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-
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
Shihata, I. and Parra, A., Applicable Substantive Law in Disputes Between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention, in van den Berg, A. J. (ed.), Planning Efficient Arbitration Proceedings: The Law Applicable in International Arbitration, 1996, pp. 298-299.
Banifatemi, Y., Law Applicable in Investment Treaty Arbitration, in Yannaca-Small, K. (ed.), Arbitration Under International Investment Agreements, 2010, p. 192; Gaillard, E., The Role of the Arbitrator in Determining the Applicable Law, in Newman, L. and Hill, R. (eds.), The Leading Arbitrators’ Guide to International Arbitration, 2003, p. 185.
II. Choice of law methodology
In the context of investment arbitration, there are some commonly encountered choices for the applicable law-
Some treaty formulations also refer to ‘rules of law’ rather than to a domestic system of law.6
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
Amerasinghe, C., Dispute Settlement Machinery in Relations Between States and Multinational Enterprises – With Particular Reference to the International Centre for Settlement of Investment Disputes, The International Lawyer, 1977, pp. 54-55; Banifatemi, Y., Law Applicable in Investment Treaty Arbitration, in Yannaca-Small, K. (ed.), Arbitration Under International Investment Agreements, 2010, p. 196.
III. Presence of express choice in IIAs
IV. Absence of express choice in IIAs
A. ICSID Convention
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.
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
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.
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.