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Deciding the Applicable Substantive Rules 

Deciding the applicable substantive rules, a matter for the arbitral tribunal, may stir up difficult problems. Considering that in international commercial relationships several legal systems may be applicable to the contract, and that these various legal systems may treat the contract in different ways, the contractual relationships will differ according to the applicable legal system. In order to decide which substantive rules the arbitral tribunal may apply, the following questions will be examined:

1. Does the arbitral tribunal have a free choice in its search for the applicable law (as parties acting autonomously do), or should it first search for any indication of what could be considered as an implied choice by the parties?


2. If there is no indication of the parties’ choice, then is it permissible for the arbitral tribunal to apply whatever system it deems appropriate in order to govern the dispute?



Searching for the tacit choice


Parties may refer to arbitration without providing a clear intention as to which law or set of rules should govern their dispute. Nevertheless, there might be indications that would guide the arbitral tribunal in determining the applicable law.(1) It may be possible to infer the choice of law from the nature and terms of the parties’ contract and the relevant surrounding circumstances.(2) Arbitrators may be guided by the parties’ previous relationships and, in their absence, from current practice in the countries to which the contracting parties belong. They may also be guided by searching for a suitable solution that is as near as possible to the expectations of both parties.(3) In such circumstances arbitrators are bound to search first for such indications before they decide on the applicable rules by using their discretionary power.(4)


The most important factor used to determine the tacit choice of the parties is whether or not the parties have agreed to hold the arbitration in a particular country.(5) If so, this would be a strong indication to consider their ‘choice of forum as choice of law’.(6) According to this concept, the parties’ choice of country as the seat of their arbitration will automatically involve the application of the domestic law of that country, which in practice should prevent the arbitrators from choosing a different law. This method of considering the choice of forum as the choice of law provides an easy solution. The English court of appeal in Tzortzis v. Monark Line A/B considered this solution as “irresistible” in deciding the law applicable to international contracts.(7) The court viewed the choice of England as the seat of arbitration as a factor indicating the choice of English law which “overrides all other factors”.


However, the application of this concept is not acceptable in all cases, especially if arbitration takes place in different countries, or if the choice of a specific forum is made for reasons unconnected with the law of that forum. For example, the parties may choose a country to be their forum for geographical convenience if it provides a suitable neutral venue especially if each party is sceptical about receiving fair treatment in the other state’s courts or about the reputation of the arbitration service to be found in that forum.(8) Moreover, the trend followed by international doctrines tends to detach international commercial arbitration from the forum, stating that “there is no lex fori to international arbitral tribunals”.(9)


Therefore, to consider a choice of forum as a tacit choice of law, there must be some relevant relationship between the arbitration and that forum. For instance, if the parties choose an arbitration institution established in a particular country which is also the country where the contract has been or would have been performed, then it is likely that it will be considered that the tacit choice has been to apply the law of that country.(10)



[1] The law governing a contract could be inferred from the parties’ intentions, whether they are expressed or implied. This was the view in Sapphire Int. Petroleum Ltd. v National Iranian Oil Co. (1967) International Law Review, p. 136; also see, the Texaco case (1979) International Law Review, p. 389; ICC Award 3572/1982, Y. Comm. Arb., (1989), p. 111; ICC Award 4145/1984, Y. Comm. Arb., (1987), p. 97.

[2] This can be established if it appears from the circumstances of the case that the contract has its most significant connection with the law of a particular country. 

[3] For example, if in the course of their pre-contractual negotiations the parties had held diametrically opposed points of view on the question of the applicable law, and for this reason did not specify such a law in their contract. Arbitrators in such circumstances may apply the law that best conforms to the parties’ legitimate expectations. To the same extent this was the trend followed in Article 3 (1) of the Rome Convention (Convention on the Law Applicable to Contractual Obligations (19 Jun 1980)), which provides that: “A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.”; 

[4] In order to consider a tacit choice as a choice made by the parties, and therefore, binding on the tribunal, there should be a clear indication that it represents the genuine choice of the parties. See Julian Lew, Applicable Law in International Commercial Arbitration, op. cit., p. 181; Amin Rasheed Shipping Corporation v. Kuwait Insurance Company (1984). E.C.R. 1351.

[5] Thomas, D. Rhidian, “Commercial Arbitration: Arbitration Agreements as a Signpost of The Proper Law,” [1984] LMCLQ, p. 141.

[6] English courts have held that an agreement to submit to the jurisdiction of the courts or to go to arbitration in a particular country is evidence of the intention to apply the law of that country. In most cases this has led to the application of English law. NV Kwik Hoo Tong Handel Maatschappij v. James & Co. Ltd,[1972] AC 604 HL; Tzortzis v. Monark Line AB, [1968] 1 WLR 406 CA. In the latter case, the choice of arbitration in London by a Greek and a Swedish party was considered to be a choice of English law; see also Sojuzenfterexport v. Joc Oil Ltd. (1990) Yearbook of Commercial Arbitration (1992), p. 384, in which it was agreed that all disputes were to be referred to arbitration in Moscow without specifying the proper law of the agreement, and in which the Bermuda Court decided that the Soviet law was the proper law to use in order to decide the scope of the agreement.

[7] In Tzortzis v. Monark Line A/B (1968) 1 All E.R. 949, also can be viewed in, 1 W.L.R. (1968) at 406.

[8] W. Michael Tupman, “Challenge and Disqualification of Arbitrators in International Commercial Arbitration,” 38 INT’L & COMP. L. Q., (1989), p. 26 at 42; Also see, Compagnie d'Armement Maritime S.A. Appellants v. Compagnie Tunisienne de Navigation S.A. Respondents(1971) A.C. 572.

[9] B. Stern, “Three Arbitrations, the Same Problem, Three Solutions,” Rev. Arb. 1957, p. 111, referring to the arbitrator in Aramco where he reached to the conclusion that: “the arbitral tribunal has no lex fori”. 

[10] Sometimes when parties select an arbitrator from a certain country and place the seat of arbitration in that same country, this may provide an indication that they expect him to apply the law of that country.

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