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ISSUE 1: Mediterraneo’s law is the law applicable for the arbitration

agreement

1. Mediterraneo’s law prevails against Lex Loci Arbitri (Law of the Arbitral Seat).

The law applicable to the Arbitration Clause is the law of Mediteraneo, which is a
verbatim adoption of the UNIDROIT Principles on International Commercial Contracts
[PO1,p52,point4]. The Arbitration Clause included in the Sales Contract between
CLAIMANT and RESPONDENT [Claimant’s Exhibit C6, p. 14, pt. 15] is submitting the
disputes related to the contract to institutionalized arbitration, specifically, HKIAC, but
without any provision regarding the law applicable to the arbitration clause.
The parties are free to choose the law of the arbitral agreement, freedom acknowledged
by the doctrine of separability. According to the doctrine of separability, the arbitration
clause is treated as a separate and autonomous agreement from the matrix contract, which
means that it will be governed by its own law. Even though the freedom of choosing the law
applicable to an arbitration clause belongs to the parties, there are some conditions such as
the need of the parties to decide on the law of a country (Amin Rasheed Shipping Corp v
Kuwait Insurance Co [1984] 1 AC 50 (HL) and that the law must not render the arbitration
clause invalid [Bcy v Bcz].
In our case the law applicable to the Sales Agreement is the law of Meditereaneo, a
verbatim adoption of the UNIDROIT Principles on International Commercial Contracts,
which does not contain any provisions that render the arbitration clause invalid. In this
respect, the conditions abovementioned are fulfilled, as a consequence the law of
Mediteraneo meets no problems in governing the arbitration clause.
The most important criteria in determining the applicable law for the arbitration
agreement shall be the real intent of the parties. Given that the parties real intent is not clear,
in accordance with art. 8 CISG, paragraph 2, the interpretation of the arbitration clause
should be based upon the subjective test, since RESPONDENT did not make any express
choice of law regarding the arbitration clause. Taking into consideration RESPONDENT’s
silence in choosing the applicable law for the arbitration clause, CLAIMANT, as a
reasonable person with average skills and average understanding, understands that
RESPONDENT made an implied choice of law: the law governing the entire contract,
UNIDROIT Principles.
According to the English approach “The English Court of Appeals formulated a three-
stage inquiry to establish the law of an arbitration agreement: (1) whether the parties
expressly chose the law of the arbitration agreement; (2) whether the parties made an
implied choice of law for the arbitration agreement; and (3) in the absence of express or
implied choice, the system of law with which the arbitration agreement has “the closest and
most real connection.” “[Applicable Law to the Contract, Arbitration Agreement and
Arbitration Procedure1
By Mark R. Cheskin and Hans H. Hertell, Miami].
In the Sulamerica case (Sulamerica Cia Nacional De Seguros S.A. and Ors -v- Enesa
Engenharia S.A. [2012] 12.EWCA Civ 638) the method used in determining the law
applicable was the system of law with which the arbitration agreement has “the closest and
most real connection. When having to decide on the law governing the arbitration
agreement, the English Court of Appeal stated that, when the law of the arbitration clause is
not written and the arbitration clause is a clause inserted in the contract between the parties,
it can be presumed that the law of the contract should also govern the arbitration clause.
Furthermore in Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg
AG,26 that ‘in the ordinary way’ the arbitration agreement’s applicable law would be ‘likely
to follow the law of the substantive contract’

2. The connection between the law of the contract, the law of the arbitral seat and the law
applicable for the arbitral proceedings.

There are three different legal systems: the law of the underlying contract, law of the
arbitral seat and the law applicable to the arbitral procedure. The law of the substantive
contract is Mediterraneo’s law, as the parties have expressly provided in the contract, the law
ruling the arbitral procedure is HKIAC and lastly, lex arbitri which is Vindobona’s law, a
verbatiom adoption of the UNCITRAL Model Law.
In cases where the substantive law is not clear enough on issues pertaining to the arbitral
proceedings such as the jurisdiction of the arbitral tribunal over certain disputes, such as it is
in the case between the parties, the law on procedure, which in this case is the 2018 HKIAC
Administered Arbitration Rules, has to be applied to fulfill the missing aspects.
For aspects arising based on the terms of the arbitral agreement that are neither covered
by the law of Mediterraneo, nor by the 2018 HKIAC Administred Arbitration Rules the lex
arbitri, the law of Danubia are to be applied.

3. Conclusion on Issue 1: The law of Mediterraneo is the law govering the arbitration
agreement

The law applicable to the Arbitration Clause is the law that governs the Sales Agreement,
because it is mandatory that the real intent of the parties is taken into consideration when
deciding which is the actual applicable law to the sales agreement. Furthermore the
inclusion in the Sales Contract and in the arbitration agreement of terms such as “
hardship”, “ acts of God” and “ comparable unforeseen events making the contract more
onerous” it is obvious that the real intention of the parties was to have the law of
Mediterraneo, the law of the underlying contract to which the arbitration agreement is
closest to, also govern the arbitration agreement.