The Application of Law in Foreign-Related Arbitration: Friend or Foe?

2026/10/14

Lessons from a "Reversal" Case

In foreign-related arbitration, the question of applicable law is often dismissed as a "technical detail," but a case I handled demonstrates that it can be decisive as to jurisdiction—and even determine the outcome of the entire case. Used well, it is a friend; overlooked, it is a foe.

The Facts: A "Sealed" Contract That Nearly Dragged Two Companies into Arbitration.

A Chinese buyer entered into a sales contract with Company A, a Cambodian seller, providing for CIETAC arbitration and Chinese substantive law. Only Company A was listed as seller in the preamble and signature blocks of the contract, but Company B also affixed its company seal to the contract, without any authorized representative's signature, and Company B was not mentioned anywhere in the contract.

Thereafter, Company A failed to deliver the goods. The buyer commenced arbitration based on the contract and a "Statement of Circumstances" executed in Cambodia, seeking return of the purchase price from Company A, with Companies B and C, another Cambodian company, jointly and severally liable. The buyer's position was that: Company B, by affixing its seal to the contract, was bound by the arbitration clause; and Companies B and C, by affixing their seals to the "Statement of Circumstances" to provide security, were also bound by the arbitration clause.

By this time, Company A had been deregistered, and I acted solely for Companies B and C. In response to the buyer's blanket assertion that "Chinese law applies to the entire case," my team conducted a separate choice-of-law analysis for each distinct legal issue, and the arbitral tribunal ultimately upheld our jurisdictional objections in full.

The Key Battleground: Three Choice-of-Law "Turning Points"

First, is Company B bound by the contract's arbitration clause? We argued that Company B is a Cambodian company, and the effect of its affixing its seal falls within the scope of a legal person's civil rights capacity, which, under Article 14 of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations, should be governed by the law of the place of registration, i.e., Cambodian law. Under Cambodian law, a company seal alone, without the signature of an authorized representative, does not constitute valid execution; nor did the contract anywhere stipulate the rights and obligations of Company B. Accordingly, Company B is not a party to the contract and is not bound by the arbitration clause.

Second, does the "Statement of Circumstances" constitute a contract of guarantee? The "Statement of Circumstances" did not specify the applicable law, so the applicable law should be determined in accordance with the conflict-of-laws rules of the seat of arbitration, i.e., Chinese conflict-of-laws rules. We argued that, under the closest connection principle, Cambodian law should apply. Under Cambodian law, the "Statement of Circumstances" does not constitute a contract of guarantee, and therefore the arbitration clause in the main contract cannot apply to it.

Third, even if it constitutes a contract of guarantee, can the arbitration clause be extended to it? We argued that this should be considered under the law of the seat of arbitration, i.e., Chinese law. Under Chinese judicial practice, where the main contract provides for arbitration but the guarantee contract does not provide for jurisdiction, the arbitration clause in the main contract does not bind disputes under the guarantee contract.

Lawyer's Observations and Recommendations

The core lesson of this case is that: in foreign-related arbitration, the application of law is not a "backdrop" but the "main battlefield." Counsel cannot simply assert that "the law of a certain country applies to the entire case"; rather, counsel should conduct a separate choice-of-law analysis for each distinct legal issue—such as subject qualification, capacity, validity of execution, and the nature of the guarantee—and precisely determine the governing law.

Specifically, counsel should focus on three points: first, identify the conflict-of-laws rules and determine the governing law for each legal issue; second, ascertain and accurately apply foreign law, particularly details that are easily overlooked, such as the validity of company execution; and third, assess the impact of different applicable laws on jurisdiction and substantive outcomes, and formulate the optimal strategy.

In foreign-related arbitration, the question of applicable law is both a risk and a weapon. The value of a specialist lawyer lies precisely in turning the "enemy" into a "friend"—through meticulous choice-of-law analysis, securing a jurisdictional objection for the client, and even achieving victory without engaging in battle.