Arbitration, Mediation and Conciliation · Conceptual Framework of International Commercial Arbitration

Governing Laws and Conflict of Laws in International Arbitration

Updated 11 October 2026 · Fact-checked

An international arbitration can involve four laws: the law of the main contract, the law of the arbitration agreement, the law of the seat (lex arbitri) that governs procedure, and the law applied to the substance of the dispute. Conflict of laws rules decide which law applies where parties have not chosen. Section 28(1)(b) governs substance in Indian-seated international commercial arbitration.

Understand Governing Laws and Conflict of Laws in International Arbitration

A single cross-border contract can touch several legal systems. An Indian company may sell goods to a Singapore buyer, sign the contract under English law, and arbitrate in London. So you must ask: which law governs what? Exam answers lose marks when these questions are mixed up.

There are four layers. The law of the contract (proper law) governs the rights and duties of the parties under the main contract. The law of the arbitration agreement decides whether the arbitration clause is valid, who it binds and what it covers. The lex arbitri is the law of the seat. It governs the arbitral procedure and the court's supervision, such as challenge to the award. The law applicable to the substance is the law the tribunal applies to decide the merits. In practice, the substantive law is usually the law of the contract.

The layers can differ. The seat may be Mumbai, the contract may be under English law, and the arbitration clause may be governed by a different law, either by choice or by implication. Parties may choose each layer separately. If they choose nothing, rules of conflict of laws (also called private international law) decide which law applies.

For substance, Section 28(1) applies where the place of arbitration is in India. In an arbitration other than an international commercial arbitration, the tribunal applies the substantive law in force in India. In an international commercial arbitration, the tribunal decides in accordance with the rules of law the parties designate. If the parties designate the law of a country, it is read as that country's substantive law and not its conflict of laws rules, unless they say otherwise. If the parties designate nothing, the tribunal applies the rules of law it considers appropriate given all the circumstances of the dispute.

Two further points apply in all cases. The tribunal decides ex aequo et bono or as amiable compositeur only if the parties expressly authorise it. And it must take into account the terms of the contract and the trade usages applicable to the transaction. Also remember that under Section 34(2)(a)(ii) and Section 48(1)(a), the validity of the arbitration agreement is tested under the law the parties subjected it to or, failing any indication, under the law in force in India (Section 34) or the law of the country where the award was made (Section 48).

Key rules to remember

Four layers of governing law: Law of contract + law of arbitration agreement + lex arbitri (seat) + law of substance; Each can differ. Name the layer before you answer.
Domestic-seat, non-international case: Section 28(1)(a): Place in India, not international commercial arbitration → substantive law in force in India; Parties cannot pick a foreign law for this category under this clause.
International commercial arbitration, party choice: Section 28(1)(b)(i): Tribunal decides per rules of law designated by the parties; Applies where the place of arbitration is in India. 'Rules of law' is wider than the law of one country.
Designation of a country's law: Section 28(1)(b)(ii): Designated law = substantive law of that country, not its conflict of laws rules; Unless the parties express otherwise. This excludes renvoi.
No designation: Section 28(1)(b)(iii): Tribunal applies rules of law it considers appropriate given all circumstances; The tribunal chooses; a particular conflict rule is not prescribed.
Equity decisions: Section 28(2): Ex aequo et bono / amiable compositeur only if parties expressly authorise; Silence means strict law.
Contract terms and usages: Section 28(3): In all cases, take into account contract terms and applicable trade usages; Applies to every award.
Validity of arbitration agreement: Law chosen by parties; failing indication, Indian law (s. 34) or law of country where award was made (s. 48); Used in set-aside and foreign award enforcement tests.

How to solve Governing Laws and Conflict of Laws in International Arbitration questions

Use this method for any case question on governing laws in international arbitration.

1List the facts: parties, nationalities, place of arbitration, governing law clause, any rules chosen.
2Identify the seat and decide whether it is in India. Section 28(1) applies only if the place of arbitration is in India.
3Separate the four layers: contract, arbitration agreement, procedure (lex arbitri) and substance. State which issue the question asks about.
4Check whether the parties made an express choice for that layer. If yes, apply it; if no, move to the default rule.
5For substance, apply Section 28(1)(b)(i), (ii) or (iii) as the facts fit. Note that a chosen country's law means its substantive law, not its conflict rules.
6Add the overriding points: Section 28(2) for equity, and Section 28(3) for contract terms and trade usages.
7Conclude clearly with the law that governs and the reason. Mention the effect on challenge or enforcement (Section 34 or 48) if relevant.

Quickest way: Layer-and-default check

When to use it: When time is short and the question asks which law applies.

Write the four layers in one line.
Tick which layers the parties chose expressly.
For each unchosen layer, write the default in one sentence: seat law for procedure, Section 28(1)(b)(iii) for substance.
Write the conclusion with the section number.

Common mistakes in Governing Laws and Conflict of Laws in International Arbitration

Treating the law of the contract as automatically the law of the arbitration agreement.
The arbitration clause sits inside the contract, so students assume one law covers both.
Fix: Treat the arbitration agreement as a separate layer. Look for a separate choice or the implied law before concluding.
Confusing seat law (lex arbitri) with the law of the substance.
Both are called 'governing law' in casual use.
Fix: Lex arbitri governs procedure and court supervision. Substantive law decides the merits. Label each one separately.
Saying a designated law includes that country's conflict of laws rules.
Students forget the effect of Section 28(1)(b)(ii).
Fix: State that the designation refers to the substantive law, unless the parties expressly say otherwise.
Applying Section 28(1)(b) to every arbitration.
Students skip the condition about place and type.
Fix: Check that the place is in India and whether the arbitration is international commercial. If not international, Section 28(1)(a) applies.
Letting the tribunal decide on fairness without authority.
Students think a tribunal may do what is just by default.
Fix: Quote Section 28(2): only if the parties expressly authorise it. Otherwise apply law.
Ignoring contract terms and trade usages.
Students focus only on choosing the law.
Fix: Close each answer by noting Section 28(3): the tribunal takes into account the contract terms and trade usages in all cases.

Worked examples

Example 1

Ravi Textiles Ltd (Surat) and Nordic Fabrics AS (Norway) sign a supply contract. It states: 'This contract is governed by the laws of Norway.' The seat of arbitration is Mumbai. A dispute arises on late delivery. Which law will the tribunal apply to decide the merits, and will Norway's conflict of laws rules matter?

Show the solution

Place of arbitration is Mumbai, so it is in India. One party is a foreign company, so the arbitration is international commercial.
Section 28(1)(b)(i) applies: the tribunal decides according to the rules of law the parties designated. They designated Norwegian law.
Under Section 28(1)(b)(ii), designating a country's law means its substantive law, unless the parties expressly say otherwise. The contract has no such statement.
So Norway's conflict of laws rules are not applied.
Section 28(3) applies in all cases: the tribunal must also consider the contract terms and trade usages of the textile trade.

Answer: The tribunal applies Norwegian substantive law under Section 28(1)(b)(i) and (ii). Norway's conflict of laws rules are not applied, as the parties did not expressly say otherwise. It also takes into account the contract terms and trade usages under Section 28(3).

Example 2

Asha Pharma Ltd (Hyderabad) and Delta Chem GmbH (Germany) have a contract with an arbitration clause seated in Delhi. The contract names no governing law. Delta Chem argues the tribunal must apply German law. Advise the tribunal.

Show the solution

The place of arbitration is Delhi, in India, and a party is foreign, so it is an international commercial arbitration under Section 28(1)(b).
The parties have designated no law, so clause (i) has no choice to apply.
Section 28(1)(b)(iii) applies: the tribunal applies the rules of law it considers appropriate given all the circumstances surrounding the dispute.
German law is not mandatory because one party is German. It is only one circumstance the tribunal may weigh, along with place of performance, the parties' dealings and the contract's links.
Section 28(2): no authority was given for equity, so the tribunal decides by law.
Section 28(3): it must take into account the contract terms and trade usages.

Answer: Delta Chem's argument fails. With no designated law, the tribunal applies the rules of law it considers appropriate under Section 28(1)(b)(iii) after weighing all circumstances. It must decide by law, not equity, and must consider the contract terms and trade usages.

Exam tips

Begin every answer by naming the seat and stating whether the arbitration is international commercial. Examiners look for this first step.
Use the four-layer split as a visible structure. It earns marks even if the final law is arguable.
Cite Section 28(1)(b)(i), (ii) and (iii) by clause. Do not write only 'Section 28'.
In case questions, close with the compliance point: whether a wrong law choice can affect challenge under Section 34 or enforcement under Section 48.
Do not state case names unless you are sure of them. A clear reading of the statutory text is enough.

Practice questions from Conceptual Framework of International Commercial Arbitration

Governing Laws and Conflict of Laws in International Arbitration 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

Governing Laws and Conflict of Laws in International Arbitration: frequently asked questions

What is the difference between lex arbitri and the governing law of the contract?

Lex arbitri is the law of the seat. It governs the arbitral procedure and the court's supervision of the arbitration. The governing law of the contract decides the parties' rights and duties under the main contract. They can be different laws.

Can the arbitration agreement have a different governing law from the main contract?

Yes. The arbitration agreement is a separate layer, and the parties may choose a different law for it. Sections 34(2)(a)(ii) and 48(1)(a) test its validity under the law the parties subjected it to, and failing any indication, under the stated default law.

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

It says a designation of the law of a country is read as referring to that country's substantive law and not its conflict of laws rules. The parties can expressly provide otherwise. This avoids the law being sent back to another country.

What law applies if the parties do not choose one in an international commercial arbitration seated in India?

Under Section 28(1)(b)(iii), the tribunal applies the rules of law it considers appropriate given all the circumstances surrounding the dispute. The statute does not name a fixed conflict rule. The tribunal must give reasons that fit the facts.