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International Commercial Arbitration: The Conflict of Laws Issues in Determining the Applicable Substantive Law in the Context of Investment Agreements

Published online by Cambridge University Press:  21 May 2009

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The parties to an investment agreement, i.e., a State or its controlled enterprise and a foreign private entity, often fail to reach an agreement as to the substantive law applicable to any dispute that may arise during the course of their contractual relationship. Sometimes, such disagreement occurs owing to the conflicting interests of the parties. As a distinguished jurist has aptly put it:

‘While the host State is primarily interested in subjecting foreign investments to its national legal system because it wishes to retain the fullest legislative freedom in pursuance of its national economic policies, the foreign investor is primarily interested in excluding the application of the law of the host State because he fears that the host State may use its sovereign legislative power to change the legal environment to the detriment of his investment.’

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Copyright © T.M.C. Asser Press 1993

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References

1. See generally, Transnational Corporations, Vol. I, No. 1, UN Publications (1992);Google ScholarCampbell, D., ed., The Transnational Person: Private Rights in the International Business Community (1992).Google Scholar

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3. In this article ‘conflict of laws'and ‘private international law’ have been used interchangeably, so have ‘conflict of laws’ and ‘conflicts of law’.

4. The terms ‘delocalization’ and ‘denationalization'used in this article are interchangeable.

5. As adopted by the UN Commission on International Trade Law on 21 June 1985.

6. Art. 28(2) of the Model Law on International Commercial Arbitration provides that: ‘Failing any designation (of law applicable to the substance of the dispute) by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable’. See 2 Arbitration Int. (1986) p. 11, at p. 18, also in Redfern, A. and Hunter, M., Law and Practice of International Commercial Arbitration, 2nd edn. (1991) App. 21, p. 798, at p. 806, pp. 508527;Google Scholar see also Herrmann, G., ‘UNCITRAL Adopts Model Law on International Commercial Arbitration’, 2 Arbitration Int. (1986) p. 2;CrossRefGoogle ScholarHerrmann, G., ‘The UNCITRAL Model Law – Its Background, Salient Features and Purposes’, 1 Arbitration Int. (1985) p. 6.CrossRefGoogle Scholar

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15. Böckstiegel, , op. cit. n. 14, at p. 23;Google Scholar see also Böckstiegel, , ‘Arbitration between States and Private Enterprises in the International Chamber of Commerce’, 59 AJIL (1965) p. 579;Google Scholar Panel (I), ‘Arbitration between Governments and Foreign Private Firms’, Proc. Am. Soc. Int. L. (April 28, 1961) p. 69; Spofford, C.M., ‘Third-Party Judgment and International Economic Transactions’, 113 Hague Recueil (1964-III) p. 121;Google ScholarMann, F.A., ‘State Contracts and International Arbitration’, 42 BYIL (1967) p. 1;Google ScholarKetcham, W.T. Jr, ‘Arbitration between a State and a Foreign Private Party’, in Symposium, Rights and Duties of Private Investors Abroad (1965) p. 403;Google ScholarRay, G.W. Jr, ‘Law Governing Contracts between States and Foreign Nationals’, in the 1960 Proceedings of the Institute on Private Investment Abroad, p. 5;Google ScholarBroches, A., ‘Choice of Law Provisions in Contracts with Governments’, 26 Record of the Assoc. of the Bar of the City of NY (1971) p. 42,Google ScholarLalive, J.-F., ‘Contracts between a State or State Agency and a Foreign Company’, 13 ICLQ (1964) p. 987;CrossRefGoogle ScholarOlmstead, C.J., ‘Economic Development Agreements, Part II: Agreements between States and Aliens; Choiceof Law and Remedy’, 49 California LR (1961) p. 504;CrossRefGoogle ScholarSuratger, D., ‘ConsiderationsAffecting Choice-of-Law (Clauses in Contracts between Governments and Foreign Nationals’, 2 IJIL (1962) p. 273;Google ScholarBaloro, J., ‘The Legal Status of Concession Agreements in International Law’, 19 Comp. & ILJ of SA (1986) p. 410;Google ScholarHassan, M.M., ‘State and International Commercial Arbitration’, Revue Hellénique (19891990) pp. 315339;Google ScholarBouchez, L.J., ‘The Prospects for International Arbitration: Disputes between States and Private Enterprises’, in Soons, A.H.A., ed., International Arbitration: Past and Prospects (1990)Google Scholar with comments on it by Jaenicke, G.J., on p. 155;Google ScholarSimmons, K.R., ‘International Arbitration between States and Corporate Entities: A Cautionary Note’, in Lew, J.D.M., ed., Contemporary Problems in International Arbitration (1986) p. 273;Google Scholar P. Lalive, ‘Arbitration with Foreign States or State Controlled Entities: Some Practical Questions’, ibid. p. 289; J.P. Carver, ‘The Strengths and Weaknesses of International Arbitration Involving a State as a Party: Practical Implications’, ibid. p. 264; A.H. Herrmann, ‘Dispute between State and Foreign Companies’, ibid. p. 250; Westberg, J.A., ‘The Applicable Law Issue in International Business Transactions with Government Parties – Rulings of the Iran-United States Claims Tribunal’, 2 ICSID Rev. (1987) p. 473;CrossRefGoogle ScholarCrook, J.R., ‘Applicable Law in International Arbitration: The Iran-US Claims Tribunal Experience’, 83 AJIL (1989) p.278;CrossRefGoogle ScholarEisemann, P., Report on the Present Situation of International Commercial Arbitration Between State or State Enterprises (1975)Google Scholar (paper presented to the Fifth International Arbitration Congress, New Delhi); Domke, M., ‘The Israeli-Soviet Oil Arbitration’, 53 AJIL (1959) p. 708;CrossRefGoogle ScholarDomke, M., ‘Arbitration between Governmental Bodies and Foreign Private Finns’, 17 Arbitration J. (NS) (1962) p. 129;Google ScholarBroches, A., ’Choice of Law Provision in Contracts with Governments’, in Reese, W.L.M., ed., International Contracts: Choice of Law and Language (1962) p. 64;Google ScholarBoggiano, A., Contratos Internacionales (1990).Google Scholar

16. Government of Kuwait v. American Independent Oil Co. (1984) 66 ILR 560 (6), 561 (8);Google ScholarDelaume, G.R., ‘State Contracts and Transnational Arbitration’, 75 AJIL (1981) p. 784, at p. 802.CrossRefGoogle Scholar

17. See generally, Klein, F.-E., ‘The Law to be Applied by the Arbitrator to the Substance of the Dispute’, in Schultszand, J.C.van den Berg, A.J., eds., The Art of Arbitration (1982) p. 189.Google Scholar

18. See S.P.P., (Middle East) Ltd. et al. v. Arab Republic of Egypt, 22 ILM (1983) p. 752,Google Scholar at p. 769 para. 49; see also ICC Award (16 June, 1960), Arb. Rechtspraak, 1960, 281 (in English); Ad hoc Arb. Award (15 August, 1957), Arb. Rechtspraak, 1959, p. 243 (in Dutch); Arb. Court ofthe Bulgarian Chamber of Commerce, Award 21/56, 1/ 56, 5/55, 2/56, 16/56, 10/56, 17/56, 9/56, 67/64, reported in Journal de droit international (1967) pp. 171 et seq. and p. 175. See the Final Award in ICC Case No. 6268 of 18 May 1990,16 YB Comm. Arb. (1991) p. 119, at pp. 120–122.

19. See S.P.P.(Middle East) Ltd. et al. v. Arab Republic of Egypt 22 ILM (1983) p. 752, at p. 769,Google Scholar para. 49, in favour ofthe lex loci solutionis; see also Petroleum Development Ltd. v. Sheikh of Abu Dhabi (1951) 18 ILR p. 144;Google Scholar ICC Arbitration No. 1472, Award 196S, in Revue de l‘arbitrage (1973) p. 141.

See also Foreign Trade Arbitration Commission, Moscow: Award 4 May 1957 Necton S.A. (Belgium) v. Prodintorg, Collected Arbitration cases FTAC No. 61, also in Journal du droit international (1960) p. 880;Google Scholar see also Collected Arbitration Cases FTAC (4 vols, covering 1934–1965) Nos. 18, 29, 34, 36, 40, 44–46, 50, 52–54, 56, 60, 62, 68, 75–78, 125, 131.

See the Interim Award in ICC Case No. 6560 of 1990, 17 YB Comm. Arb. (1992) pp. 226–229; see also the Final Award in ICC Case No. 6283 of 1990, 17 YB Comm. Arb. (1992) p. 178, at p. 179.

20. See the Interim Award in ICC Case No. 6560 of 1990, 17 YB Comm. Arb. (1992) pp. 226–229; see also the Final Award in ICC Case No. 6283 of 1990, 17 YB Comm. Arb. (1992) p. 178, at p. 179.

21. See the Final Award in ICC Case No. 5885 of 1989, 16 YB Comm. Arb. (1991) p. 92; see also the Hague Convention on the Law Applicable to International Sales (1955) Art. 3(1).

22. ICSID Convention of 1965 Art. 42(1).

23. Sapphire International Petroleum Ltd. v. National Iranian Oil Co. (1963), 35 ILR p. 171;Google ScholarSaudi Arabia v. Arabian American Oil Co. (1959), 27 ILR p. 165, at p. 166;Google ScholarRevere Copper and Brass Inc. v. Overseas Privatelnt. Corp. (1978), 56 ILR p. 294;Google Scholar for other possibilities see 18 Int. Lawyer, (1984) p. 245, at pp. 255256; Ann. IDI (1979–11) p. 281Google Scholar, Arts. 1 and 2.

Reese, W.L.M., ’Dépaçage: A Common Phenomenon in Choice of Law’, 73 Columbia LR (1973) p. 58:CrossRefGoogle ScholarDépeçage can be defined broadly to cover all situations where the rules of different States are applied to govern different issues in the same case. It can be defined more narrowly to be present only when the rules of different States are applied to govern different substantive issues, and most restrictive definitions would confine the term to situations where by applying the rules of different States to different issues a result is reached which could not be obtained by exclusive application of the law of any one of the States concerned’.

24. See Dicey and Morris on the Conflict of Laws, 10th edn. (1980) vol. 2, at p. 1127;Google ScholarSassoon, D.M., ‘Choice of Tribunal and the Proper Law of the Contract’, J. Bus. L. (1964) p. 18;Google ScholarCollins, L., ‘Arbitration Clauses and Forum Selecting Clauses in the Conflict of Laws: Some Recent Developments in England’, 2 J. Mar. L. & Comm. (1971) p. 363.Google Scholar

25. 47(2) Ann. IDI (1957) p. 491, at p. 496.

26. See 48(2) Ann. IDI (1959) at p. 264.

27. Mann, F.A., ‘The Theoretical Approach Towards the Law Governing Contracts between States and Private Foreign Persons’, 11 Revue Beige (1975) p. 562, at p. 565.Google Scholar See also Mann, , ‘Lex Facit Arbitrum’, in Sanders, P., ed., International Arbitration: Liber Amicorum for Martin Domke (1967) p. 157, at pp. 159160.Google Scholar See the observations of Mann in 63(1) Ann IDI (1989) p. 173; Graveson, R.H., Conflict of Laws, 7th edn. (1974) p. 57.Google Scholar But see ‘The UNCITRAL Model Law – Lex Facit Arbitrum’ – The Notes Editors, 2 Arbitration Int. (1986) no. 3, pp. 241–261.

28. In many awards arbitrators relied on the rules of lex fori. See, for instance, the Sapphire award, 35 ILR at p. 171;Google ScholarAlsing Trading Co. Ltd. and Svenska Tandsticks Aktiebolaget v. Greece (Award of 22 December 1954), 23 ILR p. 633,Google Scholar at p. 637. Cf., BP. v. Libya, 53 ILR p. 309,Google Scholar at pp. 326–27; The Government of Kuwait v. Aminoil, 66 ILR at p. 560.Google Scholar

29. In the Economic Commission for Europe (ECE), the negotiatorsof the European Convention on International Commercial Arbitration 1961 rejected the Institut's position and adopted an alternative approach that has gained a wide following. According to the Convention, arbitrators have wide discretion as to the applicable conflict of laws to determine the proper law when such a provision to this effect is absent in the contract. See Art. VII(I) of the European Convention on International Commercial Arbitration 1961,484 UNTS 364, reprinted in Brower, C. and Marks, L., eds., International Commercial Arbitration (1983) p. 215.Google Scholar See also Art. 13(3) of the ICC Arbitration Rules, 28 ILM (1989) p. 231; Art. 33 of the UNCITRAL Arbitration Rules and Art. 28 of UNCITRAL's 1985 Model Law on International Commercial Arbitration, 15 ILM (1976) p. 701, and 24 ILM (1985) at p. 1302, respectively.

30. Batiffol has stressed the contrast between State judges, who are bound by the conflict rules of their State, and international arbitrators, who are not rendering justice in the name of any State. See Batiffol, H., ‘L'arbitrage et les conflits de lois’, Revue de l'arbitrage (1957) p. 111;Google Scholar ICC Award No. 1250 of May 1954, 5 YB Comm. Arb. (1980) p. 168; see also Holleaux, in Revue de l'arbitrage (1964) p. 134;Google ScholarCarlston, K.S., ‘PsychologicalandSociologicalAspectsoftheJudicialand Arbitration Processes’, in Sanders, , ed., op. cit. n. 27, p. 44;Google Scholar I.N.D. Wallace, Q.C., ‘Control by the Courts: A Plea for More, Not Less’, 6 Arbitration Int. (1990) no. 3, p. 253

31. See the Kuwait v. Aminoil arbitration case, Aminoil Counter-Memorial (5 January 1981), vol. I (Text), Pleadings, Book 4, pp. 103–111, para. 226 et seq. [The Pleadings are available at the Research Centre for International Law, University of Cambridge, UK].

32. See Böckstiegel, K.-H., The Legal Rules Applicable in International Commercial Arbitration Involving States or State-ControlledEnterprises (1982) p. 52;Google ScholarLew, J., Applicable Law in International Commercial Arbitration (1978) pp. 252253;Google Scholar see also Nusaire, Y.A.M., International Arbitration: the Place and the Stages of Arbitration (thesis, C.P.M.L.S., University of Dundee, 1987).Google Scholar

33. Böckstiegel, , op. cit. n. 14, at p. 27.Google Scholar

34. S.P.P. (Middle East) Ltd. et al. v. Arab Republic of Egypt, 22 ILM (1983) p. 752, at p. 769,Google Scholar para. 49. Cf., ICC Arbitration award 16 June 1960, Arb. Rechtspraak, 1960, p. 281 (in English); Ad hoc Arbitration award 15 August 1957; Arb. Rechtspraak, 1959, p. 243 (in Dutch); Arbitration court of the Bulgarian chamber of commerce awards 21/56, 1/56,5/55,2/56, 16/56, 10/56,17/56, 9/56, 67/64 as reported by Kojouharoff, in Journal du droit international (1967) p. 171 et seq, and p. 175;Google Scholar Foreign Trade Arbitration Commission, Moscow: Award of 4 May 1957, NectionS.A. (Belgium))v. Prodintorg; see Collected Arbitration cases FTAC No. 61, also published in Journal du droit international (1960) p. 880;Google Scholar see Collected Arbitration cases FTAC (four vols. covering 1934–1965) Nos. 18, 29, 34, 36, 40, 44–46, 50, 52–54, 56, 60, 62, 68, 75–78, 125, 131; ICC Arb. No. 1472 Award 1968, see Revue de l'arbitrage (1973) p. 141;Google Scholar see also Hober, K., ‘Arbitration in Moscow’, 3 Arbitration Int. (1987) no. 2, pp. 119163.CrossRefGoogle Scholar

35. See Saudi Arabia v. Aramco (1959), 27 ILR p. 117, at pp. 166, 167;Google ScholarPetroleum Development Ltd. v. Sheikh ofAbu Dhabi (1951), 18 ILR p. 144, at p. 149;Google Scholar see also Kuwait v. Aminoil, the Government's Memorial (May 1980), Pleadings, Bk. 3, paras. 3.35–3.37, at pp. 59–60.

36. This is also known as the ‘Centre of gravity’ or ‘most significant contacts’ theory of the contract conflict of laws.

37. Clarke, M.A., The Law of Insurance Contracts (1989) at p. 23.Google Scholar

38. The Resolution ‘The Proper Law of the Contract in Agreements between a State and a Foreign Private Person’ of the Institut de Droit International (adopted by the Institut at its Athens Session, September 4–13, 1979), 58 Ann. IDI (1979) pp. 193, 195 (Arts. 1 and 5).Google Scholar

39. Idem.

40. [1949] 1 KB p. 482, at pp. 490, 491.

41. In re United Railways of Havana & Reg la Warehouses Ltd. [1961] AC p. 1007, at p. 1068.

42. [1951] AC 201, 219; see also Tomkinson v. First Pennsylvania Banking and Trust Co. [1961] AC 1007;Google ScholarRossano v. Manufacturers Life Insurance Co. Ltd. [1963] 2 QB 352, per McNair, J.Google Scholar

43. Mann, F.A., ‘The Proper Law of the Conflicts of Law’, 36 ICLQ (1987) p. 437, at pp. 437438:CrossRefGoogle Scholar ‘The expression “the proper law” is peculiarto the law of England and the Commonwealth. It does not seem to be usual in the United States and it means little, if anything to a Continental lawyer, for it makes sense only in an uncodified system of law. Taken literally, the term simply denotes the appropriate legal system. It says nothing about the all-important question how you find that system, how you identify it. There is, however, room for the impression that if you ask an English lawyer for a definition he will go a little further and mention the legal system with which the matter in issue is closely or, perhaps, most closely connected. John Morris certainly used the phrase in this sense’.

See also Dicey and Morris on The Conflict of Laws, vol. 2, 11th edn. (1987) pp. 11901197:Google Scholar ‘When the intention of the parties to a contract with regard to the law governing it is not expressed and cannot be inferred from the circumstances, the contract is governed by the system of law with which the transaction has its closest and most real connection’. Rule 145 sub-rule 3, ibid.; Graveson, R.H., ‘The Proper Law of Commercial Contracts as Developed in the English Legal System’, in Lectures on the Conflict of Laws and International Contracts (1949),Google ScholarSummer Institute on International and Comparative Law: University of Michigan Law School (1951) pp. 133;Google ScholarCarter, P.B., ‘Contract in English Private International Law’, 57 BYIL (1986) p. 1;Google ScholarNorth, P., Private International Law Problems in Common Law Jurisdictions (1993) p. 103 et seq.Google Scholar

44. 80/934/EEC, Official Journal of the European Communities (1980) L. 266.Google Scholar The Convention entered into force on 1 April 1991 in France, Italy, Denmark, Luxembourg, Greece, Germany, Belgium and the UK: ibid. (1991) C. 52/1. See also generally, Plender, R., The European Contracts Convention: The Rome Convention on the Choice of Law for Contracts (1991);Google ScholarNorth, P. M., Contract Conflicts (1982);Google ScholarJayme, E., ‘The Rome Convention on the Law Applicable to Contractual Obligations (1980)’, in Šarčević, , ed., op. cit. n. 14, p. 36.Google Scholar

45. Restatement (2nd) S. 188 (1971).Google Scholar See also Leflar, R., American Conflicts Law, 3rd edn. (1977) pp. 306309;Google ScholarWrood, P., Law and Practice of International Finance (1980) p. 12.Google Scholar RecentNew York cases have followed the rule that a contractual provision setting forth the law applicable to the agreement in question will be followed so long as the transaction bears a reasonable relationship to the law chosen or, more precisely stated, to the jurisdiction whose law is chosen. See A.S. Rampell Inc. v. Hyster Co. 3 N.Y. 2d 369, 144 N.E. 2d 371, 165 N.Y.S. 2d 475 (1957); Reger v. Nat‘l Ass'n of Bedding Manufacturers Group Insurance Trust Fund, 83 Misc. 2d 327, 372 N.Y.S. 2d. 97 (Sup. Ct. Westchester County 1975); Fleischmann Distilling Corp. v. Distillers Co. Ltd. 395 F. Supp. 221 (S.D.N.Y. 1975); B.M. Heede Inc. v. West India Machinery and Supply Co. 272 F. Supp. 236 (S.D.N.Y. 1967); General Electric Co. v. Masters Mail Order Co. 244 F. 2d 681 (2d Cir.), Cert, denied, 355 U.S. 824 (1957). See generally, Gruson, M., ‘Governing Law Clauses in Commercial Agreements – New York's Approach’, 18 Columbia JTL (1979) p. 323.Google Scholar

46. Uniform Commercial Code – 1978 Official Text, The American Law Institute, National Conference of Commissioners on Uniform State Laws (1980) at p. 8. See also Comment, ‘The Uniform Commercial Code and Conflict of Laws’, 9 AJCL (1960) p. 458;CrossRefGoogle ScholarCullen, R.K., ‘Conflict of Laws Problems Under the Uniform Commercial Code’, 48 KYLJ (1960) p. 417;Google Scholar B. Katzenbach in W.D. Malcolm, ‘Panel Discussion on the Uniform Commercial Code’, 12 Business L. (1956) p. 49, at p. 68; Nordstrom, R.J., ‘Choice of Law and the Uniform Commercial Code’, 24 Ohio St. LJ (1963) p. 364;Google ScholarNordstrom, R.J. and Ramerman, D.B., ‘The Uniform Commercial Code and the Choice of Law’, Duke LJ (1969) p. 623;Google ScholarRheinstein, M., ‘Conflict of Laws in the Uniform Commercial Code’, 16 Law & Comp. Prob. (1951) p. 114;CrossRefGoogle ScholarTuchler, D.J., ‘Boundaries to Party Autonomy in the Uniform Commercial Code: A Radical View’, 11 St. Louis ULJ (1967) p. 180.Google Scholar

47. The Foreign Economic Contract Law of the People‘s Republic of China (Art. 5), adopted by the 10th session of the Standing Committee of the Sixth National People's Congress on March 21, 1985, State Council Bulletin, No. 9, at p. 217, reprinted and translated in 12 China Bus. Rev. (1985) No. 4, pp. 54–55. See also Zheng, H., ‘A Comparative Analysis of the Foreign Economic Contract Law of the People's Pepublic of China’, 4 China LR (1986) p. 227Google Scholar, also Recent Developments in the Foreign Economic Contract Law of the People's Republic of China’, 13 World Competition Law & Econ. Rev. (1989) p. 106;Google Scholarde Lisle, J.L., ‘Foreign Investment: Foreign Economic Contract Law’, 27 Harvard Int. LJ (1986) p. 275;Google Scholar see also generally, Potter, P.B., The Economic Contract Law of China: Legitimation and Contract Autonomy in the PRC (1992).Google Scholar

48. See the Interim Award in ICC Case No. 6560 of 1990, 17 YB Comm. Arb. (1992) p. 226, at p. 227, see also the Final Award in ICC Case No. 6283 of 1990, 17 YB Comm. Arb. (1992) p. 178, at p. 179.

49. See the Final Award in ICC Case No. 6363 of 1991, 17 YB Comm. Arb. (1992) p. 186, at pp. 190–191.

50. Award 1961 No. Vb 1024, cited by Mora in Questions of International Law (1964) p. 141.Google Scholar See also ICC Award, No. 805, Doc. No. 410/81, 24 October 1951; ICC Award No. 1001, Doc. No. 410/777, 12 October 1960; ICC Award No. 1005, Doc. No. 410/592, 10 April 1958; ICC Award No. 1846, Doc. No. 410/1953, 24 February 1971; ICC Award No. 1177, Doc. No. 410/1614,13 March 1968; ICC Award No. 1445, Doc. No. 410/1492,18 January 1967; ICC Award No. 1009, Doc. No. 410/514, 13 November 1957; ICC Award No. 1442, Doc. No. 410/1665, 25 September 1968; ICC Award No. 1082, Doc. No. 410/744, 15 June 1960; ICC Award No. 1687, Doc. No. 410 /1855,10 June 1970; ICC Award No. 1529, Doc. No. 410/1658, 10 July 1968; ICC Award No. 1717 (1972).

51. See the Interim Award in ICC Case No. 6560 of 1990, 17 YB Comm. Arb. (1992) p. 226.

52. Ibid., at p. 229.

53. Lew, , op. cit. n. 32, p. 342.Google Scholar

54. Soviet Union: Civil Code (1964) Art. 566; Statute of Japan (Private International Law) Art. 7(2); Sawada, T., ‘Practice of Arbitration Institutions in Japan’, 4 Arbitration Int. (1988) No.2, p. 120;CrossRefGoogle Scholar Thailand: Private International Law Art. 13; Czechoslovakia: Private International Law and International Civil Procedural Law Art. 10(3); Bustamante Code Art. 186; Poland: Code on Private International Law Art. 29.

55. Batiffol, H., Private International Law (19701971);Google ScholarGraveson, , op. cit. n. 27, p. 418;Google Scholar Thailand: Private International Law Art. 13.

56. The former German Democratic Republic: The Act Concerning the Law Applicable to International Private, Family and Labour Law Relationships as well as to International Commercial Contracts Art. 12(2).

57. Cherian, J., International Contracts and Arbitration (1975) p. 22;Google ScholarArsanjani, M.H., International Regulation of Internal Resources (1981) p. 200.Google Scholar When different rules of conflict all point to the same applicable law, the arbitrator is inclined to consider a choice as superfluous. See also Ramazani, K., ‘Choice-of-Law Problems and International Oil Contracts: A Case Study’, 11 ICLQ (1962) p. 503,CrossRefGoogle Scholar who observed in the context of the oil contract concluded between the National Iranian Oil Company and the Pan American International Oil Company that: ‘… the application of the (objective) tests of sovereignty, nationality of the agent, the place of contracting, and the place of performance would indicate that the applicable law is Iranian Law. Furthermore, other tests such as the nature of the subject-matter and the place where it is situated, lex loci rei sitae, would also indicate the same because the subject-matter is Iranian Petroleum located within the Iranian domain’ (p. 509).

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65. See Aminoil Counter-Memorial (5 January 1981), vol. I (Text), Pleadings, Bk. 4, para. 240, at p. 109.

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81. ‘The arbitrator exercised his discretionary authority by selecting the law of the seat of arbitration (in that case Denmark) as the law applicable to the arbitral procedure. He apparently considered that an advantage of localizing the law in this way was that enforcement would be facilitated since the award made under the law of a contracting State would fall within the terms of the Convention on Enforcement of Foreign Arbitral Awards of 1958 (the so-called New York Convention). Attaching the award to the law of a particular State also provided the arbitrator with a developed procedural law for supplementary reference’. This point is brought out by Wetter, J.G. (who was Secretary of the tribunal) in The International Arbitral Process: Public and Private, vol. 2 (1979) pp. 409410Google Scholar; see also the ICC Arbitration rules (reproduced in 13 YB Comm. Arb. (1988) p. 185) which stress in Art. 26 that the arbitrator ‘shall make every effort to make sure that the award is enforceable at law’.

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123. Under Art. V of the Claims Settlement Declaration, the Iran-US Claims Tribunal has great flexibility in its choice of law. Accordingly, the Tribunal has sometimes rejected the application of municipal law and has applied general principles of law. It has also adopted its own procedural law and choice-of-law principles. With regard to the Iran-US Claims Tribunal, Stein pointed out that the Tribunal has generally declined the invitation of the Claims Settlement Declaration to enter into subtle and academically satisfying discussions of conflict of laws principles, see the remarks made by Stein, T.L. in ASIL: Proceedings of the 78th Annual Meeting (1984) pp. 229233.Google Scholar

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130. See, e.g., MAT (2) p. 247; ibid., p. 251; ibid., p. 641. (4) p. 530. (5) p. 520. (6) p. 934. (7) p. 17; ibid., p. 25; ibid., p. 57; ibid., p. 601; ibid., p.702, 785. (8) p. 994. (9) p. 302.

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138. See, for example, the French Arbitration Decree of 14 May 1981 which amended Art. 1496 of the Code of Civil Procedure, 20 ILM (1981) p. 917Google Scholar. Art. 1496 of the French New Code of Civil Procedure reads: ‘The arbitrator shall decide the dispute according to the rules of law chosen by the parties, in the absence of such a choice, he shall decide according to rules he deems appropriate. In all cases he shall take into account trade usages’ (emphasis added). See also ICC Award No. 1422/1966, Lew, , op. cit. n. 32, no. 270Google Scholar. The 1984 Djibouti Code on International Arbitration contains in its Art. 12a a provision in similar terms: ‘The parties are free to determine the rules of law which the arbitrators shall apply to the substance of the dispute. Failing agreement by the parties, the arbitrators shall apply the rules of law which they consider appropriate’(emphasis added). In all cases, the arbitrators shall take into account ‘contractual provisions and shall apply international trade usages’ (as quoted by Derains, Y., ‘Public Policy and the Law Applicable to the Dispute in International Arbitration’, in Sanders, , ed., op. cit. n. 114, p. 227, at p. 230)Google Scholar. See also, for similar provisions, the Swiss Private International Law Act, ch. 12, Art. 187, and the Netherlands Arbitration Act 1986, Art. 1054. See the United Nations Commission on International Trade Law (UNCITRAL) Model Law adopted on 21 June 1985, Art. 28; see also Croff, C., ‘The Applicable Law in an International Commercial Arbitration: Is it Still a Conflict of Laws Problem?’, 16 Int. Lawyer (1982) p. 613, at p. 633.Google Scholar

139. See, e.g., ICC Award No. 2735/1976,104 Clunet, (1977) p. 947Google Scholar; see also two cases cited at p. 949, and ICC Award No. 2870/1978 (not reported). These cases provide evidence that, in practice, arbitrators sometimes rely upon a conflict of laws rule without disclosing from which legal system or other source it has been derived. See also ICC Award No. 1048, Doc. No 410/802, 11 January 1960.

140. See Kuwait v. Aminoil, The Government's Memorial, Pleadings Bk. 3, para. 3.34, at p. 59; see also The Government's Reply (April 1981), Pleadings Bk. 9, paras. 2·36–2·54, at pp. 20–27. See generally, Robert, J. and Carbonneau, T.E., The French Law of Arbitration (1983).Google Scholar

141. See Kuwait v. Aminoil, Aminoil Memorial (2 June 1980), vol. I (Text), Pleadings Bk 1, paras. 105–113, pp. 37–40; see also Aminoil Counter-Memorial (5 January 1981), vol. I (Text), paras. 226–243, at pp. 103‐111; 66 ILR p. 519, at pp. 559562.Google Scholar

142. See I Amco Asia Corporation v. Indonesia [1988] LAR at pp. 3840Google Scholar. See also Anderson, J.N.D. and Coulson, N.J., ‘The Moslem Ruler and Contractual Obligations’, 33 NY Univ. LR (1958) p. 917, at pp. 921922.Google Scholar

143. See the Sapphire Award (1963), 35 ILR p. 136, at pp. 171176Google Scholar. See also Maniruzzaman, A.F.M., ‘State Contracts with Aliens: The Question of Unilateral Change by the State in Contemporary International Law’, 9 J. Int. Arb. (1992) no. 4, pp. 141171.Google Scholar

144. Idem;Texaco v. Libya, 53 ILR at p. 441Google Scholar et seq.; Revere Coppery. OPIC, 56 ILR p. 258, at pp. 272279;Google ScholarSapphire International Petroleum Ltd. v. NIOC, 35 ILR p. 136, at pp. 170176.Google Scholar

145. See, e.g., Ramazani, , loc. cit. n. 57, p. 503, at p. 505;Google ScholarLalive, , loc. cit. n. 15, p. 987, at p. 994.Google Scholar

146. See, e.g., the Alsing case, 23 ILR p. 633,Google Scholar where the private international law of the seat of the arbitral tribunal, i.e., the lex fori, was applied to determine the applicable law; see also the ICC case Mojzesi Lobelski v. State of Burundi, Award of 30 October 1968, in Jurisprudence du Port d'Anvers (1969) pp. 82, 89, 90.Google Scholar

147. For the text of the Resolution on Arbitration Between States and Foreign Enterprises‘ (1989), see 5 ICSID Rev. (1990) p. 139 (Art. 6).Google Scholar

148. Lalive, , loc. cit. n. 15, at p. 994;Google Scholar see also Kuwait v. Aminoil, The Aminoil CounterMemorial (5 January 1981), vol. I (Text), Pleadings Bk. 4, para. 240, at p. 109.

149. See generally, Hanotau, M.B., ‘Dépecage in Choice of Law: An Analysis’, in Le Contrat économique international stabilité et evolution (1973) l–A–3;Google ScholarReese, , loc. cit. n. 23, p. 58.Google Scholar But see McLachlan, C., ‘Splitting the Proper Law in Private International Law’, 61 BYIL (1990) p. 311;Google Scholar M. Ekelmans, ‘Le dépecage du contrat dans la Convention de Rome du 19 juin 1980 sur la loi applicable aux obligation contractuelles’, in Mélanges offerts à Raymond von Elst (1986) p. 243.

150. See, e.g., the Lena Goldfields case, 36 Cornell LQ (1951) p. 31;Google ScholarSapphire International Petroleums Ltd. v. National Iranian Oil Co., 35 ILR p. 136;Google Scholar the Electricity Companies case (1966), reported in P. Weil, ‘Problèms relatifs aux contrats passes un Etat et un particulier’, 169 Hague Recueil (1969); Saudi Arabia v. Aramco 27 ILR p. 117;Google ScholarRevere Copper & Brass Inc. v. OPIC, 56 ILR p. 258;Google Scholar S.P.P. (Middle East) Ltd. etal. v. Arab Republic of Egypt, 22 ILM (1983)p. 752; Kuwait v. Aminoil, 66 ILR p. 518Google Scholar; Wintershall, A.G. et al. v. Government of Qatar [1990] LAR p. 81Google Scholar; Deutsche Schachtbau-und Tiefbohrgesellschaftm.b.H. (DST) (FRG) etal. v. The Government of the State of R'as Al Khaimah (UAE)and The R'as Al Khaimah Oil Company (i), ICC case no. 3572 of 1982, 14 YB Comm. Arb. (1989) at p. 111; the Consortium case (i.e., Mobil Oil Iran Inc. et al. v. Iran and NIOC (Partial Award in cases nos. 74, 76, 81, 150–311–74/76/81/159–3 of 14 July 1987)), 13 YB Comm. Arb. (1988) p. 288. See also Texaco v. Libya, 53 ILR p. 393;Google ScholarB.P. v. Libya, 53 ILR p. 297,Google Scholar Liamco v. Libya, 62 ILR p. 140.Google Scholar

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151. See Pleadings Bk. 3, The Government's Memorial (Text) (May 1980), S. 3.38, at p. 60; see also The Government's Counter-Memorial (December 1980), Pleadings Bk. 5, paras. 3.85–3.86, at p. 84; also paras. 3.87–3.89, at pp. 84–85; para. 3.97 (5), at pp. 88–89.

152. Ibid.; see also Paasivirta, E., Participation of States in International Contracts and Arbitral Settlement of Disputes (1990) at pp. 105113; ICCA Report (Series No. 2) at pp. 188–189.Google Scholar

153. See the Lena Goldfields case, 36 Cornell LQ (1951) p. 31 (Art. 89 of the agreement concerned between the parties); see also Kuwait v. Aminoil, The Aminoil Memorial (2 June 1980), Pleadings, vol. I (Text), Bk. 1, paras. 114–117, at pp. 40–41. But see The Government's CounterMemorial (December 1980), Pleadings Bk. 5, para. 3.35; Delaume, op. cit. n. 64.

154. See Texaco. Libya, 53 ILR p. 389, at pp. 452457,Google Scholar paras. 40–43;Revere Copper v. OPIC, 56 ILR p. 258, at pp. 272279.Google Scholar

155. See vol. I (2 June 1980) (Text), Pleadings Bk. 1, p. 39.

156. Ibid., para 113, at pp. 39–40; see also the Aminoil Reply (27 April 1981), Pleadings Bk. 7, paras. 50–76, at pp. 20–30. Aminoil suggested that, in view of Art. 111(2) of the Arbitration Agreement (that’ … the specific terms of Article 111(2) taken in the context of the Arbitration as a whole and of the contractual relations between the parties’), the applicable law should be the general principles of law. Ibid., Aminoil Memorial, vol. I (2 June 1980) (Text), Pleadings Bk. 1, p. 39, para. 113. Art. 111(2) of the Arbitration Agreement between Kuwait and Aminoil provides that: ‘The law governing the substantive issues between the parties shall be determined by the Tribunal, having regard to the quality of the parties, the transnational character of their relations and die principles of law and practice prevailing in the modern world’.

See also CMI InternationalInc. v. Ministryoj'Roads andTransportationetal., 4 Iran-USCTR (1983) p. 263, at p. 268; Bermann, G.A., ‘Contracts between States and Foreign Nationals: A Reassessment’.in Smit, H. et al. ., eds., International Contracts (1981) Ch. 7, pp. 183212Google Scholar; W.L.M. Reese, “The Law Governing International Contracts’, ibid., Ch. 1, pp. 3–50. See also ICCA Report (Series No. 2) p. 190: “The concern to apply the law best corresponding to the expectations of the parties therefore seems to be the. central element in the determination of the legal norms which die international arbitrator must apply in solving a dispute. When the parties have expressly chosen die applicable law, die object of this expectation is a priori known and, uierefore, becomes useless. Failing such a choice, the arbitrator tends to show what this expectation could legitimately be, either in concreto, or in consideration of a certain international consensus’.

157. See also ICSID Model Clauses, Doc. ICSID/S/Rev. 1., 7 July 1981.

158. Serbian & Brazilian Loans cases, Judgments 14 and 15 (1929) PCIJ, ser. A. No. 20, at p. 42, No. 21, at p. 121.

159. Saudi Arabia v. Aramco, 27 ILR at p. 117.Google Scholar

160. Ibid., at p. 167.

161. Broches, A., “The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’, 136 Hague Recueil (1972–11) p. 331, at p. 392.Google Scholar

162. ICSID Documents Concerning the Origin and the Formulation of the Convention, vol. 2, part 2, p. 270 et seq.

163. See, e.g., Benvenuti & Bonfant, 21 ILM (1982) at p. 752Google Scholar; AGIP Co. v. Peoples' Republic of Indonesia, 24 ILM (1985) p. 1023Google Scholar; AMCO Asia Corp et al. v. The Republic of Indonesia, 24 ILM (1985) p. 1023;Google Scholar AMCO Asia Corp. etal. v. The RepublicofIndonesia (FinalAward of 5 June 1990 and Decision on Supplemental Decision and Rectification of 17 October 1990), 17 YB Comm. Arb. (1992) p. 73,Google Scholar at pp. 75—76; Liberian Eastern Timber Co. (Letco) v. Liberia, ICSID Award of 31 March 1986,Google Scholar 26 ILM (1987) pp. 661662;Google ScholarKlöckner v. Cameroon, 1 ICSID Rev. (1986) p. 89CrossRefGoogle Scholar. See also Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, 30 ILM (1991) p. 580Google Scholar, also in 17 YB Comm. Arb. (1992) p. 106,Google Scholar see also comments on the case in Vasciannie, S.C., ‘Bilateral Investment Treaties and Civil Strife: The AAPL/Sri Lanka Arbitration’, 39 NILR (1992) p. 332, especially at pp. 335339CrossRefGoogle Scholar. See also Burzynski, A., ‘Paving the Road for Settlement of Investment Issues: Polish ExperienceSo Far’, 18 Polish YIL (19891990)p. 135, at pp. 140141Google Scholar; E.P.J. Myjer, ‘ICSID and the Settlement of Investment Disputes in Poland’, ibid., p. 143.

164. 11 YB Comm. Arb. (1986) p. 162.Google Scholar

165. Ibid., at p. 170.

166. 12 YB Comm. Arb. (1987) p. 129, at p. 132.Google Scholar

167. Idem.

168. See, e.g., the ICC Award in S.P.P. (Middle East) Ltd. and S.P.P. Ltd. v. Egypt and Egoth, 22 ILM (1983) p. 752,Google Scholar at pp. 768–770; an the Ad hoc Tribunal Award in Kuwait v. Aminoil, 66 ILR p. 518.Google Scholar In recent contract practice, the ICSID formula is sometimes found to be explicitly incorporatedinconcessioncontracts.Thus, a 1987 Ghanaian agreement provides that: ‘This Agreement shall be governed by and construed in accordance with the laws of Ghana and such principles of international law as may be applicable’.

169. Redfern, and Hunter, , op. cit. n. 6, at p. 12Google Scholar: ‘… an agreement to arbitrate represented a compromise on the part of the parties; and this is reflected in the language of the civil law which refers to a submission agreement as a compromis and to an arbitration clause as a clause compromissoire’. See also fn. 44: ‘The secondary meaning of compromis is given as ‘an agreement under which the parties make mutual concessions’. Robert's Dictionnaire de la languefrançaise.

170. See ICCA Report (Series No. 2) p. 189.