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In order to avoid any inconvenience or impracticality, a theory, so called “seat theory”, should be accepted in the ICA. It means that the law of the place in which it is held governs the arbitration and that place is the seat of arbitration. This theory has been well established both in international treaties and national laws. The Geneva Protocol 1923 states: “ The arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place.” The new Swedish Arbitration Act 1999 makes a clearer point of this theory by means of denying any other laws to govern the proceeding of arbitration held in Sweden. Section 46 of this Act states: ‘this Act shall apply to arbitration proceedings which take place in Sweden notwithstanding the fact that the dispute has an international connection.’ The English law and the Swiss law provide the similar provisions to build links between the seat of arbitration and the lex arbitri . However, to fix a seat is the right of parties, only if the parties’ choice is absent, the arbitral institution or arbitrators may designate it. Many arbitration rules also emphasize a seat should be fixed, for instance, the ICC Rules says as “ The place of arbitration shall be fixed by the Court unless agreed upon the parties.” The similar provisions may be found out from the UNCITRAL Rules and the LCIA Rules. Now it is fairly to say that under the modern arbitration laws, to decide a seat is regarded as to decide the lex arbitri.
Once having chosen a seat of arbitration, it should be noted that the neutral lex arbitri might differ from the legal system, which was most familiar to respective parties. For example, many common law systems regard time-limits as the matter of procedure law but many civil law systems regards it as the matter of substantive law. If the lex arbitri is not as the same system as the law governing the substantive matters, the conflict may arise. Some states such as China seem not to recognise the contractual time-limits because this matter has been imposed by contract law and it subject to the law governing the substantive issues rather than the lex arbitri. If contractual time-limits are longer than that the law imposed, breach of the law is amount to breach of the public policy. If it is shorter, the respondent cannot challenge the claimant’s delay unless that delay has exceeded the law-imposed time-limits. Then, the ‘party autonomy’ has to subject to some restrictions in certain jurisdictions.
4. The law governing the substantive issues in dispute
The terms of “governing law”, “proper law of the contract”, “applicable law” and “the substantive law”，except being specialized, are usually equal in reference to the law governing the substance when depicted in context of ICA. As an important principle, the autonomy of parties is widely respected by the arbitration tribunal and the choice of governing law is preferably used by parties on purpose of use a “neutral” law system (sometimes rules or principles of law) to resolve the disputes. Thus the complexity and flexibility is left to the tribunal and the participants of the ICA as well to discern what law is applicable. According to the autonomy of parties, choices of governing law are different from time to time to be suitable for the different circumstances. Some authors listed at least several laws (including rules of law) or principles of law are adopted as applicable law in the international commercial practice. They are as following:
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