Choice of Law by Arbitrators: The Applicable Conflict of Laws System

Abstract

PARTIES TO an international contract often choose arbitration because they want a measure of certainty and predictability as well as neutrality and effectiveness for the dispute resolution process. Besides, the parties aim at a stable substantive law under which their disputes should be resolved. This legal regime is the basis for the award. Since there are still differences among national laws, the parties have a great interest in the arbitrator's determination of the law applicable to the merits of their disputes.1 Although this question is of crucial importance, a homogeneous answer has not yet been given. Nor do resulting arbitrations reveal any clear dominant attitude towards the application of conflict of laws rules by international arbitrators.2 A reason for this might be that arbitration is secret and the awards do not have the authority of precedents, although there may be psychological elements of persuasive authority amounting to precedents: ‘Faced with a problem one wants to know what others in similar situations have done, and one tends to copy them’.3 Will the arbitrators apply the conflict of laws rules pertaining to the seat of arbitration, or those of the country which has the ‘closest connection’ with the dispute?4 Or will they not apply conflict of laws rules at all? The problem can be divided into two logical steps: the first question is whether it is necessary to apply a conflict of laws system at all, and secondly, if the answer is positive, which system should be applied. In order to determine the proper law of the contract, the arbitral tribunal might renounce the application of any principles of private international law, and might instead directly apply a certain substantive law. ### (a) Choice of Law by the Parties When the parties have agreed upon the substantive law applicable to the merits of their dispute, it …