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Posted: August 4th, 2022

Discuss the parties’ freedom to choose the law applicable to the merit

Question: Discuss the parties’ freedom to choose the law applicable to the merits of the dispute in an arbitration seated in England and the limits of freedom.
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Question: Discuss the parties’ freedom to choose the law applicable to the merits of the dispute in an arbitration seated in England and the limits of freedom.
Conflicts are normal in businesses, and contractual obligations and the contracting parties have the freedom to decide on the laws to be employed in solving their disputes, but there is need to keep in mind the limits to the freedoms while in England. Conflicts in contracts among business appear when either of the parties involved fails to honour the agreed duties and obligations as per the contract. The existing or arising conflicts must be solved to enhance justice, fairness and equality for the parties involved. Consequently, under the different contracts and business operation, the contracting parties have agreements that dictate and explain the different applicable laws and terms to be adopted in dispute resolution. Under the agreement, the contracting parties have the freedom to choose on the applicable laws and terms to be used with the intention of achieving different objectives disputes. In this regard, the resolution of the dispute can be directed towards bringing the contract to an end or enhancing the continuity of business operations after the disputes. Additionally, the arbitrating tribunal can be involved in making the decision on the applicable laws to be used in arbitration. The conflicting parties in a dispute have the privilege and freedom to choose the laws to be used in settling their disputes while observing the limitation to the freedom of choosing the law while in England.
The freedom to choose on the applicable law in a dispute between contracting parties is achieved through the strict observation of the principle of autonomy meaning that “parties enjoy the freedom to determine the substantive law or rules applicable to the merits of a dispute.” In this case, the United Nations Commission on International Trade Law (UNCITRAL) article 35 (1) rules that the arbitral tribunal is obligated to apply the laws decided by the conflicting parties to the substance of the dispute . The rules adopted by the arbitral tribunal must be directed to the merits of the dispute. Equally important, the international instruments such as laws, rules and convention recognize that the observation of the principle of autonomy in handling disputes is paramount. The aspect of autonomy is captured under article 2 of the Hague Principles on Choice of Law and Rome I Regulation in the international Commercial Contracts. Therefore, the choices of the applicable laws made by the contracting parties become legally binding on the tribunal; however, the limitation in the application of the law is that the head damages and their quantification are established through the use of substantive contract law of England.
The freedom of the conflicting parties to choose the applicable law is observed in the case the arbitral tribunal acts as the agent of the arbitrating parties to settle for the applicable rules . In some cases, the conflicting parties do not foresee conflicts, and thus they fail to establish applicable laws that can be used in the arbitration of conflicts. In this case, the arbitrator “selects the applicable law by either applying conflict-of-laws rules or directly determining applicable substantive law. This arbitrator’s power is an extension of the principle of party autonomy.” The tribunal acting in the position of an agent gets express authority from the conflicting parties to determine the substantive law to be used concerning the issues of conflict. Therefore, the conflicting power gets automatic power/permission from the conflicting parties meaning that the conflicting power holds the freedom of deciding the rules to be used in their case.
The conflicting parties have the privilege of choosing the community and national laws to be used in the arbitration of their court, but there is a limitation lies in the fact that the arbitration reward must be decided by a court of law. “Reference under Article 234. Where questions of Community law
are raised in an arbitration resorted to by agreement, ordinary courts may have to examine those questions, in particular in the context of the review of the arbitration award. It is for the national courts and tribunals to ascertain whether it is necessary for them to make a reference to the Court under Article 234 E.C. (ex Article 177), in order to obtain an interpretation or assessment of the validity of provisions of Community law which they may need to apply when reviewing an arbitration award. [32]– [33].” The conflicting parties have the privilege of choosing the applicable rules in conflict resolution by the arbitral tribunal, but the decision on the arbitration award is decided by national courts . The arrangement, in this case, ensures that all parties involved in the conflict resolution cases have their role to play, thus increasing the chances of attaining justice, fairness and equality in the arbitration outcome. In this regard, the conflicting parties choose the applicable rules, the arbitral tribunals evaluates the case and gives it a recommendation to the national courts, and the national court evaluates the case and considers the questions raised thus enabling the settling of the arbitration award.
The arbitral tribunals and courts handling have high regard on the freedom of choice held by the conflicting parties, and this serves the first point of reference before initiating the legal procedures in dispute resolution. In the case of HALPERN v HALPERN [2007] EWCA Civ 291 the courts evaluates the compromise agreement made between the different parties in the interest of upholding the freedom of the conflicting parties (Waller, 2007). The compromise agreement raises different issues that the conflicting parties would wish to be incorporated dispute resolution operation before the proceeding of the case. The statement “(a) Article 1 of the Rome Convention stated that it applied ‘‘contractual obligations . . . involving a choice between the laws of different countries’’ indicates that the freedom of the conflicting party is a paramount aspect before initiating the procedures of the case. In this case, the court had to make a decision on which jurisdiction the case would be evaluated in terms of English law, Swiss law and Jewish law. The evaluation of the compromise agreement based on the different laws from different country laws would have different outcomes, and thus there is a need to evaluate the choice of the conflicting parties. The freedom of choice is further demonstrated by the fact that “…the first question was whether the parties had made a choice of the law of a country expressly or demonstrated with reasonable certainty within article 3.” In the case, that the compromise agreement does not state the jurisdiction of the law to guide dispute resolution strategy, the court makes a rational and reasonable on the applicable law such as making a decision based on the residences of the parties involves. The consideration of the compromise agreement before initiating a legal proceeding shows the respect of parties’ freedom in regard to aspects of their cases but the limitation arises in the decisions made by the courts and the arbitral tribunal.

Conflicting parties in contractual obligations attract a wide range of freedoms and privileges in deciding the applicable rules and laws in their matters of dispute resolutions, but there are limitations to the application of the freedom in the interest of justices and equality for all the parties involved. The freedoms attached to conflicting parties in the conflict resolution process indicate that they are involved in the process, and they are in control of their actions in relation to their contract. The freedom of the contracting parties is indicated from the application of the principle of autonomy that enables them to make decisions on the applicable substantive laws to be used in their dispute resolution cases. The contracting parties’ freedom is indicated under the arbitral tribunal act of acting as an agent of the conflicting parties by making reasonable and rational decisions on behalf of the different parties as an extension of autonomy. The separations of duties and responsibilities between the parties involved in the conflict (conflicting parties, arbitral tribunal and the national courts) ensure that the conflicting parties have the privilege of deciding the rules to be used in conflict resolution. Additionally, parties agreement is a point of reference before initiating the judicial procedures as an aspect of parties freedom to ensure that their will is factored in the judicial process in the interest of the dispute. The freedoms are backed up with reasonable and rational limitation to ensure that both parties experience justice in the dispute resolution process.

Beheshti, R. (2019). The absence of choice of law in commercial contracts: problems and solutions. Uniform Law Review, 24(3), 497-519.
Waller L. J. (2007). Halpern v Halpern. LLOYD’S LAW REPORTS. (Vol 2).
Zekos, G. I. (2000). Eco Swiss China Time Ltd v Benetton International NV. Journal of International Arbitration, 17(2), 91-94.

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