the master ordered the arbitrator to state his award in the form of a special case, but an appeal by the English company on the ground that the proper law of the contract was English and the arbitration governed by English law, and restored the master’s order. The contract between Scottish and English parties made an arbitration clause without stipulating the place of arbitration, the law applicable to the merits of the disputes, or the law applicable to the procedure. During the arbitral process, the English party asked the arbitrator to accord to English law on stated case requirements to state the award, but the Scottish arbitrator refused this request. The English party then appealed to the House of Lords. The court held that the nature of the contract proved that English law was its proper law but the applicable law to the arbitration could be different from the proper law of the contract. The court held “the situation here is that, the arbitration clause having not specified the place of arbitration, it was perfectly within the scope of that clause to have it in Scotland, and, once it took place in Scotland, prima facie, Scottish rules of procedure should apply. It is clear that, once the arbitration was being held in Scotland, the parties acted throughout on the footing.”[16]
In 1971, the case of Compagnie d’ Armment Maritime, the English Court of Appeal also made a similar award.[17] The claimants, a Tunisian company, and French ship owners negotiated a contract with assistance from brokers in Paris for the transportation of crude oil in specified quantities initially from one Tunisian port to another. This charterparty was contracted in Paris with the written contract using a standard English printed form and including an agreement that any future disputes should be resolved by arbitration in London. The Court of Appeal approved the arbitrator on shipping contract that was governed by English law, where as the substance of the dispute was governed by French law, by clause 13 it was provided that: “This contract shall be governed by the laws of the flag of the vessel carrying the goods….”[18]
In clause 28: “Shipments to be effected in tonnage owned, controlled or chartered” by the French ship owners “of 16,000/25,000 tons at owners’ option .” Hence, disputes arose between the parties, and the Tunisian company claimed damages for breaching the contract. Arbitrators in London were brought as a result of the disputes and heard the arguments on the primary question as to what system of law was the contracts’ proper law. They stated their interim award in the form of a special case in which they found, vice versa, that the French ship owners had between four and five vessels flying the French flag. None with large enough capacity to carry 25,000 tons; three days before the contract was outlined a Liberian vessel had been nominated for loading; in the first four months the six ships chartered were respectively Norwegian, Swedish, Liberian, French, and Bulgarian; and that both parties contemplated when the contract was initially entered into, that the French ship owners vessels would be used “at least primarily” to perform the contract and as justification.
In view of the above cases, it is obvious that English court has already separated    the procedural law from the substantive law. On the grounds of the different considerations, the parties can have their own free will to determine the law to be applied by the arbitration to merits of the dispute and to the procedure. This offers the target of the international trade and press forward the development of the party autonomy. As procedural law governs the arbitral procedure, and substantive law regulates the rights and obligations of the party, these are actually the different legal system. Municipal law applicable to govern the arbitral procedure may not be applicable to govern rights and obligations of the party. For example, the parties may choose the US maritime law applicable to the substantive issues, because they may think this law is more appropriate to deal with their rights and obligations. Nonetheless, they also may choose the French law applicable to the procedure. In terms of observing, the separation of the procedural law from substantive law can widen the freedom of parties to choose the law and increase the will of the parties to refer the arbitration for resolving their disputes. Thus, the rights of the parties can obtain the better protection, and, on the other hand, the international commercial arbitration can be developed greatly.
 

Party autonomy and procedure law

 
According to the doctrine of party autonomy, the parties may be free to determine the law applicable to the procedure and to substantive issues; moreover, they can provide their own arbitral procedure rules. Not only the New York Convention recognizes this opinion,[19] it is also affirmed by ICC Rules.[20] Though each state has their own different lex arbitri, most of the countries all based on party autonomy admit that parties are free to determine the arbitral procedural law, such as the Article 182(1) of Swiss Private International Law Statute1987 states: “The parties may, directly or by reference to arbitration rules, determine the arbitral procedure; they may also submit it to a procedural law of their choice.”[21] Article 1494 of the French New Code of Civil Procedure 1981 states: “The arbitration agreement may, directly or by reference to a set of arbitration rules, define the procedure to be followed in the arbitral proceeding;” It is apparent that French arbitration allows the parties free will to determine the law, including the foreign arbitration rules and procedural law. France considers that arbitral procedure should be international and neutral, and not be affected by the lex loci arbitri not the basic policy.[22] In Germany, the German Code of Civil Procedure also provides, each party shall be given full opportunity to present his case.[23] These are indeed improving legislations in international commercial arbitration.
In the case of English Dallal ,[24] England High Court pointed out clearly, though in the normal circumstance, “that the England courts would recognize the validity of decisions of a foreign arbitration tribunal whose competence derived from international law or practice; it followed that the court would recognize the Hague tribunal. P.S (American citizen) action was an abuse of process and would struck out.” It is manifest that English law does not repel any possibility of applying the different curial law in their territorial arbitration. Logically, since it admits the parties free will to determine the procedural law, then it should not limit the parties to have the only one choice lex loci arbitri.
At present, some principal International Conventions enable the parties the power to select suitable procedural rules. The article 2(1) of the Protocol on Arbitration Clauses1923 states: “The arbitral procedure, including the constitution of the arbitral tribunal shall be governed of the will of the parties and by law of the country in whose territory the arbitration takes place.” And the article 1(2)(3) of the Convention on the Execution of Foreign Arbitration Awards 1927 states that: “To obtain such recognition or enforcement, it shall, further be necessary…. ﹙c﹚That the award has been made by the arbitral tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure.” In view of the provisions of these two conventions, the applicable to the arbitral procedure, the applicable law stipulated by the parties and the law of the country in whose territory the arbitration take place, all should be abided by arbitrator simultaneously, and not just choose one of them to apply. Notably, at that time, the parties choosing the arbitral procedural law did not have the imperative freedom, as they still needed to follow the law of the country in whose territory the arbitration take place. But if comparing with the earlier era, remarkably, parties had free will to choose the law had been paid attention gradually.
Nevetheless, some well-known international conventions affirm the parties’ free will to choose the arbitral procedural law. New York Convention 1958 states, if the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, Recognition and Enforcement of the award may be refused.[25] This convention definitely indicates that the parties may be underlying the agreement to have the foreign law other than the place where the arbitration took place as the procedural law, if, but only if, failing such agreement, the law of the place where the arbitration took place will be the procedural law.
European Convention on International Commercial Arbitration 1961 made the further provision that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or failing such agreement are the grounds for refusal of recognition and enforcement of the arbitral award.[26] The Article 19(1) of UNCITRAL Model Law 1985 states: “Subject to the provisions of this law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.”[27] It is evident that one of the most important principles is the doctrine of party autonomy in Model Law.[28]
 

In the absence of choice of procedural law

 
The doctrine of party autonomy, which grants the parties to arbitrations to draw their arbitral proceedings, to fit their particular requirements with considering the law governing arbitral procedure, this principle freely grants the parties the power,[29] which can freely to select favorable procedural rules.
If the parties have chosen the arbitration body, it is assumed that the parties have chosen the law of that arbitration body as the procedural law.[30]For instance, Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States 1965 provisions: “Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question.”[31]
In the absence of choice of procedural law , arbitral tribunal should consider which law is applicable to the procedure. For example, Swiss Private International Law Statute 1987 states: “Where the parties have not determined the procedure, the arbitral tribunal shall determine it to the extent necessary, either directly or by reference to a law or to arbitration rules.” “Whatever procedure is chosen, the arbitral tribunal shall ensure equal treatment of the parties and the right of the parties to be heard in adversarial procedure.”[32]Many international laws of many countries have made laws, which grants arbitral tribunal a right to select procedural law.[33]
 

The lex loci arbitri

 
    As stated above, to observe international commercial arbitration at the point of practice, the place of arbitration is really the utmost important connecting factor in arbitral procedure, and, to view it at the point of traditional law, international commercial arbitration is governed by the law, and it is just the lex loci arbitri.[34] It is similar that the court procedure is governed by lex fori. In fact, arbitral procedure is governed by lex loci arbitri has been popularly accepted internationally for a very long time.[35]
In the case of the Compagnie d’ Armenent Maritime,[36] French Court of Appeal in Paris concluded that lex loci arbitri should be the applicable law since the parties had revised the agreement concerning the place of arbitration from Paris to London and agreeing an English arbitrator to conduct the arbitration. French scholar Denis Tallon also approved it. He deems the lex loci arbitri by means of the connecting factor of place of arbitration is a regulation to be recognized. Since the parties have chosen the place of arbitration, it implies that they may intend to apply the lex loci arbitri as the procedural law,[37] it is a logical inference.
In English law, normally, the parties are free to choose the law governing the procedural law. In general, once the parties determine the place of arbitration, it implies they have chosen the law of the country where the arbitration took place.[38] Lord Kerr states, in accordance with the rules of the conflict of law, if there is no agreement existing underlying the adverse contract, the law governing the procedural law is lex loci arbitri. Whatever England, Scotland, or any other countries are practicing.[39]In the case of Gilber and Burnstine,[40] the Court of Appeal directed “Defendant’s agreement without reservation to arbitrate in London according to the English Statute necessarily implied a submission to the procedure whereby that law is therefore enforced.” In other words, the arbitration in USA, unless the parties have the additional agreement, otherwise lex loci arbitri will be presumed applicable to the procedure.[41] The other reason that lex loci arbitri has the big effect is to rely on the law of the country in whose territory the arbitration took place, the arbitral award can get the nationality of the country where the arbitration took place. This is to comply with the Article 1(1) of New York Convention 1958, in which it states “This convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out differently between persons, whether physical or legal…” It is hence clear that an award made in any state would be recognized and enforced by any other Contracting Parties.[42]
Furthermore, the New York Convention provides that the recognition and enforcement may be refused if the opposing party proves that:[43]
(a) the parties to the agreement referred to in article II were, under the law applicable
to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made ; or
(b)The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c)The award deals with a difference not contemplated by or not failing within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that , if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
    Recognition and enforcement may also be refused if the competent authority of the country in which enforcement is sought finds that:[44]

1. The subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or
2. The recognition or enforcement of the award would be contrary to the public policy of that country.

It is significant that even the parties do not choose the lex loci arbitri to be applied to arbitral procedure, it is also unable to escape from any relations with the place of arbitration completely.
 

The basis of the lex loci arbitri theory

 
According to jurisdictional theory, adjudication is the sovereign function of the state. The parties can only submit to arbitration by explicit admittance or implied consent in the lex loci arbitri[45] and illustrate that the state has the right to control and administer the arbitration held in their jurisdiction[46] This advocacy is the principal theoretical basis of applying the lex loci arbitri. The ex-president of the International Court of Justice, Lord McNair states that the parties may make a contract providing the legal effect for creating the rights and obligations of being legal, but these kinds of rights and obligations can not just exist floating in the legal vacuum, they should exist within a certain legal system, as the effect, application and interpretation of that contract all need to rely on the judicial assistance.[47]On the ground of territorial jurisdiction, a State whose own jurisdiction over the conduct of arbitration held in whose territory, whether the arbitral tribunal concretely has the legal rights and effect, those are derived from the law of the country where the arbitration took place. Where the law of state does not authorize this power to the parties nor arbitral tribunal, the arbitral procedure will not provide with the legal effect.[48] Whereas arbitral procedure has the inseparable relation with the lex loci arbitri, thus it should be governed by the law of the seat of arbitration. The place of arbitration is the decisive connecting factor in determining the applicable arbitral procedure. Traditionally, this theory is called the “seat” theory in the international commercial arbitration.[49]
English scholar F.A.Mann strongly supports and greatly sets forward lex loci arbitri. Realistically, a genuine legal significance of international commercial arbitration is non-existent. In practice, a system of conflict of laws is a system of municipal law. The arbitral procedure, which is determined by the parties, has the nature of municipal law. International treaty enabling to produce legal effect is derived by the authority from the state governing the arbitration. The treaty does not limit the supreme power of the domestic legal system of the place where the arbitration took place at all. For thorough expounding on his proposition, Mann further clarifies that even the existence of the concept of party autonomy is according to the established system of municipal law. Furthermore, there are the different characters and effects in the distinct systems. Therefore, every kind of right and power possessed by the private person is afforded by the system of the municipal law of a state or produced by its legal system. This legal system is designated “lex fori” traditionally, more precise to say, it should be named “lex arbitri.”[50]
 
Practice of the lex loci arbitri
 
   Arbitral procedure adopting the law of the place where the arbitration took place has been broadly accepted in the practice of international commercial arbitration. Thus, the significant case to discuss this issue in detail was that of British Petroleum Co. Limited (Libya) v. Government of the Libyan Arab Republic.[51] On 18 December 1957, the Petroleum Commission of the Government of Libya, practically implementing the Libyan Petroleum Law of 1955, issued Concession 65 to Mr. Hunt, a United States citizen.
Whereas in 1960, the claimant company in this case, BP Exploration Company (Libya) Limited from Mr. Hunt acquired an undivided half interest in Concession 65. It consisted a grant of an exclusive right to seek and extract petroleum for fifty years in a specified area within Libya. They had the option to sell the oil thus produced.
The concession in clause 16 provided inter alia that:
“The contractual rights expressly created by this concession shall not be altered except by mutual consent of the parties”.
Clause 28 of the concession provided that the disputes should be settled by arbitration and stated that the concession:
“Shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles of international law and in the absence of such common principles then by and on accordance with the general principles of law including such of those principles as many have been applied by international tribunals”.
The Claimant claim that -
(1). The Nationalization Law was a breach of the Concession;
(2). The Nationalization Law “was effective to determine the BP Concession except in the sense that the BP Concession forms the basis of the jurisdiction of the Tribunal and of the right of the Claimant to claim damages from the Respondent before the Tribunal”;
(3). The Claimant is entitled to damages arising from the wrongful act of the Respondent, to be assessed by the Tribunal in subsequent proceedings.
The Claimant contends that Libyan Nationalization Law was effective to terminate the Concession and that the Tribunal had made the error (inter alia) of granting a party a contract whilst breaching to end the contract.
The Claimant asserts that this was contrary to principles of Libyan Nationalization Law, International Law as well as towards general principles of law. The Claimant alleges that there existed particular procedural errors in the Award. The Claimant stated that Danish Law governed the procedure of arbitration in proceedings. As a result to provide a solution to the defects, that the tribunal should re-open and continue the proceedings on merit.
The Tribunal’s decision rejecting the Claimant’s request for declarations in relation to continuing validity and effect of concession was final and that as a result under Danish law the Tribunal was not competent to re-open proceedings. The arbitrator discussed the award of the Aramco case, but ultimately rejected it, finding that the sovereignty of a State party would not be infringed by subjecting it to municipal procedural law in an international arbitration. The arbitrator decided that, by agreeing to arbitration, the parties must have intended an effective remedy, and likely to be effective than one lacking nationality, such as an arbitration procedure governed by international law.
To view municipal law, usually, a state requires that arbitration shall be governed by the lex arbitri and the mandatory rules of the place of arbitration, for example, Swiss Private International Law Statute 1987 states:“1.The provisions of this chapter shall apply to any arbitration if the seat of the arbitral tribunal is in Switzerland and if, at the time when the arbitration agreement was concluded, at least, one of the parties had neither its domicile nor its habitual residence in Switzerland. 2.The provisions of this chapter shall not apply where the parties have in writing excluded its application and agreed to the exclusive application of the procedural provisions of cantonal law relating to arbitration.”[52] This article shows its mandatory rule and the parties must observe it without any compromise. English arbitral practice indicates there is no other possibility to apply, unless the mandatory rules of lex fori or lex loci contractus. [53] American arbitration practice in this manner is more liberal. In the American Restatement of Conflict of Laws allows for the application of the mandatory rules of a Sate “which has a materially greater interest than the Chosen State in the determination of the particular issue.”[54]
  The article V(1)(d) of New York Convention 1958 states:“Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:The composition of arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” The similar rules contained in 1961 European Convention, 1927 Geneva Convention and 1985 UNCITRAL Model Law.[55]For reasons mentioned above, it cannot but be agreed that the lex loci arbitri still has its great effect in international commercial arbitration. This paper asserts when parties choose the place of arbitration, they should at the same time deeply comprehend the law of the place of arbitration, or, their interests will be damaged caused by incorrect choice in the place of arbitration. As known every lex arbitri enacted by the different countries naturally is rather distinctive because of the distinguishing background. The legislation of some nations is advanced and enlightened, and some states are conservative.[56] In this case, the parties have to cautiously compare, and then choose the place of arbitration where its legislation is advanced, progressive, less interfering, perfectly satisfying, convenient and advantageous to the parties. Certainly, the arbitrator also needs to clarify which laws are the mandatory rules of the place of arbitration prior to dealing with international commercial disputes for affirming legal effect to the arbitrated award.
 
The “ Delocalisation “ theory
 
   Lately, international commercial arbitration appears like a new theory attempting to detach the control from the law of the seat of arbitration.This theory hopes to establish a legal system without any control nor restraint by the law of the seat of arbitration and municipal law of the specified state.[57] In general, it is called “delocalisation” or “denationalisation”. The “delocalisation” theory of arbitration,[58] garners great challenge to the traditional “seat” theory. Some scholars even assert that enforcing jurisdiction does not inevitably come from lex loci arbitri, arbitration can be independent from any legal system, the arbitral award not following the law of the situs should have the same validity for recognition and enforcement in other nations.[59] Thus a “floating award” is produced.[60] The floating award does not belong to any system of municipal law, and international commercial arbitration itself would be “transnational”, “a -national”, “expatriate”, “supernational” or even “de-localised” award.[61]
Some famous authorities in international commercial arbitration adopted the “delocalisation” theory. For example, in Arabian American Oil Company (ARAMCO).[62] This case was conducted in Geneva, Switzerland. The dispute was concerning an agreement to ship the petroleum under a special permit. The Kingdom of Saudi Arabia made a special contract offering ARAMCO an exclusive agreement to ship the petroleum excavated in their special district. Nonetheless, in 1954, the state of Saudi Arabia made an agreement with Mr. A S Onassis and his company, Saudi Arabian Maritime Tankers Ltd. (also referred to as “Satco”), by Articles IV and XV which granted the company “right of priority” of thirty years’ for the transportation of Saudi Arab oil. One legal issue should be considered here with regards to whether the Kingdom of Saudi Arabia enjoyed the claim of sovereign immunity and was not governed by the procedural law of a state in international commercial arbitration. Arbitral tribunal concluded that parties were not a state to a state, but a state with an American company. According to the principle of international law, a state possesses immunity. Therefore, the arbitral tribunal deemed that arbitral procedure should not be governed by the other nations. Though the place of the arbitration was in Geneva, Switzerland, arbitral tribunal did not adopt the lex loci arbitri, but the international law.
In another well-known case, Texaco Overseas Petroleum Co. (TOPCO) and California Asiatic Oil Co.[63] In 1973 and 1974, the two claimant United States companies, Texaco Overseas Petroleum Co. (TOPCO) and California Asiatic Oil Co. as a result of Libya nationalizing all of the properties, rights, assets and interests of the two companies. Their contracts stipulated that the Government of the Libyan Arab Republic provided in the event of any dispute arising under them to “two arbitrators, one of whom shall be appointed by each such party, and an umpire who shall be appointed by the Arbitrators”.
Clause 16 states in each contract “the contractual rights expressly created by this concession shall not be altered except by mutual consent of the parties”
The arbitrator referred to Clause 28 for the deeds of Concessio
“This concession shall be governed by and interpreted in accordance with the law of Libya and such rules and principles of international law as may be relevant but only to the extent that such rules and principles are not inconsistent with and do not conflict with the laws of Libya”
The Libyan Government did not participate in the arbitration, so the sole arbitrator proposed the issue if he had the right to determine his own jurisdiction. Libya did not participate at any stage of the proceedings and communicated by way of a memorandum to the President of the I.C.J simply objecting to proceedings.
The parties intended that the arbitrator to decide his own jurisdiction. Since the arbitration was to take place outside the country of the State party, who could not be subjected to the law of other nations and the parties wanted to have a neutral judge. Based on this reason, the arbitrator determined international law to govern the arbitral procedure.[64] The arbitrator also considered whether the contracts are binding under applicable law and if Libyan nationalization measures in breach of the contracts can be justifiable on any other aspects.
In these authorities, one of the parties is a state, and the state enjoys immunity claim in arbitration. The “delocalisation” theory is developed based on the theory of state sovereign immunity and the doctrine of party autonomy, if this theory is only applicable to the state party, its applicable scope in international commercial arbitration is evidently too narrow. In another way, the basis of “delocalisation” theory seems insufficient to be applied to the private party in arbitration, or to cover the whole field of the international commercial arbitration.[65] Thus, the scholars support this theory regards the parties unexpecting or neutrally considering to choose the place of arbitration, not for wanting to apply the lex loci arbitri. Therefore, they advocate the legal effect and enforcement of the award does not necessarily come from the law of the seat of arbitration. The award not being made in accordance with the law of the seat of arbitration should have the equivalent legal effect and enables to obtain the recognition and enforcement in the other nations.[66]In other words, this theory emphasizes that the arbitral tribunal does not need to consider lex loci arbitri and what it should do is to let its arbitral procedure comply with the requirements of international order public for protecting the international acceptability in international commercial arbitration.[67]
 
Practice of the “delocalisation” theory
 
As stated, though the “delocalisation” theory is still being questioned, but it has already been recognized and supported in the legislation of international commercial arbitration and jurisdictional judgment, such as the Article IV(1) of European Convention 1961 states “1. The parties to an arbitration shall be free to submit their disputes: (a) to a permanent arbitral institution; in this case, the arbitration proceedings shall be held in conformity with the rules of the said institution; (b) to an ad hoc arbitral procedure; in this case, they shall be free, inter alia,
(1) to appoint arbitration or to establish means for their appointment in the extent of an actual dispute.
(2) to determine the place of arbitration; and
(3) to lay down the procedure to be followed by the arbitrators.”
It can be comprehended by referring to this statement that European Convention has admitted that parties are free to choose procedural law and that arbitral procedure is not subject to lex loci arbitri any more, and the parties can determine any procedural law of the other nations applicable to the arbitral procedure. Hence, the “delocalisation” theory has already been further forwarded in this Convention.
Furthermore, the Article 44 of the most significant Washington Convention 1965 state “Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. It any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall be decided the question.” Obviously, this provision does not require the Arbitration Rules should follow the regulations of the law of the seat of arbitration or lex arbitri. The further meaning is that this Convention is not restricted to the domestic mandatory rules. It is really the very big breakthrough in the legislation of international commercial arbitration. In particular, the ICSID award referring to this Convention is completely exclusive to apply procedural law of any nations. It is that the ICSID award is the “floating award” because without any consideration of lex loci arbitri.[68] But it will be nothing at all if the award cannot be recognized and enforced as the rights of the parties are without any protection, the disputes cannot be settled satisfactorily, and it is meaningless for the parties to submit the disputes to arbitrate. In this case, the contracting parties and investors will lose their confidence in ICSID arbitration, and even not be willing to submit to arbitration here. It is perceived that only the award obtains the recognition and enforcement, the rights of the parties can be protected and the award of itself is the substantial worth.
Hence, Washington Convention itself established a self-contained for recognition and enforcement of the “ICSID” award. Comparing this self-contained with New York Convention 1958, the procedure is more simple and convenient, the conditions are more liberal. Really, it fully presents the intelligence of the legal experts and scholars of some eighty states at that time.[69] Specifically three Articles from this Convention govern the issues of award and execution. The article 53 provides that the award is binding on the parties; each party shall abide by and comply with the terms of the award. It is evident that this Article focuses on the parties. Article 54 provides that each Contracting State obliges in recognizing the award and enforcing the pecuniary obligations imposed by that award. Article 55 aims directly at derogating from the law in force in any Contracting State relating to immunity of that State from enforcement. Hereby, the three articles are as follows:
The Article 53 of Washington Convention states:
“(1) The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.
(2) For the purposes of this Section, “award” shall include any decision interpreting, revising or annulling such award pursuant to Articles 50, 51 or 52.”
 Apparently, this Article is purely provided for the parties. It clarified the issue concerning the settling effect of the parties and the obligations of the parties to be followed and executed. The binding of the “ICSID” arbitration means that the award shall be binding on the parties and be executed strictly. Harnik regards the binding award should be including the affirmed obligations imposed on the parties and itself does not accept the adjudication by further arbitration nor the judgment by jurisdictional appeal.[70]
The Article (54) of this Convention states:
“(1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that state. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.
(2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority, which State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary–General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.”
(3) Execution of the award shall be governed by the laws concerning the execution of judgment in force in the State in whose territories such execution is sought.
  The above Article with Article 52 is mutually deferral. The award of this Article as included in the Article 53(2) to be the final award made including any decision interpreting, revising or annulling. The Section (1) of this Article indicates that the “ICSID” award should be the equivalent effect to the final sentence rendered by the court of the Contracting State. This is the most manifest and important provision in this Convention.[71] Section (2) of this Article provides the executive elements to realize the award. Section (3) of this Article provides, though the award is with the effect of final award, its enforcement should be still governed by the law of the place of the execution.
The Article 55 of this Convention states:
“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.”
Sovereign immunity including the jurisdictional immunity and immunity from execution is an important principle in international law.[72]Every State enjoys sovereign immunity unless waiving it voluntarily. Where a State makes an agreement with a foreign private party and accepts the ICSID arbitration, it means the State party has waived its jurisdictional immunity, but does not waive its immunity from execution. This article just shows its respect to the principle of international law, but does not exempt the State from the obligations stated in Articles 53 and 54. The essential consideration of the legislators to enact the immunity of execution is that if one of the parties is a State, they then have the full faith on this party to execute the award by its own will, because the Contracting State has given a promise to the Convention with the legal restraint. Thus, the State has no reason to break the promise.[73]
In addition, with regard to the law of state, the French Code of Civil Procedure also allows the parties to choose the applicable procedural rules or to submit the rules to an arbitration institution. It requires the parties to make an agreement determining their choice. However, it is done before the proceeding, the parties have to determine the procedural rules of arbitration. In the absence of the choice of party, the arbitral tribunal then may be necessary to establish the procedural rules.[74] Evidently, this Code does not regard the place of arbitration as an important connecting factor. Arbitration has the power to determine the arbitral procedure, also can rely on the procedural rules of “denationalisation” to conduct the arbitration. In this case, arbitration does not associate upon on any specific system of municipal law. France adopts this kind of liberty in arbitration certainly enabling to comply with the requirements for promoting the economic and developing the commerce and letting Paris become a prominent center of international arbitration.[75]
Similarly, the Swiss Private International Law Act 1989, also allows the parties to choose the arbitral procedure, in absence of the choice, the arbitral tribunal may express the power[76] to treat the parties equally and the rights of the parties to be heard in an adverse procedure.[77] Even before the promulgation of this Act, Swiss courts respected the will of the parties to determine the arbitral procedure. Apparently, this Act delegates the very big power to the parties for selecting laws, even the parties failing to agree the arbitral procedure, it is still not necessary to apply the law of the seat of arbitration, but empowers the arbitral tribunal directly to apply the procedural rules. This Act attempts to stay away from the procedural law of State. This progressive legislation wins high applause in international arbitration. However, this is the significant Act proving the great development of the “delocalisation” theory in international commercial arbitration.[78]
Besides, a notable Article 15(1) of ICC Rules state: “The proceedings before the Arbitral Tribunal shall be governed by these rules, and, where these rules are silent, by any rules which the parties or, failing them, the Arbitral Tribunal may settle on, whether or not reference is thereby made to the rules of procedure of a national law to be applied to the arbitration.” This Article clearly empowers arbitrators to affirm the rules of arbitral procedure, but does not state whether or not to apply mandatory rules of the place of arbitration. In accordance with interpretation section of this Article, it is not necessary to apply the procedural law of state. Actually, this Article is followed by the revised provision of 1975. The scholar F. Eisemann asserted what the arbitrator should respect is the public policy of the seat of the arbitration, not any specific municipal law.[79] Thereby, ICC Rules of Arbitration has indeed adopted the “delocalisation” theory in international commercial arbitration.
The other notable Rules, such as UNCITRAL Arbitration Rules 1976, Rules of the London Court of International Arbitration 1985, Rules of the Arbitration Institute of the Stockholm Chamber of Commerce 1988, Commercial Arbitration Rules of the American Arbitration Association 1991 all have the similar provisions in conformity with the “delocalisation” theory. Thus, this theory is retaining more and more public attention in international commercial arbitration.[80]  
 

Debate on the “delocalisation” theory

 
Though the “delocalisation” theory has been broadly called as international, public attention as above-mentioned in Codes of many states, international conventions and some jurisdictional authorities. This reflects their conformity to this theory. But various scholars still have their own distinctive views on it and do not stop discussing it. Hereby, let us state the reasoning of support and objection, as well as analyze its advantages and disadvantage.
 
The reasoning for supporting the “delocalisation” theory
Each state enacts its lex arbitri almost directly aiming at its own arbitral procedure and normally it cannot satisfy the requirements of current international commercial arbitration. Many nations still do not have a perfect arbitral law; even some countries do not have the contemporary arbitral law. They are all unable to provide sufficient rules for international commercial arbitration.[81] It will hinder the will of parties to select the arbitration for settling their disputes. If this happens the international commercial arbitration will obstruct its development.
Generally speaking, where the parties make an agreement, they usually do not stipulate the place of arbitration and only consider its convenient transportation and communication. They probably neither consider the standpoints of the place of arbitration nor the recognition and enforcement of the ward. The parties may not think of the consequence by applying the law of the chosen place of arbitration and even do not care the legal meaning of choosing the place of arbitration.[82] In this circumstance, the parties constantly choose the place of arbitration without the careful estimation and let the chosen alien place to conduct the law applicable to the procedure. Evidently, it does not comply with the expectation of the parties, thus the parties will weaken their own will to execute the award. Undoubtedly, every party expects to have freedom to determine the place of arbitration and not to be governed by the procedural rules of its situs.
Some scholars advocate if it is imperative to govern the conduct of arbitral procedure. This kind of governing should not be held from the country where arbitration was made, but the state where recognition and enforcement is sought. Although, arbitral award had been set aside by the country where arbitration was made, however, it will still be recognized and enforced by the enforcement state unless it was contrary to the international public policy.[83] For instance, New York Convention 1958 provides Recognition and Enforcement of an arbitral award may be refused if the award would be contrary to the public policy of the country where recognition and enforcement is sought.[84] This provision illustrates that the state where recognition and enforcement is sought indeed possesses great power over governing the award either or not to enforce. Furthermore, the enforcing state’s interest is directly affected by the enforcement, since in any given country there may be local law that is more favourable to the recognition and enforcement of arbitral award than the Convention itself.[85] It is a possibility that is illustrated by such well-known case as Chromalloy. Where the United States Federal Court for District of Columbia enforced an award that had been set aside in Egypt.  
 

The reasoning behind objecting to the “delocalisation” theory

 
The opponents deem that any principle of law cannot exist in the legal vacuum, though arbitration is different from the procedure of sentence, it still cannot detach the arbitration from the law of the seat of arbitration. It is not realistic to intend escaping international commercial arbitration from the legal norm of the specified nation for not being governed by any national legal system.[86]
Arbitral tribunals are generally given the power to indicate interim measures in their own rules. Powers may also be implied, or the implication of powers excluded by the lex arbitri.[87] The tribunal’s powers may be limited and can bind only the parties. It may therefore be necessary to seek support of local courts in making interim orders, or in enforcing orders made by the tribunal. Such court orders deal typically with (1) measures to preserve status quo, (2) measures to secure ultimate award, or (3) measures to assist the procedure of the tribunal. The lex arbitri establishes the powers of the court in this regard.[88]
A typical example of court assistance is the application for a Mareva injunction or their replace-ables in other jurisdictions.[89] Such injunctions operate in personam. Thus, there is no need for the defendant to be within the jurisdiction of Court. They may apply to assets both within and outside the jurisdiction,[90]and forbid dispersion within or outside jurisdiction.[91] Third parties with knowledge of the court order are liable in contempt if they assist in a breach of an order.[92] There may be relevant disclosure orders, in order to determine what assets might be covered by the order[93]The court may lend procedural assistance to the tribunal, and the Court has power concerning appointment and removal of arbitrators. It is important to note that the courts’ intervention powers are commonly discretionary, and not always exercised.[94]
Furthermore, the award by the arbitrator, the legal effect of the arbitration agreement, the power of the arbitrator and enforcement of the award all depend on enforcing the law of the state.[95] The arbitration will be meaningless, and invalid unless the domestic law recognizes that the parties’ have the right to submit to arbitration, to authorize the hearing of arbitrator, to award the issues and to enforce the award. The power and effect of arbitration is a concession from the country executing the arbitration.[96]If the party refuses to execute the award, then it needs to rely on the enforcement by the court. The award is worthless if it is not enforceable.[97]

Comments on the “delocalisation” theory and the proposition of this paper

 
Undoubtedly, some examples of award, legislations or international conventions
have adopted the “delocalisation” theory. It certifies that this theory has certainly held the attention in international commercial arbitration and is worth to exist and improve its development. But, it still needs to confront reality seriously that actually only a few disputes submitted to arbitration adopted the “delocalisation” theory for settlement and most of them are with one state party.[98] Astonishingly, some states failed to receive the award and somewhat unexpectedly did not carry out the contents of the award,[99] and yet a state party possessing sovereign immunity except to waive it by itself.[100] Thus, it is doubtful if the cases with both private parties are still applicable. After all, the status of private is different from that of a state. The state possessing sovereign immunity and it is not available for private parties.
In practice, the “delocalisation” theory is still not able to overcome the “delocalised award” to be recognized and executed thoroughly by the other nations. It seems the element of this theory is not satisfactory and unable to convince the majority of professional arbitrators and states. In addition, if one party requests to make order for interim injunction to the opposite party during the arbitral proceeding, without the assistance of court the arbitration body fundamentally cannot assure the arbitral proceeding being able to proceed smoothly. This is the severe shortcoming of this theory.
Since the shortcoming of the “delocalisation” theory surfaced, it is time to rethink on how to satisfactorily revamp the theory. This paper regards the place of arbitration and the arbitral procedure as the most objective and decisive connecting factors. Though it is not the positive reality, at least, to view it at the standpoint of objective experience, it is relative to be accepted as true. Otherwise, as above stated lex loci arbitri will not be recognized comprehensively in practice of international commercial arbitration. On the other hand, if to hold lex loci arbitri tight, it will indeed obstruct the parties’ right of choosing the law freely and decrease their will to submit the disputes to arbitrate. Where numerous international commercial disputes do not select arbitration for settlement, certainly the development of international commercial arbitration will be receding day after day and it is really a serious issue. In this case, only to face this reality and perform the doctrine of party autonomy bravely can arouse the will of the parties to select the arbitration for settling their disputes, thus the perspective of international commercial arbitration will be rising and flourishing gradually.
On the other hand, adopting the “delocalisation” theory is just to carry out the development of the doctrine of party autonomy. The implementation and adoption of this theory is not just to announce the doom of lex loci arbitri, relatively, it can push lex loci arbitri to improve progressively, because relying on the doctrine of party autonomy, the parties are free to choose any applicable law of any country. Where the arbitral tribunal selects the law of the other nation to conduct the arbitration, the tribunal of course will compare it with the lex loci arbitri, and if the selected law is better and satisfactory, then there is no reason of acquiring it.
To overcome the risk of the “delocalisation” theory being unable to recognize and enforce in other states as well as to be held to support and assist the court, this paper agrees with the advocacy of English scholar McClelland, it is to enact an international convention by mutual consultation of international scholars to rule the “de-localised” arbitration and let its “floating award” providing the sufficient legal foundation for protecting the arbitration out of the system of municipal law being able to obtain the assistance of the law of the seat of arbitration, also to be recognized and enforced. It is the effective way to remedy the shortcoming of “delocalisation” theory.[101]
As the prior discussion in this paper, the Article 44 of Washington Convention 1956 affirmatively provides to exclude the law applicable to the procedure of any specified state entirely. It is a “delocalised” award. And Articles 53, 54 and 55 of this Convention constitute its self-contained “recognition and enforcement of the award” independently to detach the restraint from the municipal law. This successful legislation is worth researching and further study.
 

Conclusion

 
     Procedural law is a very important law in international commercial arbitration, but it was not regarded as an independent system of law a very long time ago, but a mixture of the procedural law and substantial law. Whatever the standpoint of the distinctive system of law or consideration of the reality of applicable law, neither of them is appropriate. After 1970, English court just separated them henceforth the parties can accord to their own will to choose the procedural law.[102] Obviously, it expands the freedom of parties to choose the procedure law and increase the will of the parties to select arbitration for settling their disputes. In fact, it is a great contribution to the development of international commercial arbitration and in the meantime the target is international commercial arbitration. The effect of it is really for the future significantly.
     Most of us would accept that in observing international commercial arbitration at the point of practice, the lex loci arbitri is really of utmost importance as connecting factor in arbitral procedure,[103] and the place where the arbitration took place is most easily obtained by the support of court. In addition to this, it is also relied on for getting the recognition and enforcement of the arbitral award.[104] Thus, it has to agree that the lex loci arbitri still has its great effect in international commercial arbitration.[105]
 The measure of the parties’ free will to choose law, the international arbitral scholars make every endeavor to constitute the “delocalisation” theory for accomplishing the doctrine of party autonomy.[106] The way of this theory can promote the development of international commercial arbitration.. Undeniably, the fundamental of this theory is still not yet satisfactory, therefore, the award is made relying on this theory, it will run the risk of the award being refused to be recognized and enforced.[107] Actually, nobody would like to run a risk for this. Obviously, this theory still has a big shortcoming. We may, therefore, reasonably conclude that it is neither possible nor realistic to attempt excluding the lex loci arbitri entirely before this theory was satisfactory.[108]
     The writer deems to cover the shortcomings of “delocalisation ” theory and to enact an international convention by consultation of nations mutually for conducting the “de-localised” award to rely on this theory having the legal ground work. Certainly, the consulting Contracting States should take the obligation of recognizing and enforcing the arbitration, then the award is significant and it can resolve the incapability of overcoming the difficulty of “delocalisation” theory.
     If the parties don’t worry too much about the effect of the award, they will of course have confidence in selecting the “de-localised” arbitration. It will also promote the implementation of the doctrine of party autonomy. Where the parties are free to select arbitration for settling their disputes, their own will of accepting the award is increased accordingly, so that it is not necessary to have the stage of recognizing and conducting the arbitral award. Thus, the development of international commercial arbitration will be improved.