Which Law Applies to the Arbitration Agreement

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As businesses increasingly choose to include arbitration agreements in their contracts, it`s important to understand which law governs these agreements. This is especially crucial for cross-border transactions, where the choice of law can significantly impact the outcome of any disputes that may arise.

Generally speaking, there are three main sources of law that can apply to an arbitration agreement:

1. The law of the jurisdiction where the arbitration takes place

2. The law of the jurisdiction where the agreement was made

3. The law of the governing contract

Let`s take a closer look at each of these options:

1. Law of the Jurisdiction Where the Arbitration Takes Place

If the arbitration agreement specifies a particular jurisdiction for the arbitration, the law of that jurisdiction may apply. This means that the local laws and regulations regarding arbitration will be the governing source of law for the proceedings.

For example, if a contract between a US-based company and a Canadian supplier specifies that any disputes will be resolved through arbitration in Toronto, the law of Ontario will likely apply.

2. Law of the Jurisdiction Where the Agreement was Made

If the arbitration agreement doesn`t specify a particular jurisdiction for the arbitration, the law of the jurisdiction where the agreement was made may apply. This is particularly relevant for international contracts, where parties may be located in different countries and need to agree on a neutral choice of law.

For instance, if a US-based company enters into a contract with a UK-based supplier and the agreement is signed in London, the law of England and Wales or Scotland will apply, depending on the choice of law provision in the agreement.

3. Law of the Governing Contract

Finally, the law of the governing contract may also apply to the arbitration agreement. This is often the case when the contract includes a choice of law provision that specifies which law governs the entire agreement, including the arbitration clause.

For example, if a contract between a US-based company and a Mexican supplier includes a choice of law provision that specifies that the contract is governed by the law of the state of New York, the arbitration agreement will likely be subject to New York law.

In conclusion, the choice of law that applies to an arbitration agreement will depend on the specific facts of each case. Businesses should carefully consider their options and consult with legal counsel to ensure that their agreements are enforceable in the event of a dispute. By doing so, they can minimize the risk of costly litigation and protect their interests.