Introduction  

According to party autonomy the parties are free to determine whether to conduct the disputes through arbitration, the parties are free to decide the numbers of arbitrators, the language or languages to be used in the proceedings, the place of arbitration, to expressly authorize the arbitral tribunal, which shall decide ex aequo et bono or as amiable compositeur and agree on the procedure to be followed by the arbitral in conducting the proceedings. Also to decide the laws or regulations of which were complied by arbitration.[1]Party autonomy has been used in common law, civil law, and in socialist countries[2], and we can see it as a very important principle for private international law, code of civil, and international commercial arbitration to adopt always. For example, New York Convention of 1958 has already recognized its position.[3]While discussing international commercial arbitration, the doctrine of party autonomy must be included. This is because in international commercial arbitration it misses this principle it is similar to a building without trusses and will collapse immediately.[4]
To view it at the point of traditional law, international commercial arbitration is governed by the law, and it is just the lex loci arbitri.[5] It is similar that the court procedure is governed by lex fori. In fact, arbitral procedure is governed by lex loci arbitri has been popularly accepted internationally for a very long time.[6] Though the lex loci arbitri has the inseparable relationship with the arbitral procedure, the arbitral procedure still should be often governed by the lex loci arbitri, the place of arbitration is the most meaningful connecting element for determining the law applicable to the arbitral procedure; in general, arbitration scholars state in the “seat” theory.[7]However, many faults are found in this theory and frequently criticized, inter alia, the severe conflicts exist in the principle of applied lex loci arbitri with that of choosing freely the applicable law by the parties, which obstruct the development of international commercial arbitration.[8]
Therefore, some international scholars provide that the parties shall be free to agree upon the law applicable to the merits of dispute and applicable to the procedure, and only in the absence of any indication by the parties, the place where the arbitration tribunal shall apply the lex loci arbitri as applicable to the procedure and substantive issues, it is said that the “delocalisation” theory is used by scholars commonly.[9] The measure of the parties’ free will to choose law, the international arbitral scholars make every endeavor to constitute the “delocalisation” theory for accomplishing the doctrine of party autonomy.[10] The way of this theory can promote the development of international commercial arbitration.. Undeniably, the fundamental of this theory is still not yet satisfactory, therefore, the award is made relying on this theory, it will run the risk of the award being refused to be recognized and enforced.[11]
Although party autonomy has been accepted in international commercial arbitration, however, the party autonomy is not always inviolable. Sometimes, the parties should accept the binding force of mandatory rules and public policy countries involved. The performance of party autonomy and that of mandatory rules and public policy always bear the increasing and decreasing relations mutually in international commercial arbitration. The more mandatory rules and public policy interfere in arbitral performance; party autonomy will be least exercised. On the contrary, party autonomy is fully respected and performed, state’s interference and control of arbitration will be weakened. But, international commercial arbitration is still unable to escape the procedure of governing from mandatory rules and public policy.
Judging from above, an intense debate on party autonomy ,the “seat” theory, the “delocalization”, mandatory rules and public policy were going on in international commercial arbitration, it has been the subject of controversy. That is to say there is more room for further investigation. It is for this reason that it encourages me to research this topic.
 This paper focuses on studying the current theory and practice of procedural law by means of objective comparative analysis and synthetic induction with the various theoretical doctrines, legislations and cases. The purpose of this paper is to extend that previous point and find out the advantages and disadvantages of the theory and practice in the arbitral procedure and propose the observation for enabling supplementing shortcomings of the present arbitral theories. More importantly, how to keep the balance between the doctrine of party autonomy and the lex loci arbitri, how to sustain the balance between the doctrine of party autonomy and mandatory rules and public policy  and to promote development of international commercial arbitration are invaluable to study deeply.
 

Chapter Ⅰ—Party Autonomy

 

1.The meaning of arbitration

 It is necessary to know the definition of arbitration if we want to know what is the nature of arbitration. Since only if one acknowledges the definition of arbitration, then one can understand deeply about the nature of arbitration. Although the arbitration concept is understood by many countries but it is not homogenous in every nation. Those different definitions respond to the different legal systems and domestic problems.[12] The definition used by the U.S Supreme Court is “an agreement to arbitrate before a specified tribunal [is] in effect, a specialized kind of forum –selection clause that posits not only the situs of swit, but also the procedure to be used in resolving the disputes.”[13] This is the arbitral definition in the court field. Besides, the American Arbitration Association defines arbitration: “the reference of a dispute to one or more impartial persons for final and binding determination.”[14] But this definition neglects the private character of arbitration and the judicial responsibility of the arbitrators. In France, arbitration is traditionally defined as the following “arbitration is a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons - the arbitrator or arbitrators - who derive their powers from a private agreement, not from the authorities of a State, and who are to proceed and decide the case on the basis of such an agreement.”[15] Two other scholars have an effective definition of arbitration: “a private mechanism for the resolution of disputes, which takes place in private pursuant to an agreement between two or more parties, under which the parties agree to be bound by the decision to be given by the arbitrator according to law after a fair hearing, such decision being enforceable at law.”[16] Many other scholars have particular definitions of arbitration, but definition of arbitration should be consensual - parties must agree to submit the disputes for arbitration. Secondly, arbitrators are resolved by non–government, but should be selected by the parties. Finally, arbitration produces a definitive and finding award, which can be enforced by an international court.[17] These topics are significant and worth studying in international commercial arbitration.
 

2.The concept of international commercial arbitration

 
The scholars of various nations have the different opinions on this concept.[18] This paper considers the observation on the nature, character, function and purpose of international commercial arbitration, which can be defined as a legal system enabling to uphold the doctrine of party autonomy. We can explain this concept by following three implications:
(a) International Commercial Arbitration has a nature of jurisprudence:
Arbitration during its early stages, courts and government organizations did not get involved and the parties were free to select the third party for settlement. In that period, commercial arbitration had no legal system. Until the fourteenth century, Swedish domestic law had included arbitration in their articles of law as a method for settling the disputes.[19] In 1889, the United Kingdom promulgated their primary arbitration act.[20] Since the 19th century, France, Germany, and Japan have continuously set up their own law of arbitration or instituted the arbitral law in the specific charter of code of civil procedures. In that age, commercial arbitration was for settling the disputes of national civil and commercial affairs. From the twentieth century, international trading has developed continuously, the international dispute has increased correspondingly.[21] Thus, international commercial arbitration is extensively and gradually accepted internationally for settling disputes of civil and commercial affairs.[22] To adopt these evolutionary changes, every nation has instituted or revised the law of arbitration numerously. For solving the conflicts caused by the different arbitral institutions of every state, the Geneva Protocol was signed in 1923 and 1927 internationally.[23] Concerning executing the foreign arbitral convention, various countries also signed the multilateral international treaty in 1958 The New York Convention on the Recognition and Enforcement of Foreign Arbitral Award (abbreviation, New York Convention), which is the most important treaty in the field of international commercial arbitration.[24] It likened the only most important truss of the international arbitration mansion and most successful model of enacting laws in the whole commercial law history.[25] The ICSID Rules of Procedure for the institution of Conciliation and Arbitration Proceedings signed at Washington, USA in 1965 is the other more influential multilateral international treaty,[26] following the 1958 New York Convention and United Nations instituted UNCITRAL Arbitration Rules (1976). United Nations passed UNCITRAL Model Law on International Commercial Arbitration in 1985. Which has the very great contribution to unify and modernize the international commercial arbitration, it is also reputed to be the obvious developing and influential achievements in the modern international commercial arbitration field.[27]
Analyzing the above data, it is clear that arbitration is not a matter of individual nature or previously a private affair. The laws instituted by various nations and the treaties signed internationally for letting the arbitration become part of judicial institution. This meaning also can be indicated by the following:
(1). The validity of award and arbitration
Awards still need to rely on the support and assistance of the court. For example, the court accords to the requests of the party, and then take measures to accept the evidence and safeguard the property. If the arbitration agreement has no effect given by the state law, then it is just an empty contract.
 (2). Court supervises and controls the arbitral procedure:
The proceeding of the arbitral procedure is not possible from the law. The law of arbitration in every state allows power to the court enabling supervision and control of the arbitral procedure. Such as authorize hearing of the arbitration, to change the arbitrator and to remain the principle of equality protection.[28]
(3). To guarantee the effect of executing the award:
If the party refuses to execute the award, then it needs to rely on the enforcement by the court. The award is worthless if it is not enforceable.[29]
 
(b) International Commercial Arbitration is provided with an autonomous nature:
 
As above mentioned, international commercial arbitration is a legal system. The great autonomy is its most feature, which mainly distinguishes as following:
(1) The party has the extensive right of choice: The party is free to choose whether to contract for submitting to arbitration or not, to decide the organization of arbitration, to agree on the place of arbitration, to appoint the arbitrator and to determine the substantial law and procedure law of the applicable arbitration law.[30]
(2) Arbitration tribunal possesses certain arbitration autonomy:
Tribunal has the power to decide its own jurisdiction.[31] Unless the party has other agreements, arbitration tribunal also has the power in determining the place of arbitration, to apply the applicable procedure with substantial regulations as well as the conflict of laws,[32] to give the interim, intermediate and partial awards to relative matters, towards the final award to argued issues.[33] Basically, arbitration is an independent system; only some affairs of arbitration demand the assistance from the court. But its operation still needs to accept supervision and control under the court.[34]
©International commercial arbitration is a system to settle international commercial arguments:
 Having developed for several centuries, commercial arbitration is obviously not able to settle complicated arguments only by the law of arbitration of a nation, which is due to different nationality, law, custom and conflict of the parties dealing with international trade. Therefore, one of the characters of the law of arbitration in the recent times is to distinguish the international arbitration from domestic arbitration.[35]As domestic arbitration is designed for settling the domestic disputes, it is apparent that it is not sufficient to resolve the international disputes. Such as whenever involving the definition and form of the arbitration agreement, jurisdiction of arbitral tribunal, conduct of arbitral proceedings, recognition and enforcement of awards and so on, various states need to seek for the mutual consensus for settling the disputes commonly. The 1958 New York Convention, 1961 European Convention, and the 1985 UNCITRAL Model Law on International Commercial Arbitration all provides the affirming provisions to regulate the various issues of the international arbitration. It is the great contribution for settling the very international disputes. Concerning the arguments involving the foreign elements; the nation normally gives more freedom to parties. If the argument is purely local, it usually needs to reserve more power of control. However, the substantial meaning of the distinction of the arbitration is rather significant. To understand the implication of the international commercial arbitration, it should have the very clear definition on the ‘international’ and  ‘commerce’, or, it is difficult to judge if the arbitration is international commercial arbitration precisely.     
In judging international arbitration, generally it can be classified in two aspects. The present age, various nations enact the law of arbitration and in practice to judge if the arbitration is international by:
(a) The interlinked material facts are the judged standard. If the party is a natural person, then the judged standard is his nationality, residence or customary residence. If the party is a legal person, then will accord to either of the registered address, location of the business main office or the place of administrative center to judge it.[36] The United Kingdom, Denmark, Sweden and some Arabian countries have adopted this method to confirm if the arbitration is international. The Article1 (1) of 1961 Europe Convention is to adopt this method. [37]
(b) The judged standard is based on the nature of dispute: 
It is to examine the nature of the argument to see if it involves and, or, it contains the benefits of international commerce, also to judge if arbitration is international. The Article 1(1) of I.C.C Rules of 1988 definitely regulates that:“ 1…the function of the Court is to provide for the settlement by arbitration of business disputes of an international character in accordance with the Rules.”[38] The Article1472 of French Code of Civil Procedure of 1981 regulates that: “Arbitration is international if it implicates international commercial interests.” But, the above two explanations are still unable to demarcate the disputes of international commercial arbitration. For overcoming this problem, the definition of international commercial arbitration is maybe much clear and definite, if it is under Article 1(3) of the UNCITRAL Model Law (hereinafter the Model Law):
“An arbitration is international if:
(a) The parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or
(b) one of the following places is situated outside the State in which the parties have their places of business:
(i) the parties to an arbitration agreement have, at the time of the conclusion of that agreement;
(ii) Any place where a substantial part of the obligations of the commercial relationship as to be performed or the place with which the subject-matter of the arbitration agreement relates to more than one country.”[39]
The Model Law does not define the word of “ commercial” but states:
“The term‘commercial’should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationship of a commercial nature include, but are not limited to, the following transaction; any trade transaction for the supply or exchange of goods or service; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.”[40]
 
3.The theory of the nature of arbitration
 
Undergoing very long development, the arbitration field has concluded the following four theories to explain the nature of arbitration. But none of them is able to explain the nature of arbitration thoughtfully, neither any of them can be accepted by the arbitration field of the world completely. Therefore, The present writer will try to analyze the nature of arbitration from every different point.
(a)The Jurisdictional Theory 
This theory illustrates that the state has the right to control and administer the arbitration held in their jurisdiction. Though this opinion considers that the power of arbitration comes from the agreement of the parties, it also advocates that the award made by the arbitrator, the legal effect of the arbitration agreement, the power of the arbitrator and enforcement of the award all depend on enforcing the law of the state.[41] The arbitration will be meaningless, and invalid except that the domestic law recognizes that the parties’ have the right to submit to arbitration, to authorize the hearing of arbitrator, to award the issues and to enforce the award. The power and effect of the arbitration is a concession from the country executing the arbitration.[42] This theory is of the opinion that the arbitration interprets a part of jurisdiction. Arbitration power comes from domestic law. Award is a judgment in the same as the decisions rendered by the court. Adjudication is the function of the state. In general, state courts can only recognize the function. Only the law of the country where the arbitration took place is explicit the affirmation of implied recognition, then the party is able to conduct arbitration. The award of arbitration will not take effect if there is no delegation of sovereign authority.[43]
This theory also considers that the power of arbitration is similar to that of justice. Award and judgment should be given the same effect. Arbitration is worthless on its own, except if parties voluntarily perform. Or, it will be worthy subject to depending on the enforcement of the court.[44] The French scholar Klein said: “the State alone has the right to administrate justice, so that if the law allows the parties to submit to arbitration, this institution could be exercising a public function, from which logically it must be concluded that the award is a judgment in the same sense as the decisions rendered by the judges of the state.”[45]
 Jurisdictional theory reflects that arbitration has the big change in its developing process. It becomes a component part of legal system. Because arbitration had been practiced between 14th and 19th centuries, it only stayed in the status of autonomy. In other words, the state does not involve itself in arbitration as arbitral proceedings are private. The award of arbitration is also relied on parties to perform, without assistance from state. At that time, there was no law, recognition, award, nor authorized award whether the award could be executed effectively, which thoroughly depended on the merchant who is honest and is willing to accept the award.[46] The award would be meaningless, if either party is not willing to obey it. It more or less got the negative effect during the development of arbitration. For this reason, once the state recognizes an arbitral institution, arbitration was treated as a segment of the legal system.[47] In other words, any matters involved in the effect and power of arbitration are guaranteed legally. However, Jurisdictional theory guarantees arbitrator's power and the benefits of the party autonomy.
Comments on The Jurisdictional Theory:
This theory overemphasizes that the power of arbitrator is authorized by the domestic law, but neglects the reality of the authority and the trust of parties to select the arbitrator likingly. [48]It is that arbitrator is actually appointed by the parties and not assigned by the state. The power of the arbitrator holds from the agreement of the parties and not the law of state. It serves to see that jurisdictional theory advocates the power of arbitration holds from the authority of law is obviously bias.[49]
 Jurisdictional theory overemphasizes the lex loci arbitri and the law of the place of enforcement.[50] The theory also considers that the arbitrator should apply the procedural law and conflict of law rules of the place of arbitration. In fact arbitration and the lex loci arbitri do indeed exist, but it is not the only connection. If arbitration overemphasizes the lex loci arbitri, it will lose the feature of arbitral autonomy and prevent the active development of arbitration.[51]
This theory has very big difference from idea of the international commercial arbitration to be
seriously considered important gradually and the theory adopting the doctrine of party autonomy.
So this paper does not agree with this theory.[52]
(b) The Contractual theory
This theory considers that arbitration comes from the agreement of parties. Arbitration is contractual nature in judicature. According to the agreement, party autonomy can select the arbitration, decide how to proceed with the arbitral procedure, arbitration way, location, time, language and component of arbitral tribunal.[53] Arbitration to the applicable law and the arbitrator's power are all decided by the agreement of party autonomy. Niboyet said: “Arbitration awards, have a contractual nature, as the arbitrators do not hold their power from the law or the judicial authorities, but from the parties’ agreement (arbitration agreement, submission to arbitration). The arbitrator decides just as the parties could have done by agreement; [the parties] gave the arbitrators a real mandate to decide in their place. The award is thus impregnated with a contractual character, and [according] to the law, it appears to be the work of the parties, it must have, as with all agreements, lawful effect, and [it must] possess the authority of a final judgment.”[54] The opinion of this theory is that the arbitrator holds power from the authority of both parties, not the law. Arbitration power is contractual. Rather, it is that parties’ agree to their own will and grant  the arbitrator hold power and make the award. The parties’ accept the award of their own free will .[55] They also think that the arbitrator is simply their agent.[56] Award is the contract made by the arbitrator for the parties. Hence, the parties have obligation to voluntarily execute the contract. Once the parties do not observe, the courts can execute it according to party requests. Arbitration effect holds from principle of contract that it should be honoured.[57]
Comments on The Contractual Theory:
(1) This theory neglects that the law of state can still influence the arbitration institution. It means that the will of party is not extensively unlimited. It cannot ignore the restraint of law. If the party violates the public policy of the arbitral place and the mandatory rules, then the award will be invalid and set aside.[58] For example, under Article V.(2) (b) of New York Convention of 1958 states “Recognition and enforcement of an arbitral award  may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: The recognition or enforcement of the award would be contrary to the public policy of that country.”[59] Obviously, contractual theory has the drawback of not seeing the woods for the trees.
(2) Only by the doctrine of party autonomy, it cannot realize the aim of arbitration thoroughly. Especially, how to assure that the award will be carried out effectively? Only by the doctrine of party autonomy, it is not possible to overcome this problem. Relying upon the judicial organs of state to enforce reaching of the expected aim will not be sufficient.[60] The Contractual Theory advocates that arbitration can be treated as contract to be recognized and enforced in any state. Arbitration is contractual, it is not judicial and these are not available in the reality circumstance.[61]
(3) In addition, the idea of Contractual Theory is that the arbitrator is the agent of party. The meaning of agent as mentioned in Civil Law becomes contrary and illogical. As the power of agent is only authorized by the party.[62] The max of his power can only be the same as party. It is unreasonable to have bigger power than the party. When the party cannot settle his own arguments, how can his agent be able to act as a judge to deal with the forwarded argument as it is not workable in the general principles of law 
© Mixed or Hybrid Theory
This theory does not articulate the above-mentioned theories. The view is that arbitration has both contractual and judicial characteristics. Either of them cannot interpret the nature of arbitration entirely. This theory gets support from major scholars.[63] Furthermore, this theory points out that the answers to the following questions all depend on the law of that domestic court entirely. After French scholar named Professor Saucer - Hall had recommended this theory greatly, it got its position. Professor Saucer - Hall advocates: “there had to be some law which could determine the validity of the submission to arbitration and the enforceability of the submission to arbitration and the enforceability of the award. Equally he realistically acknowledged  that an arbitration has its origins in a private contract, and who are to be the arbitrators  and the rules to govern the arbitration procedure depend primarily and jurisdictional elements of arbitration to be ‘indissolvably intertwined’.”[64]
The idea of this theory is that the judicial powers of the state and the contract of party autonomy is mediate mutually and not against each other.[65] The parties are free to agree on the procedure to followed by the arbitral tribunal in conducting the proceedings. Failing such agreement, the arbitral tribunal may, subject to lex loci arbitri ,conduct the arbitration in such manner as it considers appropriate. The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. The award carried out under the rule of the country in which the arbitration is held is a special mixture of judicial institutions.[66] In other words, arbitration not only has the character of judicial powers, it also has the character of contract. It is really a mediation and compromise of the will of party and the lex loci arbitri. If the award is against the public policy and mandatory rules of place of the arbitration, then that award will not be recognized and executed.[67]
Comments on The Mixed Theory
(1) This theory not only pays much attention to the doctrine of party autonomy, but also considers the reality of arbitration. Because, if arbitration does not have the assistance from state, it will be difficult to get the recognition and execution. This theory emphasizes that contract and judicature are mediated mutually. So, arbitration comes from the agreement of parties has obtained its judicial effect in the civil law.
2. But its emphasis on the position and function of the lex loci arbitri obstructs the development of arbitration.
(d)The Autonomous Theory
This theory considers that the nature of arbitration is not purely contractual, judicial, nor mixed, it is that autonomous Madame Rubellin-Devichi advocates this theory and points out "The question is to know whether the arbitration does not extend beyond its two components to establish an autonomous institution, the nature of which should not be defined by reference to the contract or to the jurisdiction, but whose legal authority is to be justified both by its purpose and by the guarantees necessary for those parties who do not bring their disputes before the official courts.”[68] And “ In order to allow arbitration to enjoy the expansion it deserves, while we along keeping it within its appropriate limits, one must accept, I believe, that its nature is neither contractual, nor jurisdictional, nor hybrid, but autonomous.”[69] This theory considers that the development of arbitration should inform merchants who take matters seriously about the results of practice. Development of arbitration constantly proceeds out of law or neglecting the law. For example parties are free to agree on the substantive law and procedural law in conducting the proceedings. According to the character of contract and judicature, arbitral contract and award are executable because of the demand for the smooth proceeding of international commercial relations.[70]
The scholars who advocate this theory think that parties are entirely free to agree on  the domestic law, international commercial law, the relative Lex mercatoria or the general amiable compositeur. Failing such agreement, the arbitral tribunal  may ,subject to private international law or international law ,conduct the proceedings.[71]

Comments on The Autonomous Theory

(1) From the points of emphasizing the aim and function of arbitration and the doctrine of party autonomy, it reflects some trends in relation to the growing needs of business people for a flexible and private way of dispute resolution and development of international commercial arbitration,[72] but it neglects the social, political and economic background of the arbitral development. Obviously, its researching way is not perfect.
(2) This theory emphasizes the autonomous power of parties and arbitral tribunal greatly and intends to let arbitration get away from current law order entirely.[73] But it is much further away from the actual operation in international commercial arbitration because it is not possible to exclude the involved court. For example, to enforce the award, to adopt the interim measure of protection all need the complete assistance of the court. It is clear that arbitral procedure purely is insufficient to protect the parties.
(e)The Cooperative Theory (This noun named by the author.)
(1)According to the above analysis, we can clearly find that either the independent jurisdictional theory nor the contractual theory is not able to reflect the nature of arbitration fully. It cannot only correspond with the nature of arbitration authorized by the party, it also prevents the active development of arbitration. On the other hand, the arbitral purpose cannot be carried out thoroughly just by the system of doctrine of party autonomy. How can we guarantee that the award will become truly effective. It still needs to lean on the judicial organs to enforce according to the law, and then the purpose of arbitration will be made. Though the mixed theory takes care of both the characters of jurisdiction and contractual theories, it overemphasized the position and function of the lex loci arbitri,[74] which is not merely against the expectation of free selection by the parties, also not corresponding with “ the delocalisation theory” risen gradually and different from the international practical current.[75] As to the autonomous theory, though it pays attention to the autonomous powers of the parties and arbitral tribunal, it intends to entirely throw off the restraint of present law neither to match the legal provisions of various nations, in the world, nor to explain how to guarantee this theory is able to be executed. Really, this theory is quite informative, but far from reality. Thus, it still cannot explain the nature of arbitration completely.
(2)To understand the nature of arbitration, the formed elements of arbitration, historical development, the motion. Purpose as well as expectation of the arbitration selected by the parties and the reality of the development of international arbitration are necessary to be observed. The nature of arbitration is the self-determination, contractual and judicial mutual cooperation. To speak of the formal elements of arbitration, popularly, the elements are (a) arbitration is consensual (b) arbitrator is selected by the parties (c) the award is final and restrainedly executable,[76] referring to the formed elements of arbitration, it is clear that arbitration is consensual, which is the contract for submitting to the arbitrator. And for guaranteeing the award is executable, it must depend on the assistance of the court. From this      point to observe, arbitration is judicial. 
(3)What is the motive behind a party selecting arbitration. It has the relation with the nature of arbitration too. We cannot arbitrarily think that owing to the dislike for the involvement of the court, so the parties select the arbitration. This kind of statement is not convincible. The reason of the party selecting the arbitration for settling the disputes is because it is more advantageous than the court, as arbitration is faster, simple, economic and not necessary to proceed in public, which can protect the secrets of the party.[77] Also, it’s friendlier against going to the court for arguing. To observe this point, the parties’ contract livingly in private for settling the disputes, it means the arbitration has already provided with the autonomous and consensual characters. During the proceeding of arbitration, one of the parties sometimes requests safeguards, such as provisional seizure or temporary inhumation for protecting his own right and interest; in this case, the assistance of the court is unavoidable. In addition, either of the parties refuse to execute the award, the other party certainly expects very much the court uses its government power to guarantee enforcement and execution of the agreement. On this stand, we have no reason to think that the parties will refuse the involvement of the court or repel the rescue and protection from the law when they select the arbitration. Hence, arbitration its own concludes these three characters. These three natures react the three kinds of arbitral procedures that they are not repellent, but cooperative mutually for satisfying the motion, purpose and expect of selecting the arbitration by the parties.
(4) To foresee developing trends in international commercial arbitration, the doctrine of party autonomy has been widely accepted by various nations of the world. The parties are free to determine whether to conduct the disputes through arbitration, determine the place of arbitration, select the law applicable to arbitration and so on. The development of this kind trend certifies that the arbitration is autonomous with consensual and it’s respected extensively. But it does not mean that the will of the parties is unlimited. The appropriate respect on the power of court is the realistically necessity, but it’s not to accept the interference of the court totally neither. Otherwise, it will prevent the development of international commercial arbitration.
(5) It must forward to explain that this paper is though considered to respect the power of court appropriately; it does not mean to intensify the position and function of the lex loci arbitri. The mixed theory is regarded “the arbitration must find a happy medium between the parties, wishes and the law of the place of arbitration,”[78] which ever states that the lex loci arbitri is not adopted by this paper. Since arbitral tribunal is not a court, so, there is no sufficient reasons considered the arbitral is responsible to precede the arbitral procedures by the applicable lex loci arbitri. Moreover, it is that the parties’ select the place of arbitration just constantly considering its convenience or changeability.[79]
(6)The power of arbitration and court all result from the people, both positions should be equal .For a very long time, the scholars of arbitration in the world all advocates that the power of arbitration is under the authority of the people and the power of court is given by the law of state. The basis of power is different.[80]The scholar. Rubellin Devichi proposing the autonomous theory thinks the reasons for her objection to the Contractual theory and Jurisdictional theory are that these two theories all do not correspond with the reality, are directly contrary each other, both can’t be accepted simultaneously. In addition to, while the court intends to recognize the arbitration agreement, the court may be jealous and hostile to the arbitrator. Besides, both theories are not “indissoluably intertwined” as Mix theory thought.[81]
Nevertheless, this paper does not accept the above statement. As the role of arbitration and court is not only contrary but cooperative of each other. They are mutually beneficial. No doubt the power of arbitration from the authority of the people, don’t the power of the court and the power concerning the law of the state result from the authority of the people? This point can be accorded to the Locke’s second Treatise of Government theory begins with a pre-social state of nature in which equal individuals have natural rights to life, liberty and estates.[82] John Locke thinks that the government is established under a social contract for the ruler and the ruled. The people will follow the obligation of the government subject to the rights being protected by the government. If there is no system of government, then the people are unable to possess the rights of equality.[83] From the political stands to observe, we can discover that the power of the government results from the authority of the people. Without the dependence and authority of the people, the government then does not have the foundation to rule. Court is only an organization of the government. The law of the state is also instituted by adhering to the will of the people. The power of the court certainly holds by the authority of the law of government, but, in the back, the real authority is actually the people. The argued parties are the part of the people. To inferentially analyze logically, we have to face the reality clearly, the power of the arbitration and court is the same to bind by the authority of parties. Their position is identical, but just with a different system, adopting the different demand, operating the various procedures and the distinctive authorized power.
Hence, this paper thinks that the traditional scholars of arbitration ignore this key point. No matter whatever the Jurisdictional theory, the contractual theory, the mixed theory or the autonomous theory all neglect  this point clearly, maybe have the misconception on the nature of arbitration. In fact, to understand the relationship between the arbitration and court, we must stand on the position of the party to consider the party as both the master, the absolute authorizer of power. This point is to explain that the power of the court and arbitration all result from parties. However, it does not deny the existence of position and effect of public policy. It is impossible to neglect that public policy of the seat of arbitration. For example, under Article V.(2).(b) of  New York Convention of 1958 states “Recognition and enforcement of an arbitral award  may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: The recognition or enforcement of the award would be contrary to the public policy of that country.” and Article 34 (2) (b) states: “An arbitral award may be set aside by the court specified in article 6 only if: the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the award is in conflict with the public policy of this State.” we can find that public policy had a big influence for the country where recognition and enforcement is sought. The expectation of the party is to have the role of the arbitration and court on an equal position. The aim for the existence of both systems is to settle the arguments of the parties, and to serve the parties loyally. So, it can be certified that the advocate of Rubellin-Devichi concerning Jurisdictional theory with contractual theory are directly contrary to each other, both unable to be adopted simultaneously and so on is obviously not correspondent with the principle of politics.[84] It is only that the arbitration cooperates with the court mutually, then can promote the welfare of the human being and satisfy  the expectations of the people. Arbitration will be able to lessen the original examination for the court and shorten the system of the court. The court also enables vice versa in assisting the award of arbitration to be endorsed and accomplish safeguards, such as interim measures of protection. In simple language, by more people deciding to arbitrate rather than take parties to court it will save more time and lessen court cases. This will be beneficial to the state.  
Chapter 2—Party Autonomy 
1.The theoretical basis of the party autonomy applicable to the international commercial arbitration:
The doctrine of party autonomy was founded by the French scholar Dumoulin in the16th century. He extends the free principle of the agreement on Civil Law, then to found this principle.[85]That is to say, the relationship between liabilities of the establishing document and serving need to order by parties. It should depend on the person’s autonomy to apply to law, which is a substantial law to order a contract.
It would be better to say that as the law of contract is concerned, there is a principle of law which is generally accepted, and which directs international commercial arbitrators to the correct choice of the law applicable to an international commercial contract. By this it is meant that the freedom of the parties to choose for themselves the law applicable to their contract.
“The doctrine of party autonomy, which was first developed by academic writers then adopted by national courts, has gained extensive acceptance in national systems of law:”… despite their difference, common law, civil law and socialist countries have all equally been affected by the movement towards the rule relations. This development has come about independently in every country and without any concerted effort by the nations of the world; it is the result of separate, contemporaneous and pragmatic evolutions within the various national systems of conflict of law”[86]
It has been acknowledged that party autonomy is a necessary element in the advancement of arbitration as a system of private dispute resolution. Article 2 of the 1923 Geneva Protocol provides that the constitution of arbitral tribunals and arbitral procedures shall be governed by“ the will of the parties and by the law of the country in whose territory the arbitration takes place.” A similar provision is contained in Article 1 of the Geneva Convention of 1927, which provides, inter alias that one of the prerequisites for recognition and enforcement of awards is that the arbitral tribunal is “constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitral procedures.”[87] The New York Convention of 1958 Article V.(1) d states “Recognition and enforcement of the award maybe refused, at the request of the party furnishing to the competent authority where the recognition and enforcement is sought, proof that:“ the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or…”[88]
Besides, under Article 34(1) of the 1996 English Arbitration Act states “It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matters.” They state that applicable procedural rules are those chosen by the parties, and the arbitral tribunal shall assert to the condition of the parties in the arbitration agreement.[89]
Various scholars in the world had expounded the theoretical accordance of the lex loci arbitri applicable to the international commercial arbitration in every different standpoint. Each theory has the one’s own idea, but it is not saying that there is no room for discussing the reinforcement. This paper tries to reinforce the basis of these theories from the every different stand, and hope to create the more firm and a new theoretical frame.
(a) To respect the arbitral history
   Speaking about the theoretical accordance of international commercial arbitration, to observe the arbitral history is rather practical. As referring to the origin and the historical development of arbitration, then it is obvious to see that the arbitration on its own is the offspring of the doctrine of party autonomy from the beginning. Arbitration originated with the classical Greek and Roman times. Some people let the issues settled by the third trusty party in private and accept the award voluntarily. This fact responds that arbitration is the offspring of the doctrine party autonomy.[90] If the performance of the doctrine of party autonomy does not exist, there is no arbitration accordingly. The parties accord to their own free will to decide if to let the issues submit to the third party for judgment, and make the award. This historical fact is the most basic theatrical accordance of international commercial arbitration.
(b)Nature of arbitration
As above described, various scholars have different statements, including jurisdictional theory, contractual theory, mixed theory and autonomous theory. But, the opinion of my paper thinks that these theories are all not able to be distributive and reasonably interpret the meaning of the nature of arbitration, so proposes the “cooperative theory”. No matter what theory, it is unable to object that the power of arbitration holds from the agreement by the parties. Without this agreement upon submitting to arbitration, arbitration exists in name only and any further discussion is meaningless.
©Simple and logical    
    Usually, it takes much time for court to hear the lawsuits in order to make the judgment objectively, fairly and accurately. Due to the judgment takes care the formal justice, also the substantial justice, so the lawsuits are postponed, it loses the purpose of the fair. It’s just as the British Proverb “Justice delayed, Justice denied.” Comparing the arbitral procedure with the court procedure, arbitral procedure takes less time. Simple and easy to reach the decision, that lets the civil lawsuit taken long time to make a conclusion on a case, can be obtained the award in a few months.[91] So that, the parties and arbitrators select the international commercial arbitration for settling the argument is more simple and convenient than the court.  And, in logic, the arbitration recognizes the doctrine of party autonomy, applying the applicable law selected likingly by the parties, procedure, contents of the selected law are all fast, simple and convenient too.
(d) The principle of fair, justice and equality
    International commercial arbitration involved the argument caused by the parties with the different nationality and living in the various territories. The different law, regulations and political circumstance in every state are quite easy to have the conflicts of law and jurisdiction.[92] It is uneasy to unify law systems of each state, nevertheless it can without no available organization relating with international law perfectly and by respecting the doctrine of party autonomy, which can also avoid the conflict of law systems of the state.[93] The doctrine of party autonomy expends the lowest cost for reaching the aim of unifying the applicable law. To measure this stand, the contribution of this purpose is indeed very great. The fair and justice of the procedure as well as the conclusion of arbitration is significant when the state adopts this principle to enact the law of arbitration.
 2.The argument on the theory of the doctrine of party autonomy
    The doctrine of party autonomy in international commercial arbitration and international private law is similar. Both have the arguments on the freedom and limitation wording.[94] The reason for the wording of restrictive doctrine of autonomy is that the parties can only by law, which connects directly and indirectly with the parties or contract. As said by directly connected law it is that “The laws which will normally be in conflict will be those of the places where the parties are domiciled or have their habitual residence, the place where the contract was made, the lex loci contracts, and the place where the contract is to be performed the lex loci solutions ”.[95] This statement is considered that the party only knows or understands the law, which relates with him. The party will not possibly know or be expected to acknowledge the law not related with him, or belonging to the third neutral nation.[96] This statement also sets forth the basic idea about the doctrine of party autonomy is the inference in the principle of law from domestic extending to international. “Everyone is presumed to know and to act in accordance with it”, and think that the party is familiar with the regulations of the applicable law beforehand; the familiar law understood by the party is related with him, so it is better that the party select the law he knows than to choose other law. However, the party certainly will do the best to select the law he knows.[97]
The present writer advocate that the theory of restrictive doctrine of autonomy is to imaginatively infer the thinking of the party. It is not the fact and not persuasive in logic. Because the party may not even know any domestic law, or any law related with him when contract, not to mention that the law is very professional and complex acknowledgement. Even the people of the country are not familiar with their own domestic law. Therefore, if arbitrarily considering that the party does the best to select his familiar law related with him, it’s only outwardly reasonable. In fact, it lacks an objective certification. The praiseworthiness of doctrine of party autonomy is to fully respect the free selection of the law and there is no limitation to the party for selecting the law freely because the party may not know the law, which is not related with him or which belong to the third nation. Moreover, no one can guarantee that his unfamiliar law is disadvantageous to him. What is the accordance to the law with, which the party is not familiar and cannot be selected by the party? It’s rather difficult to make its stand sound plausible. Even if the party selects a law without any relation with him and suffers a loss. This is just at his own risk and the law is actually not necessary to worry and limit him.
Some scholars think the aim of the restrictive doctrine of autonomy is mainly to support the sovereignty of the lex loci, because the party sometimes avoids the applicable domestic law then selects the law of the other state. Clearly it does not mean the party likes the law he selected, but just for avoiding the applicable domestic law. In this case, the effect of the selected law should not be recognized.[98] This theory looks reasonable externally, but it is not worth to be supported substantially. An important point to note in relation to this if international commercial arbitration should be equal then the domestic party should be available to select the applicable domestic law freely and non-domestic law as well. It is illogical if the domestic party can only select domestic law but not non-domestic law.
To observe by the stand, the composition of the arbitral tribunal is more flexible than that of the court. The latter one is composed of law that is slack and the other is of law procedures that are strict. The most important duty of the international arbitral tribunal is to settle the international commercial arguments, in the same time, take appropriate and regulate action of contracting parties to matching current international commercial moral standards.[99] The arbitrators should obey domestic law, however, they will be unable to look after the laws of other nations sometimes. It will cause arbitrators to maintain equality and justice rather uneasily. Therefore, some scholars refuse to recognize and apply applicable law selected by parties, only if the contents of selected law and applicable law are concluded against international public policy.[100] This point is quite fair and worthy of sustaining. But, the problem is that the concept of international public policy is not very clear. In a different comprehension, various political backgrounds of everybody and every state, so the comprehended definition of international public policy is not the same consequently. For this reason, the point of the issue is not to propose a more clear interpretation.[101] In this case, the opinion of this paper is the views of various states and their definite norm, so that the argument is avoidable while the applicable law is used. Since the theory of the restrictive doctrine of autonomy is rather unreasonable as stated above. This paper considers sustaining the law selected by the parties freely.
 
Chapter—3 Procedural Law
 
1.The concept and scope of procedural law
Procedural law governs arbitration proceedings. A state enacts its law or multilateral enactment through multilateral convention for governing arbitral procedure. Customarily, it is named curial law or lex loci arbitri. With regard to the scope of the law applicable to the procedure, the scholars have their own different views, the legislation of each state is also distinct.[102]  For instance, English scholar Wilner considers that the procedural law should include“ the system of law under which the arbitration is held will determine the rule of conflict of laws to be applied to the substance of the obligation, in addition, this law of the proceedings will determine (1) Must the arbitrator give reasons for the award? (2) Must the award be based upon substantive rules of law? (3) To what extent is the arbitrator’s decision subject to review by a court of law?”[103] US scholar Smedresman considers that the scope of lex loci arbitri is only subject to the involved procedure issues in proceedings, which is including: “the conduct of the arbitrator, and crucially, the extent of judicial supervision of arbitration.”[104] To put it briefly, the author prefers to narrow formulation in “the law of the proceedings governs how the arbitrators are appointed, the effect of failure to do so, what law the arbitrators are to challenge the proceedings.”[105]and “whether the arbitrator must give reasons for his award, whether the award must be based upon substantive rules of law, and the availability of judicial review of the award.”[106]
The above-mentioned statements are all standpoints, but not necessarily the same. Indeed, it is rather hard to be consistent with the procedural laws enacted by each state because of the different backgrounds of their history, culture and policy. But to consider the procedural law involved in the national public policy and mandatory rules, it should minimize the compulsory law, or it will reduce the convenience and resilience of the arbitration, also it will be adverse towards the development of international commercial arbitration.
 

2.Distinction between substance and Procedure

 
For a very long time, it was recognized that the law applicable to the procedure and the law applicable to the substantive issues both belonged to the same legal system in nature, so that the procedural law had never been regarded as a sole legal system, for example, previous judgments in US indicate that lex arbitri was a part of the law of remedies, arbitration was a substantive issue, not a procedural issue.[107] Till 1970, in  James Miller & Partners Ltd. [108] It firstly recognized that procedural law was able to apply independently and without any relation with the substantive law of legal system. On May 10, 1965, a contract was entered into between an English company and a Scottish company where the Scottish company was responsible to carry out specific conversion work at the English company’s factory in Scotland. The agreement was initially in the then standard R.I.B.A form of contract. At that time there was no R.I.B.A form of contract adapted especially for use in Scotland. Although there in common use was a Scottish form of contract drawn up by a different professional body. The normal arbitration clause in the contract provided that any dispute should be referred to by the president of the R.I.B.A. for the appointment of an arbitrator, stating that there was a submission to arbitration within the meaning of the Arbitration Act, 1950. The appointed architect was a Scottish , and the arbitration was held in Scotland following Scottish procedure. Several points of law arose, and the English company asked the arbitrator to state his award in the form of a special case for the decision of the English High Court, but the arbitrator refused to do so, holding that the arbitration was a Scottish arbitration. He subsequently issued his final award in favor of the Scottish company. On application by the English company as a rebuttal, the master ordered the arbitrator to state his award in the form of a special case, but an appeal by the English company on the ground that the proper law of the contract was English and the arbitration governed by English law, and restored the master’s order. The contract between Scottish and English parties made an arbitration clause without stipulating the place of arbitration, the law applicable to the merits of the disputes, or the law applicable to the procedure. During the arbitral process, the English party asked the arbitrator to accord to English law on stated case requirements to state the award, but the Scottish arbitrator refused this request. The English party then appealed to the House of Lords. The court held that the nature of the contract proved that English law was its proper law but the applicable law to the arbitration could be different from the proper law of the contract. The court held “the situation here is that, the arbitration clause having not specified the place of arbitration, it was perfectly within the scope of that clause to have it in Scotland, and, once it took place in Scotland, prima facie, Scottish rules of procedure should apply. It is clear that, once the arbitration was being held in Scotland, the parties acted throughout on the footing.”[109]
In 1971, the case of Compagnie d’ Armment Maritime, the English Court of Appeal also made a similar award.[110] The claimants, a Tunisian company, and French ship owners negotiated a contract with assistance from brokers in Paris for the transportation of crude oil in specified quantities initially from one Tunisian port to another. This charterparty was contracted in Paris with the written contract using a standard English printed form and including an agreement that any future disputes should be resolved by arbitration in London. The Court of Appeal approved the arbitrator on shipping contract that was governed by English law, where as the substance of the dispute was governed by French law, by clause 13 it was provided that: “This contract shall be governed by the laws of the flag of the vessel carrying the goods….”[111]
In clause 28: “Shipments to be effected in tonnage owned, controlled or chartered” by the French ship owners “of 16,000/25,000 tons at owners’ option .” Hence, disputes arose between the parties, and the Tunisian company claimed damages for breaching the contract. Arbitrators in London were brought as a result of the disputes and heard the arguments on the primary question as to what system of law was the contracts’ proper law. They stated their interim award in the form of a special case in which they found, vice versa, that the French ship owners had between four and five vessels flying the French flag. None with large enough capacity to carry 25,000 tons; three days before the contract was outlined a Liberian vessel had been nominated for loading; in the first four months the six ships chartered were respectively Norwegian, Swedish, Liberian, French, and Bulgarian; and that both parties contemplated when the contract was initially entered into, that the French ship owners vessels would be used “at least primarily” to perform the contract and as justification.
In view of the above cases, it is obvious that English court has already separated    the procedural law from the substantive law. On the grounds of the different considerations, the parties can have their own free will to determine the law to be applied by the arbitration to merits of the dispute and to the procedure. This offers the target of the international trade and press forward the development of the party autonomy. As procedural law governs the arbitral procedure, and substantive law regulates the rights and obligations of the party, these are actually the different legal system. Municipal law applicable to govern the arbitral procedure may not be applicable to govern rights and obligations of the party. For example, the parties may choose the US maritime law applicable to the substantive issues, because they may think this law is more appropriate to deal with their rights and obligations. Nonetheless, they also may choose the French law applicable to the procedure. In terms of observing, the separation of the procedural law from substantive law can widen the freedom of parties to choose the law and increase the will of the parties to refer the arbitration for resolving their disputes. Thus, the rights of the parties can obtain the better protection, and, on the other hand, the international commercial arbitration can be developed greatly.
 

Party autonomy and procedure law

 
According to the doctrine of party autonomy, the parties may be free to determine the law applicable to the procedure and to substantive issues; moreover, they can provide their own arbitral procedure rules. Not only the New York Convention recognizes this opinion,[112] it is also affirmed by ICC Rules.[113] Though each state has their own different lex arbitri, most of the countries all based on party autonomy admit that parties are free to determine the arbitral procedural law, such as the Article 182(1) of Swiss Private International Law Statute1987 states: “The parties may, directly or by reference to arbitration rules, determine the arbitral procedure; they may also submit it to a procedural law of their choice.”[114] Article 1494 of the French New Code of Civil Procedure 1981 states: “The arbitration agreement may, directly or by reference to a set of arbitration rules, define the procedure to be followed in the arbitral proceeding;” It is apparent that French arbitration allows the parties free will to determine the law, including the foreign arbitration rules and procedural law. France considers that arbitral procedure should be international and neutral, and not be affected by the lex loci arbitri not the basic policy.[115] In Germany, the German Code of Civil Procedure also provides, each party shall be given full opportunity to present his case.[116] These are indeed improving legislations in international commercial arbitration.
In the case of English Dallal ,[117] England High Court pointed out clearly, though in the normal circumstance, “that the England courts would recognize the validity of decisions of a foreign arbitration tribunal whose competence derived from international law or practice; it followed that the court would recognize the Hague tribunal. P.S (American citizen) action was an abuse of process and would struck out.” It is manifest that English law does not repel any possibility of applying the different curial law in their territorial arbitration. Logically, since it admits the parties free will to determine the procedural law, then it should not limit the parties to have the only one choice lex loci arbitri.
At present, some principal International Conventions enable the parties the power to select suitable procedural rules. The article 2(1) of the Protocol on Arbitration Clauses1923 states: “The arbitral procedure, including the constitution of the arbitral tribunal shall be governed of the will of the parties and by law of the country in whose territory the arbitration takes place.” And the article 1(2)(3) of the Convention on the Execution of Foreign Arbitration Awards 1927 states that: “To obtain such recognition or enforcement, it shall, further be necessary…. ﹙c﹚That the award has been made by the arbitral tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure.” In view of the provisions of these two conventions, the applicable to the arbitral procedure, the applicable law stipulated by the parties and the law of the country in whose territory the arbitration take place, all should be abided by arbitrator simultaneously, and not just choose one of them to apply. Notably, at that time, the parties choosing the arbitral procedural law did not have the imperative freedom, as they still needed to follow the law of the country in whose territory the arbitration take place. But if comparing with the earlier era, remarkably, parties had free will to choose the law had been paid attention gradually.
Nevetheless, some well-known international conventions affirm the parties’ free will to choose the arbitral procedural law. New York Convention 1958 states, if the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, Recognition and Enforcement of the award may be refused.[118] This convention definitely indicates that the parties may be underlying the agreement to have the foreign law other than the place where the arbitration took place as the procedural law, if, but only if, failing such agreement, the law of the place where the arbitration took place will be the procedural law.
European Convention on International Commercial Arbitration 1961 made the further provision that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or failing such agreement are the grounds for refusal of recognition and enforcement of the arbitral award.[119] The Article 19(1) of UNCITRAL Model Law 1985 states: “Subject to the provisions of this law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.”[120] It is evident that one of the most important principles is the doctrine of party autonomy in Model Law.[121]
 

In the absence of choice of procedural law

 
The doctrine of party autonomy, which grants the parties to arbitrations to draw their arbitral proceedings, to fit their particular requirements with considering the law governing arbitral procedure, this principle freely grants the parties the power,[122] which can freely to select favorable procedural rules.
If the parties have chosen the arbitration body, it is assumed that the parties have chosen the law of that arbitration body as the procedural law.[123]For instance, Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States 1965 provisions: “Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. If any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question.”[124]
In the absence of choice of procedural law , arbitral tribunal should consider which law is applicable to the procedure. For example, Swiss Private International Law Statute 1987 states: “Where the parties have not determined the procedure, the arbitral tribunal shall determine it to the extent necessary, either directly or by reference to a law or to arbitration rules.” “Whatever procedure is chosen, the arbitral tribunal shall ensure equal treatment of the parties and the right of the parties to be heard in adversarial procedure.”[125]Many international laws of many countries have made laws, which grants arbitral tribunal a right to select procedural law.[126]
 

The lex loci arbitri

 
    As stated above, to observe international commercial arbitration at the point of practice, the place of arbitration is really the utmost important connecting factor in arbitral procedure, and, to view it at the point of traditional law, international commercial arbitration is governed by the law, and it is just the lex loci arbitri.[127] It is similar that the court procedure is governed by lex fori. In fact, arbitral procedure is governed by lex loci arbitri has been popularly accepted internationally for a very long time.[128]
In the case of the Compagnie d’ Armenent Maritime,[129] French Court of Appeal in Paris concluded that lex loci arbitri should be the applicable law since the parties had revised the agreement concerning the place of arbitration from Paris to London and agreeing an English arbitrator to conduct the arbitration. French scholar Denis Tallon also approved it. He deems the lex loci arbitri by means of the connecting factor of place of arbitration is a regulation to be recognized. Since the parties have chosen the place of arbitration, it implies that they may intend to apply the lex loci arbitri as the procedural law,[130] it is a logical inference.
In English law, normally, the parties are free to choose the law governing the procedural law. In general, once the parties determine the place of arbitration, it implies they have chosen the law of the country where the arbitration took place.[131] Lord Kerr states, in accordance with the rules of the conflict of law, if there is no agreement existing underlying the adverse contract, the law governing the procedural law is lex loci arbitri. Whatever England, Scotland, or any other countries are practicing.[132]In the case of Gilber and Burnstine,[133] the Court of Appeal directed “Defendant’s agreement without reservation to arbitrate in London according to the English Statute necessarily implied a submission to the procedure whereby that law is therefore enforced.” In other words, the arbitration in USA, unless the parties have the additional agreement, otherwise lex loci arbitri will be presumed applicable to the procedure.[134] The other reason that lex loci arbitri has the big effect is to rely on the law of the country in whose territory the arbitration took place, the arbitral award can get the nationality of the country where the arbitration took place. This is to comply with the Article 1(1) of New York Convention 1958, in which it states “This convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out differently between persons, whether physical or legal…” It is hence clear that an award made in any state would be recognized and enforced by any other Contracting Parties.[135]
Furthermore, the New York Convention provides that the recognition and enforcement may be refused if the opposing party proves that:[136]
(a) the parties to the agreement referred to in article II were, under the law applicable
to them, under some incapacity, or the said 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 ; or
(b)The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c)The award deals with a difference not contemplated by or not failing within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that , if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
    Recognition and enforcement may also be refused if the competent authority of the country in which enforcement is sought finds that:[137]

1. The subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or
2. The recognition or enforcement of the award would be contrary to the public policy of that country.

It is significant that even the parties do not choose the lex loci arbitri to be applied to arbitral procedure, it is also unable to escape from any relations with the place of arbitration completely.
 

The basis of the lex loci arbitri theory

 
According to jurisdictional theory, adjudication is the sovereign function of the state. The parties can only submit to arbitration by explicit admittance or implied consent in the lex loci arbitri[138] and illustrate that the state has the right to control and administer the arbitration held in their jurisdiction[139] This advocacy is the principal theoretical basis of applying the lex loci arbitri. The ex-president of the International Court of Justice, Lord McNair states that the parties may make a contract providing the legal effect for creating the rights and obligations of being legal, but these kinds of rights and obligations can not just exist floating in the legal vacuum, they should exist within a certain legal system, as the effect, application and interpretation of that contract all need to rely on the judicial assistance.[140]On the ground of territorial jurisdiction, a State whose own jurisdiction over the conduct of arbitration held in whose territory, whether the arbitral tribunal concretely has the legal rights and effect, those are derived from the law of the country where the arbitration took place. Where the law of state does not authorize this power to the parties nor arbitral tribunal, the arbitral procedure will not provide with the legal effect.[141] Whereas arbitral procedure has the inseparable relation with the lex loci arbitri, thus it should be governed by the law of the seat of arbitration. The place of arbitration is the decisive connecting factor in determining the applicable arbitral procedure. Traditionally, this theory is called the “seat” theory in the international commercial arbitration.[142]
English scholar F.A.Mann strongly supports and greatly sets forward lex loci arbitri. Realistically, a genuine legal significance of international commercial arbitration is non-existent. In practice, a system of conflict of laws is a system of municipal law. The arbitral procedure, which is determined by the parties, has the nature of municipal law. International treaty enabling to produce legal effect is derived by the authority from the state governing the arbitration. The treaty does not limit the supreme power of the domestic legal system of the place where the arbitration took place at all. For thorough expounding on his proposition, Mann further clarifies that even the existence of the concept of party autonomy is according to the established system of municipal law. Furthermore, there are the different characters and effects in the distinct systems. Therefore, every kind of right and power possessed by the private person is afforded by the system of the municipal law of a state or produced by its legal system. This legal system is designated “lex fori” traditionally, more precise to say, it should be named “lex arbitri.”[143]
 
Practice of the lex loci arbitri
 
   Arbitral procedure adopting the law of the place where the arbitration took place has been broadly accepted in the practice of international commercial arbitration. Thus, the significant case to discuss this issue in detail was that of British Petroleum Co. Limited (Libya) v. Government of the Libyan Arab Republic.[144] On 18 December 1957, the Petroleum Commission of the Government of Libya, practically implementing the Libyan Petroleum Law of 1955, issued Concession 65 to Mr. Hunt, a United States citizen.
Whereas in 1960, the claimant company in this case, BP Exploration Company (Libya) Limited from Mr. Hunt acquired an undivided half interest in Concession 65. It consisted a grant of an exclusive right to seek and extract petroleum for fifty years in a specified area within Libya. They had the option to sell the oil thus produced.
The concession in clause 16 provided inter alia that:
“The contractual rights expressly created by this concession shall not be altered except by mutual consent of the parties”.
Clause 28 of the concession provided that the disputes should be settled by arbitration and stated that the concession:
“Shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles of international law and in the absence of such common principles then by and on accordance with the general principles of law including such of those principles as many have been applied by international tribunals”.
The Claimant claim that -
(1). The Nationalization Law was a breach of the Concession;
(2). The Nationalization Law “was effective to determine the BP Concession except in the sense that the BP Concession forms the basis of the jurisdiction of the Tribunal and of the right of the Claimant to claim damages from the Respondent before the Tribunal”;
(3). The Claimant is entitled to damages arising from the wrongful act of the Respondent, to be assessed by the Tribunal in subsequent proceedings.
The Claimant contends that Libyan Nationalization Law was effective to terminate the Concession and that the Tribunal had made the error (inter alia) of granting a party a contract whilst breaching to end the contract.
The Claimant asserts that this was contrary to principles of Libyan Nationalization Law, International Law as well as towards general principles of law. The Claimant alleges that there existed particular procedural errors in the Award. The Claimant stated that Danish Law governed the procedure of arbitration in proceedings. As a result to provide a solution to the defects, that the tribunal should re-open and continue the proceedings on merit.
The Tribunal’s decision rejecting the Claimant’s request for declarations in relation to continuing validity and effect of concession was final and that as a result under Danish law the Tribunal was not competent to re-open proceedings. The arbitrator discussed the award of the Aramco case, but ultimately rejected it, finding that the sovereignty of a State party would not be infringed by subjecting it to municipal procedural law in an international arbitration. The arbitrator decided that, by agreeing to arbitration, the parties must have intended an effective remedy, and likely to be effective than one lacking nationality, such as an arbitration procedure governed by international law.
To view municipal law, usually, a state requires that arbitration shall be governed by the lex arbitri and the mandatory rules of the place of arbitration, for example, Swiss Private International Law Statute 1987 states:“1.The provisions of this chapter shall apply to any arbitration if the seat of the arbitral tribunal is in Switzerland and if, at the time when the arbitration agreement was concluded, at least, one of the parties had neither its domicile nor its habitual residence in Switzerland. 2.The provisions of this chapter shall not apply where the parties have in writing excluded its application and agreed to the exclusive application of the procedural provisions of cantonal law relating to arbitration.”[145] This article shows its mandatory rule and the parties must observe it without any compromise. English arbitral practice indicates there is no other possibility to apply, unless the mandatory rules of lex fori or lex loci contractus. [146] American arbitration practice in this manner is more liberal. In the American Restatement of Conflict of Laws allows for the application of the mandatory rules of a Sate “which has a materially greater interest than the Chosen State in the determination of the particular issue.”[147]
  The article V.(1)(d) of New York Convention 1958 states:“Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:The composition of arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” The similar rules contained in 1961 European Convention, 1927 Geneva Convention and 1985 UNCITRAL Model Law.[148]For reasons mentioned above, it cannot but be agreed that the lex loci arbitri still has its great effect in international commercial arbitration. This paper asserts when parties choose the place of arbitration, they should at the same time deeply comprehend the law of the place of arbitration, or, their interests will be damaged caused by incorrect choice in the place of arbitration. As known every lex arbitri enacted by the different countries naturally is rather distinctive because of the distinguishing background. The legislation of some nations is advanced and enlightened, and some states are conservative.[149] In this case, the parties have to cautiously compare, and then choose the place of arbitration where its legislation is advanced, progressive, less interfering, perfectly satisfying, convenient and advantageous to the parties. Certainly, the arbitrator also needs to clarify which laws are the mandatory rules of the place of arbitration prior to dealing with international commercial disputes for affirming legal effect to the arbitrated award.
 
The “ Delocalisation “ theory
 
   Lately, international commercial arbitration appears like a new theory attempting to detach the control from the law of the seat of arbitration. This theory hopes to establish a legal system without any control nor restraint by the law of the seat of arbitration and municipal law of the specified state.[150] In general, it is called “delocalisation” or “denationalisation”. The “delocalisation” theory of arbitration,[151] garners great challenge to the traditional “seat” theory. Some scholars even assert that enforcing jurisdiction does not inevitably come from lex loci arbitri, arbitration can be independent from any legal system, the arbitral award not following the law of the situs should have the same validity for recognition and enforcement in other nations.[152] Thus a “floating award” is produced.[153] The floating award does not belong to any system of municipal law, and international commercial arbitration itself would be “transnational”, “a -national”, “expatriate”, “supernational” or even “de-localised” award.[154]
Some famous authorities in international commercial arbitration adopted the “delocalisation” theory. For example, in Arabian American Oil Company (ARAMCO).[155] This case was conducted in Geneva, Switzerland. The dispute was concerning an agreement to ship the petroleum under a special permit. The Kingdom of Saudi Arabia made a special contract offering ARAMCO an exclusive agreement to ship the petroleum excavated in their special district. Nonetheless, in 1954, the state of Saudi Arabia made an agreement with Mr. A S Onassis and his company, Saudi Arabian Maritime Tankers Ltd. (also referred to as “Satco”), by Articles IV and XV which granted the company “right of priority” of thirty years’ for the transportation of Saudi Arab oil. One legal issue should be considered here with regards to whether the Kingdom of Saudi Arabia enjoyed the claim of sovereign immunity and was not governed by the procedural law of a state in international commercial arbitration. Arbitral tribunal concluded that parties were not a state to a state, but a state with an American company. According to the principle of international law, a state possesses immunity. Therefore, the arbitral tribunal deemed that arbitral procedure should not be governed by the other nations. Though the place of the arbitration was in Geneva, Switzerland, arbitral tribunal did not adopt the lex loci arbitri, but the international law.
In another well-known case, Texaco Overseas Petroleum Co. (TOPCO) and California Asiatic Oil Co.[156] In 1973 and 1974, the two claimant United States companies, Texaco Overseas Petroleum Co. (TOPCO) and California Asiatic Oil Co. as a result of Libya nationalizing all of the properties, rights, assets and interests of the two companies. Their contracts stipulated that the Government of the Libyan Arab Republic provided in the event of any dispute arising under them to “two arbitrators, one of whom shall be appointed by each such party, and an umpire who shall be appointed by the Arbitrators”.
Clause 16 states in each contract “the contractual rights expressly created by this concession shall not be altered except by mutual consent of the parties”
The arbitrator referred to Clause 28 for the deeds of Concessio
“This concession shall be governed by and interpreted in accordance with the law of Libya and such rules and principles of international law as may be relevant but only to the extent that such rules and principles are not inconsistent with and do not conflict with the laws of Libya”
The Libyan Government did not participate in the arbitration, so the sole arbitrator proposed the issue if he had the right to determine his own jurisdiction. Libya did not participate at any stage of the proceedings and communicated by way of a memorandum to the President of the I.C.J simply objecting to proceedings.
The parties intended that the arbitrator to decide his own jurisdiction. Since the arbitration was to take place outside the country of the State party, who could not be subjected to the law of other nations and the parties wanted to have a neutral judge. Based on this reason, the arbitrator determined international law to govern the arbitral procedure.[157] The arbitrator also considered whether the contracts are binding under applicable law and if Libyan nationalization measures in breach of the contracts can be justifiable on any other aspects.
In these authorities, one of the parties is a state, and the state enjoys immunity claim in arbitration. The “delocalisation” theory is developed based on the theory of state sovereign immunity and the doctrine of party autonomy, if this theory is only applicable to the state party, its applicable scope in international commercial arbitration is evidently too narrow. In another way, the basis of “delocalisation” theory seems insufficient to be applied to the private party in arbitration, or to cover the whole field of the international commercial arbitration.[158] Thus, the scholars support this theory regards the parties unexpecting or neutrally considering to choose the place of arbitration, not for wanting to apply the lex loci arbitri. Therefore, they advocate the legal effect and enforcement of the award does not necessarily come from the law of the seat of arbitration. The award not being made in accordance with the law of the seat of arbitration should have the equivalent legal effect and enables to obtain the recognition and enforcement in the other nations.[159]In other words, this theory emphasizes that the arbitral tribunal does not need to consider lex loci arbitri and what it should do is to let its arbitral procedure comply with the requirements of international order public for protecting the international acceptability in international commercial arbitration.[160]
 
Practice of the “delocalisation” theory
 
As stated, though the “delocalisation” theory is still being questioned, but it has already been recognized and supported in the legislation of international commercial arbitration and jurisdictional judgment, such as the Article IV(1) of European Convention 1961 states “1. The parties to an arbitration shall be free to submit their disputes: (a) to a permanent arbitral institution; in this case, the arbitration proceedings shall be held in conformity with the rules of the said institution; (b) to an ad hoc arbitral procedure; in this case, they shall be free, inter alia,
(1) to appoint arbitration or to establish means for their appointment in the extent of an actual dispute.
(2) to determine the place of arbitration; and
(3) to lay down the procedure to be followed by the arbitrators.”
It can be comprehended by referring to this statement that European Convention has admitted that parties are free to choose procedural law and that arbitral procedure is not subject to lex loci arbitri any more, and the parties can determine any procedural law of the other nations applicable to the arbitral procedure. Hence, the “delocalisation” theory has already been further forwarded in this Convention.
Furthermore, the Article 44 of the most significant Washington Convention 1965 state “Any arbitration proceeding shall be conducted in accordance with the provisions of this Section and, except as the parties otherwise agree, in accordance with the Arbitration Rules in effect on the date on which the parties consented to arbitration. It any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall be decided the question.” Obviously, this provision does not require the Arbitration Rules should follow the regulations of the law of the seat of arbitration or lex arbitri. The further meaning is that this Convention is not restricted to the domestic mandatory rules. It is really the very big breakthrough in the legislation of international commercial arbitration. In particular, the ICSID award referring to this Convention is completely exclusive to apply procedural law of any nations. It is that the ICSID award is the “floating award” because without any consideration of lex loci arbitri.[161] But it will be nothing at all if the award cannot be recognized and enforced as the rights of the parties are without any protection, the disputes cannot be settled satisfactorily, and it is meaningless for the parties to submit the disputes to arbitrate. In this case, the contracting parties and investors will lose their confidence in ICSID arbitration, and even not be willing to submit to arbitration here. It is perceived that only the award obtains the recognition and enforcement, the rights of the parties can be protected and the award of itself is the substantial worth.
Hence, Washington Convention itself established a self-contained for recognition and enforcement of the “ICSID” award. Comparing this self-contained with New York Convention 1958, the procedure is more simple and convenient, the conditions are more liberal. Really, it fully presents the intelligence of the legal experts and scholars of some eighty states at that time.[162] Specifically three Articles from this Convention govern the issues of award and execution. The article 53 provides that the award is binding on the parties; each party shall abide by and comply with the terms of the award. It is evident that this Article focuses on the parties. Article 54 provides that each Contracting State obliges in recognizing the award and enforcing the pecuniary obligations imposed by that award. Article 55 aims directly at derogating from the law in force in any Contracting State relating to immunity of that State from enforcement. Hereby, the three articles are as follows:
The Article 53 of Washington Convention states:
“(1) The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.
(2) For the purposes of this Section, “award” shall include any decision interpreting, revising or annulling such award pursuant to Articles 50, 51 or 52.”
 Apparently, this Article is purely provided for the parties. It clarified the issue concerning the settling effect of the parties and the obligations of the parties to be followed and executed. The binding of the “ICSID” arbitration means that the award shall be binding on the parties and be executed strictly. Harnik regards the binding award should be including the affirmed obligations imposed on the parties and itself does not accept the adjudication by further arbitration nor the judgment by jurisdictional appeal.[163]
The Article (54) of this Convention states:
“(1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that state. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.
(2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority, which State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary–General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.”
(3) Execution of the award shall be governed by the laws concerning the execution of judgment in force in the State in whose territories such execution is sought.
  The above Article with Article 52 is mutually deferral. The award of this Article as included in the Article 53(2) to be the final award made including any decision interpreting, revising or annulling. The Section (1) of this Article indicates that the “ICSID” award should be the equivalent effect to the final sentence rendered by the court of the Contracting State. This is the most manifest and important provision in this Convention.[164] Section (2) of this Article provides the executive elements to realize the award. Section (3) of this Article provides, though the award is with the effect of final award, its enforcement should be still governed by the law of the place of the execution.
The Article 55 of this Convention states:
“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.”
Sovereign immunity including the jurisdictional immunity and immunity from execution is an important principle in international law.[165]Every State enjoys sovereign immunity unless waiving it voluntarily. Where a State makes an agreement with a foreign private party and accepts the ICSID arbitration, it means the State party has waived its jurisdictional immunity, but does not waive its immunity from execution. This article just shows its respect to the principle of international law, but does not exempt the State from the obligations stated in Articles 53 and 54. The essential consideration of the legislators to enact the immunity of execution is that if one of the parties is a State, they then have the full faith on this party to execute the award by its own will, because the Contracting State has given a promise to the Convention with the legal restraint. Thus, the State has no reason to break the promise.[166]
In addition, with regard to the law of state, the French Code of Civil Procedure also allows the parties to choose the applicable procedural rules or to submit the rules to an arbitration institution. It requires the parties to make an agreement determining their choice. However, it is done before the proceeding, the parties have to determine the procedural rules of arbitration. In the absence of the choice of party, the arbitral tribunal then may be necessary to establish the procedural rules.[167] Evidently, this Code does not regard the place of arbitration as an important connecting factor. Arbitration has the power to determine the arbitral procedure, also can rely on the procedural rules of “denationalisation” to conduct the arbitration. In this case, arbitration does not associate upon on any specific system of municipal law. France adopts this kind of liberty in arbitration certainly enabling to comply with the requirements for promoting the economic and developing the commerce and letting Paris become a prominent center of international arbitration.[168]
Similarly, the Swiss Private International Law Act 1989, also allows the parties to choose the arbitral procedure, in absence of the choice, the arbitral tribunal may express the power[169] to treat the parties equally and the rights of the parties to be heard in an adverse procedure.[170] Even before the promulgation of this Act, Swiss courts respected the will of the parties to determine the arbitral procedure. Apparently, this Act delegates the very big power to the parties for selecting laws, even the parties failing to agree the arbitral procedure, it is still not necessary to apply the law of the seat of arbitration, but empowers the arbitral tribunal directly to apply the procedural rules. This Act attempts to stay away from the procedural law of State. This progressive legislation wins high applause in international arbitration. However, this is the significant Act proving the great development of the “delocalisation” theory in international commercial arbitration.[171]
Besides, a notable Article 15(1) of ICC Rules state: “The proceedings before the Arbitral Tribunal shall be governed by these rules, and, where these rules are silent, by any rules which the parties or, failing them, the Arbitral Tribunal may settle on, whether or not reference is thereby made to the rules of procedure of a national law to be applied to the arbitration.” This Article clearly empowers arbitrators to affirm the rules of arbitral procedure, but does not state whether or not to apply mandatory rules of the place of arbitration. In accordance with interpretation section of this Article, it is not necessary to apply the procedural law of state. Actually, this Article is followed by the revised provision of 1975. The scholar F. Eisemann asserted what the arbitrator should respect is the public policy of the seat of the arbitration, not any specific municipal law.[172] Thereby, ICC Rules of Arbitration has indeed adopted the “delocalisation” theory in international commercial arbitration.
The other notable Rules, such as UNCITRAL Arbitration Rules 1976, Rules of the London Court of International Arbitration 1985, Rules of the Arbitration Institute of the Stockholm Chamber of Commerce 1988, Commercial Arbitration Rules of the American Arbitration Association 1991 all have the similar provisions in conformity with the “delocalisation” theory. Thus, this theory is retaining more and more public attention in international commercial arbitration.[173]  
 

Debate on the “delocalisation” theory

 
Though the “delocalisation” theory has been broadly called as international, public attention as above-mentioned in Codes of many states, international conventions and some jurisdictional authorities. This reflects their conformity to this theory. But various scholars still have their own distinctive views on it and do not stop discussing it. Hereby, let us state the reasoning of support and objection, as well as analyze its advantages and disadvantage.
 
The reasoning for supporting the “delocalisation” theory
Each state enacts its lex arbitri almost directly aiming at its own arbitral procedure and normally it cannot satisfy the requirements of current international commercial arbitration. Many nations still do not have a perfect arbitral law; even some countries do not have the contemporary arbitral law. They are all unable to provide sufficient rules for international commercial arbitration.[174] It will hinder the will of parties to select the arbitration for settling their disputes. If this happens the international commercial arbitration will obstruct its development.
Generally speaking, where the parties make an agreement, they usually do not stipulate the place of arbitration and only consider its convenient transportation and communication. They probably neither consider the standpoints of the place of arbitration nor the recognition and enforcement of the ward. The parties may not think of the consequence by applying the law of the chosen place of arbitration and even do not care the legal meaning of choosing the place of arbitration.[175] In this circumstance, the parties constantly choose the place of arbitration without the careful estimation and let the chosen alien place to conduct the law applicable to the procedure. Evidently, it does not comply with the expectation of the parties, thus the parties will weaken their own will to execute the award. Undoubtedly, every party expects to have freedom to determine the place of arbitration and not to be governed by the procedural rules of its situs.
Some scholars advocate if it is imperative to govern the conduct of arbitral procedure. This kind of governing should not be held from the country where arbitration was made, but the state where recognition and enforcement is sought. Although, arbitral award had been set aside by the country where arbitration was made, however, it will still be recognized and enforced by the enforcement state unless it was contrary to the international public policy.[176] For instance, New York Convention 1958 provides Recognition and Enforcement of an arbitral award may be refused if the award would be contrary to the public policy of the country where recognition and enforcement is sought.[177] This provision illustrates that the state where recognition and enforcement is sought indeed possesses great power over governing the award either or not to enforce. Furthermore, the enforcing state’s interest is directly affected by the enforcement, since in any given country there may be local law that is more favourable to the recognition and enforcement of arbitral award than the Convention itself.[178] It is a possibility that is illustrated by such well-known case as Chromalloy. Where the United States Federal Court for District of Columbia enforced an award that had been set aside in Egypt.  
 

The reasoning behind objecting to the “delocalisation” theory

 
The opponents deem that any principle of law cannot exist in the legal vacuum, though arbitration is different from the procedure of sentence, it still cannot detach the arbitration from the law of the seat of arbitration. It is not realistic to intend escaping international commercial arbitration from the legal norm of the specified nation for not being governed by any national legal system.[179]
Arbitral tribunals are generally given the power to indicate interim measures in their own rules. Powers may also be implied, or the implication of powers excluded by the lex arbitri.[180] The tribunal’s powers may be limited and can bind only the parties. It may therefore be necessary to seek support of local courts in making interim orders, or in enforcing orders made by the tribunal. Such court orders deal typically with (1) measures to preserve status quo, (2) measures to secure ultimate award, or (3) measures to assist the procedure of the tribunal. The lex arbitri establishes the powers of the court in this regard.[181]
A typical example of court assistance is the application for a Mareva injunction or their replace-ables in other jurisdictions.[182] Such injunctions operate in personam. Thus, there is no need for the defendant to be within the jurisdiction of Court. They may apply to assets both within and outside the jurisdiction,[183]and forbid dispersion within or outside jurisdiction.[184] Third parties with knowledge of the court order are liable in contempt if they assist in a breach of an order.[185] There may be relevant disclosure orders, in order to determine what assets might be covered by the order[186]The court may lend procedural assistance to the tribunal, and the Court has power concerning appointment and removal of arbitrators. It is important to note that the courts’ intervention powers are commonly discretionary, and not always exercised.[187]
Furthermore, the award by the arbitrator, the legal effect of the arbitration agreement, the power of the arbitrator and enforcement of the award all depend on enforcing the law of the state.[188] The arbitration will be meaningless, and invalid unless the domestic law recognizes that the parties’ have the right to submit to arbitration, to authorize the hearing of arbitrator, to award the issues and to enforce the award. The power and effect of arbitration is a concession from the country executing the arbitration.[189]If the party refuses to execute the award, then it needs to rely on the enforcement by the court. The award is worthless if it is not enforceable.[190]

Comments on the “delocalisation” theory and the proposition of this paper

 
Undoubtedly, some examples of award, legislations or international conventions
have adopted the “delocalisation” theory. It certifies that this theory has certainly held the attention in international commercial arbitration and is worth to exist and improve its development. But, it still needs to confront reality seriously that actually only a few disputes submitted to arbitration adopted the “delocalisation” theory for settlement and most of them are with one state party.[191] Astonishingly, some states failed to receive the award and somewhat unexpectedly did not carry out the contents of the award,[192] and yet a state party possessing sovereign immunity except to waive it by itself.[193] Thus, it is doubtful if the cases with both private parties are still applicable. After all, the status of private is different from that of a state. The state possessing sovereign immunity and it is not available for private parties.
In practice, the “delocalisation” theory is still not able to overcome the “delocalised award” to be recognized and executed thoroughly by the other nations. It seems the element of this theory is not satisfactory and unable to convince the majority of professional arbitrators and states. In addition, if one party requests to make order for interim injunction to the opposite party during the arbitral proceeding, without the assistance of court the arbitration body fundamentally cannot assure the arbitral proceeding being able to proceed smoothly. This is the severe shortcoming of this theory.
Since the shortcoming of the “delocalisation” theory surfaced, it is time to rethink on how to satisfactorily revamp the theory. This paper regards the place of arbitration and the arbitral procedure as the most objective and decisive connecting factors. Though it is not the positive reality, at least, to view it at the standpoint of objective experience, it is relative to be accepted as true. Otherwise, as above stated lex loci arbitri will not be recognized comprehensively in practice of international commercial arbitration. On the other hand, if to hold lex loci arbitri tight, it will indeed obstruct the parties’ right of choosing the law freely and decrease their will to submit the disputes to arbitrate. Where numerous international commercial disputes do not select arbitration for settlement, certainly the development of international commercial arbitration will be receding day after day and it is really a serious issue. In this case, only to face this reality and perform the doctrine of party autonomy bravely can arouse the will of the parties to select the arbitration for settling their disputes, thus the perspective of international commercial arbitration will be rising and flourishing gradually.
On the other hand, adopting the “delocalisation” theory is just to carry out the development of the doctrine of party autonomy. The implementation and adoption of this theory is not just to announce the doom of lex loci arbitri, relatively, it can push lex loci arbitri to improve progressively, because relying on the doctrine of party autonomy, the parties are free to choose any applicable law of any country. Where the arbitral tribunal selects the law of the other nation to conduct the arbitration, the tribunal of course will compare it with the lex loci arbitri, and if the selected law is better and satisfactory, then there is no reason of acquiring it.
To overcome the risk of the “delocalisation” theory being unable to recognize and enforce in other states as well as to be held to support and assist the court, this paper agrees with the advocacy of English scholar McClelland, it is to enact an international convention by mutual consultation of international scholars to rule the “de-localised” arbitration and let its “floating award” providing the sufficient legal foundation for protecting the arbitration out of the system of municipal law being able to obtain the assistance of the law of the seat of arbitration, also to be recognized and enforced. It is the effective way to remedy the shortcoming of “delocalisation” theory.[194]
As the prior discussion in this paper, the Article 44 of Washington Convention 1956 affirmatively provides to exclude the law applicable to the procedure of any specified state entirely. It is a “delocalised” award. And Articles 53, 54 and 55 of this Convention constitute its self-contained “recognition and enforcement of the award” independently to detach the restraint from the municipal law. This successful legislation is worth researching and further study.
 

Conclusion

 
     Procedural law is a very important law in international commercial arbitration, but it was not regarded as an independent system of law a very long time ago, but a mixture of the procedural law and substantial law. Whatever the standpoint of the distinctive system of law or consideration of the reality of applicable law, neither of them is appropriate. After 1970, English court just separated them henceforth the parties can accord to their own will to choose the procedural law.[195] Obviously, it expands the freedom of parties to choose the procedure law and increase the will of the parties to select arbitration for settling their disputes. In fact, it is a great contribution to the development of international commercial arbitration and in the meantime the target is international commercial arbitration. The effect of it is really for the future significantly.
     Most of us would accept that in observing international commercial arbitration at the point of practice, the lex loci arbitri is really of utmost importance as connecting factor in arbitral procedure,[196] and the place where the arbitration took place is most easily obtained by the support of court. In addition to this, it is also relied on for getting the recognition and enforcement of the arbitral award.[197] Thus, it has to agree that the lex loci arbitri still has its great effect in international commercial arbitration.[198]
 The measure of the parties’ free will to choose law, the international arbitral scholars make every endeavor to constitute the “delocalisation” theory for accomplishing the doctrine of party autonomy.[199] The way of this theory can promote the development of international commercial arbitration.. Undeniably, the fundamental of this theory is still not yet satisfactory, therefore, the award is made relying on this theory, it will run the risk of the award being refused to be recognized and enforced.[200] Actually, nobody would like to run a risk for this. Obviously, this theory still has a big shortcoming. We may, therefore, reasonably conclude that it is neither possible nor realistic to attempt excluding the lex loci arbitri entirely before this theory was satisfactory.[201]
     The writer deems to cover the shortcomings of “delocalisation ” theory and to enact an international convention by consultation of nations mutually for conducting the “de-localised” award to rely on this theory having the legal ground work. Certainly, the consulting Contracting States should take the obligation of recognizing and enforcing the arbitration, then the award is significant and it can resolve the incapability of overcoming the difficulty of “delocalisation” theory.
     If the parties don’t worry too much about the effect of the award, they will of course have confidence in selecting the “de-localised” arbitration. It will also promote the implementation of the doctrine of party autonomy. Where the parties are free to select arbitration for settling their disputes, their own will of accepting the award is increased accordingly, so that it is not necessary to have the stage of recognizing and conducting the arbitral award. Thus, the development of international commercial arbitration will be improved.
 
 
      
Mandatory Rules and Public Policy in International
 Commercial Arbitration
              Mann-Long Chang
 

Introduction

 
Party autonomy has been used in common law, civil law, and in socialist countries[202], and we can see it as a very important principle for private international law, civil law, and international commercial arbitration to adopt definitely. For example, New York Convention of 1958 has already recognized this position.[203]However, the party autonomy is not always inviolable. Sometimes, the parties should accept the binding force of mandatory rules and public policy countries involved.
Mandatory rules embody national fundamental policy. It also presents a national social economic policy[204] with the efficiency to exclude the will of the parties and the application of a foreign law. Public policy apparently reflects the fundamental economic, legal, moral, political, religious and social standards of every state or extra national community.[205]
The performance of party autonomy and that of mandatory rules and public policy always bear the increasing and decreasing relations mutually in international commercial arbitration. The more mandatory rules and public policy interfere in arbitral performance; party autonomy will be least exercised. On the contrary, party autonomy is fully respected and performed, state’s interference and control of arbitration will be weakened. But, international commercial arbitration is still unable to escape the procedure of governing from mandatory rules and public policy.
Since the different backgrounds of history, culture, politics, economic, law, custom in different countries, there are distinct definitions and applications of mandatory rules and public policy in each state,[206] thus the big argument has arisen in international commercial arbitration. Judging from above, an intense debate on the mandatory rules and public policy were going on in international commercial arbitration, it has been the subject of controversy. That is to say there is more room for further investigation. It is for this reason that it encourages me to research this topic.
 This paper focuses on studying the current theory and practice of mandatory rules and public policy by means of objective comparative analysis and synthetic induction with the various theoretical doctrines, legislations and cases. The purpose of this paper is to extend that previous point and find out the advantages and disadvantages of the theory and propose the appropriate theoretical grounds for establishing the standpoint considering both individual and national law with their public policy and mandatory rules. Questions that need to be asked are how to sustain the balance between the doctrine of party autonomy and mandatory rules and public policy and to promote development of international commercial arbitration.
 

The notion of Mandatory Rules

 
In 19^th century, German scholar Savigny had proposed that no matter what national or foreign legal system, both of them ought to apply the fundamental principles of the forum.[207]But if it violates the public interests, then only the national law should be applied. This is exception to the case. Scholar Savigny also divided mandatory rules into two categories. First, the law enacted is just for protecting the personal right. For example, this law is to bind one’s capacity on the ground of his age or sex. Nevertheless, even its mandatory rules are still not able to limit the application of foreign law entirely. Thus, the second category of mandatory rules has concluded, which is not enacted for involving the personal interests at all, but established underlying the morality and public interests. For example, the marriage law is to prohibit polygamy, its mandatory rules is instituted based on the reason of morality.[208] A foreign law will be exclusively applied if it violates this mandatory rule. Though this classification is unprecedented, it is not totally appropriate to limit a foreign law, especially, regarding the issue of national economic as mandatory rules. Obviously, it is overarching the scope of mandatory rules resulting in frequent conflicts with the foreign law and not adopted. Thus, it has already received very high criticism.[209] Italian scholar Macini modified Savigny’s theory and proposed the concept of “lois d’ordre public”. He considered these rules lie in protecting the public order and have their own function to exclude the application of a foreign law.[210] Swiss law scholar C. Brocher put forth the concept of “lois d’ordre public interne” and “lois d’ordre public international” in 1876 holding that it is unexceptional to apply the autonomous national regulation in order to defend the doctrine of lex loci, even the accorded conflict of rules had indicated the applicable foreign law.[211]
For presenting the character of application of this mandatory regulation, in the modern writings concerning private international law using the distinguishing terms, such as “lois de police” “regles d’ application immediate, directly applicable rules” “peremptory norms” “imperative norms” “self-applicating rules” “absolute rules” “lois d’ order public” “overriding statutes”, and the commonly used term is “mandatory rules”.[212] Some of these terms are synonymous, and some are slightly different, however, their meaning is almost the same, and including an elementary essential of not allowing to derogate its mandatory applicability.[213]  
Some scholars consider whatever the rules of law have themselves capable to refuse the parties’ will; they are then the “mandatory rules”.[214] The meaning of mandatory rules mean that parties do not derogate them. In some cases, mandatory rules may apply instead of the proper law, and some of their provisions replace the will of the parties. Thus, M. Pryles stated: “a mandatory rules is a rule which overrides the normally applicable law (or….the proper law of the contract) whether that applicable (proper) law is ascertained by reference to an express stipulation or by reference to the closet connection. In short it is a law, which applies irrespective of or despite the proper law of a contract.”[215] To state it more clearly, mandatory rule embody a national fundamental policy, also presents a national social economic policy, including currency and exchange regulation, boycotts and blockades, embargoes, and environmental protection laws.[216] For example, the English Uniform Contract Terms Act[217] and the German Regulation of Standard Contract Terms Act,[218] those national laws are mandatory rules with the efficiency to exclude the will of the parties and the application of a foreign law.
 

The notion of public policy

 
  Public policy is a commonly recognized concept of law in private international law. Customarily, “public order” or “order public” is used for expression in civil law countries, and normally the term of “public policy ” is used in common law countries. The meaning and extent of these terms are not the same exactly. “Order public” is similar to “public policy” in that it rejects the application and recognition of foreign laws or acts, but “order public” also presents its preemptory in nature and which can not be contracted away from the domestic rules and the statutory requirement (also connotes legislative provisions which are peremptory or ius cogens, i.e. provision which cannot be out of or otherwise undercut.)[219] Furthermore, it also includes the elements of “due process” of law, whereas due process is protected by the due process clause of the Constitution, not the notion of public policy, in the United States.[220] In summary, however, the meaning of “order public” in civil law countries is more broadly than that of “public policy” in common law countries. But getting more and more civil law countries accepting the notion of order public international, the distinction of the notion of “order public” and “public policy” is becoming very slightly. In many circumstances, these two terms are changeable to be used, and their expressed meaning is the same basically.[221]
Every national scholars has attempted to make an affirmative definition of public policy for a long time, but due to public policy has its uncertainty and ambiguity, it is really difficult to affirm its definition, some scholars even regard it as “one of the most elusive and divergent notions in the world of juridical science”.[222] Though each national scholars have attempted to express the notion of public policy from every different view, till now none had been accepted consentaneously. Some scholars even think: “It is unanimously accepted in legal science that the concept of public policy is very difficult to define and that attempts to provide an all-exhaustive definition will necessarily lead to failure.”[223]
The definition of public policy is indeed very hard to define. Frequently, it varies depending on time and place. And, it varies upon the distinctive customs and habits and the concept of ethic and morality. Actually, it is very difficult to have an objective criterion.[224]
Although no definitions of public policy exist had been accepted perfectly internationally, it can be affirmed that public policy apparently reflects the fundamental economic, legal, moral, political, religious and social standards of every state or extra national community.[225]
 

The relationship between mandatory rules and public policy

 
  Mandatory rules and public policy play a very important role in international commercial arbitration, and, however, what is the difference between them and what is their interrelation? These must be clarified. In general, they are common in following points: (1) The purpose is to maintain the national significance or basic interests, principle of fundamental rules and the concepts of fairness, justice and morality. (2) To reject the recognition and enforcement of a foreign judgment and an arbitral award by excluding or restraining the application of a foreign law. (3) To reflect the concept and fundamental principle of politics, economics, society, laws, morality and religion. (4) The policy and interests of mandatory rules must comply with the aim of a national public policy.[226]
The main distinguishing feature between mandatory rules and public policy are: (1) Mandatory rule is to utilize the national law directly regulating certain matters which are absolutely necessary to apply the national law unexceptionally, for example, Article 3 of French Civil Code provides: “The laws of police and public security bind all the inhabitants of the territory ”. This provision indirectly excludes the application of a foreign law which conflicts with these mandatory rules. On the other hand, if the consequence of applying the foreign law violates the public policy in order to decide whether or not to exclude the application of foreign law. Thus, some scholars consider that mandatory rule is the first barrier to exclude the application of a foreign law, and public policy is the second barrier to exclude the application of a foreign law.[227] (2)  Constantly, mandatory rules present themselves with the definite and specific legal regulations, and public policy often presents itself with the principle of law generally and abstractly. (3) The notion of public policy is more broad than that of mandatory rules, some scholars thus hold that mandatory rules has the same meaning with the definite public policy and they are changeable to utilize.[228]
Though mandatory rules are possible to present national fundamental interests and policy, but it often reflects rather specific interests and policy, nevertheless every public policy is preemptory, but each mandatory rules are not imperative to reflect the contents of the public policy of the forum state, only the public policy can fully present the principle of public policy of the forum state.[229] In fact, it is rather hard to form clearly whether the mandatory rules presents the principle of public policy, because they are indeed superimposed, and the interpretation of the implication of public policy is changeable following the various time and objective circumstance.[230]
 

The negative and positive form of public policy

 
In the view of considering the function of public policy, generally, it may be divided into two forms, one is the negative form of public policy, and the other is the positive form of public policy. The negative form of public policy is also called “public policy reservation”.[231]  That is whenever a national court is dealing with an involved civil case, according to the conflict of law it should apply the foreign law. But the national court is available to reject to use it as the court thinks the contents of that foreign law or the consequence of applying that foreign law will violate the state’s public order. This restraint of applying the foreign law is called “Vorbehalt sklausel” by the scholar of German private international law.[232] In other words, the negative form of public policy is to view if the consequence of applying the foreign law violates the public policy in order to decide whether or not to exclude the application of foreign law. “Order public” may be considered effectively to defend the court for excluding the application of a foreign law, foreign judgment and arbitral award. The application might produce results that are inconsistent with the fundamental economic, legal, moral and political standards or principles of the forum state.[233] The judge has to support “those principles and standards which are so sacrosanct as to require maintenance at all costs and without exception”.[234]
The foremost country to legislate for regulating the public policy reservation is firstly considered France in the world, whose Civil Code states: “Private agreements must not contravene the laws which concern public order and good morals”.[235] Originally, this provision is for applying to the contract in domestic cases, but in trial practice, public police reservation system is also applicable to foreign cases. If the applied foreign law by the court violates French public order, it is then inapplicable.[236] Public policy is regarded as “fundamental moral convictions or policies of the forum”[237] the doctrine of public policy provide “a kind of barrier blocking the passage of the foreign law”.[238] Any application of a foreign law or recognition of a foreign judgment all must pass through this “barrier”. If the foreign law or the foreign judgment is “inconsistent with the fundamental public policy”[239]or “outrages (the) sense of justice and decency”[240] or “shocks the social or legal concepts”,[241] the court may reject, on this ground, the application of the foreign law and the recognition of the foreign judgment.[242]The so-called positive form of public policy is that the forum state according to its own conflict rules should apply a foreign law as its applicable law, the positive form of public policy is to analyze based on its own standpoint in the possible situation of applying the foreign law if the application of foreign law is deemed to jeopardize the national public interests, then to exclude the application of foreign law by legislation and in spite of the consequence of the substantial case applied to that foreign law.[243]
 

The role of public policy in international arbitration

 
Being a concept of traditional private international law,[244]generally, public policy is constantly invoked for defending against the enforcement of foreign laws, or against considered inconsistency with the fundamental principles of the forum’s legal system.[245] Thus, the forum is entitled the sanctity of protecting the proper value and the lowest standards of justice and morality by the public policy.[246] The application of public policy is not invariable.[247] In the field of conflict of law, public policy is regarded as a choice of law rule to be exceptionally applied narrowly.[248]But in the field of recognition and enforcement of foreign judgments, public policy is however involved broadly. Although a foreign law is not subject to control by the forum its appeal lies in the fact that, a decision made by an alien court, lacking thereof of enforcement, can be controlled.[249]
 Public policy might be rejected if forum state finds the application of a foreign law, or the enforcement of certain judgment is minimal by the reason of violating the public policy for defense.[250] Because, normally, the courts think it is appropriate to reject them by the reasoning of violating the public policy in domestic cases, but it should not be always adopted in international cases.[251] As Switzerland scholar Brocher mentioned that mandatory rules have two categories: one is order public national, for example, the regulations of adult age and marriage ability, which have the unconditional efficiency in the relationship of national civil law, but, if according to conflict of laws to single out a foreign law, the national public policy should be exclusively applied in the relations of international civil law. The other category is “ordre public international”, for example, prohibition of bigamy, ransoming the population and so on. These prohibitions have to be mandatorily applied in national or international civil cases, even the conflict of laws expresses to apply a foreign law.[252]
Ordre public policy consists of many preemptory norms, which govern private actions in forming contracts.[253] Ordre public international allows a forum to reject the enforcement of foreign laws or judgments while they violate the most basic principles of the forum, and these principles must be obeyed for maintaining the legal and social order.[254]  Apparently, the contents of ordre public international is narrower than that of ordre public national and its application is limited.
The Dutch scholar P. Sanders points out that we have seen the distinction between the national and international public policy as the reasons in defense, the concept of the latter one has been bound more. According to the general theory, international public policy is only bound by violating the actual fundamental conceptions of legal order.[255] This kind classification indeed confines the scope of “public policy reservation” system and is capable to avoid any groundless application. Otherwise, once the court excludes to apply a foreign law on the ground of public policy rashly, it is rather easy to let the legal nexus involving foreign cases fall within the unstable state and affect the parties’ interests significantly. It is obvious to see, the distinction between ordre public national and ordre public international is very important in the international commercial arbitration.[256] Article 1498 of the French Nouveau Code de Procedure Civile[257]stating in French the foreign arbitral award merely “does not manifestly contradict ordre public international” will be given the effect.[258]
The earliest affirmative expression that the standard of public policy in international case is different from that of in national cases was shown in the cases of some European countries. For example, The Netherlands and France are in accordance with their own requirement of public policy requesting all arbitral awards must attach the reasons backing up those awards, or those awards would be refused to enforce. But English arbitration does not require any rendering reasons attached to the arbitral awards. While those European countries are referred by the English arbitral award whether they ought to depend on the requirements of whose public policy for refusing the enforcement of English arbitral award without attaching any reasons? Netherlands and French courts will enforce the English award on the grounds of those national public policy where it is not applicable to the cases involving international commercial arbitration.[259]
This distinction is best illustrated in the case of Fritz Scherk[260].The plaintiff purchased all rights held by the enterprise to trademarks of cosmetic goods manufactured by them from the defendant. An arbitration clause was inserted in the contract stipulating that any scandal or claim arising under the contract would be referred to arbitration before the International Chamber of Commerce in Paris, France. In Switzerland the transaction was signed off. The seller’s fraudulent representative actions concerning the trademark rights status constituted violations of Article 10(b) of the Securities Exchange Act. Article 10(b)-5 promulgated that the purchaser petitioned an action for damages and other remedy in the United States District Court for the Northern District of Illinois. The District Court dismissed the action by denying the seller’s motion.  Nevertheless, a preliminary order signaling the seller from proceeding with arbitration was granted. The District Court relied totally on the decision in a previous case known as Wilko and Swan in coming to this decision, which held that an agreement to arbitrate could not preclude a buyer or a security from seeking a judicial remedy under the Securities Act of 1933. The United States Court of Appeal for the Seventh Circuit, affirmed on the same ground notwithstanding a decision from a judge.
On certiorari, the United States Supreme Court made a reversal to the judgment made by the Court of Appeal and passed back the Case to the District Court. In Sewart J., the opinion was distinguished on various grounds and it was held that the agreement of the parties to arbitrate any matters arising out of their international commercial transactions was to be recognized, respected and enforced by the federal courts in relation to provisions of the Arbitration Act of 1925. Even though allegations surfaced that the purchaser had violated rules of the Securities Exchange Act of 1934.
Thus, the idea that arbitration clauses should be subject to less restrictive standards of enforcement than those in purely domestic situations was established for international commercial transactions. As a result, the same applied to the notion of international public policy as a concept, narrower in scope than the domestic one, must prevail in international transaction.[261]
The first similar case in America is the matter of Fotochrome,[262] it was that a USA company prior to their bankruptcy concluded an agreement with a Japanese company including an arbitration clause stipulating that any future issues arising should be submitted to arbitration for resolution, nevertheless, that clause had violated USA public policy regulating all issues arisen by the bankrupt company as prohibited from submitting to arbitration for resolution. However, all relative issues of claim are affiliated to the jurisdiction of bankruptcy court. But USA appeal court decided that the implication of public policy should be narrowly interpreted and minimize its limitations utmostly under New York Convention 1958, and it was only applicable subject to the arbitral award violating the forum state’s most basic notions of morality and justice.[263]
In Switzerland, the case of Firma Ligna and Baumgartner[264], it also pointed out that, although, regulation of arbitral court in a certain socialistic country requires all arbitrators to be compatriot citizens, this violates Swiss national public policy which does not prohibit the parties from making an arbitration clause according to the arbitral regulations of that socialistic country and let that state’s court proceed with the arbitration. Some cases in German court have expressed that the award involving the foreign arbitration violating German mandatory rules is not imperative constituting to violate whose public policy. It is considered contrary to the public policy only in the very extreme cases.[265]
France is the first country affirmatively to acknowledge international public policy by legislation in the world. French Code of Civil Procedure 1981 provides: “Appeal of a court decision granting recognition or enforcement is only available on the following grounds: if recognition or enforcement is contrary to international public policy.”[266] This expresses that France has recognized the distinction between national and international public policy legally and presented it statutorily, whose legislation has indeed been the guiding effect in universal historical legislation.
According to English conflict of laws “English courts will not enforce or recognize a right, power, capacity, disability or legal relationship arising under the law of a foreign country, if the enforcement or recognition of such right, power, capacity, disability or legal relationship would be inconsistent with the fundamental public policy of English law.” Generally, this rule regulates any action conflicting with the English fundamental public policy will not be enforced or recognized by English court.[267] Actually, it is very prudent to apply the public policy practically in English. In Fender and St John-Mildmay,[268] the hearing court expressed that the doctrine of public policy “should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds.” It is perceived that public policy ought to be restrained appropriately, or its exceeding application will be very easy to break the stability of the legal nexus. [269] In Loucks and Standard Oil Co.,[270] the court expressed the attitude of public policy as “The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.” In practice, it is quite difficult to distinguish which laws are national public policy and which laws are international public policy, because they are frequently indistinguishable.
In English, public policy is mainly invoked in two classes of case, one is that the cases involving foreign contracts, for example, the Champertous contracts[271] in Rousillon and Rousillon, the debatable contracts in restraint of trade,[272]contracts entered into under duress or coercion,[273]contracts in trading with the enemy,[274] or contracts contradicting the agreement with the friendly nations[275]. The other one is that the cases involving a foreign status, such as slavery,[276] religion or religious location,[277]alien nationality,[278]race[279].
 

Relationship Between the Forum and the Underlying Transaction

 
The notion of public policy will be applied as the forum has very strong relationships with the underlying transaction, and it has been accepted in most civil law countries.[280]
In accordance with New York Convention, several states are competent to control the foreign arbitral proceeding and the enforcement of award on the ground of public policy. The recognizing and enforcing state to be sought may apply the public policy according to the Article V(2)(b) of Convention, the country under the law of which an arbitral award was made also may rely on Article V(1)(e) to refuse recognition and enforcement of that award. But every public policy of each state is not the same at all. Some case may result in a distinctive consequence in the different countries.[281]
Thus, some scholars allege whether or not to give the arbitral award effect of enforcement that should be bound by the doctrine of Inlandsbeziehung. [282] This theory originates in Germany providing there must be a connection between the underlying transaction and the lex fori, then public policy is applicable. This notion has generally been accepted in most civil law countries,[283]and even common law countries accept this notion. Especially, the United States deems the “strength of a public policy argument must in each case be directly proportional to the intensity of the link which connects the facts of the case with this country……”.[284] It is also followed by the United States normal court to apply the public policy in the field of private international law.[285] As to how to ascertain the existing connection between the forum and the underlying transaction in the available basis for applying the public policy, there are three elements to be considered[286].
First, it is insufficient to provide evidence to the state where the place of arbitration took place. That it is fully and effectively connected with the underlying transaction by the mere fact of that forum being selected. It is a general principle of international commercial arbitration that the parties are free to choose the place of arbitration.[287] Usually, the parties choosing the place of arbitration just considers its neutrality and convenience. In fact, the chosen place of arbitration has no substantial connection with the parties nor the underlying transaction. The parties are seldom in noticing the role and the scope of the public policy of the state where the place of arbitration took place.[288]In this case, it is evidently unreasonable to refuse the recognition and enforcement of arbitral award by applying the public policy of the country where the arbitration is to take place.[289]
Second, relying on the fact that the award is made based on the law of one state only is not enough to determine by using the public policy grounds to set aside the award.[290] In other words, only relying on this fact is not able to identify the sufficient valid nexus between the forum and underlying transaction. The parties possess broad autonomy, they can freely choose the procedural and substantive rules applicable to international arbitration. The choice of parties are not based on public policy, but consider if this choice is advantageous to settle the dispute fairly and reasonably. Thus, only choosing one certain state’s law for resolving the dispute does not mean to agree utilizing that state’s public policy to determine the effect of the award. But, if the party or arbitral tribunal chooses one certain state’s law as the applicable law because of the special connection existing between that state with the parties or underlying transaction, then it is another case.[291]
Finally, if the country in which recognition and enforcement of a foreign arbitral award are sought has an important connection with the dispute, New York Convention indicates that this country has the right to apply the public policy.[292]Generally, the country in which recognition and enforcement are sought is normally the place where the major property or the business main location of the defendant; the plaintiff does not like to enforce in the forum where the defendant does not have any property. Even the country in which enforcement is sought only has very weak connection with the dispute, logically, the country of the award made will exercise its influence to ascertain if the arbitral award accords with the basic principles of its legal system.[293]
 
Relationship of public policy with other grounds
 
Public policy is constantly combined with other grounds for reaching the aim of setting aside the award. Yet some parties even allege that the arbitral award does not comply with public policy after citing other grounds for strengthening their defense. Thus, to research the relationship of public policy with other grounds for refusing recognition and enforcement of foreign arbitral awards is very important.[294]Analyses are as following:
 
1. Public policy and arbitrability of the subject matter
 
The Article V(2) of New York Convention providing two grounds for refusing the recognition and enforcement of foreign arbitral awards: (a) when “the subject matter of the difference is not capable of settlement by arbitration under the law of ”the enforcing state, and (b) when enforcement would violate public policy.[295] New York Convention deems the non-arbitrability exception in combination with the public policy exception is rather reluctant, because normally public policy has already covered non-arbitrability defense, [296]but to regard the public policy and non-arbitrability as the independent grounds to refuse the recognition and enforcement of foreign arbitral award has been adopted for a very long time. The 1927 Geneva Convention had provided these two exceptions respectively,[297] and 1958 New York Convention followed it. Some writers holding this way will not produce any bad result in practice.[298]
Under traditional opinion, the notion of arbitrability, each state according to own public policy and public profit to decide which subject-matters may be settled by arbitration and those that may not. [299] The limitation of arbitration clauses in the simple national agreement is more than that of the arbitration clauses in the international agreement.[300] An antitrust case may be regarded as non-arbitrability.[301] Therefore, the court should ascertain, what is the part of international public policy of forum for the arbitrability in the distinctive national limitation. In the cases of Scherk[302]and the Mitsubishi,[303]the US supreme court pointed out that the antitrust matter would be suitable for settlement by arbitration due to it’s involved international transaction. The US supreme court also recognized the existence of international public policy. It also explained the arbitrability of the subject matter to be submitted independently from public policy.[304] In these two cases, the courts emphasize that the concept of national non-arbitrability cannot apply to international arbitration mechanically.[305]
 
 2 Due Process Clause and Public Policy
 
The Article V. (1). (b) of the New York Convention provides that the recognition and enforcement of foreign arbitral award can be rejected on the grounds of the following two factors, (a) when the subject matter of the difference is not capable of settlement by arbitration under the law of the enforcing state, and (b) when enforcement would violate public policy.[306]Generally, this provision is called “due process” clause, which embodies the fundamental fair procedural requirements to be respected of arbitration procedure.[307]
It is rather hard to determine if such enforcement should be recognized or rejected on the ground of “due process” for the non-arbitrability of the subject matter, but is able to be determined by public policy.[308] The aim of public policy is to protect the regulation of national procedures,[309]national courts normally decide if arbitration procedure violates or how to violate the domestic standards of justice and fairness. In fact, “case has shown that the defense of public policy is usually of limited importance, except in cases of alleged lack of due process”.[310]
  New York Convention provides that it is available to utilize the public policy ground for defense in the fields out of involvement in the “due process” clause, which expresses that the concept of public policy is wider than the contents covered by the “due process” clause. It seems the purpose of the “due process” provision of the Convention attempts to depart from the relative and flexible public policy of some basic procedural rules. The Convention also establishes the independent applicable procedural standards.[311]
The substantive application and function of public policy is different from that of “due process” provision. New York Convention V.(2).(b). provides that the court may invoke public policy exception to refuse the recognition and enforcement of award according to its own notion. But the court can apply the due process exception of Article V(1)(b) only “at the request of the party against whom it is invoked.” Public policy still has its value of application on the procedural matters out of the involvement in the due process clauses.[312]The defensive application of public policy should be limited, and only can be applied while the arbitral procedure departs from fundamental national standards of procedural protection. If the allegation of the forum and the arbitration is different in procedure only, then the public policy should not be applied.[313]
From the above analysis, it shows public policy not only can be used as an independent defense, also can combine with the other grounds for defense. Though the Convention provides ground for defense it should be based on the concept of public policy, the purpose of the Convention apparently is to establish an independent ground to refuse the arbitral award, and not to use it instead of other grounds for defense. Some scholars consider that the purpose of the Convention providing the public policy ground for defense is to avoid the Convention without enumerating the other public ground for defense in the circumstance of the other grounds not being applicable, so it provides a residual escape clause.[314]But some other scholars think that public policy, however, has existed together with the other grounds.[315]
 
Public policy of the place of arbitration
 
No matter what the considered issue is the effect of arbitration agreement, validity of arbitral award or the enforcement of arbitral award in international commercial arbitration, public policy acts as an important role,[316] because public policy is the defending reason for refusing the enforcement of the foreign arbitral award, foreign judgment and the application of a foreign law.
In general, a national court ought to consider the application of public policy in two occasions. One is that both parties have stipulated an arbitration agreement, nevertheless, one of the parties still sue and take the issue to court. In this case, the court has to determine whether the arbitration agreement is valid in order to conclude if the court has a jurisdiction on that issue. In the decision process, the court has to accord to their national public policy to concern a subject-matter whether it is capable of being settled by arbitration[317]and the issue of capability to enter into an arbitration agreement by the parties.[318] The other case is that a national court is requested to recognize and enforce a foreign arbitration award. A court must again consider the right of the parties to submit to arbitration and the ability to arbitrate on the subject matter of the dispute. Furthermore, the court must consider if the arbitral procedure and arbitral award violate the fundamental public policies of the forum prior to determining if it should be recognized and to enforce the arbitral award.[319]
However, the present writer thinks that the public policy should be still used prudently and has its own severe criterion, or its real intention will be harmed. Thus, English court is very self-restrictive to apply the public policy. English scholars Dicey and Morris indicate “The doctrine of public policy has assumed far less prominence in English conflict of laws than have corresponding doctrines in the laws of foreign countries, e.g. France and Germany.”[320] Only in the very rare occasion, a foreign law itself is regarded as violating English public policy, such as allowing prostitution or the slave system,[321] or else, the court determines underlying if the consequence of recognizing or enforcing a foreign law violates whose public policy, and does not just concern the abstract foreign law. For example, English court may regard the foreign laws admitting polygamy, incest as immorality.[322] To measure its advantage and disadvantage, it is better to recognize it than to insist on the invalidity of that marriage and illegitimate children reasoning by the public policy for avoiding disturbing the settled family relationship. Evidently, everything depends on the nature of the question, which arises.[323] Hence, till 1972, polygamously married spouses were not allowed in obtaining the divorce judgment from English court,[324] and those spouses were regarded the married persons, they were not qualified for contracting a valid marriage,[325]their children were regarded legitimately,[326]and the wife being an legal spouse was qualified to assert right of succession and other rights.[327]
Referring to the above instance, it is perceived intuitively that English court deems that “public policy is not absolute but relative”,[328]and English domestic law has founded such a principle “should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds.”[329]
 
Public policy and the “Delocalisation” theory
 
  Lately, international commercial arbitration appears like a new theory attempting to detach the control from the law of the seat of arbitration. This theory hopes to establish a legal system without any control nor restraint by the law of the seat of arbitration and municipal law of the specified state.[330]In general, it is called “delocalisation” or “denationalisation”. The “delocalisation” theory of arbitration, [331] garners great challenge to the traditional “seat” theory. Some scholars even assert that enforcing jurisdiction does not inevitably come from lex loci arbitri, arbitration can be independent from any legal system, the arbitral award not following the law of the situs should have the same validity for recognition and enforcement in other nations.[332] Thus a “floating award” is produced.[333] The floating award does not belong to any system of municipal law, and international commercial arbitration itself would be “transnational”, “a-national”, “expatriate”, “supernational” or even “de-localised” award.[334]
  This theory holds that parties are free to choose procedural law and that arbitral procedure is not subject to lex loci arbitri any more, and the parties can determine any procedural law of other nations applicable to the arbitral procedure.[335] However, the opponents deem that any principle of law cannot exist in the legal vacuum, though arbitration is different from the procedure of sentence, it still cannot detach the arbitration from the law of the seat of arbitration. It is not realistic to intend escaping international commercial arbitration from the legal norm of the specified nation for not being governed by any national legal system.[336]
  Thus, scholars support this theory with regards to the parties not expecting or neutrally considering choosing the place of arbitration, not for wanting to apply the lex loci arbitri. Therefore, they advocate the legal effect and enforcement of the award does not necessarily come from the law of the seat of arbitration. The award not being made in accordance with the law of the seat of arbitration should have the equivalent legal effect and enables to obtain the recognition and enforcement in the other nations.[337]
The analysis in reality, the “de-localised ” award yet needs to face the issue of each state’s recognition and enforcement of the award, as well as whose public policy. It is quite complicated and disputative. Here is the analysis as following:
As the “de-localised ” award is an award rendered according to the procedural doctrine of parties’ full free choice of law without any direct connection with the municipal law of a particular nations. It’s a non-nationality award, whether it is applicable to New York Convention? Because the provision of the New York Convention is that “This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”[338] Obviously, the interpretation section of this provision is exclusive to the “de-localised ” award. The relevance is that if the “de-localised” award is capable to sought the recognition and enforcement in the other country. However, it is worth to make the deepened study concerning the existence and development of the “de-localised ” theory.
  Every state’s scholars are debating if the “de-localised ” award is applicable to New York Convention. Some scholars object it, because they think the award rendered according to domestic law is premised for applying the New York Convention, yet the “de-localised ” award is not rendered according to the domestic law, thus it cannot be recognized and enforced in the contracting state underlying the Convention.[339] Scholar J. Paulson who supports the “de-localised ” theory thinks that in accordance with the legislative spirit, an arbitral award does not need a “nationality” for the enforcing court to recognize and enforce, actually, that award is still capable to be recognized and enforced in a contracting state.[340] However, it is necessary to make the further study for getting the deep understanding of the “de-localised” award.
 

The “De-localised” arbitral award

 
  The so-called “de-localised” arbitral award means the award is not rendered underlying the procedural rules of the arbitral situs, and any award rendered by the laws of any other state is not able to be called domestic award. In fact, the “de-localised” arbitral award is consequence of “de-localised” theory inevitably. Some international courts have rendered the “de-localised” arbitral award, it cites that this issue has been paid much attention gradually.
  A judgment in 1980 made by French Court of Appeal on Gotaverken Arendel A.B.[341] is a “de-localized” arbitral award. That case was dependent on the parties’ agreement to arbitrate in Paris underlying the ICC Rules of Arbitration. The arbitral tribunal rendered an award in appellant favor, and the defendant refused to carry out that award. Appellant then appealed for enforcing that award in Swedish. On the other hand, the defendant appealed to French court for setting aside that award he pleaded that the case was arbitrated in Paris, thus it was a French domestic award. But French Court of Appeal considered that the ICC award was not conducted relying on French arbitral procedure, thus it was not a French domestic award scope and reject to deal with that litigation because it was beyond the scope of French jurisdiction. In the circumstance of French Court not yet making the judgment, the Swedish Supreme Court held that the award was enforceable and conducted it immediately. It is necessary to point out that the result of this case was against the expectation of the parties, because the parties only selected the arbitral place “Paris” and did not choose French arbitral procedural law as its applicable law. They misunderstood the nature of the whole arbitral regulations and used the incorrect procedural law resulting in the “de-localised” arbitral award. Nevertheless, the focus of this case is that the Swedish Supreme Court clearly expressed the state of enforcement of award was powerful to determine the award being bound and enforceable, it was not even necessary to consider what the state in which the award was made would think against the effect of law of that award.[342]
  In order to escape the governing from lex loci arbitri in international commercial arbitration, the parties adopted the “delocalisation ” arbitral procedure law and make the “de-localised” arbitral award. The well-known case was the Algeria Declaration[343] signed under the mediation of Algerian Government in 1981 for resolving the crisis of USA freezing the property of Iran in whose territory caused by 52 American hostages seized by Iran. According to “the Claims Settlement Declaration”, United States and Iran agreed to establish Iran-United States Claims Tribunal in Hague, Netherlands for settling the claims of their nations against their opposite country, also for resolving any dispute caused by this hostage event.
  Iran and United States accorded to UNCITRAL Rules instead of arbitral procedural law of Netherlands, the place of arbitration, nor that of other countries to enact the Final Tribunal Rules of procedure and made volumes of arbitral award, which were all the “de-localised ” arbitral award. Furthermore, Article 5 of the Claims Settlement Declaration stipulated: “The Tribunal shall decide all cases on the basis of respect for law, applying such choice of law rules and principles of commercial and international law as the Tribunal determines to be applicable, taking into account relevant usages of the trade, contract provisions and changed circumstances.” This stipulation has deviated from Article 33 of UNCITRAL Arbitration Rules, because the Iran-United States Claims Tribunals was fully free to decide the law applicable to the arbitral procedure.[344]
 

The enforceability of “de-localised” arbitral award

 
The main reason to object the recognition and enforcement of “de-localised  arbitral award” underlying the New York Convention is because the so-called “non-domestic award” in its Article Ι.(1) is not equivalent to “de-localised arbitral award”. Moreover, the Article V. of this convention providing the arbitral award must be rendered according to the domestic law of a particular state, then it can be recognized and enforced underlying this convention.[345] But, the original aim of drafting the New York Convention was to replace the Geneva Convention of 1923 and the Geneva Convention of 1927, because these two Conventions were considered overemphasizing lex loci arbitri. Thus, enlarging the scope of recognizing and enforcing of an arbitral award becomes the main purposes of New York Convention. In terms of New York Convention, the final standpoint in the process of legislation is to widen the category of applicable arbitration. Therefore, some scholars think that Article II.(1) of this Convention is not possible to derive a conclusion exemplifying its intention on applying it to “de-localised award”, or to exclude the “denationalized award”. [346] It seems their statement is attempting to find an outlet for “de-localised award”.
Again, in the eyes of Article Ι.(1) of the New York Convention, it provides “This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought. It shall also apply to arbitral awards not considered as domestic award in the State where their recognition and enforcement are sought.”           This content expresses that an award should not be governed by a national arbitration nor to be made according to a national arbitration.[347] The meaning of the mentioned “made in the territory of a state other than the states” is that it is regardless of the domestic or international character of the rules governing the proceedings,[348] and the latter part of this Article “arbitral awards not considered as domestic award in the State where their recognition and enforcement are sought.” Expounds although the awards are rendered in the State where their recognition and enforcement are sought, the state does not regard them as the “domestic awards”. For example, in French Gotaverken A.B.,[349] that award was made in accordance with the arbitral procedural law selected by the parties, and not by lex loci arbitri. That is effectively an example of a case complying with this Article. One more instance, an award in Libyan American Oil Co.[350] was enforced in the other relative countries too. Thus, while a national court of a State party deciding whether or not to enforce an award should consider if that award was made by the other contracting State, or it is a domestic award, and does not take into account which procedural law has to be applied.[351] This observation not only reflects the precedent of the court recognizing the “de-localised arbitral award”, also extends the applicable scope of New York Convention. It, however, has already considered the original purpose of legislating. And it is indeed worth approving.
Furthermore, the Article V.(1).(d) of New York Convention provides, “The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement was not in accordance with the law of the country where the arbitration took place; or,”the award will be rejected to be recognized and enforced. It is perceived that the parties have priority to choose the arbitral procedural law, and only in absence of the choice of law, the procedural law of the place where arbitration took place is applicable. In view of the present writer to contemplate logically, the free choice of arbitral procedural law by parties should not be subjected to lex loci arbitri, if their free choice of law is limited to lex loci arbitri, then there is nothing to say freely. Where the parties are unable to choose the other arbitral procedural law, it is that the provision of this Article is incorrect, or interpreted erroneously. Therefore, it concludes that a “non-domestic” award rendered underlying the scope of this convention ought to be regarded as a “de-localised  arbitral award”. And, certainly, there is no other reason refusing to recognize and enforce it on grounds of the correspondence with the requirements of New York Convention.
 

The role of public policy in “de-localised arbitral award”

 
In accordance with New York Convention, the recognition and enforcement of the award may be refused if “the recognition or enforcement of the award would be contrary to the public policy”.[352] But, on what conditions would an award be regarded contrary to public policy. Scholars popularly deem that a foreign rule itself ought not to be examined microscopically to see if it violates the basic principles of the forum law, but to see the consequence of applying the applicable law.[353] We had mentioned that public policy is in general divided into national public policy and international public policy in the fore part of this writing. This approach is acknowledged in the legal science of most countries.[354] However, some countries still do not support this distinction, e.g., Brazil and the countries of the Middle East.[355] But some scholars think though “international public policy” is named with “international”, it is practically not well worthy of its name, because this public policy is still domestic in nature. In practice, international public policy with national public policy are two distinctive forms of domestic public policy of a particular state for bringing forward their own function in the different area respectively. Both reflect the conception of value of a particular state.[356]
Thus, the well-known English scholar C.M. Schmitthoff stated “international public policy should be understood as forming part of the concept of national policy”,[357] but the notion of national public policy is more broad than that of international public policy. To have the mandatory principle or conception in private international law is preemptory in national relations generally. But to have the mandatory principle or conception in national relations does not mean to be mandatory in international relations certainly.[358]
  One concept of the values common of public policy exists in international society popularly. It is constituted with the fundamental rules of natural law, the principles of “universal justice”, ius cogens in public international law and the general principles of morality and public policy accepted by civilized countries.[359] Some scholars call it “transnational public policy” or “truly international public policy”. The character of this policy may be regarded “calling upon States to cooperate in the protection of shared values by not giving legal effect to transactions contrary therts”.[360] The conception of international and transnational public policies is distinctive. The purpose of the former one is to protect the fundamental principles of the forum state. And, the latter one is to concern the values common of international community. The effect of the former is to refuse the foreign rules probably resulting in harmful effect to the fundamental policy and interests in the forum state. And, the latter one, strictly to speak, is without any connection with the foreign forum law, but, focuses on refusing the rules or trading practice that run contrary to the principles and policies accepted by civilized states.[361]
  The uncertain definition of public policy leads many parties would like to put forth dissent, or take objection against enforcement by citing public policy, but the possibility of success is small. In ICC arbitral cases, some 140 precedents had invoked public policy to defend, but only 5 of them had been adopted. It approves that the court makes efforts to lessen the application scope of public policy and supports the recognition and enforcement of foreign arbitral award to the utmost.[362] More and more countries have adopted the theory distinguishing national and international public policies. The commonly accepted view is that the public policy on grounds of narrow nationalism is not appropriate to apply to the international cases, and the acceptable international public policy is subject to violating the basic concept of the relative national legal order.[363]
 In the United States, courts usually put forward the arbitration clause or arbitral awards that violate US legal laws, and seldom apply public policy for denying the effect of enforcement, even the parties claim the consequence of enforcing the awards would jeopardize national security, the courts would still not accept their defense, only the parties put forward sufficient evidence to defraud and coerce, thus the courts would apply public policy for rejecting the recognition and enforcement of awards”.[364]
To see each state’s precedents underlying the New York Convention, the applied ratio of public policy by contracting state is still a few. Only a few awards were refused as the consequence of recognizing and enforcing them would jeopardize whose national public order. Indeed, public policy is very important for every country, and no other nation is willing to waive it. But in practice, international commercial arbitration, the normal countries also do not use it indiscreetly. As English Judge Mustill states, it has never been found in English court that it is necessary to interfere if arbitral proceedings comply with the public policy rules.[365] Although this narration is overstated, it reflects that judges do not regard citing public policy very much, or, at least they are very cautious to cite it.
Actually, “de-localised” arbitral award has not yet got the popular acknowledgement by each state for the time being. Thus, if the parties want to select “delocalisation” arbitration, they do need to run the risk of the award being refused to be recognized or enforced in the relative country possible. To view it at the point of procedure, such an award should be recognized as a “nondomestic award” falling within the extent of New York Convention, thus, the further application of this Convention is possible. Once such an award is acknowledged applicably to New York Convention, then further examination may be made if “the recognition or enforcement of the award would be contrary to the public policy of that country”[366].Owing to the insufficient legal grounds of “delocalization” award, the present writer advocates that every state ought to enact an international convention stipulating the proper and complete regulations for “delocalization” arbitration, thus such an award would have the full legal basis[367] for assuring its recognition and enforcement in a Contracting State. 1965 Washington Convention had provided some legal bases of “delocalisation” award for each state and other than nations, it provides:
“The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.”
  “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that state. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.”[368]
It implicated that each Contracting States had accepted ICSID award and had no right to examine the arbitral proceeding, nor to take objection to the award. It indeed was creating and developing an arbitral history. Though at that time Italian Professor Monaco did not agree with this observation, most of the other scholars did not have the same opinion.[369]
 

United States Courts and Public Policy

 
The first case invoking the public policy exception of New York Convention by United States court was the Parsons and Whitemore Overseas Co.[370] That was a paperboard mill construction project in Egypt contracted by USA companies Parsons
and Overseas with the Egyptian company RAKTA. An arbitral agreement also included in that contract providing that if any disputes arose, they must be submitted to arbitral tribunal for settlement. The 1967 Six-Day War in the Middle East just occurred at that time. [371] The Agency of International Development (AID), an agency of the State Department withdrew their project of financial investment after the relations of United States with Egypt had deteriorated, and the majority overseas workers including Parsons and Whitemore Overseas Co. moved back from Egypt.[372]Thereby, RAKTA accused Overseas of breaking the contract and submitted to arbitrate according to the agreed arbitral agreement. The arbitral award was in favour of RAKTA,[373] and RAKTA applied the enforcement of that award in the United States. Overseas defended against that enforcement relying on the Article V.(2).(b) of New York Convention and argued that the company had been ordered to cease performance by the United States government, the arbitral award violates the public policy of the United States.[374]
But that court denied the defenses of Overseas, because they thought the enforcement of foreign arbitral awards should be denied on public policy grounds “only where enforcement would violate most of the forum state’s notions of morality and justice”.[375] The court also stated that Overseas had erroneously equated “national” policy with “public” policy and asserted that “to read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention’s utility” and would have converted “a defense intended to be of narrow scope into a major loophole in the Convention’s mechanism for enforcement”.[376] Obviously, Parsons case is the leading U.S. case applying the public policy of New York Convention for defense. Its principle it is best to narrow the interpretation of public policy for avoiding its abuse.[377]
In McDonnell Douglas Corp. v. Kingdom of Denmark,[378]Denmark tried to claim a recover damages caused by the launching of a missile carelessly.[379] In accordance with an arbitration clause in its sales contract, Denmark submitted to arbitrate, McDonnell Douglas attempted to exempt from their obligation and defended that it violated the United States public policy if submitted to arbitrate, many documents should be provided for defense and those documents were confidential, which should not be and could not be submitted to arbitrate.[380]This defense was not accepted by the domestic court, and the court even emphasized that McDonnell Douglas had already acknowledged the nature of the limitation and the confidential requirements of USA national security while they contracted with Denmark, then agreed to that arbitral clause.[381]The court also alleged that the arbitrators were in no need to judge on matter of national security.[382]
 

Public Policy of the enforcing Courts

 
According to Article II(3) of New York Convention stats:
“The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
 It indicates if either of the parties sue the court in the circumstance of an arbitral agreement existing between the parties, the court is imperative to review the effect of that agreement based on the national law including the public policy. The court possesses the right to declare an arbitral agreement void if it violates the national public policy, and is competent to conduct its jurisdiction over that issue. It means it is not only the court of enforcing state is able to invoke the public policy for defense, the relative contracting states of arbitral agreement also enables the application of public policy underlying the legal system of New York Convention.[383]
Though the relative contracting states can apply the public policy for defense underlying the legal system of New York Convention, the national court cannot exercise its right without any reservation or unlimitedly. This consequence can be seen from the continuous legislative history. The article of 1(2)(e) of 1927 Geneva Convention Provides that an award will be enforced if “the recognition or enforcement of the award is not contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon”.[384] This is apparently different from Article V.(2)(b) of 1958 New York Convention providing “recognition and enforcement of an arbitral award may also be refused, if the competent authority in the country where recognition and enforcement is sought finds that:……the award would be contrary to the public policy of that country”.[385]Because Geneva Convention utilizes “public policy or the principles of the law of the country”, but New York Convention only uses “public policy”. The scope of application of Geneva Convention is more wider. And , the scope of application of “public policy ” is different from that of “the principles of the law of the country”. However, 1958 New York Convention had already waived the contents of “the principles of the law of the country”. Evidently, the narrow interpretation of public policy exception concerning its available application is subject to violating the public policy directly and it is not applicable by merely involving the conception of public policy.[386]
Article V.(1).(e) of New York Convention Provides: “The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”, recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked. Upon that award was set aside, the other Contracting States are also capable to refuse it by underlying the same reason. It is perceived that the public policy of the state in which the award was made has a certain effect on the arbitral award. If the parties concern the law of the enforcing courts only, and ignores the public policy of the country where the award was made. It would be unrealistic. Pursuant to Article V. of New York Convention, an award should comply with both public policies of the state in which the award was made and the state in which the award was enforced in principle, thus the Contracting State will recognize and enforce it accordingly.
  The common law countries argue that the application of public policy should be limited more than that of national and domestic laws in private international law.[387] In United States, for example, the courts have distinguished the international public policy from domestic public policy while dealing with the enforcement of arbitral clause of international transactions.[388]
Clearly, the enforcing measure of arbitral clause in international transaction has the lesser limitation than that of the simple domestic transaction. In other words, the scope of the notion of international public policy is narrower than that of the domestic public policy and has the priority.[389]
The case of Mitsubishi Motors Corp.[390]evidenced the limited application of public policy. The superior court indicated that the antitrust argument produced by the international transaction may be submitted to arbitrate. Antitrust transaction is an international issue, which should not be to be waived by arbitration.[391]
 

Mandatory rules of the lex loci arbitri

 
  The legal system of each nation has own laws or rules applicable to procedure. Some are mandatory and some are not.[392]If the arbitral procedure by parties’ agreement violate any mandatory rules of lex loci arbitri, thus, the mandatory rules of the place where arbitration took place should be abided, unless the parties accord to the lex loci arbitri to exclude or modify the mandatory requirements underlying the agreement.For example, according to Article 7.(6) of ICC Rules providing “insofar as the parties have not provided otherwise, the Arbitral Tribunal shall be constituted in accordance with the provisions of Article 8.9 and 10”, the parties entrust a person of the third country as an arbitrator and stipulate that arbitration will take place in any party’s state. But the law of the state where the arbitration will take place has one rule prohibiting the foreigner as the arbitrator, whereas this mandatory rule is able to exclude the agreement of appointing a foreigner as an arbitrator except that the state allows the parties to contract.[393] Otherwise, one of the parties may claim to set aside
the award on grounds of the party not abiding by the mandatory rule of lex loci arbitri. Thus, that award may be set aside .[394]
Although according to party autonomy, which grants the parties’ arbitration to conduct their arbitral proceedings, to fit their particular requirements with considering the law governing arbitral procedure, this principle freely grants the parties the power, which can freely select favorable procedural rules.[395]However, the doctrine of party autonomy is not always holy and inviolable. Sometimes, the parties should accept the binding of mandatory rules of the place where the arbitration took place. For example, English Arbitration Act regulates as following “The tribunal shall (a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting this case and dealing with that of his opponent, and (b) adopt procedures suitable to the circumstance of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined”, “The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it”.[396]Lord Fraser of Garmyelie for the government said in the House of Lords: “Clause 33 provides a check and a balance on the powers of the arbitrators set out elsewhere in the Bill Arbitration must have their obligations under clause at the forefront of their minds throughout the arbitration”.[397]Still another “An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect”, “Where leave is so given, judgment may be entered in terms of the award”, “Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award”.[398]These rules are all mandatory. If parties’ agreement is contrary to these rules, then the agreement is null and void.
Apparently, the rules embody some fundamental policies of a nation and acknowledges “interest of the State is too important for them to be in competition with foreign laws”,[399]they also normalize “the will of the parties”.[400] Mandatory rules even embody the vital socioeconomic policies of the State involved, these include the laws of loan, foreign exchange control, boycott, blockade, embargoes and environmental protection,[401]such as English Employment Protection (Consolidation) Act, the English Uniform Contract Terms Act.[402]
Usually, mandatory rules of the lex loci arbitri are regarded equivalent to that of the relative legal system, but lex contractus is the exception. Nevertheless, the lex loci arbitri does not coincide with the governing law.[403] In other words, the applicability of mandatory rules of the law of the place of arbitration is determined by the extent of the connection between the situation and the rule in question, not only the fact that mandatory rules is the part of lex loci arbitri.[404]
 

Mandatory rules of the third states

 
The manner of the international commercial arbitrator on foreign mandatory rules is still in argument in arbitral doctrine and practice at present. Some take a hostile attitude towards the application of such rules and some others agree.[405]In general, it seems the arbitrators are hardly to be granted without regard of public interests protected by the judges, because if arbitrators always ignore the foreign mandatory rules, the arbitration of disputes would then be in question. Moreover, if the issue of mandatory rules is involved in every arbitral proceeding, it undoubtedly would, suspend the proceeding, and will lead the parties to invoke court action instead of arbitration for settlement. The successful result of will cause “the efficiency of the arbitration system would generally be put in jeopardy”.[406]
Nowadays, international commercial arbitration has already accepted the applicability of mandatory rules of the place of the award popular for granting the efficiency of the award. The arbitrators have no choice but to apply those rules.[407] In the eyes of every state’s main arbitration convention, national laws and some arbitration rules, it can be inferred that arbitrators have derived this obligation from them.[408] Nevertheless, the performance of the mandatory rules of the place of the award’s enforcement is not without any difficulty. It is that the arbitrator might not know where the award will be enforced while he is making the award, thus, he did not know the mandatory rules of the state of enforcement. Next, the concerned effectiveness of the award by the arbitrator may not be the basis for determining the applicability. If the arbitrator predicts the place of enforcement, he has to know who is the winning party beforehand and it is subject to the application or rejection of the mandatory rules. To explicate, whether or not the arbitrator apply the mandatory rules can decide the success or failure of the parties. If it is, it will cause a vicious circle[409] and if the award will be enforced in several countries, there are still conflicting policies on the back of mandatory rules.[410]
The application of mandatory rules identifies the closely connected nature of relationship between the foreign mandatory rules with the dispute and is compulsory even when the rules are not a part of governing law. This approach acknowledges that the parties’ will coincide with the state’s interests closely binding with the dispute. It also manifests the possibility of applying the foreign mandatory rules practically. However, some well-known international conventions have accepted it and performed it in dealing with the contractual relations. For example, Article 7.(1) of European Convention on the Law Aapplicable to Contractual Obligation[411] provides: “When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and is so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application.” It expresses the collaboration of international solidarity. Each state should assist mutually concerning the enforcement of the relative administrative policies. The arbitrators ought to take this solidarity by giving the effect to the mandatory rules. It is that the arbitrator has to give the fair and reasonable effect to the enacting state’s rules binding with the contract closely.[412]
A similar approach is also adopted in the Hague Convention on the Law Applicable to Agency. “In the Application of this Convention effect may be given to the mandatory rules of any State to which the situation has significant connection, if and is so far as, under the law of that State, those rules must be applied whatever the law specified by its choice of law rules”.[413] These provisions are certainly not applied to the arbitral proceeding directly, but they also present the appropriate respect not only to the proper law, also to any relative laws to reconciliation.
 

Mandatory rules affect courts

 
  Based on national law, the domestic courts have the obligation to apply their own mandatory rules and public policy. The jurisdiction and other obligations of the court are derived from the state’s judicial sovereignty and founded by underlying the national legal system. The court has the responsibility to protect the basic value. Act criteria and legal order of the nation not being violated. On account of the national policy and interests, a national court not only has the right allowing to apply a foreign law or recognize and enforce foreign judgment or arbitral award. It also has the right to reject the application of a foreign law as well as the enforcement of the foreign judgment and arbitral award under the consideration of public policy.[414] But the court is not able to let the judges do as they please to refuse the foreign right in order to adapt the personal convenience and advocate fairness, also, the court cannot close the door without extending its assistance. Except that this assistance is contrary to some fundamental principles of justice, some prevalent conception of good moral and some deep-rooted tradition.[415] In general, there are two situations that the national court needs to take account of the application of mandatory rules and public policy in international commercial arbitration. One situation is that an agreement to submit to arbitration has been made by parties, yet one of the parties put forward the lawsuit to the court. In this case, the court has to determine the validity of the arbitration agreement for asserting whether or not they have the jurisdiction. Thus, the court ought to consider if the national mandatory rules and public policy negating the arbitrability of the subject-matter of the dispute and the right of the parties to submit to arbitration. Besides, in the circumstance of the court being requested to recognize and enforce a foreign award, the court need not only to examine the arbitrability of the subject-matter of the dispute and the right of the parties to submit to arbitration, also to consider if the arbitral procedure and award violating the fundamental public policies of the forum.[416] In addition, the court of the state where the arbitration took place has the right of supervision and examination on the award made in those territory based on whose law. If the party takes objection to that award and appeal to the court for setting aside that arbitral award, the court needs to consider the applicability of mandatory rules and public policy too.[417]

Mandatory rules affect arbitrator

International arbitral tribunal is not a national body. It does not constitute the law of the country where the arbitration took place, nor perform its duty relying on the law of the country where the arbitration took place. In fact, international commercial arbitration is an agreement arranged by the parties for settling the dispute.[418] International arbitrators need not be faithful to any sovereign state, nor to have the obligation to apply mandatory rules. International arbitral tribunal other than the national court does not have the commonly meaning “forum” and “lex fori”. Theoretically, even an arbitral procedure, takes place in a particular country, the international arbitrator has no obligation to apply and respect to that country’s mandatory rules.[419] It can say, international arbitral tribunal and arbitrator do not naturally attribute to a state’s legal order, the arbitrator other than the judge need not abide “lex fori”. The arbitrator cannot obtain the support from the conflict of laws of the state where arbitration took place, the arbitral proceeding is unable to get the protection from lex fori.[420] However, it does not mean the arbitrator can completely disregard the mandatory rules of the relevant national law, or there is no room for mandatory rules applicable to the international commercial arbitration. In practice, the parties submit the dispute to arbitration instead of court expecting the arbitrator to make a fair and speedy award with effective enforcement. On this point, the arbitrator ought to respect and realize the parties’ reasonable expectation, otherwise it is meaningless to arbitrate. Thus, the arbitrator must do his best to avoid damaging the factors of the effect of the award in arbitration proceeding.[421]
To prevent the award from being set aside by the courts of the state where the arbitration took place, the arbitrator has to take into account the application of mandatory rules of that state.[422]On the other hand, the international commercial arbitrators are the guardians of the international order,[423] “they must protect the rights of participants in international trade; give effect to the parties’ respective obligations under the contracts; imply the presence of commercial bona fides in every transaction; respect the customs followed in international trade practice and the rules developed in relevant international treaties”.[424] To maintain the policy which is the idea commonly accepted in international commercial society and popularly adopted by the international organizations, and to promote the fundamental moral and ethical values followed by the commercial activities,[425]the arbitrators have to respect party autonomy as their rights are derived from the parties, they also have to protect the basic conception and principle of international commercial society to become the guardians of international commercial order. In addition, a state allows the party to  choose to arbitrate exclusively the jurisdiction of the court, the main consideration is that the state assures even the dispute being submitted to arbitrate, whose mandatory rules will still be respected by the arbitral tribunal. Or, the state certainly does not allow the parties to submit the dispute to arbitrate. Thus, the arbitrator should guarantee that arbitration is not implemented to evade the state’s fundamental public policy, or else the reputation of arbitration will be harmed.[426] Actually, this issue is still in debate. Some scholars advocate that the arbitrator is able to disregard the public policy of any country,[427]but some uphold “the arbitrator must therefore pay special attention to the public policy of the country where enforcement of the awards is likely to be requested”.[428] “The arbitrator should also consider whether the contract has such a connection with the economy of the enacting country that it would be fair and reasonable to give effect to the mandatory rule in question”.[429]Nevertheless, the present writer deem the relation between the arbitrator and mandatory rules be studied further.
 
Whether the arbitrator has the obligations to apply mandatory rules?
 
Traditionally, it emphasizes on the doctrine of party autonomy, arbitrator’s right deriving from the parties and the obligation of arbitrator abide the party’s choice of law in international commercial arbitration, hence, the arbitrator ought to reject the application of foreign public law definitely.[430] Scholar Anton Heini[431]advocate “ that the ordre public of a law other than the lex contractus does not have to be respected if the parties have not chosen a certain law in fraudem legis; an arbitrator is even less obliged to give consideration to economic policy rules of a State Whose law was not chosen by the parties”.[432] Besides, Scholar E. Gaillard who also holds that an arbitrator is less obliged to consider the mandatory rules of the forum, and even less to respect policy rules of a state, the law of which has not been chosen by the parties. However, the arbitrator regards mandatory rules as a reality to consider at most.[433] For example, in ICC Award 6379/1990,[434] the sole arbitrator sitting in Paris rejected to give effect to the first cited mandatory Belgium rules on exclusive distributorship agreement on the grounds of foreign mandatory rules not forming a part of the governing law. In this case, the focus is that the defendant cited the Article of Rome Convention to support his defense, yet the arbitrator still rejected his appeal, because the arbitrator deemed foreign mandatory rules is innately inapplicable. Moreover, in ICC 1399/1966,[435]the arbitrator thought the contract was contrary to the “Lois de policy of the place of importation” on the ground of which does not form a part of governing law.[436]
These traditional views have been criticized by many scholars, because the respect to the will of the party has been overemphasized and neglects the interests of the state on particular issues. Therefore, the scholars uphold that the arbitrator even has the obligation to apply the mandatory rules of other relevant legal systems in the particular cases and ought to seek a balance between the doctrine of party autonomy and the application of mandatory rules.[437] Scholars Y. Derains deems if the parties have chosen the mandatory rules other than the law, and which are rejected by the arbitrator on the ground of those rules not falling within the available laws to be selected by parties, it is not persuasive. The arbitrator ought to explicate why there is no other reason to apply those rules. The clause of the choice of law in parties’ agreement is not imperative excluding the application of the mandatory rules of the other legal systems. If the parties express to exclude the application of mandatory rules of the other legal systems clearly, the arbitrator then should respect the will accordingly. If it is simply parties attempting to evade mandatory rules, then it violates “truly international public policy” and to be rejected in application.[438] But, scholar P. Mayor considers, if mandatory rules are inclusive in the law governing the contract, or the parties are in absence of the expression to exclude their application, or one of the parties advocate to apply them, the arbitrator can consider to apply them. In other words, in some circumstances, the arbitrator has the right to consider rules and regulations of a specific state or the extra-national community other than the law chosen by the parties.[439]
The arbitrator has to consider the mandatory rules of the state, which realistically governs the contract. Usually, it is the law of the place where the contract is performed. Actually, it is immoral and unreal to compel the party to perform an illegal contract according to the law of the place of performance.[440]
 

Which mandatory rules of law should arbitrators apply ?

 
  The scholars who agree that the arbitrator applying mandatory rules other than the legal systems are considering, which mandatory rules of the specific legal system should be applied by the arbitrator, but they still have a different opinion. This paper is trying to refer to the views of scholars, regulations of law and the precedents of judicatory for evaluation.
  To assure the arbitrator affirming mandatory rules of other legal systems, the scholars have proposed two methods. One is the functional analysis to estimate the applicability of foreign mandatory rules. According to this method, while the arbitrator determines the application of mandatory rules other than lex contractus, “regard shall be had to their nature and purpose and to the consequence of their application or non-application”. This method is embodied in Article 7.1 of the 1980 Rome Convention on the Law Applicable to Contractual Obligation. This analysis results in the application of the law of the place of performance. The party depends on the law of the place of performance to carry out the contract.The arbitrator is not able to apply any illegal law, which is not allowed by the mandatory rules of the place of performance.[441]1980 Rome Convention on the Law Applicable to Contractual Obligation was to adopt this method.
For example, the United States issued U.S. antitrust laws considered as arbitrable in international commercial arguments since the 1985 Supreme Court ruling in Mitsubishi and Soler[442].The Court held that, agreement of parties’ to arbitrate under Swiss law not withstanding that U.S. law must be applied to the antitrust claims:
“Where the parties have agreed that the arbitral body is to decide a defined set of claims which includes, as in these cases, those arising from the application of American antitrust law, the tribunal therefore should be bound to decide that dispute in accord with the national law giving rise to the claim.”[443]
This assessment makes it clear that the Court linked its decision to the expectation that the arbitration tribunal would, in spite of the choice of Swiss law, apply U.S. law as mandatory foreign law. It was proof that the Sherman Act was applicable to Soler, which was an American distributor, carrying out its activity on a part of United States territory. According to the Supreme Court, the applicable law has to be deduced from the facts of a case; each State has the exclusive right, under public international law, to prohibit or allow the import of goods in its own territory. Therefore, if a contract involves the import of goods into a certain country, it is obvious that the administrative law of this country applies.[444]
  The next one is a method most closely connected, some scholars state that while the arbitrator considers the application of the other mandatory rules, he should measure the connection of those rules with the dispute. The purpose is to affirm the connection between the transaction of the parties with the mandatory rules of the enacting state; next, the arbitrator has to examine the implicit or explicit policy in those mandatory rules if they express that those rules are applicable to international commercial transactions[445]Swiss Private International Law Act (PIL). Article 19 (Talking into Account Mandatory Provisions of a Foreign Law) says:
“(1) A provisions of a law other than the one designated by this statute that is meant to be applied mandatory may be taken into account if interests of a party that are according to Swiss views, legitimate and clearly overriding so require and the case is closely connected to that law.
(2) Whether such a provision should be taken into account depends on its policy and its consequences for a judgment that is fair according to Swiss views.”
Evidently, this Article takes into account both methods; it requires the very close connection of the dispute with the law including the mandatory rules, also needs to examine the purpose and consequence of the application. The arbitrator has adopted this method to reject the application of the mandatory rules of the relative state in arbitration practice.[446]In a 1982 award of the Amsterdam Grain Trade Association,[447]the arbitral tribunal noted that the applicability of foreign mandatory rules is depending on the “nature and extent” and the “consequence of its application or non application.” It is short of legal and substantial contact with the agreement in addition to the nationality of one of the parties. In this case, the relevant connecting factors point out Netherlands and Germany. However, the Austrian nationality of the party is still not the legitimate reason fully. In ICC case No.6379/1990[448], it was of a sole arbitrator, where it was taken into account the purpose and scope of mandatory rules, as well as the aim of the application. Both parties are Italian and Belgium, and Italian law was the governing law. The arbitrator rejected the application of Belgium mandatory rules, because it “does not aim at binding the international arbitrator”.[449] The arbitrator found that court was designed for the application of Belgium courts entirely.
Referring to the practical arbitral cases, we can see that the foreign mandatory rules were applied to the appropriate cases only. In private cases, these rules will be applied relying on their connection with the dispute as well as their nature and purpose.[450]Some scholars even deem that to judge whether or not the mandatory rules of a particular law system are applicable with close connecting factors and the fact of the subject-matter dispute with the applicable mandatory rules in question are the decisive elements.[451]
 

Conclusion

 
  It has been accepted internationally that in accordance with the doctrine of party autonomy, the parties are free to choose the law applicable to procedure.[452]The trend of free choice of law has been carried out by legislation. It enables to satisfy the parties’ expectation certainly and is advantageous to the development in international commercial arbitration. However, the present writer advocates that the party’s free choice of law does not have the proper binding, the party will be easy to reach the aim of evading the relevant states’ mandatory rules and public policy by means of the free choice of law. This consequence will not please the scholars who advocate the principle of party autonomy, and is not the original intention of every state’s legislation and practical judgment, because it will be rather easy to cause the unreasonable application of the law and to harm the legal rational concept of fairness and justice. Thus, every state has legislated some procedural rules to be abided by parties with the arbitral tribunal without being derogated for granting that the arbitral procedure at least can be carried out fairly and enables to reach the aim of the policy to settle the dispute effectively. These mandatory rules indeed restrain the applicable scope of the party autonomy. For example, the lowest standard of “due process” designed by the laws of the arbitral seat regulates that the party is not capable to revise or exclude it by agreement[453] and the arbitral tribunal cannot either disregard or take regard. To view this standpoint, the party autonomy is worthy of adoption and promotion, but it is not sacrosanct and unbound.
The point is how to bind properly. It will harm the development of international commercial arbitration if there is too many bindings. On the other hand, it cannot carry out the realization of the fairness and applicability of the law only through few bindings. Though every state’s scholars, precedents and legislation have expressed their own opinions, each national conditions are different, also the considering factors are distinctive. Certainly, the judgment is not hardly unanimous due to reasons upheld. It is comprehensible that the views of the scholars and the legislation of each country are various in this pluralized international society.
The common law countries oppose applying the mandatory rules of non lex fori, nor the governing law of the contract. For example, a United Kingdom statute does not normally apply to a contract unless the governing law of the contract is in English [454] or it is procedural in nature.[455]Australian statute is similar to English,[456]but is different in Canada.[457]The United States is broader to deal with the foreign mandatory rules. In American restatement of Conflict of Law, which allows to apply the mandatory rules of the other countries. If “which has a materially greater interest than the chosen State in the determination of the particular issue” and in accordance with the forum’s law, the parties are in absence of expressing the choice of law, then the mandatory rules of such a state is applicable.[458]The civil law countries incline to apply the mandatory rules of the other legal systems in the particular issues. Swiss Federal Supreme Court relying on Article 19 of the Swiss Private International Law Act has expressed that the arbitrators are not necessary to be bound to the law chosen by the parties and are allowed to take into account the other laws,[459]the law of Netherlands has acknowledged that the parties are able to choose the mandatory rules of the other nations for application too,[460]
 Referring to Article V.(1).(e) of New York Convention, the award has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. Apparently, “a competent authority of the country” and “the state in which the award was made” is capable to set aside the award if which violates the mandatory rules or public policy. On the other hand, the state of enforcement of award has the power to determine if the award is enforceable, and can consider or disregard the viewpoint of the state in which the award was made on the legal efficiency of the award. But, for arbitrators, it seems they cannot disregard the mandatory rules of those states for avoiding the effect of the validity of the award in future.
As to the “de-localised award”, which is made according to the procedural rule of free choice of law by parties, there is no direct connection with the municipal law of a particular country, it is a non-nationality award. Such an award applicable to New York Convention is still in argument by each state’s scholars. For the purpose of legislation to broaden the extent of the application of New York Convention, the status of “de-localised award” should be recognized. To infer it logically, contracting state should accord to the contents of New York Convention to determine whether or not to give the recognition and enforcement of each respective “de-localised award”. After all, it is just a standpoint of the theoretical study, and no absolute binding to the contracting state. In other words, it is unable to grant that such an award would be recognized and enforced. Thus, the present writer considers taking Washington Convention as a model to enact an international convention by every state ruling a clear norm for the status of “de-localised award” and stipulating that each contracting state has the obligation to recognize and enforce such an award affirmatively, in addition, to regulate the performance of the involved mandatory rules and public policy for avoiding any argument.
The conception of public policy is not very clear, therefore, it is quite hard to define its notion. But it reflects a national or an extra-national community’s economic, legal, moral, political, religious and social standards. The nation and extra-national community will protect these principles and standards at all costs.[461]Furthermore, public policy is an implement for balancing the party autonomy with the governing of a national legal, it constitutes the normative criteria of the social structure and legal foundation of a particular state.[462] In this circumstance, the domestic court is asked for recognition and enforcement of a foreign award, the court must examine if arbitral procedure and arbitral award violating the fundamental policy of the place of court in order to determine whether or not to recognize and enforce such an award.[463] In the meantime, the courts of the country where the arbitration took place underlying their national legal have the power to supervise and examine the arbitral awards. If the party takes objection to the award and appeals to the court for setting aside that award, the court has to take into account the application of the mandatory rules and public policy.[464]
  Evidently, the view that the arbitrators can disregard the national public policy[465] is not realistic. Though there is no rule popularly accepted to guide the arbitrators to apply the relevant state’s mandatory rules and public policy, normally, it is deemed that the following principles will affect the arbitrators. (1) “In general, international arbitrators are found to apply the rules of public of the law governing the arbitration”[466](2) “the public policy of the place where the arbitration takes place should be taken into account only for the limited purposes of procedural matters”[467] (3) “the public policy of the enforcing countries is frequently a necessary consideration for international arbitrators”[468] In short, the arbitrators ought to apply the mandatory rules and public policy of the state of enforcement of award and the country in connection with the dispute for making the effective award and carrying out the parties’ expectation and wishes.
  It does not mean that public policy can be broadly used. Contrarily, it needs to limit its utilization to the utmost. This is an example that the 1958 New York Convention did not use “to the principles of the law” its purpose is to interpret public policy narrowly. The application of public policy is subject to it being violated and not being involved in.[469] In other words, it seems that the importance of public policy in the mind of the relevant countries is greater than that of in their practice. For the enacting states of New York Convention, in general, their courts will cite the public policy for rejecting the efficiency of a foreign arbitral award in the very limited circumstances.[470] The applicable extent of public policy defense is getting narrow, but it is undeniable, the interpretation of public policy by each state is still inconsistent, and the consequential arguments have arisen continuously. It seems the apprehension of the parties is still unable to be eliminated. Thus, the writer holds that it is imperative that some definite interpretation and the fundamental principle of utilization should be added to the existing international conventions and treaties on their mandatory rules and public policy by each state. Though this legislation may not be unanimous by each state, it however can establish the demonstrative effect at least, and the remarkable efficiency will be produced gradually. Thus, the difficulties of arbitration only existed in international commercial arbitration can be resolved step by step. After all, the Arbitration Acts of each state are inclining to unify, it is not only advantageous to the parties, also beneficial to the development of international commercial arbitration. It is not too late to do it corporately by each state now.
 
--------------------------------------------------------------------------------------------------------
 
 

Conclusion

The traditional scholars of arbitration have different interpretation on the nature of arbitration. This paper seeks to expound it in various standpoints. The purpose is to find out the old theories incompleteness and impracticality. The result of my study aims to propose more thoughtful theoretical base in every detail. However, this paper has considered that the autonomous, contractual and judicial characters of the parties are not expellant of each other but compatible. Either from the position of the parties, or the standpoint of the arbitration and the court, the parties responsible hold firm. The existence of both is the same for settling the arguments caused by the parties. Therefore, the above- mentioned three characters are the cooperative system. Only to insist on the free will of the party, then international commercial arbitration can be obtained by the support and development in the world.
To persist in the equality of human rights and the doctrine of party autonomy, it is the common belief for obedience in every state all over the world. Any country, any group, nor anyone is able to be against this common worth of the world. Since the original power of international commercial arbitration results from the parties, it certainly should respect the doctrine of party autonomy. But how can we appropriately regulate the scope of party autonomy as it is still debated in every nation. For example, how to lessen the interference of the lexi arbitri to the parties, how to define the more cautious and clear goals of international public policy? All these need to depend on consulting other nations and to formulate a standard for international acceptance, so that, the value and function of party autonomy can be guaranteed, and power of the party will be secured, international commercial debate enables party autonomy to be eliminated, and finally the development of international commercial relations initiated.
 
 
A Study of the Law Applicable to the Procedure in International Commercial Arbitration
               Mann-Long Chang

Introduction

 
The statement that municipal courts are bound by the procedural laws of their legal system cannot be denied. Municipal courts are created and given authority by the national laws of their situs. They conduct proceedings according to rules contained in these national laws. A judge sitting in municipal courts are restricted in applying the conflict and procedural rules of his or her situs.[471]The court of a state normally uses the municipal law as its procedure while hearing a foreign case.[472]
There is a distinction between the international commercial arbitration and municipal courts. The reason for the parties choice of the place of arbitration is commonly considered for its convenient proceeding, and without considering the inter-relationship of the place of arbitration with the commercial transaction of the parties.[473] Thus, the grounds of applying the lex loci arbitri in the international commercial arbitration is not as firm as that of the various procedures applying the lex fori. As so often, when the parties submit disputes to the jurisdiction of a municipal court, in the meanwhile, they admit that the court will exercise its jurisdiction in conformity with the procedural rules of it. In fact, there is no particular municipal court sitting in one country conducting its proceedings according to the procedural laws of another country.[474]
Though the lex loci arbitri has the inseparable relationship with the arbitral procedure, the arbitral procedure still should be often governed by the lex loci arbitri, the place of arbitration is the most meaningful connecting element for determining the law applicable to the arbitral procedure; in general, arbitration scholars state in the “seat” theory.[475]However, many faults are found in this theory and frequently criticized, inter alia, the severe conflicts exist in the principle of applied lex loci arbitri with that of choosing freely the applicable law by the parties, which obstruct the development of international commercial arbitration.[476]
Therefore, some international scholars provide that the parties shall be free to agree upon the law applicable to the merits of dispute and applicable to the procedure, and only in the absence of any indication by the parties, the place where the arbitration tribunal shall apply the lex loci arbitri as applicable to the procedure and substantive issues, it is said that the “delocalisation” theory is used by scholars commonly.[477] Unfortunately, in practice, this theory faces many difficulties that are difficult to overcome.[478]
Judging from above, an intense debate on the “seat” theory and the “delocalization” theory were going on in international commercial arbitration, it has been the subject of controversy. That is to say there is more room for further investigation. It is for this reason that it encourages me to research this topic.
 This paper focuses on studying the current theory and practice of procedural law by means of objective comparative analysis and synthetic induction with the various theoretical doctrines, legislations and cases. The purpose of this paper is to extend that previous point and find out the advantages and disadvantages of the theory and practice in the arbitral procedure and propose the observation for enabling supplementing shortcomings of the present arbitral theories. More importantly, how to keep the balance between the doctrine of party autonomy and the lex loci arbitri, and to promote development of international commercial arbitration are invaluable to study deeply.