Abstract
Rules in international arbitration can have various characterisations. Some are ‘substantive’ and others ‘procedural’, determined by direct party agreement or subject to tribunal discretion. Given that the proper meaning of these concepts tends to be conflated and interpreted without rigour, this paper argues that, subject to contrary mandatory provisions in the leges arbitri and in the absence of direct party agreement on procedure, tribunals should follow the procedure-substance characterisation found under the applicable substantive law selected by the parties. If substantive law deems a rule to be procedural, tribunals are under no duty to apply the rule. Instead, tribunals can rely on their discretion to determine the appropriate course of action. Conversely, if substantive law characterises a rule as substantive, tribunals must apply the rule, despite the scope for challenges to arbitral awards on grounds of errors of law is minimal. In doing so, the article distinguishes how the issue is approached in arbitration compered to general private international law and acknowledged that the true meaning of ‘procedure’ and ‘substance’ requires a principled case-by-case analysis.
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1 Introduction
The law and practice of international commercial arbitration revolve around procedure. Its defining features are flexibility and the wide discretion afforded to tribunals in conducting proceedings [1,2,3]. However, discretion has limits: parties may expressly agree to specific procedural rules to govern the arbitral proceedings and select a substantive law that contains hard rules. Distinguishing between rules that should be characterised as ‘procedural’ as opposed to ‘substantive’ is hence important but may also be blurred, particularly in areas such as evidence, interest or limitation periods [4, 5]. Such ambiguity, therefore, affects the extent to which tribunals may legitimately rely on discretion in determining the appropriate course of action.
Existing international arbitration literature often argues that either characterisation of rules itself is subject to tribunal discretion [5, 6] or that rules should be subject to rigid transnational characterisations as ‘procedural’ or ‘substantive’ [7,8,9]. Other sources acknowledge the need for greater nuance but stop short of providing an exhaustive framework for making the determination [1, 10,11,12]. This article fills that gap by proposing a novel, case-specific three-stage test that embeds the characterisation of rules in party agreement and, by extension, accords greater weight to the party-selected substantive law. In doing so, it reframes the procedure-substance problem as one rigorously guided by the applicable laws of each case and argues that the issue is distinct in international arbitration when compared to general private international law.
2 Background to the Problem
The characterisation of a rule may have significant implications to an international arbitration. Consider the award of interest as an example illustrating the problem. While the entitlement to claim interest in arbitral proceedings is generally undisputed—save, perhaps, in sharia law jurisdictions—the basis for tribunals awarding such interest may vary [10]. In many common law jurisdictions, the tribunals’ may award interest expressly under the lex arbitri and the matter is considered procedural. Conversely, in many civil law jurisdictions, liability to pay interest is characterised as a matter of substantive law [10, 13]. In some instances, it may make little difference whether a rule is characterised as ‘procedural’ or ‘substantive’, since either approach would confer the same authority on the tribunal. The difficulty is where the two diverge and the issue of interest may be regarded as either falling within the tribunal’s procedural discretion or as governed by strict provisions of the substantive law.
This issue arose in the seminal Lesotho Highlands Development Authority v Impregilo SpA [14]. The International Chamber of Commerce tribunal held that liability to pay interest was a procedural matter falling under the scope of the English Arbitration Act 1996, as amended in 2025 (‘Arbitration Act 1996’) rather than the substantive Lesotho law of the contract. Due to this characterisation, the tribunal exercised its discretion and awarded interest on claimed amounts. The award was subsequently challenged before the English courts on the grounds that the tribunal exercised procedural discretion in relation to a matter governed by substantive law. This, it was argued, amounted to a serious procedural irregularity that ought to set the award aside pursuant to Section 68 of the Act. The High Court and Court of Appeal both upheld the challenge while the Supreme Court disagreed, holding that the matter of interest was procedural particularly in the absence of evidence that the substantive law of Lesotho contained any relevant provisions in relation to interest [14, 15].
The Lesotho case illustrates that the proper characterisation of rules in international arbitration is contentious not only to tribunals but also to courts hearing challenges to awards. The discrepancies between domestic legal systems on characterisation and the common law-civil law divide only deepen the problem and provide little guidance for resolving the issue [13, 16].
The problem may appear counterintuitive. For a lawyer trained in domestic litigation, the division between procedure and substance is typically clear, even trite: the civil procedure rules determine procedure; contract law, tort law or criminal law, to name a few, govern the substance. In domestic litigation, the problem only arises where more than one legal system applies to a dispute. In such cases, conflicts between legal systems may create uncertainty over which rules prevail. The answer to this problem lies within the ambit of private international law or the conflict of laws rules of any jurisdiction [16]. Nonetheless, such circumstances are relatively rare in litigation [17]. By contrast, international arbitration lacks detailed conflict rules, meaning that the procedure-substance issue arises in principle in nearly every case.
This paper resolves the problem through an analysis of leges arbitri, including the Arbitration Act 1996 and the United Nations Commission on International Trade Law (‘UNCITRAL’) Model Law on International Commercial Arbitration 1985, as amended in 2006 (‘UNCITRAL Model Law’), as well as leading arbitration rules. It emphasises the need for a careful interpretation of the applicable laws and the hierarchy between various rules [18]. It is argued that resolving the problem requires tribunals to characterise the ‘rule’ in question within one of three categories: (i) procedural rules expressly adopted by party agreement, (ii) rules derived from the applicable substantive law and (iii) rules falling within the tribunals’ residual procedural discretion. In this sense, the notion of a ‘rule’ in international arbitration is case-specific and carries multiple possible meanings from a semiotic perspective [18,19,20,21]. The article hence challenges the conventional wisdom that tribunals have a discretion to decide on characterisation or that specific rules in international arbitration have a universal characterisation within the procedure-substance dichotomy. The answer is instead far more nuanced and principled.
3 Procedure-Substance Dilemma in Private International Law
To understand the procedure-substance dilemma and the search for a ‘proper’ characterisation in international arbitration, it is essential to consider general private international law where the issue traces its origins [16, 22]. Domestic legal systems distinguish between procedural and substantive rules through a conflict of laws analysis. As a general rule, procedural matters are dictated by the lex foriFootnote 1 in domestic litigation. This should be distinguished from the substantive law or the lex causae.Footnote 2
Under this division, substantive law pertains to laws that determine the merits of the case while procedural law can be labelled as technical and hence with little effect on merits of the case [13]. This division, however, does not appreciate that procedural law can have a determinative impact on the outcome of the case. After all, it has been said that ‘[s]ubstantive law is the skeleton; procedure is the flesh, blood and nervous system of the law—it is that which gives it life’ [23]. Similarly, the substance-procedure dichotomy has been likened to the division between rights and remedies respectively [22], albeit it can be criticised as well due to various concepts—such as limitation periods—overlapping between the two [24]. It may be hence impossible to frame a universal definition of procedural and substantive law for the very same reason why characterisation of rules as falling within one or the other is contentious: the scope of these concepts differs between legal systems. Historically, common law jurisdictions have adopted a broader understanding of procedure, whereas civil law systems tend to classify more rules as substantive [13, 25].
Nonetheless, many characterisations are equally clear from a comparative standpoint. Matters of contract interpretation, for example, are firmly questions of substantive law [26]. Legal personality and capacity to enter into commercial agreements would be universally viewed as forming part of substantive law, though not necessarily a part of the lex causae [27]. Matters of costs allocation between the parties would be a matter of procedure to be decided by the court in the absence of party agreement on the issue [28]. A degree of harmonisation is taking place too. Traditionally, common law treated limitation periods as procedural since they operated as a bar to remedies, but reforms like the Foreign Limitation Periods Act 1984 in English law and similar legislation in Canada, Australia and Singapore, now classify them as substantive, aligning some common and civil law characterisations of rules [24].
Discrepancies between characterisations across legal systems have led private international law—the very purpose of which is to avoid conflict of laws and promote harmonisation [26]—to search for universal, ‘proper characterisation’ of rules to avoid the parochialism of purely domestic interpretations [29]. From a comparative perspective, two primary approaches to the proper characterisation of rules can be discerned. First, secondary norms would typically be procedural in nature as they establish the framework for the enforcement of primary norms. If so, primary norms, which procedural rules implement and enforce, would be substantive. Alternatively, and secondly, there is a functional distinction based on the role of a rule within the dispute resolution process. A rule governing the conduct of proceedings, such as the filing of a document, is considered procedural, while a rule determining the existence or scope of legal right is substantive [30].
However, while various jurisdictions take diverging approaches with regard to the procedure-substance interpretation of some legal rules, there may also exist mandatory procedural laws that apply in circumstances where the court would otherwise apply foreign law [26]. For example, it would be inconceivable for a court to apply the entire remedies regime of a foreign law. Save for specific matters such as perhaps heads of damage in some jurisdictions [31], remedies are a matter of procedure and for the lex fori, even if the lex causae provides for a different set of remedies [24, 32]. The difficulty hence lies in those rules that tend to be characterised as either procedural or substantive depending on the relevant law. Some rules are neither subject to any mandatory laws that exclude the operation of foreign law, nor are they universally accepted to be procedural or substantive from a comparative standpoint.
In any event, the procedure-substance dichotomy is a highly practical question for a court. If a rule of the applicable foreign law is procedural, courts do not have to apply it. After all, a court can only ever apply its own procedural rules, even if it may have to apply a foreign substantive law. Arden LJ in Harding v Wealands aptly said: ‘[i]n my judgment, when in the conflict of laws, the court says that a particular issue is one of procedure rather than substance, the court is really saying that it cannot, for whatever reason, apply the relevant foreign law to that issue’ [33]. The procedure-substance dichotomy is hence critical since, if the distinction was not made, the domestic courts would be prompted to apply the a rule of foreign law. Conflict rules help determine the extent to which courts should apply such foreign law, despite the inconvenience in doing so [34].
In light of the above, the procedure-substance division serves specific purposes under the conflict of laws of various jurisdictions, i.e., it determines the extent to which specific rules of foreign law must be applied by a court [32]. In Allen v Depuy International Ltd, the English court stated that ‘in order to characterise the provision properly it is important to understand its effect under the applicable law’ [35]. This observation is particularly accurate in the context of international arbitration and strikes at the heart of what makes arbitration unique in the context of the procedure-substance problem, as the following Section discusses.
4 The Various Characterisations of Rules in International Arbitration
A court will only ever apply a single procedural law—its own—found in its civil procedure rules and/or any relevant secondary legislation. This represents a point of distinction between litigation and arbitration. In arbitration, there exists no differentiation between ‘foreign’ and ‘domestic’ law. Instead, an arbitration is subject to a range of applicable laws [36]. The starting point for the characterisation of rules in international arbitration should be the lex arbitri, which is not merely the equivalent of the lex fori [10, 37]. The lex arbitri, being the arbitration law of the seat of arbitration, introduces some overarching procedural principles to the arbitration, but not the domestic civil procedure of the seat of arbitration [38, 39]. It also provides a far more exhaustive legal framework than the lex fori.
In litigation, a court may be faced with conflicting characterisations of rules under the law of the forum and the foreign law. As the Re Cohn case illustrates, foreign law may characterise a rule as procedural while the forum law characterises the same rule as substantive, creating the paradox that no rule applies and a lacuna exists [40]. Conversely, if forum law characterises a rule as procedural and the foreign law characterises it as substantive, both rules presumably apply simultaneously [13, 41]. The courts avoid such absurd outcomes through creative interpretation by, for example, focusing on identifying an issue in dispute and working their way back to the single most appropriate law [24]. Such approach, however, has been criticised as arbitrary and is not applied by the majority of courts and commentators [13, 16].
In any case, such issues do not arise in international arbitration altogether since the leges arbitri not only provide a procedural framework but also establish a hierarchy between the applicable laws coupled with the default rule that arbitral tribunals have a broad procedural discretion. This makes arbitration unique within private international law. For example, the UNCITRAL Model Law provides the following in Article 19:
(1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.
(2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence. (emphasis added)
Most arbitration laws contain a similar provision. The Arbitration Act 1996 provides in Section 34(1): ‘[i]t shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.’ The Act gives also examples of matters that it considers to be procedural or evidential in Section 34(2) including when and where any part of the proceedings is to be held, the language of the proceedings, or whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law [15]. Therefore, the leges arbitri provide for tribunal procedural discretion as a default rule, parties can depart from it by agreement altogether [10]. This is a key iteration of party autonomy in international arbitration [1]. This being said, discretion should not be perceived as unprincipled and ad hoc. Tribunals must apply other principles, most notably their due process duties, that would give rise to what can be labelled as ‘rules’ as a matter of best practice [42, 43].
In short, tribunals have a default procedural discretion in selecting the appropriate course of action. This stands in stark contrast to the detailed domestic civil procedure rules. The built-in flexibility has been applauded as an important advantage of arbitrating disputes [10, 44, 45]. However, the parties can derogate from the default tribunal discretion by agreement. Such agreement would arise in two circumstances: (i) the parties directly agreed on a procedural rule that the tribunals must apply or (ii) indirectly, the parties agreed to a substantive law which contains a relevant rule therein. The lex arbitri itself gives effect to this selection of applicable law by the parties. These will be discussed in turn below.
4.1 Party-Agreed Procedural Rules
While the leges arbitri contain the default rule that tribunals have procedural discretion, they also expressly give effect to party-agreed rules on procedure. In addition to Section 34(1) cited above, the Arbitration Act 1996 provides the following in Section 4:
(2) The other provisions of this Part (the “non-mandatory provisions”) allow the parties to make their own arrangements by agreement but provide rules which apply in the absence of such agreement.
(3) The parties may make such arrangements by agreeing to the application of institutional rules or providing any other means by which a matter may be decided.
Therefore, if parties have selected a specific procedure to govern their dispute, tribunals must apply it regardless of any further characterisation of the adopted rule as procedural or substantive. In most cases, this party agreement would be limited to a selection of arbitration rules [10, 42]. Such arbitration rules would take precedence over any non-mandatory provisions of the lex arbitri. Although arbitration rules typically only provide for tribunals’ broad procedural discretion, hence replicating the provisions of the lex arbitri, there are exceptions [1]. This is rare but, for example, the UNCITRAL, the Permanent Court of Arbitration, the China International Economic and Trade Arbitration Commission, and the Hong Kong International Arbitration Centre Arbitration Rules expressly allocate the evidential burden of proof on the party making an allegation [46,47,48,49]. Such a rule would hence directly govern the arbitration procedure and must be applied by tribunals.
In addition to adopting institutional arbitration rules wholesale, parties may agree to bespoke procedural rules. Such rules may be found directly in the arbitration clause of a contract or agreed upon ad hoc [1, 3, 5]. Nonetheless, parties rarely exercise their autonomy to do so apart from selecting institutional rules [11, 50, 51]. That being said, the parties may agree in the course of proceedings to hold a hearing or agree that the case should be decided on documents only. They may also, for example, expressly adopt the IBA Rules on the Taking of Evidence in International Arbitration or its specific provisions as binding on the tribunal [52]. In such circumstances, tribunals would be compelled to apply the rules of evidence therein albeit it would be equally unnecessary to characterise them as procedural or substantive—they apply per se.
The extent to which parties in an arbitrations can agree for their procedure to be governed by specific rules is unique to international arbitrations. Domestic litigation is not subject to lex arbitri or its equivalent that would give such a strong effect to party agreement, and a considerable share of civil procedure rules tend to be mandatory, giving the parties limited scope to derogate save for specific issues such as number of experts per party or directions for document disclosure [53].
4.2 Party-Agreed Substantive Rules
In addition to directly agreeing on specific rules to govern the arbitration procedure, parties also select a substantive law applicable to the merits of their dispute. In most cases, identification of this applicable law is simple. This would be the law of the contract expressly selected by the parties through a governing law clause. However, complexity may arise where the parties have either selected different laws to govern different parts of their contracts or if various laws otherwise govern specific aspects of the parties’ contractual relationship. Such splitting of the applicable law is known as dépeçage [16] and, from a dispute resolution perspective, its consequence is that different laws may govern different issues [54].
The lex arbitri contains separate provisions giving effect to party selection of substantive law. The UNCITRAL Model Law provides in Article 28(1) that ‘[t]he arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute (…)’. The Arbitration Act 1996 contains almost identical wording in Section 46(1)(a). These provisions, taken together, set out a duty of the tribunals to apply the substantive law selected by the parties correctly [15, 55, 56].
Selection of a substantive law may constitute party agreement to restrict tribunal’s procedural discretion, insofar as substantive law contains a rule that would come into conflict with the said discretion. The Arbitration Act 1996 contains express provisions to this effect. Section 4(5) provides:
The choice of a law other than the law of England and Wales or Northern Ireland as the applicable law in respect of a matter provided for by a non-mandatory provision of this Part is equivalent to an agreement making provision about that matter.
For this purpose an applicable law determined in accordance with the parties’ agreement, or which is objectively determined in the absence of any express or implied choice, shall be treated as chosen by the parties.
Therefore, under the Arbitration Act 1996, any non-mandatory provision of the Act must be disapplied, provided that there is evidence that the substantive law addresses the non-mandatory provision [15, 57, 58]. Therefore, if parties agree to a substantive law, it would be treated as an agreement of the parties, hence displacing tribunal’s default procedural discretion under Section 34 of the Act cited above.
Another nuance in the context of substantive law is that parties may agree or indeed be mandatorily bound by rules that would not derogate tribunal procedural discretion. For example, parties may have rights to receive documents by operation of a term of a contract or a statutory provision [59]. Terms in contracts providing a party with the right to documents held or generated by the other party is not uncommon in certain distributorship contracts, joint venture agreements or contracts granting specific audit rights [60]. For example, the FIDIC Red Book 2017, a standard contract form used widely in international construction projects, provides the following in Clause 2.5:
The Employer shall have made available to the Contractor for information, before the Base Date, all relevant data in the Employer’s possession on the topography of the Site and on sub-surface, hydrological, climatic and environmental conditions at the Site. The Employer shall promptly make available to the Contractor all such data which comes into the Employer’s possession after the Base Date [61].
This clause is a contractual obligation on the project employer to make available certain documents to the contractor [62]. Similar rights to access documents may be found in statute. Domestic laws may contain the obligation of an agent to return, at the request of the principal, everything that he has received as a result of the agency activities [63]. Under the English Insolvency Act 1986, the administrator has the right to receive documents from specified individuals relating to company affairs [64]. There are many such examples.
Such rules are substantive rights governed by a relevant substantive law. Being contractual or statutory obligations, a party may sue for breach if the requested documents were not provided to it, as long as the claim is arbitrable. However, from the perspective of international arbitration, such rights should not be interpreted as a derogation of tribunals’ procedural discretion although they could be otherwise relevant in arbitrations procedure. For example, a contractor could foreseeably rely on FIDIC Red Book 2017 Clause 2.5 in support of its document production requests made to the employer [6, 59, 61]. By contrast, rights to documents under some legislation such as the insolvency rules are mandatory and do not stem out of the lex causae [64, 65]. They would be binding on the parties, and indeed the tribunal itself might have to follow them, but the rights therein may not be arbitrable themselves.
Therefore, the procedure-substance dilemma arises in this context only if the selected substantive law in fact operates to derogate the default rule that the tribunal has procedural discretion. Secondly, parties may be subject to a range of substantive laws not all of which represent lex causae so may fall outside of the scope of arbitrability but still be binding on the parties and even the tribunal. From the perspective of the tribunal, it is hence essential to engage with the interpretation of the substantive law to determine which rules come into conflict with matters that would otherwise be procedural.
4.3 Importance of the Distinction
The lex arbitri is not merely an equivalent concept to the lex fori for two reasons: (i) it establishes a clear hierarchy between applicable laws for tribunals to apply and (ii) it provides the tribunals with a default procedural discretion. This makes the procedure-substance problem international arbitration unique compared to general private international law.
On the basis of the above, the conflict of laws issue is settled in international arbitration once the parties make a selection of the applicable laws. Although this issue is outside of the scope of this article, in most cases this question is straightforward since the parties would identify applicable laws expressly. A commercial arbitration has a seat and, once it is identified, the lex arbitri provides the necessary procedural law that gives effect to party-agreed procedural rules and is the source of the default tribunal discretion. The most important substantive law would be the law of the contract, which is typically expressly selected in a governing law clause [66]. Other cases are more complex, particularly where the applicable laws are ambiguous, contradictory or the parties have, for example, agreed on different laws to govern different parts of their contract through dépeçage [10].
As a consequence of the above, the multiplicity of applicable laws and rules in international arbitration is considerable, meaning that the proper characterisation of rules should be determined on a case-by-case basis. This feature is the reason why it is difficult if not impossible to conclusively argue that a certain rule is always procedural or substantive in international arbitration but, much like in general conflict of laws discourse, some rules do tend to be procedural while others substantive. This is a source of tension which points to the irresolvable nature of the problem. As difficult as it may be to accept from a purely domestic law perspective that the law may provide different answers to the same question in different arbitrations, the purpose of international dispute settlement is to resolve the dispute in accordance with the parties’ agreed rules [2]. Therefore, the correct answer rests in the proper interpretation of the law applicable to a specific dispute [67].
The procedure-substance distinction in arbitration is also not merely a matter of semantics but has an impact on the availability of challenges to arbitral awards in circumstances where a tribunal allegedly makes an error. Under Section 68(2)(c) of the Arbitration Act 1996, an award may be set aside if the tribunal failed to conduct the proceedings in accordance with the procedure agreed by the parties. UNCITRAL Model Law contains an equivalent provision in Article 34(2)(a)(iv). The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’) also provides in Article V(1)(d) that enforcement may be refused if ‘the arbitral procedure was not in accordance with the agreement of the parties (…)’.
By contrast, errors in substantive law under most leges arbitri are not subject to appeals [10, 12]. Even provisions of the Arbitration Act 1996 and the Singapore International Arbitration Act 1994 that do allow appeals on points of law are not mandatory and are typically excluded by the parties [10, 15]. The New York Convention does not list errors of law as grounds for resisting enforcement of the award either. There is, therefore, typically no sanction or remedy available if tribunals fail to apply the substantive law or do so incorrectly [1]. This apparent ability of tribunals to apply the law incorrectly and get away with it has led to considerable criticism against the system of international arbitration [68,69,70]. This is also a key difference between arbitration and litigation since, if the courts make an error of law, their decision can typically be subject to appeals unless it is a court of last instance [53].
However, procedural errors including the inappropriate exercise of tribunal discretion, may represent grounds for setting aside awards and refusing enforcement. A procedural error would turn on whether tribunals fell short of their duties in conducting the proceedings such as due process or conducting the procedure efficiently and expediently [42, 43]. Failure to observe duties may subject the award to challenges in particular under Section 68(2)(a) of the Arbitration Act 1996 or Article 34(2)(a)(iv) of the UNCITRAL Model Law. Procedural defects are also a ground for refusing enforcement under Article V(1)(d) of the New York Convention.
To conclude the point, the asymmetry between different errors having different implications to the finality of the award might explain why the procedure-substance dichotomy is poorly understood in arbitration practice. An error in the application of a ‘substantive’ principle rarely succeeds in challenging an award while a ‘procedural’ error can have severe consequences. The procedure-substance dilemma hence becomes a critical where a single rule appears to have either characterisation, which this paper discusses further in Sect. 5 below.
5 Resolving the Procedure-Substance Dilemma
Since legal rules do not reside in a vacuum, any rule in arbitration or litigation can be characterised as ‘procedural’ or ‘substantive’. Apart from characterisation being a difficult exercise, seizing tribunals and highest-instance courts alike [14, 33, 40, 71], the risk of mischaracterisation of rules is a side effect of the international arbitration system itself. There are three main sources of this problem.
First, as Sect. 4.3 above discussed, the characterisation of rules impacts the availability of challenges to the award. A party may challenge an award on the basis of a procedural defect [71]. For example, although tribunals have procedural discretion, refusing to cross-examine a witness of one party but not the other could amount to a breach of due process leading to the setting aside of the award [72]. An award may also be challenged if the tribunal did not follow a procedure agreed upon by the parties, but most legal systems do not envisage any appeals on a point of application of substantive law [10, 73].
The second reason for the risk of mischaracterisation of rules in arbitration can be linked to the notoriously broad and nonprescriptive arbitration laws and rules. References to discretion are broad with little guidance as to the issues in relation to which discretion ought to be exercised [1, 3]. Thirdly, and linked to the other two, tribunals tend to exercise discretion by applying practices from their own legal culture to the arbitration. While typically the application of one’s legal culture is desirable in interpreting the law correctly [18], in international arbitration, where various applicable laws may be relevant and tribunals may have to apply a system of law unfamiliar to them, such cultural biases may lead to a risk of misinterpretation and errors [21, 27, 67, 74].
As a consequence, unless the parties proactively and meticulously set out the rules applicable to the various substantive and procedural elements of the dispute, which is rare in practice [75, 76], broad discretion gives tribunals considerable power and can result in tribunals not engaging in a sufficiently rigorous application of the applicable laws and rules. This is not indefensible in of itself. It is simply the feature of the dispute resolution mechanism that the parties, which tend to be sophisticated commercial entities, have consciously selected [67]. After all, they could have resolved their disputes in courts, where incorrect decisions can typically be appealed, or before a different forum altogether but opted to benefit from the advantages of arbitration [77].
Given the features of international arbitration, and in particular the absence of consequences for tribunals disapplying a substantive rule and the high threshold for procedural challenges to succeed, the risk of errors is real. The following Subsection address how rules should be characterised in international arbitration through a three-stage test.
5.1 A Three-Stage Test
Approaching the procedure-substance dilemma should start with a conflict of laws analysis as set out in Sect. 4 above, i.e., identifying what applicable laws the parties have selected. Once the lex arbitri and the substantive law are identified, a rule must be further characterised into one of three: party agreement on a procedure to govern their arbitration, party agreement on substantive law and the default procedural discretion that tribunals are vested with. When faced with conflicting characterisations, the key issue is the hierarchy between the three.
The application of procedural rules stemming out of direct party agreement should be uncontroversial. Leges arbitri give effect to such agreements through mandatory provisions (e.g., Section 68 of the Arbitration Act 1996 and Article 34 of the UNCITRAL Model Law) and tribunals’ failure to observe them can undermine the arbitral award [55, 73]. Therefore, if the parties selected specific institutional arbitration rules which provide that the burden of proof should be on the party making an allegation, that rule must be followed. It is rare for the parties to agree to more specific rules, but it is possible at any stage of proceedings. Since such party agreement is given effect though mandatory leges arbitri provisions, any further characterisation of rules as procedural or substantive would be unnecessary. Therefore, for example, if the parties agreed on specific rules to govern document disclosure, the tribunal cannot disapply this rule on the grounds that they are exercising procedural discretion. Party-selected rules hence have the highest priority from the standpoint of rules applied by tribunals as they are subject only to mandatory provisions of the leges arbitri [78].
However, if there is no direct party agreement on a procedural matter, tribunals must engage with the issue of whether a rule should be properly characterised as procedural or substantive. The central argument in this article and this Section is that in these circumstances arbitrators must follow the categorisation of rules under the applicable substantive law [79]. Therefore, if the substantive law deems a rule to be substantive, the tribunal must strictly apply the rule in question. Conversely, if substantive law characterises a rule as procedural, then the tribunal has discretion under the default leges arbitri provisions. This conclusion is reached on the basis of two observations, which are considered in turn below:
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1.
Tribunals are under a duty to apply the substantive law selected by the parties, and do so correctly
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2.
What does and does not fall within the scope of substantive law, is a question for that law to determine, not the arbitral tribunal.
The former argument has been partially discussed above. Provisions of both the Arbitration Act 1996 and the UNCITRAL Model Law giving effect to parties’ choice of substantive law adopt a mandatory language, i.e., tribunals ‘shall’ apply the law selected to the substance of dispute. Therefore, tribunals have no discretion in this respect and are entirely bound by the choice of substantive law of the parties [10, 56, 80]. This general duty to apply the law stands even though the duty itself might be a toothless tiger. After all, due to the general absence of appeals on points of law, there is little to no sanction for the tribunals failing to apply the law.
Secondly, since arbitrators must apply the substantive law, it is for that law to determine the procedure-substance characterisation of legal rules [41]. This is not a question of conflict of laws, but a matter of interpreting the proper scope of the party-selected substantive law [81]. If, say, French law applies to the contract, its characterisation rules should be relied on to determine matters that do and do not fall under the ambit of ‘French substantive law’. This is an archaeological exercise for the arbitral tribunal: the tribunal’s perceptions on what matters ought to be procedural or substantive play no role in providing an answer. Such an approach is consistent with the prevailing view in general private international law [82, 83]. Of course, the application of the substantive rule still depends on (i) tribunal’s legal interpretation of whether the rule in fact applies in the circumstances, noting that, as was discussed above, not all substantive rules necessarily displace procedural discretion and (ii) the scope of the said rule, with tribunals retaining procedural discretion in those areas to which substantive rules do not apply. From this standpoint, procedural and substantive rules need not come into conflict. Instead, substantive rules apply by default, but procedural discretion can assist the tribunal in filling the gaps that are left.
A possible problem that may arise if the above hierarchy of rules is followed is where the party-selected procedural rule comes into conflict with a substantive rule. In such cases, the former characterisation should be followed, and it must be treated as a derogation of substantive law to the extent necessary. After all, parties are under no obligation to adopt any substantive law wholesale [11]. They can, for example, agree for their contract to be governed by a combination of two or more laws [84].
This paper hence proposes a three-step solution to determining the proper characterisation of rules in arbitration, in order of hierarchy:
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1.
Observe party agreement on procedure. Subject only to the mandatory provisions of the lex arbitri, parties can determine the procedure of the arbitration. For example, the parties may have agreed to specific arbitration rules that place the burden of proof on the party making an allegation. Parties may also adopt the IBA Rules on the Taking of Evidence in International Arbitration or directly agree on entirely bespoke rules through the arbitration agreement. The tribunal must apply such rules.
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2.
Apply the substantive law. In the absence of contrary mandatory provisions of the lex arbitri and subject to any party agreement under point 1 above, the tribunal must apply the characterisation of rules found under the applicable substantive law. Therefore, if substantive law states that a certain rule is substantive, the tribunal must apply it. Conversely, if substantive law characterises a rule as procedural, the tribunal is not bound to apply it. This is a necessary consequence of the tribunals’ duty to apply the substantive law selected by the parties and the fact that it is a matter for the selected substantive law to determine its own scope.
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3.
Exercise residual procedural discretion. Subject to the two characterisations of evidentiary rules above, the tribunal may rely on its residual procedural discretion which exists as the default rule under the lex arbitri. In exercising this discretion, the tribunal should decide on a procedure that is fair to the parties giving weight to a wide range of case-specific circumstances [1, 42].
Adopting the above three-stage test is not solely correct in light of the proper application of laws and rules but is also desirable. The practice of arbitration is on a persistent trend of restricting and guiding tribunal discretion, appreciating that it must be anchored to its appropriate function. The proliferation of various soft law frameworks is a notable example [85]. The problem pertains not only to preventing discretion from appearing where it should not but also encouraging discretion to be exercised where it is appropriate. The phenomenon of ‘due process paranoia’ has become a recognised issue through which tribunals are anxious to exercise discretion out of fear of challenges [86, 87]. A proper and rigorous characterisation of rules empowers tribunals to better understand the scope of their discretion and, therefore, exercise it where it is justified.
5.2 Difficult Case: Parol Evidence Rule
The operation of the three-stage can be best illustrated with the help of examples, many of which have conflicting characterisations from a comparative perspective and have hence been labelled to reside in a ‘grey zone’ of legal rules [5]. If the applicable substantive law, for example, treats the parol evidence rule as procedural, should tribunals not be bound to apply it? Under the common law, contracts are interpreted objectively, representing a key distinction from civilian systems [88]. This general principle led common law systems to adopt the parol evidence rule that bars evidence from inclusion to the record that would contradict the written agreement. In common law, therefore, parol evidence rule is a matter of procedure as it relates to admissibility of evidence [9, 89].
If so, applying the proposed three-stage test may yield surprising results. Namely, an arbitral tribunal applying substantive English law would not be bound to apply the parol evidence rule since the substantive English law treats it as procedural. This would create a risk of inconsistent decisions between tribunals and the courts applying the same lex causae, with only the latter being obliged to apply the parol evidence rule [7]. This divergence of interpretation may lead to unpredictability to the parties. This, however, can be argued both ways. Instead of attempting to determine a transnational characterisation of rules of evidence, which in of itself could give rise to unpredictability given the discrepancies between domestic systems that Sect. 3 discussed, tribunals ought to always apply the characterisation of the rule under substantive law. This should be the preferred approach even if it would result in a risk of inconsistency in rare cases vis-à-vis the courts.
The characterisation of rules should be hence left to the substantive law in most cases, rather than any transnational principles. The result is that tribunal’s failure to apply the parol evidence rule, which English and other laws characterise as procedural, would not amount to an error of law for the purposes of a challenge under Section 69 of the Arbitration Act 1996 [90, 91]. Procedural errors can only be challenges under a separate provision: Section 68 [14, 15]. That is the case despite the parol evidence rule being a cornerstone principle of English contract interpretation [92, 93]. This proposed approach is consistent with the judgment of the Singapore High Court in BQP v BQQ where the court held that the tribunal applying Singaporean law as the lex causae was not bound to apply the parol evidence rule, which is also characterised under Singaporean law as procedural [71].
Another added difficulty with some legal systems is that parol evidence rule may be a mixed question of procedure and substance, depending on the precise circumstances. To reiterate—under English law, the inadmissibility of extrinsic evidence contradicting the written agreement is a matter of procedure. However, exceptions to this general rule may be dictated by the operation of substantive law [94], supporting the view that the parol evidence rule is more than just a rule of admissibility [95]. For example, Section 14(3) of the English Sale of Goods Act 1979 operates to imply a term to the contract if the buyer relied on the seller’s skill and judgement that the goods will be suitable for a specific purpose [96]. Whether or not the buyer made such a specific purpose clear to the seller necessitates that the tribunal considers extrinsic evidence that may well contradict the written contract [97]. It may be hence said that in this case substantive law displaces the procedural rule from the standpoint of the arbitral tribunal applying substantive English law. Tribunals should grab at the nettle and deal with such issues of proper application of substantive law.
5.3 Difficult Case: Burden of Proof
While the parol evidence rule is strongly associated with substantive law but may be characterised as procedural, rules on the burden of proof appear procedural but may in fact be dictated by substantive law. Many civil law jurisdictions contain certain presumptions in their civil procedure rules as to the applicable burden of proof stating, for example, that the principle of actori incumbit (onus) probatioFootnote 3 applies [98, 99]. Other legal systems treat the issue as substantive [13].
Several commentors have suggested that the issue of burden of proof is procedural, but tribunals in their discretion give consideration to the applicable substantive law [1, 100]. For example, it could be argued that ‘the customary approach in international arbitration is for the tribunal to apply the procedural rules on the burden of proof chosen by the parties, but to also give regard to any provisions of the substantive law influencing allocation of the burden.’ [6] It might be better to state that the substantive and procedural rules on the burden of proof need not be in conflict. Instead, as a first step, if substantive does provide for a specific burden, the tribunal has no option but to apply it in the first place, consistently with the argument made above. However, once the basic rule is applied (say, the burden is placed on the party making the allegation), the tribunal may depart from it in appropriate circumstances as an exercise of its procedural discretion, unless substantive law clearly prohibits it. Burden of proof may also intersect with other rules that bear a different characterisation. Therefore, if a party that bears the burden of proof refuses to proffer evidence, the tribunal may make adverse inferences with adverse inferences being considered a distinct evidentiary concept to the burden of proof [6, 65].
This being said, such a step should only be taken if the substantive law would not come into conflict with tribunals’ exercise of discretion. For example, if substantive law provided that not only the burden of proof is on the party making the allegation but also that the burden cannot be shifted in any circumstances nor can adverse inferences be taken, the tribunal should follow the substantive rule. Procedural discretion serves to fill the gaps left by the applicable substantive rules, not to replace them, as the three-stage test above shows.
This observation leans itself towards the general conclusion that if a substantive rule exists and applies to the circumstances—this latter element being a matter of interpretation—the tribunal must apply the rule. Put differently, applicable substantive law always takes precedent over the exercise of any procedural discretion. Procedural discretion can only be exercised if, and to the extent that, it does not contradict the substantive rule of evidence. The scope of the substantive rule is hence paramount in demarcating what tribunals may and may not do.
5.4 Difficult Case: Privilege
The rules on the application of legal privilege to evidence can also be characterised as either procedural or substantive [13]. In fact, from a comparative perspective, civil law systems typically characterise them as the former and common law systems as the latter [101]. Indeed, privilege rules may also stem out of professional ethical obligations of various jurisdictions [102, 103]. The matter is further complicated in cases where each of the parties origin from states with diverging privilege rules [104]. Tribunals have taken inconsistent approaches to the issue with some applying a closest connection test, a maximalist approach whereby the most generous privilege rules are applied to all parties, or an approach whereby tribunals search for commonalities between privilege regimes [10, 105]. Commentators have suggested that tribunals do retain discretion to determine the relevant privilege rules, but relevant national law—such as the laws applicable to party representatives—plays a role in guiding the exercise of this discretion [5, 106]. Despite this, the three-stage test for determining the characterisation of rules would equally apply to privileges. In other words, the substantive rule must be applied by tribunals, which constrains tribunal procedural discretion [107,108,109].
The difficulty with privilege rules is that they do not represent a single rule of at all. The application of privilege is circumstance-specific and likely different privilege rules govern different scenarios, different parties or different documents. The difficulty is hence determining which substantive law applies as it may not be the lex causae at all, but a different set of mandatory laws [81, 101]. From this standpoint, privilege rules stemming out of substantive law could be viewed as a minimum standard and the operation of the other rules may render the privilege rules stricter. In order to satisfy a broad range of rules and ensure that the parties are treated equally as a matter of due process, tribunals should take a maximalist approach towards privileges as a rule of thumb [104].
To conclude the point, although rules of evidence are typically considered procedural and they would certainly fall under the residual discretion under the leges arbitri, there are exceptions. For example, the parol evidence rule, from the standpoint of international arbitration, might be either procedural or substantive. The application of the burden of proof can be a hybrid. While substantive law would dictate the default rule, tribunal should be able to rely on a degree of procedural flexibility to, for example, shift the burden of proof if the default rule has not resolved the issue and substantive law contains no direct prohibition against doing so. Rules on privilege have a different problem since the source of the privilege obligation may be found across several different laws, each applying in different circumstances. If so, the maximalist approach should be preferred as long as the substantive rules on privilege are respected.
5.5 Avoiding Unacceptable Outcomes
As the above difficult cases illustrate, the application of the three-stage test may result in surprising outcomes or characterisations of rules that neither the tribunals nor the parties had anticipated. However, any undesirable outcomes can be resolved with ease by way of party agreement. Proactive tribunals may avoid difficult characterisations by requesting the parties to agree on such a rule directly, for example through the Procedural Order No 1 [110].
Alternatively, if parties have not reached an agreement on a rule and the substantive law characterises it as procedural, tribunals are at liberty to adopt the rule in its entirety as matter of discretion. For example, if substantive English law applies to a contract between two parties from common law jurisdictions, the tribunal might adopt the parol evidence rule as a matter of best practice anyway, even though it is not strictly bound to do so. Put differently, if a rule is ‘procedural’ under substantive law, tribunals need not apply it, but they can do so if it is appropriate in their judgement. The only limits of such discretion are outcomes that would be otherwise unfair or treat parties unequally, which is a high standard to meet [42, 43]. Therefore, while the three-stage test may result in characterisations that are surprising to the tribunals or the parties, the problem is more hypothetical and can be easily remedied.
6 Conclusion
The characterisation of rules in international arbitration is, at its heart, an archaeological search for what the parties agreed to. Parties agree to two things: (i) procedural rules to govern their arbitration and (ii) substantive law applicable to their dispute. Anything that is not covered by the two is a procedural matter subject to residual tribunal discretion. International arbitration from this standpoint is unique compared to general private international law due to the operation of the lex arbitri which not only provides for the said default discretion but also establishes the hierarchy between applicable laws. Observing the said hierarchy points towards a three-stage test for the characterisation of rules.
First, party-agreed procedural rules should be applied by tribunals at all times. These would typically be the arbitration rules or other bespoke rules that were agreed in the arbitration clause or ad hoc. However, and secondly, if a rule in issue does not fall under such party agreement, the tribunal must look to the applicable substantive law. The characterisation then revolves around the interpretation of the substantive law and its scope. If a relevant substantive rule exists and applies in the circumstances (which are both a matter of legal interpretation for the tribunal), tribunals must apply it and there is no further issue of characterisation. Conversely, if substantive law treats a rule in issue as ‘procedural’, the tribunal need not apply it and can instead rely on its residual procedural discretion to determine the appropriate outcome.
The risk of mischaracterising rules in arbitration is high since tribunal face few consequences for making errors in substantive law. The application of the above three-stage test may also appear as counterintuitive to tribunals. After all, a rule may be characterised as procedural in one case, but it may be substantive in another, depending on the correct interpretation of the applicable laws. The article, therefore, cautions against attempts to apply a universal, fixed characterisation of legal rules in international arbitration or expand unduly the scope of discretion. The key point of reference should be party autonomy—the laws and rules selected by them to govern their dispute—rather than the arbitrators’ subjective perceptions as to the right answer, coupled with a rigorous application of the lex arbitri.
Notes
The laws of the jurisdiction in which the legal action is brought. For example, if the legal action is brought before the English courts, the English procedural laws, such as the Civil Procedure Rules, applies to the conduct of the proceedings.
The system of law applicable to the resolution of the dispute. This would be the substantive law, for example the law of the contract the breach of which led to the dispute.
Latin: ‘The burden of proof rests on the party making the allegation’; The principle helps determine which party should begin calling evidence.
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I wish to thank Professor Phillip Johnson, Professor Renato Nazzini KC and the anonymous reviewers for their comments on earlier drafts. Any errors that remain are my own.
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Godhe, A. Characterisation of Rules in International Commercial Arbitration: Between Procedure, Substance and Party Autonomy. Int J Semiot Law (2025). https://doi.org/10.1007/s11196-025-10369-7
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DOI: https://doi.org/10.1007/s11196-025-10369-7