The Governing Law Of The Arbitration Agreement ' Finnish And International Perspectives On The Prevailing Ambiguity

• Law Firm: HPP Attorneys
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Author: Mikko M'kel'
• Published date: 18 September 2023

Introduction

The renewal process of the 1992 Finnish Arbitration Act has been pending for a while now, and with the recent reformation of the Finnish Government, it seems to be taking steps ahead. According to the new government programme from June 2023, the Finnish Government plans to investigate the needs for the renewal of the Finnish Arbitration Act and to prepare the necessary legislative changes to promote the competitiveness of Finnish arbitration.

The discussion on the renewal of the Finnish Arbitration Act has revolved around making the Arbitration Act align with contemporary needs of international arbitration. Namely, many contributors to the discussion have called for the Arbitration Act to be more compatible with the standards of the UNCITRAL Model Law.

In addition to ensuring the general compatibility of the Finnish Arbitration Act with the UNCITRAL Model Law, the possible redrafting of the Finnish Arbitration Act would also provide an opportunity for the Finnish legislature to address various legal issues which have arisen in international arbitration practice. One such issue is the question of the applicable law to the arbitration agreement. So far, this issue has not been considered in the Finnish discussion concerning the potential redrafting of the Arbitration Act.

In this article, I put forward the basic principles and problems which have arisen in international arbitration practice regarding the determination of the proper law of the arbitration agreement. Further, I reflect on the opportunities to address these issues in the prospective redrafting of the Finnish Arbitration Act.

In England, the issue of the applicable law to the arbitration agreement has been quite extensively addressed in recent case law as well as in the proposed amendments to the 1996 English Arbitration Act. Therefore, in my reflections on the Finnish legal situation, I especially focus on recent developments in England as a point of comparison.

Starting points and main issues in the choice of law consideration

The jurisdiction of any arbitral tribunal rests on the arbitration agreement, and therefore it is the foundation of the arbitral proceedings. As such, the law governing the arbitration agreement is not an irrelevant consideration, as it determines, e.g., the relevant rules of substantive contract law under which the validity of the arbitration agreement is decided.

As a general starting point, the New York Convention contains a choice of law rule applicable to arbitration agreements, Article V(1)(a). According to the Article, the enforcement of an arbitral award can be refused if the arbitration 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 (i.e., the law of the seat). The choice of law rule is virtually universally recognized and has been adopted in, e.g., Articles 34 and 36 of the UNCITRAL Model Law.

The generally accepted principles established in the Convention as well as the UNCITRAL Model Law call for the mutual intention of the parties to take precedence in the choice of law consideration regarding the arbitration agreement. However, in practice, the determination of the parties' intention is in many cases open to serious interpretative difficulties.

The problems can be seen to ultimately stem from the so-called separability doctrine. Following this almost universally recognised legal doctrine, the arbitration agreement is viewed as a separate (or at least, separable) agreement from the so-called main contract. The main contract is the commercial contract between the parties, which includes material provisions concerning, for example, the price and delivery of the goods. In contrast to the main contract, the arbitration agreement provides the process by which disputes arising from the main contract are to be resolved. The separability doctrine is...