Arbitration, Mediation and Conciliation · Commercial Transactions

Conflict of Laws and Designation of Law in Commercial Contracts

Updated 11 October 2026 · Fact-checked

Under Section 28(1)(b)(ii), when parties to an international commercial arbitration seated in India designate the law of a country, the tribunal reads it as that country's substantive law, not its conflict of laws rules, unless the parties say otherwise. This stops renvoi, where the dispute is sent on to another country's law.

Understand Conflict of Laws and Designation of Law in Commercial Contracts

A commercial contract involves a governing law clause. It tells the tribunal which law decides the rights and duties of the parties. For example: "This contract is governed by the laws of England."

Every country has two kinds of rules. Substantive law decides who wins on the merits, such as rules on breach, damages and contract formation. Conflict of laws rules (private international law) decide which country's law applies to a dispute with a foreign element. A country's conflict rules can point to the law of a different country.

Now take Section 28(1)(b)(ii). It applies in international commercial arbitration where the place of arbitration is in India. Any designation by the parties of the law or legal system of a given country is construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules. So if the parties choose English law, the tribunal applies English substantive law. It does not first ask what English conflict rules say, which might lead to another country's law. This avoids circular referral and keeps the result predictable.

The rule is a default. The words "unless otherwise expressed" let the parties choose the conflict rules too, but they must say so clearly. Also note the sequence in Section 28(1)(b): first, the rules of law designated by the parties (clause (i)); second, the default reading of a designation (clause (ii)); third, if the parties designate nothing, the tribunal applies the rules of law it considers appropriate given all the circumstances of the dispute (clause (iii)).

Do not confuse this with the seat. The governing law clause decides the substance of the dispute. The place of arbitration decides, among other things, whether Part I of the Act applies (Section 2(2)). A contract can have Indian seat and foreign governing law. For an arbitration other than an international commercial arbitration, with the place in India, the tribunal must apply the substantive law in force in India (Section 28(1)(a)). Whatever the law chosen, Section 28(3) requires the tribunal to take into account the contract terms and trade usages.

Key rules to remember

Domestic arbitration, place in India: Section 28(1)(a): tribunal decides under the substantive law for the time being in force in India; Applies to arbitrations other than international commercial arbitration.
International commercial arbitration, place in India: party choice: Section 28(1)(b)(i): tribunal applies the rules of law designated by the parties; Parties may designate rules of law, not only a country's law.
Designation of a country's law: Section 28(1)(b)(ii): designation of a country's law or legal system = its substantive law, not its conflict of laws rules, unless otherwise expressed; This is the core rule of the topic. It excludes renvoi by default.
No designation by parties: Section 28(1)(b)(iii): tribunal applies the rules of law it considers appropriate given all circumstances; Applies only where the parties made no designation.
Equity decisions: Section 28(2): ex aequo et bono or amiable compositeur only if expressly authorised by the parties; Express authority is required.
Contract and usages: Section 28(3): in all cases take into account contract terms and applicable trade usages; Applies in domestic and international cases.

How to solve Conflict of Laws and Designation of Law in Commercial Contracts questions

Use this order for any case question on choice of law in an arbitration.

1Identify the type of arbitration. Is it an international commercial arbitration under Section 2(1)(f), because at least one party is a foreign national, a foreign company, a foreign-managed body or a foreign government? Note also whether the place of arbitration is in India.
2If the place is in India and the arbitration is not international, apply Section 28(1)(a): Indian substantive law.
3If it is international and the place is in India, read the governing law clause. Did the parties designate a law or rules of law? If yes, go to Section 28(1)(b)(i).
4If the clause names a country's law or legal system, apply Section 28(1)(b)(ii): treat it as substantive law, not conflict rules, unless the clause expressly says otherwise.
5If there is no designation, apply Section 28(1)(b)(iii): the tribunal chooses the rules of law it considers appropriate in all the circumstances.
6Check whether the parties authorised the tribunal to decide as amiable compositeur or ex aequo et bono (Section 28(2)). Without express authority, it cannot.
7Apply Section 28(3): the tribunal must take into account the contract terms and trade usages.
8Conclude clearly: state which law governs, and separate it from the seat.

Quickest way: Four-question check for choice of law

When to use it: Use when time is short and the facts are a short clause plus a dispute.

Is it international and is the place in India? If not, Section 28(1)(b) does not govern the answer as stated.
Did the parties name a law? If yes, apply it as substantive law.
Does the clause expressly include conflict rules? Only then are they applied.
If nothing is named, the tribunal picks the appropriate rules of law. Always add Section 28(3) in the last line.

Common mistakes in Conflict of Laws and Designation of Law in Commercial Contracts

Saying the tribunal applies the conflict of laws rules of the chosen country.
Students think a country's "law" includes everything in its legal system.
Fix: State that, unless the parties expressly say otherwise, the reference is to substantive law only (Section 28(1)(b)(ii)).
Treating the governing law and the seat as the same thing.
Both are often named in the same clause and both mention a country.
Fix: Say that governing law decides the merits, while the place of arbitration decides whether Part I applies (Section 2(2)). They can differ.
Applying Section 28(1)(b) to a purely domestic arbitration.
Students remember the section number but forget the type of arbitration.
Fix: First classify under Section 2(1)(f). Domestic arbitrations with an Indian place follow Section 28(1)(a).
Forgetting the 'unless otherwise expressed' exception.
The rule is learned as absolute.
Fix: Write that the default can be displaced by clear express words in the agreement.
Letting the tribunal decide as amiable compositeur on its own view of fairness.
Students assume tribunals may do what is just.
Fix: Cite Section 28(2): express authorisation by the parties is needed. Otherwise decide by law, and under Section 28(3) in line with contract terms and trade usages.

Worked examples

Example 1

Alpha Ltd, an Indian company, and Beta GmbH, a German company, have a supply contract. The clause says: "The contract shall be governed by the laws of Singapore." The arbitration is seated in Mumbai. A dispute arises. Which law will the tribunal apply, and will it consider Singapore's conflict of laws rules?

Show the solution

Classification: Beta GmbH is a body corporate incorporated outside India, so the arbitration is an international commercial arbitration under Section 2(1)(f)(ii), assuming the relationship is commercial.
Place: Mumbai is in India, so Section 28(1)(b) applies.
Designation: the parties designated the laws of Singapore, so Section 28(1)(b)(i) applies.
Construction: under Section 28(1)(b)(ii), a designation of a country's law is read as its substantive law, not its conflict of laws rules, unless otherwise expressed. The clause has no such express words.
Also, under Section 28(3), the tribunal will take into account the contract terms and trade usages.

Answer: The tribunal applies the substantive law of Singapore. It will not apply Singapore's conflict of laws rules, as the parties did not expressly say otherwise. Contract terms and trade usages must also be considered.

Example 2

Gamma Pvt Ltd (India) and Delta Pvt Ltd (India) have a contract that says it is governed by the laws of England. Arbitration is seated in Delhi. Can the parties rely on Section 28(1)(b)(ii) to have English substantive law applied?

Show the solution

Classification: both parties are Indian companies. None of the four limbs of Section 2(1)(f) is met, so this is not an international commercial arbitration.
Place: Delhi is in India.
Rule: Section 28(1)(a) says that in an arbitration other than international commercial arbitration, with the place in India, the tribunal decides in accordance with the substantive law for the time being in force in India.
Result: Section 28(1)(b)(ii) does not apply, because it belongs to the international commercial arbitration limb.
Section 28(3) still applies: the tribunal considers the contract terms and trade usages.

Answer: No. As the arbitration is domestic with its place in India, the tribunal applies Indian substantive law under Section 28(1)(a). The foreign law clause cannot displace it under Section 28(1)(b)(ii).

Exam tips

Begin every answer by classifying the arbitration. Marks usually turn on domestic versus international.
Quote the phrase "substantive law of that country and not to its conflict of laws rules" from Section 28(1)(b)(ii).
Use the three-step order: party choice, default reading, tribunal's choice if nothing is designated.
Add one line on the seat versus governing law distinction; it shows depth.
End with Section 28(3) and Section 28(2) where facts mention equity, fairness or trade practice.

Practice questions from Commercial Transactions

Conflict of Laws and Designation of Law in Commercial Contracts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsConflict of Laws: Jurisdiction and Governing Law

Conflict of Laws and Designation of Law in Commercial Contracts: frequently asked questions

What does Section 28(1)(b)(ii) say about conflict of laws?

It says that any designation of the law or legal system of a country is read as directly referring to that country's substantive law and not its conflict of laws rules, unless otherwise expressed. So the tribunal does not send the dispute on to a third country's law.

What is the difference between the governing law clause and the seat of arbitration?

The governing law decides the substance of the dispute. The seat or place of arbitration decides, among other things, whether Part I of the Act applies under Section 2(2). The two may be different countries.

What if the parties do not choose any law in an international commercial arbitration?

Under Section 28(1)(b)(iii), the tribunal applies the rules of law it considers appropriate given all the circumstances surrounding the dispute.

Can parties choose a foreign law in a domestic arbitration?

For an arbitration other than international commercial arbitration with its place in India, Section 28(1)(a) requires the tribunal to apply Indian substantive law. The Section 28(1)(b) rules on party choice are for international commercial arbitration.