Conflicts between the applicable law and the law of the seat and the limitations of the judicial review of arbitral awards : lessons from Lesotho Highlands Development Authority (LHDA) v Impregilo Spa

• Author: T. Tsietsi
• Published date: 01 January 2013
• Date: 01 January 2013
• Pages: 171-194
• DOI: 10.10520/EJC177230

Conflicts between the Applicable Law and

the Law of the Seat and the Limitations of

the Judicial Review of Arbitral Awards:

Lessons from Lesotho Highlands

Development Authority (LHDA) v Impregilo

Spa

T. Tsietsi*

Abstract

A mixed international arbitration involves parties from

two different States. The parties agree on the applicable

law, which is the substantive law to be applied by an

arbitral tribunal. The seat of arbitration, however, also

plays a fundamental role by elucidating the applicable

procedural rules. This is the lex arbitri. Sometimes

arbitrators can find it difficult to determine which law is

applicable to which issues. This was the case in LHDA v

Impregilo1.

1. Mixed International Arbitration

Investor-State dispute resolution is often by way of arbitration

where the investor is a foreign investor operating in a host state.

Arbitration refers to “the determination of a difference between

States (or between a State and a non-State entity) through a legal

decision of one or more arbitrators and an umpire, or of a

tribunal….”2 Arbitration is widely considered to be a faster and

cheaper alternative to litigation. It is further argued to be more

LL.B. (NUL), LL.M. (Cambridge), Lecturer National University of Lesotho.

Gratitude is expressed to Mr. M.O.A. Owori for his constructive comments on the

first draft of this article.

1High Court decision: [2003] EWCA Civ. 1159; 2003 BLR 347. Court of Appeal

decision: 1 All ER (Comm.) 22. House of Lords decision: [2005] UKHL 43.

2Collier and Lowe, supra, note 2, p.31.

172 Conflicts between the Applicable Law and the Law of the Seat

advantageous than litigation because it is neutral and levels the

respective power differences between the parties. This is

particularly important where the dispute is between a state, on the

one hand, and an individual or corporation on the other. It is a

dispute settlement mechanism which gives the parties a lot of

flexibility and control over the entire dispute resolution process. For

example, the parties are able to select the arbitrators that they

would like to settle their dispute. The arbitrators are chosen on the

basis of the parties’ confidence in their expertise in the areas of the

contract. The parties are looking for individuals that they trust, who

they perceive as fair and independent, who have experience with

arbitration and who have acquired reputable knowledge of the

subject matter in dispute. Parties can decide on a sole arbitrator, or

an arbitration tribunal consisting of an odd number of arbitrators,

usually three, but sometimes even five. A common practice is for

one party to appoint one arbitrator, the counter-party to appoint the

second arbitrator and the third arbitrator can either be decided

upon mutually by the two parties to the dispute, or they might

empower the two chosen arbitrators to mutually decide on the third

arbitrator, who will most likely be the Umpire of the tribunal.

This party autonomy further allows the disputing parties to select

the law that will be applicable to their contract. Parties are also able

to eliminate the application of some evidential rules from the

proceedings and to agree on short time frames for the submission of

pleadings in order to expedite the arbitration. Finally, arbitration is

favoured over adjudication or litigation because it results in a final

and binding award. There is a very limited scope for the judicial

review of arbitral awards. Usually the judicial review of arbitration

awards is on grounds such as that the award was procured by

corruption or fraud, or some other misconduct by the arbitrator or

that the arbitrators exceeded their powers. However, simple

mistakes of law or of facts will not suffice to entitle the courts to

interfere with an award rendered by a properly constituted tribunal

that exercised powers within its mandate.