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If the agreement is written into as a part of a main contract, one should be careful when determining the governing law of the agreement. It has been perceived that there are three approaches to determining the applicable law for the arbitral agreement. First, the agreement may be chosen a proper law by a sole clause to govern itself. Secondly, when the sole clause is absent, the decision may refer to the other provisions that include a choice of proper law to govern the main contract. It is assumed that the same law governs both arbitration agreement and the contract. In case of a choice of proper law to govern the entire contract, it is illogical to separate the proper law of agreement from those provisions of the main contract, because the arbitration clause, as a part of that contract, is theoretically subjected to the provisions of its principal contract. We can also find out evidence to support this assumption from Union of India v. McDonnell Douglas Corp . In this case, the judge stated: "An arbitration clause in a commercial contract like the present one is an agreement inside an agreement… The parties may make an express choice of law to govern their commercial bargain and that choice may also be made of the law to govern the agreement to arbitrate." Thirdly, when neither choice is made, the governing law of agreement should be, according with the seat theory, referred to the law of the seat of arbitration. The provisions of Swiss law contribute an apt suggestion similar to these three steps, by which three accesses can approach the law governing agreement. The law provides:
As regards its substance, an arbitration agreement shall be valid if it conforms either (i) to the law chosen by the parties or (ii) to the law governing the subject matter of the dispute, in particular the law governing the main contract or (iii) if it conforms to Swiss law.
The validity of arbitration agreements gives rise to problems in both the areas of essential validity such as capacity (discussed above) and the formal validity. In terms of the formality of an arbitration agreement, ‘in writing’, as a ritual incantation, has been set down in treaties as well as in national laws. Article II 2 of New York Convention defined this as: “the term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” This definition proved old-fashioned because of the emergence of Internet and new communication technology. The Model Law set out a modern definition of ‘in writing’, and added new grounds in which an exchange of statement might form a valid agreement, even if the parties did not sign it. Some jurisdictions started to accept oral agreement, provided that there is reference to written form which itself contains an agreement to arbitration. Some jurisdictions may have not adopted the definition of Model Law, but they have realised the limitation of the New York Convention’s definition. Again the example of Chinese laws, the Law of Arbitration of P. R. China was enacted in 1995 but the provision relating to the form of arbitration agreement was quite simple. It provided that an arbitration agreement, including arbitration clauses written in a contract or other forms of agreement, should be, in writing, agreed before or after the emergence of disputes. Four years later, the new Chinese Contract Law sets out a clear definition of ‘written forms’ that include a written contractual agreement, letters, and data-telex (such as telegram, telex, fax, EDI and e-mails), but whether an oral agreement or implied agreement is acceptable still remains in debates.
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