Choice-of-Law Clauses: Which Law(s) Are You Actually Choosing?

By R. David Gallo

On April 18, 2022, the Eleventh Circuit Court of Appeals issued a decision in Gulfstream Aerospace Corp. v. Oceltip Aviation 1 Pty Ltd., — F.4th —, 2022 WL 1136990 (2022), affirming the district court’s confirmation of an arbitration award.

Savannah, Georgia-based Gulfstream prevailed in AAA arbitration against Australia-based Oceltip in a dispute concerning a contract for the sale of an airplane.  Gulfstream sought to confirm the arbitration award pursuant to Chapter 2 of the Federal Arbitration Act (“FAA”), which is the part of the FAA that deals with “international” arbitration awards.

Oceltip moved to vacate the award and argued, among other things, that the Georgia Arbitration Code (“GAC”)—not the FAA—applied to whether the award should be confirmed or vacated.  This was important to Oceltip because the GAC contains more expansive grounds for vacating an arbitration award than does the FAA.

The parties’ sales agreement provided that the “contract shall be governed by the laws of the state of Georgia.”  Oceltip urged that this choice-of-law provision required application of the GAC to the parties’ respective motions to confirm and vacate the arbitration award.  The district court disagreed, ruling that the FAA applies.

The Eleventh Circuit affirmed, determining that the choice-of-law provision was best understood as a choice of substantive law only.  That is, the parties had chosen Georgia contract law to govern their rights and obligations as buyer and seller under the sales contract.  The Court found that, by applying “the laws of the state of Georgia” to their contract, the parties had not also intended to apply the GAC to their arbitration.  In this author’s view, the Court’s interpretation best aligns with commercial practice and with these parties’ apparent intent.

The Court should have stopped there.  Instead, the Court reasoned that, because the parties’ contract called for arbitration under the AAA’s Commercial Arbitration Rules, “it makes little sense that the parties would have intended and expected that the Georgia Arbitration Code … would govern review of any award resulting from arbitration.”  But arbitration rules, such as the AAA rules, serve a very different purpose in arbitration than the procedural law that is embodied in the FAA and Georgia Arbitration Code.

Indeed, arbitration rules and law often complement and inform each other.  For example, the FAA and GAC each allow for an award to be vacated if the arbitrator exceeded her powers (or overstepped her authority), but neither statute defines what that means.  In turn, one important reference point for determining the contours of the arbitrator’s powers or authority is the rules the parties selected to govern the arbitration

The Court’s confusion may come from earlier U.S. Supreme Court decisions, which have occasionally referred to state arbitration statutes as “rules” instead of “law.”  See, e.g., Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 472 (1989).  While there is nothing inherently wrong with swapping these terms, the Gulfstream decision shows that a lack of precision can have consequences.  Time will tell whether litigants will seek to rely on Gulfstream to argue that the mere selection of arbitration rules displaces otherwise applicable arbitration law.

Practice Point.  When drafting or reviewing a contract with an arbitration clause, make sure you understand: (i) the contract law that will govern the substantive terms of the agreement (e.g., Georgia law; New York law), (ii) the rules that will govern the conduct of the arbitration (e.g., AAA Rules; JAMS Rules; Georgia Civil Practice Act), and (iii) the procedural law that will govern issues like enforcing the arbitration agreement and confirming the award (e.g., FAA; GAC).

About the author: 

David Gallo specializes in business litigation and arbitration.  Prior to moving to Atlanta, David studied under leading arbitration practitioners and scholars at Columbia Law School, practiced litigation and arbitration at two AmLaw 100 firms in New York, and taught arbitration at Fordham Law School.


About the Arbitration Blog

This blog is a user-friendly resource for businesses and individuals who find themselves faced with issues involving arbitration.  Perhaps you want to include an arbitration clause in your contract, or you are being asked to sign a contract with an arbitration clause.  Maybe a dispute has arisen and you want to begin arbitration proceedings but you are not sure whether your arbitration clause covers the dispute (hint: it usually does).  Perhaps you received a subpoena for documents in connection with an arbitration in which you are not otherwise involved.  This blog provides you with answers to simple questions and will help you ask the right questions when confronted with more complex issues.

Among other topics, we cover how to draft an arbitration clause and what to expect in arbitration proceedings.  We discuss the differences and similarities among arbitrations governed by Georgia law, federal law, and international law.  We explore—in layman’s terms, whenever possible—the Georgia Arbitration Code, the Federal Arbitration Act, transnational law, and decisions from Georgia’s state courts, Georgia’s federal district courts, the U.S. Court of Appeals for the Eleventh Circuit, the U.S. Supreme Court, and foreign tribunals.  We provide toolkits and checklists you can use to navigate everyday arbitration issues.  We discuss the various contexts and industries in which we have handled arbitration issues for our clients, including:

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