The Proper Law of an Arbitration Agreement

As businesses continue to expand globally, more and more organizations are using arbitration agreements to settle disputes. However, the effectiveness of these agreements is dependent on their proper execution. It is essential for businesses to understand the law of arbitration agreements to ensure their agreements are enforceable.

The first step to creating a valid arbitration agreement is to have a clear understanding of what it entails. An arbitration agreement is a contract between two parties to resolve any disputes outside of court, typically through a neutral third party. The agreement outlines the rules and procedures for the arbitration process and may also include clauses specifying the law under which the agreement will be interpreted.

The proper law of an arbitration agreement is essential to its enforceability. The proper law is the law that governs the arbitration process and determines the validity and enforceability of the agreement. It is important to note that the proper law is not necessarily the law governing the contract as a whole.

In the United States, the Federal Arbitration Act (FAA) governs the arbitration process, while state laws govern the interpretation of the agreement. However, in international agreements, the proper law may be chosen by the parties and may differ from the governing law of the contract.

When creating an arbitration agreement, it is crucial to specify the proper law. The parties may choose the law of the country where the arbitration will take place or the law of a different jurisdiction. If no proper law is specified, the court may determine the proper law based on the intent of the parties and the location of the arbitration.

Choosing the proper law is not a decision to be taken lightly. The law chosen by the parties will govern the dispute resolution process, including the rules of evidence and the availability of remedies. It is essential to consider the cultural and legal differences of the chosen jurisdiction and its impact on the likelihood of a fair and impartial arbitration process.

In conclusion, the proper law of an arbitration agreement is crucial to its enforceability. To ensure the effectiveness of the agreement, businesses should consult with legal experts to determine the proper law that will govern the arbitration process. Careful consideration of the proper law will help ensure a fair and impartial arbitration process and ultimately protect the interests of both parties.