DIRE DAWA UNIVERSITY

COLLEGE OF LAW

Group Assignment of ADR

Title; Determining Applicability Substantive laws in Arbitration:

International law, case law, Theoretical and National framework

NAME: ID

MESUD GEMECHU…………………........................1203164

………………………………………

Submission date; 22 December 2023

Submitted to: Inst. Fassil w.

Table of Contents
1.Introduction.....................................................................................................1
1.1. Application of Substantive Law in Arbitration.....................................................1
1.2. Applicability of substantive law in arbitration under international..........................1
2.Theoretical frame works.....................................................................................4
2.1. Party Autonomy.........................................................................................4
2.1.2 Conflict of Laws........................................................................................4
2.1.3. Lex Mercatoria........................................................................................5
2.1.4 Public Policy.............................................................................................5
3.Case law...........................................................................................................5
4.Applicability of substantive law in arbitration Under national law..............................7
4.2. Civil Procedure Code of Ethiopia...................................................................8
4.3. Ethiopian Arbitration Proclamation...............................................................8
Conclusion.........................................................................................................9
Bibliography.....................................................................................................10
1.Introduction
Arbitration is a popular alternative dispute resolution mechanism that allows parties to resolve
their disputes outside of traditional court proceedings. One critical aspect of arbitration is the
application of substantive law, which provides the legal principles upon which the arbitrator will
base their decisions. The application of substantive law in arbitration begins with the parties'
choice of law. Through their arbitration agreement, the parties can determine the governing law
that will be applied to their dispute. In some cases, the parties may incorporate substantive
provisions from a contract or a set of rules into their arbitration agreement. These provisions may
include the substantive law that will govern the dispute. By incorporating such provisions, the
parties provide a clear framework for the arbitrator to follow when deciding the case.

1.1. Application of Substantive Law in Arbitration

The application of substantive law in arbitration occurs within a legal framework that
encompasses both international and national levels. This framework provides the basis for
determining the governing law in arbitration, resolving conflicts of laws, and addressing
concerns related to the application of substantive law. Additionally, there have been notable cases
and theories that have shaped the understanding and practice of substantive law in arbitration,
along with associated concerns

1.2. Applicability of substantive law in arbitration under international

Substantive law in arbitration under international law is applicable in several ways. First, the
parties to an arbitration agreement can choose the substantive law that will govern their dispute.
This choice of law is typically made in the arbitration agreement itself or in a separate governing
law clause.
Second, if the parties have not chosen a specific substantive law to govern their dispute, the
arbitrators may apply the principles of international law, as well as any relevant treaties,
conventions, and customary international law. Additionally, the arbitrators may consider the
principles of fairness, equity, and justice in reaching their decision, which are also part of
substantive law in international arbitration. the applicability of substantive law in arbitration

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under international law is determined by the agreement of the parties, as well as by the principles
and sources of international law
At the international level, there are several laws and regulations that govern arbitration. These
instruments provide a framework for the conduct of international arbitration and the recognition
and enforcement of arbitral awards across different jurisdictions. Here are some key international
laws and regulations governing arbitration:
1. The New York Convention
The New York Convention is one of the most instrumental international instruments in the field
of arbitration. While it primarily deals with the recognition and enforcement of arbitral awards, it
indirectly addresses the applicability of substantive law. Article II of the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention): This article sets forth the principle that arbitration agreements are binding and
enforceable, and that courts of member countries must recognize and enforce valid arbitral
awards. Article V of the Convention allows a court to refuse recognition and enforcement of an
arbitral award if it finds that the arbitration agreement is invalid under the law to which the
parties have subjected it, or under the law of the country where the award was made.1
2.United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration (1985)
The UNCITRAL Model Law serves as a guide for countries in developing their national
arbitration legislation. It provides a comprehensive framework for the conduct of international
commercial arbitration, covering matters such as the definition of arbitration agreements, the
authority of arbitrators, the conduct of proceedings, and the recognition and enforcement of
awards. While it doesn't directly determine the applicability of substantive law, it provides
provisions for determining the applicable law. Model Law Article 28 states that the arbitral
tribunal shall decide the dispute in accordance with the rules of law chosen by the parties and
may also decide on the basis of the terms of the contract and relevant trade usages.
3. ICC (International Chamber of Commerce) Arbitration Rules - The ICC Arbitration Rules
are widely used in international commercial arbitration. The ICC is one of the leading arbitral
institutions, and its Rules of Arbitration provide a widely used framework for conducting
international commercial arbitration. The ICC Rules cover various aspects of the arbitration

1
Ibid; art 3

2
process, including the appointment and authority of arbitrators, the conduct of proceedings, and
the issuance of awards. Parties often incorporate the ICC Rules into their arbitration agreements
to govern their disputes. Article 21(1) of the ICC Rules allows the arbitral tribunal to apply the
rules of law it deems appropriate, taking into consideration the parties' agreement, the terms of
the contract, and the general principles of law.2
4. ICSID (International Centre for Settlement of Investment Disputes)
3
The ICSID Convention is specifically focused on investment arbitration. It provides a
framework for resolving disputes between states and foreign investors. Article 42(1) of the
Convention states that the tribunal shall decide the issues in dispute in accordance with the
applicable rules of international law.
5. Geneva Protocol on Arbitration Clauses:
The Geneva Protocol, adopted in 1923, provides a mechanism for the enforcement of arbitration
agreements in international commercial contracts. It allows parties to apply for the specific
performance of an arbitration agreement before national courts, promoting the principle of party
autonomy and the enforceability of arbitration agreements.
6. Regional and Bilateral Treaties:
Several regional and bilateral treaties address arbitration and the recognition and enforcement of
arbitral awards within specific geographic areas or between specific countries. Examples include
the Convention on the Settlement of Investment Disputes between States and Nationals of Other
States (ICSID Convention), the Inter-American Convention on International Commercial
Arbitration (Panama Convention), and the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards within the Framework of the Arab League.
These international laws and regulations provide a framework for the conduct of international
arbitration and the recognition and enforcement of arbitral awards. They aim to promote
consistency, enforceability, and the resolution of cross-border disputes through arbitration.
Parties involved in international arbitration can rely on these instruments to ensure the
effectiveness and enforceability of their arbitration agreements and awards.

2
Ibid; art 21(1).
3
International Centre for Settlement of Investment Disputes, Convention on the Settlement of Investment Disputes
between States and Nationals of Other States, Washington, 18 March 1965, ICSID/2.
Available at<<https://icsid.worldbank.org/publications/pages/english.aspx>>

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2.Theoretical frame works
The theory on the applicability of substantive law in arbitration revolves around the principle of
party autonomy and the intention of the parties involved. The fundamental idea is that the parties
to an arbitration agreement have the freedom to choose the substantive law that will govern their
dispute. This choice is typically expressed in the arbitration agreement itself or in a separate
governing law clause. This theoretical framework discussed in detail as follows;

2.1. Party Autonomy

The principle of party autonomy is a fundamental principle in arbitration. It allows parties to
determine the law that will govern their dispute. Under this principle, parties are free to choose
the law that will govern their dispute, and the arbitrator will apply that law. The principle of party
autonomy is enshrined in most arbitration laws and is recognized in international arbitration
practice.
Party autonomy is based on the idea that parties are best placed to determine the law that will
govern their dispute. This is because parties are familiar with the legal systems of their respective
jurisdictions and can choose a law that is most appropriate for their transaction. Party autonomy
also promotes certainty and predictability in commercial transactions. By choosing the law that
will govern their dispute, parties can avoid uncertainty and ambiguity that may arise if the
arbitrator has to determine the applicable law.

2.1.2 Conflict of Laws

The conflict of laws theory is another theoretical framework that is relevant to the application of
substantive law in arbitration. This theory provides guidance on how to determine the applicable
law when there is a conflict between the laws of different jurisdictions. The conflict of laws
theory is also known as private international law.
Under the conflict of laws theory, the arbitrator will apply the law that is most closely connected
to the dispute. This may be the law of the country where the arbitration is taking place, the law of
the country where one or both parties are located, or the law that governs the contract between
the parties. The arbitrator will consider various factors to determine which law is most closely
connected to the dispute. These factors may include the place of performance of the contract, the
nationality of the parties, and the place where the dispute arose.

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The conflict of laws theory is based on the idea that the law that is most closely connected to the
dispute should apply. This promotes fairness and justice in arbitration because it ensures that the
law that is applied is relevant to the transaction and the parties involved.

2.1.3. Lex Mercatoria

The lex mercatoria theory is a concept that is relevant to international commercial arbitration. It
refers to a body of rules and principles that are recognized as governing international commercial
transactions. This body of rules and principles is not based on any particular national legal
system but is derived from international trade practices and customs.
Under the lex mercatoria theory, arbitrators may apply the lex mercatoria as a source of law
when there is no applicable national law. The lex mercatoria is based on the idea that
international commercial transactions have their own unique characteristics and should be
governed by a set of rules and principles that are specific to them.

2.1.4 Public Policy

The public policy theory is another theoretical framework that is relevant to the application of
substantive law in arbitration. Under this theory, an arbitrator may refuse to apply a particular
law if it would be contrary to the public policy of the jurisdiction where the arbitration is taking
place. This may occur, for example, if the law in question is discriminatory or violates
fundamental human rights.
The public policy theory is based on the idea that the application of substantive law should be
consistent with the principles of justice and fairness. If a particular law is contrary to these
principles, then it should not be applied. The public policy theory is recognized in most
arbitration laws and is an important safeguard against the application of unjust or unfair laws.

3.Case law.
There are many cases that have addressed the issue of determining the applicability of
substantive law to arbitration. These cases provide guidance on how arbitrators should approach
this issue. The following are some examples of cases that have addressed this issue:
1). Bremen v. Zapata Off-Shore Co.
In Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), the United States Supreme Court held
that parties to a contract may agree to arbitrate disputes arising under the contract and that such

5
agreements are enforceable under the Federal Arbitration Act (FAA). The Court also held that
arbitration agreements may provide for the application of foreign law and that such agreements
are enforceable.
The case involved a contract between a German company and an American company for the
charter of a ship. The contract contained an arbitration clause that provided for arbitration in
London and for the application of English law. When a dispute arose, the American company
sought to litigate the dispute in a U.S. court, arguing that the arbitration clause was
unenforceable. The Supreme Court rejected this argument and held that the arbitration clause
was enforceable.
The Court also held that the parties were free to agree to the application of foreign law and that
such agreements were enforceable under the FAA. The Court noted that the parties had chosen
English law because it was a neutral and familiar law that was widely used in international
commercial transactions. The Court held that this was a valid reason for choosing English law
and that the choice of law should be respected.
2. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.
In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), the Supreme
Court held that arbitrators have the power to apply substantive law to disputes arising under a
contract, even if the law is foreign or unfamiliar to them. 4The Court note5d that arbitrators are
not bound by the strict rules of evidence and procedure that apply in court and are therefore
better equipped to handle complex international disputes.
The case involved a dispute between a Japanese car manufacturer and a Puerto Rican car dealer.
The parties had entered into a distribution agreement that contained an arbitration clause
providing for arbitration in Japan under Japanese law. When a dispute arose, the Puerto Rican car
dealer sought to litigate the dispute in a U.S. court, arguing that the arbitration clause was
unenforceable. The Supreme Court rejected this argument and held that the arbitration clause
was enforceable.
The Court also held that arbitrators have the power to apply substantive law to disputes arising
under a contract, even if the law is foreign or unfamiliar to them. The Court noted that arbitrators
are not bound by the strict rules of evidence and procedure that apply in court and are therefore
better equipped to handle complex international disputes.
4
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) available
at<https://supreme.justia.com/cases/federal/us/473/61>> last seen 11 Dec 2023

6
4. Société Nationale Industrielle Aérospatiale v. United States District Court
In Société Nationale Industrielle Aérospatiale v. United States District Court, 482 U.S. 522
(1987), the Supreme Court held that courts should enforce forum-selection clauses in arbitration
agreements unless the clause is invalid under the law of the forum or the clause was obtained
through fraud or overreaching.5
The case involved a dispute between a French company and an American company over the sale
of a helicopter. The parties had entered into an agreement that contained an arbitration clause
providing for arbitration in France under French law. When a dispute arose, the American
company sought to litigate the dispute in a U.S. court, arguing that the arbitration clause was
unenforceable. The Supreme Court rejected this argument and held that the arbitration clause
was enforceable.
The Court also held that courts should enforce forum-selection clauses in arbitration agreements
unless the clause is invalid under the law of the forum or the clause was obtained through fraud
or overreaching.
Generally, Determining the applicability of substantive law to arbitration is an issue that arises in
many disputes. The parties to an arbitration agreement are free to choose the law that will govern
their dispute, but if they do not specify the law that will govern their dispute, the arbitrator will
have to determine which law applies. The cases discussed above provide guidance on how
arbitrators should approach this issue.

4.Applicability of substantive law in arbitration Under national law

The Ethiopian legal framework for determining the applicability of substantive law to arbitration
is primarily governed by the Civil Code of Ethiopia, the Civil Procedure Code of Ethiopia, and
the Ethiopian Arbitration Proclamation, along with international conventions and treaties.
4.1. Civil Code of Ethiopia
The Civil Code of Ethiopia is a comprehensive legal document that provides the legal basis for
arbitration agreements and the recognition and enforcement of arbitral awards. Specifically,
Book V of the Civil Code, titled "Obligations," contains provisions related to arbitration.

5
Societe Nationale Industrielle Aerospatiale v. United States District Court United States Supreme Court 482 U.S.
522 (1987)<https://www.quimbee.com/cases/societe-nationale-in>

7
 Under Article 3313 of the Civil Code, arbitration agreements are recognized as valid and
enforceable. This provision allows parties to choose arbitration as a means of resolving their
disputes and allows them to determine the applicable substantive law. 6 Parties are given the
freedom to choose the procedures to be followed in the arbitration process.7
Furthermore, Book IV of the Civil Code, which deals with general principles of contracts, is also
relevant when determining the interpretation and application of substantive law in arbitration
agreements. According to 3325 of civil code arbitral submission is the contract whereby the
parties to a Dispute entrust its solution to a third party, the arbitrator, who undertakes to settle the
dispute in accordance with the principles of law.

4.2. Civil Procedure Code of Ethiopia

The Civil Procedure Code of Ethiopia governs the procedural aspects of arbitration, including the
recognition, enforcement, and annulment of arbitral awards. Chapter IV of the Civil Procedure
Code, which consists of Articles 315 to 319, specifically addresses arbitration.8
This chapter outlines the conditions for the validity of arbitration agreements, such as requiring
the agreement to be in writing and signed by the parties. It also covers the appointment and
powers of arbitrators, the conduct of arbitration proceedings, and the enforcement of arbitral
awards.
Additionally, the Civil Procedure Code sets forth the grounds and procedures for challenging the
validity and enforceability of arbitral awards in Ethiopian courts.

4.3. Ethiopian Arbitration Proclamation

The Ethiopian Arbitration Proclamation was enacted to provide a comprehensive regulatory
framework for both domestic and international arbitration in Ethiopia.9
The arbitration tribunal shall have the obligation to apply the substantive law chosen by the
contracting parties to international arbitration according to article 41 of Proclamation 1237/2021
any choice of law made by agreement of the parties shall be deemed to be the substantive law of
that country but if the parties agree other ways it shall not be deemed to be the substantive law of
that country and not that of the conflict of laws rules. If substantive law not choose by

6
Ethiopian Civil Code, Article 3313
7
Ibid 33148
8
Civil Procedure Code of Ethiopia, Chapter V (Articles 312-326).
9
Federal Democratic Republic of Ethiopia. "Ethiopian Arbitration Proclamation

8
agreement, the tribunal may choose a substantive law close and relevant to the subject matter of
the dispute as stated under article 41(3) of this Proclamation.

Conclusion

Bibliography

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