RAJIV GANDHI NATIONAL

UNIVERSITY OF LAW, PUNJAB

INTERNATIONAL COMMERCIAL
ARBITRATION PROJECT

TOPIC: ISSUES OF CHOICE

OF LAW APPLICABLE TO
MERITS OF DISPUTE

SUBMITTED TO:
SUBMITTED BY:
DR. GURMANPREET KAUR
HEMAKSHI
ASSISTANT PROFESSOR
ROLL NO- 15055
OF LAW
GROUP NO- 5
RGNUL
4TH YEAR
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 TABLE OF CONTENTS
S.NO CONTENTS PAGE
NO.
1. INTRODUCTION 4-5
2. PRINCIPLES OF CHOICE OF 6
LAW TO BE APPLIED BY
ARBITRATORS TO MERITS OF
DISPUTE
3. DETERMINATION OF RULES 7-11
APPLICABLE TO MERITS OF
DISPUTE ON BASIS OF
INTENTION OF PARTIES
4. DETERMINATION OF RULES 12-13
APPLICABLE TO MERITS OF
CASES IN ABSENCE OF CHOICE
MADE BY THE PARTIES
5. THE LEX MERCATORIA 14-16

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6. CHOICE OF LAW ISSUES IN 17-18
INTERNATIONAL
ARBITRATION
7. CONCLUSION 19
8. BIBLIOGRAPHY 20

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 INTRODUCTION

In today’s globalized world, international trade is growing in volumes with every passing day. In the
course of trade, disputes and trade between parties are bond to occur. International trade involves
parties belonging to different nationalities. Thus, trade related disputes attain an international
character. In order to solve these disputes, international commercial arbitration is emerging as a
popular medium. It has various advantages over traditional litigations in domestic courts which is
giving it immense popularity.

It is consider a speedier and less expensive means of dispute resolution. Litigation in domestic courts
is a lengthy affair and generally it takes years to find a solution. As a result it involves more time and
more financial expenditure on part of the parties. However, that is not the case in arbitration.
Secondly, there might arise such disputes which are of highly technical nature and is associated with
a specific area of business of trade. In order to resolve such disputes, services of a person specifically
skilled in that area is required. That is possible only through means of arbitration. Another benefit
associated with this means of dispute resolution mechanism is there is a high probability of bias in
favor of the party in whose domestic court the dispute is under adjudication. International Commercial
Arbitration provides a more neutral and convenient venue to both the parties. One of the biggest
reason for the growing popularity of commercial arbitration is that it provides the parties involved
with the opportunity to decide the set of laws and rules which would be applicable to their dispute.
However, this luxury is not available to the parties, when the dispute is resolved in domestic courts.

Though commercial arbitration is dogged with lot of disadvantages like it involves huge additional
costs like expenses of administrating proceedings and a lot of time is consumed in choosing the laws
applicable to their disputes, venue of arbitration, selecting arbitrators, but, it is becoming a universal
mode of dispute adjudication in arena of international trade.

CHOICE OF LAWS ISSUE IN INTERNATIONAL COMMERCIAL ARBITRATION

One of the significant features of International Commercial Arbitration is “Party Autonomy”. This
refers to the independence for the parties to select the set of laws which would be applicable to their
dispute. However, this selection of laws applicable to a dispute is not an easy task. Instances may
arise when parties might not agree to the forum whose laws would be applicable or sometimes
instances may arise where the parties fail to specify the choice of laws applicable to dispute in their
arbitration agreement. Thus, the arbitral tribunal is faced with deciding the laws applicable to dispute
which turns out to be as tedious and complex a task as deciding on the arbitral award.

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This project discusses the concept of choice of law in arbitration proceedings. Aid of several
examples, illustrations and case laws would be taken to make this concept clearer. It would further
delve into the aspect of how arbitrators resolve the issue of choice of law in various instances. It
would also take into consideration the UNCITRAL rules applicable in this regard. The choice of law
issue with specific reference to Indian context would be discussed. It would discuss the several
problems associated with the choice of law and impact of these problems on parties to the dispute in
particular and international trade law in general. The concluding portion would discuss the
suggestions for solving the problems associated with choice of laws.

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 PRINCIPLES OF CHOICE OF LAW TO BE APPLIED BY ARBITRATORS TO MERITS
OF CASE

 LEX ARBITRI

In International Commercial Arbitration, arbitrators involved are not bound by lex fori i.e. law of the
forum where the seat of the forum is established.

For instance, in case parties decide Singapore as seat of arbitration proceedings, he is not subject to
conflict of laws of Singapore.

However, even though the arbitrator is not bound by lex fori, he is subject to lex arbitri. Lex Arbitri
indicates the rules of international commercial arbitration of the country where the seat of arbitration
is situated.

Thus, in the above case though conflict of rules of Singapore are not applicable, but, rules of
international commercial arbitration of Singapore would be applicable to both the parties in the
dispute.

 LEX ARBITRI AND INSTITUTIONAL ARBITRATION

In case the parties decide to get their dispute resolved through institutional arbitration, then, the rules
of that institution would be applicable to both the parties.

In case of dispute between two parties, they subject themselves to ICC arbitration. In that case, the
rules of ICC arbitration would be applicable to them.

So, when parties have decided to have recourse to international arbitration, the provisions of the
arbitration rules of the institution they have chosen will become applicable from the point of view of
the lex arbitri. 1

1
Law Governing the Merit of Dispute, United Nations Conference on Trade and Development, 2005.
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 DETERMINATION OF RULES OF APPLICABLE TO MERITS OF DISPUTE ON BASIS
OF INTENTION OF PARTIES

When called upon to determine the rules of law applicable to the merits of a dispute, international
commercial arbitrators encounter, in the vast majority of cases, clauses by which the parties declare
their intentions concerning the law applicable to the contract or to the merits of the dispute. These
clauses can provide great assistance to arbitrators in the performance of their duties.

 ARBITRATOR TO GIVE EFFECT TO INTENTION OF PARTIES

According to Article 28(1) of UNCITRAL Model Law on International Commercial Arbitration,

adopted by the United National Commission on International Trade Law which forms the basis of
arbitral laws in various countries is as follows:

“The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by
the parties as applicable to the substance of the dispute. Any designation of the law or legal system
of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive
law of that State and not to its conflict of laws rules.” 2

The European Convention on International Commercial Arbitration of 21 April 1961, also called the
Geneva Convention, includes an Article VII whose first paragraph states:

“The parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the
substance of the dispute ...”3

Article 17.1 of ICC Arbitration Rules provide that:

“The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the
merits of the dispute. ...”4

The arbitrators are thus bound to apply to the merits of the dispute the rules of law chosen by the
parties. The methods through which arbitrator becomes aware of intention of parties are:

o Choice of Law Clause in Contract

2
Article 28(1), UNCITRAL Model Law on International Commercial Arbitration.
3
Article VII, European Convention on International Commercial Arbitration.
4
Article 17.1, ICC Arbitration Rules.
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The contract in dispute contains a choice of law clause by which the parties have designated the law
applicable to their contract. The chosen lex contractus is thus known to the parties from the time of
conclusion of the contract.

o Arbitration Agreement

The arbitration agreement can take the form of an arbitration clause in the contract or an agreement
to submit an existing dispute to arbitration. In either case, the parties will have the right to establish
the framework for their arbitration. From this perspective, the parties can agree on the nature of the
rules of law that the arbitral tribunal will have to apply to the merits of the dispute. The application
of such rules thus becomes, in the clearest way, an element which the arbitrators must take into
account in carrying out their function.

o Terms of Reference, Written Submission of Parties

It also happens that the common intent of the parties concerning the choice of the law applicable to
the merits of the dispute is expressed after the arbitration has commenced, unlike the two situations
previously mentioned.5

In some cases, the arbitration rules to which the parties have referred, such as, for example, the ICC
Arbitration Rules, provide for the preparation of Terms of Reference (Article 18 the ICC Arbitration
Rules). Terms of Reference are drafted by the arbitrators or sole arbitrator, after consultation with the
parties. At this stage, the parties can express their wishes as to the law applicable to the merits of the
dispute. The arbitrators may not disregard this expression of the parties’ intention.6

It can also happen that the common intention of the parties emerges from their exchange of written
submissions during the course of the proceedings. It is not unusual to find in arbitral awards that the
determination of the law applicable to the merits of the dispute has been made on the basis of
agreement discerned from concordant statements contained in the written submissions of the parties.
Agreement between the parties on the applicable law obtained during the course of the proceedings
is no less indicative of their intention than an arbitration clause or an agreement to submit an existing
dispute. Its lateness does not reduce the compulsion it imposes on the arbitrators with respect to the
applicable rules of law.7

 INTERPRETATION OF INTENTION OF PARTIES

5
Supra Note 1.
6
Ibid.
7
Ibid.
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When the parties express themselves on this point, they do not always do so very clearly. When there
is no express provision, the question of an implied choice always has to be considered. The form in
which the will of the parties is expressed makes no difference. Interpreting the choice of the parties
can be a task for the arbitrators which varies considerably in its difficulty.
o Where Parties Indicate Express Choice Of Law

It is possible for the parties to consider that the provisions of their contract should take priority over
those of the applicable law, or that the law chosen by them will only apply in the absence of a specific
contractual provision. An international commercial arbitrator can give effect to such a stipulation
because he is not required to apply systematically to an international contract all of the rules of the
legal system governing the contract, but only specific rules of law.

However, if particular contractual provisions are to be excluded from the law chosen by the parties,
those provisions will not be governed by any law. Although the question is controversial, it seems
preferable to allow the arbitrator to apply legal rules to the whole contract. He can anyway choose to
apply rules to the contractual provisions in question other than those which the parties wanted to
exclude. He can even refuse to follow the will of the parties on this point if he can put forward
convincing reasons for doing so. In any event, the arbitrator must not lose sight of international public
policy or mandatory rules of law.

Parties can also stipulate in a contract term or an arbitration agreement that their contract is to be
governed by the provisions of an international convention, such as the Vienna Convention on the
International Sale of Goods even if the Convention is not in force in any relevant state. The Vienna
Convention does not mention the will of the parties as a basis for its application. Furthermore, it
cannot be assimilated to a lex contractus, and not just because of important questions it does not cover
(validity, transfer of ownership ...). The arbitrator, unlike a judge, is not inhibited by these difficulties.
Not being the organ of a State, he is not required to give effect to the conditions relating to the entry
into force and application of the Convention as would a judge of a particular country. The arbitrator
cannot be constrained by the fact that the Convention applied in this way, without the support of the
law of a State, does not constitute a true lex contractus. It is sufficient that the Convention’s rules be
designated by the parties.

o Implied Choice of the Parties

The arbitrator faced with an applicable law clause included in the contract, the arbitration agreement,
or even something done during the course of the arbitration, has no choice but to give effect to that

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clause. One of the strongest arguments in favour of this view is that the legitimate expectations of the
parties are that the arbitrator will respect the terms of the parties’ agreement.

There are consequently strong reasons why the arbitrator should be inspired by the same approach
even when the parties have not expressly indicated their view on the applicable law. On that basis, it
is necessary, before seeking an objective perspective on the applicable law, to try to find the implied
intentions of the parties with respect to this question.

Unfortunately, the concept of an implied intention can be understood in a number of different ways,
none of which is definitely correct. A strict approach does not permit an implied intention to be
deduced from anything other than the contract itself or the conduct of the parties. Thus, an agreement
referring to, or reproducing a standard-form contract, itself usually governed by a particular national
law, can be considered as containing an implied choice of that particular law. Also, a contract
repeatedly referring to a certain national law could provide in this way an indication of an implied
intention of the parties to have their contract governed by that law.

On a less strict view, implied intention can be inferred from all the elements of the contract which,
depending as they do on the will of the parties, establish a kind of link desired by the parties between
the contract and the rules of a particular legal system. In such a case, account can be taken of specific
elements of the contract, as in the first hypothesis, a passing reference to a given law, or a standard-
form contract or extrinsic elements such as the place of performance, the main feature of the contract
if there is one, or the domicile or place of incorporation of the parties. There is no doubt that the
extraneous elements, just referred to, do not express, as such, the wish of the parties to refer to the
rules of a given legal system, but they nonetheless depend on the will of the parties. The parties will
not find their plans or expectations disrupted if the arbitrator takes into account the close links that
they themselves have created between their contract and a given legal system.

Given that the rules which apply to the determination of the law applicable to the merits of the dispute
in international commercial arbitration are generally silent on the question of implied choice of law,
it is inevitable that they do not contain any clarification concerning the elements to be taken into
account by the arbitrator in identifying the presence or absence of any implied intention.

 AMIABLE COMPOSITION

Amiable composition entitles the arbitrator not to be bound by any process of strict legal reasoning –
of which the rules of law and the contract are the principal points of reference – if the requirements
of equity call for a different solution.

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The right to act as an amiable compositeur cannot be presumed and must result from an express
authorisation by the parties.

The arbitrator also derives from amiable composition a power to modify the contract. From this point
of view, amiable composition has as its foundation “the waiver by the parties of the right to rely on
the benefits given to them by the contract”. Equity thus enables the arbitrator to reduce the excessive
consequences that may flow from a strict application of the agreement. The arbitrator can even openly
ignore certain contractual stipulations: for example excluding the charging of interest at bank rates
provided for in the agreement or awarding an indemnity on the termination of a contract even though
the contract expressly provides for no payment in such circumstances.

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 DETERMINATION OF RULES APPLICABLE TO MERITS OF CASE IN ABSENCE OF
CHOICE MADE BY THE PARTIES

The approach of respecting the wishes of the parties concerning the law applicable to the merits of
the dispute has necessarily some limits. Where the parties have not chosen the applicable law, even
implicitly, it is for the arbitrators to make this decision themselves. He can determine the applicable
law in two ways:

a. Conflict of Law Approach

b. Procedural Approach
c. Internationally Mandatory Approach

 CONFLICT OF LAW APPROACH

This method is based on the premise that the examination of whether a dispute is arbitrable or not
requires that we first determine the governing law, using the conflict of law rules. The arbitrability of
the dispute therefore represents the scope of the conflict-of-law rule and the law applicable to the
assessment of the former is determined by the corresponding connecting factor. The conflict-of-law
rules and the connecting factors which serve as the basis for determination of the governing law vary
depending on the stage of the arbitral proceedings in which arbitrability is subject to examination.
The conflict-of-law rules applied in court litigation where the court uses the conflict-of-law rules of
the lex fori might not be identical to the rules applied in arbitration- delocalization theories of
arbitration might give precedence to the application of rules other than the conflict-of-law rules of
the lex loci arbitri.
The conflict-of-laws approach would permit that a foreign arbitral award rendered in a dispute, which
cannot be the subject of valid arbitration agreement in the state of the seat of arbitration, could be
recognized and enforced in the state where recognition of the award is sought, providing the dispute
were arbitrable under the law determined on the basis of the conflict-of-law rules of the lex fori.
Indeed, this postulate is the cornerstone of the principle enshrined in the New York Convention which
allows, but does not requires, the states to refuse recognition/enforcement of a foreign arbitral award
which was annulled in the state where it was rendered.

 PROCEDURAL APPROACH
It perceives arbitrability as an institution of procedural law, or international procedural law, and
arbitrability helps to define disputes which are not subject to the exclusive jurisdiction of courts. The
basis of this approach is the very importance of objective arbitrability which means that certain

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disputes ought to be resolved (exclusively) in courts, because they concern public interests. The
delimitation of arbitrability simultaneously indicates the state’s confidence in arbitration.
Consequently, this means that arbitrability is not subject to the autonomy of will of the parties to the
arbitration agreement, and there is no possibility of choice of law. As concerns recognition and
enforcement of arbitral award rendered abroad, the arbitral award cannot be recognized if it was
annulled in the state where it was made on grounds of lack of arbitrability [in this connection, Article
V (1) (e), of the New York Convention leaves it at the discretion of individual member states i.e. the
state may refuse recognition/enforcement of awards which were annulled in the state where they were
made].

 INTERNATIONALLY MANDATORY APPROACH

This approach is based on the premise that arbitrability must be examined according to the lex loci
arbitri, directly, without the application of the conflict-of-law rules. Consequently, this theory
stipulates that arbitrability is subject to mandatory rules which cannot be eliminated by the will of the
parties. If arbitration is held in a particular state, arbitrability of the dispute ought to be assessed
primarily according to the rules of that state. These rules can be designated as the rules of active
public policy (internationally mandatory rules). Although arbitrability of the dispute could be
assessed according to a different law, the proceedings could not be held in the territory of the
respective state if it were contrary to its public policy.

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 THE LEX MERCATORIA

 THE CONCEPT

The parties to an international contract sometimes agree not to have their dispute governed by national
law. Instead they submit it to the customs and usages of international trade, to the rules of law which
are common to all or most of the States engaged in international trade or to those States which are
connected with the dispute. Where such common rules are not ascertainable, the arbitrator applies the
rule or chooses the solution which appears to him to be the most appropriate and equitable. In doing
so, he considers the laws of several legal systems. This judicial process, which is partly an application
of legal rules and partly a selective and creative process, is referred to here as application of the lex
mercatoria.

By choosing the lex mercatoria the parties avoid the technicalities of national legal systems as well
as rules which are unfit for international contracts. Thus they escape peculiar formalities, short
periods of limitation, and some of the difficulties created by domestic laws which are unknown in
other countries, for example, the common law rules a consideration and privity of contract.
Furthermore, those involved in the proceedings - parties, counsels and arbitrators - plead and argue
on an equal footing; nobody has the advantage of having the case pleaded and decided by his own
law and nobody has the disadvantage of seeing it governed by a foreign law.

 ELEMENTS OF LEX MERCATORIA

In international arbitration the lex mercatoria is applied in combination with a national law. Here we
shall deal with the case where the lex mercatoria is paramount and no single national law governs the
contract. Situations are considered where the mandatory rules of the national law must not be applied
but its directory rules are applied to fill the gaps left by the law merchant. Its elements are:

a. Public International Law

This is one important element. The rules of public international law on treaties have been applied to
contracts between a government enterprise and a private party. Several provisions of the Vienna
Convention of Treaties of 13 May 1969 reflect the common core of legal systems and are thus suitable
for international contracts. The World Bank Convention of 18 March 1965, which provides for the
settlement of investment disputes between States and nationals of other States, provides in Article 42
that, in the absence of a choice of law by the parties, the arbitral tribunal shall, inter alia, resort to

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such rules of international law as may be applicable. Rules of public international law may also be
applied to disputes between private enterprises.

b. Uniform Laws

The uniform laws which have been adopted for international trade are also important. An example is
the Uniform Law on the Sale of Goods of 1964 which has been ratified by some European countries.
Its successor, the Convention of Contracts for the International Sale of Goods of 1980 is expected to
be adopted by a larger number of countries.

Where the courts of those countries connected with the parties or subject-matter of a dispute would
be obliged to apply a uniform law, the arbitrator will be bound to do the same. The expressions "bound
to" or "obliged to" etc. are used here although the duty of the arbitrator cannot be enforced by the
courts. Sometimes the uniform laws may guide the arbitrator as has been the case in several published
awards.

c. General Principles of Law

The general principles of law recognised by the commercial nations are an important element of the
law merchant, for example, the pacta sunt servanda rule and the principle that a party may terminate
a contract in the case of a substantial breach by the other party. It is not always easy to ascertain which
rules are general principles; however, the possibilities of doing so are improving with the growing
volume of literature and comparative law. Arbitrators have been known to make use of
the International Encyclopaedia of Comparative Law to find the general principles of the major legal
systems of the world. Furthermore, a comparative analysis of the relevant laws will reveal whether
the rules of the various legal systems, though differently formulated, produce the same result. An
arbitrator who is faced with a general principle or common solution to the issue will generally be
obliged to comply with it.

Although some authors have conceived the law merchant as universal law, it need not be the same all
over the world. The arbitrator will tend to confine his investigations to those legal systems which are
connected with the subject-matter of the dispute. Where they have a common rule or rules leading to
the same result, the arbitrator will be obliged to follow the common core of these laws even though
other legal systems may provide a different solution.

d. Rules of International Organisations

International organisations (the UN, UNCTAD, the OECD, etc.) have adopted resolutions,
recommendations and codes of conduct on matters relating to contracts. These measures, which have
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a non-binding character, often reflect good faith and fair dealing. Mention should also be made of the
more ambitious efforts to unify commercial laws. UNIDROIT and the Commission of European
Contract Law are in the process of establishing general principles of contract law, the former for all
nations of the world, the latter for the Member States of the European Communities. These principles
will be published as non-binding rules which, inter alia, will serve as guidelines for international
arbitral tribunals.

e. Customs and Usages

The customs and usages of international trade make up another very important element of the concept
of the law merchant. The customs and usages of some trades apply both to domestic and to
international contracts; others apply only to international relationships. In addition, there are the
"codified" customs, for instance, the INCOTERMS, the Uniform Customs and Practices for
Documentary Credits and the newly adopted force majeure and hardship clauses issued by the ICC.
These customs, usages and contract terms only apply when the parties or their organisations have
agreed to apply them. They have, however, provided guidance for the courts and for arbitration even
when they have not been chosen by the parties.

f. Standard Form Contracts

Several standard form contracts have gained international popularity. This applies to the General
Conditions for the Supply of Plan and Machinery for Export issued by the Economic Commission for
Europe in 1953. The same holds true for some standard clauses in contracts which are made
individually. The courts have established interpretations of these standard form contracts and clauses
and such interpretations can also be found in reported arbitral awards. In cases where the courts of
several countries have agreed upon the interpretation of certain clauses, this interpretation will bind
the arbitrator. In other cases he may be guided by an interpretation in a particular court decision or in
arbitral awards.

g. Reporting of Arbitral Awards

Most arbitral awards are not published and are kept secret even from the members of the trade. This
is to be regretted because the reporting of arbitral awards is an important element of the law merchant.
During the last few decades there has been an increasing tendency to publish arbitral awards.

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 CHOICE OF LAW ISSUES IN INTERNATIONAL ARBITRATION

1. A fundamental principle in international arbitration is party autonomy, an aspect of which is that

the parties are free to choose the laws or rules of law in accordance with which disputes
concerning their substantive rights and obligations will be determined. However, the parties do
not always expressly state which laws govern the contract in the contract documents. In the
absence of subsequent agreement and the event a dispute arises, it will fall to the tribunal to
determine the applicable substantive law. The tribunal’s authority to decide choice of law issues,
in the absence of the parties’ express agreement to that effect, is contained in national procedural
laws or in the rules of the institution under which the arbitration is conducted.
2. A single arbitration may give rise to a number of choice of law issues, and, occasionally,
resolution of these issues may be as complex as deciding the substance of the dispute. The
potential complications arise out of the fact that not every aspect of arbitration will necessarily be
governed by the same law. In any arbitration there will be at least two categories of applicable
law:
a. The law governing the substance of the dispute
b. The procedural law governing the arbitration, the “lex arbitri”.
3. The law governing the substance of the dispute is the law or rules of law governing the contract
out of which the dispute arises. The applicable substantive law determines the legal rights and
obligations of the parties but, in particular, may also effect the causes of action that may be
advanced, the substantive remedies available, the types of damages recoverable, limitation
defences, the calculation of the quantum of damages and even the burden of proof.
4. The procedural law or lex arbitri is the law of the seat of the arbitration- the place in which the
arbitration is conducted for legal purposes. The lex arbitri effects not only the conduct of the
arbitration proceedings, which may include factors such as the formation of the tribunal, requests
for the production of documents, the form of pleadings and evidence, and the manner of
examination of witnesses but it will also determine the availability and extent of curial support,
including interlocutory relief, and the means for challenging a tribunal’s award.
5. While the substantive and procedural laws may be one and the same (for the example the law of
England and Wales) it is not uncommon for the contract to be governed by one system of law (for
example the law of Germany) and the arbitration to be conducted in accordance with another (for
the example of England and Wales). It is not difficult to imagine the challenges that this may
present and why determination of choice of law issues is so important in the context of an
international arbitration.

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6. A third potential category of applicable law is the law governing the arbitration agreement itself.
A practical consequence of the doctrine of seperability, by which the arbitration agreement is
deemed separate and distinct from the contract of which it forms part, is that the arbitration
agreement may be governed by a different law to the governing law of the remainder of contract.
This may be the case even in circumstances where the parties have expressly designated the law
governing the contract. Situations in which the tribunal’s decision on the law governing the
arbitration agreement are likely to have an impact on the arbitration include the validity of the
arbitration agreement, the scope of the arbitration agreement, whether the dispute is capable of
settlement by arbitration, the constitution of the tribunal, the validity of the notice of arbitration
and whether the parties are under a continuing obligation to refer future disputes of arbitration.

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 CONCLUSION

In the absence of a choice of law by the parties, international arbitral tribunals enjoy broad discretion
when determining the applicable substantive law. Such discretion pertains not only to the particular
method by which arbitral tribunals may determine the applicable domestic law, but also to the nature
of the rules that they may choose to apply (as has been seen, arbitral tribunals are frequently
authorized to apply transnational rules). This arbitral discretion is enshrined in the vast majority of
arbitration laws and rules and is regularly relied upon in arbitral practice.

Evidently, arbitral discretion in the determination of the applicable substantive law is not a per se
objective. Rather, it constitutes a tool to achieve other, more vital, aims. On the one hand, as has been
explained, broad discretion allows arbitral tribunals to ensure the predictability and legitimacy of their
choice-of-law decisions. On the other hand, as has also been highlighted, it assists arbitral tribunals
in enhancing the neutrality and suitability of the applicable rules.

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 BIBLIOGRAPHY

1. Markus A. Petsche, Choice of Law in International Commercial Arbitration

2. Law Governing The Merits Of The Dispute, United Nations Conference On Trade
And Development
3. Joseph T. McLaughlin, Choice-of-Law Problems in International Commercial Regulation
4. Craig M. Gertz, The Selection of Choice of Law Provisions in International Commercial
Arbitration: A Case for Contractual Depeҫage
5. Principles on Choice of Law in International Commercial Contracts, Hague Conference on Private
International Law 2015
6. Doug Jones, Choosing The Law or Rules of Law to Govern The Substantive Rights of The Parties
7. Daniel C.K. Chow, The Costly Problem Of Poorly Drafted Choice Of Law Clauses

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