Milo Molf A Pathological Arb I

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Citation:
Milo Molfa, Pathological Arbitration Clauses and the
Conflict of Laws, 37 Hong Kong L.J. 161 (2007)
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PATHOLOGICAL ARBITRATION CLAUSES
AND THE CONFLICT OF LAWS
0
Milo Molfa*
This article considers the problems related to pathologicalarbitrationclauses within

the framework of internationalarbitration. After examining a series of typical
examples of pathologicalarbitrationclauses and acknowledging that the effectiveness
of a pathologicalarbitrationclause must be assessed in light of the rules applicableto
it, the author considers how to determine such rules in the absence of a specific
choice of law clause applicable to the arbitrationagreement. Various approaches
that have been followed by nationalcourts and arbitraltribunalsin the searchfor the
law governing arbitrationclauses are considered. The author focuses on two
approaches:(i) a conflict of law-basedapproach, whereby the law applicable to the
arbitrationclause is determined by reference to the conflict of law rules of the lex
fori; and (ii) a substantive rule method, whereby the rules governingthe construction
of pathologicalarbitrationclauses are determined independently from any national
system of law (including the conflict of law rules of the lex fori), through the direct
application of general principles and usages of international trade. The article
concludes that the latter approach is to be preferred because it is more consistent
with the characteristicsand features of internationalarbitration.The last part of the
article shows how, in day-to-day practice, the application of the substantive rule
method can be employed to cure pathologicalarbitrationclauses so as to give effect
to the parties' intention to refer their disputes to arbitration.
Introduction
Understanding pathological arbitration clauses is crucial in international com-

mercial arbitration. Without a valid and enforceable agreement to arbitrate
it may not be possible to constitute an arbitral tribunal, litigation relating
to scope, validity and effectiveness of the arbitration clause is likely to arise,
* Associate, Cleary Gottlieb Steen and Hamilton LLP; LLB, Milan University; LLM London School
of Economics; Avvocato, Milan Bar; Solicitor of England and Wales, London.
1 Pursuant to Art 11(3) of the New York Convention, "[t]he court of a Contracting State [...] shall
refer the parties to arbitration, unless it finds that the [arbitration] agreement is null and void, inop-
erative or incapable of being performed".
162 Milo Molfa (2007) HKLJ
national courts seized of an action may refuse to refer the parties to arbitration
and in the event that an arbitral tribunal is constituted and a decision reached,
the final award may not be enforceable under the New York Convention.2
This article will attempt to:
* explain what pathological arbitration clauses are;

* clarify how the interplay of different systems of laws in international
arbitration may affect the analysis as to validity and effectiveness of
pathological arbitration clauses; and
* provide guidelines on the construction of pathological arbitration
clauses so as to give full effect to the parties' intention and legitimate
expectations to refer their disputes to arbitration.
This article will first deal with the notion of pathological arbitration clauses
and consider some of the most typical examples. It will then consider the
effects of pathological arbitration clauses in light of the relevant applicable
laws. In so doing, the differences in the approach followed by national courts
and arbitral tribunals to identify the rules applicable to arbitration clauses
will be examined. The article concludes that pathological arbitration clauses
should be construed in accordance with principles belonging to the usage of
international commerce (good faith and protection of the parties' legitimate
expectations), rather than by reference to a national system of law arrived at
through the application of the conflict of law rules of the lex fori.
Notion and Examples of Pathological Arbitration Clauses
The concept of clause d'arbitragepathologiqueor pathological arbitration clause

was first used in 1974 by Fr6ddric Eisemann, then honorary Secretary Gen-
eral of the ICC. In his view, the expression pathological arbitration clauses:
"denotes arbitration agreements, and particularly arbitration clauses, which

contain a defect or defects liable to disrupt the smooth progress of the
arbitration".'
2 This is either because of Art V(1) (a) of the New York Convention ("Recognition and enforcement
of the award may be refused [... ] if [... ] the agreement [to arbitrate] is not valid"), or because of Art
V(1)(d) ("Recognition and enforcement of the award may be refused [... ] if [...] the composition
of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the
parties").
3 Fouchard, Gaillard and Goldman, International Commercial Arbitration (Kluwer, The Hague, 1999)
p 262. See Davis, "Pathological Clauses: Frederic Eisemann's Still Vital Criteria", 7 Arb. Int'l.,
1991, p 365.
Vol 37 Part 1 Pathological Arbitration Clauses and the Conflict of Laws 163
Although defects giving rise to pathological arbitration agreements may affect

either arbitration clauses or submission agreements (ie purposely drafted
agreements to arbitrate), in practice it is far less common for submission agree-
ments to be pathological. By definition, submission agreements are drafted
once a dispute has arisen. At that point in time the parties are committed
to have an enforceable agreement to arbitrate. This is generally not the
case when an agreement to arbitrate is to be included in a contract being
negotiated (for example, an underwriting agreement or a sale and purchase
agreement) - as in such a case the parties, against better judgement, tend to
treat the arbitration clause as a mere "boiler plate" clause, to which little
attention is given at a time when the parties' legal resources and efforts are
channelled towards the closing of the deal.'
Arbitration clauses can be pathological for a variety of reasons. The prin-
cipal defects found in arbitration clauses are those of inconsistency, uncertainty
and inoperability.
An arbitration clause is affected by inconsistency when the dispute reso-
lution clause in the main contract contains both the parties' agreement to
arbitrate, and the designation of a national court competent to resolve con-
tractual disputes. Below are some examples:
"[any dispute or difference shall [ ... ] be adjudicated upon under the

Rules of Conciliation and Arbitration of the International Chamber
of Commerce by one or more Arbitrators appointed in accordance with
those Rules. [ ...] The Courts of England shall have exclusive jurisdic-
tion over [contractual disputes] to which jurisdiction the parties hereby
submit";6 or
4 This Art will use "pathological arbitration clauses", rather than "pathological agreements to arbit-
rate" to emphasise that, in practice, one is more likely to come across a defective arbitration clause,
than a defective submission agreement. For an example of pathological submission agreement See
below, n 21.
5 Redfern and Hunter, Law and Practice of InternationalCommercial Arbitration (London: Sweet &
Maxwell, 4th edn, 2004), p 196. It is important to note from the outset that this Art is not concerned
with formal validity of agreements to arbitrate. The New York Convention specifies the formal
requirements for arbitration clauses to be valid (see Art 11(3) of the New York Convention); the law
applicable to the arbitration clause would contain similar provisions (see section 5 English Arbitra-
tion Act, 1996). Conversely, no rules are laid down as to when and whether an agreement to arbitrate
is pathological (ie, "inoperative or incapable of being performed" - see Art II(3) of the New York
Convention). It will be for the interpreter, on the basis of the relevant applicable laws, to determine
whether an arbitration clause is pathological and/or whether its defects can be cured through its
proper construction.
6 Considered by the High Court of England and Wales in Paul Smith Ltd v H&S International Holdings
Inc [1991] 2 Lloyd's Rep 127. See also below, n 59.
"[... ] all disputes shall, in accordance with Chinese Law, be resolved in

the courts of the People's Republic of China or be arbitrated in the People
Republic of China";' or
"[ ...] the arbitrationpower of this contract belongs to the court(s) of the
place where the seller is situated".'
Uncertainty can arise when the arbitration clause makes the submission of
disputes to arbitration optional:
"[t]he parties may refer any dispute to arbitration";9 or

"The Contractor or Sub-contractor, by serving a written Notice to Refer
to Arbitration within the time limits set out in (a) [ . . ] of this sub-clause,
may require the dispute to be referred to arbitration [ ... ]";'o or
"[... ] disputes can be submitted to the adjuster for arbitration"."
An arbitration clause can also be pathological due to uncertainty when it

does not contain any reference to the applicable arbitration rules, the arbitral
institution presiding the arbitral proceedings or the way arbitrators are to be
appointed (so-called "blank clauses"):
"Resolution of disputes: arbitration, Paris"; or

"Arbitration: friendly arbitration in Hong Kong". 13
An arbitration clause is inoperative when it refers to an arbitral institution

which is incorrect or the chosen institution has ceased to exist:
Considered by the High Court of Hong Kong in William Company v Chu Kong Agency Co Ltd &
Another [1995] 2 HKLR 139. The High Court upheld the clause in the William Company case, see
below, nn 28 and 70. Courts of countries less arbitration-friendly than Hong Kong may have different
views: in Wellington Associates Ltd v Kirti Mehhta AIR 2000 SC 1379 Indian courts have held that an
[ ... ] agreement that parties may go to suit or may also go to arbitration is not an arbitration
agreement"; See Current's, The Arbitrationand ConciliationAct, 1996, p 8.
Considered by the High Court of Hong Kong in Tai Ao Aluminium (Taishan) Co. Ltd v Maze Alum-
inium EngineeringCo. Ltd & Another [2006] HKEC 407, see below, n 30.
9 Considered by the Court of Appeal of Ontario in Canadian National Railway Co. v Lovat Tunnel
Equipment Inc., below n 66 and 69. See also the High Court of Hong Kong case in China State Con-
structionEngineeringCorp. GuangdongBranch v MadifordLtd [1992] HKLY 49, see below, n 29.
10 Considered by the Court of Appeal of Hong Kong in Thorn Security (Hong Kong) Limited v Cheung
Kee FungCheung ConstructionCompany Limited [2005] 1 HKC 252 and, one year later, in Grandeur
Electrical Company Limited v Cheung Kee Fung Cheung ConstructionCompany Limited CACV 100/
2006, see below, n 68.
n Considered by the High Court of Hong Kong in GuangdongAgriculture Company Limited v Conagra
International(FarEast) Limited [1993] 1 HKLR 113, see below, n 67.
12 See below, n 14 and p 11.
13 Considered by the High Court of Hong Kong in Continental Corporation (No 2) and Vincenzo Fedele
(a firm) [1964] HKLR 213, see below, n 71.
"London Arbitral Chamber";" or

[ ...] dispute or difference [. .] shall be arbitrated in the 3rd Country,
under the rules of the 3rd Country and in accordance with the rules of
procedure of the International Commercial Arbitration Association
[ 1.15
Other examples of arbitration clauses being inoperative relate to those situ-

ations whereby the mechanism for the appointment of the arbitral tribunal
envisaged in the clause is (or has become) defective. An example is the 1982
Aminoil v Government of Kuwait case, 16 where the original arbitration agree-
ment provided that the third arbitrator had to be appointed by the British
Political Resident in the Gulf - an authority which had ceased to exist at the
time the dispute arose."
Issues of inoperability may also arise in connection with multiparty arbit-
rations if the arbitration clause contemplates that the arbitral tribunal is to be
composed of three members, but the actual dispute involves three or more
parties with different interests."
The Rules Governing Arbitration Agreements and their Relevance in

Assessing the Effects of Pathological Arbitration Clauses
It is in light of the rules governing the arbitration agreement that patholo-

gical arbitration clauses ought to be construed and interpreted.
If the parties have agreed that a particular system of law is to govern the
agreement to arbitrate, then it will be for that system of law to determine
whether defects and deficiencies in the wording of an arbitration agreement
can be validated through its rules of construction and interpretation.1 9
However, in the more common scenario where the parties have not
agreed which system of law is to govern the agreement to arbitrate, different
14 Considered by the Court of Appeal of Versailles in Ltd CapitalRice v SARL Michael Come, 3 October
1991, in Fouchard, Gaillard and Goldman (n 1 above), p 266, n 120.
15 Considered by the High Court of Hong Kong in Lucky-Goldstar International (HK) Limited v NG Moo
Kee EngineeringLimited [1993] 2 HKLR 73, see below, n 75.
16 Award in the Matter of an Arbitration between Kuwait and the American Independent Oil Company
(AMINOIL), ILM, 1982, p 976.
17 A similar situation was faced by the High Court of England and Wales in "Gatoil International Inc.
(Panama) v National Iranian Oil Company (Iran)" in Y.B. Comm. Arb., Vol. 17, 1992, p 587, where
the institution designated for the appointment of the arbitrator in the interest of the default appointer
- the President of the Appeal Court of Teheran - had ceased to exist.
18 See also n 80 below.
19 This is indirectly confirmed by Art V(1) (a) of the New York Convention: "Recognition and enforce-
ment of the award may be refused [... ] if [...] the agreement [to arbitrate] is not valid under the law
to which the parties have subjected it".
interpretative options may be pursued. The starting point is that an arbitra-

tion clause is separable and autonomous from the contract in which it appears
("separability doctrine"). The separability doctrine has become a universally
accepted principle in modem international commercial arbitration. Given
that on the basis of the separability doctrine the main contract and its arbit-
ration clause are separate and autonomous from each other, it would be logical
to infer that the law governing the main contract and the one applicable to
the arbitration clause are not necessarily the same.
When determining which system of law is to govern an arbitration clause
in the absence of choice, national courts have given different weight to the
separability doctrine. On the basis of the separability doctrine, most civil law
courts have excluded that the law governing the arbitration clause may be
inferred from the law governing (either expressly or not) the main contract.
In their search for the law governing the arbitration clause, most civil law
courts tend to focus on the jurisdictional effects of agreements to arbitrate
(ie to deprive national courts of the jurisdiction to adjudicate the dispute
falling within the scope of the arbitration agreement) and to refer to the law
of the place where the arbitral proceeding is to be conducted (law of the
seat or lex arbitri).On the contrary, when determining the law governing the
arbitration clause, common law courts tend to weigh and balance a plurality
of factors, including the law applicable to the main contract. These different
approaches are considered below, starting from the one followed by common
law courts.
Whilst endorsing the separability doctrine, common law courts and, par-
ticularly, English courts have acknowledged the existence of a general
presumption under which, in the absence of an express choice of law clause
applicable to the agreement to arbitrate, the law governing the arbitration
clause is the law expressly chosen by the parties, if any, to govern the main
agreement:
"[w]here the substantive contract contains an express choice of law, but

the agreement to arbitrate contains no separate express choice of law, the
20 The separability doctrine is endorsed in the body of rules of the main arbitral institutions (see, for
example, Art 6.4 ICC Rules and Art 23.1 LCIA Rules); in the UNCITRAL Arbitration Rules (Art
21.1); in national legislations, both in the common and the civil law system (see, for example, Art 7
English Arbitration Act and Art 178(3) Swiss Private International Law Act 1987) and in the Model
Law (Art 16.1). When not expressly envisaged in national legislation, the separability doctrine has
been recognised by courts. So, for example, the separability doctrine was recognised in France in the
Gosset case (Cour the Cassation, Ire Civil Chamber, May 7, 1963 -reported by Redfern and Hunter
(n 5 above, p 194, n 85)); in the US the Supreme Court recognised it in PrimaPaint Co v Flood &
Conklin ManufacturingCorp., 388 US 395 at 402 (1967); in Australia by the New South Wales Court
of Appeal in Stap v Grey (1994) 34 NSWLR 474 - see also the decision of the Federal Court of
Australia in Trade Practices Commission v Collings ConstructionCo Pty Ltd 1994 WL 1659088.
latter agreement will normally be governed by the body of law expressly

chosen to govern the substantive contract"."1
However, the general presumption will be disregarded if, under the law chosen
to govern the main contract, the agreement to arbitrate would be unenforce-
able. A good example is the XL Insurance case, 22 where the arbitration clause
provided that:
"any dispute, controversy or claim arising out of or relating to this Policy

or the breach, termination or invalidity thereof shall be finally and fully
determined in London, England under the provisions of the Arbitration
Act 1996".
The choice of law clause in the main contract envisaged that:
"the Policy shall be construed in accordance with the internal laws of the
State of New York, United States".
The High Court disregarded the presumption that the agreement to arbitrate
was governed by New York law because under such law the arbitration clause
would have been unenforceable. The court concluded that the reference to
the English Arbitration Act contained in the arbitration clause should have
been intended as a reference to English law being the law governing the agree-
ment to arbitrate.
In the event there is no express choice of law in either the main
agreement, or the arbitration agreement, but the venue of the arbitral pro-
ceedings is identified, English courts will infer that the agreement to arbitrate
is governed by the law of the seat.23 If neither the arbitration clause, nor the
main agreement contains a choice of law clause and no seat is expressed in
21 Sonatrach PetroleumCorporation(BVI) v Ferrell International Limited [2001] WL 1476318, para 32. See,
similarly, Peterson Farms Inc. v C&M FarmingLtd [2004] 1 Lloyd's Rep. 603. For a case where the
issue as to what law governed the agreement to arbitrate arose with respect to a submission agree-
ment, see Halpern andAnother v Halpern and others [2006] EWHC 603 (Comm). In the Halpern case
the judge identified the law governing the submission agreement on the basis of the conflict of law
rules existing under the common law - as the 1980 Rome Convention does not apply to agreements
to arbitrate. Reference was made to the Amin Rasheed case ([1984] AC 50, 62A) and the proper law
of the submission agreement was deemed to be English law (as opposed to Swiss law, the law of the
seat) on the basis of the following connecting factors: (i) at the time the submission agreement was
executed the parties were located in England; and (ii) one of the documents constituting the submis-
sion agreement was headed "in the matter of the Arbitration Act 1996".
22 XI Insurance Ltd v Owens Corning [2000] 2 Lloyd's Rep. 500.
23 See Sonatrach Petroleum Corporation(BVI) v Ferrell International Limited (n 21 above), para 32. It
should be noted that under English law there is a presumption that the place (or venue) where the
arbitration takes place constitutes its juridical seat, see Channel Tunnel Group Ltd v Balfour Beatty
Construction Ltd [1993] AC 334.
the agreement to arbitrate, it will be necessary to assess whether the seat of

the arbitral proceedings may be determined indirectly, by reference to the rules
of the selected arbitral institution, if any. 24 However, if no seat can be identified
(either expressly or by reference to the relevant applicable rules), then the
arbitration clause would be "inoperative or incapable of being performed"
within the meaning of Article 11(3) of the New York Convention.
US courts follow an approach similar to that adopted by courts in England
and Wales. It is now well settled in the US that, in the absence of a choice of
law clause referred to the arbitration clause, the rules applied to determine
the validity of the main agreement should be applied to determine also the
validity of the arbitration clause.25
An analysis of less recent US case law, however, reveals that US courts
used to construe arbitration clauses in light of the law of the country where
the lawsuit had been commenced (lex fori) in violation of the obligation -
contained in the agreement to arbitrate - to refer all disputes arising out of a
particular legal relation to arbitration.26 The argument against this approach
is that it favours "forum shopping", as it may induce prospective defendants
willing to avoid arbitral proceedings to start litigation before those national
courts which, on the basis of the lex fori, are more likely to take an approach
leading to a declaration that the arbitration clause is not operative or capable
of being performed.
Similarly to US courts, courts in Hong Kong tended to assess the effect-
iveness of pathological arbitration clauses on the basis of the lex fori,
irrespective of the law of the seat and/or the law governing the main con-
tract. In the William Company case28 the High Court of Hong Kong was called
to adjudicate upon the validity of an arbitration clause providing for arbitra-
tion to be conducted in China in accordance with Chinese law. The High
24 See, for example, Art 16.1 LCIA Rules, whereby "[tihe parties may agree in writing the seat (or legal
place) of their arbitration. Failing such a choice, the seat of the arbitration shall be London".
25 In Washington Mutual Finance Group, LLC v John Bailey & Others 364 E3d 260 (5th Cir. 2004) the
Court of Appeal for the Fifth Circuit has made it clear that "[a]rbitration is a matter of contract
between the parties. Accordingly, in determining whether the parties agreed to arbitrate a certain
matter courts apply the contract law of the particular state that governs the agreement". See, in
similar terms, Santiago Morales v Rent-a-Center, Inc. 306 E Supp. 2d 175.
26 See Smedresman, "Conflict of Laws in International Commercial Arbitration: A Survey of Recent
Developments", 7 Cal. W Int'IL.J., 1977, p 323; Heilman, "Arbitration Agreement and the Conflict
of Laws", Yale L.]., 1928-1929, p 617. The basis for such an approach is well expressed in the words
of Judge Cardozo in Meacham vJamestown etc., quoted by Judge Hough in United States Asphalt Refining
Co. v Trinidad Lake Petroleum Co. Ltd 222 Fed. 1006 (S.D.N.Y. 1915): "[an agreement that differ-
ences arising under a contract shall be submitted to arbitration relates to the law of remedies, and the
law that governs remedies is the law of the forum". See also Berkovitz v Arbib & Houlberg, Inc. 230
N.Y. 261: "[t]he rule to be applied is the rule of the forum [... ]. Arbitration is a form of procedure
where differences may be settled. It is not a definition of the rights and wrongs out of which differ-
ences grow" - ie, arbitration agreements are procedural, not substantial.
27 See Lorenzen, "The Statute of Frauds and the Conflict of Laws", Yale L.]., 1922-1923, p 311.
28 See n 7 above.
Court concluded that the clause was valid without making any reference to
Chinese law (China being the seat of the arbitral proceedings and Chinese
law being the law governing the dispute). Instead, the decision of the High
Court was based entirely on principles of construction and interpretation of
Hong Long law (ie the lex fori). A similar approach was followed in the China
State Construction case29 - where the arbitration clause contemplated arbitral
proceedings to be conducted in China - and in the Tai Ao Aluminium case30 -
where no seat was envisaged, but Chinese law governed the main contract.
More recently, however, Hong Kong courts have adopted an approach
similar to the one followed by English courts. In Beyond the Network the High
Court of Hong Kong concluded that arbitration clauses are governed by the
law applicable to the main contract. 1 This recent shift of Hong Kong courts
is to be approved and ought to be confirmed in future judgements as it reduces
the risk of "forum shopping"," favouring certainty and speediness in the reso-
lution of international commercial disputes.
As opposed to the approach followed by English, US and Hong Kong courts
(whereby, in the absence of choice, the law governing the arbitration clause
is generally determined by reference to the law applicable to the main con-
tract), most civil law courts of continental Europe (except France) have held
that, in the absence of choice, arbitration clauses are governed by the law
where the arbitral proceedings is to be conducted (ie the law of the seat).33
Such approach has been adopted, amongst others, by Swedish, 4 Belgian,35
Dutch 6 and Italian courts" and has been justified on various grounds:" (i) the
29 See n 9 above.
30 See n 8 above.
31 Beyond the Network Ltd v Vectone Ltd [2005] HKEC 2075.
32 See n 27 above.
33 Blessing, "The New International Arbitration Law in Switzerland: A Significant Step Towards Liber-
alism", 5 J. Int'l Arb., 19 8 8 , p 31.
34 Bulgarian Foreign Trade Bank Ltd v Al Trade Finance Inc. [2001], discussed in Redfern and Hunter
(n 5 above) p 150.
3 Matermaco SA v PPM Cranes Inc. [2000], discussed in Redfern and Hunter (n 34 above) p 151.
36 Owerri v Dielle [1994], discussed in Lew, Mistelis and Kroll, Comparative InternationalCommercial
Arbitration (The Hague: Kluwer, 2003) p 121.
37 Della Sanarav FallimentoCoppola, Court of Appeal of Genoa, 3 January 1990, Riv. Arb., 1991, p 781.
In Della Sanara the arbitration clause simply provided for "general average / arbitration, if any, in
London in the usual manner". In the first instance the Tribunal of Genoa concluded that the clause
was void due to the provisions of Italian law being the lex fori - which, at material time, required
agreements to arbitrate to contain the number of arbitrators to be appointed in the arbitral proceed-
ings (see Art 809 Italian Code of Civil Procedure). The Court of Appeal overruled the Tribunal's
decision and upheld the clause on the basis of English law. See also Conceria F.11i Tolio s.n.c. v Ditta
O.S. Blenkinsop, Supreme Court, Plenary Session, 21 November 1983, No 6925, Riv. Dir. Int. Priv.
Proc., 1984, p 732.
3 Australian courts have followed a similar approach. See Recyclers of Australia Pty Ltd v HettingaEquip-
ment Inc [2000] FCA 547, where the Federal Court of Australia held that the relevant arbitration
clause was governed by the law of the seat, not by the lex fori, nor by the law governing the main
agreement.
need to assure consistency with the separability doctrine when determining

the law governing the arbitration clause; (ii) the fact that it is for the law
of the seat to determine the procedural rules governing the conduction of
the arbitral proceedings, and (iii) Article V(1) (a) of the New York Conven-
tion, according to which "[r]ecognition and enforcement of the award may be
refused [... ] if ... ] the agreement [to arbitrate] is not valid under [... ] the
law of the country where the award was made". None of these arguments is
entirely persuasive.
The separability doctrine argument is not decisive. The fact that courts
have now endorsed the separability doctrine does not necessarily mean that,
in the absence of choice, the law governing the arbitration clause may not be
the same as the one governing the main agreement. Originally, the separabil-
ity doctrine was developed as an escamotage to prevent that invalidities or
terminating events affecting the main contract could (also) affect the oper-
ability of its arbitration clause. It is difficult to see, however, the connection
between this need and the (different) issue as to what the law governing the
arbitration clause in the absence of choice ought to be. Indeed, there does
not appear to be any contradiction in admitting, on one side, that the law
governing the main agreement ought to govern also the arbitration clause
and, on the other, that invalidities affecting the main agreement do not com-
municate to the arbitration clause. Therefore, the need to assume that an
arbitration clause and the main contract are separate and autonomous from
each other does not justify the conclusion that, in the absence of choice, the
law governing the arbitration agreement must be determined on the basis of
the seat of the arbitral proceedings.
Nor can the civil law court's approach be justified by the fact that the law
of the seat governs the procedure applicable to the conduction of the arbitral
proceedings. Indeed, whilst the choice of a particular seat where to conduct
the arbitral proceedings brings with it procedural consequences, that choice
has nothing to do with the selection of the substantive rules applicable to
the agreement to arbitrate. The specification of the seat of the arbitral
proceedings has a procedural dimension: it serves the purpose of determining
which court will assist (and interact with) the arbitral tribunal in the proced-
ural matters that are not for the arbitral tribunal to resolve;39 it also serves
enforcement purposes.4 0 It is precisely in light of the procedural consequences
3 Such as the granting of interim injunctions before the formation of the tribunal in the event the
relevant arbitration rules do not provide for other viable solutions, or the specification of the number
of arbitrators composing the arbitral tribunal in the absence of a specific provision within the agree-
ment to arbitrate to this effect.
40 Under the reciprocity reservation envisaged in Art 1(3) of the New York Convention, Contracting
States may avail themselves of the option to recognise solely arbitral awards rendered within the
territory of other Contracting States.
stemming from the choice of the seat of the arbitral proceedings that parties
and their counsels select a particular seat over another. Issues of validity and
construction of arbitration agreements (as well as issues of validity and con-
struction of any contract or clause thereof), however, are not procedural, but
substantive. It follows that the choice of a particular seat should not affect
the way substantive issues relating to the conduction of the arbitral proceed-
ings (ie, validity and construction of agreements to arbitrate) are dealt with.
To hold that, in the absence of choice, the law applicable to an agreement to
arbitrate ought to be determined on the basis of the law of the seat would
mean giving the selection of a particular seat a (substantive) scope that the
parties did not intend at the time of entering into the agreement to arbit-
rate. Accordingly, it is not possible to justify the relevance of the law of the
seat for the purpose of determining the law governing the agreement to arbit-
rate on the assumption that the arbitral proceeding is to be conducted under
the provisions of the law of the seat.
Equally unpersuasive is the argument based on Article V(1) (a) of the New
York Convention ("Recognition and enforcement of the award may be
refused [ ... ] if [... ] the agreement [to arbitrate] is not valid under [... ] the
law of the country where the award was made"). In this connection, suffice it
to note that this provision does not refer to the place where the arbitral pro-
ceeding is to be conducted. Rather, it expressly refers to a place (the one where
the arbitral award is rendered) which is not yet known to the parties at the
time they are seeking to determine which is the law to govern the arbitration
clause." It is true that the place of the rendition of the award is generally the
place where the arbitral proceeding is to be conducted.42 However, that is not
necessarily always the case. Accordingly, the reference contained in the New
York Convention to the law of the place where the award is rendered does
not justify the conclusion that, in the absence of choice, the law governing
agreements to arbitrate ought to be determined by reference to the seat of the
arbitral tribunal.
As opposed to the approach followed by most civil law courts, French
courts have adopted yet another method to determine the rules under which
pathological arbitration clauses ought to be construed. The French method -
often referred to as the "substantive rule method" (as opposed to the conflict
of law-based approaches considered above - ie lex contractus, lexfori, lex arbitri)
"[ ... ] consists in the exclusive application of substantive rules, independ-
ently of any applicable laws [ . .. ]"' and is based on the assumption that
the agreement to arbitrate is autonomous and independent both from the
41 See Smedresman, Conflict of Laws (n 26 above, p 328).

42 See also n 44 below.
43 Fouchard, Gaillard and Goldman, p 228.
underlying contract (consistently with the separability doctrine), and from

any national legal system. Under the substantive rule method, the exist-
ence and validity of an agreement to arbitrate are assessed - subject to the
mandatory rules of the law of the seat" - on the basis of the parties' common
intention, the parties' legitimate expectations at the time of the execution of
the agreement to arbitrate and the principle of good faith."5
Of the different approaches outlined above, the substantive rule
approach appears to be more in line with the characteristics and features of
international arbitration and, particularly, with the very reasons underlying
the parties' will to refer the resolution of their disputes to arbitration. The
substantive rule method lies upon the idea that, by expressing their intention
to go for arbitration, parties choose to detach the resolution of their disputes
from any national legal system. International arbitration clauses are, by defini-
tion, detached from national laws, as they contemplate a dispute resolution
mechanism governed by a mixture of non-national rules46 and international
conventions." Arbitrators themselves do not belong to any national legal order
and do not have any institutional reasons to give precedence to the choice of
law rules or substantive provisions of any of the legal systems connected with
the dispute."
Conflict of law-based approaches, on the contrary, require domestic
courts to follow the conflict of law rules of the lex fori when selecting the law
governing the arbitration clause. Conflict of law rules differ from one country
to another. National courts in one country may select the applicable law by
44 The need to consider the content of the mandatory rules of the law of the seat stems from Art
V(1)(a), third sentence, New York Convention, according to which "[riecognition and enforcement
of the award may be refused [... ] if [... ] the agreement [to arbitrate] is not valid under [... ] the law
of the country where the award was made". As noted above (see above, n 42) the place of the rendi-
tion of the award and the place where the arbitral proceeding is conducted are not necessarily the
same. However, in order to avoid problems at the enforcement stage (and in light of the fact that in
the majority of cases seat and place of rendition of the award are the same), it is advisable that
arbitrators obey also to the mandatory rules of the law of the seat. In practice this means that al-
though free to decide on the validity of the arbitration agreement without reference to any national
system of law, the prudent arbitrator would still deem him/herself bound to the mandatory provisions
of the law of the seat. This is a duty that arbitrators would have anyway under those rules (such as the
ICC Rules) that require "the Arbitral Tribunal [to] make every effort to make sure that the Award is
enforceable at law" (see Art 35 of the ICC Rules).
45 The substantive rule method was originally promoted by the Court of Appeal of Paris and endorsed
by the 1993 Cour the cassation, judgement in Comite populaire de la municipalitede Khoms El Merged v
Dalico Contractors.For an analysis of the development of the substantive rule method and a response
to its critiques see Fouchard, Gaillard and Goldman, p 228.
46 Such as the rules of international arbitral institutions and the Model Law.
47 Such as the New York Convention.
48 Fouchard, Gaillard and Goldman, (n 1 above) p 2 34. See also Croff, "The Applicable Law in an Inter-
national Commercial Arbitration: Is It Still a Conflict of Laws Problem?", 16 Int'l L., 1982, p 613;
Marrella, "Choice of Law in Third Millennium Arbitrations: The Relevance of the UNIDROIT
Principles on International Commercial Contracts," 36 Vand. J. Transnat'lL., 2003, p 1137. See also
below, regarding the analysis conducted in respect of arbitration rules.
reference to the place where the contract is to be performed, whereas in

another the governing law may be determined by reference to the place where
the contract was executed. National laws differ greatly from one country
to another also when it comes to construe the scope and / or the validity of
a pathological arbitration clause. 49 Accordingly, parties' legitimate expecta-
tions to go for arbitration will be frustrated in the event the court seized of an
action concludes, on the basis of the system of law arrived at through its
conflict of law rules, that the arbitration clause is inoperative or incapable of
being performed. Indeed, through the application of conflict of law-based
approaches, effectiveness of pathological arbitration clauses may well depend
solely upon where the judge seized of an action falling within the scope of the
agreement to arbitrate happens to be sitting. This is an unsatisfactory solu-
tion, as it does not promote certainty or uniformity. In addition, it is a solution
which may easily favour prospective defendants to instrumentally seize of an
action falling within the scope of a pathological arbitration clause the court
that is more likely to take an approach which would lead to a declaration of
inoperability of the arbitration clause. Furthermore, the need to go through
the conflict of law rules of the lex fori in the search for the law governing
the interpretation of the arbitration agreement is not consistent with the
parties' will to agree upon a dispute resolution mechanism detached from any
national legal system.
The substantive rule method addresses all of these issues: (i) it provides
for a direct method of selection of the rules applicable to the construction
of arbitration agreements which favours uniformity in the interpretation of
pathological arbitration clauses; (ii) it reduces the risk of forum shopping by
prospective defendants seeking to avoid arbitration; (iii) it preserves the par-
ties' choice to detach the resolution of their disputes from any national legal
system, and (iv) it allows pathological arbitration clauses to be construed
independently from the idiosyncrasies of national laws, consistently with the
worldwide trend towards supporting international arbitration and the need
to achieve uniformity." Accordingly, when determining the rules applicable
to the construction of pathological agreements to arbitrate, the substantive
rule method is to be preferred over the other conflict of law-based approaches
examined above.
49 Italian courts, for example, tend to hold that arbitration clauses affected by inconsistency are inop-
erative and / or incapable of being performed (see n 64 below), whilst English courts tend to consider
such clauses fully effective (see n 59 below).
50 See Kaplan, A Case by Case Examination of Whether National Courts Apply Different Standards When
AssistingArbitral Proceedingsand EnforcingAwards in InternationalCases as Contrastingwith Domestic
Disputes. Is There a Worldwide Trend towards Supporting an InternationalArbitration Culture? ICCA
Congress series No 8 (Seoul, 1996), p 187.
Arbitral tribunals have applied the substantive rule method to determine

the proper construction of arbitration clauses. In the seminal ICC award in
Isover St Gobainv Dow Chemical France" the arbitrators specifically held that:
"[... ] the scope and effects of the arbitration clause [is to be determined]
by reference to the common intent of the parties [... ], such as it appears
from the circumstances that surround the conclusion and characterize the
performance and later the termination of the contracts in which they
appear. In doing so, the tribunal, following, in particular, French case law
relating to international arbitration, should also take into account usages
conforming to the needs of international commerce [ ... ]".
Various awards rendered both with respect to disputes arising between pri-
vate parties as well as in connection with state contracts have confirmed the
approach followed in the Dow Chemical case.
Moreover, the trend followed by arbitral tribunals is consistent with the
arbitration rules of major arbitral institutions. Under Article 6(2) ICC Rules:
"[ ... I the Court may decide [ ... ] that the arbitration shall proceed if it
is prima facie satisfied that an arbitration agreement under the Rules may
exist. In such a case, any decision as to the jurisdiction of the Arbitral
Tribunal shall be taken by the Arbitral Tribunal itself [ ... ]".
This provision is commonly deemed to represent the source of the power of

ICC arbitral tribunals to apply non-national law to construe and interpret
arbitration clauses.53
Similarly, under Article 22.4 of the LCIA Rules, the arbitral tribunal has a
generalised power to apply non-national laws in deciding the parties' dispute:
"[t]he Arbitral Tribunal shall decide the parties' dispute in accordance

with the law(s) or rules of law chosen by the parties [ . . . ]. If and to the
extent that the Arbitral Tribunal determines that the parties have made
no such choice, the Arbitral Tribunal shall apply the law(s) or rules of law
which it considers appropriate [ ... ]".
The WIPO Rules contain similar provisions. In the absence of the parties'
choice as to the law governing the arbitration agreement, Article 59 of the
51 ICC Case 4131/1982, discussed in Craig, Park and Paulsson, International Chamber of Commerce
Arbitration (Oceana, NY, 2000) pp 52-3.
52 See the arbitral awards referred to in Fouchard, Gaillard and Goldman (n 1 above) p 234 and Lew,
Mistelis and Kroll (n 36 above) p 124.
53 See the Dow Chemical award, above, n 51.
WIPO Rules expressly refers to the need to take into account both the terms
of the relevant contract and trade usages:
"(a) [f]ailing a choice by the parties, the Tribunal shall apply the law or
rules of law that it determines to be appropriate. In all cases, the Tribunal
shall decide having due regard to the terms of any relevant contract and
taking into account applicable trade usages. [ ... ] (c) An Arbitration
Agreement shall be regarded as effective if it conforms to the require-
ments concerning form, existence, validity and scope of [ ... ] the law or
rules of law applicable in accordance with paragraph (a)".
The underlying policy of these arbitration rules is clear: given that arbitrators
do not belong to any national legal order and they are not bound to follow
the conflict of law rules of any national legal system, failing the parties'
choice as to the law governing the arbitration agreement, arbitrators are em-
powered to construe pathological arbitration clauses without referring to any
particular conflict of law rules. Arbitrators are indeed expressly empowered to
apply the rules that they consider more appropriate in the circumstances of
the particular case (see Article 22.4 of the LCIA Rules). Accordingly, they
may choose directly (ie without going through any conflict of law rules) the
rules governing the interpretation and construction of arbitration clauses,
including the principles belonging to the usages of international commerce
(as clearly laid down in Article 59 of the WIPO Rules, which expressly refers
to "trade usages"). The rationale underlying the rules of major arbitral insti-
tutions empowering arbitrators to apply the rules that they consider more
appropriate confirms that, in the absence of choice, pathological arbitration
clauses ought to be construed independently from national laws.
On the basis of the foregoing, it is possible to conclude that, in the absence
of an express choice of law clause referred to in the agreement to arbitrate,
the rules governing the construction of pathological arbitration clauses must
be determined without referring to any conflict of law rules, on the basis of the
substantive rule method developed by French courts and international arbitral
tribunals. Accordingly, pathological arbitration clauses should be construed
and interpreted so as to give full effect to the parties' intention to refer their
disputes to arbitration, in accordance with principles of good faith and pro-
tection of parties' legitimate expectations at the time of execution of the
arbitration agreement.
5 Goldman, "La lex mercatoria dans les contrats et 'arbitrage internationaux: realit6 et perspectives",
Jour. du DroitIntern., 1979, p 491.
Having identified the principles according to which, in the absence

of choice, pathological arbitration clauses ought to be interpreted, it is now
necessary to consider how, in practice, these principles operate.
The Interpretation of Pathological Arbitration Clauses
In the absence of the parties' express choice as to the law governing agree-
ments to arbitrate, pathological arbitration clauses should be interpreted so
as to give effect to the parties' common intention to refer disputes to arbitra-
tion. The need to construe contractual provisions and, particularly, arbitration
clauses so as to give them full effect, rather than deprive them of some effects,
stems directly from principles of good faith and fair dealings, protection of
the parties' common interests and legitimate expectations. These are prin-
ciples commonly recognised as belonging to the usages of international
commerce and they have now been codified in the UNIDROIT Principles of
International Commercial Contracts 2004 ("UNIDROIT Principles")" and
other bodies of "soft law", such as the Principles of European Contract Law
1995.56
In particular, under Article 1.7 of the UNIDROIT Principles, parties are
required to "[ . .. ] act in accordance with good faith and fair dealing in
international trade. [Plarties may not exclude or limit this duty". Similarly,
Article 1.8 provides that "[a] party cannot act inconsistently with an under-
standing it has caused the other party to have and upon which that other
party reasonably has acted in reliance to its detriment". An express reference
to the need that contractual provisions are construed so as to give them full
effect is contained in Article 4 of the UNIDROIT Principles, which provides
that contracts must be interpreted "[... ] according to the common intention
of the parties [ ... ] so as to give effect to all the terms rather than to deprive
some of them of effect".
In light of these principles, this article will now turn to consider how, in
every day practice, pathological arbitration clauses ought to be interpreted.
55 Available at http://www.unidroit.org/english/principles/contracts/main.htm, visited 1 May 2007.

56 See Arts 1:106 (interpretation) and 1:201 (good faith and fair dealing) of the Principles of European
Contract Law 1995, available at http://www.jus.uio.no/lm/eu.contract.principles.partl.1995/
index.html. The increasing importance of "soft law" in resolving international disputes has recently
been confirmed in the EU Commission's proposal for a regulation on the law applicable to contrac-
tual obligations, COM (2005) 650 final 2005/0261 (COD). Art 3.2 of the proposal authorises the
parties to choose as the applicable law a non-State body of law. The words used in the current form of
Art 3.2 would authorise the choice of UNIDROIT Principles and Principles of European Contract
Law. Presently, a choice of law clause envisaging "soft law" as the law governing the main contract
would not be enforced by Art 3.2 of the 1980 Rome Convention on contractual obligations. How-
ever, the Convention does not apply to agreements to arbitrate. Therefore, an argument could be
made that arbitration agreements may be expressly governed by "soft law".
Some of the most common examples of pathological arbitration clauses giv-

ing rise to inconsistency, uncertainty and inoperability will be examined, and
the way national courts have dealt with them will be considered. Whether
the way these clauses have been dealt with is consistent with principles and
usages of international commerce will also be examined.
Inconsistency
Arbitration clauses affected by inconsistency are quite common in practice.
Typically, they contain both an agreement to arbitrate and a forum selection
provision. The problem with inconsistent arbitration clauses is to reconcile
the parties' intention to refer any dispute arising out of the contract to arbit-
ration, with the provision - included in the same agreement containing the
arbitration clause - that national courts have exclusive jurisdiction over any
dispute arising out of the contract. Below is an example:
"[any dispute or difference shall [ ... I be adjudicated upon under the

Rules of Conciliation and Arbitration of the International Chamber of
Commerce by one or more Arbitrators appointed in accordance with those
Rules. [ ...] The Courts of England shall have exclusive jurisdiction over
[contractual disputes] to which jurisdiction the parties hereby submit".17
One way to reconcile the inconsistency in accordance with principles of good

faith and protection of the parties' legitimate expectations would be to con-
strue the reference to the jurisdiction of national courts (the "Courts of
England") as a reference to the courts having supervisory jurisdiction over
the arbitral proceedings. Accordingly, in the given example, the reference to
the "Courts of England" should be read as a way to indicate, indirectly, the
law of the seat (ie the English Arbitration Act in the example, being the
supervisory jurisdiction over the arbitral proceedings vested upon the "Courts
of England"). Indeed, given the existence of a clear intention of the parties to
refer disputes to arbitration (see the first part of the clause in the example:
"[a]ny dispute or difference shall [ ...] be adjudicated upon under the Rules
of Conciliation and Arbitration of the International Chamber of Commerce"),
it would be contrary to good faith and against the parties' legitimate expecta-
tions to consider the reference to the "Courts of England" as an invalidating
factor of the arbitration clause."
5 See n 6 above.
5 ICC Case No 6866, discussed in Fouchard, Gaillard and Goldman (n 1 above), at 270. See also Paul
Smith Ltd v H&S InternationalHoldings Inc. [1991] 2 Lloyd's Rep. 127, where the dispute resolution
provision contained an ICC arbitration clause as well as a forum selection clause in favour of English
courts.
The suggested approach is the one followed, among the others, by English"9
and US courts60 and the one that arbitral tribunals61 and scholars62 tend to
favour. Courts from jurisdictions less "arbitration friendly" than England or
the US however and, particularly, civil law courts, may take a different view.
Italian courts, for example, tend to exclude the jurisdiction of arbitral tribunals
if the dispute resolution clause contains both the parties' agreement to arbitrate
contractual disputes, and the designation of a national court having jurisdic-
tion over contractual disputes." This is generally justified on the basis that:
"the submission of disputes to arbitration implies an exceptional exclu-

sion of the jurisdictional function of the national judge. [The interpretation
of the arbitration clause must be made in a restrictive way" and, in doubt,
the "natural jurisdiction" of national courts must prevail over the "special
one" of the arbitral tribunal."4
The position expressed by Italian authorities originates in the historic (and,

nowadays, anachronistic) mistrust of arbitration, which purports to confirm
the state judge's natural jurisdiction each time the parties have failed to con-
fer jurisdiction on a private party unambiguously.65 However one intends it,
the "Italian way" constitutes a good example of how a parochial approach in
interpreting arbitration clauses could disrupt international arbitration and
the effective resolution of disputes.
59 See Paul Smith Ltd v H&S InternationalHoldingsInc. (n 6 above), where the dispute resolution provi-
sion contained an ICC arbitration clause as well as a forum selection clause in favour of English
courts. See also the February 2006 decision of the High Court in Axa Re v Ace Global Markets Limited
[2006] EWHC 216 (Comm), where whilst the main contract (a reinsurance contract) contained an
arbitration clause, the reinsurance slip incorporating the terms of the reinsurance contract contained
a forum selection clause in favour of English courts. The arbitration clause in Axa contained in the
reinsurance contract was worded as follows: "[tihe parties agree that priorrecourse to courts of law any
dispute between them concerning the provision of this contract shall first be the subject to arbitra-
tion". The reinsurance slip, on the other hand, provided that "[t]his contract shall be subject to
English law and jurisdiction". The court reconciled the two clauses and upheld the arbitration clause
on the ground that it expressly envisaged the possibility that proceedings could take place in court
only after arbitration (see the wording of the arbitration clause in the reinsurance contract: "prior
recourse").
60 See, among the others, Hussey Metal Division v Lectrometal FurnaceDivision, 471 F.2d 556 (1972):
"any doubts as to whether an arbitration clause may be interpreted to cover the asserted dispute
should be resolved in favour of arbitration unless a court can state with positive assurance that this
dispute was not meant to be arbitrated".
61 See the ICC case referred to above, n 58.
62 Redfern and Hunter ( n 34 above), p 197.
63 Bemardini, "The Arbitration Clause of an International Contract", 9 ]. Int'l Arb., 1992, p 45.
64 Supreme Court, 26 May 1989, no. 2538, Mass. Foro It., 1989, p 370. Along similar lines: Tribunal of
Milan, 10 October 1974, Rep. Foro It., 1974, p 137; Supreme Court, 28 May 1979, no. 3099, Rep.
Foro It., 1976, p 380; Supreme Court, 24 October 1979, no. 5562, Rep. Foro It., 1979, p 141. Com-
pare this approach with that adopted by US courts, above, n 48.
65 See Bernardini, n 63 above.
Uncertainty
Uncertainty in an arbitration clause may arise when the recourse to arbitra-
tion is envisaged to be merely optional. Here the issue is to determine whether
the parties have effectively intended the agreement to arbitrate to be a binding
dispute resolution clause notwithstanding the use of permissive words such as
"may" or "can". Below is an example:
"[t]he parties may refer any dispute to arbitration"."
Arbitration clauses affected by uncertainty should be construed with a view

of giving full effect to the intention of the parties to submit their disputes to
arbitration, irrespective of the use of permissive words such as "may" or "can".
Accordingly, the simple reference to arbitration would be sufficient to indic-
ate the parties' intention to go for arbitration. This is consistent with the
usages of international trade as codified in the UNIDROIT Principles and,
particularly, Article 4 - which provides that contracts must be interpreted
"[ ... .] according to the common intention of the parties [ . .] so as to give
effect to all the terms rather than to deprive some of them of effect". It follows
that the clause "parties may refer any dispute to arbitration" should be given
effect, as it is clear that here parties intended to refer their disputes to arbitra-
tion. The High Court of Hong Kong considered a clause similar to the one in
the example in Guandon Agricolture. In that case, it ruled that:67
"[taken as a whole and having regard not least to the title to the arbitration
clause, the partiesplainly agreedtosettl any dispute by arbitration. That is all
that is required in order to establish a binding arbitration agreement".68 6 9
66 See above.
67 See n 11 above. The relevant arbitration clause provided that "dispute can be submitted to arbitration".
68 See also the China State Construction case (see above, n 9). In Thorn (see above, n 10) the Court of
Appeal of Hong Kong had to face a clause similar to the one considered in Guandon Agricolture
(see above, n 67). The arbitration clause in Thom provided that "The Contractor or Sub-contractor
]". The Court of Appeal concluded
[ ... ] may require the dispute to be referred to arbitration [ ...
that the clause envisaged a mere option for the parties to refer disputes to arbitration, which did not
amount to an agreement to arbitrate (see also Wu and Austin, "Fine Distinction Results in Vindica-
tion for Arbitration in Construction", HK Law, September 2006, p 42). Subsequently, however, in
GrandeurElectrical (see n 10 above) the Court of Appeal, facing the same clause as the one in Thorn,
reached the opposite conclusion, holding that the option to refer disputes to arbitration was merely
an option to pursue the dispute further, or not to pursue the dispute at all (ie, the clause did not
envisage an option between arbitration and litigation- as it was held in Thom) and that if the former
option (ie, to pursue the dispute) was chosen, then arbitration would be the only way forward. The
decision in Grandeurhas confined the implications of Thom. In fact in Grandeurthe Court of Appeal
has reinterpreted its earlier decision giving the notion "option to arbitrate" a meaning which is con-
sistent with the minimal interference approach that Hong Kong courts have traditionally had to
arbitration (see, for example, the Guandon Agricolture case).
69 The same "liberal" approach was followed by the Ontario Court of Appeal in CanadianNational
Railway (see n 9 above) in interpreting the clause "parties may refer any dispute to arbitration"; see
also Lew, Mistelis and Kroll (n 36 above), p 154.
Similarly, in the William Company case, 0 the clause "all disputes shall, in
accordance with Chinese Law, be resolved in the courts of the People's
Republic of China or be arbitrated in the People['s] Republic of China" has
been construed as meaning that the plaintiff can choose arbitration or litiga-
tion in China and the defendant will have no say.
A part from the use of permissive expressions such as "may" or "can",
uncertainty may also arise with respect to so-called "blank clauses". Below is
an example:
"Arbitration: friendly arbitration in Hong Kong"."
Here again the arbitration clause should be construed in a way which would
give full effect to the parties' intention to refer their disputes to arbitration.
Clauses such as the one in the example should be upheld because the parties'
intention to go for arbitration is clear (not least because of the use of the
expression "Arbitration"). In addition, the specification of the seat of the
arbitral proceedings (Hong Kong) provides for a link to a system of law by
reference to which it is possible to determine the unspecified elements relat-
ing to the conduction of the arbitral proceedings. Accordingly, in the given
example, it will be for Hong Kong law (Hong Kong being the seat of the
arbitral proceedings) to specify things such as the number of the members of
the arbitral tribunal or the rules of procedure to be followed during the con-
duction of the arbitral proceedings.72
There are, however, "blank clauses" which do not contain any reference
to a system of law. Below is an example:
"Resolution of disputes: arbitration, in the usual way".
In the clause in the example the parties have made clear their intention to
refer disputes to arbitration ("Resolution of disputes: arbitration"). Nonethe-
less, the clause does not contain any reference to the seat of the arbitration,
nor does it contain any reference as to the applicable rules: prima facie this is
a clause incapable of being performed, as it lacks the necessary elements to
trigger the commencement of arbitral proceedings. However, there may be
70 See n 9 above.
71 See n 13 above.
72 In ContinentalCorporation (see n 13 above) the High Court of Hong Kong upheld the clause "Arbi-
tration: friendly arbitration in Hong Kong" on the basis that "it is not necessary that arbitration
clause should take a particular form so long as the intention to [refer disputes to arbitration] is clear".
Neither did the reference to "friendly arbitration" contained in the clause was such as to deprive the
agreement to arbitrate of legal effect: "the reference to "friendly" arbitration does not [ .. imply
that the parties did not intend to be bound contractually to resort to arbitration in the event of
dispute; on the contrary it implies resort to arbitration in preference to resort to a court of law".
cases where the expression "the usual way" may be given some meaning. If a
clause such as the one in the example is entered into by subjects belonging
to a particular association - such as a commodity or other trade association
- the reference to "the usual way" may be given some useful meaning. For
example, it may be interpreted as a reference to past practices among mem-
bers belonging to the same commodity or trade association. In such a case, so
long as the reference to the "usual way" allows indentification of where and
under which rules the arbitral proceeding is to be conducted, the clause ought
to be enforced consistently with principles of good faith and protection of the
parties' legitimate expectations.
Inoperability
There are various situations in which an arbitration clause is not operative.
Typical examples of inoperative agreements to arbitrate relate to cases where
the arbitration clause contains an inaccurate reference to an arbitral institu-
tion, such as "the ICC of Geneva",73 or refers to a non-existing institution,
such as "the London Arbitral Chamber", or to an institution which, at the
time the dispute arises, has ceased to exist. 7
The problem with these types of clauses is that they clearly refer to arbit-
ration, but do not permit identification with certainty, of a set of rules within
which the arbitral proceedings are to be conducted. So, for example, the clause
referring disputes to "the ICC of Geneva" clearly contains the parties' inten-
tion to refer disputes to arbitration; however, it is not clear whether the parties
intended the relevant arbitral proceeding to be conducted under the rules of
the ICC (as, notoriously, the ICC is not based in Geneva) or under some
other set of rules. Here again it is necessary to interpret the clause in accord-
ance with principle of good faith and protection of the parties' legitimate
expectations, so as to correct the pathology. One way to read the reference to
"the ICC of Geneva" allowing to give full effect to all the terms of the clause
(consistently with Article 4 of the UNIDROIT Principles), may be to con-
sider the clause as referring to ICC arbitration, to be conducted in Geneva -
Geneva being the seat of the arbitral proceedings; ICC Rules being the rules
applicable to the arbitral proceedings.
However, not always is it possible to give full effect to all of the terms
contained in an inoperative arbitration clause. For example, the clause refer-
ring the resolution of contractual disputes to the "London Arbitral Chamber"
may not be cured through construction. Although it is clear that the parties
7 Consider the following further examples of institutions not properly identified: disputes referred to
the ICC "of London", "of Zurich". Or disputes referred to "the Tribunal of the Paris Chambers of
Commerce"; See also n 14 above.
7 See the case law referred to in Fouchard, Gaillard and Goldman (n 1 above), p 264, n 111.
here intended to refer their disputes to arbitration, the inaccuracy of the clause
is of such a nature so as not to allow determination, with reasonable certainty,
of which institution was chosen by the parties to conduct the arbitral pro-
ceedings. In the example, the reference to the "London Arbitral Chamber"
may well be construed as referring either to LCIA arbitration to be conducted
in London, or to ICC arbitration with a London seat. Accordingly, the clause
should not be upheld."
With respect to inoperative arbitration clauses such as the ones examined
above, the line of distinction between clauses which will be cured as opposed
to those which will not could be construed in terms of "sufficient clarity":76
only in the event that, despite the inaccuracy, the reference to the arbitral
institution is sufficiently clear should the clause be upheld.
Apart from the cases considered above, there are other various situations
in which agreements to arbitrate may be deemed inoperative:
* the agreement to arbitrate provides that a specified institution or a

nominated individual has to appoint one of the arbitrators, but at the
time of the appointment the institution has ceased to existn or the
individual has died or does not want to be involved in the proceed-
ings;78
* the sole arbitrator appointed in the arbitration clause has died before
the dispute arose;"
* the arbitration clause provides for an overly detailed description of
the identity, qualifications and comportments of the arbitrator(s) with
the effect of making it practically impossible to appoint an arbitral
tribunal;
* the arbitration clause provides for institutional arbitration (say, ICC
arbitration) but the parties have agreed that a different institution
(say, the LCIA Court) should act as appointing authority in a situation
7 See Ltd CapitalRice v SARL Michael Come, above, n 14. In Lucky-Goldstar (see n 15 above), however,
the High Court of Hong Kong upheld an arbitration clause envisaging international arbitration ad-
ministered by a non-existent arbitral institution - the International Commercial Arbitration
Association. The High Court granted a stay and referred the parties to an arbitration to be conducted
"under the law of the place of arbitration chosen by the plaintiff". In a similar situation there may be
grounds to challenge recognition and/or enforcement of the resulting arbitral award on the basis of
Art V(1) (d) of the New York Convention, see n 76 below.
76 The risk of being too eager in rescuing arbitration clauses containing an inaccurate reference to an
arbitral institution would be to trigger the application of Art V(1)(d) New York Convention when
the enforcement of the award is sought: "Recognition and enforcement of the award may be refused
[... ] if [ ...] the composition of the arbitral authority or the arbitral procedure was not in accord-
ance with the agreement of the parties".
7 See the Aminoil award, n 16 above.
78 See Craig, Park and Paulsson, n 51 above, p 130.
7 See Craig, Park and Paulsson, n 51 above, p 130.
where the rules of the former do not allow arbitrators to be appointed

by a third institution;80 or
* the arbitration clause provides for a three members arbitral tribunal,
but the dispute arising out of the main contract involves three or
more parties with different interests (multiparty arbitration), each
entitled to appoint an arbitrator."1
In all of these cases it may be difficult, if not impossible, to rescue the patho-
logical arbitration clause without incurring the risk of triggering Article
V(1)(d) of the New York Convention82 - should the tribunal constituted on
the basis of such clauses be willing to render an award.
Conclusions
Pathological arbitration clauses are agreements to arbitrate which contain

defects liable to disrupt the smooth progress of the arbitration. They are quite
common in practice and their validity and effectiveness must be assessed in
light of the rules governing the arbitration agreement.
If parties have expressly chosen a particular system of law to govern the
arbitration agreement, then the effectiveness of pathological arbitration
clauses will be assessed in light of such law. However, in the more likely scen-
ario that parties have not referred to any particular system of law, it will be
necessary to determine which law is to govern the agreement to arbitrate. In
this connection, two different approaches may be followed:
(i) a conflict of law based approach, which would refer to the conflict of
law rules of the forum the task to determine, in light of various con-
necting factors (ie lex contractus, lex fori, lex arbitri), which law is to
govern the arbitration agreement; or
(ii) a substantive rule method, which would enable courts and arbitrators
to choose directly, without going through the conflict of law rules of
any forum and independently from any national legal system, the rules
of construction applicable to pathological arbitration clauses.
so Under the ICC Rules it is for the ICC Court only to appoint arbitrator(s) (see Arts 7.4, 9 and 10.2).
Arbitration clauses envisaging ICC arbitration with the LCIA Court acting as appointing authority
will be inoperative.
81 Within the framework of ICC or LCIA arbitrations the issue is specifically addressed in Art 10 ICC
Rules or Art 8 LCIA Rules. These empower the International Court of Arbitration and the LCIA
Court to unilaterally appoint the members of the tribunal if the parties do not agree on joint appoint-
ments. However, if the arbitration is an ad hoc one or if the relevant arbitration rules do not provide
for similar mechanism, the arbitration clause will invariably deemed inoperative.
82 See n 76 above.
Conflict of law-based approaches have been followed by common law and

most civil law courts. Most common law courts have now taken the view
that, in the absence of choice, it is for the law applicable to the main agree-
ment to govern the arbitration clause. Most civil law courts, on the contrary,
tend to consider that, in the absence of choice, it is for the law of the seat to
govern the arbitration clause.
A substantive rule approach, aimed at identifying the rules governing the
arbitration clause directly (ie, without going through any conflict of law rules),
has been developed by French courts and followed by arbitral tribunals.
According to this alternative approach, in the absence of choice, effective-
ness of arbitration clauses must be assessed directly in light of internationally
recognised principles of construction and interpretation and, particularly, prin-
ciples of good faith and protection of the parties' legitimate expectations at
the time of entering into the arbitration agreement. The substantive rule
method is based on the assumption that in selecting international arbitra-
tion as the way to resolve their disputes, parties elect for a dispute resolution
mechanism which is completely detached from any national legal system.
Accordingly, the effectiveness of the parties' choice to refer their disputes to
arbitration must be ascertained independently from any national law.
The substantive rule method is to be preferred over other conflict of law-
based approaches, as it favours uniformity in the interpretation of pathological
arbitration clauses, it is more consistent with the need to preserves the par-
ties' will to detach the resolution of their disputes from any national legal
system, and it allows pathological arbitration clauses to be construed in accord-
ance with the worldwide trend towards supporting international arbitration.
In practice, the application of the substantive rule method will require
judges and arbitrators to construe pathological arbitration clauses so as to
give full effect to the parties' will to refer disputes to arbitration, in accord-
ance with the principle of good faith and protection of parties' legitimate
expectations when entering into an agreement to arbitrate. Only in the event
the arbitration clause cannot be cured through a construction consistent with
the need to give full effect to the parties' will to refer their disputes to arbitra-
tion, should the clause not be upheld.

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This article considers the problems related to pathologicalarbitrationclauses within

Understanding pathological arbitration clauses is crucial in international com-

* explain what pathological arbitration clauses are;

Notion and Examples of Pathological Arbitration Clauses

The concept of clause d'arbitragepathologiqueor pathological arbitration clause

"denotes arbitration agreements, and particularly arbitration clauses, which

Although defects giving rise to pathological arbitration agreements may affect

"[any dispute or difference shall [ ... ] be adjudicated upon under the

"[... ] all disputes shall, in accordance with Chinese Law, be resolved in

"[t]he parties may refer any dispute to arbitration";9 or

"[... ] disputes can be submitted to the adjuster for arbitration"."

An arbitration clause can also be pathological due to uncertainty when it

"Resolution of disputes: arbitration, Paris"; or

An arbitration clause is inoperative when it refers to an arbitral institution

"London Arbitral Chamber";" or

Other examples of arbitration clauses being inoperative relate to those situ-

The Rules Governing Arbitration Agreements and their Relevance in

It is in light of the rules governing the arbitration agreement that patholo-

interpretative options may be pursued. The starting point is that an arbitra-

"[w]here the substantive contract contains an express choice of law, but

latter agreement will normally be governed by the body of law expressly

"any dispute, controversy or claim arising out of or relating to this Policy

The choice of law clause in the main contract envisaged that:

the agreement to arbitrate, it will be necessary to assess whether the seat of

need to assure consistency with the separability doctrine when determining

41 See Smedresman, Conflict of Laws (n 26 above, p 328).

underlying contract (consistently with the separability doctrine), and from

reference to the place where the contract is to be performed, whereas in

Arbitral tribunals have applied the substantive rule method to determine

This provision is commonly deemed to represent the source of the power of

"[t]he Arbitral Tribunal shall decide the parties' dispute in accordance

Having identified the principles according to which, in the absence

The Interpretation of Pathological Arbitration Clauses

55 Available at http://www.unidroit.org/english/principles/contracts/main.htm, visited 1 May 2007.

Some of the most common examples of pathological arbitration clauses giv-

"[any dispute or difference shall [ ... I be adjudicated upon under the

One way to reconcile the inconsistency in accordance with principles of good

"the submission of disputes to arbitration implies an exceptional exclu-

The position expressed by Italian authorities originates in the historic (and,

"[t]he parties may refer any dispute to arbitration"."

Arbitration clauses affected by uncertainty should be construed with a view

"Arbitration: friendly arbitration in Hong Kong"."

"Resolution of disputes: arbitration, in the usual way".

* the agreement to arbitrate provides that a specified institution or a

where the rules of the former do not allow arbitrators to be appointed

Pathological arbitration clauses are agreements to arbitrate which contain

Conflict of law-based approaches have been followed by common law and

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