In its broadest sense, the term “applicable law” could mean one or more of the following:

1. Substantive Applicable Law to the Arbitration Clause;
2. Substantive Applicable Law to the Merits of the dispute;
3. Procedural Applicable Law to the Proceedings; and
4. Choice of Law rules that apply in selecting these laws.

Various sources can shape the applicable law, such as:

1. Constitutive instruments,¹
2. Institutional Arbitration Rules; and
3. Curial laws.²

The content of these sources may be rules from different legal “systems”, such as:

1. International law;³
2. National law;⁴ and
3. Party agreement.⁵

In addition to Competence-Competence, certain general principles of international adjudication can affect the tribunal’s exercise of its powers relevant to the applicable law:

1. The maxim of iudex decidere debet entails that a tribunal must decide all questions arising out of the claims within its jurisdiction;⁶
2. The maxim of non ultra petita precludes a tribunal from deciding upon claims beyond the request of the parties, but not from addressing certain legal points in its reasoning;⁷ and
3. The maxim of iura novit arbiter means that a tribunal must assess the applicable law for itself, although the scope of this principle is much narrower than that of iura novit curia in international courts.⁸

The applicable law is comprised of three types of legal rules:

1. Primary rules are the content of the national or international obligations, the breach of which gives rise to responsibility.⁹ As the lex causae (causes of action), these main rules will form the basis of the Operative Part of the award and have a Res Judicata effect.¹⁰
2. Incidental rules must be considered, incidenter tantum,¹¹ to determine the responsibility of the States pursuant to primary rules.¹² Their preliminary and subsidiary application is rendered “essential”¹³ by primary rules.¹⁴ Incidental rules may be called upon by renvoi¹⁵ (e.g. Umbrella Clauses),¹⁶ or by lacunae¹⁷ (e.g. property rights).¹⁸
3. Secondary rules allow for the creation, alteration, extinction, and interpretation of primary rules.¹⁹ Two major codifications are the 1969 Vienna Convention on the Law of Treaties (“VCLT”) and the 2001 Articles on State Responsibility. Among these, the “‘master key’ to the house of international law”²⁰ is Article 31(3)(c) of VCLT,²¹ which represents a frequent entry point to consider rules contained beyond the relevant constitutive instruments, such as Human Rights in Investment Claims.

Jurisdiction and applicable law clauses in the various relevant instruments — and how they interact — determines the authority of tribunals to apply the Applicable Law to the Merits.

Narrow Jurisdiction Ratione materiae clauses limit the subject matter of arbitration exclusively to alleged violations of the constitutive instruments and directly instruct tribunals on the primary rules to apply.

1. For example, certain treaty clauses determining the scope of arbitration cover specifically an alleged violation of the:
   1. Treaty;²²
   2. Specific obligations;²³ or
   3. Treaty, investment contract, or investment authorisation.²⁴
2. This instruction in jurisdiction clauses amounts to an explicit choice of law by the parties in virtually all Institutional Arbitration rules.²⁵
3. These narrow jurisdiction clauses ultimately prevail over general applicable law clauses in the case of conflict between the two,²⁶ as they are more specific (i.e. lex specialis).²⁷

Broad Jurisdiction Ratione materiae clauses in constitutive instruments, in contrast, commonly allow tribunals to decide “all” or “any” disputes relating to these instruments.²⁸

1. These clauses can be interpreted as covering claims based on alleged breaches of obligations beyond these instruments,²⁹ such as Counterclaims based on national law.
2. This interpretation of broad jurisdiction clauses has been considered correct where the relevant applicable law clause permits it or, at least, does not preclude it.³⁰ In these instances, it is now the applicable law clauses that are lex specialis, such as:
   1. Constitutive instruments: certain applicable law clauses in constitutive instruments expressly limit their application to claims of breaches of international law,³¹ while others contemplate specifically the application of both national law and international law.³²
   2. Institutional Arbitration rules and conventions: For the two-thirds of investment treaties that do not contain an applicable law clause,³³ the relevant arbitration rules or convention may then circumscribe the applicable law (such as the ICSID Convention)³⁴ or simply provide that tribunals have discretion in determining the applicable law (such as the UNCITRAL Rules).³⁵

Selection by the parties of the applicable law, and its subsequent application (and possible misapplication) by tribunals, has three notable consequences in practice.

1. The jurisdiction conferred by the parties establishes a relationship of “functional hierarchy” between the various applicable laws. This means that, when chosen as a primary rule, national law and international law will each claim supremacy and retain control over rules from other legal systems.³⁶
2. The disputing parties may agree on the content of the applicable laws and on the procedural rules in an arbitration, subject to the relevant mandatory provisions of the constitutive instruments, Institutional arbitration rules, and Seats of Arbitration/ICSID Convention.³⁷ The disputing parties may even expressly or implicitly waive certain due process requirements in these mandatory provisions.³⁸
3. The discretionary power of tribunals on applicable law, far from a carte blanche, represents Arbitrator’s Duties. Jurisdiction and applicable law indeed coexist in both Article 52(1)(b) of the ICSID Convention and Article V(1)(c) of the New York Convention, as the notion of Excess of Arbitral Authority includes the failure to apply the proper law.

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Atanasova, D., Applicable Law Provisions in Investment Treaties: Forever Midnight Clauses?, Journal of International Dispute Settlement, 2019, pp. 396-422.

Bartels, L., Jurisdiction and Applicable Law Clauses: Where Does a Tribunal Find the Principal Norms Applicable to the Case before It, in Broude, T. and Shany, Y. (eds.), Multi-Sourced Equivalent Norms in International Law, 2011, pp. 112-141.

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Bjorklund, A.K., Applicable Law in International Investment Disputes, in Chiara, G. (ed.), Litigating International Investment Disputes: A Practitioner’s Guide, 2014, pp. 261-286.

Bjorklund, A.K. and Brosseau, J., Sources of Inherent Powers in International Adjudication, European International Arbitration Review, 2018, pp. 1-58.

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Schreuer, C., Jurisdiction and Applicable Law in Investment Treaty Arbitration, McGill Journal of Dispute Resolution, 2014, pp. 1-25.

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