THE LEADING

ARBITRATORS’
GUIDE TO
INTERNATIONAL
ARBITRATION

Third Edition

Editors

Lawrence W. Newman
Richard D. Hill

JURIS
 Questions About This Publication

For assistance with shipments, billing or other customer service matters,

please call our Customer Services Department at:
1-631-350-2100

To obtain a copy of this book, call our Sales Department:

1-631-351-5430
Fax: 1-631-351-5712

Toll Free Order Line:

1-800-887-4064 (United States & Canada)

See our web page about this book:

http://www.arbitrationlaw.com

Copyright 2014
JurisNet, LLC

All Rights Reserved

Printed in the United States of America
ISBN 978-1-937518-33-2
Juris Publishing, Inc.
71 New Street
Huntington, New York 11743
USA
www.arbitrationlaw.com
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

Chapter 18

THE ROLE OF THE ARBITRATOR IN

DETERMINING THE APPLICABLE LAW
Emmanuel Gaillard

I. INTRODUCTION

It should hardly be necessary to preface a discussion of the

applicable law in international arbitration by stressing its importance
to the outcome of the dispute. Yet despite the particularly obvious
relationship between the content of the law applicable to the merits
and the result of an arbitration, it appears to be fashionable in certain
circles to dismiss as devoid of any practical relevance the complex
issues of private international law that may arise in this regard.
According to these skeptics, rather than wasting their time on such
purely academic questions, arbitrators should focus on adopting
pragmatic solutions to determining what law to apply to a given
dispute.1
In reality, the seemingly abstract questions of comparative law
and conflict of laws, or even quasi-philosophical issues such as the
interrelation between private and public international law or the
hierarchy of norms in international commercial matters, frequently
have significant practical ramifications and far-reaching financial
repercussions. For example, in the second half of the 20th century a
highly academic debate was waged in legal literature over the validity

1 For a particularly subtle view of the issue, see William L. Prosser, Interstate
Publication, 51 MICH. L. REV. 959, 971 (1953): “The realm of the conflict of laws is a
dismal swamp, filled with quaking quagmires, and inhabited by learned but
eccentric professors who theorize about mysterious matters in a strange and
incomprehensible jargon. The ordinary court, or lawyer, is quite lost when engulfed
and entangled in it.”

437
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

438 LEADING ARBITRATORS’ GUIDE

of stabilization clauses in international contracts,2 with numerous

commentators arguing that the autonomy of the parties allows the
applicable law to be frozen at any given time for the purposes of their
contract, and that private parties should have the right to protect
themselves from the legislative power of the State-party to the
contract, where that State’s law is the governing law of the contract.
Other authors, noting that the stabilization of a law could result in
the application of a law that no longer exists, argued that allowing
parties to provide for a stabilized law to govern their contract would
effectively place the parties above the law in an unacceptable manner.
Such an abdication of legislative power, they contend, would be
incompatible with the principles governing State sovereignty and with
the need for all contracts to be rooted in a given legal order.3
This debate raised issues reaching the very core of both public
and private international law. At the same time, the question of
whether a given stabilization clause is valid can be of very significant
practical relevance in an international arbitration. For example, in
ICC Case No. 4961,4 a dispute arose out of a long-term contract
between an Algerian State-owned entity and a U.S. company for the
sale of liquefied natural gas (LNG). One of the key issues of the
dispute was whether the doctrine of change in circumstances

2 See, e.g., Prosper Weil, Les clauses de stabilisation ou d'intangibilité insérées dans les

accords de développement économique, in MÉLANGES OFFERTS À CHARLES ROUSSEAU –

LA COMMUNAUTÉ INTERNATIONALE 301 (1974); Bernard Audit, Transnational
Arbitration and State Contracts: Findings and Prospects, in TRANSNATIONAL
ARBITRATION AND STATE CONTRACTS 23, 77 (1988); Wolfgang Peter, Stabilization
Clauses in State Contracts / Les clauses de stabilisation dans les contrats d’Etat, 1998 REV.
DR. AFF. INT. / INT’L BUS. L.J. 875; WOLFGANG PETER, ARBITRATION AND
RENEGOTIATION OF INTERNATIONAL INVESTMENT AGREEMENTS 214 (1995);
Pierre Mayer, La neutralisation du pouvoir normatif de l’Etat en matière de contrats d’Etat,
113 JOURNAL DU DROIT INTERNATIONAL 5 (1986).
3 For an example of an abstract debate on the matter, see the various

publications discussing the theory of Grundlegung, also known as ordre juridique de

base. See, e.g., Pierre Mayer, Le Mythe de l’Ordre Juridique de Base (ou Grundlegung), in LE
DROIT DES RELATIONS ÉCONOMIQUES INTERNATIONALES – ETUDES OFFERTES À
BERTHOLD GOLDMAN 199, 209 (1982).
4 Unpublished.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 439

(“imprévision”) could be invoked by the American buyer in light of the

global oil crisis which, according to that party, had fundamentally
impacted the economy of the contract according to which fixed
quantities had to be lifted or paid for. In the legal systems that
recognize it, the doctrine of imprévision allows the judge or arbitrator
to reduce an obligation which has become excessive as a result of
unforeseen and exceptional circumstances or events that fundamen-
tally alter the equilibrium of the contract.5 In this case, the parties had
provided for Algerian law to govern their contract. The contract
further contained a stabilization clause, which froze Algerian law at
the time of the conclusion of the contract. At that time, Algerian
law—largely based on the French Civil Code—did not include a
statutory imprévision clause. Although the parties were free to
specifically include such a provision in their contract, in this case they
had not. Shortly after the contract was signed, however, the Algerian
legislature adopted a new Civil Code which, in keeping with the 1949
Egyptian Civil Code which served as a model for the civil codes of
many Arab countries, specifically included imprévision at
Article 107 paragraph 3 as a means for the judge to “reduce to
reasonable limits the obligation that has become excessive.”
Obviously, for arbitrators having to assess the impact, if any, of the
oil crisis on the buyer’s take-or-pay obligations, the question of the
validity of the stabilization clause was of paramount importance.
Whereas under the frozen law chosen by the parties to govern their
contract, the provisions of Article 107 paragraph 3 could not even be
invoked, an argument could be made under the new Algerian Civil
Code in favor of a complete restructuring of the parties’ obligations
by the arbitral tribunal. In this case, an apparently esoteric private
international law issue, that of the validity of the stabilization
clause—which was, for once, challenged by the foreign co-

5 See for example the definition at Article 6.2.2 of the UNIDROIT Principles

of International Commercial Contracts. Somewhat clumsily, the UNIDROIT

Principles refer to this concept as “hardship,” as this term is widely known in
international trade. On the UNIDROIT Principles, see generally MICHAEL
JOACHIM BONELL, THE UNIDROIT PRINCIPLES IN PRACTICE (2002).
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

440 LEADING ARBITRATORS’ GUIDE

contractor, at the request of which such clauses are generally inserted

in international agreements—became the decisive issue on which
turned hundreds of millions of dollars.6
Another example of a debate found in most private international
law treatises, which might similarly be viewed as being overly
academic, concerns the effects of a choice of governing law by the
parties that would lead all or part of their contract to be void. While it
has been argued that such a choice cannot be valid, as the parties
must be assumed to have intended that the provisions of the contract
would be binding on them,7 some authors consider that, even in this
case, the parties’ choice of applicable law must be respected and the
relevant clause—or even the entire contract—declared void.8
Once again, the practice of international arbitration demonstrates
that this is far from being an issue of purely academic interest. A
recent example of its practical relevance is provided by ICC Case
No. 10625,9 where a dispute arose out of the purchase of a turbo-
generator plant by a Portuguese chemicals manufacturer from a
French vendor. The parties had chosen Portuguese law as the law
governing the contract. Following several failures of the plant, the
Portuguese purchaser brought arbitral proceedings against the
vendor, claiming damages as a result of being deprived of use of the
plant for nearly eight months. The respondent’s defense turned on
the inclusion in the purchase agreement of a limitation of liability
clause, under which its sole duty was to repair any defects in the plant
appearing during the warranty period. The clause excluded liability of
either party “for indirect loss or consequential damage unless caused
by a deliberate act.”

6 The case was ultimately settled in conditions which led to a large down

payment by the American party and the taking of a large participation by the State-
owned company in the stock of its co-contractor.
7 See, e.g., RESTATEMENT (SECOND) OF CONFLICT OF LAWS §187, comment e

(1971).
8 For references to arbitral case law, see FOUCHARD GAILLARD GOLDMAN

ON INTERNATIONAL COMMERCIAL ARBITRATION ¶ 1439 (E. Gaillard and J. Savage

eds., 1999).
9 Award of 2001, unpublished.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 441

Relying on a rather idiosyncratic provision of the Portuguese

Civil Code prohibiting limitation of liability clauses, the arbitral
tribunal found this contract clause to be null and void. The
arbitrators expressly noted that this solution was in contrast to most
continental European laws of the civil law type, which tend to allow
the parties to a contract to freely exclude or limit liability for breach
of contract, provided that the breach is not intentional or grossly
negligent. However, considering itself to be bound by the choice of
law made by the parties, the arbitral tribunal found that it had no
choice but to apply the rules of Portuguese law, “no matter how
customary or normal it [the contractually stipulated limitation of
liability] may otherwise be in international business.” The answer
given by the arbitral tribunal to the question of whether to uphold
the choice of law made by the parties, despite the fact that the chosen
law invalidated a crucial contract provision, was decisive for the
outcome of the case, as the exclusion of indirect losses and
consequential damages had an important impact on the amount of
damages awarded.
Yet another example of the impact of the choice of applicable
law concerns the measure of damages awarded under different legal
systems. As any international lawyer is aware, some legal systems
allow substantially higher measures of damages than others. This
found a telling practical illustration in ICC Case No. 8450,10 which
concerned a pre-bid agreement entered into between a U.S.
corporation and a Saudi-Arabian entity. The seat of the arbitration
was London. In the absence of any governing law provision in the
agreement, the arbitral tribunal ruled that the governing law of the
agreement was that of the State of New York. As New York law
allows punitive damages, this determination of the applicable law by
the arbitral tribunal opened the door to the potential liability of the
respondent for punitive damages, and not merely for compensatory
damages. Leaving aside the question of whether an award for
punitive damages might be contrary to international public policy in

10 Unpublished.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

442 LEADING ARBITRATORS’ GUIDE

certain legal systems11 or even when confronted to a truly

international notion of international public policy,12 this case provides
yet another—and rather obvious—example of the significant
financial repercussions that the choice of applicable law may have.
Admittedly, in many cases, the results achieved under different
potentially applicable governing laws would be identical for any given
dispute. However, it is equally clear that in a meaningful number of
cases, the determination of the rules of law applicable to the merits of
the dispute will be of crucial importance for the dispute’s outcome,
making this one of the most essential steps in the arbitral process.13
In determining these rules, unlike local courts, arbitrators are not
bound by the choice of law rules of the seat of the arbitration (II).
Rather, the determination of the applicable law by the arbitrators is

11 This is deemed to be the case, for example, in Japan, where a recent decision

of the Supreme Court refused in part to recognize a U.S. judgment ordering a

Japanese corporation inter alia to pay punitive damages, on the basis that this part of
the foreign judgment was contrary to Japanese public policy. The Japanese Supreme
Court held that the Japanese liability system “is essentially different from the punitive
damages system, which has the primary purpose of punishment and general
prevention. In this country, it is left to the criminal or administrative sanctions to
punish the offender and to deter similar conduct in the future. Thus, it is
incompatible with the fundamental principles or basic tenets of the Japanese system
of damages based on torts to hold that between the parties in a tort, the victim may
receive from the offender damages intended for punishment and general prevention
in addition to the damages caused by the actual loss. Therefore, enforcement of the
part of the Foreign Judgment ordering the appellant company punitive damages in
addition to the compensatory damages and costs shall have no effect because it is
contrary to the public policy of Japan.” Northcon I, Oregon Partnership v. Mansei Kogyo Co.
Ltd. et al., Supreme Court Judgment, July 11, 1997; 51 Minshu (6) 2573 [1997],
reprinted in 41 JAPANESE ANNUAL OF INTERNATIONAL LAW 104 (1998).
12 On this concept, see Pierre Lalive, Transnational (or Truly International) Public

Policy and International Arbitration, in ICCA CONGRESS SERIES No. 3, COMPARATIVE

ARBITRATION PRACTICE AND PUBLIC POLICY IN ARBITRATION 257 (P. Sanders
ed., 1987); on the topic of punitive damages in international arbitration, see E.
Allan Farnsworth, Punitive Damages in Arbitration, 7 ARB. INT’L 3 (1991).
13 For additional examples of the importance of the applicable law to the

merits of the dispute, see David J. Branson and Richard E. Wallace, Jr., Choosing the
Substantive Law to Apply in International Commercial Arbitration, 27 VIRGINIA J. INT’L L.
39 (1986).
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 443

guided in the first place by the duty to respect the intentions of the
parties (III). In the absence of a choice of law by the parties, or
instructions as to how the choice of law should be made, the
arbitrators have broad discretion in selecting the applicable law,
which does not entail, however, that this choice is arbitrary (IV).

II. IRRELEVANCE OF THE CHOICE OF LAW RULES OF

THE SEAT OF THE ARBITRATION

Unlike local courts, and contrary to what is generally considered

to be an outdated theory reducing their role to that of a quasi local
court, international arbitrators are not bound by the choice of law
rules of the seat of the arbitration. As a result, arbitrators are not
required to apply the choice of law rules of the seat of the arbitration
in order to determine the applicable law (A). Similarly, they are not
bound by the limits to the validity of the law chosen by the parties
that may be stipulated by the private international law rules of the
seat of the arbitration (B).

A. No Requirement to Apply the Choice of Law Rules of the Seat of the

Arbitration When Selecting the Applicable Law

In the absence of a choice of law by the parties to an

international dispute, a local court will apply the conflict of laws rules
of the forum in order to determine the law applicable to the merits of
the dispute. In the past, it was widely held that arbitrators should also
adopt this approach. F.A. Mann considered that unless the parties
had specifically agreed on a different method of determining the
applicable law, “just as the judge has to apply the international law of
the forum, so the arbitrator has to apply the private international law
of the arbitral tribunal’s seat, the lex arbitri.”14

14 F.A. Mann, Lex Facit Arbitrum, in INTERNATIONAL ARBITRATION – LIBER

AMICORUM FOR MARTIN DOMKE 167 (P. Sanders ed., 1967); reprinted in 2 ARB.
INT’L 241 (1986); see also DAVID ST. JOHN SUTTON, JOHN KENDALL, JUDITH GILL,
RUSSELL ON ARBITRATION 68 (1997). The Resolution of the Institute of
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

444 LEADING ARBITRATORS’ GUIDE

Some still consider that the choice of the seat of the arbitration
leads in practice to at least a strong inference that the parties also
implicitly meant to choose the choice of law rules of that jurisdiction
for the determination of the governing law.15 However, this approach
is not followed by most modern arbitration statutes and institutional
arbitration rules. Falling in line with the broader trend in international
arbitration to limit the role of the seat—the seat being frequently
chosen for practical reasons such as geographical convenience or
legal neutrality, without any real link with the dispute—the more
modern approach considers artificial an interpretation of the choice
of seat as an indication of the applicable law or the applicable choice
of law rules by the parties.16 This is all the more so where the seat of
the arbitration was not chosen by the parties, but by the arbitral
institution administering the arbitration.17

International Law of September 26, 1957 on Arbitration in Private International

Law followed this approach, providing in its Article 11 that “[t]he rules of choice of
law in force in the state of the seat of the arbitral tribunal must be followed to settle
the law applicable to the substance of the difference.” Resolution adopted during
the Amsterdam session held on September 18-27, 1957, INSTITUT DE DROIT
INTERNATIONAL, TABLEAU DES RÉSOLUTIONS ADOPTÉES (1957-1991), at 236, 243
(1992). See also, more recently, Roy Goode, The Role of the Lex Loci Arbitri in
International Commercial Arbitration, 17 ARB. INT’L 19, 32 (2001).
15 Howard M. Holtzmann, Donald F. Donovan, United States, in ICCA

INTERNATIONAL HANDBOOK ON COMMERCIAL ARBITRATION 44 (J. Paulsson ed.,

2001); D. Rhidian Thomas, Commercial Arbitration – Arbitration Agreements as a
Signpost of the Proper Law, in LLOYD’S MARITIME AND COMMERCIAL LAW
QUARTERLY, ANNUAL INDEX 141 (1984). For an arbitral award adopting this
approach, see ICC Case No. 5551 (1988), ICC BULLETIN, Vol. 7, No. 1, at 82
(1996), in which the arbitral tribunal held that “[i]n cases where parties choose a
third State as the seat of their arbitration, it is reasonable to assume, in the absence
of a choice of law, that they envisaged or even intended, but in any event have not
excluded, that the applicable law to the merits be determined by reference to the
choice of law rules of the seat.” (our translation)
16 See ICC Case No. 8385 (1995), 124 JOURNAL DU DROIT INTERNATIONAL

1061 (1997), and observations by Y. Derains.

17 See W. LAURENCE CRAIG, WILLIAM W. PARK, JAN PAULSSON,

INTERNATIONAL CHAMBER OF COMMERCE ARBITRATION 321 (3d ed. 2000).

 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 445

Accordingly, most modern arbitration statutes have eliminated

any reference to the choice of law rules of the seat of the arbitration
in the context of the determination of the law applicable to the merits
of the dispute.18 The same is true of the 1997 AAA International
Arbitration Rules (Article 28 (1)), the 1998 LCIA Rules (Article 22.3),
the 1998 ICC Rules (Article 17 (1)) and the 1999 Rules of the
Stockholm Chamber of Commerce (Sec. 24 (1)).19 This contemporary
approach is also clearly reflected in arbitral case law, as well as finding
wide support in legal commentary.20 For example, in ICC Case No.
6294, the arbitral tribunal stated in the clearest possible terms that it
is “an uncontested principle of the prevailing opinion in legal writing
that, contrary to state courts, an international arbitrator is not bound
to respect the choice of law rules of the seat of the arbitration.”21

18 See, e.g., Article 1496 (1) of the French New Code of Civil Procedure; Article

1054 (2) of the Netherlands Code of Civil Procedure; Article 187 (1) of the Swiss
Private International Law Statute; Article 834 of the Italian Code of Civil Procedure
(Law of January 5, 1994); Article 28 (2) of the UNCITRAL Model Law, which
follows the UNCITRAL Arbitration Rules; on the evolution of arbitration statutes,
institutional rules and international conventions, see Marc Blessing, Regulations in
Arbitration Rules on Choice of Law, in ICCA CONGRESS SERIES NO. 7, PLANNING
EFFICIENT ARBITRATION PROCEEDINGS / THE LAW APPLICABLE IN
INTERNATIONAL ARBITRATION 391 (A.J. van den Berg ed., 1996).
19 But see Article 4 of the 1989 International Arbitration Rules of the Zurich

Chamber of Commerce and Article 13 (2) of the 1993 Rules of Procedure of the
Court of Arbitration of the Hungarian Chamber of Commerce, infra at Section III.
20 See, e.g., Dana H. Freyer, Practical Considerations in Drafting Dispute Resolution

Provisions in International Commercial Contracts: A US Perspective, 15 J. INT’L ARB. 7

(1998); Ole Lando, The Law Applicable to the Merits of the Dispute, in ESSAYS ON
INTERNATIONAL COMMERCIAL ARBITRATION 129, 137 et seq. (P. Sarcevic ed.,
1989); W. MICHAEL REISMAN, W. LAURENCE CRAIG, WILLIAM PARK, JAN
PAULSSON, INTERNATIONAL COMMERCIAL ARBITRATION – CASES, MATERIALS
AND NOTES ON THE RESOLUTION OF INTERNATIONAL BUSINESS DISPUTES 707–
08 (1997); FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL
ARBITRATION, supra note 8, ¶ 1538; on the development of U.S. law, see GARY
BORN, INTERNATIONAL COMMERCIAL ARBITRATION IN THE UNITED STATES –
COMMENTARY & MATERIALS 103–06 (2000).
21 ICC Case No. 6294 (1991), 118 JOURNAL DU DROIT INTERNATIONAL 1050

(1991), and observations by J.J. Arnaldez (our translation). See also ICC Case No.
1512 (1971), II Y.B. COM. ARB. 128 (1976); ICC Case No. 2730 (1982), 111
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

446 LEADING ARBITRATORS’ GUIDE

Similarly, the arbitral tribunal in ICC Case No. 8113 concerning a

dispute between a Syrian agent and a German trading company over
their agreement to open a plant in Syria, held that:

The Swiss rules of conflict of laws would not be the appropriate

rules of conflict for this dispute. Not only is the Tribunal, sitting in
Zurich, not bound to apply the Swiss rules of conflict of laws, but
the application of such rules to the dispute would not be appropriate
or justifiable since the contractual relationship between the parties
has no connection whatsoever with Switzerland.22

A similar decision was reached by the arbitrators in the more

recent ICC Case No. 11264.23 Their award is particularly telling given
the common law background of the three arbitrators and the seat of
the arbitration in Singapore, elements that in the past would have
favored the application of the choice of laws rules of the seat of the
arbitration. The dispute in this arbitration concerned a turnkey
contract for a hydroelectric power station entered into by two
Philippine corporations. While it was common ground between the
parties that the law of the Philippines applied to all claims in the
arbitration founded in contract, a dispute arose over whether
Australian law should apply to a claim brought for “misleading and
deceptive conduct.” The arbitral tribunal examined in great detail the
relevance of the seat of the arbitration for the purposes of
determining the applicable law in the arbitration, noting that:

JOURNAL DU DROIT INTERNATIONAL 914 (1984), and observations by Y. Derains;

ICC Case No. 6527 (1991), XVIII Y.B. COM. ARB. 44, 45 et seq. (1993); ICC
BULLETIN, Vol. 7, No. 1, at 88 (1996), in which the arbitral tribunal noted that “[i]n
accordance with the classical doctrine on conflicts of law, this rule [i.e. the
appropriate rule on choice of law] should be determined by the law in force at the
place of arbitration (lex fori). However, this doctrine has been widely criticized,
mainly in consideration of the fact that the arbitrator, differently from the national
judge, has no lex fori. Therefore, the arbitral tribunal considers it more appropriate
to apply the general principles of international private law as stated in international
conventions, particularly those in the field of the sale of movable goods.”
22 ICC Case No. 8113 (1995), XXV Y.B. COM. ARB. 324 (2000).
23 Award of 2002, unpublished.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 447

Before determining the seat of the arbitration it is helpful to consider

the significance of the seat for the purposes of determining the
applicable law in the arbitration. Various views have been expressed
in text-books dealing with international arbitration and conflict of
laws.

The arbitral tribunal then discussed the views expressed by the

authors of several treatises on international arbitration regarding the
role of the seat in the determination of the applicable law, as well as
recalling the position traditionally held in common law legal systems:

In common law countries, until the introduction of modern

legislation dealing with international arbitration such as the
UNCITRAL Model Law (‘Model Law’), it was probably the case that
an arbitrator was obliged, in general, to apply the choice of law rules
of the seat of the arbitration. This followed from the conflictual rule
that the arbitral procedure was governed by the law of the seat
(unless the parties had selected a different law) and from the view
that the procedural law determined which choice of law rules were
applied by the arbitrator. Absent the choice of a different procedural
law by the parties, the applicability of the law of the seat to govern
procedural matters is established by English cases such as James Miller
& Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC
583. Likewise in Bank Mellat v. Helliniki Techniki SA [1983] 3 ALL ER
428 (CA) Kerr L.J. remarked at P431:

“The fundamental principle in this connection is that under our rules

of private international law, in the absence of any contractual
provision to the contrary, the procedural (or curial) law governing
arbitrations is that of the forum of the arbitration, whether this be
England, Scotland or some foreign country, since this is the system
of law with which the agreement to arbitrate in the particular forum
will have its closest connections: see James Miller Partners Ltd v.
Whitworth Street Estates (Manchester) Ltd. Despite suggestions to the
contrary by some learned writers under other systems, our
jurisprudence does not recognise the concept of arbitral procedures
floating in the transnational firmament, unconnected with any
municipal system of law.”
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

448 LEADING ARBITRATORS’ GUIDE

The applicability of the law of the seat to procedural matters is

established in Australia in American Diagnostica v. Gradipore Ltd (1998)
44 NSWLR 312 at 340-1. As to Singapore see Coop International Pte
Ltd v. Ebel SA [1998] 3 SLR 670 at 703.

The arbitral tribunal nonetheless concluded that it was not bound

to apply the choice of law rules of the seat:

Within Australia (and Singapore) in circumstances where the Model

Law applies, the Arbitral Tribunal is not bound to apply the choice
of law rules which a judge would apply but has much broader
discretion. In the absence of a designation of the applicable law of
the parties, article 28(2) [of the 1985 UNCITRAL Model Law on
International Commercial Arbitration] authorises the Arbitral
Tribunal to apply “the law determined by the conflict of laws rules
which it considers applicable.” This clearly frees the Arbitral
Tribunal from having to follow the choice of law rules which would
be applied by a local court.

The fact that this particular arbitral tribunal, with its strong
common law flavor, would choose to follow the modern,
international approach to limiting the role of the seat over the
traditional common law view of the importance of the seat is in itself
an excellent demonstration of how well-established it is today that
arbitrators are not bound to apply the choice of law rules of the seat
of the arbitration when determining the applicable law.24

B. No Requirement to Apply the Limits Set by the Law of the Seat to the
Validity of the Law Chosen by the Parties

The second important consequence of the fact that arbitrators are

not bound by the choice of laws rules of the seat of the arbitration is
that they are not required to apply the limitations that these rules may

24 For other examples of awards rejecting the application of the choice of law

rules of the seat, see FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL

COMMERCIAL ARBITRATION, supra note 8, ¶ 1541.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 449

impose on the validity of the law chosen by the parties. These

limitations are generally based on policy considerations of the seat of
the arbitration. However, they are only binding on national courts,
not on arbitral tribunals.
Thus, arbitrators sitting in France for example are under no
obligation to follow the requirements of Article 7 of the 1980 Rome
Convention on the Law Applicable to Contractual Obligations, which
allows courts to give effect to the mandatory rules of the law of a
third country with which the dispute has a close connection, and
which mandates the application of the mandatory rules of the forum,
irrespective of the law chosen by the parties. Similarly, arbitrators
sitting in the United States are not bound to apply the exception to
the choice of law of the parties set forth in §187 (2)(b) of the
Restatement (Second) of Conflict of Laws, according to which the
law chosen by the parties will be applied, unless “application of the
law of the chosen state would be contrary to a fundamental policy of
a state which has a materially greater interest than the chosen state in
the determination of the particular issue and which, under the rules
of §188, would be the state of the applicable law in the absence of an
effective choice of law by the parties.”
While the view has been expressed that Article 19 of the Swiss
Private International Law Act should—in light of the importance of
mandatory rules of third countries in international commerce—be
applied by arbitrators sitting in Switzerland,25 this position is in direct

25 For an overview of the debate, see François Knoepfler, L’article 19 LDIP est-
il adapté à l’arbitrage international?, in ETUDES DE DROIT INTERNATIONAL EN
L’HONNEUR DE PIERRE LALIVE 531–41 (C. Domincé, R. Patry, C. Reymond eds.,
1993). Article 19 of the 1987 Swiss Private International Law Act (in force as of
January 1, 1989) provides as follows: “When interests that are legitimate and clearly
preponderant according to the Swiss conception of law so require, a mandatory
provision of another law than the one referred to in this Act may be taken into
consideration, provided that the situation has a close connection with such other
law.” F.A. Mann had previously taken a similar view, but under the mistaken
impression that an arbitral tribunal sitting in Switzerland would be bound by Article
19 of the Swiss Private International Law Act. See F.A. Mann, New Dangers of
Arbitration in Switzerland, FIN. TIMES, Nov. 24, 1988, at 43.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

450 LEADING ARBITRATORS’ GUIDE

contradiction with the language and philosophy of the most modern

international arbitrations statutes, including that of Switzerland, and
in our view should not be accepted. Indeed, the provisions of the
Swiss Private International Law Act that govern international
arbitration (Chapter 12) make no reference, express or implied, to
Article 19, and the case law of the Swiss Federal Tribunal strongly
suggests that mandatory rules other than those belonging to the lex
contractus are not to be taken into account in international
arbitration.26 The same is true in all legal systems in which, as is the
case for example in France and in all countries having adopted the
UNCITRAL Model Law, a specific set of rules determine the law
applicable in international arbitration. Where this is the case, these
specific rules should be applied by the arbitrators, rather than the
general choice of law rules which are exclusively addressed to the
national courts.
An exception to this principle arises where the limitations set by
the law of the seat, or for that matter of any other legal system,
amount to principles of genuinely international public policy.27 This
subject will be discussed in more detail below at Section IV (B) (3).

26See, e.g., the Feb. 1. 2002 decision of the Swiss Federal Tribunal, 20 ASA
BULL. 337 (2002), expressing strong skepticism regarding the application of EU
antitrust rules by arbitrators sitting in Switzerland when the parties have chosen the
law of a non-EU country to govern their contract. In this particular instance,
however, one may consider that antitrust rules amount to international public
policy requirements which as such are binding on international arbitrators. See
below at Section IV (B) (3).
27 This approach to mandatory rules is reflected by Article 9 of the 1991

Resolution of the Institute of International Law on the “Autonomy of the Parties

in International Contracts Between Private Persons or Entities,” which provides
that foreign mandatory rules should not be taken into account by arbitrators, unless
they concern universal values: “If regard is to be had to mandatory provisions […]
of a law other than that of the forum or that chosen by the parties, then such
provisions can only prevent the chosen law from being applied if there is a close
link between the contract and the country of that law and if they further such aims
as are generally accepted by the international community.” Resolution adopted
during the Basel Session, August 26 - September 3, 1991, INSTITUT DE DROIT
INTERNATIONAL, TABLEAU DES RÉSOLUTIONS ADOPTÉES (1957-1991), at 408,
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 451

III. THE DUTY TO RESPECT THE INTENTIONS OF

THE PARTIES

Although it is now well established in international arbitration

that arbitrators are not constrained by the choice of law rules of the
seat of the arbitration, this is not to say that there is no legal
framework for their determination of the law applicable to the merits
of the dispute. First and foremost, arbitrators have the duty to
respect the parties’ intentions regarding the choice of law. This duty
encompasses not only the parties’ choice and intentions as to the
governing law of the arbitration, but also, in the absence of a direct
choice, the intentions of the parties concerning the methodology to
be applied for the determination of the applicable law.
Often, the parties will have chosen the law to be applied to their
contract, either expressly or implicitly, and the arbitrators are bound
to apply that law. Indeed, the principle of party autonomy is now
recognized by virtually all modern arbitration laws and international
conventions on international arbitration. The resolution adopted by
the International Law Institute on September 12, 1989 at Santiago de
Compostela similarly provides in its Article 6 that “[t]he parties have
full autonomy to determine the procedural and substantive rules and
principles that are to apply in the arbitration.”28 Arbitrators may (and
should) disregard the parties’ choice only in certain limited and highly
exceptional situations (see the discussion below at Section IV (B) (3)).
In some instances, without going so far as to designate the
applicable law, the parties nonetheless provide some indication to the
arbitrators as to how the applicable law should be determined. This
often consists of an indication by the parties, either expressly or by

413 (1992); for the French version, see 1992 REVUE CRITIQUE DE DROIT
INTERNATIONAL PRIVÉ 198.
28 Resolution on Arbitration Between States, State Enterprises or State

Entities, and Foreign Enterprises, XVI Y.B. COM. ARB. 236, 238 (1991), and
observations by A.T. von Mehren at 233. For a discussion of the principle of party
autonomy in arbitration statutes, international conventions and institutional
arbitration rules, see FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL
COMMERCIAL ARBITRATION, supra note 8, ¶¶ 1421 et seq.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

452 LEADING ARBITRATORS’ GUIDE

reference to arbitral rules, of a particular method to be applied by the

arbitrators. In rare cases, the parties specifically request that the
arbitrators apply the choice of law rules of a given country in order to
determine the applicable law.29 A general reference to arbitration rules
is, however, more commonly encountered. Modern arbitration rules
generally grant arbitrators wide freedom in determining the applicable
law. This is the case of the rules of the ICC, the AAA and the LCIA
in particular. Occasionally, however, the arbitrators’ obligation to
respect the choice of the parties can lead to the application of other
methods, including the application of the private international law of
the seat. For instance, Article 4 of the 1989 International Arbitration
Rules of the Zurich Chamber of Commerce provides that in the
absence of a choice of law by the parties, “the Arbitral Tribunal
decides the case according to the law applicable according to the rules
of the Private International Law Statute.” In such a case, although
arbitrators sitting in Switzerland are not obliged to have recourse to
choice of law rules applicable by the courts (see above at Section II
(A)), this will nonetheless be the case in Zurich Chamber of
Commerce matters, by virtue of the indirect choice made by the
parties through their reference to these rules. Similarly, Article 13 (2)
of the 1993 Rules of Procedure of the Court of Arbitration of the
Hungarian Chamber of Commerce refers the arbitrators back to the
rules of Hungarian private international law.
The method selected by the parties may also consist of the choice
of transnational rules, for it is widely accepted today that in choosing
the rules of law applicable to the merits of the dispute, the parties are
free to choose any body of legal rules, even without any national
origin. In cases where parties select transnational rules of law as their
governing law, they may provide some guidance to the arbitrators for

See, e.g., ICC Award No. 1250 (1964), V Y.B. COM. ARB. 168 (1980), where
29

both parties had declared at a hearing that the arbitrators should determine the law
applicable to the contract according to the French choice of law rules; ICC Award
No. 2680 (1977), cited by Yves Derains, 105 JOURNAL DU DROIT INTERNATIONAL
997 (1978), in which the parties expressly requested the arbitrators to apply Swiss
choice of laws rules to determine the applicable law.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 453

the identification of these rules. Thus, parties can, in keeping with

what has become known as the “tronc commun” method,30 set the
geographical parameters of the transnational rules to be applied to
their dispute. For example, arbitrators have been asked to apply
“general principles of law applicable in Western Europe,”31 “general
principles of law applicable in Northern Europe,”32 or the “laws and
regulations applying to members of the European Economic
Community.”33 However, this type of specific determination by the
parties of the content of the applicable transnational rules remains
exceptional. A more common manner for parties to determine the
content of the transnational rules to be applied to their contract is to
make reference to a collection or codification of such rules, such as
the UNIDROIT Principles of International Commercial Contracts,
the Lando Principles on European Contract Law or the CENTRAL
list of Principles.34

IV. THE FREEDOM OF THE ARBITRATORS TO

CHOOSE THE APPLICABLE LAW

In the absence of a choice of law by the parties, or instructions by

the parties regarding how the choice of law is to be made, arbitrators
generally enjoy wide freedom to determine the applicable law. If one
leaves aside the outdated reference to the ordinary choice of law rules

30 For a discussion of this method, see Mauro Rubino-Sammartano, The

Channel Tunnel and the Tronc Commun Doctrine, 10 J. INT’L ARB. 59 (1993); Bertrand
Ancel, The Tronc Commun Doctrine, 7 J. INT’L ARB. 65 (1990); Emmanuel Gaillard,
Thirty Years of Lex Mercatoria: Towards the Selective Application of Transnational Rules, 10
ICSID REV. – FOREIGN INV. L.J. 208, 224 (1995).
31 ICC Case No. 6378 (1991), 120 JOURNAL DU DROIT INTERNATIONAL 1018

(1993).
32 Unpublished.
33 ICC Case No. 7319 (1992), cited in ICC BULLETIN SPECIAL SUPPLEMENT,

INTERNATIONAL COMMERCIAL ARBITRATION IN EUROPE 41 (1994).

34 On the determination of the content of transnational principles, see

Emmanuel Gaillard, Transnational Law: A Legal System or a Method of Decision Making?,

17 ARB. INT’L 59 (2001); Gaillard, supra note 30, at 208 et seq.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

454 LEADING ARBITRATORS’ GUIDE

of the seat of the arbitration,35 three methods currently exist for

arbitrators to determine the applicable law in the absence of a choice
of law by the parties. Although contemporary legal writing tends to
contrast the three methods, in reality all three allow arbitrators wide
freedom in their choice of applicable law (A). The three methods are
thus mainly of conceptual interest; the reality of how arbitrators
approach the task of defining the applicable law is, in practice, quite
different (B).

A. Three Apparently Distinct Methods of Determining the Applicable Law

(1) The UNCITRAL Method: Application of a Choice of

Law Rule Identified by the Arbitrators

The first method, that of the UNCITRAL Rules and Model Law,
involves the identification of an appropriate choice of law rule by the
arbitrators, followed by its application to the dispute. This is the
oldest of the modern approaches to the choice of applicable law by
the arbitrators, dating back to the 1961 European Convention on
International Commercial Arbitration, which provides in its Article
VII, paragraph 1 that “[f]ailing any indication by the parties as to the
applicable law, the arbitrators shall apply the proper law under the
rule of conflict that the arbitrators deem applicable.”
This approach was subsequently adopted in the UNCITRAL
Arbitration Rules of 1976, which provide at Article 33 that in the
absence of a choice of law by the parties, “the arbitral tribunal shall
apply the law determined by the choice of law rules which it
considers applicable.” An identical provision was included at Article
28 (2) of the 1985 UNICTRAL Model Law on International
Commercial Arbitration. The 1996 English Arbitration Act has
adopted a similar rule at Sec. 46 (3), as has the 1997 German
arbitration statute (Article 1051 (2) ZPO). While requiring arbitrators
to apply a choice of law rule in order to determine the applicable law
to the merits of the dispute, this approach gives arbitrators absolute

35 See above at Section II (A).

 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 455

freedom over the choice of the specific choice of law rule they will
apply,36 the only constraint being to resort to such a rule as opposed
to selecting directly the applicable law.37
Rather than selecting at their entire discretion what they consider
to be the most appropriate rule, arbitrators having to resort to such
choice of law rules can follow two different approaches, known as
the “cumulative method” and the method of general principles of
private international law. Pursuant to the cumulative method,
arbitrators simultaneously consider all of the choice of law rules of all
legal systems with which the dispute in question is connected. If all of
these different choices of law rules point to the same substantive law,
the arbitrators will apply this law to the merits of the dispute.38 This
method has the merit of producing highly predictable results and
thereby respecting the parties’ expectations. However, its inherent
limits are evident in cases where the various choices of law rules of
the legal systems connected with the dispute lead to different results.
Another approach used by arbitrators to identify the conflict of
law rule to be applied is the method of general principles of private
international law. This involves finding common or widely-accepted
principles in the main systems of private international law, as will be
discussed below at Section IV (B) (1).

36 For a critical view, see Hans Smit, The Future of International Commercial

Arbitration: A Single Transnational Institution?, 25 COLUM. J. TRANSNATIONAL L. 9, 24

(1986), observing that such a rule “gives the arbitrator flexibility where it counts
least, for he is given the freedom to choose the choice of law rule he likes best, but
not the rule of substantive law he deems best suited to the occasion.”
37 On the direct choice method, see below at Section IV (A) (3).
38 Yves Derains, L’application cumulative par l’arbitre des systèmes de conflit de lois

intéressés au litige (A la lumière de la Cour d’Arbitrage de la Chambre de Commerce

Internationale), 1972 REVUE DE L’ARBITRAGE 99; Pierre Lalive, Les règles de conflit de
lois appliquées au fond du litige par l’arbitre international siégeant en Suisse, 1976 REVUE DE
L’ARBITRAGE 155; A.F.M. Maniruzzaman, Conflict of Law Issues in International
Arbitration: Practice and Trends, 9 ARB. INT’L 371, 387 et seq. (1993); Pierre Mayer,
Reflections on the International Arbitrator’s Duty to Apply the Law – The 2000 Freshfields
Lecture, 17 ARB. INT’L 235, 238 (2001); for references to arbitral case law applying
the cumulative method, see FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL
COMMERCIAL ARBITRATION, supra note 8, ¶ 1547.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

456 LEADING ARBITRATORS’ GUIDE

(2) The Swiss Method: Application of a Specific (but

Flexible) Choice of Law Rule of the Seat

The second method is for arbitrators to apply a choice of law rule

of the law of the seat of the arbitration which is specifically designed
to be applied in international arbitration matters. While arbitrators are
not bound to apply the ordinary choice of law rules of the seat of the
arbitration, as discussed above at Section II, a number of recent
arbitration statutes include choice of law rules specifically designed
for international arbitration. The prime example of this can be found
at Article 187 of the Swiss Private International Law Act of 1987,
which provides that in the absence of a choice of law by the parties,
the arbitral tribunal shall decide the case “according to the rules of
law with which the case has the closest connection.”39 Given the
flexibility of this rule, which in practice gives arbitrators virtually total
freedom to apply the law they favor, it escapes the criticism made of
the application of purely domestic choice of law rules in the context
of international arbitration.40 It is thus in practice very close to the
direct choice method.

(3) The Direct Choice Method

Finally, while the two methods described above grant arbitrators

broad discretion in determining the applicable law to the merits of
the dispute, the most liberal approach is to allow arbitrators to
choose directly the rules of law they consider to be appropriate for
the resolution of the dispute, without reference to choice of law rules.
The direct choice method (“voie directe”) has been adopted by a
number of modern national arbitration statutes, the foremost
examples being Article 1496 (1) of the French New Code of Civil
Procedure and Article 1054 (2) of the Netherlands Code of Civil
Procedure (introduced by the 1986 Netherlands Arbitration Act).
This method has gained enormous ground through its recent

39 For a very similar wording, see also Article 39 of Egyptian Law No. 27 of 1994.
40 For a discussion of these provisions, see Gaillard, supra note 30, at 208 et seq.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 457

adoption by the majority of the most widely used arbitrations

institutions including the AAA, the LCIA, the ICC and the
Stockholm Chamber of Commerce.41
In reality, the direct choice method is not a method at all, rather
an approach that grants the arbitrators the freedom to do as they like.
In exercising this freedom granted by a number of arbitration
statutes, arbitrators may decide to resort to choice of law rules, even
where they are not bound to do so, or they may choose—or even
invent—the rules to apply to the dispute in accordance with the
direct choice method. In practice, as discussed below, arbitrators will
often have recourse to the transnational rules approach.

B. Practical Approaches to the Determination of the Applicable Law by

the Arbitrators

In legal commentary, the three methods discussed above for the

determination of the applicable law by the arbitrators are typically
presented as distinct, contrasting approaches. In our view, however,
the three methods are merely three paths leading to the same result,
the freedom of the arbitrators to select the most appropriate
applicable law. This freedom can sometimes constitute a burden;
arbitrators are faced with the task of selecting the applicable rules of
law without clear guidelines for carrying out this duty. On a panel of
several arbitrators, the difficulty may well be amplified by the fact
that the arbitrators have varying legal backgrounds.
As a result, in practice, arbitrators frequently have recourse to the
transnational rules approach for guidance in their determination of
the applicable rules of law, be it transnational principles of private
international law to be applied to designate the governing law (1),
substantive transnational rules of law to apply to the merits of the
dispute (2), or general principles containing limitations to their choice
of law, i.e., principles of transnational public policy (3).

41 See, e.g., Article 28 (1) of the 1997 AAA International Arbitration Rules;

Article 22.3 of the 1998 LCIA Rules; Article 17 (1) of the 1998 ICC Rules; Section
24 (1) of the 1999 Rules of the Stockholm Chamber of Commerce.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

458 LEADING ARBITRATORS’ GUIDE

(1) Transnational Principles of Private International Law

As noted earlier at Section IV (A), arbitrators are frequently

confronted with the need to identify choice of law rules. In so doing,
arbitrators obviously cannot reinvent choice of law rules for each
individual case. Rather, through the analysis of arbitral (or State court)
case law concerning similar disputes, as well as the rules contained in
the numerous international conventions on private international law
and in national choice of law systems, arbitrators are able to identify
“general conflict rules” or “transnational principles of private
international law,” which they may then apply to the case at hand.42
The approach adopted by the arbitral tribunal in ICC Case
No. 707143 provides a clear illustration of the method of general
principles of private international law. The dispute in this arbitration
arose from two contracts for the design and sale of goods concluded
between a government agency of a Middle Eastern State and an
English company. The contract did not contain a choice of law by
the parties. As a preliminary question, the arbitral tribunal sitting in
The Hague had to decide which choice of law rules to apply in order
to determine the applicable law. Having rejected the application of
the domestic choice of law rules of either party and the choice of law
rules of the seat of the arbitration, the arbitral tribunal held that the
parties could have reasonably contemplated that the arbitral tribunal
would apply generally accepted principles of private international law.
The arbitral tribunal found that the applicable law under these
principles would be that of the country with the closest connection to
the contract, and held that this should be presumed to be “the law of
the place of the habitual residence of the party who is to effect the
characteristic performance of the contract, i.e. in the case of contracts
for the transfer of the title, the seller’s performance.” In reaching this
conclusion, the arbitral tribunal referred to the choice of law rules of

42 Generally on this topic, see for example Smit, supra note 36, at 23; for

examples of the application of such principles by ICSID Tribunals and by the Iran-
United States Claims Tribunal, see Maniruzzaman, supra note 38, at 389 et seq.
43 Interim Award of March 2, 1994, unpublished.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 459

Swiss, U.S., English and Australian law. It further referred to a

number of academic writings, to Article 3(1) of the 1955 Hague
Convention on the Law Applicable to the International Sale of
Goods and to Article 4 of the Rome Convention on the Law
Applicable to Contractual Obligations. Finally, while expressly stating
that it was not bound to follow as precedent other awards made
under the ICC Rules, the arbitral tribunal referred to “support” for its
findings in two previous ICC awards.44
A similar comparative analysis was undertaken by the arbitral
tribunal in ICC Case No. 6149.45 The arbitral tribunal, having its seat
in France, had to determine the applicable law to a series of sales
contracts between a Korean seller and a Jordanian buyer. The
defendant had further contracted to deliver the goods to a buyer in
Iraq. In this case, the arbitral tribunal relied on general principles of
private international law in two respects. First, referring to French,
English, German, and U.S. choice of law rules, as well as to Article 10
(1) of the 1980 Rome Convention on the Law Applicable to
Contractual Obligations, the arbitrators extended the scope of the
applicable law to all matters directly or indirectly related to the
contract, irrespective of their legal nature. Having determined the
scope of the applicable law in this way, the arbitral tribunal further
referred to transnational rules of private international law for the
determination of the applicable law to the contract, and decided that:

The other set of conflict of law rules regarded to be “appropriate” in

the sense of the said Article [13.3 of the ICC Rules of Conciliation
and Arbitration], materializes in the general principle of conflicts of
law that the substantive law most closely connected with the contract
should be applied and that the ‘home law’ of the seller is such
substantive law.

44 The arbitral tribunal referred to ICC Case No. 4996 (1985), 113 JOURNAL

DU DROIT INTERNATIONAL 1131 (1986), and Y. Derains’ note, and to ICC Case
No. 5713 (1989), XV Y.B. COM. ARB. 70 (1990).
45 Interim Award of 1990, COLLECTION OF ICC ARBITRAL AWARDS 1991–

1995, at 315 (J.J. Arnaldez, Y. Derains, D. Hascher eds., 1997).

 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

460 LEADING ARBITRATORS’ GUIDE

The arbitral tribunal made its determination of the applicable law

based on both the common principles of choice of law set out in the
legal systems most closely connected with the contracts at issue
(Korea, Jordan, Iraq and France), and “some other general principles
prevalent in modern conflict of laws,” notably found in the 1955
Hague Convention on the Law Applicable to International Sales of
Goods and the 1980 Rome Convention on the Law Applicable to
Contractual Obligations. The arbitral tribunal thus applied both the
cumulative method and method of general principles of private
international law to reach the conclusion that Korean law should
apply to the dispute.
The application of transnational choice of law principles is not
restricted to cases where the arbitrators’ task is to determine the
applicable law on the basis of choice of law rules. Arbitrators tend
to adopt a very similar approach in cases where their mandate is to
determine directly the substantive law to be applied, for instance
pursuant to the direct choice method. The same is true where
arbitrators have to determine the law which has the “closest
connection” with the dispute at hand. In order to perform their
task, in all these cases, they tend to apply, either expressly or
implicitly, generally accepted principles of private international
law.46 The true alternative to this method is for the arbitrators to
directly choose the rules of law to be applied to the dispute, which
may be substantive principles of transnational law, without
reference to choice of law rules.

(2) Substantive Principles of Transnational Law

Modern arbitration statutes and institutional rules frequently

provide that when directly determining the governing law, arbitrators
may choose transnational rules of law to apply to the merits of the
dispute. Similarly to the application of transnational choice of law
principles, this will involve deriving the solution to the legal issue at

46 See Lalive, supra note 38; ANDREAS BUCHER, LE NOUVEL ARBITRAGE

INTERNATIONAL EN SUISSE ¶ 249 (1988); Gaillard, supra note 30, at 218.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 461

hand from a comparative law analysis taking into account national

legal systems, arbitral case law, international conventions on
arbitration and compilations of general principles of law such as the
UNIDROIT Principles of International Commercial Contracts.
The issue of the validity of the choice of transnational rules as
governing law has been discussed at great length in legal writing and in
the case law of both arbitral tribunals and domestic courts. The debate
is no longer of any real practical importance, at least in the numerous
jurisdictions that permit arbitrators to select as governing law the
“rules of law,” as opposed to the “law” that they deem appropriate, in
the absence of a choice of law by the parties. This will be the case for
example where the arbitrators are acting under the French, Swiss or
Dutch arbitration statutes,47 as opposed to English or German law48 or
other arbitration statutes following the example of the UNCITRAL
Model Law. However, even arbitrators sitting in England or Germany
may choose to apply “rules of law,” and thus potentially general
principles of law, when the arbitration rules chosen by the parties have
enlarged the scope of the arbitrators’ options by granting them the
freedom to apply “rules of law,” as do the 1998 ICC Rules (Article 17
(1)), the 1998 LCIA Rules (Article 22.3) or the 1997 AAA International
Arbitration Rules (Article 28 (1)).49
The application of transnational rules of law to the merits of a
dispute can be particularly helpful as a means to overcome a situation
of stalemate in cases where two or more legal systems are equally
closely connected to the dispute, but lead to significantly different
results. One of the earliest and best-known examples of such
recourse to transnational rules is the decision of the arbitral tribunal
in the Norsolor arbitration.50 The dispute in this case arose over an

47 See Art. 1496 of the French New Code of Civil Procedure; Art. 187 (1) of

the Swiss Private International Law Statute; Art. 1054 (2) of the Netherlands Code
of Civil Procedure.
48 See Sec. 46 (3) of the 1996 English Arbitration Act; Art. 1051 (2) of the

German ZPO (Law of December 22, 1997).

49 See Gaillard, supra note 34 at 59.
50 Oct. 26, 1979 Award in ICC Case No. 3131, Pabalk Ticaret Limited Sirketi v.

Norsolor S.A., by Messrs. Cremades, Chairman, Ghestin and Steiner, arbitrators,

 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

462 LEADING ARBITRATORS’ GUIDE

agency agreement entered into between the French claimant and the
Turkish defendant. The seat of the arbitration, designated by the ICC
Court of Arbitration, was Vienna. In the absence of a choice of law by
the parties, the arbitral tribunal found that both Turkish and French
law were connected with the dispute, with no compelling reason to
prefer either law to the other. The arbitral tribunal therefore decided
not to apply any national law at all, but instead to decide the dispute on
the basis of generally accepted principles of law:

Faced with the difficulty of choosing a national law the application

of which is sufficiently compelling, the Tribunal considered that it
was appropriate, given the international nature of the agreement, to
leave aside any compelling reference to a specific legislation, be it
Turkish or French, and to apply the international lex mercatoria.

Another advantage of transnational principles is to avoid the

application of a domestic law connected to the dispute, but which
contains idiosyncratic rules of law that clearly run against the
international consensus on a specific point and would be unlikely to
meet the legitimate expectations of the parties. To find examples for
such rules, it is not necessary to look so far as the legal systems of
developing nations. Entirely unexpected and atypical rules continue
to exist in many systems of law that are generally regarded as very
advanced. For example, until quite recently, French law distinguished
itself from most other legal systems of the world by considering
distribution agreements to be null and void if they did not contain a
clause determining the price of goods to be sold in subsequent sales
contracts.51 While the existence of this rule in French law may have
been justified in a domestic context, it was entirely unpredictable—

1983 REVUE DE L’ARBITRAGE 525; for an English translation of excerpts, see IX

Y.B. COM. ARB. 109–10 (1984).
51 For a detailed discussion of the French law on this issue, see for example

MARTINE BEHAR-TOUCHAIS AND GEORGES VIRASSAMY, TRAITÉ DES CONTRATS –

LES CONTRATS DE DISTRIBUTION 108 et seq. (1999). In 1995, the French Supreme
Court reversed its case law to allow the master distributorship agreement not to
determine the price in most circumstances.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 463

and arguably unreasonable—to have the rule prevail in international

situations.52 Understandably, arbitrators were reluctant to apply this
rule of French law in international arbitrations. Thus, for instance, in
the Valenciana arbitration, another famous example of the application
by an arbitral tribunal of transnational principles of law to the merits
of the dispute, the sole arbitrator applied transnational rules rather
than the otherwise closely connected French law, presumably in
order to avoid having to annul the contracts in dispute on the basis
of this idiosyncratic rule of French law.53 In the Franco-Portuguese
example discussed above at Section I, the application of general
principles of law—permitting the parties to agree to limitations of
liability as accepted in most countries—would also have led to a more
predictable result than that of the peculiar provisions of Portuguese
law in this respect.54
While substantive principles of transnational law are admittedly
by no means always the appropriate solution, in a number of
circumstances the application of general principles of law will enable
the dispute to be decided on the basis of rules of law that meet the
parties’ legitimate expectations.

(3) Transnational Public Policy Principles

A final area where in practice arbitrators often refer to

transnational rules is the identification of public policy principles that
set limits to the law applicable to the merits of the dispute. This is of
particular relevance, given that an arbitral award can be set aside or
denied recognition and enforcement if it is contrary to international

52 See Pierre Mayer, L’arbitre et la loi, in LE DROIT PRIVÉ FRANÇAIS À LA FIN DU

XXE SIÈCLE – MÉLANGES PIERRE CATALA 225, 236 (2001).
53 Sept. 1, 1988 Partial Award in ICC Case No. 5953, Primary Coal Inc. (USA) v.

Compania Valenciana de Cementos Portland, by Xavier A. de Mello, sole arbitrator, 1990

REVUE DE L’ARBITRAGE 701.
54 For a commentary on this award, see Emmanuel Gaillard, General Principles of

Law: More Predictable After All?, N.Y.L.J., Dec. 6, 2001.

 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

464 LEADING ARBITRATORS’ GUIDE

public policy. This rule is stated in most national arbitration statutes55

and international conventions, most significantly at Article V
para. 2(b) of the 1958 New York Convention, which provides for the
review of the conformity of an award with the public policy of the
country in which recognition or enforcement are sought. The classic
examples of international public policy matters are cases involving
corruption, customs offences, embargo, apartheid, drug trafficking
and antitrust violations.56
The application of public policy rules is yet another area where
the difference between arbitral tribunals and domestic courts has
important practical consequences. State courts, in the context of
actions to set aside or to recognize or enforce an arbitral award, apply
their own understanding of what forms the requirements of
international public policy. Their task is to ensure that the award at
issue is in accordance with such an understanding. Arbitrators, on the
other hand, have no forum and are therefore free—and in fact
obliged—to apply transnational or genuinely international principles
of public policy, these principles being derived from the comparison
of the fundamental requirements of various domestic legal systems
and from public international law.57
Admittedly, arbitrators must also bear in mind their duty to
render an award that is unlikely to be set aside at the seat of the
arbitration and that will be recognized in the various jurisdictions of

55 See, e.g., Arts. 1502 (5) and 1504 of the New French Code of Civil

Procedure; Art. 190 (2)(e) of the Swiss Private International Law Statute. Compare
Art. 34 (2)(b)(ii) of the UNCITRAL Model Law or Sec. 68(2)(g) of the 1996
English Arbitration Act, which refer to “public policy.”
56 See, however, the refusal in two awards made in Switzerland in 1990 and

1993 to allow European antitrust law to prevail over Swiss law and the amiable
composition agreed by the parties (ICC Cases Nos. 6503 and 7097, ICC BULLETIN
SPECIAL SUPPLEMENT, INTERNATIONAL COMMERCIAL ARBITRATION IN EUROPE
38 (1994)). For the position of the Swiss Federal Tribunal in this respect, see also
supra note 26. For an endorsement of this concept in England, see the House of
Lords decision in Kuwait Airways Corp. v. Iraqi Airways Cy, [2002] UKHL 19, at 115.
57 See Lalive, supra note 12; Lambert Matray, Arbitrage et ordre public transnational, in

THE ART OF ARBITRATION – ESSAYS ON INTERNATIONAL ARBITRATION – LIBER

AMICORUM PIETER SANDERS 241 (J. Schultz and A.J. van den Berg, eds., 1982).
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 465

potential enforcement. Article 35 of the 1998 ICC Rules of

Arbitration explicitly instructs the arbitral tribunal to “make every
effort to make sure that the Award is enforceable at law.”
Accordingly, arbitrators must consider the requirements of
conformity with the international public policy of the seat of the
arbitration and of the various states in which the award is likely to be
enforced. However, as compared to their duty to ensure that the
requirements of genuinely international public policy are satisfied,
this plays only a secondary role.
In most cases, the rules of international public policy of a given
national legal system will be in conformity with transnational or
genuinely international principles of public policy. If, however, this is
not the case, the latter rules must prevail; only this result is in keeping
with the nature of international arbitration and with the fact that
arbitrators are not directly linked to any national legal system. While
limited arbitral case law exists on this issue, the decision in ICC Case
No. 469558 provides one example. In this case, the defendant had
contended, on the basis of Article 26 of the 1988 ICC Rules of
Arbitration (the equivalent of Article 35 in the 1998 Rules) that, as a
matter of Brazilian public policy, any award made by the arbitral
tribunal in the absence of a full submission agreement or a formal
submission by the defendant to the arbitral tribunal’s jurisdiction,
would not be enforceable in Brazil. The arbitral tribunal rejected this
argument, finding that:

In this case there may be difficulties, perhaps not insuperable, in the

enforcement of this tribunal’s award, in some national jurisdictions.
[…] But if the tribunal finds, as it does, that it has jurisdiction, it
cannot fail to exercise it. Otherwise, it would be concurring in a
failure to exercise its jurisdiction and could even be accused of a
denial of justice.

58Award rendered in 1984 by Messrs. E. Jiménez de Aréchaga, K.H.

Böckstiegel, and J.H. Pickering, XI Y.B. COM. ARB. 149 (1986).
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

466 LEADING ARBITRATORS’ GUIDE

The arbitrators’ duty to render an enforceable award may also

lead to conflicts in cases where the applicable law chosen by the
parties clashes with the international public policy of a State where
the award is likely to be enforced, or with transnational public policy
rules. For example, an arbitral tribunal could find itself faced with a
dispute over a petroleum concession to be decided under a law
which, as a matter of public policy, considers such concessions to be
null and void. Before automatically applying the law selected by the
parties, the arbitrators should seek to determine the transnational
public policy principle in this respect. If the public policy rule of the
governing law chosen by the parties is not in conformity with
transnational public policy, the arbitrators are entitled to disregard the
rule and instead apply the transnational public policy rule.59 The
arbitrators would thus in principle declare the petroleum concession
at issue to be valid and binding, despite the public policy rule of the
law applicable to the merits of the dispute.
It goes without saying that to disregard the law chosen by the
parties is a drastic measure which arbitrators are, in practice, very
reluctant to exercise.60 However, it is essential that arbitrators have
the courage to disregard the applicable law, if this law would be in
conflict with fundamental transnational principles of public policy or
with the arbitrators’ own fundamental conception of the essential
requirements of justice, for in such cases the principle of party
autonomy cannot be deemed to prevail. Without the option to
disregard at least certain rules of the law chosen by the parties,
arbitrators would not be in a position to fulfill their obligation to

59 See JEAN-BAPTISTE RACINE, L’ARBITRAGE COMMERCIAL INTERNATIONAL

ET L’ORDRE PUBLIC ¶¶ 628 et seq. (1999).

60 See Ibrahim Fadlallah, L’ordre public dans les sentences arbitrales, in COLLECTED

COURSES OF THE HAGUE ACADEMY OF INTERNATIONAL LAW, Vol. 249, Year

1994, Part V, at 369 (1994); Arthur T. von Mehren, Limitations on Party Choice of the
Governing Law: Do they Exist for International Commercial Arbitration? 13 (The Mortimer
and Raymond Sackler Institute of Advanced Studies, Tel Aviv, 1986); Mayer, supra
note 38, at 246; see also the refusal in two awards made in Switzerland in 1990 and
1993 to allow European antitrust law to prevail over Swiss law and the amiable
composition agreed by the parties, supra note 56.
 This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com

DETERMINING THE APPLICABLE LAW 467

render an enforceable award meeting the requirements of

international public policy.61

V. CONCLUSION

When the parties are silent as to the governing law, a number of

legal systems and the major institutional arbitration rules now give
the arbitrators virtually unfettered discretion to determine the
applicable rules of law. Freed from the duty to apply the choice of
law rules of the seat of the arbitration, the arbitrators are also not
required to apply the mandatory rules of the seat. They may choose
one of several methods to assist them in identifying the applicable
law, although these methods are all simply variations on the
arbitrators’ freedom to choose the applicable law. In practice, the
arbitrators will choose the law they consider most suitable, and
provide the motivation for their choice in the award. In so doing, the
arbitrators will often have recourse to transnational principles of
private international law to aid them in their selection, unless they
decide to have recourse to substantive principles of transnational law.
The only overriding requirements that may limit the freedom of the
arbitrators are those of genuinely international public policy.
The freedom granted to the arbitrators in their choice of law by
modern arbitration statutes and institutional rules is an important
component of the ongoing movement in international arbitration
towards a uniform transnational mechanism for resolving
international disputes, in which local idiosyncrasies are minimized.

61 Support for this view may be found in Article 2 of the Resolution on

Arbitration Between States, State Enterprises or State Entities, and Foreign
Enterprises adopted by the Institute of International Law, which provides that “[i]n
no case shall an arbitrator violate principles of international public policy as to
which a broad consensus has emerged in the international community.” Resolution
adopted on September 12, 1989 in Santiago de Compostela, XVI Y.B. COM. ARB.
236, 238 (1991).
This chapter is from The Leading Arbitrator’s Guide Second Edition
© JurisNet, LLC 2014 www.arbitrationlaw.com