Auteur

Mme Sophie Nappert

Independent arbitrator - 3 Verulam Buildings Barristers

Auteur

Mme Riddhi Joshi

Student - Symbiosis Law School

Editors
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Choice of Law

I. Introduction

1.

The selection of the law applicable to the dispute is one of the fundamental exercises of party autonomy.1 With respect to the applicable law to the merits, investment arbitration has a unique conception of party autonomy that applies both to-

  1. The choice made by the States party to the IIA; and
  2. The considerations of the disputing parties before the tribunal.2 
2.

In the presence of an express choice of law in the IIA, the tribunal is bound to apply it to the merits of the dispute.3 However, IIAs rarely provide connecting factors that direct tribunals on the law to apply to each specific issue. In the absence of an express choice, the tribunal has a wider degree of discretion.4

II. Choice of law methodology

3.

In the context of investment arbitration, there are some commonly encountered choices for the applicable law-

  1. The provisions of the treaty itself;
  2. The law of the Host State; and
  3. General principles of international law.5

Some treaty formulations also refer to ‘rules of law’ rather than to a domestic system of law.6

4.

The identification of the applicable law is a two-step process. First, the tribunal must determine the substantive laws forming the eventual basis of liability under the IIA. Second, it should find and characterise all rules within these substantive laws relevant to resolve the dispute.7 Investment tribunals must thus sometimes resort to a sophisticated dépeçage, applying different rules to different issues in a claim.8

III. Presence of express choice in IIAs

5.

Some examples of IIAs containing applicable law clauses are the USMCA,9 the CETA,10 and the Energy Charter Treaty.11 Even a recognition of various sources of law can be considered as a proper choice of law.12

6.

In Libananco v. Turkey, the Tribunal applied the law of the Host State despite the BIT being silent on its applicability.13 A clause stipulating that the tribunal shall decide on the basis of “respect for law” was not considered an express choice of law.14

IV. Absence of express choice in IIAs

7.

The absence of a choice-of-law clause in an IIA can require different investigations by the tribunal, depending on whether the arbitration is administered under the ICSID Convention or not.

A. ICSID Convention

8.

Article 42(1) of the ICSID Convention stipulates that, in the absence of an express choice-of-law clause in the IIA, the tribunal must apply the law of the Contracting State party to the dispute and applicable rules of international law.

9.

As Article 42(1) “is not a choice of law rule in the true sense of the term,”15 the balance in application between these two sources of law is left to the discretion of the tribunal.16 It is also open to a tribunal to apply the treaty provisions themselves as contemplated by the rules of international law.17

B. Non-ICSID Convention

10.

Under the UNCITRAL Arbitration Rules, the tribunal must go through conflict of laws rules to arrive at a ‘system of law’, rather than designating directly applicable ‘rules of law’.18 In comparison, the SCC Arbitration Rules19 and the ICC Arbitration Rules20 permit the application of “rules of law” to the substance of the dispute. The ICC Rules go a step further and expressly require the tribunal to consider the provisions of the agreement/contract.

11.

The different approaches to the determination of the applicable law under various Rules can potentially lead to different conclusions while applying the same BIT.21

Bibliography

Banifatemi, Y., Law Applicable in Investment Treaty Arbitration, in Yannaca-Small, K. (ed.), Arbitration Under International Investment Agreements, 2010. 

Bjorklund, A.K., Applicable Law in International Investment Disputes, in Giorgetti, C. (ed), Litigating International Investment Disputes: A Practitioner’s Guide, Brill, 2014, p. 261-286. 

Douglas, Z., The International Law of Investment Claims, Cambridge University Press, 2009.

Peter, W., Arbitration and Renegotiation of International Investment Agreements, Kluwer Law International, 1995.

Reisman, W. and Arsanjani, M., Applicable Law Under the ICSID Convention: The Tortured History of the Interpretation of Article 42, in Kinnear, M. and Fischer, G.R. (eds.), Building International Investment Law: The First 50 Years of ICSID, Kluwer Law International, 2015.

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

Thomas, C. and Dhillon, H., Applicable Law Under International Investment Treaties, Singapore Academy of Law Journal, 2014. 

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