A Comparative Study On The Application Of Substantive Law In Contemporary International Commercial Arbitration

Being an effective approach of dispute resolution settling international civil and commercial arguments, the international commercial arbitration has a long history and engenders and maturates with the growth of international trade. After the end of World War Two, the boom of world economic and the increase of the number of international civil and commercial activities lead to more frequent international civil and commercial disputes. Consequently the international commercial arbitration has become wildly accepted by international community as a common means of resolving international civil and commercial disputes benefiting from the fact that freedom of contract principle has been respected more and more in the civil and commercial world. On the one hand, the higher requirements made by the new situation of modern international economic and trade on international commercial arbitration lead to the continual development and innovation of international commercial arbitration itself in order to meet the satisfaction of the modern international civil and commercial intercourse. On the other hand, the broad applications of international commercial arbitration in practice attract great attentions from national and international legislators. Therefore the international commercial arbitration is continuously progressed by the promotion on national and international levels. Simultaneously, the healthy legal environment for economic intercourse all over the world and the effective dispute settlement mechanism provided by advanced international commercial arbitration system in turn promote the development of international economic and trade.The eventual settlement of international civil and commercial argument is achieved by making arbitral award according to the substantive law, which decides the merits of the dispute and rules the rights and obligations of both parties. Hence the substantive law is crucial to the case and both parties, because it affects the final result directly. However, the application of substantive law in international commercial arbitration distinguishes from that in international civil litigation. The main differences are as follows: (1) the source of power is different between arbitral tribunal and court; (2) the selection of substantive law in international commercial arbitration and international civil litigation has different methods; (3) the scope of substantive law between international commercial arbitration and international civil litigation is different; (4) the substantive law of international commercial arbitration and international civil litigation is regulated by different legal forms. Therefore, the principles of applying substantive law in international civil litigation and the provisions of applying substantive law in private international law relevant to international civil litigation cannot be simply and directly applied to international commercial arbitration. The latter is more complicated than the former and it is necessary to do a separate study.In order to serve the new economic situation of globalisation and diversification nowadays better, the contemporary international commercial arbitration system presents following trends of development: (1) The scope application of international commercial arbitration is extending; (2) The scope of party autonomy is expanding; (3) The power of arbitral tribunal is increasing; (4) The legislation of international commercial arbitration is unifying; (5) The interference of national court to international commercial arbitration is reducing. Various aspects of contemporary international commercial arbitration reflect the aforementioned development trends, such as the application of arbitration procedures, the application of substantive laws and the recognition and enforcement of arbitral awards. Such development trends also become a set of criteria to estimate that whether some principles, regulations and practices in contemporary international commercial arbitration adapt current economic development situation and benefit promotion and protection of international civil and commercial activities or not. The arbitral tribunal makes arbitral award according to the substantive law in the trial of case. But the choice of substantive law in international commercial arbitration is more complicated than that in international civil litigation because of its special nature. In contemporary international commercial arbitration, the parties can choose the substantive law by explicit expression in accordance with their own wills when it does not violate the public policy and mandatory rules of related countries and excludes the conflict rules. In the situation of lacking explicit choice of parties, arbitral tribunal may apply the rules of law that it considers appropriate determined by the doctrine of the most significant relationship and etc. as the substantive law rather than choose substantive law in light of conflict rules. This approach will not only simplify the arbitral proceedings and embody the fairness and efficiency pursued by arbitration system, but also will enhance the predictability, certainty and enforceability of arbitral award. It is in line with the development trends of contemporary international commercial arbitration.Besides national legal system,'denational'rules can also be selected as the substantive law in international commercial arbitration. Plenty of national and international legislations adopt the phrase of'rule of law'allowing parties and arbitral tribunal to choose the rules of international law, lex mercatoria and ex aequo et bono as the substantive law. Moreover with the promotion of the unification of modern private international laws, some'denational'rules are adopted or transformed into national legal system gradually. Therefore the application of'denational'rules as the substantive law to resolve disputes can overcome drawbacks of traditional approaches of choosing substantive law in arbitration. It conforms to the trends of contemporary international commercial arbitration development and conduces to make the progress of international commercial arbitration system. In practice,'denational'rules are regarded as the supplementary resources and applied with national legal system concurrently, and the international commercial arbitral awards made in light of'denational'rules are recognisable and enforceable generally.Being one of the'denational'rules, the rules of international law including international laws and general principles of law are often applied to the dispute which arises from a state commercial contract, which involves a state party. The application of rules of international law is an emollient approach to resolve such dispute because the non-state party normally does not trust or familiarise with laws of host country and the state party cannot apply laws of other countries as a sovereign country. It is conducive to promote the smooth conduct of international commercial activities between individuals and states, and it has also adapted to the development of new types of international commercial relations. It is uncommon that rules of international law is applied separately in the practice of international commercial arbitration, and normally will be applied with national legal system concurrently. Under the circumstance that the provisions of national legal system are becoming more and more similar nowadays, the grounds for application of rules of international law as substantive law in international commercial arbitration will be collapsed.The lex mercatoria, which is an important party of'denational'rules, has diverse manifestations including international conventions, model laws, general principles of law, trade practices and the concept of fair, effective and rational transactions. The arbitration is an approach of self-government to settle arguments among businessman community from the beginning, consequently the application of lex mercatoria in international commercial arbitration is a matter of course. International and national legislations both generally agree with the application of lex mercatoria in international commercial arbitration, the freedom of parties and arbitral tribunal to choose lex mercatoria as the applicable law and the requirement on arbitral tribunal to taking lex mercatoria applicable to the transaction into consideration in all cases. Applying lex mercatoria in international commercial arbitration can enhance the predictability and certainty of the outcome of arbitration, increase the stability of international commercial arbitration and conduce to resolve disputes substantially. However the lex mercatoria should be applied concurrently with municipal laws in most cases due to the fact that it is not an independent and autonomous legal system yet.In international commercial arbitration, the parties may empower the arbitral tribunal expressly to decide the case not in light of strict rules of law but ex aequo et bono. The application of ex aequo et bono does not mean that arbitral tribunal shall not apply any rules of law in the case, and such application shall be excluded only if strict application of rule of law would lead to inequitable outcome. When arbitral tribunal decides case ex aequo et bono, the lex mercatoria applying to the transaction should be taken into account but it is not necessary to be applied in each case because the arbitral tribunal does not have such obligation. Deciding international commercial arbitration case ex aequo et bono reflects the advantage of fairness and efficiency of international commercial arbitration and is in accordance with its contemporary trends of development. But in order to enhance the enforceability of arbitral award made by amiable composition, the overly broad discretion of arbitral tribunal should be limited and the formal and substantive constraints should also be paid attention to in the application of ex aequo et bono.In the international community, France is very supportive to the international commercial arbitration, and the'Code of Civil Procedure'(1981) is regarded as offering almost unlimited freedom to parties and arbitral tribunal in the choice of applicable law in international commercial arbitration. The application of'denational'rules as substantive law does not confront substantial obstacles resulting from the fact that the general principles of law and the lex mercatoria are seen as parts of French laws, deciding case ex aequo et bono is a creation of French law and etc. The attitude of the USA towards international commercial arbitration is also favourable, and the application of lex mercatoria is particularly emphasized in transaction. Since the principle of equity is regarded as a part of law, arbitral tribunal has the power to determine whether the case shall be decided ex aequo et bono in accordance with its own will if the parties do not request explicitly that the case should be decided according to rules of law. Traditional arbitration system of the UK did not allow arbitral tribunal to make arbitral award according to the substantive law chosen from outside the municipal legal system. Nevertheless the'Arbitration Act'(1996), which is consistent with the spirit of'Model Law'(1985), has reformed the international commercial arbitration system of the UK in order to comply with its contemporary trends of development and serve the international economic and trade better. In modern British international commercial arbitration system, the arbitral award made according to'denational'rules can usually be recognised and enforced by courts.The arbitration system in China developed slowly and relatively dropped behind. The legislations do not regulate international commercial arbitration separately, and related provisions can be found dispersedly in'Arbitration Law'(1994),'Civil Procedure Law'(2007) and other laws and judicial interpretations. In Chinese arbitration system, the ad hoc arbitration is not allowed and only institutional arbitration is recognised. The amiable composition which arbitral tribunal decides case ex aequo et bono is also not provided and the party autonomy is not fully respected in legislations. Therefore the following recommendations are made to the international commercial arbitration legislation of China: (1) Regulating the application of substantive law in international commercial arbitration in'Arbitration Law'specifically; (2) Ensuring the application of principle of party autonomy in international commercial arbitration more effectively; (3) Clarifying the criteria of determining the nationality of international commercial arbitration award more specifically; (4) Providing court with Public Policy as a ground for judicial remedy of international commercial arbitration award.