Lee, Jong Hyeok, Governing Law of the Permissibility and Validity of Choice-of-Law Clauses Designating Multiple Domestic Laws, and of Arbitration Clauses and the Principal-Agent Relationship - A Case Note on the Seoul High Court Decision of 14 September 2023 (2022Na2004944) - (2025)
<Abstract>
This article examines the Seoul High Court’s decision of 14 September 2023 (2022Na2004944), which addressed the invalidity of an arbitration agreement as a ground for setting aside an arbitral award. Using that decision as a reference point, it considers the permissibility and (substantial) validity of a choice of law clause designating multiple domestic laws by identifying the law governing its permissibility and its validity, and reviews the court’s conclusions on that basis. It further analyses the implications of such a clause for determining the law governing the formation and validity of an arbitration agreement.
The permissibility of a choice of law clause designating multiple domestic laws is a matter to be determined pursuant to lex fori, by ascertaining whether a choice of law has been made and, if so, identifying its content. In arbitration, unlike litigation, the designation of multiple domestic laws does not of itself render a choice of law clause invalid. Instead, the parties’ explicit or implicit intention as to the applicable law must be interpreted and articulated. In the absence of contrary argument or proof, the parties’ intention manifested through the clause in the present case may be understood as providing for the cumulative application of Korean law and Kuwaiti law to the contract as a whole. On that basis, and in accordance with the double bootstraps rule, an explicit or implicit choice of both Korean law and Kuwaiti law may be recognised as governing the formation and validity of the choice of law clause itself.
Such a clause should, however, so far as possible, be interpreted in a manner that preserves its validity, by reference to whether the content of the designated laws is mutually inconsistent, in accordance with the validation principle. The effect of the choice of law clause, namely the cumulative application of Korean law and Kuwaiti law, should therefore be recognised only in respect of those partial issues of the contract for which a concrete outcome may be derived without substantive contradiction between the two laws. Issues concerning the formation and validity of the underlying contract fall within that scope, since the cumulative application of both laws permits a concrete conclusion to be reached through the operation of the more stringent law.
Since the invalidity of an arbitration agreement constitutes a ground for setting aside an arbitral award and concerns the formation and validity of the arbitration agreement, it cannot be excluded that an implied choice of the law governing the arbitration agreement might be inferred from the explicit or implicit choice of the law governing the formation and validity of the contract. Nevertheless, having regard to the seat of arbitration in Seoul, the impossibility of determining the separability of the arbitration agreement if both Korean law and Kuwaiti law were applied, and the fact that the application of Kuwaiti law as the law governing the arbitration clause would itself give rise to a ground for setting aside the award on the basis that the arbitral tribunal exceeded the scope of its authority, this article concludes that Korean law alone was implicitly chosen as the law governing the arbitration agreement.
Finally, independently of the law governing the arbitration clause, where the validity of the formation of the arbitration agreement is assessed under Kuwaiti law as the law governing the relationship between the principal and the agent, the arbitration clause must be regarded as invalid insofar as it was concluded by a representative of the Kuwaiti company without the special authorisation required under Kuwaiti law.
<Keywords>
Choice of law clause designating multiple domestic laws; Permissibility and substantial validity of choice of law; Governing law of the choice of law clause; Double bootstraps rule; Implied choice of the law governing the arbitration agreement; Governing law of the principal-agent relationship
Lee, Jong Hyeok, Governing Law of the Permissibility and Validity of Choice-of-Law Clauses Designating Multiple Domestic Laws, and of Arbitration Clauses and the Principal-Agent Relationship - A Case Note on the Seoul High Court Decision of 14 September 2023 (2022Na2004944) - (2025)
<Abstract>
This article examines the Seoul High Court’s decision of 14 September 2023 (2022Na2004944), which addressed the invalidity of an arbitration agreement as a ground for setting aside an arbitral award. Using that decision as a reference point, it considers the permissibility and (substantial) validity of a choice of law clause designating multiple domestic laws by identifying the law governing its permissibility and its validity, and reviews the court’s conclusions on that basis. It further analyses the implications of such a clause for determining the law governing the formation and validity of an arbitration agreement.
The permissibility of a choice of law clause designating multiple domestic laws is a matter to be determined pursuant to lex fori, by ascertaining whether a choice of law has been made and, if so, identifying its content. In arbitration, unlike litigation, the designation of multiple domestic laws does not of itself render a choice of law clause invalid. Instead, the parties’ explicit or implicit intention as to the applicable law must be interpreted and articulated. In the absence of contrary argument or proof, the parties’ intention manifested through the clause in the present case may be understood as providing for the cumulative application of Korean law and Kuwaiti law to the contract as a whole. On that basis, and in accordance with the double bootstraps rule, an explicit or implicit choice of both Korean law and Kuwaiti law may be recognised as governing the formation and validity of the choice of law clause itself.
Such a clause should, however, so far as possible, be interpreted in a manner that preserves its validity, by reference to whether the content of the designated laws is mutually inconsistent, in accordance with the validation principle. The effect of the choice of law clause, namely the cumulative application of Korean law and Kuwaiti law, should therefore be recognised only in respect of those partial issues of the contract for which a concrete outcome may be derived without substantive contradiction between the two laws. Issues concerning the formation and validity of the underlying contract fall within that scope, since the cumulative application of both laws permits a concrete conclusion to be reached through the operation of the more stringent law.
Since the invalidity of an arbitration agreement constitutes a ground for setting aside an arbitral award and concerns the formation and validity of the arbitration agreement, it cannot be excluded that an implied choice of the law governing the arbitration agreement might be inferred from the explicit or implicit choice of the law governing the formation and validity of the contract. Nevertheless, having regard to the seat of arbitration in Seoul, the impossibility of determining the separability of the arbitration agreement if both Korean law and Kuwaiti law were applied, and the fact that the application of Kuwaiti law as the law governing the arbitration clause would itself give rise to a ground for setting aside the award on the basis that the arbitral tribunal exceeded the scope of its authority, this article concludes that Korean law alone was implicitly chosen as the law governing the arbitration agreement.
Finally, independently of the law governing the arbitration clause, where the validity of the formation of the arbitration agreement is assessed under Kuwaiti law as the law governing the relationship between the principal and the agent, the arbitration clause must be regarded as invalid insofar as it was concluded by a representative of the Kuwaiti company without the special authorisation required under Kuwaiti law.
<Keywords>
Choice of law clause designating multiple domestic laws; Permissibility and substantial validity of choice of law; Governing law of the choice of law clause; Double bootstraps rule; Implied choice of the law governing the arbitration agreement; Governing law of the principal-agent relationship