Applicable law in investor-state arbitration

Elisabeth Kjos, Hege

2013

Oxford University Press Grant

This book examines the law, national and/or international, that arbitral tribunals apply on the merits to settle disputes between foreign investors and host states. In light of the freedom that the disputing parties and the arbitrators have when designating the applicable law, and because of the hybrid nature of legal relationship between investors and states, there is significant interplay between the national and the international legal order in investor-state arbitration. The book contains a comprehensive analysis of the relevant jurisprudence, legal instruments, and scholarship surrounding arbitral practice with respect to the application of national law and international law. It investigates the awards in which tribunals referred to consistency between the legal orders, and suggests alternatives to the traditional doctrines of monism and dualism to explain the relationship between the national and the international legal order. The book also addresses the territorialized or internationalized nature of the tribunals; relevant choice-of-law rules and methodologies; and the scope of the arbitration agreement, including the possibility of host states presenting counterclaims in investment treaty arbitration. Ultimately, it argues that in investor–state arbitration, national and international law do not only coexist but may be applied simultaneously; they are also interdependent, each complementing and informing the other both indirectly and directly for a larger common good: enforcement of rights and obligations regardless of their national or international origin.

Law

English

978–0–19–965695–0 (print)

OXFORD MONOGRAPHS IN
INTERNATIONAL LAW
General Editors
VAUGHAN LOWE QC
Essex Court Chambers, London and Emeritus Fellow
of All Souls College, Oxford

P R O F E S S O R D A N SA R O O S H I
Professor of Public International Law
at the University of Oxford
and Senior Research Fellow of The Queen’s College, Oxford

S T E F A N T A L MO N
Director of the Institute of Public International Law
at the University of Bonn and Supernumerary Fellow of St Anne’s College, Oxford

Applicable Law in Investor–State Arbitration

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OXFORD MONOGRAPHS IN INTERNATIONAL LAW
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Applicable Law in
Investor–State Arbitration
The Interplay Between National and
International Law

HEGE ELISABETH KJOS

1
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3

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Acknowledgements
‘International investment law is one of the fastest-growing areas of international law
today. Only a decade ago, the current surge in investor–state arbitrations [ . . . ] was
beyond imagination.’1 It was just a bit more than a decade ago that I was fortunate to
enter the field of international investment arbitration. The rise in the number of
arbitrations and the accompanying growth in scholarship partly explain the time it
has taken to present this study. Relatedly, the fact that I have been examining a ‘moving
target’ has made the process more stimulating. I feel privileged to be able to continue to
work in this area that brings together so many facets of the law; the ‘field trip’2 is not
over. In this respect, I am especially grateful to be part of the project ‘International Law
through the National Prism: the Impact of Judicial Dialogue’ funded by the European
Science Foundation as a European Collaborative Research Project in the Social Sciences, as it has allowed me to explore more deeply the larger theme of this book: the
interactions between the national and the international legal orders.
There are many to thank now that the book is published. In addition to the great
OUP team and then especially the Monograph Series Editors, Merel Alstein and
Anthony Hinton, I mention in particular André Nollkaemper for believing in the
project and for his sharp guidance; the late Thomas W. Wälde, for giving me confidence and inspiration; and Sabine Schlemmer-Schulte and Ruth Teitelbaum for their
direction and friendship. I am also thankful to the distinguished Members of the
Doctoral Committee3 and Antonio Parra for their valuable comments and suggestions
to the doctoral thesis which forms the basis of this book; as well as Nwamaka Okany,
Yannick Radi, and Anthony Battah, especially, for our discussions. In addition to the
European Science Foundation, I gratefully acknowledge the (financial) support of the
Netherlands Organization for Scientific Research; the Hague Academy of International
Law, Centre for Studies and Research in International Law and International Relations;
and the School of International Arbitration, Queen Mary, University of London.
Warm thanks are also due my friends at the University of Amsterdam for making me
feel at home in the Netherlands and convincing me that I have the world’s best
colleagues. Next to Danielle Obradovic, Thomas Vandamme, Martine van Trigt, Jim
Mathis, Ronald van Ooik, Betty Kremer, Willem van Merle, Annemarieke VermeerKünzli, Ingo Venzke, Machiko Kanetake, Esther Kentin and Heather Kurzbauer; these
include my brilliant fellow pionieren: Geranne Lautenbach, Ward Ferdinandusse, Jann
Kleffner, Nikos Lavranos, Janne Nijman, and Fabián Raimondo.
To other dear friends in various corners of the world: thank you for adding sparkle to
my life, each in your own way.
I would like to dedicate this book to my family in Norway and the Netherlands, and
then especially to my husband Bertil—I could not have wished for a better partner and
1 S.W. Schill, Book Review, Principles of International Investment Law (2009) 20(2) Eur. J. Int’l L.
471 (reviewing R. Dolzer and C. Schreuer, Principles of International Investment Law [Oxford, Oxford
University Press, 2008]). Cf. A. Diehl, The Core Standards of International Investment Protection
(2012), 1 (‘Little more than a decade ago, investment arbitration was virtually unknown beyond the
circles of those who were involved in the negotiation of investment treaties’).
2 See Chapter 8 (concluding observations).
3 Catharina Brölmann, Filip De Ly, Pieter Jan Kuijper, André Nollkaemper, Christoph Schreuer,
Nico Schrijver, Ole Spiermann, and Erika de Wet. The Honorable Charles N. Brower served in the
role of independent expert.
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vi

Acknowledgements

a father for our daughters; to my Mamma and role model Kari, for everything, always;
and to my Pappa, Per-Arne, for giving me perspective and love. Last but not least,
I dedicate it to Nora Sofie and Kari Helena for making me smile inside and out, each
and every day. I love you.
Hege Elisabeth Kjos, Amstelveen, 18 September 2012

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Table of Contents
Table of Cases
Table of Legislation
List of Abbreviations

ix
xxi
xxviii

1. General Introduction
1. Motivations for the Study
2. The Scope of and Terminology Used in the Study
3. The Method and Plan of the Study

1
1
11
16

2. Territorialized and Internationalized Arbitration Tribunals
1. Introduction
2. Features of the Arbitral Process
3. Territorialized Tribunals
4. Internationalized Tribunals
5. General Conclusions

19
19
20
23
44
59

3. Choice-of-Law Rules
1. Introduction
2. The Linkage Between Lex Arbitri and Choice-of-Law Methodology
3. Choice-of-Law Rules
4. General Conclusions
4. The Scope of the Arbitration Agreement: Claims and Counterclaims
of a National and/or International Nature
1. Introduction
2. Characterization: The National or International Nature of Claims
3. The Scope of the Arbitration Agreement: National and/or
International Claims
4. Counterclaims by Host States
5. General Conclusions
5. The Primary Applicability of National Law and the Role of
International Law
1. Introduction
2. Reasons for the Primary Applicability of National Law
3. The Role of International Law when National Law
Primarily Applies
4. General Conclusions
6. The Primary Applicability of International Law and the Role of
National Law
1. Introduction
2. Reasons for the Primary Applicability of International Law
3. The Role of National Law when International Law
Primarily Applies
4. General Conclusions

61
61
62
67
103
105
105
106
112
128
154
157
157
158
181
211
213
213
213
240
269

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viii

Table of Contents

7. Concurrent Application of and Reference to National and
International Law in Case of Consistency
1. Introduction
2. Arbitral Practice
3. General Conclusions

271
271
275
293

8. Concluding Observations

295

Index

303

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Table of Cases
ARBITRAL AWARDS
Abaclat and Others (Case formerly known as Giovanna a Beccara and Others) v Argentine
Republic, ICSID Case No. ARB/07/5, Dissenting Opinion of Professor Georges
Abi-Saab, 28 October 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55–6
Abyei Arbitration (Government of Sudan v The Sudan People’s Liberation Movement/Army),
Award, 22 July 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ADC Affiliate Limited, ADC & ADMC Management Limited v Republic of Hungary,
ICSID Case No. ARB/03/16, Award, 2 October 2006 . . . . . . . . . . . . . 166, 223, 260, 265–6
ADF Group Inc. v United States, ICSID Case No. ARB (AF)/00/1, Procedural Order No. 2,
Award, 9 January 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 31
Adriano Gardella S.p.A. v Republic of the Ivory Coast, ICSID Case No. ARB/74/1, Award,
29 August 1977 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129, 288
AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17, Decision on
Jurisdiction, 26 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121, 241
AES Summit Generation Limited and AES-Tisza Erömü Kft. v Hungary, ICSID
Case No. ARB/07/22, Award, 23 September 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . .205–6
AGIP S.p.A. v People’s Republic of the Congo, ICSID Case No. ARB/77/1, Award,
20 November 1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71, 193, 280–1
Aguaytia Energy LLC v Republic of Peru, ICSID Case No. ARB/06/13, Award,
11 December 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v Republic of Kazakhstan,
ICSID Case No. ARB/01/6, Award, 7 October 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Alpha Projektholding GmbH v Ukraine, ICSID Case No. ARB/07/16, Award,
8 November 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231, 239, 254
Alsing Trading Co. & Svenska Tändsticks Aktiebolaget v Greece, Award, 22 December 1954
(Python, sole arb.), 23 I.L.R. 633 (1956) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1,
Award, 20 November 1984; Decision on Annulment, 16 May 1986; (resubmitted case),
Decision on Jurisdiction; Award, 5 June 1990 . . . . . . . . . . . . 58, 84, 92, 129, 152, 169, 191,
196, 209, 273, 277–8
American Bell International, Inc. v The Government of the Islamic Republic of Iran,
et al., Interlocutory Award No. ITL 41-48-3, 11 June 1984,
6 Iran-U.S. C.T.R. 74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69, 151, 272, 291–2
American International Group, Inc. and American Life Insurance Company v Islamic Republic
of Iran and Central Insurance of Iran, Award, 19 December 1983 . . . . . . . . . . . . . . .187, 234
Amman & Whitney and Ministry of Housing and Urban Development (Khuzestan
Department of Housing and Urban Development), Case No. 198, Chamber One,
Order, 30 January 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Amoco International Finance Corporation v Iran et al., Partial Award No. 310-56-3
(14 July 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161, 234
Anaconda-Iran, Inc. v Government of the Islamic Republic of Iran and National Iranian
Copper Industries Company, Case No. 167, Award No. ITL 65-167-3, Interlocutory
Award, 10 December 1986, 13 Iran-U.S. C.T.R. 199. . . . . . . . . . . . . . . . . 48, 51–2, 69, 94,
147, 167, 175–6, 263–4
Anderson et al. v Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award,
19 May 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
Aryeh v Iran, Award, 25 September 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Asian Agricultural Products Limited (AAPL) v Democratic Socialist Republic of Sri Lanka,
ICSID Case No. ARB/87/3, Award, 27 June 1990, 4 ICSID Rep. 246 (1997). . . . 78–9, 186,
223–4, 227, 259, 263
Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea, ICSID
Case No. ARB/84/1, Award, 21 April 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129, 180
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x

Table of Cases

Austrian Airlines v Slovak Republic, Final Award and Dissenting Opinion (redacted version),
20 October 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Autopista Concesionada de Venezuela, C.A. (‘Aucoven’) v Bolivarian Republic of Venezuela,
ICSID Case No. ARB/00/5, Award, 23 September 2003 . . . . . . . . . . 70, 76–7, 174, 191–2,
197–8, 209–10
Azinian Davitian, & Baca v Mexico, ICSID Case No. ARB (AF)/97/2, Award,
1 November 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123–4, 151, 243
Azurix Corp. v Argentine Republic, ICSID Case No. ARB/01/12, Decision on Jurisdiction,
8 December 2003; Decision on Annulment, 1 September 2009 . . . . . 57, 109, 186, 230, 256
Banro American Resources, Inc. and Société Aufière du Kivu et du Maniema S.A.R.L. v
Democratic Republic of the Congo, ICSID Case No. ARB/98/7, Award,
1 September 2000, ICSID Rev.-FILJ. 382 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan, ICSID
Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005 . . . . . . . . . . . . . . . . 182
Bendone-DeRossi Int’l v Iran, 11 March 1988, Award No. 352-375-1 . . . . . . . . . . . . . . . . . . 292
Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No. ARB/77/2,
Award, 8 August 1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129, 290
Berschader v Russia, SCC Case No. 080/2004, Award, 21 April 2006. . . . . . . . . . . . . . . . . . . 266
BG Group Plc v Argentina, Award, 24 December 2007 . . . . . . . . . . . . . . . . . . 7–8, 33, 185, 233,
243, 287–8
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government
of Ghana, Award on Jurisdiction and Liability, 27 October 1989; Award on Damages
and Costs, 30 June 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78, 108, 115–16, 288
Bogdanov, Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic
of Moldova, SCC Institute, Award, 22 September 2005 . . . . . . . . . . . . 31, 119–20, 176, 261
BP America Production Co. and Others v Argentine Republic, ICSID Case No. ARB/04/8,
Decision on Preliminary Objections, 27 July 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 247, 251
Bridas S.A.I.P.I.C and others v Government of Turkmenistan, Concern Balkannebitgazsenagat
and State Concern Turkmenneft, ICC Arbitration Case No. 9058/ FMS/KGA, First
Partial Award, 25 June 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
British Petroleum Exploration Co. (BP) v Libyan Arab Republic, Award, 10 October 1973
and 1 August 1974. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39, 64, 206–7, 219
Cable TV v The Federation of St. Christopher (St. Kitts) and Nevis, Award, ICSID
Case No ARB/95/2, 13 January 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169, 210
Carolina Brass, Inc. v Iran, Award, 12 September 1986, Award No. 252-10035-2,
12 Iran-U.S. C.T.R. 139 (1986 III). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49–50
Casado and President Allende Foundation v Republic of Chile, ICSID Case No. ARB/98/2,
Award, 8 May 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
CDC Group plc v Republic of the Seychelles, ICSID Case No. ARB/02/14, Award 17 December
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Cementownia ‘Nowa Huta’ S.A. v Republic of Turkey, ICSID Case No. ARB(AF)/06/2,
Award, 17 September 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132, 139
Ceskoslovenska Obchodni Banka, A.S. v The Slovak Republic, ICSID Case No. ARB/97/4,
24 May 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54, 112
Chevron Corporation and Texaco Petroleum Company v The Republic of
Ecuador, UNCITRAL, PCA Case No. 34877, Partial Award on the Merits,
30 March 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 119
CME Czech Republic B.V. v Czech Republic, Partial Award, 13 September 2001;
Final Award, 14 March 2003 . . . . . . . . . . . . . . . . . . . . . 165–7, 185, 191, 207–8, 231, 246,
263, 269, 287
CMI International, Inc. v Ministry of Roads and Transportation, Iran, 27 December 1983,
4 Iran-U.S. C.T.R. 263 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93, 126, 171
CMS Gas Transmission Company v Argentine Republic, ICSID Case No. ARB/01/8,
Decision on Jurisdiction, 17 July 2003; Award, 12 May 2005; Decision on Annulment,
25 September 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 166, 186, 228, 247, 249–51, 262–271
Colt Industries v The Republic of Korea, ICSID Case No. ARB/84/2), Settlement,
3 August 1990, unreported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
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Table of Cases

xi

Compañía de Aguas, SA and Vivendi Universal v Argentina, ICSID Case ARB/97/3, Award I,
21 November 2000; Decision on Annulment; Award II . . . . . . . . 110, 119–22, 146, 149–50,
162–3, 174, 186, 230, 248
Compañía del Desarrollo de Santa Elena, S.A. v Republic of Costa Rica, ICSID
Case No. ARB/96/1, Award, 17 February 2000 . . . . . . . . . . . . . 74, 79, 209–10, 236–9, 290
Continental Casualty Company v Argentine Republic, ICSID Case No. ARB/03/9, Decision on
Jurisdiction, 22 February 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Cook v Mexico, Opinions of Commissioners (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
Corn Products International, Inc. v United Mexican States, ICSID Case No. ARB (AF)/04/1,
Decision on Responsibility, 15 January 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Davidson (Homayounjah) v Iran, Award, 5 March 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Desert Line Projects LLC v Republic of Yemen, ICSID Case No. ARB/05/17, Award,
6 February 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131, 289–90
Dic of Delaware, et al. v Tehran Redevelopment Corp., et al., Award,
26 April 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175, 292
Duke Energy Electroquil Partners & Electroquil S.A. v Republic of Ecuador,
ICSID Case No. ARB/ 04/19, Award, 18 August 2008 . . . . . . . . . .10, 71, 108–9, 112, 210,
248, 250, 300
Duke Energy International Peru Investments No. 1, Ltd v Peru, ICSID Case No. ARB/03/28,
Decision on Jurisdiction, 1 February 2006; Award, 18 August 2008; Decision
on Annulment, 1 March 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166, 210, 229, 257
Eastern Sugar B.V. v Czech Republic, SCC Case No. 088/2004, Partial Award,
27 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204, 233, 259
Economy Forms Corporation v Government of the Islamic Republic of Iran et al.,
Award No. 55-165-1, 3 I. U.S. C.T.R. 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84, 175
EDF (Services) Limited v Romania, ICSID Case No. ARB/05/13, Award,
8 October 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
El Paso Energy International Company v Argentine Republic, ICSID Case No. ARB/03/15,
Decision on Jurisdiction, 27 April 2006. . . . . . . . . . . . . . . . . . . 21, 110, 230–1, 247, 251–3
EnCana Corporation v Republic of Ecuador, LCIA Case UN 3481, Award,
3 February 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244, 288
Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic, ICSID
Case No. ARB/01/3, Award, 22 May 2007 . . . . . . . . . . . . . . . . . . . . 6, 57, 255–6, 283, 295
Etezadi v Iran, Award, 23 March 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245, 257
Eureko B.V. v Republic of Poland, Partial Award, 19 October 2005 . . . . . . . . . . . . . 122, 247, 252
Eureko B.V. v Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction,
Arbitrability and Suspension, 26 October 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Europe Cement Investment & Trade S.A. v Republic of Turkey, ICSID
Case No. ARB(AF)/07/2, Award, 13 August 2009 . . . . . . . . . . . . . . . . . . . . . . 132, 139, 143
Fakes v Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010 . . . . . . . . . . . 267
Fedax v Venezuela, ICSID Case No. ARB/96/3, Award, 9 March 1998 . . . . . . . . . . . . . . . . . 252
Fedders Corp. v Iran, Decision No. DEC 51-250-3, 13 Iran-U.S. C.T.R. 97
(28 October 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
FMC Corporation and The Ministry of National Defence et al., Award No. 292-353-2,
12 February 1987, 14 Iran-U.S. C.T.R. 111 . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 62, 69, 162
France Telecom v Republic of Lebanon, unpublished award rendered in Switzerland,
pursuant to the UNCITRAL Arbitration Rules on 22 February 2005 . . . . . . . . . . . . . . . 147
Fraport AG Frankfurt Airport Services Worldwide v Philippines, ICSID Case No. ARB/03/25,
Award, 16 August 2007; Decision on the Application of Annulment,
23 December 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263, 267–8, 284
French Company of Venezuelan Railroads case (1905), Ralston’s Report, p. 367 . . . . . . . . . . . 105
Funnekotter and others v Republic of Zimbabwe, ICSID Case No. ARB/05/6, Award,
22 April 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Gami Investments, Inc. v Mexico, Final Award, 15 November 2004 . . . . . . . . . . . . . . . . .202, 239
Generation Ukraine, Inc. v Ukraine, ICSID Case No. ARB/00/9, Award,
16 September 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 125, 242

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xii

Table of Cases

Genin, Eastern Credit Limited, Inc. v Republic of Estonia, ICSID Case No. ARB/99/2,
Award, 25 June 2001 . . . . . . . . . . . . . . . . . . . . . . . .125, 131, 134, 139, 143, 151, 170, 180
Global Trading Resource Corp. and Globex International, Inc. v Ukraine, ICSID
Case No. ARB/09/11, Award, 1 December 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Goetz and others v Republic of Burundi, ICSID Case No. ARB/95/3, Award (embodying
the parties’ Settlement Agreement), 10 February 1999 . . . . . . . . . . . . . . . . . . . . . 2, 5, 71–2,
185, 222, 281–4, 300, 302
Goetz and others v Republic of Burundi, ICSID Case No. ARB/01/2, Award,
21 June 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133–4, 138, 147
Gould Marketing, Inc. v Ministry of National Defense, Award No. ITL 24-49-2, 27 July 1983,
3 Iran-U.S. C.T.R. 147 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Government of the State of Kuwait v American Independent Oil Company (Aminoil), Award,
24 May 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130, 184, 272
Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No. ARB/07/24,
Award, 18 June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110, 128, 132, 142, 266
Harnischfeger Corp. v Ministry of Roads & Transportation, Partial Award,
13 July 1984, 7 Iran-U.S. C.T.R. 90; Final Award, 26 April 1985, 8 Iran-U.S.
C.T.R. 119 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84, 93–4, 272, 291
Harris International Telecommunications, Inc. v Iran, Partial Award, 2 November 1987,
17 Iran-U.S. C.T.R. 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151–2
Himpurna California Energy Ltd v Indonesia, Interim Award, 26 September 1999
(2000) XXV Y.B. Comm’l Arb. 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 185
Himpurna California Energy Ltd v PT. (Persero) Perusahaan Listruik Negara,
Final Award, 4 May 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
ICC Case No. 1434 (1975), reprinted in Yves Derains, Chronique de Sentences Arbitrales,
Clunet (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
ICC Case No. 1990, Award, 1972 (Italian Claimant v Spanish Respondent) . . . . . . . . . . . . . . 261
ICC Case No. 2930, Award, 1982 (Two Yugoslav Enterprises v Swiss Company),
Y.B. Comm. Arb. 105 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
ICC Case No. 5505, Preliminary Award, 1987, 13 Y.B. Com.Arb. 110 (1988) . . . . . . . . . . . . . 96
Inceysa Vallisoletana S.L. v Republic of El Salvador, ICSID Case No. ARB/03/26, Award,
2 August 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179–80, 266–8
International Thunderbird Gaming Corporation v United Mexican States, Award,
26 January 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223, 244, 254
Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and
S.C. Multipack S. R.L. v Romania, ICSID Case No. ARB/05/20, Decision
on Jurisdiction and Admissibility, 24 September 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Iran and The United States, Request for Interpretation: Jurisdiction of the Tribunal
with respect to claims by the Islamic Republic of Iran against nationals of the
United States of America, Case No. A/2-FT, 13 January 1982,
1 Iran-U.S. C.T.R. 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Iran v United States, Case A-19, 30 September 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
Iran v United States, Case No. A/18, Decision No. DEC 32-A18-FT, 6 April 1984 . . . . . . . . . 48
Ireland v United Kingdom (‘OSPAR’ Arbitration), Final Award, 2 July 2003. . . . . . . . . . . . . . 199
Isaiah v Bank Mellat, Award, 30 March 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
Iran and United States of America, Case A/21, Decision No. Dec. 62-A21-FT, 4 May 1987, 14
Iran-U.S. C.T.R. 324 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Iran and United States of America, Case No. A/27, Award No. 586-A27-FT, 5 June
(1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48, 52, 140
Iran and United States of America, Decision No. DEC 134-A3/A8/A9/A14/B61-FT
(Decision ruling on Request for Revision by the Islamic Republic of Iran),
1 July 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Iran v The United States of America, Case No. B1 (Counterclaim), Interlocutory Award,
9 September 2004, Award No. ITL 83-B1-FT . . . . . . . . . . . . . . . . . . . . . . . 128, 140–1, 146
Italian Claimant v Spanish Respondent, ICC Case No. 1990, Award, 1972. . . . . . . . . . . . . . . 261
Joint Venture Yashlar and Bridas S.A.I.P.I.C. v Turkmenistan, ICC Arbitration
Case No. 9151/FMS/KGA, Interim Award, 8 June 1999; Final Award,
19 May 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .160, 266
Joy Mining Machinery Ltd v Egypt, ICSID Case ARB/02-03/11, Decision on Jurisdiction,
6 August 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111, 247
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Table of Cases

xiii

Karpa v United Mexican States, ICSID Case No. ARB(AF)/99/1, Decision on Jurisdiction,
6 December 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Kilic Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v Turkmenistan, ICSID
Case No. ARB/10/1, Decision on treaty authenticity and interpretation, 7 May 2012. . . . 182
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and
Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award,
21 October 1983; Decision on Annulment, 3 May 1985 . . . . . . . . . . . . . . 129, 143, 151–2,
168–9, 191, 208, 238, 272–4, 279, 288–9
Lemire v Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability,
14 January 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Lena Goldfields Ltd v Soviet Government, Award, September 1930 . . . . . . . . . . . . . 114, 129, 217
L.E.S.I. S.p.A. et ASTALDI S.p.A. v People’s Democratic Republic of Algeria, ICSID
Case No. ARB/05/3, Decision on Jurisdiction, 12 July 2006. . . . . . . . . . . . . . . . . . . . . . 267
LG&E Energy Corp. et al. v Argentina, ICSID Case No. ARB/02/1, Decision on
Liability, 3 October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 77, 89, 92–3, 166, 210, 230, 259
Liberian Eastern Timber Corporation (LETCO) v Republic of Liberia, ICSID
Case No. ARB/83/ 2, Award, 31 March 1986, rectified 10 June 1986 . . . . . . . . 76, 194, 209,
272, 279–80
Libyan American Oil Company (LIAMCO) v Government of the Libyan Arab Republic,
Award, 12 April 1977, 20 I.L.M. 1 (1981). . . . . . . . . . . . . . 25–6, 69, 82, 114–15, 184, 194,
206–7, 219, 276–7
Limited Liability Company Amto v Ukraine, SCC Case No. 080/2005, Final Award,
26 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132, 138–9, 147
Loewen Group, Inc. and Raymond L. Loewen v United States, ICSID
Case No. ARB(AF)/98/3, 26 June 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124, 225
Maffezini v Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000 . . . . . . . 108, 186, 263
Malaysian Historical Salvors, SDN, BHD v Malaysia, ICSID Case No. ARB/05/10,
Decision on Annulment, 16 April 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Malicorp Limited v Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award,
7 February 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Maritime International Nominees Establishment (MINE) v Republic of Guinea,
ICSID Case No. ARB/84/4), Award, 6 January 1988; Decision on Annulment,
2 December 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55, 129, 160
M.C.I. Power Group L.C. and New Turbine, Inc. v Ecuador, ICSID Case No. ARB/03/6,
Award, 31 July 2007; Decision on Annulment, 19 October 2009 . . . . . 57, 77, 166, 210, 283
Merrill & Ring Forestry L.P. v Canada, Award, 31 March 2010 . . . . . . . . . . . . . . . . . . . . 14, 226
Metalclad Corporation v United Mexican States, ICSID Case No. ARB(AF)/97/1,
Award, 30 August 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Methanex v United States, Final Award, 3 August 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 201
Middle East Cement Shipping and Handling Co. S.A. v Arab Republic of Egypt,
ICSID Case No. ARB/99/6, Award, 12 April 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 124–5
Mihaly International Corporation v Sri Lanka, ICSID Case No. ARB/00/2, Award,
15 March 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse
Electric Corp., ICC Award No. 7375, 5 June 1996 . . . . . . . . . . . . . . . . . . . . . . . .73, 75, 83
Mobil Oil Iran v Iran, Partial Award No. 311-74/76/81/150-3, 14 July 1987 . . . . . . 94, 127, 162,
167, 176, 220–1, 233
Morrison-Knudsen Pacific Limited v Ministry of Roads and Transportation (MORT)
and Iran, Award, 13 July 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
MTD Equity Sdn. Bhd. & MTD Chile S.A. v Chile, ICSID Case No. ARB/01/7,
Award, 25 May 2004; Decision on Annulment, 21 March 2007 . . . . . . . . . . 56–7, 167, 230,
251–2, 255–6
Nagel v Czech Republic, SCC Case 49/2002, Award, 9 September 2003, Stockholm
Arb. Rep. 141 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243–4
National Grid plc v Argentine Republic, Award, 3 November 2008 . . . . . . . 7, 185, 243, 256, 288
National Oil Corporation v Libyan Sun Oil Company, ICC Case No. 4462, First Award
(on force majeure), 31 May 1985, 29 I.L.M. 565 (1990) . . . . . . . . . . . . . . . . . . . . .113, 159
Noble Energy, Inc. and Machalapower CIA. LTDA v Ecuador and Consejo Nacional de
Electricidad, ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008. . . . . . . 8
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xiv

Table of Cases

Noble Ventures, Inc. v Romania, ICSID Case No. ARB/01/11, Award,
12 October 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174, 247, 249, 253–4
Occidental Exploration and Production Company v Republic of Ecuador, LCIA
Case No. UN 3467, Final Award, 1 July 2004 . . . . . . . . . . . . . . . . . . . 33, 40, 110, 185, 271
Oil Field of Texas, Inc. v Iran, National Iranian Oil Company, Oil Service Company
of Iran, Interlocutory Award, 9 December 1982, 1 Iran-U.S. C.T.R. 347. . . . . . . . . 192, 292
Oostergetel and Laurentius v Slovak Republic, Final Award, 23 April 2012 . . . . . . . . . . . . 31, 259
Pan American Energy LLC and BP Argentina Exploration Company v Argentine
Republic, ICSID Case No. ARB/03/13, Decision on Preliminary Objections,
27 July 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Pantechniki S.A. Contractors & Engineers v Republic of Albania, ICSID Case No.
ARB/07/21, Award, 30 July 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110–11
Petrobart v Kyrgyz Republic, SCC Case No. 126/2003, Award,
29 March 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 223, 239, 248–9, 254
Petroleum Development Ltd v Sheikh of Abu Dhabi, Award, September 1951 . . . . . . . . . . . . 190
Phelps Dodge Corp. v Islamic Republic of Iran, Award, 19 March 1986 . . . . . . . . . . . . . . . . . 234
Phillips Petroleum Company v Iran, Award, 29 June 1989 . . . . . . . . . . . . . . . . . . . . . . . . .95, 233
Phoenix Action, Ltd v Czech Republic, ICSID Case No. ARB/06/5, Award,
15 April 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264–5, 267
Plama Consortium Limited v Bulgaria, ICSID Case No. ARB/03/24, Award,
27 August 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179, 265–6
Pomeroy v Iran, Award, 8 June 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
PSEG Global Inc., The North American Coal Corporation, and Konya Ilgin Elektrik
Üretim ve Ticaret Limited Sirketi, ICSID Case No. ARB/02/5, Decision on
Jurisdiction, 4 June 2007; Award, 19 January 2007 . . . . . . . . . . . . . . . . . . . . . 109, 183, 272
Questech, Inc. v Ministry of National Defence of the Islamic Republic of Iran, Award,
20 September 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Ram International Industries, Inc., et al. and Air Force of the Islamic Republic of
Iran, Decision No. DEC 118-148-1, para. 20 (28 December 1993),
29 Iran-U.S. C.T.R. 383 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Reineccius v Bank for International Settlements, Partial Award on the Lawfulness of the
Recall of the Privately Held Shares on 8 January 2001 and the Applicable Standards
for Valuation of those Shares, PCA, 22 November 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 260
Riahi v Iran, Final Award, 27 February 2003, Award No. 600-485-1 . . . . . . . . . . . . . . . . . . . 245
RosInvest v Russian Federation, SCC Case No. Arbitration V 079/2005, Award on
Jurisdiction, October 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Roussalis v Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011 . . . . . . 71, 116, 130,
133, 136–8, 144
RSM Production Corporation v Grenada, ICSID Case No ARB/05/14, Award,
13 March 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113, 161
Ruler of Qatar v Int’l Marine Oil Co., Award, June 1953, 20 ILR 534 (1957). . . . . . . . . . . . . 191
Sabet v Iran, Partial Award, 29 June 1999, Award No. 593-815/816/817-2. . . . . . . . . . . . . . . 241
Saipem S.p.A. v The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7,
Award, 30 June 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34–5, 231
Salini Costrutorri S.p.A. and Italstrade S.p.A. v Morocco, ICSID Case No. ARB/00/4,
Decision on Jurisdiction, 23 July 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20, 118
Salini Costruttori S.p.A. and Italstrade S.p.A. v Hachemite Kingdom of Jordan,
ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November 2004 . . . . . . . . . . 249
Salini Costruttori S.p.A. v Federal Democratic Republic of Ethiopia, Addis Ababa
Water and Sewerage Authority, Award, 7 December 2001, ICC Case No. 10623. . . . . . . . 27
Saluka Investments B.V. v Czech Republic, Decision on Jurisdiction over the Czech
Republic’s Counterclaim, 7 May 2004. . . . . . . . . . . . . . .128, 131–2, 134–43, 146–7, 151–2
Sapphire Int’l Petroleum Ltd v National Iranian Oil Co., Award, 15 March 1963,
35 I.L.R. 136 (1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 63–5, 75, 218–19
Saudi Arabia v Arabian American Oil Co. (Aramco), Award, 23 August 1958 . . . . . 25, 30, 82, 278
SCC Case 10/2005, Interlocutory Arbitral Award, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

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SCC Case 117/1999, Separate Arbitral Award, 2001, Stockholm Arb.
Rep. 59 (2002:1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66, 74, 81
Schlegel Corporation v National Iranian Copper Industries Company, Award,
27 March 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Sea-Land Service, Inc. v Government of the Islamic Republic of Iran, Ports and Shipping
Organizations (PSO), Case No. 33, Award, 22 June 1984. . . . . . . . . . . . . . . . . . 174–5, 245
Sedco, Inc. v National Iranian Oil Company, Award, 27 March 1986. . . . . . . . . . . . . . . . . . . 234
Sempra Energy International v Argentine Republic, ICSID Case No. ARB/02/16,
Award, 28 September 2007; Decision on Request for Stay of Enforcement,
5 March 2009; Decision on Annulment, 29 June 2010 . . . . . . . . . . .57–8, 133, 178–9, 182,
210, 250, 256, 283, 295
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Mongolia,
Award on Jurisdiction and Liability, 28 April 2011. . . . . . . . . . . . . . . . . . . . 132, 147, 151–3
SGS Société Générale de Surveillance S.A. v Pakistan, ICSID Case No. ARB/01/13,
Procedural Order, 16 October 2002; Decision on Jurisdiction,
6 August 2003 . . . . . . . . . . . . . . . . . . . 109, 118, 133–4, 140, 143, 147, 150, 174, 247, 251
SGS Société Générale de Surveillance S.A. v Republic of Paraguay, ICSID
Case No. ARB/07/29, Award, 10 February 2012. . . . . . . . . . . . . . . . . . . . . . . . 118–19, 250
SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID
Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004 . . . . . . . . 9, 118–19, 133–4,
143, 247, 249, 251
Siag and Vecchi v Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on
Jurisdiction and Partial Dissenting Opinion, 11 April 2007. . . . . . . . . . . . . . . . . . . . . . . 257
Siemens A.G. v Argentine Republic, ICSID Case No. ARB/02/8, Award,
6 February 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72, 166–7, 186, 247, 250
Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal, ICSID
Case No. ARB/82/1, Award, 25 February 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173–4
Soufraki v United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment,
5 June 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Southern Pacific Properties (Middle East) Limited (SPP) v Arab Republic of Egypt,
ICSID Case No. ARB/84/3, Decision on Jurisdiction, 14 April 1988; Award,
20 May 1992 . . . . . . . . . . . . . . . . . . . . . . 75–6, 114, 117, 162, 170–1, 176, 184, 186, 192,
194–5, 209, 259, 284–7, 289
SPP (Middle East) Ltd v Arab Rep. of Egypt, ICC Award No. 3493, Award,
16 February 1983. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83, 113, 167, 184, 284
Starrett Housing Corp. v Iran, Interlocutory Award, 19 December 1983 . . . . . . . . . . . . . . . . . 127
SwemBalt AB v Latvia, Award, 23 October 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited,
ICSID Case No. ARB/98/8, Award, 12 July 2001 . . . . . . . . . . . . . . . . . . . . . . . . . .113, 161
Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID
Case No. Arb (AF)/00/2, Award, 29 May 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 222–3, 239
Texaco Overseas Petroleum Co. & California Asiatic Oil Co. (TOPCO/CALASIATIC)
v Gov’t of the Libyan Arab Republic, Decision on Jurisdiction, 27 November 1975;
Preliminary Award, 27 November 1975; Award, 19 January 1977,
53 I.L.R. 389 (1979) . . . . . . . . . . . 22, 25, 69, 75, 115, 165, 167, 189, 191, 206–7, 219–20
Tokios Tokelés v Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction 29 April 2004;
Award, 26 July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53, 237–9, 267
Total S.A. v Argentina, Decision on Liability, ICSID Case No. ARB/04/1, 21 December 2010;
Award, IIC 484 (2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .256, 263
Tradex Hellas S.A. v Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction,
24 December 1996; Final Award, 29 April 1999 . . . . . . . . . . . . . . 117–18, 176, 188–9, 210
TSA Spectrum de Argentina S.A. v Argentina Republic, ICSID Case No. ARB/05/5,
Award, 19 December 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Unglaube & Unglaube v Republic of Costa Rica, ICSID Case No. ARB/08/1 and ICSID
Case No. ARB/09/20, Award, 16 May 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

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xvi

Table of Cases

United Pet Group, Inc. v Texas International Property Associates, Case No. D2007-1039,
WIPO Arbitration and Mediation Center, 25 September 2007 . . . . . . . . . . . . . . . . . . . . 273
US v Iran, Case No. B36, Award, 3 December 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Waste Management, Inc. v United Mexican States (Number 2), ICSID Case No. ARB(AF)/00/3,
Decision on Venue of the Arbitration, 26 September 2001; Award,
30 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34, 76, 123, 173
Watkins-Johnson Company v Iran, Award, 28 July 1989, Award No. 429-370-1. . . . . . . . . . . 167
Wena v Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000; Decision on
Annulment, 5 February 2002 . . . . . . . . . . . . . 7, 165–6, 170, 174, 183, 185–6, 213, 226–9,
246, 266, 269–70, 273
Wintershall A.G. v Government of Qatar, Partial Award, February 5, 1988; Final Award,
31 May 1988, 28 I.L.M. 795 (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 114, 172–3
Woodruff case, American-Venezuelan Mixed Commission, 1903, IX Reports of
International Arbitral Awards 213 (1903–1905) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
World Duty Free Company Ltd v Republic of Kenya, ICSID Case No. ARB/00/7, Award,
4 October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99–100, 161, 201
Zeevi Holdings Ltd v Republic of Bulgaria and The Privatization Agency of Bulgaria,
Final Award, 25 October 2006, UNCITRAL Case No UNC 39/DK . . . . . . . . . . . . 159–60
INTERNATIONAL/REGIONAL COURT RULINGS/OPINIONS
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v Yugoslavia), Counter-Claims, Order, 17 December [1997]
ICJ Rep. 243 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128–30, 140, 148–50, 153
Asylum Case (Columbia/ Peru), Judgment, 20 November, ICJ Rep. 1950, pp. 280-1 . . . . . . . 149
Case Concerning Ahmadou Sadio Diallo (Guinea v Congo), Preliminary Objections, ICJ,
24 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8, 258
Case Concerning Anglo-Iranian Oil Co. (United Kingdom v Iran), Judgment, 22 July [1952]
ICJ Rep. 93 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 172
Case Concerning Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal), Judgment,
12 November 1991, [1991] ICJ Rep. 53 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 120, 273
Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic
of the Congo v Uganda), Counter-Claims Order, 29 November [2001] ICJ
Rep. 660 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129, 148–50, 153
Case Concerning Certain German Interests in Polish Upper Silesia (Germany v Poland),
Judgment, 25 May 1926, PCIJ Ser. A No. 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Case Concerning Certain Norwegian Loans (France v Norway), Judgment, 6 July 1957,
[1957] ICJ Rep. 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Case Concerning Elettronica Sicula S.p.A. (ELSI) (United States of America v Italy),
20 July 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
Case Concerning Fisheries Jurisdiction (Spain v Canada), Judgment, 4 December 1998, [1998]
ICJ Rep. 432 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Case Concerning the Frontier Dispute (Burkina Faso/Republic of Mali), Judgment of the Chamber,
22 December [1986] ICJ Rep. 554 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Case Concerning Jurisdictional Immunities of the State (Germany v Italy) (Counterclaim), Order
of 6 July 2010, ICJ General List No 143 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Case Concerning LaGrand (Germany v United States of America), Judgment, 27 June [2001]
ICJ Rep. 466 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224–5, 254
Case Concerning Maritime Delimitation and Territorial Questions Between Qatar and
Bahrain (Qatar v Bahrain), Judgment, 16 March 2001, [2001] ICJ Rep. 40. . . . . . . . . . . . 78
Case Concerning Oil Platforms (Iran v United States of America), Counter-Claim
Order of 10 March [1998] ICJ Rep. 190; Judgment, 6 November 2003, [2003]
ICJ Rep. 161 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106, 148–50
Case Concerning the Barcelona Traction, Light and Power Company, Limited
(Belgium v Spain), Judgment, 5 February [1970] ICJ Rep. 3. . . . . . . . . . . . . . 15, 241–2, 258

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Case Concerning the Land and Maritime Boundary Between Cameroon and Nigeria
(Cameroon v Nigeria: Equatorial Guinea intervening), Order of 30 June 1999. . . . . . . . . 149
Case Concerning the Payment in Gold of Brazilian Federal Loans Contracted in France,
Judgment No. 15, 12 July 1929, PCIJ, Ser. A., No. 21, 1929. . . . . . . . . . . . . . . . . . . . . 107
Case Concerning the Payment of Various Serbian Loans Issued in France, PCIJ,
Ser. A., No. 20, 1929 (Judgment No. 14, 12 July 1929). . . . . . 66, 74, 107, 171–2, 214, 220
Commission v Austria and Commission v Sweden, Case C-205/06 and
Case C-249/06 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Commission v Ireland, Case C-459/03 [2006] ECR I-4635 . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Costa v E.N.E.L., Case 6/64, ECJ, Judgment, 15 July 1964 . . . . . . . . . . . . . . . . . . . . . . .184, 238
Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others, Case
C-453/99 [2001] ECR I-06297 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Defrenne v Sabena, Case 43/75 [1976] ECR 455 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Eco Swiss China Time Ltd v Benetton International NV, Case C-126/97 [1999]
ECR 1 3055 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 203, 260
EFTA Court, Case E-1/07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .188, 238
Kadi and Al Barakaat, Joined Cases C-402/05 P and C-415/05 P [2008]
ECR II-3649 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .204, 301
Legality of the Threat or Use of Nuclear Weapons, Advisory Opinion, 8 July 1996,
[1996] ICJ Rep. 226 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei
Nordstern AG, Case 102/81 [1982] ECR 1095 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Nottebohm Case (Liechtenstein v Guatemala), Judgment, 6 April 1955, 1955 ICJ 4 . . . . . . . . 253
N.V. Algemene Transportùen Expeditie Onderneming Van Gend & Loos v Nederlandese
Administratie der Belastungen, Case 26/62 [1963] ECR 1 . . . . . . . . . . . . . . . . . . . . . . . 177
Panevezys-Saldutiskis Railway Case, Judgment, 28 February 1939, PCIJ
Ser. A/B, no. 76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Spaans v the Netherlands, European Commission of Human Rights,
Application No. 12516/86, 12 December (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51–2
Status of Eastern Carelia Case (Fin. v USSR), 1923 PCIJ (Ser. B) No. 5
(Advisory Opinion of 23 July). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Swedish Engine Drivers’ Union v Sweden, EHRR, 6 February 1976,
App. 5614/ 72, Series A, no. 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Van Munster v Rijksdienst voor Pensioenen, Case C-165/91 [1994] ECR I-4661 . . . . . . . . . . 188
NATIONAL COURTS
Belgium
Eureko B.V. v Republic of Poland, Judgment of Court of First Instance of Brussels,
23 November 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32, 82
Benin
Okpeticha v Okpeticha, Constitutional Court, Decision, 17 August 2001 . . . . . . . . . . . . . . . . 177
Canada
Bayview Irrigation District et al. v Mexico, Ontario Superior Court of Justice,
Application for Set Aside, 5 May 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Council of Canadians, CUPW and the Charter Committee on Poverty Issues
v the Attorney General of Canada, Ontario Superior Court of Justice . . . . . 34, 173, 225, 260
Dell Computer Corp. v Union des consommateurs, Supreme Court of Canada,
13 July 2007, 2007 SCC 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Democracy Watch and CUPW v Attorney-General of Canada, 19 May 2003 . . . . . . . . . . . . . . 10
Metalclad Corporation v Mexico, British Columbia Supreme Court, Statutory
Review, 2 May 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

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xviii

Table of Cases

Denmark
Swembalt v Latvia, Review by the Maritime and Commercial Court, Copenhagen,
7 January 2003, 2003:2 Stockholm Arb. Rep . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
France
Benvenuti & Bonfant Company v The Government of the People’s Republic of Congo, Court of
Appeals of Paris, France, Judgment, 6 June 1981, 20 I.L.M. 877 (1981) . . . . . . . . . . . . . . 58
Hilmarton Ltd v Omnium de Traitement et de Valorisation, Decision No. 484, French
Cour de Cassation, First Civil Chamber (1994), Revue de l’arbitrage 327 (1994),
XX Y.B. Comm’l Arb. 663 (1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Messageries maritimes, Court of Cassation, 21 June 1950. . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
PrenNreka v Czech Republic, Recours en Annulation, Cour d’Appel de Paris, Judgment, 25
September 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Société PT Putrabali Adyamulia v Société Rena Holding, Cass. Civ., 29 June 2007,
Nos 05-18053 and 06-13293, 24 Arb. Int’l 293 (2008) . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Thales Air Defence B.V v GIE Euromissiles, EADS France and EADS Deutschland GmbH,
CA Paris, 18 November 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Germany
Eureko, Decision of the Frankfurt Higher Regional Court (Oberlandesgericht),
10 May 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .205–6
Israel
Kurtz and Letushinsky v Kirschen, Supreme Court, 27 June 1967, 47 I.L.M. 212 . . . . . . . . . . 188
Tibi v Government of Israel, HCJ 6230/95 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Italy
Ente Nazionale per la Cellulosa v Cartiera Italiana, 24 I.L.R. 12 (1957) . . . . . . . . . . . . . . . . . 182
Latvia
Case No. 2004-10-01, Judgment, Riga, 17 January 2005, Constitutional Court . . . . . . . . . . . . 31
Netherlands
Bouterse, Supreme Court, 18 September 2001, NJ 2002, 559 . . . . . . . . . . . . . . . . . . . . . . . . 183
Marketing Displays International Inc. v VR, Court of The Hague, March 24, 2005. . . . . . . . . 204
SA Maritime et Commerciale v Netherlands (Nyugat II), Supreme Court,
6 March 1959, NJ 1962 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Société Européenne d’Etudes et d’Entreprises v République Fédérative de Yougoslavie,
Decision of 7 November 1975, Supreme Court (Hoge Raad) . . . . . . . . . . . . . . . . . . . . . . 38
Spaans v Iran-US Claims Tribunal (Dist. Ct The Hague, 9 July 1984), overruling decision
of the Kantonrechter (County Ct Judge) (The Hague, 8 June 1983),
18 Neth. Y.B. Int’l L. 357 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Yukos, Gerechtshof Amsterdam, 28 April 2009, LJN: BI 2451, 200.005.269/01 . . . . . . . . . . . . 38
Pakistan
Société Générale de Surveillance S.A. v Pakistan (Civil Appeal Nrs 459 and 460 of 2002),
2002 SCMR 1694 (3 July 2002), ILDC 82 (PK 2002). . . . . . . . . . . . . . . . . . . . . . .182, 188
Sweden
Czech Republic v CME Czech Republic B.V., Svea Court of Appeal, (expert legal opinion
for CME), 15 May 2003, 42 I.L.M. 919 (2003) . . . . . . . . . . . . . . . 32–3, 43, 72, 81, 231–2
Czech Republic v CME Czech Republic B.V., Svea Court of Appeal (expert legal
opinion for CME), TDM 2(5) (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 72, 109, 231
Rosinvest v Russian Federation, Supreme Court, Case No. Ö 2301-09, Decision,
12 November 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30–1, 42
Titan Corporation v Alcatel CIT SA, Decision by the Svea Court of Appeal,
Case No T 1038-0, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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Table of Cases

xix

Switzerland
République du Liban v France Télécom Mobiles International S.A., et FTML S.A.L.,
Federal Tribunal Decision I, 10 November 2005; Federal Tribunal Decision II,
10 November 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33, 42
X v Z SA, Supreme Court, 4A 238/2011, 4 January 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
United Kingdom
AIG v Kazakhstan, Decision of the High Court of Justice, 20 October 2005 per [2005]
EWHC 2239 (Comm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Bank Mellat v Helleniki Techniki S.A. [1984] QB 291 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
C v D [2007] EWCA Civ 1282 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Chung Chi Cheung v The King [1939] AC 160 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Czech Republic v European Media Ventures SA, Decision on Annulment, [2007]
EWHC 2851 (Comm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Dallal v Bank Mellat [1986] 1 QB 441, 2 WLR 745, 1 All ER 239 . . . . . . . . . . . . . . . . . . . . . 51
Ecuador v Occidental, Judgment of the Court of Appeal regarding non-justiciability of
challenge to arbitral award, 9 September 2005, [2005] EWCA Civ 1116 . . . . . . . . . . 33, 226
Gordian Runoff Limited v Westport Insurance Corporation, 1 April 2010 [2010]
NSWCA 57. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [2002] UKHL 10, 2 AC 883 . . . . . . . . . 67
Occidental Exploration and Production Company v Republic of Ecuador, Court of
Appeal, 9 September 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Premium Nafta Products Limited (20th Defendant) and others v Fili Shipping Company
Limited and others [2007] UKHL 40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Raiffeisen Zentralbank Österreich AG v Give Star General Trading LLC [2001] EWCA
Civ 68, [2001] 825 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Regina v Bartle and the Commissioner of Police for the Metropolis and Others, ex parte
Pinochet (24 March 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Republic of Ecuador v Occidental Exploration and Production Company [2005]
EWHC 774 (Comm), 29 April 2005 . . . . . . . . . . . . . . . . . . . . . . 8, 33, 40, 51, 55, 58, 225
Sinclair v Woods of Winchester Ltd (No. 2) [2006] EWHC 3003 (TCC). . . . . . . . . . . . . . . . . 32
Smith Ltd v H & S International [1991] 2 Lloyd’s Rep. 127 . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Svenska Petroleum Exploration AB v Government of the Republic of Lithuania and AB Geonafta,
Court of Appeals, Judgment, 13 November 2006, [2006] EWCA Civ 1529 . . . . . . . .31, 193
United States
Alghanim & Sons v Toys ‘R’ Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997) . . . . . . . . . . . . . . . . . . . 38
Baker Marine (Nig.) Ltd v Chevron (Nig.) Ltd, 191 F.3d 194, 197 (2d Cir. 1999) . . . . . . . . . . 40
Banco Nacional de Cuba v Sabbatino, 376 U.S. 398 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Chromalloy Aeroservices Inc. v Arab Republic of Egypt, In re, 939 F.Supp. 907
(D.D.C. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Comm. of United States Citizens Living in Nicaragua v Reagan, 859 F.2d 929
(D.C.Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Doe I v Unocal, 395 F.3d 932 (9th Cir. 2002), rehearing en banc granted,
395 F.3d 978 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
International Thunderbird Gaming Corporation v Mexico, Judgment of the US
District Court for the District of Columbia on petition to set aside the award,
14 February 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Loucks v Std. Oil Co., 224 N.Y. 99, 110-11, 120 N.E. 198 (1918) . . . . . . . . . . . . . . . . . . . . . 67
McKesson Corp. v Islamic Republic of Iran, Civ. Action No. 82-220 (RJL)
(D.D.C. 17 July 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc., 473 U.S. 614 (1985) . . . . . . . . . .41, 260
Murray v The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64 (1804) . . . . . . . . . . . . . . . . . 188
National City Bank of New York v Republic of China, 348 U.S. 356 (1955) . . . . . . . . . . . . . 144
Paquete Habana, The, 175 U.S. 677 (1900) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Republic of Argentina v BG Group PLC, US Court of Appeals for the District of
Columbia, No 11-7021, 17 January 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Roper v Simmons, 125 S.Ct. 1183 (2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
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xx

Table of Cases

Scherk v Alberto-Culver Co., 417 U.S. 506 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Termo Rio S.A. E.S.P. & Leaseco Group, LLC v Electranta S.P., 487 F.3d 928,
376 U.S. App. D. C. 242 (D.C. Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
US v Palestine Liberation Organization, 695 F. Supp. 1456 (S.D.N.Y. 1988) . . . . . . . . . . . . . 188
Wiwa v Royal Dutch Petroleum Co. 2002 WL 319887 (S.D.N.Y) . . . . . . . . . . . . . . . . . . . . . 178

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Table of Legislation
INTRODUCTORY NOTE

International/regional instruments and arbitration rules are listed first, followed by
bilateral instruments, then national legislation. Owing to the nature of this work, a
number of instruments are included which do not strictly have binding force. As the
ICSID Convention is discussed throughout the work, only references to its individual
provisions are included in this Table.
INTERNATIONAL/REGIONAL
INSTRUMENTS AND
ARBITRATION RULES
African Charter on Human and People’s Rights
Arts 27–29 . . . . . . . . . . . . . . . . . . . . . 177
Algiers Accords (1981) . . . . . .4, 19, 46, 48–9,
51, 61, 97, 176, 196, 201, 264, 295
see also Declarations of the Government of the
Democratic and Popular Republic of Algeria
American Arbitration Association, International
Center for Dispute Resolution (ICDR)
International Dispute Resolution
Procedures (Arbitration Rules amended
and effective 1 June 2009) . . . . . . . . . 21
Arbitration Rules of the German Institution
of Arbitration 1998 (Deutsche
Institution für Schiedsgerichtsbarkeit
(DIS)), s 23.2. . . . . . . . . . . . . . . . . . . 86
Articles of Agreement of the International
Bank for Reconstruction and
Development 1944 (as amended
effective 16 February 1989). . . . . . . . . 53
ASEAN Agreement for the Promotion and
Protection of Investments (1987) . . . . . 241
Art 1(1). . . . . . . . . . . . . . . . . . . . . . . . 241
Art 1(6). . . . . . . . . . . . . . . . . . . . . . . . . 15
Art X(2) . . . . . . . . . . . . . . . . . . . . . . . 139
Cairo Regional Centre for International
Commercial Arbitration (CRCICA)
Arbitration Rules (in force as from
1 March 2011). . . . . . . . . . . . . . . 21, 77
Art 33(1) . . . . . . . . . . . . . . . . . . . . . 77, 81
Charter of Fundamental Rights of the
European Union
Preamble . . . . . . . . . . . . . . . . . . . . . . . 170
Art 51(1) . . . . . . . . . . . . . . . . . . . . . . . 170
China International Economic and Trade
Arbitration Commission (CIETAC)
Arbitration Rules (effective
1 May 2012) . . . . . . . . . . . . . . . . . . . 21
Common Market for Eastern and Southern
Africa Investment Area Agreement (2007)

Art 28(9) . . . . . . . . . . . . . . . . . . . . . . . 143
Convention on the Settlement of Investment
Disputes between States and Nationals
of Other States (ICSID Convention) (1965)
see also Introductory Note
Preamble
para 7 . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Art 20 . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Arts 21–22 . . . . . . . . . . . . . . . . . . . . . . 55
Art 25 . . . . . . . . . . . . . . . . . . . . . . . . . 144
Art 25(1) . . . . . . . . . . . . . .54, 92, 152, 267
Art 25(2) . . . . . . . . . . . . . . . . . . . . . . . . 54
Art 27 . . . . . . . . . . . . . . . . . . . . . 196, 209
Art 27(1) . . . . . . . . . . . . . . . . . . . . . 58, 92
Arts 28–35 . . . . . . . . . . . . . . . . . . . . . . 53
Art 36(1) . . . . . . . . . . . . . . . . . . . . . . . . 54
Art 37(2) . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 41(1) . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 42 . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Art 42(1) . . . . . .62, 69, 72, 75–7, 79, 83–4,
88–9, 91, 107, 158, 162, 168, 174,
189, 191–2, 194, 196–8, 201, 208–9,
226–30, 236–7, 272, 277, 279, 281
Art 42(2) . . . . . . . . . . . . . . . . . . . 191, 193
Art 42(3) . . . . . . . . . . . . . . . . . . . . . . . . 69
Art 44 . . . . . . . . . . . . . . . . . . . . . . . 22, 55
Art 45(2) . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 46 . . . . . . . . . . 129–30, 137, 142, 145,
148, 152
Art 52 . . . . . . . . . . . . . . . . . . . . . . 56, 121
Art 52(1) . . . . . . . . . . . . . . . . . . . . . . . . 56
Art 52(1)(b). . . . . . . . . . . . . . . . . . . . . . 56
Art 53(1) . . . . . . . . . . . . . . . . . . 22, 55, 58
Art 54 . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Art 54(1) . . . . . . . . . . . . . . . . .58, 196, 209
Art 54(2) . . . . . . . . . . . . . . . . . . . . . . . . 58
Art 55 . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Arts 62–63 . . . . . . . . . . . . . . . . . . 22, 261
Art 63 . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Art 67 . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Art 69 . . . . . . . . . . . . . . . . . . . . . . . . . . 55

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xxii

Table of Legislation

Declaration of the Government of the
Democratic and Popular Republic of
Algeria (General Declaration) . . . . . 4, 19,
46, 61, 295
General Principle B . . . . . . . . . . . . . . . 196
para 7 . . . . . . . . . . . . . . . . . . . . . . . . . 264
paras 16–17 . . . . . . . . . . . . . . . . . . . . . . 47
Declaration of the Government of the
Democratic and Popular Republic
of Algeria Concerning the Settlement
of Claims by the Government of the
United States of America and the
Government of the Islamic Republic
of Iran (Claims Settlement
Declaration) . . . 4, 16, 19, 46–9, 52, 61–2,
67, 69, 71, 80, 84, 93–5, 103, 126–7,
140, 151, 234, 264, 295
Art I(1) . . . . . . . . . . . . . . . . . . . . . . . . . 47
Art I(2) . . . . . . . . . . . . . . . . . . . . . . . . . 47
Art II(1) . . . . . . . 47–8, 126, 129, 140, 151
Art III . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Art III(2) . . . . . . . . . . . . . . . . . . . . . 49, 51
Art III(3) . . . . . . . . . . . . . . . . . . . . . . . . 47
Art III(4) . . . . . . . . . . . . . . . . . . . . . . . . 47
Art IV(1) . . . . . . . . . . . . . . . . . . . . . 22, 52
Art IV(3) . . . . . . . . . . . . . . . . . . . . . . . . 52
Art V. . . . . . . . . .69, 84, 93–5, 126–7, 158,
162, 234, 291
Art VI(1) . . . . . . . . . . . . . . . . . . . . . . . . 46
Art VI(4) . . . . . . . . . . . . . . . . . . . . . . . . 47
Art VII(1)(b) . . . . . . . . . . . . . . . . . . . . . 47
Art VII(2) . . . . . . . . . . . . . . . . . . . . . . . 47
Art VII(3)-(4) . . . . . . . . . . . . . . . . . . . 127
Dubai International Arbitration Centre
(DIAC) Arbitration Rules (effective
7 May 2007) . . . . . . . . . . . . . . . 21, 296
Art 46 . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Energy Charter Treaty (1994). . . . . . . 13, 112,
123–4, 138–40, 146, 205, 223,
242, 249, 254, 265
Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . 247
Art 15(3) . . . . . . . . . . . . . . . . . . . . . . . 145
Art 26 . . . . . . . . . . . . . . . . . . .46, 140, 247
Art 26(1) . . . . . . . . . . . . . . . . . . . . . . . 123
Art 26(6) . . . . . . . . . . . . . . . .124, 138, 223
European Convention on Human
Rights and Fundamental
Freedoms . . . . . . . . . . . . . . . . . 182, 257
Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
European Convention on International
Commercial Arbitration . . . . . . . . 36, 85
Art VII(1) . . . . . . . . . . . . . . . . . . . . . . . 81
European Convention on State Immunity
Art 1(2)(a) . . . . . . . . . . . . . . . . . . . . . . 144
Geneva Convention on the Execution of
Foreign Arbitral Awards (1927) . . . . . . 36
Hague Rules . . . . . . . . . . . . . . . . . . . 49–50
Art 3(6). . . . . . . . . . . . . . . . . . . . . . . . . 50

ICSID Additional Facility Rules
(2006) . . . . . . . 12, 19, 21, 34–5, 45, 61,
68, 84, 94, 123–4, 139, 148, 173,
222, 243, 263, 295
Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Art 45(2) . . . . . . . . . . . . . . . . . . . . . . . 143
Art 47 . . . . . . . . . . . . . . . . . . . . . . . . . 139
Art 47(1) . . . . . . . . . . . . . . . . . . . . 129–30
Art 53(3) and (4) . . . . . . . . . . . . . . . . . . 34
Art 54(1) . . . . . . . . . . . . . . . . . . . . . 84, 94
ICSID Convention see Convention on the
Settlement of Investment Disputes between
States and Nationals of Other States
ICSID Rules of Procedure for
Arbitration Proceedings. . . . . . . . . . . 113
Art 40(1) . . . . . . . . . . . . . . . . . . . . . . . 130
Art 48(4) . . . . . . . . . . . . . . . . . . . . . . . . 11
Rule 41(1) . . . . . . . . . . . . . . . . . . . . . . 143
IIL Resolution on Arbitration Between
States, State Enterprises or State Entities,
and Foreign Enterprises . . . . . 24, 26, 28,
62, 70, 100–1
ILC Articles on Responsibility of States for
Internationally Wrongful Acts
(2001) . . . . 172, 225, 231, 241, 254, 278
Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Art 4 . . . . . . . . . . . . . . . . . . . . . . 172, 241
Art 32 . . . . . . . . . . . . . . . . . . . . . . . . . 239
Inter-American (Mexico) Convention
on the Law Applicable to International
Contracts (1994)
Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Inter-American (Panama) Convention on
International Commercial Arbitration
(1975) . . . . . . . . . . . . . . . . . . . . . . . . 37
International Covenant on Economic, Social
and Cultural Rights . . . . . . . . . . . . . 283
International Institute for Sustainable
Development (IISD) Model Agreement on
International Investment for Sustainable
Development . . . . . . . . . . . . . . 143, 177
Art 14(b) . . . . . . . . . . . . . . . . . . . . . . . 177
Art 14(c) . . . . . . . . . . . . . . . . . . . . . . . 177
Art 14(d) . . . . . . . . . . . . . . . . . . . . . . . 177
Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . 143
Pt 3. . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Iran-United States Claims Tribunal, Tribunal
Rules of Procedure (1983)
Art 1(2). . . . . . . . . . . . . . . . . . . . . . . . . 49
Art 32(5) . . . . . . . . . . . . . . . . . . . . . . . . 11
Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . . 84
London Court of International Arbitration
(LCIA) Arbitration Rules (in force as from
1 January 1998) . . . . . . . . .4, 21, 36, 295
Art 2 . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Art 22(3) . . . . . . . . . . . . . . . . . . . . . 68, 81
Art 23(1) . . . . . . . . . . . . . . . . . . . . . . . . 22

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Table of Legislation
Art 26(9) . . . . . . . . . . . . . . . . . . . . . . . . 23
Art 29(2) . . . . . . . . . . . . . . . . . . . . . . . . 23
Art 32(2) . . . . . . . . . . . . . . . . . . . . . . . . 38
Netherlands Arbitration Institute (NAI)
Arbitration Rules (effective
1 January 2010). . . . . . . . . . . . . . . . . . . 21
Art 25(2) . . . . . . . . . . . . . . . . . . . . . . . 143
Art 46 . . . . . . . . . . . . . . . . . . . . . . . . . . 82
New York Convention see United Nations
Convention on the Recognition and
Enforcement of Foreign Arbitral Awards
North American Free Trade Agreement
(NAFTA) (1994) . . . . . . 46, 112, 123–4,
130, 135, 140, 145, 173, 201,
223, 243, 254, 260
Art 1105 . . . . . . . . . . . . . . . . . . . . . . . 173
Arts 1116–1117. . . . . . . . . . . . . . . . . . 140
Art 1116(1) . . . . . . . . . . . . . . . . . . . . . 123
Art 1121 . . . . . . . . . . . . . . . . . . . . . . . 146
Art 1130 . . . . . . . . . . . . . . . . . . . . . . . . 46
Art 1131(1) . . . . . . . . . . . . . . . . . . . . . 124
Art 1136(2) . . . . . . . . . . . . . . . . . . . . . 145
Ch 11 . . . . . . . . . . . . . . . . . .119, 244, 254
Regulation (EC) No 593/2008 of the European
Parliament and of the Council of 17 June
2008 on the law applicable to contractual
obligations (Rome I), Art 9(3) . . . . . . . 98
Regulation (EC) No 864/2007 of the European
Parliament and of the Council of 11
July 2007 on the law applicable to
non-contractual obligations (Rome II),
Art 14(2) . . . . . . . . . . . . . . . . . . . . . . 98
Resolution of the ILA on Public Policy as a
Bar to Enforcement of International
Arbitral Awards (2003) 19(2) Arb.
Int’l 213 . . . . . . . . . . . . . . .99–100, 199
Rules of Arbitration of the International
Chamber of Commerce (in force as
from 1 January 2012) . . . . . . . 12, 21, 34,
36, 64, 68, 81, 86, 96
App II . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Art 15(1) . . . . . . . . . . . . . . . . . . . . . . . . 36
Art 17(1) . . . . . . . . . . . . . . . . . . . . 81, 107
Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 34(6) . . . . . . . . . . . . . . . . . . . . . . . . 23
Art 41 . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Rules of Court of the International Court
of Justice . . . . . . . . . . . . . . . . . . . 147–9
Art 80(1) . . . . . . . . . . . . . . . . . . . . . . . 149
Rules of Procedure for Arbitration Proceedings
of the International Centre for the
Settlement of Investment Disputes . . 113
Art 40(1) . . . . . . . . . . . . . . . . . . . . . . . 130
Rules of Procedure of the Inter-American
Arbitration Commission

xxiii

Art 33(1) . . . . . . . . . . . . . . . . . . . . . . . . 81
Rules of the Arbitration Institute of the Stockholm
Chamber of Commerce (SCC) (as in force as
from 1 January 2010). . . . 4, 21–2, 45, 68,
81, 296
Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 22(1) . . . . . . . . . . . . . . . . . . . . . . . . 68
Art 24(1) . . . . . . . . . . . . . . . . . . . . . . . . 66
Art 30 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 40 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Statute of the International Court
of Justice . . . . . . . . . . . .54, 95, 179, 289
Art 38 . . . . . . . . . . . 75, 218, 223, 229, 278
Art 38(1) . . . . . . . . . . . . . . . . . 14, 91, 223
Art 38(1)(c) . . . . . . . . . . . . . . . . . . . . . 190
Art 38(3) . . . . . . . . . . . . . . . . . . . . . . . 169
Swiss Rules of International Arbitration (2012)
Art 21(5) . . . . . . . . . . . . . . . . . . . . . . . 146
Treaty on the Functioning of the European
Union (TFEU). . . . . . . . 170, 183, 203–4
Preamble . . . . . . . . . . . . . . . . . . . . . . . 170
Art 4(3). . . . . . . . . . . . . . . . . . . . . . . . 204
Art 5(3). . . . . . . . . . . . . . . . . . . . . . . . 170
Art 267 . . . . . . . . . . . . . . . . . . . . . . . . 205
Art 344 . . . . . . . . . . . . . . . . . . . . . . . . 205
Art 351 . . . . . . . . . . . . . . . . . . . . . . . . 204
UNCITRAL Arbitration Rules (as revised
in 2010) . . . . . . 4, 12, 21–2, 27, 30–1, 33,
35, 41, 45, 49, 51, 61, 65, 68, 71,
84, 86, 128, 130, 135, 142, 146–8, 160,
208, 295–6
Art 1(1). . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 1(3). . . . . . . . . . . . . . . . . . . . . . 35, 49
Art 4(2)(e) . . . . . . . . . . . . . . . . . . . . . . 129
Art 4(2)(f) . . . . . . . . . . . . . . . . . . . . . . 128
Arts 6–7 . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 17(1) . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Art 18(1) . . . . . . . . . . . . . . . . . . . . . 35, 49
Art 21(3) . . . . . . . . . . . . . . . . .129–30, 143
Art 33 . . . . . . . . . . . . . . . . . . . . . . 93, 160
Art 33(1) . . . . . . . . . . . . . . . . . . . . . . . . 71
Art 35 . . . . . . . . . . . . . . . . . . . . . . . . . 296
Art 35(1) . . . . . . . . . . . . . . . . . . . . 71, 107
UNCITRAL Model Law on International
Commercial Arbitration (with
amendments as adopted in 2006,
with Explanatory Note) . . . . . 29–31, 41,
68, 70, 81, 85, 130, 148
Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Arts 1–2 . . . . . . . . . . . . . . . . . . . . . . . . 12
Art 1(2). . . . . . . . . . . . . . . . . . . . . . . . . 29
Art 2(a) . . . . . . . . . . . . . . . . . . . . . . . . . 29
Art 2(e) . . . . . . . . . . . . . . . . . . . . . . . . . 41
Art 2(f) . . . . . . . . . . . . . . . . . . . . . 129–30
Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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xxiv

Table of Legislation

Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Art 19(1) . . . . . . . . . . . . . . . . . . . . . . . . 41
Art 28 . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Art 28(1) . . . . . . . . . . . . . . . . . . . . . . . . 68
Art 28(2) . . . . . . . . . . . . . . . . . . . . 81, 107
Art 34(2)(a)(i) and (ii) . . . . . . . . . . . . . . 31
Art 34(2)(a)(iii) . . . . . . . . . . . . . . . . . . . 31
Art 34(2)(b)(i) . . . . . . . . . . . . . . . . . . . . 32
Art 34(2)(b)(ii) . . . . . . . . . . . . . . . . . . . 32
Art 34(a)(iv) . . . . . . . . . . . . . . . . . . . . . 31
Arts 35–66 . . . . . . . . . . . . . . . . . . . . . . 29
Art 36 . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Unified Agreement for the Investment of Arab
Capital in the Arab States, TDM 1(4)
(2004) . . . . . . . . . . . . . . . . . . . . . . . . 45
United Nations Charter . . . . . . . . . . . . . . 102
Art 103 . . . . . . . . . . . . . . . . . . . . 102, 202
United Nations Convention on Contracts for
the International Sale of Goods (1980)
Art 19(1) . . . . . . . . . . . . . . . . . . . . . . . 136
United Nations Convention on the
Recognition and Enforcement of
Foreign Arbitral Awards (New York
Convention) (1958) . . . . 27, 36–40, 45–6,
52, 58, 96, 105, 153, 199, 203, 275
Art I(1) . . . . . . . . . . . . . . . . . . . . . . . . . 37
Art I(3) . . . . . . . . . . . . . . . . . . . . . . . . . 37
Art II . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Art V . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Art V(1)(a) . . . . . . . . . . . . . . . . . . . . . . 38
Art V(1)(d) . . . . . . . . . . . . . . . . . . . . . . 38
Art V(1)(e) . . . . . . . . . . . . . . . . . . . . . . 37
Art V(2) . . . . . . . . . . . . . . . . . . . . . . . . 38
Art V(2)(b) . . . . . . . . . . . . . . . . . . . . . . 96
Vienna Convention on Consular Relations (1963)
Art 36(1)(b). . . . . . . . . . . . . . . . . . . . . 225
Vienna Convention on Diplomatic
Relations (1961)
Art 32(3) . . . . . . . . . . . . . . . . . . . . . . . 144
Vienna Convention on the Law of
Treaties (1969). . . . . . . . .48, 101–2, 248
Art 27 . . . . . . . . . . . . . . . . . . . . . 239, 263
Art 31 . . . . . . . . . . . . . . . . . . . . . 223, 248
Art 31(1)(c) . . . . . . . . . . . . . . . . . . . . . . 97
Art 32 . . . . . . . . . . . . . . . . . . . . . . . . . 248
Art 53 . . . . . . . . . . . . . . . . . . . . . . . . . 101
Art 61 . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Art 62 . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Art 64 . . . . . . . . . . . . . . . . . . . . . . . . . 101
Art 71 . . . . . . . . . . . . . . . . . . . . . . . . . 101
Vienna Convention on the Law of
Treaties Between States and International
Organizations or Between International
Organizations (1986)
Art 53 . . . . . . . . . . . . . . . . . . . . . . . . . 101

BILATERAL INSTRUMENTS
Austria-Libya BIT
Art 8(2). . . . . . . . . . . . . . . . . . . . . . . . 300
Bangladesh-Italy BIT . . . . . . . . . . . . . . . . . 34
Belgium-Luxembourg-Burundi
BIT . . . . . . . . . . . . . . . . . . . .134–5, 282
Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 283
Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . 282
Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Art 8(5). . . . . . . . . . . . . . . . . . . . . . . . 281
Burundi Model BIT. . . . . . . . . . . . . . . . . 141
Art 8(1). . . . . . . . . . . . . . . . . . . . . . . . 125
Canada-Costa Rica BIT . . . . . . . . . . . . . . 268
Canada-South Africa BIT
Art XIII(2). . . . . . . . . . . . . . . . . . . . . . 140
Canadian Model Investment Treaty (2004)
Art 10(4)(c) . . . . . . . . . . . . . . . . . . . . . 102
Croatia BIT
Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . 255
Germany-Ghana BIT
Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . 142
Germany-Philippines BIT. . . . . . . . . . . . . 267
Art 1(1). . . . . . . . . . . . . . . . . . . . . . . . 267
Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Greece-Egypt BIT
Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . 124
Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . 124
Greece-Romania BIT
Art 9 . . . . . . . . . . . . . . . . . . . . . . . . 137–8
Iranian Model BIT. . . . . . . . . . . . . . . . . . 139
Art 12(2) . . . . . . . . . . . . . . . . . . . . . . . 139
Malaysia-Ghana BIT
Art 7(1). . . . . . . . . . . . . . . . . . . . . . . . 123
Art 7(3). . . . . . . . . . . . . . . . . . . . . . . . 140
Malta-Belgo-Luxembourg Economic
Union BIT . . . . . . . . . . . . . . . . . . . 123
Morocco-Italy BIT
Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Netherlands-Belarus BIT . . . . . . . . . . . . . 241
Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Netherlands-Czech/Slovak BIT (1991) . . . 134,
165–6, 207, 233, 300
Art 3(5). . . . . . . . . . . . . . . . . . . . 207, 269
Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Art 8(6). . . . . . . . . . . . . 207, 231, 233, 246
Netherlands-Poland BIT . . . . . . . . . . . . . 122
Netherlands-Venezuela BIT
Art 9(1). . . . . . . . . . . . . . . . . . . . . . . . 123
New Zealand-China Free Trade Agreement
Art 152 . . . . . . . . . . . . . . . . . . . . . . . . 118
Norway-Lithuania BIT
Art IX(2) . . . . . . . . . . . . . . . . . . . . . . . 141
Norway-Romania BIT
Art VIII(2) . . . . . . . . . . . . . . . . . . . . . 141

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Table of Legislation
Norwegian Draft Model Investment
Agreement . . . . . . . . . . . . .123, 178, 255
Art 14(1) . . . . . . . . . . . . . . . . . . . . . . . 123
Art 15(1) . . . . . . . . . . . . . . . . . . . . . . . 123
Paraguay-Switzerland BIT. . . . . . . . . . . . . 118
Peruvian Model BIT . . . . . . . . . . . . . . . . 139
Spain-Argentina BIT . . . . . . . . . . . . . . . . 243
Art I(2) . . . . . . . . . . . . . . . . . . . . . . . . 243
Spain-Mexico BIT . . . . . . . . . . . . . . . . . . 222
Sri Lanka-Belgium/Luxembourg BIT
Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Sri Lanka/UK BIT . . . . . . . . . . . . . . . . . . . 79
Swedish Model BIT . . . . . . . . . . . . . . . . . 118
Swiss-Pakistan BIT
Art 9(1). . . . . . . . . . . . . . . . . . . . . . . . 118
Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . 247
Treaty of Amity, Economic Relations,
and Consular Rights Between the
United States of America and
Iran (1955) . . . . . . . . .95, 187, 225, 233
Art IV(2) . . . . . . . . . . . . . . . . . . . . . . . 234
UK-Argentina BIT. . . . . . . . . . . . . . . . . . 6–7
Art 1(a) . . . . . . . . . . . . . . . . . . . . . . . . 243
Art 8(4). . . . . . . . . . . . . . . . . . . . . . . . . . 7
UK-Czech BIT . . . . . . . . . . . . . . . . . . . . 243
UK-Jamaica BIT . . . . . . . . . . . . . . . . . . . 139
Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 139
US-Argentina BIT . . . . . . . 121, 179, 243, 247
Art II(2)(c) . . . . . . . . . . . . . . . . . . . . . 247
US-Ecuador BIT . . . . . . . . . . . . . . . . . . 8, 33
US-Estonia BIT . . . . . . . . . . .134–5, 139, 141
Art VI(3)(a) . . . . . . . . . . . . . . . . . . . . . 139
Art VI(3)(b). . . . . . . . . . . . . . . . . . . . . 139
US Model BIT (2012) . . . . . . . . .125–6, 182,
242–3
Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Art 24 . . . . . . . . . . . . . . . . . . . . . . . . . 125
Art 24(1) . . . . . . . . . . . . . . . . . . . . . . . 126
Art 28(7) . . . . . . . . . . . . . . . . . . . . . . . 145
Art 30(1) . . . . . . . . . . . . . . . . . . . . . . . 126
Art 30(2) . . . . . . . . . . . . . . . . . . . . . . . 126
US-Ukraine BIT . . . . . . . . . . . . . . . . . . . 125
NATIONAL LEGISLATION
Afghanistan
Law on Private Investment in Afghanistan . . 165
Art 15 . . . . . . . . . . . . . . . . . . . . . . . . . 165
Albania
Foreign Investment Law (1993) . . . . 118, 188
Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Art 8(2). . . . . . . . . . . . . . . . . . . . . . . . 117
Angola
Basic Private Investment Law, Law 11/03,
13 May 2003
Art 23 . . . . . . . . . . . . . . . . . . . . . . . . . 165

xxv

Argentina
Civil Code. . . . . . . . . . . . . . . . . . . . . . . . 283
Constitution . . . . . . . . . . . . . . . . . . . . . . 283
s 75(22). . . . . . . . . . . . . . . . . . . . . . 183
Belarus
Law on Foreign Investment on the Territory
of the Republic of Belarus, 14 November
1991
Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Belgium
Judicial Code (1972, as amended in
1998)
Art 1717(4) . . . . . . . . . . . . . . . . . . . . . . 42
China
Contract Law
Art 126 . . . . . . . . . . . . . . . . . . . . . . . . 164
Czech Republic
Civil Code. . . . . . . . . . . . . . . . . . . . . . . .
Art 438(1) . . . . . . . . . . . . . . . . . . . . . .
Art 438(2) . . . . . . . . . . . . . . . . . . . . . .
Art 443 . . . . . . . . . . . . . . . . . . . . . . . .
Art 517 . . . . . . . . . . . . . . . . . . . . . . . .
Government Decree No. 142/1994. . . . . .

269
287
287
287
269
269

Egypt
Civil Code. . . . . . . . . . . . . . . . . . . . 186, 194
Art 125 . . . . . . . . . . . . . . . . . . . . . . . . 286
Art 147 . . . . . . . . . . . . . . . . . . . . . . . . 285
Art 148 . . . . . . . . . . . . . . . . . . . . . . . . 285
Art 157 . . . . . . . . . . . . . . . . . . . . . . . . 286
Art 158 . . . . . . . . . . . . . . . . . . . . . . . . 286
Art 226 . . . . . . . . . . . . . . . . . . . . . . . . 195
Code of Civil Procedure . . . . . . . . . . . . . . 186
Constitution
Art 34 . . . . . . . . . . . . . . . . . . . . . 285, 289
Art 35 . . . . . . . . . . . . . . . . . . . . . . . . . 285
Law No. 215/1951
Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . 289
Law No. 1/1973 . . . . . . . . . . . . . . . . . . . . 75
Law No. 2/1973 . . . . . . . . . . . . . . . . . . . . 75
Law No. 27/1994 . . . . . . . . . . . . . . . . 68, 83
Art 39(1) . . . . . . . . . . . . . . . . . . . . . . . . 68
Art 39(2) . . . . . . . . . . . . . . . . . . . . . . . . 83
Art 53(1) . . . . . . . . . . . . . . . . . . . . . . . . 32
Law No. 43/1974 . . . . . . . . . . . . . . . 75, 285
Federal Republic of Yugoslavia
Law on Foreign Investment, 16 January
2002
Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . 165
France
Arbitration Law (2011)
Art 1496 . . . . . . . . . . . . . . . . . . . . . . . . 65
Art 1511 . . . . . . . . . . . . . . . . . . . . . 68, 81
Art 1522 . . . . . . . . . . . . . . . . . . . . . . . . 42

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xxvi

Table of Legislation

Civil Code. . . . . . . . . . . . . . . . . . . . . . . . 160
Art 1134 . . . . . . . . . . . . . . . . . . . . . . . 280
Constitution (1958)
Art 55 . . . . . . . . . . . . . . . . . . . . . . . . . 183
Germany
Arbitration Act 1998 . . . . . . . . . . . . . . . . . 86
s 1042(3). . . . . . . . . . . . . . . . . . . . . . . . 41
s 1046(3). . . . . . . . . . . . . . . . . . . . . . . 129
s 1051(2). . . . . . . . . . . . . . . . . . . . . . . . 86
Ghana
Investment Code (1985) . . . . . . . . . . . . . 115
Investment Promotion Centre Act (1994)
s 29. . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Hungary
Air Traffic Act
s 45. . . . . . . . . . . . . . . . . . . . . . . . . . .
Civil Code. . . . . . . . . . . . . . . . . . . . . . . .
s 4. . . . . . . . . . . . . . . . . . . . . . . . . . . .
s 201. . . . . . . . . . . . . . . . . . . . . . . . . .

265
265
266
265

India
Arbitration and Conciliation Act
(No. 26 of 1996)
. . . . . . . . . . . . . . . . . . . . . . . . . . 30, 64
s 2(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 30
s 19. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
s 28(1) . . . . . . . . . . . . . . . . . . . . . . . . . 84
s 28(1)(a). . . . . . . . . . . . . . . . . . . . . . . . 64
s 28(1)(b) . . . . . . . . . . . . . . . . . . . . 64, 68
s 28(1)(b)(iii) . . . . . . . . . . . . . . . . . . . . . 81
Indonesia
Civil Code
Art 1338 . . . . . . . . . . . . . . . . . . . . . . .
Art 1365 . . . . . . . . . . . . . . . . . . . . . . .
Foreign Investment Law . . . . . . . . . . . . . .
Art 21 . . . . . . . . . . . . . . . . . . . . . . . . .

278
278
169
277

Iran
Civil Code. . . . . . . . . . . . . . . . . . . . 175, 186
Art 9 . . . . . . . . . . . . . . . . . . . . . . . . .186–7
Art 193 . . . . . . . . . . . . . . . . . . . . . . . . 245
Art 660 . . . . . . . . . . . . . . . . . . . . . . . . 245
Art 661 . . . . . . . . . . . . . . . . . . . . . . . . 245
Art 667 . . . . . . . . . . . . . . . . . . . . . . . . 245
Art 674 . . . . . . . . . . . . . . . . . . . . . . . . 245
Art 976(6) . . . . . . . . . . . . . . . . . . . . . . 257
Art 1059 . . . . . . . . . . . . . . . . . . . . . . . 257
Art 1060 . . . . . . . . . . . . . . . . . . . . . . . 257
Commercial Code
Art 40 . . . . . . . . . . . . . . . . . . . . . . . . . 245
Constitution of the Islamic Republic of Iran
(1979) . . . . . . . . . . . . . . . . . . . . . . . 187
Art 77 . . . . . . . . . . . . . . . . . . . . . . . . . 187
Art 94 . . . . . . . . . . . . . . . . . . . . . . . . . 187

Art 123 . . . . . . . . . . . . . . . . . . . . . . . . 187
Art 125 . . . . . . . . . . . . . . . . . . . . . . . . 187
Art 167 . . . . . . . . . . . . . . . . . . . . . . . . 187
Italy
Constitution of the Italian Republic (1947)
Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . 182
Ivory Coast
Civil Code
Arts 1832, 1865, 1869, and 1872 . . . . . 288
Japan
Constitution (1946)
Art 98 . . . . . . . . . . . . . . . . . . . . . . . . . 183
Jordan
Arbitration Law, Law No. 31/2001
Art 36(b) . . . . . . . . . . . . . . . . . . . . . . . . 83
Art 49(a)(4) . . . . . . . . . . . . . . . . . . . . . . 32
Kyrgyz Republic
Foreign Investment Law
Art 3(1). . . . . . . . . . . . . . . . . . . . . . . . 249
Liberia
Code of Laws (1956) . . . . . . . . . . . . . . . . 279
Libya
Civil Code. . . . . . . . . . . . . . . . . . . . 159, 184
Petroleum Law (1955)
Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Lithuania
Law on Commercial Arbitration, 2 April
1996, Law No. I-1274
Art 31(1) . . . . . . . . . . . . . . . . . . . . . . . . 68
Art 31(2) . . . . . . . . . . . . . . . . . . . . . . . . 64
Mexico
Federal Law of Games and Sweepstakes
(1947) . . . . . . . . . . . . . . . . . . . . . . . 244
Moldova
Foreign Investment Act, Governmental
Regulation No 482 of 1988 . . . . . . . 176
Netherlands
Arbitration Act (1986) . . . . . . . . . . . . . . . . 50
Art 1054(2) . . . . . . . . . . . . . . . . 68, 81, 84
Art 1058(1)(b) . . . . . . . . . . . . . . . . . . . . 50
Civil Code. . . . . . . . . . . . . . . . . . . . . . . . . 50
Code of Civil Procedure . . . . . . . . . . . . . . . 50
Art 639(1) . . . . . . . . . . . . . . . . . . . . . . . 50
Book 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Constitution
Arts 91(3), 94 . . . . . . . . . . . . . . . . . . . 182
New Zealand
Arbitration Act 1996
Second Sched, s 5 . . . . . . . . . . . . . . . . . 32

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Table of Legislation
Nigeria
Arbitration and Conciliation Act
s 47(3) . . . . . . . . . . . . . . . . . . . . . . . . . 86
Norway
Arbitration Act (2004) . . . . . . . . . . . . . . . . 66
s 31. . . . . . . . . . . . . . . . . . . . . . . . . 66, 68
Panama
Decree-Law No. 5, 8 July 1999
Art 43 . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Art 43(3) . . . . . . . . . . . . . . . . . . . . . 65, 81
Peru
Political Constitution (1993)
Art 63 . . . . . . . . . . . . . . . . . . . . . . . . . 164
Art 71 . . . . . . . . . . . . . . . . . . . . . . . . . 164
Poland
Constitution (1997)
Art 91(2) . . . . . . . . . . . . . . . . . . . . . . . 183
Popular Republic of the Congo
Basic Act of the Military Committee of
the Party . . . . . . . . . . . . . . . . . . . . . 280
Constitution . . . . . . . . . . . . . . . . . . . . . . 280
South Africa
Constitution (1996)
Ch 14, Title 1, s 39(1) . . . . . . . . . . . . . 188
Ch 14, Title 1, s 232 . . . . . . . . . . . . . . 182
Ch 14, Title 1, s 233 . . . . . . . . . . . . . . 188
Spain
Constitution (1978)
Art 96(1) . . . . . . . . . . . . . . . . . . . . . . . 183

xxvii

Togo
Investment Code, Law 85–03, 29 January 1985
Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Turkey
International Arbitration Law (2001)
Art 12(c)(2) . . . . . . . . . . . . . . . . . . . . . . 86
United Kingdom
Arbitration Act 1996 . . . . . . . . . . . . . . . . . 16,
32–3, 81
s 6(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 16
s 34(1) . . . . . . . . . . . . . . . . . . . . . . . . . 41
s 45. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
s 46(1) . . . . . . . . . . . . . . . . . . . . . . . . . 68
s 46(3) . . . . . . . . . . . . . . . . . . . . . . 77, 81
s 47. . . . . . . . . . . . . . . . . . . . . . . . . . . 129
s 69. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
s 82(1) . . . . . . . . . . . . . . . . . . . . . . . . . 32
United States
Alien Tort Claims Act (ATCA)
1789 . . . . . . . . . . . . . . . . . . . . . . . . 178
Constitution (1789) . . . . . . . . . . . . . . . . . 183
Art VI(2) . . . . . . . . . . . . . . . . . . . . . . 183,
186–7
Foreign Immunities Act,
28 U.S.C.A. 1607 (b) . . . . . . . . . . . . 144
Restatement (Second) of Conflict of
Laws . . . . . . . . . . . . . . . . . . 13, 84, 106
Restatement (Second) of the Law of
Contracts . . . . . . . . . . . . . . . . . . . . . 136
Restatement (Third) of the Foreign
Relations Law of the United
States. . . . . . . . . . . . . . . . .102, 183, 188

Sweden
Arbitration Act (1999) . . . . . . . . . . 30, 66, 81
s 51. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Venezuela
Decree Law Nr. 138 . . . . . . . . . . . . . . . . 197

Switzerland
Federal Code on Private International Law
(1987) . . . . . . . . . . . . . . . . . . . . . . . . 31
Art 187(1) . . . . . . . . . . . . . . . . . 68, 83, 85
Art 192(1) . . . . . . . . . . . . . . . . . . . . . . . 42

Vietnam
Law on Foreign Investment in
Vietnam, 29 December 1987
(including amendments adopted
in 2000)
Arts 25–27, 51. . . . . . . . . . . . . . . . . . . 165

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List of Abbreviations
AAA
ASEAN
BIT
CIETAC
CJEU
COMESA
CRCICA
DIAC
ECT
EU
FTA
IBRD
ICC
ICJ
ICSID

IIA
LCIA
NAFTA
NAI
OECD
PCIJ
SCC
TFEU
UNCITRAL

American Arbitration Association
Association of Southeast Asian Nations
Bilateral Investment Treaty
China International Economic and Trade Arbitration Commission
Court of Justice of the European Union
Common Market for Eastern and Southern Africa
Cairo Regional Centre for International Commercial Arbitration
Dubai International Arbitration Centre
Energy Charter Treaty
European Union
Free Trade Agreement
International Bank for Reconstruction and Development
International Chamber of Commerce
International Court of Justice
International Centre for the Settlement of Investment Disputes/Convention
on the Settlement of Investment Disputes between States and Nationals of
Other States
International Investment Agreement
London Court of International Arbitration
North American Free Trade Agreement
Netherlands Arbitration Institute
Organisation for Economic Co-operation and Development
Permanent Court of International Justice
Stockholm Chamber of Commerce
Treaty on the Functioning of the European Union
United Nations Commission on International Trade Law

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1
General Introduction
It is not too much to say that the interaction of international and national law
constitutes one of the largest challenges for the law in the century ahead. [ . . . ]
We will not in our lifetimes resolve these questions finally. Indeed, it is not our
duty to finish the task. But neither are we free of the moral obligation to try.1

1. Motivations for the Study
We live in an era in which the processes of globalization have reached unprecedented
levels. A corollary development has been the increasing interaction between national
legal orders on the one hand, and the international legal order on the other.2 There are
more and more areas governed by international law; and at the same time, there has
been a parallel expansion of state regulation of activities taking place in as well as
outside its respective territory.3 As a result, the same transactions are more and more
likely to be governed by both national and international law. Such overlap raises the
practical question of which source of law ought to be applied in the event of a legal
dispute; and simultaneously, it carries with it an important theoretical dimension
concerning the relationship between the legal orders. Traditionally, this topic has
been dominated by the two doctrines: monism and dualism.4 In recent times, however,
the value of these doctrines in accurately depicting practice has been questioned or even
disparaged. As Galindo states:
Speaking about monism and dualism has become a taboo, nearly a sinful act, in international
legal scholarship. For several decades, jurists from around the globe have stressed how futile and
useless the theoretical debate about the relationship between international and municipal law is.
Expressions such as discussion d’école or ‘dialogue of the deaf ’ and others have been repetitively
used to describe it.5

1 M. Kirby (Justice, High Court of Australia), International Law: The Impact on National Constitutions, 7th Annual Grotius Lecture, Delivered to the Annual Meeting of the American Society of
International Law, Washington, DC, 30 March 2005 (2006) 21 Am. U. Int’l L. Rev. 327, 363–4
(references omitted).
2 See A. Nollkaemper, ‘Internationalisering van nationale rechtspraak’ in Preadviezen. Mededelingen
van de Nederlandse Vereniging voor Internationaal Recht (P.A. Nollkaemper, J.W.A. Fleuren,
J. Wouters, and D. Van Eeckhoutte eds, The Hague, T.M.C. Asser Press) 1–67.
3 See M.N. Shaw, International Law (Cambridge, Cambridge University Press, 2008), 129–30.
4 See D.J. Bederman, The Spirit of International Law (Athens, GA, University of Georgia Press,
2006), 141 (‘Reduced to its essentials, monism is the idea that international law and domestic law are
parts of the same legal system, but international law is higher in prescriptive value than national law.
Dualism is the position that international law and municipal law are separate and distinct legal systems
that operate on different levels, and international law must be incorporated or transformed before it can
be enforced in national law’ [references omitted]). See generally New Perspectives on the Divide Between
National and International Law (A. Nollkaemper and J.E. Nijman, eds, Oxford, Oxford University
Press, 2007). See also Chapter 5, Section 3.2.2 (on the supervening role of international law).
5 G. Galindo, ‘Revisiting Monism’s Ethical Dimension’ 3 Select Proceedings of the European Society
of International Law (J. Crawford and S. Nouwen, eds, Oxford and Portland, OR, Hart Publishing,
2010), 141 (references omitted). This constitutes the background for two projects of which the
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2

General Introduction

The present study nevertheless seeks to contribute to the debate, although from a
narrow angle: that of the applicable substantive law, or lex causae,6 in the arbitral
settlement of investment disputes between foreign investors and host states.7
This field of dispute settlement lends itself particularly well to a discussion on the
relationship between national and international law. An overarching justification is the
longstanding ambiguity in investor–state arbitration regarding the role of national and
international law as the law applicable to the merits. The ICSID8 Tribunal in Antoine
Goetz v Republic of Burundi (1999) stated:
[The issue] has received divergent responses, abundantly commented on in academic writings:
hierarchal relationships according to some, domestic law applying first of all but being overborne
where it contradicts international law; according to others, relationships based on subsidiarity,
with international law being called upon only to fill lacunae or to settle uncertainties in national
law; according to others again, complementary relationships, with domestic law and international
law each having its own sphere of application.9

And Schreuer observes: ‘The practice of tribunals on the issue of applicable law varies
considerably. [ . . . ] The applicable law in investment disputes has turned out to be a
dangerous area. It takes great nautical skill to keep the proper balance between the
Scylla and Charybdis of the two legal systems.’10 As such, the topic does not only have
theoretical interest, it also has ‘great practical importance in the real world of foreign
investment dispute settlement’.11
There are several structural features inherent in investor–state arbitration that
account for the ambiguity surrounding the applicable law. These features can be
grouped under three labels: (i) the system of arbitration, (ii) the constellation of the
disputing parties, and (iii) investment law as a substantive area of law.
As to the system of arbitration, there is first the controversy concerning the nature of
the tribunals (i), which have been given different designations, ranging from national to
international, as well as the more amorphous terms delocalized, supra-, or a-national.12
Relatedly, some scholars liken the arbitrators’ role to that of agents of the state in which
present study forms and formed part: ‘International Law through the National Prism: the Impact of
Judicial Dialogue’ funded by the European Science Foundation as a European Collaborative Research
Project in the Social Sciences, and the Pionier Project on Interactions Between Public International
Law and National Law funded by the Netherlands Organization for Scientific Research.
6 For a definition of substantive applicable law, see Section 2 (on the scope of and terminology
used in the study).
7 For a definition of investment/investor–state arbitration, see Section 2 (on the scope of and
terminology used in the study). See also S. Wittich, ‘The Limits of Party Autonomy in Investment
Arbitration’, in Investment and Commercial Arbitration: Similarities and Divergences (C. Knahr, ed.,
Utrecht, Eleven International, 2010), 47, 49 (‘International investment law—and, as a corollary,
international investment arbitration—may be validly considered a specific branch of (public) international law’ [references omitted]).
8 The (ICSID/Washington) Convention on the Settlement of Investment Disputes between States
and Nationals of Other States (1965) (hereinafter ICSID/Washington Convention).
9 Antoine Goetz and others v Republic of Burundi, ICSID Case No. ARB/95/3, Award (embodying
the Parties’ Settlement Agreement), 10 February 1999 (P. Weil, M. Bedjaoui, and J.-D. Bredin, arbs),
para. 97.
10 C. Schreuer, ‘Investment Arbitration: A Voyage of Discovery’ (2005) 71 Arbitration 73, 75.
11 A.F.M. Maniruzzaman, ‘State Contracts in Contemporary International Law: Monist versus
Dualist Controversies’ (2001) 12(2) Eur. J. Int’l L. 309. Cf. E. Gaillard and Y. Banifatemi, ‘The
Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role
of International Law in the ICSID Choice of Law Process’ (2003) 18(2) ICSID Rev-FILJ 375, 380
(‘[T]he application of the rules of international law may have a major impact on the result of the
arbitration. In fact, it could sometimes make the difference between winning or losing the case’).
12 See generally Chapter 2 (on territorialized and international arbitration tribunals).
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Motivations for the Study

3

the tribunal is seated or of the international legal order; while others view them solely as
agents of the parties to the dispute.13 A proper characterization of arbitral tribunals is of
importance for this study. This is due to our premise that the applicable law depends on
the source of these tribunals’ mandate to render awards, in a way similar to how the
mandate of national and international14 courts (or tribunals) determines their choiceof-law methodology.15 National courts normally solve disputes on the merits by
reference to their own national law. Where the case at hand involves a transnational
issue, the quest for the appropriate applicable law is made through the application of
the national choice-of-law rules of the state in which the court is seated.16 This reliance
on the law of the seat, also referred to as the lex fori or the curial law,17 is rarely
questioned as it is presumed that national judges apply the procedural laws and
regulations of the state from which they receive their authority to render judgments.18
Accordingly, for a US or a Norwegian court, for instance, it would be US or Norwegian
law, respectively, that would determine whether it would apply the substantive law of,
for example, Russia, Egypt, or Mexico. National courts are also guided by the lex fori as
to the extent to which they may apply international law.19 The same rationale may be
applied, mutatis mutandis, to international courts. As their mandate is founded in the
international legal order, rather than the state in which they are seated, their lex fori is
international law.20 Hence, they will apply international choice-of-law rules and seek
guidance in the statute of the court or tribunal, the compromis of the states parties to the
dispute, and/or general rules of international law.21
If arbitral tribunals receive their mandate from a legal order, they would—like
national and international courts—arguably be bound by the choice-of-law rules of
the legal order in which they operate. If, however, arbitrators should be viewed as agents
solely of the parties, both the parties and the arbitrators would have much freedom with
respect to the applicable law. The parties would be able to agree to the application of
national and/or international law; or they could decide to leave the decision on the
applicable law to the arbitrators, who would be free to apply both national and/or
international law.
This brings us to a second feature of the system of arbitration that accounts for the
ambiguity surrounding the applicable law, and it stems from the flexibility provided by
13 See Chapter 2.
14 For a discussion on the definition of international courts and tribunals, see Chapter 2, Section 4
(on internationalized tribunals).
15 Cf. M. Mohebi, The International Law Character of the Iran–United States Claims Tribunal (The
Hague, Kluwer Law International, 1999), 99.
16 See C.H. Schreuer et al., The ICSID Convention: A Commentary (Cambridge, Cambridge
University Press, 2009), 554.
17 See European Commission, European Judicial Network, Glossary, available at <http://ec.europa.
eu/civiljustice/glossary/glossary_en.htm#LexFori> (last visited 1 May 2012) (‘The lex fori is a specific
concept of private international law and refers to the law of the court in which the action is brought’);
G. Petrochilos, Procedural Law in International Arbitration (Oxford, Oxford University Press, 2004), 6.
18 See J.G. Collier, Conflict of Laws (Cambridge University Press, 2001).
19 See J. Nijman and A. Nollkaemper, ‘Beyond the Divide’ in New Perspectives on the Divide
Between National and International Law (J. Nijman and A. Nollkaemper, eds, Oxford, Oxford
University Press, 2007), 341.
20 See D.D. Caron, ‘The Nature of the Iran–United States Claims Tribunal and the Evolving
Structure of International Dispute Resolution’ (1990) 84 Am. J. Int’l L. 104, at fn. 29; K. Lipstein,
‘The Hague Conventions on Private International Law, Public Law and Public Policy’ (1959) 8(3) Int’l
& Comp. L. Quart. 506, 522.
21 See K. Lipstein, ‘Conflict of Laws Before International Tribunals: A Study in the Relation
Between International Law and Conflict of Laws’ (1941) 27 Transactions of the Grotius Society:
Problems of Peace and War, Papers Read Before the Society in the Year 1941 143, 149–50.
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4

General Introduction

the legal framework regulating arbitration at both the national22 and the international
levels.23 States generally allow the disputing parties to choose the substantive applicable
law and in the absence of such choice, they grant arbitral tribunals considerable
freedom as regards their choice-of-law methodology.24 This state practice is mirrored
in arbitration rules promulgated by institutions such as the International Chamber of
Commerce (ICC),25 the London Court of International Arbitration (LCIA),26 the
Stockholm Chamber of Commerce (SCC),27 and the United Nations Commission on
International Trade Law (UNCITRAL).28 As Kaufmann-Kohler states: ‘what is truly
striking in international commercial arbitration is [ . . . ] arbitrators’ broad discretion in
determining and applying the law that governs the merits of any particular case.’29
As will be demonstrated,30 it follows from this freedom that national and international law is prima facie applicable in arbitral proceedings between foreign investors
and host states; and this feature sets investment tribunals apart from national and
international courts. The latter organs namely have the proclivity to restrict the
application of international and national law respectively:31 national courts through
doctrines such as transformation, the supremacy of conflicting national law, and the
last-in-time rule;32 international courts on the basis that their mandate is generally
limited to the settlement of international claims by virtue of the compromis or the
statute and/or rules governing the functioning of the court or tribunal. In this vein, it
has been observed that the International Court of Justice (ICJ), ‘like a domestic court,
is under an obligation to reach a judicial solution to the dispute submitted to it, based
upon the sources of law enumerated in article 38 of the Statute which may be compared
to the “law of the land” that national courts are obliged to apply in determining

22 For a compilation of various national arbitration laws, see International Council for Commercial
Arbitration, Related Arbitration Links, National Arbitration Laws, available at <http://www.arbitrationicca.org/related-links.html#03> (last visited 1 May 2012). Compilations can also be accessed (by
subscription) through these websites: Oxford University Press, Investment Claims, available at
<http://investmentclaims.com/> (last visited 1 May 2012); Kluwer Arbitration, available at <http://
www.kluwerarbitration.com/> (last visited 1 May 2012).
23 In this study, those treaties are (i) the ICSID Convention; and (ii) the Algiers Accords, including
the Declaration of the Government of the Democratic and Popular Republic of Algeria (General
Declaration) and the Declaration of the Government of the Democratic and Popular Republic of
Algeria Concerning the Settlement of Claims by the Government of the United States of America and
the Government of the Islamic Republic of Iran (Claims Settlement Declaration).
24 See Chapter 3, Section 3 (on choice-of-law rules). Cf. E. Gaillard, ‘The Role of the Arbitrator
in Determining the Applicable Law’ in The Leading Arbitrators’ Guide to International Arbitration
(L.W. Newman and R.D. Hill, eds, Huntington, NY, Juris, 2004), ch. 10, s. V.
25 Rules of Arbitration of the International Chamber of Commerce (ICC) (in force as from
1 January 2012).
26 London Court of International Arbitration (LCIA) Arbitration Rules (in force as from 1 January
1998).
27 Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (as in force as
from 1 January 2010).
28 UNCITRAL Arbitration Rules (as revised in 2010).
29 G. Kaufmann-Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ (2007) 23(3) Arb. Int’l
357, 364.
30 See Chapter 3, Section 3 (on choice-of-law rules).
31 But see Nollkaemper, fn. 2, at 11 (Nollkaemper refers to the ‘nationalization’ of international
jurisprudence and the ‘internationalization’ of national jurisprudence).
32 See E. Benvenisti, ‘Judicial Misgivings Regarding the Application of International Law:
An Analysis of Attitudes of National Courts’ (1993) 4(2) Eur. J. Int’l L. 159 (also referring to the
doctrines act of state, political question, and non-justiciability). See also Chapter 5, Section 3.1.1 (on
international law as part of the ‘law of the land’).
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Motivations for the Study

5

domestic disputes’.33 The application of national law by international courts is also
limited by the rule that a state may not rely on the provisions of its internal law as
justification for a failure to comply with an international obligation.34 The schism
between international and national law in the international legal order is further
reflected in the view that ‘[f]rom the standpoint of international law, a national law
is generally regarded as a fact with reference to which rules of international law have to
be applied, rather than as a rule to be applied on the international plane as a rule of
law’.35 For international courts and tribunals, therefore, national law is generally
extraneous as a source of substantive applicable law; and even more so than international law for national courts.36
A different structural reason explaining the ambiguity surrounding the applicable
law in investment arbitration relates to the constellation of the disputing parties: a
private party on the one hand and a sovereign state on the other (ii).37 The relevance of
international law to this ‘mixed’ relationship connects with the larger debate on
whether private parties are viewed as subjects or mere objects/beneficiaries of international law. Currently, it is well-accepted that private parties, such as investors, can be
true right-holders of international norms;38 and there has been, mainly due to the surge
in the number of investment treaties, an expansion of international claims available to
them.39 Still, also in treaty arbitration, national law continues to govern the Investor–
State relationship. The ICSID Tribunal noted in Antoine Goetz:
This internationalisation of investment relationships—whether they be contractual or otherwise—
has certainly not led to a radical ‘denationalisation’ of the legal relations springing from international investment, to the point that the domestic law of the host State would be deprived of all
relevance or application in the interests of an exclusive role for international law. It merely signifies
that these relations relate at once—in parallel, one might say—to the sovereign supremacy of the
host State in domestic law and to the international undertakings to which it has subscribed.40
33 E. Valencia-Ospina, ‘The Use of Chambers of the International Court of Justice’ in Fifty Years of
the International Court of Justice: Essays in Honour of Sir Robert Jennings (V. Lowe and M. Fitzmaurice,
eds, Cambridge, Grotius Publications, Cambridge University Press, 1996), 503, 513–14.
34 See generally, Chapter 6, Section 2.3 (on the superior nature of international law vis-à-vis
national law).
35 R. Jennings and A. Watts, eds, Oppenheim’s International Law, 9th edn (London, Longman,
1992), Vol. 1, at 83. See generally Chapter 6, Section 3.1.3 (on national provisions as facts or law).
36 See W.W. Burke-White, ‘International Legal Pluralism’ (2004) 25 Mich. J. Int’l L. 963, 966;
G. Biehler, Procedures in International Law (Berlin, Heidelberg, Springer, Verlag, 2008), 312. A further
reason that has been offered for the non-application of national law by international courts and
tribunals is the sovereign equality of States. Cf. FMC Corporation and The Ministry of National
Defence et al., Award No. 292–353–2, 12 February 1987, Dissenting Opinion of Bahrami Ahmadi,
14 Iran–U.S. C.T.R. 111, at section B.1.
37 Cf. D. Di Pietro, ‘Applicable Law Under Article 42 of the ICSID Convention: The Case of Amco v.
Indonesia’ in International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA,
Bilateral Treaties and Customary International Law (T. Weiler, ed., London, Cameron May, 2005), 223.
38 See A. Orakhelashvili, ‘The Position of the Individual in International Law’ (2001) 31 Cal.
W. Int’l L.J. 241, 242–3. See also Chapter 6, Section 2.2 (on the international nature of the claim).
39 See United Nations Conference on Trade and Development (UNCTAD), Bilateral Investment
Treaties in the Mid-1990s (New York, United Nations, 1998), 1. (‘For nearly 40 years, countries have
been concluding bilateral treaties with a view towards promoting and protecting foreign investment.
These treaties, known generically as bilateral investment treaties (BITs), impose certain obligations on
the contracting parties with respect to the treatment of foreign investment, and they create disputeresolution mechanisms to enforce those obligations’); UNCTAD, World Investment Report (2012), 84
(‘By the end of 2011, the overall IIA universe consisted of 3,164 agreements, which included 2,833
BITs and 331 “other IIAs” ’). See also Section 2 (on the scope of and terminology used in the study).
40 Goetz v Burundi, fn. 9, at para. 69. See also G.R. Delaume, ‘State Contracts and Transnational
Arbitration’ (1981) 75 Am. J. Int’l L. 784, 796, at fn. 58.
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6

General Introduction

The ICSID Tribunal in Enron Corporation Ponderosa Assets, L.P. v Argentine Republic
(2007) phrased it this way: ‘While on occasions writers and decisions have tended to
consider the application of domestic law or international law as a kind of dichotomy,
this is far from being the case. In fact, both have a complementary role to perform and
this has begun to be recognized.’41
As indicated in these awards, the ambiguity as to the applicable law relates to a
further structural feature of investment arbitration: the very nature of the substantive
law at issue (iii). Investment law is namely one of the fields that best illustrates the
aforementioned trend of an increase in law-making at both the national and international levels. Indeed, it is the rule, rather than the exception, that both sources of law
govern the investor–state relationship.42 Douglas states: ‘The important insight from
the architecture of the investment treaty is that states do not purport to displace
municipal laws and regulations on foreign investment in a wholesale fashion by the
perfunctory signing of an investment treaty. Instead they envisage a relationship of
coordination between international and municipal laws.’43 This development results in
situations in which acts and omissions of a host state can constitute breaches of obligations under national law, for instance contractual breaches; and, at the same time, the
conduct may violate obligations under an investment treaty,44 customary international
law (including the minimum standard of treatment of aliens),45 and, to a more limited
extent, general principles of law.46 In our and Douglas’ view, ‘[t]his explains the critical
role that choice of law rules must play in the resolution of investment disputes.’47
The relevance of both sources of law to the investor–state relationship is also
supported by party practice. Choice-of-law clauses reveal that investors and states
agree to the application of national law or international law, and quite frequently
even a combination thereof.48 This feature is also present in investment treaties entered
into between the host state and the investor’s home state, as they often provide for the
application of up to four different sources of law of both a national and international
nature.49 As stipulated in the bilateral investment treaty (BIT) between the United
Kingdom and Argentina:
41 Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No. ARB/01/3,
Award, 22 May 2007 (F. Orrego-Vicuña, A.J. van den Berg, P.-Y. Tschanz, arbs), para. 207 (references
omitted).
42 Cf. Y. Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’ in Arbitration Under
International Investment Agreements: A Guide to the Key Issues (K. Yannaca-Small, ed., Oxford, Oxford
University Press, 2010), 191, 204.
43 Z. Douglas, The International Law of Investment Claims (Cambridge, Cambridge University Press,
2009), xxiii.
44 On investment treaties, see fns 99–100.
45 See R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, Oxford
University Press, 2008), 265; M.N. Kinnear, ‘Treaties as Agreements to Arbitrate: International Law as
the Governing Law’ in International Arbitration 2006: Back to Basics? (ICCA Congress Series, 2006
Montreal Vol. 13, A.J. van den Berg, ed., Kluwer Law International, 2007), 401, 426.
46 See C.F. Dugan et al., Investor–State Arbitration (New York, Oxford University Press, 2008),
216; Kinnear, fn. 45, at 426–7. But see C.H. Brower II, ‘The International Law Character of the Iran–
United States Claims Tribunal by M. Mohebi’ (2000) 94 Am. J. Int’l L. 813 (book review)
(‘[A]lthough general principles of law provide a source of rules for interstate disputes, their use in
investor–state disputes does not represent an application of international law. To the contrary, it
constitutes a form of transnational law that one routinely encounters in international commercial
arbitration’).
47 Douglas, fn. 43, at xxiii.
48 See C. Schreuer, ‘Failure to Apply the Governing Law in International Investment Arbitration’
(2002) 7 Austrian Rev. Int’l & Eur. L. 147, 149.
49 See Schreuer et al., fn. 16, at 576 (‘A number of bilateral investment treaties (BITs) contain
choice of law clauses. Most of these clauses incorporate references to the BIT itself, the law of the State
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Motivations for the Study

7

The arbitral tribunal shall decide the dispute in accordance with the provisions of this Agreement,
the laws of the Contracting Party involved in the dispute, including its rules on conflicts of
laws, the terms of any specific agreement concluded in relation to such an investment and the
applicable principles of international law.50

Faced with this very clause, the tribunal in National Grid plc v Argentine Republic
(2008) stated:
This provision points to the application of the Treaty itself, Argentine law (including its rules on
conflict of laws), and ‘the applicable principles of international law.’ Although the Parties do not
disagree that these are the relevant sources of law applicable to this dispute, they note the absence
of specific guidelines under the Treaty as to which aspect of the dispute is governed by one source
or the other and how those sources interact in case of conflict inter se.51

The simultaneous applicability of national and international law is similarly reflected in
the arguments disputing parties present to the tribunals. While the investor will often
invoke international law, the host state frequently advocates the application of its own,
national law.52 This general53 pattern flows from the competing interests of the
disputing parties: the investor seeks the application of a neutral system of law and
enhanced legal protection; the host state wants to retain the highest possible degree of
control over the investor or investment in question. At the same time, the investor, not
wanting to ‘put all its eggs in one basket’, recurrently relies on both national and
international law. The ICSID Tribunal noted in Generation Ukraine Inc. v Ukraine
(2003): ‘the Claimant has advanced an extraordinarily broad and heterogenous [sic]
swathe of claims based on Ukrainian tort law, Ukrainian constitutional and administrative law and the [bilateral investment treaty] itself.’54 And in its Memorial on the
Merits in Wena Hotels Ltd v Arab Republic of Egypt (2000), the investor claimed that
‘Egypt violated the [contract], Egyptian law and international law by expropriating
Wena’s investment without compensation’.55
A related structural feature of the system of arbitration that contributes to the
ambiguity concerning the applicable law is the jurisdiction of the tribunals. This feature
is mainly linked with the first label concerning the system of arbitration (i), but it is also
influenced by the constellation of the parties (ii) and investment law as a substantive
area of law (iii). More often than not, and contrary to the jurisdiction of international

party to the dispute, including its rules on the conflict of laws, and the rules and principles of
international law’ [references omitted]).
50 UK–Argentina BIT, art. 8(4).
51 National Grid plc v Argentine Republic, Award, 3 November 2008 (A.M. Garro, J.L. Kessler, A.
R. Sureda, arbs), para. 82 [emphasis in original, references omitted]).
52 See Schreuer et al., fn. 16, at 557 (‘There are several possible motives for selecting a particular
system of law. The parties may be influenced by [ . . . ] the wish to maximize the legal protection for one
of them, most notably the foreign investor. [ . . . ] In addition, the State party to an investment contract
may insist on the application of its own domestic law as a matter of principle and of national prestige.’).
Cf. BG Group Plc v Argentina, Award, 24 December 2007 (A.M. Carro, A.J. van den Berg, G.
A. Alvarez, arbs), para. 93. For other examples of cases in which the host state has argued in favour of
the application of its own, national, law, see Chapter 5, Section 2.2 (on host state sovereignty and
territorial control over foreign investors and investments).
53 But see Chapter 6, Section 2.3 (on the superior nature of international law vis-à-vis national law).
(Foreign investors may rely on national law, while the host state insists on the application of
international law.)
54 Generation Ukraine, Inc. v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003
(E. Salpius, J. Voss, J. Paulsson, arbs), para. 8.9.
55 Wena v Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000 (M. Leigh, I. Fadlallah,
D. Wallace, arbs), para. 75.
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8

General Introduction

courts and, albeit to a lesser extent, national courts in general, the jurisdiction of
investment tribunals commonly extends to claims of both a national and an international nature.56 This feature may be explained on the basis that investment arbitration is designed to serve as an alternative to, if not replace, two different forms of
dispute settlement: diplomatic protection (a classic institution of public international
law)57 and litigation in domestic courts (generally governed by national law).58 Importantly, and contrary to diplomatic protection,59 the principle of the exhaustion of
local remedies does not apply to investment arbitration, unless the consent of the
host state expressly depends on such exhaustion.60 Accordingly, the arbitral tribunal
frequently represents a ‘one-stop shop’61 for the settlement of disputes of both a
national and an international nature. This feature, blurring the traditional lines
between the national and the international order becomes apparent, in particular, in
arbitration based on investment treaties. As Justice Aikens explained in Republic of
Ecuador v Occidental Exploration and Production Company (2005):
Bilateral Investment Treaties have been developed as a mechanism to encourage investment
between states, but using ‘investors’ that are non-governmental organisations. It is a longstanding principle of public international law that states owe duties to other states to protect
their citizens. This is known as the ‘doctrine of international protection’. Effectively, BITs are
treaties that acknowledge this principle of public international law, apply it to particular
circumstances between two states and develop the protection of investors by giving them
‘standing’ to pursue a state directly in ‘investment disputes’ between an investor and a state
Party in ways set out in the BIT.62

As a result, and depending on the specific scope of the parties’ arbitration agreement,63
the disputing parties have the possibility of bringing multiple claims under both
national and international law in relation to the same underlying dispute. This is
illustrated by the case Noble Energy, Inc. and Machalapower CIA. LTDA v Ecuador
and Consejo Nacional de Electricidad (2008):
The Claimants have submitted the following disputes to the Tribunal: a dispute between Noble
Energy and the Respondents under the US–Ecuador bilateral investment treaty, a dispute
between the Claimants and the Respondents under the Investment Agreement, and a dispute
between MachalaPower and the Respondents under the Concession Contract.64
56 See generally Chapter 4 (on the scope of the arbitration agreement: claims and counterclaims of a
national and/or international nature).
57 See International Law Commission (ILC), Draft Articles on Diplomatic Protection: with
Commentaries (2006), art. 1. See also Chapter 6, Section 2.2 (on the international nature of the
claim).
58 See V. Balas, ‘Review of Awards’ in Oxford Handbook of International Investment Law
(P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 1125, 1129; Case concerning
Ahmadou Sadio Diallo (Guinea v Congo), Preliminary Objections, ICJ, 24 May 2007, at para. 88.
59 See ILC, fn. 57, art. 14(1).
60 See Douglas, fn. 43, at 10 (Rule 2); C. Schreuer, ‘Calvo’s Grandchildren: The Return of Local
Remedies in Investment Arbitration’ (2005) 4(1) The Law and Practice of International Courts and
Tribunals 1.
61 Premium Nafta Products Limited (20th Defendant) and others v Fili Shipping Company Limited
and others [2007] UKHL 40. Cf. I. Alvik, Contracting with Sovereignty (Oxford, Hart, 2011), 42.
62 Republic of Ecuador v Occidental Exploration and Production Company [2005] EWHC 774
(Comm), 29 April 2005, at para. 11 (per Mr Justice Aikens). See also BG Group Plc, fn. 52, Award,
para. 145.
63 See Chapter 4 (on the scope of the arbitration agreement: claims and counterclaims of a national
and/or international nature).
64 Noble Energy, Inc. and Machalapower CIA. LTDA v Ecuador and Consejo Nacional de Electricidad,
ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008 (G. Kaufmann-Kohler,
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Motivations for the Study

9

On this basis, investment treaty arbitration has been characterized as a ‘hybrid legal
process relying on and applying both municipal and international law in one integrated
legal process’;65 or even as being of a sui generis character, which cannot be adequately
rationalized either as a form of public international or private transnational dispute
resolution.66 The current debate on the nature of and the law applicable to ‘umbrella’
or ‘sanctity-of-contract’ clauses in investment treaties highlights this hybrid character.67
It should further be noted that the ambiguity with respect to the applicable law is
exacerbated by the ad hoc and non-hierarchical nature of the system of arbitration (i).
The parties generally select their own arbitrators, so that the composition of each
tribunal differs from case to case.68 Added to this is the fact that arbitration does not
subscribe to the doctrine of stare decisis.69 The ICSID Tribunal stated in SGS Société
Générale de Surveillance S.A. v Republic of the Philippines (2004):
[A]lthough different tribunals constituted under the ICSID system should in general seek to act
consistently with each other, in the end it must be for each tribunal to exercise its competence in
accordance with the applicable law, which will by definition be different for each [investment
treaty] and each Respondent State. Moreover there is no doctrine of precedent in international
law, if by precedent is meant a rule of binding effect of a single decision. There is no hierarchy of
international tribunals, and even if there were, there is no good reason for allowing the first
tribunal in time to resolve issues for all later tribunals.70

Relatedly, arbitrators are bound to have individual preferences between various interpretations of legal provisions and concepts; and these different views may be included
in separate and dissenting opinions.71 With respect to the choice-of-law methodology
of the Iran–United States Claims Tribunal, Crook observes:
Inevitably, after 7 years and several hundred decisions, the Tribunal’s handling of choice of law
has not been wholly uniform. Arbitrators have come and gone; individual members have taken
quite different approaches. Moreover, the Tribunal has four distinctive institutional configurations. All nine members sit en banc to hear some intergovernmental matters and important

B.M. Cremades, H. Alvarez, arbs), para. 14. See also at para. 21. See generally Chapter 4 (on the scope
of the arbitration agreement: claims and counterclaims of a national and/or international nature).
65 I. Alvik, ‘The Hybrid Nature of Investment Treaty Arbitration: Straddling the National/
International Divide’ in The New International Law: An Anthology (C.C. Eriksen and
M. Emberland, eds, Leiden, Nijhoff, 2010), 91.
66 See Z. Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 Brit. Y.
B. Int’l 151, 152–3.
67 See Dolzer and Schreuer, fn. 45, at 153 (‘[A]n umbrella clause is a provision in an investment
protection treaty that guarantees the observation of obligations assumed by the host State vis-à-vis the
investor’). See generally Chapter 6, Section 3.1.2 (on ‘umbrella’ clauses).
68 See Chapter 2, Section 2 (on features of the arbitral process). The Iran–United States Claims
Tribunal differs in this respect. See Chapter 2, Section 4.1 (on the Iran–United States Claims
Tribunal).
69 Cf. N. Miller, ‘ “Precedent” Across International Tribunals’ (2002) 15 Leiden J. Int’l L. 483, 488
(‘Precedent is understood by many to refer to the doctrine of stare decisis [ . . . ] not generally
understood to be a feature of international law’ [references omitted]); Kaufmann-Kohler, fn. 29, at
358.
70 SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No. ARB/02/
6, Decision on Jurisdiction, 29 January 2004 (A.S. El-Kosheri, J. Crawford, A. Crivellaro, arbs),
para. 97.
71 See C.H. Schreuer, Preliminary Rulings in Investment Arbitration, TDM (18 December 2007), at
2; UNCTAD, Latest Developments in Investor–State Dispute Settlement, IIA Monitor No. 1 (April
2012), 12.
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10

General Introduction

common issues. More frequently, the Tribunal sits in Chambers composed of three arbitrators.
Each configuration has had its own approaches.72

At the same time, tribunals and scholars emphasize the desirability of consistency and
the need to pay due regard to previous decisions. Indeed, in Duke Energy Electroquil
Partners & Electroquil S.A. v Republic of Ecuador (2008), the ICSID Tribunal found
that it had a ‘duty to seek to contribute to the harmonious development of investment
law, and thereby to meet the legitimate expectations of the community of States and
investors towards establishing certainty in the rule of law’.73 Such practice enables us to
establish trends, if not always a jurisprudence constante,74 with respect to the applicable
law in investment arbitration.75
An additional reason why investment arbitration lends itself to a discussion on the
relationship between national and international law relates to the system of arbitration
(i): it is the steep increase in the number of investment disputes being settled by
arbitration and the corollary growth of jurisprudence.76 Apart from the expansion of
world investment flows,77 this development is linked to the large number of investment
treaties that provide for arbitration between foreign investors and host states.78 Furthermore, whereas arbitration allows the parties to keep the award confidential, in
investment disputes, the trend has been to make it, or at least parts thereof, available to
the general public.79 This is due to the involvement of a state, which necessarily
increases the level of public interest. The Organisation for Economic Co-operation
and Development (OECD) notes:
Investment arbitral awards may have a significant impact on the State’s future conduct, the
national budget and the welfare of the people, so the public interest in investment disputes is
understandable. [ . . . ] There are a growing number of arbitration awards which are likely to
influence future cases, and this has argued for their systematic and quick publication.80
72 J.R. Crook, ‘Applicable Law in International Arbitration: The Iran–U.S. Claims Tribunal
Experience’ (1989) 83 Am. J. Int’l L. 278, 286.
73 Duke Energy Electroquil Partners & Electroquil S.A. v Republic of Ecuador, ICSID Case No. ARB/
04/19, Award, 18 August 2008 (G. Kaufmann-Kohler, E.G. Pinzón, A.J. van den Berg, arbs), para.
117 (references omitted). See also A.R. Sureda, ‘Precedent in Investment Treaty Arbitration’ in
International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (C. Binder
et al., eds, Oxford, Oxford University Press, 2009), 830, 842.
74 See Kaufmann-Kohler, fn. 29, at 360, fn. 16 (‘One speaks of jurisprudence constante where there
is a series of cases that resolve a particular issue in a certain way, which then acts as a guide in the future
in resolving that same issue’). But see UNCTAD, Latest Developments in Investor–State Dispute
Settlement, IIA Monitor No. 1 (2009), at 12 (‘[T]here is a trend towards divergent interpretations of
treaty obligations made by international tribunals. This has led to new investor uncertainties and has
resulted in a growing number of conflicting awards [ . . . ]’); J. Crawford, ‘Treaty and Contract in
Investment Arbitration’ (2008) 24(3) Arb. Int’l 351, 353.
75 In this respect, we note the observation that tribunals may be relatively more inclined to cite
other tribunals as concerns choice-of-law methodology. See Kaufmann-Kohler, fn. 29, at 362–3.
76 See J. Paulsson, ‘Jurisdiction and Admissibility’ in Global Reflections on International Law,
Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris, International
Chamber of Commerce, 2005), 601, 605.
77 See W.H. Knull and N.D. Rubins, ‘Betting the Farm on International Arbitration: Is it Time to
Offer an Appeal Option?’ (2000) 11 Am. Rev. Int’l Arb. 531, 536.
78 See UNCTAD, Latest Developments in Investor–State Dispute Settlement, IIA Monitor No. 1
(2008), 2.
79 See, e.g., Democracy Watch and CUPW v Attorney-General of Canada, Affidavit of J. Paulsson, 19
May 2003, para. 5. Awards (or references thereto) are available on, inter alia, the following websites:
<http://italaw.com/>; <http://icsid.worldbank.org/>; <http://investmentclaims.com/>; <http://archive.
unctad.org/iia-dbcases/>; <http://www.kluwerarbitration.com/>; <http://www.investorstatelawguide.
com/>; <http://www.iareporter.com>; <http://westlaw.com/>; (all last visited 1 May 2012).
80 OECD, International Investment Law: A Changing Landscape (Paris, OECD, 2005), 24–5.
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The Scope of and Terminology Used in the Study

11

For this purpose, the Iran–United States Claims Tribunal Rules state that each award
‘shall be made available to the public’,81 and the ICSID Rules of Procedure for Arbitration Proceedings state that the Centre shall ‘promptly include in its publications excerpts
of the legal reasoning of the Tribunal’.82 Thus, the increasing availability of and resort to
arbitration,83 and the ensuing growth in the number of awards rendered and made
public, makes investor–state arbitration a sufficiently rich field for examination.
In sum, it is suggested that there is a need for a systematic analysis of the substantive
applicable law as it pertains to the arbitral settlement of disputes between foreign investors
and host states.84 This is so not only from a practical point of view and for the purpose of
advancing legal certainty; the topic also forms part of, and the present study thus seeks to
contribute to, the debate on the relationship between the national and international legal
orders in general. To this end, the study will draw general conclusions from scholarship
and awards that may so far have been left fragmented.85 This is particularly called for in
view of the recent increase in the number of arbitral awards and the advent of new legal
issues that investment treaty arbitration, in particular, has brought with it.86 As such,
Böckstiegel’s prophecy made two decades ago remains true: ‘[T]he arbitral system as it
applies to states and foreign private parties should continue to prove a fascinating and
challenging subject for the student of legal process.’87

2. The Scope of and Terminology Used in the Study
As indicated in the title and in the earlier text, the study is dedicated to an analysis of
the law (or lex causae)88 applied to the merits89 in arbitration proceedings between
81 Iran–United States Claims Tribunal, Tribunal Rules of Procedure, art. 32(5), 3 May 1983.
82 ICSID Rules of Procedure for Arbitration Proceedings, art. 48(4).
83 But see M. Sornarajah, ‘Reactions to Neo-Liberal Excesses in Investment Arbitration’ in The
Future of Investment Arbitration (C.A. Rogers and R.P. Alford, eds, Oxford, Oxford University Press,
2009), ch. 14 (referring to withdrawals from ICSID and the denunciation of BITs); UNCTAD, World
Investment Report, fn. 39, at 86–8. But see C.N. Brower and S.W. Schill, ‘Is Arbitration a Threat or a
Boon to the Legitimacy of International Investment Law?’ (2009) 9 Chi. J. Int’l L. 471, 496 (‘The
more drastic reactions of states, such as terminating investment treaties or withdrawing from the
ICSID Convention [ . . . ] are a phenomenon that seems to be limited to a minority of states and can
often be explained more by the countries’ internal political situation rather than a more widespread
view of a lack of legitimacy of international investment law and arbitration’).
84 Cf. V. Heiskanen, ‘Forbidding Dépecage: Law Governing Investment Treaty Arbitration’ (2009)
32 Suffolk Transnat’l L. Rev. 367 (‘[T]he time now seems ripe to take a fresh look at the age-old
controversy surrounding the concept of governing law in international arbitration—a controversy that
[ . . . ] stretches back to the early 1960’s, and even beyond’).
85 As illustrated by the multitude of sources referred to throughout the book, there is a wealth of
legal scholarship on the law applicable to the arbitral settlement of investment disputes. Whereas many
scholars address the relationship between national and international law, general theoretical conclusions are often, although not always, lacking.
86 Cf. Heiskanen, fn. 84, at 399.
87 K.-H. Böckstiegel, ‘Mixed International Arbitration. By Stephen J. Toope’ (1992) 86 Am. J. Int’l
L. 228, 230 (book review).
88 See C. McLachlan, ‘Investment Treaty Arbitration: The Legal Framework’ in 50 Years of the New
York Convention (ICCA Congress Series no. 14, A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer
Law International, 2009), 95, 108 (‘LEX CAUSAE[:] The question of the law applicable to
the substance of an investment treaty arbitration is a question of applicable law at two levels: (a)
the identification, as a matter of choice of law, of the legal system or systems applicable to the issues
before the tribunal; and (b) the determination, within any such system so designated as applicable, of
the relevant rules necessary to decide the issue’).
89 Cf. A. Orakhelashvili, ‘The International Court and “Its Freedom to Select the Ground upon
which it will Base its Judgment” ’ (2007) 56 Int’l Comp. L. Quart. 171, at fn. 1 (‘Merits can be
conveniently defined as “the issues of fact and law which give rise to the cause of action, and which an
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12

General Introduction

foreign investors and host states. Here and elsewhere this form of arbitration is referred
to as ‘investment arbitration’,90 or ‘investor–State arbitration’.91 More specifically, the
focus is placed on the interplay between national and international law as evidenced
mainly by the tribunals’ choice-of-law methodology employed in awards and decisions;
but we will also consider such interplay in light of relevant national and international
legal instruments, jurisprudence, and scholarship.
For the term ‘arbitration’, we refer to Born, who defines it as ‘a process by which
parties consensually submit a dispute to a non-governmental decision-maker, selected
by or for the parties, to render a binding decision resolving a dispute in accordance with
neutral, adjudicatory procedures affording the parties an opportunity to be heard’.92
While the process is discussed in more detail in Chapter 2, it is appropriate to note
already at this point that with some exceptions and variations, investment arbitration
relies on the framework of international commercial arbitration. This framework was
primarily designed for commercial disputes between private parties;93 but because of
the wide definition and scope of international commercial arbitration,94 it also encompasses investor–state arbitration. Brower explains:
Historically, investor–state arbitration takes place within a framework that resembles international commercial arbitration. Thus, the ICSID Convention ‘borrow[s] heavily from the
structures of international commercial arbitration.’ Likewise, ICSID’s Additional Facility Rules
‘are based on . . . provisions of the [ICSID] Convention which lend themselves to inclusion in an
instrument of a contractual nature, and include some provisions derived from the UNCITRAL
Rules and the ICC Rules.’95

According to Brower, this customary use of commercial arbitration models took root
because it furthers international investment by providing investors with access to an
efficient and predictable form of dispute resolution that produces enforceable outcomes.96 And, as a consequence, the ‘thinking, attitudes, procedures and concepts of
commercial arbitration dominate at present investment arbitration’.97 For that reason,
applicant State must establish in order to be entitled to the relief claimed”, Judge Read, Anglo-Iranian
Oil Co [1952] ICJ Rep 148’).
90 Cf. T.W. Wälde, ‘The Specific Nature of Investment Arbitration’ in New Aspects of International
Investment Law (P. Kahn and T.W. Wälde, eds, Leiden, Nijhoff, 2007), 43.
91 Cf. Dugan et al., fn. 46.
92 G. Born, International Arbitration: Law and Practice (Alphen aan den Rijn, Kluwer Law
International, 2012), ch. 1, s. 1(A). See also J.-F. Poudret et al., Comparative Law of International
Arbitration (London, Sweet & Maxwell, 2007), 1; Petrochilos, fn. 17, at 3 (‘The jurisdictional function
entrusted to the arbitrator, and the attendant binding force of his pronouncement, distinguishes
arbitration from kindred alternative means of dispute settlement: expert valuation, mediation, conciliation, “mini-trial”, and so forth’ [references omitted]).
93 See Schreuer, ‘The Relevance of Public International Law’ in International Commercial Arbitration: Investment Disputes, at 9, fn. 28, available at <http://www.univie.ac.at/intlaw/pdf/csunpublpaper_1.
pdf> (last visited 1 May 2012).
94 For a definition of international commercial arbitration, see UNCITRAL Model Law on International Commercial Arbitration (with amendments as adopted in 2006, with Explanatory Note), arts
1–2. But see F.A. Mann, ‘Lex Facit Arbitrum’ in International Arbitration: Liber Amicorum for Martin
Domke (P. Sanders, ed., The Hague, Martinus Nijhoff, 1967), 157, 159 (‘Although [ . . . ] it is not
uncommon and, on the whole, harmless to speak, somewhat colloquially, of international arbitration, the
phrase is a misnomer. In the legal sense no international commercial arbitration exists. [ . . . ] [E]very
arbitration is national arbitration, that is to say, subject to a specific system of national law’).
95 C.H. Brower II, ‘Beware the Jabberwock: A Reply to Mr Thomas’ (2002) 40 Colum. J. Transnat’l
L. 465, 474–5 [references omitted]). Cf. G. van Harten, Investment Treaty Arbitration and Public Law
(Oxford, Oxford University Press, 2007), 5 (Investment arbitration ‘piggybacks on the rules and
structure of international commercial arbitration’).
96 Brower II, fn. 95, at 475 [references omitted].
97 Wälde, fn. 90, at 54.
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The Scope of and Terminology Used in the Study

13

this study will, where appropriate, also draw from sources concerning international
commercial arbitration in general.
Still, we note that investment arbitration is evolving into a sui generis system with
several distinguishing features.98 Apart from the involvement in the proceedings of a
sovereign state, this development is due in particular to the proliferation of treaty
arbitration. International investment agreements (IIAs) and free trade agreements
(FTAs), of a bi- and multilateral nature, are designed to stimulate foreign investments,
and for that purpose they generally allow investor nationals of one contracting state to
invoke in arbitral proceedings99 substantive obligations vis-à-vis another contracting
state: the host state. These obligations include ‘national’, ‘most-favored-nation’, and
‘fair and equitable’ treatment; ‘full protection and security’; as well as the prohibition of
expropriation of investments except in the public interest and against compensation.100
In this context, Wälde makes the prediction that ‘investment arbitration will increasingly separate itself from the model of private commercial arbitration and move towards
the models of international judicial review of governmental conduct’.101
Importantly, these special features of investment (treaty) arbitration have significant
impact on the main focus of this study: the law applied to the merits in investor–state
arbitration. Traditionally, in proceedings involving a foreign element, choice-of-law
rules102 are applied to identify the substantive national law.103 While this description
generally104 applies to commercial arbitration between two private parties, for
98 Cf. T. Weiler and T.W. Wälde, ‘Investment Arbitration under the Energy Charter Treaty in the
light of new NAFTA Precedents: Towards a Global Code of Conduct for Economic Regulation’
(August 2002) 19 ASA Special Series 159, 162, at fn. 10, TDM 1(1) (2004). See also T.T. Landau,
‘Reasons for Reasons: The Tribunal’s Duty in Investor–State Arbitration’ in 50 Years of the New York
Convention (ICCA Congress Series no. 14, A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer Law
International, 2009), 187, 188 (‘[S]uch is the radically different nature of investor–State arbitration
that commercial arbitration is now a false analogy’). But see D.D. Caron, ‘Investor–State Arbitration:
Strategic and Tactical Perspectives on Legitimacy’ (2009) 32 Suffolk Transnational L. Rev. 513–14
(‘System wide legitimacy critiques often focus on investor state arbitration as though it is a clearly
distinguishable category of international dispute resolution. I have never agreed that a categorical
distinction between investment arbitration and international commercial arbitration in terms of these
critiques is so obvious as some assume [ . . . ]’).
99 Cf. O. Spiermann, ‘Individual Rights, State Interests and the Power to Waive ICSID Jurisdiction
under Bilateral Investment Treaties’ (2004) 20(2) Arb. Int’l 179, 180 (‘[A]rguably as “the main objective
of bilateral investment treaties”, all but a few arrange for international arbitration’ [references omitted]).
100 See generally Dolzer and Schreuer, fn. 45; A. Reinisch, Standards of Investment Protection
(Oxford, Oxford University Press, 2008). For specific examples of the language used in bilateral
investment treaties, see UNCTAD, Investment Instruments Online: Bilateral Investment Treaties,
available at <http://www.unctadxi.org/templates/DocSearch____779.aspx> (last visited 1 May 2012).
101 Wälde, fn. 90, at 53–4. See also G. van Harten and M. Loughlin, ‘Investment Treaty
Arbitration as a Species of Global Administrative Law’ (2006) 17(1) Eur. J. Int’l L. 121, 122 (The
regime of international investment arbitration provides ‘a singularly important and under-appreciated
manifestation of an evolving system of global administrative law’).
102 The term choice-of-law rules is also referred to as ‘conflict of laws’ or ‘private international law’,
both of which are broader in scope than ‘choice of law’. See US Rest 2d Confl Intro} 1, Comment a. 3
(defining ‘choice-of-law rules’ as the rules of each state that ‘determine which law (its own local law or
the local law of another state) shall be applied by it to determine the rights and liabilities of the parties
resulting from an occurrence involving a foreign element’); European Commission, European Judicial
Network, Glossary: Private International Law, available at <http://ec.europa.eu/civiljustice/glossary/
glossary_en.htm#PrivIntLaw> (last visited 1 May 2012).
103 See G.C. Moss, ‘International Arbitration and the Quest for the Applicable Law’ (2008) 8(3)
Global Jurist 2.
104 Note, however, the concept of lex mercatoria. See J.L. Daly, ‘International Commercial
Negotiation and Arbitration’ (2001) 22 Hamline J. Pub. L. & Pol’y 217, 242 (referring to lex mercatoria
as the customary principles of international commerce). See generally F. De Ly, International Business
Law and Lex Mercatoria (Amsterdam, North-Holland, 1992).
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14

General Introduction

investment arbitration, there is a need to broaden the concept choice-of-law rules in
such a way that it also—or rather—concerns the question of whether national or
international law should be applied to the merits.105
In any situation involving multiple sources of obligations there is an inherent chance
of conflict. In this study, the focus is the interplay between national and international
norms, rather than norms from each legal order inter se. By ‘conflict’ the study adopts
the meaning used by the International Law Commission in its Report on Fragmentation of International Law, namely as ‘a situation where two rules or principles suggest
different ways of dealing with a problem’.106 As to the meaning of the term ‘national’
law, it is used synonymously with ‘municipal’, ‘domestic’, ‘internal’, or ‘local’ law.107
The term ‘international’ law is employed in the meaning of ‘public international’ law,
corresponding to the applicable law clause set out in the Statute of the ICJ. In the words
of the UNCITRAL Tribunal in Merrill & Ring Forestry L.P. v Canada (2010):
The meaning of international law can only be understood today with reference to Article 38(1) of
the Statute of the International Court of Justice, where the sources of international law are
identified as international conventions, international custom, general principles of law, and
judicial decisions and the teachings of the most highly qualified publicists as a subsidiary
means for the determination of the rules of law.108

It should be added that the study does not deal with the nature or application of soft law
in investment arbitration,109 nor does it cover decisions rendered ex aequo et bono.110
The substantive law applicable to the merits should be differentiated from other
systems of law or ‘legal orders’111 involved in arbitration proceedings: (i) the law
governing the parties’ capacity to enter into an arbitration agreement; (ii) the law
105 Cf. G.R. Delaume, ‘Transnational Contracts, Applicable Law and Settlement of Disputes:
A Study in Conflict Avoidance’, Booklet 1, Table of Contents and Introduction } I.01 (Oceana
Publications, Inc. Dobbs Ferry, New York, 1983); Di Pietro, fn. 37, at 223.
106 International Law Commission, Fragmentation of International Law: Difficulties Arising from
the Diversification and Expansion of International Law (Report of the Study Group of the International Law Commission, finalized by M. Koskenniemi, 13 April 2006), A/CN.4/L.682, at Conclusions, para. 25. See also Conclusions, para. 14(2).
107 Cf. N. Blackaby et al., Redfern and Hunter on International Arbitration (Oxford, Oxford
University Press, 2009), 198, at fn. 129. On the (broad) meaning of the term ‘law,’ see J. Paulsson,
Unlawful Laws and the Authority of International Tribunals (Lalive Lecture, Geneva, 27 May 2009)
(2008) 23(2) ICSID Rev.-FILJ 215.
108 Merrill & Ring Forestry L.P. v Canada, Award, 31 March 2010 (F.O. Vicuña, K.W. Dam,
J.W. Rowley, arbs), para. 184; Statute of the International Court of Justice, art. 38(1). But see Wälde,
fn. 90, at 94 (‘[I]nternational law remains a relevant source of applicable law governing investment
disputes, but only with the caveat that the situation of investor–State arbitration is now distinct, in
significant aspects, from the law for and by States’). Cf. Report of the Executive Directors on the
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States,
International Bank for Reconstruction and Development, 18 March 1965, Doc. ICSID/2, 1 ICSID
Rep. 31, at para. 40. On the qualification of legal rules as ‘domestic’ or ‘international’, see
C. Brölmann, ‘Deterritorialization in International Law: Moving Away from the Divide Between
National and International Law’ in New Perspectives on the Divide Between National & International
Law (J. Nijman and A. Nollkaemper, eds, Oxford, Oxford University Press, 2007), 84, 86.
109 See generally G. Kaufmann-Kohler, ‘Soft Law in International Arbitration: Codification and
Normativity’ (2010) 1(2) J. Int. Disp. Settlement 283.
110 Cf. R.D. Bishop, ‘A Practical Guide for Drafting International Arbitration Clauses’ (2000) 1
Int’l Energy L. & Tax’n Rev. 16, at Section 4 (‘Rather than deciding a case strictly on the basis of
applicable law, under some circumstances, an arbitral panel may rule based on equitable principles.
Generally, the arbitrators must be authorized to do so. This is usually accomplished by empowering the
arbitrators either to act as amiable compositeurs or to decide the case ex aequo et bono’).
111 See, e.g., P.-M. Dupuy, ‘The Danger of Fragmentation or Unification of the International Legal
System and the International Court of Justice’ (1999) 31 N.Y.U. J. Int’l L. & Pol. 791, 793 (Dupuy
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The Scope of and Terminology Used in the Study

15

governing the arbitration agreement and the performance of that agreement;112 (iii) the
law governing the existence and proceedings of the arbitral tribunal—the lex arbitri;
and (iv) the law governing recognition and enforcement of the award.113 Apart from
the third category, the identification of these other applicable laws does not constitute a
focus of this study. Lex arbitri may be defined as ‘a body of rules which sets a standard
external to the arbitration agreement, and the wishes for the parties, for the conduct of
the arbitration’.114 As will be elaborated in the subsequent chapter, the lex arbitri may
coincide with the law of the tribunal’s ‘juridical seat’ (siège d’arbitrage), a term that refers
to the state in which the tribunal is seated.115 Tribunals whose lex arbitri is national in
nature will be referred to as ‘territorialized’, while tribunals that operate outside a national
framework are coined as ‘internationalized’. This latter term seeks, for the purposes of
this study, to distinguish investment tribunals from non-arbitral international courts
(and tribunals), such as the European Court of Human Rights, as well as international
courts (and tribunals) set up solely to settle disputes between states, e.g. the International
Court of Justice or the World Trade Organization dispute settlement system.116
Other key concepts used in this study include ‘foreign investor’, ‘home state’, ‘host
state’, and ‘investment dispute’. For present purposes, it should suffice to state that the
first concept includes both natural and juridical persons that have a nationality different
than the host state, and which is one of the parties to the arbitral proceedings.117
‘Home state’ refers to the state of nationality of the foreign investor.118 By ‘host state’ is
meant the state in which the investment is (being) made, and the other party to the
proceedings.119 ‘Investment dispute’ refers to a legal dispute120 between the foreign
defines legal order as ‘a system of norms binding on determined subjects which trigger some preestablished consequences when the subjects breach their obligations’).
112 The law applicable to the arbitration agreement is briefly discussed. See Chapter 4, Section 3 (on
the scope of the arbitration agreement: national and/or international claims); Chapter 5, Section 3.2.2.1
(on the corrective application of international law when the parties have agreed to the sole application of
national law) (regarding the possibility that international law may play a supervening role vis-à-vis
national law when the arbitration agreement is governed by international law).
113 See Blackaby et al., fn. 107, at 164; L. Mistelis, ‘Reality Test: Current State of Affairs in Theory
and Practice Relating to “Lex Arbitri” ’ (2006) 17(2) Am. Rev. Int’l Arb. 155, at Section II(A).
114 Smith Ltd v H & S International [1991] 2 Lloyd’s Rep. 127, 130 (per Steyn, J.). See also F.
A. Mann, Notes and Comments on Cases in International Law, Commercial Law, and Arbitration
(Oxford, Clarendon Press, 1992), 10 (defining ‘lex arbitri’ as the ‘lex fori of the arbitration’); Mistelis,
fn. 113, at Section II(C).
115 See C.H. Brower, II, ‘The Place of Arbitration’ in International Investment Law and Arbitration:
Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (Tood Weiler,
ed., London, Cameron May, 2005), 151.
116 See generally at Chapter 2, Section 4 (on internationalized tribunals). Cf. E. Lauterpacht, ‘The
World Bank Convention on the Settlement of International Investment Disputes’, Recueil d’Etudes de
Droit International en Hommage à Paul Guggenheim (Genève, Tribune, 1968) 642, at 649 (‘If an
arbitration is held in England it is subject to control by English law. This is so even if one of the parties
to the arbitration is a foreign State, and is only not so in the case of a strictly international arbitration
where both parties are States’).
117 See, e.g., UNCTAD, Scope and Definition: Second UNCTAD Series on Issues in International
Investment Agreements (9 March 2011). See also Chapter 2, Section 4.2 (on ICSID tribunals).
118 Cf. Case Concerning the Barcelona Traction, Light and Power Company, Limited (Belgium v
Spain), Judgment, 5 February [1970] ICJ Rep. 3, at para. 71 (Canada was the home State of the
company, as it was ‘not disputed that the company was incorporated in Canada and has its registered
office in that country’).
119 Cf. ASEAN Agreement for the Promotion and Protection of Investments (1987), art. 1(6) (‘The
term “host country” shall mean the Contracting Party wherein the investment is made’); Petrochilos,
fn. 17, at 246 (referring to the host State as the ‘investment-recipient state’).
120 See C.H. Schreuer, What is a Legal Dispute TDM (December 2007). See also Chapter 2,
Section 4.2 (on ICSID tribunals).
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16

General Introduction

investor and the host state relating to the particular investment made by the former in
the territory of the latter.121 For the term ‘arbitration agreement’, the English Arbitration Act offers a useful definition: ‘any agreement to submit to arbitration present or
future disputes (whether they are contractual or not)’.122
Lastly, it is noted that an effort was made to include relevant material available by 1
May 2012; although it has been possible to include some later developments.

3. The Method and Plan of the Study
As a necessary first step, we will seek to determine the nature of the arbitral tribunals;
and more specifically whether the arbitrators may be seen to be agents of solely the
parties, or whether they (also) receive their mandate from either a national or the
international legal order. For that purpose, Chapter 2 begins with a brief description of
the arbitral process, which is followed by a discussion of the delocalization theory and
the seat theory. The analysis will be based on both scholarship and practice; the latter
including national arbitration laws, arbitration rules, the ICSID Convention, and the
Iran–United States Claims Settlement Declaration. It concludes by characterizing
arbitral tribunals as either ‘territorialized’ or ‘internationalized’.
The remainder of the study is dedicated to choice-of-law methodology in investment
arbitration as it pertains to the application of national and/or international law.
Chapter 3 discusses the implications of the territorialized or internationalized nature
of investment tribunals for their choice-of-law methodology. To this end, it examines
choice-of-law rules as reflected in national arbitration laws, arbitration rules, the ICSID
Convention, the Iran–United States Claims Settlement Declaration, together with
jurisprudence and legal scholarship on the applicable law. It demonstrates the high
degree of freedom that the parties to the dispute and the arbitrators enjoy when
ascertaining the substantive applicable law, and thereby the prima facie applicability
of national and international law in arbitration proceedings between investors and host
states.
Chapter 4 deals with the jurisdiction of investment tribunals as provided for in the
arbitration agreement. As we will see, arbitration agreements differ in scope as to the
extent to which they allow the disputing parties to bring claims and counterclaims of a
national and/or an international nature. The chapter also introduces the choice-of-law
technique of characterization, which assists a tribunal in determining the nature and
possible exclusion of the various claims and counterclaims brought before it, and
thereby also the relevance of national and/or international law to the dispute at hand.
In Chapters 5 to 7, we analyse arbitral practice with respect to the interplay between
national and international law. As with all studies, there were various options as to how
best to organize the material, including that of focusing on each type of tribunal, or
rather on the law applied. While the former approach might have been more consistent
with the chronology of my own examination, in the end, the latter approach was
adopted. This may be explained on the basis that a cross-cutting analysis better
corresponds to the choice-of-law methodology of the tribunals, in that they often
draw from and rely on each other’s reasoning, regardless of the law/rules/treaty
121 See Douglas, fn. 43, at 189 (‘Rule 23. The economic materialisation of an investment requires
the commitment of resources to the economy of the host state by the claimant entailing the assumption
of risk in expectation of a commercial return’); UNCTAD, fn. 117. See also Chapter 2, Section 4.2 (on
ICSID tribunals).
122 English Arbitration Act (1996), s. 6(1).
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The Method and Plan of the Study

17

pursuant to which they operate. Indeed, an important observation made in the course
of the study is the recurrent consistency and cross-fertilization that takes place between
different tribunals in this respect. Such practice also constitutes a practical reason for
the present structure: as the tribunals regularly adopt similar choice-of-law methodology, a division according to the nature of the tribunal would lead to much repetition.
For the same reason, it is hoped that the structuring of the material according to the
applicable law (being national or international, or both) will prove to be more readerfriendly. It is emphasized that the analysis of arbitral practice does not intend to
represent an exhaustive review of all awards of relevance to the topic at hand.
Chapter 5 is dedicated to an analysis of awards and scholarship on the situations in
which it has been held and argued that national law should be primarily applied to the
merits of the dispute. In particular, we will examine the factors of party autonomy,
considerations of host state sovereignty, and the national nature of the claim.
Chapter 6 examines situations where international law could, or has been held to, be
the primarily applicable law. Reasons that have been offered in this respect include
party autonomy, the international nature of the claim, and the superiority of international law vis-à-vis national law.
In Chapter 7, we will see that tribunals may also refer to consistency between the
relevant national and international norms, and settle the dispute by reference to both
legal orders.
Each chapter includes interim and general conclusions. Chapter 8 offers concluding
observations.

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2
Territorialized and Internationalized
Arbitration Tribunals
The relevance of the place of arbitration and the tendency to deregulation are not
necessarily contradictory. From a theoretical point of view, one might argue that
deregulation of international commercial arbitration is to a large extent based
upon the law of the place of arbitration which provides for deregulation and sets
forth its conditions and limits.1

1. Introduction
In order to determine the applicable law in any given arbitral proceeding, one must first
establish the tribunals’ source of authority to render awards. This issue, which is
intrinsically linked to the nature of the tribunals, has given rise to different theories,
the most prominent of which are the seat theory and the delocalization theory.
Following an assessment of these theories in light of state practice in the form of
national arbitration laws, treaties, and jurisprudence, together with arbitration rules,
awards, and scholarship, we will conclude that the tribunals may be divided into two
categories. Based on the international principle of territorial sovereignty, coupled with
considerations of due process, finality, and consistency, the tribunals’ mandate may
generally be said to stem from the state in which the tribunal is seated. Most types of
investment tribunals may therefore be classified as ‘territorialized’.2 However, and by
way of exception, states may relinquish their sovereign right to regulate activities taking
place on their territory; and in the area of investment arbitration, this is the case with
respect to tribunals established pursuant to the (ICSID) Convention on the Settlement
of Disputes between States and Nationals of Other States,3 and the Iran–United States
Claims Tribunal, set up on the basis of the Algiers Accords.4 These latter tribunals,
1 F. De Ly, ‘The Place of Arbitration in the Conflict of Laws of International Commercial
Arbitration: An Exercise in Arbitration Planning’ (1991) 12 Nw. J. Int’l L. & Bus. 48, 69.
2 In terms of numbers of arbitrations, however, these territorialized tribunals are probably in the
minority. It is difficult, if not impossible, to give an exact percentage, as arbitrations conducted outside
the ICSID framework are not always registered. Yet, there are some estimates. See S. Wittich, ‘The
Limits of Party Autonomy in Investment Arbitration’ in Investment and Commercial Arbitration:
Similarities and Divergences (C. Knahr, ed., Utrecht, Eleven International Publishing, 2010), 47, 48
(‘With 63.5 per cent of the known investment disputes, ICSID clearly holds the leading position in
investment, especially treaty-based arbitration’ [references omitted]). Another difficulty is that references to ICSID often include the ICSID Additional Facility Rules. See UNCTAD, ‘Latest Developments in Investor–State Dispute Settlement’ IIA Monitor No. 1 (April 2012), at 1.
3 Convention on the Settlement of Investment Disputes between States and Nationals of Other
States (1965) (hereinafter ICSID/Washington Convention).
4 For the text of the Algiers Accords (1981), including the Declaration of the Government of the
Democratic and Popular Republic of Algeria (General Declaration) and the Declaration of the
Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims
by the Government of the United States of America and the Government of the Islamic Republic of
Iran (Claims Settlement Declaration), see 1 Iran–U.S. C.T.R. 3 (1981–2).
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20

Territorialized and Internationalized Arbitration Tribunals

whose mandate is founded in the international legal order, will be referred to as
‘internationalized’.
As to the structure of our analysis, we will first observe some special features of the
arbitral process (Section 2). In Section 3, we will proceed to examine the delocalization
theory and the seat theory, respectively. In brief, adherents of the delocalization theory
advocate the view that the arbitral process is—or at least should be—self-contained, with
little or no interaction with a particular national legal order. Contrariwise, according to
the seat theory, arbitral proceedings are subject to the law of the state in which the award
is rendered—also referred to as the tribunals’ juridical seat. While emphasizing the
considerable influence that the delocalization theory has had on state practice, it will be
concluded that the same state practice supports the seat theory, at least as concerns
territorialized tribunals. In Section 4, we will discuss separately the internationalized
nature of tribunals operating pursuant to a treaty regime—the Iran–United States Claims
Tribunal and ICSID tribunals—before reaching general conclusions in Section 5.

2. Features of the Arbitral Process
An inherent feature of and requirement in arbitration is consent. In other words, it is up
to both parties to the dispute to agree to settle it through arbitration.5 The arbitral
process thus differs from national litigation in that the jurisdiction of domestic courts
does not depend on the consent of the respondent.6 The process is rather more akin to
that before international courts and tribunals, as the latter do require the consent of
both states parties in order to render a judgment or an award.7
In investment arbitration, the parties’ consent is provided for in their arbitration
agreement, which may refer to an existing dispute (compromis); or, more commonly, it
may be contained in an arbitration clause concerning future disputes (clause compromissoire).8 The latter may be found in an investment contract entered into by the
disputing parties; or it may be included in the national legislation of the host state, or in
a bi- or multilateral investment treaty to which the host state and the investor’s home
state are parties.9 Since the mid-1980s, numerous awards have been rendered on the
basis of host state consent provided in investment laws; or especially in recent years,
investment treaties, adopted or entered into by the host state with regard to disputes
arising out of investments made in its territory.10 The term ‘arbitration without privity’
has been used to describe this mode of arbitrating, whereby the host state makes its

5 See generally C. Schreuer, ‘Consent to Arbitration’ in Oxford Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 830. But see
A.M. Steingruber, Consent in International Arbitration (Oxford, Oxford University Press, 2012), 1
(‘[T]he certainty that “arbitration is consensual by nature” or that “arbitration is a creature of contract”
has begun to be questioned’).
6 See G. Biehler, Procedures in International Law (Berlin, Springer, 2008), 35.
7 See Status of Eastern Carelia Case (Fin. v USSR), 1923 PCIJ (Ser. B) No. 5, at 27 (Advisory
Opinion of 23 July).
8 United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration (with amendments as adopted in 2006, with Explanatory Note)
(hereinafter UNCITRAL Model Law), Explanatory Note, para. 18.
9 Cf. Salini Construtorri S.p.A. and Italstrade S.p.A. v Morocco, ICSID Case No. ARB/00/4,
Decision on Jurisdiction, 23 July 2001 (R. Briner, B. Cremades, I. Fadlallah, arbs), para. 27.
10 See A.R. Parra, ‘Provisions on the Settlement of Investment Disputes in Modern Investment
Laws, Bilateral Investment Treaties and Multilateral Instruments on Investment’ (1997) 12(2) ICSID
Rev-FILJ 287. See also Chapter 1, Sections 2–3 (on motivations for the study and the scope of and
terminology used in the study); Chapter 4, Section 3.2 (on arbitration without privity).
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Features of the Arbitral Process

21

offer to arbitrate disputes with foreign investors, and it is up to the investor to accept
the offer by instituting proceedings against the host state.11 As stated in El Paso Energy
International Company v Argentine Republic (2006):
[An ICSID tribunal] can only have jurisdiction if there is mutual consent. It is now established
beyond doubt that a general reference to ICSID arbitration in a BIT can be considered as being
the written consent of the State [ . . . ], and that the filing of a request by the investor is considered
to be the latter’s consent.12

The instruments that provide for consent will to a greater or lesser extent set out the
framework for the arbitration. The parties may formulate their own rules in this
respect,13 but most often they refer to a standard set of arbitration rules. These rules
may provide for either non-institutionalized (ad hoc) or institutionalized arbitration.
The former is illustrated by the UNCITRAL Arbitration Rules14 and the latter by
the rules promulgated by (private) institutions across the world, such as the International Chamber of Commerce (ICC),15 the London Court of International Arbitration (LCIA),16 the Stockholm Chamber of Commerce (SCC),17 the American
Arbitration Association (AAA),18 the Cairo Regional Centre for International Commercial Arbitration (CRCICA),19 the China Council for the Promotion of International Trade/China Chamber of International Commerce (CIETAC),20 the
Netherlands Arbitration Institute (NAI),21 the Dubai International Arbitration
Centre,22 and the World Bank.23
11 J. Paulsson, ‘Arbitration Without Privity’ (1995) 10(2) ICSID Rev.-FILJ 232. See also
V. Heiskanen, ‘Forbidding Dépecage: Law Governing Investment Treaty Arbitration’ (2009) 32
Suffolk Transnat’l L. Rev. 367, 373 (‘In such a legal construction, the agreement to arbitrate is not
part and parcel of an arm’s length transaction. It is expressed in two independent consents—or an
“offer” and an “acceptance”—that remain separated by the invisible sovereign veil of the state, which is
never pierced by the handshake of the parties. But this strange transnational transaction is not only
separated in terms of jurisdictional space. It is also separated in terms of time, since at the time when
the foreign investor accepts the state’s offer to arbitrate, the dispute between the parties has already
arisen’).
12 El Paso Energy International Company v Argentine Republic, ICSID Case No. ARB/03/15,
Decision on Jurisdiction, 27 April 2006 (L. Caflisch, B. Stern, P. Bernardini, arbs), para. 25.
13 See UNCITRAL, Notes on Organizing Arbitral Proceedings, XXVII UNCITRAL Y.B. (1996), at
para. 16.
14 UNCITRAL Arbitration Rules (as revised in 2010). See also J.D. Franchini, ‘International
Arbitration Under the UNCITRAL Arbitration Rules: A Contractual Provision for Improvement’
(1994) 62 Fordham L. Rev. 2223, 2226–7 (the UNCITRAL Arbitration Rules may also be used by
tribunals set up under institutions such as the ICC, in which case the parties stipulate that the
UNCITRAL Rules will substitute for the institution’s rules).
15 Rules of Arbitration of the International Chamber of Commerce (in force as from 1 January
2012) (hereinafter ICC Rules).
16 London Court of International Arbitration (LCIA) Arbitration Rules (effective 1 January 1998)
(hereinafter LCIA Rules).
17 Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (as in force as from
1 January 2010) (hereinafter SCC Rules).
18 American Arbitration Association, International Center for Dispute Resolution (ICDR) International Dispute Resolution Procedures (Arbitration Rules amended and effective 1 June 2009).
19 Cairo Regional Centre for International Commercial Arbitration (CRCICA) Arbitration Rules
(in force as from 1 March 2011) (hereinafter CRCICA Rules).
20 China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules
(effective 1 May 2012).
21 Netherlands Arbitration Institute (NAI) Arbitration Rules (effective 1 January 2010) (hereinafter
NAI Rules).
22 Dubai International Arbitration Centre (DIAC) Arbitration Rules (effective 7 May 2007).
23 See ICSID Convention; ICSID Additional Facility Rules (as amended and in effect from
10 April 2006).
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22

Territorialized and Internationalized Arbitration Tribunals

Whereas ad hoc arbitration gives the parties the utmost control over the procedure,
institutionalized arbitration adds the comfort element of knowing that the institution
has experience in the way it handles arbitral proceedings; and often, their secretariat
comprises counsel to whom the parties and arbitrators may turn for advice.24 Also, the
institutions may fulfil a more stringent supervisory role than each tribunal in isolation.
The work of ICC arbitral tribunals, for instance, is monitored by the ICC International
Court of Arbitration, which oversees the arbitration process from the initial request to
the final award.25
Apart from neutrality,26 one reason for resorting to arbitration is the comparative
flexibility it provides to parties and arbitrators as opposed to court litigation. Arbitration rules allow the disputing parties much freedom in tailoring the proceedings to suit
their special wishes; and they provide default provisions that apply in case the parties
have not agreed otherwise. Such procedural freedom is illustrated by the UNCITRAL
Arbitration Rules, which state that disputes shall be settled in accordance with these
Rules ‘subject to such modification as the parties may agree’.27 Further, it is often
explicitly mentioned that the parties may agree on such matters as the identity of the
arbitrator(s) or an appointing authority;28 the place of arbitration;29 and, as will be
amply demonstrated in the subsequent chapters, the law applicable to the merits of the
dispute.30 Some rules, however, are mandatory in nature, such as the requirement that
the parties must be treated with equality and be given a reasonable opportunity of
presenting their case.31
Other noteworthy features of the arbitral process include first, the doctrine of
Kompetenz/Kompetenz, by virtue of which tribunals may rule on their own jurisdiction.32 Secondly, arbitrators may render an award despite the fact that a party does not
appear or otherwise frustrates the proceedings.33 A last characteristic is the final and
binding nature of the award. The SCC Rules, for instance, provide that ‘[a]n award
shall be final and binding on the parties when rendered. By agreeing to arbitration
under these Rules, the parties undertake to carry out any award without delay.’34
24 See U. Onwuamaegbu, ‘International Dispute Settlement Mechanisms—Choosing Between
Institutionally Supported and Ad Hoc’; and ‘Between Institutions’ in Arbitration under International
Investment Agreements: A Guide to the Key Issues (K. Yannaca-Small, ed., Oxford, Oxford University
Press, 2010), 63, 64.
25 See ICC Rules (2012), arts 1, 33. See also J.P. Gaffney, The Liberty of Decision of the Arbitral
Tribunal, TDM (6 June 2008).
26 Cf. I. Alvik, Contracting with Sovereignty (Oxford, Hart, 2011), 44 (‘[T]he foreign investors are
sceptical towards litigation in national courts. This is not necessarily only because it is believed that the
courts will be corrupt or unreliable or openly partisan as such. Even the most impartial national court
may show greater understanding for the concerns of its home government than a neutral and detached
international judge’).
27 UNCITRAL Arbitration Rules (2010), art. 1(1). See also ICSID Convention (1965), art. 44.
28 See UNCITRAL Arbitration Rules (2010), arts 6–7; ICSID Convention (1965), art. 37(2).
29 See UNCITRAL Arbitration Rules (2010), art. 18; ICSID Convention (1965), arts 62–3.
30 See generally Chapter 3, Section 3.1 (on party agreement on the applicable law). See also
Chapter 5, Section 2.1 (on party agreement on the application of national law); Chapter 6,
Section 2.1 (on party agreement on the application of international law).
31 See UNCITRAL Arbitration Rules (2010), art. 17(1). Reference is also made to the impartiality
and independence of the arbitrators. See SCC Rules (2010), art. 14; ICSID Convention (1965),
art. 14.
32 See, e.g., LCIA Rules (1998), art. 23.1; ICSID Convention (1965), art. 41(1). See also Texaco
Overseas Petroleum Co. & California Asiatic Oil Co. (TOPCO/CALASIATIC) v Gov’t of the Libyan Arab
Republic, Decision on Jurisdiction, 27 November 1975 (Dupuy sole Arb.), 53 I.L.R. 389, 407 (1979).
33 See SCC Rules (2010), art. 30; ICSID Convention (1965), art. 45(2).
34 SCC Rules (2010), art. 40; ICSID Convention (1965), art. 53(1); Iran–US Claims Settlement
Declaration (1981), art. IV(1).
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Territorialized Tribunals

23

Several sets of arbitration rules stipulate that the parties to the proceedings waive any
form of recourse against the award.35

3. Territorialized Tribunals
With the aim of identifying the origin of the mandate of arbitral tribunals, we will in
what follows examine the delocalization theory and the seat theory.36 It will be
demonstrated that the former theory has had much impact as to the extent to which
states regulate arbitration proceedings. In particular, this is illustrated by the degree of
procedural freedom and flexibility that national arbitration laws grant the disputing
parties and the arbitrators. Nevertheless, the same state practice confirms the seat
theory in that it uniformly lays down requirements for the arbitral process. While the
delocalization theory thus has had a strong normative impact on the way in which states
regulate arbitration, empirically, the seat theory is better suited to explain the regulation
that in fact takes place. As the mandate of the tribunals therefore must be said to stem at
least partly37 from the national legal order in which they are seated, the nature of the
tribunals will be characterized as ‘territorialized’. It is noted at the outset that this
designation does not apply to the Iran–United States Claims Tribunal and ICSID
tribunals, which by virtue of the treaties establishing them are insulated from the
application of the national law of their seat. For that reason, their legal framework is
separately in Section 4.

3.1. The delocalization theory
The features of the arbitral process explored in Section 2 have led certain scholars to
conclude that the tribunals are, or—at the very least—should be, characterized as
delocalized, a-national, or supranational.38 In short, this body of scholarship argues that
the parties ought to be able to agree to have their dispute settled in accordance with
their arbitration agreement and the arbitration rules to which it may refer, without or
with minimal interference from any national legal order.39 According to Lew,
35 See, e.g., ICC Rules (2012), art. 34(6); LCIA Rules (1998), art. 26.9. Both instruments add the
important condition that such waivers must be ‘validly made’. See also art. 29.2.
36 According to Paulsson, there are ‘four more or less competing propositions. The first is that any
arbitration is perforce national, and lives or dies according to the law of the place of arbitration. This
might be called the territorial thesis. The second is that arbitration may be given effect by more than
one legal order, none of them inevitably essential. This is the pluralistic thesis. The third is that
arbitration is the product of an autonomous legal order accepted as such by arbitrators and judges. The
fourth is that arbitration may be fully effective pursuant to conventional arrangements that do not depend
on national law or judges at all.’ J. Paulsson, ‘Arbitration in Three Dimensions’ (2011) 60(2) Int’l &
Comp. L.Q. 291, 292 (emphasis in original). See also E. Gaillard, ‘The Representations of International
Arbitration’ (2010) 1(2) J. Int’l Disp. Settlement 1, 9 (referring to the ‘monolocal’, ‘multilocal’, and
‘transnational’ approach); E. Gaillard, Legal Theory of International Arbitration (Leiden, Nijhoff, 2010).
37 That is, next to the parties’ arbitration agreement. See fn. 77 (on the hybrid theory).
38 See, e.g., J. Paulsson, ‘Arbitration Unbound: An Award Detached from the Law of its Country of
Origin’ (1981) 30 Int’l & Comp. L.Q. 358; P. Lalive, ‘Les Règles de Conflit de Lois Appliquées au
Fond du Litige par l’Arbitre International Siegeant en Suisse’ (1976) Rev. de l’arbitrage 155.
39 Cf. N. Blackaby et al., Redfern and Hunter on International Arbitration (Oxford, Oxford University
Press, 2009), 188. (The authors explain the delocalization theory as ‘the idea being that instead of a dual
system of control, first by the lex arbitri and then by the courts of the place of enforcement of the award,
there should be only one point of control—that of the place of enforcement. In this way, the whole world
(or most of it) would be available for international commercial arbitrations; and international commercial
arbitration itself would be “supra-national”, “a-national”, “transnational”, “delocalised”, or even “expatriate”. More poetically, such an arbitration would be a “floating arbitration”, resulting in a “floating award” ’
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24

Territorialized and Internationalized Arbitration Tribunals

The ideal and expectation is for international arbitration to be established and conducted according
to internationally accepted practices, free from the controls of parochial national laws, and without
the interference or review of national courts. Arbitration agreements and awards should be
recognised and given effect, with little or no complication or review, by national courts.40

More forcefully, Goldman concludes: ‘Unless one adopts the irrational and unjustifiable system of attaching the arbitral process to its seat [ . . . ] any search for a way of
grounding the arbitration in some system leads one unavoidably to the need for an
autonomous non-national system.’41 And in 1989, the Institute of International Law
adopted a resolution on Arbitration Between States, State Enterprises or State Entities,
and Foreign Enterprises,42 in which it explicitly rejects juridical and philosophical
objections to a-national or denationalized arbitration.43
Various considerations of both a theoretical and practical nature have been put
forward in favour of the delocalization theory. Foremost of these, its proponents
emphasize the parties’ underlying arbitration agreement, which, they point out, constitutes the foundation for the establishment of the tribunals. Von Mehren, for
instance, in his function as rapporteur to the aforementioned resolution of the Institute
of International Law, refers to the primacy of the arbitration agreement as the arbitration’s ‘charter’.44 In addition to the fact that the state has no influence or control over
the decision of the parties to agree to submit their disputes to arbitration, a further and
related argument concerns the inherent differences between arbitrators and national
judges. Whereas the latter derive their authority from the state, the former—it is
contended—do not owe allegiance to any state; and consequently, they are not responsible for upholding their laws.45 Combined, these considerations have given rise to
what has been termed the contractual theory.46
Arbitration frequently takes place in a state different from the home state of any of
the parties to the proceedings.47 With this in mind, the supporters of the delocalization
[references omitted]). See also Paulsson, fn. 36, at 298 (‘So-called “delocalised awards” are not thought to
be independent of any legal order. “Delocalisation” refers to the possibility that an award may be accepted
by the legal order of an enforcement jurisdiction whether or not the legal order of its country of origin has
also embraced it. “Plurilocalisation” would perhaps have been more accurate’ [emphasis in original,
references omitted]).
40 J.D.M. Lew, ‘Achieving the Dream: Autonomous Arbitration’ (2006) 22(2) Arb. Int’l 179.
41 B. Goldman, ‘Les Conflits de Lois dans l’Arbitrage International de Droit Privé’ (1963 II) 109
Recueil des Cours 351, 379–80 (translation into English by W.W. Park, Arbitration of International
Business Disputes: Studies in Law and Practice (Oxford, Oxford University Press, 2006), 16, at fn. 78).
42 Institute of International Law (IIL), ‘Resolution on Arbitration Between States, State Enterprises
or State Entities, and Foreign Enterprises’ 12 September 1989, 63-I Yearbook (1989), 31–201
(hereinafter IIL Resolution).
43 IIL Resolution, Explanatory Note by A.T. von Mehren.
44 IIL Resolution (referring to the doctrine of pactum facit arbitrum). See also art. 1; A.T. von
Mehren, ‘Arbitration Between States and Foreign Enterprises: The Significance of the Institute of
International Law’s Santiago de Compostela Resolution’ (1990) 5(1) ICSID Rev-FILJ 54.
45 See Lalive, fn. 38, at 159, quoted in Paulsson, Arbitration Unbound, fn. 38, at 362 (the
arbitrator’s mission, conferred by the parties’ consent, is one of a private nature, ‘and it would be a
rather artificial interpretation to deem his power to be derived, and very indirectly at that, from a
tolerance of the State of the place of arbitration’).
46 See J.D.M. Lew et al., Comparative International Commercial Arbitration (The Hague, Kluwer
Law International, 2003), 77–9.
47 See P. Read, ‘Delocalization of International Commercial Arbitration: Its Relevance in the New
Millennium’ (1999) 10 Am. Rev. Int’l Arb. 177, 178. But see ADF Group Inc. v United States, ICSID
Case No. ARB (AF)/00/1, Procedural Order No. 2 (C.B. Lamm, A. de Mestral, F.P. Feliciano, arbs),
para. 21. See also M. Blessing, Introduction to Arbitration: Swiss and International Perspectives (Basel,
Helbing und Lichtenhahn, 1999), 210 (A ‘clearly noticeable trend’ is that host countries for large
investment or infrastructure projects will not only impose their own national laws, but also their own
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Territorialized Tribunals

25

theory point to the transnational nature of the arbitration, and challenge the burden
placed upon it by the law of the tribunal’s seat.48 While national courts and purely
domestic arbitral tribunals have intrinsic connections with the seat, arbitral tribunals
resolving disputes involving parties from different states are often chosen for reasons of
convenience; and in case the parties cannot agree on the place of arbitration, the seat
may be selected by the tribunal and/or the arbitral institution.49 It has therefore been
argued that arbitrators should not seek guidance from the law of the tribunal’s seat,
especially as this law is not drafted to tailor to the needs of international commercial
arbitration.50
It has further been pointed out that an important reason why the parties to a
transnational dispute agree to submit a dispute to arbitration is that they aim to place
their relationship on a non-national plane, so as to avoid all national (courts of)
law(s).51 This view has been advanced in particular for investment arbitration on the
basis that a state party to arbitral proceedings must be presumed not to have intended to
expose itself to the laws of another state. In this vein, the tribunal in Saudi Arabia v
Arabian American Oil Company (Aramco) (1958) held that the jurisdictional immunity
of states ‘excludes the possibility, for the judicial authorities of the country of the seat,
of exercising their right of supervision and interference in the arbitral proceedings
which they have in certain cases’.52
While arbitration has been described as a form of non-national, private justice
system,53 some have gone beyond the sole rejection of any link to a national legal
order and have sought to ground the arbitral process in the international legal order.
For instance, the tribunal in Aramco concluded that ‘the arbitration, as such, can only be
governed by international law’, rather than the law of the seat, Geneva, Switzerland.54
Also, sole Arbitrator Dupuy in Texaco Overseas Petroleum Company and California Asiatic
Oil Company (Topco/Calasiatic) v Government of the Libyan Arab Republic (1977) stated
that ‘[o]ne cannot accept that the institution of arbitration should escape the reach of all
legal systems and be somehow suspended in vacuo’, and that therefore, the arbitration
was ‘directly governed by international law’.55 A final example here is the decision by sole
Arbitrator Mahmassani, sitting in Geneva, who, in the case of Liamco v Libya, determined that ‘in his procedure [he] shall be guided as much as possible by the general
principles contained in the [Model Rules] on Arbitral Procedure of the International Law
Commission’.56 In the final award, he offered the following reason for this decision: ‘It is
an accepted principle of international law that the arbitral rules of procedure shall be
dispute resolution mechanism, such as arbitration in Taipei under the Taiwanese Arbitration Act of
1961/1986 or the China International Economic and Trade Arbitration Commission (CIETAC).).
48 See, e.g., J. Paulsson, ‘Delocalisation of International Commercial Arbitration: When and Why
It Matters’ (1983) 32 Intl & Comp. L.Q. 53, 59.
49 See, e.g., ICC Rules (2012), art. 12.
50 See, e.g., Paulsson, Arbitration Unbound, fn. 38, at 369 (referring to practice freeing transnational contracts from ‘national Procrustean beds’).
51 See Lew, fn. 40, at 180–1; C.N. Fragistas, ‘Arbitrage étranger et arbitrage international en droit
privé’ (1960) Rev. Crit. 1, 17.
52 Saudi Arabia v Arabian American Oil Co. (Aramco), Award, 23 August 1958 (Sauser-Hall,
Badawi/M. Hassan, Habachy, arbs), 27 I.L.R. 117, 136, 154–5 (1963) (hereinafter ARAMCO).
53 See R. David, L’arbitrage dans le commerce international (Paris, Economica, 1982), at para. 85.
See also Dell Computer Corp. v Union des consommateurs, Supreme Court of Canada, 13 July 2007,
2007 SCC 34, at paras 131–3.
54 ARAMCO, fn. 52, Award, 27 I.L.R. 117, 154–6.
55 TOPCO/CALASIATIC, fn. 32, Award, 19 January 1977 (Dupuy, sole arb.), at para. 16.
56 Libyan American Oil Company (LIAMCO) v Government of the Libyan Arab Republic, Award, 12
April 1977 (S. Mahmassani, sole arb.), 20 I.L.M. 1 (1981).
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26

Territorialized and Internationalized Arbitration Tribunals

determined by the agreement of the parties, or in default of such agreement, by decision
of the Arbitral Tribunal, independently of the [ . . . ] law of the seat.’57
Speaking of international commercial arbitration in general, Lalive suggests:
While he is clearly not an organ of the State, the international arbitrator is not acting in a legal
vacuum and is not called upon to decide, so to speak, as if he did not belong to this world! The
question may be raised here, in passing [ . . . ] whether the arbitrator is not, perhaps, the organ of
the international community, be it the community of States or the ‘international community of
businessmen’ (in which more and more States and State organs appear to be active) or both
international communities.58

This suggestion was taken up by the Institute of International Law in its 1989
Resolution on Arbitration Between States, State Enterprises or State Entities, and
Foreign Enterprises.59 In the Explanatory Note to this Resolution, Rapporteur von
Mehren states that the tribunal’s authority originates in an international order resting
‘on a broad consensus to the effect that those engaged in international commercial and
economic intercourse are entitled to establish a dispute-resolution process—and to
stipulate for its use a body of substantive rules and principles—that exists and operates
independently of national legal orders’.60 In a similar sense, Gaillard describes a
‘transnational’ ‘representation of international arbitration’ according to which ‘the
legally binding nature of arbitration is rooted in a distinct, trans-national legal order,
that could be labelled as the “arbitral legal order” ’.61 In this ‘representation’, he states,
the arbitrator is analogized with an international judge; and the award is seen as a
‘decision of international justice, just as would be a decision rendered by a permanent
international court established by the international community. It is neither national
nor Stateless; it is international.’62
Indicative of the view that arbitral tribunals have an international lex arbitri is also
the statement by the UNCITRAL Tribunal in Methanex v United States (2005),
according to which the tribunal finds itself bound by ‘international constitutional law’:
[T]he Tribunal agrees with the implication of Methanex’s submission with respect to the
obligations of an international tribunal—that as a matter of international constitutional law a
tribunal has an independent duty to apply imperative principles of law or jus cogens and not to
give effect to parties’ choices of law that are inconsistent with such principles.63

As will be demonstrated later, the delocalization theory has had much influence on state
practice in that states have adopted flexible arbitration laws tailored to the needs of the

57 LIAMCO, 20 I.L.M. 1, 42 (1981).
58 P. Lalive, Transnational (or Truly International) Public Policy and International Arbitration, ICCA
Congress Series No. 3 (1986), para. 44. See also Fragistas, fn. 51, at 14–15 (‘[L]’arbitrage supranational doit donc être un arbitrage international, c’est-à-dire un arbitrage qui échappe à l’emprise de
tout droit national pour être soumis directement au droit international’).
59 IIL Resolution, fn. 42.
60 IIL Resolution, Explanatory Note by von Mehren. See also J.D.M. Lew, Applicable Law in
International Commercial Arbitration (Dobbs Ferry, NY, Oceana Publications, 1978), 540 (Lew refers
to arbitrators as ‘the guardians of the international commercial order’). The resolution does not cover
arbitration conducted pursuant to treaties, such as the ICSID Convention; and consequently it does
not apply to the Iran–United States Claims Tribunal and ICSID tribunals. Resolution, at Preamble
(the ‘Resolution is without prejudice to applicable provisions of international treaties’).
61 Gaillard, The Representations of International Arbitration, fn. 36, at 9.
62 Gaillard, The Representations of International Arbitration, at 9.
63 Methanex v United States, Final Award, 3 August 2005 (J.W.F. Rowley, W.M. Reisman,
V.V. Veeder, arbs), at Part IV, Chapter C, p. 11, para. 24.
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Territorialized Tribunals

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business community. While at first glance it might seem reasonable to construe such
practice so as to indicate a belief—or opinio juris—that the arbitration process is indeed
grounded in the international legal order, it is our view that this theory of internationalization falls short of explaining the practice that has given rise to the seat theory, and
that will be examined in what follows.

3.2. The seat theory
As highlighted earlier in the section devoted to the arbitral process,64 there are
important differences between national courts and arbitral tribunals. Contrary to
litigation, arbitration is voluntary as it depends upon the existence of an arbitration
agreement. Further, and in line with this agreement, it is generally the parties—not the
state in which the arbitration is held—that appoint the arbitrators. Accordingly, arbitral
tribunals do not fit the mould of state organs.65
This conclusion does not, however, carry with it the inference that the tribunals are
not subject to the law of the state in which they are seated. States have the inherent right
to regulate all persons and things on their territory, as long as such regulation is not
inconsistent with international law.66 While admittedly, the links between the arbitral
process and the designated seat are often tenuous,67 states have—in what constitutes
important state practice—positively exercised this right of regulation by enacting laws
that impose requirements and possible sanctions on proceedings conducted and awards
rendered on their territory.68 Such practice, which receives direct or indirect support in
arbitration rules, arbitration awards, and the (New York) Convention on the Recognition and Enforcement on Foreign Arbitral Awards,69 may explain the observation that
‘[i]n the absence of an international treaty that sanctions [delocalization], such a system
has not become a reality, thus far existing only in “academic dreamland”’.70 It also
explains why von Mehren, in his Explanatory Note to the Resolution by the Institute of
International Law, includes the important caveat that the resolution ‘does not address
64 See Section 2 (on features of the arbitral process).
65 Cf. Gordian Runoff Limited v Westport Insurance Corporation, 1 April 2010 [2010] NSWCA 57,
para. 216; Salini Costruttori S.p.A. v Federal Democratic Republic of Ethiopia, Addis Ababa Water and
Sewerage Authority, Award, 7 December 2001, ICC Case No. 10623, discussed in J.-F. Poudret and
S. Besson, Comparative Law of International Arbitration (London, Thomson Sweet & Maxwell, 2007),
116–17; Case 102/81, Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei
Nordstern AG [1982] ECR 1095.
66 See E. Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment
Disputes’ in Recueil d’études de droit international en hommage à Paul Guggenheim (Genève, Tribune,
1968), 642, 649 (‘[T]here does not appear to be any rule of customary international law (except perhaps
the possible application of the rules relating to State immunity to the State party to the arbitration) which
prescribes an obligation of restraint by the “host” State in relation to such arbitration’ [references
omitted]); K.-H. Böckstiegel, ‘The Relevance of National Arbitration Law for Arbitrations under the
UNCITRAL Rules’ (1984) 1(3) J. Int’l Arb. 223, 230.
67 Cf. G. Petrochilos, Procedural Law in International Arbitration (Oxford, Oxford University Press,
2004), at 23–4.
68 See D.G. Terez (Reporter), ‘International Commercial Arbitration and International Public
Policy’ (1987) 81 Am. Soc’y Int’l L. Proc. 372, 373 (Comment by A. Redfern: ‘[N]ations do not
and will not relinquish easily their influence in the resolution of disputes taking place on their
territories’).
69 See Section 3.2.3 (on the (New York) Convention on the Recognition and Enforcement of
Foreign Arbitral Awards).
70 R.Y. Chan, ‘The Enforceability of Annulled Foreign Arbitral Awards in the United States:
a critique of Chromalloy’ (1999) 17 B.U. Int’l L.J. 141 (referring to A.J. van den Berg, ‘Annulment
of Awards in International Arbitration’ in Arbitration in the 21st Century (R. Lillich and C. Brower, eds,
1994), 133, 134).
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Territorialized and Internationalized Arbitration Tribunals

the kind or degree of control exercised by national legal systems over arbitrations’.71 In
fact, a prominent member of the Institute criticized the resolution, partly on the basis
of the ‘undue extent to which it minimizes the importance of the law of the seat of
arbitration’.72
As will be shown, the role of the tribunal’s juridical seat does not only reflect state
practice; a rooting of the arbitral process in a legal system may safeguard due process.73
Moreover, it is desirable from a practical point of view.74 In this vein, and while otherwise
advocating ‘full procedural autonomy’ for the arbitral process, Blessing observes:
[T]he parties expect the arbitration law applicable at the seat of the arbitral tribunal to contain
those statutory provisions which are necessary in order to ensure that an arbitral tribunal can
validly be constituted and can be ‘kept alive’ until an arbitral award is handed down, and thereby
that there is a reliable local court system in existence to provide support (to the extent necessary) in
the appointment, challenging or replacement of arbitrators. [ . . . ] The parties also expect a
national judiciary to provide other judicial support (if necessary), e.g. in relation to the taking
of evidence or in the pronouncement of, or assistance in, interim measures.75

The foregoing considerations form the basis for the seat theory,76 which deems arbitral
tribunals to be subject to the national legal order in which they are juridically seated,
and that consequently considers the tribunals’ mandate to stem at least partly77 from
national law.78
71 IIL Resolution, fn. 42, Explanatory Note by von Mehren.
72 I.F.I. Shihata, ‘The Institute of International Law’s Resolution on Arbitration between States and
Foreign Enterprises—A Comment’ (1990) 5(1) ICSID Rev.-FILJ 65, 66, at fn. 3. See also at 65
(‘While the Resolution as a whole was adopted by a large majority [ . . . ], some of its provisions were
opposed by many members and associates of the Institute, including this writer’).
73 See Section 3.2.4 (on considerations of due process, finality, and consistency).
74 See Section 3.2.4. See also Petrochilos, fn. 67, at 26 (for Petrochilos, not territoriality as such, but
rather considerations of effectiveness and speak in favour of the territorial thesis).
75 Blessing, fn. 47, at 159 (emphasis in original). See also Blackaby et al., fn. 39, at 438 (‘Arbitration
is dependent on the underlying support of the courts which alone have the power to rescue the system
when one party seeks to sabotage it’).
76 For other terminology, see, e.g., L.J. Bouchez, ‘The Prospects for International Arbitration:
Disputes Between States and Private Enterprises’ in International Arbitration: Past and Prospects:
A Symposium to Commemorate the Centenary of the Birth of Professor J.H.W. Verzijl (1988–1987)
(A.H.A. Soons, ed., Dordrecht, Martinus Nijhoff, 1990), 109, 127 (referring to the ‘territorial
principle’); Gaillard, The Representations of International Arbitration, fn. 36, at 9 (referring to the
‘monolocal’ approach); Petrochilos, fn. 67, at 20 (referring to the ‘localization’ school); V. Danilowicz,
‘The Choice of Applicable Law in International Arbitration’ (1986) 9 Hastings Int’l & Comp. L. Rev.
235, 243 (referring to the ‘territorial (or jurisdictional) approach’); H.L. Yu and L. Shore, ‘Independence, Impartiality, and Immunity of Arbitrators: US and English Perspectives’ (2003) 52 Int’l & Comp.
L.Q. 935 (The authors adhere to the ‘concessionary theory’, which implies that ‘the State, not the
parties and not the arbitrators, controls the arbitral process. It is only the State that can cede powers to
the parties and to the arbitrators’).
77 A theoretical underpinning that has been offered in favour of the seat theory is the hybrid theory,
which acknowledges the fact that the mandate of the tribunals concurrently stems from the arbitration
agreement and the state that gives effect to that agreement, the arbitral proceedings, and the binding
award, i.e., the tribunal’s seat. See G. Sauser-Hall, ‘Report to the Institut de Droit International’
(1957) 47-II Annuaire de l’Institut de Droit International 394, 399 (the contractual and jurisdictional
elements of arbitration are ‘indissolubly intertwined’). Cf. W.W. Park, ‘Judicial Controls in the
Arbitral Process’ (1989) 5(3) Arb. Int’l 230, 237 (‘The authority of an arbitrator [ . . . ] derives not
only from the consent of the parties, but also from the several legal systems that support the arbitral
process: the law that enforces the agreement to arbitrate, the forum called on to recognise and enforce
the award, and the law of the place of the proceedings’).
78 See C. McLachlan et al., International Investment Arbitration (Oxford, Oxford University Press,
2007), at Section 3.33; F.A. Mann, ‘Lex Facit Arbitrum’ in International Arbitration: Liber Amircorum
for Martin Domke (P. Sanders, ed., The Hague, Martinus Nijhoff, 1967), 157, 160; W.W. Park, The
Lex Loci Arbitri and International Commercial Arbitration (1983) 32 Int’l and Comp. L.Q. 21. Cf.
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Territorialized Tribunals

29

Of course, it is open to states to sign away their sovereign right to regulate arbitration
taking place on their territory; and this is the case for the States Claims Tribunal and
ICSID tribunals. They truly operate in the international legal order; and for that
reason, they will be examined separately in Section 4.

3.2.1. National arbitration laws
As concerns state practice, we note in particular the 1985 UNCITRAL Model Law on
International Commercial Arbitration, which establishes a national procedural framework for arbitration in those states that adopt it as part of their national law.79
As indicated by its title, the Model Law concerns ‘international commercial arbitration’, as opposed to purely domestic arbitration;80 and it applies to arbitration whether
or not administered by a permanent arbitration institution.81 In the words of the
UNCITRAL Secretariat, the Model Law ‘reflects a worldwide consensus on the
principles and important issues of international arbitration practice’.82 With its objective of harmonizing the treatment of international commercial arbitration in the various
states,83 it has so far been quite successful as it is increasingly being adopted by
developed and developing states alike.84 For that reason, it is appropriate to use the
Model Law to illustrate state practice in the area of national arbitration laws.

3.2.1.1. The territorial criterion and the nationality of awards
An important feature of the UNCITRAL Model Law is that it applies a strict territorial
criterion. That is, with a few exceptions, it applies to arbitration conducted on the
territory of the given state, the tribunal’s juridical seat: ‘The provisions of this Law,
except articles [ . . . ], apply only if the place of arbitration is in the territory of this
state.’85 Under the UNCITRAL Model Law, the parties are free to incorporate into
their arbitration agreement procedural provisions of a ‘foreign’ law, provided there is no
conflict with the few mandatory provisions of the Model Law.86 Still, by virtue of the
territorial criterion, awards rendered in a Model Law state will have that state’s

Bank Mellat v Helleniki Techniki S.A. [1984] QB 291, 301 (‘Despite suggestions to the contrary
by some learned writers under other systems, our jurisprudence does not recognise the concept of
arbitral procedures floating in the transnational firmament unconnected with any other municipal
system of law’).
79 UNCITRAL Model Law 2006.
80 UNCITRAL Model Law, art. 1. See also Chapter 1, Section 2 (on the scope of and terminology
used in the study).
81 UNCITRAL Model Law (2006), art. 2(a). Since the term ‘commercial’ is given a broad
definition, the Model Law also applies to mixed arbitration proceedings between a foreign investor
and a host State. See art. I, fn. **.
82 UNCITRAL, Explanatory Note, fn. 8, at para. 2.
83 See United Nations General Assembly, Model Law on International Commercial Arbitration of
the United Nations Commission on International Trade Law, Resolution 40/72 of 11 December
1985.
84 As of 1 May 2012, 66 countries (including certain federal jurisdictions) have enacted legislation
based on the Model Law, see UNCITRAL, Status: 1985—UNCITRAL Model Law on International
Commercial Arbitration, available at <http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/
1985Model_arbitration_status.html> (last visited 1 May 2012).
85 UNCITRAL Model Law (2006), art. 1(2). The exceptions relate to recognition of arbitration
agreements (art. 8), interim measures of protection (art. 9), and recognition and enforcement of
interim measures and arbitral awards (arts 17, 35–66), all of which are given a global scope.
86 See UNCITRAL, Explanatory Note, fn. 8, at para. 14.
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30

Territorialized and Internationalized Arbitration Tribunals

‘nationality’,87 and consequently be subject to the requirements of the Model Law as
incorporated by that state.88
The law of the seat does not only apply to proceedings between two private parties;
contrary to the holding of the Aramco tribunal,89 it also applies in disputes involving a
state party. As Luzzatto states:
In principle, there can be little doubt, if any, that international arbitration arising from a
dispute between States and foreign subjects, under a contractual relationship between the parties,
should be put on the same level as arbitrations between two private parties, and not as arbitrations
between States, which are governed as such by public international law [ . . . ]. The practice of
courts and arbitral tribunals confirms this assumption.90

Thus, in Sapphire International Petroleum Ltd v National Iranian Oil Co. (1963), sole
Arbitrator Cavin held that the arbitral decision ‘should be subject to the supervision of a
State authority, such as the judicial sovereignty of a State’, and that ‘[t]herefore, as far as
procedure is concerned, it is subject to the binding rules of the Code of Civil Procedure
of Vaud [ . . . ]’, the place where the tribunal was seated.91 And the UNCITRAL
Tribunal in Wintershall A.G. et al v Government of Qatar (1989), seated in the Netherlands, noted that the UNCITRAL Arbitration Rules were subject to any mandatory
provisions of the Netherlands Arbitration Law, which would prevail in the event of any
conflict.92 The applicability of the law of the tribunal’s juridical seat in investor–state
arbitration has been confirmed more recently by the SCC Tribunal in Petrobart Limited v
Kyrgyz Republic (2005), the latter holding that ‘procedural questions which have not been
determined by the Treaty will be decided both in accordance with the institutional
Rules of the SCC Institute and in accordance with the law of the seat of arbitration,
namely Swedish arbitration law’.93 The applicability of the Swedish Arbitration Act to
arbitration proceedings between a private party and a state when the tribunal is seated
in Sweden was confirmed by the Swedish Supreme Court in Rosinvest Co v Russian
Federation (2010):
Pursuant to Section 46, the Act applies to arbitral proceedings which take place in Sweden even
where the dispute has an international connection. Also in such proceedings, Swedish courts may
be called upon to appoint arbitrators, hear witnesses under oath, rule on arbitrators’ fees and hear
challenge and invalidation claims in respect of arbitral awards.94

87 C. Söderlund, The Titan Corporation v Alcatel CIT SA, Decision by the Svea Court of Appeal in
Sweden, Case No T 1038–0, 2005, Stockholm International Arbitration Review (2005:2)
(observations).
88 Cf. Indian Arbitration and Conciliation Act (No. 26 of 1996), section 2(2) (hereinafter Indian
Arbitration Act) (‘This Part shall apply where the place of arbitration is in India’); G. KaufmannKohler, ‘Globalization of Arbitral Procedure’ (2003) 36 V. and J. Transnat’l L. 1313, 1315.
89 See Section 3.1 (on the delocalization theory).
90 R. Luzzatto, ‘International Commercial Arbitration and the Municipal Law of States’ (1977) 157
Recueil des Cours 87–8 (1977). See also G.R. Delaume, ‘State Contracts and Transnational Arbitration’
(1981) 75 Am. J. Int’l L. 784; Lauterpacht, fn. 66, at 649.
91 Sapphire Int’l Petroleum Ltd v National Iranian Oil Co., Award, 15 March 1963 (Cavin, sole
arb.), 35 I.L.R. 136, 169 (1963).
92 Wintershall A.G. v Government of Qatar, Partial Award, February 5, 1988; Final Award, 31 May
1988 (J.R. Stevenson, I. Brownlie, B.M. Cremades, arbs), 28 I.L.M. 795, 801 (1989).
93 Petrobart v Kyrgyz Republic, SCC Case No. 126/2003, Award, 29 March 2005 (H. Danelius,
O. Bring, J. Smets, arbs), p. 23.
94 Rosinvest Co v Russian Federation, Supreme Court of Sweden, Case No. Ö 2301–09, Decision,
12 November 2010, para. 3.
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Territorialized Tribunals

31

According to the Court, the parties’ agreement to hold the proceedings in Sweden was
determinative; if this is the case, ‘it is irrelevant if the parties or the arbitrators have
decided to hold hearings in other countries, if the arbitrators are not from Sweden, if
their duties have been carried out in another country or if the dispute concerns a
contract which otherwise has no connection to Sweden [ . . . ]’.95 To the same effect, the
English Court of Appeals in Svenska Petroleum Exploration AB v Government of the
Republic of Lithuania and AB Geonafta (2006) held: ‘The arbitration leading to the first
award took place in Denmark in accordance with the parties’ agreement and we think
there can be little doubt that the curial law of the proceedings was Danish law.’96
A final example is the award in Jan Oostergetel and Theodora Laurentius v Slovak
Republic (2012), in which the UNCITRAL Tribunal confirmed the applicability of the
law of its seat, Switzerland: ‘[T]hese proceedings are governed by the arbitration law of
the seat, i.e., by Chapter 12 [Swiss Private International Law Act 1987] PILA and, as
provided in Article 8(5) of the BIT, by the UNCITRAL Arbitration Rules (1976).’97

3.2.1.2. Annulment as an exercise of control
Perhaps the strongest indication that arbitral proceedings are subject to the law of the
tribunal’s seat is the fact that the national courts of the seat may sanction ‘flawed’ awards
with annulment.98 According to the UNCITRAL Model Law, annulment may occur in
the following situations: first, when a party was under some incapacity, or unable to
present its case;99 secondly, when the arbitration agreement is not valid under the law to
which the parties have subjected it, or failing any indication thereon, under the law of the
tribunal’s seat;100 thirdly, the award deals with a dispute, or contains decisions on matters
not falling within the arbitration agreement;101 fourthly, the composition of the arbitral
tribunal or the arbitral procedure was not in accordance with the agreement of the
parties,102 or, failing such agreement, was not in accordance with the Model Law as
adopted by the seat;103 fifthly, the subject-matter of the dispute is not capable of
95 Rosinvest v Russian Federation, at para. 4. See also at paras 2, 6.
96 Svenska Petroleum Exploration AB v Government of the Republic of Lithuania and AB Geonafta,
Court of Appeals, Judgment, 13 November 2006 [2006] EWCA Civ 1529, para. 93.
97 Jan Oostergetel and Theodora Laurentius v Slovak Republic, Final Award, 23 April 2012
(G. Kaufmann-Kohler, M. Wladimiroff, V. Trapl, arbs), para. 142. See also Chevron Corporation
and Texaco Petroleum Company v The Republic of Ecuador, UNCITRAL, PCA Case No. 34877, Partial
Award on the Merits, 30 March 2010 (K.-H. Böckstiegel, C.N. Brower, A.J. van den Berg, arbs), para.
158; ADF Group Inc. v United States, fn. 47, Award, 9 January 2003, para. 31; Iurii Bogdanov,
Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic of Moldova, SCC Institute,
Award, 22 September 2005, (G. Cordero Moss, sole arb.), Section 2.2.1; Austrian Airlines v Slovak
Republic, Final Award and Dissenting Opinion (redacted version), 20 October 2009 (G. KaufmannKohler, C.N. Brower, V. Trapl, arbs), para. 81.
98 See J. Fernández-Armesto, ‘Different Systems for the Annulment of Investment Awards’ (2011)
26(1) ICSID Rev-FILJ 128, 132. But see Case No. 2004-10-01, Judgment, Riga, 17 January 2005,
Republic of Latvia Constitutional Court, para. 9.1 (‘In difference from the greatest number of states, in
Latvia [ . . . ] the law does not envisage the possibility to raise objection to the arbitrator or request
abrogation of the arbitral award. Therefore the control of arbitration courts is concentrated on the stage
of issuance of the writ of execution’); R. Chapaev and V. Bradautanu, ‘International Commercial
Arbitration in the CIS and Mongolia’ (2006) 17 Am. Rev. Int’l Arb. 411, 442 (on Kyrgyz and Tajik
law).
99 UNCITRAL Model Law (2006), art. 34(2)(a)(i) and (ii).
100 UNCITRAL Model Law, art. 34(2)(a)(i).
101 UNCITRAL Model Law, art. 34(2)(a)(iii) (adding that if the decisions on matters submitted to
arbitration can be separated from those not so submitted, only the latter will be set aside).
102 UNCITRAL Model Law, art. 34(a)(iv) (unless such agreement was in conflict with a provision
of this Law from which the parties cannot derogate).
103 UNCITRAL Model Law, art. 34(a)(iv).
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Territorialized and Internationalized Arbitration Tribunals

settlement by arbitration according to the law of the seat;104 or sixthly, the award is in
conflict with the public policy of the seat.105
In view of our focus on the applicable law, it should be pointed out that the
references to the parties’ agreement and to public policy may entail a check to the
substantive law applied by the arbitral tribunals.106 Thus, noted the Swedish Court of
Appeal in Czech Republic v CME Czech Republic B.V. (2003): ‘Where it is evident that
the arbitrators have applied the law of a different country in violation of such an
agreement [on the applicable law], [ . . . ] the award may be set aside on the ground that
the arbitrators have exceeded their mandate.’107 The possibility to annul awards on this
basis is explicitly stipulated in the Egyptian Law Concerning Arbitration in Civil and
Commercial Matters: ‘An action to procure the nullity of the arbitral award is admissible only in the following cases: [ . . . ] (d) If the arbitral award fails to apply the law
agreed to by the parties to the subject matter of the dispute [ . . . ].’108
We also note here that in the absence of an agreement by the parties to the contrary,
the English Arbitration Act allows for an appeal to the court on a point of law.109 Held
the Court in Sinclair v Woods of Winchester Ltd (No. 2) (2006): ‘if there is a point of law
on which the Arbitrator was obviously wrong, it would be just and proper for the Court
to intervene’.110 While this possibility of relief only applies to questions pertaining to
the law of England, Wales, or Northern Ireland,111 it may be asked whether such law
may also be seen to encompass questions of international law. A strong argument can
be made that it would at least encompass questions of customary international law, as it
is part of the ‘law of the land’.112
The right of national courts to review and annul awards rendered on their
territory is confirmed by judicial practice and in scholarship.113 As held by
national courts in, for instance, Sweden,114 Denmark,115 Belgium,116 Canada,117
104 UNCITRAL Model Law, art. 34(2)(b)(i). On the topic of arbitrability, see generally
L.A. Mistelis and S.L. Brekoulakis, Arbitrability: International and Comparative Perspectives (Alphen
aan den Rijn, Kluwer Law International, 2009).
105 UNCITRAL Model Law, art. 34(2)(b)(ii). It should be noted that state practice differs as to the
grounds for annulment. See Chapaev and Bradautanu, fn. 98, at 441.
106 On the limits of this check, see Section 3.3 (on the influence on the delocalization theory on
state practice); Chapter 3, Section 2 (on the linkage between lex arbitri and choice-of-law
methodology).
107 Czech Republic v CME Czech Republic B.V., Svea Court of Appeal, 15 May 2003, 42
I.L.M. 919, 963 (2003).
108 Egyptian Law No. 27/1994 for Promulgating the Law Concerning Arbitration in Civil and
Commercial Matters (as last amended by Law No. 8/2000), art. 53(1) (hereinafter Egyptian Arbitration Law). See also Arbitration Law of Jordan, Law No. 31/2001, 14 June 2001, art. 49(a)(4).
109 See English Arbitration Act (1996), sections 45, 69. See also New Zealand Arbitration Act
(1996), Second Schedule, section 5 (appeals on questions of law). Cf. Park, fn. 41, at 14, 18–20.
110 Sinclair v Woods of Winchester Ltd (No. 2) [2006] EWHC 3003 (TCC), para. 13.
111 See English Arbitration Act (1996), section 82(1).
112 See Chapter 5, Section 3.1.1 (on international law as part of the ‘law of the land’).
113 See, e.g., C. McLachlan, ‘Investment Treaty Arbitration: The Legal Framework’ in 50 Years of
the New York Convention (ICCA Congress Series no. 14, A.J. van den Berg, ed., Kluwer, 2009), 95,
140; Park, fn. 77, at 232. See also Section 3.2.4 (on considerations of due process, finality, and
consistency).
114 See Czech Republic v CME Czech Republic B.V., fn. 107.
115 See Swembalt v Latvia, Review by the Maritime and Commercial Court, Copenhagen, 7 January
2003, 2003:2 Stockholm Arb. Rep.
116 See Eureko B.V. v Republic of Poland, Judgment of Court of First Instance of Brussels,
23 November 2006.
117 See Metalclad Corporation v Mexico, British Columbia Supreme Court, Statutory Review, 2 May
2001.
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Territorialized Tribunals

33

Switzerland,118 France,119 and the United States,120 such state practice also extends
to arbitration set up pursuant to an investment treaty.121 In fact, ever more frequently
unsuccessful respondents seek to challenge investment arbitration awards in the
national courts of the tribunal’s juridical seat.122 One example is Ecuador’s request
for annulment of the award rendered against it in Occidental Exploration and Production
Company v Ecuador (2004).123 The English High Court of Justice accepted jurisdiction
on the basis that investors are ‘Municipal law entities’ and that therefore, the procedural
law governing the arbitration is also ‘Municipal’:
Some of the rights created by the BIT, which is a treaty between the USA and Ecuador on the
plane of international law, are rights that are given to a class of entities which exist on the plane of
Municipal law, i.e. ‘investors’. In particular, the right to arbitrate ‘investment disputes’ as defined
in Article VI.1 [of the BIT] is given to Municipal law entities. That right can be exercised in an
arbitral tribunal (set up under UNCITRAL arbitration rules) that will be subject to procedural
laws (UNCITRAL arbitration rules and, if the seat is in England, the 1996 [Arbitration] Act),
which exist on the ‘Municipal’ or ‘private’ or ‘domestic’ law plane. So, although the rights have
their origin in international law, they are rights that are intended to be exercised by Municipal law
entities in a tribunal that is subject to control under Municipal laws. [ . . . ] In this case,
Occidental and Ecuador have agreed that rights with their origin in international law will be
considered by a tribunal whose procedure is subject to Municipal law.124

This position was upheld by the English Court of Appeal in the same case: ‘we see no
incongruity in a conclusion that the consensual arbitration intended under the Treaty
carries with it the usual procedural and supervisory remedies provided under English
law as the relevant procedural law’.125 The Court stated that it had not been shown any
authorities to contrary effect.126 A similar observation has been made by Crawford with
118 See, e.g., La République du Liban v France Télécom Mobiles International S.A., et FTML S.A.L.,
Swiss Federal Tribunal Decision I, 10 November 2005; Swiss Federal Tribunal Decision II,
10 November 2005.
119 See, e.g., PrenNreka v Czech Republic, Recours en Annulation, Court d’Appel de Paris,
Judgment, 25 September 2008.
120 See, e.g., Republic of Argentina v BG Group PLC, US Court of Appeals for the District of
Columbia, No 11-7021, 17 January 2012 (per Judge Rogers).
121 See K. Hobér and N. Eliasson, ‘Review of Investment Treaty Awards by Municipal Courts’ in
Arbitration under International Investment Agreements: A Guide to the Key Issues (K. Yannaca-Small, ed.,
Oxford, Oxford University Press, 2010), 635, 668.
122 See N. Rubins, Observations on the CME Svea Court Opinion, Stockholm Arb. Rep. 195
(2003:2), at section 4 (‘The ever-more frequent challenges of investment arbitration awards in national
courts by defeated State respondents underlines the continuing role of the arbitral situs in international
arbitration’ [references omitted]). See also A. Reinisch and L. Malintoppi, ‘Methods of Dispute
Resolution’ in Oxford Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford,
Oxford University Press, 2008), 691, 719.
123 Cf. Occidental Exploration and Production Company v Republic of Ecuador, LCIA Case No.
UN3467, Final Award, 1 July 2004.
124 Republic of Ecuador v Occidental Exploration and Production Company, High Court of Justice,
Queen’s Bench Division, Commercial Court, 29 April 2005 [2005] EWHC 774 (Comm) (per
Mr Justice Aikens), para. 73. See also at para. 64.
125 Republic of Ecuador, Judgment of the Court of Appeal regarding non-justiciability of challenge
to arbitral award, 9 September 2005 [2005] EWCA Civ 1116 (Lord Phillips of Worth Matravers MR,
Clarke, Mance LJJ), para. 55.
126 Republic of Ecuador. See also Czech Republic v European Media Ventures SA, Decision on
Annulment [2007] EWHC 2851 (Comm). But see G. Sacerdoti, Case T 8735-01-77, The Czech
Republic v CME Czech Republic B.V., Svea Court of Appeal (expert legal opinion for CME), TDM 2(5)
(2005), at 31–2 (‘The courts of the place of arbitration are especially constrained by BITs in their
examination of a challenge against an international award based on such a treaty. [ . . . ] The limits
imposed on the Swedish courts in this respect would stem from the general principle of respect of
foreign States sovereignty: “par in parem non habet jurisdictionem” ’).
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Territorialized and Internationalized Arbitration Tribunals

respect to tribunals set up pursuant to NAFTA Chapter Eleven: while they are not part
of the judicial systems of the contracting states, ‘this does not mean that they are legal
Alsatias, beyond any form of jurisdictional control’.127 Indeed, he points out, it is open
to respondent governments to challenge any adverse decision in the same way as any
other international arbitral award can be challenged by a party to it, i.e., by proceedings
before the courts of the place of arbitration.128 To the same effect, the NAFTA
Tribunal in Waste Management Inc. v Mexico (2001) stated:
Unlike arbitration under the ICSID Convention, arbitration under the Arbitration (Additional
Facility) Rules is not quarantined from legal supervision under the law of the place of
arbitration. The possible requirements of that law are specifically referred to in the Arbitration
(Additional Facility) Rules (see Articles 1, 53 (3), (4)). Thus the determination of the place of an
Additional Facility arbitration can have important consequences in terms of the applicability of
the arbitration law of that place.129

By way of conclusion on this point, we refer to the recent award in Saipem S.p.A. v The
People’s Republic of Bangladesh (2009).130 At issue was the legality of the decision by
Bangladesh courts to annul an ICC award rendered in Dhaka against Bangladesh Oil
Gas and Mineral Corporation (Petrobangla) in the favour of Saipem, for breach of
contract.131 Specifically, Saipem argued that by declaring the ICC award non-existent,
Bangladesh had deprived it of the compensation for the expropriation of its investment,
in contravention of Bangladesh’s obligations pursuant to the BIT entered into with
Italy, Saipem’s home state.132 While upholding the claim, the tribunal emphasized
Bangladesh’s right of supervisory jurisdiction over the arbitration process: ‘There is no
question that, under most legal systems including the Bangladeshi one, by choosing the
seat of the arbitration the parties submit to the jurisdiction of the courts at the seat,
which jurisdiction can be exercised in aid and in control of the arbitration process.’133
This is also the case, stated the tribunal, when the parties have agreed to arbitrate the
dispute pursuant to the ICC Arbitration Rules:
[W]hile binding on the parties, the ICC Rules are not binding upon national courts. Hence, the
Tribunal fails to see how the assertion of jurisdiction by the courts of Bangladesh can be deemed
illegal on this ground. Indeed, it is generally accepted that national arbitration law can provide for
a solution which is different from the ICC Rules. For instance, as mentioned by both parties,
Dutch arbitration law provides that the local courts have mandatory jurisdiction over a challenge
and revocation of the authority of arbitrators and no one would think of claiming that the courts
of the Netherlands breach international law by asserting jurisdiction over a request to challenge or
revoke an ICC arbitrator.134

The claimant still prevailed on the basis that Bangladeshi courts had abused their right
of supervisory jurisdiction over the arbitration process, in a way that constituted illegal
127 Council of Canadians, CUPW and the Charter Committee on Poverty Issues v the Attorney General
of Canada, Ontario Superior Court of Justice, Affidavit of J. Crawford, 15 July 2004 (reply to
M. Sornarajah), paras 16–17.
128 Council of Canadians. Cf. H.C. Alvarez, ‘Arbitration Under the North American Free Trade
Agreement’ (2000) 16(4) Arb. Int’l 393, 418.
129 Waste Management Inc. v United Mexican States, ICSID Case No. ARB(AF)00/3, Decision on
Venue of the Arbitration, 26 September 2001 (J. Crawford, G. Aguilar Alvarez, B.R. Civiletti, arbs), para. 5.
130 Saipem S.p.A. v The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award, 30 June
2009 (G. Kaufmann-Kohler, C.H. Schreuer, P. Otton, arbs).
131 Saipem v Bangladesh, at para. 84.
132 Saipem v Bangladesh, at para. 84.
133 Saipem v Bangladesh, at para. 187. See also at paras 101, 115.
134 Saipem v Bangladesh, at para. 138.
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expropriation: ‘[T]he Tribunal is of the opinion that the Bangladeshi courts exercised
their supervisory jurisdiction for an end which was different from that for which it was
instituted and thus violated the internationally accepted principle of prohibition of
abuse of rights.’135 In so holding, it quoted from Poudret and Besson: ‘We believe that
the lex arbitri constitutes the primary legal basis for the effectiveness of the arbitration
agreement and the arbitrators do not have a discretionary power to disregard injunctions issued by the courts at the seat of the arbitration. To the contrary, they should
obey such decision, unless they are manifestly abusive.’136
In sum, in emphasizing the potentially important role played by the national law of
the tribunal’s juridical seat, the foregoing remarks also demonstrate the desirability of
the arbitrators, as well as counsel of the disputing parties, familiarizing themselves with
and heeding national requirements imposed on the arbitral process by the tribunal’s
juridical seat.137

3.2.2. Arbitration rules
Next to national arbitration laws, arbitration rules promulgated by (private) institutions
also support the seat theory, at least indirectly. The UNCITRAL Arbitration Rules, for
instance, provide in article 18(1) that the awards ‘shall be deemed to have been made at
the place of arbitration’,138 and in article 1(3) that in case any of its provisions ‘is in
conflict with a provision of the law applicable to the arbitration from which the parties
cannot derogate, that provision shall prevail’.139 Böckstiegel notes that the latter
provision is of general validity:
Article 1(2) [now article 1(3)] in no way newly creates that principle, but is only declaratory of a
limit to arbitration agreements and arbitration proceedings existing independently of this
recognition in the UNCITRAL Rules. On the contrary, even if the UNCITRAL Rules did
not contain such an article, mandatory provisions of national law, if they were applicable, would
still have to be respected. This is exactly what makes them mandatory.140

Commenting on the recent modifications of the UNCITRAL Arbitration Rules, Daly
and Smith find it significant that this language was kept intact in the 2010 version,
especially because investment arbitration was in the minds of the UNCITRAL
Working Group: ‘Specifically, there [was] no discussion of changing Art. 1(2), which
appears to indicate that mandatory rules of the lex arbitri prevail over the UNCITRAL
Rules.’141

135 Saipem v Bangladesh, at para. 161.
136 Saipem v Bangladesh, at para. 160 (referring to Poudret and Besson, fn. 65, at 117 [emphasis in
original]). Cf. Petrochilos, fn. 36, at 247–8 (Petrochilos comments on Himpurna California Energy Ltd
v Indonesia, Interim Award, 26 September 1999 (J. Paulsson, A.A. de Fina, H.P. Abdurrasyid, arbs)
2000 XXV Y.B. Comm’l Arb. 11). See also fn. 66 (states have the inherent right to regulate all persons
and things on their territory, as long as such regulation is not inconsistent with international law).
137 Cf. Rubins, fn. 122, at section 4; Lauterpacht, fn. 66, at 649.
138 UNCITRAL Arbitration Rules (2010), art. 18(1). Cf. ICSID Additional Facility Rules (2006),
art. 20(3).
139 UNCITRAL Arbitration Rules (2010), art. 1(3).
140 Böckstiegel, fn. 66, at 229 (referring to the same provision in the 1976 UNCITRAL Arbitration
Rules). See also at 224.
141 B.W. Daly and F.C. Smith, ‘Comment on the Differing Legal Framework of Investment Treaty
Arbitration as Seen through Precedent, Annulment, and Procedural Rules’ in 50 Years of the New York
Convention (ICCA Congress Series no. 14, A.J. van den Berg, ed., Kluwer, 2009), 151, 161. See also at
163.
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Territorialized and Internationalized Arbitration Tribunals

Also the LCIA Arbitration Rules give explicit endorsement to the importance of the
law of the tribunal’s seat: ‘The law applicable to the arbitration (if any) shall be the
arbitration law of the seat of arbitration, unless and to the extent that the parties have
expressly agreed in writing on the application of another arbitration law and such
agreement is not prohibited by the law of the arbitral seat.’142
The ICC Arbitration Rules have changed during the years with respect to the
importance placed on the law of the tribunal’s juridical seat. The 1955 ICC Rules
provided that where the Rules were silent and the parties had not chosen a law of
procedure, the arbitrator was to look to ‘the law of the country in which the arbitrator
holds the proceedings’.143 In what has been described as a ‘revolutionary innovation’,144 the Rules were revised in 1975 in order to separate the arbitration, to the
extent possible, from local procedural law.145 Accordingly, the arbitrators were authorized to decide procedural issues without reference to any national law.146 This detachment from the law of the seat continues to characterize the present 2012 Rules.
According to article 15(1), the proceedings before the ICC tribunals ‘shall be governed
by these Rules, and, where these Rules are silent by any rules which the parties or,
failing them, the Arbitral Tribunal may settle on, whether or not reference is thereby made
to the rules of procedure of a national law to be applied to the arbitration’.147
Although this provision admittedly gives strong support to the delocalization theory,
it would be incorrect to characterize tribunals operating pursuant to the ICC Rules as
a-national. Indeed, according to the Secretariat of the ICC International Court of
Arbitration, a failure by the parties and the arbitral tribunal to respect mandatory rules
of procedure at the place of arbitration may lead to the award being set aside.148 We
further note that the Internal Rules of the International Court of Arbitration of the
ICC direct the Court, when scrutinizing an award, to consider, ‘to the extent practicable, the requirements of mandatory law at the place of arbitration’.149

3.2.3. The (New York) Convention on the Recognition and Enforcement
of Foreign Arbitral Awards
The enforcement of awards is facilitated in particular by the 1958 United Nations
(New York) Convention on the Recognition and Enforcement of Foreign Arbitral
Awards.150 This Convention corroborates the territorial criterion of the seat theory, as
142 LCIA Rules (1998), art. 16.3. See also art. 26.2.
143 Y. Derains and E.A. Schwartz, A Guide to the ICC Rules of Arbitration (The Hague, Kluwer Law
International, 2005), 233 (quoting art. 16 of the 1955 ICC Arbitration Rules).
144 F. Eisemann, ‘The Court of Arbitration: Outline of its Changes from Inception to the Present
Day’ in 60 Years of ICC Arbitration: A Look at the Future (International Chamber of Commerce, ed.,
Paris, International Chamber of Commerce, 1984), 391, 398.
145 Derains and Schwartz, fn. 143, at 223.
146 Derains and Schwartz (referring to article 11 of the 1975 ICC Arbitration Rules).
147 See ICC Rules (2012), art. 15(1) (emphasis added).
148 J. Fry et al., The Secretariat’s Guide to ICC Arbitration (Paris, International Chamber of
Commerce, 2012), para. 3–721. See also Derains and Schwartz, fn. 143, at 228.
149 ICC Rules (2012), Appendix II, Internal Rules of the International Court of Arbitration, art. 6.
150 See (New York) Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, 10 June 1958 (hereinafter New York Convention). As of 1 May 2012, there are 146
contracting parties. See UNCITRAL, Status: 1958—Convention on the Recognition and Enforcement of Foreign Arbitral Awards, available at <http://www.uncitral.org/uncitral/en/uncitral_texts/
arbitration/NYConvention_status.html>(last visited 1 May 2012). Other instruments that deal with
the recognition and enforcement of arbitral awards include the Geneva Convention on the Execution of Foreign Arbitral Awards (1927); European Convention on International Commercial
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Territorialized Tribunals

37

it makes several references to the state in which the award was ‘made’, or rendered. As
Söderlund states:
In this world of global expansion of arbitration it has been quite natural to speculate about the
advent of the truly international award. Such award would not be attached to any national legal
system. It would, as it were, unfold in a realm of its own. Many times such awards have been
called ‘transnational,’ ‘a-national,’ or ‘floating awards’ when discussed in legal writings. Irrespective of whether such a truly international award will materialise in the future, one thing is certain
and that is that it does not exist today. Today an arbitral award—despite its international
character—is of a particular nationality. In fact, the entire world order, when it comes to arbitral
agreements and awards, evolves around the fact that the 1958 New York Convention attaches
decisive importance to the fact that arbitral awards are rendered in a particular jurisdiction.151

More specifically, the Convention applies to ‘arbitral awards made in the territory of a
State other than the State where the recognition and enforcement of such awards are
sought, and arising out of differences between persons, whether physical or legal’,152
including states.153 Whereas it also applies to awards ‘not considered domestic awards
in the State where their recognition and enforcement are sought’,154 a contracting state
may declare that it will, on the basis of reciprocity, exclude awards not ‘made in the
territory of another Contracting State’.155 Only a handful of states have refrained from
making such a declaration,156 a practice that could be seen to lend implicit support to
the seat theory.
References to the tribunal’s juridical seat are also included in several of the permissible157 grounds listed in the Convention for refusal of recognition and enforcement
of awards: the award ‘has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award was made’;158 the parties
‘were, under the law applicable to them, under some incapacity, or the said agreement

Arbitration (1961); Inter-American (Panama) Convention on International Commercial Arbitration
(1975).
151 Söderlund, fn. 87 (references omitted). See also Park, fn. 77, at 237.
152 New York Convention (1958), art. I (1) (emphasis added). Cf. P. Sanders, Importance of the Seat
of Arbitration, ICCA: Souvenirs of the Development of International Commercial Arbitration,
available at <http://www.arbitration-icca.org/media/0/12741827220440/011.pdf> (last visited 1
May 2012).
153 G.R. Delaume, ‘Recognition and Enforcement of State Contract Awards in the United States:
A Restatement’ (1997) 91 Am. J. Int’l L. 476, 477. But see P. Sanders, ‘New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards’ (January 1959) VI Nederlandstijdschriftvoorinternationaalrecht (‘In so far as States participate in this normal international business, buying or
selling goods, I have no doubt the Convention also applies to these contracts. My doubts begin where
the State acts in a way not to be compared with private business, e.g. granting an oil concession. Here
the solution might be the explicit statement, in the contract, that the New York Convention is
applicable. Failing such a provision I would be of the opinion that such is not the case’).
154 New York Convention (1958), art. I(1).
155 New York Convention (1958), art. I(3) (emphasis added).
156 See United Nations, Status of Treaties, Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, available at <http://treaties.un.org/> (last visited 1 May 2012). See also M. Pryles,
‘Foreign Awards and the New York Convention’ (1993) 9(3) Arb. Int’l 259, fn. 2.
157 The scope of discretion enjoyed by courts in applying the New York Convention, art. V is
disputed. Cf. H. Smit, ‘A-National Arbitration’ (1989) 63 Tulane Law Review 629, 641; J. Paulsson,
‘May or Must under the New York Convention: An Exercise in Syntax and Linguistics’ (1998) 14 Arb.
Int’l 227; A. Giardina, ‘The International Recognition and Enforcement of Arbitral Awards Nullified
in the Country of Origin’ in Law of International Business and Dispute Settlement in the 21st Century
(R. Briner et al., eds, Köln etc., Heymann, 2001) 205, 210, at fn. 21. See also fn. 163 (on enforcing
awards annulled at the tribunal’s jurisdictional seat).
158 New York Convention (1958), art. V(1)(e) (emphasis added).
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Territorialized and Internationalized Arbitration Tribunals

is not valid under the law to which the parties have subjected it or, failing any indication
thereon, under the law of the country where the award was made’;159 and ‘the composition of the arbitral authority or the arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement, was not in accordance with the law
of the country where the arbitration took place’.160
These grounds for non-enforcement demonstrate the control a tribunal’s juridical
seat may exert over the award, also at the enforcement stage. Illustrative in this respect is
Termo Rio S.A. E.S.P. & Leaseco Group, LLC v Electranta S.P. (2007), in which a US court
of appeal denied enforcement of an award rendered by an ICC tribunal in Columbia on
the basis that it had been set aside by Columbian courts.161 The Court held:
‘The [New York] Convention specifically contemplates that the state in which, or under the law
of which, the award is made, will be free to set aside or modify an award in accordance with its
domestic arbitral law and its full panoply of express and implied grounds for relief.’ [ . . . ] This
means that a primary State necessarily may set aside an award on grounds that are not consistent
with the laws and policies of a secondary Contracting State. The Convention does not endorse a
regime in which secondary States (in determining whether to enforce an award) routinely secondguess the judgment of a court in a primary State, when the court in the primary State has lawfully
acted pursuant to ‘competent authority’ to ‘set aside’ an arbitration award made in its country.162

In accordance with the arbitration agreement, arbitrators arguably have a duty to
attempt to render enforceable awards.163 While there are some notable examples of
awards being enforced despite annulment at the tribunal’s juridical seat,164 arbitrators
ought therefore to be conscious of the fact that a failure to abide by the law of the seat of
arbitration may have the price of non-enforcement of awards.165 In fact, according to

159 New York Convention (1958), art. V(1)(a) (emphasis added).
160 New York Convention (1958), art. V(1)(d) (emphasis added). Other reasons for refusing
recognition and enforcement of awards include those listed in article V(2) (‘The subject matter of
the difference is not capable of settlement by arbitration under the law of [the country where
recognition and enforcement is sought]; or [ . . . ] [t]he recognition or enforcement of the award
would be contrary to the public policy of that country’). Cf. UNCITRAL Model Law (2006), art. 36.
161 Termo Rio S.A. E.S.P. & Leaseco Group, LLC v Electranta S.P., 487 F.3d 928, 376 U.S. App. D.
C. 242 (D.C. Cir. 2007).
162 Termo Rio, at 937 (citing Yusuf Ahmed Alghanim & Sons v Toys ‘R’ Us, Inc., 126 F.3d 15, 23 (2d
Cir. 1997)). See also Société Européenne d’Etudes et d’Entreprises v République Fédérative de Yougoslavie,
Decision of 7 November 1975, Dutch Supreme Court (Hoge Raad), translated in G. Gaja, International Commercial Arbitration: New York Convention (Dobbs Ferry, NY, Oceana Publications,
1978), pt. V, 35.2–3.
163 See ICC Rules (2012), art. 41 (‘[T]he Court and the arbitral tribunal [ . . . ] shall make every
effort to make sure that the award is enforceable at law’); LCIA Rules (1998), art. 32.2; M. Platte, ‘An
Arbitrator’s Duty to Render Enforceable Awards’ (2003) 20(3) J. Int’l Arb. 307. But see G.R. Delaume,
‘State Contracts and Transnational Arbitration’ (1981) 75 Am. J. Int’l L. 784, 792–3. See also
Chapter 3, Section 3.3 (on fundamental national and international norms).
164 See, e.g., Société PT Putrabali Adyamulia v Société Rena Holding, French Cass. Civ., 29 June
2007, Nos 05-18053 and 06-13293, 24 Arb. Int’l 293, 295 (2008); In re Chromalloy Aeroservices Inc. v
Arab Republic of Egypt, 939 F.Supp. 907 (D.D.C. 1996); Hilmarton Ltd v Omnium de Traitement et de
Valorisation, Decision No. 484, French Cour de Cassation, First Civil Chamber (1994), Revue de
l’arbitrage 327 (1994), XX Y.B. Comm’l Arb. 663 (1995) (English excerpts); Yukos, Gerechtshof
Amsterdam, 28 April 2009, LJN: BI2451, 200.005.269/01. But see Park, fn. 41, at 17 (‘[O]utside of
France, [a] resurrection of dead awards has received a less enthusiastic reception [ . . . ]’). See generally
C. Alfons, Recognition and Enforcement of Annulled Foreign Arbitral Awards (Frankfurt am Main etc.,
Lang, 2010). See also fn. 157 (on the discretion courts enjoy in applying article V of the New York
Convention).
165 Delaume, fn. 163, at 813; D.D. Caron, ‘The Nature of the Iran–United States Claims Tribunal
and the Evolving Structure of International Dispute Resolution’ (1990) 84 Am. J. Int’l L. 104, 119; Fry
et al., fn. 148, at para. 3–721.
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Territorialized Tribunals

39

Sanders, one of the ‘founding fathers’ of the New York Convention, if an award is set
aside at the seat of the arbitration, the ‘Courts [ . . . ] will refuse the enforcement as there
no longer exists an arbitral award and enforcing a non-existing arbitral award would be
an impossibility or even go against the public policy of the country of enforcement’.166
Such concerns about enforceability were explicitly heeded in British Petroleum Exploration Co. (Libya) Limited (BP) v Government of the Libyan Arab Republic (1973).167 Sole
Arbitrator Lagergren observed that ‘the attachment to a developed legal system is both
convenient and constructive’.168 As the seat was fixed at Copenhagen, and ‘having
particular regard to the wide scope of freedom and independence enjoyed by arbitration tribunals under Danish law’, he concluded that the procedural law of the
arbitration was Danish law and that the award would be Danish.169 Importantly, and
keeping in mind that states in which enforcement is sought may require that the award
is legally rendered in particular state, he based his conclusion partly on the fact that the
parties must have intended an effective remedy: ‘effectiveness of an arbitral award that
lacks nationality—which it may if the law of the arbitration is international law—
generally is smaller than that of an award founded on the procedural law of a specific
legal system and partaking of its nationality.’170

3.2.4. Considerations of due process, finality, and consistency
Next to national arbitration laws, arbitration rules, and the New York Convention,
the attachment of arbitral proceedings to one national legal order is supported by
considerations of due process, finality, and consistency. Most arbitration rules oblige
the arbitrators to render awards in accordance with the arbitration agreement, to be
impartial, and to respect the parties’ right to due process.171 It is conceivable, however,
that arbitrators exceed, or in other ways act contrary to, their mandate, for instance, by
applying a different law to the merits than that upon which the parties agreed, or by
accepting bribes that influence the outcome of the dispute. In such a case, the
possibility of annulment of the award is not only an inherent right of tribunal’s juridical
seat, but also necessary in terms of due process and desirable for the arbitration process
in general.
Importantly, arbitration affects not only winners and losers, but often society
at large as well; and national review serves as an imperative control mechanism on
the legal accuracy of the arbitration. Blackaby et al. state: ‘it would be unusual for
a State to support arbitral tribunals operating within its jurisdiction without claiming
some degree of control over the conduct of those arbitral tribunals—if only to
ensure that certain minimum standards of justice are met, particularly in procedural
166 P. Sanders, ‘New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards’ (1959) 6 Neth. I.L.R. 43, 55. Cf. A.J. van den Berg, ‘Enforcement of Arbitral Awards
Annulled in Russia: Case Comment on Court of Appeal of Amsterdam, April 28, 2009’ (2010) 27
(2) J. Int’l Arb. 179, 187 (2010).
167 British Petroleum Exploration Co. (BP) v Libyan Arab Republic, Award, 10 October 1973, 53
I.L.R. 297 (1979) (Lagergren, sole arb.).
168 BP v Libya, at 309.
169 BP v Libya, at 309. See also Second Award, 1 August 1974, 5 Y.B. Com. Arb., 147, 158–61
(1980) (Basing himself on Danish law, Lagergren denied the application for a reopening of the award).
170 BP v Libya, Award, at 309. Cf. J.G. Wetter, II The International Arbitral Process: Public and
Private (Dobbs Ferry, NY, Oceana Publications, 1979), 409 (‘The desirability to localise an award, for
the purpose of making it enforceable is the main reason for, and consequence of, preferring the BP
doctrine’).
171 See Section 2 (on features of the arbitral process).
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Territorialized and Internationalized Arbitration Tribunals

matters.’172 Such a ‘safety net’ has additional value in case of disputes involving a state,
whose general population may be affected by a biased or unsound award. As noted by
the English Court of Appeal in Occidental Exploration & Production Company v Ecuador
(2005): ‘recourse to a court, when and if permissible, would (one hopes) be likely to
correct any error in interpretation, rather than to perpetuate or introduce one.’173 In
addition, it has been observed that the mere existence of the possibility of review may in
and of itself increase the quality of awards.174
Finally, and while also the New York Convention may operate as a safeguard against
incompetence and bias at the enforcement stage,175 the possibility to seek annulment at
the tribunal’s jurisdictional seat has the advantage of allowing the unsuccessful party to
litigate such issues in one state rather than in all the states in which it may have assets
and enforcement is sought. The US Court of Appeals stated in Baker Marine (Nig.) Ltd
v Chevron (Nig.) Ltd (1999):
If a party whose arbitration award has been vacated at the site of the award can automatically
obtain enforcement of the awards under the domestic laws of other nations, a losing party will
have every reason to pursue its adversary ‘with enforcement actions from country to country until
a court is found, if any, which grants the enforcement.’176

As such, the delocalization theory, in advocating ‘floating awards’,177 may also be
criticized on the basis that it may produce conflicting judgments. As Goode puts it:
The territorial approach, in insisting that the validity of an arbitral award is governed by the lex
loci arbitri, has the great merit of subjecting the question of validity to a single decision at the
court of origin. By contrast, denial of the function of a lex loci arbitri may involve litigation in
every country in which the respondent has assets, and even within a single country may entail the
case being taken up through a two-tier or even three-tier hierarchical chain and then, where the
highest court acts as a court of cassation, being sent back again to a new lower court for a fresh
determination. [ . . . ] As more than one commentator has pointed out, this is not delocalization,
it is multilocalization.178

172 Blackaby et al., fn. 39, at 68. See also at 109 (‘It seems that the movement in favour of total
delocalisation, in the sense of freeing an international arbitration from control by the lex arbitri, has run
into the ground. As the Belgian experiment showed, delocalisation is only possible to the extent that it
is permitted by the lex arbitri; and parties to an arbitration may well prefer an arbitral tribunal which is
subject to some legal control, rather than risk a runaway tribunal’). Cf. F.A. Mann, ‘Private Arbitration
and Public Policy’ (1985) 4 Civ. Just. Q. 257, 267; W.W. Park, ‘Why Courts Review Arbitral Awards’
in Law of International Business and Dispute Settlement in the 21st Century: Liber Amicorum Karl-Heinz
Böckstiegel (R. Briner et al., eds, Köln, Berlin, Munich, Carl Heymanns Verlag KG, 2001), 595.
173 Republic of Ecuador v Occidental Exploration and Production Company, fn. 125, Judgment of the
Court of Appeal regarding non-justiciability of challenge to arbitral award, para. 27. Cf. Case
Concerning Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal), Judgment, 12 November
1991, Dissenting Opinion of Judge Weeramantry [1991] ICJ Rep. 53, at 152–3.
174 See J.J. Coe Jr, ‘Domestic Court Control of Investment Awards: Necessary Evil or Achilles Heel
within NAFTA and the Proposed FTAA?’ (2002) 19(3) J. Int’l Arb. 185, section II(C). Cf. Park,
fn. 77, at 233 (‘The dark side of delocalised arbitration is that arbitrators will find it easier to exceed
their powers in jurisdictions that provide no control over the arbitration’s procedural fairness’).
175 Cf. Park, fn. 41, at 144; Chan, fn. 70, at 145–6.
176 Baker Marine (Nig.) Ltd v Chevron (Nig.) Ltd, 191 F.3d 194, 197 (2d Cir.1999), at fn. 2 (quoting
A.J. van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (The Hague, Asser, 1981), 355. See also C v D [2007] EWCA Civ 1282, para. 16; M.D. Slater, ‘On
Annulled Arbitral Awards and the Death of Chromalloy’ (2009) 25(2) Arb. Int’l 271, 292.
177 Cf. Smit, fn. 157, at 629 (describing a-national arbitration as a ‘floating and stateless arbitration
and arbitral awards’ that ‘does not owe its existence, validity, or effectiveness to a particular national law’).
178 R. Goode, The Role of the Lex Loci Arbitri in International Commercial Arbitration (2001) 17(1)
Arb. Int’l 19, 34 (references omitted).
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Territorialized Tribunals

41

3.3. The influence of the delocalization theory on state practice
Although the premise behind the delocalization theory and the seat theory is fundamentally different, it is essential to note that the practical differences between them
have become limited as states grant increasing degrees of procedural autonomy to the
arbitration process, and especially arbitration of a transnational nature.179 This stems
from the recognition by states, long highlighted by adherents to the delocalization
theory, that their national procedural rules are not well-suited for arbitration between
parties from different states.180 A related explanation offered for this development is
that arbitration has become a ‘business’, and states compete for a greater share of the
fees paid to arbitrators and attorneys by reforming their arbitration laws in line with the
business community’s demand for greater flexibility.181 In this way, states also indirectly promote economic activity.182
In line with this pro-arbitration trend, national arbitration laws limit court involvement in the arbitral process.183 As noted by the US Supreme Court, ‘we are well past
the time when judicial suspicion of the desirability of arbitration and of the competence
of arbitral tribunals inhibited the development of arbitration as an alternative means of
dispute resolution.’184 Further, national arbitration laws give the disputing parties and
arbitrators much freedom in tailoring the proceedings to suit their particular needs and
wishes. To this end, the UNCITRAL Model Law provides that ‘[s]ubject to the
provisions of this Law, the parties are free to agree on the procedure to be followed
by the arbitral tribunal in conducting the proceedings’.185 Another significant factor is
that the parties may generally agree to let the arbitration be conducted in accordance
with arbitration rules, such as the UNCITRAL Arbitration Rules. As explicitly provided in the German Arbitration Law: ‘subject to the mandatory provisions of this
Book, the parties are free to determine the procedure themselves or by reference to a set
of arbitration rules.’186 The number of such mandatory rules is limited.187
The scope and extent of judicial review is also restricted. The US District Court held
in Thunderbird Gaming Corporation v Mexico (2007): ‘Courts have long recognized that
judicial review of an arbitration award is extremely limited. [ . . . ] Thunderbird bears
the heavy burden of establishing that vacatur of the arbitration award is appropriate.
[ . . . ] [I]n the absence of a legal basis to vacate, this court has no discretion but to
179 See UNCITRAL, Notes on Organizing Arbitral Proceedings, fn. 13, at para. 4 (‘Laws governing
the arbitral procedure [ . . . ] typically allow the arbitral tribunal broad discretion and flexibility in the
conduct of the proceedings’ [references omitted]); C.N. Brower and J.K. Sharpe, ‘International
Arbitration and the Islamic World: The Third Phase’ (2003) 97(3) Am. J. Int’l L. 643, 647.
180 See Derains and Schwartz, fn. 143, at 226–7.
181 De Ly, fn. 1, at 48–9. See also Caron, fn. 165, at 119, at fn. 64.
182 See Danilowicz, fn. 76, at 237 (‘The sovereign also has an interest in the development of
international arbitration as a means of promoting trade and commerce’).
183 See G. Herrmann, ‘The Role of the Courts under the UNCITRAL Model Law Script’ in
Contemporary Problems in International Arbitration (J.D.M. Lew, ed., London, Centre for Commercial
Law Studies, 1986), 164.
184 Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc., 473 U.S. 614, 626–7 (1985). See also
Case C-126/97, Eco Swiss China Time Ltd v Benetton International NV [1999] ECR 1 3055, para. 35;
Bayview Irrigation District et al. v Mexico, Ontario Superior Court of Justice, Application for Set Aside,
5 May 2008, para. 62.
185 UNCITRAL Model Law (2006), art. 19(1). See also Indian Arbitration Act (1996), section 19;
English Arbitration Act (1996), section 34(1).
186 German Arbitration Act (1998), section 1042(3). See also UNCITRAL Model Law (2006), art. 2(e).
187 See J.G. Frick, Arbitration and Complex International Contracts with Special Emphasis on the
Determination of the Applicable Substantive Law and on the Adaptation of Contracts to Changed
Circumstances (The Hague, Kluwer Law International; Zürich, Schulthess, 2001), 53.
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42

Territorialized and Internationalized Arbitration Tribunals

confirm the award.’188 In fact, in certain jurisdictions, such as France, Belgium,
Switzerland, and Sweden, the parties to the proceedings may by agreement exclude
the possibility of seeking annulment.189 According to the Supreme Court of
Switzerland, this possibility is in conformity with article 6 of the European Convention
on Human Rights and Fundamental Freedoms:
La controverse porte, en l’espèce, sur la question de savoir s’il est possible de renoncer à recourir
contre une sentence arbitrale à venir sans violer l’art. 6 par. 1 CEDH. Cette question doit être
tranchée par l’affirmative [ . . . ] Il n’y a, dès lors, pas de raison de priver les parties aptes à assumer
les conséquences d’une renonciation au recours de la possibilité que leur offre cette disposition –
incarnation procédurale du principe d’autonomie de la volonté – d’échapper à toute intervention
étatique susceptible de porter atteinte à la confidentialité de l’arbitrage ou de disposer rapidement
d’une décision exécutoire mettant fin au différend [The controversy in this case is whether it is
possible to waive recourse against an arbitral award in the future without violating article 6(1) of
the ECHR. This question must be answered in the affirmative [ . . . ] There is therefore no reason
to deprive the parties able to bear the consequences of a waiver of the use of the possibility offered
by this provision—the procedural embodiment of the principle of party autonomy—to escape
any state intervention which could undermine the confidentiality of the arbitration or to quickly
have a binding decision ending the dispute] [ . . . ].190

Importantly, and as will be demonstrated in the next chapter, this ‘hands off ’ approach
encompasses the law applicable to the merits in that national arbitration laws grant the
parties and the tribunals considerable freedom with respect to the substantive applicable law. Of further significance is the fact that the limited possibility to seek annulment extends to the tribunal’s decision as to the applicable law: the courts of the
juridical seat will as a rule not allow judicial review of the choice-of-law methodology
applied by the arbitrators.191 This is so even in situations where the parties have
stipulated the applicable law. According to the Swedish Court of Appeal, ‘an excess
of mandate may be involved only where the arbitrators’ interpretation of the choice of
law clause proves to be baseless such that their assessment may be equated with the

188 International Thunderbird Gaming Corporation v Mexico, Judgment of the US District Court for
the District of Columbia on petition to set aside the award, 14 February 2007, at 3, section II(A). Cf.
J.-P. Beraudo, ‘Egregious Error of Law as Grounds for Setting Aside an Arbitral Award’ (2006) 23(4)
J. Int’l Arb. 351, 351–3.
189 See French Arbitration Law (2011), art. 1522; Belgian Judicial Code (1972, as amended in
1998), art. 1717(4); Swedish Arbitration Act (1999), section 51; Switzerland’s Federal Code on Private
International Law (1987), art. 192(1). Cf. Rosinvest Co v Russian Federation, fn. 94, at para. 5;
La République du Liban v France Télécom, fn. 118, Decision I, at 4.2.
190 X v Z SA, Swiss Supreme Court, 4A_238/2011, 4 January 2012. See also European Convention
on Human Rights, art. 6. Yet, there is evidence that states have certain, albeit limited, duties to provide
a safety-net, at least to private parties. See A. Jaksic, ‘Procedural Guarantees of Human Rights in
Arbitration Proceedings: A Still Unsettled Problem’ (2007) 24(2) J. Int’l Arb. 159, 171; R. Briner and
F. Von Schlabrendorff, ‘Article 6 of the European Convention on Human Rights and its Bearing upon
International Arbitration’ in Law of International Business and Dispute Settlement in the 21st Century:
Liber Amicorum Karl-Heinz Böckstiegel (Briner et al., eds, Köln, Berlin, Munich, Carl Heymanns
Verlag KG, 2001), 89, 99. See generally Petrochilos, fn. 67, at 109–65 (on human rights law
requirements in international arbitration).
191 See G.A. Born, International Commercial Arbitration (Ardsley, NY, Transnational Publisher;
The Hague, Kluwer Law International, 2001). But see G.C. Moss, ‘Is the Arbitral Tribunal Bound by
the Parties’ Factual and Legal Pleadings’ (2006)3 Stockholm Int’l Arb. Rev. 1, 10 (Moss suggests a more
stringent standard of review for treaty arbitration: ‘This is because the error in question would be made
in connection not with the decision on the merits (which is beyond the scope of control that a court
may exercise on an award), but with the establishment of the tribunal’s jurisdiction or of its duties in
the conduct of the proceedings, as determined by the applicable arbitration law or investment treaty
(which is within the scope of the judicial control)’).
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Territorialized Tribunals

43

arbitrators almost having ignored a provision regarding applicable law.’192 Thus, it
held, ‘[t]here is no excess of mandate where the arbitrators have applied the designated
law incorrectly. Nor can there hardly be any excess of mandate where the arbitrators
have been required to interpret the parties’ designation of applicable law, and in so
doing, have interpreted the designation incorrectly.’193
The aforementioned practice leads us to conclude that at least one of the concerns
presented by the delocalization theory, namely that of ‘peculiar and unexpected local
norms’,194 is to a large degree resolved.195 As noted by Kaufmann-Kohler: ‘One of the
main purposes of de-localization, as it was then discussed, was to eliminate the
unintended effects of certain arbitration-hostile features of the law of the place
where the arbitration was held. The choice of an arbitration-friendly fictional seat
fully services that purpose.’196 Consequently, she states, ‘the issue of de-localization
becomes moot.’197

3.4. Interim conclusions
We saw that the existence of any links between arbitral tribunals and national legal
orders is discouraged and/or toned down by scholars who argue that the arbitral process
is—or at least should be—removed from control by any state and should therefore be
viewed as delocalized, supranational, a-national, or international. We also noted the
influence such awards and scholarship have had on state practice, in that national
arbitration laws grant the parties and arbitrators procedural freedom and limit court
involvement to a minimum.
Still, such state practice does not invalidate the soundness of the seat theory.198
Symptomatic of the strength of this theory, the vast majority of states continue to
subject arbitration proceedings taking place on their territory to various mandatory,
albeit limited, requirements, which again are heeded by third states at the enforcement
stage. Such exercise of control, including the sanction of annulment, not only stems
from the principle of territorial sovereignty, it is conducive to finality, and it constitutes
a healthy ‘check’ on the system of arbitration as a whole. We may thus conclude that
a tribunal’s mandate to render awards does not solely stem from the parties, but
192 Czech Republic v CME Czech Republic B.V., fn. 107, 42 I.L.M. 919, 964 (2003).
193 Czech Republic v CME.
194 Paulsson, Arbitration Unbound, fn. 38, at 385.
195 See Caron, fn. 165, at 119. But see Petrochilos, fn. 67, at 10 (‘However, national particularities
are still to be found in the arbitration laws of a number of states [ . . . ]. For the time being it seems that
an arbitrator has to find his way through the web of potentially relevant laws and jurisdictions by
carefully juggling them’).
196 Kaufmann-Kohler, fn. 88, at 1319–20 (references omitted).
197 Kaufmann-Kohler, at 1320. See also J. Paulsson, ‘The Extent of Independence of International
Arbitration from the Law of the Situs’ in Contemporary Problems in International Arbitration ( J.D.
M. Lew, ed., London, Centre for Commercial Law Studies, 1986), 141 (while Paulsson believes that
‘there is still any life in the once-hot debate over the concept of arbitral awards detached from the legal
system of the country where they were rendered [ . . . ] I am quite willing to allow that the delocalisation
of the international arbitral process is not the wave of the future. The need to delocalise is felt in few
cases, and, happily, it may reasonably be predicted that those instances will become even rarer in the
future’); Terez, fn. 68, at 380 (Caron believed that ‘delocalized arbitrations were and would become
increasingly an intellectually interesting but rare oddity’).
198 Cf. F.A. Mann, ‘English Procedural Law and Foreign Arbitrations’ (1970) 19(4) Int’l & Comp. L.
Q. 693, 695 (‘Is it open to the parties to choose as their lex arbitri a law other than that prevailing at the
arbitration tribunal’s seat? [ . . . ] It is submitted that the parties’ freedom of choice is by no means
unlimited, but exists only if and to such extent as it is granted by the law of the arbitration tribunal’s
seat’); Alvik, fn. 26, at 29.
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44

Territorialized and Internationalized Arbitration Tribunals

also—and more importantly—from a national legal order: the tribunal’s juridical seat.
Accordingly, arbitral proceedings between an investor and a host state are neither
a-national, nor international, but rather subject to a national legal order.
For our purposes, we will characterize arbitral tribunals subject to the national law of
their juridical seat as ‘territorialized’, a term that seeks to differentiate them from
domestic arbitration tribunals, as well as the ‘internationalized’ tribunals that will be
analysed in the following section.

4. Internationalized Tribunals
Scholars have offered various factors for the purpose of characterizing a court or
tribunal as ‘international’.199 Several of these factors are over- or under-inclusive; and
there does not appear to be one ‘litmus test’.200 For instance, it has been stated that the
application of international law is an intrinsic characteristic of international courts and
tribunals.201 While it is true that international law constitutes the main applicable
source of law for international courts and tribunals,202 national courts too apply
international law;203 and as will be demonstrated in the following chapters, the
application of national law is not reserved to territorialized tribunals. To the contrary,
national law is frequently applied by both ICSID tribunals and the Iran–United States
Claims Tribunal. We agree, thus, with Amerasinghe when he discards the application
of international law as a criterion for internationalization:
In principle that a tribunal adjudicates on disputes which are based on violations of national laws
does not make it any less an international tribunal, if it falls into that category, because it satisfies
the requirements. Thus ICSID [ . . . ] tribunals and the Iran–US Claims Tribunal are international, although in a given case they may deal with what are purely alleged violations
of national laws. In this respect international tribunals may sometimes deal with disputes that
are not ‘international’ in the true sense.204

In the same context, it is difficult to assess whether certain of the criteria offered for
characterization purposes are inherent in the international nature of the tribunals; or
199 See, e.g., M. Mohebi, The International Law Character of the Iran–United States Claims Tribunal
(The Hague, Kluwer Law International, 1999), 29–31; Y. Shany, The Competing Jurisdictions of
International Courts and Tribunals (Oxford, Oxford University Press, 2003), 12, fn. 44; R.
P. ‘Federal Courts, International Tribunals, and the Continuum of Deference’ (2003) Virg. J. Int’l
L. 675, 680–1; and at 782, at fns 18–19.
200 Cf. Alford, fn. 199, at 679 (Alford refers to ‘the absence of any canonical definition of what
constitutes an international tribunal. Depending on the criteria one employs, the universe of international tribunals is extremely broad or narrow. [ . . . ]’).
201 See C. Tomuschat, ‘International Courts and Tribunals’ Max Planck Encyclopedia of Public
International Law, at para. 4; M.O. Hudson, International Tribunals (Washington, DC, Carnegie
Endowment for International Peace and Brookings Institution, 1944), 67–8, 99; A. Pellet, ‘Art. 38’ in
The Statute of the International Court of Justice: A Commentary (A. Zimmermann et al., eds, Oxford,
Oxford University Press, 2006), 677, 696.
202 See Chapter 1, Section 1 (on motivations for the study).
203 See Biehler, fn. 6, at 37 (‘[T]here are national courts which determine, apply and enforce
international law which even from the international law perspective may be accepted at least as state
practice and opinioiuris of the forum state’); P.A. Nollkaemper, ‘Internationalisering van nationale
rechtspraak’ in Preadviezen. Mededelingen van de Nederlandse Vereniging voor Internationaal Recht (P.A.
Nollkaemper, J.W.A. Fleuren, J. Wouters, and D. van Eeckhoutte, eds, The Hague, T.M.C. Asser) 1–67.
204 C.F. Amerasinghe, Jurisdiction of International Tribunals (The Hague, Kluwer Law International, 2003), 10–11. See also Alford, fn. 199, at 682, fn. 18; Petrochilos, fn. 67, at 235;
A. Mouri, The International Law of Expropriation as Reflected in the Work of the Iran–United States
Claims Tribunal (Dordrecht, Nijhoff, 1994), 25.
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Internationalized Tribunals

45

whether they follow as a result of such nature. In brief, there is the classical problem of
‘the chicken and the egg’. Thus, while to some, internationalization is indicated by
insulation from the law of the tribunal’s seat and the internationally binding nature of
the decisions rendered,205 according to Mohebi, these features follow rather from the
tribunal’s international nature, once established:
Once it is decided that a tribunal possesses true international character it follows, inevitably, that
as such it pertains to [sic] international order, rather than any municipal law system either that of
its creating States or of its eventual or actual seat. Among practical consequences of this
conviction is that the arbitral process before such international tribunal is detached from any
lex fori, and its arbitral award will have international quality the enforcement of which is subject
to international rules and principles; and more importantly the non-compliance with the terms of
such international award will cause international responsibility for the refusing party.206

For the purposes of this study, we will characterize ‘internationalized’207 tribunals by
three interrelated criteria: first, they operate pursuant to a treaty, from which stems
their mandate to render awards.208 Secondly, the state in which they are seated has
relinquished its right to regulate their activities, so that they are insulated from
the application of the law of the seat.209 Thirdly, the state party to the dispute is
treaty-bound to respect the tribunal’s decisions; and consequently, recognition and
enforcement of the award do not depend on instruments such as the New York
Convention.210 In combination, these features make the arbitration proceedings
operate in the international legal order, with the result that the tribunals’ lex arbitri
is international law.
Before proceeding to examine the Iran–United States Claims Tribunal and ICSID
tribunals on the basis of these criteria,211 a clarification should be made as concerns
investment treaty arbitration. As noted previously, arbitration proceedings are commonly set up pursuant to an investment treaty entered into between the host state
and the investor’s home state.212 Despite the fact that the arbitration agreement
entered into between the investor and the host state in such cases originates in an
offer set out in a treaty, this does not, in and of itself, make the arbitration tribunal
international in nature. The conclusion remains that investment treaty tribunals
applying, as they often do, the UNCITRAL Arbitration Rules, the ICSID Additional
Facility Rules, or the Arbitration Rules of the Stockholm Chamber of Commerce are
subject to control by the state in which they are seated.213 Neither does internationalization of the arbitral proceedings follow from the fact that the host state, by virtue
205 See, e.g., F.A. Mann, ‘State Contracts and International Arbitration’ (1967) 42 Brit. Y.B. Int’l L. 1,
13; Lauterpacht, fn. 66, at 651.
206 Mohebi, fn. 199, at 31.
207 For the use of the term ‘internationalized’ versus ‘international,’ see Chapter 1, Section 2 (on the
scope of and terminology used in the study).
208 Cf. Amerasinghe, fn. 204, at 10–11; F. Rigaux, ‘Les situations juridiques individuelles dans un
système de relativité générale’ (1989, I) 213 Recueil des Cours, para. 83.
209 Cf. Petrochilos, fn. 67, at 298.
210 Cf. Petrochilos, at 247–8.
211 Reference should also be had to the Unified Agreement for the Investment of Arab Capital in
the Arab States, setting up the Arab Investment Court. Based on the criteria listed in this Part,
arbitration conducted under this Court’s auspices may also be characterized as internationalized. See
generally Unified Agreement for the Investment of Arab Capital in the Arab States, TDM 1(4) (2004);
W. Ben Hamida, ‘The First Arab Investment Court Decision’ (2006) 7(5) Journal of World Investment
and Trade 699.
212 See Section 2 (on features of the arbitral process).
213 See Section 3.2.1.2 (on annulment as an exercise of control).
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Territorialized and Internationalized Arbitration Tribunals

of the treaty, is internationally bound to respect awards rendered against it. This
obligation flows from the investment treaty in question, rather than arbitral process
as such. The difference in bindingness is illustrated by the fact that article 26 of the
Energy Charger Treaty includes the stipulation that any arbitration arising under the
investor-to-state dispute provisions shall, at the request of any party to the dispute, be
held in a state that is a party to the New York Convention.214 Petrochilos confirms
the non-existence of a link between treaty arbitration and internationalization of
proceedings:
[T]he important point here is that arbitration provided for by treaty is not necessarily
arbitration proceeding under international law. The practical purpose of the dispute resolution
provisions in BITs has little to do with submitting to international law the arbitration
proceedings there provided for. A primary objective is to give the option of a neutral forum
to the foreign investor. Thus, to ensure that the signatory states will give effect to the agreed
arbitration mechanism, provisions may be contained to: (a) create ipso facto consent to
arbitration without need for subsequent agreement between the investor and the host state;
[and] (b) formally render such consent equivalent to an agreement in writing for the purposes,
notably, of Article II of the New York Convention [ . . . ]. In this sense, a BIT is only a vehicle
for some type of arbitration, whose legal nature is not in principle affected or determined by
the BIT.215

4.1. The Iran–United States Claims Tribunal
The Iran–United States Claims Tribunal was established pursuant to the 1981 Algiers
Accords, which include, in particular, the Claims Settlement Declaration.216 Due to
the political tension between the two states,217 the Government of Algeria functioned
as an intermediary; and instead of the United States and Iran signing the proposed
Accords, Algeria announced that it had received formal adherences from the two
states.218
The tribunal is seated in the Netherlands,219 and it is comprised of nine members,
also referred to as arbitrators or judges.220 Its jurisdiction can be divided into two

214 See Energy Charter Treaty (ECT), art. 26. See also North American Free Trade Agreement
(NAFTA), art. 1130. But see Amerasinghe, fn. 204, at 11 (Tribunals ‘created under the NAFTA
would qualify as international tribunals’); see at 5.
215 Petrochilos, fn. 67, at 247–9 (emphasis in original; references omitted). See also at 298. Cf.
Heiskanen, fn. 11, at 399, at fn. 89 (Heiskanen characterizes investment treaty tribunals as ‘ “quasiinternational” or “transnational” in the sense that the consent to arbitrate of one of the parties—the
investor—is subject to the personal law (i.e. domestic law) of that party’).
216 See C. Pinto, ‘Iran–United States Claims Tribunal’ Max Planck Encyclopedia of Public International Law, available at <http://www.mpepil.com/home> (last visited 1 May 2012).
217 The adoption of the Algiers Accords put an end to a diplomatic stalemate between the United
States of America and the Islamic Republic of Iran, which started with the seizure and detention of
employees of the US Embassy in Tehran, and was intensified when the United States blocked Iranian
assets. As stated in the Preamble to the General Declaration (1981), the Accords were to serve as a
‘mutually acceptable resolution of the crisis’ in the relations of the United States and Iran ‘arising out of
the detention of the 52 United States Nationals in Iran’ and registered ‘the commitments which each is
willing to make in order to resolve the crisis’.
218 R. Briner, ‘The Iran–United States Claims Tribunal and Disputes Involving Sovereigns’ (2002)
18(3) Arb. Int’l 299, 300. See also Islamic Republic of Iran and United States of America, Decision No.
DEC 134-A3/A8/A9/A14/B61-FT (Decision ruling on Request for Revision by the Islamic Republic
of Iran), 1 July 2011, para. 62.
219 Iran–US Claims Tribunal, Claims Settlement Declaration (1981), art. VI(1).
220 Claims Settlement Declaration (1981), art. III (three of the members are appointed by the US;
three by Iran; and three by party-appointed members acting jointly or, in absence of agreement, by an
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Internationalized Tribunals

47

categories: first, claims between a private party and the United States or Iran; and
second, interstate claims between the two Governments.221 To the former category,
which will be examined in our study, belong claims of US nationals against Iran and
claims of Iranian nationals against the United States,222 as well as any counterclaim
by the United States or Iran that ‘arises out of the same contract, transaction or
occurrence that constitutes the subject matter of the national’s claim’.223 Further
limiting the tribunal’s jurisdiction, the Claims Settlement Declaration requires such
claims and counterclaims to ‘arise out of debts, contracts (including transactions which
are the subject of letters of credit or bank guarantees), expropriations or other measures
affecting property rights’.224 As of 31 March 2009, the total number of cases finalized

appointing authority). See also J. Seifi, ‘Procedural Remedies against Awards of Iran–United States
Claims Tribunal’ (1992) 8(1) Arb. Int’l 41 (‘Generally speaking, the Tribunal conducts its work in
chambers of three and only interpretative disputes and certain other cases are decided by the full panel
of nine’ [references omitted]); R.M. Mosk, ‘Lessons from the Hague: An Update of the Iran–United
States Claims Tribunal’ (1987) 14 Pepperdine L. Rev. 821 (‘Although the Tribunal has been referred to
as an arbitral body because of its caseload, it more nearly resembles a judicial system. [ . . . ] The
arbitrators are often referred to as judges’). See generally C.N. Brower and J.D. Brueschke, The Iran
United States Claims Tribunal (The Hague, Nijhoff, 1998), 125–81.
221 To this category belong, first, ‘official claims of the United States and Iran against each other
arising out of contractual arrangements between them for the purchase and sale of goods and services’.
Claims Settlement Declaration (1981), art. I(2). Secondly, it includes disputes as to the interpretation
or performance of any provision of the Declaration of the Government of Algeria of 19 January 1981.
See Claims Settlement Declaration (1981), arts I(2) and VI(4). See also General Declaration (1981),
paras 16–17. An additional subcategory are claims by the Governments’ respective nationals for less
than $250,000, in which case the national’s claim is espoused and presented by its government. See
Claims Settlement Declaration (1981), art. III(3).
222 Claims Settlement Declaration (1981), art. I(1). The term ‘national’ includes both natural and
juridical persons. A juridical person is defined as ‘a corporation or other legal entity which is organized
under the laws of Iran or the United States or any of its states or territories, the District of Columbia or
the Commonwealth of Puerto Rico, if, collectively, natural persons who are citizens of such country
hold, directly or indirectly, an interest in such corporation or entity equivalent to fifty per cent or more
of its capital stock’. See Claims Settlement Declaration (1981), art. VII(1)(b). See also D.D. Caron,
‘International Tribunals and the Role of the Host Country’ in The Iran–United States Claims Tribunal
and the Process of International Claims Resolution (D.D. Caron and J.R. Crook, eds, Ardsley, NY,
Transnational Publishers, 2000), 27, 31 (‘The vast bulk of the Tribunal’s docket involved the claims of
nationals of the United States’).
223 Claims Settlement Declaration (1981), art. I(1). See also A. Avanessian, The Iran–United States
Claims Tribunal in Action (London etc., Graham & Trotman/Martinus Nijhoff, 1993), 2–3; Iran
Code of Civil Procedure, art. 284.
224 Claims Settlement Declaration (1981), art. II(1). Claims must be ‘outstanding on the date of
[the Claims Settlement Declaration], whether or not filed with any court’. See also Chapter 4,
Section 3.2 (on arbitration without privity). Specifically excluded from the tribunal’s jurisdiction are,
one, claims that relate to (a) the seizure of 52 US nationals on 4 November 1979; (b) their
subsequent detention; (c) injury to US property or property of the US nationals within the US
Embassy compound in Tehran after 3 November 1979; and (d) injury to US nationals or their
property as a result of popular movements in the course of the Islamic Revolution in Iran which
were not an act of the Government of Iran. Two, the tribunal may not entertain claims ‘arising
under a binding contract between the parties specifically providing that any disputes thereunder
shall be within the sole jurisdiction of the competent Iranian courts in response to the Majlis
position’. General Declaration (1981), at para. 11; Claims Settlement Declaration (1981), art. II(1).
Upon filing, the claim is excluded from the jurisdiction of any other court or forum. See Claims
Settlement Declaration (1981), art. VII(2). See generally, T.L. Stein, ‘Jurisprudence and Jurists’
Prudence: The Iranian-Forum Clause Decisions of the Iran–U.S. Claims Tribunal’ (1984) 78(1)
Am. J. Int’l L. 1. The period for filing new private claims against Iran expired on 19 January 1982.
See Claims Settlement Declaration (1981), art. III(4). By then, 3,836/3,952 cases had been lodged,
ninety of which were interstate claims or interpretational cases. See Iran–United States Claims
Tribunal, Annual Report: Period Ending 30 June 1983 (1983).
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Territorialized and Internationalized Arbitration Tribunals

by award, decision, or order was 3,936.225 The last case involving a private party and
the US or Iranian Government was decided in 2003.226
With respect to the criterion that the tribunal be set up pursuant to a treaty, we note
that despite the unusual negotiations behind the Algiers Accords, their international
validity is generally accepted, and consequently also the tribunal’s treaty origin.227
Indeed, on several occasions, the tribunal has interpreted the Algiers Accords in
accordance with the Vienna Convention on the Law of Treaties.228 When we add
the fact that the Claims Settlement Declaration explicitly denominates the tribunal as
‘international’,229 it may appear that the tribunal’s mandate is indeed grounded in
the international legal order. This conclusion is supported by the tribunal itself: ‘This
Tribunal has not been instituted by a contractual agreement between the Parties and
does not derive its authority from their will. It has been instituted by an intergovernmental agreement having the status of an international treaty and it is subject
to international law.’230 And the tribunal held in Iran v United States (Case A/27):
The Tribunal was established by an international agreement concluded between Iran and the
United States. The States Parties empowered it to decide intergovernmental claims as well as
claims by nationals of one State Party against the government of the other State Party. Under
contemporary international law, the fact that an individual or a private entity is party to
proceedings before a forum created by an international agreement does not deprive that forum
and its proceedings of their international legal nature. The Tribunal is ‘clearly an international
tribunal,’ [ . . . ] and ‘it is subject to international law.’231

In the following subsections, we will first examine whether the tribunal is in fact
insulated from the law of its seat, i.e., the Netherlands; and second, we will consider
the nature of the states parties’ obligation to enforce awards rendered by the tribunal.

4.1.1. The tribunal’s insulation from the Law of the Seat
As concerns the first inquiry concerning the subjection or otherwise of the Iran–United
States Claims Tribunal to Dutch law, there is some controversy.232 This may be
explained in part by the special circumstances attendant on its creation:

225 See Iran–United States Claims Tribunal, Communiqué No. 09/2, April 22, 2009 (statistics up to
and including 31 March 2009); A.Z. Marossi, ‘Iran–United States Claims Tribunal: Claims, Counterclaims, Dual Nationality, and Enforcement’ (2006) 23–6 J. Int’l Arb. 493.
226 See A. Redfern et al., Law and Practice of International Commercial Arbitration (London, Sweet &
Maxwell, 2004), 72, at fn. 52.
227 See D.L. Jones, ‘The Iran–United States Claims Tribunal: Private Rights and State Responsibility’ (1984) 24(2) Virg. J. Int’l L. 259, 268.
228 See Iran v United States, Case No. A/18, Decision No. DEC 32-A18-FT, 6 April 1984;
Marossi, fn. 225, at 497.
229 Claims Settlement Declaration (1981), art. II(1).
230 Anaconda-Iran, Inc. v Government of the Islamic Republic of Iran and National Iranian Copper
Industries Company, Case No. 167, Award No. ITL. 65-167-3, Interlocutory Award, 10 December
1986, 13 Iran–U.S. C.T.R. 199, para. 98. For other arguments advanced in support of and against the
international nature of the tribunal, see Seifi, fn. 220, at section (b).
231 Islamic Republic of Iran and United States of America, Case No. A/27, Award No. 586-A27-FT,
5 June (1998), para. 58 (citing Case No. A/18, fn. 228, 5 Iran–U.S. C.T.R. 251, 261; Anaconda-Iran,
fn. 230, Interlocutory Award, at para. 97).
232 Cf. D.D. Caron et al., The UNCITRAL Arbitration Rules: A Commentary (Oxford, Oxford
University Press, 2006), 38 (‘The status of the arbitral proceedings before the Iran–US Claims
Tribunal, and their relation to the local (i.e., Dutch) law, is not easily characterized’).
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Internationalized Tribunals

49

Because the Tribunal was created by a document rapidly and secretly negotiated to end a political
and diplomatic crisis, details of the Netherland’s role were not fully explored before January 20,
1981, nor could they have been in the way that normally occurs with the siting of an
international organization. Instead, matters of concern to the host state had to be discussed
while the organization was being created.233

A conclusion in favour of subjection to Dutch law has been drawn by reference to the
fact that the parties to the Claims Settlement Declaration opted for the UNCITRAL
Arbitration Rules intended for use in international commercial arbitration, rather than,
for instance, the United Nations Draft Convention on Arbitral Procedure designed for
use in interstate arbitration.234 As recalled from our discussion of territorialized tribunals, the UNCITRAL Arbitration Rules make explicit or implicit reference to an
applicable national law, such as article 18(1), providing that the awards ‘shall be
deemed to have been made at the place of arbitration’,235 and article 1(3): ‘These
Rules shall govern the arbitration except that where any of the Rules is in conflict
with a provision of the law applicable to the arbitration from which the parties cannot
derogate, that provision shall prevail.’236 Partly on the basis that the United States and
Iran left these provisions unmodified, Caron concludes that their presumed intent was
the application of non-derogable provisions of Dutch procedural law, and the possibility
of review by Dutch courts.237 He further refers to a statement by Mr Feldman, a lawyer
with the US State Department during the negotiation of the Accords, that his Government acted on the assumption that proceedings would be governed by Dutch law.238
In fact, in the case Carolina Brass, Inc. v Iran (1986), the United States argued that
the tribunal should find guidance in Dutch law as to the question of prescription: ‘The
Netherlands [ . . . ], whose law the Claimant argues is applicable due to the seat of
this Tribunal in The Hague, has adopted the Hague Rules and embodied the one year
233 Caron, fn. 222, at 27. See also at 31 (‘As far as this author can ascertain, neither State Party fully
anticipated or appreciated the possibility of Dutch supervision at the time the Accords were drafted.
For the first several years of the Tribunal’s existence, there continued to be some uncertainty as to the
views of the two governments even as the Tribunal itself preserved the possibility of, and the Netherlands indicated its willingness to see, Dutch courts exercising some degree of supervision over Tribunal
awards involving the claims of nationals’ [references omitted]).
234 See Claims Settlement Declaration (1981), art. III(2); Iran–US Claims Tribunal, Tribunal Rules of
Procedure (1983), art. 1(2). Cf. G. Sacerdoti, ‘Investment Arbitration Under ICSID and UNCITRAL
Rules: Prerequisites, Applicable Law, Review of Awards’ (2004) 19(1) ICSID Rev.-FILJ 1, 13, at fn. 27;
Caron, fn. 165, at 138–9.
235 UNCITRAL Arbitration Rules (2010), art. 18(1).
236 UNCITRAL Arbitration Rules (2010), art. 1(3).
237 Caron, fn. 165, at 139. See also A.J. van den Berg, ‘Proposed Dutch Law on the Iran–United
States Claims Settlement Declaration, A Reaction to Mr Hardenberg’s Article’ (1984) Int’l Bus. Law
341 (the proceedings of the tribunal qualify as ‘arbitration’ within the meaning of Dutch law).
238 Caron, fn. 165, at 142, at fn. 172 (referring to M. Feldman, ‘Implementation of the Iranian
Claims Settlement Agreement—Status, Issues and Lessons: View from Government’s Perspective’ in
Private Investors Abroad: Problems and Solutions in International Business (J. Moss, ed., 1981), 75, 97–8).
But see D.D. Caron, ‘International Tribunals and the Role of the Host Country’, fn. 222, at 32, at fn. 20
(‘At a Symposium at the University of Miami Law School on April 14, 1981, Mark Feldman, a lawyer
with the U.S. State Department during the negotiations of the Accords, discussed the debate internal to
the State Department [ . . . ] [and] stated his personal preference for a process in which national courts
would not interfere. “I can only speak for myself. . . . We are at a stage which raises a very complicated
question concerning the law applicable to the proceedings. . . . It is a subtle and difficult thing. We are
struggling with it right now. . . . One of the things we have to try and decide is how to keep the courts of
the Netherlands or of England out of these cases.” ’); G. Petrochilos, fn. 67, at 239 (‘The most
appropriate interpretation of Article 1(2) would be, it is suggested, that the “law applicable” is in fact
the constitutive instruments of the Tribunal, that is, the Algiers Declarations and, subject to those
Declarations, general international law’).
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Territorialized and Internationalized Arbitration Tribunals

time limitation in its domestic legislation.’239 In that case, the tribunal refrained from
answering the question as to the applicability of Dutch law:
The Tribunal need not decide whether the law of the Islamic Republic of Iran, the United States,
India, or the Netherlands should apply to this particular Case in order to establish that the time
limitation contained in Article 3(6) of the Hague Rules and in Paragraph 21 of the Bills of Lading
is applicable in this Case, since the law in each of these countries is similar, and all are in
conformity with the widespread practice reflected in the Hague Rules.240

As additional evidence in support of his view that awards rendered by the tribunal are
governed by Dutch law, Caron points to the fact that the tribunal decided on 3 May
1982 to register its awards at a Dutch court in accordance with article 639(1) of the
Dutch Code of Civil Procedure, later superseded by the 1986 Netherlands Arbitration
Act, included in Book 4 of the Dutch Code of Civil Procedure.241 Article 1058(1)(b)
provides: ‘The arbitral tribunal shall ensure that without delay [ . . . ] the original of the
final or partial final award is deposited with the Registry of the District Court within
whose district the place of arbitration is located.’242
It appears, however, that the awards rendered by the tribunal do not meet certain
procedural requirements for valid arbitral awards under the Dutch Civil Code. In this
respect, the Explanatory Note of the Dutch Ministry of Foreign Affairs, attached to the
Dutch ‘Bill Regarding the Applicability of Dutch law to the Awards of the Tribunal
Sitting in the Hague to Hear Claims Between Iran and the United States’, emphasizes
the lack of an arbitration agreement between the parties in each case, in addition to the
international nature of the agreement between states underlying the arbitration.243
According to the Dutch Government, absent special legislation ‘it is by no means clear
that the decisions and the awards of the tribunal concerning private claims would be
characterized by Dutch courts as arbitral decisions or awards under the relevant
provisions of the Dutch Code of Civil Procedure’.244 Consequently, it continues, it
would be necessary to enact special legislation, declaring expressis verbis that the awards
are to be considered arbitral awards under Dutch law.245 The bill was never enacted.246
Whereas Dutch courts have not ruled on their mandate to review awards rendered by
the Iran–United States Claims Tribunal,247 the perceived need for and lack of special
legislation make us doubt whether the awards possess Dutch nationality, and to deduce
239 Carolina Brass, Inc. v Iran, Award, 12 September 1986, Award No. 252-10035-2, 12 Iran–U.S.
C.T.R. 139 (1986 III), para. 20 (a claim of less than US $250,000, presented by the US) (references
omitted).
240 Carolina Brass, at para. 21.
241 Caron, fn. 165, at 143, at fn. 177 (Caron refers to the Manual of the Registry of the Iran–
United States Claims Tribunal.). See also Caron et al., fn. 232, at 38 (referring to the ‘practice
according to which the Tribunal deposits its awards with the District Court of The Hague’).
242 Netherlands Arbitration Act (1986), art. 1058(1)(b).
243 Bill on Applicability of Dutch Law to the Awards of the Tribunal sitting in The Hague to hear
Claims between Iran and the United States (1983), reprinted in 4 Iran–U.S. C.T.R. 306. See also Aide
Memoire and Explanatory Notes attached to the Draft Legislation by the Dutch Government,
reprinted in 4 Iran–U.S. C.T.R. 305, 308–16.
244 Bill on Applicability of Dutch Law; Aide Memoire and Explanatory Notes.
245 Bill on Applicability of Dutch Law; Aide Memoire and Explanatory Notes.
246 The Dutch Government ceased consideration of the legislation in 1984. See Petrochilos, fn. 67, at
245; Caron, fn. 222, at 32; Annual Report 1984/85 of the Tribunal, at p. 17; Annual Report 1986/87 of
the Tribunal, at pp. 16–17.
247 See G. Lagergren, ‘The Formative Years of the Iran–United States Claims Tribunal’ (1997) 66
Nordic J. Int’l Law 23, 31; Seifi, fn. 220, at section (b) (noting how several applications for review were
withdrawn by the Applicant Iranian Government). See also Caron, fn. 165, at 144–5; and fn. 222, at
32–3.
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Internationalized Tribunals

51

that they rather belong to the international legal order.248 This conclusion finds
support in the tribunal’s award in Anaconda-Iran (1986): ‘As concerns the Tribunal’s
jurisdiction, procedure, and more generally its constitution and its functioning, the
Tribunal is governed exclusively by the rules derived from the Algiers Accords and,
pursuant to Article III, paragraph 2, of the [Claims Settlement Declaration], from the
UNCITRAL Arbitration Rules as modified by these Accords or by the Tribunal.’249
The internationalized nature of the Iran–United States Claims Tribunal was also
endorsed by an English court in the case of Dallal v Bank of Mellal (1986), in which
the plaintiff sought to relitigate in England matters which had been decided by
the tribunal, or which she had omitted to raise before it.250 According to Justice
Hobhouse, the tribunal derived its competence from international law, and based on
international comity, English courts were required to recognize its decisions.251
The Host State Agreement—the Exchange of Notes between the Dutch Government
and the tribunal—gives substance to the international nature of the tribunal by
granting the latter immunity.252 According to the Dutch Government, this immunity
also exists as a matter of general international law. Pending the conclusion of this Host
State Agreement, the Secretary-General of the Ministry of Foreign Affairs of the
Netherlands wrote a letter to the tribunal concerning its immunity from the jurisdiction of Dutch courts, stating, inter alia: ‘The rule that the Tribunal in its capacity as a
body established under public international law enjoys certain immunities and privileges in the country where it has its seat is, in general terms, derived direct(l)y from the
generally accepted principles of international law.’253 This interpretation was sustained
by the Dutch Supreme Court in a dispute between the Iran–United States Tribunal
and one of its employees. Quoting verbatim the Dutch Parliamentary Report II 1982–
83, the Court held that the tribunal is ‘entitled in the Netherlands “to the usual
immunity of jurisdiction of international organizations based on international public
law, which is necessary for the performance of their tasks for which they have been
established”’.254 The European Commission on Human Rights reached the same

248 See L. Hardenberg, ‘The Awards of the Iran–US Claims Tribunal Seen in Connection with the
Law of the Netherlands’ (1984) Int’l Bus. Law 337, 388 (the arbitration by the Iran–US Claims
Tribunal ‘lacks certain fundamental requirements of Dutch arbitration law’); Avanessian, fn. 223, at
272; Delaume, fn. 153, at 478; W.T. Lake and J.T. Dana, ‘Judicial Review of Awards of the Iran–
United States Claims Tribunal: Are the Tribunal’s Awards Dutch?’ (1984) 16 L. & Pol’y Int’l Bus. 755.
249 Anaconda-Iran, fn. 230, Interlocutory Award, at para. 102 (emphasis added). See also Amman &
Whitney and Ministry of Housing and Urban Development (Khuzestan Department of Housing and Urban
Development), Case No. 198, Chamber One, Order, 30 January 1984, cited in Caron et al., fn. 230, at
52 (‘The conduct of proceedings before this Tribunal is governed by the Tribunal Rules and by no
national procedural system’); and at 39 (‘These statements clearly reflect an understanding that the
arbitration before the Tribunal is in no way controlled by Dutch law’).
250 Mark Dallal v Bank Mellat (per Hobhouse J.) [1986] 1 QB 441, 2 WLR 745, 1 All ER 239.
251 Mark Dallal, at pp. 461H–462A. See also Republic of Ecuador v Occidental Exploration and
Production Company, fn. 124, High Court of Justice, Queen’s Bench Division, Commercial Court,
para. 42.
252 Exchange of Notes Between the Government of The Netherlands and the President of the Iran–
United States Claims Tribunal Concerning the Privileges and Immunities of the Tribunal, 1990
Tractatenblad No. 150. See also A.S. Muller, International Organizations and their Host States: Aspects
of their Legal Relationship (The Hague etc., Kluwer Law International, 1995), 49 (‘[I]t was not until
September 1990 that a host agreement was concluded with the Dutch government’).
253 Spaans v the Netherlands, European Commission of Human Rights, Application No. 12516/86,
12 December (1988).
254 Spaans v Iran–US Claims Tribunal (Dist. Ct The Hague, 9 July 1984), overruling decision of
the Kantonrechter (County Ct Judge) (The Hague, 8 June 1983), 18 Neth. Y.B. Int’l L. 357 (1987).
See also Caron, fn. 222, at 30; Seifi, fn. 220, at 58.
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Territorialized and Internationalized Arbitration Tribunals

conclusion.255 These decisions support the tribunal’s insulation from Dutch law and its
subjection to international law as its lex arbitri.
Hence, the registering of the tribunal’s awards at the Hague District Court may be
seen more as a precautionary measure taken by the tribunal in its early days of existence
to ensure the awards’ enforceability.256 Indeed, according to Lagergren, former President of the tribunal, the decision by the tribunal to deposit its awards at the Court ‘has
no bearing upon the yet unsolved question whether the Tribunal’s awards can be
successfully challenged in Dutch courts’.257 In his view, ‘the Tribunal possesses the
character of an international tribunal, governed by public international law [ . . . ]’.258

4.1.2. The states parties’ international obligation to comply with
and enforce the awards
Iran and the United States are treaty-bound, by virtue of the Claims Settlement
Declaration, to give effect to the tribunal’s awards within their national legal orders.259
The international obligation of the states parties in this respect was confirmed in Iran v
United States (Case A27) (1998):
By virtue of the refusal by the United States Court of Appeals for the Second Circuit to enforce
the Avco award, the United States has violated its obligation under the Algiers Declarations to
ensure that a valid award of the Tribunal be treated as final and binding, valid, and enforceable in
the jurisdiction of the United States.260

In reaching that decision, it stated the general principle that ‘[b]y definition, international arbitral awards, if final, are binding’.261 As concerned awards rendered by the
Iran–United States Claims Tribunal in particular, the tribunal referred to article IV(1)
of the Claims Settlement Declaration, which provides that ‘[a]ll decisions and awards of
the Tribunal shall be final and binding’.262 In its view, that provision ‘rules out the
possibility of readjudication of the merits of Tribunal awards by a municipal court, either
under the guise of [ . . . ] the New York Convention or by any other means’.263 Whereas
the tribunal recognized that no tribunal can declare itself immune from error, it added
that in such a hypothetical case, only the tribunal itself could revise the award.264

255 Spaans v The Netherlands, fn. 253, 58 Eur. Comm’n H.R. Dec. & Rep. 119, 122 (1988) (The
case was found inadmissible).
256 See Pinto, fn. 216, at para. 52; Petrochilos, fn. 67, at 244.
257 Lagergren, fn. 247, at 31 (referring to D.J. Bederman, ‘Case Note (Ministry of Defense of the
Islamic Republic of Iran v Gould Inc.)’ (1990) 84 Am. J. Int’l L. 556, fn. 17).
258 G. Lagergren, ‘United States Claims Tribunal’ (1990) 13 Dalhousie Law Journal 505, 512. See
also Brower and Brueschke, fn. 220, at 16; Petrochilos, fn. 36, at 243–6; Rigaux, fn. 208, at para. 86
(see, in particular, the reference to scholarship in fn. 58).
259 See Claims Settlement Declaration (1981), art. IV(3) (‘Any award which the Tribunal may
render against either government shall be enforceable against such government in the courts of any
nation in accordance with its laws’).
260 Case No. A/27, fn. 231, at para. 83.
261 Case No. A/27, at para. 63.
262 Case No. A/27. See also Anaconda-Iran, fn. 230, Interlocutory Award, at para. 104 (‘[D]ue to
the provisions establishing the Security Account, a settlement by this Tribunal gives successful United
States’ claimants the additional benefit of a guaranteed execution of the awards’).
263 Case No. A/27. See also at paras 64, 70. See also Islamic Republic of Iran and United States of America,
Case A/21, Decision No. Dec. 62-A21-FT, 4 May 1987, 14 Iran–U.S. C.T.R. 324, 330, para. 14.
264 See Case No. A/27, fn. 231, at para. 64, fn. 6. Cf. Ram International Industries, Inc., et al. and
Air Force of the Islamic Republic of Iran, Decision No. DEC 118-148-1, para. 20 (28 December 1993),
29 Iran–U.S. C.T.R. 383, 390; Seifi, fn. 220, at 43. But see Islamic Republic of Iran and United States
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Internationalized Tribunals

53

The fact that the awards receive their validity in the international legal order and
cannot be reviewed by national courts at the enforcement stage contributes to the
international character of the tribunal.

4.1.3. Interim conclusion
The Iran–United States Claims Tribunal operates pursuant to a treaty, the Claims
Settlement Declaration. The conclusion that the arbitrators’ mandate stems from the
international legal order is buttressed by our findings that Dutch arbitration law does
not govern the tribunal’s proceedings, and that the awards are international in nature.
Accordingly, we may infer that its lex arbitri for all purposes is international law.

4.2. ICSID tribunals
In 1965, the World Bank265 promulgated the ICSID Convention in an attempt to remove
legal and political obstacles to the flow of foreign investment, particularly to developing
states.266 For this purpose, the Convention provides for an International Centre for the
Settlement of Investment Disputes (ICSID), facilitating the peaceful settlement of investment disputes between foreign investors and host states through arbitration.267 It is noted
that the Convention is procedural in character; it does not contain any substantive rules to
be applied to the merits of disputes brought before it.268
The jurisdiction of ICSID tribunals269 is revealed by the name of the Convention
itself: ‘The Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States’. Article 25 adds that the dispute must be of a ‘legal’
nature,270 ‘arising directly out of an investment’;271 that the host state may agree to
of America, fn. 218, at para. 64 (‘[T]he Tribunal is not prepared to hold that it has an inherent power to
revise a final and binding award’).
265 The International Bank for Reconstruction and Development (IBRD) was established pursuant
to the 1944 IBRD Articles of Agreement of the International Bank for Reconstruction and Development (as amended effective 16 February 1989).
266 See IBRD Articles of Agreement, at Preamble. See also A. Broches, ‘The Convention on the
Settlement of Investment Disputes between States and Nationals of Other States’ (1972) 136 Recueil
des Cours 331; Convention on the Settlement of Investment Disputes between States and Nationals of
Other States, Documents Concerning the Origin and the Formation of the Convention, Vol. II-1, at
pp. 4, 475 (hereinafter History of the ICSID Convention); Tokios Tokelés v Ukraine, ICSID Case No.
ARB/02/18, 29 April 2004, Dissenting Opinion by Professor Prosper Weil (President), para. 3.
267 The convention also provides for conciliation. See ICSID Convention (1965), arts 28–35;
Rules of Procedure for Conciliation Proceedings (Conciliation Rules).
268 See Chapter 3, Section 3.2.2.1 (on the ICSID Convention).
269 See generally C.H. Schreuer et al., The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2009), 71–347; G. Zeiler, ‘Jurisdiction, Competence, and Admissibility of
Claims in ICSID Arbitration Proceedings’ in International Investment Law for the 21st Century: Essays
in Honour of Christoph Schreuer (C. Binder et al., eds, Oxford, Oxford University Press, 2009), 76.
270 Report of the Executive Directors of the International Bank of Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of
Other States, 1 ICSID Rep. 28, at para. 26; Continental Casualty Company v Argentine Republic, ICSID
Case No. ARB/03/9, Decision on Jurisdiction, 22 February 2006 (G. Sacerdoti, V.V. Veeder,
M. Nader, arbs), para. 66; G.R. Delaume, ‘ICSID Arbitration: Practical Considerations’ (1984) 1
J. Int’l Arb. 101, 116–17.
271 The definition of ‘investment’ has caused controversy in arbitral practice and scholarship. See, e.g.,
Global Trading Resource Corp. and Globex International, Inc. v Ukraine, ICSID Case No. ARB/09/11,
Award, 1 December 2010 (F. Berman, E. Gaillard, J.C. Thomas, arbs), para. 55; E. Gaillard, ‘Identify or
Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice’ in International
Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (C. Binder et al., eds, Oxford,
Oxford University Press, 2009), 403; J.D. Mortenson, ‘The Meaning of “Investment”: ICSID’s Travaux
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54

Territorialized and Internationalized Arbitration Tribunals

include certain state subdivisions and agencies for the purposes of constituting both
claimant and respondent;272 and that both the host state and the home state of the
‘national’ must be parties to the ICSID Convention.273
For an investor to have standing, it must be a ‘national of another Contracting
State’,274 which includes both natural and juridical persons.275 During the drafting of
the Convention, a problem was foreseen with regard to this nationality requirement.
Some states namely require that in order to invest on their territory, foreign investors
must be organized under their laws. In that case, the investor would technically have
the nationality of the host state, and the tribunal would consequently not have
jurisdiction. For that reason, the Convention provides that juridical persons would
have standing if ‘because of foreign control, the parties have agreed that they should
be treated as a national of another Contracting State for the purposes of this
Convention’.276
Similar to territorialized tribunals, the consent of both parties constitutes an additional jurisdictional requirement. As explicitly provided in the ICSID Convention, ‘no
Contracting State shall by the mere fact of its ratification,277 acceptance or approval of
this Convention and without its consent be deemed to be under any obligation to
submit any particular dispute to [ . . . ] arbitration.’278 The Convention further stipulates that once a host state has given its consent to arbitrate a particular dispute, such
consent may not be withdrawn unilaterally.279
and the Domain of International Investment Law’ (Winter 2010) 51(1) Harvard Int’l L.J. 257; D.A.
R. Williams and S. Foote, ‘Recent Developments in the Approach to Identifying an “Investment”
Pursuant to Article 25(1) of the ICSID Convention’ in Evolution in Investment Treaty Law and
Arbitration (C. Brown and K. Miles, eds, Cambridge, Cambridge University Press, 2011), 42.
272 See Schreuer et al., fn. 269, at 230–67.
273 See ICSID Convention (1965), art. 25(1). See also Banro American Resources, Inc. and Société
Aufière du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo, ICSID Case No. ARB/98/7,
Award, 1 September 2000 (P. Weil, A. Diagne, C.H. Geach, arbs), ICSID Rev.-FILJ 382 (2002), at
section II.
274 ICSID Convention (1965), art. 36(1) (emphasis added).
275 See ICSID Convention (1965), art. 25(2). See also C.F. Amerasinghe, ‘Jurisdiction Rationae
Personae under the Convention on the Settlement of Investment Disputes between States and
Nationals of Other States’ (1974) 47 Brit. Y.B. Int’l L. 227; Československa Obchodní Banka (CSOB)
v Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999
(T. Buergenthal, P. Bernardini, A. Bucher, arbs), 14 ICSID Rev.–FILJ 251, 257–61 (1999) (juridical
persons may also encompass wholly or partly government-controlled companies acting in a commercial
capacity).
276 ICSID Convention (1965), art. 25(2) (b). See also History of the ICSID Convention, fn. 266,
Vol. II-1, at pp. 579–82; Broches, fn. 266, at 358–9. For the term ‘foreign control’, see
M.L. Moreland, ‘ “Foreign Control” and “Agreement” under ICSID Article 25(2)(B): Standards for
Claims Brought by Locally Organized Subsidiaries against Host States’ (2000) 9 Currents Int’l Trade L.
J. 18; TSA Spectrum de Argentina S.A. v Argentina Republic, ICSID Case No. ARB/05/5, Award,
19 December 2008 (H. Danelius, G. Abi-Saab, G.D. Aldonas, arbs), paras 134 et seq.
277 In order for states to ratify the ICSID Convention, they must first be members of the International
Bank for Reconstruction and Development (World Bank). See ICSID Convention (1965), art. 67. The
World Bank has 188 member states, 148 of which have ratified the convention. See World Bank,
available at <http://www.worldbank.org> (last visited 1 May 2012) (under ‘About’ and ‘Member
Countries’); ICSID, List of Contracting States and other Signatories of the Convention, available at
<http://icsid.worldbank.org/> (last visited 1 May 2012). Note that article 67 of the ICSID Convention
provides that it is also open for States not members of the Bank, but which are parties to the Statute of the
International Court of Justice and which the Administrative Council, by a vote of two-thirds of its
members, shall have invited to sign the Convention. ICSID Convention (1965), art. 67 (footnote not in
original).
278 ICSID Convention (1965), at Preamble, para. 7. See also Reinisch and Malintoppi, fn. 122,
at 699.
279 See ICSID Convention (1965), art. 25(1).
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Internationalized Tribunals

55

4.2.1. The tribunals’ insulation from the law of the seat
In addition to the treaty nature of ICSID tribunals,280 the most important reason why
they should be seen to operate within the international legal order is that by virtue of
the ICSID Convention, their activities are not controlled by the states parties to the
Convention. First, the Centre has full international legal personality,281 and enjoys
immunity from all legal process in the territories of all states parties.282 Such immunity
extends to persons acting as arbitrators or appearing in the proceedings as parties,
agents, counsel, advocates, witnesses, or experts, as long as the immunity relates to acts
performed by them in the exercise of their functions.283 Secondly, the Convention
explicitly provides that arbitration shall be conducted in accordance with the Convention and the Arbitration Rules of the Centre.284 Thirdly, it specifies that awards shall
not be subject to any appeal or any other remedy except those provided for in the
Convention itself;285 and fourthly, the Convention provides that ‘[e]ach Contracting
State shall take such legislative or other measures as may be necessary for making the
provisions of this Convention effective in its territories’.286 Combined, these features
imply that a state party to the ICSID Convention cannot impose its own law on the
proceedings taking place in its territory.287 Accordingly, and in order to shield ICSID
awards from interference by national courts, the ICSID Convention provides that
unless the arbitration is held at ICSID, in Washington DC or the Permanent Court of
Arbitration, the Netherlands (the US and the Netherlands being parties to the ICSID
Convention), the tribunal must approve the place of arbitration after consultation with
the Secretary-General.288 The insulation of ICSID tribunals from national law is
referred to by the ICSID tribunal in Mihaly International Corp v Democratic Socialist
Republic of Sri Lanka (2002):
The Tribunal maintains that the jurisdiction of the Centre for Settlement of Investment Disputes
(ICSID) and of this Tribunal is based on the ICSID Convention and the rules of general
international law. It does not operate under any national law in particular, and certainly not
under the law of the State of California or the law of the Province of Ontario.289
280 Cf. Blackaby et al., fn. 39, at 64 (‘Because it is governed by an international treaty, rather than
by a national law, an ICSID arbitration is truly delocalised or denationalised’).
281 See ICSID Convention (1965), art. 18.
282 See ICSID Convention (1965), art. 20.
283 See ICSID Convention (1965), arts 21–22. Arbitrators and other persons involved in the
proceedings before territorialized tribunals also enjoy a large degree of immunity, but this is a question
of national law. On this issue, see, e.g., Yu and Shore, fn. 76, at 935.
284 ICSID Convention (1965), art. 44. See also Petrochilos, fn. 67, at 252.
285 ICSID Convention (1965), art. 53(1).
286 ICSID Convention (1965), art. 69.
287 See Lauterpacht, fn. 66, at 651; Heiskanen, fn. 11, at 396–7; Maritime International Nominees
Establishment (MINE) v Republic of Guinea, Case No. ARB/84/4, Decision on Annulment, 2 December 1989 (S. Sucharitkul, A. Broches, K. Mbaye, committee members), 5 ICSID Rev-FILJ 95 (1990);
Republic of Ecuador v Occidental Exploration and Production Company, fn. 125, Judgment of the Court
of Appeal regarding non-justiciability of challenge to arbitral award, at para. 38. But see Chapter 5,
Section 3.2.2.1 (on the corrective function of international law when the parties have agreed to the sole
application of national law) (concerning the possibility that ICSID awards might be annulled when
they are contrary to fundamental rules of international law).
288 See ICSID Convention (1965), art. 63. Cf. Lauterpacht, fn. 66, at 652 (‘It may be assumed that
a decision to hold proceedings in a place not within the territory of one of the Contracting States would
be dependent upon the absence of any risk that the local law could have any influence upon the
conduct or validity of the proceedings’).
289 Mihaly International Corporation v Sri Lanka, ICSID Case No. ARB/00/2, Award, 15 March
2002 (S. Sucharitkul, A. Rogers, D. Suratgar, arbs), para. 19. See also Abaclat and Others (Case formerly
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56

Territorialized and Internationalized Arbitration Tribunals

The lack of control by the jurisdictional seat is compensated by a review mechanism
within the ICSID system itself.290 According to article 52 of the ICSID Convention,
either party to the dispute may request that an ad hoc committee, appointed by the
Chairman of ICSID’s Administrative Council, annul the award on one or more of
the following grounds: (a) that the tribunal was not properly constituted; (b) that the
tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of
a member of the tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; and/or (e) that the award has failed to state the reasons on which it
is based.291 The ad hoc committee may not amend or replace the award by its own
decision on the merits; and a request for annulment must therefore be distinguished
from an appeal: ‘An annulment committee [ . . . ] cannot substitute its determination
on the merits for that of the Tribunal. Nor can it direct a Tribunal on a resubmission
how it should resolve substantive issues in dispute. All it can do is annul the decision of
the tribunal: it can extinguish a res judicata but on a question of merits it cannot create a
new one.’292 So far, ICSID has registered more than forty requests for annulment.293
The clause on excess of powers294 has been interpreted to include failure to apply the
proper law, one of the grounds for annulment of awards rendered by territorialized
tribunals.295 During the drafting of the Convention, Broches, Chairman and World
Bank General Counsel,296 stated that while a mistake in applying the law would not be
a valid ground for annulment, applying a law different from that agreed by the parties
would lead to an award that could properly be challenged on the ground that the
arbitrators had gone against the terms of the compromis.297 This interpretation has
been sustained in practice. The ad hoc committee held in Soufraki v United Arab
Emirates (2007): ‘Misinterpretation or misapplication of the proper law may, in
particular cases, be so gross or egregious as substantially to amount to failure to apply
known as Giovanna a Beccara and Others) v Argentine Republic, ICSID Case No. ARB/07/5 (P. Tercier,
S. Torres Bernárdez, A.J. van den Berq, arbs), Dissenting Opinion of Professor Georges Abi-Saab, 28
October 2011, para. 6.
290 Cf. Lauterpacht, fn. 66, at 651 (the annulment provision ‘clearly indicate[s] the intention was
that the system established by the Convention should be self-contained and independent of the local
legal system’).
291 See ICSID Convention (1965), art. 52(1); C.H. Schreuer et al., fn. 269, at 899 (‘Under the
Convention, Art. 52 is the only way of having the award set aside. In particular, domestic courts have
no power of review over ICSID awards. During the Convention’s drafting [ . . . ] the proposal to
maintain the system embodied in the draft, providing for purely internal review, was carried with no
opposition’).
292 MTD Equity Sdn. Bhd. & MTD Chile S.A. v Chile, ICSID Case No. ARB/01/7, Decision on
Annulment, 21 March 2007 (G. Guillaume, J. Crawford, S.O. Noriega, committee members), para. 54;
G. Kaufmann-Kohler, ‘Annulment of ICSID Awards in Contract and Treaty Arbitrations: Are there
Differences?’ in Annulment of ICSID Awards (E. Gaillard and Y. Banifatemi, eds, New York, Juris
Publishing, 2004), 189, at section I(A).
293 See International Centre for Settlement of Investment Disputes (ICSID), The ICSID
Caseload—Statistics, Issue 2012–1 (based on cases registered or administered by ICSID as of December
2011) available at <http://icsid.worldbank.org/> (last visited 1 May 2012). See also K. Yannaca-Small,
‘Annulment of ICSID Awards: Limited Scope but is there Potential?’ in Arbitration under International
Investment Agreements: a Guide to the Key Issues (K. Yannaca-Small, ed., Oxford, Oxford University
Press, 2010), 603, 605 (‘[T]here is a growing trend for the losing party to submit the award for
annulment’).
294 ICSID Convention (1965), art. 52(1)(b).
295 For territorialized tribunals, see Section 3.2.1.2 (on annulment as an exercise of control);
Section 3.3 (on the influence of the delocalization theory on state practice).
296 See Petrochilos, fn. 67, at 252 (referring to Dr Broches as ‘the spiritual father of the ICSID
system’).
297 History of the ICSID Convention, fn. 266, Vol. II-1, at pp. 517–18.
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Internationalized Tribunals

57

the proper law.’298 Thus, according to the ad hoc committee in Azurix v Argentine
Republic (2009): ‘while non-application by the tribunal of the law applicable under
Article 42 may be a ground for annulment, the incorrect application by the tribunal of
the applicable law is not.’299
Some more recent ad hoc committees have given a wider interpretation of the
grounds for annulment, so that ‘failure to apply the proper law is becoming increasingly
indistinguishable from an error in the application of the law’.300 In an article entitled
‘From ICSID Annulment to Appeal: Half Way Down the Slippery Slope’, Schreuer
criticizes this development:
[I]f one is to take the annulments in Sempra and Enron as an indication of current practice, an ad
hoc committee can annul an award whenever it disagrees with the way a tribunal interprets an
applicable rule. In other words, failure to apply the proper law as a form of excess of powers has
undergone two permutations: first the proper law became the proper rule. Second, the rule’s
application became its correct application.301

Several of the requests for annulment have been initiated by the host state for failure to
apply provisions of their national law.302 The decisions, many of which will be
examined more fully in subsequent chapters, demonstrate the controversy regarding
the applicable law in ICSID proceedings and the important role it plays for the
resolution of the dispute and for the disputing parties.

4.2.2. States parties’ international obligation to comply with
and enforce the awards
In addition to their treaty nature and their insulation from the law of the seat, a third
feature that adds to the international character of ICSID tribunals concerns the
recognition and enforcement of their awards.303 Whereas ICSID—like the Iran–
United States Claims Tribunal—does not have the ultimate means of enforcement
and thus must rely on national courts,304 the ICSID Convention eliminates several of
298 Soufraki v United Arab Emirates, ICSID Case No. ARB/02/7, Decision on Annulment, 5 June
2007 (F.P. Feliciano, O. Nabulsi, B. Stern, committee members), para. 86.
299 Azurix Corp. v Argentine Republic, ICSID Case No. ARB/01/12, Decision on Annulment,
1 September 2009 (G. Griffith, B. Ajibola, M. Hwang, committee members), para. 137. See also MTD
Equity v Chile, fn. 292, Decision on Annulment, at paras 47, 75; M.C.I. Power Group L.C. and New
Turbine, Inc. v Ecuador, ICSID Case No. ARB/03/6, Decision on Annulment, 19 October 2009
(D. Hascher, H. Danelius, P. Tomka, committee members), para. 42.
300 C. Schreuer, ‘From ICSID Annulment to Appeal: Half Way Down the Slippery Slope (2011)
10 Law and Practice of International Courts and Tribunals 211, 225.
301 Schreuer, ‘From ICSID Annulment to Appeal’, at 221. See also Sempra v Argentina, ICSID
Case No. ARB/02/16, Decision on Annulment, 29 June 2010 (C. Söderlund, D.A.O. Edward,
A.J. Jacovides, committee members), para. 164 (‘As a general proposition, this Committee would
not wish totally to rule out the possibility that a manifest error of law may, in an exceptional situation,
be of such egregious nature as to amount to a manifest excess of powers’).
302 See C. Schreuer, ‘Failure to Apply the Governing Law in International Investment Arbitration’
(2002) 7 Austrian Rev. Int’l & Eur. L. 147 (‘Over the last twenty years a number of attempts have been
made to challenge arbitral awards in investment disputes on the ground that they were not based on the
applicable law. ICSID ad hoc committees as well as domestic courts have dealt with these challenges in
widely differing decisions’); Schreuer et al., fn. 269, at 554.
303 See generally S.A. Alexandrov, ‘Enforcement of ICSID Awards: Articles 53 and 54 of the ICSID
Convention’ in International Investment Law for the 21st Century: Essays in Honour of Christoph
Schreuer (C. Binder et al., eds, Oxford, Oxford University Press, 2009), 322.
304 See A. Boralessa, ‘Enforcement in the United States and United Kingdom of ICSID Awards
Against the Republic of Argentina: Obstacles that Transnational Corporations May Face’ (2004) 17
N.Y. Int’l L. Rev. 53, 65.
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58

Territorialized and Internationalized Arbitration Tribunals

the obstacles a winning party faces in respect of awards rendered by the territorialized
tribunals examined earlier. First, once an award is issued, the host state—as a contracting party to the ICSID Convention—is under an international obligation to comply
with it.305 Secondly, pursuant to article 54, an ICSID award shall be recognized as
binding by all states parties to the ICSID Convention, and the pecuniary obligations
imposed by the award shall be imposed as if it were a final judgment of a court in that
state.306 As Justice Aikens explained in AIG v Kazakhstan (2005):
A party to an ICSID arbitration has the right, by virtue of the 1966 Act, to enforce an ICSID
Award as a judgment of the English court. Execution of that judgment is an integral part of the
‘trial’ because it is part of the overall process of the ICSID arbitration procedure that was set up by
the Washington Convention to which the UK is a party. The 1966 Act was passed to give effect
to the Washington Convention in the UK and so as to assist in effective enforcement of ICSID
arbitration awards in the UK.307

No defence can be raised against the recognition and enforcement of ICSID awards
based on the nature of the award or of the underlying transaction, or even public
policy.308 Thirdly, Article 54 of the Convention makes the procedure for recognition
and enforcement as simple as possible. The successful party need only furnish the
competent court or authority designated in advance by each contracting state with a
copy of the award certified by the Secretary-General of ICSID.309 In combination,
these provisions contribute to the tribunals’ international character.310

305 ICSID Convention (1965), art. 53(1) (‘The award shall be binding on the parties’). See also art.
27(1) (The right to diplomatic protection revives if a host State does not comply with its obligation to
enforce the award).
306 ICSID Convention (1965), art. 54(1).
307 AIG v Kazakhstan, Decision of the High Court of Justice, 20 October 2005 (per Justice Aikens)
[2005] EWHC 2239 (Comm), para. 71 (emphasis in original). See also Republic of Ecuador v
Occidental Exploration and Production Company, fn. 125, Judgment of the Court of Appeal regarding
non-justiciability of challenge to arbitral award, at para. 38 (‘The ICSID scheme also differs in having
its own enforcement mechanism, so that the New York Convention is inapplicable’).
308 See Sempra Energy International v Argentine Republic, ICSID Case No. ARB/02/16, Decision on
Request for Stay of Enforcement, 5 March 2009 (C. Söderlund, D.A.O. Edward, A.J. Jacovides,
committee members), paras 40–41; E. Baldwin et al., ‘Limits to Enforcement of ICSID Awards’
(2006) 23(1) J. Int’l Arb. 1 (there have been three decisions challenging the enforcement and execution
of ICSID awards in national courts, and one case challenging only execution of the award. ‘All of the
enforcement challenges have been unsuccessful, whereas challenges to execution of the award against
particular sovereign assets have been more successful’). Cf. ICSID Convention (1965), art. 55
(‘[N]othing in Article 54 shall be construed as derogating from the law in force in any Contracting
State relating to immunity of that State or of any foreign State from execution’). See also Chapter 5,
Section 3.2.2.1 (on the corrective role of international law when the parties have agreed on the sole
application of national law) (on the possibility of non-enforcement of ICSID awards contrary to
fundamental rules of international law).
309 See ICSID Convention (1965), art. 54(2); Benvenuti & Bonfant Company v The Government of
the People’s Republic of Congo, Court of Appeals of Paris, France, Judgment, 6 June 1981, 20 I.L.M. 877,
881 (1981). If recognition and enforcement is sought in a state not party to the ICSID Convention, a
successful claimant may have to rely on, e.g., the New York Convention. See A.J. van den Berg, ‘Some
Recent Problems in the Practice of Enforcement under the New York and ICSID Conventions’ (1987)
2 ICSID Rev.-FILJ 439.
310 Cf. Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1,
Decision on Annulment, 16 May 1986 (I. Seidl-Hohenveldern, F.P. Feliciano, A. Giardina, committee members), 25 I.L.M. 1439, 1446 (1986). See also Chapter 5, Section 3.2.2 (on the supervening
role of international law).
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General Conclusions

59

4.2.3. Interim conclusion
By reason of the fact that the jurisdiction of ICSID tribunals rests on a treaty; that states
parties to the ICSID Convention have relinquished their sovereign right to exercise
control over the activities of ICSID tribunals in their territory, and that ICSID awards
receive their validity in their international legal order, we can conclude that their lex
arbitri is international law.311

5. General Conclusions
Based on the foregoing, we conclude that the delocalization theory—with its
de-emphasis of the role of national legal orders in the arbitral process—has had much
influence on national arbitration laws. This is evidenced by the large degree of procedural freedom provided to the disputing parties and the arbitrators alike. Nevertheless,
these laws—by continuing to subject arbitral proceedings and the subsequent awards to
various, albeit limited, requirements—give testimony to the strength of the seat theory.
State practice thereby corroborates that the mandate of such ‘territorialized’ tribunals
partly stems from a national legal order, giving effect to the parties’ arbitration
agreement.
States may also surrender the sovereign right of control over tribunals operating
within their jurisdiction. When they do so by virtue of a bi- or multilateral treaty,
according to which the awards become binding on the international level, the arbitral
tribunals are not delocalized or a-national, but they operate in and are subject to
the rules of the international legal order. These tribunals, which include the Iran–
United States Claims Tribunal and ICSID tribunals, may thus be characterized as
‘internationalized’.
In the ensuing analysis of choice-of-law rules, we will examine the extent to
which such grounding in the national or the international legal order influences the
arbitrators’ choice-of-law methodology.

311 Cf. Mann, fn. 205, at 13–14; Rigaux, fn. 208, at para. 85; Petrochilos, fn. 67, at 256.

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3
Choice-of-Law Rules
[T]he conflict of laws has in mind the localisation of legal relationships and [ . . . ]
therefore, the conflict rule normally refers to a locally defined legal system. But
this is no more than a form of words from which no dogma should be derived.1

1. Introduction
In the previous chapter, it was concluded that arbitral tribunals are either grounded in
the national legal order of their juridical seat or in the international legal order and that
they therefore may be characterized as territorialized and internationalized, respectively.
In this chapter dedicated to a discussion of choice-of-law rules, we will examine the
implications this conclusion has for their choice-of-law methodology.
In Section 2, it will be demonstrated that internationalized tribunals need to apply
choice-of-law rules belonging to the international legal order; and that territorialized
tribunals must look to the national arbitration law of the state in which they are seated.
Still, in view of the fact that choice-of-law rules contained in national arbitration laws
are generally considered to be of a non-mandatory nature, territorialized tribunals will
need to heed choice-of-law rules provided for in the parties’ arbitration agreement.
Such choice-of-law rules include those set out in arbitration rules that the parties have
agreed will govern the arbitral proceedings, for example, the UNCITRAL Arbitration
Rules2 or the ICSID Additional Facility Rules.3
In the analysis of choice-of-law rules in Section 3, we will see that choice-of-law
provisions in all relevant instruments —national arbitration laws, arbitration rules, the
Iran–United States Claims Settlement Declaration,4 and the ICSID Convention5—
grant disputing parties and arbitral tribunals much freedom with respect to the
applicable law. Specifically, the parties may generally agree to the application of both
national and/or international law (Section 3.1). Further, in the absence of party
agreement, the arbitrators have much flexibility in applying either national and/or
international law to the dispute (Section 3.2). This freedom, combined with the
potential impact of fundamental national and international norms (Section 3.3),
creates a fertile ground for interplay between national and international law in arbitral
proceedings before territorialized and internationalized tribunals alike.

1 F.A. Mann, ‘The Proper Law of Contracts Concluded by International Persons’ (1959) 35 Brit.
Y.B. Int’l L. 34, 46.
2 UNCITRAL Arbitration Rules (as revised in 2010).
3 ICSID Additional Facility Rules (as amended effective 10 April 2006).
4 For the text of the Algiers Accords, including the Declaration of the Government of the
Democratic and Popular Republic of Algeria (General Declaration) and the Declaration of the
Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims
by the Government of the United States of America and the Government of the Islamic Republic of
Iran (Claims Settlement Declaration), see 1 Iran–U.S. C.T.R. 3 (1981–2).
5 The Convention on the Settlement of Investment Disputes between States and Nationals of
Other States, opened for signature 18 March 1965 (hereinafter ICSID/Washington Convention).
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62

Choice-of-Law Rules

2. The Linkage Between Lex Arbitri and Choice-of-Law
Methodology
It is generally accepted that internationalized tribunals, by function of their international
lex arbitri, should apply choice-of-law rules belonging to the international legal order. In
this sense, their choice-of-law methodology is akin to that of international courts and
tribunals.6 Indeed, in no case has the Iran–United States Claims Tribunal applied the
conflict of law rules of the Netherlands; and ICSID tribunals have never found guidance
in the national law of the state in which they were seated when deciding on the applicable
law.7 Commenting on the insulation of the Iran–United States Claims Tribunal from
national law, former President Lagergren states: ‘the Tribunal has avoided to apply any
national conflict of laws rules, but instead applied general principles of conflict of laws.’8
And as Judge Bahrami Ahmadi noted in the case FMC Corporation v Iran (1987), the
tribunal: ‘cannot, as an international forum, apply the choice of law rules of that state in
which it has been convened, even in commercial claims, whereby the two Governments
deemed it necessary to lay down rules for selecting the applicable law’.9 The same
reasoning may be applied to the choice-of-law methodology of ICSID tribunals. Schreuer
explains: ‘Arbitration under the ICSID Convention is truly international and free from
the interference of national rules. The choice of an ICSID tribunal’s place or places of
proceedings is purely a matter of convenience and has no impact on the applicable law.’10
As concerns territorialized tribunals, the linkage between the national lex arbitri and
choice-of-law methodology is more complex and also more controversial. According to
scholars adhering to the seat theory, these tribunals should find guidance in the national
legal framework provided by their juridical seat. One of the strongest proponents of this
view was Mann: ‘Just as the judge has to apply the private international law of the
forum, so the arbitrator has to apply the private international law of the arbitration
tribunal ’s seat, the lex arbitri.’11 Others explicitly reject this approach in the spirit of
the delocalization theory.12 Lalive states:
The arbitrator exercises a private mission, conferred contractually, and it is only by a rather
artificial interpretation that one can say that his powers arise from—and even then very indirectly

6 See Chapter 1, Section 1 (on motivations for the study).
7 ICSID tribunals may, however, need to apply national choice-of-law rules as a function of the
ICSID Convention itself. ICSID Convention, art. 42(1), second sentence (‘In the absence of [party]
agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its
rules on the conflict of laws) and such rules of international law as may be applicable’ [emphasis added]).
See also fns 166, 209.
8 G. Lagergren, ‘The Formative Years of the Iran–United States Claims Tribunal’ (1997) 66(1)
Nordic J. Int’l Law 23, 31, fn. 12. Cf. J.R. Crook, ‘Applicable Law in International Arbitration: The
Iran–U.S. Claims Tribunal Experience’ (1989) 83 Am. J. Int’l L. 278, 297. See also Section 3.2.2.2 (on
the Iran–United States Claims Settlement Declaration).
9 FMC Corporation v Ministry of National Defence et al., Award, 12 February 1987, Dissenting
Opinion, Judge Ahmadi, at section B(1).
10 C.H. Schreuer et al., The ICSID Convention: A Commentary (Cambridge, Cambridge University
Press, 2009), 638.
11 F.A. Mann, ‘Lex Facit Arbitrum’ in International Arbitration: Liber Amicorum for Martin Domke
(P. Sanders, ed., The Hague, Martinus Nijhoff, 1967), 157, 167 (references omitted). See also F.E. Klein,
‘The Law to be Applied by the Arbitrators to the Substance of the Dispute’ in The Art of Arbitration, Essays
on International Commercial Arbitration: Liber Amicorum Pieter Sanders (Jan C. Schultz, Albert Jan van den
Berg, eds, Deventer, Boston, Kluwer Law and Taxation Publishers, 1982), 189. Cf. Institute of International Law, Arbitration in Private International Law, Resolution, art. 11 (Amsterdam, 1957), Institut de
Droit International, Tableau des Résolutions Adoptées (1957–1991) 236, 243 (1992), art. 11.
12 See Chapter 2, Section 3.1 (on the delocalization theory).
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The Linkage Between Lex Arbitri and Choice-of-Law Methodology

63

—a tolerance of the State of the place of arbitration, or rather of the various States involved
(States of the parties, of the siège, of the probable places of execution of the award), which accept
the institution of arbitration, or of the community of nations, notably those which have ratified
international treaties in the matter. Would it not be to force the bed if he were assimilated to a
State judge, who is imperatively bound to the system of private international law of the country
where he sits and from which he derives his power of decision?13

Similarly, and while concluding in Sapphire Int’l Petroleums Ltd v National Iranian Oil
Co. (1963) that the arbitration was ‘as far as procedure is concerned’, subject to the
binding rules of the tribunal’s seat (Vaud, Switzerland),14 Arbitrator Cavin found
persuasive ‘the view of some eminent specialists in Private International law [ . . . ]
[that] since the arbitrator has been invested with his powers as a result of the common
intention of the parties he is not bound by the rules of conflict in force at the forum of
arbitration’.15 To his mind, ‘the parties cannot be presumed to have agreed upon the
choice of a conflict rule by their common choice of the forum.’16
In our examination of choice-of-law rules in Section 3 of this chapter, it will be
demonstrated that in the main, the disputing parties and arbitral tribunals enjoy a
considerable amount of freedom with respect to the applicable law. According to the
present author, and consistent with conclusions reached in Chapter 2,17 such freedom
may more accurately be seen to reflect the normative impact of the delocalization
theory18 rather than any confirmation of an a priori detachment of the choice-of-law
methodology of territorialized tribunals from their juridical seat. This is because an
agreement by the parties alone cannot legitimate the autonomy of the arbitrators to
decide between potentially applicable conflict rules.19 As correctly observed by Poudret
and Besson:
To justify the freedom granted to arbitrators to choose the rules which they deem appropriate,
legal scholars like to emphasize that ‘an arbitrator does not have a forum’, by which they mean
that arbitrators are not bound by the rules of conflict of the seat, that there is no national law
which binds them and in consequence there is no ‘foreign law’ for an arbitrator. In fact, it is the
lex arbitri in force at the seat which grants and/or limits the freedom of the parties and of the

13 P. Lalive, ‘Les Règles de conflit de lois appliquées au fond du litige par l’arbitre international
siégeant en Suisse’ in L’arbitrage international privé et la Suisse 77, reprinted in (1976) Rev. Arb. 155, as
translated in G.A. Born, International Commercial Arbitration (Ardsley, NY, Transnational Publishers,
2001), 539. See also W. Craig et al., International Chamber of Commerce Arbitration (New York, NY,
Oceana Publications, 1990), 285; E. Gaillard, ‘The Role of the Arbitrator in Determining the
Applicable Law’ in The Leading Arbitrators’ Guide to International Arbitration (L.W. Newman and
R.D. Hill, eds, Huntington, NY, Juris Publishing, 2004), 185, 191.
14 Sapphire Int’l Petroleums Ltd v National Iranian Oil Co., Award, 15 March 1963 (Cavin, sole
arb.), 35 I.L.R. 136, 169 (1963).
15 Sapphire v National Iranian, at 170.
16 Sapphire v National Iranian. See also ICC Case No. 8113 (1995) (‘The Swiss rules of conflict of
laws would not be the appropriate rules of conflict for this dispute. Not only is the Tribunal, sitting in
Zurich, not bound to apply the Swiss rules of conflict of laws, but the application of such rules to the
dispute would not be appropriate or justifiable since the contractual relationship between the parties
has no connection whatsoever with Switzerland’).
17 See Chapter 2, Section 3.4 (interim conclusions).
18 Cf. M. Blessing, Introduction to Arbitration: Swiss and International Perspectives (Basel, Helbing
und Lichtenhahn, 1999), 222.
19 See J.G. Frick, Arbitration and Complex International Contracts: With Special Emphasis on the
Determination of the Applicable Substantive Law and on the Adaptation of Contracts to Changed
Circumstances (The Hague, Kluwer Law International, 2001), 52; F. De Ly, ‘The Place of Arbitration
in the Conflict of Laws of International Commercial Arbitration: An Exercise in Arbitration Planning’
(1991) 12 Nw. J. Int’l L. & Bus. 48, 68.
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64

Choice-of-Law Rules

arbitrators to choose the law or the rules of law applicable to the merits of the dispute and which
establish rules of conflict peculiar to the arbitrations conducted thereunder.20

By way of example, we may refer to the Arbitration and Conciliation Act of India
(1996), which under the heading ‘Rules applicable to substance of dispute’, expressly
differentiates between domestic and international commercial arbitration taking place
on Indian territory: ‘in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India.’21 The application of
Indian law is not, however, required in ‘international commercial arbitration’.22 In this
latter case:
(i) the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by
the parties as applicable to the substance of the dispute; [ . . . ]
(iii) failing any designation of the law under sub-clause (ii) by the parties, the arbitral tribunal
shall apply the rules of law it considers to be appropriate given all the circumstances surrounding
the dispute [ . . . ].23

Like a large number of states, India has thus explicitly ‘freed’ arbitral tribunals from
applying the choice-of-law methodology normally used by domestic courts and by
domestic arbitral tribunals.24 This freedom should not be seen to stem from the
contractual nature of arbitration; but instead, in case of tribunals seated in India,
from the applicability of the Indian Arbitration and Conciliation Act.
This linkage between the national lex arbitri of territorialized tribunals and their
choice-of-law methodology was made by Arbitrator Lagergren in British Petroleum
Exploration Co. (Libya) Limited (BP) v Government of the Libyan Arab Republic
(1973), albeit on the basis of what appear to be pragmatic rather than legal reasons.25
In deciding to apply the law agreed to by the parties, he applied Danish choice-of-law
rules, which—he noted—‘provide a wide leeway for the free exercise of party autonomy’.26 Indeed, the same conclusion could have been reached by Cavin in the Sapphire
20 J.-F. Poudret and S. Besson, Comparative Law of International Arbitration (London, Thomson
Sweet & Maxwell, 2007), 573 (references omitted). See also I. Alvik, Contracting with Sovereignty
(Oxford, Hart Publishing, 2011), 29.
21 The Arbitration and Conciliation Act of India (No. 26 of 1996), 16 August 1996, art. 28(1)(a)
(hereinafter Indian Arbitration Act (1996)).
22 Indian Arbitration Act (1996), art. 28(1)(a).
23 Indian Arbitration Act (1996), art. 28(1)(b).
24 Cf. Lithuanian Law on Commercial Arbitration, 2 April 1996, Law No. I-1274, art. 31(2);
A. Chantara-opakorn, ‘Dealing with Conflict of Laws in International Commercial Arbitration
under the ICC Arbitration Rules and the Arbitration Act of Thailand’ (January 2007) Asian Dispute
Review 5, 6.
25 British Petroleum Exploration Co. (BP) v Libyan Arab Republic, Award, 10 October 1973, 53
I.L.R. 297, 308–9 (1979) (Lagergren, sole arb.).
26 BP v Libya, at 326. See also at 327 (‘As stated earlier, the Tribunal deems Danish conflicts of law
rules to be applicable’); and at 326 (‘In contradistinction to all national courts, the ad hoc international
arbitral tribunal created under an agreement between a State and an alien, such as the present Tribunal,
at least initially has no lex fori which, in the form of conflicts of law rules or otherwise, provides it with
the framework of an established legal system under which it is constituted and to which it may have
ultimate resort. With respect to the law of the arbitration, the attachment to a designated national
jurisdiction is restricted to what, broadly speaking, constitute procedural matters and does not extend
to the legal issues of substance. It is erroneous to assume, as has been done doctrinally, on the basis of
the territorial sovereignty of the State where the physical seat of an international arbitral tribunal is
located, that the lex arbitri necessarily governs the applicable conflicts of law rules. [ . . . ] Even less does
it necessarily constitute the proper law of the contract. Instead, if the parties to the agreement have not
provided otherwise, such an arbitral tribunal is at liberty to choose the conflicts of law rules that it
deems applicable, having regard to all the circumstances of the case’ [references omitted]).
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The Linkage Between Lex Arbitri and Choice-of-Law Methodology

65

arbitration referred to earlier.27 While seemingly anchoring the rule of party autonomy
in the international legal order, he added that the application of Swiss choice-of-law
rules would have led to the same result: ‘According to Swiss case law and doctrine it is in
fact the intention of the parties, express or implied, which primarily determines the law
applicable in questions of contract.’28
While on the basis of the foregoing, national arbitration laws constitute the point of
departure for territorialized tribunals in deciding on their choice-of-law methodology,
it must however be emphasized that arbitration rules also play an important role. This is
because choice-of-law provisions contained in national arbitration laws are generally
not considered to be mandatory; and accordingly, the parties are free to make their own
provisions in this respect, inter alia, by reference to a set of arbitration rules.29 Hence,
when the parties—as so often—have agreed to have their dispute settled according to,
for instance, the UNCITRAL Arbitration Rules, the tribunal will need to apply the
choice-of-law rules contained in this set of Rules when deciding whether to apply
national and/or international law to the merits. As Blessing explains: ‘[I am] not
aware of any country where the opinion has been expressed that the provision dealing
with the applicable law was supposed to be of a mandatory character. Thus, if the
parties choose institutional arbitration rules, the arbitral tribunal will have to take
guidance from those rules.’30 This is explicitly set forth for in the Arbitration Law of
Panama (1999): ‘If the arbitration were of an international commercial nature [ . . . ]
[i]n de jure arbitration the arbitral tribunal shall decide according to the law selected by
the parties or pursuant to the applicable rules of an arbitral institution.’31
A further implication of the non-mandatory nature of choice-of-law rules is that, as a
rule, the juridical seat of territorialized tribunals will not allow judicial review of the
choice-of-law methodology applied by the arbitrators, unless the latter manifestly
disregarded the applicable law.32 While in terms of practice, this means that the
arbitrators’ decision as to the applicable law is generally insulated from sanction, in
terms of theory, it does not imply an automatic severing of the tribunals’ choice-of-law
methodology from national law. Our conclusion stands that at all times territorialized
tribunals remain bound by, or are freed by, the national law of their juridical seat.33
27 Sapphire v National Iranian, at fn. 14, Award.
28 Sapphire v National Iranian, Award, at 171. See also ICC Case No. 4237, Award, 17 February
1984, Y.B. Com. Arb. 52, 55 (1985) (Malberg, sole arb.) (‘The question of the law applicable to the
substance of the dispute poses the preliminary question which conflict of laws rules are to be applied in
order to determine this law. Claimants relied on Syrian conflict of laws rules under argument (a) above
(i.e., application of Syrian law because contract was signed in Syria). However, Claimants overlook the
fact that this arbitration is expressly subjected to French International Arbitration Law, which Law, as
rightly pointed out by Defendants, contains conflict rules for determining the law applicable to the
substance of the dispute. The Arbitrator notes that it is controverted in literature whether an
international arbitrator should apply the conflict rules of the law applicable to the arbitration, but
since the new French Law itself contains conflict rules the Arbitrator feels himself obliged to follow
these rules. Art. 1496 of the Law provides: [ . . . ]’).
29 See Chapter 2, Section 3.3 (on the influence of the delocalization theory on state practice).
30 Blessing, fn. 18, at 219, at para. 627. See also Frick, fn. 19, at 134 (‘Conflict of law rules are not
part of the ordre public’); Born, fn. 13, at 539; J. Hill, ‘Some Private International Law Aspects of the
Arbitration Act 1996’ (1997) 46 Int’l Comp. L. Quart. 274, 299.
31 Panama, Decree-Law No. 5, 8 July 1999, art. 43(3) (hereinafter Panamanian Arbitration Law).
32 See Chapter 2, Section 3.2.1.2 (on annulment as an exercise as control); Section 3.3 (on the
influence of the delocalization theory on state practice).
33 Cf. J.F. Poudret and S. Besson, Droit comparé de l’arbitrage international (Zürich, Schulthess;
Paris, L.G.D.J., Bruxelles, Bruylant, 2002), 688; J.-M. Jacquet, International Commercial Arbitration:
Law Governing the Merits of the Dispute, at 3, UNCTAD Course on Dispute Settlement, Module 5.5.,
UNCTAD/EDM/Misc.232/Add.40 (2005).
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66

Choice-of-Law Rules

That states are in fact and consider themselves to be competent to regulate the
substantive law to be applied by arbitral tribunals seated in their territory is corroborated by the variation in such regulation. Just as the choice-of-law rules applied by
domestic courts vary from state to state,34 so do those contained in national arbitration
laws. Consequently, and quoting Blackaby et al., ‘[w]hen it comes to determining how
an arbitral tribunal should proceed to its decision, then once again (as so often in
international commercial arbitration) no universal rule can be identified.’35 In fact,
some national systems of law provide that an arbitral tribunal should follow the choiceof-law rules generally applied by the national courts of the juridical seat. One example
of this traditional approach is the Norwegian Arbitration Act (2004): ‘Failing any
designation [of the applicable law] by the parties, the arbitral tribunal shall apply
Norwegian conflict of laws rules.’36 It is also the case that in some states, the application
of local substantive law is required.37
Additionally, and as a matter of practice, we note that even where the national
arbitration law allows the tribunal to apply a choice-of-law methodology different from
that applied by its national courts, arbitrators may still find guidance in the private
international law rules of the lex arbitri. A Stockholm Chamber of Commerce (SCC)
tribunal reasoned thus in 2001:
The Swedish Arbitration Act does not contain any provision on applicable law to a dispute under
an international contract in Swedish arbitrations. The Rules of the Arbitration Institute, however,
stipulate in Article 24(1) that the tribunal, in the absence of an agreement between the parties,
shall apply the law or rules of law which the tribunal considers to be most appropriate [ . . . ].
However, this does not mean that the Swedish conflict rules [ . . . ] can be disregarded out of
hand. Therefore, the Tribunal will first investigate whether there are Swedish conflict rules that
will effectively designate the applicable law for the present dispute.38

Indeed, the reliance on the choice-of-law rules of the seat of arbitration has been
advocated by Moss on the basis that it enhances predictability: ‘private international
law is not an anachronistic or redundant heritage of old fashioned, national sovereigntyobsessed lawyers without understanding for international business transactions.’39 To
her, ‘rules of choice of law contained in national laws are relevant to international
arbitration: deleting from arbitration rules any reference to private international law
may create unpredictable results and is therefore not necessarily the optimal solution for
business transactions.’40 As we will see, her suggestion may be helpful in the context of
34 Case Concerning the Payment of Various Serbian Loans Issued in France, PCIJ, Ser. A., No. 20,
1929 (Judgment No. 14, 12 July 1929), 41 (The Court refers to ‘that branch of law which is at the
present day usually described as private international law or the doctrine of the conflict of laws. The
rules thereof may be common to several States and may even be established by international
conventions or customs, and in the latter case may possess the character of true international law
governing the relations between States. But apart from this, it has to be considered that these rules form
part of municipal law’).
35 N. Blackaby et al., Redfern and Hunter on International Arbitration (2009), 235. See also G.C. Moss,
‘International Arbitration and the Quest for the Applicable Law’ (2008) 8(3) Global Jurist 41.
36 Norwegian Arbitration Act (2004), section 31. See also R. Chapaev and v Bradautanu, ‘International Commercial Arbitration in the CIS and Mongolia’ (2006) 17 Am. Rev. Int’l Arb. 411, 439 (on
Kazakh law).
37 See Born, fn. 13, at 528.
38 SCC Case 117/1999, Separate Arbitral Award, 2001, Stockholm Arb. Rep. 59 (2002:1) (with
observations by H. Kronke and J. Fernández-Armesto). See also ICC Case No. 5551 (1988), 7–1 ICC
Bulletin, at 82 (1996); G.C. Petrochilos, ‘Arbitration Conflict of Laws Rules and the 1980 International Sales Convention’ (1999) 52 Revue Hellenique de Droit International 191, at section I.
39 Moss, fn. 35, at 1.
40 Moss, at 1. See also Poudret and Besson, Comparative Law, fn. 20, at 573.
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Choice-of-Law Rules

67

determining the relevance and content of international public policy rules, especially
with respect to mandatory rules of third states.41
By way of summation and comparison, the national law of their juridical seat
constitutes the starting point for the choice-of-law methodology of territorialized
tribunals. Since the freedom to determine the law applicable to the merits is granted
to the disputing parties and arbitrators by virtue of the national arbitration law, it is this
law that one must first examine for any guidance in this respect. However, in light of
the possibility of renvoi by the national arbitration law to arbitration rules, it is also
necessary to include arbitration rules in our subsequent examination of choice-of-law
rules. As concerns internationalized tribunals, in view of the fact that the Iran–United
States Claims Tribunal and ICSID tribunals operate outside the national legal framework of their seat, we will for applicable choice-of-law rules examine their constitutive
instruments, the Claims Settlement Declaration and the ICSID Convention, as well as
more general international choice-of-law rules.

3. Choice-of-Law Rules
The raison d’être of choice-of-law rules42 lies in the recognition that an issue before a
court (or tribunal) may be appropriately decided by reference to laws that do not belong
to the legal order of that court. At the same time, their existence testifies to the fact that
separate legal orders may regulate the same matter differently. More specifically, certain
conduct may be wrongful according to one state, but not another;43 and one state may
consider particular acts justified, whereas the international legal order not. The fact that
this other legal order has adopted norms that differ from those of the forum does not, in
and of itself, furnish a reason why a court should decline to apply the foreign law; ‘[o]n
the contrary, the existence of differences is the very reason why it may be appropriate for the
forum court to have recourse to the foreign law. If the laws of all countries were uniform
there would be no “conflict” of laws.’44 Indeed, the significance of choice-of-law issues
comes to the forefront when there is a conflict between the relevant norms, and the
application of a particular law will constitute a ‘maker’ or a ‘breaker’ for either the
applicant or the respondent.45
It will be seen that for both territorialized and internationalized tribunals choice-of-law
rules often involve striking a balance between, on the one hand, the private interests of
the parties, and, on the other, the public interests of a particular national or the
international legal order.46 To this effect, they differ between three situations: where
41 See Section 3.3.1 (on public policy and mandatory rules: international public policy); Chapter 6,
Section 3.2.2 (on the supervening role of national law).
42 For a definition of the term ‘choice-of-law rules’ and the use of this term in this study, see
Chapter 1, Section 2 (on the scope of and terminology used in the study).
43 Cf. Loucks v Std. Oil Co., 224 N.Y. 99, 110–11, 120 N.E. 198, 201 (1918) (Cardozo, J.) (‘We
are not so provincial as to say that every solution of a problem is wrong because we deal with it
otherwise at home’).
44 Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [2002] UKHL 10, 2 AC 883, para. 15. See
also W.M. Reisman, ‘Law, International Public Policy (So-called) and Arbitral Choice in International
Commercial Arbitration’ in International Arbitration 2006: Back to Basics? (ICCA Congress Series No.
13, A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer Law International, 2007), 849, 852.
45 Cf. Y. Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’ in Arbitration Under
International Investment Agreements: A Guide to the Key Issues (K. Yannaca-Small, ed., Oxford, Oxford
University Press, 2010), 191, 192.
46 Cf. C.M.V. Clarkson and J. Hill, Jaffey on the Conflict of Laws (London, Butterworths LexisNexis
2002), 575; E. Hey, International Public Law, International Law FORUM du droit international (2004),
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the parties have agreed on the law to be applied to the merits of the dispute
(Section 2.1); where there is no such choice (Section 2.2); and where the generally
applicable law should be set aside by virtue of fundamental rules of a national or
international nature (Section 2.3).

3.1. Party agreement on the applicable law
The principle of party autonomy reflects the private dimension of choice-of-law rules in
that it allows the parties to agree on the legal system(s) according to which their conduct
will be assessed in the event of a dispute.47 The principle is advocated mainly on the
basis that it enhances legal certainty. The United States Supreme Court stated in Scherk
v Alberto-Culver Co. (1974) that party autonomy is ‘an almost indispensable precondition to achievement of the orderliness and predictability essential to any business
transaction’.48 Indeed, the choice-of-law rules of virtually all national arbitration laws
respect the principle of party autonomy, at least in cases of a transnational nature. Thus,
the UNCITRAL Model Law, which has been adopted in more than sixty jurisdictions,49 provides that ‘[t]he arbitral tribunal shall decide the dispute in accordance with
such rules of law as are chosen by the parties as applicable to the substance of the
dispute [ . . . ]’.50 It is also universally provided for in arbitration rules to which the
parties may refer.51 The UNCITRAL Arbitration Rules state: ‘The arbitral tribunal
shall apply the rules of law designated by the parties as applicable to the substance of the
dispute [ . . . ].’52 It is therefore to be expected, and it will indeed be demonstrated, that
149 (referring to the development of ‘international public law’ as law that seeks to address common
interests of the international community, instead of law aimed at addressing the interests that states share).
47 Cf. Moss, fn. 35, at 5; S. Wittich, ‘The Limits of Party Autonomy in Investment Arbitration’ in
Investment and Commercial Arbitration: Similarities and Divergences (C. Knahr, ed., Utrecht, Eleven
International, 2010), 47, 49.
48 Scherk v Alberto-Culver Co., 417 U.S. 506, 516 (1974). See also J.D.M. Lew, Applicable Law in
International Commercial Arbitration (Dobbs Ferry, NY, Oceana Publications, 1978), 80; F.A. Mann,
‘State Contracts and State Responsibility’ in Studies in International Law (Oxford, Clarendon Press,
1973), 302, 315. But see O. Bordukh, Choice of Law in State Contracts in Economic Development Sector: Is
there Party Autonomy? (2008), 5 (thesis submitted at Bond University School of Law in partial fulfilment
of the requirements for the degree of Doctor of Legal Science), available at <http://epublications.bond.
edu.au/context/theses/article/1045/index/1/type/native/viewcontent/> (last visited 1 May 2012) (‘[T]he
thesis argues that arbitral tribunals resolving disputes between a state and a foreign private individual
should abandon the party autonomy approach because contractual freedom to choose the law of the
contract would disregard the objectives which host states normally pursue through economic regulations
such as development, environment and human rights concerns of foreign investment’).
49 See Chapter 2, Section 3.2.1 (on national arbitration laws).
50 United Nations Commission on International Trade Law (UNCITRAL), UNCITRAL Model
Law on International Commercial Arbitration (with amendments as adopted in 2006, with Explanatory
Note), art. 28(1) (hereinafter UNCITRAL Model Law). See also Norwegian Arbitration Act (2004),
section 31; Lithuanian Law on Commercial Arbitration (1996), art. 31(1); Netherlands Arbitration Act
(1986), art. 1054(2); English Arbitration Act (1996), section 46(1); French Arbitration Law (Décret n
2011–48 du 13 janvier 2011 portant réforme de l’arbitrage), art. 1511; Indian Arbitration Act (1996),
section 28(1)(b); Switzerland’s Federal Code on Private International Law (1987), art. 187(1); Egyptian
Law No. 27/1994 for Promulgating the Law Concerning Arbitration in Civil and Commercial Matters
(as last amended by Law No. 8/2000) (hereinafter Egyptian Arbitration Law), art. 39(1).
51 See C.F. Dugan et al., Investor–State Arbitration (New York, Oxford University Press, 2008), 201.
52 UNCITRAL Arbitration Rules (2010), art. 35(1). See also Rules of Arbitration of the International Chamber of Commerce (in force as from 1 January 2012), art. 21 (hereinafter ICC Arbitration Rules); Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (as in force as
from 1 January 2010), art. 22(1) (hereinafter SCC Arbitration Rules); ICSID Additional Facility Rules
(2006), art. 54(1); (London Court of International Arbitration) LCIA Arbitration Rules (1998), art.
22.3 (hereinafter LCIA Rules).
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territorialized tribunals heed the parties’ choice of law when deciding the dispute on the
merits. The tribunal in Texaco Overseas Petroleum Company (Topco) and California
Asiatic Oil Company (Calasiatic) v Government of the Libyan Arab Republic (1977)
answered the question whether the parties had the right to choose the law or the system
of law which was to govern their contract as follows:
The answer to this [ . . . ] question is beyond any doubt: all legal systems, whatever they are, apply
the principle of the autonomy of the will of the parties to international contracts. As regards the
merits, all legal systems confirm this principle which appears therefore as universally accepted,
even though it may not always have the same meaning or the same scope [ . . . ].53

The same practice is to be expected from internationalized tribunals. As provided in the
ICISD Convention: ‘The Tribunal shall decide a dispute in accordance with such rules
of law as may be agreed by the parties.’54 The Iran–United States Claims Settlement
Declaration does not explicitly refer to the principle of party autonomy.55 It is
suggested, however, that the reference in article V to ‘choice of law rules’ and ‘contract
provisions’56 supports the inference that the tribunal should heed choice-of-law agreements entered into by the disputing parties, especially when considering that the
principle of party autonomy has been stated to constitute a general principle of
international law.57 Such respect for the rule of party autonomy has received a certain
degree of support by the tribunal and legal scholars. As held in Anaconda-Iran, Inc. v
Iran (1986), ‘[t]he Tribunal is of course required to take seriously into consideration
the pertinent contractual choice of law rules.’58
53 Texaco Overseas Petroleum Co. & California Asiatic Oil Co. (TOPCO/CALASIATIC) v Gov’t of the
Libyan Arab Republic, Award, 19 January 1977 (Dupuy, sole arb.), para. 16. See also Libyan American
Oil Company (LIAMCO) v Government of the Libyan Arab Republic, Award, 12 April 1977
(S. Mahmassani, sole arb.), VI Y.B. Com. Arb. 89, 91.
54 ICSID Convention (1965), art. 42(1), first sentence; art. 42(3). See also Convention on the
Settlement of Investment Disputes between States and Nationals of Other States, Documents
Concerning the Origin and the Formation of the Convention, Vol. II-1, at p. 5, para. 17 (hereinafter
History of the ICSID Convention); also at pp. 9, 79, 110, 266–7, 330, 419, 502, 514, 569–70; Vol.
II-2, 803, 984, 1082; Note by the General Counsel transmitted to the Executive Directors, Sec M
62–17 (19 January 1962). Cf. ICSID Model Clauses, Doc. ICSID/5/Rev. 2 (1 February 1993), V,
A. But see History of the ICSID Convention, Vol. II-2, at p. 803 (The representative from Panama
objected to the principle which allowed the parties to agree on the applicable law); and at p. 801
(intervention by the Brazilian delegate).
55 Iran-US Claims Settlement Declaration (1981), art. V (‘The Tribunal shall decide all cases on the
basis of respect for law, applying such choice of law rules and principles of commercial and international law as the Tribunal determines to be applicable, taking into account relevant usages of the
trade, contract provisions and changed circumstances’).
56 Claims Settlement Declaration (1981). Cf. M. Mohebi, The International Law Character of the Iran–
United States Claims Tribunal (The Hague, Kluwer Law International, 1999), 368 (‘The “usages of trade,
contract provisions and changed circumstances” are supposed to be considered in the course of determining the proper law in each case. They are not, therefore, applicable as independent sources of law’).
57 See A.F.M. Maniruzzaman, ‘State Contracts in Contemporary International Law: Monist versus
Dualist Controversies’ (2001) 12(2) Eur. J. Int’l L. 309, 322.
58 Anaconda-Iran, Inc. v Government of the Islamic Republic of Iran and the National Iranian Copper
Industries Company, Interlocutory Award, 10 December 1986, para. 131. See also FMC Corporation v
Ministry of National Defence, fn. 9, Award, Dissenting Opinion of Judge Ahmadi, at section B.1;
A. Mouri, The International Law of Expropriation as Reflected in the Work of the Iran–United States
Claims Tribunal (Dordrecht, Nijhoff, 1994), 30; A. Avanessian, The Iran–United States Claims
Tribunal in Action (London, Graham & Trotman/Martinus Nijhoff, 1993), 240. But see AnacondaIran v Iran, Interlocutory Award, para. 132 (‘The Tribunal is of course required to take seriously into
consideration the pertinent contractual choice of law rules, but it is not obliged to apply these if it
considers it has good reasons not to do so’); American Bell International Inc. v Government of the Islamic
Republic of Iran et al., Interlocutory Award, 11 June 1984, Concurring and Dissenting Opinion by
R.M. Mosk, at Issue h; Crook, fn. 8, at 286.
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3.1.1. The parties may stipulate the application of national and/or
international law
The extent to which the parties may agree to the application of national and/or
international law necessarily has much bearing on the existence of any interplay
between these various sources in investment arbitration. While the rule of party
autonomy is reflected in choice-of-law rules applied by both national courts59 and
international courts and tribunals,60 the scope of the rule is comparatively broader in
arbitration.61 According to a resolution by the Institute of International Law, the
freedom to choose the substantive applicable law should be characterized in terms of
‘full autonomy’.62 As we will see in this section, disputing parties before both territorialized and internationalized tribunals generally enjoy autonomy to agree to the application of national law63 (including that of a third, unrelated state)64 or international
law.65 We do observe, though, that certain national arbitration laws and arbitration
rules indirectly limit the possibility for the parties to stipulate the application of rules of
more than one legal system of law, such as national and international law. According to
the UNCITRAL Secretariat, this may depend on whether the applicable national
arbitration law or arbitration rules refer to ‘rules of law’, rather than ‘law’: ‘The term
“rules of law” is understood to be wider than the term “law”, allowing the parties “to
designate as applicable to their case rules of more than one legal system, including rules
of law which have been elaborated on the international level”.’66
59 See C. Croff, ‘The Applicable Law in an International Commercial Arbitration: Is It Still a
Conflict of Laws Problem?’ (1982) 16 Int’l Law 613, 615 (the principle of party autonomy is widely
recognized in both common and civil law).
60 See C.H. Brower II, ‘Arbitration’ in Max Planck Encyclopedia of Public International Law, at para.
65, available at <http://www.mpepil.com/> (last visited 1 May 2012); F. Rigaux, ‘Les Situations
Juridiques Individuelles dans un Système de Relativité Générale’ (1989–I) 213 Recueil des Cours
207. Cf. US v Iran, Case No. B36, Award, 3 December 1996, at para. 64 (The parties had agreed
to the application of the laws of the District of Columbia, US); Case Concerning the Frontier Dispute
(Burkina Faso/Republic of Mali), Judgment of the Chamber, 22 December [1986] ICJ. Rep. 554,
at 575.
61 See UNCITRAL Secretariat, Explanatory Note on the Model Law on International Commercial
Arbitration, para. 35 (the freedom to choose the applicable substantive law in the Model Law ‘is
important in view of the fact that a number of national laws do not clearly or fully recognize that
right’).
62 Institute of International Law, Resolution on Arbitration Between States, States Enterprises or
State Entities, and Foreign Enterprises (Santiago de Compostela, 12 September 1989), art. 6, 5 ICSID
Rev.-FILJ 139 (1990) (hereinafter IIL, Santiago de Compostela Resolution).
63 IIL, Santiago de Compostela Resolution, art. 6.
64 See O. Lando, ‘The Law Applicable to the Merits of the Dispute’ in Essays on International
Commercial Arbitration (Sarcevic, ed., London, Graham & Trotman, 1989), 129, 134 (‘No case is
known in which an arbitrator has set aside the parties’ express choice of law on the ground of lack of
connection with the intended legal system’); C. Schreuer, ‘Failure to Apply the Governing Law in
International Investment Arbitration’ (2002) 7 Austrian Rev. Int’l & Eur. L. 147, 149 (‘The choice of
the law of the investor’s home country or of the law of a third State is rare, but it sometimes occurs in
the context of loan contracts’ [references omitted]); Poudret and Besson, Droit comparé, fn. 33, at 677.
65 See F.A. Mann et al., ‘Contrats entre Etats et personnes privées étrangères’ (1975) 11 R bel DI
564–5 (‘Nothing prevents a contract between the German state and a Dutch firm to be submitted to
French law. Similarly, the fact that one party is not a state should not prevent the contract from being
submitted to international law’); Schreuer et al., fn. 10, at 580. This contrasts with the approach
advocated by Calvo. See Chapter 5, at Section 2.2.
66 A.R. Parra, ‘Applicable Law in Investor–State Arbitration’ TDM, at 4 (November 2007). See
also Autopista Concesionada de Venezuela, C.A. (‘Aucoven’) v Bolivarian Republic of Venezuela, ICSID
Case No. ARB/00/5, Award, 23 September 2003 (G. Kaufmann-Kohler, K.-H. Böckstiegel,
B.M. Cremades, arbs), para. 96.
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Choice-of-Law Rules

71

The UNCITRAL Arbitration Rules of 1976 directed the tribunal to ‘apply the
law designated by the parties as applicable to the substance of the dispute [ . . . ]’.67 In
order to give the arbitrators more freedom with respect to the applicable law, the
UNCITRAL Secretariat suggested to the UNCITRAL Working Group on Arbitration
that they might wish to consider using the term ‘rules of law’ in a revised version of the
UNCITRAL Arbitration Rules.68 This suggestion was taken up in the 2010 Rules, and
is in line with the many investment treaties that provide for the application of both
international and national law.69 There are also several examples of choice-of-law
clauses in contracts entered into between investors and host states that refer both to
the law of the contracting state (or to principles which are common to both contracting
parties) and to (general principles of) international law.70
Under the ICSID Convention, the parties are specifically authorized to agree to the
combined application of national and international law.71 The broad formulation of
the applicable law clause in the Iran–United States Claims Settlement Declaration
would—ex hypothesi72—allow the tribunal to give effect to such choice-of-law agreements as well.73

3.1.2. Express and implied choice of law
In this section, we will see that the parties’ choice of the substantive applicable law may
be (i) express or (ii) implied from the circumstances of each case. It will be argued that a
tribunal should only imply a choice of law in those situations where it is reasonably
certain that the parties in fact implicitly agreed to the application of the norms in
question.
First, for both territorialized and internationalized tribunals, the parties’ choice on
the applicable law may be expressly stipulated, whether in the investment contract,74 in
the investment law of the host state,75 in a bi- and multilateral investment treaty,76 or
in a subsequent agreement between the parties.77 There has been a marked increase in
67 UNCITRAL Arbitration Rules (1976), art. 33(1) (emphasis added). See also Chantara-opakorn,
fn. 24, at 6.
68 UNCITRAL Working Group II (Arbitration), Note by the Secretariat, Settlement of Commercial
Disputes: Revision of the UNCITRAL Arbitration Rules, forty-fifth session, Vienna, 11–15 September
(2006), A/CN.9/WG.II/WP.143/Add.1, at para. 30. See also J. Paulsson and G. Petrochilos, Revision
of the UNCITRAL Arbitration Rules, Commissioned by the UNCITRAL Secretariat, at 138, available
at <http://www.uncitral.org/pdf/english/news/arbrules_report.pdf> (last visited 1 May 2012).
69 UNCITRAL Arbitration Rules (2010), art. 35(1). See also Chapter 1, Section 1 (on motivations
for the study).
70 See Chapter 1, Section 1 (on motivations for the study).
71 See ICSID Model Clauses, fn. 54, V, A; Parra, fn. 66, at 4. Cf. Duke Energy Electroquil Partners
& Electroquil S.A. v Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008
(G. Kaufmann-Kohler, E.G. Pinzón, A.J. van den Berg, arbs), para. 196 (‘The Tribunal finds that the
parties’ choice of law is clear: both Ecuadorian law and the principles of international law should
apply’).
72 Most contracts seemingly provided for the application of only national law. Cf. Avanessian,
fn. 58, at 239, at fn. 19.
73 See Iran-US Claims Settlement Declaration (1981), art. V.
74 See History of the ICSID Convention, fn. 54, Vol. II-1, at p. 267; AGIP S.p.A. v People’s
Republic of the Congo, ICSID Case No. ARB/77/1, Award, 20 November 1979.
75 See History of the ICSID Convention, fn. 54, Vol. I-1, at p. 267.
76 See History of the ICSID Convention, at Vol. I-1, at p. 267; Antoine Goetz, and others v Republic
of Burundi, ICSID Case No. ARB/95/3, Award (embodying the parties’ Settlement Agreement),
10 February 1999 (P. Weil, M. Bedjaoui, J.-D. Bredin, arbs), para. 94.
77 See T. Begic, Applicable Law in International Investment Disputes (Utrecht, Eleven International,
2005), 81; Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011
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the number of arbitration proceedings based upon an arbitration offer provided by the
host state in its investment laws, or particularly in bi- or multilateral investment treaties
that it has concluded with the home state of the investor.78 Such arbitrations have been
referred to as ‘arbitration without privity’.79 As several of these legal instruments also
contain provisions on the applicable law, we may in an analogous fashion characterize
such a choice of law as one ‘without privity’. Again, the foreign investor may be said to
‘accept’ the unilateral ‘offer’ concerning the applicable law by resorting to arbitration.
The ICSID Tribunal held in Siemens A.G. v Argentine Republic (2007):
Under Article 42(1) of the [ICSID] Convention, the Tribunal is obliged to apply the rules of law
agreed by the parties. The [BIT] provides that a tribunal established under the Treaty shall decide
on ‘the basis of this Treaty, and, as the case may be, on the basis of other treaties in force between
the Contracting Parties, the internal law of the Contracting Party in whose territory the investment was made, including its rules of private international law, and on the general principles of
international law.’ By accepting the offer of Argentina to arbitrate disputes related to investments,
Siemens agreed that this should be the law to be applied by the Tribunal. This constitutes an
agreement for purposes of the law to be applied under Article 42(1) of the Convention.80

Secondly, in case the parties have not made an express choice of law, we can distinguish
between the ‘objective’ and the ‘subjective’ approaches of ascertaining the applicable
law. Whereas the former method signifies a finding that there is no choice of law, the
latter requires the tribunal first to research the hypothetical will of the parties in an
attempt to establish an implicit choice of law.81 As one commentator observes:
Where parties have not made an explicit choice of law in their contract, is it necessary,
appropriate or totally unnecessary for an arbitral tribunal to ask itself (as well as possibly the
parties) why no such choice or determination of the applicable law had been made? In England,
for instance, such a question would not be asked, and many other common law jurisdictions

(A. Giardina, M. Reisman, B. Hanotiau, arbs), paras 306–307 (‘At the first session of the Arbitral
Tribunal held on May 4, 2007, the Parties agreed that Romanian law would govern the substantive
merits of the dispute and that the BIT would be treated as part of Romanian law [ . . . ] Article 9(4) of
the BIT provides that: “The arbitral tribunal shall decide the dispute in accordance with the provisions of
this Agreement and the applicable rules and principles of international law ( . . . ).” ’ [emphasis in original]).
78 See Chapter 1, Sections 1–2 (on motivations for the study and the scope of and terminology used
in the study); Chapter 2, Section 2 (on features of the arbitral process).
79 J. Paulsson, ‘Arbitration Without Privity’ (1995) 10(2) ICSID Rev.-FILJ 232.
80 Siemens A.G. v Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007
(A.R. Sureda, C.N. Brower, D.B. Janeiro, arbs), at para. 76. See also Goetz v Burundi, fn. 76,
Award, at para. 94. Cf. History of the ICSID Convention, fn. 54, Vol. II, at p. 267 (‘Chairman
[Broches] remarked that [ . . . ] it was likewise open to the parties to prescribe the law applicable to the
dispute. [Such] stipulation could be included [ . . . ] in a bilateral agreement with another State, or even
in a unilateral offer to all investors, such as might be made through investment legislation’); Banifatemi,
fn. 45, at 194–5. But see G. Sacerdoti, Case T 8735–01–77, The Czech Republic v CME Czech Republic
B.V., Svea Court of Appeal (expert legal opinion for CME), TDM 2(5) (2005), at 30 (‘[O]n the one
hand, the applicable law provisions [in BITs] “preempt” any choice of law that the parties to the
dispute could have otherwise made (a choice that would be difficult to make since there is most often
no separate arbitration agreement); on the other hand, they indicate to the arbitrators the applicable
law(s) in the absence of choice by the parties, instead of having them follow the otherwise applicable
arbitration rules in this respect’); Sacerdoti, ‘Investment Arbitration under ICSID and UNCITRAL
Rules: Prerequisites, Applicable Law, Review of Awards’ (2004) 19(1) ICSID Rev.-FILJ 1, 15.
81 See Blackaby et al., fn. 35, at 230 (‘In the absence of an express choice of law, the arbitral tribunal
will usually look first for the law that the parties are presumed to have intended to choose. This is often
referred to as a tacit choice of law. It may also be known as an implied, inferred or implicit choice’
[emphasis in original]); M. Hirsch, The Arbitration Mechanism of the International Centre for the
Settlement of Investment Disputes (Dordrecht, Nijhoff, 1993), 117 (on the subjective and objective
approach).
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Choice-of-Law Rules

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might take the same view. Thus, the English arbitrator is likely to simply notice the absence of an
explicit choice of law made by the parties and he would then proceed to determine himself the
applicable law (in the sense of the ‘objective’ approach [ . . . ]). [This] is not the attitude on the
European Continent.82

One of the advocates of the subjective approach is Blessing.83 To him, the absence of an
explicit choice of law in an international contract is always striking; and as a presiding
arbitrator, he would ‘naturally be interested to know why this was’.84 Indeed, he
contends, the ‘international arbitrator’ has a ‘distinctive and noble duty’ to try, to the
extent possible, to discern the parties’ intentions, ‘whether positively expressed,
expressed impliedly, or tacitly, or through constructive behavior’.85
This approach is illustrated by Ministry of Defence and Support for Armed Forces of the
Islamic Republic of Iran v Westinghouse Electric Corp. (1996), which involved a series of
contracts between Iran and the US corporation Westinghouse, concerning the supply of
military radars to be installed in Iran.86 The decision to use the subjective approach was
based partly on the fact that the parties did not operate within the same environment and
legal culture; that they did not have a long history of cooperating together; and because the
contract did not contain extensive provisions, addressing all possible eventualities.87 Thus,
the tribunal held:
In other words, if a contract such as Contract No. 1 does not contain a choice of law provision,
then this must be viewed as a ‘shouting silence’, at least an ‘alarming silence’, ‘un silence
inquiétant’; thus, a silence which must ring a bell and requires the Tribunal to look ‘behind’
so as to understand why the Parties have failed to include ‘the obvious’.88

The tribunal concluded that the absence of a choice-of-law clause ‘must be understood
as a so-called “implied negative choice” of the Parties [ . . . ] in the sense that none of the
Parties’ national laws should be imposed on any of the Parties’.89 Having found that
neither Iranian law, nor the law of the United States or Maryland was applicable, the
tribunal chose to apply the ‘de-nationalized solution’, according to which it would
‘decide legal issues by having regard to the terms of the Contract and, where necessary
or appropriate, by applying truly international standards as reflected in, and forming
part of, the so-called “general principles of law”’.90
82 Blessing, fn. 18, at 213. See also M. Reimann, ‘Savigny’s Triumph? Choice of Law in Contracts
Cases at the Close of the Twentieth Century’ (1999) 39 Va. J. Int’l L. 571, 579–80.
83 Blessing, fn. 18, at 213.
84 Blessing, at 213.
85 Blessing, at 213. Cf. R. Higgins, Problems and Process: International Law and How We Use It
(Oxford, Clarendon Press; New York, Oxford University Press, 1994), 141 (‘At the same time, the
purpose of the reference to international arbitration certainly merits examination. Was it because the
local courts are not trusted or because a different system of law was to be applied?’). But see Blackaby
et al., fn. 35, at 230 (‘There is a certain artificiality involved in selecting a substantive law for the parties
and attributing it to their tacit choice, where (as often happens in practice) it is apparent that the parties
themselves have given little or no thought to the question of the substantive law which is applicable to
their contract’ [emphasis in original]).
86 Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse Electric
Corp., ICC Award No. 7375, 5 June 1996 (M. Blessing, P. Bernardini, A. Movahed arbs.) at section III.
87 Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse
Electric Corp., fn 86, at section III.
88 Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse
Electric Corp., fn 86, at section III.
89 Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse
Electric Corp., fn 86, at section III.
90 Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse
Electric Corp., fn 86, at section III. See also Joseph Charles Lemire v Ukraine, ICSID Case No. ARB/06/
18, Decision on Jurisdiction and Liability, 14 January 2010 (J. Fernández-Armesto, J. Paulsson,
J. Voss, arbs), para. 111 (‘Given the parties’ implied negative choice of any municipal legal system, the
Tribunal finds that the most appropriate decision is to submit the Settlement Agreement to the rules of
international law, and within these, to have particular regard to the UNIDROIT Principles’).
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While practice and scholarship thus support the possibility that arbitration tribunals
may discern a choice on the basis of words or acts by the parties that manifest their
intention and expectation that a particular law governs their relation,91 we submit that
the existence of an implied choice of law should not be too readily made.92 This will
become apparent from the following discussion of the various factors that have been
relied upon in this respect.
One factor is the juridical seat of territorialized tribunals. In accordance with the
maxim qui eligit judicem eligit jus,93 it has been argued and held that a choice of seat
implies a choice of the application of that state’s law as the substantive applicable law.94
Nowadays, this approach is rarely adhered to, as there may be other reasons why the
parties select a particular forum; and therefore, it should not automatically follow that
they intend that the substantive law of the tribunal’s juridical seat will govern their
relationship. As stated by an SCC tribunal in 2001:
[I]t is highly debatable whether a preferred choice of the situs of the arbitration is sufficient to
indicate a choice of governing law. There has for several years been a distinct tendency in
international arbitration to disregard this element, chiefly on the ground that the choice of the
place of arbitration may be influenced by a number of practical considerations that have no
bearing on the issue of applicable law.95

The need to differ between the law of the forum and the substantive applicable law is
also recognized by the (Mexico) Inter-American Convention on the Law Applicable to
International Contracts: ‘Selection of a certain forum by the parties does not necessarily
entail selection of the applicable law.’96
A second possibility that has been advocated is to infer an agreement for the
application of international law from the very fact that the parties have agreed to
arbitrate their dispute. Jaenicke, for instance, states that ‘the reference of a dispute to an
international tribunal carries with it the expectation of both parties that the tribunal
will recognize the applicable principles and rules of international law unless the parties
have expressly excluded the recourse to international law’.97 This approach was
91 See Begic, fn. 77, at 57–80; J.D.M. Lew et al., Comparative International Commercial Arbitration
(The Hague, Kluwer Law International, 2003), 415, at para. 17–13. Cf. Serbian Loans case, fn. 34,
at 41.
92 See I.F.I Shihata and A.R. Parra, ‘Applicable Substantive Law in Disputes Between States and
Private Foreign Parties: The Case of Arbitration under the ICSID Convention’ (1994) 9(2) ICSID
Rev-FILJ 183, 190 (the authors suggest that the test for finding an implicit agreement may be
embodied in the European Convention on the Law Applicable to Contractual Obligations, i.e., that
an implied choice of law must be demonstrated with reasonable certainty by the circumstances of the
case); Compañía del Desarrollo de Santa Elena, S.A. v Republic of Costa Rica, ICSID Case No. ARB/96/
1, Award, 17 February 2000 (L.Y. Fortier, E. Lauterpacht, P. Weil, arbs), paras 63–64 (the tribunal
was unable to conclude that the parties ever reached a ‘clear and unequivocal agreement’ as to the
applicable law); Banifatemi, fn. 45, at 198. See also Case Concerning Sovereignty Over Pedra Branca/
Pulau Batu Puteh, Middle Rocks and South Ledge (Malaysia/Singapore), ICJ, Judgment, 23 May 2008,
Dissenting Opinion by Judge ad hoc J. Dugard, at paras 38–39.
93 Choosing a forum means choosing a law.
94 See Blackaby et al., fn. 35, at 231; Poudret and Besson, Droit comparé, fn. 33, at 677.
95 SCC Case 117/1999, fn. 38. See also ICC Case No. 1422, Award, 1966 (‘It is appropriate to
eliminate forthwith the law of the forum, whose connection with the case is purely fortuitous’).
96 Inter-American (Mexico) Convention on the Law Applicable to International Contracts (1994),
art. 7. Cf. De Ly, fn. 19, at 61, at fn. 49.
97 G. Jaenicke, ‘The Prospects for International Arbitration: Disputes Between States and Private
Enterprises: Comments on a Paper by Professor L.J. Bouchez’ in International Arbitration: Past and
Prospects: A Symposium to Commemorate the Centenary of the Birth of Professor J.H.W. Verzijl
(1888–1987) (A.H.A. Soons, ed., Dordrecht, Martinus Nijhoff, 1990), 155, 158. Cf.
O. Spiermann, ‘Applicable Law’ in Oxford Handbook of International Investment Law (P. Muchlinski
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followed by the tribunal in TOPCO/Calasiatic (1977): ‘[One] process for the internationalization of a contract consists in inserting a clause providing that possible
differences which may arise in respect of the interpretation and the performance of
the contract shall be submitted to arbitration.’98 We also note the award in Sapphire
Int’l Petroleum Ltd v National Iranian Oil Co. (1963).99 Faced with an absence of a clear
choice-of-law clause, the tribunal stated:
[I]f no positive implication can be made from the arbitral clause, it is possible to find there a
negative intention, namely to reject the application of Iranian law. If in fact the parties had
intended to submit their agreement to Iranian law and if the only significance of the arbitral
clause was to deprive the Iranian authorities of jurisdiction in case of any dispute, the authors of
the agreement, whom one must suppose were competent lawyers, would almost certainly not
have failed to negative, by an express clause, any significance which such an arbitral clause
normally carries as a connecting factor according to general doctrine.100

On this basis, the tribunal went on to apply international law.101 Also this method of
finding the applicable law, which reminds us of that employed in Ministry of Defence
and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse Electric Corp.
(1996),102 must be met with scepticism. Standing alone, an arbitration agreement
ought to be seen to afford the parties a neutral forum in which to bring their dispute,
not an agreement by extension to the application of international law on the merits.103
A third suggested method is to deduce a choice of law from a reference to a particular
law in the parties’ contract. In the case of Southern Pacific Properties (Middle East)
Limited (SPP) v Arab Republic of Egypt (1992), the ICSID Tribunal’s jurisdiction was
established on the basis of an offer to arbitrate investment disputes as set out in Egypt’s
foreign investment law.104 According to the host state, the parties had made an implicit
choice for the application of Egyptian law:
The Respondent contends that the Parties have implicitly agreed, in accordance with the first
sentence of Article 42(1) [ICSID Convention], to apply Egyptian law. It points out that the
Parties’ agreement with respect to the choice of law need not be express, and argues that in this
case the choice of Egyptian law results from the preamble of the Heads of Agreement, which
refers to Egyptian Laws No. 1 and No. 2 of 1973 and Law No. 43 of 1974. Pointing out that Law
No. 43 provides that ‘[m]atters not covered by this Law are subject to the applicable laws and
regulations’, the Respondent argues that, according to this provision, ‘aucun autre droit que le
et al., eds, Oxford, Oxford University Press, 2008), 89, 93 (‘At an early point, the choice of
international arbitration was seen by many as a reason in itself for internationalizing applicable law
[ . . . ]’ [references omitted]).
98 TOPCO/CALASIATIC, fn. 53, Award on the Merits, 19 January 1977, at para. 44.
99 Sapphire v National Iranian, fn. 14, Award.
100 Sapphire v National Iranian, at 172.
101 Sapphire v National Iranian, at 173 (the arbitrator found evidence that the parties did not intend
to apply the strict rules of a particular system but, rather, ‘to rely upon the rules of law, based upon
reason, which are common to civilized nations. These rules are enshrined in Article 38 of the Statute of
the International Court of Justice as a source of law, and numerous decisions of international tribunals
have made use of them and clarified them’). See also Chapter 6, Section 2.1.1 (on express of implied
‘internationalization’ of investment contracts).
102 See fn. 89.
103 See R.D. Bishop et al., Foreign Investment Disputes (The Hague, Kluwer Law International,
2005), 685; D. Di Pietro, ‘Applicable Law under Article 42 of the ICSID Convention: The Case of
Amco v Indonesia’ in International Investment Law and Arbitration: Leading Cases from the ICSID,
NAFTA, Bilateral Treaties and Customary International Law (T. Weiler, ed., London, Cameron May,
2005), 223, 231; Poudret and Besson, Comparative Law, fn. 20, at 577.
104 Southern Pacific Properties (Middle East) Limited (SPP) v Arab Republic of Egypt, ICSID Case No.
ARB/84/3, Decision on Jurisdiction, 14 April 1988 (E. Jimenez de Arechaga, M.A.E. El Mahdi,
R.F. Pietrowski, arbs).
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droit égyptien n’a été choisi par les parties’ [no other law than Egyptian law has been selected by
the parties.] [ . . . ].105

The tribunal found no need to decide whether there had been an implied choice of
Egyptian law. In its view, the parties’ disagreement on this point had ‘very little, if any,
practical significance’, since national and international law should be applied to the merits
regardless of an implicit choice for Egyptian law.106 While the precise reasoning of the
tribunal has rightly been questioned,107 its decision not to rely solely on national law may
be justified on the basis that a general reference in the contract to Egyptian law is too weak
an indication that the parties had agreed to its application in the event of a dispute.108
For the same reason, words of caution have been articulated with respect to the
apparent finding of an implicit choice of law in Liberian Eastern Timber Corporation
(LETCO) v Republic of Liberia (1986).109 In that case, the opening paragraph of the
investment contract stated that it was made under the General Business Law of
Liberia.110 According to the ICSID Tribunal, such language seemed ‘to indicate an
express choice by the parties of the Law of Liberia as the law governing the Concession
Agreement’.111 In any event, and as in SPP v Egypt, the tribunal examined the merits of
the dispute also pursuant to international law.112
The need for a more careful approach in finding an implicit choice of law is
confirmed by the award in Autopista Concesionada de Venezuela, C.A. (‘Aucoven’) v
Bolivarian Republic of Venezuela (2003), in which the Preamble of the Concession
Agreement stated that it was to be governed by certain specified Venezuelan decrees
‘and the provisions of any other laws, regulations, or other documents as may be
105 Southern Pacific Properties, Award, 20 May 1992, at para. 75. See also at para. 34.
106 SPP v Egypt, fn. 104, ICSID Award, at para. 78. See also Chapter 5, Section 3.2.1 (on the
complementary role of international law). Cf. ICSID Convention (1965), art. 42(1), second sentence.
See further Section 3.2.2.1 (on the ICSID Convention).
107 See SPP v Egypt, Dissenting Opinion of El Mahdi, at section III(3)(i) (‘[I]t is mandatory to
decide upon the issue of whether or not the parties to the present dispute agreed upon the choice of the
Applicable Law [ . . . ]. [T]he plain language of article (42/1) first sentence [ICSID Convention], does
not give room but to the exclusive application of the law that the parties have chosen as the applicable
law to govern their relationship’); G.R. Delaume, ‘L’affaire du Plateau des Pyramides et le
CIRDI. Considérations sur le droit applicable’ (1994) 1 Revue de l’Arbitrage 39, 48.
108 See Schreuer et al., fn. 10, at 570–1 (‘Reference in a direct agreement between the parties to an
item in the host State’s legislation is [ . . . ] not a reliable indication of an intention to choose the host
State’s entire legal system’). But see SPP v Egypt, fn. 104, ICSID Award, Dissenting Opinion of El
Mahdi, at section III(3)(iv) (‘To assert, therefore that law No 43 is by itself a declared intention of
Egypt as to the law applicable to the investment in the frame work of the said law, seems to be an
evident, logical conclusion’).
109 Liberian Eastern Timber Corporation (LETCO) v Republic of Liberia, ICSID Case No. ARB/83/
2, Award, 31 March 1986 (B.M. Cremades, J.G. Pereira, D.A. Redfern, arbs). Cf. Schreuer et al., fn.
10, at 570–1; G.R. Delaume, ‘The Pyramids Stand: The Pharaohs Can Rest in Peace’ (1993) 8 ICSID
Rev.-FILJ 231; Begic, fn. 77, at 65.
110 LETCO v Liberia, fn. 109, Award, at section II(2) (‘The Concession Agreement of 12 May
1970 made between the Government of Liberia and LETCO states in its opening paragraph that the
Concession Agreement is made “under the General Business Law, Title 15 of the Liberian Code of
Laws of 1956” ’).
111 LETCO v Liberia, at 358. See also at 358 (while the claimant, at one stage, stated that there was
no express choice of law, it later said that Liberian law was ‘probably applicable’). See also at 371 (in its
decision on damages, the tribunal stated: ‘The Tribunal, once again, returns to the law of the Republic
of Liberia as the law applicable in this case and therefore determinative of the nature of damages to be
awarded’). Cf. Aucoven, fn. 66, Award, at para. 97; Waste Management, Inc. v United Mexican States,
ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004 (J. Crawford, B.R. Civiletti, E.M. Gómez,
arbs), para. 73.
112 LETCO v Liberia, at 358–9. See also Chapter 7, Section 2.1 (on the concurrent application of
national and international law and reference to consistency).
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applicable’.113 On this basis, Venezuela submitted that the parties had agreed to the
application of Venezuelan law.114 The ICSID Tribunal disagreed, pointing out that the
parties could easily have adopted language showing their common intent for a general
choice of Venezuelan law.115 Thus, failing any indication on the record, the tribunal
held that—apart from the specific Venezuelan decrees—there was no party agreement
on the applicable law.116
Fourthly, it has been claimed that the fact that a tribunal’s jurisdiction is derived
from an investment treaty indicates a choice for international law.117 This position was
rightly rejected by the ICSID Tribunal in LG&E Energy Corp. et al. v Argentine
Republic (2006):
It is to be noted that the Argentine Republic is a signatory party to the Bilateral Investment
Treaty, which may be regarded as a tacit submission to its provisions in the event of a dispute
related to foreign investments. In turn, LG&E grounds its claim on the provisions of the treaty,
thus presumably choosing the treaty and the general international law as the applicable law for
this dispute. Nevertheless, these elements do not suffice to say that there is an implicit agreement
by the parties as to the applicable law, a decision requiring more decisive actions. Consequently,
the dispute shall be settled in accordance with the second part of Article 42(1) [of the ICSID
Convention, which applies in case there is no party agreement on the applicable law].118

In LG&E, the possibility of applying international law did not depend on a finding by
the tribunal of an implicit choice of law; international law was namely applicable by
virtue of the second sentence of article 42(1) of the ICSID Convention, which applies
in case the parties have not reached an agreement on the applicable law.119 However, as
we will see, contrary to the ICSID Convention, certain national arbitration laws and
arbitration rules direct tribunals to apply national law—to the exclusion of international law—in the absence of an agreement by the parties.120 This is arguably the
case for the Arbitration Rules of the Cairo Regional Centre for International Commercial Arbitration, for instance.121Where the investor bases its claim on a provision of an
113 Aucoven, fn. 66, Award, at para. 94. See also at para. 94 (‘Clause 5 provided that the Agreement
shall be governed by Decree Law 138; Executive Decree Nr. 502; by the Clauses and Annexes of the
Concession Agreement; by the terms set forth in the Bid submitted by Aucoven; and by the conditions
set forth in the Bid Documents’).
114 Aucoven, at para. 95.
115 Aucoven, at paras 98, 100.
116 Aucoven, at para. 100. Accordingly, the default provision on applicable law would apply. See
ICSID Convention (1965), art. 42(1), second sentence. See further Section 3.2.2.1 (on the ICSID
Convention).
117 See, e.g., M.C.I. Power Group L.C. and New Turbine, Inc. v Ecuador, ICSID Case No. ARB/03/
6, Award, 31 July 2007 (R.E. Vinuesa, B.J. Greenberg, J. Irarrázabal, arbs), para. 214 (‘The Claimants
contend that the only law applicable in the present case is international law. They argue that the BIT
includes an implicit agreement on the applicability of international law, and that the first part of Article
42(1) of the ICSID Convention must therefore be respected [ . . . ]’).
118 LG&E Energy Corp. et al. v Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3
October 2006 (T.B. de Maekelt, F. Rezek, A.J. van den Berg, arbs), para. 85. See also M.C.I. Power
Group v Ecuador, fn. 117, Award, at para. 217.
119 ICSID Convention (1965), art. 42 (In the absence of party agreement on the applicable law,
ICSID tribunals shall apply ‘the law of the Contracting State party to the dispute (including its rules on
the conflict of laws) and such rules of international law as may be applicable’).
120 See Section 3.2.2 (on the (non-) applicability of national and international law) (the wording
‘conflict of laws rules’ is generally interpreted to require the application of national law to the exclusion
of international law).
121 Cairo Regional Centre for International Commercial Arbitration (CRCICA) Arbitration Rules
(in force as from 1 March 2011) (hereinafter Cairo Arbitration Rules), art. 33(1); English Arbitration
Act (1996), section 46(3).
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investment treaty, it would—for a tribunal operating pursuant to these Rules—be both
legally impossible and contrary to the intentions of the states parties to the treaty for the
tribunal to apply national law to establish an international wrongful act on the part of
the host state. Indeed, an international claim requires the application of international
law.122 As Spiermann explains: ‘[E]ven in the absence of a specific treaty provision, it is
necessary to resolve treaty claims on the basis of international law. Claimants bringing
such treaty claims obviously rely on international law, and there is no way for a
competent arbitral tribunal but to apply international law.’123 On that basis, it is
submitted that a tribunal applying an arbitration law or arbitration rules with similar
choice-of-of-law rules, should find an implied choice for international law when
deciding on treaty claims.
Finally, a choice of law may be implied by the fact that the parties argue their case on
the basis of the same law.124 In Biloune and Marine Drive Complex Ltd (MDC) v Ghana
Investments Centre (GIC) and the Government of Ghana (1989–90), the foreign investor
alleged that the respondents had expropriated the assets in MDC.125 The contract
between the parties required the tribunal to ‘ “construe” the contract “according to the
laws of Ghana”’.126 Still, the UNCITRAL Tribunal applied customary international
law to the merits, seemingly because of an implicit choice of law:
The provisions of Ghanaian law which have been brought to the Tribunal’s attention do not
relate to the construction of the Agreement. Neither Party pleaded the particulars of the legal
principles or provisions of the law of Ghana that should guide the Tribunal’s decision on the
main contractual issues and, in particular, it was not argued how any provision of the
Agreement should be construed in accordance with the law of Ghana. Specifically, neither
Party brought to the attention of the Tribunal any interpretation of the GIC Agreement, or of
the Parties’ rights and obligations under the Agreement, including the prohibition of expropriation, peculiar to the law of Ghana. Moreover, there is no indication that Ghanaian law
diverges on the central issue of expropriation from customary principles of international law.
On the contrary, both Parties explicitly treated those principles as governing the issue of
expropriation.127

An implicit agreement in favour of the application of international law was also found
by the ICSID Tribunal in Asian Agricultural Products Limited (AAPL) v Democratic
Socialist Republic of Sri Lanka (1990), the first time an ICSID tribunal’s jurisdiction
stemmed from an investment treaty.128 The treaty did not contain an explicit provision
on the applicable law. ‘Consequently,’ held the tribunal, ‘the Parties in dispute have
had no opportunity to exercise their right to choose in advance the applicable law

122 See Chapter 6, Section 2.2 (on the international nature of the claim).
123 Spiermann, fn. 97, at 103.
124 Cf. Case Concerning Maritime Delimitation and Territorial Questions Between Qatar and Bahrain
(Qatar v Bahrain), Judgment, 16 March 2001, Dissenting Opinion, Bernárdez [2001] ICJ Rep. 40,
264, at para. 7 (‘The proposition that the dispute taken as a whole is essentially to be decided in
accordance with general international law is, furthermore, confirmed by the manner in which the
Parties themselves have pleaded their respective cases’); The Abyei Arbitration (Government of Sudan v
The Sudan People’s Liberation Movement/Army), Award, 22 July 2009, at para. 432.
125 Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of
Ghana, Award on Jurisdiction and Liability, 27 October 1989, at section I.
126 Biloune, at section VI.
127 Biloune (emphasis added). See also Award on Damages and Costs, 30 June 1990, at section F.
128 Asian Agricultural Products Limited (AAPL) v Democratic Socialist Republic of Sri Lanka, ICSID
Case No. ARB/87/3, Award, 27 June 1990 (A.S. El-Kosheri, B. Goldman, S.K.B. Asante, arbs), 4
ICSID Rep. 246 (1997). See also Chapter 6, Section 2.1.2 (on express or implied agreement on the
application of international law in investment treaties).
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Choice-of-Law Rules

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determining the rules governing the various aspects of their eventual disputes.’129 In
such a case, the tribunal continued, ‘the choice-of-law process would normally materialize after the emergence of the dispute, by observing and construing the conduct of the
Parties throughout the arbitration proceedings.’130 Based on the parties’ written and
oral pleadings, the tribunal concluded that the parties had acted in a manner that
demonstrated their mutual agreement to consider the BIT as being the primary source
of the applicable legal rules.131
The reliance by the tribunal on the parties’ reference to international law was
criticized in the Dissenting Opinion of Arbitrator Asante on the basis that the respondent had no choice but to respond to the treaty arguments presented by the claimant,
and that such a response did not necessarily imply that the parties had agreed on the
application of the treaty as the primary source of law. To his mind, ‘it was to be
expected that the Respondent would address those particular points and vice versa; for,
the party which ignores this course of action may ultimately find that it has lost the
opportunity to present its views on individual issues to the Tribunal.’132 Further, stated
Asante:
[I]t seems somewhat unrealistic to say that there was mutual agreement by subsequent conduct
when, as a matter of record, both parties have adopted divergent positions on this point. [ . . . ]
[T]he Respondent, though willing to apply International Law and, in particular, the provisions of
the Treaty, maintained that this could be done only because the relevant rules of International
Law had become part of the law of Sri Lanka.133

Although the legislative history of the ICSID Convention and awards support the
possibility of an implied choice of law,134 the criticism by Asante is persuasive.135 For
that reason, it would have been preferable if the tribunal had found that the parties had
not agreed on the applicable law, for so to have had recourse to the second sentence of
the article 42(1) of the ICSID Convention, stipulating the applicability of both Sri
Lankan and international law.

129 Asian Agricultural Products, at 256, para. 19.
130 Asian Agricultural Products, at 256, para. 20.
131 Asian Agricultural Products, at 246, 250, 256. See also at para. 38 (‘From the above-stated
summary of the arguments advanced by each of the two Parties to sustain his position, it becomes clear
that the only point on which they agree is the applicability of the Sri Lanka/U.K. Bilateral Investment
Treaty as the primary source of law’).
132 Asian Agricultural Products, Dissenting Opinion by Asante, 4 ICSID Rep. 246, at 299.
133 Asian Agricultural Products. Cf. V.C. Igbokwe, ‘Determination, Interpretation and Application
of Substantive Law in Foreign Investment Treaty Arbitrations’ (2006) 23(4) J. Int’l Arb. 267, 282. See
also Chapter 5, Section 3.1.1 (on the possibility of applying international law indirectly when
international law is part of the ‘law of the land’).
134 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 418 (Comment by the French
representative); also at 570 (an ICSID tribunal may also be bound by ‘an implicit agreement which
could be deduced from the facts and circumstances of the relationship between the parties’); Santa
Elena v Republic of Costa Rica, fn. 92, Award, at paras 63–64 (‘Article 42(1) of the Convention does not
require that the parties’ agreement as to the applicable law be in writing or even that it be stated
expressly’).
135 Cf. E. Gaillard, ‘Observations on the AAPL Award’ (1992) 119 Journal du droit international
217, 227–9, reproduced in E. Gaillard, La jurisprudence du CIRDI (Paris, Pedone, 2004), 336–8;
M.N. Kinnear, Treaties as Agreements to Arbitrate: International Law as the Governing Law’ in
International Arbitration 2006: Back to Basics? (ICCA Congress Series, 2006 Montreal Volume 13,
A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer Law International 2007), 401, 413; Schreuer
et al., fn. 10, at 574 (Schreuer notes, however, that ‘[i]n the absence of a published detailed record of
the proceedings, it is impossible to form a definitive opinion as to whether the parties’ behaviour did, in
fact, demonstrate an agreement on international law as the applicable law’).
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3.1.3. Interim conclusions
The right of the investor and the host state to agree on the law applicable to the dispute
reflects the private dimension of choice-of-law rules in that it takes into account their
particular interests and ensures legal certainty. This rule of party autonomy applies to
both territorialized and internationalized tribunals.
An agreement by the parties on the applicable law may refer to either national law or
international law; and if the governing national arbitration law or arbitration rules refer
to ‘rules of law’, also to both national and international law in combination.
Provisions on the applicable law may be found in the investment contract, in the
investment law of the host state, in an investment treaty to which the host state and the
investor’s home state are parties, or in a subsequent agreement between the parties.
A tribunal may also find an implicit agreement on the applicable law, but such resort to
the ‘subjective’ method must be limited to cases in which such an agreement can be
ascertained with reasonable certainty.

3.2. Absence of party agreement on the applicable law
Frequently, the parties to an investment dispute cannot be deemed to have agreed on
the application of a particular law.136 In those cases, arbitral tribunals are guided by
choice-of-law rules set out in national arbitration laws, arbitration rules, the Iran–
United States Claims Settlement Declaration, or the ICSID Convention. The pertinent
issue to be discussed in this section is whether arbitrators are competent to apply
national and/or international law to the dispute at hand in the absence of an agreement
by the parties. As will be demonstrated, the relevant instruments vary in this respect.
While one may on this basis discern a schism between territorialized and internationalized tribunals, it is becoming increasingly difficult to differentiate between the two
categories of tribunals in light of the trend in favour of the applicability of both national
and international law. We will also discuss the centre-of-gravity test, which supports the
private dimension of choice-of-law rules.

3.2.1. The indirect and direct method of ascertaining the applicable law
Provisions on how to ascertain the applicable law in the absence of party agreement vary
according to whether the tribunal should determine the applicable law indirectly by
applying certain choice-of-law rules (voie indirecte); or directly without necessarily

136 See Kinnear, fn. 135, at 407 (‘Numerous treaties fail to state a governing law. Treaties in this
category are often older treaties; those concluded more recently tend to state the governing law
expressly’ [references omitted]); Banifatemi, fn. 45, at 197; A.F.M. Maniruzzaman, ‘Conflict of
Laws Issues in International Arbitration: Practice and Trends’ (1993) 9(4) Arb. Int’l 371 (‘The parties
to an international contract sometimes fail to reach an agreement as to the substantive law applicable to
any dispute that may arise during the course of their contractual relationship. This phenomenon is
noticed more often than not in the context of state contracts, especially natural resource investment
agreements between a state and a foreign private party’ [references omitted]). See also Blessing, fn. 18,
at 214 (discussing possible reasons for not specifying the applicable law); Judgment of the Judicial
Collegium for Civil Cases of the Supreme Court of Kazakhstan Rendered in 2004, Resolution No.
3A–121/2–04, 1 Stockholm Int’l Arb. Rev. (2005) (absence of reference to the applicable law, or to the
rules of appointment of arbitrators is no flaw in the parties’ intention to choose to arbitrate disputes
arising out of the contract).
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applying any such rules (voie directe).137 The indirect, and more traditional, method is
illustrated by the UNCITRAL Model Law, which provides that ‘[f]ailing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of
laws rules which it considers applicable’.138 This language mirrors that of, for instance,
the English Arbitration Act,139 and the Arbitration Rules of the Cairo Regional Centre
for International Commercial Arbitration.140
The direct method is an innovative feature of arbitration that reflects the influence of
the delocalization theory on the arbitral process.141 Frick explains that while the
arbitrator, for his or her internal thinking process, will certainly apply some notion of
private international law, under the voie directe, he or she will be under no obligation to
explain on what legal grounds the applicable law or rules of law have been determined.142 This method is illustrated by the Netherlands Arbitration Act, which directs
the tribunal to ‘make its award in accordance with the rules of law which it considers
appropriate’.143 In even more explicit terms, the Panama Arbitration Act states that
failing party agreement, ‘the arbitral tribunal shall decide according to the law freely
determined by the arbitrators, whether or not pursuant to a conflict rule, without
distorting the intent of the parties. [ . . . ]’144 The method is also indirectly reflected in
the Swedish Arbitration Act, as it does not contain any rules as to the national or
international norms that should apply to the merits.145 The Svea Court of Appeal
explained: ‘In light of the desire to restrict the possibilities of appeal, in favor of the
finality of an arbitration award, there exist predominant reasons against the implementation of any rule as to the legal premises on which a dispute shall be determined.’146
The direct method is also provided for in several sets of arbitration rules, such as
those promulgated for the Stockholm Chamber of Commerce,147 the International Chamber of Commerce,148 the London Court of International Arbitration,149
137 See generally F. Osman and S. Salama, ‘Les méthodes de détermination du droit applicable par
l’arbitre: vers un rattachement de la “voie directe” à la méthode conflictuelle’ (2003) 21(2) ASA Bulletin
272; Frick, fn. 19, at 54 et seq.
138 UNCITRAL Model Law (2006), art. 28(2).
139 English Arbitration Act (1996), section 46(3). See also European Convention on International
Commercial Arbitration, 21 April 1961, art. VII(1).
140 Cairo Arbitration Rules (2011), art. 33(1). See also Rules of Procedure of the Inter-American
Arbitration Commission, art. 33(1).
141 See Chapter 2, Section 3.3 (on the influence of the delocalization theory on state practice);
Y. Derains and E.A. Schwarz, A Guide to the ICC Rules of Arbitration (The Hague, Kluwer Law
International, 2005), 221 (the adoption in the 1998 ICC Arbitration Rules of the direct method ‘is
consistent with recent trends in international arbitration that are now widely accepted. It is also the
culmination of a gradual evolution in international thinking on this subject’ [references omitted]).
142 Frick, fn. 19, at 54 (references omitted).
143 Netherlands Arbitration Act (1986), art. 1054(2).
144 Panamanian Arbitration Law (1999), art. 43(3). See also Indian Arbitration Act (1996), art.
28(1)(b)(iii); French Arbitration Law (2011), art. 1511.
145 Swedish Arbitration Act (1999).
146 Czech Republic v CME Czech Republic B.V., Case No. T 8735–01, Svea Court of Appeal,
Sweden, 15 May 2003, at pp. 90–1. See also at 90 (the Court noted that according to the legislative
history of the Swedish Arbitration Act, ‘such a rule may be dispensed with’); C. Söderlund, ‘A
Comparative Overview of Arbitration Laws: Swedish Arbitration Act 1999, English Arbitration Act
1996 and Russian Federal Law on International Commercial Arbitration’ (2004) 20(1) Arb. Int’l 82.
147 SCC Arbitration Rules (2010) (the tribunal shall apply ‘the law or rules of law which it considers
to be most appropriate’). Cf. SCC Case 117/1999, fn. 38.
148 ICC Arbitration Rules (2012), art. 17(1) (the tribunal shall apply ‘the rules of law which it
determines to be appropriate’). See also Derains and Schwarz, fn. 141, at 240–1.
149 LCIA Rules (1998), art. 22.3 (the tribunal ‘shall apply the law(s) or rules of law which it
considers appropriate’).
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the Netherlands Arbitration Institute,150 and the Dubai International Arbitration
Centre.151
Although the direct method does not compel a tribunal to identify any choice-of-law
rule, it is submitted that the tribunal ought nevertheless to explain its reasons for
selecting and applying a particular law. As Heiskanen states: ‘the voie directe approach
remains a conflict-of-laws approach in the sense that it results in a choice of law and
accordingly the arbitrators must provide reasons for their (contextual) choice of law.’152
This would not only be in the interest of the parties, who will know the basis for the
decision reached; it would also make the award less vulnerable for annulment and nonenforcement.153 Indeed, rarely does a tribunal omit such references.154

3.2.2. The (non-) applicability of national and international law
Where the parties have not reached an agreement on the applicable law, the relevant
instruments differ as to the governing law. In what follows, we will see that while
territorialized and internationalized tribunals alike may apply national law in the
absence of choice, the same is not necessarily the case for international law. This latter
source remains applicable for internationalized tribunals, but not always for territorialized tribunals.
National law plays an obvious role in investor–state arbitration,155 and its applicability in the absence of a party agreement is clearly allowed pursuant to both the
indirect and the direct method. When directed to discern the applicable law on the
basis of applicable ‘conflict of laws rules’ or without any reference to such rules,
arbitrators could seek guidance in the choice-of-law rules of the tribunal’s juridical
seat;156 or they may have recourse to what has been referred to as general principles of
private international law.157 Such principles may be distilled from international
150 Arbitration Rules of the Netherlands Arbitration Institute (2001), art. 46 (the tribunal ‘shall
make its award in accordance with the rules of law which it considers appropriate’).
151 Dubai International Arbitration Centre (DIAC) Arbitration Rules (2007), art. 33(1) (‘If and to
the extent that the Tribunal determines that the parties have made no such choice [as to the applicable
law], the Tribunal shall apply the law(s) or rules of law which it considers to be most appropriate’).
152 V. Heiskanen, ‘And/Or: The Problem of Qualification in International Arbitration’ (2010)
26(4) Arb. Int’l 441, fn. 27 (referring to H.G. Naón, ‘Choice-of-Law Problems in International
Commercial Arbitration’ (2001) 289 Recueil des Cours 377). See also Derains and Schwarz, fn. 141,
at 242; B. Wortmann, ‘Choice of Law by Arbitrators: The Applicable Conflict of Laws System’ (1998)
14(2) Arb. Int’l 97, 101; Poudret and Besson, Comparative Law, fn. 20, at 588. Cf. Eureko B.V. v
Republic of Poland, Judgment of Court of First Instance of Brussels on setting aside of award, at section
IV, 23 November 2006 (‘The motivation of an arbitral award (Art. 1701, 6, C.J.) must have the same
quality as the one that is required for judicial decisions; it must be complete, precise, clear and
adequate’).
153 See D. Goldberg, Observations, Stockholm Arbitration Report (2002).
154 See Osman & Salama, fn. 133, at 285; Frick, fn. 19, at 54.
155 See Chapter 1, Section 1 (on motivations for the study).
156 See Section 2 (on the linkage between lex arbitri and choice-of-law methodology).
157 See, e.g., G. Sacerdoti, ‘State Contracts and International Law: A Reappraisal’ (1986–87) VII
Italian Y.B. Int’l L. 26, 33. Cf. LIAMCO, fn. 53, Award, 20 I.L.M. 1, 32 (1977) (‘[I]n a case involving
a foreign litigant, the tribunal to which it is submitted has to refer for guidance to the general principles
governing the conflict of laws in private international law’); Saudi Arabia v Arabian American Oil Co.
(Aramco), Award, 23 August 1958 (Sauser-Hall, Badawi/M. Hassan, Habachy, arbs), 27 I.L.R. 117,
156–7 (1963). But see S.J. Toope, Mixed International Arbitration: Studies in Arbitration Between
States and Private Persons (Cambridge, Grotius, 1990), 51 (‘[P]urporting to choose the conflict laws
rules of international law is, in reality, nothing more than a veiled attempt to allow the arbitrators to
choose any substantive law they wish, for international law can provide no real guidance’ in this
regard); Mohebi, fn. 56, at 105.
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conventions, or instruments and rules that have attained general recognition by virtue
of a common acceptance or universal practice.158 One of these principles has been
referred to as the ‘centre-of-gravity’ test or ‘closest connection’ rule, which leads to the
application of the law of the state to which the dispute is most closely connected. As an
ICC tribunal observed in 1996: ‘The conflict rule which, beyond doubt, has received,
on an [sic] worldwide basis, the strongest support, is the so-called “closest connection
rule” which indeed is common to most (national) conflict of laws system.’159
Depending on the nature of the claim, the centre-of-gravity test reflects general
principles such as lex loci contractus, lex loci solutionis, lex loci delicti, lex loci actus, lex
situs, and lex domicilii.160 Some arbitration laws, such the Egyptian Arbitration Law,
explicitly provide for the application of this test: ‘If the two parties have not agreed on
the legal rules applicable to the substance of the dispute, the arbitral panel shall apply
the substantive rules of the law it considers most closely connected to the dispute.’161
As for the determination of which national system of law should apply to the dispute
in the absence of party agreement, it will—in investment arbitration—generally be that
of the host state. In the words of Bouchez, in practice, ‘the conflict of laws rules will in
the event of disputes between states and foreign enterprises often (but not always) result
in applying the law of the state involved because of the closeness of connection of the
contract giving rise to the dispute with the state in question.’162 And, as the ICC
Tribunal stated in SPP (Middle East) Ltd v Arab Republic of Egypt (1983): ‘May we
observe, ad abundantiam, that failing contractual designation of the governing law
the same result (i.e. reference to the law of the host country) would also normally
be achieved by applying the ordinary principles on conflict of laws.’163 Accordingly,
the centre-of-gravity test is also indirectly reflected in article 42(1), second sentence, of
the ICSID Convention, which provides for the application of the law of the host state
and international law.164 The national law most closely connected to an investment
dispute is namely almost165 always that of the host state. Parra notes:
158 See Lew, fn. 48, at 286–7.
159 Ministry of Defence and Support for Armed Forces of the Islamic Republic of Iran v Westinghouse
Electric Corp. (1996), fn. 89, at Section III: J.D.M. Lew, ‘Proof of Applicable Law in International
Commercial Arbitration’ in Festschrift für Otto Sandrock zum 70. Geburtstag (K.P. Berger et al., eds,
Heidelberg, Recht und Wirtschaft, 2000), 581, 591 (‘[P]ractice suggests that arbitral tribunals prefer
the “closest connections” test. Such practice is so widespread that it is now arguable that private
international law has developed to encompass this principle, or at least that it is in the process of being
so developed’); K. Hobér, ‘In Search for the Centre of Gravity: Applicable Law in International
Arbitrations in Sweden’ Yearbook of the Arbitration Institute of the Stockholm Chamber of Commerce
(Stockholm, Juris, 1994), 7.
160 The law of the place where the contract was formed; the law of the place of performance; the law
of the place where the tort took place; the law of the place where the legal act took place; the law of the
place where the object is situated; the law of the place of domicile, respectively. See J.G. Collier,
Conflict of Laws (Cambridge University Press, 2001), 7.
161 Egyptian Arbitration Law (2000), art. 39(2). See also Arbitration Law of Jordan, Law No. 31/
2001, 14 June 2001, art. 36(b); Switzerland’s Federal Code on Private International Law (1987), art.
187(1).
162 L.J. Bouchez, ‘The Prospects for International Arbitration: Disputes Between States and Private
Enterprises’ in International Arbitration: Past and Prospects: A Symposium to Commemorate the Centenary of the Birth of Professor J.H.W. Verzijl (1888–1987) (J.H. Verzijl and A.H.A. Soons, eds, Dordrecht,
Martinus Nijhoff, 1990), 109, 137 (references omitted).
163 SPP (Middle East) Ltd v Arab Rep. of Egypt, ICC Award No. 3493, Award, 16 February 1983
(G. Bernini, M. Littman, A. Elghatit, arbs), para. 49.
164 ICSID Convention (1965), art. 42(1), second sentence (‘In the absence of [party] agreement,
the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the
conflict of laws) and such rules of international law as may be applicable’).
165 See ICSID Convention (1965) (providing for the possibility of renvoi to a more closely
connected legal system by including a reference to the choice-of-law rules of the host state).
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As regards the applicable domestic law, [article 42(1), second sentence, ICSID Convention] may
in practical terms differ little from its UNCITRAL counterparts. In the case of a typical foreign
investment—a natural resources concession contract, for instance—normal conflict of laws
analysis will usually point to the application of the substantive law of the host State of the
investment.166

Also the Iran–United States Claims Tribunal has applied the centre-of-gravity test in
determining the national law applicable to the merits.167
Turning then to international law, its application in the absence of an agreement by
the disputing parties depends on the precise wording of the instrument at hand, be it a
national arbitration law, a set of arbitration rules, or a treaty. It is in this context that the
difference between the direct and indirect methods may take on significance. Where
the arbitration law and arbitration rules reflect the direct method, the application of
international law is necessarily allowed by virtue of the full freedom that is granted the
tribunal with respect to the applicable law in the absence of party agreement. The
question arises whether this is also the case for the indirect method, with its reference to
‘conflict of laws rules’. On the one hand, as was noted in the introductory chapter, this
term traditionally refers to which national system of law applies to the merits.168 The
inference that the indirect method would thereby only allow for the application of
national law to the exclusion of international law finds implicit support in the reference
in the ICSID Additional Facility Rules to the combined application of ‘(a) the law
determined by the conflict of laws rules [ . . . ] and (b) such rules of international law as
the Tribunal considers applicable’.169 Also, when the parties to the Iran–United States
Claims Settlement Declaration decided to use the 1976 UNCITRAL Arbitration Rules
as their framework, they found it necessary to change the language so as to refer
specifically to international law in addition to choice-of-law rules.170 It may be reasoned
that the purported need separately to list international law means that the term ‘conflict
of laws rules’ only refers to national law.
On the other hand, it could be argued that the term ‘conflict of laws rules’, including
the centre-of-gravity test, could also be extended to allow for the application of
international law. Thus, not only when a tribunal is directed to apply the ‘rules of
law which it considers appropriate’171 or the ‘law with which the action is most closely
166 Parra, fn. 66, at 5. See also G. Elombi, ‘ICSID Awards and the Denial of Host State Laws’
(1994) 11 J. Int’l Arb. 61, 67. Cf. Amco Asia Corporation and others v Republic of Indonesia, ICSID Case
No. ARB/81/1, Award, 20 November 1984 (B. Goldman, I. Foighel, E.W. Rubin, arbs), para. 148 (it
was not necessary to enter into a discussion on the rules of conflict, inasmuch as the parties made
constant references to the law of the state party in the dispute, and moreover in ‘the dispute before the
Tribunal relating to an investment in Indonesia, there is no doubt that the substantive municipal rules
of law to be applied by the Tribunal are to draw from Indonesia Law’).
167 See, e.g., Economy Forms Corporation v Government of the Islamic Republic of Iran et al., Award No.
55–165–1, 3 I. U.S. C.T.R. 42, at section III(1) (‘[T]he Tribunal holds that United States law governs
the contract, since the centre of gravity of these business dealings was in the United States, that being the
test under general principles of conflicts of law’); Harnischfeger Corp. v Ministry of Roads & Transportation,
Partial Award, 13 July 1984, 7 Iran–U.S. C.T.R. 90, 99. Cf. Lagergren, fn. 8, at 31, at fn. 12.
168 See Chapter 1, Section 2 (on the scope of and terminology used in the study). Cf. US Restatement
(Second), Conflict of Laws }188 (1971) (directing the court to apply the law of ‘the state’ whose contacts
and policies are relevant to the particular issue, i.e. the State of the ‘most significant relationship’).
169 ICSID Additional Facility Rules (2006), art. 54(1) (emphasis added).
170 See Iran-US Claims Settlement Declaration (1981), art. V; United States Claims Tribunal,
Tribunal Rules of Procedure (1983), art. 33; H.M. Holtzmann, ‘Drafting the Rules of the Tribunal’ in
The Iran–United States Claims Tribunal and the Process of International Claims Resolution (D.D. Caron
and J.R. Crook, eds, Ardsley, NY, Transnational Publishers, 2000), 75, 82.
171 Netherlands Arbitration Act (1986), art. 1054(2). Cf. Indian Arbitration Act (1996), art. 28(1)
(b)(iii).
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connected’,172 but also when applying ‘conflict of laws rules’, it could decide that the
particular claim ‘centres’—as one may say—in the international legal order and that
therefore international law should apply. In Mann’s vision:
[T]he conflict of laws has in mind the localisation legal relationships and [ . . . ] therefore, the
conflict rule normally refers to a locally defined legal system. But this is no more than a form of
words from which no dogma should be derived. When Savigny uses the well-known metaphor of
the ‘seat of the legal relation’, he certainly contemplates territorially defined systems of law. But
an all too literal interpretation would not be in harmony with his genius. Von Bar’s phrase of the
‘nature of the thing’, Gierke’s formulate of the centre of gravity, and especially Westlake’s figure
of the law with which a contract has the most real connection no longer maintain the idea of
localisation and prove that the reference to a legal system which is not territorially defined is fully
reconcilable with the traditional doctrine of the conflict of laws. In any event, it must be
emphasised, considerations of a conceptualist character cannot be decisive.173

In this context, reference should also be made to the observation by the English Court
in Raiffeisen Zentralbank Österreich AG v Give Star General Trading LLC (2001) that
the various legal categories recognized by the law are ‘man-made, not natural. They
have no inherent value, beyond their purpose in assisting to select the most appropriate
law. [ . . . ] [T]he conflict of laws does not depend (like a game or even an election) upon
the application of rigid rules, but upon a search for appropriate principles to meet
particular situations.’174 In accordance with these statements, an extension of the term
‘conflict of law rules’ so that the centre-of-gravity test allows for the application of
international law would be especially fitting in investment arbitration in light of the
relevance of international law to the investor–state relationship.175
Nevertheless, the Explanatory Note to the UNCITRAL Model Law explicitly
endorses the conclusion that the reference to conflict of laws rules excludes the
application of international law: Whereas the parties are free to decide on the application of international law, ‘[t]he power of the arbitral tribunal, on the other hand,
follows more traditional lines. When the parties have not designated the applicable law,
the arbitral tribunal shall apply the law, i.e. the national law, determined by the conflict
of laws rules which it considers applicable.’176 This restriction against the application of
international law should be seen in light of the fact that arbitration laws and rules were
172 Switzerland’s Federal Code on Private International Law (1987), art. 187(1). Cf. Blessing, fn.
18, at 199 (‘[T]he Swiss Arbitration Act, by adopting the closest connection rule, does not go quite so
far as to allow the so-called voie directe in the sense of Article 1496 (1) of the French Nouveau Code de
procédure civile; but this can be stated without regret, because the closest connection test leaves a
sufficiently broad freedom to the arbitral tribunal. [ . . . ] The term “rules of law” makes it clear that the
arbitral tribunal is not bound to determine the applicability of one specific national law, but has the
freedom to base its award on “rules of law” (including a-national or transnational rules of law, general
principles of law, principles of public international law, lex mercatoria, commercial practices, provisions
from international Conventions or, more recently, the 1994 UNIDROIT Principles)’ [emphasis in
original]).
173 Mann, fn. 1, at 46). See also B. Goldman, ‘1 Arbitrage (Droit international privé)’ in Répertoire
de droit international (P. Francescakis, ed., Paris, Jurisprudence générale Dalloz, 1968–1969), 131–2;
Lalive, fn. 13 (Goldman and Lalive suggest that the European Convention on International Commercial Arbitration opens up the possibility of applying non-national legal standards).
174 Raiffeisen Zentralbank Österreich AG v Give Star General Trading LLC [2001] EWCA Civ 68,
825, 840–1. Cf. Clarkson & Hill, fn. 46, at 532–3.
175 See Chapter 1, Section 1 (on the motivations for the study).
176 UNCITRAL Secretariat, fn. 61, at para. 35 (emphasis added). See also Hill, fn. 30, at 301–3;
Bouchez, fn. 162, at 136–7. Cf. UNCITRAL, Report of the Working Group on Arbitration and
Conciliation on the work of its forty-seventh session, Vienna, 10–14 September 2007, 25 September
2007, A/CN.9/641, para. 110 (The reference to conflict-of-laws rules ‘could only result in the
application of national law [ . . . ]’).
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designed not solely for investor–state arbitration, but also—or primarily—for the
private-private relationship to which international law plays less of a role.177
The more narrow interpretation of the term ‘conflict of laws rules’ gives support to
the schism between the national and the international legal order. Indeed, such schism
is expressly reflected in certain national arbitration laws that explicitly limit the
applicability of international law in cases of no party agreement. The German Arbitration Act, for example, provides that in the absence of an agreement by the parties, the
tribunal shall apply ‘the law of the State with which the subject-matter of the proceedings is most closely connected’.178 It can be reasoned that the same result would prevail
pursuant to the Arbitration and Conciliation Act of Nigeria (1990): ‘Where the laws of
the country to be applied is not determined by the parties, the arbitral tribunal shall
apply the law determined by the conflict of the law rules which it considers
applicable.’179
While the majority of laws and several sets of arbitration rules considered by Poudret
and Besson in their treatise on international arbitration ‘only authorize arbitrators to
choose a law and not rules of law of a different nature’,180 we do observe a trend in the
direction of allowing tribunals to apply also international law in the absence of a party
agreement to this effect.181 Here we are reminded of the current 2010 UNCITRAL
Rules which reflect the proposed change to the 1976 Arbitration Rules by the
UNCITRAL Working Group on Arbitration and Conciliation in favour of more
freedom for the arbitrators:
A proposal was made [ . . . ] to provide the arbitral tribunal with a broader discretion in the
determination of the applicable law by adopting wording along the lines of article 17 of the ICC
Rules as follows: ‘In the absence of any such agreement, the Arbitration Tribunal shall apply the
rules of law which it determines to be appropriate.’182

It is further noted that the exclusion in certain national arbitration laws of the
applicability of international law in the absence of party agreement is mitigated by
the fact that these laws generally allow the parties to agree on the application of
arbitration rules that use the direct method and thereby allow for the default application of international law.183
177 See Chapter 1, Section 2 (on the scope of and terminology used in the study); C. Reiner and
C. Schreuer, ‘Human Rights and International Investment Arbitration’ in Human Rights in International
Investment Law and Arbitration (P.-M. Dupuy et al., eds, Oxford University Press, 2009), 82, 85.
178 German Arbitration Act (1998), section 1051(2) (providing for the application of ‘the law of the
State with which the subject-matter of the proceedings is most closely connected’). Cf. ‘Arbitration in
Germany: The Model Law in Practice’ in K.-H. Böckstiegel et al., Germany as a Place for International and
Domestic Arbitrations: General Overview (Alphen aan den Rijn, Kluwer Law International, 2007), 47–8.
179 Arbitration and Conciliation Act of Nigeria (1990), section 47(3) (emphasis added). See also
Turkish International Arbitration Law (2001), art. 12(c)(2); Arbitration Rules of the German Institution of Arbitration 1998 (Deutsche Institution für Schiedsgerichtsbarkeit (DIS)), section 23.2. Cf.
Inter-American (Mexico) Convention on the Law Applicable to International Contracts (1994), art. 9.
180 Poudret and Besson, Comparative Law, fn. 20, at 581.
181 Cf. Jacquet, fn. 33, at 19; Derains and Schwarz, fn. 141, at 240.
182 UNCITRAL, Report of the Working Group on Arbitration and Conciliation on the work of its
forty-seventh session, Vienna, 10–14 September 2007, 25 September 2007, A/CN.9/641, para. 111.
See also at para. 112. Cf. Report of the Working Group on Arbitration and Conciliation on the work of
its forty-fifth session, Vienna, 11–15 September 2006, para. 123; United Nations Commission on
International Trade Law, Working Group II (Arbitration), Forty-sixth Session, New York, 5–9
February (2007), Note by the Secretariat (6 December 2006), A/CN.9/WG.II/WP.145/Add.1,
para. 38.
183 See Chapter 2, Section 3.3 (on the influence of the delocalization theory on state practice);
Section 2 (on the linkage between lex arbitri and choice-of-law methodology).
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From a larger perspective, and to conclude on this point, we saw that the principle of
party autonomy reflects the notion of legal certainty, and thus the private dimension of
choice-of-law rules. The same may be said to apply to the centre-of-gravity test, as its
connecting factors would most likely lead to the application of the law of the host state,
with which both parties can be presumed to be familiar.184 As noted by Nygh, ‘[i]n
many cases the closest connection will be clearly centred in one particular country and
the application of its laws will most readily meet the expectations of the parties.’185
Moreover, it also benefits the state that is likely to have the greater interest in the
outcome of the dispute.186 The same conclusion is warranted when the centre-ofgravity test—and in Mann’s and our view ‘conflict of laws’ rules—would lead to the
application of international law. In that case, the foreign investor would generally have
relied on the rights it enjoys under international law vis-à-vis the host state; and the latter
should certainly be familiar with the corresponding obligations that it owes the
investor, its home state, and/or the international community as a whole.

3.2.2.1. The ICSID Convention
The ICSID Convention provides a procedural framework for the settlement of investment disputes; it does not contain any substantive rules on foreign investment law.
During the negotiations, some state representatives suggested including such rules.187
However, that idea was discarded, partly due to differences in opinion on their
content.188 Instead, the arbitrators are to select the applicable norms in accordance
with article 42 of the Convention. The drafting of what was to become the second
sentence of article 42(1) of the ICSID Convention concerning the law to be applied in
the absence of party agreement was not without contention,189 and the exact meaning
of this provision is debated to this day.190 For that reason, we will examine in more
detail its terms and the negotiating history that led to its adoption.
The provisions in earlier drafts were intended to give ICSID tribunals considerable
flexibility with respect to whether to apply national or international law. Broches,
World Bank General Counsel and Chairman of the preparatory meetings, first stated
that the Convention ‘would give the arbitral tribunal the power to determine the
applicable law’.191 This power was later expressed in various ways: ‘the text under
discussion left the whole question of the substantive rules of law to the tribunal’;192 ‘the
arbitrators would have to choose the national or international law to be applied’;193 the
Convention ‘left it to the Tribunal [ . . . ] to decide whether a claim was subject to
national or international law’;194 the tribunal ‘would look into all the legal aspects [ . . . ]
184 See Clarkson and Hill, fn. 46, at 7.
185 P.E. Nygh, ‘The Reasonable Expectations of the Parties as a Guide to the Choice of Law in
Contract and in Tort’ (1995) 252 Recueil des Cours 269, 332.
186 Cf. Clarkson & Hill, fn. 46, at 198.
187 See History of the ICSID Convention, fn. 54, Vol. II-1, at p. 418 et seq.; also at p. 570. See also
Schreuer et al., fn. 10, at 550.
188 See History of the ICSID Convention, fn. 54, Vol. II-1, at pp. 6, 109, 472; Di Pietro, fn. 103,
at 235.
189 See A. Broches, Selected Essays: World Bank, ICSID, and Other Subjects of Public and Private
International Law (Dordrecht, Nijhoff, 1995), 227.
190 See Chapter 1, Section 1 (on motivations for the study).
191 Paper prepared by the General Counsel and transmitted to the members of the Committee of
the Whole, SID/63–2 (18 February 1963), in History of the ICSID Convention, fn. 57, Vol. II-1, at
p. 71.
192 History of the ICSID Convention, Vol. II-1, at p. 419 (statement by A. Broches).
193 History of the ICSID Convention, Vol. II-1, at p. 110 (statement by Mr. Meijia).
194 History of the ICSID Convention, Vol. II-1, at p. 259 (statement by A. Broches).
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from the viewpoint not only of domestic, but also of international law’;195 it ‘could look
to municipal law as well as international law’;196 and ‘the Tribunal would itself be
responsible for deciding whether to apply a particular domestic or international law as it
found most appropriate.’197 Consistent with this language, earlier drafts of what was to
become article 42(1), second sentence, provided that the tribunal ‘shall decide the
dispute submitted to it in accordance with such rules of law, whether national or
international, as it shall determine to be applicable’.198
During the discussions leading to the final adoption of article 42(1), it became clear
that state representatives or delegates199 desired more specification with regard to the
applicable law.200 In this vein, the French representative suggested that the words
‘whether national or international’ should be amended to read ‘national and international’,201 a proposal that was adopted. The final text of the second sentence of article
42(1) provides that in the absence of an agreement by the parties on the applicable law,
‘the Tribunal shall apply the law of the Contracting State party to the dispute
(including its rules on the conflict of laws) and such rules of international law as may
be applicable’.202
The wording of the second sentence of article 42(1) of the ICSID Convention can be
seen as a compromise between those advocating a role for national or international law
respectively.203 The explicit reference to the law of the host state was inserted by
demands of several delegates. The representative from Spain, for instance, agreed that
the tribunal must have the power to apply international law, ‘but where national law
was concerned, it was not admissible that any municipal law other than that of the host
State should be invoked’.204 Also the Turkish representative sought a clarification of the
195 History of the ICSID Convention, Vol. II-1, at p. 267 (statement by A. Broches).
196 History of the ICSID Convention, Vol. II-1, at p. 268 (statement by A. Broches).
197 History of the ICSID Convention, Vol. II-1, at p. 330 (statement by A. Broches).
198 History of the ICSID Convention, Vol. II-1, at p. 190 (emphasis added).
199 As for the correct designation, see A. Broches, ‘Hirsch, Moshe: The Arbitration Mechanism of
the International Centre for Settlement of Investment Disputes’ (1995) 10(1) ICSID Rev.-FILJ 162,
163, at fn. 2 (‘[The] initial round of discussion of a preliminary draft convention [ . . . ] [took place] in
regional consultative meetings of legal experts who were designated by governments but did not
represent them. After the Bank’s Executive Directors had concluded, in the light of the consultations in
Africa, Latin America, Europe and Asia that it would be desirable to establish the institutional facilities,
they were instructed by the (plenary) Board of Governors to formulate a text that could be accepted by
the largest number of governments. The Bank then invited its members to appoint representatives to a
Legal Committee which was to advise the Executive Directors’ [emphasis in original]).
200 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 469 (the delegate from Israel noted:
‘The Convention empowered an arbitral tribunal to decide a dispute [ . . . ] in accordance with such
rules of law as it determined to be applicable. The principle by which these rules of law would be
determined required more precise definition’). See also Vol. II-2, at p. 669 (the representative from
Vietnam asked whether the words ‘national law’ should be understood as meaning the national law of
the country of the investor or the national law of the state where the investment is made).
201 History of the ICSID Convention, Vol. II-1, at p. 421 (emphasis added). See also at p. 421 (the
Austrian delegate supported the mentioning of both national and international law ‘since both were
clearly involved’).
202 ICSID Convention (1965), art. 42(1), second sentence.
203 See History of the ICSID Convention, fn. 54, Vol. II-2, at p. 986 (Broches stated that ‘Article
42(1) had been the result of a long and thorough discussion in the Legal Committee and, speaking as
the Bank’s General Counsel, he found it satisfactory from the points of view both of capital-importing
countries and capital-exporting countries’); Delaume, fn. 107, at 62–3.
204 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 419. Cf. p. 466 (the delegate from
Thailand pointed to general principles of private international law, and opined that the national law
‘could and should mean none other than the internal law of the State party to the dispute’); and p. 501
(the delegate from Ceylon noted that ‘the law to be applied should still be local law and not
international law’).
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term ‘municipal law’, as it could be construed as referring to the municipal law of the
capital-exporting State, whereas in his view, ‘only the municipal law of the capitalimporting country applied’.205 Likewise, the Chinese delegate found it obvious to
assume that ‘the act of making an investment in the host country would imply that the
investor had consented to the jurisdiction and application of the law of the host State in
all respects, unless there was a written and explicit declaration to the contrary’.206
Chairman Broches explained that the reference to national law ought not to be
specifically restricted to the law of the host state ‘because the rule of conflict of laws
might sometimes bring a different law into operation’.207 Still, he observed that in most
cases the application of normal conflict of laws rules or private international law would
indeed lead to the application of the national law of the host state.208 Thus, a
compromise was reached, in which the law of the host state was specifically inserted
in article 42(1), second sentence, including the possible renvoi to a law different to that
of this state, cf. the language ‘including its rules on the conflict of laws’.209 This
provision was approved by a majority of 24 to 6.210
The specific reference to international law was favoured by several of the state
representatives, as well as Chairman Broches: ‘it is reasonable to provide that an
international tribunal will have the power to apply international law.’211 The German
205 History of the ICSID Convention, fn. 57, Vol. II-1, at p. 418. See also at p. 571; Vol. II-2, at
p. 660 (comment by delegate from Thailand); at p. 800 (comment by delegate from the Philippines)
and also (the Chinese delegate stated that ‘in the absence of an agreement the national law of the host
State and not another national law or international law would be the first law to apply’); and at p. 801
(the representative from China stated that while he was not for the total exclusion of international law,
‘the national law of the host State should be the first to apply’); and also (the delegate from Turkey
stated that ‘national law’ should be limited by reference to the law of the host state in which the
investment was made); and (according to the Spanish delegate, provision should be made for the
application of the national law of the country where the investment takes place).
206 History of the ICSID Convention, Vol. II-1, at p. 513. See also at p. 514; Vol. II-2, at p. 800
(suggesting that the Preamble to the Convention should state that a foreign investment implies reliance
by the investor on the laws of the host state). See also Vol. II-1, at p. 515 (the representative from India
observed that in the majority of cases most of the aspects of the investment were intended to be
governed by the law of the state where the investment was located, and in that case ‘the national law of
that State should prevail’); also at p. 505 (the delegate from India stated that ‘it should be made clear
[ . . . ] that the foreign investor must comply with the national law of the host State and that the law to
be applied was that national law’); also at p. 506.
207 History of the ICSID Convention, Vol. II-2, at p. 800. See also Vol. II-1, at p. 418 (Broches
referred to licensing and know-how agreements,); also at pp. 506, 514, 570–1, 267 (the Nigerian
delegate stated that the problem of ascertaining the appropriate law was similar to that in the case of a
‘conflict of laws’, where the court was to decide which law was proper to the contract in question (e.g.
the place with which the contract had the closest connection)).
208 See History of the ICSID Convention, Vol. II-1, at p. 418.
209 ICSID Convention (1965), art. 42(1), second sentence. See also LG&E Energy Corp. v
Argentina, fn. 118, Decision on Liability, at para. 87 (‘As to the reference to the private international
law, the Tribunal has not found in the ICSID records any case in which the Arbitral Tribunal has
resorted to the rules of conflict of law of the State party to the dispute’).
210 See History of the ICSID Convention, fn. 54, Vol. II-2, at p. 804. Cf. A. Masood, ‘Law
Applicable in Arbitration of Investment Disputes under the World Bank Convention’ (1973) 15(2)
J. Indian L. Inst. 311, 314–15 (‘(i) The first sentence was approved by a majority of 35 to 1. (ii) The first
part of the second sentence referring to the law of the host state was approved by a majority of 31 to 1.
A Chinese proposal to institute the word “first” in the sentence for emphasizing that international law
would be applied only after the national law had been enquired into was not pressed for voting. (iii) The
final part relating to international law was adopted by a majority of 24 to 6. A Dahomean proposal to
replace this final part with the words “with due regard to the general principles of international law”, was
defeated by a majority of 4 to 2. An Indian proposal to limit the application of international law to cases
where the law of the host state was silent on a particular question was defeated by a majority of 19 to 7’).
211 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 571.
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delegate found it ‘most important to mention international law [ . . . ] since it provided
additional protection for the private investor and since developments were tending
towards the application of international law regarding those types of contracts’.212 In
this vein, he pointed to the practice of many states whose courts must apply national as
well as international law, and in his view, ‘it would seem strange if a tribunal which was
admittedly international would be precluded from the application of international
law.’213
Whereas the relevance of international law to the investor–state relationship is
currently well established,214 it should be noted that at the time of the drafting, the
default application of ‘international rules’ was more controversial. In fact, the Yugoslavian representative rejected the application of international law altogether on the basis
that a tribunal should not be authorized to review the domestic legislation of sovereign
states.215 Also the representative from Brazil objected to the application of ‘any law
other than the law of the State in which the investment was made’, even in the face of
an express agreement to the contrary.216 Advocating the viewpoint of newly independent states, the representative from Ceylon pointed out that although these states were
always willing to accept and abide by the principles of public international law, they
had persistently demanded the modification of principles that had been ‘created solely
to protect the interests of the industrial and colonial powers’.217 In his view, it would
run counter to the doctrine of state sovereignty that the actions of a state of a purely
domestic nature would be tested by an uncertain set of principles.218 His rejection of
the application of international law thus stemmed from his refusal to affirm the present
system, in which tribunals would apply the existing law with its imperfections.219
While not rejecting the application of international law, other representatives
expressed concerns about its scope. Attempting to remedy the view that ‘many aspects
of international law, particularly in the field of foreign investment, were not yet settled’,
the South African delegate proposed that the tribunals could be granted by the United
Nations General Assembly a status equivalent to that of the specialized agencies so as to
enable them to seek advisory opinions from the International Court of Justice.220 And
the Italian delegate found it desirable for the Convention to specify the fundamental
principles of international law to be applied, such as protection against discriminatory
treatment and the obligation to act in good faith.221
212 History of the ICSID Convention, at p. 421.
213 History of the ICSID Convention, Vol. II-2, at p. 801. See also at p. 802 (representative from
Dahomey opined that ‘one should not deny international [ . . . ] arbitrators the possibility of taking
international law into account’).
214 See Chapter 1, Section 1 (on motivations for the study). See also Chapter 6, Section 2.2 (on the
international nature of the claim).
215 See History of the ICSID Convention, fn. 54, Vol. II-2, at p. 801.
216 History of the ICSID Convention. See also at p. 984 (Mr Rajan stated that ‘no reference should
be made to international law and that the only law which should be applied to the dispute was that of
the Contracting State party to the dispute’).
217 History of the ICSID Convention, Vol. II-2, at pp. 801–2.
218 History of the ICSID Convention, at p. 802.
219 History of the ICSID Convention, at p. 802.
220 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 420. See also at p. 420 (A. Broches
replied that he doubted whether the tribunals would be authorized to seek the court’s advisory
opinions). Cf. Vol. II-2, at pp. 802–3 (the Indian representative expressed concern about the
application of international law since the arbitrators would probably not be experienced in this
field); and also (Peruvian delegate).
221 See History of the ICSID Convention, Vol. II-1, at p. 419. See also at pp. 418–19 (the
representative from France suggested that the tribunals be guided by a general code of conduct for
both the investor and the host country); and at p. 570; Vol. II-2, at p. 800 (the delegate from the
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These suggestions were rejected, in the words of Chairman Broches, ‘out of a desire
to maintain flexibility in view of the great variety of cases that might be submitted to
arbitration under the Convention’.222 Still, in the final stage of the drafting, the
understanding was reported to the Executive Directors of the World Bank that the
reference to international law in article 42(1), second sentence, comprised, apart from
treaty law, ‘only such principles as that of good faith and the principle that one ought to
abide by agreements voluntarily made and ought to carry them out in good faith’.223
Yet, the subsequent Report of the Executive Directors, explains that ‘[t]he term
“international law” as used in this context should be understood in the sense given to
it by Article 38(1) of the Statute of the International Court of Justice [ . . . ]’.224 In fact,
one of the earlier drafts of article 42(1) included a specific reference to article 38(1).225
We can therefore conclude, and the subsequent analysis of practice will demonstrate,
that ICSID tribunals may have recourse to treaties, customary international law, and
general principles of law as primary sources; and jurisprudence and legal scholarship as
subsidiary means for the determination of rules of law.
The Report of the Executive Directors adds the qualification that allowance shall be
made of the fact that ‘Article 38 was designed to apply to interstate disputes’.226 In the
view of Broches, the additional words ‘allowance shall be made [ . . . ]’ represented a
slight change, and he found no need further to elaborate on them.227 Some explanation
is still due as the language relates to—at the time—controversial debate whether private
parties are true subjects and enjoy rights pursuant to international law. Some state
representatives expressed their concern about the application of international law for
precisely that reason. The delegate from the United Kingdom pointed out that the
tribunals would be ‘faced with the difficult problem in establishing the extent to which
international law would be applicable in a case involving a non-State party’.228 The
Indian representative stated that international law governed relations between states
and could not deal with relations between a state and a foreign private individual.229

Philippines suggested that international law would only apply in cases of alleged discrimination against
the investor).
222 History of the ICSID Convention, Vol. II-1, at p. 419. See also at p. 420 (A. Broches noted that
‘arbitrators would naturally have the power to seek advice from experts, including legal experts’); see
also at p. 570.
223 History of the ICSID Convention, Vol. II-2, p. 985 (statement by A. Broches). See also Shihata
and Parra, fn. 92, at 194–5.
224 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States, International Bank for Reconstruction and Development, 18 March 1965, Doc. ICSID/2, para. 40. The text of article 38(1) is set out in a footnote in the
Report.
225 See History of the ICSID Convention, fn. 54, Vol. II-1, at pp. 418, 630; see also at p. 330
(A. Broches stated that ‘he had no objection to the inclusion of some explanation as to the meaning of
the term “international law” ’). See also at p. 984 (according to A. Broches, the deletion of such
reference in the final article 42(1) ‘did not imply any change in the substance of the provision’). See also
N. Nassar, ‘Internationalization of State Contracts: ICSID, The Last Citadel’ (1997) 14(3) J. Int’l Arb.
185, 204–5.
226 Report of the Executive Directors, fn. 224, at para. 40.
227 See A. Broches, ‘The Convention on the Settlement of Investment Disputes between States and
Nationals of Other States: Applicable Law and Default Procedure’ in International Arbitration, Liber
Amicorum for Martin Domke (P. Sanders, ed., The Hague, Martinus Nijhoff, 1967), 12, fn. 9.
228 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 420.
229 History of the ICSID Convention, at p. 494. See also at p. 378 (the representative from South
Africa wondered whether it was a sound principle to elevate the individual to the status of a subject of
international law).
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During the drafting, these concerns were countered by statements that a foreign
investor would have the same rights before an ICSID tribunal as if its government had
espoused its case and brought an international claim.230 Importantly, article 27 of the
Convention prevents the home state of the investor from invoking the responsibility of
the host state through the exercise of diplomatic protection in case its national, the
foreign investor, institutes proceedings under the Convention.231 On that ground, it
was argued that it would only be fair that the foreign investor would be able to invoke
the same international claims before an ICSID tribunal as its home state would when
exercising diplomatic protection.232 In the words of the South African delegate: ‘the
essential advantage of setting the proposed tribunal would be the right it gave individuals [ . . . ] to have access to international adjudication, on the same footing as his State
would have had, had it espoused his case.’233 In similar language, the Legal Advisor to
the US State Department, when expressing his support for the Convention before a US
Congressional Committee, stated that the growth of international law, which he
expected would follow from the Convention, ‘will be free from the restriction of the
traditional principle that only states and not private parties are the subject of international law’.234
As will be shown, ICSID awards give ample evidence of the applicability of
international law in ICSID proceedings. Still, not all rules of international law are
applicable to the investor–state relationship. In light of this, the statement in the Report
of the Executive Directors that allowance shall be made for the fact that article 38 of the
Statute of the ICJ was designed to apply to interstate disputes,235 should be interpreted
in concert with the phrase ‘as may be applicable’ in the second sentence of article 42(1)
to concern the precise nature of the rule at hand. More specifically, it concerns the
question whether the rule is intended to bestow the parties to the proceedings with
certain rights or obligations.236 In this vein, we refer to the following observation by the
ICSID Tribunal in LG&E Energy Corp. et al. v Argentina (2006):
[The reference] to the language ‘as may be applicable’ [ . . . ] should not be understood as if it were
in some way conditioning application of international law. Rather, it should be understood as
making reference, within international law, to the competent rules to govern the dispute at issue.

230 History of the ICSID Convention, at pp. 259, 267, 378, 406, 420.
231 See ICSID Convention (1965), art. 27(1) (‘No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another
Contracting State shall have consented to submit or shall have submitted to arbitration under this
Convention, unless such other Contracting State shall have failed to abide by and comply with the
award rendered in such dispute’).
232 See History of the ICSID Convention, fn. 54, Vol. II-1, at pp. 259, 406, 803; E. Lauterpacht,
‘The World Bank Convention’ in Recueil d’études de droit international en hommage à Paul Guggenheim
(Genève Tribune, 1968), 642, 655–6; Schreuer et al., fn. 10, at 613; Amco Asia v Indonesia, fn. 166,
Decision on Annulment, 16 May 1986 (I. Seidl-Hohenveldern, F.P. Feliciano, A. Giardina, Committee Members), 1 ICSID Rep. 509, 515 (1993).
233 History of the ICSID Convention, fn. 54, Vol. II-1, at p. 420.
234 United States Department of State, Statement of A.F. Lowenfeld, Deputy Legal Adviser
[Regarding ICSID], 28 June 1966 before the Subcommittee on International Organizations
and Movements of the Committee on Foreign Affairs, House of Representatives, reprinted in 5
I.L.M. 821, 822 (1966).
235 Report of the Executive Directors, fn. 224, at para. 40.
236 Cf. Report of the Executive Directors, at para. 26 (‘The dispute must concern the existence or
scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a
legal obligation’); ICSID Convention (1965), art. 25(1) (the dispute must be a ‘legal dispute arising
directly out of an investment’). See also Schreuer et al., fn. 10, at 613.
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This interpretation could find support in the ICSID Convention’s French version that refers to
the rules of international law ‘en la matière’.237

3.2.2.2. The Iran–United States Claims Settlement Declaration
With respect to the choice-of-law methodology of the Iran–United States Claims
Tribunal, article V of the Claims Settlement Declaration provides as follows: ‘The
Tribunal shall decide all cases on the basis of respect for law, applying such choice of
law rules and principles of commercial and international law as the Tribunal determines
to be applicable, taking into account relevant usages of the trade, contract provisions
and changed circumstances.’238
We note at the outset that the tribunal has much freedom in ascertaining the
applicable law in the absence of an agreement by the parties. As stated in CMI
International, Inc. v Ministry of Roads and Transportation and Iran (1983), ‘[i]t is
difficult to conceive of a choice of law provision that would give the Tribunal greater
freedom in determining case by case the law relevant to the issues before it.’239 Notably,
it is clear that the tribunal can apply both national law—as determined by choice-of-law
rules—and international law to the dispute.240
As to the intended relationship between national and international law; contrary to
the ICSID Convention, the preparatory work does not offer much guidance. This is
due to the fact that the Declarations were not concluded through direct negotiations.241
Recourse must therefore be had to a textual interpretation of article V of the Claims
Settlement Declaration. From the terminology ‘applicable’ ‘choice of law rules’ and
‘principles of international law’, read in conjunction with the requirement that ‘the
Tribunal shall decide all cases on the basis of respect for law’, it would seem to follow
that the tribunal should designate the applicable law by reference to objective legal
considerations. Comparing the language of article V of the Claims Settlement

237 LG&E Energy Corp. v Argentina, fn. 118, Decision on Liability, at para. 88.
238 See Iran-US Claims Settlement Declaration (1981), art. V. This wording was subsequently
incorporated as paragraph (1) in the Tribunal Rules of Procedure as article 33, which adds the
following second paragraph: ‘(2) The arbitral tribunal shall decide ex aequo et bono only if the
arbitrating parties have expressly and in writing authorized it to do so.’ This is a modified version of
article 33 of the UNICTRAL Rules. No case has been decided by the tribunal on such basis. See
C.N. Brower and J.D. Brueschke, The Iran–United States Claims Tribunal (The Hague, Nijhoff,
1998), 632.
239 CMI International, Inc. v Ministry of Roads and Transportation, Iran, 27 December 1983, 4
Iran–U.S. C.T.R. 263. Cf. Harnischfeger Corp. v Ministry of Roads & Transportation, fn. 170, Final
Award, 26 April 1985, Dissenting Opinion by Judge Mosk, 8 Iran–U.S. C.T.R. 119 (‘The Tribunal is
not bound by particular choice-of-law principles, but rather can apply whatever law it deems most
appropriate’ [references omitted]); Brower and Brueschke, fn. 238, at 632; A.F.M. Maniruzzaman,
‘International Commercial Arbitration: The Conflict of Laws Issues in Determining the Applicable
Substantive Law in the Context of Investment Agreements’ (1993) 40(2) Netherlands International
Law Review 201, 227; Crook, fn. 8, at 282.
240 Cf. M.N. Kinnear, ‘Treaties as Agreements to Arbitrate: International Law as the Governing
Law’ in International Arbitration 2006: Back to Basics? (ICCA Congress Series, 2006 Montreal Volume
13, A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer Law International, 2007), 401, 406. See
further Chapter 4, Section 3.2 (on arbitration without privity). But see Mohebi, fn. 56, at 111 (‘[T]he
qualification “respect for law” as provided for in Article V of the Claims Settlement Declaration [ . . . ]
was purported to mean only international law [ . . . ].’); see also at 368 (‘[A]ny application of municipal
law by the Tribunal is effected as a requirement of international law rather than direct applicability of
such law’).
241 See Chapter 2, Section 4.1 (on the Iran–United States Claims Tribunal). See also Mohebi,
fn. 56, at 113; Crook, fn. 8, at 281; G. Hanessian, ‘General Principles of Law in the Iran–United States
Claims Tribunal’ (1989) 27 Colum. J.T.L. 309, 311; Mouri, fn. 59, at 29, at fn. 90.
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Declaration with that of article 28 of the UNCITRAL Model Law on International
Commercial Arbitration, Mouri states:
[No one] has interpreted these provisions as empowering the arbitrator(s) to disregard completely
choice of law rules and contractual provisions. Such broad freedom in applying the law would be
tantamount to giving the arbitral body the power to re-write the contract and/or the relationship
of the parties in a way completely alien to what the latter had intended.242

This comment finds support in the award of Anaconda-Iran, Inc. v Iran (1986): the
freedom regarding applicable norms ‘is not a discretionary freedom, [ . . . ] as the
Tribunal is given a rather precise indication as to the factors which should guide its
decision’;243 and the award in Mobile Oil Iran v Iran: ‘in determining the choice of law
in a given case, the Tribunal should examine relevant legal principles and rules as well as
the specific factual and legal circumstances of the case.’244 Still, the tribunal has often
refrained from explaining its approach as to the law applicable to the merits.245 As
Judge Mosk stated in his dissenting opinion to the award Harnischfeger Corp. v Ministry
of Roads & Transport (1985):
The majority’s opinion in this case [ . . . ] might be more comprehensible if it contained a
discussion of the source of the law applied [ . . . ]. [T]here appear to be choice-of-law issues.
Indeed, in the Partial Award, the Tribunal specifically discussed its choice of law with respect to
transactions similar to those involved [ . . . ]. Yet, in the instant matter, the Tribunal gives little
indication that it considered the possibility that different law might apply to different transactions
and to different issues involved in the case. One cannot discern from the majority’s opinion how
the majority derived whatever legal principles it invokes.246

The second phrase of article V of the Claims Settlement Declaration closely resembles the
language of the ICSID Additional Facility Rules in that it refers both to choice-of-law
rules and international law.247 As noted earlier, the term choice-of-law rules generally
refers to a national system of law.248 In light of the internationalized nature of the
tribunal, it could, however, be reasoned that the reference to choice-of-law rules in the
Claims Settlement Declaration could also allow for the application of international law
when the nature of the claim ‘centres’ on the international legal order.249 In any event,

242 Mouri, fn. 58, at 31.
243 Anaconda-Iran v Iran, Interlocutory Award, fn. 58, 13 Iran–U.S. C.T.R. 199, 211–12, 232.
244 Mobile Oil Iran v Iran, Award No. 311–74/76/81/150–3, 14 July 1987, at para. 72.
245 See Crook, fn. 8, at 288 (‘Typically, the Tribunal has not articulated the rules or principles used
to determine the law applied. Instead, it has resorted to its discretion to draw from three recurring
sources: the contract, general principles of law and public international law. By far the most important
source has been the contract’). See also Brower and Brueschke, fn. 238, at 640 (the authors suggest that
the expression ‘on the basis of respect for law’ rather than ‘on the basis of law’, ‘may have been adopted
to liberate the Tribunal from tedious conflict of laws issues’. Had it read ‘on the basis of law’, they state,
it could ‘include rules of private international law, forcing the Tribunal to search for what rule must be
applied rather than what rule should be applied. This concern is clearly expressed in Article V’s grant to
the Tribunal of absolute freedom in choosing the applicable law’).
246 Harnischfeger Corp. v Ministry of Roads & Transport, Final Award, Dissenting Opinion of Judge
R.M. Mosk, fn. 239, at 141.
247 See Iran-US Claims Settlement Declaration (1981), art. V, second phrase (‘applying such choice
of law rules and principles of commercial and international law as the Tribunal determines to be
applicable’); ICSID Additional Facility Rules (2006), art. 54(1) (The tribunal shall apply ‘(a) the law
determined by the conflict of laws rules [ . . . ] and (b) such rules of international law as the Tribunal
considers applicable’).
248 See Section 3.2.2 (on the (non-) applicability of national and international law); Chapter 1,
Section 2 (on the scope of and terminology used in the study).
249 See Section 3.2.2 (on the (non-) applicability of national and international law).
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this question is moot, as the explicit mention in article V Claims Settlement Declaration of principles of international law expressly allows for this possibility.
Regarding the meaning of the term ‘principles of international law’,250 the question
may arise whether it has the same meaning as general principles of (international) law,
or whether it rather/also refers to customary international law.251 A likely interpretation
is that it refers to both. As stated by Avanessian, it has been said that the expression
‘principles of law’ is of much wider scope than ‘general principles of law’, ‘because the
latter contribute with other elements (international custom and practice which is
accepted by the law of nations) to constitute what are called the “principles of
international law.” ’252 This interpretation corresponds with the practice of the tribunal.253 The term ‘principles of international law’ also encompasses provisions of treaties
concluded between the United States and Iran, including the 1955 Treaty of Amity
between the United States and Iran.254 In Phillips Petroleum Company Iran v Iran
(1989), the tribunal stated:
The Tribunal has recognized that the Treaty of Amity, whether or not it remains in force today
between the two States, was in force in 1979 and 1980 and clearly was applicable to the investments
at issue in these Cases at the times the claims arose. Therefore, the Treaty of Amity is the relevant
source of law on which the Tribunal is justified in drawing in reaching its decision.255

3.2.3. Interim conclusions
National arbitration laws and arbitration rules developed for use by territorialized
tribunals differ with respect to the applicability of international law to a dispute in
the absence of party agreement. Some instruments use the traditional method and refer
to ‘conflict of laws rules’, terminology which seemingly allows only for the application
of national law in the absence of party agreement.
The trend, however, is to empower the tribunal to apply both national and international law. This approach—reflected in a significant number of national arbitration
laws and arbitration rules—is preferred in light of the relevance of international law to
the investor–state relationship. Undeniably, choice-of-law provisions that prevent the
application of this source of law would be under-inclusive. Especially in treaty arbitration, the ‘centre of gravity’ of the dispute will often lie in the international legal order;
and the arbitrators—taking into account both the nature of the claim and the expectations of the parties—must be able to have recourse to international law also when the
parties have not reached an agreement on the applicable law. As for internationalized
tribunals, the relevance of both sources of law is explicitly endorsed in the choice-of-law
provisions of both the ICSID Convention and the Iran–United States Claims Settlement Declaration.
Whereas the respect for the parties’ choice of either national or international law is less
remarkable in comparison with the practice of national and international courts, the default
application of international and national law by territorialized and internationalized
250 See Chapter 1, Section 2 (on the scope of and terminology used in the study).
251 Cf. Statute of the International Court of Justice, art. 38(1).
252 Avanessian, fn. 58, at 242 (references omitted). See also Mohebi, fn. 56, at 123; Crook, fn. 8, at
288; Hanessian, fn. 241, at 318.
253 See, e.g., Vera-Jo Miller Aryeh et al. v Iran, 22 May 1997, at para. 214 (and the cases mentioned
in fns 45–46).
254 Treaty of Amity, Economic Relations, and Consular Rights Between the United States of
America and Iran (1955).
255 Phillips Petroleum Company Iran v Iran (1989), at para. 103 (references omitted).
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tribunals, respectively, is innovative. As noted in Chapter 1, national and international
courts have the proclivity to restrict the application of international and national law
respectively.256 For many—if not most—of the territorialized tribunals, in contradistinction, the norms of both legal orders are in principle equally relevant. With greater
force, the same conclusion is warranted for internationalized tribunals.

3.3. Fundamental national and international norms
As was seen, arbitrators will apply the law that best protects the disputing parties’
intentions and expectations by adhering to the rule of party autonomy and by applying
the centre-of-gravity test. This private dimension of choice-of-law rules is countered by
a public dimension;257 and these exceptions of public policy and mandatory or
peremptory norms add yet another component to the interplay between national and
international law in investor–state arbitration. As one commentator explains:
Assume that the parties had themselves designated the law governing their contractual relationship or, alternatively, assume that the governing law (or rules of law) has/have been determined
by the Arbitral Tribunal: Is this then the complete answer as far as the applicable law is
concerned? The answer is: no. Indeed, a substantial and growing percentage of cases is affected
by the interference of mandatory rules of law which claim or demand to be respected or to be
applied directly, irrespective of any law or rules of law chosen by the parties or determined by the
arbitral tribunal.258

Before examining more closely the nature of these fundamental norms, we will consider
why they may have an impact on the choice-of-law methodology of territorialized and
internationalized tribunals. As for the former category of tribunals, the general freedom
they enjoy with respect to the applicable law is countered259 by the fact that a failure by
them to respect the forum’s public policy may be sanctioned with annulment.260 The
state in which enforcement of the award is sought may decline enforcement on similar
grounds.261 Accordingly, in order to ensure the enforceability of the award at hand,262
territorialized tribunals may need to set aside an otherwise applicable provision of law
when it is contrary to a fundamental norm of its juridical seat263 or of the state in which
enforcement is likely to be sought.264
256 See Chapter 1, at Section 1 (on motivations for the study).
257 Cf. H.-B. Schaefer and K. Lantermann, Jurisdiction and Choice of Law in Economic Perspective,
German Working Papers in Law and Economics (2005), 28, also available at <http://ssrn.com/
abstract=999613> (last visited 1 May 2012) (‘In Europe the lex fori, the lex loci delicti, the lex domicilii
communis are [ . . . ] clear rules. Judges opt out of these rules only in exceptional cases. They deviate
either to keep up minimum standards of justice at the constitutional as well as the sub constitutional
level (ordre public)’). See also Moss, fn. 35, at 40.
258 Blessing, fn. 18, at 228 (emphasis in original). See also Blessing, ‘Mandatory Rules of Law versus
Party Autonomy in International Arbitration’ (1997) 14(4) J. Int’l Arb. 23; Moss, fn. 35, at 5.
259 Cf. B.M. Cremades and D.J.A. Cairnes, ‘The Brave New World of Global Arbitration’ (2002)
3 J. World Investment 173, 205 (‘[D]elocalization of arbitral law has correspondingly increased the
significance of public policy as a means of control by national courts of international arbitration’).
260 See Chapter 2, Section 3.2.1.2 (on annulment as exercise of control).
261 See (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
10 June 1958, art. V(2)(b) (hereinafter New York Convention); Born, fn. 13, at 542.
262 On the possible duty of tribunals to attempt to render enforceable awards, see generally
Chapter 2, Section 3.2.3 (on the (New York) Convention on the Recognition and Enforcement of
Foreign Arbitral Awards).
263 See, e.g., Poudret and Besson, Comparative Law, fn. 20, at 609; Lew, fn. 48, at 536.
264 See, e.g., ICC Case No. 5505, Preliminary Award, 1987, 13 Y.B. Com. Arb. 110, 112 (1988)
(in order to fulfil its obligation under the ICC Rules to ensure that an award is legally enforceable, the
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With respect to internationalized tribunals, they are in principle freed from any
restrictions imposed by the public policy of their juridical seat or the state of enforcement. Instead, the international legal order in which the tribunals operate provides its
own exception to the otherwise applicable choice-of-law rules examined earlier.
According to Lipstein:
International tribunals have no lex fori, save their own. The public policy of any particular system
of law is not the basis upon which international tribunals can properly proceed. There are express
statements of the Mixed Arbitral Tribunals to the effect that they must not apply municipal
public policy, that mandatory rules of municipal law may be disregarded and that they are guided
solely by their own ‘ordre public international’.265

When the norms in question constitute jus cogens, they should be respected by
internationalized tribunals not only because they form part of the ordre public of the
international legal order;266 but also on the basis that their disregard would endanger
the award’s enforceability.267 This is because the international obligation of states
parties to the ICSID Convention and the Iran–United States Algiers Accords to
facilitate the enforcement of awards rendered by ICSID tribunals and the Iran–United
States Claims Tribunal, respectively,268 could be set aside if the award would conflict
with such peremptory norms.269

3.3.1. Public policy and mandatory rules: international public policy
In the national court context, the term ordre public possesses two distinct meanings: one
is similar to that associated with the common law concept of ‘public policy’; in civil law
arbitrators ‘should probably also deviate from the law chosen by the parties if it would appear that such
a choice, if applied by the arbitral tribunal, could prevent that the award be implemented’); P. Mayer,
‘Mandatory Rules of Law in International Arbitration’ (1986) 2 Arb. Int’l 274, 284–6. But see Poudret
and Besson, Droit comparé, fn. 33, at 706 (‘Plus discutable nous semble être la prise en compte des lois
de police du lieu où la sentence sera exécutée afin d’éviter un refus fondé sur l’ordre public de ce pays.
En effet [ . . . ] ce lieu n’est pas toujours déterminable à l’avance, le droit applicable à l’arbitrage ne
concorde pas nécessairement avec celui régissant l’exequatur et l’arbitre n’est pas garant de l’exécution,
mais de la validité de sa sentence’ [It seems more questionable to take into account the mandatory rules
of the place of enforcement so as to avoid that the award would not be enforced on the basis of the
public policy rules of that state. Indeed, [ . . . ] this place is not always determined in advance, the law
governing the arbitration is not necessarily consistent with the law governing the enforcement of the
award, and the arbitrator does not guarantee the performance, but the validity of his or her award.]
[references omitted]). Cf. H. Van Houtte, ‘The Application by Arbitrators of Articles 81 & 82 and
their Relationship with the European Commission’ in European Business Law Review Special Edition:
Arbitrating Competition Law Issues (G. Blanke, ed., Alphen aan den Rijn, Kluwer Law International,
2008), 63, 68.
265 K. Lipstein, ‘Conflict of Laws before International Tribunals: A Study in the Relation Between
International Law and Conflict of Laws’ (1941) 27 Transactions of the Grotius Society: Problems of Peace
and War, Papers Read Before the Society in the Year 1941 43, 157 (references omitted).
266 Cf. Schreuer et al., fn. 10, at 566 (‘If any theoretical justification is needed for [the] conclusion
that [ICSID tribunals must heed the public policy of the international community], it can be found in
the fact that the Convention is rooted in international law which, in a wider sense, is the lex fori of
ICSID arbitration’).
267 On jus cogens norms, see Section 3.3.2 (on peremptory norms of international law).
268 See Chapter 2, Section 4.1.2 (on the Iran–United States Claims Tribunal); Chapter 2,
Section 4.2.2 (on ICSID tribunals).
269 Cf. E. Baldwin et al., ‘Limits to Enforcement of ICSID Awards’ (2006) 23(1) J. Int’l Arb. 1,
18–20 (the authors suggest that ICSID member states could deny enforcement of ICSID awards based
on an interpretation of the Vienna Convention on the Law of Treaties, arts 31(1)(c), 61, 62). But see
Schreuer et al., fn. 10, at 1140–1 (the ‘finality of [ICSID] awards would also exclude any examination
of their compliance with international public policy or international law in general’).
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countries, the term also connotes legislative provisions that are mandatory or peremptory.270 Public policy refers to provisions that either in themselves or as a result of their
application would be manifestly repugnant to the forum’s fundamental considerations
of justice, fairness, and public morals.271 This led, for instance, an English court to
refuse to give effect to a 1941 decree of the National Socialist Government of Germany
depriving Jewish émigrés of their Germany nationality, and thereby their property.272
Whereas public policy norms function as a ‘shield’, disapplying the otherwise applicable
norms,273 mandatory rules function as a ‘sword’274 in that they ‘trump’ or override the
otherwise applicable norms.275 As recognized in the Regulation of the European
Parliament and of the Council on the Law Applicable to Contractual Obligations
(Rome I), mandatory rules are not necessarily limited to those of the forum state:
Effect may be given to the overriding mandatory provisions of the law of the country where the
obligations arising out of the contract have to be or have been performed, in so far as those
overriding mandatory provisions render the performance of the contract unlawful. In considering
whether to give effect to those provisions, regard shall be had to their nature and purpose and to
the consequences of their application or non-application.276

In the context of arbitration, and especially as concerns the right of the tribunal’s
juridical seat to annul awards and of states to deny recognition and enforcement of
awards, the terms public policy and mandatory rules have been referred to as ‘international public policy’.277 As expressly stated in the Panama Arbitration Act (1999): ‘In
case of an international commercial arbitration the public policy to be taken into
account is international public policy.’278 Whereas the term international public policy
suggests that its origin is in some way supra-national, the expression is to be understood
in the sense given to it in the field of private international law; namely, that part of the
public policy of a state which, if violated, would prevent a party from invoking a foreign
law, foreign judgment, or foreign award.279 In fact, the term is said to be no more than
domestic public policy applied to (foreign) awards, and its content and application
270 M. Forde, ‘The “Ordre Public” Exception and Adjudicative Jurisdiction Conventions’ (1980)
29 Int’l. & Comp. L. Quart. 259.
271 See A. Briggs, Conflict of Laws (Oxford, Oxford University Press, 2002), 44–5.
272 See Oppenheimer v Cattermole [1976] AC 249, 278. See also Loucks v Standard Oil Co of New
York, fn. 43, 120 NE 198, 202.
273 K. Lipstein, ‘The Hague Conventions on Private International Law, Public Law and Public
Policy’ (1959) 8(3) Int’l & Comp. L. Quart. 506, 522 (‘the function of public policy in the conflict of
laws [ . . . ] consists in the exclusion of the foreign private law which is normally applicable and in the
substitution of the private law of the forum’).
274 Cf. A. Briggs, ‘Public Policy in the Conflict of Laws: A Sword and a Shield? A Note on Kuwait
Airways Corp. v Iraq Airways Co. (Nos. 4 and 5)’ (2002) 6 Singapore Journal of International and
Comparative Law 953.
275 See Mayer, fn. 364, at 275; C. Kessedjian, ‘Mandatory Rules of Law in International Arbitration: What are Mandatory Rules?’ (2007) 18 Am. Rev. Int’l Arb. 147, 151–2.
276 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008
on the law applicable to contractual obligations (Rome I), art. 9(3). Cf. Regulation (EC) No 864/2007
of the European Parliament and of the Council of 11 July 2007 on the law applicable to noncontractual obligations (Rome II), art. 14(2); Moss, fn. 35, at 20, at fn. 27.
277 See Sacerdoti, Case T 8735–01–77, fn. 803, at 28–9. There is, however, no unanimity as to the
precise meaning of the concept. See K.-H. Böckstiegel, ‘Public Policy as a Limit to Arbitration and its
Enforcement’ (2008) Journal of Dispute Resolution (Special Issue: The New York Convention—50
Years, 11th IBA Arbitration Day and United Nations New York Convention Day 123), at section 2.
278 Panamanian Arbitration Law (1999), art. 43.
279 See International Law Association, Committee on International Commercial Arbitration, Final
Report on Public Policy as a Bar to Enforcement of International Arbitral Awards (New Delhi Session,
2002) (2002) 70 Int’l. Ass’n Rep. Conf. 352, para. 11 (hereinafter ILA New Delhi Report).
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remain subjective to each state.280 The term is, however, narrower in scope than that of
national public policy.281 Sacerdoti remarks:
These principles are not directly laid down by public international law—although some principles may be common with it, such as respect for fundamental human rights. Instead, the term
‘international’ underlines that these principles, while pertaining to the local national system, are
those that may properly be invoked in the context of international relations and intercourse in
order to prevent the application or recognition in the forum of decisions and rulings based on or
carrying out principles repugnant to basic tenets of the local legal order. Therefore, the ‘international public order’ under consideration in review of arbitral awards is understood to be much
narrower than ‘public order’ as generally invoked within a municipal system. The former is only a
subset of the latter.282

The fact that international public policy is given effect by the tribunal’s juridical seat
and the state of enforcement of the award explains the relativity of the concept: ‘What is
considered to be part of public policy in one state may not be seen as a fundamental
standard in another state with a different economic, political, religious or social, and
therefore, legal system.’283 The International Law Association (ILA) Committee on
International Commercial Arbitration has sought to bring clarity to the concept by
developing a definition enjoying wide consensus.284 It defines ‘international public
policy’ by referring to three categories.285 The first category groups together the
traditional concepts of public policy and mandatory rules.286 These are defined as
norms designed to serve the essential political, social, and economic interest of the state,
such as anti-trust/competition law.287 Secondly, it encompasses principles pertaining to
justice or morality that the state wishes to protect even when it is not directly
concerned.288 As examples, the ILA Committee refers to the principles of good faith
and pacta sunt servanda; and the prohibition against uncompensated expropriation,
abuse of rights, discrimination; and activities that are contra bonos mores, such as the
proscription against piracy, terrorism, genocide, slavery, smuggling, drug trafficking
280 World Duty Free Company Ltd v Republic of Kenya, ICSID Case No. ARB/00/7, Award,
4 October 2006 (G. Guillaume, A. Rogers, V.V. Veeder, arbs), para. 138. See also Blackaby et al.,
fn. 35, at 613–14.
281 ILA Final Report, at para. 11.
282 Sacerdoti, Case T 8735–01–77, fn. 80, at 20–1. See also at 27; A.J. van den Berg, The New York
Convention of 1958: Towards a Uniform Judicial Interpretation (The Hague, T.M.C. Asser, 1981), 360;
J.D.M. Lew, ‘Determination of Arbitrators’ Jurisdiction and the Public Policy Limitations on that
Jurisdiction’ in Contemporary Problems in International Arbitration (J.D.M. Lew, ed., London, Centre
for Commercial Law Studies, 1986), 73, 82–3.
283 Böckstiegel, fn. 277, at section 2.
284 Resolution of the ILA on Public Policy as a Bar to Enforcement of International Arbitral Awards
(2003) 19(2) Arb. Int’l 213 (hereinafter ILA New Delhi Resolution); ILA New Delhi Report, fn. 279.
See also Böckstiegel, fn. 277, at section 2.
285 ILA New Delhi Resolution, fn. 284, art. 1(d); ILA new Delhi Report, fn. 279, at para. 25.
286 For that reason, this study will include mandatory rules in the term ‘public policy’. For a
discussion of mandatory rules investment arbitration, see Mandatory Rules in International Arbitration
(G.A. Bermann and L. Mistelis, eds, Huntinton, NY, Juris Publishing, 2011) (A.K. Bjorklund,
Investment Arbitration (Chapter 8) and D.F. Donovan, Investment Treaty Arbitration (Chapter 9)).
287 ILA New Delhi Report, fn. 279, at para. 30; ILA New Delhi Resolution, fn. 284, art. 1 (d)–(e)
(referring to these rules as ‘lois de police’ or ‘public policy rules’). See also art. 3(b) (recognition or
enforcement of the award should only be denied where the tribunal’s disregard for the mandatory rule
would manifestly disrupt the essential political, social or economic interests that it protects). Other
examples include provisions currency controls; price fixing rules; environmental protection laws;
measures of embargo, blockade or boycott; and tax laws. See S. Suvanto-Luomala, ‘Party Autonomy
and the Mandatory Rules of Competition Law in International Commercial Arbitration’ TDM 1(3)
(2004) .
288 ILA New Delhi Resolution, fn. 284, art. 1(d).
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and paedophilia.289 Thirdly, the international public policy of a state includes its duty
to respect its international obligations, such as a United Nations resolution imposing
sanctions.290
A second cause of relativity is the time factor: ‘[t]he values and standards of
communities are not stable, they change and develop. So does public policy since it
is derived therefrom.’291 For instance, it has been posited that globalization, or rather
the opposition thereto, may influence the content of international public policy:
[G]lobalization has affected notions of morality and justice, and thus the content of public policy
[ . . . ]. Some nations may already, or may in the near future, consider minimum environmental
standards to be part of their public policy. Similarly, the protection of public health or cultural
sites forming part of the patrimony of humanity might in future achieve preference over pacta
sunt servanda in the hierarchy of modern international public policy. [ . . . ] Further, it seems likely
that human rights law will have a profound impact on the definition of public policy in future.292

The term ‘international public policy’ is sometimes used with another meaning,
signifying an international consensus as to universal standards and accepted norms of
conduct that must be applied in all fora.293 This concept has been referred to as
‘transnational public policy’ or ‘truly international public policy’.294 It is said that the
existence of a rule of this nature may be identified through international conventions,
comparative law, and arbitral awards;295 and that it comprises fundamental rules of
natural law, principles of universal justice, jus cogens in public international law, and the
general principles of morality accepted by ‘civilised nations’.296 Support for the applicability of the concept is found in the 1989 Resolution on Arbitration Between States,
State Enterprises or State Entities, and Foreign Enterprises by the Institute of International Law.297 Rapporteur Von Mehren observes: ‘An international order resting on
practice and consensus justifies not only the exercise by arbitrators of adjudicatory

289 ILA New Delhi Resolution, art. 1(e); ILA New Delhi Report, fn. 279, at para. 28.
290 ILA New Delhi Resolution, fn. 285, art. 1(d)–(e); ILA New Delhi Report, fn. 279, at para. 31.
See also Kessedjian, fn. 275, at 149 (‘As far as content is concerned, whether it is protected via
mandatory rules or public policy, we probably will agree that matters touching to corruption, fraud,
bribery, money laundering, trafficking in human persons and body parts, and other activities abhorrent
to human dignity are covered. But it may also be fair to say that norms in the field of consumer
protection, labor, and perhaps some rules of agency and distributorship, may also be included in the
meaning of mandatory rules and public policy’ [references omitted]). See also Schreuer et al., fn. 10, at
566 (referring to the prohibition of slavery; piracy; drug trade; terrorism and genocide; the protection
of basic principles of human rights; and the prohibition on preparing and waging an aggressive war).
291 Böckstiegel, fn. 277, at section 2. See also Moss, fn. 35, at 33.
292 Cremades and Cairnes, fn. 259, at 205–6.
293 World Duty Free, fn. 280, Award, at para. 139.
294 World Duty Free, at paras 139–140 (referring to P. Lalive, Transnational (or Truly International)
Public Policy and International Arbitration, ICCA Congress Series n 3 (1986), 257 and jurisprudence).
See also D.G. Terez (Reporter), ‘International Commercial Arbitration and International Public
Policy’ (8–11 April 1987) 81 Am. Soc’y Int’l L. Proc. 372, 379 (referring to three levels of public
policy suggested by Kessedjian); P. Mayer, ‘Effect of International Public Policy in International
Arbitration?’ in Pervasive Problems in International Arbitration (L.A. Mistelis and J.D.M. Lew, eds, The
Hague, Kluwer Law International, 2006), 61; M. Pryles, ‘Reflections on Transnational Public Policy’
(2007) 24–1 J. Int’l Arb. 1.
295 World Duty Free, fn. 280, at para. 140 (referring to E. Gaillard, ‘Trente ans de Lex Mercatoria—
Pour une application sélective de la méthode des principes généraux de droit’ (1995) 122 Journal du
droit international 5).
296 See ILA New Delhi Report, fn. 279, at para. 43; Blessing, fn. 18, at 266; D.J.A. Cairns,
‘Transnational Public Policy and the Internal Law of State Parties’ (September 2007) 10 Arab
J. Arb. 27.
297 IIL, Santiago de Compostela Resolution, fn. 62.
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Choice-of-Law Rules

101

authority that does not flow from a single identifiable sovereign but also the limitation
on party autonomy contained in Article 2 of the resolution.’298 This article provides
that ‘[i]n no case shall an arbitrator violate principles of international public policy as to
which a broad consensus has emerged in the international community’.299 In 2002,
however, the International Law Association noted that there appears to be little support
amongst state courts for the application of the concept ‘transnational public policy’.300
In Chapters 5 and 6, we will explore the potential impact of the international public
policy of three types of states on the choice-of-law methodology of territorialized
tribunals: (i) the state constituting their juridical seat; (ii) the state in which enforcement of awards is sought; and (iii) the host state, being the state most closely connected
with the subject-matter of the dispute.301 Also to be discussed is the possible relevance
of these fundamental norms for internationalized tribunals.302

3.3.2. Peremptory norms of international law
In public international law, it is generally recognized that a norm that would normally
be applicable to the dispute, be it international or national in nature, may be set aside or
overruled by a peremptory rule of the international legal order, also called jus cogens.303
This concept is linked to article 53 of the Vienna Convention on the Law of Treaties,
which provides that ‘[a] treaty is void if, at the time of its conclusion, it conflicts with a
peremptory norm of general international law’.304 The same provision defines a jus
cogens norm as one ‘accepted and recognized by the international community of States
as a whole as a norm from which no derogation is permitted and which can be modified
only by a subsequent norm of general international law having the same character’.305

298 A.T. von Mehren, ‘Arbitration between States and Foreign Enterprises: The Significance of
the Institute of International Law’s Santiago de Compostela Resolution’ (1990) 5(1) ICSID RevFILJ 54, 57.
299 IIL, Santiago de Compostela Resolution, fn. 62, art. 2. See also I.F.I. Shihata, ‘The Institute of
International Law’s Resolution on Arbitration between States and Foreign Enterprises—A Comment’
(1990) 5(1) ICSID Rev.-FILJ 65, 66 (preferring a reference to jus cogens).
300 See ILA New Delhi Report, fn. 279, at para. 43. See also Pryles, fn. 294, at 7; Terez, fn. 294, at
379–80.
301 See Chapter 5, Section 3.2.2 (on the supervening role of international law); Chapter 6,
Section 3.2.2 (on the supervening role of national law). Cf. M. Blessing, Mandatory Rules of law versus
Party Autonomy in International Arbitration, fn. 258, at 26–7 (‘[T]he interfering mandatory rules may
be of a very different character [ . . . ]. The interfering rules might pertain either: (i) to the proper law of
the contract (lex causae); or (ii) to the law governing at the place of arbitration (lex fori); or (iii) to a the
legal order of a third country; or (iv) to a supranational order, such as e.g. resolutions of the UN
Securities [sic] Council, EU competition laws, other norms pertaining to an international public
policy; or (v) to the legal order governing at the potential place where enforcement of the award might
have to be sought’ [references omitted]).
302 See Chapter 5, Section 3.2.2 (on the supervening role of international law); Chapter 6,
Section 3.2.2 (on the supervening role of national law).
303 See Study Group of the International Law Commission, Fragmentation of International Law:
Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study
Group of the International Law Commission at its 58th Session (finalized by M. Koskenniemi),
13 April 2006, A/CN.4/L.682, at paras 361 et seq.
304 Vienna Convention on the Law of Treaties, 23 May 1969, art. 53. See also Report of the
Proceedings of the Committee of the Whole, 21 May 1968, U.N. Doc. A/Conf. 39/11 at 471–2;
Vienna Convention on the Law of Treaties Between States and International Organizations or
Between International Organizations, 21 March 1986, art. 53; A. Orakhelashvili, Peremptory Norms
in International Law (Oxford, Oxford University Press, 2006).
305 Vienna Convention on the Law of Treaties (1969), art. 53. See also arts 64 and 71.
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102

Choice-of-Law Rules

Article 53 reflects customary international law; and it does not only apply to conflicting
treaty provisions, but also to other sources of international law.306
Although the precise concept and scope of jus cogens remain controversial,307 its
existence is commonly not questioned.308 As to the rules it is said to comprise, they
overlap to some extent with those of the term international public policy as it applies
to territorialized tribunals:309 the prohibition against aggression, genocide, slavery,
racial discrimination, crimes against humanity and torture, and the right to selfdetermination.310
In the context of hierarchically higher norms of international law, brief mention
should also be made of article 103 of the United Nations Charter, which provides that
‘[i]n the event of a conflict between the obligations of the Members of the United
Nations under the present Charter and their obligations under any other international
agreement, their obligations under the present Charter shall prevail’.311 The potent role
of UN resolutions is expressly recognized in the Canadian Model Investment Treaty:
‘Nothing in this Agreement shall be construed [ . . . ] to prevent any Party from taking
action in pursuance of its obligations under the United Nations Charter for the
maintenance of international peace and security.’312
Peremptory norms of international law may influence the choice-of-law methodology of both territorialized and internationalized tribunals.313 We will discuss this
further in Chapter 5.314
306 See Restatement (Third) of the Foreign Relations Law of the United States } 102 cmt. k (2)
(1987); U. Linderfalk, ‘The Effect of Jus Cogens Norms: Whoever Opened Pandora’s Box Did You
Ever Think about the Consequences?’ (2007) 18 Eur. J. Int’l L. 853, 854.
307 Cf. Linderfalk, fn. 306, at 854–5.
308 See T. Koji, ‘Emerging Hierarchy in International Human Rights and Beyond: From the
Perspective of Non-derogable Rights’ (2001) 12(5) Eur. J. Int’l L. 917, 918 (‘Since the adoption of
the Vienna Convention on the Law of Treaties (1969), the existence of jus cogens has been unquestionable, even for positivists, but the nature and scope of this concept remain unclear’).
309 See Section 3.3.1 (on public policy and mandatory rules).
310 See E. de Wet, ‘The International Constitutional Order’ (January 2006) 55 ICLQ 51, 59
(‘Although the number of norms having achieved jus cogens status remains limited, most of those
which are recognized as such, namely the prohibition of genocide, torture, slavery and racial discrimination, are human rights norms’ [references omitted]); Restatement (Third) of the Foreign Relations
Law of the United States } 102, Reporters Notes 6 (1987) (referring to the principles of the
U.N. Charter prohibiting the use of force; as well as rules prohibiting genocide, slave trade and slavery,
apartheid and other gross violations of human rights). See also Roach and Pinkerton v US, Case 9647,
Inter-Am. C.H.R. 147, OEA/ser. L./V./II.71, doc. 9 rev. 1 (1987) (on the concept of regional jus
cogens).
311 United Nations Charter, art. 103. See also D. Shelton, ‘International Law and “Relative
Normativity” in International Law (M.D. Evans, ed., Oxford, Oxford University Press, 2006), 159,
178 (article 103 of the UN Charter ‘has been taken to suggest that the aims and purposes of the United
Nations—maintenance of peace and security and promotion and protection of human rights—
constitute an international public order to which other treaty regimes and the international organizations giving effect to them must conform’ [emphasis added]); Study Group of the International Law
Commission, fn. 303, at paras 328 et seq.; Study Group of the International Law Commission, 18 July
2006, UN Doc A/CN.4/L.702, at para. 35.
312 Canadian Model Investment Treaty (2004), art. 10(4)(c). See also D.F. Donovan, ‘The
Relevance (or Lack Thereof) of the Notion of “Mandatory Rules of Law” to Investment Treaty
Arbitration’ (2007) 18(1/2) Am. Rev. Int’l Arb. 205, 208 (‘While it is quite difficult to contrive a
context in which a jus cogens norm would conflict with a state obligation under a BIT, it is a bit easier
to come up with such a scenario for U.N. Charter obligations’).
313 Cf. M. Hirsch, ‘Interactions Between Investment and Non-Investment Obligations’ in The
Oxford Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University
Press, 2008), 155, 157–9.
314 See Chapter 5, Section 3.2.2.1 (on the supervening role of international law when the parties
have agreed to the sole application of national law).
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General Conclusions

103

4. General Conclusions
Based on the foregoing, it can be concluded that with respect to choice-of-law
methodology, territorialized tribunals should look to the framework set out in the
national law of their juridical seat. Yet, in light of the non-mandatory nature of choiceof-law rules stipulated in national arbitration laws, and as sometimes explicitly set forth
in those laws, the arbitrators should apply the choice-of-law rules agreed to by the
disputing parties, such as those included in arbitration rules to which the parties have
referred. Contrariwise, internationalized tribunals are not bound to apply the choice-oflaw rules of the seat; rather, they apply the provisions contained in their constituent
document, i.e. the Iran–United States Claims Settlement Declaration and the ICSID
Convention, supplemented by general rules of international law.
Having examined national arbitration laws, arbitration rules, the Iran–United States
Claims Settlement Declaration, and the ICSID Convention, we found that these
instruments give the parties and the arbitrators much freedom as concerns the law
applicable to the merits of the dispute. Thus, the parties may agree to the application of
national or international law; and frequently, a combination of both.
Moreover, the trend is to allow both territorialized and internationalized tribunals to
apply either national and/or international law to the dispute in the absence of a choice-oflaw agreement by the parties. It was also observed that the application of both sources of
law may reflect the private dimension of choice-of-law rules by virtue of the adherence
by arbitrators to the doctrine of party autonomy and the centre-of-gravity test.
Considering further that the freedom enjoyed by the arbitral tribunals is tempered by
a public dimension through the concepts of public policy and mandatory and peremptory norms of both a national and an international nature, the stage is thereby set for a
sui generis possibility for interplay between the national and the international legal
orders. We will examine this interplay more fully in Chapters 5 to 7, dedicated to
arbitral practice.

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4
The Scope of the Arbitration Agreement:
Claims and Counterclaims of a National
and/or International Nature
The limits of this honorable commission are found and only found in the
instrument which created it [ . . . ]. An arbitral tribunal is one of large and
exclusive powers within its prescribed limits, but it is as impotent as a morning
mist when it is outside these limits.1

1. Introduction
In the previous chapter, we saw that choice-of-law rules frequently allow for the
application of national and international law to the merits of investment disputes
between foreign investors and host states. As for the tribunals’ choice-of-law methodology, we also observed that the doctrine of party autonomy may serve to limit the
application of national or international law, depending on whether the parties have
reached an agreement on the sole application of international or national law,
respectively.
Another factor that influences the choice-of-law methodology of investment tribunals relates to the arbitration agreement entered into between the disputing parties.
This agreement sets out the kind of disputes that the parties have agreed shall be settled
by arbitration; and tribunals must act within the bounds of this agreement, on which
rests its jurisdiction ratione materiae.2 Otherwise, the award rendered runs the risk of
annulment and non-enforcement,3 which is consistent with the consensual nature of
arbitration.4 This chapter examines the consequences the arbitration agreement may
have for the decision of tribunals to apply national or international law to the merits of
the dispute. Briefly stated, this depends on whether the agreement in question allows
for the bringing of claims of a national and/or international nature. The choice-of-law
technique of characterization assists tribunals in classifying claims as national or
international; and it will therefore be considered first (Section 2).
As will be demonstrated in Section 3, some arbitration agreements have a broad
scope, extending the tribunals’ jurisdiction to claims of both a national and an
international nature. Other, more narrowly worded arbitration agreements encompass

1 French Company of Venezuelan Railroads case (1905), Ralston’s Report, p. 367, at p. 444, cited
in B. Cheng, General Principles of Law as Applied by International Courts and Tribunals (London,
Stevens, 1953), 259.
2 See Chapter 2, Section 2 (on features of the arbitral process).
3 See Chapter 2, at Section 3.2.1.2 (on annulment as an exercise of control); Section 3.2.3 (on the
(New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards); and
Section 4.2.1 (on ICSID tribunals’ insulation from the law of the seat).
4 See N. Blackaby et al., Redfern and Hunter on International Arbitration (Oxford, Oxford University
Press, 2009), 340.
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106

The Scope of the Arbitration Agreement

solely national or international claims. In these latter cases, the power of the tribunal to
apply national and/or international law will be restricted, in line with the nature of the
claim(s) brought before it.
The jurisdiction and admissibility of host state counterclaims in investment (treaty)
arbitration also influence the possibility of tribunals to settle claims of a national nature.
We will discuss this topic separately in Section 4. In particular, we will consider
whether the requirement of connexity between the counterclaim and the initial claim
constitutes an obstacle for the host state to bring claims based in national law against
investor claims based on alleged treaty violations.

2. Characterization: The National or International
Nature of Claims
Characterization (or classification) refers to the process of assigning a factual situation
to its proper legal category.5 While it is beyond the scope of this study to analyse in
detail the multiple and often controversial facets of characterization,6 and before
focusing on characterization in the context of investment arbitration, it is noted that
the choice-of-law rules of many, if not all, states recognize that a decision to apply the
law of either the forum state or a third state may depend on whether the issue at hand is
one of contracts, torts, succession, property, etc. On the necessity for national courts to
classify the cause of action, North and Fawcett state:
[H]aving satisfied itself that it possesses jurisdiction,7 the court must next determine the juridical
nature of the question that requires decision. Is it, for instance, a question of breach of contract or
the commission of a tort? Until this is determined, it is obviously impossible to apply the
appropriate rule for the choice of law and thus to ascertain the applicable law.8
5 See American Law Institute, Restatement (Second) of Conflict of Laws } 7, Comment b (1971)
(‘Characterization is an integral part of legal thinking. In essence, it involves two things: (1) classification of a given factual situation under the appropriate legal categories and specific rules of law, and (2)
definition or interpretation of the terms employed in the legal categories and rules of law. The factual
situation must be classified to determine under what legal categories and rules of law it belongs.
Likewise, the terms employed in the legal categories and rules of law must be interpreted in order that
the factual situation may be placed under the appropriate categories and that the rules of law may
properly be applied’); S. Bhuiyan, National Law in WTO Law: Effectiveness and Good Governance in the
World Trading System (Cambridge, Cambridge University Press, 2007), 125.
6 Cf. C.M.V. Clarkson and J. Hill, Jaffey on the Conflict of Laws (2002), 523–4 (‘Classification has
been the subject of a great deal of academic discussion. There are various kinds of problems of
classification which can arise, and, indeed, one of the main points of academic disagreement in a
particular case may be over what it is that has to be characterised: the facts, the cause of action, the legal
issue, rules of domestic law or rules of foreign law’); Case Concerning Oil Platforms (Iran v United States
of America), Judgment, 6 November 2003, Declaration of Vice-President Ranjeva, at para. 6 [2003]
ICJ Rep. 161, 221, at para. 6 (‘Defining the “cause” of a claim—the underlying reason therefor—is a
controversial issue in doctrine because of the notion’s malleable character and metaphysical connotations’); F. Marrella, ‘Choice of Law in Third-Millennium Arbitrations: The Relevance of the UNIDROIT Principles of International Commercial Contracts’ (2003) 36 Vand. J. Transnat’l L. 1137,
1148 (‘Arbitral case law has so far not offered sharp solutions to this classical problem and pragmatism
of arbitrators has been used to escape from these complex issues’).
7 Characterization may also have jurisdictional implications. See e.g., M. Decker, ‘Contract or Tort:
A Conflict of Characterisation’ (1993) 42–2 Int’l & Comp. L.Q. 366, 367 (‘The distinction between
contract and tort is also, of course, important for jurisdictional purposes. Under the Brussels and
Lugano Conventions, jurisdiction in contract may be exercised by the courts of the place of performance of the obligation in question (Article 5(1)), and in matters relating to tort, by the courts of the
place where the harmful event occurred (Article 5(3))’) (footnote not in original).
8 P.M. North and J.J. Fawcett, Cheshire and North’s Private International Law (London, Butterworths, 1996), 43.
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Characterization: The National or International Nature of Claims

107

In consequence, characterization may require resort to the choice-of-law technique of
dépeçage, which allows a court or tribunal to apply, in one and the same case, norms
stemming from different legal orders, depending on the nature of the issues at hand.9
It is also noted that the technique of characterization is also used by international
courts and tribunals. The Permanent Court of International Justice stated in the Case
Concerning the Payment of Various Serbian Loans Issued in France (1929): ‘the question
whether it is French law which in this case governs the contractual obligations [ . . . ] is a
question of private international law which the Court [ . . . ] must decide by reference to
the actual nature of the obligations in question and to the circumstances attended upon
their creation [ . . . ].’10
Whereas domestic courts frequently apply the rules of characterization provided by
their lex fori,11 arbitral tribunals are, as a rule, not so bound.12 Rather, in case the parties
have not entered into a choice-of-law agreement, territorialized tribunals are directed to
apply, for instance, ‘the law determined by the conflict of laws rules which it considers
applicable’13 or ‘the rules of law which it determines to be appropriate’.14 We recall
from Chapter 3 that these formulations allow tribunals to seek guidance in what have
been termed general principles of private international law;15 and as a result, both
territorialized tribunals and internationalized tribunals may resort to these general
principles for characterization purposes.16
9 Cf. V. Heiskanen, ‘Forbidding Dépecage: Law Governing Investment Treaty Arbitration’ (2009)
32 Suffolk Transnat’l L. Rev. 367, 397 (‘[A] dépeçage of the governing law may also arise in the context
of the merits of the claim. Indeed, this is implicit, for instance, in the language of Article 42(1) of the
ICSID Convention, which sets out the substantive law applicable before an ICSID tribunal [ . . . ]’);
Y. Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’ in Arbitration Under International Investment Agreements: A Guide to the Key Issues (K. Yannaca-Small, ed., Oxford, Oxford
University Press, 2010), 191, 204. Cf. Case Concerning the Payment of Various Serbian Loans Issued in
France, PCIJ, Ser. A., No. 20, 1929, Judgment No. 14, 12 July 1929, at 41 (‘[I]t should be observed
that even apart from rules of public policy, it is quite possible that the same law may not govern all
aspects of the obligation’); W.L.M. Reese, ‘Dépeçage: A Common Phenomenon in Choice of Law’
(1973) 73(1) Columbia Law Review 58.
10 Case concerning the Payment in Gold of Brazilian Federal Loans Contracted in France, Judgment
No. 15, 12 July 1929, PCIJ, Ser. A., No. 21, 1929, at 121 (emphasis added). See also Serbian Loans
Case, fn. 9, Judgment, at 41–2.
11 See G.C. Moss, ‘International Arbitration and the Quest for the Applicable Law’ (2006) 8(3)
Global Jurist 7. See also Marrella, fn. 6, at 1148–9 (for characterization purposes, domestic courts may
also use the lex causae approach or they can resort to general principles of law); F. De Ly, ‘Concluding
Remarks’ in Interest, Auxiliary and Alternative Remedies in International Arbitration (Dossier of the ICC
Institute of World Business Law, 2008), 237, 239 (‘If one were to makes a comparison with domestic
courts, characterization may be operated in accordance with the lex fori, the lex causae or autonomously, with conflict of laws having a clear preference for characterization according to the local law of
the court unless there is uniform law that may indicate a more autonomous approach’).
12 See Chapter 3, Section 2 (on the absence of party agreement on the applicable law). Cf.
B. Goldman, ‘Les conflits de lois dans l’arbitrage international de droit privé’ (1963-II) 109 Recueil
des Cours 422.
13 See, e.g., United Nations Commission on International Trade Law (UNCITRAL), UNCITRAL
Model Law on International Commercial Arbitration (with amendments as adopted in 2006, with
Explanatory Note), art. 28(2).
14 See, e.g., UNCITRAL Arbitration Rules (as revised in 2010), art. 35(1); Rules of Arbitration of
the International Chamber of Commerce (in force as from 1 January 2012), art. 21 (hereinafter ICC
Arbitration Rules), art. 17(1). See also Chapter 3, Section 3.2.1 (on the indirect and direct method of
ascertaining the applicable law).
15 See Chapter 3, Section 3.2.2 (on the (non-) applicability of national and international law).
16 Cf. Moss, fn. 11, at 8; Marrella, fn. 6, at 1152; K. Lipstein, ‘Conflict of Laws Before
International Tribunals: A Study in the Relation Between International Law and Conflict of Laws’
(1941) 27 Transactions of the Grotius Society: Problems of Peace and War, Papers Read Before the Society
in the Year 1941 143, 158–9.
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108

The Scope of the Arbitration Agreement

A further difference with national courts is that the latter generally resort to
characterization in order to determine which national law should be applied to the
merits. In investment arbitration, the question is normally whether the national law of
the host state or international law is applicable.17 Characterization may assist investment tribunals in providing an answer to that question, and this is where it takes on
significance in the context of this study.18 In particular, the applicable law may depend
on whether an issue or cause of action should be construed as contractual or noncontractual in nature.19 In short, such classification is determined by the source of the
right (and corresponding obligation) relied upon by the claimant (or counter-claimant)
vis-à-vis the respondent (or claimant). When a claimant relies on a right set forth in a
contract, the cause of action is contractual in nature. Contrariwise, where the right in
question finds its source outside the contract, it should be characterized as non- or
extra-contractual. For this reason, characterization is also referred to as ‘cause-of-action’
analysis.20
What is important for our purposes, and as will be discussed and illustrated in detail
in Chapter 5 to 6, is that contractual claims (and counterclaims) often require the
application of national law,21 while non-contractual claims may be based in both
national and international law.22 For instance, a foreign investor whose property has
been expropriated without compensation may rely on a provision in national law that
requires compensation for expropriation; but the investor may also rely on a provision
in an investment treaty or customary international law. In addition, it is possible that
the contract at hand explicitly prohibits expropriation; and in such a case, the investor
will be able to seek a contractual remedy.23 Illustrative of the various rights that may be
invoked (contractual and non-contractual claims of both a national and an international nature) is the following excerpt from Duke Energy Electroquil Partners &
Electroquil S.A. v Republic of Ecuador (2008):
17 Cf. C. McLachlan, ‘Investment Treaty Arbitration: The Legal Framework’ in 50 Years of the New
York Convention (ICCA Congress Series no 14, A.J. van den Berg, ed., Kluwer, Alphen aan den Rijn,
Kluwer Law International, 2009), 95, 114. See also Chapter 1, Section 2 (on the scope of and
terminology used in the study); Chapter 3, Section 3.2.2 (on the (non-) applicability of national and
international law).
18 Cf. McLachlan, fn. 17, at 113 (‘The starting-point for the analysis, as in private international law,
is the identification and characterization of the particular issue to which the legal rule is to be applied,
and the selection of the legal system which properly applies to the determination of that issue’
[emphasis in original; references omitted]).
19 Cf. Maffezini v Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000 (F.O. Vicuña,
T. Buergenthal, M. Wolf, arbs) (the tribunal applied international and Spanish law depending on the
nature of the specific issue at hand, substantive or procedural).
20 Cf. Z. Douglas, ‘Nothing if not Critical for Investment Treaty Arbitration: Occidental, Eureko
and Methanex’ (2006) 22(1) Arb. Int’l. 27, 40.
21 See Chapter 5, Section 2.3.1 (on contractual claims). It is noted that this is a general rule which is
set aside where the parties have made an agreement to the contrary. See Chapter 3, Section 3.1.1 (the
parties may stipulate the application of national and/or international law); Chapter 6, Section 2.1.1 (on
express or implied ‘internationalization’ of investment contracts).
22 See Chapter 5, Section 2.3.2 (on non-contractual claims); Chapter 6, Section 2.2 (on the
international nature of the claim). Again, the parties may specifically agree to the application of
national and/or international law. See Chapter 3, Section 3.1.1 (the parties may stipulate the application of national and/or international law).
23 See B.M. Cremades and D.J.A. Cairns, ‘Contract and Treaty Claims and Choice of Forum in
Foreign Investment Disputes’ in Arbitrating Foreign Investment Disputes: Procedural and Substantive
Legal Aspects (N. Horn and S. Kröll, eds, The Hague, Kluwer Law International, 2004), 325, 328;
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana,
Award on Jurisdiction and Liability, 27 October 1989. See also Section 3.1 (on arbitration with
privity); Chapter 1, Section 2 (on the scope of and terminology used in the study).
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Characterization: The National or International Nature of Claims

109

The Tribunal has found that [the host state] violated the [Power Purchase Agreements’] provisions
and Ecuadorian law [ . . . ] [T]he Tribunal will [now] determine whether such violations, together
with Ecuador’s conduct in relation to the claims covered by the Arbitration Agreement, constitute
breaches of the applicable principles of international law and, in particular, of the BIT standards.24

In light of the consequences that characterization may have for jurisdiction purposes as
well as the applicable law,25 an important question that arises is whether it is sufficient
for the investor to characterize its claim in light of an international norm, such as
wrongful expropriation contrary to the investment treaty at hand, or whether it falls
upon the tribunal to ascertain the ‘true’ nature of the claim in accordance with objective
criteria.26 Arbitral tribunals and scholars have in this context generally focused on the
difference between contract and treaty claims, the source of the right invoked being a
contract or a treaty respectively.27 As observed by the ICSID Tribunal in PSEG Global,
Inc. v Turkey (2007), this issue is not without contention: ‘The difference between
contract-based claims and treaty-based claims has been discussed by various international arbitral tribunals [ . . . ]. Where to draw the line, however, is not easy in
practice as has been evidenced by the discussion of these various cases.’28 And, states
Crawford: ‘we do not have a jurisprudence constante in relation to [ . . . ] the relation
between treaty and contract.’29
Still, some emerging trends are discernible. For instance, it is recognized that for
purposes of jurisdiction, characterization is primarily for the claimant.30 Nonetheless,
the importance of applying objective criteria has been emphasized both in scholarship31
24 Duke Energy Electroquil Partners & Electroquil S.A. v Republic of Ecuador, ICSID Case No. ARB/
04/19, Award, 18 August 2008 (G. Kaufmann-Kohler, E.G. Pinzón, A.J. van den Berg, arbs), para. 311.
25 Cf. G. Sacerdoti, Case T 8735–01–77, The Czech Republic v CME Czech Republic B.V., Svea
Court of Appeal (expert legal opinion for CME) TDM 2(5) (2005), at 39 (‘[T]he type of claim made
(contractual right, right under the law of the host State or breach of the treaty) has a decisive influence
as to the legal provisions (contractual, statutory or international) that must be resorted to by the arbitral
tribunal in order to pass upon the claim and solve the dispute’).
26 See generally B.S. Vasani and T.L. Foden, ‘Burden of Proof Regarding Jurisdiction’ in Looking to
the Future: Essays on International Law in Honor of W. Michael Reisman (M.H. Arsanjani et al., eds,
Leiden, Nijhoff, 2011).
27 See Cremades and Cairns, fn. 23, at 326; J.J. van Haersolte-van Hof and A.K. Hoffmann, ‘The
Relationship Between International Tribunals and Domestic Courts’ in Oxford Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 962, 966;
Azurix v Argentina, Decision on Jurisdiction, 8 December 2003 (A.R. Sureda, E. Lauterpacht, D.
H. Martins, arbs), para. 79.
28 PSEG Global Inc., The North American Coal Corporation, and Konya Ilgin Elektrik Üretim ve
Ticaret Limited Sirketi, ICSID Case No. ARB/02/5, Decision on Jurisdiction, 4 June 2007
(F.O. Vicuña, L.Y. Fortier, G. Kaufmann-Kohler, arbs), paras 170–171.
29 J. Crawford, ‘Similarity of Issues in Disputes Arising under the Same or Similarly Drafted
Investment Treaties’ in Precedent in International Arbitration (E. Gaillard and Y. Banifatemi, eds,
Huntington, NY, Juris Publishing, IAI Series No. 5, 2008), 97, at sentence preceding fn. 15
[references omitted]).
30 See C. Schreuer, ‘Investment Arbitration: A Voyage of Discovery’ (2005) 71 Arbitration 73, 76
(‘Most tribunals have held that, in principle, the characterisation of the claim for purposes of
jurisdiction is undertaken by the claimant. The tribunal will decide on the accuracy of this provision
characterisation in its decision on the merits’); SGS Société Générale de Surveillance, S.A. v Pakistan,
ICSID Case No. ARB/01/13, Decision on Jurisdiction, 6 August 2003 (F.P. Feliciano, A. Faurès,
J.C. Thomas, arbs), para. 145.
31 See Douglas, fn. 20, at 40; Douglas, The International Law of Investment Claims (Cambridge,
Cambridge University Press, 2009), 263 (Rule 27); Douglas, ‘The Hybrid Foundations of Investment
Treaty Arbitration’ (2003) 74 Brit. Y.B. Int’l L. 151, 236–89; C. Schreuer, ‘Investment Treaty
Arbitration and Jurisdiction over Contract Claims: The Vivendi I Case Considered’ in International
Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and
Customary International Law (T. Weiler, ed., London, Cameron May, 2005), 281, 322.
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110

The Scope of the Arbitration Agreement

and by arbitral tribunals. For example, the ICSID Tribunal in Pan American Energy v
Argentina (2006) stated that whereas a claimant should demonstrate that prima facie32
its claims, as formulated, fit into the jurisdictional parameters set out by the relevant
instrument, ‘labelling is not enough. For, if everything were to depend on characterisations made by a claimant alone, the inquiry to jurisdiction and competence would be
reduced to naught, and tribunals would be bereft of the compétence de la compétence
enjoyed by them [ . . . ].’33 As stated by a different tribunal: ‘[T]here comes a time when
it is no longer sufficient merely to assert that a claim is founded on the Treaty. The
Tribunal must determine whether the claim truly does have an autonomous existence
outside the contract.’34
One test that has been used for characterization purposes is the ‘Vivendi test’,35
named after the decision on annulment by the ICSID ad hoc committee in Compañía
de Aguas del Aconquija, SA and Vivendi Universal v Argentina (2002), and which
referred to the ‘essential’ or ‘fundamental basis’ of the claim.36 While valuable, this
test is not unambiguous. Sole Arbitrator Paulsson stated in Pantechniki S.A. Contractors
& Engineers v Republic of Albania (2009):
Albania [ . . . ] has sought to synthesise the precedents to the effect that claims have the same
‘essential basis’ if they have the same factual predicates and request the same relief; it is not
permissible merely to reformulate local contractual claims [ . . . ]. I am not persuaded that such
generalities are helpful in deciding individual cases. The same facts can give rise to different legal
claims. The similarity of prayers for relief does not necessarily bespeak an identity of causes of
action. What I believe to be necessary is to determine whether claimed entitlements have the
same normative source. But even this abstract statement may hardly be said to trace a bright line
that would permit rapid decision. The frontiers between claimed entitlements are not always
distinct. Each situation must be regarded with discernment.37
32 See A. Sheppard, ‘The Jurisdictional Threshold of a Prima-facie Case’ in Oxford Handbook of
International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 932,
960 (‘The prima-facie test is firmly established as the threshold test for establishing jurisdiction ratione
materiae in investment treaty cases. The formulation of the approach and of the prima-facie test, which
appears to find most favour, is the following: The tribunal should be satisfied that, if the facts alleged by
the claimant ultimately prove true, they would be capable of falling within (or coming within) (or
constituting a violation of) the provisions of the investment treaty’).
33 Pan American Energy LLC and BP Argentina Exploration Company v Argentine Republic, ICSID
Case No. ARB/03/13, Decision on Preliminary Objections, 27 July 2006 (L. Caflisch, B. Stern, A.
J. van den Berg, arbs), para. 50. See also at para. 51 (‘[T]he claims made in the present case must be
taken as they are by the Tribunal at this stage of the proceedings, whose only task it is, in the present
phase of the proceedings, to determine whether, as formulated, they fit into the jurisdictional
parameters set out by the relevant treaty instrument or instruments. This is so because in that phase,
tribunals deal with the nature and scope of claims and not with the question of whether they are to
succeed’ [emphasis added]).
34 Pantechniki S.A. Contractors & Engineers v Republic of Albania, ICSID Case No. ARB/07/21,
Award, 30 July 2009 (J. Paulsson, sole arb.), para. 64; see also at para. 61; El Paso v Argentina, ICSID
Case No. ARB/03/15, Decision on Jurisdiction, 27 April 2006 (L. Caflisch, B. Stern, P. Bernardini,
arbs), para. 60.
35 Douglas, fn. 20, at 39.
36 Compañía de Aguas del Aconquija, SA and Vivendi Universal v Argentina, ICSID Case ARB/97/3,
Decision on Annulment, 3 July 2002 (L.Y. Fortier, J.R. Crawford, J.C.F. Rozas, arbs), para. 98. Cf.
Woodruff case, American-Venezuelan Mixed Commission, 1903, IX Reports of International Arbitral
Awards 213, 223 (1903–1905) (referring to the ‘fundamental basis of the claim’). See further Section 3.2
(on arbitration without privity). Cf. Occidental Exploration and Production Company v the Republic of
Ecuador, LCIA Case No. UN3467, Final Award, 1 July 2004, para. 57; Gustav F W Hamester GmbH &
Co KG v Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010 (B. Stern, B. Cremades,
T. Landau, arbs), para. 329. See also van Haersolte-van Hof and Hoffmann, fn. 27, at 964–6.
37 Pantechniki v Albania, fn. 34, at paras 61–62. See also M. Dimsey, The Resolution of International
Investment Disputes: Challenges and Solutions (Utrecht, Eleven International, 2008), 53.
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Characterization: The National or International Nature of Claims

111

While the necessity of a case-by-case analysis should not be underestimated, we do note
the following helpful criteria suggested by Cremades and Cairns in order to distinguish
a treaty claim from a contract claim arising in the context of the same dispute.38 First,
and in line with Paulsson’s suggestion,39 they address the source of the right in
question; and they rightly observe that ‘while the basis (or “cause of action”) of a treaty
claim is a right established and defined in an investment treaty, [ . . . ] the basis of a
contract claim is some right created and defined in a contract’.40 Secondly, the authors
rely on the content of the right:
The content of treaty and contract rights is normally quite distinct. The most familiar treaty
rights established by BITs are of a generic nature and defined by international law (i.e., the rights
to national treatment, most-favoured-nation treatment, non-discriminatory treatment, fair and
equal treatment, and compensation in the event of expropriation [ . . . ]). In contrast, contract
rights are normally specific to the investment and defined by the domestic law of the Host
State.41

Thirdly, reference is made to the parties to the claim: the host state is always party to a
treaty claim, but as to contract claims, the party could be a federal or regional unit of the
state, or a state entity or agency.42 Fourthly, Cremades and Cairns rely on the
applicable law: whereas treaty claims are generally governed by international law,
contract claims are likely to be determined according to the host state’s law relating
to administrative contracts.43 Finally, they draw attention to the fact that while
a successful treaty claim leads to state responsibility under international law, a
successful contract claim results in state responsibility under the rules of the
national law of the host state.44 The criteria relating to the nature of the claim
and the consequences for the applicable law will be discussed in more detail in the
following section relating to the scope of the arbitration agreement, as well as in
Chapters 5 and 6.45

38 Cremades and Cairns, fn. 23, at 327–31.
39 Pantechniki v Albania, fn. 34, at para. 62 (‘What I believe to be necessary is to determine whether
claimed entitlements have the same normative source’).
40 Cremades and Cairns, fn. 23, at 327. Cf. G. Santiago Tawil, ‘The Distinction Between Contract
Claims and Treaty Claims: An Overview’ in International Arbitration 2006: Back to Basics? (ICCA
Congress Series, 2006 Montreal Volume 13, A.J. van den Berg, ed., Kluwer Law International, 2007),
492, 543 (‘[T]he cause of action is the central tenet to distinguish a contract claim from a treaty claim.
A contract claim alleges a breach of a contract while a treaty claim invokes a breach of the treaty’).
41 Cremades and Cairns, fn. 23, at 328.
42 Cremades and Cairns, at 329–30.
43 Cremades and Cairns, at 330.
44 Cremades and Cairns, at 330. See also at 327 (while the first criterion is unique, the ‘other
four criteria normally will distinguish a treaty claim from a contract claim, but not without the
possibility of overlapping in particular cases’). Another test is referred to as the ‘triple identity test’
See, e.g., Joy Mining Machinery Ltd v Egypt, ICSID Case ARB/03/11, Decision on Jurisdiction, 6
August 2004 (F.O. Vicuña, W.L. Craig, C.G. Weeramantry, arbs), para. 75 (‘In part, the
distinction between these different types of claims [contract versus treaty] has relied on the test
of triple identity. To the extent that a dispute might involve the same parties, object and cause of
action it might be considered to be a dispute where it is virtually impossible to separate the contract
issues from the treaty issues [ . . . ]’). For criticism of this test, see van Haersolte-van Hof and
Hoffmann, fn. 27, at 967–8.
45 See Section 3 (on the scope of the arbitration agreement: national and/or international claims).
See also Chapter 5, Section 2.3 (on the national nature of the claim); Chapter 6, Section 2.2 (on the
international nature of the claim).
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112

The Scope of the Arbitration Agreement

3. The Scope of the Arbitration Agreement: National and/or
International Claims
Having seen how characterization assists tribunals in characterizing a claim as either
national or international in nature, we will now consider the extent to which various
arbitration agreements encompass both types or either type of claims. Arbitration is
consensual in nature and the jurisdiction of arbitral tribunals is therefore a product of the
intentions of the parties as reflected in their arbitration agreement.46 These agreements
differ in language; and the interpretation of the parties’ intentions as to the scope of their
agreement is not always an easy exercise.47 It has been noted already that arbitration
agreements can be included in an investment contract (arbitration with privity), or they
can be based on the acceptance by the foreign investor of an offer to arbitrate provided
by the host state in its national legislation or in an investment treaty to which the
investor’s home state is a party (arbitration without privity).48 Consequently, a decision
whether arbitration agreements include contractual and/or non-contractual claims or
counterclaims is largely a matter of contract, national law, and/or treaty interpretation.49
By virtue of the principle Kompetenz/Kompetenz, tribunals may rule on their own
jurisdiction.50 Their decision is, however, subject to scrutiny by national courts or
ICSID ad hoc committees, as one of the grounds for annulling or denying enforcement
of an award is that it deals with a dispute, or contains decisions on matters not falling
within the arbitration agreement.51 National courts differ in their approach when
resolving disputes over arbitral jurisdiction, some fora being more ‘pro-arbitration’
than others.52 As for investment tribunals, they often—albeit not always53—construe
arbitration agreements in an inclusive manner.54 Commenting on international commercial arbitration in general, Redfern and Hunter observe: ‘arbitrators are likely to

46 See Chapter 2, Section 2 (on features of the arbitral process); Section 1 (Introduction).
47 See C. Schreuer, ‘Consent to Arbitration’ in Oxford Handbook of International Investment Law
(P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 830, 866; A. Reinisch, ‘How
Narrow are Narrow Dispute Settlement Clauses in Investment Treaties?’ (2011) 2(1) J. Int’l Disp.
Settlement 115.
48 Chapter 2, Section 2 (on features of the arbitral process). See also ICSID, ICSID Caseload—
Statistics, Issue 2012–1, at 10 (as concerns the basis of consent invoked to establish ICSID jurisdiction
in cases registered under the ICSID Convention and Additional Facility Rules, chart number 5 shows
that 63 per cent are based on a BIT; 20 per cent on an investment contract between the investor and
the host state; 6 per cent on the investment law of the host state; and the rest on multilateral investment
agreements and multilateral investment agreements, such as the Energy Charter Treaty and NAFTA).
49 See Blackaby et al., fn. 4, at 108; Douglas, fn. 31, The International Law of Investment Claims, at
274 (Rule 6). In arbitration with privity, arbitration agreements are generally governed by the law of
the tribunal’s juridical seat, and again—where relevant—the ICSID Convention. See SCC Case 10/
2005, Interlocutory Arbitral Award, 2006, at para. 6.1; Chapter 5, Section 3.2.2.1 (on the supervening
role of international law when the parties have agreed to the sole application of national law);
Chapter 1, Section 2 (on the scope of and terminology used in the study).
50 See Chapter 2, Section 2 (on features of the arbitration process).
51 See Chapter 2, Section 3.2.1.2; Section 3.2.2; and Section 4.2.1. Cf. Blackaby et al., fn. 4, at 345.
52 G.B. Born, International Commercial Arbitration (Ardsley, NY, Transnational Publishers, 2001),
298–9. See also Blackaby et al., fn. 4, at 107. On pro-arbitration attitudes of national courts, see also
Chapter 2, Section 3.3 (on the influence of the delocalization theory on state practice).
53 One more contentious issue, which is discussed in Section 3.2 of this Chapter (on arbitration
without privity), concerns the interpretation of dispute settlement clauses inserted in investment
treaties and that refer to ‘all disputes’.
54 For a discussion on the interpretation of arbitration agreements, see Duke Energy v Ecuador, fn.
24, Award, at paras 127–143; Ceskoslovenska Obchodni Banka, A.S. v The Slovak Republic, ICSID Case
No. ARB/97/4, Decision on Jurisdiction, 24 May 1999 (H. van Houtte, P. Bernardini, A. Bucher,
arbs), para. 35; Schreuer, fn. 47, at 861–4.
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The Scope of the Arbitration Agreement

113

take a less restrictive approach than the courts. This is understandable. An arbitrator is
likely to consider that as there are disputes between the parties, it would be sensible to
try, so far as possible, to resolve them all in the same set of proceedings.’55 This practice
enhances the likelihood that the tribunals have jurisdiction over claims and counterclaims of both a contractual and a non-contractual nature, which again increases the
possibility that both national and international law will be applied to the merits of the
dispute.

3.1. Arbitration with privity
Investment contracts often contain arbitration clauses referring to disputes ‘arising out
of ’, ‘in connection with’, or ‘relating to’ the contract at hand.56 Other formulations
include ‘all disputes relating to this Agreement, including any question regarding its
existence, validity, breach or termination’ and ‘all disputes relating to this Agreement or
the subject matter hereof ’.57 For instance, the Power Purchase Agreement (PPA)
involved in the ICSID case Tanzania Electric Supply Company Limited v Independent
Power Tanzania Limited (2001) stipulated:
[A]ny dispute arising out of or in connection with the PPA should be settled by arbitration in
accordance with the Rules of Procedure for Arbitration Proceedings of the International Centre
for the Settlement of Investment Disputes (the ‘ICSID Arbitration Rules’) established by the
Convention on the Settlement of Investment Disputes between States and Nationals of other
States (the ‘ICSID Convention’).58

This clause and clauses of comparable language clearly encompass contractual claims.
In the case of SPP (Middle East) v Arab Republic of Egypt (1983), Clause 20 of the
parties’ agreement provided: ‘Any disputes relating to this Agreement shall be referred
to the arbitration of the International Chamber of Commerce in Paris, France.’59
According to the ICC Tribunal, ‘[i]t follows [from Clause 20] that any disputes relating
to the extent of the Government’s obligations assumed by its signature and as to
whether there has been any breach of those obligations is within the scope of the

55 Blackaby et al., fn. 4, at 107 (emphasis in original). See also A.M. Steingruber, Consent in
International Arbitration (Oxford, Oxford University Press, 2012), 5.
56 G.B. Born, International Arbitration and Forum Selection Agreements; Drafting and Enforcing
(Alphen aan den Rijn, Kluwer Law International, 2006), 39.
57 Born, at 39.
58 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case
No. ARB/98/8, Award, 12 July 2001(K.S. Rokison, C.N. Brower, A. Rogers, arbs), para. 10 (emphasis
added). See also RSM Production Corporation v Grenada, ICSID Case No ARB/05/14, Award, 13
March 2009 (V.V. Veeder, B. Audit, D.S. Berry, arbs), para. 213 (‘In its Request for Arbitration, the
Claimant invoked the Arbitration Agreement (contained in Article 26.2 of the 1996 Agreement [ . . . ]).
According to that provision [ . . . ] “all disputes with respect to any matter arising out of or relating to
the Petroleum Agreement shall be referred to arbitration pursuant to Article 26.3.” Article 26.3 then
provides that unresolved disputes shall be submitted for settlement by arbitration to ICSID’); National
Oil Corporation v Libyan Sun Oil Company, ICC Case No. 4462, First Award (on force majeure), 31
May 1985, 29 I.L.M. 565, 577 (1990) (Article 232 of the Exploration and Production Sharing
Agreement provided: ‘Any controversy or claim arising out of or relating to this Agreement, or breach
thereof, shall, in the absence of an amicable arrangement between the Parties, be settled by arbitration,
in accordance with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce, in Paris, France [ . . . ]’).
59 SPP (Middle East) Ltd v Arab Rep. of Egypt, ICC Award No. 3493, Award, 16 February 1983
(G. Bernini, M. Littman, A. Elghatit, arbs), 22 I.L.M. 752, 769 (1983), at paras 16, 46.
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114

The Scope of the Arbitration Agreement

arbitration clause.’60 In Chapter 5, we will see that as a rule and unless the parties have
agreed otherwise, contractual claims are governed by national law.61
While less obvious,62 scholars support and arbitral practice contains numerous
examples of arbitrators construing similar arbitration clauses also to encompass noncontractual claims, the latter being amenable to the application of both national and
international law. According to Douglas’ Rule 29:
Where the host state party’s consent to arbitration is stipulated in an investment agreement rather
than in an investment treaty, then, subject to the terms of the arbitration clause, the tribunal’s
jurisdiction ratione materiae may extend to claims founded upon an international obligation on
the treatment of foreign nationals and their property in general international law, an applicable
investment treaty obligation, a contractual obligation, a tort, unjust enrichment or a public act of
the host state party in respect of measures of the host state relating to the claimant’s investment.63

As for arbitral practice, the arbitration clause in Wintershall A.G. et al v Government of
Qatar (1987–89), which was contained in the parties’ Exploration and Production
Sharing Agreement (EPSA), referred to ‘any doubt, difference or dispute [ . . . ] concerning the application, interpretation or performance of [the EPSA] or any other
matter [t]herein contained, or in connection [t]herewith, or the rights and liabilities of
either party [t]hereunder [ . . . ]’.64 On the merits, the UNCITRAL Tribunal determined not only that there had been no breach of the EPSA, but also that there had been
no expropriation of the claimant’s contractual rights and economic interests under the
EPSA.65
A further example is the Lena Goldfields arbitration (1930), in which article 90(A) of
the concession agreement provided: ‘[a]ll disputes and misunderstandings concerning
the interpretation or performance of this agreement and all appendices thereto, on the
declaration of either party, shall be examined and settled by an arbitration court.’66 In
that case, the tribunal held in favour of the claimant on the basis of unjust enrichment,
a non-contractual cause of action.67
We also refer to the case Libyan American Oil Co. (LIAMCO) v Libyan Arab Republic
(1977), in which the arbitration clause stipulated:
If at any time during or after the currency of this contract any difference or dispute shall arise
between the Government and the Company concerning the interpretation or performance of the
provisions of this contract, or its annexes, or in connection with the rights and liabilities of either
of the contracting parties hereunder, and if the parties should fail to settle such difference or

60 SPP v Egypt, at paras 16, 46.
61 See Chapter 5, Section 2.3.1 (on contractual claims).
62 See Born, fn. 56, at 298 (‘The most frequent, and important, issue that arises in the interpretation of international arbitration agreements relates to the “scope” of the parties’ agreement; that is,
what category of disputes or claims have the parties agreed to submit to arbitration? Disputes frequently
arise concerning the application of arbitration agreements to particular contract claims or, even more
commonly, non-contractual claims based upon tort or statutory protections’ [references omitted]);
M. Blessing, Introduction to Arbitration: Swiss and International Perspectives (Basel, Helbing und
Lichtenhahn, 1999), 192.
63 Douglas, fn. 31, The International Law of Investment Claims, at 277. See also Fouchard, Gaillard,
Goldman on International Commercial Arbitration (E. Gaillard and J. Savage, eds, The Hague, Kluwer
Law International, 1999), 307.
64 Wintershall A.G. v Government of Qatar, Partial Award, 5 February 1988 and Final Award, 31
May 1988, 28 I.L.M. 795, 810 (1989) (J.R. Stevenson, I. Brownlie, B. Cremades, arbs).
65 Wintershall v Qatar, at 812–13. See also Chapter 5, Section 2.3.1 (on contractual claims).
66 V.V. Veeder, ‘The Lena Goldfields Arbitration’ (1998) 47 Int’l & Comp. L.Q. 747, 790. See also
Chapter 6, Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts).
67 See Veeder, at 790.
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The Scope of the Arbitration Agreement

115

dispute by agreement, the same shall, failing any agreement to settle it in any other way, be
referred to two Arbitrators [...].68

In the ensuing arbitration, a foreign investor advanced claims of both a contractual and
a non-contractual nature, relying on both national and international law. More
specifically, the investor contended that the Libyan nationalization measures of 1973
and 1974, concerning LIAMCO’s 25.5 per cent undivided interest in various concessions, were politically motivated, discriminatory, and confiscatory in nature; that the
measures constituted a denial of justice, a wrongful taking and an unlawful breach of
contract; and that the measures were illegal as contrary to the principles of the law of
Libya common to the principles of international law.69
On the arbitrability of the dispute and the jurisdiction of the tribunal, sole Arbitrator
Mahmassani first commented on the ‘very wide’ scope of the arbitration clause.70 He
went on to observe that the dispute at hand arose after the unilateral termination of the
contract by the Libyan state in nationalizing all the property, assets, and concession
rights of LIAMCO, and that it concerned the legality of that nationalization and
LIAMCO’s claims.71 He concluded that his jurisdiction was broad enough to cover
that dispute:
It is obvious that all these problems come under the heading of the interpretation and execution
of the concession contracts and the rights and obligations of the parties therein. In other words,
the nationalization, by stopping prematurely the performance of the contract, affects that
performance and relates to the rights and obligations derived therefrom. Therefore, it comes
within the terms of the arbitration clause, and consequently the dispute arising from that
nationalization is obviously an arbitrable issue.72

Mahmassani was therefore able to give an award on the question whether Libya was
liable for unlawful nationalization.73
Finally, reference is made to Biloune and Marine Drive Complex Ltd v Ghana
Investments Centre (GIC) and the Government of Ghana (1989).74 In that case, the
parties’ contract stipulated that subject to the provisions of the Ghana Investment Code
of 1985, ‘no enterprise approved under the Code shall be expropriated by the Government’ and that ‘no person who owns, whether wholly or in part, the capital of an
enterprise approved under the Code shall be compelled by law to cede his interest in the
capital to any other person’.75 As to the scope of the arbitration agreement, the
UNCITRAL Tribunal stated:
The arbitration clause contained at Article 15 of the GIC Agreement is broad, providing for
arbitration of ‘[a]ny dispute between the foreign investor and the Government in respect of an
approved enterprise’. The Agreement contains an explicit guarantee against expropriation by the
Government. There can be no question that a claim that the Government has interfered with and
expropriated the Claimants’ interest in the venture with GTDC gives rise to a dispute ‘in respect
of an approved enterprise’ under the Agreement.76

68 Libyan American Oil Company (LIAMCO) v Government of the Libyan Arab Republic, Award, 12
April 1977 (S. Mahmassani, sole arb.), 20 I.L.M. 1, 38 (1981) (referring to Clause 28(1); emphasis
added). See also Texaco Overseas Petroleum Co. & California Asiatic Oil Co. (TOPCO/CALASIATIC) v
Gov’t of the Libyan Arab Republic, Decision on Jurisdiction, 27 November 1975 (Dupuy, sole arb.), 53
I.L.R. 389, 402–4 (1979).
69 LIAMCO v Libya, fn. 68, Award, 20 I.L.M. 1, 28–9 (1977).
70 LIAMCO v Libya, at 41.
71 LIAMCO v Libya, at 41.
72 LIAMCO v Libya, at 41.
73 LIAMCO v Libya, at 61 et seq., 85.
74 Biloune v Ghana, fn. 23, Award.
75 Biloune v Ghana, at section IV(C).
76 Biloune v Ghana, at section V(B).
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116

The Scope of the Arbitration Agreement

The contract provided that it was to be construed ‘according to the laws of Ghana’.77
Thus, any contractual claim for expropriation would seemingly be governed by national
law. In the event, however, the tribunal applied international law to the investor’s
expropriation claim.78 This may be explained on the basis that the parties had reached
an implicit agreement for the application of international law to contractual claims;79
but it could also reflect a decision by the tribunal that a non-contractual expropriation
claim, governed by international law, fell within the scope of the broadly worded
arbitration agreement.
Biloune also exemplifies the possible rejection of non-contractual claims on the basis
that they fall outside the scope of the arbitration agreement. The foreign investor
alleged that the host state was liable for violations of international human rights.80 The
tribunal dismissed the claims for lack of jurisdiction:
This Tribunal’s competence is limited to commercial disputes arising under a contract entered
into in the context of Ghana’s Investment Code. As noted, the Government agreed to arbitrate
only disputes ‘in respect of ’ the foreign investment. Thus, other matters—however compelling
the claim or wrongful the alleged act—are outside this Tribunal’s jurisdiction. Under the facts of
this case it must be concluded that, while the acts alleged to violate the international human
rights of Mr Biloune may be relevant in considering the investment dispute under arbitration,
this Tribunal lacks jurisdiction to address, as an independent cause of action, a claim of violation
of human rights.81

In other words, the arbitration agreement precluded the tribunal from applying
international human rights law.82
A final important consideration is that choice-of-law clauses may offer evidence as
concerns the proper construction of arbitration agreements inserted in investment
contracts. Thus, a provision for the application of international law could support a
finding that the parties to the contract also sought to settle claims in tort that could be
based in international law. According to Lauterpacht:
[B]y selecting either ‘general principles of law’ or ‘international law’, or some combination of the
two, as the governing law, a situation is created in which the tribunal empowered to settle
disputes under the agreement may be enabled to perform a dual function: first, that of
determining the compatibility of the conduct of the State party to the agreement with the
terms of the agreement itself; and second, that of deciding whether the conduct of the State party
is in conformity with its obligations under the public international law.83

Similar interplay between the applicable law clause and the scope of the arbitration
agreement is found in investment treaties, which will be examined in the following
subsection dedicated to arbitration proceedings without privity.

77 Biloune v Ghana, at section VI.
78 See Chapter 3, Section 3.1.2 (on express and implicit choice of law).
79 See Chapter 3, Section 3.1.2 (on express and implicit choice of law).
80 Biloune v Ghana, fn. 23, at section VI(B).
81 Biloune v Ghana. See also C. Schreuer and C. Reiner, ‘Human Rights and International Investment Arbitration’ in Human Rights in International Investment Law and Arbitration (P.-M. Dupuy
et al., eds, Oxford, Oxford University Press, 2009), 82, 83–4.
82 For another case in which the tribunal decided against applying international human rights law,
although on a different basis, see Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1, Award, 7
December 2011 (A. Giardina, M. Reisman, B. Hanotiau, arbs), para. 310, 312.
83 E. Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment
Disputes’ in Recueil d’études de droit international en hommage à Paul Guggenheim (Genève, Tribune,
1968), 642, 654.
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The Scope of the Arbitration Agreement

117

3.2. Arbitration without privity
As to arbitration agreements based on a unilateral arbitration offer set out by the
host state in its national law, these may also extend to claims of both a national and
an international nature.84 One example is Southern Pacific Properties (Middle East)
Limited (SPP) v Arab Republic of Egypt (1985/92), where the ICSID Tribunal’s
jurisdiction stemmed from an offer by Egypt in its national law to arbitrate investment
disputes.85 Law No. 43 of 1974 Concerning the Investment of Arab and Foreign Funds
and the Free Zone provided in pertinent part:
Investment disputes in respect of the implementation of the provisions of this Law shall be, or within
the framework of the agreements in force between the Arab Republic of Egypt and the investor’s
home country, or within the framework of the Convention for the Settlement of Investment
Disputes between the State and the nationals of other countries to which Egypt has adhered by
virtue of Law No. 90 of 1971, where such Convention applies.86

On the merits, the tribunal applied both national and international law when it found
that the host state had expropriated SPP’s investment relating to the development of
certain tourist complexes.87
The ICSID case Tradex Hellas S.A. v Albania (1996/99) concerned an alleged
expropriation of an agricultural joint venture.88 Also in this case the foreign investor
brought the dispute on the basis of the host state’s consent to arbitration in its national
law.89 More precisely, the investor relied upon the 1993 Albanian Foreign Investment
Law, article 8(2) of which stated:
[I]f the dispute arises out of or relates to expropriation, compensation for expropriation, or
discrimination and also for the transfers in accordance with Article 7, then the foreign investor
may submit the dispute for resolution and the Republic of Albania hereby consents to the
submission thereof, to the International Centre for Settlement of Investment Disputes (‘Centre’)
established by the Convention on the Settlement of Investment Disputes between States and
National of Other States, done at Washington, March 18, 1965 (‘ICSID Convention’).90

The parties had not agreed on the law to be applied to the merits, and the tribunal
concluded that ‘it is this 1993 Law which the Tribunal will examine as to whether
Tradex’ claim is justified on the merits’.91 The tribunal thus construed the arbitration
agreement in a more narrow fashion than the tribunal in SPP v Egypt, finding that it was
prevented from examining the expropriation claim on bases other than this Law, such
as other investment laws issued in Albania, the Bilateral Investment Treaty between
84 See, e.g., Ghana Investment Promotion Centre Act 1994 (GIPC ACT 478), section 29 (referring
to ‘any dispute’): Togo Investment Code, Law 85–03, 29 January 1985, art. 4, referred to in J. Collier
and V. Lowe, The Settlement of Disputes in International Law (Oxford, Oxford University Press, 1999),
63 (referring to ‘any dispute’). See generally A.R. Parra, ‘Provisions on the Settlement of Investment
Disputes in Modern Investment Laws, Bilateral Investment Treaties and Multilateral Treaties on
Investment’ (1987) 12(2) ICSID Rev.-FILJ 287.
85 Southern Pacific Properties (Middle East) Limited (SPP) v Arab Republic of Egypt, ICSID Case No.
ARB/84/3, (E. Jimenez de Arechaga, R.F. Pietrowski, M.A.E El Mahdi, arbs), Decision on Jurisdiction
I, 27 November 1985, paras 70, 75; Award, 20 May 1992, para. 24.
86 Southern Pacific, Decision on Jurisdiction, at para. 70 (emphasis added). See also at para. 116.
87 Southern Pacific, Award, at para. 159. See generally Chapter 7, Section 2.2 (on reference to
consistent national and international law).
88 Tradex Hellas S.A. v Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction, 24
December 1996 (K.H. Böckstiegel, F.F. Fielding, A. Giardina, arbs); Final Award, 29 April 1999.
89 Tradex v Albania, Decision on Jurisdiction, 5 ICSID Rep. 47, 54.
90 Tradex v Albania, at 54.
91 Tradex v Albania, at 54.
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118

The Scope of the Arbitration Agreement

Albania and the investor’s home state, as well as other sources of international law.92
Still, the tribunal interpreted the relevant provisions of the Albanian Investment Law in
light of international law.93
In investment treaty arbitration, the mandate of the tribunal to consider both
national and international claims depends on the specific language of the treaty in
question. Most investment treaties are broad and permit ‘any’ or ‘all’ disputes relating
to investments to be submitted to arbitration.94 One example is the Swedish Model
BIT, which refers to ‘[a]ny dispute concerning an investment between an investor of
one Contracting Party and the other Contracting Party’.95 Another example is the
Morocco-Italy BIT, which in article 8 covers ‘[a]ll disputes or differences, including
disputes related to the amount of compensation due in the event of expropriation,
nationalisation, or similar measures, between a Contracting Party and an investor of the
other Contracting Party concerning an investment of the said investor on the territory
of the first Contracting Party [ . . . ]’.96
While the issue remains controversial,97 several tribunals have construed the latter
and similarly broad dispute settlement provisions to extend to contractual and noncontractual claims based in both national and international law, as long as the claim at
hand relates to the investment at hand.98 For instance, article 9 of the ParaguaySwitzerland BIT at issue in SGS Société Générale de Surveillance S.A. v Republic of
Paraguay (2012) provided for arbitration of ‘disputes with respect to investments
between a Contracting Party and an investor of the other Contracting Party’ and the
ICSID Tribunal found this clause to be broad enough for the investor to bring a claim
for the breach of contract.99 To the tribunal, there was no qualification or limitation in
article 9 on the types of disputes that a foreign investor could bring against the host

92 Tradex v Albania, Final Award, at para. 69.
93 See Chapter 5, Section 3.1.2 (on international law as a source of interpretation).
94 See A. Sinclair, ‘Bridging the Contract/Treaty Divide’ in International Investment Law for the 21st
Century (C. Binder et al., eds, Oxford, Oxford University Press, 2009), 92, 92–3 (noting that this type
of treaty dispute settlement provision is sometimes described as a ‘generic’ or ‘broad’ dispute settlement
clause, and potential claims under it as ‘purely’ contractual claims); Douglas, fn. 31, The International
Law of Investment Claims, at 234 (this dispute settlement clause is ‘by far the most prevalent type of
clause in BITs’).
95 Swedish Model BIT, art. 8(1).
96 Salini Construtorri S.p.A. and Italstrade S.p.A. v Morocco, ICSID Case No. ARB/00/4, Decision
on Jurisdiction, 23 July 2001 (R. Briner, B. Cremades, I. Fadlallah, arbs), para. 59. See also New
Zealand–China Free Trade Agreement, art. 152 (referring to ‘[a]ny legal dispute arising under this
Chapter between an investor of one Party and the other Party, directly concerning an investment by
that investor in the territory of that other Party’); Swiss-Pakistan BIT, art. 9(1).
97 See UNCTAD, Investor–State Dispute Settlement and Impact on Investment Rulemaking 26
(January, 2008). For a narrow interpretation see, e.g., E. Gaillard, ‘International Arbitration Law’
N.Y. L. J. (6 October 2005) (‘Absent specific language to the contrary, it may seem odd to interpret a
treaty as creating a jurisdictional basis for a treaty-based tribunal in cases where it is not called upon to
rule on alleged violations of that treaty. There is always a danger in divorcing the jurisdictional
provisions from the substantive terms of the same treaty in that this may suggest that the treatybased tribunal has jurisdiction but is invited to rule on a vacuum’); SGS v Pakistan, fn. 30, Decision on
Jurisdiction, at para. 161. Cf. Y. Shany, ‘Contract Claims vs. Treaty Claims: Mapping Conflicts
between ICSID Decisions on Multisourced Investment Claims’ (2005) 99(4) Am. J. Int’l L. 835, 844
(Shany characterizes the SGS v Pakistan decision as ‘disintegrationist’).
98 See, e.g., SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No.
ARB/02/6, Decision on Jurisdiction, 29 January 2004, para. 131 (‘disputes with respect to investments’). See also Chapter 1, Section 2 (on the scope of and terminology used in the study); Chapter 2,
Section 4.2 (on ICSID tribunals).
99 SGS Société Générale de Surveillance S.A. v Republic of Paraguay, ICSID Case No. ARB/07/29,
Award, 10 February 2012 (S.A. Alexandrov, D.F. Donovan, P.G. Mexía, arbs), para. 129.
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The Scope of the Arbitration Agreement

119

state: ‘The ordinary meaning of Article 9 would appear to give this Tribunal jurisdiction to hear claims for violation of Claimant’s rights under the Contract—surely a
dispute “with respect to” Claimant’s investment—should Claimant have chosen to
bring them before us.’100 And, concluded the SCC Tribunal in Iurii Bogdanov,
Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic of Moldova
(2005):
Article 10(1) of the BIT extends the offer of arbitration to any disputes between a contracting
state (in this case, the Republic of Moldova) and an investor of the other contracting state arising
in connection with an investment. The language of article 10(1) permits to extend the jurisdiction of the Arbitral Tribunal to any dispute between qualified parties [ . . . ], as long as it arises in
connection with an investment as defined in the BIT, and irrespective of whether the dispute is
based on an alleged breach of the BIT, and alleged breach of a contract between the parties, or
other alleged breach of obligation.101

In that case, the tribunal interpreted the phrase ‘other alleged breach of obligation’ to
include non-contractual claims based in national law.102 The UNCITRAL Tribunal in
Chevron Corporation and Texaco Petroleum Corporation v Republic of Ecuador (2008)
gave a similar interpretation, expressly allowing the bringing of claims based in
customary international law and/or national law:
The Tribunal finds that Article VI(1)(a) does confer jurisdiction over customary international law
claims. Article VI(1)(a), in contrast to Article VI(1)(c) and the wording of a large number of other
BITs, is not limited to causes of action based on the treaty. Its language includes all disputes ‘arising
out of or relating to’ investment agreements and this language is broad enough to allow the Tribunal
to hear a denial of justice claim relating to the Concession Agreements. Thus, any limitation to
BIT or domestic law causes of action, if it exists, must be found elsewhere in the BIT.103

This conclusion is supported by the ICSID Tribunal in SGS Société Générale de
Surveillance S.A. v Republic of the Philippines (2004): The term ‘ “disputes with respect
to investments” is not limited by reference to the legal classification of the claim that is
made’.104 As recognized by the same tribunal, allowing investors a choice of forum for
resolution of investment disputes of ‘whatever character’ is consistent with the aim of
the BIT at hand to promote and protect foreign investments.105 A broad interpretation,
which also has the benefit of facilitating procedural economy,106 finds endorsement in
100 SGS v Paraguay, at para. 129.
101 Iurii Bogdanov, Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic of
Moldova, SCC Institute, Award, 22 September 2005 (G. Cordero Moss, sole arb.), at section 2.1
(references omitted).
102 See Chapter 5, Section 2.3.2 (on non-contractual claims).
103 Chevron Corporation and Texaco Petroleum Corporation v Republic of Ecuador, Interim Award, 1
December 2008 (K.-H. Böckstiegel, C.N. Brower, A.J. van den Berg, arbs), para. 109. See also Vivendi
v Argentina, fn. 36, Decision on Annulment, at para. 55; Salini v Morocco, fn. 96, Decision on
Jurisdiction, at para. 61.
104 SGS v Philippines, fn. 98, Decision on Jurisdiction, at para. 131 (emphasis added). See also at
para. 132 (the tribunal, referring to NAFTA, Chapter 11, stated: ‘In other investment protection
agreements, when investor–State arbitration is intended to be limited to claims brought for breach of
international standards (as distinct from contractual or other claims under national law), this is stated
expressly’ [emphasis added]); see also at para. 135 (‘In principle (and apart from the exclusive
jurisdiction clause in the [Contract]) it was open to SGS to refer the present dispute, as a contractual
dispute, to ICSID arbitration’).
105 SGS v Philippines, at para. 132. Cf. Shany, fn. 97, at 844–5 (‘[T]he SGS v Philippines decision
seems to stand for the diametric integrationist methodology’).
106 See R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, Oxford
University Press, 2008), 220 (‘The need to dissect cases into contract claims and treaty claims to be
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120

The Scope of the Arbitration Agreement

scholarship. According to Schreuer, ‘[t]he view that a jurisdictional clause referring all
investment disputes to international arbitration vests the tribunal also with competence
over pure contract claims is clearly the better one. There is no reason in law or policy
why this should not be possible or desirable.’107 To him, ‘[t]he distinction between
contract claims and BIT claims does not mean that these claims must be presented in
different forums. In fact, an arrangement that leads to the adjudication of all claims
arising from an investment dispute in one forum is clearly the preferable solution.’108
Douglas expresses a similar view in his Rule 25:
In accordance with the terms of the contracting state parties’ consent to arbitration in the
investment treaty, the tribunal’s jurisdiction ratione materiae may extend to claims founded
upon an investment treaty obligation, a contractual obligation, a tort, unjust enrichment, or a
public act of the host contracting state party, in respect of measures of the host contracting state
party relating to the claimant’s investment.109

This reasoning may receive indirect support by the applicable law provision of the
investment treaty at hand, which in cases of broad jurisdictional clauses often specifically allows for the application of both national and international law. As Arbitrator
Moss pointed out in Bogdanov, ‘[t]o evaluate the pleadings presented by the Claimant,
the Arbitral Tribunal applies the BIT and the law of the Republic of Moldova. The law
of the Republic of Moldova is applicable on the basis of the BIT [ . . . ].’110
In cases involving broad jurisdictional clauses, characterization takes on heightened
significance where the underlying contract includes a different forum selection clause
than that contained in the treaty at hand.111 This is illustrated by the case of Compañía
de Aguas del Aconquija, SA and Vivendi Universal v Argentina (2000/2002/2007), in
which the contract at issue provided that ‘[f]or purposes of interpretation and application of this Contract the parties submit themselves to the exclusive jurisdiction of the
Contentious Administrative Tribunals of Tucumán’.112 The first tribunal reasoned
dealt with by separate fora requires claim splitting and has the potential of leading to parallel
proceedings. This is uneconomical and contrary to the goal of reaching final and comprehensive
resolutions of disputes’); Sinclair, fn. 94, at 104. Cf. Case Concerning Arbitral Award of 31 July 1989
(Guinea-Bissau v Senegal), Judgment, 12 November 1991, Separate Joint Dissenting Opinion of
Judges Aguilar Mawdsley and Ranjeva (translation) [1991] ICJ Rep. 53, 120, para. 13.
107 Schreuer, fn. 31, at 299.
108 Schreuer, fn. 31, at 299. See also Schreuer, A Decade of Increasing Awareness of Investment
Arbitration and Intensive Activity: An Assessment, Opening Address at a Symposium co-organized by
ICSID, OECD and UNCTAD: Making the Most of International Investment Agreements:
A Common Agenda, Paris, 12 December 2005, at 1, available at <http://www.univie.ac.at/intlaw/
pdf/cspubl_84.pdf> (last visited 1 May 2012); C. Schreuer and U. Kriebaum, ‘From Individual to
Community Interest in International Investment Law’ in From Bilateralism to Community Interest:
Essays in Honour of Judge Bruno Simma (U. Fastenrath et al., eds, Oxford, Oxford University Press,
2011), 1079, 1092.
109 Douglas, fn. 31, The International Law of Investment Claims, at 274. See also Douglas, ‘Hybrid
Foundations’, fn. 31, at 256; van Haersolte-van Hof and Hoffmann, fn. 27, at 969–70; C.F. Dugan
et al., Investor–State Arbitration (New York, Oxford University Press, 2008), 239; J. Crawford, ‘Treaty
and Contract in Investment Arbitration’ 2008) 24(3) Arb. Int’l 351, 362–3; Steingruber, fn. 55, at
para. 14.03; O. Spiermann, ‘Applicable Law’ in Oxford Handbook of International Investment Law
(P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 89, 103; I. Alvik, Contracting with
Sovereignty (Oxford, Hart Publishing, 2011), 144.
110 Bogdanov, fn. 101, Award, at section 3.2.
111 On forum selection clauses, See Douglas, fn. 31, The International Law of Investment Claims, at
293 (Rule 45). See also Section 4.1.5 (on forum selection agreements).
112 Vivendi v Argentina, fn. 36, Award I, 21 November 2000 (F. Rezek, T. Buergenthal,
P.D. Trooboff, arbs); Decision on Annulment, fn. 36; Award II (G. Kaufmann-Kohler, C.B. Verea,
J.W. Rowley, arbs), 20 August 2007.
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The Scope of the Arbitration Agreement

121

that in order to determine whether the Argentine Government was liable under the
treaty, it would have to ‘undertake a detailed interpretation and application of the
concession contract’.113 Since that task had been assigned to the local courts, and
‘because the claims in this case arise almost exclusively from alleged acts of the Province
of Tucumán that relate directly to its performance under the Concession Contract’, the
tribunal concluded that ‘the Claimants had a duty to pursue their rights with respect to
such claims against Tucumán in the contentious administrative courts of Tucumán as
required by article 16.4 of their Concession Contract’.114
The ad hoc committee annulled the award on the basis that the tribunal, while
having had jurisdiction over the claims at hand, had failed to examine them; and as
such, it had manifestly exceeded its powers in the sense of article 52 of the ICSID
Convention.115 In so holding, the committee noted that the substantive provisions of
the BIT do not relate directly to breach of a municipal contract; ‘[r]ather they set an
independent standard. A State may breach a treaty without breaching a contract, and
vice versa, and this is certainly true of these provisions of the BIT.’116 In its view, the
forum selection clause in the contract did not bar the jurisdiction of the tribunal: where
‘the fundamental basis of the claim’ is a treaty laying down an independent standard by
which the conduct of the parties is to be judged, the existence of an exclusive
jurisdiction clause in a contract between the claimant and the respondent state or
one of its subdivisions cannot operate as a bar to the application of the treaty
standard.117 The committee also commented on the implications characterization has
for the applicable law:
[W]hether there has been a breach of the BIT and whether there has been a breach of contract are
different questions. Each of these claims will be determined by reference to its own proper or
applicable law—in the case of the BIT, by international law; in the case of the Concession
Contract, by the proper law of the contract, in other words, the law of Tucumán.118

In the resubmitted case, the tribunal applied international law when holding that
Argentina was liable for violating the fair and equitable treatment standard and the
prohibition on expropriation, as set out in the governing treaty.119 The same distinction between contract and treaty claims was made by the ICSID Tribunal in AES Corp.
v Argentina (2005):
[T]he Entities concerned have consented to a forum selection clause electing Administrative
Argentine law and exclusive jurisdiction of Argentina administrative tribunals in the concession
contracts and related documents. But this exclusivity only plays within the Argentinean legal
order, for matters in relation with the execution of these concession contracts. They do not
preclude AES from exercising its rights as resulting, within the international legal order from two
international treaties, namely the US-Argentina BIT and the ICSID Convention.120
113 Vivendi v Argentina, fn. 112, Award I, at para. 79.
114 Vivendi v Argentina, at section A. See also at paras 79–81; Award II, at para. 7.3.6.
115 Vivendi v Argentina, fn. 36, Decision on Annulment, at para. 115. See also Convention on the
Settlement of Investment Disputes between States and Nationals of Other States (1965), art. 52
(hereinafter ICSID/Washington Convention); Chapter 2, Section 4.2.1 (on the tribunals’ insulation
from the law of the seat).
116 Vivendi v Argentina, fn. 36, Decision on Annulment, at para. 95.
117 Vivendi v Argentina, at para. 101 (references omitted). See also at para. 102.
118 Vivendi v Argentina, at para. 96.
119 Vivendi v Argentina, Award II.
120 AES Corp. v Argentina, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005
(P.-M. Dupuy, K.-H. Böckstiegel, D.B. Janeiro, arbs). See also Suez, Sociedad General de Aguas de
Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v Argentine Republic, ICSID Case No.
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The Scope of the Arbitration Agreement

The importance of objective characterization is highlighted by the criticism raised by
Douglas against the decision in Eureko BV v Poland.121 That case concerned a Dutch
company that, pursuant to a share purchase agreement with the State Treasury of
Poland, had acquired 20 per cent of the shares in an insurance group in Poland, upon
its privatization in 1999.122 The agreement was governed by Polish law, and it included
a forum selection clause in favour of Polish courts.123 According to Eureko, Poland had
breached the Dutch–Polish BIT by failing to implement its alleged right, pursuant to
an addendum to the agreement, to acquire an additional 21 per cent of the shares upon
an Initial Public Offering to be implemented by the State Treasury; and more
particularly the BIT’s provisions on fair and equitable treatment, expropriation, and
the ‘umbrella’ clause.124 According to Poland, however, Eureko’s claims should be
declared inadmissible ‘since they are predicated upon contractual claims for which,
under express terms of the [contract], exclusive jurisdiction resides in the competence
of a “Polish public court competent with respect to the Seller”’.125
Rather than conducting its own analysis of the essential basis of the claims at hand,
the tribunal merely stated: ‘Claimant in the present arbitration advances claims for
breach of the Treaty and, applying the teaching of the decision of the ad hoc committee
in the Vivendi annulment case, every one of those claims must be heard and judged by
this Tribunal.’126 The investor prevailed on the merits.127
In his dissent, Arbitrator Rajski, rebuked his fellow arbitrators for transforming what
he viewed as a simple contractual dispute under Polish law into an internationally
justiciable matter.128 In his view, the tribunal’s disregard of the contractual nature of
the dispute may lead to the creation of a privileged class of foreign parties to commercial
contracts who may transform their contractual disputes with state-owned companies
into BIT disputes, so that ‘jurisdiction clauses agreed by the parties submitting all
contractual disputes between the parties to an international arbitration tribunal or a
state court may be easily frustrated by a foreign contracting party’.129 Douglas agrees:
Although the tribunal in Eureko purported to apply the Vivendi test, in actual fact it did no such
thing. The essential basis of a claim is not what the claimant says it is. Otherwise it would not be a
judicial test at all. This is a threshold question for the tribunal, which is bound to undertake an
examination of the juridical basis of the claim to determine whether it is properly classified as
contractual or founded upon the treaty.130

There are also investment treaties that specifically limit arbitrable claims to those that
concern host state obligations as set out in the treaty.131 Such practice is illustrated by
the BIT between Malaysia and Ghana, defining an investment dispute as one ‘between
ARB/03/17 (J.W. Salacuse, G. Kaufmann-Kohler, P. Nikken, arbs), Decision on Jurisdiction, 16 May
2006, paras 41 et seq.; Victor Pey Casado and President Allende Foundation v Republic of Chile, ICSID
Case No. ARB/98/2, Award, 8 May 2008 (P. Lalive, G. Leoro Franco, M. Chemloul, E. Gaillard arbs),
at paras 493, 496.
121 Douglas, fn. 20, at 38–44.
122 Eureko BV v Republic of Poland, Partial Award, 19 October 2005 (S.M. Schwebel, J. Rajski, L.
Y. Fortier, arbs).
123 Eureko v Poland, at para. 93.
124 Eureko v Poland, at para. 88.
125 Eureko v Poland, at para. 81.
126 Eureko v Poland, at para. 113.
127 Eureko v Poland, fn. 122, Partial Award, at para. 260.
128 Eureko v Poland, Dissenting Opinion Rajski.
129 Eureko v Poland, at para. 11.
130 Douglas, fn. 20, at 39. See also at 40–1; van Haersolte-van Hof and Hoffmann, fn. 27, at 973.
131 There are also examples of investment treaties that contain even narrower dispute settlement
clauses. See Reinisch, fn. 47.
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The Scope of the Arbitration Agreement

123

a national or company of one Contracting Party and the other Contracting Party
concerning an obligation of the latter under this agreement in relation to an investment
of the former’.132 By definition, an arbitral tribunal set up pursuant to such a treaty
would only be competent to consider BIT claims, i.e., non-contractual claims of an
international nature. Likewise, the now shelved133 Norwegian Draft Model Investment
Agreement requires the dispute to ‘be based on a claim that the Party has breached an
obligation under this Agreement and that the investor of the other Party has incurred
loss or damage by that breach’.134 It is clear that such language does not give rise to
claims based in national law. As explicitly set out in the Commentary to the Draft
Model Agreement: ‘In future Norwegian agreements, the states’ prior consent to
dispute settlement will be limited to claims based on the provisions in the agreement
concerned. A claim by an investor may thus not be based on violation of national law or
on the principles of international law/customary public international law.’135 In other
words:
The point of departure for the work on a new model agreement has been that the Arbitration
Tribunal shall only be able to consider alleged breaches of the standards in the interstate
investment agreement. Therefore, no right is laid down in the model agreement for an investor
to use the same arbitration tribunal to settle disputes arising out of a contractual relationship
between an investor (or his investment) and the host country. The breach of agreement referred
to in the model agreement as the subject for arbitration, and which thereby sets the mandate for
the Arbitration Tribunal, must thus be a breach of the investment agreement.136

Other noteworthy examples are the North American Free Trade Agreement
(NAFTA),137 and the Energy Charter Treaty.138 Pursuant to these instruments, the
jurisdiction of the tribunal is limited to investor claims of an international nature. As
the ICSID Additional Facility Rules Tribunal observed in Waste Management, Inc. v
Mexico (2004): ‘unlike many bilateral and regional investment treaties—NAFTA
Chapter 11 does not give jurisdiction in respect of breaches of investment contracts
[ . . . ]. It is always necessary for a claimant to assert as its cause of action a claim founded
in one of the substantive provisions of NAFTA referred to in Articles 1116 and 1117
[ . . . ].’139
132 Malaysia-Ghana BIT, art. 7(1) (emphasis added).
133 See D. Vis-Dunbar, ‘Norway Shelves its Draft Model Bilateral Investment Treaty’ Investment
Treaty News (8 June 2009).
134 Norwegian Draft Model Investment Agreement, art. 15(1). See also Netherlands–Venezuela
BIT, art. 9(1); Malta-Belgo-Luxembourg Economic Union BIT, art. 8(1) (defining an investment
dispute as one ‘between an investor of one of the Contracting Parties and the other Contracting Party
affecting an investment of the former and relating to a matter with respect to which the latter has
undertaken an obligation in favour of the other Contracting Party under this Agreement’).
135 Norwegian Draft Model Investment Agreement, Comments on the Model for Future Investment Agreements, para. 4.3.2. See further at para. 4.3.2 (‘The Arbitration Tribunal cannot judge on
the basis of violations of national law, which is therefore not applicable law’). Cf. Norwegian Draft
Model Investment Agreement (2007), art. 14(1) (‘A Tribunal established under this Section shall make
its award based on the provisions of this Agreement interpreted and applied in accordance with the
rules of interpretation of international law.’).
136 Norwegian Draft Model Investment Agreement, Comments, para. 4.3.2.
137 North American Free Trade Agreement (1994), art. 1116(1) (hereinafter NAFTA). See also art.
1101 (defining the coverage of its investment provisions as those concerning ‘measures adopted or
maintained by a [Contracting] Party’). It is noted that an earlier draft of NAFTA contained a broader
definition of investment disputes. See Draft version of NAFTA of December 1991, art. XX07(1).
138 Energy Charter Treaty (1994), art. 26(1).
139 Waste Management, Inc. v United Mexican States (Number 2), ICSID Case No. ARB(AF)/00/3,
Award, 30 April 2004 (J. Crawford, B.R. Civiletti, E.M. Gómez, arbs), para. 73. See also Azinian,
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The Scope of the Arbitration Agreement

Again, we see a logical relationship between the arbitration agreement and the
choice-of-law provision: the influence that the narrow dispute settlement clause should
have on the tribunal’s choice-of-law methodology is explicitly stipulated in the applicable law clause in these treaties, the NAFTA providing for the application of the Treaty
itself and ‘applicable rules of international law’,140 and the Energy Charter Treaty
referring to ‘this Treaty and applicable rules and principles of international law’.141
Thus, held the ICSID Additional Facility Rules Tribunal in Loewen Group, Inc. and
Raymond L. Loewen v United States (2003): ‘whether the conduct [of the host State]
amounted to a breach of municipal law [ . . . ] is not for us to determine.’142 And the
ICSID Additional Facility Rules Tribunal stated in Marvin Roy Feldman Karpa v
Mexico (2000): ‘The Tribunal does not, in principle, have jurisdiction to decide
upon claims arising because of an alleged violation of general international law or
domestic Mexican law.’143
In this context, we also note the case Middle East Cement Shipping and Handling Co.
S.A. v Egypt (2002), in which the narrow dispute settlement clause led the ICSID
Tribunal to conclude that claims based in national law were precluded from its
jurisdiction.144 The dispute concerned the host state’s alleged expropriation of the
investor’s interest in a business concession located in Egypt and the state’s alleged
failure to ensure the re-exportation of the investor’s assets.145 The jurisdiction of the
tribunal stemmed from the BIT between Greece and Egypt,146 providing in article 10
that an investor could refer an investment dispute to an international arbitration
tribunal in case such a dispute arose ‘between an investor of a Contracting Party and
the Other Contracting Party concerning an obligation of the latter under this Agreement’.147 As set out in article 4 of the BIT, one of these obligations was not to subject
investors of the other Contracting Party to measures tantamount to expropriation
unless accompanied by payment of prompt, adequate, and effective compensation.148
With respect to the applicable law, article 11 of the BIT provided that in addition to
the rules of the BIT, obligations for a more favourable treatment stemming from the
national law of the contracting parties or existing under international law between the
contracting parties shall prevail.149 Seemingly relying on this reference to national law,
the investor alleged that Egypt had misinterpreted and failed to apply certain provisions
of the Egyptian investment law.150 The tribunal, referring to the dispute settlement
clause in article 10 of the BIT, stated that the test with respect to these claims is whether
they ‘can be based on the BIT, in particular its Article 4 as measures “the effect of which
Davitian, & Baca v Mexico, ICSID Case No. ARB (AF)/97/2, Award, 1 November 1999 (B.
R. Civiletti, C. von Wobeser, J. Paulsson, arbs), para. 87 (‘NAFTA does not [ . . . ] allow investors to
seek international arbitration for mere contractual breaches’).
140 NAFTA (1994), art. 1131(1).
141 Energy Charter Treaty (1994), art. 26(6). See also Chapter 6, Section 2.1.2 (on express or
implied agreement on the application of international law in investment treaties).
142 Loewen Group, Inc. and Raymond L. Loewen v United States, ICSID Case No. ARB(AF)/98/3,
26 June 2003 (A. Mason, A.J. Mikva, Lord Mustill, arbs), para. 134.
143 Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No. ARB[AF]/99/1, Decision
on Jurisdiction, 6 December 2000 (J.C. Bravo, D.A. Gantz, K.D. Kerameus, arbs), para. 61.
144 Middle East Cement Shipping and Handling Co. S.A. v Arab Republic of Egypt, ICSID Case No.
ARB/99/6, Award, 12 April 2002 (K.-H. Böckstiegel, P. Bernardini, D. Wallace, arbs).
145 Middle East Cement Shipping, at para. 5.
146 Middle East Cement Shipping, at para. 50.
147 Middle East Cement Shipping, at para. 71.
148 Middle East Cement Shipping, at para. 104.
149 Middle East Cement Shipping, at para. 86.
150 Middle East Cement Shipping, at paras 157–160.
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The Scope of the Arbitration Agreement

125

would be tantamount to expropriation”’.151 In light of this, it added, ‘it cannot assume
the function as an appeal body regarding the application of local Egyptian laws and,
particularly, the [Egyptian] Investment Law.’152
It appears reasonable that an arbitration agreement that specifically limits a tribunal’s
jurisdiction to claims based on alleged violations of the BIT would bar that tribunal
from entertaining separate claims founded in national law. Stated otherwise, a narrow
jurisdictional clause, in casu article 10, would appear to take precedence over a broad
applicable law clause, in casu article 11.153 This does not mean, however, that the
tribunal would be precluded from considering national law. Hence, when interpreting
article 11, the tribunal in Middle East Cement specifically added that it would also take
into account Egyptian law, when not ‘overridden’ by the application of the provisions
of the BIT.154 In view of the narrow dispute settlement clause, however, such taking
into account of national law would necessarily be indirect, rather than creating separate
causes of action arising under national law.
Investment treaties may also explicitly envisage arbitration for claims of both a
national and international nature. The US Model BIT, for instance, states that the
investor may submit to arbitration a claim ‘that the respondent has breached (A) an
obligation under Articles 3 through 10 [of this Treaty], (B) an investment authorization, or (C) an investment agreement [ . . . ]’.155 A similar dispute settlement clause was
at issue in the case Generation Ukraine, Inc. v Ukraine (2003).156 The ICSID Tribunal
observed:
The jurisdiction of the Tribunal is limited to investment disputes, which are defined in Article VI
(1) of the [U.S.–Ukraine] BIT as: ‘[ . . . ] a dispute between a Party and a national or company of
the other Party arising out of or relating to (a) an investment agreement between that Party and
such national or company; (b) an investment authorization granted by that Party’s foreign
investment authority to such national or company; or (c) an alleged breach of any right conferred
or created by this Treaty with respect to an investment.’157

The tribunal interpreted this clause to mean that it ‘could conceivably have jurisdiction
over domestic law claims under categories (a) and (b) of the definition of investment
disputes in Article VI(1)’.158
Also here we find a link between the arbitration agreement and the choice-of-law
provision contained in the same instrument. This link between the national or
international type of claim and the application of national or international law,

151 Middle East Cement Shipping, at para. 159.
152 Middle East Cement Shipping, at para. 159.
153 Cf. Case Concerning Fisheries Jurisdiction (Spain v Canada), Judgment, 4 December 1998,
Separate Opinion of Judge Koroma [1998] ICJ Rep. 432, 487, at para. 4 (‘[T]he question whether
the Court is entitled to exercise its jurisdiction must depend on the subject-matter and not on the
applicable law, or the rules purported to have been violated. In other words, once it is established that
the dispute relates to the subject-matter defined or excluded in the reservation, then the dispute is
precluded from the jurisdiction of the Court, whatever the scope of the rules which have purportedly
been violated’); see also at para. 6.
154 Middle East Cement Shipping, fn. 144, Award, at para. 87. See also at para. 167 (the tribunal
referred to both international and national law on the duty to mitigate damages).
155 U.S. Model BIT (2012), art. 24. See also Burundi Model BIT, art. 8(1); Alex Genin, Eastern
Credit Limited, Inc. v Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001 (L.
Y. Fortier, M. Heth, A.J. van den Berg, arbs), para. 325 (referring to U.S.–Estonia BIT, art. VI(1)).
156 Generation Ukraine, Inc. v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003
(E. Salpius, J. Voss, J. Paulsson, arbs).
157 Generation Ukraine, at para. 8.12.
158 Generation Ukraine, at para. 8.12.
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126

The Scope of the Arbitration Agreement

respectively, is explicitly made in the US Model BIT. On the one hand, the determination of whether the host state has breached an obligation as set out in the BIT shall be
based on the application of ‘this Treaty and applicable rules of international law’.159 If,
on the other hand, the claim concerns the alleged breach of an investment authorization or investment agreement, national law is also applicable:
[T]he tribunal shall apply: (a) the rules of law specified in the pertinent investment authorization
or investment agreement, or as the disputing parties may otherwise agree; or (b) if the rules of law
have not been specified or otherwise agreed: (i) the law of the respondent, including its rules on
the conflict of laws; and (ii) such rules of international law as may be applicable.160

Finally, mention should be made of the Iran–United States Claims Tribunal, which, to
a certain extent, could be seen to provide a form of arbitration without privity, at least
in the sense that the host state has unilaterally offered to settle a defined category of
disputes through arbitration.161 According to the Claims Settlement Declaration, the
tribunal’s jurisdiction extends to claims and counterclaims that ‘arise out of debts,
contracts (including transactions which are the subject of letters of credit or bank
guarantees), expropriations or other measures affecting property rights’.162 Accordingly, the tribunal is competent to hear claims of both a contractual and a noncontractual nature, the great majority of which would otherwise be subject to the
domestic jurisdiction of Iran or the United States.163 Once more, there is a correlation
between the tribunal’s jurisdiction and the choice-of-law law provision, the latter
expressly allowing for the application of both national and international law.164 The
tribunal noted in CMI International, Inc. v Ministry of Roads and Transportation (1983):
the flexibility that the arbitrators enjoy as to the applicable law is ‘consistent with, and
perhaps almost essential to, the scope of the tasks confronting the Tribunal, which
include not only claims of a commercial nature, such as the one involved in the present
case, but also claims involving alleged expropriations or other public acts [ . . . ]’.165
159 US Model BIT (2012), arts 30(1), 24(1).
160 US Model BIT (2012), arts 30(2), 24(1) (references omitted). Cf. G. Sacerdoti, ‘Bilateral
Treaties and Multilateral Instruments on Investment Protection’ (1997) 269 Recueil des Cours 261,
445.
161 Cf. D.D. Caron, ‘The Iran–U.S. Claims Tribunal and Investment Arbitration: Understanding
the Claims Settlement Declaration as a Retrospective BIT’ in The Iran–United States Claims Tribunal
at 25: The Cases Everyone Needs to Know for International and Investor–State Arbitration (C. Drahozal
and C. Gibson, eds, New York, Oxford University Press, 2007), 375.
162 Iran–United States Claims Settlement Declaration, art. II(1). See also Chapter 2, Section 4.1
(on the Iran–United States Claims Tribunal).
163 Cf. Caron, fn. 161, at 379.
164 Iran–United States Claims Settlement Declaration, art. V (‘The Tribunal shall decide all cases
on the basis of respect for law, applying such choice of law rules and principles of commercial and
international law as the Tribunal determines to be applicable, taking into account relevant usages of the
trade, contract provisions and changed circumstances’). See also F. Rigaux, ‘Les situations juridiques
individuelles dans un système de relativité générale’ (1989-I) 213 Recueil des Cours, at para. 86 (‘[L]e
Tribunal ne se prononce pas nécessairement sur des questions de droit international. C’est, pour
l’essentiel un contentieux de droit international privé qui lui est déféré, en raison de la compétence
exercée sur des actions dont auraient dû normalement connaître les tribunaux américains ou les
tribunaux iraniens’ [The tribunal does not rule necessarily on matters of international law. It is
essentially a private international law dispute that is referred to it, because of the jurisdiction it exercises
over claims that should normally have been heard in US or Iranian courts.] [references omitted]);
Chapter 3, Section 3.2.2.2 (on the Iran–United States Claims Settlement Declaration).
165 CMI International, Inc. v Ministry of Roads and Transportation, Iran, 4 Iran–U.S. C.T.R. 263.
See also J.R. Crook, ‘Applicable Law in International Arbitration: The Iran–U.S. Claims Tribunal
Experience’ (1989) 83 Am. J. Int’l L. 278, 299–300; Chapter 3, Section 3.2.2.2 (on the Iran–United
States Claims Settlement Declaration).
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The Scope of the Arbitration Agreement

127

This link between the nature of the claim and the applicable law relates also to the
identity of the respondents in each particular case. The Claims Settlement Declaration
defines ‘Iran’ and the ‘United States’, respectively, as the Government of Iran or of the
United States, and any of their political subdivisions; and any agency, instrumentality,
or entity controlled by those Governments, or any political subdivision thereof.166 The
fact that the respondent therefore may not be a ‘subject of international law’ proper,
entails that it may not be held responsible for expropriation, a claim that could be based
in international law. As stated in Starrett Housing Corp. v Iran (1983):
The Tribunal determines that the claims as they are made at this stage of the proceedings are
based solely on expropriation of the Claimants’ property rights [ . . . ]. The only proper Respondent for such an expropriation claim is the Government of the Islamic Republic of Iran, and
consequently the Tribunal dismisses Bank Markazi Iran, Bank Omran, and Bank Mellat as
Respondents.167

The consequences this may have for the decision to apply national or international law
to the merits have been pointed out by Caron:
[T]he private municipal claim could be brought against the whole range of respondents possible
under Article VII(3), while the public international claim could only be brought against the
government of Iran. In the private municipal law claim, the Tribunal’s analysis as to choice of law
under Article V led to application of the law of the contract, general principles of municipal law, trade
usages, and occasionally a specific municipal law. In contrast, in the public international law
claim, the Tribunal necessarily applied under Article V the applicable public international law.168

3.3. Interim conclusions
Arbitration agreements play an important role in the ability of tribunals to apply
national and/or international law to the merits of investment disputes. While broadly
worded dispute settlement clauses allow for the bringing of claims of both a national
and international nature, clauses of a more narrow scope may limit the tribunal’s
jurisdiction to national or international claims. As was demonstrated, the corollary
effect on the applicable law is frequently stipulated in the choice-of-law clause contained in the same instrument. Thus, arbitration agreements that restrict the tribunal’s
competence to claims of an international nature are often coupled with a choice-of-law
clause referring solely to international law sources. Contrariwise, instruments containing arbitration agreements of a broader nature regularly stipulate the application of
national and international law.
166 Iran–United States Claims Settlement Declaration (1981), art. VII(3)–(4). See also C.
H. Brower, II, ‘Book Review and Note: The International Law Character of the Iran–United States
Claims Tribunal. By Moshen Mohebi’ (2000) 94 Am. J. Int’l L. 813, at 813–14 (according to Brower,
these definitions ‘include entities far beyond any customary understanding of the “state” or “government” ’); Chapter 1, Section 2 (on the scope of and terminology used in the study).
167 Starrett Housing Corp. v Iran, Interlocutory Award, 19 December 1983, para. 258. See also
Mobil Oil et al. v Iran, Partial Award, 14 July 1987, para. 75 (‘[W]hen a claim is based on an alleged
breach of contract, the Tribunal first must determine whether the alleged breach actually took place
[ . . . ]. [I]t becomes necessary to rely upon the law applicable to the contract. This is also the case when
the Tribunal must decide upon the alleged liability of an entity other than Iran or the United States,
when the entity is not a subject of international law’); Fedders Corp. v Iran, Decision No. DEC 51250–3, 13 Iran–U.S. C.T.R. 97 (28 October 1986) (‘[T]he wording of the Statement of Claim
indicated clearly that a part of the claim alleged by the Claimant was based on the nationalization or
taking of assets by Iran. Therefore it was clear from the Statement of Claim that Iran was intended to be
a Respondent in this case’).
168 Caron, fn. 161, at 380.
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The Scope of the Arbitration Agreement

4. Counterclaims by Host States
Depending on the arbitration agreement, host states may present counterclaims against
foreign investors.169 One of the issues that arises in that context, and which we will
discuss in this section, is whether such counterclaims must be of the same national or
international nature as the initial claim presented by the foreign investor. Posed as a
question, may a host state bring a counterclaim in national law against a claim requiring
the application of international law? This question is particularly pertinent in investment treaty arbitration in light of the fact that most claims brought against host states
pursuant to investment treaties are based on alleged violations of those treaties and
hence are of an international nature. Before venturing an answer, we will first make
some observations concerning the purpose of counterclaims, and secondly examine the
situations in which host states may present counterclaims in investment treaty
arbitration.
The right of the respondent to file a counterclaim170 in opposition to the claimant’s171 initial claim in the same legal proceedings is in principle admitted by all
national legal systems,172 as well as in interstate proceedings.173 The rationale for
such consolidation of claims is procedural economy and the better administration of
justice; and for that reason, one of the main features of a counterclaim is its connexity or
relatedness with the initial claim. When such connexity is present, separate adjudications would require the examination of the same evidence, result in delays and
corresponding costs, and possibly lead to inconsistent decisions. As Ben Hamida states:

169 On this topic, see generally P. Lalive and L. Halonen, ‘On the Availability of Counterclaims in
Investment Treaty Arbitration’ in 2 Czech Y.B. Int’l L. (New York, NY, Juris Publishing, 2011), 141.
170 In presenting a counterclaim, the respondent seeks to achieve more than the dismissal of the
applicant’s claim, and it should therefore be distinguished from a defence on the merits. See G. Scelle,
‘Report on Arbitration Proceedings, Submitted to the International Law Commission in 1949’ (1950)
II YILC 137, para. 78 (last visited 14 June 2009); Application of the Convention on the Prevention and
Punishment of the Crime of Genocide (Bosnia and Herzegovina v Yugoslavia), Counter-Claims, Order, 17
December [1997] ICJ Rep. 243, para. 27. A counterclaim should also be differentiated from a claim of
set-off. See D. Caron et al., The UNCITRAL Arbitration Rules: A Commentary (Oxford, Oxford
University Press, 2006), 409–10 (‘[A] counter-claim is a separate claim, whereas a set-off “claim” is
a defensive pleading that money owed by the main claimant to the defendant be counter-balanced
against the claim.’ Unlike a set-off, the counterclaim must still be decided upon by the arbitrators when
the original claim is withdrawn or settled. Further, a demand based on a counterclaim may exceed
the amount of the original claim while a set-off demand may not.)
171 Cf. Saluka Investments B.V. v Czech Republic, Decision on Jurisdiction over the Czech Republic’s Counterclaim, 7 May 2004 (P. Behrens, L.Y. Fortier, A. Watts, arbs), para. 49 (‘It is a cardinal
principle relating to the bringing of counterclaims [ . . . ] that the necessary parties to the counterclaim
must be the same as the parties to the primary claim’); Hamester v Ghana, fn. 36, Award, at para. 356.
See also UNCITRAL Arbitration Rules (2010), art. 4(2)(f) (the response to the notice of arbitration
may also include ‘[ . . . ] A notice of arbitration in accordance with article 3 in case the respondent
formulates a claim against a party to the arbitration agreement other than the claimant’).
172 See C. Antonopoulos, Counterclaims before the International Court of Justice (The Hague etc.,
T.M.C. Asser Press, 2011), 7 (‘The right of a respondent to bring counterclaims or “cross action” is
admitted by virtually all municipal civil procedure legislation’ [references omitted]).
173 See Antonopoulos (‘The right to present counterclaims is admitted in litigation on the
international plane’ [references omitted]); Islamic Republic of Iran v The United States of America,
Case No. B1 (Counterclaim), Interlocutory Award, 9 September 2004, Award No. ITL 83-B1-FT, at
para. 87; and at fn. 58 (listing mixed arbitral tribunals that recognized a party’s right to file counterclaims even when their constitutive instruments did not expressly refer to counterclaims). See also Iran
and The United States, Request for Interpretation: Jurisdiction of the Tribunal with respect to claims by
the Islamic Republic of Iran against nationals of the United States of America, Case No. A/2, Decision
No. Dec 1-A2-FT, 13 January 1982, 1 Iran–U.S. C.T.R. 101, at 103 (‘[A] right of counter claim is
normal for a respondent’).
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Counterclaims by Host States

129

L’exclusion des demandes reconventionnelles entraîne une multiplication d’instances et suscite
des problèmes de litispendance et de connexité très délicats. L’acceptation de ces demandes
assure, en revanche, une meilleure administration de la justice, réalise une économie de procès et
permet aux arbitres d’avoir une vue d’ensemble des prétentions respectives des parties et de
statuer de façon plus cohérente. [The exclusion of counterclaims results in a higher number of
proceedings and creates difficult problems of lis pendens and connexity. On the other hand, the
acceptance of these counterclaims provides both a better administration of justice and judicial
economy and it allows arbitrators to have an overview of the respective claims of the parties and to
decide disputes in a more consistent fashion.]174

For this reason, also arbitration rules and arbitration laws envisage the bringing of
counterclaims175—a possibility of which host states have taken advantage in arbitration
proceedings with foreign investors.176 Traditionally, arbitral tribunals have accepted
such counterclaims where the investor’s claim was based on a preexisting contract with
the host state, which also included an arbitration clause.177 Again, the question that will
be addressed here is whether the host state may also present counterclaims in arbitration
proceedings where the arbitration agreement originates in a unilateral arbitration offer
by the host state, as provided in an investment treaty concluded with the investor’s
home state, i.e., in arbitration without privity.178
As will be demonstrated, a significant obstacle in this respect relates to the consensual
character of arbitration. A counterclaim constitutes a separate and independent claim
by virtue of which the host state may be awarded a remedy vis-à-vis the investor, and it
is therefore reasonable that the latter must be deemed to have consented to the bringing
of that counterclaim. This is clearly spelled out in the ICSID Convention, according to
174 W. Ben Hamida, ‘L’arbitrage Etat-investisseur cherche son équilibre perdu: Dans quelle mesure
l’Etat peut introduire des demandes reconventionnelles contre l’investisseur prive?’ (2005) 7(4)
International Law FORUM du droit international 261, 270–1 (references omitted). See also Antonopoulos, fn. 172, at 10; Caron et al., fn. 170, at 412. Cf. Application of the Convention on the Prevention
and Punishment of the Crime of Genocide, fn. 170, Counter-Claims Order, at para. 30; Case Concerning
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda), CounterClaims Order, 29 November [2001] ICJ Rep. 660, para. 44; Declaration of Judge ad hoc Verhoeven,
at 684; Case Concerning Jurisdictional Immunities of the State (Germany v Italy) (Counterclaim), Order
of 6 July 2010, ICJ General List No 143, Judge Cançado Trindade, paras 15, 18–19.
175 See, e.g., ICSID Convention (1965), art. 46; ICSID Additional Facility Rules, art. 47(1) (as
amended effective 10 April 2006); UNCITRAL Arbitration Rules (2010), arts 4(2)(e), 21(3); Rules of
the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (as in force as from 1 January
12010), art. 5; ICC Arbitration Rules (2012), art. 5; LCIA Arbitration Rules (1998), art. 2; Iran–
United States Claims Settlement Declaration (1981), art. II(1); UNCITRAL Model Law (2006),
Search Term End art. 2(f); English Arbitration Act (1996), art. 47; German Arbitration Act (1998),
section 1046(3).
176 See Dugan et al., fn. 109, at 153–6.
177 See, e.g., Lena Goldfields Ltd v Soviet Government, Award, September 1930, referred to in
A. Nussbaum, ‘The Arbitration Between the Lena Goldfields, Ltd and the Soviet Government’
(1950) 36 Cornell L.Q. 31, 43, para. 8; S.A.R.L. Benvenuti & Bonfant v People’s Republic of the Congo,
ICSID Case No. ARB/77/2, Award, 8 August 1980 (J. Trolle, R. Bystricky, E. Razafindralambo, arbs);
Maritime International Nominees Establishment (MINE) v Republic of Guinea (Defendant), ICSID Case
No. ARB/84/4, Award, 6 January 1988 (D.E. Zubrod, J. Berg, D.K. Sharpe, arbs); Amco Asia Corporation v Republic of Indonesia, ICSID Case No. ARB/81/1, Award in resubmitted case, 5 June 1990 (R.
Higgins, M. Lalonde, P. Magid, arbs); Adriano Gardella SpA v Republic of the Ivory Coast, ICSID Case
No. ARB/74/1, Award, 29 August 1977 (P. Cavin, J.M. Grossen, D. Poncet, arbs); Klöckner IndustrieAnlagen GmbH v United Republic of Cameroon, ICSID Case No. ARB/81/2, Award, 21 October 1983
(E. Jimnez de Arechaga, W.D. Rogers, D. Schmidt, arbs); Atlantic Triton Company Limited v People’s
Revolutionary Republic of Guinea, ICSID Case No. ARB/84/1, Award, 21 April 1986 (P. Sanders, J.-F.
Prat, A.J. van den Berg, arbs). For a more recent case, see RSM v Grenada, fn. 58, Award.
178 See J. Paulsson, ‘Arbitration Without Privity’ (1995) 10(2) ICSID Rev.-FILJ 232 (noting that
‘arbitration without privity’ is also envisaged in investment laws of the host state); Chapter 2, Section 2
(on features of the arbitral process).
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130

The Scope of the Arbitration Agreement

which a counterclaim must fall ‘within the scope of consent of the parties’.179 Consent
is also implicit in the 2010 UNCITRAL Arbitration Rules, which provide that ‘the
respondent may make a counterclaim [ . . . ] provided that the arbitral tribunal has
jurisdiction over it’,180 as well as in the UNCITRAL Model Law on International
Commercial Arbitration.181
Whereas in the traditional scenario of arbitration with privity the arbitration clause
would, as a rule, be broad enough to cover claims by both the investor and the host state
based on their mutual rights and obligations under the contract,182 the same is not
necessarily the case in treaty arbitration.183 This is because investment treaties focus on
investor rights and host state obligations, not vice versa. In light of this fact, not only
may a host state counterclaim infringe upon the consent requirement, it might also run
counter to what has been suggested to be the object and purpose of treaty arbitration: to
grant the investors a one-sided right of ‘quasi-judicial review’ of national regulatory
action contrary to international law.184 Yet a further complication is the connexity
requirement, which in the context of arbitration without privity proceedings raises
interesting questions concerning the need for symmetry in the legal nature of the claim
and counterclaim. While this is generally not an issue where the investor’s claim and the
host state’s counterclaim are based on the same contract, the situation is different in
cases in which, for instance, a contractual counterclaim is presented against a treaty
claim or an alleged violation of customary international law.
At the same time, the rejection of counterclaims may lead a host state to seek relief in
its own courts or in another, contractually agreed, arbitration forum. As stated previously, this may be inefficient and costly, and it could also lead to contradictory
decisions. Hence, the consolidation of claims might not only be in the interest of
both parties; it may also safeguard the integrity of the legal system as a whole, and
179 ICSID Convention (1965), art. 46. Cf. ICSID Arbitration Rules, art. 40(1). See also ICSID
Additional Facility Rules (2006), art. 47(1) (a counterclaim must be ‘within the scope of the arbitration
agreement between the parties’). Cf. Roussalis v Romania, fn. 82, Award, at para. 864 (‘[T]he first issue
which the Tribunal has to determine is whether [ . . . ] the Parties consented to have the State’s
counterclaims arbitrated’ [emphasis in original]).
180 UNCITRAL Arbitration Rules (2010), art. 21(3). Note that the 1976 UNCITRAL Rules
required the counterclaim to arise out of the same contract as the initial claim. See UNCITRAL
Arbitration Rules, art. 19(3) (1976).
181 See UNCITRAL Model Law (2006), arts 2(f), 7; K.P. Berger, ‘Set-Off in International Economic
Arbitration’ (1999) 15(1) Arb. Int’l 53, at } V(a)(i) (‘[I]t was made clear during the deliberations of the
Working Group that this restriction to the scope of the arbitration agreement “is self-evident in view of the
fact that the jurisdiction of the arbitral tribunal is based on, and given within the limits of, that
agreement” ’). Cf. Application of the Convention on the Prevention and Punishment of the Crime of Genocide,
fn. 170, Counter-Claims Order, at para. 31; Antonopoulos, fn. 172, at 1. But see P.A. Karrer, ‘Jurisdiction
on Set-off Defences and Counterclaims’ (2001) 67(2) Arbitration 176, 177 (‘[A]n arbitral tribunal should
have jurisdiction over counterclaims between the same parties, even if these counterclaims are not covered
by the arbitration agreement which confers jurisdiction on the arbitral tribunal over the main claim’).
182 This mutuality is illustrated in the award of Government of Kuwait v American Independent Oil
Company, Award, 24 March 1982, discussed in M. Hunter and A.C. Sinclair, ‘The Arbitration
between Aminoil and Kuwait: A Story of Balance and Chance in Foreign Investments’ in Investment
Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary
International Law (T. Weiler, ed., London, Cameron May, 2005) (neither party was willing to be
categorized as the ‘Respondent’, because each had claims against the other).
183 For the possibility of host states to bring counterclaims when the arbitration agreement is based on
an offer to arbitrate provided by the host state in its national investment legislation, see H.E. Veenstra-Kjos,
‘Counterclaims by Host States in Investment Dispute Arbitration “Without Privity”’ in New Aspects of
International Investment Law/Les aspects nouveaux du droit des investissement internationaux 2004 (T. Wälde
and P. Kahn, Hague Academy of International Law, eds, Leiden, Nijhoff, 2007).
184 See fn. 267. See also Chapter 1, Section 2 (on the scope of and terminology used in the study).
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Counterclaims by Host States

131

investment law as a separate discipline in particular.185 Furthermore, as host state
counterclaims would be a means to enforce investor obligations,186 they could also
ensure a degree of procedural and substantive equality between the parties, and as such,
help correct a perceived asymmetry in the relationship between foreign investors and
host states in treaty arbitration.187 In this respect, Lalive and Halonen predict that
‘States would probably have more faith in the process of investment treaty arbitration if
they saw that it could also provide quality adjudication of their own grievances in
appropriate circumstances’.188 We also note that UNCTAD, in its recent World
Investment Report, suggests that states include express provisions on counterclaims
in international investment agreements.189
Indeed, arbitral practice reveals an increasing resort to counterclaims by host states.
The first example of this development appears to be Alex Genin v Estonia (2001), in
which the counterclaim was dismissed on the merits.190 In Saluka Investments B.V. v
Czech Republic (2004), the counterclaims were denied on the following bases: first, that
the contractual counterclaims were subject to arbitration in a different forum; and
secondly, because the other counterclaims involved non-compliance with the general
law of the Czech Republic, they were not sufficiently closely connected with the
subject-matter of the original claim so as to fall within the tribunal’s jurisdiction
under the BIT.191 Then there is the case Desert Line Projects LLC v Republic of
Yemen (2008), in which the ICSID Tribunal dismissed the counterclaim, but partially
upheld the claim for set-off.192

185 See Lalive and Halonen, fn. 169, at para. 7.01 (the authors note, however, that the investor is
unlikely to consent to the admissibility of the host state’s counterclaim); Saluka v Czech Republic, fn.
171, Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 24 (the host state
argued that ‘the exercise of jurisdiction by the tribunal over the respondent’s counterclaim would
advance the goals of economy and efficiency in international dispute resolution, since otherwise the
respondent would have to pursue its claim elsewhere’).
186 See, e.g., T. Weiler, ‘Balancing Human Rights and Investor Protection: A New Approach for a
Different Legal Order’ (2004) 27 B.C. Int’l & Comp. L. Rev. 429, 449 (Weiler envisages host state
counterclaims against the investor for a breach of international law in relation to the activities of the
investment in its territory, and in particular, for human rights violations). For an alternative means of
‘enforcement’, see O. Schachter, International Law in Theory and Practice (Dordrecht, Nijhoff, 1991),
324 (Schachter interprets the standard of ‘appropriate,’ ‘just’ and ‘equitable’ compensation’ to mean
that ‘[i]n cases where the company had by practices contrary to good standards of operation,
diminished the value of a natural resource, it would not be unjust for the government to reduce its
compensation to make up for the damage’). See also fn. 329.
187 See Ben Hamida, fn. 174, at 263. It could be argued, though, that such ‘imbalance’ is the price
the host state pays for making the offer with the hope of attracting foreign investments and thereby
improving the nation’s economic development.
188 Lalive and Halonen, fn. 169, at para. 7.42.
189 UNCTAD, World Investment Report 2012: Towards a New Generation of Investment Policies
(July 2012), at xxx, 135, 150, 152, 154.
190 See Alex Genin v Estonia, fn. 155, Award, at para. 376. It has been suggested that where a
counterclaim is clearly unfounded, arbitrators may avoid taking a stand on jurisdictional issues by
dismissing the counterclaim on the merits. See M. Pellonpäa and D.D. Caron, The UNCITRAL
Arbitration Rules as Interpreted and Applied: Selected Problems in Light of the Practice of the Iran–United
States Claims Tribunal (Helsinki, Finnish Lawyers’ Publishing, 1994), 354. This might have been the
case in Alex Genin v Estonia. See Alex Genin, fn. 155, Award, at para. 376 (the ‘confusion’ of the host
state’s counterclaim, being expressed in varying fashions, amounts and places, need not be resolved, as
‘Estonia has failed to demonstrate to the satisfaction of the Tribunal the merits of its request’). See also
at fn. 101 (the Republic of Estonia did not appear to be the proper counterclaimant).
191 See Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over the Czech Republic’s
Counterclaim.
192 Desert Line Projects LLC v Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February
2008 (P. Tercier, J. Paulsson, A.S. El-Kosheri, arbs), paras 218, 223–35.
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132

The Scope of the Arbitration Agreement

We also refer to three cases in which the host state presented a counterclaim for nonmaterial injury. In Limited Liability Company Amto v Ukraine (2008), the SCC
Tribunal dismissed the counterclaim on the basis that the respondent had not put
forth any basis in law to substantiate its counterclaim.193 Similarly, in Cementownia
‘Nowa Huta’ S.A. v Republic of Turkey (2009), the ICSID Tribunal dismissed the
respondent’s request because ‘it is doubtful that such a general principle [abuse of
process] may constitute a sufficient legal basis for granting compensation for moral
damages’.194 In Europe Cement Investment & Trade S.A. v Republic of Turkey (2009),
the respondent’s request for declaratory relief and monetary compensation was denied
by the ICSID Tribunal, partly on evidentiary grounds195 and partly since the respondent was deemed to have received ‘a form of “satisfaction” ’ by way of the award itself and
the decision on costs.196
There is also the ICSID case of Gustav FW Hamester GmbH & Co KG v Republic of
Ghana (2010), in which the respondent requested the tribunal to: ‘ORDER Hamester
to pay to the Government damages, moral or otherwise, for losses it and/or the [Ghana
Cocoa Board] have sustained as a result of Hamester’s conduct in such sum as the
Tribunal during the course of this arbitral proceeding may determine as a result of its
inquiry into damages, plus interest per annum’.197 While noting that ‘[i]t has in theory
been accepted that a respondent State could have a right of action to file a counterclaim
against an investor under a bilateral investment treaty’,198 the counterclaim was rejected
because it concerned alleged losses suffered not by the state but by the Cocoa Board,
which was neither a party to the arbitration nor an organ of the state.199 Moreover, the
host state had neither specified the basis for the jurisdiction over the counterclaim nor
the losses it allegedly suffered.200
In Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v
Mongolia (2011), the respondent asserted as many as seven counterclaims of various
types.201 These were rejected as the tribunal found that they raised issues falling within
the scope of the exclusive jurisdiction of Mongolian courts; that they were matters
governed by Mongolian public law; that there was no reasonable nexus between them
and the investors’ claim so as to justify their joint consideration; and on evidentiary
grounds.202

193 Limited Liability Company Amto v Ukraine, SCC Case No. 080/2005, Final Award, 26 March
2008 (B.M. Cremades, P. Runeland, C. Soderlund, arbs), paras 7, 118.
194 Cementownia ‘Nowa Huta’ S.A. v Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award,
17 September 2009 (P. Tercier, M. Lalonde, C. Thomas, arbs), paras 170–171. See also at para. 171
(‘[T]he Arbitral Tribunal deems it more appropriate to sanction the Claimant with respect to the
allocation of costs [ . . . ]. In any case, since the Arbitral Tribunal has already accepted the Respondent’s
request with respect to the fraudulent claim declaration, the Respondent’s objective is already achieved’
[emphasis added]); see also at paras 162–163.
195 Europe Cement Investment & Trade S.A. v Republic of Turkey, ICSID Case No. ARB(AF)/07/2,
Award, 13 August 2009 (D.M. McRae, L. Lévy, J.D.M. Lew, arbs), para. 181 (the tribunal did not
‘consider that exceptional circumstances such as physical duress are present in this case to justify moral
damages’).
196 Europe Cement, at paras 176, 181, 186.
197 Hamester v Ghana, fn. 36, Award, at para. 351.
198 Hamester v Ghana, at para. 353 (referring to Saluka v Czech Republic, fn. 171, Decision on
Jurisdiction over the Czech Republic’s Counterclaim).
199 Hamester v Ghana, at para. 356.
200 Hamester v Ghana, at paras 352, 357.
201 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Mongolia,
Award on Jurisdiction and Liability, 28 April 2011 (M. Lalonde, H.A.G. Naón, B. Stern), para. 678.
202 Paushok v Mongolia, at paras 694–698.
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Counterclaims by Host States

133

The host state was also unsuccessful in Spyridon Roussalis v Romania (2011).203 The
ICSID Tribunal, by majority decision, rejected the counterclaims due to lack of
consent on the part of the investor,204 a decision that was challenged by the third
arbitrator, Reisman.205 Contrariwise, the counterclaim was accepted, yet denied on the
merits, in Antoine Goetz and others v Republic of Burundi (2012).206
Additionally, the tribunals in SGS v Pakistan (2002–2003)207 and SGS v Philippines
(2004)208 made a note of, without dismissing, the investors’ suggestion that there
would be jurisdiction over host state counterclaims. Further, in Sempra Energy International v Argentine Republic (2007), the ICSID Tribunal observed:
The Respondent has argued that the Government also had many expectations in respect of the
investment that were not met or were otherwise frustrated. Apart from the question of investment
risk, it is alleged that there was, inter alia, the expectation that the investor would bear any losses
resulting from its activity, work diligently and in good faith, not claim extraordinary earnings
exceeding by far fair and reasonable tariffs, resort to local courts for dispute settlement, dutifully
observe contract commitments, and respect the regulatory framework. The Tribunal notes that to
the extent that any such issues would be within the Tribunal’s jurisdiction to decide, and could
have resulted in breaches of the Treaty,209 the Respondent would be entitled to raise a
counterclaim.210

Thus, while no host state has yet prevailed on the merits of counterclaims in an
investment treaty arbitration, we can conclude that practice supports the possibility
that they may be brought, as long as certain conditions are fulfilled. In examining these
conditions more comprehensively, we will first consider various offers by the host state
that form the basis for the arbitration agreement. We will then discuss the connexity
requirement, which involves applicable law issues.

4.1. The arbitration agreement
A tribunal’s jurisdiction over counterclaims stands or falls on the parties’ arbitration
agreement. Since in investment treaty arbitration this agreement is based on the host
state’s offer, we will in the following analyse the different wording of such offers
through a selective survey of various treaties. The two most important factors in this
respect are first, the instrument’s definition of arbitrable disputes (the tribunal’s
jurisdiction ratione materiae), and more specifically the extent to which it encompasses
investor obligations; and secondly, whether it grants locus standi to either party, or
solely the investor (jurisdiction ratione personae). As will be seen, jurisdiction and
admissibility may also depend on the possibility of the investor, through its acceptance,
to limit the scope of the arbitration agreement; and whether the parties in concert may
expand upon it.

203 Roussalis v Romania, fn. 82, Award, at para. 864.
204 Roussalis v Romania, at para. 872.
205 Roussalis v Romania, Declaration by M. Reisman, 28 November 2011.
206 Antoine Goetz and others v Republic of Burundi, ICSID Case No. ARB/01/2, Award, 21 June
2012 (G. Guillaume, J.-D. Bredin, A.S. El-Kosheri, arbs).
207 See SGS v Pakistan, fn. 30, Procedural Order, 16 October 2002, 18–1 ICSID Rev.-FILJ 293,
303 (2003); Decision on Jurisdiction, at para. 108.
208 See SGS v Philippines, fn. 98, Decision on Jurisdiction, at para. 40.
209 But see Chapter 5, Section 2.3.2 (on non-contractual claims) (footnote not in original).
210 Sempra Energy International v Argentine Republic, ICSID Case No. ARB/0/16, Award, 28
September 2007, at para. 289 (emphasis added).
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134

The Scope of the Arbitration Agreement

4.1.1. Arbitrable claims (jurisdiction ratione materiae)
Investment treaties are designed to attract foreign investments, and for that purpose
they extend an array of rights to investors, such as ‘national’, ‘most-favoured-nation’,
and ‘fair and equitable’ treatment; full protection and security; as well as the prohibition of expropriation of investments except in the public interest and against compensation.211 The focus on investor rights presents a hurdle for host state counterclaims.
This is because the offer to arbitrate, and the investor’s acceptance of that offer, must
necessarily be broad enough to encompass investor obligations that could constitute the
basis for the state’s grievance.212 This partly depends on the treaty’s definition of
arbitrable investment disputes.

4.1.1.1. Inclusion of investor obligations
As explained in Section 3.2, most investment treaties contain broad dispute settlement
clauses and permit ‘any’ or ‘all’ disputes relating to investments to be submitted to
arbitration.213 For instance, the BIT involved in Saluka refers to ‘[a]ll disputes between
one Contracting Party and an investor of the other Contracting Party concerning an
investment of the latter’.214 A different example is the US-Estonia BIT involved in Alex
Genin, which lists submittable claims as those ‘arising out of or relating to: (a) an investment agreement [ . . . ]; (b) an investment authorization [ . . . ]; or (c) an alleged breach of
any right conferred or created by this Treaty with respect to an investment’.215 Similar
language is employed in the Belgium–Luxembourg–Burundi BIT at issue in Goetz:
[U]n différend relatif à un investissement est défini comme un différend concernant: (a)
l’interprétation ou l’application d’un accord particulier d’investissement entre une Partie contractante
et un investisseur de l’autre Partie contractante; (b) l’interprétation ou l’application de toute autorisation d’investissement accordée par les autorités de l’Etat hôte régissant les investissements étrangers;
(c) l’allégation de la violation de tout droit conféré ou établi par la présente Convention en matière
d’investissement.[A dispute concerning an investment is defined as a dispute concerning: (a) the
interpretation or application of a particular investment agreement between a Contracting Party and
an investor of the other Contracting Party, (b) the interpretation or application of any investment
authorization granted by the authorities of the host state governing foreign investment, (c) the
alleged breach of any right conferred or created by this Investment Agreement.]216

Whereas these clauses would appear to cover disputes concerning alleged wrongful
conduct committed not only by the host state but also by the investor, there appears to
be some controversy whether they would cover contractual disputes in particular. This
question is of great relevance to the acceptance of counterclaims, as many—if not
most—investment disputes have a contractual origin,217 and because contracts impose

211 See, e.g., Parra, fn. 84, at 290–1, 293. See also Chapter 1, Section 2 (on the scope of and
terminology used in the study).
212 Cf. A.K. Hoffmann, ‘Counterclaims by the Respondent State in Investment Arbitrations—The
Decision on Jurisdiction over Respondent’s Counterclaim in Saluka Investments B.B. v Czech
Republic’ TDM 3(5) (2006) 9, at 10.
213 Section 3.2 (on arbitration without privity).
214 Netherlands–Czech/Slovak BIT, art. 8 (1991), referred to in Saluka v Czech Republic, fn. 171,
Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 21.
215 Alex Genin v Estonia, fn. 155, Award, at para. 325 (referring to US-Estonia BIT, art. VI(1)).
216 Belgium–Luxembourg–Burundi BIT, art. 8(1); Goetz v Burundi, fn. 206, at paras 277–278.
217 See, e.g., S.A. Alexandrov, ‘Breaches of Contract and Breaches of Treaty: The Jurisdiction of
Treaty-Based Arbitration to Decide Breach of Contract Claims in SGS v Pakistan and SGS v
Philippines’ (2004) 5(4) Journal of World Investment and Trade 555.
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Counterclaims by Host States

135

on investors obligations that might form the basis of host state counterclaims.218
Whereas an affirmative answer would clearly be warranted with regard to the aforementioned US-Estonia BIT219 and the Belgium-Luxembourg-Burundi BIT,220 we
recall that tribunals have differed in their interpretation of more generic and seemingly
broader clauses referring to ‘investment disputes’.221 We also recall our conclusion that
the better interpretation favours a broad construction, allowing the bringing of claims
of both a national and international nature.222
We submit that it follows from this interpretation of broadly worded arbitration
agreements that they also allow for the bringing of host state counterclaims. This is
affirmed by the tribunal in Saluka:
The Tribunal agrees [with the Parties] that, in principle, the jurisdiction conferred upon it by
Article 8 [of the Treaty], particularly when read with Article 19.3, 19.4 and 21.3 of the
UNCITRAL Rules, is in principle wide enough to encompass counterclaims. The language of
Article 8, in referring to ‘All disputes,’ is wide enough to include disputes giving rise to counterclaims, so long, of course, as other relevant requirements are also met. The need for a dispute, if it
is to fall within the Tribunal’s jurisdiction, to be ‘between one Contracting Party and an investor
of the other Contracting Party’ carries with it no implication that Article 8 applies only to
disputes in which it is an investor which initiates claims.223

There is normally no reason for the investor’s consent to be broader than is necessary to
enable its specific grievance to be submitted to arbitration. Accordingly, the investor
might seek to limit its acceptance to the part relating to alleged treaty violations, for
instance, expropriation.224 In that case, the required mutual consent between the
parties could arguably be seen to only exist to the extent of the overlap between the
host state’s offer to arbitrate and the investor’s acceptance of this offer, i.e., the alleged
expropriation. As Alvarez states: ‘[S]ince the investor’s consent will usually be given
only after the dispute has arisen, the scope of its consent can be expected to be quite
narrow, thus limiting the possibility of counterclaims by the disputing State Party.’225
It is suggested, however, that when the investor starts arbitration proceedings based
on an offer by the host state in an investment treaty, the investor accepts that offer as set
out in that treaty, nothing more and nothing less.226 Also Ben Hamida supports such a
218 Cf. Paulsson, fn. 178, at 247.
219 Cf. reference to ‘disputes arising out of or relating to an investment agreement’.
220 Cf. reference to ‘un accord particulier d’investissement entre une Partie contractante et un
investisseur de l’autre Partie contractante’ [an investment agreement between a Contracting Party and
an investor of the other Contracting Party].
221 See generally Section 3.2 (on arbitration without privity).
222 See Section 3.2 (on arbitration without privity).
223 Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 39.Cf. A.M. Steingruber, fn. 55, at paras 14.14, 14.21; Ben Hamida, fn. 174, at 264–5.
224 See, e.g., H.C. Alvarez, ‘Arbitration Under the North American Free Trade Agreement’ (2000)
16(4) Arb. Int’l 393, 410 (under NAFTA, ‘investors can be expected to focus their requests for
arbitration quite narrowly on the State Party’s measure which has caused each of them loss or damage’).
Cf. Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 26 (the claimant argued that the host state’s offer to arbitrate ‘was only accepted by
Claimant in respect of claims based on the Treaty, and the Parties’ mutual consent to arbitration was
limited accordingly’).
225 Alvarez, fn. 224, at 411. See also C.H. Schreuer, ‘Consent to Arbitration’ in UNCTAD: Dispute
Settlement: International Centre for Settlement of Investment Disputes (New York, United Nations,
2003), 30; A.R. Parra and I.F.I. Shihata, ‘The Experience of the International Centre for Settlement of
Investment Disputes’ (1999) 14 ICSID Rev-FILJ 299, 320; G. Petrochilos et al., ‘ICSID Convention,
Chapter IV, Section 3, Article 46 [Ancillary claims] 114’ in Concise International Arbitration (L.
A. Mistelis, ed., 2010), at para. 6; C.H. Schreuer et al., The ICSID Convention: A Commentary
(Cambridge, Cambridge University Press, 2009), 203, 756.
226 See Douglas, fn. 31, The International Law of Investment Claims, at para. 491.
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136

The Scope of the Arbitration Agreement

‘take it or leave it’ interpretation by stating that a limited acceptance by an investor may
be qualified as a counteroffer, i.e. a rejection, rather than an acceptance of the offer:
[N]ous avons proposé d’étendre la solution retenue dans la théorie générale des contrats en
considérant que toute réponse par laquelle la personne privée modifie le domaine de l’offre
initialement déterminé par la partie publique devrait s’analyser, non en une acceptation, mais en
un refus d’acceptation accompagné d’une contre-offre d’arbitrage adressée à l’Etat. [We proposed
to extend the solution found in the general theory of contracts so that any response by the private
party that changes the initial offer by the public party should be considered not as an acceptance
but a rejection of the offer followed by a counter-offer to arbitrate addressed to the state.]227

In a similar sense, the United Nations Convention on Contracts for the International
Sale of Goods provides in article 19(1) that ‘[a] reply to an offer which purports to be an
acceptance but contains additions, limitations or other modifications is a rejection of
the offer and constitutes a counter-offer’.228 In any event, and as will be discussed later,
the connexity requirement may have related—although not as far-reaching—consequences for the scope of counterclaims allowed.229

4.1.1.2. Exclusion of investor obligations
Other treaties, which are in a minority, specifically limit arbitrable claims to an
enumerated list of host state obligations.230 The fact that the arbitration agreement
only encompasses disputes concerning host state obligations does create an obstacle for
host state counterclaims. Since the parties have not agreed to settle through arbitration
disputes concerning investor obligations, any grievance against the investor would not
have a basis in the parties’ arbitration agreement, and would consequently seem to fall
outside the jurisdiction of the tribunal.231 This reasoning is supported by the ICSID
award in Roussalis, in which the majority stated:
It is not disputed that Respondent expressed its consent to arbitration in the BIT and that
Claimant accepted Romania’s offer to arbitrate. Contrary to Claimant however, Respondent
considers that such consent included consent to arbitrate counterclaims. Whether it is so must
be determined in the first place by reference to the dispute resolution clause contained in the
BIT. The investor’s consent to the BIT’s arbitration clause can only exist in relation to
counterclaims if such counterclaims come within the consent of the host State as expressed in
the BIT.232

In dismissing jurisdiction over the counterclaim, the tribunal, in its majority, placed
emphasis on the fact that the wording of the arbitration clause in the BIT, which
provided that if ‘[d]isputes between an investor of a Contracting Party and the other
Contracting Party concerning an obligation of the latter under this Agreement, in relation to
an investment of the former’, cannot be settled in an amicable way, ‘the investor
concerned may submit the dispute either to the competent courts of the Contracting
Party in the territory of which the investment has been made or to international
227 Ben Hamida, fn. 174, at 269; Ben Hamida, ‘L’Arbitrage transnational unilateral: reflexions sur
une procedure reservee a l’initiative d’une personne prive contre une personne publique’ (Thèse pour le
Doctorat en droit de l’Université Panthéon-Assas (Paris II), 24 June 2003), 178, at para. 280. Cf.
Steingruber, fn. 55, at para. 14.21).
228 United Nations Convention on Contracts for the International Sale of Goods, 1980, art. 19(1).
Cf. American Law Institute, Restatement 2nd of the Law of Contracts } 95 (1981).
229 Section 4.2 (on factual and juridical connexity between claims and counterclaims).
230 See Section 3.2 (on arbitration without privity).
231 Cf. Steingruber, fn. 55, at para. 14.21.
232 Roussalis v Romania, fn. 82, Award, at para. 866.
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Counterclaims by Host States

137

arbitration’.233 According to the tribunal, this language ‘undoubtedly limit[s] jurisdiction to claims brought by investors about obligations of the host State. Accordingly the
BIT does not provide for counterclaims to be introduced by the host State in relation to
obligations of the investor.’234
In reasoning that reminds us of the link we made between the applicable law clause
and the scope of the dispute settlement clause as concerns investor claims,235 the
tribunal also quoted from article 9(4) of the BIT which provided that ‘[t]he arbitral
tribunal shall decide the dispute in accordance with the provisions of this Agreement
[the BIT] and the applicable rules and principles of international law . . . ’.236 Making
the same link, it then recalled:
870. Article 9(4) of the BIT further provides, in respect of the applicable law, that: ‘The arbitral
tribunal shall decide the dispute in accordance with the provisions of this Agreement [the BIT]
and the applicable rules and principles of international law...’
871. As mentioned above, the BIT imposes no obligations on investors, only on contracting
States. Therefore, where the BIT does specify that the applicable law is the BIT itself, counterclaims fall outside the tribunal’s jurisdiction. Indeed, in order to extend the competence of a
tribunal to a State counterclaim, ‘the arbitration agreement should refer to disputes that can also
be brought under domestic law for counterclaims to be within the tribunal’s jurisdiction.’237

Reisman disagreed with the analysis of the majority on the basis, first, that the investor
must be deemed to have consented to the bringing of counterclaims when instituting
ICSID proceedings:
When the States Parties to a BIT contingently consent, inter alia, to ICSID jurisdiction, the
consent component of Article 46 of the Washington Convention is ipso facto imported into any
ICSID arbitration which an investor then elects to pursue. It is important to bear in mind that
such counterclaim jurisdiction is not only a concession to the State Party: Article 46 works to the
benefit of both respondent state and investor.238

Reisman’s second reason for allowing counterclaims recalls the beneficial effects of
counterclaims: procedural economy and the better administration of justice:
In rejecting ICSID jurisdiction over counterclaims, a neutral tribunal—which was, in fact,
selected by the claimant—perforce directs the respondent state to pursue its claims in its own
courts where the very investor who had sought a forum outside the state apparatus is now
233 Roussalis v Romania, at para. 868 (referring to article 9 of the Agreement between the
Government of Romania and the Government of the Hellenic Republic on the Promotion and
Reciprocal Protection of Investments, which entered into force on 23 May 1997 [emphasis in award]).
234 Roussalis v Romania, at para. 869. Cf. B. Hanotiau, Counterclaims in ICSID Arbitration,
Conference Presentation, Bali, March 2012, at para. 21, available at <http://www.iareporter.com/
downloads/20120703> (last visited 9 July 2012) (referring to the narrow dispute settlement clause in
article 9(1) of the Romania–Greece, Hanotiau—one of the arbitrators in Roussalis—explains: ‘This is
the scope of Romania’s offer of consent. When Roussalis filed its ICSID request for arbitration, it
accepted that offer of consent to arbitrate. Roussalis could have made a counter-offer expanding the
scope of the arbitration or simply consented to arbitrate Romania’s counterclaims once they were
filed—but chose not to. Since Roussalis never consented to arbitrate disputes concerning its own
obligations, it is the opinion of the commentators who approved the decision that the majority of the
tribunal properly held that it had no jurisdiction over the counterclaims’).
235 See Section 3.2 (on arbitration without privity).
236 Roussalis v Romania, fn. 82, Award, at para. 870 (referring to Lalive and Halonen, fn. 169, at
para. 7.19). But see at para. 306 (‘At the first session of the Arbitral Tribunal held on May 4, 2007, the
Parties agreed that Romanian law would govern the substantive merits of the dispute and that the BIT
would be treated as part of Romanian law’).
237 Roussalis v Romania, at para. 871.
238 Roussalis v Romania, fn. 82, Declaration by M. Reisman.
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138

The Scope of the Arbitration Agreement

constrained to become the defendant. (And if an adverse judgment ensues, that erstwhile
defendant might well transform to claimant again, bringing another BIT claim.) Aside from
duplication and inefficiency, the sorts of transaction costs which counter-claim and set-off
procedures work to avoid, it is an ironic, if not absurd, outcome, at odds, in my view, with the
objectives of international investment law.239

In light of our previous reasoning, however, it is suggested that such positive effects
cannot overcome the jurisdictional hurdle of limited jurisdiction ratione materiae240
combined, as in this case, with limited jurisdiction ratione personae.241
It should further be noted that while we agree with the reference the Roussalis
majority tribunal made to the applicable law clause in support of its rejection of the
counterclaim, this clause should not be determinative in the way suggested by Lalive
and Halonen: ‘Where the BIT does not specify any applicable law, the default rule is
that the lex specialis is the BIT itself, and counterclaims are likely to fall outside a
tribunal’s jurisdiction.’242 It is true that investment treaties with a narrow dispute
settlement clause tend to include an applicable law clause referring solely to sources of
an international law nature,243 and such a clause may support a narrow construction of
the dispute settlement clause. Yet, in our opinion, the latter should be determinative in
deciding on the jurisdiction over counterclaims, not the other way around.
While it was not expressly stated, the exclusion of investor obligations from the
dispute settlement clause in the relevant treaty also appears to have been a reason why
the SCC Tribunal dismissed the counterclaim in Amto v Ukraine (2008), a case
brought under the Energy Charter Treaty (ECT).244 As to the substance of the
counterclaim, the respondent stated that the claimant had ‘irresponsibly and insistently
disseminated to the SCC Institute and to the Arbitral Tribunal untrue information
about collusion between two state-owned entities, with the implication that Ukraine
was involved. The Respondent considers that “such dissemination does not deviate very
much from libel”.’245 The tribunal first noted that ‘[t]he jurisdiction over a State party
counterclaim under an investment treaty depends upon the terms of the dispute
resolution provisions of the treaty, the nature of the counterclaim, and the relationship
of the counterclaims with the claims in the arbitration’.246 After recalling that that the
Energy Charter Treaty provides for the application of the treaty itself and ‘the
applicable rules and principles of international law’,247 it dismissed the counterclaim
for lack of basis in law: ‘The Respondent has not presented any basis in this applicable
239 Roussalis v Romania. Cf. Goetz v Burundi, fn. 206, at para. 280. See also M.N. Bravin and A.
B. Kaplan, ‘Arbitrating Closely Related Counterclaims at ICSID in the Wake of Spyridon Roussalis v.
Romania’ TDM 4 (2012).
240 Roussalis v Romania, Award, at para. 43 (article 9 of the Greece–Romania BIT refers to the
settlement of ‘disputes between an investor of a Contracting Party and the other Contracting Party
concerning an obligation of the latter under this Agreement, in relation to an investment of the
former’).
241 Roussalis v Romania, Award, at para. 43 (article 9 of the Greece–Romania BIT states that ‘the
investor concerned may submit the dispute [ . . . ] to international arbitration’). See also Section 4.1.2
(on potential claimants (jurisdiction ratione personae).
242 Lalive and Halonen, fn. 169, at para. 7.31.
243 See Section 3.2 (on arbitration without privity). Indeed, the applicable law clause in the BIT
involved in Goetz v Burundi refers to national law in addition to international law. Goetz v Burundi, fn.
209, at para. 149.
244 Amto v Ukraine, fn. 193, Award.
245 Amto v Ukraine, at para. 117.
246 Amto v Ukraine, at para. 118.
247 Amto v Ukraine. Cf. Energy Charter Treaty (1994), art. 26(6). See also Section 3.2 (on
arbitration without privity).
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Counterclaims by Host States

139

law for a claim of non-material injury to reputation based on the allegations made
before an Arbitral Tribunal. Accordingly, the Arbitral Tribunal finds that there is no
basis for a counterclaim of this nature and it is accordingly dismissed.’248
Also the decision in Europe Cement supports our conclusion that the narrow dispute
settlement clause in the ECT constitutes an obstacle for host state counterclaims.249
Before rejecting, seemingly on evidentiary grounds, what came ‘close to an ancillary
claim under Article 47 of the Arbitration (Additional Facility) Rules’, the tribunal
observed that the ‘difficult question’ of awarding moral damages also ‘would entail an
analysis of the Tribunal’s jurisdiction to hear the claim’.250

4.1.2. Potential claimants (jurisdiction ratione personae)
The relevance of the scope of arbitrable claims to the acceptance or rejection of
counterclaims is supported by a reference to the tribunal’s jurisdiction ratione personae,
as stipulated in the treaty at hand. Whereas treaties with broader subject-matter jurisdiction may expressly provide that both the investor and the host state can present claims,
the narrower treaties tend to limit the right to institute proceedings to the investor.

4.1.2.1. The host state as potential claimant
An example of a treaty of the broader kind is the United States-Estonia BIT at issue in
Alex Genin, and which provides that if the dispute cannot be settled amicably, ‘the
national or company concerned may choose to consent in writing to the submission of
the dispute for settlement by binding arbitration’, according to, inter alia, the ICSID
Convention.251 Notably, the BIT goes on to specify that ‘[o]nce the national or company
concerned has so consented, either Party to the dispute may initiate arbitration in
accordance with the choice so specified in the consent’.252 Similar provisions are found
in, for instance, the UK-Jamaica BIT,253 the Iranian and the Peruvian Model BITs,254
and the ASEAN Agreement for the Promotion and Protection of Investments.255
A reasonable interpretation of these offers that envisage the possibility of the host
state constituting a potential claimant would be that the host state would also be
able to present counterclaims. After all, a counterclaim is ‘to be treated by the
arbitral tribunal essentially in the same manner as if it were an original claimant’s
248 Amto v Ukraine, fn. 193, Award, at para. 118.
249 Europe Cement, fn. 195, Award.
250 Europe Cement, at para. 181. Cf. Cementownia, fn. 194, Award, at para. 170 (also an ECT
case). Cf. P. Dumberry, How to Remediate Moral Damages Suffered by a State, Kluwer Arbitration Blog
(3 December 2009).
251 US–Estonia BIT, art. VI(3)(a).
252 US–Estonia BIT, at art. VI(3)(b) (emphasis added). See also G. Laborde, ‘The Case for Host
State Claims in Investment Arbitration’ (2010) 1(1) J. Int’l Disp. Settlement 97, 108 (‘[T]he majority of
the BITs concluded by the United States include an integrationist clause that incorporates a firm offer
to arbitrate conferring express standing to initiate arbitration upon the host State’).
253 U.K.–Jamaica BIT, art. 9.
254 Iranian Model BIT, art. 12(2) (‘In the event that the host Contracting Party and the investor(s)
can not agree within six months from the date of notification of the claim by one party to the other,
either of them may refer the dispute to the competent courts of the host Contracting Party or with due
regard to their own laws and regulations to an arbitral tribunal of three members [ . . . ]’); Peru Model
Agreement, art. 8.
255 ASEAN Agreement: An Agreement Among the Governments of Brunei Darussalam, the
Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore, and
the Kingdom of Thailand for the Promotion and Protection of Investments, art. X(2), 15 December
1987.
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140

The Scope of the Arbitration Agreement

demand’.256 As argued by the investor in SGS v Pakistan, the host state and its home
state, Switzerland, must have expressly contemplated that an ICSID tribunal could
consider the host state’s counterclaim because Article 9(3) of the BIT provides that
‘each party may start the procedure’.257

4.1.2.2. The investor as sole potential claimant
Contrariwise, treaties that restrict the tribunal’s subject-matter jurisdiction to host state
obligations are likely to limit the right to institute proceedings to the investor solely.
One example is the Energy Charter Treaty. Defining an arbitrable dispute as one
‘concern[ing] an alleged breach of an obligation of the [host state] under Part III [of the
Treaty]’, it provides that ‘the Investor party to the dispute may choose to submit it for
resolution [by an arbitral tribunal]’.258 Also the NAFTA does not envisage claims being
initiated by host states: an investor of a party (on behalf of an enterprise of another
party that is a juridical person that the investor owns or controls directly or indirectly)
may submit to arbitration a claim that another party has breached (a) specified
provision(s) of the NAFTA.259
If the inclusion of the host state as a potential claimant raises a presumption in favour
of counterclaims, the question naturally arises whether a similar exclusion would give
rise to a contrary presumption. On the one hand, one of the characteristics of a
counterclaim is that the respondent might have brought it in a separate action and
recovered judgment.260 As these instruments do not envisage claims being brought by
the host state, more express language in favour of counterclaims may therefore appear
necessary.261 In this respect, the Claims Settlement Declaration, establishing the Iran–
United States Claims Tribunal is illustrative, as the drafters expressly included the
possibility of the United States or Iran presenting counterclaims regardless of the
otherwise ‘one-way street’ nature of the proceedings.262
On the other hand, it could be questioned whether this reference to the investor’s
locus standi was intended by the drafters to have this exclusionary effect with respect to
256 UNCITRAL Secretariat, Possible Future Work in the Area of International Commercial Arbitration, 6 April 1999, A/CN.9/460, at para. 72. Cf. Application of the Convention on the Prevention and
Punishment of the Crime of Genocide, fn. 170, Counter-Claims Order, Declaration of Judge ad hoc
Kreca, at 262 (Kreca objected to the court’s characterization of the applicant’s claim as the ‘principal’,
rather than the ‘initial’ or ‘original’ claim).
257 SGS v Pakistan, fn. 30, Decision on Jurisdiction, at para. 109. Cf. Ben Hamida, fn. 174, at 270. See
also Case No. B1 (Counterclaim), fn. 173, at para. 89 (a lack of an express clause in the Claims Settlement
Declaration conferring the right to present counterclaims in interstate cases does not warrant the
conclusion that such counterclaims are prohibited, ‘since each Party could file claims against the other’).
258 See Energy Charter Treaty (1994), art. 26 (emphasis added). Contrariwise, it is open to both
investors and host states to request amicable settlement. See also art. 26.
259 See NAFTA (1994), arts 1116–1117. Cf. Malaysia-Ghana BIT, art. 7(3); Canada-South Africa
BIT, art. XIII(2); cf. Laborde, fn. 252, at 107.
260 See, e.g., Counterclaim, Recoupment and Setoff, 20 Am. Jur. 2d. } 120 (1965); H. Thirlway,
‘Counterclaims before the International Court of Justice: The Genocide Convention and Oil Platforms
Decisions’ (1999) 12 Leiden J. Intl L. 197, 202.
261 Cf. J. Paulsson, ‘Arbitration Without Privity’ in The Energy Charter Treaty: An East–West
Gateway for Investment & Trade (T.W. Wälde, ed., London, Kluwer Law International, 1996), 422,
422–3 (‘This new world of arbitration is one where the claimant need not have a contractual
relationship with the defendant, and where the tables could not be turned; the defendant could not
have initiated the arbitration, nor is it certain of being able even to bring a counterclaim).
262 See Iran–United States Claims Settlement Declaration (1981), art. II(1). See also Case No. A/2, fn.
173, at II.B; Gould Marketing, Inc. v Ministry of National Defense, Award No. ITL 24–49–2, 27 July 1983,
3 Iran–U.S. C.T.R. 147, 151–2; Case No. B1 (Counterclaim), fn. 173, at para. 89; A. Asgarkhani,
‘Compromise and Cooperation at the Iran–United States Claims Tribunal’ (2003) 19(2) Arb. Int’l 149.
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Counterclaims by Host States

141

counterclaims. The emphasis on the investor’s procedural right could rather be seen to
underline the host state’s willingness and unequivocal consent to arbitrate. Moreover,
in practice, such treaties do not differ very much from those in which the host state may
also institute proceedings, as the separate consent of the investor is always required.263
In fact, whereas a narrow definition of investment disputes tends to dovetail with a
limited locus standi, a broad definition of arbitrable claims does not always go hand in
hand with a reference to the right of the host state to present claims against the investor
in the sense of the US–Estonia BIT quoted earlier.264 As Kantor notes:
The protections of the investor–state arbitration provisions in the [Draft Model U.S. BIT
(2004)] are afforded only to ‘claimants,’ and the term ‘claimants’ is defined in Article 1 to
cover only ‘investors of a Party.’ Accordingly, while an investor may initiate an arbitration claim
against a host state under the BIT, that host state may not initiate claims against the investor
under the investor–state arbitration provisions. The host state may, however, raise certain
counterclaims if permitted under the arbitration rules applicable to the proceeding.265

This leads to the conclusion that whereas the sole reference to the investor’s locus standi
would not necessarily be conclusive with regard to the inadmissibility of counterclaims,
the combined features of a limited jurisdiction ratione personae and a limited jurisdiction ratione materiae will have such effect.
In this context, one should note the observation by various scholars that the narrow
type of instrument gives rise to a paradigm different from that of international
commercial arbitration in general, in that it creates ‘une sorte d’instrument de contrôle
du respect par les Etats de la légalité dans le domaine économique’ [a kind of instrument for
ensuring compliance with law by states in the economic field].266 A similar characterization is offered by Weiler and Wälde, who refer to this type of arbitration as
‘international quasi-judicial review of national regulatory action’ analogous to judicial
review of administrative acts in national law.267 Although it is open to discussion
whether the bringing of counterclaims would be contrary to such object and purpose,268 or stated differently, that the intention of the drafters was partly to exclude the
possibility of consolidating closely related claims,269 it cannot be denied that these
characteristics do present an obstacle for host state counterclaims.270
263 Cf. G. Burdeau, ‘Nouvelles perspectives pour l’arbitrage dans le contentieux économique
intéressant les États’ (1995) 1 Revue de l’arbitrage 3, at para. 28bis.
264 See fns 251–252.
265 M. Kantor, ‘The New Draft Model U.S. BIT: Noteworthy Developments’ (2004) 21(4) J. Int’l
Arb. 383, 387 (references omitted). See also Norway–Lithuania BIT, art. IX(2); Norway–Romania
BIT, art. VIII(2); Burundi Model BIT, art. 8(1).
266 Burdeau, fn. 263, at para. 29 (emphasis in original). See also Chapter 1, Section 2 (on the scope
of and terminology used in the study).
267 T. Weiler and T.W. Wälde, ‘Investment Arbitration under the Energy Charter Treaty in the
light of new NAFTA Precedents: Towards a Global Code of Conduct for Economic Regulation’ TDM
1(1) (2004).
268 For the possibility of the state to present counterclaims in administrative proceedings, see, e.g.,
German Verwaltungsgerichtsordnung, }89; Robert B. Lara v US Secretary of the Interior, 642
F. Supp. 458 (April 30, 1986).
269 In fact, Weiler, Wälde, and Burdeau seem to envisage the possibility of counterclaims in
‘arbitration without privity’ situations, regardless of its focus on investor rights. See Weiler and
Wälde, fn. 267; Burdeau, fn. 263, at para. 21. See also Paulsson, fn. 178, at 250, at fn. 32; Alvarez,
fn. 224, at 412; F.O. Vicuña, ‘Foreign Investment Law: How Customary Is Custom?’ (2005) 99 Am.
Soc’y Int’l L. Proc. 97.
270 One may wish to note that a restriction of the tribunal’s jurisdiction in this regard cannot be
overcome by a reference to explicit provisions for counterclaims in the relevant arbitration rules. Cf.
Case No. B1 (Counterclaim), fn. 173, at fn. 116 (‘[I]t seems doubtful that Article 19(3) of the
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142

The Scope of the Arbitration Agreement

A different situation arises where the investment treaty provides for is a limited
jurisdiction ratione materiae and a broad jurisdiction ratione personae. This was the case
in Hamester, in which the BIT provided as follows:
(1) Disputes between a national or company of one Contracting Party and the other
Contracting Party concerning an obligation of the latter under this Treaty in
relation to an investment of the former shall as far as possible be settled amicably
between the parties to the dispute.
(2) If the dispute cannot be settled within six months of the date of written
notification by one of the parties to the dispute, it shall be submitted for
arbitration if either party to the dispute so requests.
(3) Unless the parties agree otherwise, the aggrieved party shall have the right to
refer the dispute to: (a) [ICSID] arbitration under the provisions of the [ICSID
Convention].
(4) When a national or company, as well as a Contracting Party believe that their
rights have been violated, then the national or company’s choice of procedures
shall prevail.271
As noted by the ICSID Tribunal, ‘the scope of consent in Article 12(1) of the BIT is
limited to disputes “concerning an obligation of [one Contracting Party] under this
Treaty in relation to an investment of [a national or company of the other Contracting
Party]”.’272 Yet, noted the tribunal, this BIT with a restricted scope of covered disputes
‘recognises that the State party may be “aggrieved” and “shall have the right to refer the
dispute to” arbitration (Article 12(3) and (4) of the BIT)’.273 Unfortunately, ‘in
the absence of any submission on the nature of the Respondent’s counterclaim’, the
tribunal did not have occasion to analyse whether the counterclaim was capable of
falling within the parties’ scope of consent, in accordance with article 46 of the ICSID
Convention.274 On the one hand, one could argue that the limited jurisdiction ratione
materiae trumps broad jurisdiction ratione personae. On the other hand, and this is the
better argument, the express reference in the dispute settlement clause to the possibility
that an aggrieved host state shall have the right to refer the dispute to arbitration is part
and parcel of the offer of arbitration. When the investor accepts that offer, it also
consents to the bringing of counterclaims by the host state and the tribunal will have
jurisdiction over them.

4.1.3. Express, tacit, and implied consent to counterclaims
Investment treaties could explicitly provide for the bringing of host state counterclaims,
and the consent requirement would be satisfied by virtue of the investor’s acceptance of
the offer in the treaty that so stipulates. This is the case for the COMESA Investment
UNICTRAL Rules [on counterclaims] could constitute a basis for the Tribunal’s jurisdiction over
official counterclaims’). But see Alvarez, fn. 224, at 410 (Alvarez suggests that counterclaims could be
permitted ‘if provided for in the arbitration rules selected by the investor’).
271 Hamester v Ghana, fn. 36, Award, at para. 88 (referring to the Germany–Ghana BIT, art. 12,
which in article 12(4) states in the original language: ‘Fühlen sich sowohl ein Staatsangehöriger oder
eine Gesellschaft als auch eine Vertragspartei in ihrem Recht verletzt, so hat die Wahl des Staatsangehörigen oder der Gesellschaft hinsichtlich des Verfahrens zur Streitbeilegung Vorrang’).
272 Hamester v Ghana, at para. 353.
273 Hamester v Ghana, at para. 354.
274 Hamester v Ghana, at para. 355.
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Counterclaims by Host States

143

Area Agreement, which in article 28(9) provides: ‘A Member State against whom a
claim is brought by a COMESA investor [ . . . ] may assert as a [ . . . ] counterclaim [ . . . ]
that the COMESA investor bringing the claim has not fulfilled its obligations under
this Agreement, including the obligations to comply with all applicable domestic
measures [ . . . ].’275
There may also be jurisdiction by virtue of the investor’s express consent to the
counterclaim at hand.276 In SGS v Pakistan, for instance, the investor contended that
the host state was ‘fully entitled to file a counterclaim’.277 Similarly, in SGS v
Philippines, the host state had alleged fraud and overcharging on the part of the
investor. Whilst denying these allegations, the investor nevertheless ‘appeared to accept
that they could be considered, if necessary, as a counterclaim if the Respondent so
wished’.278 In these cases, the host states did not so wish, preferring to have such
counterclaims decided in other fora.279 If both parties would consent, however, there
would be jurisdiction based on a corresponding expansion of the arbitration agreement;280 although, in the SGS cases, the agreement—originating from the BIT—was
arguably broad enough in and of itself to encompass the counterclaim at hand.
Similarly, it is also possible for the investor to tacitly consent to a counterclaim by not
presenting any jurisdictional objections.281 As provided in the Arbitration Rules of the
Netherlands Arbitration Institute, ‘[a] counterclaim is admissible [ . . . ] if the [ . . . ]
arbitration agreement is expressly or tacitly made to apply to it by the parties.’282 In
view of the lack of reference to any objections by the investor, such tacit consent may
have been present in Alex Genin.283
275 COMESA [Common Market for Eastern and Southern Africa] Investment Area Agreement
(2007), art. 28(9). Cf. art. 13 (‘COMESA investors and their investments shall comply with all
applicable domestic measures of the Member State in which their investment is made’). See also IISD
[International Institute for Sustainable Development] Model Agreement on International Investment
for Sustainable Development (as revised in April 2006), art. 18[E] (‘A host state may initiate a
counterclaim before any tribunal established pursuant to this Agreement for damages resulting from
an alleged breach of the Agreement’). Cf. IISD Model Agreement, at Part 3 (‘Obligations and Duties of
Investors and Investments’). See also UNCTAD, fn. 189.
276 Cf. Ben Hamida, fn. 174, at 266.
277 SGS v Pakistan, fn. 207, Procedural Order, 16 October 2002, 18(1) ICSID Rev.-FILJ 293, 303
(2003). See also SGS v Pakistan, fn. 30, Decision on Jurisdiction, at para. 108.
278 SGS v Philippines, fn. 98, Decision on Jurisdiction, at para. 40.
279 See SGS v Philippines, at para. 17; SGS v Pakistan, fn. 30, Decision on Jurisdiction, at para. 48.
280 Cf. Klöckner v Cameroon, fn. 177, Award, at p. 4 (the subject-matter of the dispute may be
extended ‘at any time, even in written submissions to the Tribunal (“forum prorogatum”) provided
that this is met by the consent of the parties’); Berger, fn. 177, at } V(a)(i); J.L. Simpson and H. Fox,
International Arbitration: Law and Practice (London, Stevens, 1959), 49; A.D. Renteln, ‘Encountering
Counterclaims’ (1987) 15(2–3) Denver J. Int’l L. & Pol’y 379, 391.
281 See, e.g., Berger, fn. 181, at } V(a)(i). In this respect, an analogy can be made with the doctrine
of forum prorogatum, where the consent of one party is consolidated after the institution of proceedings.
See, e.g., Cheng, fn. 1, at 262–6; S. Rosenne, ‘Counter-Claims in the International Court of Justice
Revisited’ in Liber Amicorum ‘In memoriam’ of Judge José Mariá Ruda (C.A. Armas Barea et al., eds, The
Hague, Kluwer Law International, 2000), 457, 460, 465–6.
282 Arbitration Rules of the Netherlands Arbitration Institute (2001), art. 25(2). See also UNCITRAL Arbitration Rules (2010), art. 21(3) (‘A plea that the arbitral tribunal does not have
jurisdiction shall be raised no later than in [ . . . ] the reply to the counter-claim’); ICSID Rules of
Procedure for Arbitration Proceedings (Arbitration Rules), Rule 41(1); ICSID Additional Facility
Rules (2006), art. 45(2).
283 See Alex Genin v Estonia, fn. 155, Award, at para. 376. See also Europe Cement, fn. 195, Award,
at para. 181 (the tribunal did not ‘consider that exceptional circumstances such as physical duress are
present in this case to justify moral damages’). By way of comparison, the investor in Saluka v Czech
Republic expressly objected to the counterclaim. Saluka v Czech Republic, fn. 171, Decision on
Jurisdiction over the Czech Republic’s Counterclaim, at para. 13. Cf. Klöckner v Cameroon, fn. 177,
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144

The Scope of the Arbitration Agreement

One of the arguments by the host state in Roussalis was that the investor had
consented to the arbitration of Romania’s counterclaims.284 More specifically,
Romania contended that such consent was manifested in a ‘cooling off ’ letter sent to
the host state as a predicate to commencing the arbitration at issue.285 The respondent
also referred to a statement the investor submitted to a Romanian court contesting its
jurisdiction on the ground that the dispute must be resolved in ICSID arbitration, next
to the fact that it urged Romania to terminate national courts proceedings on that same
basis.286 While in Roussalis these arguments did not satisfy the tribunal that the investor
had consented to the bringing of Romania’s counterclaims, other fact-patterns may lead
to a different outcome. As Hanotiou, one of the arbitrators in Roussalis, stated on the
topic of counterclaims at a subsequent conference:
Commentators [ . . . ] seem to agree that even if, according to Article 25 of the Washington
Convention, consent has to be given in writing, it need not be express, it might be implied, for
example from a contract between the parties or from the request for arbitration or from a
submission in the context of the proceedings.287

At any rate, and as exemplified by these cases and as previously mentioned, it may in
fact be in the investor’s interest that the arbitral tribunal resolves the counterclaim.
Since a refusal may lead the host state to seek relief in its own domestic courts or
another, contractually agreed arbitration forum, not only is there a possibility of
inconsistent decisions—the investor will also have the advantage of a neutral
forum.288 Additionally, the acceptance of counterclaims may arguably render a host
state more willing to arbitrate, so that less time is spent on costly jurisdictional battles.
Apart from express and tacit consent, one may ask whether the investor’s consent to
counterclaims could be implied from the very act of bringing a claim. In this respect, an
analogy might possibly be drawn with the field of sovereign and diplomatic immunity.
In Banco Nacional de Cuba v Sabbatino (1964), the US Supreme Court held that even
though a state would normally be immune from suit by private parties in foreign courts,
‘fairness has been thought to require that when the sovereign seeks recovery, it be subject
to legitimate counterclaims against it’.289 In other words, the fact that a state or diplomat
presents a claim estops it from benefiting from its immunity with respect to counterclaims.
While it has been shown that investors might similarly be ‘immune’ to claims by a
claimant host state, and that in many instances, allowing the host state to present
counterclaims could be seen as adding a degree of ‘fairness’ to the proceedings, there
are important differences between the decision of a domestic court to allow a counterclaim to ‘cut into the doctrine of immunity’290 and an arbitral tribunal’s decision to

Decision on Annulment, 3 May 1985 (P. Lalive, A.S. El-Kosheri, I. Seidl-Hohenveldern, committee
members), para. 5.
284 Roussalis v Romania, fn. 82, at para. 775.
285 Roussalis v Romania, at para. 776.
286 Roussalis v Romania, at paras 778–779.
287 Hanotiau, fn. 234, at fn. 1.
288 See, e.g., Ben Hamida, fn. 227, ‘L’Arbitrage transnational unilateral’ at 177, at para. 280;
Karrer, fn. 181, at 177.
289 Banco Nacional de Cuba v Sabbatino, 376 U.S. 398, 438 (1964). See also US Foreign
Immunities Act, 28 U.S.C.A. 1607 (b); European Convention on State Immunity, art. 1(2)(a); R.
B. Looper, ‘Counterclaims Against a Foreign Sovereign Plaintiff ’ (1956) 50 Am. J. Int’l L. 647 (1956);
Vienna Convention on Diplomatic Relations (1961), art. 32(3).
290 Nat’l City Bank of New York v Republic of China, 348 U.S. 356, 364 (1955) (‘It is recognized
that a counterclaim based on the subject matter of a sovereign’s suit is allowed to cut into the doctrine
of immunity’).
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Counterclaims by Host States

145

exercise jurisdiction over a counterclaim that is not covered by the arbitration agreement. The doctrine of sovereign and diplomatic immunity is namely a reason for a
court not to exercise the jurisdiction that it already has over a defendant state or
diplomat;291 whereas for an arbitral tribunal, the investor’s consent is the very basis
for its jurisdiction in the first place. This distinction is buttressed by a reference to
article 46 of the ICSID Convention, which lists as a condition precedent for the
acceptance of counterclaims that ‘they are within the scope of the consent of the parties
and are otherwise within the jurisdiction of the Centre’.292 If the bringing of a claim
could in and of itself be construed as consent to counterclaims, this clause would lose its
meaning.293 Accordingly, and in line with the maxim interpretatio fienda est ut res magis
valeat quam pereat,294 the fact that the investor presents a claim ought not to be
construed to create, in and of itself, the consent necessary for the host state to present
counterclaims against the investor. In the words of Hanotiau:
Article 46 of the ICSID Convention does not create an unfettered right to submit closely-related
counterclaims. Nor does it appear to contain a ‘consent component’. Rather, Article 46 presupposes consent. A tribunal ‘shall ’ entertain counterclaims ‘provided that they are within the scope of
consent to the parties’. The consent of the parties is the condition precedent for the operation of
this provision. If this condition precedent is not met, Article 46 has no mandatory character.295

4.1.4. Express exclusions of counterclaims
While counterclaims should be accepted in case the investor expressly or tacitly
consents thereto, it is clear that an express exclusion of counterclaims in the host state’s
offer would be an obstacle to jurisdiction in this respect. This caveat is mentioned in the
ICSID Convention,296 but should also be deemed implicit under other arbitration
rules, as the acceptance of counterclaims in that case would be contrary to the parties’
arbitration agreement. Various investment treaties do refer to such exclusions. As
provided in the NAFTA, for example, ‘a Party shall not assert, as a defense, counterclaim, right of set off or otherwise, that the investor concerned has received or will
receive, pursuant to an insurance or guarantee contract, indemnification or other
compensation for all or part of its alleged damages.’297 Accordingly, a counterclaim
291 See, e.g., I. Sinclair, ‘The Law of Sovereign Immunity: Recent Developments’ (1980) 167
Recueil des Cours 113 (Sinclair defines immunity ‘as the correlative of a duty imposed upon the
territorial State to refrain from exercising its jurisdiction over a foreign State’ and notes that immunity
‘operates by way of exception to the dominating principle of territorial jurisdiction’. Stated differently,
‘one does not start from an assumption that immunity is the norm, and that exceptions to the rule of
immunity have to be justified.’ Rather, ‘[o]ne starts from an assumption of non-immunity, qualified by
reference to the functional need [ . . . ] to protect the sovereign rights of foreign States operating or
present in the territory’).
292 ICSID Convention (1965), art. 46.
293 For a similar interpretation with regard to the ICJ Rules of Court, see Thirlway, fn. 260, at 204
(Thirlway concludes that ‘advance acceptance of the possibility of counter-claims’ is ‘difficult to square
with the provision as it stands’).
294 See, e.g., H.C. Black et al, Black’s Law Dictionary (St Paul, MN, West Group, 1999), 1697 (that
the matter may have effect rather than fail).
295 Hanotiau, fn. 234, at para. 22 (emphasis in original).
296 See ICSID Convention (1965), art. 46 (‘[e]xcept as the parties otherwise agree [ . . . ]’).
297 NAFTA (1994), art. 1136(2). See also US Model BIT (2012) art. 28(7); Energy Charter Treaty
(1994), art. 15(3). It may be noted that earlier NAFTA drafts contained a broader reference to
counterclaims: ‘The Tribunal may determine any incidental or additional claims or counterclaims
arising directly out of the acts or measures constituting the alleged breach of this Chapter, except as the
parties to the investment dispute otherwise agree [ . . . ].’ See, e.g., Draft version of NAFTA of 13 May
1992, art. XX07(10). See also Antonopoulos, fn. 172, at 13 (‘Whether counterclaims may be brought
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146

The Scope of the Arbitration Agreement

of this nature would not fall within the arbitration agreement, and would therefore be
excluded from the tribunal’s jurisdiction.
It has been suggested that where the relevant instrument excludes a specified
category of counterclaims, it may be presumed that other counterclaims are allowed,
at least to the extent to which the connexity requirement is satisfied.298 Although such
e contrario argumentation299 has some appeal and might constitute a factor for the
tribunal to consider, it is doubtful whether it—in and of itself—could counterbalance a
lack of any inclusion of investor obligations in the arbitration agreement.

4.1.5. Forum selection agreements
The situation may arise in which the parties have agreed to settle a particular aspect of
their dispute in a different forum.300 There is little question nowadays that such forum
selection agreements should generally be enforced, inter alia, by virtue of the pacta sunt
servanda principle.301 Consequently, although a broad arbitration offer may grant a
tribunal jurisdiction over a contractual claim and counterclaim, it would appear that
they are both inadmissible where the contract at hand stipulates that contractual
disputes shall be settled in another forum.302
The same tribunal, however, may retain jurisdiction over the investor’s treaty claim,
for instance an alleged expropriation.303 In case the line between the contractual and
the treaty characteristics of the investor’s claim is sufficiently blurred, it could be argued
that the tribunal, in the interest of judicial economy, should nevertheless retain
jurisdiction over a host state counterclaim based in contract.304 This would especially
seem to be the case where the investor has requested a stay of the proceedings
or not by either of the parties is a matter, first, of the terms of the compromis. If it expressly excludes the
making of counterclaims, then the issue is settled there’).
298 See, e.g., Ben Hamida, fn. 227, L’Arbitrage transnational unilateral at 177–8, at para. 280. Cf.
Alvarez, fn. 224, at 410.
299 Also referred to as the maxim expressio unius est exclusion alterius, ‘negative implication’, or
‘implied exclusion’. For a critical analysis of the maxim, see R.N. Graham, ‘In Defence of Maxims’
(2001) 22(1) Statute Law Review 45. See also Case No. B1 (Counterclaim), fn. 173, at para. 82 (the
maxim ‘does not constitute a mandatory directive applicable in all cases where a treaty is silent on a
subject: it merely reflects a common sense principle applicable in many, but not all, situations’).
300 See Section 3.2 (on arbitration without privity).
301 See, e.g., Y. Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford,
Oxford University Press, 2003),153 (arguing that the presumptive validity of choice of forum
agreements constitutes a general principle of law); Douglas, fn. 31, ‘Hybrid Foundations’, at 248;
see also at 259–60.
302 See Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over the Czech Republic’s
Counterclaim, at paras 52–57 (the tribunal dismissed the contractual counterclaims on the basis that
the contract at issue contained a clause providing for arbitration pursuant to the UNCITRAL
Arbitration Rules in Zurich). With regard to set-off defences, see Swiss Rules of International
Arbitration (2012), art. 21(5) (‘The arbitral tribunal shall have jurisdiction to hear a set-off defence
even if the relationship out of which this defence is said to arise [ . . . ] falls within the scope of another
arbitration agreement or forum-selection clause’).
303 See, e.g., Vivendi v Argentina, fn. 36, Decision on Annulment, at para. 98.
304 See Karrer, fn. 181, at 177 (arguing that although ‘simple contract interpretation would first
suggest that if parties provide for different [ . . . ] choice-of-forum agreements for different obligations
[ . . . ,] if the parties subsequently are in arbitration or litigation, the jurisdiction of that arbitral tribunal
or state court should extend to the counterclaim all the same’). See also Paulsson, fn. 178, at 250, at fn.
32 (arguing that an investor’s ‘disregard’ of a pre-existing arbitration clause pursuant to which the host
state could have brought a claim ‘would intuitively weigh in favor of counterclaims’ under the Energy
Charter Treaty); Alvarez, fn. 224, at 412 (Alvarez construes NAFTA’s waiver requirement (article
1121) in favour of allowing host state counterclaims, regardless of whether they are subject to a forum
selection clause).
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Counterclaims by Host States

147

simultaneously taking place in this other agreed-upon forum. As pointed out in SGS v
Pakistan,
It would be inequitable if, by reason of the invocation of ICSID jurisdiction, the Claimant could
on the one hand elevate its side of the dispute to international adjudication and, on the other,
preclude the Respondent from pursuing its own claim for damages by obtaining a stay of those
proceedings for the pendency of the international proceedings, if such international proceedings
could not encompass the Respondent’s claim.305

Still, a consolidation might appear to conflict with the right of the investor to have its
separate contract claim heard by the designated forum. Consequently, the better
solution would be for the parties to agree in concert to rescind the forum selection
clause so that the tribunal would be competent to hear both the contract and treaty
claims.306 This would ensure that both the investor and the host state get their ‘day in
court’, and it would also restrict the possibility of double recovery.307

4.2. Factual and juridical connexity between claims and counterclaims
Apart from the fact that the counterclaim must fall within the scope of the arbitration
agreement, and that it should not be subject to a different forum selection clause, it
must also be connected to the investor’s claim. As stated by the tribunal in Saluka: it is
necessary that counterclaims ‘satisfy those conditions which customarily govern the
relationship between a counterclaim and the primary claim to which it is a response. In
particular, a legitimate counterclaim must have a close connexion with the primary
claim to which it is a response.’308 As with forum selection agreements, connexity is a
question of admissibility rather than jurisdiction.309
We noted that the connexity requirement is intrinsically linked to the two main
objectives for allowing counterclaims: procedural economy and the better administration of justice.310 As such, it serves an equitable and practical filtering function. In
305 SGS v Pakistan, fn. 207, Procedural Order, 18–1 ICSID Rev.-FILJ 293, 303 (2003). Cf.
Anaconda-Iran, Inc. v the Government of the Islamic Republic of Iran and the National Iranian Copper
Industries Company, Interlocutory Award, 10 December 1986, at para. 106.
306 Cf. Karrer, fn. 181, at 178 (‘All it takes is that [the parties] both agree in this sense, which they
can do, in my view, by conclusive action, which may be recorded in writing for those who still cling to
the notion that an arbitration agreement must be in writing’). See also France Telecom v Republic of
Lebanon, unpublished award rendered in Switzerland, pursuant to the UNCITRAL Arbitration Rules
on 22 February 2005 (B. Audit, A. Akl, M. Lalonde, arbs), referred to in Swiss Federal Tribunal
Decision I, 10 November 2005, at Part A (the parties agreed to rescind the forum selection clause and
to grant the tribunal general jurisdiction to decide both the contractual and the BIT claims); SGS v
Pakistan, fn. 30, Decision on Jurisdiction, at para. 161.
307 On the rule against double recovery, see, e.g., K. Yannaca-Small, ‘Parallel Proceedings’ in Oxford
Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press,
2008), 1008, 1011–12.
308 Saluka v Czech Republici, fn. 171, Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 61. See also at paras 65–75 (for a survey of other cases discussing the connexity
requirement); Amto v Ukraine, fn. 193, Award; Paushok v Mongolia, fn. 201, Award on Jurisdiction
and Liability, at para. 693; Goetz v Burundi, fn. 206, at paras 273, 275, 282–285. See also Antonopoulos, fn. 172, at 2 (‘Unlike municipal law, connection is compulsory in international litigation
because of the consensual nature of the jurisdiction of the Court and arbitral tribunals and, secondly, of
the fact of specific class of dispute resolved by a number of courts and tribunals’).
309 See Schreuer et al., fn. 225, at 751, para. 73; S. Rosenne, ‘The International Court of Justice:
Revision of Articles 79 and 80 of the Rules of Court’ (2001) 14 Leiden J. Int’l L. 77, 85; Rosenne,
fn. 281, at 458.
310 See fn. 174. Cf. Simpson and; Fox, fn. 280, at 175–6 (the PCIJ ‘recognises direct connection
between application and counterclaim, where both are based on the same facts or incidents, or where
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148

The Scope of the Arbitration Agreement

the words of the International Court of Justice, the respondent cannot use a counterclaim to
[ . . . ] impose on the Applicant any claim it chooses, at the risk of infringing the Applicant’s rights
and of compromising the proper administration of justice; and [ . . . ] it is for that reason that
[ . . . ] the Rules of Court requires [inter alia] ‘that it is directly connected with the subject-matter
of the claim of the other party.’311

In this light, it seems reasonable to conclude that connexity would not only be required
when explicitly provided for in the relevant arbitration rules and laws,312 but also, for
instance, under the UNCITRAL Model Law and the UNCITRAL Arbitration Rules
(2010).313
In view of the non-jurisdictional nature of connexity, the twin goals of allowing
counterclaims also suggest that arbitral tribunals enjoy a certain degree of flexibility in
assessing whether the facts of each particular case would warrant consolidation of the
claims at hand.314 In carrying out such assessment, tribunals are guided by the
following two considerations.

4.2.1. Factual connexity
First, and related to the aspect of judicial economy, there is general agreement that the
claim and counterclaim must be factually linked. This characteristic has the advantage
of allowing the tribunal to gain a more complete overview of the various facets of the
dispute at hand;315 and, at the same time it avoids duplication of effort by a second
tribunal examining the same evidence. As explained by the ICSID Secretariat, the
admissibility of a counterclaim under the ICSID Convention depends on the extent to
which ‘the factual connection between the original and the ancillary claim is so close as
to require the adjudication of the latter in order to achieve the final settlement of the
the legal issues raised by the counterclaim are so close to those involved in the application that their
determination, while not strictly necessary, is convenient both logically and in the interests of the
justice of the case’).
311 Application of the Convention on the Prevention and Punishment of the Crime of Genocide, fn. 170,
Counter-Claims Order, at para. 31. See also Case Concerning Oil Platforms, fn. 6, Counter-Claim,
Order of 10 March [1998] ICJ Rep. 190, para. 33; Case Concerning Armed Activities on the Territory of
the Congo, fn. 174, Counter-Claims Order, at para. 35. Cf. Thirlway, fn. 260, at 215–16.
312 See, e.g., ICSID Convention (1965), art. 46.
313 Cf. B. Larschan and G. Mirfendereski, ‘The Status of Counterclaims in International Law, with
Particular Reference to International Arbitration Involving a Private Party and a Foreign State’ (1986–
7)15(1) Denver J. Int’l L. & Pol’y 11, 35 (the authors interpret the general rules of international law to
provide that ‘a counterclaim is admissible only when it arises out of the same subject matter as that
involved in the principal claim’). In fact, as early as the nineteenth century, international law was held
to require counterclaims to relate to the initial claim. See also at 19. See also Case No. B1 (Counterclaim), fn. 173, at fn. 118 (interstate counterclaims must arise ‘out of the contractual arrangements
forming the subject matter of the main claim’). But see UNCITRAL, Report of Working Group II
(Arbitration and Conciliation) on the work of its fiftieth session (New York, 9–13 February 2009), A/
CN.9/669, para. 30 (the group discarded the suggestion requiring a ‘sufficient link’ between the
counterclaim and the main claim: ‘it was viewed as being too restrictive’); Alvarez, fn. 224, at 412
(Alvarez states that the lack of reference in the ICSID Additional Facility Rules that the counterclaim
arise directly out of the subject matter of the dispute ‘could be argued to provide a broader scope of
counterclaims’).
314 If there is connexity, however, the consolidation of claims by ICSID tribunals appears to be
compulsory. See Summary Proceedings of the Legal Committee meeting, 7 December 1964, SID/LC/
SR/15, reported in Convention on the Settlement of Investment Disputes between States and
Nationals of Other States, Documents Concerning the Origin and the Formation of the Convention,
Vol. II-2, at p. 811.
315 Cf. Renteln, fn. 280, at 380.
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Counterclaims by Host States

149

dispute, the object being to dispose of all the grounds of dispute arising out of the same
subject matter’.316
Since arbitrators have often left the connexity issue unaddressed,317 one may in this
context seek additional guidance from the jurisprudence of the International Court of
Justice, whose Rules of Court contain a definition of counterclaims almost identical to
that of the ICSID Convention, namely that they must be ‘directly connected with the
subject-matter’ of the initial claim.318 In applying this criterion, the Court has found it
significant that the facts on which the parties rely form part of the ‘same factual
complex’, and, more specifically, that they are alleged to have occurred on the same
territory during the same period; that they are of the ‘same nature’; and that the
respondent relies on certain identical facts in order both to refute the allegations of
the claimant and to obtain judgment against it.319

4.2.2. Juridical connexity
The second consideration for tribunals is juridical connexity. As held by the ICJ in the
Armed Activities case: ‘as a general rule, the existence of a direct connection between the
counter-claim and the principal claim must be assessed both in fact and in law.’320 Such
connexity would seem to be satisfied when the claim and counterclaim arise out of the
same contract. This is because the parties’ rights and obligations would generally
be interpreted by reference to the same—national—legal order, which would govern
the contract as a whole.
Juridical connexity is more problematic when the investor’s claim concerns an
alleged treaty violation. This relates to the fact that, as a rule, international law does
not impose obligations on private parties.321 The host state must therefore base its
counterclaim in national law, such as a breach of contract. In that case, not only will the
nature of the claims be different since the treaty claim, e.g., an alleged failure to accord
the investment ‘full protection and security’, would be non-contractual in nature; the
tribunal would also be applying norms from different legal orders. The reason why this
might constitute an obstacle to the admissibility of counterclaims is linked to the
second reason for permitting counterclaims: the better administration of justice, and
more specifically, the avoidance of conflicting decisions. Whereas this would clearly be
a concern for contractual claims and counterclaims, it is not necessarily so for treaty
claims versus contractual counterclaims. As pointed out by the ad hoc committee in
Vivendi, ‘[a] state may breach a treaty without breaching a contract, and vice versa, and

316 ICSID Secretariat, Explanatory Report, Note B(a) to Arbitration Rule 40 of 1968, 1 ICSID
Rep.
317 In the context of ICSID, see Schreuer et al., fn. 225, at 752, para. 79.
318 Rules of Court of the International Court of Justice, art. 80(1).
319 Case Concerning Armed Activities on the Territory of the Congo, fn. 174, Counter-Claims Order,
at para. 38; Application of the Convention on the Prevention and Punishment of the Crime of Genocide, fn.
170, Counter-Claims Order, at para. 34; Case Concerning Oil Platforms, fn. 311, Counter-Claim
Order, at para. 138; Case Concerning the Land and Maritime Boundary Between Cameroon and Nigeria
(Cameroon v Nigeria: Equatorial Guinea intervening), Order of 30 June 1999; Asylum Case (Columbia/
Peru), Judgment, 20 November, ICJ Rep. 1950, pp. 280–1.
320 Case Concerning Armed Activities on the Territory of the Congo, fn. 174, Counter-Claims Order,
at para. 36 (emphasis added). See also at paras 38, 40; Application of the Convention on the Prevention
and Punishment of the Crime of Genocide, fn. 170, Counter-Claims Order, at paras 33, 35; Case
Concerning Oil Platforms, fn. 311, Counter-Claim Order, at para. 138.
321 See generally Chapter 5, Section 2.3.2 (on non-contractual claims).
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150

The Scope of the Arbitration Agreement

this is certainly true of these provisions of the BIT.’322 Thus, not only would the
reasons for allowing the counterclaim be less cogent; as cautioned by Judge Oda in the
ICJ Oil Platforms case (1998), too broad a definition of counterclaims may lead to a
situation in which ‘we put what may have originally been somewhat distinct matters
into one melting-pot without making a careful examination of the essential character of
[the] claim[s]’.323
The question arises whether there is juridical asymmetry in the case of so-called
‘umbrella’ or ‘sanctity of contract’ clauses inserted in a large number of investment
treaties; and which—in various terms—obligate the host state to observe commitments
entered into with respect to investments.324 On the one hand, it could be argued that
the international nature of the investor’s umbrella claim creates an obstacle to the
admissibility of the host state contractual claim based in national law. As noted by
Hoffman, ‘[t]he umbrella clause [ . . . ] only creates an obligation of the host state, not
the investor.’325 On the other hand, the fact that the parties’ rights and obligations on
the level of the contractual relationship would be governed by the same—national—
legal order, supports admissibility, particularly when considering that national and
international practice suggests that juridical connexity ought to be construed more as a
factor for the tribunal to take into account, rather than a prerequisite as such. As noted
by Judge Higgins in the Oil Platforms case,
In both civil and common law domestic systems, as in the Rules of the Court, a defendant seeking
to bring a counter-claim must show that the Court has jurisdiction to pronounce upon them. But
it is not essential that the basis of jurisdiction in the claim and in the counter-claim be identical. It
is sufficient that there is jurisdiction. (Indeed, were it otherwise, counter-claims in, for example,
tort could never be brought, as they routinely are, to actions initiated in contract.)326

A similar observation was made in the Armed Activities Case (2001): ‘[A]s the jurisprudence of the Court reflects, counter-claims do not have to rely on identical instruments
to meet the “connection” test of Article 80 [of the ICJ Rules].’327 Thus, although
connexity should generally be assessed by reference both to facts and law, it appears
that tribunals enjoy sufficient flexibility to enable them to conclude in favour of
admissibility where juridical connexity is lacking but where consolidation of the
claim and counterclaim would better administer justice, due to, e.g., strong factual
connexity.

322 Vivendi v Argentina, fn. 36, Decision on Annulment, at para. 95. See also SGS v Pakistan, fn.
30, Decision on Jurisdiction, at para. 147. Cf. Douglas, fn. 31, ‘Hybrid Foundations’, at 267–74
(Douglas refers to ‘asymmetrical jurisdictional conflicts’).
323 Case Concerning Oil Platforms, fn. 311, Counter-Claim Order, Separate Opinion of Judge Oda,
at para. 8.
324 See generally Chapter 6, Section 3.1.2 (on ‘umbrella’ clauses); Chapter 1, Section 1 (on
motivations for the study). Cf. J. Gill et al., ‘Contractual Claims and Bilateral Investment Treaties:
A Comparative Review of the SGS Cases’ (2004) 21(5) J. Int’l Arb. 397, 412.
325 Hoffmann, fn. 212, at 10.
326 Case Concerning Oil Platforms, fn. 311, Counter-Claim Order, Separate Opinion of Judge
Higgins. See also H.J. Snijders et al., Nederlands burgerlijk procesrecht (2007) (nr. 171) at 185.
327 Case Concerning Armed Activities on the Territory of the Congo, fn. 174, Counter-Claims Order,
at para. 326. See also Declaration of Judge ad hoc Verhoeven (‘[T]he principal claim and the counterclaim are independent of one other, which necessarily implies that they need [not] have [ . . . ] the same
legal basis’); Application of the Convention on the Prevention and Punishment of the Crime of Genocide, fn.
170, Counter-Claims Order, Declaration of Judge ad hoc Kreca, at 268 (‘One thing cannot have a
connection with itself for in that case it would not be a separate thing, but just a relationship between
things’).
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Counterclaims by Host States

151

From the foregoing, it seems that contractual counterclaims could be admissible
against both contractual claims and treaty claims.328 Another category that remains to
be addressed are counterclaims in tort against either a contractual claim or a treaty
claim, on the basis, for instance, that workers have been treated in contravention of
certain labour or human rights standards or that the investor has caused environmental
damage, as was alleged in Paushok.329 Generally, and in light of the suggestion that
juridical connexity is not required per se, this is not impossible, assuming that there is
strong factual connexity.330
Still, an important caveat must be added that relates to the definition in the
applicable treaty of arbitrable disputes. Relying on article 8 of the Czech–Netherlands
Treaty in issue, the tribunal in Saluka held that for a counterclaim to fall within its
jurisdiction, it must be one ‘concerning an investment’.331 Jurisdiction over counterclaims has also been denied by the Iran–United States Claims Tribunal, interpreting
the Claims Settlement Declaration to exclude counterclaims that arise by operation of
law rather than from breach of the contract or transaction that constitutes the basis for
the applicant’s claim.332 As the tribunal ruled in Harris International Telecommunications, Inc. v Iran (1987):
Previous decisions of the Tribunal interpreting Article II(1) of the Claims Settlement Declaration
have clarified that the Tribunal has no jurisdiction over counterclaims for social security
premiums that are based on municipal laws rather than on the contract which forms the basis
of the claims. Article 2.26 of the Contract in this Case stipulates that the Claimant is responsible
for ‘Payment of all taxes, charges, fees and Government charges relating to this Contract and
contractor’s personnel and his Contractors outside of Iran’ (emphasis added). The Contract does
not provide for any obligation of the Claimant to pay social security premiums in Iran. Any such
obligation can therefore only stem from an application of Iranian law, which is also the legal basis

328 A host state could, for instance, base its contractual counterclaim on grievances similar to those
of Mexico in Azinian v Mexico, fn. 139, Award, at paras 21, 35, 104–105 (alleging misrepresentations
and failure of performance on the part of the investor). The counterclaim could also arise out of a
different contract where the contracts form part of the same transaction. See, e.g., Klöckner v Cameroon,
fn. 177, Award; Decision on Annulment, fn. 283, Decision on Annulment, 2 ICSID Rep. 95, 98
(1994).
329 Cf. Paushok v Mongolia, fn. 201, Award on Jurisdiction and Liability, at para. 678. See also
Lalive and Halonen, fn. 169, at para. 7.42; Ben Hamida, fn. 174, at 262.
330 The counterclaim brought by Estonia in Alex Genin, and discussed by the tribunal on the
merits, was based on an alleged violation of Estonian banking law. See Alex Genin v Estonia, fn. 155,
Award, at para. 199. But see at fn. 101 (the tribunal questioned whether the respondent was the proper
party to raise the particular counterclaim).
331 Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 60. Cf. Douglas, fn. 31, The International Law of Investment Claims, at 260 et seq. (on
‘[t]he requisite nexus between the counterclaim and the investment’). See also Chapter 6, Section 3.2.2
(on the supervening role of national law).
332 See, e.g., C.N. Brower and J.D. Brueschke, The Iran–United States Claims Tribunal (The
Hague, Nijhoff, 1998), 100–101 (and the cases cited therein); A. Avanessian, Iran–United States
Claims Tribunal in Action (London, Graham & Trotman/Martinus Nijhoff,1993), 58–61; American
Bell International, Inc. v The Government of the Islamic Republic of Iran, et al., Interlocutory Award No.
ITL 41–48–3, 11 June 1984, 6 Iran–U.S. C.T.R. 74, Sec. (ii), at 83–4 (tribunal dismissed for lack of
jurisdiction the respondent’s counterclaims alleging violations of Iranian penal laws or tortious conduct
against the claimant’s claim based in contract). But see G. Aldrich, The Jurisprudence of the Iran–United
States Claims Tribunal: An Analysis of the Decisions of the Tribunal (Oxford, Clarendon Press, 1996),
117–18 (noting that when claims are based on the taking or deprivation of property, the tribunal has,
when valuing the property on a dissolution or asset value basis, taken into account relevant tax
liabilities accrued at the date of taking or deprivation).
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152

The Scope of the Arbitration Agreement

on which the Respondent itself bases this Counterclaim. Thus, the Counterclaim for social
security premiums and related penalties must be dismissed.333

Indonesia’s tax fraud claim met a similar fate in Amco Asia. As noted by the second
ICSID Tribunal, the counterclaim on tax fraud arose out of the application of ‘general
law’ to ‘persons who are within the reach of the host State’s jurisdiction’, and not ‘directly
out of [the] investment’ as required by article 25(1) of the ICSID Convention. Accordingly, the counterclaim was held to be beyond its competence ratione materiae.334
In light of this precedent, it was arguably open to the tribunal in Saluka, i.e., without
referring to the requirement of connexity, to dismiss the non-contractual counterclaim
for lack of jurisdiction on the basis that it did not concern an investment as required by
article 8 of the Treaty but rather the alleged non-compliance of the investor with
‘Czech law, and involve[d] rights and obligations which [were] applicable, as a matter of
the general law of the Czech Republic, to persons subject to the Czech Republic’s
jurisdiction’.335 Still, the tribunal decided to lend support to its dismissal of the noncontractual counterclaim by interpreting article 8 in light of the general legal principle
of connexity,336 concluding that ‘the disputes which have given rise to the Respondent’s counterclaim are not sufficiently closely connected with the subject-matter of the
original claim put forward by Saluka to fall within the Tribunal’s jurisdiction under
Article 8 of the Treaty’.337
It is submitted that the former approach would have been desirable, also because the
tribunal, in discussing the connexity requirement, interpreted it quite, if not too,
narrowly.338 Yet, its position is supported by the ICSID Tribunal in Paushok, as it
also linked connexity with the ‘general law’ of the host state: ‘In considering whether
the Tribunal has jurisdiction to consider the counterclaims, it must therefore decide
whether there is a close connection between them and the primary claim from which
they arose or whether the counterclaims are matters that are otherwise covered by the
general law of Respondent.’339 As for counterclaims (1), (2), and (3),340 the tribunal
found:
333 Harris International Telecommunications, Inc. v Iran, Partial Award, 2 November 1987, 17 Iran–
U.S. C.T.R. 31, at para. 176, cited in Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over
the Czech Republic’s Counterclaim, at para. 73.
334 Amco Asia Corporation et al. v Indonesia, fn. 177, Decision on Jurisdiction (resubmitted case), 10
May 1988 at paras 122–127. The tribunal also held that Indonesia could not present a counterclaim
for tax fraud that it had not asserted before the first tribunal, pointing to article 52 of the ICSID
Convention. See at 60–4, paras 128–136.
335 Saluka v Czech Republic, fn. 171, Decision on Jurisdiction over the Czech Republic’s Counterclaim, at para. 79. Cf. at para. 78 (the respondent’s ‘heads of counterclaim involve non-compliance
with the general law of the Czech Republic’).
336 Saluka v Czech Republic, at para. 77.
337 Saluka v Czech Republic, at para. 81.
338 See, in particular, the reliance by the Saluka tribunal in para. 79 on the ICSID award Klöckner v
Cameroon. In that award, the ICSID Tribunal found the counterclaim admissible on the basis that it
formed ‘an indivisible whole’ with the primary claim asserted by the claimant, or as invoking
obligations which share with the primary claim ‘a common origin, identical sources, and an operational
unity’ or which were assumed for ‘the accomplishment of a single goal, [so as to be] interdependent’
See Award, para. 79. Arguably, this language may rather be construed as factual support for admitting
the counterclaim rather than a legal requirement pursuant to article 46 of the ICSID Convention. See
also Lalive and Halonen, fn. 169, at para. 7.04 (‘In our view the test established in [Saluka] was
probably too strict, and leads to it being near-impossible for states to succeed in having their counterclaims heard by investment treaty tribunals’); see also at paras 7–39–7.41.
339 Paushok v Mongolia, fn. 201, Award on Jurisdiction and Liability, at para. 693.
340 Paushok v Mongolia, at para. 678 (‘Respondent asserts seven counterclaims: (1) Claimants owe
Windfall Profits Taxes they caused GEM to evade in violation of law; (2) Claimants owe back Foreign
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Counterclaims by Host States

153

[They] arise out of Mongolian public law and exclusively raise issues of non-compliance with
Mongolian public law, including the tax laws of Mongolia. All these issues squarely fall within the
scope of the exclusive jurisdiction of Mongolian courts, are matters governed by Mongolian
public law, and cannot be considered as constituting an indivisible part of the Claimants’ claims
based on the BIT and international law or as creating a reasonable nexus between the Claimants’
claims and the Counterclaims justifying their joint consideration by an arbitral tribunal exclusively vested with jurisdiction under the BIT.341

According to the tribunal, a decision on the merits in favour of Mongolia’s counterclaims, enforceable through the New York Convention, would have the ‘likely effect of
advancing the enforcement of Mongolian tax laws by non-Mongolian courts in respect
of non-Mongolian nationals beyond limitations on the extraterritorial application of
Mongolian tax laws rooted in public international law’.342
Also counterclaims (4), (5), and (6)343 were found to ‘relate to subjects being the
object of Mongolian legislation and regulations’; and moreover, the tribunal held, they
‘cannot be seen has having a “close connection with the primary claim to which (they
are) a response”’.344 The fate of the counterclaims was also sealed by the lack of
supporting evidence, which was the case for counterclaim (7) as well.345
It is hoped that other tribunals faced with host state counterclaims will be more
flexible in assessing connexity, drawing rather from the emphasis laid by judges at
the International Court of Justice on practical convenience and procedural economy.
Such flexibility is supported by the lack of reference to juridical connexity in the
aforementioned Explanatory Report by the ICSID Secretariat,346 as well by recent
ICJ jurisprudence challenging the need for the counterclaim to be defensive so as to
rebut the initial claim.347 The decision by the UNCITRAL Working Group to discard
the suggestion requiring a ‘sufficient link’ between the counterclaim and the main claim

Worker Fees they caused GEM to refuse; (3) Claimants owe taxes, fees and levies they caused GEM to
evade by illicit intergroup transfers, including non-arm’s length transfers [ . . . ]’).
341 Paushok v Mongolia, at para. 694.
342 Paushok v Mongolia, at para. 695.
343 Paushok v Mongolia, at para. 678 (‘Respondent asserts seven counterclaims: [ . . . ] (4) Claimants
have violated their obligations under their license agreements to extract gold in an efficient and effective
manner, causing Mongolia a loss in tax revenue, loss of employment of Mongolian nationals and other
benefits; (5) Claimants violated their environmental obligations towards Mongolia; (6) Claimants owe
damages for gold smuggling [ . . . ]’).
344 Paushok v Mongolia, at para. 696.
345 Paushok v Mongolia, at paras 696–698. See also at para. 678 (‘Respondent asserts seven
counterclaims: [ . . . ] (7) Golden East failure to comply with Order from House of Lords’).
346 ICSID Secretariat, fn. 316.
347 See Case Concerning Armed Activities on the Territory of the Congo, fn. 174, Counter-Claims
Order, at para. 38; Application of the Convention on the Prevention and Punishment of the Crime of
Genocide, fn. 170, Counter-Claims Order, at paras 27–28. See also Thirlway, fn. 260, at 219. But see
Application of the Convention on the Prevention and Punishment of the Crime of Genocide, fn. 170,
Counter-Claims Order, Dissenting Opinion of Vice-President Weeramantry, at 291 (‘A claim that is
autonomous and has no bearing on the determination of the initial claim does not thus qualify as a
counter-claim’); R. Genet, ‘Les demandes reconventionnelles et la procédure de la C.P.J.I.’ (1938) 19
Revue de droit international et de législation comparé 175; A. Blomeyer, ‘Types of Relief Available
(Judicial Remedies)’ in VXI International Encyclopedia of Comparative Law (M. Cappelletti, ed., 1982),
para. 128 (in Central European, Scandinavian and Romanic Legal Systems, ‘the admissibility of a cross
action is doubtful if the defendant may not assert his counter-right defensively’); O.L. Pegna,
‘Counter-Claims and Obligations Erga Omnes before the International Court of Justice’ (1998) 9
Eur. J. Int’l L. 274. See also G. Petrochilos et al., fn. 225, at 114, para. 6 (‘Ancillary claims must be so
close to the primary claim as to require the adjudication of the ancillary claim before the primary claim
can be finally settled’).
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154

The Scope of the Arbitration Agreement

can also be seen in this light.348 The recent formulation by Douglas in his Rule 26
reinforces our conclusion:
In accordance with the terms of the contracting state parties’ consent to arbitration in the
investment treaty, the tribunal’s jurisdiction ratione materiae may extend to counterclaims by
the host contracting state party founded upon a contractual obligation, a tort, unjust enrichment,
or a public act of the host contracting state party, in respect of matters directly related to the
investment.349

4.3. Interim conclusions
In sum, a tribunal’s jurisdiction over counterclaims depends on the extent to which
they fall within the parties’ arbitration agreement. This suggests that host state counterclaims may be accepted in investment treaty arbitration where that state’s arbitration
offer, as set out in the treaty, contains a definition of arbitrable investment disputes
broad enough to encompass investor obligations relied upon by the host state in their
counterclaim. Dispute settlement clauses that implicitly cover investor obligations by
virtue of express language in favour of the right of the host state to bring claims may also
allow for the bringing of counterclaims. Contrariwise, in case the offer only covers host
state obligations, counterclaims would appear to fall outside the tribunal’s jurisdiction.
This observation may be strengthened by reference to the lack of locus standi of the
host state.
In addition to falling within the tribunal’s jurisdiction, the counterclaim must also be
admissible. This presupposes that it is not subject to a different forum selection
agreement, and that there is connexity between the host state’s counterclaim and the
investor’s claim. In cases in which juridical connexity is lacking, a strong factual
connexity could weigh in favour of admissibility, the most important criteria being
procedural economy and the better administration of justice.

5. General Conclusions
In this chapter, we discussed the important role that the nature of the claim may have
for a tribunal’s decision on the applicable law. We also introduced the choice-of-law
technique of characterization, observing that the application of national and international law may depend on whether a claim is contractual or non-contractual in
nature. The importance of characterization in investment arbitration also stems from
the fact that the tribunal’s jurisdiction may be limited to claims of a national or
international nature, a fact that has a corollary effect on the ability of the tribunal to
apply national or international law.
We concluded that while some dispute settlement clauses may be limited to claims
of a national or international nature, other clauses allow for the bringing of both
national and international claims. Choice-of-law clauses may help in interpreting
arbitration agreements. Thus, where an investment contract refers to the application
of national and international law, this may support a finding of a broad arbitration
agreement allowing for the bringing of both national and international claims. Likewise, in investment treaties, the scope of the arbitration clause frequently corresponds
348 UNCITRAL, fn. 313, at para. 30 (the group discarded the suggestion requiring a ‘sufficient
link’ between the counterclaim and the main claim: ‘it was viewed as being too restrictive’).
349 Douglas, fn. 31, The International Law of Investment Claims, at 255.
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General Conclusions

155

to the applicable law clause, providing in the case of broad arbitration clauses for the
application of both national and international law; or, in case of narrow arbitration
clauses, solely international law.
Finally, we considered the jurisdiction of investment treaty tribunals over host state
counterclaims, concluding that when they fall within the arbitration agreement,
juridical connexity does not necessarily constitute an obstacle against admissibility as
long as there is strong factual connexity. Accordingly, it may be possible for host states
to bring counterclaims based in national law against claims based in international law.
In our analysis of arbitral practice in Chapters 5 to 7, further reference is made to the
role played by the nature of the claim in the decision by arbitrators to apply national or
international law to the merits.

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5
The Primary Applicability of National Law
and the Role of International Law
[W]hen international law has not been adopted as governing law by the parties to
an international commercial transaction nor directly incorporated and self-executing in the system of national law which was selected, would it not be
inappropriate to allow a norm of international law to override the applicable
norm of the national law selected by the parties on the ground that the international norm is ‘different’ and ‘higher’? The issue does not turn on grand
theories of monism or dualism but on common sense. [ . . . ] [W]hen parties
have the power to select the law which will govern their transaction, whether the
law which they select is ‘higher’ or ‘lower’ is irrelevant.1

1. Introduction
With a view to creating a sense of structure as concerns the applicable law in investment
arbitration, we will in the following two chapters examine arbitral practice according to
whether the tribunals primarily apply national or international law to the merits of the
dispute at hand. In this chapter, we will discuss the following three factors that may lead
to the primary application of national law: an agreement by the disputing parties to
apply national law (Chapter 5, Section 2.1); considerations of host state sovereignty
(Chapter 5, Section 2.2); and the national nature of the claim (Chapter 5,
Section 2.3). Chapter 6 is organized in a similar fashion: international law may
primarily apply on the basis of party agreement (Chapter 6, Section 2.1); by virtue
of the international nature of the claim (Chapter 6, Section 2.2); and because of
arguments pertaining to the superior nature of international law vis-à-vis national law
(Chapter 6, Section 2.3).
As will become apparent, the reason for qualifying the lex causae as ‘primarily’
applicable lies in the fact that a decision that national law or international law governs
the dispute does not rule out a role for international and national law, respectively. As
such, primacy denotes sequential rather than hierarchical superiority. Specifically, when
the dispute is primarily governed by national law, international law may apply indirectly
as part of the ‘law of the land’ or by virtue of international-law-friendly interpretation
(Chapter 5, Section 3.1); or in a corrective fashion, when the applicable national legal
system has lacunae or a relevant national norm conflicts with a fundamental rule of
international law (Chapter 5, Section 3.2). Conversely, when the dispute is primarily
governed by international law, national law could apply indirectly when the particular
international claim requires a determination on the parties’ rights and obligations in

1 W.M. Reisman, ‘Law, International Public Policy (So-called) and Arbitral Choice in International
Commercial Arbitration’ in International Arbitration 2006: Back to Basics? (ICCA Congress Series No.
13, van den Berg, ed., Alphen aan den Rijn, Kluwer Law International, 2007), 849, 852–3 (emphasis
in original).
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158 The Primary Applicability of National Law and the Role of International Law
accordance with national law, such as for expropriation and ‘umbrella’ clause claims
pursuant to investment treaties (Chapter 6, Section 3.1); or correctively, where international law has lacunae or conflicts with a fundamental national norm (Chapter 6,
Section 3.2).

2. Reasons for the Primary Applicability of National Law
We may generally distinguish between four different situations: those in which the
parties have agreed to the application of either (i) national or (ii) international law; (iii)
where the agreement provides for the application of both national and international
law; and (iv) where there is no choice-of-law agreement.2 While in the first situation it
is undisputed that arbitrators should primarily apply national law to the dispute
(Section 2.1), the answer is not as straightforward with respect to the latter two
cases, where both national and international law are seemingly of equal relevance. As
we will see, in those cases, national law has been argued and held to apply in light of
host state sovereignty (Section 2.2) and because of the national nature of the claim at
hand (Section 2.3).

2.1. Party agreement on the application of national law
An obvious factor in favour of the application of national law is an agreement by the
parties to that effect. This is in conformity with the doctrine of party autonomy, which
for territorialized tribunals is respected by the national arbitration law of the tribunal’s
juridical seat, as well as in arbitration rules to which the parties may refer; and for
internationalized tribunals because of Article 42(1), first sentence, of the ICSID
Convention and Article V of the Iran–United States Claims Settlement Declaration.3
The application of national law by virtue of party agreement will most commonly
arise where the arbitration tribunal is constituted pursuant to an investment contract.
There are numerous examples of investment contracts between foreign investors and
host states that expressly provide for the application of national law.4 In addition to
reflecting the host state’s desire to have the investment relationship governed by its own
national law,5 a choice for the application of national law has the advantage of
predictability for both parties:
[A national system of law] is not merely a set of general principles or of isolated legal rules. It is an
interconnecting, interdependent collection of laws, regulations and ordinances, enacted by or on
behalf of the State and interpreted and applied by the courts. It is a complete legal system,
2 See Chapter 3, Section 4 (general conclusions).
3 See Chapter 3, at Section 3.1.1 (the parties may stipulate the application of national and/or
international law).
4 See P. Muchlinski, Multinational Enterprises and the Law (Oxford, Blackwell, 1999), 503
(‘[N]ewer international investment agreements tend to be governed by the law of the host state rather
than by international law’ [references omitted]); G. Sacerdoti, ‘State Contracts and International Law:
A Reappraisal’ (1986–87) VII Italian Y.B. Int’l L. 26, 35. But see T. Begic, Applicable Law in
International Investment Disputes (Utrecht, Eleven International, 2005), 16 (‘Clauses with [ . . . ] a
straightforward and exclusive stipulation in favour of the host State’s law are rare, in particular,
nowadays’).
5 See Chapter 1, Section 1 (on motivations for the study). But see Colt Industries v The Republic
of Korea, ICSID Case No. ARB/84/2), Settlement, 3 August 1990 (K.O. Rattray, E. Jimenez de
Arechaga, I.E. McPherson, arbs), unreported (the parties had agreed to the application of the law of the
investor’s home country); C.H. Schreuer et al., The ICSID Convention: A Commentary (Cambridge,
Cambridge University Press, 2009), 560.
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Reasons for the Primary Applicability of National Law

159

designed to provide an answer to any legal question that might be posed. Furthermore, a national
system of law will in principle be a known and existing system, capable of reasonably accurate
interpretation by experienced practitioners.6

Arbitral practice of both territorialized and internationalized tribunals confirms the
appropriateness of applying national law to contractual disputes when the parties have
so agreed. The following cases may serve as examples here. As for territorialized
tribunals, Alsing Trading Co. v Greece (1954) concerned an alleged breach of contract
for the exclusive supply of matches to the Greek Government.7 Sole Arbitrator Python
held that since ‘the plaintiffs accepted before the arbitration tribunal that the case be
judged according to Greek law, as requested by the defendant’, the law of the host state
was applicable to the dispute.8
The case National Oil Corporation (NOC) v Libyan Sun Oil Company (1985/1987) is
also illustrative.9 The dispute involved a claim for breach of contract by the NOC, a
state-owned Libyan Corporation, against a US corporation that had stopped performance of an oil exploration project in Libya.10 The investor claimed force majeure as a
defence, arguing that that it was prevented from carrying out the project due to the fact
that a US passport order and export regulations prohibited US citizens from going to
Libya, and because its application for a licence to export oil technology had been denied
by the US Government.11 The parties had stipulated that the contract was to be
governed by and interpreted in accordance with Libyan law.12 Accordingly, the ICC
Tribunal construed the force majeure clause contained in the contract in light of the
Libyan Civil Code and the jurisprudence of the Libyan Supreme Court, concluding
that the events in question did not constitute force majeure.13 The tribunal also applied
Libyan law to the remaining issues,14 including the question of damages.15 In so doing,
it relied extensively on legal interpretations provided by experts in Libyan law.16
A more recent example from the practice of territorialized tribunals is Zeevi Holdings
Ltd v Republic of Bulgaria and The Privatization Agency of Bulgaria (2006).17 The
6 N. Blackaby et al., Redfern and Hunter on International Arbitration (Oxford, Oxford University
Press, 2009), 198. Contrariwise, international law is said to be a more undeveloped system of law. See
Chapter 6, Section 2.1.1 (on the express or implied ‘internationalization’ of investment contracts); and
Section 3.2.1 (on the complementary role of national law).
7 Alsing Trading Co. & Svenska Tändsticks Aktiebolaget v Greece, Award, 22 December 1954
(Python, sole arb.), 23 I.L.R. 633 (1956).
8 Alsing Trading v Greece, at 637–8 (more specifically, it was held that the ‘dispute comes under
Roman-Byzantine law which was reintroduced into Greece by Decree of 23rd February and 7th
March, 1835, after liberation from Turkish domination’). See also at 635, 638, 640–7 (the parties had
also agreed that, ‘given the interdependence and the common source of the system of law in force in
continental Europe, the question of the law to be applied is rather a question of principle without much
practical significance.’ Accordingly, alongside Greek jurisprudence and doctrine, the arbitrator referred
to French, Swiss, and German law when dismissing the investor’s claims on the merits).
9 National Oil Corporation v Libyan Sun Oil Company, ICC Case No. 4462, First Award (on force
majeure), 31 May 1985 (R. Schmelck, H. Koetz, E. Muskie, arbs), 29 I.L.M. 565 (1990).
10 National Oil Corporation, at 568.
11 National Oil Corporation, at 579.
12 National Oil Corporation, at 568 (‘This agreement was a risk contract to be governed by and
interpreted in accordance with the laws and regulations of Libya including the Petroleum law (EPSA
Art. 21)’).
13 National Oil Corporation, at 600.
14 National Oil Corporation, Final Award, 23 February 1987, 29 I.L.M. 601 (1990).
15 National Oil Corporation, at 618, 620.
16 National Oil Corporation, at 615. See also at 608.
17 Zeevi Holdings Ltd v Republic of Bulgaria and The Privatization Agency of Bulgaria, Final Award,
25 October 2006 (K.-H. Böckstiegel, A.A. Yarkoni, S. Cherney, arbs), UNCITRAL Case No. UNC
39/DK.
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160 The Primary Applicability of National Law and the Role of International Law
dispute arose under a Privatization Agreement (PA), by which Zeevi purchased Balkan
Airlines EAD, Bulgaria’s national carrier.18 According to the foreign investor, it was
fraudulently misled as to the financial condition of Balkan Airlines at the time of the
acquisition, and contrary to undertakings given by the Bulgarian Government, Balkan
Airlines’ designation as national carrier was withdrawn following the privatization.19
The respondents denied any breach of the PA, and instead counterclaimed for Zeevi’s
failure to service Balkan Airlines’ debts up to USD 30 million; its failure additionally to
invest USD 100 million in the airline; its failure to secure these obligations by way of
letters of credit and corporate guarantees; and its illegitimate appropriation of Balkan
Airlines’ principal assets in violation of express terms of the Agreement.20 In settling the
dispute on the merits, the UNCITRAL Tribunal applied Bulgarian law on the basis of
an express stipulation to that effect in the Privatization Agreement:
Pursuant to para. 15.1 of the PA the Parties have agreed to settle any claim or dispute arising out
of or in relation to this contract by arbitration to be conducted under the Rules of Arbitration of
the United Nations Commission on International Trade (UNCITRAL Rules). Regarding the
substantive law to be applied by the tribunal, Article 33 UNCITRAL Rules provides: ‘Article 33
[ . . . ] 1. The arbitral tribunal shall apply the law designated by the parties as applicable to the
substance of the dispute.’ [ . . . ] In Section 14.1 of the PA the Parties have agreed that the PA
‘shall be governed by and construed in accordance with the laws of Bulgaria.’ Therefore,
concerning the merits of the case the law of the Republic of Bulgaria will be applied.21

Also ICSID tribunals have applied national law by virtue of the parties’ agreement. The
arbitration in Maritime International Nominees Establishment (MINE) v Republic of
Guinea (1988) arose out of a dispute as to which party had prevented the performance
of their contract relating to the creation of facilities to ship bauxite.22 The parties had
agreed that any dispute would be settled with reference to the investment contract itself,
with recourse to be had to the law of the host state only in respect of questions on which
the agreement was silent or incomplete.23 The scope of Guinean law was further confined
by a stabilization clause.24 Without referring to the choice-of-law agreement, the ICSID
Tribunal concluded that Guinea had breached the contract, relying—apart from on the
contract itself—on the principle of good faith set forth in the French Civil Code, given
that Guinean law derived from French law: ‘Guinea’s conduct in secretly negotiating the
afrobulk arrangement, and in denying its existence to MINE thereafter, exhibits bad faith
on its part, violating the principle of good faith set forth in the French Civil Code.’25
18 Zeevi v Bulgaria, at para. 3.
19 Zeevi v Bulgaria, at para. 3.
20 Zeevi v Bulgaria, at para. 3.
21 Zeevi v Bulgaria, at paras 104–105. Cf. Bridas S.A.I.P.I.C., Bridas Energy International, Ltd,
Intercontinental Oil & Gas Ventures, Ltd and Bridas Corporation v Government of Turkmenistan,
Concern Balkannebitgazsenagat and State Concern Turkmenneft, ICC Arbitration Case No. 9058/
FMS/KGA, First Partial Award, 25 June 1999 (H. Smit, E.C. Chiasson, G.B. Bell, arbs), 4, 31, 43,
70–1 (applying English law); Joint Venture Yashlar and Bridas S.A.I.P.I.C. v Turkmenistan, ICC
Arbitration Case No. 9151/FMS/KGA, Interim Award, 8 June 1999 (S. Kentridge, J. Paulsson,
J. Kolrud, arbs), Part II, at paras 2–3; Final Award, 19 May 2000, Part I, at para. 44 (applying English
law).
22 Maritime International Nominees Establishment (MINE) v Republic of Guinea, ICSID Case No.
ARB/84/4), Award, 6 January 1988 (D.E. Zubrod, J. Berg, D.K. Sharpe, arbs), section A.
23 MINE v Guinea, Decision on Annulment, 22 December 1989 (S. Sucharitkul, A. Broches,
K. Mbaye committee members), paras 1.03, 6.31–6.34.
24 MINE v Guinea, paras 1.03, 6.31–6.34. On stabilization clauses, see generally Chapter 6,
Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts).
25 MINE v Guinea, Award, at section 8. See also at fn. 11; see also fn. 23, Decision on Annulment,
at para. 6.31; see also at paras 5.02, 6.35–6.41 (the committee dismissed Guinea’s request for
annulment on the basis that the tribunal had manifestly exceeded its powers by failing to apply the
law agreed to by the parties).
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Reasons for the Primary Applicability of National Law

161

In CDC Group plc v Republic of the Seychelles (2003), the investment contract
provided that it should be ‘governed by and construed in all respects in accordance
with the laws of England [ . . . ]’.26 The ICSID Tribunal noted that the host state had
also made reference to ‘the emerging jurisprudence in relation to international trade
and investments between developed and developing countries’, but that no argument
based in such jurisprudence had later been put forward: ‘The submissions presented by
the parties proceeded on the footing that CDC’s claim was to be resolved in accordance
with English law.’27
Amoco International Finance Corporation v Iran et al. (1987), decided by the Iran–
United States Claims Tribunal, involved two separate claims: breach of contract and
expropriation.28 The investor’s position was that its contractual claim arose under
international law, in that the agreement at hand belonged to ‘a special category of
international contract as economic development agreements’; and because such contracts, ‘by their nature require that they be insulated from the disruptive effects of
changing municipal law’.29 As a result, the investor argued, ‘the law from which they
derive their binding force (loi d’enracinement) is international law.’30 According to the
investor, the practical consequences were that the contract ‘would not only be governed
by the principle of good faith mentioned in Article 21 of the [contract], but also by the
rule pacta sunt servanda. Therefore any breach of the [contract] would also be a breach
of international law, for which the State is internationally responsible.’31
The tribunal discarded the investor’s argument. First, it noted that the issue of the
applicable law in case of contractual breaches ‘is quite different from the law applicable
to expropriation [as it] relates to the problem known in conflicts of laws, or private
international law, as “the law of the contract,” namely the law governing the validity,
interpretation and implementation of the [ . . . ] Agreement’.32 Secondly, it referred to
the choice-of-law clause inserted in the contract: ‘This Agreement shall be construed
and interpreted in accordance with the plain meaning of its terms, but subject thereto,
shall be governed and construed in accordance with the laws of Iran.’33 On this basis, it
concluded that ‘[i]t is clear that the parties chose Iranian law as the law of the contract
and no reason appears for reading the provision otherwise’.34
26 CDC Group plc v Republic of the Seychelles, ICSID Case No. ARB/02/14, Award 17 December
2003 (A. Mason, sole arb.), para. 43.
27 CDC Group v Seychelles, at para. 43. See also Decision on Annulment, 29 June 2005
(C.N. Brower, M. Hwang, D.A.R. Williams, committee members), para. 45 (‘[O]ur inquiry is limited
to a determination of whether or not the Tribunal endeavored to apply English law. That it did so is
made plain by its explicit statement in the Award that it did as well as by its repeated citation to relevant
English legal authorities’); and at para. 47; Tanzania Electric Supply Company Limited v Independent
Power Tanzania Limited, ICSID Case No. ARB/98/8, Award, 12 July 2001 (K.S. Rokison, C.
N. Brower, A. Rogers, arbs), para. 51 (applying Tanzanian law); World Duty Free Company Limited
v Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006 (G. Guillaume, V.V. Veeder,
A. Rogers, arbs), paras 158 et seq. (applying English and Kenyan law); RSM Production Corporation v
Grenada, ICSID Case No ARB/05/14, Award, 13 March 2009 (V.V. Veeder, B. Audit, D.S. Berry,
arbs), paras 12–13 (applying the laws of Grenada and English common law).
28 Amoco International Finance Corporation v Iran et al., Partial Award No. 310-56-3 (14 July
1987). For the claim for expropriation, see Chapter 6, Section 2.2 (on the international nature of the
claim).
29 Amoco v Iran, at para. 149.
30 Amoco v Iran, at para. 149.
31 Amoco v Iran, at para. 150. On the application of international law to economic development
agreements, see generally Chapter 6, Section 2.1.1 (on express or implied ‘internationalization’ of
investment contracts).
32 Amoco v Iran, at para. 154.
33 Amoco v Iran, at para. 155.
34 Amoco v Iran, at para. 156.
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162 The Primary Applicability of National Law and the Role of International Law
We also note the case of Questech, Inc. v Ministry of National Defence of the Islamic
Republic of Iran (1985), in which the Iran–United States Claims Tribunal stated:
Since Iranian law is the law expressly chosen as applicable by the Parties and since the Contract
does not contain any provision designed to protect against unilateral changes by the State party,
the Tribunal does not need to enter into additional considerations that may have to be taken into
account in other cases including terminations of contracts to which public international law is
found to be the applicable law.35

In sum, both territorialized and internationalized tribunals have applied national law to
contractual claims when the parties have so stipulated in their contract.
It is briefly noted that the application of national law by virtue of party agreement
may also occur in arbitration proceedings without privity.36 This would be the case
where the host state gives its consent in its national investment law and where that law
provides for the application of national law. This possibility was unsuccessfully argued
by Egypt in Southern Pacific Properties (Middle East) Limited (SPP) v Arab Republic of
Egypt (1992):
‘[E]n désignant expressément, notamment dans le Heads of Agreement, avec différentes lois
égyptiennes, la loi 43/74, les parties ont choisi le droit égyptien comme loi applicable à leurs
litiges, y compris le droit administratif, et ce conformément à l’article 42.1, lere phrase de la
Convention de Washington.’ [Pointing expressly, especially in the Heads of Agreement, to
various Egyptian laws, Law 43/74, the parties have chosen Egyptian law as the law applicable
to their disputes, including administrative law, and this in accordance with Article 42.1, first
sentence of the Washington Convention.]37

Depending on the scope of the dispute settlement clause, the application of national
law by virtue of party autonomy is also possible in investment treaty arbitration.
Because of the broad dispute settlement clause in the BIT at hand,38 this could have
been possible had the contract at issue in Compañía de Aguas del Aconquija, SA and
Vivendi Universal v Argentina (2000/2002/2007) not contained a forum selection
clause providing for the ‘exclusive jurisdiction of the Contentious Administrative

35 Questech, Inc. v Ministry of National Defence of the Islamic Republic of Iran, Award, 20 September
1985. See also FMC Corporation and The Ministry of National Defence, et al., Award, 12 February
1987, Dissenting Opinion of Bahrami Ahmadi, at section B.1 (‘[S]ince Article V of the Declaration
prescribes how the applicable law is to be determined, in this claim where the laws of Iran have been
expressly specified [as applicable], the Contract should be construed solely on the basis of Iranian law,
especially since Iranian law makes specific provision with respect to termination of contract and
damages arising from termination. Regrettably, however, the majority has not taken this highly
important matter into consideration, and the Award was not rendered on the basis of Iranian law.’).
But see J.R. Crook, ‘Applicable Law in International Arbitration: The Iran–U.S. Claims Tribunal
Experience’ (1989) 83 Am. J. Int’l L. 278, 280 (‘The Tribunal has rarely decided on the basis of
national rules, even in cases where the parties might arguably have agreed on them as the rule of
decision’); see also at 310. Cf. Mobil Oil et al. v Iran, Partial Award, 14 July 1987, paras 80–81, referred
to in Chapter 6, Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts).
36 See Chapter 2, Section 2 (on features of the arbitral process); Chapter 4, Section 3.2 (on
arbitration without privity).
37 Southern Pacific Properties (Middle East) Limited (SPP) v Arab Republic of Egypt, ICSID Case No.
ARB/84/3, Award, 20 May 1992 (E. Jimenez de Arechaga, M.A.E. El Mahdi, R.F. Pietrowski, arbs), at
para. 34. See also Chapter 3, Section 3.1.2 (on express and implied choice of law).
38 Compañía de Aguas del Aconquija, SA and Vivendi Universal v Argentina, ICSID Case No. ARB/
97/3, Decision on Annulment, 3 July 2002 (L.Y. Fortier, J.R. Crawford, J.C.F. Rozas, committee
members), para. 55 (‘Read literally, the requirements for arbitral jurisdiction [ . . . ] do not necessitate
that the Claimant allege a breach of the BIT itself: it is sufficient that the dispute relate to an investment
made under the BIT’). See also Chapter 4, Section 3.2 (on arbitration without privity).
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Reasons for the Primary Applicability of National Law

163

Tribunals of Tucumán’.39 According to the ICSID ad hoc Committee, ‘whether there
has been a breach of contract [ . . . ] will be determined by [ . . . ] the proper law of the
contract, in other words, the law of Tucumán.’40 In cases where the parties to
the contract agree to the application of national law, that would be the ‘proper law
of the contract’ also in treaty arbitration.

2.2. Host state sovereignty and territorial control over foreign investors
and investments
In situations where there is no party agreement or where the parties have agreed to the
application of both national and international law, arguments in favour of the application of national law may relate to the principle of state sovereignty; and more
specifically, the right of the host state to regulate activities, including those of foreign
investors, on its territory.41 Brierly explains the principle of sovereignty as follows:
At the basis of international law lies the notion that a state occupies a definite part of this surface
of the earth, within which it normally exercises, subject to the limitations imposed by international law, jurisdiction over persons and things to the exclusion of the jurisdiction of other
states. When a state exercises an authority of this kind over a certain territory it is popularly said
to have ‘sovereignty’ over the territory.42

The Argentinean publicist and historian Carlos Calvo (1824–1906) was a strong
proponent of the principle of sovereignty, which he used to reject the applicability of
international law in favour of national law. In his ‘Derecho internacional teórico y
práctico de Europa y America’ (1863), he states:
The rule that in more than one case it has been attempted to impose on American states is that
foreigners merit more regard and privileges more marked and extended than those accorded even
to the nationals of the country where they reside. This principle is intrinsically contrary to the law
of equality of nations [ . . . ]. To admit that in the present case governmental responsibility, that is
the principle of an indemnity, is to create an exorbitant and fatal privilege, essentially favorable to
the powerful states and injurious to the weaker nations, establishing an unjustifiable inequality
between nationals and foreigners.43

On this basis, Calvo concludes that ‘the responsibility of governments towards foreigners cannot be greater than that which these governments have towards their own

39 Compañía de Aguas v Argentina, Award I, 21 November 2000 (F. Rezek, T. Buergenthal,
P.D. Trooboff, arbs); Decision on Annulment, fn. 38; Award II, 20 August 2007 (G. Kaufmann-Kohler,
C.B. Verea, J.W. Rowley, arbs).
40 Compañía de Aguas v Argentina, fn. 38, Decision on Annulment, at para. 96.
41 See, e.g., H.A.G. Naón, ‘ICC Arbitration and Developing Countries’ (1993) 8(1) ICSID Rev.FILJ 116, 121; S.J. Toope, Mixed International Arbitration: Studies in Arbitration Between States and
Private Persons (Cambridge, Grotius, 1990), 240. Cf. W.W. Park, Arbitration of International Business
Disputes (Oxford, Oxford University Press, 2006), 319 (‘Derived from the Latin super, meaning
“above,” sovereignty in the context of international relations normally implicates a state’s right to
exercise supreme power within its territory’ [references omitted]).
42 J.L. Brierly, The Law of Nations: An Introduction to the International Law of Peace (Oxford,
Clarendon Press, 1963), 162.
43 D. Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy
(Minneapolis, University of Minnesota Press, 1955), 18. See also W. Shan, ‘Is Calvo Dead?’ (2007) 55
(1) Am. J. Comp. Law 123, 126 (‘In the substantive sense, the Calvo Doctrine emphasizes that host
states shall not grant foreigners any rights or benefits greater than those they accord to their own
nationals [ . . . ]. [I]t rejects the so-called “international minimum standard” as a standard of law
applicable to the treatment of foreigners including foreign investors’).
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164 The Primary Applicability of National Law and the Role of International Law
citizens’.44 The Calvo Doctrine was ‘enthusiastically received’ in Latin American states,
which inserted ‘Calvo Clauses’ in constitutions, domestic legislation, international
treaties, and contracts signed between foreign investors and Latin American governments.45 For instance, a 1938 Ecuadorian law stated:
Foreigners, by the act of coming to the country, subject themselves to the Ecuadorian laws
without any exception. They are consequently subject to the Constitution, laws, jurisdiction and
police of the Republic, and may in no case, nor for any reason, avail themselves of their status as
foreigners against the said conditions, jurisdiction, and police.46

A current example is found in the Constitution of Peru (1993), which provides in
Article 63 that ‘[n]ational and foreign investments are subject to the same conditions.
[ . . . ] In all contracts of the State and public corporations with resident aliens, these
shall subject to the national laws [ . . . ].’47 As noted by Shan, ‘Calvo Clauses’ have been
included in the national laws of developing states beyond Latin America, especially in
Asian and African states.48 He gives the example of a 1996 Chinese law that stipulates
that all Sino-foreign equity joint venture contracts, Sino-foreign cooperative joint
venture contracts, and Sino-foreign contracts for the joint exploration and development
of natural resources, shall be governed by Chinese law.49
The principle of sovereignty was also stressed by the promoters of the New International Economic Order, including—notably—capital-importing states; and their
focus on permanent sovereignty over natural resources50 is mirrored in United Nations
General Assembly resolutions from the 1950s to the 1970s.51 The corollary subjection
of foreign investors to the national laws of the host state was recently articulated by
Ruggie, Special Representative of the United Nations Secretary-General on the issue of
human rights and transnational corporations and other business enterprises: ‘Each
legally distinct corporate entity is subject to the laws of the countries in which it is
based and operates.’52 It is also reflected in investment laws, and in bilateral investment
treaties such as that between Sri Lanka and Belgium/Luxembourg: ‘For the avoidance
of any doubt, it is declared that all investments shall, subject to the priority to
be attached to this agreement, be governed by the laws in force in the territory of the

44 Shea, fn. 43, at 19.
45 Shea, fn. 43, at 21–32.
46 Shea, fn. 43, at 26 and fn. 56 (with sources for further examples of such constitutional
provisions).
47 Political Constitution of Peru (1993), art. 63. See also art. 71 (‘Regarding to property, aliens,
whether they be natural or juridical persons, are in the same conditions as Peruvians. Therefore, in any
case, they may in no instance invoke exception or diplomatic protection’).
48 Shan, at 129.
49 Shan, at 129 (referring to art. 126 of the Contract Law of the People’s Republic of China).
50 See generally N. Schrijver, Sovereignty over Natural Resources: Balancing Rights and Duties
(Cambridge, Cambridge University Press, 1997). See also T.W. Wälde, ‘A Requiem for the New
International Economic Order: The Rise and Fall of Paradigms in International Economic Law and a
Post-Mortem with Timeless Significance’ in Liber Amicorum: Professor Ignaz Seidl-Hohenveldern in
Honour of His 80th Birthday (G. Hafner et al., eds, The Hague, Kluwer Law International, 1998), 771.
51 See, e.g., General Assembly (GA) Resolution 3281 (XXIX) (Charter of Economic Rights and
Duties of States), UN GAOR, 29th Sess., Supp. No. 31 (1974) 50, arts 2(2)(a), 4(g); GA Resolution
No. 626 (VII) of December 21, 1952 (on the Right to exploit freely Natural Wealth and Resources);
GA Resolution No. 1803 (XVII), 14 December 1962 (Permanent Sovereignty over Natural
Resources); GA Declaration on the Establishment of a New International Economic Order, Resolution
3201 (S-VI) (1 May 1974).
52 Human Rights Council, Protect, Respect and Remedy: A Framework for Business and Human Rights
(Report of J. Ruggie, Special Representative of the Secretary-General on the issue of human rights and
transnational corporations and other business enterprises), A/HRC/8/5, 7 April 2008, at para. 14.
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Reasons for the Primary Applicability of National Law

165

Contracting Party in which such investments are made.’53 We further note the Law
on Private Investment in Afghanistan (2005), providing that ‘[u]nless otherwise
specifically provided by this Law or other Afghan laws, all Registered Enterprises,
and all investors, whether domestic or foreign, must abide by all applicable laws of
Afghanistan’.54
The primary application of national law in cases where the parties have agreed to the
application of national and international law, or where there is no agreement on the
applicable law, has frequently been advanced by the host state party to arbitral
proceedings.55 With respect to territorialized tribunals, Texaco Overseas Petroleum Co.
(TOPCO) & California Asiatic Oil Co. (Calasiatic) v Libya (1977) concerned the
nationalization by Libya of several petroleum concessions held by two US companies.56
The Concessions stipulated the following applicable law:
This Concession shall be governed by and interpreted in accordance with the principles of law of
Libya common to the principles of international law and in the absence of such common
principles then by and in accordance with the general principles of law, including such of
those principles as may have been applied by international tribunals.57

Libya argued in favour of the application on its own national law, stating that the recent
United Nations General Assembly Resolutions 3171 and 3201 ‘provide that any
dispute related to Nationalization or its consequences should be settled in accordance
with provisions of domestic law of the State’.58 In CME v Czech Republic (2001/2003),
the investor alleged that the Czech Republic had breached various substantive provisions of the Netherlands–Czech/Slovak Bilateral Investment Treaty.59 The treaty
stipulated the applicability of both national and international law:
The arbitral tribunal shall decide on the basis of the law, taking into account in particular though
not exclusively:
53 Sri Lanka-Belgium/Luxembourg BIT, art. 9. See also P. Peters, ‘Investment Risk and Trust: The
Role of International Law’ in International Law and Development 131, 159–60 (P. de Waart et al., eds,
1988), fn. 30.
54 Law on Private Investment in Afghanistan (2005), art. 15; Angolan Basic Private Investment
Law, Law 11/03, 13 May 2003, art. 23; see also art. 24; Law on Foreign Investment in Vietnam, 29
December 1987 (including amendments adopted in 2000), arts 25–27, 51; Law of the Republic of
Belarus on Foreign Investment on the Territory of the Republic of Belarus, 14 November 1991, art. 5;
Federal Republic of Yugoslavia Law on Foreign Investment, 16 January 2002, art. 18. Cf. Wena Hotels
Ltd v Egypt, ICSID Case No. ARB/98/4, Decision on Annulment, 5 February 2002 (K.D. Kerameus,
A. Bucher, F.O. Vicuña, committee members), para. 57 (the ICSID ad hoc Committee fully agreed
with the point brought forward by Egypt, namely the ‘legitimate principle that a country that attracts
foreign investment is entitled to insist that investors comply with the laws of that country’);
C. Schreuer, The Relevance of Public International Law in International Commercial Arbitration:
Investment Disputes, at 10, available at <http://www.univie.ac.at/intlaw/pdf/csunpublpaper_1.pdf>
(last visited 1 May 2012); Chapter 6, Section 3.2.2 (on the supervening role of national law).
55 See Chapter 1, Section 1 (on motivations for the study).
56 Texaco Overseas Petroleum Company (TOPCO) and California Asiatic Oil Company
(CALASIATIC) v Government of the Libyan Arab Republic, Preliminary Award, 27 November 1975
(R.-J. Dupuy, sole arb.); Award on the Merits, 19 January 1977.
57 Texaco v Libya, Award on the Merits, 53 I.L.R. 389, at 442 (referring to Clause 28). See also at
395 (the concessions also contained a stabilization clause (Clause 16)).
58 Texaco v Libya, at 484.
59 CME Czech Republic B.V. v Czech Republic, Partial Award, 13 September 2001 (W. Kühn, S.
M. Schwebel, J. Hándl, arbs); Final Award, 14 March 2003 (W. Kühn, S.M. Schwebel, I. Brownlie,
arbs). See also Section 3.2.2.2 (on the supervening role of international law when the parties have
agreed to the combined application of national and international law or there is no agreement);
Chapter 6, Section 2.2 (on the international nature of the claim); and Section 3.1.1 (on the prohibition
against expropriation without compensation).
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166 The Primary Applicability of National Law and the Role of International Law
the law in force of the Contracting Party concerned;
the provisions of this Agreement, and other relevant Agreements between the Contracting
Parties;
the provisions of special agreements relating to the investment;
the general principles of international law.60

According to the host state, Czech law should be given primacy in determining whether
or not it had breached its obligations under the treaty.61 This view was shared by
Arbitrator Hándl in his dissenting opinion to the Partial Award.62 Regarding the law
applicable to the alleged expropriation of the investor’s assets, he reprimanded his
fellow arbitrators for not having taken into consideration that it ‘occurred on the
Territory of the Czech Republic and should be judged according to Czech law/there
is no reason for the application of the international law [ . . . ]’.63 Hándl reiterated his
view on the primary applicability of Czech law in his discussion of the elements
required for a successful claim for damages: ‘the same principles are contained in the
Czech law, which has to be applied under the principle that the alleged violation of law
occurred on the Czech territory.’64
As for the practice of internationalized tribunals, the host state in Duke Energy
International Peru Investments No 1, Ltd v Peru (2006/2008) contended that the
ICSID Tribunal ‘must apply Peruvian Law to resolve this dispute’.65 In its view,
‘Article 42(1) of the ICSID Convention gives the law of the host State primacy in
the absence of an agreement on governing law. [ . . . ] Inasmuch as the DEI Bermuda
LSA does not have a choice of law clause, Respondent submits that, in accordance with
Article 42(1) of the ICSID Convention, the law of the host State, i.e., Peru, applies in
the first instance.’66 And in the ICSID case Siemens A.G. v Argentine Republic (2007)
the respondent argued that since there was no express agreement between the parties as
to the law applicable and the treaty at hand did not indicate the law to be applied, ‘the
Tribunal should apply the municipal law of Argentina’.67
60 CME v Czech Republic, Partial Award, at para. 286. Cf. Netherlands–Czech/Slovak Republic
BIT, art. 8(6).
61 CME v Czech Republic, Partial Award, at para. 287. See also fn. 59, Final Award, at paras 219,
398–399.
62 CME v Czech Republic, fn. 59, Partial Award, Dissenting Opinion by J. Hándl.
63 CME v Czech Republic, at p. 15. See also at p. 15 (Hándl pointed out that in the Czech Republic
an expropriation can only be committed on the basis of an administrative decision by a state body; and
because no such decision had been taken, he would dismiss the claim).
64 CME v Czech Republic, p. 20. See also at 22 (Hándl strongly criticized his colleagues for not
applying and for wrongly interpreting Czech law). See also C. Schreuer and A. Reinisch, ‘Legal
Opinion submitted to the Svea Court of Appeal’ TDM 2(3) (2005), at para. 145; C. Schreuer and
A. Reinisch, ‘Legal Opinion submitted to the Stockholm Tribunal in the Quantum Proceedings’
TDM 2(3) (2005), at para. 224; C. Schreuer, ‘Comments Relating to the Applicable Law on the
Stockholm Tribunal’s Final Award of 14 March 2003’, p. 7.
65 Duke Energy International Peru Investments No. 1, Ltd v Peru, ICSID Case No. ARB/03/28,
Decision on Jurisdiction, 1 February 2006 (L.Y. Fortier, G.S. Tawil, P. Nikken, arbs), para. 162.
66 Duke Energy v Peru, Award, 18 August 2008, at paras 150–151.
67 Siemens A.G. v Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007
(A.R. Sureda, C.N. Brower, D.B. Janeiro, arbs), para. 74. For other cases in which the host state has
argued in favor of the (primary) applicability of its national law see, e.g., ADC Affiliate Limited, ADC &
ADMC Management Limited v Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October
2006 (N. Kaplan, C.N. Brower, A.J. van den Berg, arbs), para. 288; LG &E Energy Corp. et al. v
Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 (T. Bogdanowsky de
Maekelt, F. Rezek, A.J. van den Berg, arbs), para. 81; Wena v Egypt, fn. 54, Decision on Annulment, at
paras 21, 23; M.C.I. Power Group L.C. and New Turbine, Inc. v Ecuador, ICSID Case No. ARB/03/6,
Award, 31 July 2007 (R.E. Vinuesa, B.J. Greenberg, J.C. Irarrázabal, arbs), para. 215; CMS
Gas Transmission Company v Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005
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Reasons for the Primary Applicability of National Law

167

The primary applicability of national law has also been advanced by Iran before the
Iran–United States Claims Tribunal. In Mobil Oil Iran v Iran (1987) it argued that ‘a
breach of contract can be established only by reference to the proper law of
the [contract], which undoubtedly is Iranian law, as clearly stated in Article 29 of the
Agreement’.68 Moreover, argued Iran, assuming arguendo that there were no express
choice-of-law, the governing law would have to be determined by reference either to the
tacit intent of the parties, or to factors demonstrating to which law the agreement is
most closely connected.69 According to Iran, both criteria pointed to Iranian law: ‘The
Agreement was concluded in Iran, it was to be performed in Iran and directly affected
the natural resources of Iran.’70 Iran also drew attention to the presumption in
international law that the law applicable to a contract to which a state is a party is
the domestic law of that state.71
Whereas in these particular cases, the arguments by Libya, the Czech Republic,
Arbitrator Hándl, Argentina, and Iran did not find resonance in the awards,72 the
primary, albeit not always the exclusive, application of national law has received
support in scholarship and practice. In this respect, we note in particular the ICSID
Convention, during the drafting of which several state representatives stressed the need
to apply the law of the host state in the absence of party agreement.73 The importance,
and indeed the primacy, of the law of the host state was supported by Chairman
Broches: ‘an international tribunal would in the first place have to look to national law,
since the relationship between the investor and the host state is governed in the first
(F.O. Vicuña, M. Lalonde, F. Rezek, arbs), para. 112; MTD Equity Sdn. Bhd. & MTD Chile S.A. v
Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004 (A. Rigo Sureda, M. Lalonde, R. Oreamuno,
arbs), para. 86; SPP (Middle East) Ltd v Arab Rep. of Egypt, ICC Award No. 3493, Award, 16 February
1983 (G. Bernini, M. Littman, A. Elghatit, arbs), para. 49; Bernardus Henricus Funnekotter and others v
Republic of Zimbabwe, ICSID Case No. ARB/05/6, Award, 22 April 2009 (G. Guillaume, R.A. Cass,
M. Wasi Zafar, arbs), para. 60.
68 Mobil Oil v Iran, fn. 35, Partial Award, at para. 67 (referring to article 29 of the agreement). Cf.
para. 59 (‘This Agreement shall be interpreted in accordance with the laws of Iran. The rights and
obligations of the Parties shall be governed by and according to the provisions of this Agreement. The
termination before expiry date or any alteration of this Agreement shall be subject to the mutual
agreement of the Parties’).
69 Mobil Oil v Iran, at para. 69.
70 Mobil Oil v Iran, at para. 69.
71 Mobil Oil v Iran, at para. 67. See also Watkins-Johnson Company v Iran, Award, 28 July 1989,
Dissenting Opinion of Judge A. Noori, Award No. 429-370-1, para. 49 (‘[T]he majority has failed to
take into account that the Party to the Contract with Watkins-Johnson was the Iranian Government;
and it has long been a strong presumption and a general rule of law that the law of the contracting State
party governs the relations between the parties, even where the contract is silent in that connection
[ . . . ]’); Schlegel Corporation v National Iranian Copper Industries Company, Award, 27 March 1987,
Dissenting Opinion by Judge H. Bahrami-Ahmadi, at section II; Anaconda-Iran, Inc. v Government of
the Islamic Republic of Iran and National Iranian Copper Industries Company (NICIC), Case No. 167,
Interlocutory Award, 10 December 1986, at para. 125.
72 See TOPCO v Libya, fn. 56, Award on the Merits, 53 I.L.R. 389, 484–95 (sole arbitrator Dupuy
dismissed the relevance placed by Libya on the General Assembly Resolutions). See also Chapter 6,
Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts); CME v Czech
Republic, Chapter 6, Section 2.2 (on the international nature of the claim); Siemens v Argentina, fn. 67,
Award, at para. 76; Mobil Oil v Iran, Chapter 6, Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts).
73 See Chapter 3, Section 3.2.2.1 (on the ICSID Convention). See also Convention on the
Settlement of Investment Disputes between States and Nationals of Other States, Documents
Concerning the Origin and the Formation of the Convention, Vol. II-2, p. 802 (hereinafter History
of the ICSID Convention) (the delegate from Dahomey noted that ‘national law should prevail’ and
that ‘[i]nternational law should of course not be the point of departure when settling a dispute’); see
also at 803 (the US representative pointed out that national law would usually be applied).
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168 The Primary Applicability of National Law and the Role of International Law
instance by national law.’74 At a later point, he added that ‘[i]t was quite clear that the
laws of the host country would be of primary importance and that international law
itself would in the first place refer to them’.75 The emphasis on state sovereignty led to
the specific reference to the law of the host state in Article 42(1), second sentence, of
the ICSID Convention, which applies in case the parties have not reached an agreement on the applicable law: ‘the Tribunal shall apply the law of the Contracting State
party to the dispute (including its rules on the conflict of laws) and such rules of
international law as may be applicable.’76
While several ICSID tribunals have applied national law to the dispute without
finding it necessary to enter into discussions on the relationship between national and
international law under the second sentence of Article 42(1) ICSID Convention, ad
hoc committees presented with requests for annulment for a failure to apply the proper
law have offered guidance in this respect. Several of these committees have called
attention to the sequential primacy of national law vis-à-vis international law, an
approach that has also found considerable support in scholarship.77 One example is
Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société
Camerounaise des Engrais (1983/1985).78 In that case, the ICSID Tribunal concluded
that ‘the legal system or the contractual law’ governing the contracts at hand ‘is
naturally the civil and commercial law applicable in Cameroon’.79 It further specified
that ‘only that part of Cameroon law that is based on French law should be applied in
the dispute’.80 On the merits, the tribunal dismissed the investor’s claim for breach of
74 History of the ICSID Convention, Vol. II-1, at 571. See also Vol. II-2, at 984.
75 History of the ICSID Convention, Vol. II-2, at 800 (emphasis added). See also at 986 (Broches
stated that ‘in general, one would have to start with the domestic law of the host State’).
76 Convention on the Settlement of Investment Disputes between States and Nationals of Other
States (1965), art. 42(1), second sentence, (hereinafter ICSID/Washington Convention). See also
Chapter 3, Section 3.2.2.1 (on the ICSID Convention). But see Chapter 6, Section 2.2 (on the
international nature of the claim).
77 See, e.g., A. Broches, Selected Essays: World Bank, ICSID, and Other Subjects of Public and Private
International Law (Dordrecht, Nijhoff, 1995), 227–9; I.F.I. Shihata and A. Parra, ‘Applicable
Substantive Law’ (1994) 9 ICSID Rev. 183, 191–5, 205; W.M. Reisman, ‘The Regime for Lacunae in
the ICSID Choice of Law Provision and the Question of its Threshold’ in Liber Amicorum Ibrahim
F.I. Shihata (S. Schlemmer-Schulte and K.-Y. Tung, eds, The Hague, Kluwer Law International, 2001),
585, 586; P.T. Muchlinski, ‘Dispute Settlement under the Washington Convention on the Settlement
of Investment Disputes’ in Control over Compliance with International Law (W.E. Butler, ed.,
Dordrecht, Martinus Nijhoff, 1991), 175, 185–6; K.I. Juster, ‘The Santa Elena Case: Two Steps
Forward, Three Steps Back’ (1999) 10 Am. Rev. Int’l Arb. 371, 375; M. Sornarajah, The Settlement of
Foreign Investment Disputes (The Hague, Kluwer Law International, 2000), 271–3; O. Chukwumerije,
‘International Law and Article 42 of the ICSID Convention’ (1997) 14 J. Int’l Arb. 79; M. Hirsch,
Arbitration Mechanism of the International Center for the Settlement of Investment Disputes (Dordrecht,
Nijhoff, 1993), 138, 140–1; A.F.M. Maniruzzaman, ‘Conflict of Laws Issues in International Arbitration: Practice and Trends’ (1993) 9 Arb. Int’l 371, 399 et seq.; B. Goldman, ‘Le droit applicable selon la
Convention de la B.I.R.D., du 18 mars 1965, pour le règlement des différends relatifs aux investissements
entre États et ressortissants d’autres États’ in Investissements Étrangers et arbitrage entre États et personnes
privées, La Convention B.I.R.D. du 18 mars 1965 (1969), 151.
78 Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award, 21 October 1983 (E. Jimenez de Aréchaga,
W.D. Rogers, D. Schmidt, arbs); Decision on Annulment, 3 May 1985 (P. Lalive, A.S. El-Kosheri,
I. Seidl-Hohenveldern, committee members).
79 Klöckner v Cameroon, Award, at section VI.
80 Klöckner v Cameroon, at section VI(A). For criticism, see G. Elombi, ‘ICSID Awards and the
Denial of Host State Laws’ (1994) 11 J. Int’l Arb. 61, 63 (‘Nowhere in the award is reference made to
Cameroonian jurisprudence, academic writing or statutes on the principle of good faith [ . . . ]. It is clear
both from the award and the ensuing annulment proceedings that all parties to the award were
concerned not with Cameroonian law based on French law but with French civil law’ [emphasis in
original]).
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Reasons for the Primary Applicability of National Law

169

contract.81 In reaching this decision, it held that Klöckner had failed to respect its duty
of confidence and loyalty vis-à-vis its partner. As to the source of this duty, the tribunal
noted:
We take for granted that the principle according to which a person who engages in close
contractual relations, based on confidence, must deal with its partner in a frank, loyal and candid
manner is a basic principle of French civil law, as is indeed the case under the other national codes
which we know of.82

Klöckner requested an annulment of the award, partly on the basis that by failing to
apply the law of the host state, the tribunal had manifestly exceeded its powers: ‘The
Claimant maintains that the Tribunal must [ . . . ] “render its award by applying
Cameroonian law based on French law, since this, as the Tribunal itself has held, is
the law applicable to the present dispute.” ’83 Based on its finding that the tribunal had
failed to apply ‘the law of the Contracting State’, the ad hoc Committee annulled the
award.84 In so doing, it construed the tribunal’s reasoning so as to indicate that it ‘may
have wanted to base, or thought it was basing, its decision on the general principles of
law recognized by civilized nations, as that term is used in Article 38(3) [sic] of the
Statute of the International Court of Justice’.85 It went on to state:
Such an interpretation is conjectural and cannot be accepted.[ . . . ] [T]he arbitrators may have
recourse to the ‘principles of international law’ only after having inquired into and established the
content of the law of the State party to the dispute [ . . . ] and after having applied the relevant
rules of the State’s law. Article 42(1) therefore clearly does not allow the arbitrator to base its
decision solely on the ‘rules’ or ‘principles’ of international law.86

In Amco Asia Corporation v Republic of Indonesia (1984/1986/1990),87 the ICSID
Tribunal applied both Indonesian and international law to the merits.88 Indonesia
sought an annulment of the award on several grounds, including manifest excess of
powers.89 Analysing the relationship between national and international law pursuant
to Article 42(1), second sentence, of the ICSID Convention, the ad hoc Committee
held that ‘the law of the host State is, in principle, the law to be applied in resolving the
dispute’.90 The need to first apply national law was reiterated by the ICSID Tribunal
when the case was resubmitted subsequent to the decision on annulment by the ad hoc
Committee: ‘[T]he Tribunal believes that its task is to test every claim of law in this case
first against Indonesian law [ . . . ].’91
81 Klöckner v Cameroon, at section VII.
82 Klöckner v Cameroon, at section VI(B).
83 Klöckner v Cameroon, Decision on Annulment, at para. 57.
84 Klöckner v Cameroon, Decision on Annulment, at para. 79.
85 Klöckner v Cameroon, Decision on Annulment, at para. 69.
86 Klöckner v Cameroon, Decision on Annulment (emphasis in original). See also at para. 76.
87 Amco Asia Corp. v Republic of Indonesia, ICSID Case No. ARB/81/1, Award, 20 November 1984
(B. Goldman, I. Foighel, E.W. Rubin, arbs); Decision on Annulment, 16 May 1986 (I. SeidlHohenveldern, F.P. Feliciano, A. Giardina, arbs); Resubmitted Case, Award, 5 June 1990
(R. Higgins, M. LaLonde, P. Magid, arbs).
88 See Chapter 7, Section 2.1 (on the concurrent application of national and international law and
reference to consistency).
89 Amco Asia v Indonesia, fn. 87, Decision on Annulment.
90 Amco Asia v Indonesia, para. 21 (the committee added that in case of conflict between national
and international law, the latter prevails.). See also at para. 98 (annulling a finding in the award on
the basis that the tribunal had failed to consider a provision of the Indonesian Foreign Investment
Law).
91 Amco Asia v Indonesia, fn. 87, Resubmitted Case, Award, at para. 40 (emphasis added). For other
ICSID awards supporting the primary application of national law in the absence of an agreement by
the parties see, e.g., Cable TV v The Federation of St. Christopher (St. Kitts) and Nevis, ICSID Case No.
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170 The Primary Applicability of National Law and the Role of International Law
Whereas these decisions give evidence of a practice according to which investment
tribunals of both a territorialized and an internationalized nature first apply national
law in assessing the merits of disputes, it is emphasized that according to this approach,
the primary applicability of national law is one of sequential and not absolute hierarchy,
in that international law may still be applied correctively in supervening fashion.92
Indeed, it is for that reason that we refer to the applicability of national law as primary in
nature. As such, this choice-of-law methodology could be said to find a parallel—albeit
of a different nature—in the principles of subsidiarity and complementarity. The
former principle, which is incorporated in European Union (EU) law,93 is based on
the idea that a central authority should have a subsidiary function, performing only
those tasks that cannot be performed effectively at a more immediate or local level.94
The latter principle of complementarity, as it appears in the Rome Statute of the
International Criminal Court, puts primary power and responsibility in the criminal
law area with national jurisdictions, and residual but ultimate power and responsibility
with international jurisdiction vested in the International Criminal Court.95
In addition, in the subsequent chapter, it will be demonstrated that arbitrators have
recently taken a more pragmatic view of the relationship between national and
international law, so that ‘international law can be applied by itself if the appropriate
rule is found in this other ambit’.96 According to this view, where the claim in question
is international in nature, national law will not be of primary applicability.

2.3. The national nature of the claim
As noted in Chapter 4, a tribunal’s choice-of-law methodology is influenced by the
scope of the parties’ arbitration agreement.97 In the absence of a party agreement, and
to the extent to which the tribunal’s jurisdiction is broad enough to cover both national

ARB/95/2, Award, 13 January 1997 (W.A. Davis, A.A. Maynard, R. McKay, arbs), para. 6.25; Alex
Genin, Eastern Credit Limited, Inc. v Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June
2001 (L.Y. Fortier, M. Heth, A.J. van den Berg, arbs), para. 350; SPP v Egypt, fn. 37, ICSID Award,
Dissenting Opinion El Mahdi, section III(3)(v)(b).
92 See Section 3.2.2 (on the supervening role of international law).
93 See Treaty on the Functioning of the European Union (TFEU), at Preamble; see also art. 5(3);
Charter of Fundamental Rights of the European Union, at Preamble; see also art. 51(1).
94 See Oxford English Dictionary, available at <http://www.oed.com/> (last visited 1 May 2012). See
also M. Kumm, ‘The Legitimacy of International Law: A Constitutionalist Framework of Analysis’,
(2004) 15(5) Eur. J. Int’l L. 907, 920–1 (‘Subsidiarity is in the process of replacing the unhelpful
concept of “sovereignty” as the core idea that serves to demarcate the respective spheres of the national
and international’); J.H. Jackson, ‘Sovereignty-Modern: A New Approach to an Outdated Concept’
(2003) 97 Am. J. Int’l L. 782, 792.
95 See T. van Boven, ‘The International Criminal Court and National Laws’ in De genocidewet in
internationaal perspectief (J. Wouters and H. Panken, eds, Gent, Larcier, 2002), 65, 66. See generally
J.K. Kleffner, Complementarity in the Rome Statute and National Criminal Jurisdictions (Oxford, Oxford
University Press, 2008).
96 Wena v Egypt, fn. 54, Decision on Annulment, at para. 40. See also E. Gaillard and Y. Banifatemi,
‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of
International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Rev.-FILJ 375. Cf. R. Dolzer
and C. Schreuer, Principles of International Investment Law (Oxford, Oxford University Press, 2008), 270
(the authors question whether the doctrine of the supplemental and corrective function of international
law vis-à-vis domestic law ‘accurately reflects reality. Tribunals have given international law more than a
mere ancillary or subsidiary role’).
97 See Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims).
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Reasons for the Primary Applicability of National Law

171

and international claims, one basis for concluding that national law should govern the
claim in question is the national nature of the claim at issue.98
Such classification illustrates the qualitatively different nature of the national and the
international legal orders. While national law primarily governs relations between
private parties inter se, traditionally, international law concerned itself exclusively
with the mutual relationship between states.99 Although international law has
developed from possessing solely such ‘horizontal’ characteristics to also govern the
‘vertical’ relationship between states and private parties,100 the horizontal nature of
international law is still prevalent.101

2.3.1. Contractual claims
In the context of investment arbitration, one substantive area that, as a rule, is governed
by national law concerns contracts. In other words, the development of general
international law so as also to encompass the ‘vertical’ relationship between states and
private parties does not extend to contracts entered into between them. The term ‘state
contract’ has been attached to contracts made between a state (entity) and a foreign
investor.102 While according to some, state contracts are governed by international law
on the basis of the theory of ‘internationalized’ contracts and/or an implicit choice of
international law,103 others, including the present author, would submit that unless the
parties’ intention to the contrary is manifest, contractual claims are governed by
national law.104
In the case of Payment of Various Serbian Loans Issued in France (1929), the
Permanent Court of International Justice (PCIJ) held that insofar as an agreement is

98 Cf. CMI International, Inc. v Ministry of Roads and Transportation, Iran, Award No. 99-245-2,
27 December 1983, 4 Iran-US C.T.R.-267–8 (1983) (the tribunal’s freedom with regard to applicable
law issues, ‘is consistent with, and perhaps almost essential to, the scope of the tasks confronting
the Tribunal, which include not only claims of a commercial nature, such as the one involved in the
present case, but also claims involving alleged expropriations or other public acts [ . . . ]’).
99 See, e.g., L. Oppenheim, International Law: A Treatise (London, Longmans, Green, 1905),
} 20; A.P. Sereni, ‘International Economic Institutions and the Municipal Law of States’ (1959-I) 96
Recueil des Cours 133, 210. But see J. Waldron, ‘Foreign Law and the Modern Ius Gentium’ (2005)
119 Harv. L. Rev. 129, 132 (referring to the older concept ius gentium).
100 For a discussion of the difference between horizontal and vertical conceptions of international
law, see L. Brilmayer, Justifying International Acts (Ithaca, London, Cornell University Press, 1989).
See also Chapter 6, Section 2.2 (on the international nature of the claim).
101 See R. Jennings and A. Watts, Oppenheim’s International Law (Jennings & Watts, eds, London,
Longman, 1992), 16; M.N. Shaw, International Law (Cambridge, Cambridge University Press, 2008), 5.
102 Cf. UNCTAD, State Contracts, UNCTAD Series on Issues in International Investment
Agreements (2004). Such contracts have also been referred to as ‘internationalized’ contracts or
‘economic development agreements.’ See Chapter 6, Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts).
103 See generally Chapter 6, Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts). Cf. SPP v Egypt, fn. 67, ICC Award, at para. 49.
104 See, e.g., F.V. García Amador, ‘State Responsibility: Fourth Report by the Special Rapporteur in International Responsibility’ (1959) 2 Y.B. Int’l L. Comm’n, U.N. Doc. A/CN.4/119, para.
126; A.R. Parra, ‘Applicable Law in Investor–State Arbitration’ TDM 15 (November 2007);
F. Rigaux, ‘Les situations juridiques individuelles dans un système de relativité générale’ (1989-I)
213 Recueil des Cours, para. 154; F.A. Mann, ‘State Contracts and State Responsibility’ in Studies in
International Law (Oxford, Clarendon Press, 1973), 302, 315. It is noted that an internationalization of the contractual relationship between the investor and the host state may be partly
achieved through so-called ‘umbrella’ or ‘sanctity-of-contract’ clauses inserted in investment treaties.
See Chapter 6, Section 3.1.2 (on ‘umbrella’ clauses).
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172 The Primary Applicability of National Law and the Role of International Law
not concluded between subjects of international law, it is governed by national law.105
Jurisprudence such as this, coupled with diplomatic practice, led the Committee
established by the League of Nations for the study of international loan contracts to
conclude that ‘[e]very contract which is not an international agreement—i.e., a treaty
between States—is subject (as matters now stand) to municipal law’.106 The conceptual
difference between contractual and international claims receives support in the commentary to the International Law Commission’s Articles on State Responsibility: ‘Of
course the breach by a State of a contract does not as such entail a breach of
international law. Something further is required before international law becomes
relevant, such as a denial of justice by the courts of the State in proceedings brought
by the other contracting party.’107 Accordingly, and absent an agreement by the
disputing parties to the contrary, a contract between an investor and a host state is
governed by national law. Normally, this national law will be that of the host state. This
follows from the centre of gravity test,108 as well as notions of state sovereignty.109 The
PCIJ stated: ‘a sovereign state [ . . . ] cannot be presumed to have made the substance of
its debt and the validity of the obligations accepted by it in respect thereof, subject to
any law other than its own.’110 In a similar vein, García-Amador explains:
[G]iven the nature and scope of the State’s powers with respect to patrimonial rights, whatever
their character or the nationality of their owners, the substance of the contractual relation can be
governed by a body of law other than the municipal law of the State only if there is an express
stipulation to that effect or the State has, as least, given its tacit consent thereto.111

In terms of practice, territorialized and internationalized tribunals have applied national
law to investment contracts in the absence of a choice-of-law agreement. As for the first
category of tribunals, this practice is illustrated by the award in Wintershall A.G. et al v
Government of Qatar (1987–89).112 In that case, the host state had entered into an
105 Case Concerning the Payment of Various Serbian Loans Issued in France, Judgment, 12 July 1929,
PCIJ Series A No. 14, at 41. See also S.M. Schwebel, ‘The Alsing Case’ (1959) 8 Int’l & Comp. L.Q.
320, 324–5 (‘Greece maintained that the law applicable to the case was Greek law. [ . . . ] [S]ince the
Treasury was a party to the contract, it was to be presumed that the parties intended Greek law to apply
(the defendant cited, inter alia, the Serbian and Brazilian Loans Cases in support of this view’
[references omitted]). But see T. Wälde, ‘The Serbian Loans Case: A Precedent for Investment Treaty
Protection of Foreign Debt?’ in International Law and Arbitration: Leading Cases from the ICSID,
NAFTA, Bilateral Treaties and Customary International Law (T. Weiler, ed., London, Cameron May,
2005), 383, 395 (criticizing the interpretation that the Serbian Loans judgment justifies a view that
municipal law prevails and that international law has no, or at least only a marginal, role when it comes
to states’ noncompliance with their loan and investment agreements).
106 Report of the Committee for the Study of International Loan Contracts, at p. 21, League of
Nations Publication, II. Economic and Financial, 1939.II.A.10 (document C.145.M.93.1939.II.A).
Cf. Messageries maritimes, French Court of Cassation, 21 June 1950 Case Concerning Anglo–Iranian Oil
Co. (United Kingdom v Iran), Judgment, 22 July [1952] ICJ Rep. 93, 112.
107 International Law Commission, Draft Articles on Responsibility of States for Internationally
Wrongful Acts with Commentaries (2001), 87 (Article 4, Comment 6) <http://untreaty.un.org/ilc/
texts/instruments/english/commentaries/9_6_2001.pdf> (last visited 1 May 2012).
108 See Chapter 3, Section 3.2.2 (on the (non-) applicability of national and international law). Cf.
Institut de droit international, La loi du contrat dans les accords entre un Etat et une personne privée
étrangère, Athens, 1979, art. 5; D. Di Pietro, ‘Applicable Law Under Article 42 of the ICSID
Convention: The Case of Amco v Indonesia’ in International Investment Law and Arbitration: Leading
Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (T. Weiler, ed.,
London, Cameron May, 2005), 223, 224; Rigaux, fn. 104, at para. 156.
109 See generally Section 2.2 (on host state sovereignty and territorial control over foreign investors
and investments).
110 Payment of Various Serbian Loans Issued in France, fn. 105, at 42.
111 García Amador, fn. 104, at para. 128. See also at paras 106, 126.
112 Wintershall A.G. v Government of Qatar, Partial Award of 5 February 1988 and Final Award of
31 May 1988 (J.R. Stevenson, I. Brownlie, B. Cremades, arbs).
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Reasons for the Primary Applicability of National Law

173

Exploration and Production Sharing Agreement with various foreign investors.113 The
latter contended that the host state had breached this agreement and expropriated their
contractual rights and interest in violation of Qatari and public international law; and
alternatively, that they were entitled to recovery of unjust enrichment.114 Applying the
centre of gravity test, the tribunal decided to apply the law of the host state, and, ‘in case
the Tribunal should determine that it is relevant to an issue, public international
law’.115 After having reviewed the deposited authorities on public international law,
the tribunal found that public international law was not independently relevant to the
issues before it, and it concluded that the governing substantive law was Qatari law.116
The conclusion that contractual claims are governed by national law is indirectly
confirmed by the NAFTA award Waste Management, Inc. v United Mexican States
(2004).117 Article 1105 of NAFTA provides that ‘[e]ach Party shall accord to investments of investors of another Party treatment in accordance with international law,
including fair and equitable treatment and full protection and security’.118 The tribunal, set up pursuant to the ICSID Additional Facility Rules, concluded that the investor
had failed to show that the conduct of the Mexican City of Acapulco amounted to a
breach of the treaty: ‘Showing that it was a breach of contract is not enough.’119
ICSID tribunals have frequently applied national law to contractual claims. This
practice receives support in the travaux préparatoires of the ICSID Convention. For
instance, the Austrian delegate stated that there was ‘no difficulty in cases where an
investor complained of action which affected the performance of the contract’.120 In
that event, she opined, the tribunals were ‘merely a substitute for the domestic courts
and would apply municipal law’.121 In a similar vein, the representative from Ceylon
pointed out that contracts between private persons and states are not governed by
customary international law; and that if such a development was necessary, he thought
the proper body to achieve it was the International Law Commission.122
In Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal (1988), the investor
sought reparation for losses suffered following an alleged breach by the host state of a
contract for the construction of low-income housing.123 The parties had not reached an
agreement on the applicable law, and the ICSID Tribunal concluded that ‘the national
law applicable to the relations of two Senegalese parties in respect of a project that was
to take place in Senegal, can only be Senegalese law’.124 More specifically, the tribunal
113 Wintershall A.G. v Government of Qatar, Partial and Final Awards.
114 Wintershall A.G. v Government of Qatar, Partial Award, at 800.
115 Wintershall A.G. v Government of Qatar, Partial Award, at 802 (referring to Order of 18 March
1987, para. 2).
116 Wintershall A.G. v Government of Qatar, Partial Award. See also at 821–3 (the tribunal dismissed
the investors’ claims on the merits. In its reasoning, the tribunal referred to several provisions of Qatari
law). See also Separate Opinion of I. Brownlie, at 831–2; ICC Case No. 1434 (1975), reprinted in
Yves Derains, Chronique de Sentences Arbitrales, Clunet (1976) (applying concepts of French law).
117 Waste Management, Inc. v United Mexican States, ICSID Case No. ARB(AF)/00/3, Award, 30
April 2004 (J.R. Crawford, E. Magallón Gómez, B.R. Civiletti, arbs).
118 North American Free Trade Agreement (NAFTA), art. 1105 (emphasis added).
119 Waste Management, fn. 117, Award, at para. 73. Cf. Council of Canadians, CUPW and the
Charter Committee on Poverty Issues v the Attorney General of Canada, Affidavit of J. Crawford, 15 July
2004 (reply to M. Sornarajah), para. 7.
120 History of the ICSID Convention, fn. 73, Vol. II-1, p. 400.
121 History of the ICSID Convention, fn. 73, Vol. II-1, p. 400.
122 See History of the ICSID Convention, Vol. II-2, p. 801.
123 Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal, ICSID Case No. ARB/82/1,
Award, 25 February 1988 (A. Broches, K. Mbaye, J.C. Schultsz, arbs).
124 SOABI v Senegal, at para. 5.02. See also at para. 5.02 (the parties did not dispute this conclusion.
The tribunal noted: ‘[B]oth parties agree that the applicable law is Senegalese administrative law’).
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174 The Primary Applicability of National Law and the Role of International Law
found that ‘the agreements in question must be characterized as “government contracts”, the effect and execution of which are governed primarily by the Code of
Governmental Obligations [ . . . ]’.125
National law was also applied to contractual claims in Autopista Concesionada de
Venezuela, C.A. (Aucoven) v Bolivarian Republic of Venezuela (2003).126 On the basis of
a reference to certain Venezuelan laws and decrees in the choice-of-law provision,127
the ICSID Tribunal held that, except for matters covered by these Venezuelan legal
provisions, it had to consider the second sentence of Article 42(1) of the ICSID
Convention, providing for the application of the law of the host state and international
law.128 As for the relationship between these sources, the tribunal stated: ‘Whatever the
extent of the role that international law plays under Article 42(1) (second sentence),
this tribunal believes that there is no reason in this case, considering especially that it is a
contract and not a treaty arbitration, to go beyond the corrective and supplemental
functions of international law.’129 Accordingly, national law was held to be of primary
applicability with respect to the merits of the contractual claims.130 And, as the ICSID
Tribunal held in Noble Ventures, Inc. v Romania (2005):
[It is a] well established rule of general international law that in normal circumstances per se a
breach of a contract by the State does not give rise to direct international responsibility on the
part of the State. [ . . . ]. This derives from the clear distinction between municipal law on the one
hand and international law on the other [ . . . ].131

In some cases, the Iran–United States Claims Tribunal has applied national law to
questions relating to investment contracts lacking a choice-of-law provision, at least as
concerns the existence of a contractual relationship. One example is Sea-Land Service,
Inc. v Government of the Islamic Republic of Iran, Ports and Shipping Organizations
(PSO) (1984).132 In that case, Sea-Land requested relief on various alternative bases:
breach of contract, expropriation, and unjust enrichment.133 As for the contractual
claims, the tribunal held: ‘The Facility Agreement of 26 November 1976 between PSO
and [the Iranian transportation company] ILB must be taken to have been governed by
the laws of Iran. Both parties to it were Iranian, and its subject-matter was a parcel of
125 SOABI v Senegal, at para. 5.02.
126 Autopista Concesionada de Venezuela, C.A. (Aucoven) v Bolivarian Republic of Venezuela, ICSID
Case No. ARB/00/5, Award, 23 September 2003 (G. Kaufmann-Kohler, K.-H. Böckstiegel,
B.M. Cremades, arbs).
127 Aucoven v Venezuela, at para. 94.
128 Aucoven v Venezuela, at para. 100.
129 Aucoven v Venezuela, at para. 102. Cf. Wena v Egypt, fn. 54, Decision on Annulment, at para. 42
(the determinant factor for applying international law was that the dispute concerned Egypt’s obligations under the BIT and not contractual obligations).
130 Aucoven v Venezuela, fn. 126, Award, at paras 222–227 (the tribunal construed Venezuelan law,
including the jurisprudence of the Venezuelan Supreme Court, to allow for unilateral termination of
the contract).
131 Noble Ventures, Inc. v Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005
(K.-H. Böckstiegel, J. Lever, P.-M. Dupuy, arbs), para. 53. See also Vivendi v Argentina, fn. 38,
Decision on Annulment, at para. 96 (while the committee did not have an opportunity to consider
contractual claims due to a forum selection clause, it stated that they would be governed ‘by the proper
law of the contract, in other words, the law of Tucumán’); SGS Société Générale de Surveillance, S.A. v
Pakistan, ICSID Case No ARB/01/13, Decision on Jurisdiction, 6 August 2003 (F.P. Feliciano,
A.J.E. Faurèz, J.C. Thomas, arbs), para. 167 (‘[A] violation of a contract entered into by a State with an
investor of another State, is not, by itself, a violation of international law’).
132 Sea-Land Service, Inc. v Government of the Islamic Republic of Iran, Ports and Shipping Organizations (PSO), Case No. 33, Award, 22 June 1984.
133 Sea-Land v Iran, at section I(i).
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Reasons for the Primary Applicability of National Law

175

land in the port of Bandar Abbas.’134 Finding that Sea-Land had contractual rights visà-vis PSO on the basis neither of the agency theory nor of the third-party beneficiary
theory, the tribunal relied on and quoted from the Iranian Civil Code.135
Another case on point is Dic of Delaware, et al. v Tehran Redevelopment Corp. (TRC),
et al. (1985), in which an issue arose about the enforceability of a certain Phase III
Contract.136 The tribunal concluded that if there were an agreement, there was not
sufficient evidence of its definiteness of terms to be enforceable.137 In so holding, it
applied Iranian law:
If there were an oral agreement, it would be enforceable under Iranian law, which would seem to
be the law of the contract because of the connection between the project and Iran and because of
the fact that Iranian law was chosen to be the applicable law in the contracts for the other phases
[ . . . ]. Under Iranian law, a contract not in writing and involving an amount exceeding over 500
rials in value cannot be proved by oral or written testimony alone. See The Civil Code of Iran,
Arts. 1306 and 1310. In the present case the Claimants rely on contemporaneous documents
recording the understandings reached with TRC, and demonstrating part performance of the
contract [ . . . ]. It appears that acceptance of part performance can be proof of a binding contract
under Iranian law. See, e.g., The Civil Code of Iran, Art. 193. [ . . . ].138

The application of national law to contracts was, however, expressly rejected by the
tribunal in Anaconda-Iran, Inc. v Government of the Islamic Republic of Iran and
National Iranian Copper Industries Company (NICIC) (1986).139 The dispute arose
out of a Technical Assistance Agreement (TAA), according to which the investor was to
provide NICIC with technical assistance in connection with the development, construction, and operation of a copper mine and related plant and smelter in Iran.140 The
TAA terminated prior to its term, and each party alleged breach of the TAA by the
other party.141 As to the applicable law, the investor argued that the fact that the TAA
did not contain any provision subjecting it to any governing national law implied a
‘negative choice’ of law: ‘each Party refused to accept the other’s national law.’142 While
the investor argued in favour of the application of the terms of the TAA, trade usages,
and general principles of international commercial law,143 NICIC argued in favour of
the application of national law:
[I]n the absence of any specific contractual choice of law provisions the Tribunal is required, by
virtue of the terms of Article V of the CSD, to apply relevant choice of law rules of international
commercial law. The relevant choice of law rules of international commercial law are, inter alia,
the principles of lex loci contractus, lex loci solutionis and lex rei sitae. On the basis of these
principles NICIC argues that Iranian law is applicable to the TAA.144

134 Sea-Land v Iran, at section II(A)(i).
135 Sea-Land v Iran. See also Dissenting Opinion of Judge H.M. Holtzmann, at section III
(referring to the Civil Code of Iran).
136 Dic of Delaware, et al. v Tehran Redevelopment Corp., et al., Award, 26 April 1985, at section B
(1).
137 Dic of Delaware, at section B(1).
138 Dic of Delaware, at section B(1). Cf. Economy Forms Corporation and Iran, Award, 14 June
1993, 3 Iran-US C.T.R. 42, 47–8 (the tribunal stated that it would decide contract claims pursuant to
the ‘proper law of the contract’. It used the centre of gravity test to find that law).
139 Anaconda-Iran v Iran, fn. 71, Interlocutory Award.
140 Anaconda-Iran v Iran, Interlocutory Award, at para. 1.
141 Anaconda-Iran v Iran, Interlocutory Award, at para. 1.
142 Anaconda-Iran v Iran, Interlocutory Award, at para. 122.
143 Anaconda-Iran v Iran, Interlocutory Award, at para. 124.
144 Anaconda-Iran v Iran, Interlocutory Award, at para. 125.
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176 The Primary Applicability of National Law and the Role of International Law
The tribunal disagreed with NICIC and held that it would apply to the agreement
‘relevant usages of trade and take into account principles of commercial and international law’.145 It justified its decision not to apply Iranian law by stating that ‘the
Tribunal is not required to apply any particular national system of law such as Iranian
law’; and it further reasoned as follows:
[The Tribunal cannot conclude] that Iranian law is applicable because the place of conclusion
and execution of the TAA was Iran. In most contract cases before the Tribunal the contracts
actually were concluded and executed in Iran. If the States Parties to the Algiers Accords had
intended that Iranian law would apply to all such cases which do not contain a contractual clause
to the contrary, the Algiers Accords undoubtedly would have contained specific provisions to that
effect. As we have seen, however, Article V created quite a different system.146

2.3.2. Non-contractual claims
In the absence of an agreement to the contrary, non-contractual claims may—in
contrast to contractual claims—be based both in national and in international law.
Still, the applicability of international law depends on the identity of the claimant.
Where—as in most cases—the claimant is a foreign investor, the latter may rely on
obligations the host state has under international law. However, where the (counter-)
claimant147 is the host state, the latter is—as the law stands today—limited to invoking
obligations of the foreign investors under national law.
Depending on the scope of the arbitration agreement, foreign investors may present
non-contractual claims against the host state.148 Frequently, such claims are based in
international law;149 but investment tribunals have also considered non-contractual
claims in the light of national law, either alone or in addition to international law. One
example is Iurii Bogdanov, Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of
the Republic of Moldova (2005), in which the foreign investor, invoking Moldovan law,
alleged that the host state had violated the principle of non-retroactivity of legislation.150 In dismissing the claim on the merits, sole Arbitrator Moss applied the
Moldovan Foreign Investment Act, Governmental Regulation No 482 of 1988.151
In certain cases, host states may present non-contractual claims or counterclaims152
against foreign investors. As a rule, such claims will be governed by national law.
Despite the fact that individuals may enjoy rights under international law—and apart
145 Anaconda-Iran v Iran, Interlocutory Award, at para. 156(h).
146 Anaconda-Iran v Iran, Interlocutory Award, at paras 132–134. See also at para. 156(h). Cf.
Mobil Oil v Iran, fn. 35, Partial Award, at para. 67, referred to in Chapter 6, Section 2.1.1 (on express
or implied ‘internationalization’ of investment contracts).
147 On host states as claimants, see G. Laborde, ‘The Case for Host State Claims in Investment
Arbitration’ (2010) 1(1) J. Int’l Disp. Settlement 97.
148 See Chapter 4, Section 2 (on the scope of the arbitration agreement: national and/or international claims).
149 See Chapter 6, Section 2.2 (on the international nature of the claim).
150 Iurii Bogdanov, Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic of
Moldova, SCC Institute, Award, 22 September 2005 (G. Cordero Moss, sole arb.), section 1.3.
151 Bogdanov v Moldova, at section 4.1. See also SPP v Egypt, fn. 37, ICSID Decision on Jurisdiction
I, 7 November 1985; see also fn. 37, Award; Chapter 4, Section 3.2 (on arbitration without
privity); Chapter 7, Section 2.2 (on reference to consistent national and international law); Tradex
Hellas S.A. v Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction, 24 December 1996
(K.-H. Böckstiegel, F.F. Fielding, A. Giardina, arbs); Final Award, 29 April 1999; Chapter 4,
Section 3.2 (on arbitration without privity); Section 3.1.2 (on international law as a source of
interpretation).
152 See Chapter 4, Section 4 (on counterclaims by host states).
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Reasons for the Primary Applicability of National Law

177

from notable exceptions of EU law,153 international criminal/humanitarian law,154 and
international sanctions law155—international law generally does not impose obligations
on private parties. As stated by Cassese, ‘[t]he first salient feature of international law is
that most of its rules aim at regulating the behaviour of States, not that of individuals.’156 With this in mind, we may better understand the disinclination by a host state
against a sole role for international law in the proceedings, and that it rather—or also—
may favour the application of its own national law, which may impose obligations on
the foreign investor.157
We do, however, observe certain developments set in motion by scholars, states, and
(non-) governmental organizations attempting to fill this lacuna in international law.158
According to Peterson and Gray, ‘it is clear, that if the investor’s conduct rose to the
level where it violated (or was complicit in the host state violation of) certain core
human rights, then tribunals would need to consider such violations of so-called
peremptory norms of international law.’159 Further, the International Institute for
Sustainable Development (IISD) Model Agreement on International Investment
for Sustainable Development stipulates that ‘[i]nvestors and investments should uphold
human rights in the workplace and in the state and community in which they are
located, [and] shall act in accordance with core labour standards as required by the ILO
Declaration on Fundamental Principles and Rights of [sic] Work, 1998’.160 Moreover,
we note the following provision in the now shelved161 Norwegian Draft Model
153 See, e.g., Case 26/62, N.V. Algemene Transport—en Expeditie Onderneming Van Gend & Loos v
Nederlandese Administratie der Belastungen [1963] ECR 1; Case C-453/99, Courage Ltd v Bernard
Crehan and Bernard Crehan v Courage Ltd and Others [2001] ECR I-06297, para. 36 and operative part
1; Case 43/75, Gabrielle Defrenne v Sabena [1976] ECR 455, para. 39.
154 See, e.g., Regina v Bartle and the Commissioner of Police for the Metropolis and Others, ex parte
Pinochet (24 March 1999) (Lord Millet); E. van Sliedregt, The Criminal Responsibility of Individuals for
Violations of International Humanitarian Law (The Hague, T.M.C. Asser Press, 2003).
155 Cf. H.H.G. Post, ‘Introduction’ in International Economic Law and Armed Conflict (H.H.G.
Post, ed., Dordrecht, Nijhoff, 1994), 1. See also J.J. van Haersolte-van Hof and A.K. Hoffmann, ‘The
Relationship Between International Tribunals and Domestic Courts’ in Oxford Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 962, 987–8.
156 A. Cassese, International Law (Oxford, Oxford University Press, 2001), 3. See also
M. Sornarajah, ‘A Law for Need or a Law for Greed?: Restoring the Lost Law in the International
Law of Foreign Investment’ (2006) 6 Int. Environ. Agreements 329, 341; Jennings and Watts, fn. 101,
at 16. See also Chapter 4, Section 4.2.2 (on juridical connexity). But see Okpeticha v Okpeticha,
Constitutional Court of Benin, Decision, 17 August 2001 (the African Charter on Human and
People’s Rights expressly provides for individual duties in articles 27–29).
157 See Section 2.2 (on host state sovereignty and territorial control over foreign investors and
investments); Chapter 1, Section 1 (on motivations for the study).
158 See Ruggie Report, fn. 52, at paras 23, 55 et seq.; S.K.B. Asante, ‘Code of Conduct on
Transnational Corporations’ in Legal Aspects of the New International Economic Order (K. Hossain,
ed., London, Pinter, 1980), 9; International Institute for Sustainable Development and World Wildlife
Fund, Private Rights, Public Problems: A Guide to NAFTA’s Controversial Chapter on Investor Rights
(Winnipeg, Manitoba, IISD, 2001), 19; S.R. Ratner, ‘Corporations and Human Rights: A Theory of
Legal Responsibility’ (2001) 111 Yale L.J. 443. But see C.M. Vázquez, ‘Direct vs. Indirect Obligations of
Corporations under International Law’ (2005) 43 Colum. J. Transnat’l L. 927 (urging caution). See
generally P. Muchlinski, ‘Corporate Social Responsibility’ in The Oxford Handbook of International
Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 367.
159 L.E. Peterson and K.R. Gray, International Human Rights in Bilateral Investment Treaties and
in Investment Treaty Arbitration, April 2003, at 2, available at <http://www.iisd.org/pdf/2003/
investment_int_human_rights_bits.pdf> (last visited 1 May 2012).
160 IISD [International Institute for Sustainable Development] Model Agreement on International
Investment for Sustainable Development (as revised in April 2006) (hereinafter IISD Model Agreement), art. 14(c). See also arts 14(D) and 16(B).
161 D. Vis-Dunbar, ‘Norway Shelves its Draft Model Bilateral Investment Treaty’ Investment Treaty
News (8 June 2009).
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178 The Primary Applicability of National Law and the Role of International Law
Investment Agreement: ‘The Parties agree to encourage investors to conduct their
investment activities in compliance with the OECD Guidelines for Multinational
Enterprises and to participate in the United Nations Global Compact.’162
In this context, brief mention should also be made of the Alien Tort Claims Act of
1789 (ATCA).163 The latter grants jurisdiction to US federal courts over ‘any civil
action by an alien for a tort only, committed in violation of the law of nations or a treaty
of the United States’.164 As such, it allows for the application of international law in
disputes between private parties.165 We note in particular the case of Wiwa v Royal
Dutch Petroleum Co. (2002), in which the Court held that Mr Anderson, the former
Managing Director of the Royal Dutch/Shell subsidiary Shell Nigeria, could be sued
under the ATCA, as actions of the company and Anderson constituted participation in
crimes against humanity; torture; summary execution; arbitrary detention; cruel,
inhuman and degrading treatment; and other violations of international law.166
Still, the aforementioned developments with respect to the liability of corporations
under international law cannot be said to have crystallized into lex lata (‘the law as it
exists’). As stated in the Interim Report of the Special Representative of the United
Nations Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises:
There are legitimate arguments in support of the proposition that it may be desirable in some
circumstances for corporations to become direct bearers of international human rights obligations, especially where host Governments cannot or will not enforce their obligations and where
the classical international human rights regime, therefore, cannot possibly be expected to
function as intended. Moreover, there are no inherent conceptual barriers to States deciding to
hold corporations directly responsible, either by extraterritorial application of domestic law to the
operations of their own firms or by establishing some form of international jurisdiction. But these
are not propositions about established law; they are normative commitments and policy preferences about what the law should become and that require State action for them to take effect.167

Therefore, the following remark made by the ICSID Tribunal in the investment treaty
award Sempra Energy International v Argentine Republic (2007), cannot be said to
accurately depict the present state of the law. In discussing the issue of legitimate
expectations under international law, the tribunal observed:
162 Norwegian Draft Model Investment Agreement, art. 32. See also the Comments on the Model
for Future Investment Agreements, at paras 2.5, 4.6.3.
163 See Alien Tort Claims Act, 28 U.S.C. } 1350.
164 Alien Tort Claims Act, 28 U.S.C. } 1350.
165 Courts have also applied national law. See, e.g., Doe I v Unocal, 395 F.3d 932 (9th Cir. 2002),
rehearing en banc granted, 395 F.3d 978 (9th Cir. 2003).
166 Wiwa v Royal Dutch Petroleum Co. 2002 WL 319887 (S.D.N.Y.).
167 UN Economic and Social Council (ECOSOC), Commission on Human Rights, Promotion and
Protection of Human Rights, Interim Report of the Special Representative of the Secretary- General on the
issue of Human Rights and Transnational Corporations and Other Business Enterprises, at para. 65, UN
Doc. E/CN.4/2006/97 (22 February 2006). See also at para. 62; Ruggie Report, fn. 52, at para. 34;
J. Ruggie, Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect,
Respect and Remedy’ Framework, Report of the Special Representative of the Secretary-General on the
issue of human rights and transnational corporations and other business enterprises, 21 March 2011,
A/HRC/17/31, Annex, Principle 12, Commentary; A. Nollkaemper, ‘Translating Public International
Law into Corporate Liability’ in From Government to Governance: The Growing Impact of Non-State
Actors on the International and the European Legal System (W.P. Heere, ed.,The Hague, T.M.C. Asser
Press, 2004), 224; A. Reinish, ‘ “Investment and . . . ”—the Broader Picture of Investment Law’ in
International Investment Law in Context (A. Reinisch and C. Knahr, eds, Utrecht, Eleven International,
2007), 201, 203–4; Presbyterian Church of Sudan, et. al., v Talisman Energy, Inc., et. al., 244 F.Supp.2d
289, 308 (S.D.N.Y. 2003) (19 March 2003).
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Reasons for the Primary Applicability of National Law

179

The Respondent has argued that the Government also had many expectations in respect of
the investment that were not met or were otherwise frustrated. Apart from the question of
investment risk, it is alleged that there was, inter alia, the expectation that the investor would bear
any losses resulting from its activity, work diligently and in good faith, not claim extraordinary
earnings exceeding by far fair and reasonable tariffs, resort to local courts for dispute settlement,
dutifully observe contract commitments, and respect the regulatory framework. The Tribunal
notes that to the extent that any such issues would be within the Tribunal’s jurisdiction to decide,
and could have resulted in breaches of the Treaty, the Respondent would be entitled to raise
a counterclaim.168

In light of the fact that the Argentina–United States BIT does not appear to include any
relevant substantive obligations on the part of the investor,169 it appears that such
counterclaim would need to be based on national law, and not the treaty—as the
tribunal suggested.170
Although a decision on jurisdiction and not on the merits, we also note that the
ICSID Tribunal in Inceysa Vallisoletana S.L. v Republic of El Salvador (2007) applied
public international law to assess the conduct of the foreign investor.171 The tribunal
denied jurisdiction on the basis that the investment was made in a manner that violated
the national law of the host country; and that therefore, the dispute was not within the
scope of consent expressed by the Republic of El Salvador in the BIT at hand.172 The
arbitrators were convinced that Inceysa had engaged in several instances of fraudulent
conduct.173 Rather than judging this conduct on the basis of Salvadorian law, the
tribunal decided to assess it according to general principles of law, ‘an autonomous or
direct source of International Law, along with international conventions and
custom’.174 More specifically, Inceysa’s conduct was held to have violated the general
principle of good faith,175 as well as the legal principle that prohibits unlawful
enrichment.176 In deciding to apply general principles of law, rather than national
law, the tribunal first noted that treaties, and therefore the BIT at hand, are considered
part and parcel of Salvadorian law.177 Accordingly, held the tribunal, ‘the BIT, as valid
law in El Salvador, is the primary and special legislation this Tribunal must analyze to
determine whether Inceysa’s investment was made in accordance with the legal system
of that Nation.’178 Secondly, it referred to the applicable law clause in the BIT, which
stated that the arbitration was to be based on ‘the provisions of this [BIT] and those of
other agreements executed between the Contracting Parties; [ . . . ] general recognized
rules and principles of International Law; [and] the national law of the Contracting
Parties in whose territory the investment was made, including the rules regarding
conflict of laws’.179
168 Sempra Energy International v Argentine Republic, ICSID Case No. ARB/0/16, Award,
28 September 2007, at para. 289 (emphasis added).
169 Argentina-United States BIT.
170 See Chapter 4, Section 4.2.2 (on juridical connexity).
171 Inceysa Vallisoletana S.L. v Republic of El Salvador, ICSID Case No. ARB/03/26, Award,
2 August 2006 (R. Oreamuno, B. Landy, C. von Wobeser, arbs).
172 Inceysa Vallisoletana, at para. 257. See also Chapter 6, Section 3.2.2 (on the supervening role of
national law).
173 Inceysa Vallisoletana, at paras 101–127.
174 Inceysa Vallisoletana, at para. 226. See also at para. 225 (quoting from Article 38(1) of the
Statute of the International Court of Justice).
175 Inceysa Vallisoletana, at paras 230–239.
176 Inceysa Vallisoletana, at para. 253.
177 Inceysa Vallisoletana, at para. 219.
178 Inceysa Vallisoletana, at para. 220.
179 Inceysa Vallisoletana, at para. 222 (referring to article XI(3) of the BIT). See also Plama
Consortium Limited v Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008 (C.F. Salans,
A.J. van den Berg, V.V. Veeder, arbs), paras 143–146 (referring also to Bulgarian law).
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180 The Primary Applicability of National Law and the Role of International Law
It is submitted that the tribunal’s application of general principles of law in assessing
the conduct of the investor was—at the very least—unnecessary.180 From the language
of the BIT, as well as its travaux préparatories,181 it is clear that the relevant test is
whether the investment was made in accordance with the laws of the host state, and not
international law.182 Thus, a more logical step would have been to apply Salvadorian
law and not international law as part of national law, since it is unlikely that in El
Salvador—as in most national legal systems—international law is generally directly
applied to the conduct of private parties.
Such an approach would be consistent with that of other arbitral tribunals considering non-contractual counterclaims brought by host states against investors. While
practice is admittedly scarce,183 one example is Atlantic Triton Company Limited v
Guinea (1986), in which the ICSID Tribunal, under the heading of ‘Quasi-Tortious
Fault’, and applying national law, dismissed the host state’s counterclaim that the
investor had wrongfully seized its ships.184 Another example is Alex Genin v Estonia
(2001), in which the host state brought a counterclaim against the investor based on an
alleged violation of Estonian banking law.185 The ICSID Tribunal dismissed the
counterclaim on the merits: ‘Estonia has failed to demonstrate to the satisfaction of
the Tribunal the merits of its request.’186

2.4. Interim conclusions
We have seen that arbitrators apply national law to the merits of the dispute when the
parties have so agreed. When the tribunal may have recourse to both national and
international law, considerations of host state sovereignty and territorial control over
foreign investors and investments have led tribunals and scholars to hold and argue that
national law should be of primary applicability. The importance of the principle of
sovereignty notwithstanding, it is submitted that a decision to apply national law to the
merits ought to depend more on the national nature of the claim at hand than any
automatic sequential primacy of national law. On the basis of such a ‘cause-of-action’
analysis,187 contractual claims are generally to be governed by national law. Also noncontractual claims may be based on and consequently governed by national law.
Moreover, in light of the fact that investors generally do not have any obligations
under international law, non-contractual (counter-) claims presented by a host state
against an investor would be based in and governed by national law.

180 Cf. C. Knahr, ‘Investments “in Accordance with Host State Law” ’ in International Investment
Law in Context (A. Reinisch and C. Knahr, eds, Utrecht, Eleven International, 2007), 27, 34.
181 See Inceysa Vallisoletana, fn. 171, Award, at paras 192–194.
182 See Inceysa Vallisoletana, fn. 171, Award, at paras 192–194.
183 There are examples of host states seeking to enforce its national tax law by means of counterclaims, but such counterclaims have been held to fall outside the tribunal’s jurisdiction or to be
inadmissible. See Chapter 4, Section 4 (on counterclaims by host states).
184 Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea, ICSID Case No.
ARB/84/1, Award of 21 April 1986 (P. Sanders, J.-F. Prat, A.J. van den Berg, arbs), 3 ICSID Rep. 13,
17, 33, 35 (1995) (the investment agreement stipulated that Guinean law would be applicable.
However, the arbitral tribunal was also empowered to decide disputes ex aequo et bono.)
185 Alex Genin v Estonia, fn. 91, Award, at para. 199.
186 Alex Genin v Estonia, at para. 376. See also at fn. 101 (noting that the Republic of Estonia did
not appear to be the proper counterclaimant).
187 Cf. Z. Douglas, ‘Nothing if not Critical for Investment Treaty Arbitration: Occidental, Eureko
and Methanex’ (2006) 22(1) Arb. Int’l. 27, 40.
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The Role of International Law when National Law Primarily Applies

181

Finally, whereas tribunals do at times differ as to their approach to the primary
applicability of national law, it does not appear from our examination of practice that
any difference is caused by the territorialized and internationalized nature of the
tribunals. Indeed, in several cases ICSID tribunals in particular, but also the Iran–
United States Claims Tribunal, have concluded that national law should primarily be
applied to the merits of the dispute in the absence of an agreement by the parties to the
contrary.

3. The Role of International Law when National Law
Primarily Applies
When a tribunal holds that national law should primarily apply to the dispute—for any
of the reasons set out earlier: party autonomy, host state sovereignty, nature of the
claim—international law may still apply to the merits of the dispute. Indeed, it is for
that very reason that it is appropriate to use the terminology of primary applicability. In
this section, we will see that international law may apply indirectly, through the
applicable national law (Section 3.1); or directly, in a complementary or supervening
fashion (Section 3.2).

3.1. The indirect application of international law
International law may be applied when the national legal order at hand perceives
of international law as being part of the ‘law of the land’, or when it includes ‘international-law-friendly’ interpretation techniques. Since international law applies as a
function of the national law itself—i.e., the approach of the tribunals is similar to that
which would have been employed by the national courts of the host state—this indirect
form of interplay does not undermine party autonomy or host state sovereignty.

3.1.1. International law as part of the ‘law of the land’
Several states consider international law part and parcel of their law.188 Accordingly,
their national courts may directly apply international norms; that is, to the extent to
which such norms are considered to be self-executing or have direct effect.189 It is
submitted that in investment arbitration, investors should have the same opportunity
to make use of international norms as a function of the applicable national law if it so
provides.190 In case the parties have opted for the application of a particular national
188 See A. Nollkaemper, National Courts and the International Rule of Law (Oxford, Oxford
University Press, 2008), 73–4 (‘[A] significant number of states have adopted or recognized a rule
(often constitutional, whether written or unwritten) of domestic law that can authorize all or particular
rules of international law to be part of domestic law, without there being a need for implementing
legislation. This is for instance the situation in Benin, Cape Verde, (in principle) China, Côte
d’Ivoire, the Czech Republic, the Dominican Republic, Egypt, Ethiopia, France, Japan, the Netherlands, Portugal, the Russian Federation, Senegal, Switzerland, Turkey, and the United States’
[references omitted]); International Law and Domestic Legal Systems: Incorporation, Transformation,
and Persuasion (D. Shelton, ed., Oxford, Oxford University Press, 2011).
189 See Nollkaemper, fn. 188, at chapter 6 on direct effect. Cf. Medellín v Texas, 552 U.S. 491
(2008).
190 See Reisman, fn. 77, at 597; A. Broches, ‘The Convention on the Settlement of Investment
Disputes Between States and Nationals of Other States’ (1992) 136 Recueil des Cours 331, 341;
Schreuer et al., fn. 5, at 582–3. See also Chapter 1, Section 2 (on the scope of and terminology used in
the study).
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182 The Primary Applicability of National Law and the Role of International Law
legal order, any contrary conclusion191 would be inconsistent with the doctrine of
party autonomy.192 Moreover, arbitrators would then need to disregard national
provisions—often of a constitutional character—providing for the incorporation of
international law in the national legal order. Such disregard would have the undesirable consequence that the parties would be faced with one application of national
law in the national courts of the host state, and another by the arbitral tribunal, as
the former would be bound to respect international law as part of its law and the
latter not.
States differ with regard to the extent to which they incorporate international law;193
and investors should therefore be warned against relying on the automatic application
of international law via national law.194 First, states do not generally provide for
incorporation into national law of all sources of international law. England, for
instance, does not consider treaties part of its domestic law.195 Customary international
law is, however, part of English law.196 The situation is the same in Italy.197 It appears
that in Pakistan, neither treaty law nor customary international law may be invoked
before national courts.198
A second variation is that several states will not apply an international norm in case of a
conflicting national norm. The South African Constitution provides that ‘[c]ustomary
international law is law in the Republic unless it is inconsistent with the Constitution or
an Act of Parliament’.199 Several other states, such as the Netherlands,200 Argentina,201

191 See Toope, fn. 41, at 239 (‘[I]f the parties expressly choose the law of a single state, why should
they not be presumed to have chosen the law of that simpliciter, and not the law of the state plus
international law (as incorporated in the municipal law of the state)?’). See also at 239 (based on
Toope’s finding that there is no coherent body of international contract law, he reasons that an implicit
reference to international law would lead to great uncertainty in the rules to be applied to a contract
involving a private party. This uncertainty, he argues, is scarcely consistent with an express choice of
law.)
192 See Schreuer et al., fn. 5, at 582. Cf. US Model BIT (2012), fn. 22 (‘The “law of the
respondent” means the law that a domestic court or tribunal of proper jurisdiction would apply in
the same case’).
193 See Nollkaemper, fn. 188, at 75. For national jurisprudence on the relationship between
international and domestic law, see generally International Law in Domestic Courts, available at
<http://www.oxfordlawreports.com> (last visited 1 May 2012).
194 See P. Muchlinski, ‘Policy Issues’ in The Oxford Handbook of International Investment Law
(P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008), 3, 39–40.
195 See, e.g., Maclaine Watson v Department of Trade and Industry [1989] 3 All ER 523.
196 See, e.g., Chung Chi Cheung v The King [1939] AC 160, 167–8. See also Kilic Insaat Ithalat
Ihracat Sanayi ve Ticaret Anonim Sirketi v Turkmenistan, ICSID Case No. ARB/10/1, Decision on
treaty authenticity and interpretation, 7 May 2012, at para. 6.3 (‘[C]ustomary international law is part
of the applicable law in Turkey’ [references omitted]).
197 See Constitution of the Italian Republic (1947), art. 10; Ente Nazionale per la Cellulosa v
Cartiera Italiana, 24 I.L.R. 12 (1957).
198 See Société Générale de Surveillance S.A. v Pakistan (Civil Appeal Nrs 459 and 460 of 2002),
2002 SCMR 1694 (3 July 2002), ILDC 82 (PK 2002), at C2; Bayindir Insaat Turizm Ticaret Ve
Sanayi A.S. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14
November 2005 (G. Kaufmann-Kohler, F. Berman, K.-H. Böckstiegel, arbs), para. 94.
199 Constitution of South Africa (1996), Chapter 14, Title 1, section 232. Cf. G. Guillaume, ‘The
Work of the Committee on International Law in National Courts of the International Law Association’ (2001) 3 International Law FORUM du droit international 35 (‘As a general rule, however,
treaties do not rank above the constitution, although in some cases they may have equal rank, as, for
example, the European Convention on Human Rights in Austria’).
200 The Netherlands also considers treaties superior to the Constitution. See Constitution of the
Kingdom of the Netherlands, arts 91(3), 94 (2002).
201 Cf. Sempra Energy v Argentina, fn. 168, Award, at para. 237.
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The Role of International Law when National Law Primarily Applies

183

Belgium,202 Egypt,203 Luxembourg,204 Japan,205 France,206 Poland,207 Spain,208 and
Turkey209 consider treaties supreme to conflicting national law. However, in case of a
conflict between a national norm and customary international law, it appears that a
Dutch court will grant priority to the former.210 In the United States, treaties constitute
the ‘supreme law of the land’;211 but treaties have been interpreted to have supremacy
neither over conflicting provisions in the US Constitution,212 nor over conflicting federal
statutes enacted subsequent to the ratification of the relevant treaty (the last-in-time
rule).213
Finally, we note the special role of international jus cogens norms in the domestic
legal order, a topic that is treated differently by various states.214 Further, many states
have ensured in their constitutional laws the supremacy of human rights standards,
a position they do not grant to other international standards.215 Moreover, the Treaty
on the Functioning of the European Union (TFEU) and European Union (EU)
202 See, e.g., Minister for Economic Affairs v Fromagerie Franco-Suisse Le Ski [1972] CMLR 330,
translated in L.J. Brinkhorst and H.G. Schermers, Judicial Remedies in the European Communities:
A Case Book (Universiteit van Amsterdam, Europa Instituut, 1977), 174, 175.
203 See, e.g., Wena v Egypt, fn. 54, Decision on Annulment, at para. 42.
204 See E. Benvenisti, ‘Judicial Misgivings Regarding the Application of International Law: An
Analysis of Attitudes of National Courts’ (1993) 4(2) Eur. J. Int’l L. 159, 163–4.
205 See Japanese Constitution (1946), art. 98. Cf. K. Holloway, Modern Trends in Treaty Law
(London, Stevens; Dobbs Ferry, Oceana Publications, 1967), 198.
206 See French National Constitution (1958), art. 55.
207 See Constitution of Poland (1997), art. 91(2).
208 See Spanish Constitution (1978), art. 96(1).
209 See PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Uretim
ve Ticaret Limited Sirketi v Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007 (F.O. Vicuña,
L.Y. Fortier, G. Kaufmann-Kohler, arbs), para. 168.
210 See SA Maritime et Commerciale v Netherlands (Nyugat II), Dutch Supreme Court, 6 March
1959, NJ 1962. See also Bouterse, Dutch Supreme Court, 18 September 2001, NJ 2002, 559. Cf.
P.H. Kooijmans et al., Internationaal publiekrecht in vogelvlucht (Deventer, Kluwer, 2002), 87. But see
H. Meijers, ‘On International Customary Law in the Netherlands’ in On the Foundations and Sources of
International Law (I.F. Dekker and H.H.G. Post, eds, Asser Press, The Hague, 2003), 111 (in
answering the question whether unwritten law shall prevail over Dutch codified law, the Dutch
Government stated in 1980: ‘Based on the view that in principle a state abides by current international
law, including unwritten law, we answer this question affirmatively’). For France, see R. Errera,
Domestic Courts and International Law, the Law and Practice in France: General Aspects and Recent
Developments, at 19–20 (paper delivered at the First International Law in Domestic Courts (ILDC)
Colloquium (The Hague, 28 March 2008), on file with author).
211 See US Constitution (1789), art. VI, section 2; Edve v Robertson, 112 U.S. 580 (1884). But see
J.C. Yoo, ‘Globalism and the Constitution: Treaties, Non-Self-Execution, and the Original Understanding’ (1999) 99 Colum. L. Rev. 1955, 1962–7 (the US Constitution can be read to establish that
treaties do not ‘take effect as internal U.S. law’ until implemented by federal statute).
212 See Reid v Covert, 354 U.S. 1, 17 (1957).
213 See, e.g., Chae Chan Ping v US, 130 U.S. 581, 600 (1889); Diggs v Shultz, 411 U.S. 931 (1973);
Restatement (Third) of Foreign Relations Law } 115 (1987). Cf. R. Higgins, Problems and Process:
International Law and How We Use It (Oxford, Clarendon Press; New York, Oxford University Press,
1994), 213–14; P. Malanczuk, Akehurst’s Modern Introduction to International Law (London, Routledge, 1997), 65. See also CMS v Argentina, fn. 67, Award at para. 114 (‘In respect of the legal regime
of treaties in Argentine, the Respondent argues that while treaties override the law they are not above
the Constitution and must accord with constitutional public law. Only some basic treaties on human
rights have been recognized by a 1994 constitutional amendment as having constitutional standing
and, therefore, in the Respondent’s view, stand above ordinary treaties such as investment treaties’
[references omitted]).
214 See, e.g., Comm. of United States Citizens Living in Nicaragua v Reagan, 859 F.2d 929, 935
(D.C.Cir. 1988); E. de Wet, ‘The Prohibition of Torture as an International Norm of Jus Cogens and
its Implications for National and Customary Law’ (2004) 15 Eur. J. Int’l L. 97, 102.
215 See, e.g., National Constitution of Argentina (1994), section 75(22). Cf. D. Shelton, ‘Introduction’ in International Law and Domestic Legal Systems (Oxford, Oxford University Press, 2011), 2.
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184 The Primary Applicability of National Law and the Role of International Law
regulations are directly applicable sources in the national legal order of EU Member
States, regardless of how these states otherwise regard international instruments.216
The practice of territorialized tribunals supports the application of international law
on the basis that it constitutes ‘part and parcel’ of the applicable national law. The
resulting ‘indirect’ interplay between the legal orders is illustrated by Libyan American
Oil Co. (LIAMCO) v Libyan Arab Republic (1977).217 The concession contract at hand
provided for the applicability of both national law and international law:
This Concession shall be governed by and interpreted in accordance with the principles of law of
Libya common to the principles of international law and in the absence of such common
principles then by and in accordance with the general principles of law, including such of
those principles as may have been applied by international tribunals.218

Sole Arbitrator Mahmassani, having noted that the Libyan Civil Code referred to
Islamic law as a source of law, found it ‘very relevant in this connection to point out
that Islamic law treats international law (the Law of Siyar) as an imperative compendium forming part of the general positive law, and that the principles of that part are
very similar to those adopted by modern international legal theory’.219 Mahmassani
further noted that general principles of law ‘are usually embodied in most recognized
legal systems, and particularly in Libyan legislation, including its modern codes and
Islamic law’.220 This led the arbitrator to refer to the principle of sanctity of contract,
‘admitted in Islamic law, as is evidenced by many historical precedents’.221
Another example is Government of the State of Kuwait v American Independent Oil
Company (Aminoil) (1982), which concerned a sixty-year concession granted to Aminoil,
a US Corporation, by the Ruler of Kuwait in 1948 when Kuwait was still under British
control.222 The contracting parties had agreed that ‘[t]he law governing the substantive
issues between the Parties shall be determined by the Tribunal, having regard to the
quality of the Parties, the transnational character of their relations and the principles of
law and practice prevailing in the modern world’.223 While holding that ‘[i]t can hardly
be contested but that the law of Kuwait applies to many matters over which it is the law
most directly involved’, the tribunal also emphasized the applicability of general
principles of law, partly on the basis of a statement by the host state that ‘established
public international law is necessarily a part of the law of Kuwait’.224
Further, we note the case Occidental Exploration and Production Company v Ecuador
(2004), in which the investor alleged that the failure of the host state to refund ValueAdded Tax (VAT) constituted violations of the BIT between Ecuador and its home
216 See Flaminio Costa v E.N.E.L., Case 6/64, ECJ, Judgment, 15 July 1964.
217 Libyan American Oil Co. (LIAMCO) v Libyan Arab Republic, Award, 12 April 1977 (Mahmassani, sole arb.).
218 LIAMCO v Libya, 20 I.L.M. 1, 33 (referring to Clause 28(7)). See also at 13 (Clause 16(2)
contained a stabilization clause); and at 19.
219 LIAMCO v Libya, 20 I.L.M. 1, 37.
220 LIAMCO v Libya, 20 I.L.M. 1, 37.
221 LIAMCO v Libya, 20 I.L.M. 1, 56.
222 Government of the State of Kuwait v American Independent Oil Company (Aminoil), Award,
24 May 1982 (P. Reuter, H. Sultan, G. Fitzmaurice, arbs).
223 Kuwait v Aminoil, 21 I.L.M. 976, 1000.
224 Kuwait v Aminoil, 21 I.L.M 976, 1000. See also SPP v Egypt, fn. 67, ICC Award, 22 I.L.M. 752,
771 (1983) (after having accepted that Egyptian law constituted the ‘relevant domestic law’, the ICC
Tribunal held that international law could be deemed as part of Egyptian law); SPP v Egypt, fn. 37,
ICSID Award, Dissenting Opinion El Mahdi, at section III(3)(iv) (‘Noteworthy, in this respect, that
provisions of treaties entered into by Egypt are considered part of the Egyptian law in appliance of the
mechanism provided for in article (151) of the constitution [ . . . ]’); see also at section III(3)(v)(b).
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The Role of International Law when National Law Primarily Applies

185

state.225 In deciding the claim on the merits, the UNCITRAL Tribunal referred to
international law, including Andean Community law, which is ‘binding under the
Ecuadorian legal system’.226 A last example of the practice of territorialized tribunals is
BG Group Plc v Argentina (2007), in which the UNCITRAL Tribunal stated the following
with respect to the incorporation of international law in the Argentine national legal order:
[I]mportantly, the interplay between international law and municipal law under Article 8(4) of
the BIT should not overlook that the former may be deemed incorporated into the latter,
depending on the status conferred to international treaties and international law in general by
a particular constitutional system. This is particularly relevant to the case of Argentina, whose
constitutional framework and doctrine have traditionally admitted the direct application of
international law whenever feasible and, at least since the constitutional reform undertaken in
1994, expressly providing for the principle that international treaties preempt provincial and
federal law. Accordingly, the challenge of discerning the role that international law ought to play
in the settlement of this dispute, vis-à-vis domestic law, disappears if one were to take into
account that the BIT and underlying principles of international law, as ‘the supreme law of the
land’, are incorporated into Argentine domestic law, superseding conflicting domestic statutes.227

As for ICSID tribunals, representatives present during the drafting of the ICSID
Convention commented on the possibility that international law could be applied
when the applicable national law incorporates international law as part of its law. The
Austrian delegate pointed out that some states, such as her own, would not have
difficulties with respect to the application of international law since international law
is embodied in the national law.228 Further, the representative from Tanganyika
referred to the practice by municipal courts of applying international law.229 Also the
representative from Peru, otherwise sceptical about the application of international law,
agreed that it could apply when the national law of the host state so provided.230
The indirect application of international law in ICSID arbitration is supported by
arbitral practice. The ICSID Tribunal in Antoine Goetz and others v Republic of Burundi
(1999) observed that the BIT in question could be considered applicable partly for the
reason that Burundian law incorporates international law.231 The incorporation of
international law in the national legal order was also referred to in Wena Hotels Ltd v
225 Occidental Exploration and Production Company v Republic of Ecuador, LCIA Case No.
UN3467, Final Award, 1 July 2004 (F.O. Vicuña, C.N. Brower, P.B. Sweeney, arbs), para. 9.
226 Occidental Exploration, at paras 145–52. See also Judgment of the Court of Appeal regarding
non-justiciability of challenge to arbitral award, 9 September 2005 [2005] EWCA Civ 1116, para. 56
(Lord Phillips of Worth Matravers MR, Clarke, Mance LJJ).
227 BG Group Plc v Argentina, Award, 24 December 2007 (A.M. Carro, A.J. van den Berg, G.
A. Alvarez, arbs), para. 97 [references omitted]). See also National Grid plc v Argentine Republic, Award,
3 November 2008 (A.M. Garro, J.L. Kessler, A.R. Sureda, arbs), para. 89 (‘[A]s a matter of Argentine
law, the standards of protection granted by an international investment treaty and applicable principles
of international law prevail over any lower standard provided by domestic law [ . . . ]’ [references
omitted]); Himpurna California Energy Ltd v Republic of Indonesia, Interim Award of 26 September
1999 (J. Paulsson, A.A. de Fina, H.P. Abdurrasyid, arbs), para. 21 (‘International law forms part of
Indonesian law’); and at para. 177; CME v Czech Republic, fn. 59, Partial Award, at para. 419 (the BIT
is ‘part of the laws of the Czech Republic’); and see fn. 59, Final Award, at paras 503, 506, 507 (‘Czech
law stipulates the primacy of the Treaty’ for the determination of compensation); and also Separate
Opinion by I. Brownlie, para. 2.
228 See History of the ICSID Convention, fn. 73, Vol. II-2, p. 803.
229 See History of the ICSID Convention, Vol. II-1, p. 259.
230 See History of the ICSID Convention, Vol. II-2, p. 802. See also at 801 (intervention by the
German delegate); and at 803 (interventions of representatives of Costa Rica and Côte d’Ivoire). Cf.
Broches, fn. 77, at 227.
231 Antoine Goetz, and others v Republic of Burundi, ICSID Case No. ARB/95/3, Award (embodying
the Parties’ Settlement Agreement), 10 February 1999 (P. Weil, M. Bedjaoui, J.-D. Bredin, arbs),
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186 The Primary Applicability of National Law and the Role of International Law
Arab Republic of Egypt (2002).232 The ad hoc Committee was faced with the claim by
Egypt that the tribunal had erred in holding that the BIT in question should be applied
as the primary source of law.233 In dismissing this ground for annulment, the Committee pointed out that under the Egyptian Constitution, treaties that have been
ratified and published have the force of law; and that most commentators have
interpreted this provision as equating treaties with domestic legislation.234 It also
referred to the practice of Egyptian courts holding that treaty rules prevail also over
subsequent legislation; and that lex specialis, such as treaty law, prevails over lex
generalis, embodied in domestic law.235 Moreover, the committee stated, in certain
matters, Egyptian laws, including the Civil Code and Code of Civil Procedure, provide
for a ‘without prejudice clause’ in favour of the relevant treaty provision.236 In the
tribunal’s view, this amounts to ‘a kind of renvoi to international law by the very law of
the host State’.237 As such, it concluded that when a tribunal applies the law embodied
in a treaty to which Egypt is a party, it is not applying rules alien to the domestic legal
system of this state.238
A similar reference to the incorporation of international law in the national legal
order was made by the ICSID Tribunal in LG &E Energy Corp. et al. v Argentina
(2006):
[A]s part of the Argentine legal system, the Bilateral Treaty prevails over domestic law, ‘especially,
inasmuch as in most of the Bilateral Treaty’s assumptions there is an express mention of
international law, be it when referring to the treatment to be given to investments, or to the
compensation in the event of expropriation or any other like measure, etc.’239

Also the Iran–United States Claims Tribunal may apply international law indirectly, on
the basis that it constitutes part of US or Iranian law. With respect to the United States,
US courts may directly apply both treaty provisions and customary international
law.240 As for Iranian law, Article 9 of the Iranian Civil Code states that ‘[t]reaty
stipulations which have been, in accordance with the Constitutional Law, concluded
between the Iranian Government and other governments, shall have the force
of law’.241 As such, treaties that have been approved by the Islamic Consultative
paras 94–96 (the tribunal added: ‘by reason of the non-appearance of the defendant, the Tribunal is
not however in a position to reach a definite conclusion on this point’).
232 Wena v Egypt, fn. 54, Decision on Annulment.
233 Wena v Egypt, at paras 21–23.
234 Wena v Egypt, at para. 42.
235 Wena v Egypt, at para. 42.
236 Wena v Egypt, at para. 42.
237 Wena v Egypt, at para. 42.
238 Wena v Egypt, at para. 44. See also Award, 8 December 2000 (M. Leigh, I. Fadlallah,
D. Wallace, arbs), at para. 79.
239 LG &E Energy v Argentina, fn. 67, Decision on Liability, at para. 91 (referring to G.S. Tawil,
Los conflictos en materia de inversión, la jurisdicción del CIADI y el Derecho aplicable: a propósito de
las recientes decisiones en los casos ‘Vivendi’, ‘Wena’ y ‘Maffezini’ (October 2002) XXV-239 RAP 241,
256). Cf. CMS v Argentina, fn. 67, Award at para. 111 (‘The Claimant further explains that [ . . . ]
treaties have a significant place in the Argentine constitutional order and must be observed [ . . . ]’);
Azurix v Argentine Republic, ICSID Case No. ARB/01/12, Decision on Jurisdiction, 8 December 2003
(A.R. Sureda, E. Lauterpacht, D.H. Martins, arbs), para. 47; Siemens v Argentina, fn. 67, Award, at
para. 79. See also SPP v Egypt, fn. 37, ICSID Award, at paras 34, 76; Asian Agricultural Products
Limited (AAPL) v Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award,
27 June 1990 (A.S. El-Kosheri, B. Goldman, S.K.B. Asante, arbs), Dissenting Opinion Asante, 30
I.L.M. 577, 631 (1991).
240 US Constitution (1789), art. VI(2); The Paquete Habana, 175 U.S. 677, 700 (1900).
241 Iranian Civil Code, art. 9.
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The Role of International Law when National Law Primarily Applies

187

Assembly,242 reviewed by the Council of Guardians,243 and signed by the President244
have the same weight as the national laws of Iran, and are thus a source of law for
Iranian courts.245 With regard to customary international law and general principles of
law, however, Article 167 of the Iranian Constitution provides that ‘[t]he judge is
bound to endeavor to judge each case on the basis of the codified law’.246 Thus, by
implication, these ‘uncodified’ sources of international law may not be directly
applied.247
In practice, the application of the Treaty of Amity has been justified on the basis that
it was not only international law, but also part of the law of Iran and the United States.
In his concurring opinion to the award in American International Group, Inc. v Iran
(1983), Judge Mosk stated:
[I]n the instant case, the Treaty of Amity is the source of international law. It also appears that the
Treaty of Amity is part of the municipal law of both the United States and Iran. United States
Constitution, Art. VI, cl.2; Civil Code of Iran, Art. 9. Accordingly, in cases such as this case,
which involve matters that are the subject of the Treaty of Amity, that Treaty is the most, if not
the only, appropriate law to apply.248

While customary international law is not part and parcel of Iranian law, it may be
applied directly by US courts. In no award, however, has the tribunal ever applied this
source of international law on the basis that it is part of US law.

3.1.2. International law as a source of interpretation
Another way in which national courts give effect to international law in the national
legal order is through applying the principle of consistent interpretation, whereby a rule
of national law is construed in light of international law.249 As we will see in this
subsection, the same methodology can be applied by investment tribunals.
It has been observed that, ‘[i]n practice, courts will always attempt first to reconcile a
conflict between international and national law through the principle of consistent
interpretation’.250 Such ‘international-law-friendly’ interpretation is expressly required
by the South-African Constitution, which provides that ‘[w]hen interpreting any
legislation, every court must prefer any reasonable interpretation of the legislation
that is consistent with international law over any alternative interpretation that is

242 See Constitution of the Islamic Republic of Iran (1979), art. 77.
243 See Constitution of the Islamic Republic of Iran, art. 94.
244 See Constitution of the Islamic Republic of Iran, arts 123, 125.
245 Cf. Office of the United Nations High Commissioner for Human Rights, Core Document
Forming Part of the Reports of States Parties: Islamic Republic of Iran, 15 July 1999, HRI/CORE/1/
Add.106, para. 80.
246 Constitution of the Islamic Republic of Iran (1979), art. 167 (emphasis added).
247 Noushin Keyhanlou, email, 14 April 2003.
248 American International Group, Inc v Iran, Award, 19 December 1983, Concurring Opinion by
Mosk, 84 I.L.R. 645, 665. See also G.H. Aldrich, The Jurisprudence of the Iran–United States Claims
Tribunal: An Analysis of the Decisions of the Tribunal (Oxford, Clarendon Press, 1996), 157 (the treaty
‘was simultaneously international law, American law, and Iranian law’).
249 See generally Nollkaemper, fn. 188, at Chapter 6; G. Betlem and A. Nollkaemper, ‘Giving
Effect to Public International Law and European Community Law before Domestic Courts:
A Comparative Analysis of the Practice of Consistent Interpretation’ (2003) 14 Eur. J. Int’l L. 569,
572. See also B. Simma et al., ‘The Role of German Courts in the Enforcement of International
Human Rights’ in Enforcing International Human Rights in Domestic Courts (B. Conforti and
F. Francioni, eds, The Hague, Nijhoff, 1997), 71, 94–6 (discussing the concept völkerrecthsfreundlich).
250 Betlem and Nollkaemper, fn. 249, at 572.
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188 The Primary Applicability of National Law and the Role of International Law
inconsistent with international law’.251 US law also provides for the interpretation of
federal law enacted subsequent to a treaty in an international-law-conform manner,252
as does, for instance, Dutch,253 Israeli,254 Belgian,255 and Norwegian law.256 Such
practice is important, as it provides an indirect means of enforcement of international
law by national courts when the norm at hand is either non-self-executing or the forum
state does not directly incorporate international law in its national legal order.257
The argument can be made that investment tribunals should always seek to construe
national law in an international-law-friendly manner, and not only where the applicable
national law so provides. As stated by the United Nations Committee on Economic,
Social and Cultural Rights on the domestic application of the Covenant, ‘[i]t is
generally accepted that domestic law should be interpreted as far as possible in a way
which conforms to a state’s international legal obligations.’258 Not only does the
flexibility granted by choice-of-law rules support this conclusion; as will be elaborated
upon in Chapter 7, a choice-of-law methodology that focuses on the similarities rather
than the differences between national and international law can be seen not only to
enhance the legitimacy of the award for the disputing parties; it also contributes to a
more harmonious outlook on the relationship between the legal orders.259
While it is unclear whether these considerations influenced the arbitrators, this
approach appears to have been adopted in Tradex Hellas S.A. v Albania (1996/
1999).260 In that case, the ICSID Tribunal’s jurisdiction was limited to claims of
expropriation based on the 1993 Albanian Foreign Investment Law, and the tribunal
251 Constitution of South Africa (1996), Chapter 14, Title 1, section 233. See also section 39(1).
252 See Murray v The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804); US v Palestine
Liberation Organization, 695 F. Supp. 1456 (S.D. N.Y. 1988); Restatement (Third) of Foreign
Relations Law } 115 (1987).
253 See Hoge Raad, 3 March 1919, NJ 371 (1919); Hoge Raad, 5 January 1951, NJ 69(1951);
A. Nollkaemper, Kern van het international publiekrecht (2004), 417–20.
254 Tibi v Government of Israel, HCJ 6230/95 (1995); Kurtz and Letushinsky v Kirschen, Israeli
Supreme Court, 27 June 1967, 47 I.L.M. 212, 214–15.
255 J. Wouters and D. Van Eeckhoutte, ‘Doorwerking van internationaal recht voor de Belgische
hoven en rechtbanken’ in De nationale rechter en het internationale recht, 131 Mededelingen van de
Nederlandse Vereniging voor Internationaal Recht (2005), 145, 209–13 <http://lirias.kuleuven.be/
handle/123456789/94376> (last visited 1 May 2012).
256 See Case Concerning Certain Norwegian Loans (France v Norway), Judgment, 6 July 1957, Separate
Opinion by Judge Lauterpacht [1957] ICJ Rep. 9, at 40–1; N. Hostmaelingen, ‘The Permissible Scope
of Legal Limitations on the Freedom of Religion or Belief in Norway’ (2005) 19 Emory Int’l L. Rev. 989,
992. For EU/EEA law, see Case C-165/91, Van Munster v Rijksdienst voor Pensioenen [1994] ECR I4661 para. 34; EFTA Court, Case E-1/07, at para. 39. But see A. Nollkaemper, ‘Internationally
Wrongful Acts in Domestic Courts’ (2007) 101 Am. J. Int’l L. 760, 784, fn. 130 (‘On the other
hand, there is ample practice where domestic courts apply principles of domestic (statutory) interpretation without referring to international principles of interpretation. See, e.g., Société Générale de Surveillance S.A. v Pakistan, 2002 S.C.M.R. 1694, para. C5, ILDC 82 (PK 2002)’).
257 See J.J. Paust, ‘Self-Executing Treaties (1988), 82 Am. J. Int’l L. 760, at 781; Nollkaemper,
fn. 256, at 784–5. But see M.A. Waters, ‘Creeping Monism: The Judicial Trend toward Interpretive
Incorporation of Human Rights Treaties’ (2007) 107 Colum. L. Rev. 628, 634 (‘There is no question
that the current trend has the potential to transform the world’s common law courts into increasingly
powerful mediators between the domestic and international legal regimes. But the phenomenon also
raises questions regarding the democratic legitimacy of this transformation in the judicial role’ [emphasis
added]).
258 General Comment No. 9 of the UN Committee on Economic, Social and Cultural Rights on
the domestic application of the Covenant (UN Doc. A/CONF.39/27), para. 15. See also Betlem and
Nollkaemper, fn. 249, at 574 (‘State practice allows one to infer an international duty of courts to
interpret, within their constitutional mandates, national law in the light of international law’).
259 See Chapter 7 (on concurrent application of and reference to national and international law in
case of consistency).
260 Tradex v Albania, fn. 151, Decision on Jurisdiction; and see fn. 151, Final Award.
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The Role of International Law when National Law Primarily Applies

189

held that consequently, it would examine the investor’s claim on the basis of that
national law.261 Still, in line with the fact that the parties had not agreed on the
applicable law, it stated that it would, in accordance with Article 42(1), second sentence
of the ICSID Convention, ‘make use of sources of international law insofar as that
seems appropriate for the interpretation of terms used in the 1993 Law, such as
“expropriation” ’.262 On the merits, the tribunal applied Article 4 of the 1993 Law,
which provided that foreign investments shall not be expropriated directly, indirectly,
or by any measure of tantamount effect.263 Referring to decisions of the Iran–United
States Claims Tribunal and the International Court of Justice,264 it concluded that the
investor had been unable to establish that the host state had expropriated its
investment.265

3.1.3. Interim conclusions
First, arbitral tribunals may and do apply international law to the dispute when the
national legal order in question incorporates international law. Yet, the fact that no state
is fully ‘monist’ in their outlook on the relationship between the national and the
international legal orders should caution investors in relying on the application of
international law via national law. Secondly, in all cases, arbitrators are advised to
construe national law in light of relevant international law.

3.2. The corrective application of international law
When national law primarily governs the claim, international law could still apply in a
corrective fashion either because national law contains lacunae or due to a conflict
between a particular national norm and an international norm. However, this corrective role of national law is subject to several restrictions.

3.2.1. The complementary role of international law
First, the situation may occur that the parties have agreed to the application of a
particular national law that contains lacunae, or gaps. In that case, it has been argued
and held that international law may function as a ‘gap-filler’ so as to ‘complement’ and
thereby ‘correct’ the national law.266
In several early awards, tribunals have found the national law of the host state
inadequate to deal with the various issues at hand; and as a consequence, they have
proceeded to apply international law, principles of justice, and principles common to
various states other than the law of the host state. While such practice does not

261 See Chapter 4, Section 3.2 (on arbitration without privity).
262 Tradex v Albania, fn. 151, Final Award, at para. 69.
263 Tradex v Albania, fn. 151, Final Award, at para. 133.
264 Tradex v Albania, fn. 151, Final Award, at para. 135; at para. 200.
265 Tradex v Albania, fn. 151, Final Award, at paras 203–204.
266 See, e.g., D.W. Bowett, ‘Claims between States and Private Entities: The Twilight Zone of
International Law’(1986) 35 Cath. U.L. Rev. 929, 932 (‘Certainly there have been some few cases in
which the state’s law has been inadequate to deal with the specific problem posed, and so arbitral
tribunals have understandably had to supplement the state’s law by reference to “general principles of
law” ’); TOPCO v Libya, fn. 56, Award on the Merits, at para. 42 (‘It should be noted that the
invocation of the general principles of law does not occur only when the municipal law of the
contracting State is not suited to petroleum problems [ . . . ]’).
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190 The Primary Applicability of National Law and the Role of International Law
necessarily amount to an application of general principles of law in the sense of Article
38(1)(c) of the Statute of the International Court of Justice,267 the following awards
illustrate the perceived need at that time to complement the host state’s national law in
the case of lacunae.
One example is Petroleum Development (Trucial Coast) Limited v Sheik of Abu Dhabi
(1951).268 It involved an oil concession granted in 1939 by the Sheik of Abu Dhabi
(then a British protectorate) to Petroleum Development (Trucial Coast) Ltd, transferring to the latter the exclusive right to drill for and win mineral oil within a certain area
in Abu Dhabi for seventy-five years.269 A dispute arose between the parties regarding
certain seabed and subsoil areas, resulting in arbitration proceedings.270 The concession
agreement did not set out the governing law, although Article 17 provided that ‘[t]he
Ruler and the Company both declare that they base their work in this Agreement on
goodwill and sincerity of belief and on the interpretation of this agreement in a fashion
consistent with reason’.271
It appears that sole Arbitrator Lord Asquith of Bishopstone first considered national
law to be primarily applicable: ‘This is a contract made in Abu-Dhabi and wholly to be
performed in that country. If any municipal system were applicable, it would prima
facie be that of Abu-Dhabi,’ which, he added, was grounded in Koranic law.272
Nevertheless, the Arbitrator held that the aforementioned Article 17 repelled the notion
that any national legal system should be applicable to the contract;273 and he further
dismissed Koranic law as primitive at best, finding that ‘[n]o such law can reasonably be
said to exist’.274 Rather, he understood the Sheik to administer ‘a purely discretionary
justice with the assistance of the Koran; and it would be fanciful to suggest that in this
very primitive region there is any settled body of legal principles applicable to the
construction of modern commercial instruments’.275 As such, Lord Asquith held that
the terms of Article 17 ‘invite, indeed prescribe, the application of principles rooted in
the good sense and common practice of the generality of civilised nations—a sort of
“modern law of nature” ’.276 This rather deplorable characterization of the Abu-Dhabi
legal system is to some extent mitigated by the arbitrator’s expressed belief ‘that on this
point there is [not] any conflict between the parties’.277 In a footnote, he further
supported his consideration of general principles as being ‘at the express invitation of
the parties’.278
Although Lord Asquith conceded that English municipal law was inapplicable as
such, he found that ‘some of its rules are [ . . . ] so firmly grounded in reason, as to form
part of this broad body of jurisprudence—this “modern law of nature” ’.279 He
concluded that the company was entitled to extract oil from the seabed and subsoil
subjacent to, but not beyond, Abu Dhabi’s territorial waters.280 In so holding, he
construed and relied on the ‘doctrine of the Continental Shelf ’, based on customary
international law, legal scholarship, and arbitral awards.281

267
268
arb.).
269
270
272
274
276
278
280

Statute of the International Court of Justice, art. 38(1)(c).
Petroleum Development Ltd v Sheikh of Abu Dhabi, Award, September 1951 (Lord Asquith, sole
Petroleum Development, 18 I.L.R. 144 (1951), at 144–5, 147.
Petroleum Development, at 144–5.
271 Petroleum Development, at 148.
Petroleum Development, at 149.
273 Petroleum Development, at 149.
Petroleum Development, at 149.
275 Petroleum Development, at 149.
Petroleum Development, at 149.
277 Petroleum Development, at 149.
Petroleum Development, at 161.
279 Petroleum Development, at 149–50.
Petroleum Development, at 160.
281 Petroleum Development, at 150–60.

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The Role of International Law when National Law Primarily Applies

191

The dismissal of national law as insufficient is also illustrated by Qatar v International
Marine Oil Co., Ltd (1953), in which sole Arbitrator Buknill held:
I need not set out the evidence before me about the origin, history and development of Islamic
Law as applied in Qatar or as to the legal procedure in that country. I have no reason to suppose
that Islamic Law is not administered there strictly, but I am satisfied that the law does not contain
any principles which would be sufficient to interpret this particular contract.282

He therefore decided to apply ‘principles of justice, equity and good conscience’.283
While the awards just discussed have rightly been subject to criticism for their
‘imperialist underpinnings’,284 we do observe that the gap-filling role of international
law has received particular support in the context of ICSID arbitration, partly in light of
the express prohibition in the ICSID Convention of a finding of non liquet285 on the
ground of ‘silence or obscurity in the law’.286 Thus, the ad hoc Committee in Klöckner
(1985) held that principles of international law may have ‘a complementary role (in the
case of a “lacuna” in the law of the State)’,287 and the ad hoc Committee in Amco Asia
(1986) noted that the second sentence of Article 42(1) authorizes an ICSID tribunal to
apply rules of international law to ‘fill up lacunae in the applicable domestic law’.288
This was also pointed out in the resubmitted case of Amco Asia (1990): ‘If there are no
relevant host-state laws on a particular matter, a search must be made for the relevant
international laws.’289 The complementary role of international law was reaffirmed in
Aucoven v Venezuela: ‘It is certainly well settled that international law may fill lacunae
282 Ruler of Qatar v Int’l Marine Oil Co., Award, June 1953 (A. Buknill, sole arb.), 20 I.L.R. 534,
545 (1957).
283 Ruler of Qatar, at 545 (Buknill added: ‘in my opinion neither party intended Islamic law to
apply, and intended that the agreement was to be governed by “the principles of justice, equity and
good conscience” as indeed each party pleads in Claim and Answer, alternatively to Islamic law, in the
case of the Claimant’). See also TOPCO v Libya, fn. 56, Award on the Merits, at para. 42 (‘[R]ecourse
to general principles is to be explained not only by the lack of adequate legislation in the State
considered (which might have been the case, at one time, in certain oil Emirates [ . . . ]’); CME v Czech
Republic, fn. 59, Final Award, at para. 399 (‘[T]he Respondent’s position is that international law only
becomes applicable if there is a “genuine gap” in Czech law [ . . . ]’); Société Rialet v Ethiopia, 8 Recueil des
décisions des Tribunaux Arbitraux Mixtes (1929) 742 (the host state’s law was supplemented by
reference to ‘general principles of law’).
284 O. Spiermann, ‘Applicable Law’ in Oxford Handbook of International Investment Law 89, 95–6
(P. Muchlinski et al., eds, Oxford, Oxford University Press, 2008). See also Reisman, fn. 1, at 10; A. Anghie,
Imperialism, Sovereignty and the Making of International Law (Cambridge University Press, 2005), 226.
285 On the concept non liquet in general, see D. Bodansky, ‘Non Liquet’ Max Planck Encyclopedia of
Public International Law, available at <http://www.mpepil.com/home> (last visited 1 May 2012). See
also M.J. Aznar-Gomez, ‘The 1996 Nuclear Weapons Advisory Opinion and Non Liquet in International Law’ (1999) 48 Int’l & Comp. L. Quart. 3, 8, fn. 25 (‘By non liquet it has been generally
understood that “an international tribunal should decline to decide a case where rules are not available
for its determination because of gaps or lacunae in international law” ’ [references omitted].
286 ICSID Convention (1965), art. 42(2). Cf. History of the ICSID Convention, fn. 73, Vol. II-2,
p. 802 (the delegate from Dahomey stated that international law ‘should be used to complement or
supplement national law’); at 803 (Indian delegate stating that ‘he might accept the application of
international law in those cases where the national law of the host country would be absolutely silent on
the issue in dispute’); and (the delegate from Costa Rica noting that ‘international law should only be
applied in the case of a lacuna in domestic law’); and again at 803 (the delegate from the Ivory Coast
sought to ‘restrict the application of international law to cases of obscurity or lacunae in the domestic
legislation of the State in which the investment was made’); at 804 (A. Broches explained that Article
42(1)[2] as it now stands would bring international law into play in case of a lacuna in domestic law);
Broches, fn. 77, at 226; Shihata and Parra, fn. 77, at 192; A. Masood, ‘Law Applicable in Arbitration of
Investment Disputes under the World Bank Convention (1973) 15(2) J. Indian L. Inst. 311, 323–4.
287 Klöckner v Cameroon, fn. 78, Decision on Annulment, at para. 60 (emphasis in original).
288 Amco Asia v Indonesia, fn. 87, Decision on Annulment, at para. 20.
289 Amco Asia v Indonesia, Resubmitted Case, Award, 5 June 1990, at para. 40.
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192 The Primary Applicability of National Law and the Role of International Law
when national law lacks rules on certain issues (so called complementary function).’290
And the ICSID Tribunal held in the more recent case of Ioan Micula, Viorel Micula,
S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania
(2008): ‘[P]ursuant to Article 42(2) of the [ICSID] Convention the Tribunal will
certainly apply residually international law if the other applicable rules are silent or
obscure or are eventually determined not to apply ratione temporis.’291
Reference to lacunae in the national law of the host state were also made in Southern
Pacific Properties (Middle East) Limited (SPP) v Arab Republic of Egypt (1992).292 The
respondent had argued that the parties had implicitly agreed to the application of
Egyptian law.293 The ICSID Tribunal, however, held that even if this was so, ‘such an
agreement cannot entirely exclude the direct applicability of international law in certain
situations’.294 This was because in its view, the law of Egypt, like all national legal
orders, ‘is not complete or exhaustive, and where a lacunae [sic] occurs it cannot be said
that there is agreement as to the application of a rule of law which, ex hypothesi, does not
exist’.295 In such situations, held the tribunal, there is absence of agreement on the
applicable law, and consequently, the second sentence of Article 42(1) would come into
play.296 It also found that ‘[i]f the municipal law does not provide a remedy, the denial
of any remedy whatsoever cannot be the final answer’.297 On this basis, the tribunal
found irrelevant the argument by Egypt that its officials had acted ultra vires:
Whether legal under Egyptian law or not, the acts in questions were the acts of Egyptian authorities
[ . . . ]. These acts, which are now alleged to have been in violation of the Egyptian municipal legal
systems, created expectations protected by established principles of international law. A determination
that these acts are null and void under municipal law would not resolve the ultimate question of
liability for damages suffered by the victim who relied on the acts. If the municipal law does not
provide a remedy, the denial of any remedy whatsoever cannot be the final answer.298

It is possible that a national law may have gaps. In such a situation, a differentiation
should be made between situations in which the parties have agreed to the sole
application of national law and those in which the tribunal may have recourse to
both national and international law, either because of a party agreement to that effect or
because the parties have not reached an agreement on the applicable law. In the latter
case, the need for international law to play a ‘gap-filling’ function is redundant in that
in such cases, the parties are generally entitled to invoke both national and international
law on the merits.299 It could also be that the parties themselves have specified a

290 Aucoven v Venezuela, fn. 126, Award, at para. 102.
291 Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.
R.L. v Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24
September 2008 (L. Lévy, S. Alexandrov, C.-D. Ehlermann, arbs), para. 151. See also Oil Field of
Texas, Inc. v Iran, National Iranian Oil Company, Oil Service Company of Iran (1982) 1 Iran-US C.T.
R. 347, 361–2 (with respect to the principle that a de facto successor to a defunct debtor corporation
could be liable for the debts of the latter, Judge Mosk pointed out that ‘there is no clear showing that
Iranian law specifically deals with the situation in issue’).
292 SPP v Egypt, fn. 37, ICSID Award.
293 See Chapter 3, Section 3.1.2 (on express and implied choice of law).
294 SPP v Egypt, fn. 37, ICSID Award, at para. 80.
295 SPP v Egypt.
296 SPP v Egypt. See also Shihata and Parra, fn. 77, at 203–4.
297 SPP v Egypt, fn. 37, ICSID Award, at para. 83.
298 SPP v Egypt, ICSID Award, at para. 83. See also at para. 168.
299 See Chapter 6, at Section 2.2 (on the international nature of the claim). Cf. V.C. Igbokwee,
‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty
Arbitrations’ (2006) 23(4) J. Int’l Arb. 267, 278.
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The Role of International Law when National Law Primarily Applies

193

complementary role for international law. Hence, the ICSID Tribunal in AGIP S.p.A. v
People’s Republic of the Congo (1979) correctly interpreted the choice-of-law clause
providing for the application of ‘the law of the Congo, supplemented if need be by any
principles of international law’ to signify that ‘recourse to principles of international law
can be made either to fill a lacuna in Congolese law, or to make any necessary additions
to it’.300
Where the parties have agreed to the sole application of national law, and that law
contains lacunae, we have seen that the ICSID Convention prohibits the finding of a
non liquet.301 The universality of this prohibition, however, is debated;302 and consequently, it is open to question whether under other arbitration rules tribunals would be
bound to resort to international law in a complementary fashion. In any event, it is clear
that arbitrators should not reach the conclusion that there are gaps in applicable
national law too swiftly. It is only for those particular parts of the dispute where a
true lacuna exists that a tribunal would be authorized to apply international law.303 In
this context, three considerations should be kept in mind.
First, the national law in question must be understood broadly to include both its
statutory and judicially illuminated law, as well as its own mechanisms for filling
lacunae.304 A tribunal would be required to apply these mechanisms as provided by
the applicable national law, before reaching any conclusion on possible lacunae.305
Thus, the ICSID Tribunal in Liberian Eastern Timber Corporation v Government of the
Republic of Liberia (1986) noted:
The primary source of Liberian law and the basic document from which all other sources of law
emanate is the Liberian Constitution; other sources include treaties, statutes and what may be
called ‘residual law’. [ . . . ] In the absence of any relevant constitutional or statutory provisions,

300 AGIP S.p.A. v People’s Republic of the Congo, ICSID Case No. ARB/77/1, Award, 30 November
1979 (J. Trolle, R.-J. Dupuy, F. Rouhani, arbs), para. 82. See also Svenska Petroleum Exploration AB v
Government of the Republic of Lithuania and AB Geonafta, Court of Appeals, Judgment, 13 November
2006 [2006] EWCA Civ 1529, para. 18; Himpurna California Energy Ltd v PT. (Persero) Perusahaan
Listruik Negara, Final Award, 4 May 1999 (A.A. de Fina, Setiawan SH, J. Paulsson, arbs), paras 37–43
(the tribunal noted that both parties had invoked international arbitral awards in their legal briefs; the
host state explicitly stating that it is would be ‘convenient’ to refer to international practice with respect
to matters ‘where Indonesian law is less detailed’. Since their submissions thus evidenced ‘a tacit
common position as to the permissibility of such references’, the tribunal decided to ‘follow the Parties’
example in connection with discrete points where international precedents appear useful’).
301 ICSID Convention (1965), art. 42(2). See also fn. 286.
302 See, e.g., Legality of the Threat or Use of Nuclear Weapons, Advisory Opinion, 8 July 1996,
Declaration by Judge Vereshchetin [1996] ICJ Rep. 226, 279–80.
303 See G.R. Delaume, ‘The Pyramids Stand—The Pharaohs Can Rest in Peace’ (1993) 8 ICSID
Rev.–FILJ 231, 248; O. Chuckwumerije, ‘International Law and Article 42 of the ICSID Convention’
(1997) 14 J. Int’l Arb. 79, 86; A.F.M. Maniruzzaman, ‘State Contracts in Contemporary International
Law: Monist versus Dualist Controversies’ (2001) 12(2) Eur. J. Int’l L. 309, 327–8.
304 See Reisman, fn. 77, at 594; Shihata and Parra, fn. 77, at 196. See also Blackaby et al., fn. 6, at
198 (a national system of law ‘is a complete legal system, designed to provide an answer to any legal
question that might be posed’); M.G. Kohen, ‘L’avis consultatif de la ClJ sur la Licéité de la menace ou
de l’emploi d’armes nucléaires et la fonction judiciaire’ (1997) 8(2) Eur. J. Int’l L. 336, 348.
305 A different conclusion may arguably be reached when national law requires the judge to fill the
gap ‘as he had himself to act as legislator’, or in some other subjective manner. See Aznar-Gomez, fn.
285, at 5; B. Cheng, General Principles of Law as Applied by International Courts and Tribunals
(London, Stevens, 1953), 16, 404–5. Cf. Shihata and Parra, fn. 77, at 196. But see Reisman, fn. 1,
at 4 (‘[S]ome civil codes explicitly authorize and require a judge confronted by a lacuna to act as if he or
she were the legislator rather than return a judgment of non liquet. An arbitrator applying that choice of
law of the parties would similarly have a derivative competence to ‘legislate’ pro hac vice but without
effects beyond that case’).
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194 The Primary Applicability of National Law and the Role of International Law
residual law will be applied. (See Culp, Sources of Liberian Law and Berlowitz, Affidavit of 6
September 1985 lodged by the claimant.)306

The tribunal in SPP v Egypt was therefore overstating the problem when it held that ‘all
municipal legal systems [are] not complete or exhaustive’, and that therefore Article 42
(1), second sentence, would always come into effect.307 This is even more true
considering the fact that the Egyptian Civil Code at the time provided that in the
absence of applicable legislative provisions, the judge ‘shall pronounce his sentence in
accordance with usage. In the absence of usage his sentence shall be issued according to
principles of Islamic Legislation. And in the absence of Islamic Legislative provisions
applicable thereto the judge shall rule in accordance with natural law provisions and
rules of justice.’308 Accordingly, the tribunal should have considered these principles
before finding lacunae in the applicable Egyptian law. In any event, the finding of a
lacuna would not justify the application of second sentence of Article 42(1), ICSID
Convention. If the parties are found to have agreed on the application of national law,
such a choice should be upheld. Otherwise, the party autonomy would lose its
meaning.309
Secondly, to the extent that the tribunal in SPP sought to distil a principle of general
validity, the statement that international law should apply in case the national legal
order does not contain a remedy, may be criticized on the basis that the absence of a
remedy is not necessarily a lacuna; rather, it may represent a decision not to regulate a
certain matter or to regulate it in a different way.310 Thus, the question is, according to
Reisman, ‘whether or not the law of the host State addresses the issue at hand. If it does
and, as part of its law, has decided not to grant remedies in such matters then there is no
remedy, as none is provided in the law that must be applied.’311 Indeed, it seems clear
that a tribunal would first make sure that the national law has failed to address the
particular issue so that there is a true lacuna. Only in such cases would an application of
international law be warranted. The fact that there is no remedy should not, in and of
itself, trigger any recourse to international law. In fact, it would seem incompatible with
the doctrine of party autonomy and/or host state sovereignty that a tribunal required to
apply national law would be authorized to create a legal remedy for a party when no
such remedy was intended to exist in the national legal order.
Accordingly, absent true lacunae in the national legal order, the gap-filling role of
international law should preferably be limited to ancillary questions of law; it should
not create causes of action as such. Otherwise, the claimant would get more than it
‘bargained for’ when agreeing to the application of national law. In this respect, a
parallel may be drawn to a comment by Cassese concerning contentious proceedings
before the International Court of Justice: ‘a non liquet cannot be envisaged, for, if the
court cannot find any rule or principle material to the claim made by the party, it must
306 Liberian Eastern Timber Corporation (LETCO) v Government of the Republic of Liberia, ICSID
Case No. ARB/83/2, Award, 31 March 1986, rectified 10 June 1986 (B.M. Cremades, J. Goncalves
Pereira, D.A. Redfern, arbs), 26 I.L.M. 647, 665 (1987).
307 SPP v Egypt, fn. 37, ICSID Award, at para. 80.
308 SPP v Egypt, Dissenting Opinion El Mahdi, at section III(3)(iv) (quoting from article 1(2) of the
Egyptian Civil Code enacted by Law 131 of 1948). See also at section III(3)(i); and at para. 75;
LIAMCO v Libya, fn. 217, Award, 20 I.L.M. 1, 35 (1977).
309 See G.R. Delaume, ‘L’affaire du Plateau des Pyramides et le CIRDI. Considérations sur le droit
applicable’ (1994) 1 Revue de l’Arbitrage 39, 48; Maniruzzaman, fn. 303, at 327.
310 See Reisman, fn. 77, at 595.
311 Reisman, at 594. Cf. SPP v Egypt, fn. 37, ICSID Award, Dissenting Opinion El Mahdi, at
section III(3)(v)(b); Aznar-Gomez, fn. 285, at 18.
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The Role of International Law when National Law Primarily Applies

195

simply dismiss the claim, on the strength of the principle that whatever is not
prohibited is allowed by law.’312
One example of such an ancillary question of law is the issue of interest; and also in
this context, we may refer to the ICSID Award in SPP v Egypt.313 More specifically, the
host state had invoked Article 226 of the Civil Code of Egypt which provided that ‘the
interest shall run from the date of the claim in Court’.314 The tribunal, however, held
that provision to be inapplicable to the case at hand; and ‘[g]iven this lacunae [sic]’, it
found it ‘legitimate to apply the logical and normal principle usually applied in cases of
expropriation, namely, that the dies a quo is the date on which the dispossession
effectively took place’.315 It appears that the tribunal found this principle to constitute
a general principle of law: ‘This principle is supported by the doctrine and the
jurisprudence of international tribunals. Moreover, many constitutions and national
laws concerning expropriation require that payment be made prior to or simultaneous
with the dispossession, thus supporting the dies a quo from the date of the taking
[ . . . ].’316
Thirdly, and finally, the important point should be made that nowadays, most
national legal systems are so advanced that the question of lacunae will rarely occur.
In the words of Raimondo: ‘Since a huge range of human and State activities have been
regulated, it is likely that nowadays national courts and tribunals resort to general
principles of law to fill gaps less frequently than in the past.’317

3.2.2. The supervening role of international law
When appropriate, arbitral tribunals may in a supervening, or trumping, fashion apply
international rules that conflict with the otherwise applicable national norms. This
function is more controversial, as international law does more than complementing the
relevant national law; rather, primarily applicable national norms are deliberately
disapplied or set aside in favour of international norms. As such, it has the potential
more directly to clash with the doctrine of party autonomy or host state sovereignty.
The supervening function of international law is partly linked to the debate referred
to in the introductory chapter concerning the monist and dualist controversy. In brief,
whereas dualist scholars consider the national and the international legal orders as
separate and distinct, the monist school views the national legal order as part of, or
subordinate to, the international legal order.318 Since international law is viewed as
hierarchically superior to national law, scholars with a monist view may therefore argue
that international law should always be applied to the detriment of conflicting national
legal provisions.319
312 Cassese, fn. 156, at 152. See also Legality of the Threat or Use of Nuclear Weapons, fn. 302,
Separate Opinion by Judge Guillaume, at para. 9; Aznar-Gomez, fn. 285, at 12–13.
313 SPP v Egypt, fn. 37, ICSID Award.
314 SPP v Egypt, at para. 232.
315 SPP v Egypt, at paras 233–234.
316 SPP v Egypt, at para. 234.
317 F.O. Raimondo, General Principles of Law in the Decisions of International Criminal Courts and
Tribunals (Leiden, Nijhoff, 2008), 7.
318 See Chapter 1, Section 1 (on the motivations for the study).
319 Cf. L.-C. Chen, An Introduction to Contemporary International Law (New Haven, CT, Yale
University Press, 1989), 3–4; P. Weil, ‘The State, the Foreign Investor, and International Law: The No
Longer Stormy Relationship of a Ménage à Trois’ (2000) 15(2) ICSID Rev.–FILJ 409; B. Conforti, ‘The
Role of the Judge in International Law’ (2007) 1(2) EJLS 7. Cf. Maniruzzaman, fn. 303, at 310–11. See
also Chapter 6, Section 2.3 (on the superior nature of international law vis-à-vis national law).
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196 The Primary Applicability of National Law and the Role of International Law
The application of international law in a supervening fashion has been particularly
advanced for internationalized tribunals on the basis that they operate in the international legal order. In this vein, Lauterpacht—in the infancy of the ICSID regime—
explored the possibility that:
[ . . . ] notwithstanding the silence of the first sentence of Art. 42(1) [ICSID Convention] on the
question of the applicability of international law, the competence of the tribunal to pass upon
such questions without express reference thereto in the relevant proper law clause is inherent in its
very status as a tribunal set up to dispose of issues under international investment contracts and in
deliberate substitution for alternative modes of international protection.320

He added that ‘there is at present no authority to support this view’; yet to him, this
view ‘appears to possess an intrinsic reasonableness which may serve to commend it to a
Tribunal taking a broad view of its competence’.321
As we will see later,322 other arguments that pertain to internationalized tribunals
relate first to the fact that the home state of the investor is precluded from bringing
a claim of diplomatic protection against the host State with regard to a dispute that
is settled by ICSID arbitration or the Iran–United States Claims Tribunal.323 Secondly,
importance is placed on the international obligation of all states parties to the ICSID
Convention to recognize and enforce ICSID awards as if they were judgments of their
own courts.324 Automatic recognition and enforcement of awards rendered by the
Iran–United States Claims Tribunal is also expected of states parties to the Algiers
Accords.325
One has also reasoned that disregard of international law would be inconsistent with
the ICSID Convention’s object and purpose, namely, ‘promoting an atmosphere of
mutual confidence and thus stimulating a larger flow of private international capital
into those countries which wish to attract it’.326
According to the present author, any supervening function of international law
should depend less on the national or international legal order in which the tribunal
operates, and more on whether there is a preexisting agreement for the sole application
of national law or not. This is first because the doctrine of party autonomy is a principle
of fundamental importance for both territorialized and internationalized tribunals.327
Consequently, an agreement on the application of national law should generally be
respected for both types of tribunals, the applicable national norm only being set aside
in case it conflicts with a fundamental norm of international law.
Secondly, when the parties have not reached an agreement on the applicable law or
they have agreed to the application of both national and international law, the latter
320 E. Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment
Disputes’ in Recueil d’Etudes de Droit International en Hommage à Paul Guggenheim (Genève, Tribune,
1968), 642, 658.
321 Lauterpacht, 642, 658. See also J. Cherian, Investment Contracts and Arbitration: The World
Bank Convention on the Settlement of Investment Disputes (Leyden, Sijthoff, 1975), 89; Schreuer et al.,
fn. 5, at 566.
322 See fn. 434 (on the decision on annulment in the case Amco Asia v Indonesia).
323 See ICSID Convention (1965), art. 27; Declaration of the Government of the Democratic and
Popular Republic of Algeria (General Declaration), 18 January 1981, General Principle B.
324 ICSID Convention (1965), art. 54(1). See also Chapter 2, Section 4.2.2 (on the states parties’
international obligation to comply with and enforce awards rendered by ICSID tribunals).
325 See Chapter 2, Section 4.1.2 (on the states parties’ international obligation to enforce awards
rendered by the Iran–United States Claims Tribunal).
326 Schreuer et al., fn. 5, at 586 (referring to the Report of the Executive Directors, 1 ICSID
Rep. 25, para. 9).
327 See Chapter 3, Section 3.1 (on party agreement on the applicable law).
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The Role of International Law when National Law Primarily Applies

197

source can often be invoked as a separate cause of action before both territorialized and
internationalized tribunals;328 that is, where the arbitration agreement is broad enough
to encompass claims of both a national and international nature.329 In these cases, it is
therefore not entirely correct to refer to the ‘supervening’ role of international law;
rather, international law would apply as the proper norm to the claim at hand, due to its
international nature.

3.2.2.1. The parties have agreed to the sole application of national law
Arbitral tribunals have on occasion applied, or in dicta supported the application of,
international law in a supervening manner despite an agreement by the parties to the
sole application of national law. One example is Aucoven v Venezuela.330 The concession agreement at hand provided that it ‘shall be governed by [ . . . ] [Decree] Law Nr.
138 [ . . . ] Executive Decree Nr. 502 [ . . . ] and the provisions of any other laws,
regulations, or other documents as may be applicable’.331 Further, it ‘shall be governed
by [Decree Law 138]; [Executive Decree Nr. 502]; by the Clauses and Annexes [of the
Concession Agreement]; by the terms set forth in the Bid submitted by [Aucoven]; and
by the conditions set forth in the Bid Documents’.332 The tribunal held that except for
matters covered by these Venezuelan decrees, it had to look to the second sentence of
Article 42(1) of the ICSID Convention.333
One of the investor’s arguments was that Venezuela had breached the concession
agreement by initiating proceedings before the Venezuelan Supreme Court of Justice.
On this point, Venezuela invoked Decree Law Nr. 138, which reserved any issues
related to termination of the concession agreement to the Venezuelan courts.334 While
acknowledging that this Decree ‘governs the Concession Agreement by virtue of the
parties’ choice of law’,335 the tribunal refuted Venezuela’s position, referring to Clause
64 of the concession agreement according to which the parties had agreed to submit all
disputes arising out the agreement to ICSID arbitration. Holding Venezuela in breach
of agreement on this point,336 it relied on the
[ . . . ] well accepted practice that the national law governing by virtue of a choice of law agreement
(pursuant to Article 42(1) first sentence of the ICSID Convention) is subject to correction by
international law in the same manner as the application of the host state law failing an agreement
(under the second sentence of the same treaty provision).337

328 See Chapter 6, Section 2.2 (on the international nature of the claim). Cf. Igbokwee, fn. 299, at
278.
329 See Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims).
330 Aucoven v Venezuela, fn. 126, Award.
331 Aucoven v Venezuela, at para. 94.
332 Aucoven v Venezuela, at para. 94.
333 Aucoven v Venezuela, at para. 100. Cf. ICSID Convention (1965), art. 42(1), second sentence
(in the absence of party agreement on the applicable law, ICSID tribunals shall apply ‘the law of the
Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of
international law as may be applicable’).
334 Aucoven v Venezuela, at para. 200.
335 Aucoven v Venezuela, at para. 206.
336 Aucoven v Venezuela, at paras 204–205.
337 Aucoven v Venezuela, at para. 207 (emphasis added). But see Schreuer et al., fn. 5, at 572
(‘Despite the relevance of international law even where it is not part of the law chosen by the parties
[ . . . ], its position is somewhat different and clearly stronger under the residual rule where there is no
agreed choice of law [ . . . ]’).
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198 The Primary Applicability of National Law and the Role of International Law
As such, it concluded that ‘Venezuela’s defense based on national law is no bar to
Aucoven’s claim of a breach of Clause 64’.338
While this decision may be justified on the basis that it related to the jurisdiction of the
tribunal, and more particularly, the ‘well settled principle of international law that a state
cannot rely on a provision of its domestic law to defeat its consent to arbitration’,339 it is
submitted that the ICSID Tribunal may have adopted a too unnuanced view with respect
to the role of international law vis-à-vis national law. Rather, the supervening function of
international law should be interpreted restrictively where the parties have agreed to the
sole application of national law. In the words of Higgins, if, in the bargaining process, the
private party has been unable to reach an agreement on the application of international
law, ‘it seems doubtful that international arbitrators should remedy that which one of the
negotiating parties was unable to achieve’.340 Reisman phrases it this way:
[W]hen international law has not been adopted as governing law by the parties to an international
commercial transaction nor directly incorporated and self-executing in the system of national law
which was selected, would it not be inappropriate to allow a norm of international law to override
the applicable norm of the national law selected by the parties on the ground that the international norm is ‘different’ and ‘higher?’ The issue does not turn on grand theories of monism or
dualism but on common sense. That the norms are different is obvious. The predicate of the
selection of governing law—the whole idea of bothering to make a selection—is that different
legal systems address particular legal and factual issues differently. And, as for the relative ‘spatial’
positions of different systems of law, when parties have the power to select the law which will
govern their transaction, whether the law which they select is ‘higher’ or ‘lower’ is irrelevant.341

The pacta sunt servanda342 based argument that national law should govern when the
parties have so agreed is supported by comments made during and after the drafting of
the ICSID Convention. In reply to concerns indicated by some state representatives
regarding the application of international law under Article 42(1), Chairman Broches
pointed out that ‘it was for the parties to [ . . . ] exclude the application of international
law’.343 Further, he stated, a state ‘could well provide that the agreement would be

338 Aucoven v Venezuela, at para. 207.
339 Aucoven v Venezuela (that is, the issue was also related to the question of the ICSID Tribunal’s
jurisdiction, a matter of international law). Cf. J. Paulsson, Unlawful Laws and the Authority of
International Tribunals (Lalive Lecture, Geneva, 27 May 2009), (2008) 23(2) ICSID Rev.-FILJ 215,
223.
340 Higgins, fn. 213, at 141. But see also at 141 (‘At the same time, the purpose of the reference to
international arbitration certainly merits examination. Was it because the local courts are not trusted or
because a different system of law was to be applied?)
341 Reisman, fn. 1, at 11. See also I. Brownlie, ‘Some Questions Concerning the Applicable Law in
International Tribunals’ in Theory of International Law at the Threshold of the 21st Century: Essays in
Honour of Krzysztof (J. Makarczyk, ed., The Hague, Kluwer Law International, 1996), 763, 767;
Masood, fn. 286, at 319. But see P. Bernardini, ‘The Law Applied by International Arbitrators to State
Contracts’ in Law of International Business and Dispute Settlement in the 21st Century (R. Briner et al.,
eds, Köln, Heymann, 2001), 51, 65–6 (‘[T]he arbitral system created by the Washington Convention
[ . . . ] is so integrated into public international law as to make it unthinkable that a State law would be
applied by an ICSID tribunal if contrary to a rule of public international law. It must therefore be
presumed that when the parties have made reference to a particular State law without further
qualifications they have assumed the conformity of such law with the rules of public international law’).
342 Cf. S. Wittich, ‘The Limits of Party Autonomy in Investment Arbitration’ in Investment and
Commercial Arbitration: Similarities and Divergences (C. Knahr, ed., Utrecht, Eleven International
2010), 47, 51 (‘In international law, the concept of party autonomy is also said to be rooted in the
generally accepted principle of pacta sunt servanda’ [references omitted]).
343 History of the ICSID Convention, fn. 73, Vol. II-1, p. 267.
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The Role of International Law when National Law Primarily Applies

199

governed by its own laws as they prevailed from time to time’, and in such case, ‘no
other law could be applied and no complaint could be made of changes in that law’.344
Moreover, not even international courts and tribunals will automatically apply international law to a dispute where the states parties have specifically agreed to the application
of other sources, including national law. International courts will do so, however, where
the national norm in question conflicts with a fundamental norm of international law. As
stated by the tribunal in the ‘OSPAR’ Arbitration (2003) between Ireland and the United
Kingdom, ‘[a]s long as it is not inconsistent with jus cogens,345 Parties may also instruct a
tribunal to apply a lex specialis that is not part of general international law at the time.’346
As concerns territorialized tribunals, hierarchically superior international norms gain
relevance in light of the possibility that the seat of the tribunal and the state called upon
to enforce the award may—by virtue of its national arbitration law and conventions
such as the (New York) Convention on the Recognition and Enforcement of Foreign
Arbitral Awards—annul or refuse to enforce awards that conflict with ‘international
public policy’.347 This concept includes jus cogens norms and the state’s duty to respect
its international obligations such as a United Nations resolution imposing sanctions.348
Thus, in order to ensure the enforceability of awards, territorialized tribunals are
advised to apply—even ex officio349—such norms of a fundamental nature even if
they contradict the otherwise applicable national norms.
There are other reasons that have been or could be advanced in favour of tribunals
heeding international norms of a fundamental nature. First, it has been said that arbitrators
have certain responsibilities vis-à-vis a community extending beyond the parties to the
dispute. Referring, inter alia, to decisions of the UN Security Council, Blessing notes:
[T]he international arbitrator is not simply the ‘obedient servant’ of the parties, and he is not only
called upon to pass a decision in respect of the inter-partes contractual interests. His responsibility
is not solely vis-à-vis the parties (as had too frequently be maintained), but goes beyond: The
arbitrator of our times, and certainly of the times to come, has to apply a broader perspective, a
perspective which is not solely confined by the interests of the parties and will have to take into
account the general notions and requirements of the transnational public policy.350

344 History of the ICSID Convention, at 502. See also at 571; Masood, fn. 286, at 319;
D. Bettems, Les contrats entre Etats et enterprises étrangères (Le Mont-sur-Lausanne, Méta-Editions,
1989), 76, 79; Maniruzzaman, fn. 303, at 324–5.
345 See Chapter 3, Section 3.3.2 (on peremptory norms of international law) (footnote not in
original).
346 Ireland v United Kingdom (‘OSPAR’ Arbitration), Final Award, 2 July 2003, at para. 100. Cf.
D.W. Bowett, ‘Contemporary Development in Legal Techniques in the Settlement of Disputes’
(1983) 180 Recueil des Cours 169, 181–2.
347 See Chapter 2, Sections 3.2.1.2 (on annulment as an exercise of control); and at Section 3.2.3
(on the (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards);
Chapter 3, Section 3.3 (on fundamental national and international norms).
348 See ILA Public Policy Resolution, art. 1(d)–(e); ILA Final Report, at para. 31. See also
Chapter 3, Section 3.3.2 (on peremptory norms of international law).
349 See M. Blessing, Introduction to Arbitration: Swiss and International Perspectives (Basel, Helbing
und Lichtenhahn, 1999), 270–1; G. Nerdrum, ‘A Lack of Party Agreement’ in The Swedish Arbitration
Act of 1999, Five Years On: A Critical Review of Strengths and Weaknesses (L. Heuman and S. Jarvin, eds,
New York, Jurisnet, 2006). Cf. Joined Cases C-430/93 and C-431/93, Van Schijndel v Stichting
Pensioenfonds voor Fysiotherapeuten [1995] ECR 4705, Opinion of AG Jacobs, 15 June 1995, at para.
35. But see Blessing, fn. 349, at 271 (‘On the other hand, it would certainly not be justified to expect
from an arbitral tribunal to carry out sua sponte detailed investigations where particular “indicators” are
absent’).
350 Blessing, fn. 349, at 270 (emphasis in original). On transnational public policy, see Chapter 3,
Section 3.3.1 (on public policy and mandatory rules).
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200 The Primary Applicability of National Law and the Role of International Law
A second ground that should be mentioned in favour of a corrective role of international law vis-à-vis national law is articulated by Cairns:
[T]ransnational public policy is an expression of international arbitral practice, implicitly
accepted by any party to an international arbitration agreement. The juridical basis for the
application of transnational public policy is therefore the agreement of the parties, and the
jurisdictional framework of international arbitration to which the arbitration agreement provides
access. Transnational public policy therefore joins the terms of the contract between the parties,
trade usages, and perhaps lex mercatoria, as part of the applicable law in the arbitration that in
certain circumstances will prevail over the applicable national law(s) expressly chosen by the
parties.351

Admittedly, the strength of these grounds is weakened by the controversy concerning
the existence of ‘transnational public policy’;352 and further, it is difficult to identify the
ultimate source of the ‘responsibility’ territorialized tribunals have toward the greater
community.353
Be that as it may, we suggest a third basis for the application of fundamental
international norms in arbitration set up pursuant to investment treaties, specifically.
This argument is based on the theory that arbitration agreements that stem from an
offer to arbitrate included in a treaty, in the sense of ‘arbitration without privity’,354 are
governed by international law. Support for this proposition is found in the judgment by
the English Court of Appeal in Occidental Exploration and Production Company v.
Republic of Ecuador (2005).355 On the question of which law was applicable to the
arbitration agreement reached between the foreign investor and the host state on the
basis of the offer of the latter in a bilateral investment treaty with the investor’s home
state, the Court rightly concluded that ‘the agreement to arbitrate which results by
following the Treaty route is not itself a treaty’.356 Applying English choice-of-law
rules, it nevertheless recognized—albeit in dicta—that ‘on our preferred view, the
present agreement to arbitrate was subject to international law’.357 Where an arbitration agreement is governed by international law,358 it follows that the choice-of-law
clause as set out in the investment treaty is also governed by international law.359 On
351 D.J.A. Cairns, ‘Transnational Public Policy and the Internal Law of State Parties’ (September
2007) 10 Arab J. Arb. 27–8 (references omitted).
352 See Chapter 3, Section 3.3.1 (on public policy and mandatory rules).
353 See generally S. Wilske and M. Raible, ‘The Arbitrator as Guardian of International Policy?
Should Arbitrators Go Beyond Solving Legal Issues?’, in The Future of Investment Arbitration
(C.A. Rogers and R.P. Alford, eds, Oxford, Oxford University Press, 2009), 249. See also
Chapter 2, Section 3.4 (interim conclusions).
354 See Chapter 2, Section 2 (features of the arbitral process); Chapter 4, Section 3.2 (on arbitration
without privity).
355 Occidental Exploration and Production Company v Republic of Ecuador, Judgment of the Court of
Appeal regarding non-justiciability of challenge to arbitral award, fn. 226.
356 Occidental Exploration, at para. 33. Cf. C. Schreuer, ‘Consent to Arbitration’ in Oxford
Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University
Press, 2008), 830, 864.
357 Occidental Exploration, at paras 33–36, 41. Cf. J. Crawford, ‘Treaty and Contract in Investment
Arbitration’ (2008) 24(3) Arb. Int’l 351, 361. See also RosInvest v Russian Federation, SCC Case No.
Arbitration V 079/2005, Award on Jurisdiction, October 2007 (K.-H. Böckstiegel, Lord Steyn,
F. Berman, arbs), para. 33. But see V. Heiskanen, ‘Forbidding Dépecage: Law Governing Investment
Treaty Arbitration’ (2009) 32 Suffolk Transnat’l L. Rev. 367, 391–3.
358 For the law governing arbitration agreements, see Chapter 4, Section 3 (on the scope of the
arbitration agreement: national and/or international claims); Chapter 1, Section 2 (on the scope of and
terminology used in the study).
359 See Chapter 3, Section 3.1.2 (on express and implied choice of law) (the provision on applicable
law forms part of the host state’s offer to arbitrate, as set out in the relevant treaty).
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The Role of International Law when National Law Primarily Applies

201

this basis, it could be argued that the parties would be prevented from agreeing on a
choice of law that could result in the violation of fundamental international norms.360
While it is unclear whether it was motivated on these grounds, this interpretation is
supported by the UNCITRAL Tribunal in Methanex v United States (2005), set up
pursuant to the North American Free Trade Agreement (NAFTA).361 In its view, it
had a ‘duty to apply imperative principles of law or jus cogens and not to give effect to
parties’ choices of law that are inconsistent with such principles’.362
The conclusion that fundamental international norms may apply in a supervening
fashion vis-à-vis conflicting national norms is especially warranted for internationalized
tribunals, also in cases not involving investment treaties. As explained in Chapter 3, this
is because these tribunals ought to respect the ordre public of the international legal
order in which they operate.363 This concept would necessarily include jus cogens, the
disregard of which could lead to an annulment or non-enforcement of awards, as such
norms are peremptory vis-à-vis any other international obligation states may have
under the ICSID Convention and the Algiers Accords.364 However, the scope of
potentially supervening norms has also been held and argued to be of a broader nature.
As an ICSID tribunal stated in a case in which the parties had agreed to the application
of English and Kenyan law: ‘If it had been necessary [ . . . ], the Tribunal would [ . . . ]
have been minded to decline in the present case to recognize any local custom in Kenya
purporting to validate bribery committed by the Claimant in violation of international
public policy.’365 Considering that ‘international public policy’ is a national law
concept,366 the tribunal might have had in mind what others have referred to as
‘truly international public policy’ or ‘transnational public policy’.367 In any event, we
agree with the conclusion of the tribunal, and of that of several scholars, that ICSID
tribunals should heed international norms of a fundamental nature, and that these
extend beyond the relatively restricted group of jus cogens norms. Schreuer, for
instance, refers to the concept of ‘the public policy of the international community’,
which, to him, ‘would include but not be restricted to peremptory rules of international law. Examples are the prohibition of slavery, piracy, drug trade and
genocide, the protection of basic principles of human rights and the prohibition to
wage an aggressive war.’368
Clearly, there exists a tension between the rule of party autonomy and the legitimate
desire to hold the host state to its international commitments. While the balance is
delicate to make,369 any emphasis on the latter consideration in the face of an
agreement for the application of national law has the potential to illustrate the inherent
360 Cf. Bowett, fn. 346, at 181–2.
361 Methanex v United States, Final Award, 3 August 2005 (J.W.F. Rowley, W.M. Reisman,
V.V. Veeder, arbs).
362 Methanex v US, at para. 24. See also Chapter 2, Section 3.1 (on the delocalization theory).
363 See Chapter 3, Section 3.3 (on fundamental national and international norms).
364 See Chapter 3, Section 3.3.
365 World Duty Free v Kenya, fn. 27, at para. 172. See also at para. 158.
366 See Chapter 3, Section 3.3.1 (on public policy and mandatory rules).
367 See World Duty Free v Kenya, at para. 172.
368 Schreuer et al., fn. 5, at 566. See also at 583; Reisman, fn. 77, at 601; A. Broches, ‘Convention
on the Settlement of Investment Disputes Between States and Nationals of Other States of 1965:
Explanatory Notes and Survey of its Application’ (1993) 18 Y.B. Com. Arb. 627, 669; Broches, fn.
190, at 392; I. Alvik, Contracting with Sovereignty (Oxford, Hart Publishing, 2011), 90; Maniruzzaman, fn. 303, at 324.
369 Cf. Broches, fn. 77, at 227 (‘[T]he question is whether the Tribunal can apply international law
where international law is not included in the rules of law agreed by the parties pursuant to the first
sentence of Article 42(1). This is a difficult question on which I hesitate to express a firm opinion.’)
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202 The Primary Applicability of National Law and the Role of International Law
value-laden and ‘slippery slope’ concept of ordre public,370 at least where it goes beyond
jus cogens. To our mind, for arbitration to continue to thrive as a method of dispute
resolution in the area of foreign investment, it needs the support of host states; and this
is not ensured by arbitrators overzealously applying international law to protect investors
in situations in which the latter have in fact agreed to the application of national law.
At any rate, it is clear that the supervening role of international law vis-à-vis national
law should be limited to cases of true conflicts.371 Thus, where there is a party
agreement in favour of national law, one should first establish whether that national
legal system contains the same standard as the one protected by international public
policy. According to Reisman, this is often the case:
[D]oes international commercial arbitration really need such a slippery and malleable concept
in order to protect its virtue? After all, what practice before an international commercial
arbitration tribunal that has been alleged to violate an international or transnational public
policy was permitted by the national governing law? Is there a national legal system that does
not prohibit bribery of public officials? A national legal system that does not prohibit
slavery . . . 372

In a thought-provoking lecture, Paulsson similarly suggests limiting the corrective role
of international law by insisting on a broad interpretation of the concept of national
law: ‘we are, it seems, too quick to consider the corrective effect of international law on
national law before giving full scope for national law to correct itself.’373 To him,
[a] purported mandatory law—like any law—is not necessarily effective even on the national
level. In all legal systems worthy of the name, courts may annul or disregard laws which violate
the rule of law—often by their constitutional irregularity. International courts and tribunals must
have at least equally great authority if their duty to apply the national law is to have its full
meaning.374

Thus, he reasons with persuasion, if a decree has been enacted in violation of fundamental laws of a country, ‘an international tribunal empowered to apply that national
law should not give effect to [that decree]—and is under no obligation to wait for the
national courts (if ever) to make such a determination; the international tribunal’s
authority to determine and apply that national law is plenary.’375 In other words, ‘[t]he
international tribunal is empowered to determine national law whenever it has the
mandate to apply it. When the tribunal does so, it is proper for it to refuse to recognise
370 Cf. Richardson v Melish (1824) Bing. 228 [1824–1834] All ER 258 (public policy is ‘a very
unruly horse, and once you get astride it you never know where it will carry you. It may lead you from
sound law. It is never argued at all, but where other points fail.’)
371 On the definition of ‘conflict’, see Chapter 1, Section 2 (on the scope of and terminology
used in the study). See also Gami Investments, Inc. v Mexico, Final Award, 15 November 2004
(W.M. Reisman, J.L. Muró, J. Paulsson, arbs), para. 41 (‘International tribunals are properly reluctant
to conclude that national law contradicts international law’).
372 Reisman, fn. 1, at 17. See also M. Pryles, ‘Reflections on Transnational Public Policy’ (2007)
24(1) J. Int’l Arb. 1, 6; International Law Association, Committee on International Law on Foreign
Investment, Report (Rio de Janeiro Conference, 2008), at 4 (‘Public international law accords
preference to fundamental human rights and rules related to international peace and security (via the
concept of jus cogens and article 103 of the UN Charter) but investment tribunals have hardly dealt
with such superior norms of international law’). But see Schreuer et al., fn. 5, at 566 (‘The application
of international public policy to investment contracts is less far-fetched than might appear at first
sight’); M. Hirsch, ‘Interactions Between Investment and Non-Investment Obligations’ in The Oxford
Handbook of International Investment Law (P. Muchlinski et al., eds, Oxford, Oxford University Press,
2008), 155, 159.
373 Paulsson, fn. 339, at 218.
374 Paulsson, at 224 (emphasis in original).
375 Paulsson, at 224.
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The Role of International Law when National Law Primarily Applies

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unlawful laws.’376 We cannot help drawing a parallel here with Scelle’s theory of ‘role
splitting’, according to which ‘les agents dotés d’une compétence institutionelle ou
investis par un ordre juridique utilisent leur capacité “fonctionelle” telle qu’elle est
organisée dans l’ordre juridique qui les a instituées mais pour assurer l’efficacité des
normes d’un autre ordre juridique privé des organes nécessaires à sa réalisation.’ [the
agents having an institutional competence or a competence invested by a legal order use
their ‘functional’ capacity as regulated by the legal order that instituted them but in
order to assure the effectiveness of norms belonging to a different legal order lacking the
necessary organs to realize them.]377 While the observation has frequently been made
that national courts can be seen as agents of the international legal order when they
apply and give effect to international law,378 Paulsson’s approach hints at a converse
form of ‘role splitting’ for investment tribunals: as they apply and interpret national
law, they take on the role of organs of the relevant national legal order.
A separate query in respect of the possible supervening role of international law
concerns the special role of European Union law. In this context, reference should be
had to the judgment by the European Court of Justice (ECJ) in Eco Swiss China Time
Ltd v Benetton International NV (1999).379 In that case, the Court gave a preliminary
ruling on the question whether a Dutch court was required, by virtue of the membership of the Netherlands to the European Community (EC), to annul an award rendered
on its territory when the arbitrators failed to consider, on their own motion, EC
competition law.380 The ECJ answered in the affirmative; and held that when national
rules of procedure require a national court to grant an application for annulment of an
award for failure to observe national rules of public policy, it must grant such an
application where it is founded on a failure to comply with Article 85 of the EC Treaty
(now Article 101 TFEU).381 In fact, stated the Court, this provision ‘may be regarded as
a matter of public policy within the meaning of the New York Convention’.382
It can therefore be concluded that territorialized tribunals seated in EU Member States
may therefore need to consider particular EU norms even in situations in which the parties
have agreed to the application of a law different from that of a non-EU Member State, and
regardless of whether such norms have been invoked by the parties. Burgstaller states:
There is no reason why [the Eco Swiss] principle, which would appear to extend to enforcement
and execution of awards, should not be applied if another violation of directly applicable EC law
is at issue. There is also no reason why this principle should not be applied in the context of
376 Paulsson, ay 224. But see P. Mayer, ‘L’arbitre international et la hiérarchie des normes’ (2011) 2
Revue de l’Arbitrage 361, 384 (‘[L]orsque la contrariété de la norme inférieure à la norme supérieure ne
peut être sanctionnée par aucune autorité, notamment judiciaire, du pays en cause, ou ne pourrait l’être
que par une autorité spéciale (autre que le juge) qui n’a pas encore été saisie et que l’arbitre ne pourrait
pas saisir lui-même, l’arbitre ne devrait pas refuser d’appliquer la norme inférieure’) [When the
incompatibility of the lower norm with the higher norm cannot be sanctioned by any authority, of
the country in question, in particular the judiciary, or could be sanctioned only by a special authority
(other than the judge) who has not yet been seized and whom the arbitrator could not seize him- or
herself, the arbitrator should not refuse to apply the lower standard.]
377 G. Scelle, ‘Le phénomène juridique du dédoublement fonctionnel’ in Rechtfragen der Internationalen Organisation, Festschrift für Hans Weberg zu seinem 70. Geburtstag (W. Schätzel and H.
J. Schlochauer, eds, 1956), 324, 331. See also Scelle, II Précis de droit des gens: principes et systématique
(Paris, Recueil Sirey, 1934), 10–12. Cf. A. Cassese, ‘Remarks on Scelle’s Theory of “Role Splitting”
(dédoublement fonctionnel) in International Law’ (1990) 1(1) Eur. J. Int’l L. 210.
378 See generally Y. Shany, ‘National Courts as International Actors: Jurisdictional Implications’
(29 July 2009) Rivista di diritto pubblico italiano, comunitario e comparato.
379 Case C-126/97, Eco Swiss China Time Ltd v Benetton International NV [1999] ECR I-3055.
380 Eco Swiss v Benetton.
381 Eco Swiss v Benetton, at para. 37.
382 Eco Swiss v Benetton, at para. 39.
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204 The Primary Applicability of National Law and the Role of International Law
investor–state arbitration outside the framework of the International Centre for Settlement of
Investment Disputes (ICSID) Convention.383

As stated, the same conclusion is at first sight not warranted for ICSID tribunals. This is
because they are insulated from the application of the law of the tribunal’s seat.384 It is
posited, however, that in certain situations also ICSID tribunals may need to consider
the potentially supervening quality of EU norms, as a failure to do so might jeopardize
the enforcement of the award. EU Member States have an international duty, by virtue
of Article 4(3) TFEU (ex Article 10 TEC), to cooperate fully with the EU.385 Another
provision of possible relevance is Article 351 TFEU (ex Article 307 TEC), which
obliges Member States to take ‘all appropriate steps to eliminate the incompatibilities’
between the EU Treaty and other treaties that the Member States have entered into
prior to their accession to the European Union.386 Accordingly, when a national court
in an EU Member State is faced with an award disregarding (fundamental rules of) EU
law, it could be seen to be facing a conflict between its obligation to respect the
international validity of the awards on the one hand, and obligations vis-à-vis the
European Union on the other.
While EU law does not qualify as jus cogens, the interpretation by what is now the
Court of Justice of the European Union (CJEU) of Articles 4(3)387 and 351388 TFEU
suggests that this conflict might possibly need to be solved in favour of EU law; in any
case from the point of view of the CJEU.389 While noting that ‘[w]ithin the framework

383 M. Burgstaller, ‘European Law and Investment Treaties’ (2009) 26(2) J. Int’l Arb. 181, 196
[references omitted]. Cf. H. Van Houtte, ‘The Application by Arbitrators of Articles 81 & 82 and their
Relationship with the European Commission’ in European Business Law Review Special Edition:
Arbitrating Competition Law Issues (G. Blanke, ed., Alphen aan den Rijnn, Kluwer Law International,
2008), 63, <http://centers.law.nyu.edu/jmtoc/article.cfm?id=2147444263> (last visited 1 May 2012);
International Law Association, Committee on International Commercial Arbitration, Final Report on
Public Policy as a Bar to Enforcement of International Arbitral Awards, para. 30, New Delhi Conference
(2002); N. Shelkoplyas, The Application of EC Law in Arbitration Proceedings (Nijmegen, Wolf Legal
Publishers (WLP), 2003). Cf. Marketing Displays International Inc. v VR, Court of The Hague, March
24, 2005. But see Thales Air Defence B.V v GIE Euromissiles, EADS France and EADS Deutschland
GmbH, CA Paris, 18 November 2004 (an arbitrator is not considered to have breached his/her prima
facie duty to raise competition law issues ex officio if the competition law issues concerned were so
intricate that they could not be readily detected by the arbitrator at the time of rendering the award in
question); The Swedish Arbitration Act of 1999, Five Years on: A Critical Review of Strengths and
Weaknesses, at Chapter 8 (Roundtable Discussion: Applicable Law) (L. Heuman and S. Jarvin, eds,
New York, JurisNet, 2006) (Comment by C. Zettermarck).
384 See Chapter 2, Section 4.2.1 (on the tribunals’ insulation from the law of the seat). See also
C. Tietje, ‘The Applicability of the Energy Charter Treaty in ICSID Arbitration of EU Nationals vs.
EU Member States’ TDM 1 (2009); E. Levine, ‘Amicus Curiae in International Investment Arbitration’ (2011) 29 Berkeley J. Int’l L. 101.
385 TFEU, art. 4(3) (‘Pursuant to the principle of sincere cooperation, the Union and the Member
States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties’).
386 TFEU, art. 351 (‘The rights and obligations arising from agreements concluded before 1 January
1958 or, for acceding States, before the date of their accession, between one or more Member States on
the one hand, and one or more third countries on the other, shall not be affected by the provisions of
the Treaties. To the extent that such agreements are not compatible with the Treaties, the Member
State or States concerned shall take all appropriate steps to eliminate the incompatibilities established.
Member States shall, where necessary, assist each other to this end and shall, where appropriate, adopt a
common attitude [ . . . ]’).
387 See, e.g., Case C-459/03, Commission v Ireland [2006] ECR I-4635, at para. 174.
388 See, e.g., Joined Cases C-402/05 P and C-415/05, P Kadi and Al Barakaat [2008] ECR II3649; Case C-205/06, Commission v Austria and Case C-249/06, Commission v Sweden [2009] ECR I0000. See also Eastern Sugar B.V. v Czech Republic, SCC No. 088/2004, Partial Award, 27 March
2007 (R. Volterra, P.A. Karrer, E. Gaillard, arbs), para. 119. Cf. Burgstaller, fn. 383, at 186.
389 Cf. P. Craig and G. de Búrca, EU Law: Text, Cases and Materials (Oxford University Press,
2003), 419–20. See also C.W.A. Timmermans, ‘The Basic Principles’ in The Law of the European
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The Role of International Law when National Law Primarily Applies

205

of the ICSID Convention, the issues are not as clear-cut’, Burgstaller therefore predicts
that Member States’ courts might rule against any given enforcement request following
an ICSID proceeding in order to give full effect to EU law, regardless of the terms of the
ICSID Convention.390 Indeed, he states, ‘it would be surprising if Member States’
courts would not examine such awards with regard to their conformity with EU law’,
and consequently, a decision by such a court ‘may affect the practical opportunities for
a prevailing party to enforce an award’.391
One possibility for national courts of EU Member States when faced with such a
potential conflict is to request a preliminary ruling from CJEU in accordance with
Article 267 TFEU (ex Article 234 TEC).392 This was indeed a strategy applied by the
Slovak Republic following a decision in favour of jurisdiction by the UNCITRAL
Tribunal seated in Germany in Eureko B.V. v Slovak Republic (2010).393 Yet, its request
for annulment and a preliminary ruling was denied by the Frankfurt Higher Regional
Court.394 Contrary to the arguments presented by the Slovak Republic, and in many
respects supported by the Commission,395 the Court found that there was no conflict
between the BIT at hand and EU law.396 It noted that arbitration is an EU-wide
recognized remedy of dispute resolution giving legal protection in principle equal to
that of state courts, and the CJEU does not enjoy a monopoly of interpretation in
relation to issues involving EU law.397 Further the Frankfurt court held that it was not
obligated to ask the CJEU for a preliminary ruling because such rulings are only given
abstract legal issues relating to the interpretation of EU law and its validity, and also
because the Court had no doubts regarding the scope of Article 344 TFEU.398
An additional reason why national courts may have less occasion to face a possible
conflict between national and European Union law is reflected in the ruling by the ICSID
Tribunal in AES Summit Generation Limited and AES-Tisza Erömü Kft. v Hungary
(2010).399 Hungary argued that EU competition law played an important part of the case
and should be considered as part of the applicable law, or at least be taken into account
in relation to the Energy Charter Treaty providing jurisdiction for the arbitration.400
The tribunal solved any potential clash between EU and ECT rules by stating that the
respondent’s acts or measures would be assessed under the ECT as the applicable law, and
that EU law would be considered and taken into account as a relevant fact.401 The arbitrators
reasoned:
Union and the European Communities (P.J.G. Kapteyn and P. VerLoren van Themaat, eds, Alphen aan
den Rijn, Kluwer Law International Law, 2008), 115, 153–6.
390 M. Burgstaller, ‘European Law Challenges to Investment Arbitration’ in The Backlash Against
Investment Arbitration (A.Waibel et al., eds, Austin, Texas, Wolters Kluwer Law and Business, 2010),
455, 473 (references omitted). See also Burgstaller, fn. 383, at 196, at fn. 80.
391 Burgstaller, fn. 390, at 473 (references omitted).
392 TFEU, art. 267. See also Court of Justice of the European Union, Information Note on References
from National courts for a Preliminary Ruling, 2011/C 160/01. Cf. Burgstaller, fn. 390, at 473.
393 Eureko B.V. v Slovak Republic, PCA Case No. 2008–13, Award on Jurisdiction, Arbitrability
and Suspension, 26 October 2010 (V. Lowe, A.J. van den Berg, V.V. Veeder, arbs).
394 Eureko, Decision of the Frankfurt Higher Regional Court (Oberlandesgerich), 10 May 2012. See
also A. Ross, ‘Slovakia Takes Intra-EU BIT Controversy to Germany’s Highest Court’ Global
Arbitration Rev. (30 May 2012).
395 Eureko, Award on Jurisdiction, fn. 393.
396 Eureko, Decision of the Frankfurt Higher Regional Court, fn. 394.
397 Eureko, Decision of the Frankfurt Higher Regional Court.
398 Eureko, Decision of the Frankfurt Higher Regional Court.
399 AES Summit Generation Limited and AES-Tisza Erömü Kft. v Hungary, ICSID Case No. ARB/
07/22, Award, 23 September 2010 (C. von Wobeser, J.W. Rowley, B. Stern, arbs).
400 AES v Hungary, at paras 7.2.1–7.2.5.
401 AES v Hungary, at para. 7.6.12.
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206 The Primary Applicability of National Law and the Role of International Law
It is common ground that in an international arbitration, national laws are to be considered as
facts. Both parties having pleading [sic] that the Community competition law regime should be
considered as a fact, it will be considered by this Tribunal as a fact, always taking into account
that a state may not invoke its domestic law as an excuse for alleged breaches of its international
obligations.402

While these rulings are welcomed as being in line with both public international law
and European Union law, a final note of caution from Burgstaller is still appropriate:
‘Because even ICSID awards may end up before the ECJ, arbitral tribunals concerned
about the enforceability of their awards are well advised to take EU law into account to
the extent that it is applicable.’403 As noted by the Eureko Tribunal: ‘EU law may have a
bearing upon the scope of rights and obligations under the BIT in the present case, by
virtue of its role as part of the applicable law under BIT Article 8(6) and German law as
the lex loci arbitri.’404

3.2.2.2. The parties have agreed to the combined application of national and
international law or there is no agreement
Awards and scholarship support the possibility that international law may play a
supervening role against the primarily applicable national law in case the parties have
agreed to the application of both national and international law, or where the parties
have not reached an agreement on the applicable law.405 This form of interplay
between national and international law is illustrated by all of the three Libyan Nationalization/Oil cases,406 primarily due to an explicit agreement by the parties to such
effect in the identical choice-of-law clause: ‘This Concession shall be governed by and
interpreted in accordance with the principles of law of Libya common to the principles of
international law [ . . . ].’407
In the first award, British Petroleum Exploration Co. (Libya) Limited (BP) v Government of the Libyan Arab Republic (1973),408 sole Arbitrator Lagergren found the choiceof-law clause to offer ‘guidance in a negative sense by excluding the relevance of any
single municipal legal system as such’.409 In this respect, he noted that the clause ‘was
the final product of successive changes made in the Libyan petroleum legislation in the
decade between 1955 and 1965 by which the relevance of Libyan law was progressively
reduced’.410 Still, he rejected the investor’s contention that the clause’s effect was to

402 AES v Hungary, at para. 7.6.6.
403 Burgstaller, fn. 390, at 474.
404 Cf. Eureko v Slovak Republic, fn. 393, Award on Jurisdiction, Arbitrability and Suspension, at
para. 279. See also at paras 287–290 (the tribunal noted that EU law may be considered as part of the
applicable law; yet, its ‘jurisdiction is confined to ruling upon alleged breaches of the BIT. The
Tribunal does not have jurisdiction to rule on alleged breaches of EU law as such’).
405 Spiermann refers to this choice-of-law methodology as the ‘vertical approach’. Spiermann, fn.
284, at 105.
406 These cases are (i) British Petroleum Exploration Co. (BP) v Libyan Arab Republic, Award, 10
October 1973 and 1 August 1974 (Lagergren, sole arb.); (ii) TOPCO v Libya, fn. 56, Award on the
Merits; and (iii) LIAMCO v Libya, fn. 217, Award. See generally, R.B. von Mehren and P.N. Kourides,
‘International Arbitrations Between States and Foreign Private Parties: The Libyan Nationalization
Cases’ (1981) 75 Am. J. Int’l L. 476; C. Greenwood, ‘State Contracts in International Law—The
Libyan Oil Arbitrations’ (1982) 53 Brit. Y.B. Int’l L. 27, 27–8; B. Stern, ‘Trois arbitrages, un même
problème, trois solutions: Les nationalisations pétrolières libyennes devant l’arbitrage international’
(1980) Rev. Arb. 3.
407 LIAMCO v Libya, fn. 217, Award, 20 I.L.M. 1, 33 (referring to Clause 28(7); emphasis added).
See also BP, fn. 406, 53 I.L.R. 297, 303 (referring to Clause 28(7)). See also at 322 (the concessions
also contained the same stabilization clause (Clause 16)).
408 BP, fn. 406, 53 I.L.R. 297.
409 BP, at 327.
410 BP, at 327.
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The Role of International Law when National Law Primarily Applies

207

render applicable only international law,411 finding that the law of Libya was the proper
law of the agreement.412 Even so, he continued, ‘[i]n the event that international law
and Libyan law conflict on [an] issue, the question is to be resolved by the application
of the general principles of law.’413
A similar conclusion with regard to the supervening role of international law was
reached by the tribunal in the second Libyan Nationalization case: TOPCO v Libya.414
In his choice-of-law analysis, sole Arbitrator Dupuy concluded that ‘[t]he application of
the principles of Libyan law does not have the effect of ruling out the application of the
principles of international law, but quite the contrary: it simply requires us to combine
the two in verifying the conformity of the first with the second’.415
Also the third and last of the Libyan Nationalization awards, LIAMCO, supports a
supervening role for international law.416 Whereas sole Arbitrator Mahmassani interpreted the applicable law clause to provide for the primacy of national law,417 he noted
that ‘this covers only “the principles of law of Libya common to the principles of
international law”. Thus, it excludes any part of Libyan law which is in conflict with the
principles of international law.’418
A more recent example is the CME v Czech Republic award (2001/03), in which the
tribunal emphasized the common understanding by the states parties to the Netherlands–Czech/Slovak BIT that its choice-of-law provision419 implied a hierarchical
relationship between the two legal orders: ‘To the extent that there is a conflict between
national law and international law, the arbitral tribunal shall apply international
law.’420 In so holding, it also referred to Article 3(5) of the BIT, which specifies a
variable hierarchy between the legal orders depending on which is the most favourable
to the investor:
If the provisions of law of either Contracting Party or obligations under international law existing
at present or established hereafter between the Contracting Parties in addition to the present
Agreement contain rules, whether general or specific, entitling investments by investors of the
other Contracting Party to a treatment more favourable than is provided for by the present
Agreement, such rules shall to the extent that they are more favourable prevail over the present
Agreement.421

As for the question of damages, therefore, the tribunal refrained from applying Czech
law in order to diminish the quantum of compensation, as ‘the international law
standard prevail[s] in case of contradiction between international and national

411 BP, at 327.
412 BP, at 329.
413 BP, at 328. On the merits, Lagergren primarily referred to international law. See Chapter 6,
Section 2.1.1 (on express or implied ‘internationalization’ of investment contracts).
414 TOPCO v Libya, fn. 56, Award on the Merits, at para. 49.
415 TOPCO v Libya, Award on the Merits, at para. 41.
416 LIAMCO v Libya, fn. 217, Award.
417 See Section 3.1.1 (on international law as part of the ‘law of the land’).
418 LIAMCO v Libya, fn. 217, Award, 62 I.L.R. 140, 142.
419 CME v Czech Republic, fn. 59, Partial Award, 13 September 2001, at para. 286 (‘The arbitral
tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:
the law in force of the Contracting Party concerned; the provisions of this Agreement, and other
relevant Agreements between the Contracting Parties; the provisions of special agreements relating to
the investment; the general principles of international law’). Cf. Netherlands–Czech/Slovak Republic
BIT, art. 8(6).
420 CME v Czech Republic, fn. 59, Final Award, at para. 91. See also at paras 219, 398; Separate
Opinion by I. Brownlie, at para. 3.
421 CME v Czech Republic, fn. 59, Final Award, at para. 397 (emphasis in original). See also at para.
504. Cf. Netherlands–Czech BIT, art. 3(5).
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208 The Primary Applicability of National Law and the Role of International Law
law’.422 This special form of hierarchy, therefore, must be established on a case-by-case
basis depending on the content of the norm rather than its origin.
With respect to internationalized tribunals, the supervening role of international law
was subject to discussions during the drafting of Article 42(1), second sentence, of the
ICSID Convention.423 Chairman Broches noted that ‘[i]n some cases the tribunal may
be faced with a claim that international law should prevail over national law, e.g., where
one of the parties claims that a particular action taken under national law, or a
particular provision of national law, violates international law’.424 However, he
explained that ‘[o]n balance it had been considered preferable not to state the position
too specifically’.425 At a later point, though, he made it clear that in cases in which
national law was in violation of international law, the tribunal would, in the application
of international law, set aside national law.426 He further explained that ‘Article 42
intentionally referred to domestic law and international law since a tribunal might be
called upon to determine whether standards set by both systems of law had been
respected by the host State’.427 In fact, an effort made to limit the relevance of
international law to situations where the national law of the host state was silent,428
was rejected by 19 votes to 7;429 and the vote in favour of the final version, without any
limitation as to the applicability of international law, was adopted by 24 votes to 6.430
This understanding concerning the supervening role of international law vis-à-vis
national law under Article 42(1), second sentence, of the ICSID Convention has been
followed and supported by tribunals and scholars.431 Thus, the ad hoc Committee in
Klöckner v Republic of Cameroon (1985) held that not only does international law have a
complementary function in case of lacunae; it also has a corrective function, ‘should the
State’s law not conform on all points to the principles of international law’.432
422 CME v Czech Republic, at para. 504.
423 See History of the ICSID Convention, fn. 73, Vol. II-1, p. 418 (the French delegate noted that
‘[i]t might be claimed that the national law applied in the matter conflicted with some rule of
international law’); see also at p. 420 (the UK representative suggested that ‘some guidelines should
be established regarding where international law should be prevail over clearly applicable national law’).
424 History of the ICSID Convention, Vol. II-1, p. 570.
425 History of the ICSID Convention, Vol. II-1, p. 420.
426 History of the ICSID Convention, Vol. II-1, p. 571. See also Vol. II-2, at 804 (Broches
explained that Article 42(1)[2] as it now stands would bring international law into play in case of
inconsistency between the two legal orders).
427 History of the ICSID Convention, Vol. II-2, p. 986. See also at 801 (the Spanish representative
stated that ‘the national legislation would not be applied when it would clearly violate admitted principles
of international law’). See also at 804 (Tsai from China wanted to limit the application of international law
to cases where it was inconsistent with national law introduced after the investment was made).
428 History of the ICSID Convention, Vol. II, p. 802.
429 History of the ICSID Convention, Vol. II, p. 804 (motion by the delegate from India). See also
at 985 (Broches noted that the Legal Committee’s vote had been very clearly in favour of permitting
the tribunal to apply international law particularly in order to take account of cases where a state
changed its own law to the detriment of an ivestor [sic] and in violation of an agreement not to do so);
see also at 986 (Broches explained that a valid domestic law, if inconsistent with international law,
would give rise to international responsibility, its validity on the national level notwithstanding). See
also at 570, 985.
430 History of the ICSID Convention, Vol. II, p. 804.
431 See Broches, fn. 77, at 229; M. Hirsch, The Arbitration Mechanism of the International Centre for
the Settlement of Investment Disputes (Dordrecht, Nijhoff, 1993), 140; G. Sacerdoti, ‘Arbitration of
Investment Disputes under UNCITRAL Rules and the Choice of Applicable Law’ in Law in the Service
of Human Dignity: Essays in Honour of Florentino Feliciano (S. Charnovitz et al., eds, Cambridge,
Cambridge University Press, 2005), 276, 294; Sacerdoti, ‘Investment Arbitration under ICSID and
UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’ (2004) 19(1) ICSID Rev.-FILJ
1; Parra, fn. 104, at 5–6.
432 Klöckner v Cameroon, fn. 78, Decision on Annulment, at para. 60.
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The Role of International Law when National Law Primarily Applies

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The same conclusion regarding the relationship between national and international
under Article 42(1), second sentence, of the ICSID Convention was reached by the ad
hoc Committee in Amco Asia (1986): an ICSID tribunal is authorized to apply rules of
international law ‘to ensure precedence to international law norms where the rules
of the applicable domestic law are in collision with such norms’.433 The committee
based this view of the role or relationship of international law norms vis-à-vis the law of
the host State on an ‘overall evaluation of the system established by the Convention’,
and specifically on Article 54(1) which relates to the duty of ICSID member states to
recognize and enforce ICSID awards, as well as Article 27, providing that the home
state would normally be precluded from exercising diplomatic protection on behalf of
its national, the foreign investor: ‘The thrust of Article 54(1) and of Article 27 of the
Convention makes sense only under the supposition that the award involved is not
violative of applicable principles and rules of international law.’434
The tribunal in the resubmitted case of Amco Asia (1990) went further than the ad
hoc Committee in the same case, criticizing the latter’s characterization of the role of
international law as ‘only’ ‘supplemental and corrective’.435 Rather, it concluded that
‘international law is fully applicable and to classify its role as “only” “supplemental and
corrective” seems a distinction without a difference’.436 As such, it found that although
the law of the host state would primarily apply, every claim would also be tested against
international law.437
In Aucoven v Venezuela, the ICSID Tribunal concluded that, except for matters
covered by certain Venezuelan decrees, it had to look to the default choice-of-law
provision of Article 42(1) of the ICSID Convention.438 While finding that Venezuelan
law should primarily apply to the merits of the dispute, the tribunal referred to the
433 Amco Asia v Indonesia, fn. 87, Decision on Annulment, at para. 20.
434 Amco Asia v Indonesia, at 515. See also Compañía del Desarrollo de Santa Elena, S.A. v Republic of
Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000 (L.Y. Fortier, E. Lauterpacht, P. Weil,
arbs), rectified 8 June 2000, at para. 64 (in case of inconsistency between Costa Rican and international
law, ‘the rules of public international law must prevail. Were this not so in relation to takings of property,
the protection of international law would be denied to the foreign investor and the purpose of the
Convention would, in this respect, be frustrated’.) It should be noted that the tribunal reinforced its
conclusion of the applicability of international law by pointing to the submissions of the parties, whereby
they had relied on international law. See also P. Feuerle, ‘International Law and Choice of Law under
Article 42 of the Convention on the Settlement of Investment Disputes’ (1977–78) 4 Yale J. World Public
Order 89, 111; History of the ICSID Convention, fn. 73, Vol. II-1, p. 804.
435 Amco Asia v Indonesia, fn. 87, Resubmitted Case, Award.
436 Amco Asia v Indonesia, Resubmitted Case, Award, at para. 40.
437 Amco Asia v Indonesia, Resubmitted Case, Award, at para. 40. See also SPP v Egypt, fn. 37,
ICSID Award, at para. 84 (not only when the national legal order contains lacunae, but also when
‘international law is violated by the exclusive application of municipal law, the Tribunal is bound in
accordance with Article 42 of the [ICSID] Convention to apply directly the relevant principles and
rules of international law’); and also at para. 84 (referring to A. Broches, fn. 190, at 342) (‘[This] will
not involve the confirmation or denial of the validity of the host State’s law, but may result in not
applying it where that law, or action under that law, violates international law’). For criticism, see
N. Nassar, ‘Internationalization of State Contracts: ICSID, the Last Citadel’ (1997) 14(3) J. Int’l Arb.
185, 201.
438 Aucoven v Venezuela, fn. 126, Award, at para. 100. See also Section 2.3.1 (on contractual
claims); LETCO v Liberia, fn. 306, Award, 2 ICSID Rep. 346, 359 (Article 42(1), second sentence, of
the ICSID Convention ‘envisages that, in the absence of any express choice of law by the parties, the
Tribunal must apply a system of concurrent law. The law of the Contracting State is recognized as
paramount within its own territory, but is nevertheless subjected to control by international law’); SPP
v Egypt, fn. 37, ICSID Award, Dissenting Opinion El Mahdi, at section III(3)(v)(b) (pursuant to
Article 42(1), second sentence, ICSID Convention, recourse may be had to international rules (or
principles) ‘in cases of a presumed lacuna in the national law and/or of non-conformity with imperative
international rules’).
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210 The Primary Applicability of National Law and the Role of International Law
established principle that international law ‘may correct the result of the application of
national law when the latter violates international law (corrective function)’.439 Indeed,
the parties themselves had accepted that international law would prevail over Venezuelan law if the latter were in conflict with the former.440 On this basis, the tribunal
held that ‘international law prevails over conflicting national rules’.441
While the following decisions may be explained on the basis that the claims at issue
were subject to international law,442 the supervening role of international law vis-à-vis
national law is also supported by recent decisions such as M.C.I. Power Group L.C. and
New Turbine, Inc. v Ecuador (2007);443 Sempra Energy International v Argentine
Republic (2007),444 and Duke Energy International Peru Investments No. 1, Ltd v
Peru (2008).445 And the ICSID Tribunal held in LG &E Energy Corp. v Argentina
(2006):
International law overrides domestic law when there is a contradiction since a State cannot justify
non-compliance of its international obligations by asserting the provisions of its domestic law
[ . . . ]. If this contradiction does not exist, it is not an easy task to establish the relationship
between international law and domestic law.446

3.2.3. Interim conclusions
International law may play a corrective role vis-à-vis the primarily applicable national law
where the latter contains lacunae or where it conflicts with fundamental norms of
international law. Where the parties have agreed to the sole application of national law,
the complementary role of international law should be restrictively interpreted and be
limited to ancillary questions of law rather than creating separate causes of action as such.
Where the tribunal’s mandate authorizes it to apply both national and international law
to the merits, tribunals may directly apply international law; and consequently, there is
no need to qualify the application of international law as complementary.
A similar conclusion can be made with respect to the supervening role of international law in situations where the parties have agreed to the application of both
national and international law, or where an agreement on the applicable law is lacking.
The purported need to resort to international law in a supervening fashion as illustrated
by these awards and scholarship may be seen as the product of the influence of the
principle of host state sovereignty on the choice-of-law methodology of arbitral tribunals. As was demonstrated, this principle has led tribunals to find in favour of the
primary application of national law in the face of an agreement by the parties to the
application of both national and international law, and where the parties have not
reached a choice-of-law agreement.447 It is submitted, however, that in such cases,
439 Aucoven v Venezuela, at para. 102.
440 Aucoven v Venezuela, para. 103.
441 Aucoven v Venezuela, para. 105.
442 See Chapter 6, Section 2.2 (on the international nature of the claim).
443 M.C.I. Power Group v Ecuador, fn. 67, Award, at para. 218.
444 Sempra Energy v Argentina, fn. 168, Award, at para. 238.
445 Duke v Ecuador, fn. 65, Decision on Jurisdiction, at para. 162.
446 LG&E Energy v Argentina, fn. 67, Decision on Liability, at paras 94–95 (applying ICSID
Convention, art. 42(1), second sentence). See also AIG Capital Partners, Inc. and CJSC Tema Real Estate
Company v Republic of Kazakhstan, ICSID Case No. ARB/01/6, Award, 7 October 2003 (F.S. Nariman,
P. Bernardini, B. Vukmir, arbs), para. 10.1.4; Cable TV v The Federation of St. Christopher (St. Kitts) and
Nevis, fn. 91, Award, 13 ICSID Rev.-FILJ 328, 371, 385 (1998); Tradex v Albania, fn. 151, Award, 14
ICSID Rev.-FILJ 197, 216, 217 (1999); Santa Elena, fn. 434, Award, at para. 64.
447 See Section 2.2 (on host state sovereignty and territorial control over foreign investors and
investments).
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General Conclusions

211

where the relevant international norm gives a higher degree of protection to an investor,
the latter should be able to invoke and the tribunal should have the mandate to apply
international law to the merits of the case, without necessarily first applying national
law.448 When this is the case, it is not entirely appropriate to refer to the application of
international law as ‘supervening’. Rather, international law can apply directly, for
instance so as to give rise to a claim for wrongful expropriation, and not only when the
conflicting national law is violative of fundamental international norms, such as is the
case where the parties have agreed to the sole application of national law.

4. General Conclusions
In sum, we have seen that national law will primarily apply when the parties have so
agreed, or because of considerations of the host state’s sovereign right to regulate
activities on its territory. A more neutral choice-of-law determinant than state sovereignty is the nature of the claim. Thus, if the ‘essential basis’ of the claim is national in
nature, such as is the case regarding claims for breach of contract, national law primarily
applies. When investment tribunals—as ‘one-stop shops’449—apply national law to the
merits of the dispute for any of the foregoing reasons, they could be seen to take on the
role of agents of the national legal order in question in a way converse to how national
courts are agents of the international legal order when they apply international law.
International law may still play a role when the applicable national legal order
contains gaps. However, in order not to run counter to the principle of party autonomy, such a complementary role of international law should be limited to ancillary
questions of law when the parties have reached an agreement on the application of
solely national law. International law may also be applied in a supervening fashion
when the otherwise applicable national norm conflicts with an international norm of a
fundamental nature. For territorialized tribunals, the taking into account of these
norms may be necessary to ensure the enforceability of the award. This is because
such norms may be part of the international public policy of the juridical seat or the
state of enforcement. Fundamental international norms should also be heeded by
internationalized tribunals as they form part of the ordre public of the international
legal order in which the tribunals operate. Further, to the extent to which the norms are
also of a peremptory nature, their disregard may endanger the enforceability of the
award.

448 See Chapter 6, Section 2.2 (on the international nature of the claim).
449 See Chapter 1, Section 1 (on motivations for the study).

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6
The Primary Applicability of International
Law and the Role of National Law
What is clear is that [t]he law of the host State can indeed be applied in
conjunction with international law if this is justified. So too international law
can be applied by itself if the appropriate rule is found in this other ambit.1

1. Introduction
Frequently, arbitral tribunals apply international law to the merits of investment
disputes. In Section 2 of this chapter, we will see that the main factors that arbitral
tribunals take into account in deciding to apply international law are an agreement
by the parties to that effect, and the international nature of the claim invoked. An
additional reason that has been used is the superior nature of international law vis-à-vis
national law.
In Section 3, it will be demonstrated that the primary applicability of international
law does not necessarily rule out a role for national law, as (i) the latter source may be
applied indirectly when the nature of the international claim requires a determination
of the parties’ rights and obligations pursuant to national law, such as with respect to
expropriation and ‘umbrella’ clause claims; and (ii) national law could apply correctively, in a complementary or supervening fashion.

2. Reasons for the Primary Applicability of International Law
2.1. Party agreement on the application of international law
In accordance with the principle of party autonomy, arbitral tribunals will honour a
choice by the parties for the application of international law, either alone or in
combination with national law.2 Such choice does not need to be express; as long as
the parties’ intention is manifest, it may be implied by the circumstances of each
particular case.3 In the following analysis of practice, the application of international
law due to party agreement will be considered first with respect to investment contracts,
and second in investment treaty arbitration.

1 Wena Hotels Ltd v Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Annulment,
5 February 2002 (K.D. Kerameus, A. Bucher, F.O. Vicuña, committee members), para. 40.
2 See Chapter 3, Section 3.1.1 (the parties may stipulate the application of national and/or
international law).
3 See Chapter 3, Section 3.1.2 (on express and implied choice of law).
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214 The Primary Applicability of International Law and the Role of National Law

2.1.1. Express or implied ‘internationalization’ of investment contracts
While we have seen that foreign investors often agree to subject the investment contract
to the application of national law,4 practice reveals that they sometimes also agree to
the sole application of international law,5 or, as is more frequently the case, to the
combined application of national and international law.6
Express choices for the application of international law should, in agreement with the
principle of party autonomy, be upheld by arbitral tribunals.7 But we also observe that
subsequent to the seminal Serbian Loans case (1929), in which the Permanent Court of
International Justice held that contracts between a private party and a state are generally
governed by national law,8 a stream of practice developed whereby arbitrators construed the nature of the contractual relationship between foreign investors and host
states to require the application of (general principles) of (international) law, often in
the absence of obvious factors in favour of such ‘internationalization’. This approach,
according to which the parties must have intended to insulate their contract from the
application of national law, serves to protect the investor against legislative abuse by the
host state. Leben explains:
[A]lors que les règles habituelles de droit international privé conduisaient à l’application du droit
de l’Etat contractant, les arbitres repoussèrent ce droit et lui préférèrent les principes généraux de
droit. La raison d’un tel choix peut se comprendre dans une perspective de protection des
investissements: en effet, accepter l’application de la loi de l’Etat aurait mis l’investisseur étranger
à la merci de celui-ci qui aurait pu modifier le contrat de concession ou y mettre fin sans assumer
aucune obligation financière à l’égard de l’investisseur, si telle était sa volonté. [[W]hile the
traditional rules of private international law led to the application of the law of the contracting
state, the arbitrators rejected this law and preferred the general principles of law. The reason for
such a choice can be understood from the perspective of investment protection: in effect,
accepting the application of state law would have placed the foreign investor at the mercy of
this state which could have changed the concession contract or terminate it without incurring any
financial obligation with respect to the investor, if that was the desired objective.]9
4 See Chapter 5, Section 2.1 (on party agreement on the application of national law).
5 See W.M. Reisman, ‘Law, International Public Policy (So-called) and Arbitral Choice in International Commercial Arbitration’ in International Arbitration 2006: Back to Basics? (ICCA Congress
Series No. 13, van den Berg, ed., Alphen aan den Rijn, Kluwer Law International, 2007), 849, 852;
Ch. Leben, ‘La Théorie du contrat d’Etat et l’évolution du droit international des investissements’
(2004) 302 Recueil des Cours 209, 270, at para. 136.
6 See A.F. Maniruzzaman, ‘International Development Law as Applicable Law to Economic
Development Agreements: A Prognostic View’ (2001) 20 Wis. Int’l L.J. 1, 32; Leben, fn. 5, at 270,
at para. 137.
7 See Chapter 3, Section 3.1.1 (the parties may stipulate the application of national and/or
international law). Note, however, the debate concerning the desirability of agreeing to the application
of general principles of law. See, e.g., M. Blessing, Introduction to Arbitration: Swiss and International
Perspectives (Basel, Helbing und Lichtenhahn, 1999), 210–11.
8 See Chapter 5, Section 2.3.1 (on contractual claims).
9 Leben, fn. 5, at 221–2, at para. 23. See also T.W. Wälde, ‘Renegotiating Acquired Rights in the
Oil and Gas Industries’ (2008) 1(1) J. World Energy Law Bus. 55, 56–7; I.F.I. Shihata and A.R. Parra,
‘Applicable Substantive Law in Disputes between States and Private Foreign Parties: The Case of
Arbitration under the Convention’ in Planning Efficient Arbitration Proceedings: The Law Applicable in
International Arbitration (ICCA Congress Series No. 7, XIIth International Arbitration Congress,
Vienna, 13–16 November (1994) (A.J. van den Berg, ed., 1996), 294, 302; Y. Dezalay and
B.G. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (Chicago, IL, The University of Chicago Press, 1996), 86; C.H. Schreuer et al.,
The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2009), 560;
O. Spiermann, ‘Applicable Law’ in Oxford Handbook of International Investment Law (P. Muchlinski
et al., eds, Oxford, Oxford University Press, 2008), 89, 92. Indeed, it is due to the inequality in the
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Reasons for the Primary Applicability of International Law

215

This development in arbitral practice was coupled with and supported by scholarship,
offering the theory of internationalized contracts as an academic underpinning for
applying international law to contractual disputes between investors and host states. In
varying degrees, this theory—which remains controversial10—considers such contracts
to be, by their very nature, subject to international law.11 Weil, for instance, supports
the application of international law to investor–state contracts on the basis that while
these contracts are commercial in nature, they form an integral part of the foreign
policy of the host state.12 As such, they find their centre of gravity—or Grundlegung—
in the international sphere and should be classified as instruments des relations intergouvernementales.13 In a similar vein, Lillich suggests treating investment agreements as
‘quasi’ public international or internationalized.14
Other scholars, while not necessarily considering the contracts to receive their
binding force from international law, have sought to characterize state contracts as
allowing or requiring the application of international law by reference to more objective
elements: the combined characteristics of (i) an arbitration clause providing for the
settlement of disputes by a neutral forum, and (ii) a choice-of-law clause withdrawing
the exclusive application of the national law of the host state.15 The latter could be in
the form of a ‘stabilization’ clause, where the parties agree to the application of a
national system of law frozen at a particular point in time, such as the signing of the
investment contract. According to Jaenicke:
legal relationship of the individual and the state that most legal systems contain specific rules of public
contracts. Thus, the French legal system has developed the concept of an ‘administrative contract’. See
I. Marboe and A. Reinisch, ‘Contracts between States and Foreign Private Persons’ in Max Planck
Encyclopedia of Public International Law, at para. 3, available at <http://www.mpepil.com/home> (last
visited 1 May 2012).
10 See Leben, fn. 5, at 212, at para. 5; D.W. Bowett, ‘Claims between States and Private Entities:
The Twilight Zone of International Law’ (1986) 35 Cath. U.L. Rev. 929, 931; M. Sornarajah, The
Settlement of Foreign Investment Disputes (The Hague, Kluwer Law International, 2000), 253–4.
11 For an overview of the wealth of scholarship on this issue, see Leben, fn. 5, at 209–10, fns1–2. In
addition to Leben’s seminal work, Alvik’s recent book discusses the theory of state contracts in great
detail. I. Alvik, Contracting with Sovereignty (Oxford, Hart Publishing, 2011) (especially Chapter 3, at
pp. 45–96).
12 P. Weil, ‘Le Droit International en Quête de son Identité’ (1992-VI) 237 Recueil des Cours 96.
13 Weil, Le Droit International. See also Weil, ‘The State, the Foreign Investor, and International
Law: The No Longer Stormy Relationship of a Ménage à Trois’ in Liber Amicorum Ibrahim F.I. Shihata
(S. Schlemmer-Schulte and K.-Y. Tung, eds, The Hague, Kluwer Law International 2001), 839,
844–5. But see P. Mayer, ‘Le mythe de “l’ordre juridique de base” (ou Grundlegung)’ in Le droit des
Relations Economiques Internationales: Etudes offertes à Berthold Goldman (Paris, Litec, 1982), 199.
14 R.B. Lillich, ‘The Law Governing Disputes under Economic Development Agreements: ReExamining the Concept of Internationalisation’ in International Arbitration in the Twenty-First
Century, Towards Judicialization and uniformity (R.B. Lillich and C.N. Brower, eds, Irvington, NY,
Transnational, 1993), 92. See also J. Verhoeven, ‘Arbitrage entre Etats et enterprises étrangères: des
règles spécifiques?’ in Hommage à Jean Robert, Les Etats et l’arbitrage international (1985) Rev. Arb. 609,
627–8; A. Verdross, ‘The Status of Foreign Private Interests Stemming from Economic-Development
Agreements with Arbitration Clauses’ in Selected Readings on Protection by Law of Private Foreign
Investment (The Southwestern Legal Foundation, International and Comparative Law Center, Albany,
M. Bender, 1964), 117, 120–1. State contracts have also been referred to as economic development
agreements, deriving protection of international law on the basis that they are geared toward the
economic development of the host state. See J. Hyde, ‘Economic Development Agreements’ (1962)
105 Recueil des Cours 271. But see M. Sornarajah, The International Law on Foreign Investment
(Cambridge, Cambridge University Press, 2004), 420 (‘[T]he idea that foreign investment is motivated
by altruistic motives of developing the economy of the host state is such an absurdity that it can hardly
be the basis of any rule that deserves even a casual consideration’).
15 See Leben, fn. 5, at 248, at para. 89; P. Mayer, ‘La neutralisation du pouvoir normatif de l’Etat
en matière de contrats d’Etat’ (1986) 113 Journal du Droit International 5, 31–4; W. Peter, Arbitration
and Renegotiation of International Investment Agreements (Dordrecht, Boston M. Nijhoff, 1986), 95.
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216 The Primary Applicability of International Law and the Role of National Law
The incorporation of a ‘stabilization clause’ in an investment contract between the host State or
any of its agencies and the investor, if coupled with an arbitration clause, is a strong additional
indicator of the intention of the parties to insulate their contractual relations from the reach of the
law of the host State.16

Below, we will examine arbitral decisions in which international law was applied to
disputes arising out of investment contracts. Consistent with our observations in
Chapter 3 on implied choices of law, the readiness of these arbitral tribunals to find
an implicit agreement in favour of internationalization may at times be questioned.17
Also to be considered is the relationship between such internationalization and the
scope of the arbitration agreement, as well as the implications that flow therefrom. As
will be demonstrated, internationalization has often gone hand in hand with a decision
to allow investors to bring additional causes of action and to claim corresponding
remedies when the contract has been frustrated. Thus, in addition to ‘mere’ contractual
breaches based on the general principle of law pacta sunt servanda, tribunals have found
in favour of the investor on the bases inter alia of expropriation and unjust enrichment.18 In Chapter 4, we noted that the arbitration agreement may be broad enough to
encompass both contractual and non-contractual claims, the latter being amenable to
the application of international as well as national law.19 A legitimate question that
emerges therefore is why tribunals have supported their decision to apply international
law by reference to the parties’ presumed intent as to the applicable law rather than to
the arbitration clause. A plausible answer relates to the relative novelty of allowing
private parties directly to invoke international law vis-à-vis the respondent state20
compared to the longstanding acceptance of the doctrine of party autonomy.21 Lauterpacht’s observation is elucidating here, as he construes an (implied) agreement for
the application of international law to signify ‘an endeavour to overcome the dichotomy between the two traditional planes of relationship that can result from a foreign
investment’; that is, on the one hand, the ‘basic’ relationship between the investor and
the state party to the agreement, which is normally governed by the proper law of the
contract; and on the other hand, the ‘higher’ relationship between the state and the
national state of the investor, governed by public international law.22 While Lauterpacht notes that a bridging of the gap between these two planes has the advantage of
judicial economy,23 he adds the following words of caution: ‘It can immediately be
seen, though, that in the existing state of international relations the implementation of
16 G. Jaenicke, ‘The Prospects for International Arbitration: Disputes between States and Private
Enterprises: Comments on a Paper by Professor L.J. Bouchez’ in International Arbitration: Past and
Prospects: A Symposium to Commemorate the Centenary of the Birth of Professor J.H.W. Verzijl (1988–
1987) (A.H.A. Soons, ed., Dordrecht, Martinus Nijhoff, 1990), 155, 159 (references omitted). See
also R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, Oxford Univerity
Press, 2008), 75; Sornarajah, fn. 10, at 50–1; T. Begic, Applicable Law in International Investment
Disputes (Utrecht, Eleven International, 2005), 16, 84–98.
17 See Chapter 3, Section 3.1.2 (on express and implied choice of law).
18 Cf. Jaenicke, fn. 16, at 161.
19 See Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims).
20 See Chapter 3, Section 3.2.2.1 (on the ICSID Convention); Chapter 5, Section 2.3 (on the
national nature of the claim).
21 See Chapter 3, Section 3.1 (on party agreement on the applicable law); Chapter 5, Section 2.3
(on the national nature of the claim).
22 E. Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment
Disputes’ in Recueil d’études de droit international en hommage à Paul Guggenheim (Genève, Tribune,
1968), 642, 654.
23 Lauterpacht, at 642, 654.
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Reasons for the Primary Applicability of International Law

217

this type of technique must be somewhat experimental. Much will depend upon the
tribunal which considers the matter.’24
First among the cases that illustrate an implicit choice for the application of
international law is the Lena Goldfields arbitration (1930), which involved a concession
contract entered into between a British corporation and the Soviet Government.25 The
contract subjected Lena Goldfields to ‘the existing code and to future enactments and
ordinances of the Government of the U.S.S.R.’,26 but with the following reservation:
‘in so far as special provisions are not contained in the present agreement’.27 Moreover,
the contract stipulated that ‘[t]he basis of the present agreement on the part of both
parties is one of goodwill, good faith, as well as a desire to interpret its provisions
reasonably’.28 There was also a stabilization clause pursuant to which the Soviet
Government promised not to make any alteration in the contract, either by order,
decree, or any unilateral act, or at all, except with the investor’s consent.29
In an attempt to avoid the sole application of national law,30 Lena’s counsel
advanced an argument in favour of international law,31 which was later to be heralded
a ‘gigantic first step for international commercial arbitration, almost equivalent to the
caveman’s discovery of fire’.32 More specifically, for the claim for unjust enrichment he
invoked general principles of law as the ‘proper law’ of the parties’ contract.33 In
support of this argument, he referred first, to the fact that the contract and one
amendment thereof had been signed not only on behalf of the Executive Government
of Russia but by the Acting Commissary of Foreign Affairs; and secondly, he claimed
that ‘many of the terms of the contract contemplated the application of international
rather than merely national principles of law’.34 This latter argument has been construed as a reference to the dispute settlement clause in favour of arbitration abroad.35
Without much explicit reasoning, the tribunal accepted this proposition.36 On the
merits, therefore, it relied on the principle of ‘unjust enrichment’, being a general
principle of law recognized by civilized nations.37

24 Lauterpacht, at 642, 654.
25 See A. Nussbaum, ‘The Arbitration between Lena Goldfields Ltd and the Soviet Government’
(1950) 36 Cornell Law Quarterly 51; H. Lauterpacht, ‘Lena Goldfields Arbitration’ (1930) 5 Ann. Dig.
Pub. Int’l L. Cas. 3; V.V. Veeder, ‘The Lena Goldfields Arbitration: The Historical Roots of Three
Ideas’ (1998) 47 Int’l & Comp. L.Q. 747.
26 See Veeder, fn. 25, at 767, at fn. 58 (referring to article 75 of the parties’ contract).
27 See Veeder, at 767, at fn. 58.
28 See Veeder, at 766, at fn. 57.
29 See Veeder, at 767, at fn. 58 (‘Art.76 of the concession agreement precluded the USSR from
making by itself any change to the concession agreement “by disposition, decree or other unilateral acts
of the state authorities” [ . . . ].’).
30 See Veeder, at 766–7.
31 See Veeder, at 766.
32 See Veeder, at 773; and at 750. Cf. Spiermann, fn. 9, at 93.
33 See Veeder, fn. 25, at 766.
34 See Veeder, at 766. See also at 766: (Lena’s counsel also stated that on all domestic matters not
excluded by the contract, including its performance by both parties inside the Soviet Union, Soviet law
was ‘the proper law of the contract’).
35 See Veeder, at 766.
36 Veeder, at 767, at fn. 58 (Veeder refers to para. 22 of the award, where ‘the tribunal recorded and
accepted the submission of Lena Goldfield’s counsel’); see also at fn. 59 (the tribunal held: ‘In so far as
any difference of interpretation [of the concession agreement] might result, the court holds that this
contention is correct’). See also Nussbaum, fn. 25, at 36 (‘[S]uch a splitting of applicable legal systems
was not warranted; the “proper law” of the entire contract was Soviet’).
37 See Veeder, fn. 25, at 752, at fn. 12.
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218 The Primary Applicability of International Law and the Role of National Law
The concession contract in Sapphire International Petroleum Ltd v National Iranian
Oil Co. (NIOC) (1963) provided that the parties should carry out its provisions ‘in
accordance with the principles of good faith and good will and to respect the spirit as
well as the letter of the agreement’.38 It also contained a stabilization clause, which
stipulated that the Government or any governmental authority in Iran was prevented
from cancelling or changing the agreement through any general or special statutory
enactment, or any administrative measure or decree of any kind.39 Sole Arbitrator
Cavin did not construe these clauses to constitute an express choice of law; and he set
out to ‘determine which system of law should best be applied according to the evidence
of the parties’ intention and in particular the evidence to be found in the contract’.40
Cavin first considered the applicability of national law: ‘Since the contract was
concluded in Teheran and was due to be performed for the most part in Iran, the lex
loci contractus and the lex loci executionis both point to the application of Iranian law.’41
Due to the special nature of the contract, however, Cavin found it unlikely that the
parties had implicitly agreed to the application of Iranian Civil Law.42 He went on to
state:
[A] reference to rules of good faith, together with the absence of any reference to a national system
of law, leads the judge to determine, according to the spirit of the agreement, what meaning he
can reasonably give to a provision of the agreement which is in dispute. It is therefore perfectly
legitimate to find in such a clause evidence of the parties not to apply the strict rules of a particular
system but, rather, to rely upon the rules of law, based upon reason, which are common to
civilized nations. These rules are enshrined in Article 38 of the Statute of the International Court
of Justice as a source of law, and numerous decisions of international tribunals have made use of
them and clarified them.43

According to Cavin, the application of international law was particularly justified in
light of the parties to the dispute: a state organ and a foreign company.44 He concluded:
‘This contract has therefore a quasi-international character which releases it from the
sovereignty of a particular legal system, and it differs fundamentally from an ordinary
commercial contract.’45
Other factors that reinforced Cavin’s finding of an implicit agreement to the
application of international law were the transnational aspect of the concession contract; its long-term nature; the special tax arrangements; the need for the Iranian
Government to ratify the concession; as well as the fact that the contract gave the
investor possession and, to a certain extent, control over a territory—all of which gave
the contract more of a public character.46 Considering the investments, responsibilities,
and considerable risks taken by the investor, he also found it natural that it ‘should be
assured of some legal security. This could not be guaranteed to it by the outright
application of Iranian law, which it is within the power of the Iranian State to
change.’47 Cavin also relied on the force majeure clause referring to principles of
international law; and the fact that other, similar agreements made by the respondent
explicitly referred to the application of international law.48

38 Sapphire Int’l Petroleum Ltd v National Iranian Oil Co., Award, 15 March 1963, 35 I.L.R. 136,
140 (1963). For criticism, see G.R. Delaume, ‘State Contracts and Transnational Arbitration’ (1981)
75 Am. J. Int’l L. 784, 800–1. See also Chapter 3, Section 3.1.2 (on express and implied choice of law).
39 Sapphire, fn. 38, Award, at 140.
40 Sapphire, Award, at 171.
41 Sapphire, Award, at 171.
42 Sapphire, Award, at 171.
43 Sapphire, Award, at 173.
44 Sapphire, Award, at 173.
45 Sapphire, Award, at 173. See also at 175.
46 Sapphire, Award, at 171.
47 Sapphire, Award, at 171.
48 Sapphire, Award, at 173–5.
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Reasons for the Primary Applicability of International Law

219

On the merits, and in applying the fundamental principle of law pacta sunt servanda,
‘which is constantly being proclaimed by international courts’, Cavin found that the
host state had deliberately refused to carry out certain of its obligations and that this
failure constituted a breach of contract.49
Three awards, referred to as the Libyan Nationalization cases,50 contained identical
choice-of-law clauses, referring to both national and international law:
This Concession shall be governed by and interpreted in accordance with the principles of law of
Libya common to the principles of international law and in the absence of such common
principles then by and in accordance with the general principles of law, including such of
those principles as may have been applied by international tribunals.51

In British Petroleum Exploration Co. (Libya) Limited (BP) v Government of the Libyan
Arab Republic (1973), sole Arbitrator Lagergren rendered his award primarily on the
basis of international law. He found that by virtue of the stabilization clause, Libya had
limited its ‘freedom to change or terminate the concession by unilateral act unless it
could be shown that the change was truly in the public interest’.52 Lagergren went on
to hold that the nationalization amounted to a fundamental breach of the concession
and its total repudiation.53 He concluded that the taking by Libya of BP’s property,
rights, and interests ‘violate[d] public international law as it was made for purely
extraneous political reasons and was arbitrary and discriminatory in character [ . . . ]
[T]he fact that no offer of compensation has been made indicates that the taking was
also confiscatory.’54
In Texaco Overseas Petroleum Co. (Topco) & California Asiatic Oil Co. (Calasiatic) v
Libya (1977), sole Arbitrator Dupuy pointed to the new concept according to which
contracts between foreign private parties and states could be ‘internationalized’ in the
sense of being subject to public international law: ‘treaties are not the only type of
agreements governed by [international] law [ . . . ]. [C]ontracts between States and
private persons can, under certain conditions, come within the ambit of a particular
and new branch of international law: The international law of contracts.’55 According

49 Sapphire, Award, at 181. Cf. Deutsche Schachtbau- und Tiefbohr GmbH v R’As al-Khaimah
National Oil Co (Rakoil), ICC Case No. 3572, Final Award, 1982, XIV Y.B. Commercial Arb. 111,
117 (1989) (in the absence of an express choice of law, the tribunal found it inappropriate to apply
national law. Instead, it referred to ‘what has become common practice in international arbitrations
particularly in the field of oil drilling concessions and especially to arbitrations located in Switzerland’,
which it reasoned, ‘must have been known to the parties [ . . . ] and should be regarded as representing
their implicit will’. Accordingly, it went on to decide the dispute by reference to ‘internationally
accepted principles of law governing contractual relations’); Revere Copper & Brass, Inc. v Overseas
Private Investment Corporation (OPIC) (Amer. Arb. Assn. 1978), 17 I.L.M. 1321 (1978).
50 See Chapter 5, Section 3.2.2.2 (the parties have agreed to the combined application of national
and international law or there is no agreement).
51 British Petroleum Exploration Co. (BP) v Libyan Arab Republic, Award, 10 October 1973, 53 I.L.
R. 297, 303 (1979) (Lagergren, sole arb.) (referring to Clause 28(7)). See also at 322 (the concessions
also contained the same stabilization clause (Clause 16).); Libyan American Oil Co. (LIAMCO) v
Libyan Arab Republic, Award, 12 April 1977 (Mahmassani, sole arb.), 20 I.L.M. 1, 33 (1977) (referring
to Clause 28(7)). See also at 13, 19.
52 R.C.A. White, ‘Expropriation of the Libyan Oil Concessions—Two Conflicting International
Arbitrations’ (1981) 30 Int’l & Comp. L.Q. 1, 5–6 (1981).
53 BP v Libya, fn. 51, Award, 53 I.L.R. 297, 329.
54 BP v Libya, Award.
55 Texaco Overseas Petroleum Company (Topco) and California Asiatic Oil Company (Calasiatic) v
Government of the Libyan Arab Republic, Award on the Merits, 19 January 1977, para. 32 (referring to
F.A. Mann, ‘Contrats entre Etats et Personnes Privées Etrangères: The Theoretical Approach towards
the Law Governing Contracts between States and Private Persons’ (1975) Revue Belge de Droit
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220 The Primary Applicability of International Law and the Role of National Law
to Dupuy, such internationalization had been achieved first on the basis of the reference
in the contract to international law as a standard for the application of Libyan law;56
and secondly, the fact that the parties had agreed to arbitration.57 Thirdly, he pointed
to the special nature of contracts entered into with a sovereign state.58 Such ‘economic
development agreements’, stated Dupuy, were characterized by several elements:
investment and technical assistance in developing states; a long-term close cooperation;
and the importance of an equilibrium between the interest of the private party and the
state.59 Especially, he emphasized, the investor must be protected against the risk of
modifications in the national law.60
Noting that the Permanent Court of Justice in the Serbian Loans case had admitted
that the principle that ‘[a]ny contract which is not a contract between States in their
capacity as subjects of international law is based on the municipal law of some country’
could be set aside depending on the ‘specific case under consideration’, Dupuy found
that ‘the legal order from which the binding nature of the contract derives is international law itself ’.61 As to the law governing the contract, he concluded that it was
‘international law’ rather than the general principles of law, and that Libyan law would
apply solely to the extent that it was consistent with international law.62 He did
emphasize, however, that such internationalization did not imply that the private
party or the contract was to be assimilated to a state or a treaty respectively; it only
meant that ‘for the purposes of interpretation and performance of the contract, it
should be recognized that a private contracting party has specific international capacities’.63 The investor succeeded on the merits. Dupuy held: ‘in respect of the international law of contracts, a nationalization cannot prevail over an internationalized
contract, containing stabilization clauses, entered into between a State and a foreign
private company.’64
As for the practice of the Iran–United States Claims Tribunal, there does not appear
to be any case in which the parties had explicitly agreed to the application of
international law. Indeed, it was the practice in Iran before the Revolution to subject
contracts concluded with Iranian governmental entities to the laws of Iran.65 On
occasion, the tribunal has nevertheless implied a choice of international law by virtue
of the nature of the contract. One example is Mobil Oil Iran v Iran (1987), where the

International 562 et seq.). For criticism, see Maniruzzaman, fn. 6, at 32; Spiermann, fn. 9, at 99, at
fn. 38.
56 Texaco v Libya, at para. 41.
57 Texaco v Libya, at para. 44. But see G.R. Delaume, ‘The Myth of the Lex Mercatoria and
State Contracts, Ch. 8’ in Lex Mercatoria and Arbitration: A Discussion of the New Law Merchant
(T.E. Carbonneau, ed., Yonkers, NY, Juris Publishing; The Hague, Kluwer Law International, 1998).
See also Chapter 3, Section 3.1.2 (on express and implied choice of law).
58 Texaco v Libya, at para. 45.
59 Texaco v Libya, at para. 45.
60 Texaco v Libya, at para. 45.
61 Texaco v Libya, at paras 26–27.
62 Texaco v Libya, at para. 41 (‘[T]he expression “principles of international law” is of much wider
scope than “general principles of law”, because the latter contribute with other elements (international
custom and practice which is accepted by the law of nations) to constitute what is called the “principles
of international law” ’).
63 Texaco v Libya, at para. 47.
64 Texaco v Libya, at para. 73.
65 See A. Avanessian, The Iran–United States Claims Tribunal in Action (London, Graham &
Trotman/Martinus Nijhoff, 1993), 239, at fn. 19.
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Reasons for the Primary Applicability of International Law

221

host state argued in favour of the application of its own national law.66 In support
thereof, Iran referred to article 29 of the contract at hand:
This Agreement shall be interpreted in accordance with the laws of Iran. The rights and
obligations of the Parties shall be governed by and according to the provisions of this Agreement.
The termination before expiry date or any alteration of this Agreement shall be subject to the
mutual agreement of the Parties.67

In the view of the tribunal, however, article 29 ‘is only partially and secondarily
concerned with a choice of law. The fact that this choice only applied to the issue of
interpretation, in contrast with the usual practice, does not justify an extension of this
choice to other issues. Expressio unius exclusio alterius est.’68 These other issues, held the
tribunal, could not be governed by Iranian law:
In view of the international character of the [Agreement], concluded between a State, a State
agency and a number of major foreign companies, of the magnitude of the interests involved, of
the complex set of rights and obligations which it established, and of the link created between this
Agreement and the sharing of oil industry benefits throughout the Persian Gulf Countries, the
Tribunal does not consider it appropriate that such an Agreement be governed by the law of one
Party. This conclusion is in accord with the spirit of Article 29 and with the usages of trade, as
expressed in agreements between States and foreign companies, notably in the oil industry, and
confirmed in several recent arbitral awards.69

Thus, the tribunal concluded that the law applicable to the contract was Iranian law for
interpretative issues, and the general principles of commercial and international law for
all other issues.70 The law applicable to the liability of Iran, as well as of NIOC, which
acted as an instrumentality of the Iranian Government, was held to be international
law.71
In sum, there is arbitral practice supporting the possibility for arbitrators to construe
the nature of the parties’ contractual relationship so as to require, on the basis of their
presumed intention, the application of international law. As noted in Chapter 4 and as
we will see later, non-contractual claims may properly be based in international law.72
As for contractual claims, and while an agreement for the sole application of international law is clearly valid, it should be emphasized that it may be impractical in that
international law is not as fully equipped as national law to answer numerous questions
of private law that arise in disputes between a state and a private person.73 Coupled
with the controversy concerning the theory and scope of internationalized contracts
relating partly to considerations of host state sovereignty,74 a finding for the application
66 Mobil Oil et al. v Iran, Partial Award, 14 July 1987, at para. 67.
67 Mobil v Iran, Partial Award, fn. 66, at para. 67. See also at para. 59; Chapter 5, Section 2.2 (on
host state sovereignty and territorial control over foreign investors and investments).
68 Mobil Oil Iran v Iran, Partial Award, at para. 80.
69 Mobil Oil Iran v Iran, Partial Award, at para. 80.
70 Mobil Oil Iran v Iran, Partial Award, at para. 81.
71 Mobil Oil Iran v Iran, Partial Award, at para. 81.
72 See Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims); Section 2.2 (on the international nature of the claim).
73 See, e.g., Maniruzzaman, fn. 6, at 29; N. Nassar, ‘Internationalization of State Contracts: ICSID,
the Last Citadel’ (1997) 14(3) J. Int’l Arb. 185, 195; A.A. Fatouros, ‘International Law and the
Internationalized Contract’ (1980) 74 Am. J. Int’l L. 134. 136. But see Blessing, fn. 7, at 217;
C.T. Curtis, ‘The Legal Security of Economic Development Agreements’ (1988) 29 Harv. Int’l L.J.
317, 344; Weil, The State, the Foreign Investor, and International Law, fn. 13, at 845–6.
74 See, e.g., V.C. Igbokwe, ‘Developing Countries and the Law Applicable to International
Arbitration of Oil Investment Disputes: Has the Last Word Been Said?’ (1997) 14(1) J. Int’l Arb
99. See also Chapter 5, Section 2.3.1 (on contractual claims).
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222 The Primary Applicability of International Law and the Role of National Law
of international law should be limited to situations in which the parties’ intention is
manifest.75 The sole insertion of an arbitration clause would appear insufficient in this
respect, as would general arguments relating to the transnational, governmental, and
long-term character of the contract, or a phrase that the contract is to be carried out in
‘good faith’. In the words of Delaume:
Failing an explicit reference to international law or to the general principles of law in an
agreement between a developed country and a foreign investor, it would occur to no one to
construct a reference to ‘good faith’ otherwise than as a reminder of an elementary rule of contract
law. Why should a different solution prevail when the contracting state is a developing nation
whose law is capable of supplying the basic legal framework of the transaction?76

In light of these considerations, it is fair to conclude that the protection by international
law of the investor–state relationship can be better achieved through means of investment treaties. These treaties, which will be discussed in the following, include a variety
of investor rights that can be directly invoked by the investor against the host state in
arbitration proceedings. Generally, such rights concern expropriation; ‘fair and equitable treatment’ and ‘full protection and security’; and frequently, the treaties also
include ‘umbrella’ (sanctity-of-contract) clauses that protect contractual rights.77

2.1.2. Express or implied agreement on the application of
international law in investment treaty arbitration
The significant number of investment treaties that allow foreign investors to bring
claims against the host state and that provide for the application of international law
either alone, or in combination with national law, have resulted in an increase of cases
being decided on the basis of international law. As the ICSID Tribunal noted in
Antoine Goetz et al. v Republic of Burundi (1999):
[C]hoice of law clauses in investment protection treaties frequently refer to the provisions of the
treaty itself, and more broadly, to international law principles and rules. This leads to a
remarkable comeback of international law, after a decline in practice and jurisprudence, in the
legal relations between host States and foreign investors [ . . . ].78

Tecnicas Medioambientales Tecmed S.A. v Mexico (2003) was arbitrated on the basis of
the ICSID Additional Facility Rules.79 The dispute concerned the alleged violation by
the host state of several provisions in the Spanish-Mexican BIT: promotion and
admission of investments; protection of investments; fair and equitable treatment;
most favourable treatment; national treatment; and expropriation.80 In finding in
75 Cf. F.V. García Amador, State Responsibility: Fourth Report by the Special Rapporteur in International Responsibility, U.N. Doc. A/CN.4/119 [1959] 2 Y.B. Int’l L. Comm’n, at para. 126.
76 Delaume, fn. 38, at 800. See also O. Schachter, International Law in Theory and Practice
(Dordrecht, Nijhoff, 1991), 310.
77 See Chapter 1, Section 1 (on motivations for the study); and Section 2 (on the scope of and
terminology used in the study). See also Leben, fn. 5, at 374, at para. 345. See also Section 3.1.2 (on
‘umbrella’ clauses).
78 Antoine Goetz et al. v Republic of Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999
(P. Weil, M.M. Bedjaoui, J.-D. Bredin, arbs), 15 ICSID Rev.-FILJ 457, 488–9 (2000). See also
P. Peters, ‘The Semantics of Applicable Law Clauses and the Arbitrator’ in Law and Reality: Essays on
National and International Procedural Law in Honour of Cornelis Carel Albert Voskuil (C.C.A. Voskuil
et al., eds, The Hague, T.M.C. Asser, 1992), 231, 242–3.
79 Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID Case No. Arb (AF)/
00/2, Award, 29 May 2003 (H.A. Grigera Nanon, J.C. Fernandez Rozas, C. Bernal Verea, arbs).
80 Tecnicas Medioambientales, at para. 93.
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Reasons for the Primary Applicability of International Law

223

favour of the investor with respect to its expropriation claim, the tribunal first noted
that in accordance with the BIT’s applicable law clause, it should resolve the dispute by
applying the provisions of the BIT as well as international law provisions.81 The term
‘international law’ was interpreted to refer to the ‘sources described in Article 38 of the
Statute of the International Court of Justice considered, also in the case of customary
international law, not as frozen in time, but in their evolution’.82 In discussing the
meaning of expropriation under international law, the tribunal referred to the jurisprudence of the European Court of Human Rights, the Inter-American Court of Human
Rights, and the Iran–United States Claims Tribunal.83
Tribunals set up under the North American Free Trade Agreement (NAFTA) are, by
virtue of the applicable law clause in the NAFTA, bound to settle the dispute ‘in
accordance with this Agreement and applicable rules of international law’.84 According
to the UNCITRAL Tribunal in International Thunderbird Gaming Corporation v
Mexico (2006):
In particular, the Tribunal has regard to the sources of law listed in Article 38(1) of the Statute of
the International Court of Justice [ . . . ] and shall construe the terms of Chapter Eleven of the
Nafta ‘in accordance with the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose.’85

This interpretation was supported by the host State, which observed that ‘the jurisdiction of a Nafta Tribunal is more limited in contrast with other tribunals [ . . . ] since
Nafta tribunals may not decide a dispute by reference to the internal law of a Nafta
Party’.86
The right of investors directly to invoke international law against host states based on
the applicable law clause in the treaty at hand was pointed out by the Stockholm
Chamber of Commerce (SCC) Tribunal applying the Energy Charter Treaty (ECT) in
Petrobart Limited v Kyrgyz Republic (2005).87 Article 26(6) ECT provides for the
application of the ECT’s provisions and applicable rules and principles of public
international law.88 The tribunal found that since the investor alleged breaches by
the host state of various obligations under the ECT, ‘the present case is in its entirety a
claim under international law and more specifically a Treaty claim’.89
The treaty nature of the arbitration may also lead a tribunal to infer a choice for the
primary applicability of the treaty and international law in general.90 The dispute in
Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka (1990) arose out of the

81 Tecnicas Medioambientales, at para. 116 (referring to Title VI.1 of the Appendix to the BIT).
82 Tecnicas Medioambientales, at para. 116 (references omitted).
83 Tecnicas Medioambientales, at para. 116.
84 North American Free Trade Agreement (NAFTA), art. 1131(1). Cf. Chapter 4, Section 3.2 (on
arbitration without privity).
85 International Thunderbird Gaming Corporation v United Mexican States, Award, 26 January 2006
(A.P. Ariosa, T.W. Wälde, A.J. van den Berg, arbs), paras 90–91 (referring to the Vienna Convention
on the Law of Treaties, art. 31).
86 International Thunderbird, at para. 88.
87 Petrobart Limited v Kyrgyz Republic, Arb. No. 126/2003, Arbitration Institute of the Stockholm
Chamber of Commerce, Award, 29 March 2005 (H. Danelius, O. Bring, J. Smets, arbs), 22.
88 See Petrobart, at 23. Cf. Energy Charter Treaty (1994), art. 26(6). See also Chapter 4,
Section 3.2 (on arbitration without privity).
89 Petrobart, at 22. See also ADC Affiliate Limited, ADC & ADMC Management Limited v Republic
of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006 (C. Brower, A.J. van den Berg,
N. Kaplan, arbs), paras 290–292.
90 See Chapter 3, Section 3.1.2 (on express and implied choice of law).
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224 The Primary Applicability of International Law and the Role of National Law
destruction of a Sri Lankan shrimp farm company, in which AAPL was a shareholder.91
The investors claimed that the destruction was the result of a counter-insurgency
operation undertaken by Sri Lankan security forces.92 The ICSID Tribunal found
that parties had implicitly agreed on the primary application of the BIT between Sri
Lanka and the United Kingdom, on which rested the tribunal’s jurisdiction.93
The investor based its claims on alleged violations of the host state’s obligations as set
out in the treaty: full protection and security of its investment, and adequate compensation for the destruction of its property.94 It also alleged that the host state’s liability
covered ‘damage caused under customary rules of international law on State responsibility’.95 The tribunal applied provisions of the BIT to the merits of the case. Article 2
(2) of that treaty provided that the host state should extend to the foreign investor ‘full
protection and security’.96 The tribunal interpreted that term to embody a standard of
‘due diligence’.97 Following an analysis of the jurisprudence of international tribunals
and academic writings, the arbitrators concluded that by failing to undertake all
possible measures to prevent the eventual occurrences of killings and property destruction, the host state had indeed violated the due diligence standard provided in article 2
(2); and that it was therefore responsible vis-à-vis the foreign investor.98

2.2. The international nature of the claim
International law may also primarily govern the dispute when the parties have not
reached an express or implied agreement with respect to the applicable law, or where
the parties have agreed to the application of both national and international law. In
such cases, an important factor for tribunals when deciding to apply international law
relates to the international nature of the claim at hand.
The possibility for investment tribunals to apply international law directly without
first having to assess the conduct of the host state in accordance with national law
resonates with important developments in the last century, whereby international law
bestows rights not only on states but also private parties.99 This development most
notably concerns human rights, but it also extends to other rights under international
law of customary and treaty nature. For instance, in the LaGrand case (2001), the

91 Asian Agricultural Products Limited (AAPL) v Democratic Socialist Republic of Sri Lanka, ICSID
Case No. ARB/87/3, Award, 27 June 1990 (A.S. El-Kosheri, B. Goldman, S.K.B. Asante, arbs), 30
I.L.M. 577 (1991).
92 AAPL v Sri Lanka, at para. 3.
93 AAPL v Sri Lanka, at 246, 250, 256. See also at para. 38; Chapter 3, Section 3.1.2 (on express
and implied choice of law). For criticism, see G. Elombi, ‘ICSID Awards and the Denial of Host State
Laws’ (1994) 11 J. Int’l Arb. 61, 66.
94 AAPL v Sri Lanka, at para. 7.
95 AAPL v Sri Lanka, at para. 7.
96 AAPL v Sri Lanka, at para. 43.
97 AAPL v Sri Lanka, at para. 53. Cf. I.F.I. Shihata and A.R. Parra, ‘Applicable Substantive Law in
Disputes between States and Private Foreign Parties: The Case of Arbitration under the ICSID
Convention’ (1994) 9 ICSID Rev.–FILJ 183, 201.
98 AAPL v Sri Lanka, at para. 86.
99 See C. Walter, ‘Subjects of International Law’ in Max Planck Encyclopedia of Public International
Law, in para.18, available at <http://www.mpepil.com/home> (last visited 1 May 2012); J.J. van
Haersolte-van Hof and A.K. Hoffmann, ‘The Relationship between International Tribunals and
Domestic Courts’ in Oxford Handbook of International Investment Law (P. Muchlinski et al., eds,
Oxford, Oxford University Press, 2008), 962, 990. See also Chapter 1, Section 1 (on motivations for
the study).
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Reasons for the Primary Applicability of International Law

225

International Court of Justice ruled that article 36(1)(b) of the Vienna Convention on
Consular Relations creates individual rights.100
It is also generally accepted that companies, including foreign investors, have rights
pursuant to international law.101 Apart from the area of human rights, investment
law is, in fact, one of the areas that best illustrates the ‘vertical’102 characteristics of
international law. In line with the general objectives of stimulating foreign investment,
investment treaties contain terminology consistent with the granting of international
rights to foreign investors.103 These substantive rights are coupled with and thereby
strengthened by the procedural right of investors to claim those rights directly vis-à-vis
the host state in investment arbitration.104 Compared to the interstate system of
diplomatic protection, the advantages for the investors are obvious, especially the fact
that the sanctioning of host state behaviour no longer depends on the discretionary
intervention by the investor’s home state.105 The possibility for investors directly to
invoke international law was noted by Justice Aikens of the English High Court of
Justice in Ecuador v Occidental (2001):
[T]he BIT creates rights and obligations between states on the level of public international law.
Given the wording of the BIT, [ . . . ] two points seem to me to be logical. First, that the State
Parties to the BIT intended to give investors the right to pursue, in their name and for themselves,
claims against the other State party. Secondly, that those rights are granted under public
international law and must be determined on principles of public international law.106

The Court of Appeal in the same case confirmed this interpretation: ‘That treaties may
in modern international law give rise to direct rights in favour of individuals is well
established, particularly where the treaty provides a dispute resolution mechanism
capable of being operated by such individuals acting on their own behalf and without

100 Case Concerning LaGrand (Germany v United States of America), Judgment, 27 June [2001] ICJ
Rep. 466, paras 75–78, 89. See also McKesson Corp. v Islamic Republic of Iran, Civ. Action No. 82–220
(RJL) (D.D.C. 17 July 2007) (a private right of action for expropriation exists under the Iran-US
Treaty of Amity); A. Nollkaemper, ‘Internationally Wrongful Acts in Domestic Courts’ (2007) 101
Am. J. Int’l L. 760, 769 (on humanitarian law).
101 Cf. M. Emberland, The Human Rights of Companies: Exploring the Structure of ECHR Protection
(Oxford, Oxford University Press, 2006), 1–2.
102 For a discussion of the difference between horizontal and vertical conceptions of international
law, see L. Brilmayer, Justifying International Acts (Ithaca, London, Cornell University Press, 1989).
103 See Corn Products International, Inc. v United Mexican States, ICSID Case No. ARB (AF)/04/1,
Decision on Responsibility, 15 January 2008 (A.F. Lowenfeld, L.J.A.S. de la Vega, C.J. Greenwood,
arbs), para. 169; O. Spiermann, ‘Individual Rights, State Interests and the Power to Waive ICSID
Jurisdiction under Bilateral Investment Treaties’ (2004) 20(2) Arb. Int’l 179, 183 (2004). But see
Loewen Group, Inc. and Raymond L. Loewen v United States, ICSID Case No. ARB(AF)/98/3, Award,
26 June 2003 (S. Mason, A.J. Mikva, Lord Mustill, arbs), para. 233. See also Z. Douglas, ‘Nothing if
not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex’ (2006) 22(1) Arb.
Int’l 27, 36–7; J. Crawford, ‘The ILC’s Articles on Responsibility of States for Internationally
Wrongful Acts: A Retrospect’ (2002) 96 Am. J. Int’l L. 874, 888. Cf. A. Roberts, ‘Power and
Persuasion in International Treaty Interpretation: The Dual Role of States’ (2010) 104 Am. J. Int’l
L. 179, 184–5 (Robert sets out three possibilities that have been mooted about whether investment
treaties grant investors substantive and/or procedural rights).
104 See Chapter 2, Section 2 (on features of the arbitral process).
105 See J. Paulsson, ‘Arbitration Without Privity’ (1995) 10(2) ICSID Rev.-FILJ 232, 255–6;
Council of Canadians, CUPW and the Charter Committee on Poverty Issues v the Attorney General of
Canada, Affidavit of J. Crawford, 15 July 2004 (reply to M. Sornarajah), para. 44. Cf. J. Dugard,
Fourth Report on Diplomatic Protection, (2003) UN Doc A/CN.4/530, para. 17.
106 Republic of Ecuador v Occidental Exploration and Production Company, High Court of Justice,
Queen’s Bench Division, Commercial Court, 29 April 2005, [2005] EWHC 774 (Comm), (per Mr
Justice Aikens), para. 61.
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226 The Primary Applicability of International Law and the Role of National Law
their national state’s involvement or even consent.’107 To the extent that such claims
would fall under the scope of the arbitration agreement,108 the same can be said about
certain norms of customary international law providing for a minimum standard of
treatment for aliens; and possibly, general principles of international law, such as good
faith.109
In view of such remarks, the practice discussed in Chapter 5 whereby investment
tribunals, and especially those set up pursuant to the ICSID Convention, primarily
apply national law in situations where both national and international sources of law are
applicable,110 may be subject to deeper scrutiny. More specifically, it may be asked
whether tribunals should always primarily apply national law to the merits; leaving a
complementary and supervening role for international law also in investment treaty
arbitration, or more generally, where the dispute settlement clause is broad enough to
encompass claims of an international nature.111 Indeed, where the parties have only
invoked international law, the primary application of national law by the tribunal could
seem to go against the principle non ultra petita.112
While the claimant in Wena Hotels Ltd v Arab Republic of Egypt (2000/02) had
invoked both national and international law in its pleadings,113 the tribunal and ad hoc
committee answered the question just posed in the negative by interpreting the second
sentence of article 42(1) ICSID Convention114 in a functional rather than sequential
manner. The dispute related to two hotels located in Egypt that were leased to Wena in
1989 and 1990 by the Egyptian Hotel Company (ECH), a state-owned company with
its own legal personality.115 Certain disputes arose between Wena and EHC relating to
107 Ecuador v Occidental, Judgment of the Court of Appeal regarding non-justiciability of challenge
to arbitral award, 9 September 2005, [2005] EWCA Civ 1116, para. 19 (Lord Phillips of Worth
Matravers MR, Clarke, Mance LJJ) (references omitted).
108 See generally Chapter 4 (on the scope of the arbitration agreement: claims and counterclaims of
a national and/or international nature).
109 See A.J. van den Berg, International Commercial Arbitration: Important Contemporary Questions
(The Hague, Kluwer Law International, 2003), 367; C. Schreuer, The Relevance of Public International
Law in International Commercial Arbitration: Investment Disputes, at 10, available at <http://www.
univie.ac.at/intlaw/pdf/csunpublpaper_1.pdf> (last visited 1 May 2012); Merrill & Ring Forestry L.P. v
Canada, Award, 31 March 2010 (F.O. Vicuña, K.W. Dam, J.W. Rowley, arbs), at para. 187;
Chapter 1, fns 45–46.
110 See Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign
investors and investments).
111 See Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims).
112 See Spiermann, fn. 9, at 90; ILA, Committee on International Commercial Arbitration,
Ascertaining the Contents of the Applicable Law in International Commercial Arbitration, Rio de
Janeiro, 21 August 2008, Resolution No. 6/2008, Recommendation 8; T. Giovannini, ‘What are the
Grounds on which Awards are most often Set Aside?’ (January 2001) 1 Bus. L. Int’l 8. But see
G.C. Moss, ‘Is the Arbitral Tribunal Bound by the Parties’ Factual and Legal Pleadings?’ (2006) 3
Stockholm Int’l Arb. Rev. 1, 26 (‘ [T]he tribunal is not expected to simply act as an umpire and choose
between the parties’ arguments; if it is entitled to develop its own legal argumentation, it must also be
entitled to draw the legal consequences of this argumentation, and these at times might entail remedies
that were not requested by the parties’).
113 Wena v Egypt, fn. 1, Award, 8 December 2000 (M. Leigh, I. Fadlallah, D. Wallace, arbs), para.
75 (references omitted) (in its Memorial on the Merits, the investor claimed that ‘Egypt violated the
[contract], Egyptian law and international law by expropriating Wena’s investment without
compensation’).
114 Convention on the Settlement of Investment Disputes between States and Nationals of Other
States (1965), art. 42(1), second sentence (hereinafter ICSID/Washington Convention) (in the
absence of an agreement by the parties on the applicable law, ‘the Tribunal shall apply the law of
the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of
international law as may be applicable’).
115 Wena v Egypt, fn. 1, Decision on Annulment, at para. 15.
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Reasons for the Primary Applicability of International Law

227

their respective obligations under the lease agreements.116 On the basis that, according
to Egypt, Wena had failed to pay rent or to fulfil its development obligations to the
hotels, Wena was evicted from one of the hotels, while the other was placed in judicial
receivership.117
The investor raised two substantive claims before the ICSID Tribunal. First, it
argued that Egypt had unlawfully expropriated its investments without ‘prompt,
adequate and effective’ compensation in violation of the United Kingdom–Egypt
BIT, as well as other international law and Egyptian law.118 Secondly, it claimed
that Egypt had breached the BIT, and other international norms, by failing to accord
Wena’s investments ‘fair and equitable treatment’ and ‘full protection and security’.119
As to the applicable law, the tribunal first stated, in language similar to that
employed by the ICSID Tribunal in AAPL v Sri Lanka,120 that the provisions of the
BIT would primarily be applied to the dispute:
As both parties agree, ‘this case all turns on an alleged violation by the Arab Republic of Egypt of
the agreement for the promotion and protection of investments that was entered into in 1976
between the United Kingdom and the Arab Republic of Egypt.’ Thus, the Tribunal, like the
parties (in both their submissions and oral advocacy), considers the [BIT] to be the primary
source of applicable law for this arbitration.121

The tribunal went on to observe that ‘beyond the provisions of the BIT, there is no
special agreement between the parties on the rules of law applicable to the dispute’.122
It further noted that the parties in their arguments had not treated the BIT as
containing all the rules of law applicable to their dispute; in particular, the host state
had relied on Egyptian law.123 Thus, the tribunal concluded that the second sentence
of article 42(1) ICSID Convention was applicable.124 Still, it noted, ‘the provisions of
the [BIT] would in any event be the first rules of law to be applied by the Tribunal,
both on the basis of the agreement of the parties and as mandated by Egyptian law as
well as international law.’125
The investor prevailed on merits.126 Egypt sought an annulment of the award,
arguing, inter alia, that the tribunal had manifestly exceeded its powers by failing to
apply Egyptian law in contravention of article 42(1) of the ICSID Convention.127
According to Egypt, the law of the host state, and not international law, should be
considered the primary source of law; and it thus objected to the fact that the tribunal
had regarded and applied the provisions of the BIT as the primary source of law.128 The
ad hoc committee (2002) started by fully agreeing with one of the points put forward
by Egypt, namely the ‘legitimate principle that a country that attracts foreign investment is entitled to insist that investors comply with the laws of that country’.129
116 Wena v Egypt, Decision on Annulment, at para. 15.
117 Wena v Egypt, Decision on Annulment, at para. 15.
118 Wena v Egypt, fn. 113, Award, at para. 80.
119 Wena v Egypt, Award, at para. 80.
120 See Section 2.1.2 (on express or implied agreement on the application of international law in
investment treaties); Chapter 3, Section 3.1.2 (on express and implied choice of law).
121 Wena v Egypt, fn. 113, Award, at para. 78 (references omitted).
122 Wena v Egypt, Award, at para. 79.
123 Wena v Egypt, Award, at para. 79.
124 Wena v Egypt, Award, at para. 79.
125 Wena v Egypt, Award, at para. 79 (emphasis added).
126 Wena v Egypt, Award, at para. 131.
127 Wena v Egypt, Decision on Annulment, fn. 1, at para. 21.
128 Wena v Egypt, Decision on Annulment, at para. 23.
129 Wena v Egypt, Decision on Annulment, at para. 24.
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228 The Primary Applicability of International Law and the Role of National Law
However, in its view, the issue was more ‘whether the resort to international law in any
way contradicts the principle stated’.130 The determinant factor, according to the
committee, was that the dispute did not concern ECH’s contractual obligations visà-vis Wena, but rather the State of Egypt’s obligations under the BIT toward British
investors such as Wena.131 For that reason, it found it irrelevant that the lease contracts
between Wena and EHC were subject to Egyptian law.132
The committee then entered into a discussion on the interrelation between national
and international law pursuant to the second sentence of article 42(1) ICSID Convention, noting the divergent approaches in practice and literature in favour of either
a restrictive or a broad role of international law.133 It observed that ‘[t]here seems not
to be a single answer as to which of these approaches is the correct one’; and that
the circumstances of each case may justify one or another solution.134 Importantly,
according to the committee, the use of the word ‘may’ in the second sentence of article
42(1) indicates that the ICSID Convention does not draw a sharp line of distinction of
the scope of international and national law, and that ICSID tribunals have a certain
margin and power for interpretation.135 Moreover, the committee found it ‘clear [ . . . ]
that the sense and meaning of the negotiations leading to the second sentence of Article
42(1) allowed for both legal orders to have a role’.136 Thus, it reasoned, the law of the
host state can be applied in conjunction with international law ‘if this is justified’, and
international law can be applied by itself ‘if the appropriate rule is found in this other
ambit’.137
This approach, and particularly the statement by the committee that international
law may be applied without reference first to national law, can be characterized as a shift
not only in methodology, but also in the outlook on the relationship between national
and international law when both sources are applicable.138 Still, this difference in
approach becomes less ‘revolutionary’ when considering the different character of the
disputes at hand. Indeed, while certain statements made during the drafting of
the ICSID Convention as well as subsequent practice do give support to the primary
130 Wena v Egypt, Decision on Annulment, at para. 24.
131 Wena v Egypt, Decision on Annulment, at para. 33. See also at para. 36.
132 Wena v Egypt, Decision on Annulment, at para. 28. But see Z. Douglas, ‘The Hybrid
Foundations of Investment Treaty Arbitration’ (2003) 74 Brit. Y.B. Int’l L. 151, 205–7 (Douglas
criticizes the award and the decision on annulment for the ‘prominent failure to heed to the lex situs
choice of law rule with respect to matters concerning the existence and extent of the investment’). See
further Section 3.1.1 (on the prohibition against expropriation without compensation).
133 Wena v Egypt, Decision on Annulment, at paras 37 et seq.
134 Wena v Egypt, Decision on Annulment, at para. 39.
135 Wena v Egypt, Decision on Annulment, at para. 39.
136 Wena v Egypt, Decision on Annulment, at para. 40.
137 Wena v Egypt, Decision on Annulment, at para. 40. In concluding that the tribunal did not
exceed its powers by applying the rules of the BIT, the committee partly relied on the fact that
according to Egyptian law, treaties have the force of national law. See at paras 42–45. See also
Chapter 5, Section 3.1.1 (on international law as part of the ‘law of the land’). Cf. G. KaufmannKohler, ‘Annulment of ICSID Awards in Contract and Treaty Arbitrations: Are there Differences?’ in
Annulment of ICSID Awards (E. Gaillard and Y. Banifatemi, eds, New York, Juris Publishing, 2004)
189, at section II(B)(2).
138 See CMS Gas Transmission Company v Argentine Republic, ICSID Case No. ARB/01/8, Award,
12 May 2005 (F.O. Vicuña, M. Lalonde, F. Rezek, arbs), para. 116 (describing the annulment
decision in Wena as ‘a more pragmatic and less doctrinaire approach [ . . . ] allowing for the application
of both domestic law and international law if the specific facts of the dispute so justify’); E. Gaillard,
‘The Extent of Review of the Applicable Law in Investment Treaty Arbitration’ in Annulment of ICSID
Awards (E. Gaillard and Y. Banifatemi, eds, New York, Juris Publishing, 2004), 223, 241. Spiermann
refers to this choice-of-law methodology as the ‘horizontal approach’, which he distinguishes from the
traditional, ‘vertical approach’. Spiermann, fn. 9, at 105. See also at 108.
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Reasons for the Primary Applicability of International Law

229

applicability of national law,139 it should be kept in mind that the Convention was
‘drafted principally with investor–State contracts in mind where domestic law would
play the critical (if not exclusive) role’.140 Indeed, none of the ICSID awards referred to
in Chapter 5 on the primary applicability of national law on the basis of considerations
of host state sovereignty were brought under an investment treaty.141 It seems only
appropriate to distinguish such earlier cases from those in which the arbitration
agreement explicitly recognizes the procedural right of investors to invoke the international responsibility of the host state.
This interpretation has been endorsed in scholarship. Referring to the ‘Wena doctrine’,
Gaillard and Banifatemi defend the possibility that ICSID tribunals primarily
apply international law to claims of an international nature.142 In their view, the legislative
history relating to article 42(1), second sentence of the ICSID Convention does not
support the proposition that international law should solely play a complementary and
supervening role vis-à-vis national law. Rather, they state, the second sentence of article
42(1) allows for a truly independent body of substantive rules that may be applied by
themselves, and not through the filter of the law of the host state.143 Gaillard puts it this way:
If the word ‘and’ in the second sentence of Article 42(1) of the Washington Convention is to be
given a meaning, the choice of law rule contained in the second sentence of Article 42(1) should
be understood as the ‘law of the Contracting State . . . and such rules of international law as may
be applicable,’ rather than as ‘the law of the Contracting State party to the dispute and, in case of
lacunae, or should the law of the Contracting State be inconsistent with international law,’ or
even as ‘the law of the Contracting State party to the dispute and, subject to its collision with
fundamental rules of international law.’ In other words, international law constitutes a legal order
fully operating in both its public policy function and as a body of substantive rules (thus
understood as covering the entirety of the sources set forth in Article 38 of the Statute of the
International Court of Justice).144

Significantly, the ‘Wena approach’ has also been followed by other investment tribunals, also of a territorialized nature, so that the preferred method is now directly to
apply international law to claims characterized as international. Thus, the ICSID ad
139 See Chapter 3, Section 3.2.2.1 (on the ICSID Convention); Chapter 5, Section 2.2 (on host
state sovereignty and territorial control over foreign investors and investments).
140 N. Blackaby et al., Redfern and Hunter on International Arbitration (Oxford, Oxford University
Press, 2009), 484–5. See also A.R. Parra, ‘Applicable Law in Investor–State Arbitration’, TDM 6
(November 2007); Gaillard, fn. 138, at fn. 11; Kaufmann-Kohler, fn. 137, at section II(B)(2); Duke
Energy International Peru Investments No. 1, Ltd v Peru, ICSID Case No. ARB/03/28, Decision on
Annulment, 1 March 2011 (C. McLachlan, D. Hascher, P. Tomka, committee members), para. 129.
141 Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign investors
and investments).
142 E. Gaillard and Y. Banifatemi, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the
Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ (2003)
18(2) ICSID Rev-FILJ 375. See also Gaillard, fn. 138, at section III.
143 Gaillard and Banifatemi, fn. 142, at 397. See also at 381–3, 393, 403 (the authors cast doubt on
the necessity of primary recourse to the history of the Convention as the principal means of
interpretation of the second sentence of article 42(1) when the ordinary meaning supports the
conclusion that national and international law are as relevant).
144 E. Gaillard, fn. 138, at 234 (references omitted). See also A. Broches, ‘The Convention on the
Settlement of Investment Disputes between States and Nationals of Other States’ (1972-II) 136
Recueil des Cours 392; Shihata and Parra, fn. 97, at 192; G. Sacerdoti, ‘Investment Arbitration under
ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’ (2004) 19(1) ICSID
Rev.-FILJ 1, 6; Z. Douglas, The International Law of Investment Claims (Cambridge, Cambridge
University Press, 2009), 81 (Rule 10). But see V.C. Igbokwee, ‘Determination, Interpretation and
Application of Substantive Law in Foreign Investment Treaty Arbitrations’ (2006) 23(4) J. Int’l Arb.
267, 278.
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230 The Primary Applicability of International Law and the Role of National Law
hoc committee held in Compañia de Aguas del Aconquija SA and Vivendi Universal v
Argentine Republic (2002) that ‘[t]he BIT claim will be determined by reference to its
own proper or applicable law, namely international law’.145 According to the ICSID
Tribunal in MTD Equity Sdn. Bhd. & MTD Chile S.A. v Chile (2004), ‘[t]he breach of
an international obligation will need, by definition, to be judged in terms of international law.’146 The ICSID Tribunal in LG&E Energy Corp. et al. v Argentina (2006)
reasoned as follows:
The intention in the language of the original draft was not to establish an order of preference, but
rather to establish the possibility of alternatives. Initially, scholarly authorities and some ICSID
Tribunals admitted that the conjunction ‘and’ meant that ‘and in case of lacunae, or should the
law of the Contracting State be inconsistent with international law.’ However, any limitation to
the role of international law under these terms would imply accepting that international law may
be subordinate to domestic law and would obviate the fact that there are a growing number of
arbitrations initiated on the basis of bilateral or multilateral investment treaties.147

In its view, the fact that the dispute at hand did not involve a claim for breach of
contract ‘favors in the first place, the application of international law, inasmuch as we
are dealing with a genuine dispute in matters of investment which is especially subject
to the provisions of the Bilateral Treaty complemented by domestic law’.148 The same
line of approach was adopted by the ICSID ad hoc committee in its decision on
annulment in Azurix Corp. v Argentine Republic (2009):
Each of Azurix’s claims in this case was for an alleged breach of the BIT. The BIT is an
international treaty between Argentina and the United States. By definition, a treaty is governed
by international law, and not by municipal law. [...] In any claim for breach of an investment
treaty, the question whether or not there has been a breach of the treaty must therefore be
determined, not through the application of the municipal law of any State, but through the
application of the terms of the treaty to the facts of the case, in accordance with general principles
of international law, including principles of the international law of treaties. Bearing in mind that
an investment treaty, whether bilateral or multilateral, is itself a source of international law as
between the States parties to that treaty, the applicable law in any claim for a breach of that treaty
can thus be said to be the treaty itself specifically, and international law generally.149

As to the ICSID Convention in particular, the committee found that ‘Article 42(1)
cannot possibly be understood as having the effect that, in the absence of an express
choice of law clause, the municipal law of the Contracting State will be the applicable
law in claims for alleged breaches of an investment treaty’.150 Also the award in El Paso
v Argentina (2011) can serve as an example.151 The claimant had relied on Argentina’s
responsibility for the violation of various provisions of the BIT; and referring to the ILC
145 Compañia de Aguas del Aconquija SA and Vivendi Universal v Argentine Republic, ICSID Case
No. ARB/97/3, Decision on Annulment, 3 July 2002 (L.Y. Fortier, J.R. Crawford, J.C. Fernández
Rozas, committee members), at para. 60. See also at para. 102.
146 MTD Equity Sdn. Bhd. & MTD Chile S.A. v Chile, ICSID Case No. ARB/01/7, Award, 25 May
2004 (A.R. Sureda, M. Lalonde, R.O. Blanco, arbs), para. 204. See also Decision on Annulment,
21 March 2007 (G. Guillaume, J. Crawford, S.O. Noriega, committee members), paras 61, 72.
147 LG&E Energy Corp. et al. v Argentina, ICSID Case No. ARB/02/1, Decision on Liability,
3 October 2006 (T.B. de Maekelt, F. Rezek, A.J. van den Berg, arbs), para. 81.
148 LG&E Energy, at para. 98. See also at para. 92.
149 Azurix Corp. v Argentine Republic, ICSID Case No. ARB/01/12, Decision on Annulment,
1 September 2009 (G. Griffith, B. Ajibola, M. Hwang, committee members), para. 146.
150 Azurix v Argentina, at para. 147. See also Award, 14 July 2006 (A.R. Sureda, M. Lalonde, D.
H. Martins, arbs), para. 67.
151 El Paso Energy International Company v The Argentine Republic, ICSID Case No. ARB/03/15,
Award, 31 October 2011.
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Reasons for the Primary Applicability of International Law

231

Articles on State Responsibility, the ICSID Tribunal concluded that ‘the primary
governing law in this case is the BIT, supplemented by international law to which
the BIT itself makes reference in various provisions’.152
Reference should also be made to the award in CME Czech Republic B.V. v Czech
Republic (2001/03), in which the relevance of national and international law was
extensively debated.153 The UNCITRAL Tribunal interpreted the BIT at hand to
allow it directly to apply international law; and in solving the dispute on the merits, it
paid little regard to the national law of the host state.154 This it did on the basis of the
following interpretation of the applicable law clause: it ‘is broad and grants to the
Tribunal a discretion, without giving precedence to the systems of law referred to’.155
In other words, it concluded, ‘[t]here is no ranking in the application of the national
law of the host state, the Treaty provisions or the general principles of international
law.’156 Although the tribunal’s disregard of national law may be criticized,157 we agree
in principle with the tribunal’s receptivity of and non-hierarchical approach to the
applicability of the various sources of law.
On the merits, the tribunal by majority found that the Czech Republic had violated
several provisions of the BIT.158 The host state sought to have the partial award
annulled at the tribunal’s juridical seat, Sweden, partly on the basis that the tribunal
had exceeded its mandate by failing to apply the law as set out in the BIT, and especially
Czech law.159 The Svea Court of Appeal denied the request, stating that an annulment

152 El Paso v Argentina, at para. 130 (referring to ILC Articles on State Responsibility (2001), art.
3); Alpha Projektholding GmbH v Ukraine, ICSID Case No. ARB/07/16, Award, 8 November 2010
(D.R. Robison, S.A. Alexandrov, Y. Turbowicz, arbs), para. 233; Saipem S.p.A. v The People’s Republic
of Bangladesh, ICSID Case No. ARB/05/7, Award, 30 June 2009 (G. Kaufmann-Kohler,
C.H. Schreuer, P. Otton, arbs), para. 99.
153 CME Czech Republic B.V. v Czech Republic, Partial Award, 13 September 2001 (W. Kühn,
S.M. Schwebel, J. Hándl, arbs), para. 419; Dissenting Opinion Hándl; Final Award, 14 March 2003
(W. Kühn, S.M. Schwebel, I. Brownlie, arbs), paras 503, 506, 507; Czech Republic v CME Czech
Republic B.V., Case T 8735-01-77, Svea Court of Appeal, 15 May 2004, 42 I.L.M. 919, 963–5
(2003); G. Sacerdoti, Case T 8735-01-77, The Czech Republic v CME Czech Republic B.V. (Expert
Opinion) TDM 2(5) (2005) 15 October 2002; C. Schreuer and A. Reinisch, Legal Opinion Submitted
to the Svea Court of Appeal, 22 May 2002; C. Schreuer and A. Reinisch, Res judicata, Duty to Apply the
Proper Law, Joint Tortfeasors, 20 June 2002; C. Schreuer, Comments relating to Applicable Law, 30
March 2003. See also Chapter 5, Section 2.2 (on host state sovereignty and territorial control over
foreign investors and investments).
154 CME v Czech Republic, fn. 153, Partial Award; Final Award. See also Final Award, at para. 397
(the tribunal refers to article 3(5) of the treaty: ‘If the provisions of law of either Contracting Party or
obligations under international law existing at present or established hereafter between the Contracting
Parties in addition to the present Agreement contain rules, whether general or specific, entitling
investments by investors of the other Contracting Party to a treatment more favourable than is
provided for by the present Agreement, such rules shall to the extent that they are more favourable prevail
over the present agreement’ [emphasis in original]).
155 CME v Czech Republic, Final Award, para. 402. Cf. Netherlands–Czech/Slovak Republic BIT,
art. 8(6) (‘The arbitral tribunal shall decide on the basis of the law, taking into account in particular
though not exclusively: the law in force of the Contracting Party concerned; the provisions of this
Agreement, and other relevant Agreements between the Contracting Parties; the provisions of special
agreements relating to the investment; the general principles of international law’). See also CME v
Czech Republic, fn. 153, Final Award, at paras 89–91(referring to a common position between the
Netherlands and the Czech Republic on the interpretation of article 8(6) of the BIT).
156 CME v Czech Republic, Final Award, at para. 402.
157 See Section 3.1.1 (on the prohibition against expropriation without compensation). See also
Igbokwee, fn. 144, at 289–98.
158 CME v Czech Republic, Final Award, fn. 153, at paras 51–52.
159 Czech Republic v CME Czech Republic B.V., fn. 153, Svea Court of Appeal.
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232 The Primary Applicability of International Law and the Role of National Law
would require proof of ‘an almost deliberate disregard of the designated law’.160 In line
with this high threshold, it considered it sufficient for its assessment to ‘clarify whether
the arbitral tribunal applied any of the sources of law listed in the choice of law clause or
whether the tribunal has not based its decision on any law at all but, rather, judged in
accordance with general reasonableness’.161 The Court found that there had been no
excess of mandate.162 In reaching this conclusion, it focused on the fact that the four
sources of law listed were neither numbered, nor exhaustive:
The wording that the arbitral tribunal shall ‘take into account in particular although not
exclusively’ must be interpreted such that the arbitrators may also use sources of law other
than those listed. The four sources of law are not numbered, nor are they otherwise marked in
such a manner that governing law in the relevant contracting state should primarily be applied
and general principles of international law applied thereafter. The un-numbered list almost gives
the impression that the contracting states have left to the arbitrators the determination, on a case
by case basis, as to which source or sources of law shall be applied.163

Lending support to the approach taken by the UNCITRAL Tribunal, it continued by
suggesting that ‘[i]f the case concerns an alleged violation of the Investment Treaty, it
might be relevant first of all to apply international law, in light of the Investment
Treaty’s purpose of affording protection to foreign investors by prescribing norms in
accordance with international law’.164
This interpretation resonates with Sacerdoti’s expert opinion for CME before the
Swedish court. He bases his endorsement of the tribunal’s choice-of-law methodology
partly on the object and purpose of investment treaties, namely to allow investors
directly to obtain protection of those treaty rights and redress for any breach through
binding impartial arbitration without any need to resort to diplomatic protection:
It stems logically therefrom that claims made in the CME–[Czech Republic] arbitration by
CME, based on those treaty standards and obligations and claiming alleged infringements
thereof, must be evaluated and decided by the tribunal ‘on the basis’ of international law,
represented by the BIT, any other agreement between the parties and the general principles. In
a case where claims are for treaty violations, as here, international law alone is relevant because
international obligations of States are governed exclusively by international law.165

160 Czech Republic v CME Czech Republic B.V., at 963–4. See also Chapter 2, Section 3.3 (on the
influence of the delocalization theory on state practice); Chapter 3, Section 2.
161 Czech Republic v CME Czech Republic B.V., at 965.
162 Czech Republic v CME Czech Republic B.V., at 965.
163 Czech Republic v CME Czech Republic B.V., at 965. See also at 965 (‘In the Agreed Minutes, it is
stated concerning the interpretation of the choice of law clause that the arbitral tribunal must “take into
account as far as they are relevant to the dispute the law in force of the Contracting Party concerned
and the other sources of law set out in Article 8.6.” The interpretation which can be given to the
wording of the clause is thus hereby confirmed, namely that the clause leaves to the arbitral tribunal to
take into account Czech law and other sources of law insofar as such are relevant in the dispute’).
164 Czech Republic v CME Czech Republic B.V., at 965. For criticism of the decision, see G.C. Moss,
‘Is the Arbitral Tribunal Bound by the Parties’ Factual and Legal Pleadings’ (2006) Stockholm Int’l Arb.
Rev. 1, 10; C. McLachlan, ‘Investment Treaty Arbitration: The Legal Framework’ in 50 Years of the
New York Convention (ICCA Congress Series no. 14, A.J. van den Berg, ed., Kluwer, Alphen aan den
Rijn, Kluwer Law International, 2009), 95, 117; C. Schreuer, ‘Failure to Apply the Governing Law in
International Investment Arbitration’ (2002) 7 Austrian Rev. Int’l & Eur. L. 147, 194–5; S. Soltysinski
and M. Olechowski, ‘Observations on the CME Svea Court Award’ (2003) 2 Stockholm Arb. Rep. 215,
277.
165 Sacerdoti, fn. 153, at 47–8.
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Reasons for the Primary Applicability of International Law

233

The applicable-law clause in the Netherlands–Czech Bilateral Investment Treaty was
also at issue in Eastern Sugar B.V. v Czech Republic (2007).166 Referring to a common
position reached between the states parties to the Netherlands–Czech Bilateral Investment Treaty with respect to the interpretation of article 8.6 (‘To the extent that there is
a conflict between national law and international law, the arbitral tribunal shall apply
international law’), the SCC Tribunal held:
This does not mean that international law applies only when it is in conflict with national law.
On the contrary, it means that international law generally applies. It is not just a gap-filling law. It
is only where international is silent that the Arbitral Tribunal should consider before reaching any
decision how non conflicting provisions of Czech law might be relevant, and if so, could be taken
into account.167

A similar approach has been followed by the Iran–United States Claims Tribunal. Its
practice gives ample evidence of the possibility directly to apply international law to
claims of an international nature. This is consistent with the observation by Toope that
‘[t]he application of any particular category of sources would depend upon the nature
of the underlying dispute. It would be unlikely that all sources should apply in any
given case.’168 Hence, in Mobil Oil Iran v Iran (1987) it was held that ‘allegations of
breach [of contract] and allegations of expropriation raise different and distinct legal
issues which thus must be considered separately’.169 With regard to the latter issue, the
tribunal concluded ‘that the lawfulness of an expropriation must be judged by reference
to international law. This holds true even when the expropriation is of contractual
rights. A concession, for instance, may be the object of a nationalization regardless of
the law the parties chose as the law of the contract.’170 We further note the case Phillips
Petroleum Company v Iran (1989), in which the claimant argued that Iran had breached
and repudiated their mutual contract; and alternatively, that Iran was liable for the
expropriation of its contractual rights.171 The tribunal considered that ‘the acts complained of appear more closely suited to assessment of liability for the taking of foreignowned property under international law than to assessment of the contractual aspects of
the relationship’, and so it decided to consider the claim in that light.172
The decision to apply international law to expropriation claims may be partly
explained on the basis of the 1955 Treaty of Amity, Economic Relations, and Consular
Rights Between the United States of America and Iran, which contains an explicit
provision on expropriation:

166 Eastern Sugar B.V. v Czech Republic, SCC Case No. 088/2004, Partial Award, 27 March 2007
(R. Volterra, P.A. Karrer, E. Gaillard, arbs).
167 Eastern Sugar, at para. 373. See also BG Group Plc v Argentina, Award, 24 December 2007
(A.M. Carro, A.J. van den Berg, G.A. Alvarez, arbs), para. 91 (it is ‘clear and not subject to dispute by
the Parties [ . . . ] that the substantive standards for treatment of investors are matters governed by the
treaty, without any need for reference to Argentine law. Indeed, the preeminence of the BIT as lex
specialis governing this dispute, on matters expressly covered by this bilateral treaty, is expressly
acknowledged by both Parties’ [references omitted]); see also at para. 95.
168 S.J Toope, Mixed International Arbitration: Studies in Arbitration between States and Private
Persons (Cambridge, Grotius, 1990), 373–4. Cf. W. Mapp, The Iran–United States Claims Tribunal:
The First Ten Years 1981–1991 (1993), 107. See also Chapter 4, Section 3.2 (on arbitration without
privity).
169 Mobil Oil v Iran, fn. 66, Partial Award, at para. 58.
170 Mobil Oil v Iran, at para. 73. For the law applicable to allegations of breach of contract, see
Section 2.2.1 (on express or implied ‘internationalization’ of investment contracts).
171 Phillips Petroleum Company v Iran, Award, 29 June 1989, para. 75.
172 Phillips Petroleum Company v Iran, Award, para. 75.
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234 The Primary Applicability of International Law and the Role of National Law
Property of nationals and companies of either High Contracting Party, including interests in
property, shall receive the most constant protection and security within the territories of the other
High Contracting Party, in no case less than that required by international law. Such property
shall not be taken except for a public purpose, nor shall it be taken without the prompt payment
of just compensation. Such compensation shall be in an effectively realizable form and shall
represent the full equivalent of the property taken; and adequate provision shall have been made
at or prior to the time of taking for the determination and payment thereof.173

In Amoco International Finance Corporation v Iran (1987), the tribunal dismissed the
objection by Iran that the treaty ‘did not create rights or duties for private persons’.174
According to the tribunal, it was indisputable that certain provisions of the treaty set
standards of treatment that each state party must accord to the nationals and companies
of the other party.175 In its view, these foreign investors, entitled to receive such
treatment, should also be able to invoke its provisions.176 This is particularly so, held
the tribunal, in an adjudication before an international tribunal such as itself, which is
expressly authorized by article V of the Claims Settlement Declaration to apply the
rules and principles of international law.177 On this basis, it found it ‘immaterial
whether or not the enforcement of such treaty rights and law by domestic courts
would be dependent on the enactment of legislation introducing the provisions of the
treaty into the law of the State’.178
Before concluding on this point, it should be observed that the primary application
of international law in cases where both national and international law could apply has
also been questioned. Commenting on the international law approach of the Iran–
United States Claims Tribunal, Judge Aldrich remarks:
[I]t is the question of when we decide a case involving the taking of property, are we deciding it, a
typical international law case of State responsibility for expropriation, or are we simply deciding a
taking of property under general principles of law as a result of the [Claims Settlement
Declaration], saying we have jurisdiction over actions affecting property rights. Certainly, [ . . . ]
we have used international legal materials and argued from them, and I think we’ll probably
continue to do so, but, in fact, there is, of course, quite an argument available that one doesn’t
need to do that.179

173 Treaty of Amity, Economic Relations, and Consular Rights Between the United States of
America and Iran (1955), art. IV(2). The treaty also requires ‘fair and equitable treatment’, ‘the
most constant protection and security [ . . . ] in no case less than that required by international law’,
most-favoured-nation treatment; and it prohibits ‘unreasonable or discriminatory measures’. See
also art. IV.
174 Amoco International Finance Corporation v Iran, Partial Award, 14 July 1987, para. 103.
175 Amoco v Iran, Partial Award, at para. 103.
176 Amoco v Iran, Partial Award, at para. 103.
177 Amoco v Iran, Partial Award, at para. 103.
178 Amoco v Iran, Partial Award, at para. 103. See also Ina Corporation v Government of the Islamic
Republic of Iran, Award, 13 August 1985, 8 Iran–United States C.T.R. 373, at 378; American
International Group, Inc. and American Life Insurance Company v Islamic Republic of Iran and Central
Insurance of Iran, Award, 19 December 1983, Concurring Opinion, Judge Mosk; Sedco, Inc. v National
Iranian Oil Company, Award, 27 March 1986, Separate Opinion Judge Brower, at section I; Phelps
Dodge Corp. v Islamic Republic of Iran, Award, 19 March 1986, paras 27–28. But see Dissenting
Opinion, Judge Bahrami, at III, A, I (‘From the viewpoint of classical international law, the duty of
international courts in enforcing treaties is very clear, because private persons do not have the right to
bring claim before international fora; and if a state seeks to enforce privileges accorded to its nationals
by treaty, it must extend its diplomatic protection and itself bring claim against the state which is a
party to the contract in question. Therefore, assuming that a party to the claim (the American claimant)
does invoke a bilateral treaty, the Tribunal may not interpret it’).
179 See Toope, fn. 168, at 269–70 (transcript of interview, 13 September 1984).
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Reasons for the Primary Applicability of International Law

235

In this context, reference has also been made to the primacy given to national law in
United Nations General Assembly resolutions,180 and the fact that Iranian law also
contains provisions on wrongful expropriation.181 In particular, Mouri notes that in no
expropriation case has the tribunal indicated that it was prepared to consider the
national law of either Iran or the US regarding the standard of compensation.182
He goes on to observe that this has been so even where the investments were made
in Iran pursuant to its investment legislation, which specifically guarantees ‘fair compensation where promulgation of a special legislation deprives the owner of capital
or ownership’.183
Also Igbokwee voices criticism against the approach of investment tribunals to
primarily apply international law, especially in cases where the parties have agreed to
the application of both national and international law:
If the relevant treaty specifically provides for the application of the national law of the host state in
addition to other sources of law, the arbitral tribunal has an obligation to consider all the
applicable laws specified by the treaty. Failure to examine meticulously all the applicable laws
stipulated under the treaty is a fundamental departure from the treaty mandate.184

In our opinion, however, the appropriateness of primarily applying national or international law depends more on the nature of the claim invoked by the party.185 Where
the investor specifically bases its claim on sources of international law, the tribunal
should be free to apply international law to this claim regardless of whether the parties
have agreed to the application of national and international law; or whether there is no
agreement on the applicable law.186 In the words of Parra: the direct application of the
substantive provisions of investment treaties ‘follows simply from the investor’s invocation of those rules in bringing the claim, such reliance on the rules being explicitly or
implicitly authorised by the investor-to-State dispute-settlement provisions of the
treaty’.187 In sum, international law can be directly applied to the merits of investment
disputes when the nature of the claim, as objectively assessed by the tribunal,188 is
international in nature.
180 See A. Mouri, The International Law of Expropriation as Reflected in the Work of the Iran–United
States Claims Tribunal (Dordrecht, Nijhoff, 1994), 297. See also Ina Corporation, fn. 178, Award,
Dissenting Opinion by Judge Ameli, at section II (1) (‘On 5 February 1974, the United Nations
General Assembly [ . . . ] adopted Resolution 3171 (XXVIII) on Permanent Sovereignty over Natural
Resources, paragraph 3 of which reads [ . . . ]’).
181 See Moussa Aryeh v Iran, Award, 25 September 1997, para. 83 (‘Article 15 of the 1907
Supplementary Constitution, which continued in force at the time of the expropriation in May
1979, states, “[n]o one may be dispossessed of his property, except in cases authorized by religious
law, and then only after the fair value (of such property) has been determined and paid” ’).
182 Mouri, fn. 180, at 297.
183 Mouri, at 297–8.
184 Igbokwee, fn. 144, at 299. See also Begic, fn. 16, at 46 (criticizing the failure of the CME
Tribunal to consider national law in its Partial Award, Begic states: ‘Only after analyzing the problem
from the perspective of Czech law should the Tribunal have examined and applied international law, in
particular BIT provisions. If the host State’s law violates international law the latter prevails. With such
an approach the Tribunal would have acted in compliance with the parties’ agreement on applicable
law’); Schreuer, fn. 164, at 160 (‘[P]ractice suggests that the starting point for an analysis in a case
governed by a combined choice of law clause should be the host State’s law. [ . . . ] [I]t is impermissible
to apply international law alone and to ignore or bypass the host State’s domestic law in this process’).
185 See Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims).
186 See Chapter 7, fn. 14 (on the principle non infra petita); fn. 112.
187 A.R. Parra, ‘Applicable Substantive Law in ICSID Arbitrations Initiated under Investment
Treaties’ (2001) 16 ICSID Rev.-FILJ 20, 21.
188 See Chapter 4, Section 2 (on characterization: the national or international nature of claims).
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236 The Primary Applicability of International Law and the Role of National Law

2.3. The superior nature of international law vis-à-vis national law
A more general argument advanced in favour of the primary application of public
international law relates to the monist189 notion of its superiority vis-à-vis national law.
As Weil states: ‘no matter how domestic and international law are combined, under the
second sentence of Article 42(1) [ICSID Convention], international law always gains
the upper hand and ultimately prevails [ . . . ].’190 Accordingly, he concludes, ‘[t]he
reference to the domestic law of the host State, even if designed only to ascertain
whether it is, or is not, compatible with international law, is indeed a pointless exercise,
the sole raison d’être of which is to avoid offending the sensibilities of the host State.’191
The superior nature of international vis-à-vis national law was relied upon in
Compañía del Desarrollo de Santa Elena, S.A. v Republic of Costa Rica (2000), which
concerned the amount of compensation owed to the investor for the expropriation of
its property by Costa Rica.192 The ICSID Tribunal noted that the parties had not
reached an agreement on the law applicable to their dispute, and concluded: ‘[t]his
leaves the Tribunal in a position in which it must rest on the second sentence of Article
42(1) (“In the absence of such agreement . . . ”) and thus apply the law of Costa Rica
and such rules of international law as may be applicable.’193 The investor construed this
provision as providing for the primary applicability of national law:
(i) [T]he Tribunal must apply the law of Costa Rica to the issues in dispute;
(ii) rules of international law are to be applied only in the event of a lacuna in Costa
Rican law or if such law is inconsistent with the international law principles of
good faith and pacta sunt servanda.
(iii) In the present case, there is no such inconsistency, with the result that the
Tribunal should apply Costa Rican law, though ‘ . . . the result would be the
same if principles of international law were applied’.194
While first observing that the relevant rules and principles of the host state were
generally consistent with the accepted principles of public international law on the
same subject,195 the tribunal concluded that international law would be applied to the
dispute: ‘[T]he question, therefore, boils down to the following: under international
law, what are the applicable principles and rules governing compensation in a case such
as this?’196 The tribunal gave the following reason for the primary application of
international law:

189 On monism and dualism, see Chapter 1, Section 1 (on motivations for the study); Chapter 5,
Section 3.2.2 (on the supervening role of international law).
190 P. Weil, ‘The State, the Foreign Investor, and International Law: The No Longer Stormy
Relationship of a Ménage à Trois’ (2000) 15(2) ICSID Rev.–FILJ 409.
191 Weil, ‘The State, the Foreign Investor, and International Law’.
192 Compañía del Desarrollo de Santa Elena, S.A. v Republic of Costa Rica, ICSID Case No. ARB/
96/1, Award, 17 February 2000, rectified 8 June 2000 (L.Y. Fortier, E. Lauterpacht, P. Weil, arbs),
para. 56.
193 Compañía del Desarrollo, at para. 64. But see at para. 35 (Costa Rica submitted that the parties
had agreed to the application of international law).
194 Compañía del Desarrollo, at para. 61 (references omitted); see at para. 28 (the investor argued in
favour of the application of Costa Rican law, ‘which in this instance, is not incompatible with
principles of international law relating to expropriation’).
195 Compañía del Desarrollo, at para. 64.
196 Compañía del Desarrollo, at para. 67.
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Reasons for the Primary Applicability of International Law

237

To the extent to which there may be any inconsistency between the two bodies of law, the rules of
public international law must prevail. Were this not so in relation to takings of property, the
protection of international law would be denied to the foreign investor and the purpose of the
ICSID Convention would, in this respect, be frustrated. The parties’ apparently divergent
positions lead, in substance, to the same conclusion, namely, that, in the end, international
law is controlling. The Tribunal is satisfied that, under the second sentence of Article 42(1), the
arbitration is governed by international law.197

We further refer to the award of the ICSID Tribunal in Tokios Tokelés v Ukraine
(2007).198 In that case, the claimant relied on both national and international law.
More specifically, it alleged that the host state, in contravention of the applicable
bilateral investment treaty, had failed to grant it full protection and security and fair
and equitable treatment, and that it had expropriated its investment.199 The claimant
further relied on provisions of Ukrainian legislation: the host state had ‘violated
Ukrainian law by failing to protect the Claimant’s business investments, refrain[ing]
from interfering in [the company’s] business activities and failing to compensate for
resulting damages’.200 By majority decision, the tribunal denied the claimant’s treaty
claims.201 It then went on to discuss the applicability of Ukrainian law to the case at
hand:
The Claimant relies on various provisions of Ukrainian law, specifically:
(1) those protecting foreign investments and investment activity (including provisions to be
found in the Constitution), ensuring stable conditions for foreign investments and compensation
to investors in case of expropriation or expropriation-like measures; [...]
(3) those providing for items of damage additional to compensation which is due for expropriatory measures (such as moral damages, under Article 23 of the New Civil Code).202

The claimant argued that ‘according to Article 42(1) of the ICSID Convention, the law
of the state party to the dispute and the rules of international law are to be applied
failing a choice by the parties’.203 The respondent replied that ‘only the Treaty and
international law are applicable to settle a dispute arising under the Treaty, the
provisions of Ukrainian law serving only the purpose of elucidating the factual background of the case and the Claimant’s case’.204 After having briefly declared its
agreement with the approach of the Wena ad hoc committee concerning article 42
(1), second sentence, ICSID Convention,205 the tribunal held that there was no need to
consider the Ukrainian provisions concerning protection of foreign investment:
[T]he Claimant itself recognizes the primacy of international agreements over domestic legislation in this field. [ . . . ]. Accordingly, the system of protection, guarantees and remedies provided
by Ukrainian law with regard to foreign investments is in effect replaced ratione materiae by the

197 Compañía del Desarrollo, at para. 64. See also at para. 65 (the tribunal’s conclusion was
‘reinforced by the history of the dispute, in particular the circumstances in which the dispute was
submitted to arbitration and in which the parties’ consent was given, as well as the language of the [US]
Helms Amendment itself [ . . . ].’); and also at para. 24 (on the Helms Amendment).
198 Tokios Tokelés v Ukraine, ICSID Case No. ARB/02/18, Award, 26 July 2007 (Lord Mustill,
P. Bernardini, D.M. Price, arbs).
199 Tokios Tokelés v Ukraine, at para. 85.
200 Tokios Tokelés v Ukraine, at para. 86. See also at para. 138.
201 Tokios Tokelés v Ukraine, at paras 122, 137.
202 Tokios Tokelés v Ukraine, at para. 141.
203 Tokios Tokelés v Ukraine, at para. 139.
204 Tokios Tokelés v Ukraine, at para. 139.
205 Tokios Tokelés v Ukraine, at para. 140.
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238 The Primary Applicability of International Law and the Role of National Law
substantive provisions of the Treaty and international law, to the extent the latter govern the same
subject-matter.206

Since the tribunal had found no breach of the treaty, it concluded that ‘Ukrainian law
provisions regarding damages [ . . . ] are of no avail’.207
It is submitted, though, that the question of supremacy is different from that of
whether national or international law should primarily govern the claim at hand. First,
from the viewpoint of international law it is recognized that it is up to each state to
determine the manner in which it gives effect to international norms in its national legal
order, and that all that is required from the perspective of the international legal order is
consistency.208 Secondly, national law may actually contain the same or higher standards of protection for the investor, and thus be considered substantively—or even
‘morally’209—equal to or superior to international norms. As noted by Gaillard and
Banifatemi:
[I]t is by no means obvious that, in every case, the application of the law of the host State, as
opposed to international law, is necessarily favorable to the host State and unfavorable to the
investor. Conversely, it is far from clear that the application of the rules of international law is
always in the investor’s favor.210

In fact, this likely explains why the investor in Santa Elena specifically sought the
primary application of national law.211 As Brower and Wong state, under Costa Rican
law, the valuation of property expropriated is based on its fair market value measured
at the time compensation is actually provided—in this case, at the time of the award
in the year 2000.212 By contrast, cases decided under international law determine
that valuation is to be based on the fair market value measured at the time of the

206 Tokios Tokelés v Ukraine, at paras 142–143 (references omitted).
207 Tokios Tokelés v Ukraine, at para. 145.
208 See A. Nollkaemper, National Courts and the International Rule of Law (Oxford, Oxford
University Press, 2008), 70. Cf. Swedish Engine Drivers’ Union v Sweden, EHRR, 6 February 1976,
App. 5614/72, Series A, no. 20, para. 50; EFTA Court, Case E-1/07, 3 October 2007, at p. 12. But see
Case 6/64, Flaminio Costa v E.N.E.L., ECJ, Judgment, 15 July 1964 (‘By contrast with ordinary
international treaties, the EEC Treaty has created its own legal system which, on the entry into force of
the Treaty, became an integral part of the legal systems of the Member States and which their courts are
bound to apply’). Cf. Chapter 5, at Section 3.1.1 (on international law as part of the ‘law of the land’).
209 See P. Guggenheim, I Traité de droit international public 57–8 (1953) (‘Les règles de droit
international public n’ont pas un caractère impératif. Le droit international admet en conséquence
qu’un traité peut avoir n’importe quel contenu, sans limitations ni restrictions d’aucune sorte, et que
toute matière peut en faire l’objet [ . . . ]. Il est donc erroné de prétendre qu’on peut apprécier la validité
d’une convention d’après le critère de sa moralité.’) [The rules of public international law do not have
an imperative character. International law recognizes that a treaty can therefore have any content,
without any limitations or restrictions of any kind, and it can concern any possible subject matter
[ . . . ]. It is therefore wrong to say that we can assess the validity of an agreement based on the criterion
of morality.]
210 Gaillard and Banifatemi, fn. 142, at 380–1. See also Spiermann, fn. 9, at 105. Cf. Nollkaemper,
fn. 100, at 762.
211 Cf. Santa Elena, fn. 192, Award, at paras 28, 61. Cf. Tokios Tokelés v Ukraine, fn. 198, Award, at
para. 139 (whereas the foreign investor argued in favour of the application of national and international
law, the host state replied that ‘only the Treaty and international law are applicable to settle a dispute
arising under the Treaty [ . . . ]’); Klöckner Industrie-Anlagen GmBH and others v United Republic of
Cameroon and Société Camerounaise des Engrais, Case No. ARB/81/2, Award, 21 October 1983
(E. Jimenez de Aréchaga, W.D. Rogers, D. Schmidt, arbs), 114 I.L.R. 157 (1999) (the host state
argued against the exclusive application of its own law).
212 C.N. Brower and J. Wong, ‘General Valuation Principles: The Case of Santa Elena’ in
International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties
and Customary International Law (T. Weiler, ed., London, Cameron May, 2005), 747, 757.
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Reasons for the Primary Applicability of International Law

239

expropriation, which, as both parties agreed, is ordinarily the date of the expropriation
decree where such exists—in this case, on 5 May 1978.213 Brower and Wong note: ‘As
more than twenty years had elapsed between the date of expropriation and that of the
Award, it was plain that the valuation of the Property based on Costa Rican law would
likely yield a higher figure than that based on international law.’214
It is therefore suggested that the initial determination of the primary applicability of
international law ought to depend on the factor’s party autonomy and the nature of the
claim, rather than any a priori notions of hierarchical dominance of international law
vis-à-vis national law in the sense suggested by the Santa Elena and the Tokios Tokelés
tribunals.215 It should be emphasized, though, that where a tribunal has made a prior
determination that international law governs the claim at hand based on an agreement
by the parties to that effect or the international nature of the claim, it is appropriate to
invoke the superiority of international law vis-à-vis national law. In such cases, where
the claim is based on obligations of the host state founded in the international legal
order, it is clear that the host state may not invoke national law in an attempt to
preclude the wrongfulness of its acts or omissions.216 Thus, in Gami Investments, Inc. v
Mexico (2004), the UNCITRAL Tribunal stated:
Ultimately each jurisdiction is responsible for the application of the law under which it exercises
its mandate. It was for the Mexican courts to determine whether the expropriation was legitimate
under Mexican law. It is for the present Tribunal to judge whether there have been breaches of
international law by any agency of the Mexican government. A fundamental postulate in
applying NAFTA is that enshrined in Article 27 of the Vienna Convention on the Law of
Treaties: ‘A party may not invoke the provisions of its own internal law as justification for its
failure to perform a treaty.’ Whether such national laws have been upheld by national courts is
ultimately of no moment in this regard.217

The important distinction between ‘playing the simple “international trump card” ’218
and first focusing on the international nature of the claim is confirmed by the following
statement by Mann:

213 Brower and Wong, ‘General Valuation Principles’, at 757–8.
214 Brower and Wong, ‘General Valuation Principles’, at 758.
215 A separate case against the Ukraine could shed some light on the decision by the Tokios Tokelés
tribunal to ‘replace’ national law in favour of international law. See Alpha v Ukraine, fn. 152, Award, at
para. 432 (‘The Tribunal notes that Article 6 of the [Foreign Investment Law (FIL)] states that “[i]f an
international agreement of Ukraine provides rules other than that provided for by the legislation of
Ukraine, the rules of the international agreement shall apply.” Thus, under Ukrainian law, and at least
where there is overlap between the UABIT and Ukrainian law, the UABIT alone governs the merits of
the dispute rather than the FIL, the Civil Code, or any other provision of Ukraine domestic law. On
this basis alone, the Tribunal rejects Claimant’s domestic law claims’).
216 See S.M. Schwebel, Justice in International Law: Selected Writings (Cambridge, Grotius, 1994),
430; International Law Commission, Articles on Responsibility of States for Internationally Wrongful Acts
(2001), arts 3, 32; Vienna Convention on the Law of Treaties (1969), art. 27; B. Cheng, General
Principles of Law as Applied by International Courts and Tribunals (London, Stevens, 1953), 171–2;
V. Heiskanen, ‘May a State Invoke its Domestic Law to Evade its International Obligations?’ TDM
2(5) (November 2005).
217 Gami Investments, Inc. v Mexico, Final Award, 15 November 2004 (W.M. Reisman, J.L. Muró,
J. Paulsson, arbs), para. 41. See also Petrobart v Kyrgyz Republic, fn. 87, Award, at 23–5; Tecnicas v
Mexico, fn. 79, Award, at para. 120.
218 Douglas, fn. 132, at 155 (‘[T]o treat international law as a self-sufficient legal order in the sphere
of foreign investment is plainly untenable. Within this domain of private or commercial interests,
problems relating to overlapping adjudicative competence and the application of municipal law cannot
be resolved by playing the simple “international trump card” of Article 3 [of the ILC Articles on State
Responsibility]’).
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240 The Primary Applicability of International Law and the Role of National Law
An argument in support of [the doctrine of internationalization of contracts] might be derived
from the well-known principle that as a matter of public international law no state can rely on its
own legislation to limit the scope of its international obligations. But this rule contemplates
obligations governed by public international law and has no bearing upon the scope of obligations which are subject to a system of municipal law [ . . . ].219

In this context, we are also reminded of the remark by Kumm that one of the dangers in
adopting an anti-theoretical attitude with respect to the relationship between national
and international law is to ‘get carried away by a cosmopolitan enthusiasm for
international law that is perhaps the déformation professionelle of the international
lawyer’.220

2.4. Interim conclusions
Arbitral tribunals should apply international law to the dispute when the parties have so
agreed. An implicit choice for international law should not be found unless the
intentions of the parties to that effect are manifest. This is particularly the case for
contractual claims, as the general rule is that these are governed by national law.
When the parties have not agreed on the law to be applied to the merits
of the dispute, and when they have agreed to the application of both national
and international law, investors may—depending on the arbitration agreement—
bring international claims; and tribunals should solve these by reference to the legal
order that gives rise to them, i.e., by applying international law. This approach
constitutes a shift in relation to the paradigm of sequential primacy of national law as
adopted by previous tribunals.221
Finally, considerations of the superior nature of international law vis-à-vis national
law ought not to come into play but after the tribunal has made a prior determination
that international law should govern the claim.

3. The Role of National Law when International
Law Primarily Applies
Similar to how international law may play a role where national law primarily applies
to the merits,222 a finding that international law should apply does not necessarily
exclude a role for national law. In this section, we will consider first, the indirect
application of national law (Section 3.1) and secondly, the corrective role of national
law (Section 3.2).

219 F.A. Mann, ‘State Contracts and State Responsibility’ (1960) 54(3) Am. J. Int’l L. 572, 581–2
(reference omitted). Cf. Applicability of the Obligation to Arbitrate under Section 21 of the United
Nations Headquarters Agreement of 26 June 1947, Advisory Opinion, Separate Opinion by Judge
Schwebel, 26 April [1988] ICJ Rep. 12 (‘It is axiomatic that, on the international legal plane, national
law cannot derogate from international law’ [emphasis added]).
220 M. Kumm, ‘Constitutional Democracy Encounters International Law: Terms of Engagement’
in The Migration of Constitutional Ideas (S. Choudhry, ed., Cambridge, Cambridge University Press,
2006).
221 See Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign
investors and investments).
222 See Chapter 5, Section 3 (on the role of international law when national law primarily applies).
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The Role of National Law when International Law Primarily Applies

241

3.1. The indirect application of national law
In cases in which international law primarily applies to a dispute, certain aspects of the
case may necessitate recourse to national law.223 This is so, for instance, with respect to
issues of nationality and the capacity of parties to bring claims.224 The International
Court of Justice noted in Barcelona Traction, Light and Power Company, Limited
(1970):
[I]nternational law has had to recognize the corporate entity as an institution created by States in
a domain essentially within their domestic jurisdiction. This in turn requires that, whenever legal
issues arise concerning the rights of States with regard to the treatment of companies and
shareholders, as to which rights international law has not established its own rules, it has to
refer to the relevant rules of municipal law.225

This is explicitly recognized in the ASEAN Agreement for the Promotion and Protection of Investments (1987): ‘For the purposes of this Agreement [ . . . ] the term
“nationals” shall be defined in the respective Constitutions and laws of each of the
Contracting Parties.’226
At times, the role of national law moves beyond that of jurisdictional and factual
significance. As the International Law Commission observes:
Especially in the fields of injury to aliens and their property and of human rights, the content and
application of internal law will often be relevant to the question of international responsibility. In
every case it will be seen on analysis that either the provisions of internal law are relevant as facts
in applying the applicable international standard, or else that they are actually incorporated in
some form, conditionally or unconditionally, into that standard.227

Indeed, as will be demonstrated, arbitral tribunals may be required to apply—rather
than merely consider—national law in order to determine the parties’ rights and
obligations pursuant to that national law. The interplay between the legal orders
created by such an indirect application of national law to the merits is exemplified by
the prohibition of expropriation without compensation (Section 3.1.1) and ‘umbrella’
clauses inserted in many investment treaties (Section 3.1.2).

3.1.1. The prohibition against expropriation without compensation
The prohibition against expropriation without compensation is illustrated by the
following provision in the Netherlands–Belarus BIT:
223 See generally M. Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled
Relationship between International Law and Municipal Law (Alphen aan den Rijn, Kluwer Law
International, 2010).
224 See M. Mohebi, The International Law Character of the Iran–United States Claims Tribunal (The
Hague, Kluwer Law International, 1999), 111.
225 Case Concerning the Barcelona Traction, Light and Power Company, Limited (Belgium v Spain),
Judgment, 5 February [1970] ICJ Rep. 3, para. 38.
226 ASEAN Agreement for the Promotion and Protection of Investments (1987, as amended in
1996), art. 1(1). See also AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17,
Decision on Jurisdiction, 26 April 2005 (P.-M. Dupuy, K.-H. Böckstiegel, D.B. Janeiro, arbs), para.
78; Aram Sabet v Iran, Partial Award, 29 June 1999, Award No. 593-815/816/817-2, para. 32
Douglas, fn. 144, at 77 (Rule 7).
227 J. Crawford, The International Law Commission’s Articles on State Responsibility (Cambridge,
Cambridge University Press, 2002), 89 (commenting on article 4 of the ILC Articles on State
Responsibility). See also P.-M. Dupuy, ‘The Unity of Application of International Law at the Global
Level and the Responsibility of Judges’ (2007) 1(2) EJLS 3.
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242 The Primary Applicability of International Law and the Role of National Law
Neither of the Contracting Parties shall take any measures of expropriation, nationalization
or any other measures depriving, directly or indirectly, investors of the other Contracting Party
of their investments unless the measures are taken in the public interest, on a non discriminatory basis, are not contrary to any obligations assumed by the Contracting Party taking such
measures, and are taken under due process of law, and provided that provisions be made for
compensation.228

When an investor alleges a breach of such a provision by the host state, the claim is
international in nature and international law will govern.229 Still, an expropriation
presupposes and depends on the existence of an investment in the form of proprietary
rights: ‘Since there cannot be an expropriation unless the complainant demonstrates
the existence of proprietary rights in the first place, the legal materialisation of
the Claimant’s alleged investment is a fundamental aspect of the merits in this case
[ . . . ].’230 Such rights are generally defined by national law;231 consequently, the
arbitrators may need to apply national law in order to determine whether an expropriation has in fact taken place.232 This is so even where the disputing parties have agreed
to the sole application of international law. Roe and Happold explain: ‘The rule or
principle that a tribunal must first determine as a matter of national law what the
claimant’s rights are (or were until the matters complained of) is itself an applicable rule
or principle of international law.’233 This rule or principle is also supported by Judge
Morelli in his separate opinion in the Barcelona Traction case:
There is nothing abnormal in this reference of an international rule to the law of a given State. It
is wholly untenable to object, as the Belgian Government has done, that in this way the
international responsibility of the State is made to depend upon categories of municipal law,
thus enabling a State to set up the provisions of its own legal order as a means of evading the
international consequences of its acts. In reality, no subordination of international responsibility,
as such, to the provisions of municipal law is involved; the point is rather that the very existence
of the international obligation depends on a state of affairs created in municipal law, though this
is so not by virtue of municipal law but, on the contrary, by virtue of the international rule itself,
which to that end refers to the law of the State.234

In this context, reference may be made to the United States Model BIT (2012), which
includes under the definition of ‘investment’: ‘licenses, authorizations, permits, and
similar rights conferred pursuant to domestic law’.235 The BIT specifies that the
question of whether such instrument has the characteristics of an investment ‘depends
on such factors as the nature and extent of the rights that the holder has under the law of
228 Netherlands–Belarus BIT, art. 6.
229 See Section 2.2 (on the international nature of the claim); Chapter 4, Section 3 (on characterization: the national or international nature of claims).
230 Generation Ukraine, Inc. v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003
(E. Salpius, J. Voss, J. Paulsson, arbs), para. 8.8.
231 The law determining the existence of proprietary rights (investment) should be distinguished
from the issue of whether the proprietary rights constitute a protected investment under the investment
treaty. This latter issue is governed by the treaty at hand, i.e., international law. See Douglas, fn. 144, at
72 (Rule 5).
232 See Douglas, at 52 (Rule 4); Alvik, fn. 11, at 174–5; Lauterpacht, fn. 22, at 653; The PanevezysSaldutiskis Railway Case, Judgment, 28 February 1939, PCIJ Ser. A/B, no. 76, at 16.
233 T. Roe and M. Happold, Settlement of Investment Disputes under the Energy Charter Treaty
(Cambridge University Press, 2011), 51. See also D.F. Donovan, ‘The Relevance (or Lack Thereof) of
the Notion of “Mandatory Rules of Law” to Investment Treaty Arbitration’ (2007) 18(1–2) Am. Rev.
Int’l Arb. 205, 208–9; C. Staker, ‘Public International Law and the Lex Situs Rule in Property
Conflicts and Foreign Expropriations’ (1987) 58 British Y.B. Int’l L. 151.
234 Barcelona Traction, fn. 225, Morelli, J., Separate Opinion, at 234.
235 See United States Model BIT (2012), art. 1 (emphasis added).
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The Role of National Law when International Law Primarily Applies

243

the Party’.236 Also of relevance is the observation by the UNCITRAL Tribunal in
National Grid plc v Argentine Republic (2008) that the applicable BIT indicated that
national law would be relevant in defining the type of assets or property rights making
up an ‘investment’:
Thus, according to Article 1(c)(i)(bb) of the Treaty, Argentine law governs who qualifies as an
‘investor’ and, while addressing the concept of ‘asset’ in order to ascertain what is an eligible
‘investment’ under the Treaty, Article 1(a) specifically indicates that such concept is to be defined
pursuant to the law of the host State: ‘ . . . investment means every kind of asset defined in
accordance with the laws and regulations of the Contracting Party in whose territory the investment
is made . . . ’237

The need for investment tribunals to take into account the law of the host state when
determining expropriation claims on the merits is illustrated by the award in Azinian v
Mexico (1999), in which the claimant, a US waste disposal enterprise, alleged that
Mexico had violated the NAFTA by expropriating its investment.238 The tribunal,
operating under the ICSID Additional Facility Rules, held in favour of Mexico on the
basis that a competent Mexican court had determined that the concession contract in
question was invalid under Mexican law; and that accordingly, ‘there is by definition no
contract to be expropriated’.239
A similar approach was followed in Nagel v Czech Republic (2003), where the foreign
investor alleged that the host state had breached the relevant BIT by expropriating its
investment relating to the operation of a telecommunications business.240 In determining the nature of the rights the investor had derived from the cooperation agreement
entered into with a certain state enterprise, the tribunal held that this question was
governed by the law of the host State, based on the fact that the agreement had ‘strong
links with the Government’.241 While noting that the basis of the investor’s claims was
the BIT at hand, and that the treaty should be interpreted in accordance with the rules
of public international law, it stated that domestic law will be of some relevance: ‘the
terms “investment” and “asset” in Article 1 of the Investment Treaty cannot be
understood independently of the rights that may exist under [Czech law]. It is therefore

236 United States Model BIT (2012), at fn. 2 (emphasis added). Cf. Spain–Argentina BIT, art. I(2).
237 National Grid plc v Argentine Republic, Award, 3 November 2008 (A.M. Garro, J.L. Kessler,
A.R. Sureda, arbs), paras 81 et seq. (referring to article 8(4) of the BIT) (emphasis in original).
See also BG Group v Argentina, fn. 167, Award, at para. 92 (it is ‘beyond dispute that the
contours of the concept of “asset” included in the definition of “investment” in Article 1(a) of the
Argentina–U.K. BIT, is governed by Argentine law. Article 1(a) of the BIT provides that: “investment”
means every kind of asset defined in accordance with the laws and regulations of the Contracting Party in
whose territory the investment is made [ . . . ].’ [emphasis in original, references omitted]); see also at para.
117 (‘[T]he renvoi of Article 1(a) of the treaty requires this Tribunal to apply the laws of Argentina to
the interpretation of this part of the definition of “Investment” in the Argentina–U.S. BIT. As a matter
of conventional international law, this demarche is necessary to determine whether rights associated
with the MetroGAS License are protected under the BIT’).
238 Robert Azinian v United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, 1 November
1999 (J. Paulsson, B.R. Civiletti, C. von Wobeser Hoepfner, arbs).
239 Robert Azinian, at para. 100 (emphasis in original).
240 Nagel v Czech Republic, Scc Case 49/2002, Award, 9 September 2003, Stockholm Arb.
Rep. 141, 147 (2004:1) (observations by S. François-Poncet and C. Mouawad). Cf. UK–Czech BIT,
art. 2(3).
241 Nagel v Czech Republic, at 158 (this conclusion was supported by the parties, but was also
reached on the basis that ‘[o]ne of the parties was a [ . . . ] State enterprise and the Agreement concerned
cooperation in order to obtain rights to operate [ . . . ] in the Republic’).
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244 The Primary Applicability of International Law and the Role of National Law
necessary to determine what is the legal significance of the Cooperation Agreement
under [Czech law].’242
Another case on point is EnCana Corporation v Republic of Ecuador (2006), in which
the investor argued that the host state, in contravention of the BIT, had directly
expropriated its investment by wrongfully denying its rights to tax refunds owing to
EnCana’s subsidiaries under Ecuadorian law.243 Prior to dismissing this claim on the
merits,244 the tribunal confirmed the need to consider Ecuadorian law, despite the fact
that the applicable law clause in the BIT only referred to international law:
The relevant clause, Article XIII(7) of the BIT, provides only [that] a tribunal exercising
jurisdiction under the BIT ‘shall decide the issues in dispute in accordance with this Agreement
and applicable rules of international law’. Unlike many BITs there is no express reference to the
law of the host State. However for there to have been an expropriation of an investment or return
(in a situation involving legal rights or claims as distinct from the seizure of physical assets) the
rights affected must exist under the law which creates them, in this case, the law of Ecuador.245

A further example of the need to resort to national law for the determination of
expropriation claims in investment treaty arbitration is International Thunderbird
Gaming Corporation v United Mexican States (2006).246 The case concerned a US
company that had opened gambling facilities in Mexico that were subsequently closed
by Mexican authorities on the basis that they violated the Mexican Federal Law of
Games and Sweepstakes (Ley Federal de Juegos y Sorteos of 31 December 1947).247 The
UNCITRAL Tribunal first noted that ‘Chapter Eleven of the Nafta recognizes in
principle the right of a Contracting Party to regulate conduct that it considers
illegal’,248 and went on to point out that ‘under Mexican law, specifically the Ley
Federal de Juegos y Sorteos of 31 December 1947, gambling is an illegal activity’.249
Because of this, and in denying the investor’s claim for expropriation, the tribunal held:
‘as acknowledged by Thunderbird, compensation is not owed for regulatory takings
where it can be established that the investor or investment never enjoyed a vested right
in the business activity that was subsequently prohibited.’250
The same approach has been adopted by the Iran–United States Claims Tribunal.
The case of George E. Davison (Homayounjah) v Iran (1998) demonstrates this:
The Tribunal notes that in order to meet his burden of proof the Claimant must establish the
following elements: that he had ownership interests or other property rights at issue, and that an

242 Nagel v Czech Republic, at 161. See also at 164 (the investor’s expropriation claim failed, since it
could not be found that the rights derived from the agreement had any financial value.)
243 EnCana Corporation v Republic of Ecuador, LCIA Case UN3481, Award, 3 February 2006
( J. Crawford, H.G. Naón, C. Thomas, arbs), para. 179.
244 See EnCana v Ecuador, at paras 194, 199.
245 EnCana v Ecuador, at para. 184. But see Partial Dissenting Opinion, H.A. Grigera Náon, at
para. 23 (‘EnCana’s entitlement to its investment and its attached natural components without which
an investment is inconceivable—the right to a return and the legitimate economic expectations
embodied in such right—which are protected by international law, are not embedded in Ecuadorian
law but in the Treaty itself. The entitlement to such rights and expectations crystallizes once the
investment has been accepted by Ecuador according to its laws, something that in the present case has
undoubtedly happened’).
246 Thunderbird v Mexico, fn. 85, Award.
247 Thunderbird v Mexico.
248 Thunderbird v Mexico, at para. 123.
249 Thunderbird v Mexico, at para. 124.
250 Thunderbird v Mexico, at para. 208.
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The Role of National Law when International Law Primarily Applies

245

expropriation or other measures amounting to an expropriation affecting his ownership interests
or other property rights, attributable to Iran, took place.251

The tribunal continued to observe that ‘the Claimant has not provided any official title
deeds or other authorized documents showing title to the alleged property. Instead, the
Claimant tries to carry his initial burden of proving his ownership through a number of
inconsistent statements by himself and his closest relatives.’252 In concluding that the
claimant had no right of ownership to the five buildings in question, the tribunal relied
on Iranian law: ‘The Tribunal holds that the Respondent has provided sufficient
rebuttal evidence on the applicable provisions of Iranian laws. [ . . . ] The documentary
evidence submitted by the Respondent shows that such properties must be registered to
give the transfer of ownership legal validity.’253
The importance of national law for issues of ownership is similarly illustrated by the
award in Frederica Lincoln Riahi v Iran (2003).254 In that case, the claimant alleged that
Iran had wrongfully expropriated her shares in a company. The respondent, relying on
Iranian law, disputed her ownership of the majority of the shares, claiming that certain
legal procedures required by Iranian law for share transactions had not been
followed.255 The tribunal agreed. In reaching this conclusion, it seemingly took it for
granted that Iranian law governed the issues at hand:
Considering the requirements set forth in Article 40 of the Commercial Code of Iran, as amended
in 1969, the Tribunal notes that this Article provides, inter alia, that ‘[t]he transfer of registered
shares must be entered in the share register of the company’ and that ‘[a]ny transfer which takes
place contradictory to the provisions mentioned above shall be considered as null and void as far
as the company and third parties are concerned.’ Based on the statements made at Hearing by
Mr. Mahloujian and Professor Safai, a transfer is valid inter partes if the requirements set forth in
the Iranian Civil Code are met.256

In light of the fact that the company’s share register had not been made available to it,
the tribunal found it necessary to ‘look to other available evidence to determine
whether the shares were validly transferred to the claimant in accordance with the
Iranian Civil Code’.257 With respect to certain shares, the tribunal agreed with
the respondent that the alleged transfer was outside the scope of any power of attorney:
The clear meaning of Articles 660 and 661 of the Civil Code of Iran is that there are basically two
types of powers of attorney in the Iranian legal system, i.e., general and specific. A general power
of attorney does not give the attorney the right, e.g., to sell or donate the principal’s property. To
enter this kind of transaction, the attorney requires specific authorization. [ . . . ] In this respect,
the Tribunal, furthermore, finds relevant the provisions of Articles 667 and 674 of the Civil Code
of Iran, which deal with the duties of the attorney and the principal. Based on the available
evidence, it appears to the Tribunal that Mr. Riahi did not have the right to donate Jahan
Shahriar’s shares in Rahmat Abad to the Claimant.258
251 George E. Davidson (Homayounjah) v Iran, Award, 5 March 1998, at para. 69 (emphasis added).
252 Davidson v Iran, at para. 70.
253 Davidson v Iran, at paras 71–72. See also at para. 66.
254 Frederica Lincoln Riahi v Iran, Final Award, 27 February 2003, Award No. 600-485-1.
255 Frederica Lincoln Riahi v Iran.
256 Frederica Lincoln Riahi v Iran (references omitted).
257 Frederica Lincoln Riahi v Iran.
258 Frederica Lincoln Riahi v Iran (references omitted). See also Catherine Etezadi v Iran, Award, 23
March 1994, at para. 53; Abrahim Rahman Golshani v Iran, Final Award, 2 March 1993; Separate
Opinion of Judge M. Aghahosseini; Sea-Land Service, Inc. v Government of the Islamic Republic of
Iran, Ports and Shipping Organizations (PSO), Case No. 33, Award No. 135-33-1, 22 June 1984, at
section I(1)(ii)(a).
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246 The Primary Applicability of International Law and the Role of National Law
In sum, although international law primarily applies to an international claim of
expropriation, arbitral practice of both territorialized and internationalized tribunals
supports the need to refer to the national law of the host state for questions pertaining
to the existence and scope of the investment allegedly expropriated. On that basis,
we can concur with the criticism voiced by Douglas against parts of the reasoning of
the tribunal and the ad hoc committee in Wena Hotels Ltd v Arab Republic of Egypt
(2000/02).259 In its decision on annulment, the ad hoc committee did not consider the
findings by arbitration tribunals in Cairo that Wena had breached certain lease
agreements.260 According to Douglas,
The investment was in the form of leaseholds over two hotels. If Wena had breached its
obligations under the lease agreements such that Egypt was entitled to terminate the leases in
accordance with their governing law, then there would have been no investment to expropriate.
[ . . . ] In conducting [its] analysis the Tribunal should have considered the previous determinations made by the contractual tribunals or made its own findings on the status of Wena’s
investment in accordance with the governing law of the lease agreements.261

Douglas rightly voices similar disapproval with the decision by the UNCITRAL
Tribunal in CME Czech Republic B.V. v Czech Republic (2001/03). In deciding whether
the host state had expropriated CME’s investment in the form of a television licence,
the tribunal hardly considered Czech law.262 The treaty at hand specifically listed
national law as a source of law.263 The potential relevance of national law was also
referred to in a common position reached by the states parties to the treaty, viz. the
Netherlands and the Czech Republic: ‘The arbitral tribunal must [ . . . ] take into
account as far as they are relevant to the dispute the law in force of the contracting
party concerned and the other sources of law set out in Article 8.6.’264 As Douglas
observes: ‘If the law of the host state is to have any role in an investment dispute, this is
precisely the context in which it must do so. [ . . . ] [G]eneral international law cannot
purport to regulate the complex problems of proprietary and contractual rights over a
television licence.’265 This is a valid point; which, as previously illustrated, many
arbitrators now recognize. Importantly, the same arbitral practice demonstrates that
the necessity of indirectly applying national law in expropriation claims does not stand
or fall on any explicit choice by the parties that national law shall apply in combination
with international law.

259 Douglas, fn. 132, at 206.
260 Wena v Egypt, fn. 113, Award, at paras 61–62. See also fn. 1, Decision on Annulment, at para.
107. See also Section 2.2 (on the international nature of the claim).
261 Douglas, fn. 132, at 206.
262 See CME v Czech Republic, fn. 153, Partial Award, at para. 476 (‘It is not the Tribunal’s role to
pass a decision upon the legal protection granted to the foreign investor for its investment under the
Czech Civil Law’); see also at para. 469 (‘The Tribunal need not decide whether the contribution of
the “use of the License” in 1993 was legally valid under Czech law’); Final Award, at para. 407 (‘The
Tribunal in point of fact in its Partial Award addressed various issues under Czech law, which were,
however, to a large extent not essential to the Tribunal’s decision’). Cf. Begic, fn. 16, at 44, 46. See also
Section 2.2 (on the international nature of the claim).
263 Cf. Netherlands–Czech/Slovak Republic BIT, art. 8(6). See also Chapter 5, Section 2.2 (on host
state sovereignty and territorial control over foreign investors and investments).
264 CME v Czech Republic, fn. 153, Final Award, at para. 91.
265 Douglas, fn. 132, at 205. See also Schreuer, fn. 164, at 193–5.
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The Role of National Law when International Law Primarily Applies

247

3.1.2. ‘Umbrella’ clauses
The need to resort to national law when deciding international claims on the merits is
also illustrated by so-called ‘umbrella’ clauses inserted in a large number266 of investment treaties; and which—in various terms—obligate the host state to observe obligations or commitments entered into with respect to investments.267 Article II(2)(c) of
the US–Argentina BIT, for instance, provides that ‘[e]ach Party shall observe any
obligation it may have entered into with regard to investments’.268 Another example
is article 11 of the Swiss–Pakistan Bilateral Investment Treaty: ‘Each Contracting Party
shall constantly guarantee the observance of the commitments it has entered into with
respect to the investments of the investors of the other Contracting Party.’269
Arbitral tribunals and scholars have reached quite divergent views with respect to the
meaning and scope of such ‘umbrella’ clauses.270 While some have considered them
incapable of granting a specific cause of action for investors,271 others—including a
contracting party and home state272—have found that the clause allows investors to
bring claims against a host state having breached ‘commitments’ or ‘undertakings’ vis-àvis the investors.273 The present author follows this latter view.
266 See J. Gill et al., ‘Contractual Claims and Bilateral Investment Treaties: A Comparative Review
of the SGS Cases’ (2004) 21(5) J. Int’l Arb. 397, 403, fn. 31 (‘[I]n a sample of bilateral investment
treaties taken from Investment Treaties (ICSID ed., 2003), 94 of 236 (about 40%) contained umbrella
clauses’); UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (New
York, United Nations, 2007), 73.
267 See K. Yannaca-Small, ‘Interpretation of the Umbrella Clause in Investment Agreements’
(2006) 3 OECD Working Papers on International Investment 3 (noting that other formulations have
also been used: ‘mirror effect’, ‘elevator’, ‘parallel effect’, ‘sanctity of contract’, ‘respect clause’, and
pacta sunt servanda).
268 US–Argentine BIT, art. II(2)(c), referred to in El Paso v Argentina, ICSID Case No. ARB/03/
15, Decision on Jurisdiction, 27 April 2006 (L. Caflisch, B. Stern, P. Bernardini, arbs), para. 70.
269 See Swiss–Pakistan BIT, art. 11, referred to in SGS Société Générale de Surveillance, S.A. v
Pakistan, ICSID Case No ARB/01/13, Decision on Jurisdiction, 6 August 2003 (F.P. Feliciano,
A. Faurès, C. Thomas, arbs), para. 164. See also Energy Charter Treaty (1994), art. 10; and at art. 26
(3) (states parties may enter reservations with respect to the application of investor–state arbitration
provisions to the ‘umbrella’ clause).
270 See J. Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24(3) Arb. Int’l 351,
367 (Crawford identifies four different schools of thought or ‘camps’, adding that ‘some of the dwellers
in particular camps may be thought to have a nomadic attitude and to move from camp to camp as the
feeling takes them’). For a thorough discussion of these ‘camps’, see Sasson, fn. 223, at ch. 7, ss 3, 5.
271 See, e.g., SGS v Pakistan, fn. 269, Decision on Jurisdiction, at para. 173; El Paso v Argentina, fn.
268, Decision on Jurisdiction; BP America Production Co. and others v Argentine Republic, ICSID Case
No. ARB/04/8, Decision on Preliminary Objections, 27 July 2006 (L. Caflisch, B. Stern, A.J. van den
Berg, arbs), paras 93–115; Joy Machinery Limited v Arab Republic of Egypt, ICSID Case No. ARB/02/
11, Decision on Jurisdiction, 6 August 2004 (F.O. Vicuña, W.L. Craig, C.G. Weeramantry, arbs);
Eureko BV v Republic of Poland, Partial Award, 19 August 2005 (S.M. Schwebel, J. Rajski, L.Y. Fortier,
arbs), J. Rajski, Dissenting Opinion, at paras 21–25.
272 Eureko v Poland, fn. 271, Partial Award, at para. 254 (subsequent to the decision by the ICSID
Tribunal in SGS v Pakistan not to give effect to the ‘umbrella’ clause in the investment treaty between
Switzerland and Pakistan, Switzerland stated in a letter to ICSID that it was ‘alarmed about the very
narrow interpretation given to the meaning of [the umbrella clause] by the Tribunal, which not only
runs counter to the intention of Switzerland when concluding the Treaty but is quite evidently neither
supported by the meaning of similar articles in BITs concluded by other countries nor by academic
comments on such provisions’).
273 See, e.g., SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No.
ARB/02/6, Decision on Jurisdiction, 29 January 2004 (A.S. El-Kosheri, J. Crawford, A. Crivellaro,
arbs), para. 127; Siemens A.G. v Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February
2007 (A.R. Sureda, C.N. Brower, D.B. Janeiro, arbs), 206; CMS Gas Transmission Company v
Argentina, fn. 138, Decision on Jurisdiction, 17 July 2003, at para. 33; Award, 12 May 2005, at
para. 303; Eureko v Poland, fn. 271, Partial Award; Noble Ventures, Inc. v Romania, ICSID Case No.
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248 The Primary Applicability of International Law and the Role of National Law
More specifically, it is argued that tribunals should follow a three-step process with
respect to ‘umbrella’ clauses. First, since the clause is inserted in a treaty, tribunals
should interpret the scope of the clause by international rules of treaty interpretation,
such as articles 31 and 32 of the Vienna Convention on the Law of Treaties.274
A textual interpretation of various clauses supports the view that they create an
international cause of action for investors, especially in view of the mandatory language
and the principle of effectiveness.275 According to Sinclair, this conclusion is supported
by reference to material contemporaneous to the emergence of the ‘umbrella’ clause,
resort to which is helpful in light of the general lack of travaux préparatoires for
investment treaties.276 In this respect, he refers to documents relating to the AngloIranian Dispute in the early 1950s;277 the 1956–59 Abs Draft International Convention for the Mutual Protection of Private Property Rights in Foreign Countries;278 the
1959 Abs-Shawcross Draft Convention on Foreign Investment;279 and the 1967
OECD Draft Convention on the Protection of Foreign Property.280 In fact, the first
designation of such provisions as ‘umbrella’ clauses was used by Seidl-Hohenveldern,
who when commenting on the Abs-Shawcross Draft Convention stated that they
brought concession contracts under the ‘umbrella of protection’ of an investment
treaty.281
With respect to the scope of ‘umbrella’ clauses, the language varies, and each clause
should therefore be construed in its own terms and in its own right. Crawford observes:
There is no such thing as the umbrella clause; rather, there are umbrella clauses. No doubt where
these are in identical or nearly identical terms they should be given the same or similar meaning;

ARB/01/11, Award, 12 October 2005 (K.-H. Böckstiegel, J. Lever, P.-M. Dupuy, arbs), para. 62;
Petrobart v Kyrgyz Republic, fn. 87, Award, at 28–9. See also C. Schreuer, ‘Investment Arbitration:
A Voyage of Discovery’ (2005) 71 Arbitration 73, 76 (‘The prevailing view is that a clause of this kind
puts investment contracts under the protection of the BIT with the consequence that a contract
violation also becomes a violation of the BIT’); P.J. Turner et al., ‘Investment Treaty Arbitration: An
Australian Perspective’ (2007) 24(2) J. Int’l Arb. 103, 121.
274 See Vienna Convention on the Law of Treaties (1969), arts 31–32. Cf. Duke Energy Electroquil
Partners & Electroquil S.A. v Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August
2008 (G. Kaufmann-Kohler, E.G. Pinzón, A.J. van den Berg, arbs), para. 318. It is generally accepted
that these articles reflect customary international law. See, e.g., Malaysian Historical Salvors, SDN,
BHD v Malaysia, ICSID Case No. ARB/05/10, Decision on Annulment, 16 April 2009
(S.M. Schwebel, M. Shahabuddeen, P. Tomka, arbs), para. 56.
275 Cf. UNCTAD, State Contracts, UNCTAD Series on Issues in International Investment
Agreements 10 (2004); A.C. Sinclair, ‘The Origins of the Umbrella Clause in the International Law
of Investment Protection’ (2004) 20 Arb. Int’l 414; C. Schreuer, ‘Investment Treaty Arbitration and
Jurisdiction over Contract Claims: The Vivendi I Case Considered’ in International Investment Law
and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International
Law (T. Weiler, ed., London, Cameron May, 2005), 281, 301; H.J. Schramke, ‘The Interpretation of
Umbrella Clauses in Bilateral Investment Treaties’, TDM 5 (May 2007), at 21.
276 See Sinclair, fn. 275, at 411, 413; C. Schreuer, ‘Diversity and Harmonization of Treaty
Interpretation in Investment Arbitration’, TDM 3(2) (April 2006), at 9.
277 See Sinclair, fn. 275, at 434.
278 1956–59 Abs Draft International Convention for the Mutual Protection of Private Property
Rights in Foreign Countries, art. 4, in H.J. Abs, ‘Proposals for Improving the Protection of Private
Foreign Investments’ in Institut International d’Etudes Bancaires, Rotterdam (1958), as cited in Sinclair,
fn. 275, at 411.
279 See Draft Convention on Investments Abroad (the Abs-Shawcross Draft), art. II.
280 Draft Convention on the Protection of Foreign Property and Resolution of the Council of the
OECD on the Draft Convention, art. 2.
281 I. Seidl-Hohenveldern, ‘The Abs-Shawcross Draft Convention to Protect Private Foreign
Investment: Comments on the Round Table’ (1961) 10 J. Pub. L. 100, at 104. Cf. Sinclair, fn.
275, at 412–13.
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The Role of National Law when International Law Primarily Applies

249

but where different language is used compared with existing standard formulas, it may be
presumed that some difference in meaning was intended.282

Generally, however, the clauses refer to ‘commitments’ or ‘undertakings’ entered into
by the host state with investors or in respect of their investments. Whereas it is clear
that the clauses cover contractual commitments,283 the question has been posed
whether they have a wider scope of application.284 Commenting on the word ‘undertaking’ contained in article 2 of the 1967 OECD Draft Convention on the Protection
of Foreign Property, Lauterpacht considered that ‘[a]n “undertaking” can, for example,
describe the situation arising out of a general promise made by a State to accord to
foreign investors a particular standard of treatment, followed by an actual investment
made in reliance on that promise’.285 This approach was followed by the SCC Tribunal
in Petrobart Limited v Kyrgyz Republic (2005): ‘Not only has the Kyrgyz Republic
breached its contractual obligation to Petrobart, but it has also contravened its obligation under this heading by failing to observe the promise inherent in its Foreign
Investment Law in which Petrobart placed trust when making its investment in the
Republic.’286 This decision is representative of a survey of practice according to which
‘tribunals overwhelmingly accept the application of umbrella clauses to obligations

282 Crawford, fn. 270, at 355 (emphasis in original). See also Sinclair, fn. 275, at 412; YannacaSmall, fn. 267, at 22. Cf. Salini Costruttori S.p.A. & Italstrade S.p.A. v Hachemite Kingdom of Jordan,
ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November 2004 (G. Guillaume,
B.M. Cremades, I. Sinclair, arbs) (the tribunal rightly rejected that the following clause could give
rise to an ‘umbrella’ clause claim: ‘Each Contracting Party shall create and maintain in its territory a
legal framework apt to guarantee the investors the continuity of legal treatment, including the
compliance, in good faith, of all undertakings assumed with regard to each specific investor’).
283 See UNCTAD, Investor–State Dispute Settlement and Impact on Investment Rulemaking 28
( January, 2008), 28; Alvik, fn. 11, at 183; Noble Ventures v Romania, fn. 273, Award, at para. 51.
284 Cf. UNCTAD, fn. 266, at 75 (‘The majority of arbitral tribunals [ . . . ] when faced with a
“proper” umbrella clause, that is one drafted in broad and inclusive terms, seem to be adopting a fairly
consistent interpretation which covers all State obligations, including contractual ones’). But see
L. Halonen, ‘Containing the Scope of the Umbrella Clause’ in Investment Treaty Arbitration and
International Law (T. Weiler, ed., Huntington, NY, JurisNet, 2008), 27, 28 (‘[U]mbrella clauses
should be considered to apply only to contractual (or “quasi-contractual”) obligations made by a state
in its capacity as sovereign, and they should bind the state only vis-à-vis the party with whom the
obligation is entered into’).
285 E. Lauterpacht, ‘Drafting of Conventions for the Protection of Investment’ in Int’l. & Comp. L.
Q., ‘The Encouragement and Protection of Investment in Developing Countries’ (Suppl. 3, 1962),
218, 229. See also Sinclair, fn. 275, at 422, 428; G. Schwarzenberger, Foreign Investments and
International Law (London, Stevens, 1969), 116; C.S. Miles, ‘Where’s My Umbrella? An “Ordinary
Meaning” Approach to Answering Three Key Questions that have Emerged from the “Umbrella
Clause” Debate’ in Investment Treaty Arbitration and International Law (T. Weiler, ed., Huntington,
NY, JurisNet, 2008), 3, 19–20; F.A. Mann, ‘British Treaties for the Promotion and Protection of
Investments’ (1981) 52 Brit. Y.B. Int’l L. 241, 246; W. Ben Hamida, ‘La clause relative au respect des
engagements dans les traités d’investissement’ in Nouveaux développements dans le contentieux arbitral
transnational relatif à l’investissement international (Ch. Leben, ed., Paris, L.G.D.J, 2006), 53, at
para. 12.
286 Petrobart v Kyrgyz Republic, fn. 87, Award, at 29 (applying the Energy Charter Treaty, and
referring to the Kyrgyz Foreign Investment Law, art. 3(1)). But see CMS Gas Transmission Company v
Argentina, fn. 138, Decision on Annulment, 25 September 2007 (G. Guillaume, N. Elaraby,
J.R. Crawford, committee members), para. 95 (obligations ‘must be specific obligations concerning
the investment. They do not cover general requirements imposed by the law of the host State’); SGS v
Philippines, fn. 273, Decision on Jurisdiction, at para. 121 (‘For Article X(2) to be applicable, the host
State must have assumed a legal obligation, and it must have been assumed vis-à-vis the specific
investment—not as a matter of the application of some legal obligation of a general character. This is
very far from elevating to the international level all “the municipal, legislative or administrative or other
unilateral measures of a Contracting Party” ’).
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250 The Primary Applicability of International Law and the Role of National Law
assumed unilaterally by host States’.287 On the basis of this survey, Salinas concludes
that ‘where a treaty for the protection of investments containing an umbrella clause is
applicable, the violation of a unilateral undertaking, made through legislation or
otherwise, would amount to a violation of the treaty’.288 As explained by Begić
Šarkinović, though, the reasoning of those tribunals that have found that the scope
of protection of umbrella clauses may cover administrative or legislative obligations
should be seen in light of the limitation that ‘the obligations/commitments covered by
umbrella clauses must have been assumed vis-à-vis specific investments and, therefore,
do not cover general requirements imposed by the host state’s legislation’.289
It has further been suggested that contractual commitments should be limited to
encompass large-scale investment contracts, and that a breach of an ‘umbrella’ clause
may only be found where the state is abusing its position as a sovereign. Wälde states:
[T]he umbrella clause was originally intended to clarify that contractual rights were protected—as
a subcategory of expropriation—against governmental interference; that expropriation covered
contractual rights was in the 1950s disputed so that the clause reflects the legal controversies then
prevailing. The consequence of taking that ‘original intention’ seriously, in particular after the
‘filter’ of government sponsorship of claim disappeared in modern investment treaties, is that I—
and most tribunals—consider that even literally very wide ‘respect of commitment’ or umbrella
clauses does [sic] not ‘elevate normal commercial disputes to the level of the treaty’ and its arbitral
jurisdiction, but only captures cases where the State abuses its dual role as regulator and contract
party.290

Similar qualifications have, however, received opposition in practice and scholarship.
According to the ICSID Tribunal in SGS v Paraguay (2012), since one can logically
characterize every act by a sovereign state as a ‘sovereign act’, and ‘[i]t is thus difficult to
articulate a basis on which the State’s actions, solely because they occur in the context of
a contract or a commercial transaction, are somehow no longer acts of the State, for
which the State may be held internationally responsible.’291 Also Crawford notes with
persuasion the practical difficulties involved in characterizing breaches in terms of
‘significant interference by governments or public agencies with the rights of the
investor’:292
287 M.C.G. Salias, ‘Do Umbrella Clauses Apply to Unilateral Undertakings?’ in International
Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (C. Binder et al., eds,
Oxford, Oxford University Press, 2009), 490, 495.
288 Salias, fn 287.
289 T. Begić Šarkinović, ‘Umbrella Clauses and their Policy Implications’ (2011) 24 Hague Y.
B. Int’l L. 313. Cf. S.W. Schill, ‘Enabling Private Ordering—Function, Scope and Effect of Umbrella
Clauses in International Investment Treaties’ (2009) 18 Minn. J. Int’l L. 1, 70.
290 T.W. Wälde, ‘The Specific Nature of Investment Arbitration’ in New Aspects of International
Investment Law (P. Kahn and T.W. Wälde, eds, Leiden, Nijhoff, 2007), 43, 111. See also Wälde, ‘The
Umbrella (or Sanctity of Contract/Pacta sunt Servanda) Clause in Investment Arbitration:
A Comment on Original Intentions and Recent Cases’, TDM 1(4) (2004), 85; G. van Harten, ‘The
Public–Private Distinction in the International Arbitration of Individual Claims against the State’
(2007) 56(2) Int’l Comp. L.Q. 371, 392; Sempra Energy International v Argentine Republic, ICSID Case
No. ARB/0/16, Award, 28 September 2007 (F.O. Vicuña, M. Lalonde, S.M. Rico, arbs), para. 310
(‘[O]rdinary commercial breaches of a contract are not the same as Treaty breaches. [ . . . ] [S]uch a
distinction is necessary so as to avoid an indefinite and unjustified extension of the umbrella clause’).
291 SGS Société Générale de Surveillance S.A. v Republic of Paraguay, ICSID Case No. ARB/07/29,
Award, 10 February 2012 (S.A. Alexandrov, D.F. Donovan, P.G. Mexía, arbs), para. 72 (referring to
its Decision on Jurisdiction, at para. 135). See also Duke Energy v Ecuador, fn. 274, Award, at para.
320; Siemens v Argentina, fn. 273, Award, at para. 206.
292 CMS Gas Transmission Company v Argentina, fn. 138, Award, at para. 299 (‘Purely commercial
aspects of a contract might not be protected by the treaty in some situations, but the protection is likely
to be available when there is significant interference by governments or public agencies with the rights
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The Role of National Law when International Law Primarily Applies

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There are two obvious responses to this. The first is that it does not provide a reliable or even a
determinate test for determining whether a tribunal has jurisdiction. Instead it calls for an
appreciation of the character of or motive for the breach which in most cases would require a
hearing on the merits. The second response is that it would be very odd indeed if a State could
defend itself against a claim for repudiation of an investment agreement by arguing that it was
acting for commercial reasons!293

Secondly, tribunals should construe the rights and obligations of the parties in accordance with the proper law of the source of the obligation, most likely the national law of
the host state.294 Hence, the ICSID Tribunal in SGS v Philippines (2004) correctly
noted that the ‘umbrella’ clause at issue does not convert investment contracts into
treaties by way of ‘instant transubstantiation’;295 and, in particular, it does not change
the proper law of the investment contract from the law of the Philippines to international law.296 Stated differently, the ‘umbrella’ clause does not address ‘the scope of
the commitments entered into with regard to the specific investments but the performance of these obligations, once they are ascertained’.297 In similar language, ICSID ad
hoc committee in CMS Gas Transmission Company v Argentine Republic (2007) held:
In speaking of ‘any obligations it may have entered into with regard to investments’, it seems clear
that Article II(2)(c) is concerned with consensual obligations arising independently of the BIT
itself (i.e. under the law of the host State or possibly under international law). [ . . . ] The effect of
the umbrella clause is not to transform the obligation which is relied on into something else; the
content of the obligation is unaffected, as is its proper law.298

Next to scholarship,299 also the award and the decision on annulment in MTD Equity
(2004/07) support this interpretation.300 The claimants argued that because a breach of
the foreign investment contracts was internationalized by reason of the ‘umbrella’
clause in the BIT at hand, the contracts themselves were governed by international
law.301 The ICSID Tribunal rejected this argument: ‘The Tribunal has to apply the
BIT. The breach of the BIT is governed by international law. However, to establish the
facts of the breach, it will be necessary to consider the contractual obligations

of the investor’). See also El Paso v Argentina, fn. 268, Decision on Jurisdiction, at paras 77 et seq.; BP
America Production Co. v Argentina, fn. 271, Decision on Preliminary Objections, at paras 93–115.
293 Crawford, fn. 270, at 368. See also Miles, fn. 285, at 13–14; Ben Hamida, fn. 285, at para. 13;
Sasson, fn. 223, at 193–4.
294 This national law will, through the application of the center of gravity test, normally be that of
the host State. Cf. Gill et al., fn. 266, at 407. See also Chapter 3, Section 3.2.2 (on the (non-)
applicability of national and international law). It is noted that the fact that the rights and obligations
of the investor are construed according to national law may facilitate the bringing of a counterclaim by
the host State. See Chapter 4, Section 4 (on counterclaims by host states).
295 SGS v Philippines, fn. 273, Decision on Jurisdiction, at para. 126 (referring to SGS v Pakistan,
fn. 269, Decision on Jurisdiction, at para. 172).
296 SGS v Philippines, at para. 126.
297 SGS v Philippines, at para. 126.
298 CMS Gas Transmission Company v Argentina, fn. 286, Decision on Annulment, at para. 95.
299 See, e.g., Crawford, fn. 270, at 370; Ben Hamida, fn. 285, at para. 63; ‘Where’s My Umbrella?
A Look Inside the Umbrella Clause: Panel Discussion’ in Investment Treaty Arbitration and International Law (T. Weiler, ed., Huntington, NY, JurisNet, 2008), 39, 42 (observation by Ms Halonen);
Sasson, fn. 223, at 194; Mayer, fn. 15, at 36. But see V. Zolia, ‘Effect and Purpose of “Umbrella
Clauses” in Bilateral Investment Treaties: Unresolved Issues’, TDM (2(5) (2005), 42 et seq. (‘[S]ome
have argued that the existence and extent of commitments should be determined according to the
national system of law in which they were taken. In our view, this proposition suffers from at least three
major flaws [ . . . ]’ [references omitted]).
300 MTD Equity v Chile, fn. 146, Award, at para. 187.
301 MTD Equity v Chile, Decision on Annulment, at para. 73.
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252 The Primary Applicability of International Law and the Role of National Law
undertaken by the Respondent and the Claimants and what their scope was under
Chilean law.’302 A more recent example of an award in which the tribunal found a need
to consider national law when assessing an ‘umbrella’ clause claim is Marion Unglaube v
Costa Rica (2012).303 According to the tribunal, the failure of the Costa Rican National
Environmental Office to process the investor’s environmental assessment did not
constitute a breach of the parties’ agreement on two grounds:
[ . . . ] first, because of the conditionality of the commitment and the intervening ruling of the
Supreme Court; and second, because, as correctly argued by Respondent, the legality of actions of
Respondent are a matter which must be resolved under the laws of Costa Rica. Here, Claimants
have not established by persuasive evidence that—as a matter of Costa Rican law—Respondent
or its agents acted in breach of the Road Map Agreement. Without having established such a
breach, Claimants cannot succeed in establishing a violation of the Treaty obligation to ‘observe
any other obligation it has assumed with regard to investments by nationals or companies of the
other contracting party.’304

Would the contract appear to have been violated, though, this would mean a violation
of the ‘umbrella’ clause as well,305 and the investor accordingly has an international
remedy. Thus, the third step to be taken is for tribunals to apply rules of state
responsibility and to grant the investor a remedy pursuant to international law.306
This need to differentiate between the law applicable to contractual or property rights
and the law applicable to determine state responsibility at the international level has
long been recognized:
The nature of such contractual rights or rights with respect to tangible property, real or personal,
which a claimant asserts have been invaded in a given case is determined by the local law that
governs the legal effects of the contract or other form of instrument creating such rights. But the
responsibility of a respondent government is determined solely by international law.307

In sum, whereas the investor derives an international cause of action from the host
state’s treaty obligation to respect commitments, the precise meaning of these commitments must be analysed pursuant to their proper law, generally national law. One may
wish to note that according to the tribunal in El Paso v Argentina (2006), the necessary
interplay between national and international law created by ‘umbrella’ clauses was in

302 MTD Equity v Chile, Decision on Annulment, at para. 73. See also Award, fn. 146, at para. 187.
303 Marion Unglaube & Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/08/1
and ICSID Case No. ARB/09/20, Award, 16 May 2012 (J. Kessler, F. Berman, B. Cremades, arbs),
para. 191.
304 Unglaube v Costa Rica, at para. 190 (referring to article 7(2) of the Germany–Costa Rica BIT).
See also EDF (Services) Limited v Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009
(P. Bernardini, A.W. Rovine, Y. Derains, arbs), ICSID Case No. ARB/05/13, para. 319; Fedax v
Venezuela, ICSID Case No. ARB/96/3, Award, 9 March 1998 (F.O. Vicuña, M. Heth, R.B. Owen,
arbs), para. 30; Eureko v Poland, fn. 271, Partial Award, J. Rajski, Dissenting Opinion, at para. 5.
305 See UNCTAD, State Contracts, fn. 275, at 10; I.F.I. Shihata, ‘Applicable Law in International
Arbitration: Specific Aspects in the Case of the Involvement of State Parties’ in II The World Bank in a
Changing World (Dordrecht, Nijhoff, 1995), 595.
306 See A. Sinclair, ‘Bridging the Contract/Treaty Divide’ in International Investment Law for the
21st Century: Essays in Honour of Christoph Schreuer (C. Binder et al., eds, Oxford, Oxford University
Press, 2009), 103. Cf. MTD Equity v Chile, fn. 146, Decision on Annulment, at para. 72. Cf. Douglas,
fn. 144, at 94 (Rule 12).
307 Cook v Mexico, Opinions of Commissioners (1927), 321, Docket No. 663, cited in J.H. Ralston,
Supplement to 1926 Revised Edition of The Law and Procedure of International Tribunals (Stanford,
CA, Stanford University Press, 1936), 49.
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The Role of National Law when International Law Primarily Applies

253

fact one of the reasons for not construing ‘umbrella’ clauses so as to create an independent cause of action for the investor.308 In its view, a broad interpretation of the clause at
hand would be ‘quite destructive of the distinction between national legal orders and
the international legal order’.309 A more moderate, and better, interpretation of the
effects of ‘umbrella’ clauses on the relationship between the legal orders is offered by the
ICSID Tribunal in Noble Ventures, Inc. v Romania (2005):
[I]nasmuch as a breach of contract at the municipal level creates at the same time the violation of
one of the principles existing either in customary international law or in treaty law applicable
between the host State and the State of the nationality of the investor, it will give rise to the
international responsibility of the host State. But that responsibility will co-exist with the
responsibility created in municipal law and each of them will remain valid independently of
the other, a situation that further reflects the respective autonomy of the two legal systems
(municipal and international) each one with regard to the other.310

According to the tribunal, when states include in a BIT a provision to the effect that the
host state may incur international responsibility by reason of a breach of its contractual
obligations toward the private investor of the other party, the breach of the contract is
‘internationalized’, i.e., assimilated to a breach of the treaty.311 As such, it concludes,
‘an umbrella clause, when included in a bilateral investment treaty, introduces an
exception to the general separation of States obligations under municipal and under
international law’.312 This conclusion receives support in the observation by Dolzer
and Schreuer that originally, ‘[u]mbrella clauses were seen as a bridge between private
contractual arrangements, the domestic law of the host state, and public international
law’.313

3.1.3. National provisions as facts or law
As concerns expropriation and ‘umbrella’ clauses, it could be argued that what is at issue
is not a true application of national law, but that it is rather an example of the
longstanding practice of international courts and tribunals to refer to national law as
facts or evidence for the merits of the international claim. Such practice is illustrated by
Certain German Interests in Polish Upper Silesia (1926), in which the Permanent Court
of International Justice observed:
It might be asked whether a difficulty does not arise from the fact that the Court would have to
deal with the Polish law of July 14th, 1920. This, however, does not appear to be the case. From
the standpoint of International Law and of the Court which is its organ, municipal laws are
merely facts which express the will and constitute the activities of States, in the same manner as
do legal decisions and administrative measures. The Court is certainly not called upon to
interpret the Polish law as such; but there is nothing to prevent the Court’s giving judgment
on the question whether or not, in applying that law, Poland is acting in conformity with its
obligations towards Germany under the Geneva Convention.314
308 El Paso v Argentina, fn. 268, Decision on Jurisdiction, at para. 70.
309 El Paso v Argentina, at para. 82.
310 Noble Ventures v Romania, fn. 273, Award, at para. 53.
311 Noble Ventures v Romania, at para. 53.
312 Noble Ventures v Romania, at para. 55.
313 Dolzer and Schreuer, fn. 16, at 155. See also at 155 (‘The conventional understanding of the
clause is reflected in Noble Ventures v Romania’ [references omitted]).
314 Case Concerning Certain German Interests in Polish Upper Silesia (Germany v Poland), Judgment,
25 May 1926, PCIJ Ser. A No. 7, at 19. See also Nottebohm (Liechtenstein v Guatemala), Judgment, 6
April 1955, 1955 ICJ 4, Dissenting Opinion of Judge Read, 36; M.5.1. India–Patents (US), WT/
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254 The Primary Applicability of International Law and the Role of National Law
National law has been treated as a factual matter in several of the aforementioned
awards concerning expropriation.315 After having relied on national law as a necessary
part of its analysis, the tribunal in Nykomb Synergistics Technology Holding AB v Latvia
(2003) went on to emphasize that such references to national law did not constitute an
application of national law as such: ‘The situation thus documented are facts interpreted by the Latvian courts concerning the Latvian legal situation that can be taken
into regard by this Tribunal, without any need for the Tribunal to embark on any
interpretation or application of Latvian national law on its own.’316
Likewise, in referring to Mexican law, the tribunal in International Thunderbird
Gaming Corporation (2006) made it clear that its role was not to determine whether the
machines were prohibited gambling equipment under the Ley Federal de Juegos y
Sorteos.317 It continued by observing that ‘[i]t is not the Tribunal’s function to act as
a court of appeal or review in relation to the Mexican judicial system regarding the
subject matter of the present claims, or in relation to the SEGOB administrative
proceedings for that matter’.318 Rather, stated the tribunal, it ‘shall examine whether
the conduct of Mexico and the measures employed by [the Mexican authorities] in
relation to the [gambling] entities were consistent with Mexico’s obligations under
Chapter Eleven of the Nafta’.319 In assessing whether the Mexican regulatory and
administrative conduct had breached the NAFTA, it pointed out that ‘[t]he perspective
is of an international law obligation examining national conduct as a “fact” ’.320 The
perception of national law as ‘facts’ from the viewpoint of international law was also
noted by the ICSID Tribunal in Noble Ventures, Inc. v Romania (2005).321 In its view,
the rule that a breach of a contract by a state does not generally give rise to direct
international responsibility on the part of that state, ‘derives from the clear distinction
between municipal law on the one hand and international law on the other [ . . . ], two
separate legal systems (or orders) the second of which treats the rules contained in the
first as facts’.322
It is true that in many cases, national provisions should be classified as a factual matter.
For instance, in a case where the investor alleges that they have been discriminatorily
DS50/AB/R, 16 January 1998, paras 65–67; K. Lipstein, ‘The Hague Conventions on Private
International Law, Public Law and Public Policy’ (1959) 8(3) Int’l & Comp. L. Quart. 506, 522;
C. Santulli, Le statut international de l’ordre juridique étatique (Paris, Pedone, 2001), 258. But see
S. Bhuiyan, National Law in WTO Law: Effectiveness and Good Governance in the World Trading System
(Cambridge, Cambridge University Press, 2007), 207 et seq. (Bhuiyan critically discusses the notion of
national law as a question of fact).
315 See Section 3.1.1 (on the prohibition against expropriation without compensation). Cf.
M.N. Kinnear, ‘Treaties as Agreements to Arbitrate: International Law as the Governing Law’
in International Arbitration 2006: Back to Basics? (ICCA Congress Series, 2006 Montreal Volume
13, A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer Law International, 2007), 401, 421.
316 Nykomb Synergistics Technology Holding AB v Latvia, Award, 16 December 2003 (B. Haug,
R.A. Schütze, J. Gernandt, arbs), para. 3.7. See also Opinion of O. Bring and R. Happ, August 2003,
at para. 5.
317 Thunderbird v Mexico, fn. 85, Award, at para. 125.
318 Thunderbird v Mexico, Cf. Case Concerning LaGrand, fn. 100, at para. 52.
319 Thunderbird v Mexico, at para. 126.
320 Thunderbird v Mexico, at para. 127 (emphasis added). See also Petrobart v Kyrgyz Republic, fn.
87, Award, at 23.
321 Noble Ventures v Romania, fn. 273, Award.
322 Noble Ventures v Romania, at para. 53 (referring to ILC Articles on State Responsibility, art. 3
(2001)). See also Alpha, fn. 152, Award, at paras 232–233; T.W. Wälde, ‘Investment Arbitration
under the Energy Charter Treaty: An Overview of Selected Key Issues’ in Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (N. Horn, ed., The Hague, Kluwer Law
International, 2003), 193, 215; Spiermann, fn. 9, at 110 et seq.
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The Role of National Law when International Law Primarily Applies

255

treated in contravention of the investment treaty, the arbitral tribunal may need to
examine a national law arguably giving rise to such discrimination.323 In that case, the
national law is solely considered—as facts—from the viewpoint of international law;
and whereas the tribunal may need to interpret the national law, it does not apply it as
such. As stated in the Commentary to the now shelved324 Norwegian Draft Model
Investment Agreement: while investors may only bring claims based on substantive
provisions set forth in the Agreement, and that therefore ‘[t]he Arbitral Tribunal
cannot judge on the basis of violations of national law [ . . . ], national law constitutes
evidence for the Arbitration Tribunal, which must consider whether national law is
contrary to the agreement as such or as applied in the current case’.325
In the case of expropriation and ‘umbrella’ clauses, however, the tribunal may need
to look to national law in order to determine the rights and obligations of the parties
pursuant to the property or contract, respectively.326 In such cases, the better perspective is to consider national law as being truly applied to the merits, albeit indirectly as
part of the determination of the international claim. As Lachs, former judge at the
International Court of Justice, observes: in the context of diplomatic protection,
‘the Court accepts the relevant municipal laws and contractual stipulations as facts in
the case. Nevertheless, it may not be able to avoid constituting and applying them as
law in reaching its decision.’327
Importantly, this conclusion has also received acceptance in the area of investment
arbitration. For example, in Enron Corporation and Ponderosa Assets, L.P. v Argentine
Republic (2007), the claimants asserted that ‘domestic law is relevant primarily to
factual matters only, such as the nature of the assurances made to the Claimants’.328
The host state disagreed: ‘domestic law is not confined to factual matters but has a
substantive role in defining the rights of the investor, particularly when property rights
are involved in the dispute; these rights are not defined by international law but by the
local law to which the investor has voluntarily submitted.’329 The ICSID Tribunal
held:
The Respondent is right in arguing that domestic law is not confined to the determination of
factual questions. It has indeed a broader role, as it is evident in this very case from the pleadings
323 See, e.g., MTD Equity v Chile, fn. 146, Award, at para. 197 (‘This claim is based on the Croatia
BIT by way of the MFN clause of the BIT. Article 3(2) of the Croatia BIT reads as follows: “When a
Contracting Party has admitted an investment in its territory, it shall grant the necessary permits in
accordance with its laws and regulations.” [ . . . ]’); see also at para. 204 (‘To establish the facts of the
breach, it may be necessary to take into account municipal law. In the instant case, the Tribunal will
need to establish first whether the Respondent’s failure to modify the PMRS to the benefit of the
Claimants was in accordance with its own laws’).
324 See D. Vis-Dunbar, ‘Norway Shelves its Draft Model Bilateral Investment Treaty’, Investment
Treaty News (8 June 2009).
325 Norwegian Draft Model Investment Agreement, Comments on the Model for Future Investment Agreements, at para. 4.3.2. See also at para. 4.3.2: (‘It will be necessary to interpret the provisions
of the agreement and it will be necessary to consider the underlying legal situation. In this situation, both
other international law (outside the agreements) and national law may be relevant’ [emphasis in
original]).
326 Cf. C.W. Jenks, Prospects of International Adjudication (London, Stevens, 1964), 554, 603;
C. McLachlan et al., International Investment Arbitration: Substantive Principles (Oxford, Oxford
University Press, 2007), 69–70.
327 M. Lachs, ‘Arbitration and International Adjudication’ in International Arbitration: Past and
Prospects: A Symposium to Commemorate the Centenary of the Birth of Professor J.H.W. Verzijl (1988–
1987) (A.H.A. Soons, ed., Dordrecht, Martinus Nijhoff, 1990), 50 [emphasis in original]).
328 Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No. ARB/01/3,
Award, 22 May 2007 (F. Orrego-Vicuña, A.J. van den Berg, P.-Y. Tschanz, arbs), para. 203.
329 Enron v Argentina, at para. 204.
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256 The Primary Applicability of International Law and the Role of National Law
and arguments of the parties that have relied heavily on the Gas Law and generally the regulatory
framework of the gas industry, just as they have relied on many other rules of the Argentine legal
system, including the Constitution, the Civil Code, specialized legislation and the decisions of
courts. The License itself is governed by the legal order of the Argentine Republic and it must be
interpreted in its light.330

The award in Total SA v Argentina (2010) is also illustrative.331 When considering the
role of Argentina’s domestic law in determining the content and the extent of the
investor’s economic rights as they existed in Argentina’s legal system, the ICSID
Tribunal rejected the view that Argentinian law was only relevant as ‘factual evidence’
in the sense suggested by the claimant:
In this regard the Tribunal believes that Argentine law has a broader role than that of just
determining factual matters. The content and the scope of Total’s economic rights (in Total’s
words, ‘Argentina’s commitments to Total’) must be determined by the Tribunal in light of
Argentina’s legal principles and provisions. Moreover, the extensive reliance by the Claimant on
Argentina’s acts of a legislative and administrative nature governing the gas, electricity and
hydrocarbons sectors, as well as the extensive discussion between the parties regarding the content
and extent of Total’s rights in respect of the operation of its investments, is a recognition that
Argentina’s domestic law plays a prominent role.332

The elevated role of national law is also supported in scholarship. Alvik states: ‘merely
to consider municipal law as facts’ in a case where the tribunal must determine whether
a violation of contractual promises constitutes an illegal expropriation of the investor’s
rights, ‘would disregard the proactive and independent function required of tribunals in
relation to the real legal issues often, or even usually, at stake in an investment
dispute’.333 We share this view, which is also phrased as follows by Jenks:
If, for instance, it is necessary to determine the nature or extent of a property which is the subject
of international proceedings [ . . . ], the municipal law of one of the parties to the proceedings or
of some other State may be relevant and indeed decisive. It is neither necessary nor desirable to
describe municipal law when so applied as ‘a fact’. It is applied as the proper law of the particular
transaction in virtue of international law; as such it constitutes a part of the law applied by
international courts and tribunals and an essential element in the promotion of the rule of law in
world affairs.334

A final comment should be made in this respect, and it relates to the situation where the
national law in question violates international law. Due to the fact that the underlying
330 Enron v Argentina, at para. 206. See also Sempra Energy v Argentina, fn. 290, Award, at para.
235; National Grid v Argentina, fn. 237, Award, at para. 83; MTD Equity v Chile, fn. 146, Decision on
Annulment, at para. 47. But see Azurix Corp. v Argentine Republic, fn. 149, Decision on Annulment, at
para. 151 (‘[E]ven in this situation, municipal law would not thereby become part of the applicable law
under Article 42 of the ICSID Convention for purposes of determining whether there was a breach of
Article II.2(c) of the BIT. Rather, any breach of municipal law that might be established would be a
fact or element to which the terms of the BIT and international law would be applied in order to
determine whether there was a breach of [the “umbrella” clause]’).
331 Total S.A. v Argentina, Decision on Liability, 21 December 2010, ICSID Case No ARB/04/1,
IIC 484 (2010) (G. Sacerdoti, H.C. Alvarez, L.H. Marcano, arbs).
332 Total S.A. v Argentina, at para. 39 (references omitted).
333 I. Alvik, ‘The Hybrid Nature of Investment Treaty Arbitration: Straddling the National/International Divide’ in The New International Law: An Anthology (C.C. Eriksen and M. Emberland, eds,
Leiden, Nijhoff, 2010), 91, 96. See also at 96–7.
334 Jenks, fn. 326, at 603. See also Nollkaemper, fn. 208, at 253; Ben Hamida, fn. 285, at para. 65.
But see Sacerdoti, fn. 153, at 52 (‘[D]omestic law [ . . . ] is considered as a fact from the point of view of
international law, when the latter has to be applied in order to evaluate the lawfulness or unlawfulness
of State conduct under international law’); and see also at 66.
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The Role of National Law when International Law Primarily Applies

257

claim is based on international law, the question arises whether in such a case the
tribunal should disregard the relevant national provision. A positive answer finds
support in the following statement by the ICSID Tribunal in Duke Energy International
v Peru (2006): ‘[E]ven if the law of Peru were held to apply to the interpretation of the
[investment agreement], this Tribunal has the authority and duty to subject Peruvian
law to the supervening control of international law.’335 We also note the objection
made by Judge Mosk in his dissenting opinion in Catherine Etezadi v Iran (1994).336 In
that case, the Iran–United States Claims Tribunal found that the claimant had failed to
prove her ownership in certain property, and accordingly, it dismissed her claim for
expropriation.337 According to Judge Mosk, the Iranian law, as applied by the tribunal,
was discriminatory vis-à-vis women:
The majority opinion basically relegates the role of the wife to an inferior position before this
Tribunal, for under that opinion, unlike other claimants, she cannot obtain enforceable, beneficial rights by contracting with her husband, and her own property rights vis-à-vis third parties are
necessarily dependent on her husband’s rights. Although theoretically the majority’s opinion
would apply if it were an Iranian wife who had the pension and the American husband who
claimed as the beneficial owner, in reality such a situation is highly unlikely. Under Iranian law,
an Iranian Moslem woman cannot marry a non-Moslem. Civil code of Iran, art. 1059. Moreover,
an Iranian woman cannot marry a foreign national without government permission. Id., art.
1060. There are no such requirements imposed upon Iranian males. Iranian nationality is only
imposed on a non-Iranian wife, not on a non-Iranian husband. Id., art. 976(6). Thus, the
situation presented in the instant case generally would arise so as to detrimentally affect a woman,
but not a man.338

To Mosk, therefore, her claim for expropriation should be upheld: ‘This Tribunal
should not place its imprimatur on a result [ . . . ] so unjust and so contrary to the rights
of women.’339
In our opinion, the otherwise applicable national law should be set aside in favour of
international law when the international norm in question is of a fundamental nature.
This is consistent with the conclusion reached in Chapter 5 concerning the corrective
role of international law.340 It is indeed possible that an award that gives effect to a
gender discriminatory property law could be seen to be contrary to the international
public policy of several states, including those parties to the European Convention on
Human Rights and Fundamental Freedoms.341 On this basis, the award might either

335 Duke Energy v Peru, fn. 140, Decision on Jurisdiction, 1 February 2006 (G.S. Tawil, P. Nikken,
L.Y. Fortier, arbs), at para. 162.
336 Catherine Etezadi v Iran, fn. 258, Award, Dissenting Opinion by Judge E.M. Mosk, at para. 53.
337 Etezadi v Iran, Award, at para. 78.
338 Etezadi v Iran, Dissenting Opinion, Judge E.M. Mosk.
339 Etezadi v Iran, Dissenting Opinion, Judge E.M. Mosk. See also Spiermann, fn. 9, at 114
(‘National law will be irrelevant to the extent in conflict with public international law, including the
principle pacta sunt servanda’); Alvik, fn. 11, at 176–7, 190–1; Sasson, fn. 223, at 201; Waguih Elie
George Siag and Clorinda Vecchi v Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on
Jurisdiction and Partial Dissenting Opinion, 11 April 2007, para. 195; P. Malanczuk, Akehurst’s
Modern Introduction to International Law (London, Routledge, 1997), 64.
340 See Chapter 5, Section 3.2.2.1 (the parties have agreed to the sole application of national law).
341 Gender discrimination is prohibited in both national and international law. For an exposé of
national and international instruments, see FAO, Law and Sustainable Development Since Rio: Legal
Trends in Agriculture and Natural Resource Management, at Chapter 9 (Gender), available at <http://
www.fao.org/DOCREP/005/Y3872E/y3872e0a.htm> (last visited 1 May 2012).
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258 The Primary Applicability of International Law and the Role of National Law
be annulled by a court of the tribunal’s juridical seat,342 or it might be denied
enforcement by a third state.343
It is also reasonable that the tribunal set up pursuant to an investment treaty would
leave aside the relevant national norm in case it is contrary to that very treaty.344 In such
a case, Sasson suggests that the tribunal should rather ‘refer to a number of municipal
law sources’.345 Her method, which strikes the right balance between the host state’s
right to require compliance with its national law, on the one hand, and its obligations
under international law, on the other, is as follows: the Morelli (and Diallo) approach of
referring to a specific national legal order ‘runs the risk of submitting the characterization of international law to the municipal law of the host State’.346 Yet, ‘the comparative approach suggested by the ICJ in Barcelona Traction runs the risk of importing
more vagueness and uncertainty, since it is difficult to find uniformity between the
various municipal legal systems’.347 To Sasson, therefore:
If the application of municipal law affects the international characterization of the disputed act,
the municipal law of the host State should be disregarded and reliance should instead be placed
on the ‘municipal legal system’ identified by the ICJ in Barcelona Traction. Accordingly, the
renvoi should not necessarily terminate with the application of the host State’s municipal law, but
it should not commence by looking to municipal legal systems.348

3.2. The corrective application of national law
National law can also play a corrective role vis-à-vis international law. This may occur
when international law contains lacunae (Section 3.2.1) or the international norm in
question conflicts with a fundamental national norm (Section 3.2.2).

3.2.1. The complementary role of national law
International law may not provide answers to specific issues presented to the arbitral
tribunal.349 It has been suggested that in such situations, where international law
342 See Chapter 2, Section 3.2.1.2 (on annulment as an exercise of control); Chapter 3, Section 3.3
(on fundamental national and international norms).
343 See Chapter 3, Section 3.3 (on fundamental national and international norms).
344 Sasson, fn. 223, at 197.
345 Sasson, at 197.
346 Sasson, at 202 (referring to Barcelona Traction, fn. 234, Morelli, J., Separate Opinion, at
234–5); Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo), Preliminary
Objections, Judgment [2007] ICJ Rep. (II), p. 582).
347 Sasson, at 202, (referring to Barcelona Traction, fn. 225, Judgment).
348 Sasson, at 202.
349 Cf. M.J. Aznar-Gomez, ‘The 1996 Nuclear Weapons Advisory Opinion and Non Liquet in
International Law’ (1999) 48 Int’l & Comp. L. Quart. 3, 18 (‘International law is an incomplete legal
order, with gaps in those areas which international regulation has not yet reached’). See also
Section 2.1.1 (express or implied ‘internationalization’ of investment contracts). But see M.G. Kohen,
‘L’avis consultatif de la ClJ sur la Licéité de la menace ou de l’emploi d’armes nucléaires et la
fonction judiciaire’ (1997) 8(2) Eur. J. Int’l L. 336, 345 (‘C’est une banalité de dire que le droit
international—comme n’importe quel autre système juridique—ne comporte pas des règles particulières
pour régir chacune des circonstances infinies qui peuvent se présenter dans les relations entre ses sujets.
Les règles juridiques sont censées être construites de manière abstraite et il s’agira tout simplement de
classifier un fait, acte ou situation dans telle catégorie juridique ou telle autre. C’est là en fait l’“art” de la
function juridictionelle. En bref, ce qui n’est pas explicitement prohibé par une règle specifique peut l’être
en fonction d’autres règles plus generales, applicable à la situation en cause’). [It is commonplace to say
that international law—like any other legal system—has no specific rules governing each of the infinite
number of circumstances that may arise in the relationship between its subjects. Legal rules are supposed
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The Role of National Law when International Law Primarily Applies

259

primarily governs the dispute, tribunals may have recourse to the law of the host state in
a complementary, or ‘gap-filling’, manner.350 It might be said that by using national
law to complement international law, the incomplete nature of the international legal
order is thereby ‘corrected’. It is submitted, however, that where the parties have agreed
to the sole application of international law, a tribunal would not be authorized to create
new causes of action from national law. Rather, a more appropriate method would be
for the tribunal to seek to distil a general principle of law.351 A different conclusion
would be contrary to the principle of party autonomy.352
National law could, however, fulfil a complementary role with respect to ancillary
questions of law. This possibility is illustrated by the award SwemBalt AB v Latvia
(2000). When deciding the amount of compensation to which the Swedish investor
would be entitled, the UNCITRAL Tribunal held: ‘Under international law there are
no rules with regard to the rate of interest to be paid. Therefore it is necessary to find
references under national law.’353 Relying on principles of general private international
law, the tribunal decided to apply the law of the seat, Denmark, as the link with Sweden
was not sufficiently strong, and because the parties had not provided the arbitrators
with information on relevant Latvian law.354 Similarly, the SCC Tribunal in Eastern
Sugar B.V. v Czech Republic (2007) concluded that it could apply Czech law where
international law was silent.355 Thus, while applying international law to the question
whether the Czech Republic had violated the investment treaty at hand, the tribunal
held with respect to damages that ‘[t]he Arbitral Tribunal believes that it should apply
the statutory interest provided by the applicable law, which is Czech law, which on this
point does not conflict with International Law’.356
We finally note that the application of national law to issues of compensation may be
explicitly stipulated in the applicable investment treaty. As the ICSID Tribunal
remarked in ADC Affiliate Limited, ADC & ADMC Management Limited v Republic
to be built in the abstract and it is simply a question of classifying a fact, an act or a situation as falling
into one legal category or another. This is in fact precisely the ‘art’ of the juridical function. In short, what
is not explicitly prohibited by a specific rule can be so on the basis of other more general rules applicable
to the situation in question.]
350 See Igbokwee, fn. 144, at 285–7.
351 See Igbokwee, at 285–7. See also Convention on the Settlement of Investment Disputes
between States and Nationals of Other States, Documents Concerning the Origin and the Formation
of the Convention, Vol. II-1, at p. 419 (hereinafter History of the ICSID Convention) (the representative from Italy stated that ‘traditional international law could be supplemented by general principles
of the law of obligations recognized by the laws of the Contracting States. That would give greater
protection both to the host State and the investor’).
352 See Chapter 3, Section 3.1 (on party agreement on the applicable law); Chapter 5, Section 3.2.1
(on the complementary function of international law).
353 SwemBalt AB v Latvia, Award, 23 October 2000 (K. Hober, G. Moller, A. Philip, arbs),
para. 46.
354 SwemBalt, at para. 46. But see N. Rubins, Swembalt AB v Republic of Latvia, Stockholm Arb.
Rep. 126 (2004:2); Rubins, Swembalt v Latvia: Introduction and the Dilemma of Default, Stockholm
Arb. Rep. 121–2 (2004:2); F. Yala, Swembalt v Latvia: The Notion of Investment and Attribution of State
Responsibility under a BIT, Stockholm Arb. Rep. 128 (2004:2).
355 Eastern Sugar v Czech Republic, fn. 166, Partial Award, at paras 196, 373. See also Section 2.2
(on the international nature of the claim).
356 Eastern Sugar v Czech Republic, fn. 166, Partial Award, at para. 373. Cf. Southern Pacific
Properties (Middle East) Limited (SPP) v Arab Republic of Egypt, ICSID Case No. ARB/84/3, Award,
20 May 1992, 3 ICSID Rep. 189, 241–4 (1995). See also Jan Oostergetel and Theodora Laurentius v
Slovak Republic, Final Award, 23 April 2012 (G. Kaufmann-Kohler, M. Wladimiroff, V. Trapl, arbs),
para. 140 (‘Whenever the BIT is silent on an issue, the Tribunal will resort to either municipal or
international law depending on the nature of the issue in question’); AAPL v Sri Lanka, fn. 91, Award,
at paras 21–22; LG&E v Argentina, fn. 147, Decision on Liability, at para. 97.
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260 The Primary Applicability of International Law and the Role of National Law
of Hungary (2006): ‘Article 4(3) of the BIT [ . . . ] provides: “The amount of this
compensation [for expropriation] may be estimated according to the laws and regulations of the country where the expropriation is made.” In the present case, that law is
Hungarian law.’357 Yet, after quoting from the relevant provision in the Hungarian
Constitution in this respect, the tribunal went on to apply the default standard
contained in customary international law.358

3.2.2. The supervening role of national law
In view of the power of national courts to annul and refuse recognition and enforcement of awards,359 territorialized tribunals are advised to consider the international
public policy of various states. This international public policy, we recall, is domestic public policy applied to (foreign) arbitral awards and its content and application
remain subjective to each state.360 Of prime importance is the international public
policy of the juridical seat, as disregard for it may lead to annulment by the national
courts of that state.361 Also implicated are the international public policy norms of the
state in which enforcement is sought, since a conflict with these norms constitutes a
possible ground for non-recognition and enforcement of the award.362 In Mitsubishi
Motors Corp. v Soler Chrysler-Plymouth (1985), the US Supreme Court noted: ‘the
national courts of the United States will have the opportunity at the award-enforcement
stage to ensure that the legitimate interest in the enforcement of the [US] antitrust laws
has been addressed.’363 And, as a Canadian court stated in a case concerning the
constitutionality of the NAFTA: ‘It could be argued that a NAFTA tribunal should
consider the [Canadian] Charter [of Rights and Freedoms] in a particular case.’364
With respect to internationalized tribunals, the international public policy of their
seat and the state in which enforcement is sought are in principle not relevant.365 Still,
the possibility does exist—not only in theory—that a national court may annul or deny
enforcement of an award on the basis that it conflicts with the national constitution,
even where such a decision has the potential to run counter to its international
obligations.366 More hypothetically, a state’s international public policy could play a
357 ADC v Hungary, fn. 89, Award, at para. 292.
358 ADC v Hungary, at paras 482 et seq.
359 See Chapter 2, Section 3.2.1.2 (on annulment as an exercise of control); Chapter 3, Section 3.3
(on fundamental national and international norms).
360 See Chapter 2, Section 3.2.1.2 and Chapter 3, Section 3.3.
361 See Chapter 2, Section 3.2.1.2 and Chapter 3, Section 3.3.
362 See Chapter 2, Section 3.2.1.2 and Chapter 3, Section 3.3.
363 Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, 473 U.S. 614, 638 (U.S., 1985). See also at
635 (noting that a ‘claim under the antitrust laws is not merely a private matter. The Sherman Act is
designed to promote the national interest in a competitive economy’). Cf. Discussion of Eco Swiss,
Chapter 5, Section 3.2.2.1 (the parties have agreed to the sole application of national law).
364 See Council of Canadians et al v Attorney General of Canada, Ontario Superior Court of Justice,
8 July 2005, para. 64.
365 See F.A. Mann, ‘State Contracts and International Arbitration’ (1967) 42 Brit. Y.B. Int’l L. 1, 2.
Cf. Reineccius v Bank for International Settlements, Partial Award on the Lawfulness of the Recall of the
Privately Held Shares on 8 January 2001 and the Applicable Standards for Valuation of those Shares,
PCA, 22 November 2002, at para. 124.
366 See Chapter 5, Section 3.1.1 (on international law as part of the ‘law of the land’). Cf. E. de
Wet, ‘The Prohibition of Torture as an International Norm of Jus Cogens and its Implications for
National and Customary Law’ (2004) 15 Eur. J. Int’l L. 97, 104; E. Baldwin et al., ‘Limits to
Enforcement of ICSID Awards’ (2006) 23(1) J. Int’l Arb. 1, 2. But see History of the ICSID
Convention, fn. 351, Vol. II, Part 2, at p. 989 (in the case of investments, Mr Broches ‘could not
imagine how a decision that a party owed to the other party a certain sum of money could have
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The Role of National Law when International Law Primarily Applies

261

role for internationalized tribunals in case the award is rendered367 or likely to be
enforced, in a state not party to the specific treaty regime establishing the tribunal.
Further, it has been argued that both territorialized and internationalized tribunals
ought to observe the international public policy of the state most closely connected to
the dispute, in our case, the host state.368 First, mandatory rules of an administrative
and regulatory nature are said to be inherently reserved for the host state and not to be
subject to contractual waiver.369 Secondly and relatedly, respect for fundamental norms
will better preserve arbitration as an instrument for settling investment disputes, as it is
more likely to continue to be supported by host states.370 These concerns might have
prompted the following statement by sole Arbitrator Moss in Iurii Bogdanov, AgurdinoInvest Ltd, Agurdino-Chimia JSC v Government of the Republic of Moldova (2005):
To evaluate the pleadings presented by the Claimant, the Arbitral Tribunal applies the BIT and
the law of the Republic of Moldova. The law of the Republic of Moldova is applicable on the
basis of the BIT, is pleaded by the Claimant and is considered applicable by the Arbitral Tribunal
on the basis of the choice of law rule contained in article 24 of the Arbitration Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce (it being the law of the host country
of the investment and mandatorily applicable to questions regarding the privatization of state
assets).371

In a subsequent article, Moss emphasizes the important role that public policy rules,
including mandatory rules of law, play in arbitration proceedings.372 At the same time,

anything to do with ordre public. The [ . . . ] Convention provided remedies for attacking the award but
once those remedies had been exhausted there ought to be an end to litigation, the parties should be
under an obligation to carry out the award and the courts of the Contracting States should be under an
obligation to enforce the award’).
367 To avoid this possibility, the ICSID Convention provides that arbitration proceedings shall be
held at the seat of the centre, i.e., in the United States (a contracting party to the ICSID Convention);
at the Permanent Court of Arbitration, i.e. in the Netherlands (a contracting party to the ICSID
Convention); at the seat of any other appropriate institution with which the centre may make
arrangements for that purpose; or at any other place approved by the tribunal after consultation
with the Secretary-General of ICSID. See ICSID Convention (1965), arts 62–63.
368 See K.-H. Böckstiegel, ‘States in the Arbitral Process’ in Contemporary Problems in International
Arbitration (J.D.M. Lew, ed., London, Centre for Commercial Law Studies, 1986), 40, 46;
G.C. Moss, ‘Can an Arbitral Tribunal Disregard the Choice of Law Made by the Parties’ (2005) 1
Stockholm Int’l Arb. Rev. 6. See also M. Blessing, ‘Choice of Substantive Law in International
Arbitration’ (1997) 14(2) J. Int’l Arb. 39, 61–2 (Blessing lists criteria that need to be considered
when determining whether or not a mandatory rule should be directly applied, or at least taken into
account). See generally Mandatory Rules in International Arbitration (G. Bermann and L. Mistelis, eds,
Huntington, NY, Juris Publishing, 2011).
369 See Sornarajah, fn. 10, at 233; P. Feuerle, ‘International Arbitration and Choice of Law under
Article 42 of the Convention on the Settlement of Investment Disputes’ (1977) 4 Yale Stud. World
Pub. Ord. 89, 108.
370 See B.M. Cremades and D.J.A. Cairnes, ‘The Brave New World of Global Arbitration’ (2002) 3
J. World Investment 173, 207; J.-F. Poudret and S. Besson, Comparative Law of International Arbitration (London, Thomson Sweet & Maxwell, 2006), 610; P. Mayer, ‘Mandatory Rules of Law in
International Arbitration’ (1986) 2 Arb. Int’l 274, 285–6.
371 Iurii Bogdanov, Agurdino-Invest Ltd, Agurdino-Chimia JSC v Government of the Republic of
Moldova, SCC Institute, Award, 22 September 2005 (G.C. Moss, sole arb.), section 3.2 (emphasis
added). Cf. ICC Case No. 2930, Award, 1982 (Two Yugoslav Enterprises v Swiss Company), Y.B.
Comm. Arb. 105 (1984), in Collection of ICC Arbitral Awards 1974–1985 (Paris, New York, ICC,
1990), 118, 119–20; ICC Case No. 1990, Award, 1972 (Italian Claimant v Spanish Respondent), in
Collection of ICC Arbitral Awards 1974–1985 (Paris, New York, ICC, 1990), 20–1. But see Poudret
et al., fn. 370, at 611 (referring to a decision by the Swiss Federal Tribunal).
372 G.C. Moss, ‘International Arbitration and the Quest for the Applicable Law’ (2008) 8(3) Global
Jurist.
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262 The Primary Applicability of International Law and the Role of National Law
she notes how states differ as to the extent to which they give effect to such rules.373 It is
partly for that reason, and in a manner that reinforces our conclusion from Chapter
3,374 that she advocates the use of the private international law rules of the tribunal’s
juridical seat:
The arbitration law of the place of arbitration has, as a matter of fact, a considerable significance
for the arbitration proceeding, in that it governs important aspects such as the arbitrability of the
dispute, the regularity of the arbitral procedure, the powers of the arbitrators, the possibility by
the courts to interfere, the validity of the award, and the fundamental principles of public policy.
Therefore, it seems only natural to look to the law of the place of arbitration even when it comes
to finding the applicable conflict rules.375

To her, and we agree, a lack of reference to a private international law ‘is certainly not a
recommendable solution from the point of view of predictability’.376 It is important to
note, though, that in investment arbitration the unpredictability of mandatory rules is
less than in international commercial arbitration in general, as the mandatory rules in
question would, as a rule, be those of the host state. Certainly, it cannot come as a
surprise to the foreign investor that the host state’s law is of relevance to a dispute
arising out of the investment; to the contrary, it is a given.377 Along similar lines,
Donovan observes that whereas in commercial arbitration there may be a tension
between the law selected by the parties and an extra-contractual rule of law that
purports to apply based on its significant connection to the transaction, ‘[i]n investment arbitration, there should be no such tension; the national law provided for in an
investment contract would generally be the law of the host state, which naturally has
the closest links to the transaction.’378 The interest of other jurisdictions in the
application of their mandatory rules is less apparent in this context, Donovan states,
and to his knowledge no case has yet arisen where such application has been considered.379 On this basis, he concludes that ‘[i]n practice, the mandatory rules debate is
largely irrelevant in the context of investment treaty arbitration, and it is therefore not
surprising that a discussion of mandatory rules is absent from the case law’.380
While Donovan rightly tones down the significance of other national legal orders,381
the crucial issue for us, however, concerns the possible supervening effect of fundamental norms of the host state’s national legal order vis-à-vis primarily applicable
international law. Indeed, on occasion, host states have sought to restrict the application of international law by reference to such norms. In so doing, they have pointed to
the investor’s failure to comply with national law, or they have argued that the
application of a particular international norm would be contrary to its national law.
In CMS Gas Transmission Company, for example, the host state contended that the
economic and social crisis in Argentina affected human rights and that ‘no investment
373 Moss, ‘International Arbitration’, at 20. See also Chapter 3, at Section 3.3.1 (on public policy
and mandatory rules: international public policy).
374 Chapter 3, Section 2 (on the linkage between lex arbitri and choice-of-law methodology).
375 Moss, ‘International Arbitration’, fn. 372, at 40–1.
376 Moss, ‘International Arbitration’, at 42. See also B. Wortmann, ‘Choice of Law by Arbitrators:
The Applicable Conflict of Laws System’ (1998) 14(2) Arb. Int’l 97, 99.
377 See Chapter 1, Section 1 (on motivations for the study); Chapter 3, Section 3.2.2 (on the (non-)
applicability of national and international law).
378 Donovan, fn. 233, at 209.
379 Donovan, at 209.
380 Donovan, at 209.
381 That is, other than those of the tribunal’s juridical seat and the state(s) in which enforcement is
likely to be sought.
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The Role of National Law when International Law Primarily Applies

263

treaty could prevail as it would be in violation of such constitutionally recognized
rights’.382 In a different case, CME v Czech Republic (2003), the host state argued that
the ‘Tribunal must apply any Czech laws of mandatory nature’.383 This contention was
also favoured by the dissenting Arbitrator Hándl, who strongly criticized his colleagues’
‘non-respecting of the provisions of the Czech Law that are of mandatory character, e.g.
the Media Law or the Administrative Proceedings Code, thereby violation [sic] of the
principle to observe the public policy/order/of the respective country’.384
Generally, tribunals have not been swayed by such arguments. One explanation is
the general rule, as pointed out by the ICSID Additional Facility Rules Tribunal in
Metalclad Corporation v United Mexican States (2000), that ‘[a] State party to a treaty
may not invoke the provisions of its internal law as justification for its failure to perform
the treaty’.385 Further, if national provisions of a fundamental nature are involved, they
may either have a parallel in international law, or the national provision may be of such
a character that its role would be indirect or factual, rather than supervening.386 In
other words, international law will remain the applicable law. Poudret and Besson
explain:
Several authors recognize, in our opinion correctly, that an arbitrator may take account of the
effects of the mandatory rules of the country where the contract has to be performed to the extent
that these may constitute an unforeseeable impediment (for instance a new export ban), because
they can then constitute a case of force majeure or impossibility of performance. It is evidently
not a question of applying these laws, but of taking them into account as a matter of fact.387

An example of how an ICSID tribunal took into account—while not strictly applying—national and European Union law is Maffezini v Spain (2000).388 In dismissing
the investor’s claim, the arbitrators found that Spain had ‘done no more in this respect
than insist on the strict observance of the EEC and Spanish law applicable to the
industry in question’.389
There are also examples of unsuccessful attempts by Iran to ensure a supervening
application of its public policy rules by the Iran–United States Claims Tribunal. One of
these attempts concerns the issue of interest. According to Iran, interest should not be
awarded, as the payment of interest (usury) is prohibited under the religious rules of
Islam.390 The tribunal in Anaconda-Iran Inc. v Iran (1986) applied international law to

382 CMS Gas Transmission Company v Argentina, fn. 138, Award, at para. 114. See also at para. 121
(the tribunal dismissed this claim: ‘there is no question of affecting fundamental human rights’).
383 CME v Czech Republic, fn. 153, Final Award, at para. 398.
384 CME v Czech Republic, Partial Award, 13 September 2001, Dissenting Opinion by J. Hándl,
p. 22. See also at 8, 17. Cf. AAPL v Sri Lanka, fn. 91, Award, Dissenting Opinion of Asante, 30
I.L.M. 577, 631, 646 (1991).
385 Metalclad Corporation v United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30
August 2000 (E. Lauterpacht, B.R. Civiletti, J.L. Siqueiros, arbs), para. 70 (referring to article 27 of the
Vienna Convention on the Law of Treaties); Total v Argentina, fn. 331, Decision on Liability, at para.
40. See generally Section 2.3 (on the superior nature of international law vis-à-vis national law).
386 See Section 3.1 (on the indirect application of national law).
387 Poudret et al., fn. 370, at 609 (references omitted).
388 Maffezini v Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000 (F.O. Vicuña,
T. Buergenthal, M. Wolf, arbs).
389 Maffezini v Spain, at para. 71. See also Ronald S. Lauder v The Czech Republic, Final Award, 3
September 2001 (L. Cutler, R. Briner, B. Klein, arbs), paras 297–298 (in dismissing the investor’s
claim, the tribunal emphasized that the company was not exempted from observing the Czech Media
Law); Fraport AG Frankfurt Airport Services Worldwide v Philippines, ICSID Case No. ARB/03/25,
Award, 16 August 2007, para. 345.
390 See Avanessian, fn. 65, at 253.
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264 The Primary Applicability of International Law and the Role of National Law
the merits of the claim.391 On the issue of interest, the investor relied on a provision in
the contract providing for compound interest.392 The respondent disputed the investor’s entitlement to such interest, contending with reference to Iranian law that any
higher rate than simple interest ‘would amount to usury’.393 Although the tribunal
decided not to award compound interest, it rejected the argument that Iranian law
should be considered: ‘As concerns the rates of interest to be applied, and on the basis of
its findings on applicable law above, the Tribunal initially rejects [the Respondent’s]
contention concerning the applicability of Iranian law in general, and Iranian usury
provisions in particular.’394
Since interest remained a controversial issue, the tribunal was asked by Iran to
interpret the Iran–United States Claims Settlement Declaration with respect to
whether the tribunal could award interest.395 One of Iran’s arguments was that the
tribunal had no authority to award interest because no such specific power was
conferred on it by the Claims Settlement Declaration.396 It also claimed that Iranian
law, which it maintained was applicable in most cases as the law of the debtor, prohibits
the award of interest; as do the laws of the United States in cases where the judgment
debtor is the Government.397 As to the first argument, the tribunal concluded that ‘it is
clearly within its power to award interest as compensation for damage suffered’.398 It
also refuted the second argument concerning the applicable law, holding that the issue
of interest ‘must rest with the Chamber concerned, and the Tribunal therefore
concludes that the alternative request for the establishment of general rules governing
the award of interest by the individual Chambers must be denied’.399
In its subsequent practice, the tribunal has never denied the awarding of interest on
the basis that it would contravene the public policy of Iran.400 It is noted that the
tribunal thereby has not endangered the enforceability of awards against Iran, as the
Algiers Accords provide for a security account for the payment of awards against that
state.401
In some cases, however, investment tribunals have entertained at the merits stage the
argument by the host state that national law should play a corrective role vis-à-vis the
otherwise applicable international law. In these cases, national law has functioned as a
‘shield’,402 preventing the application of international law, rather than constituting the
basis of a cause of action as such. The ICSID Tribunal held in Phoenix Action, Ltd v
Czech Republic (2009): ‘There is no doubt that the requirement of the conformity with
law is important in respect of the access to the substantive provisions on the protection
of the investor under the BIT. This access can be denied through a decision on the

391 Anaconda-Iran Inc. v Iran, Award No. ITL 65-167-3, 10 December 1986.
392 Anaconda v Iran, at para. 135.
393 Anaconda v Iran, at para. 137.
394 Anaconda v Iran, at para. 145 (adding that ‘[t]he Tribunal further finds no support in either
commercial trade usages or otherwise for the conclusion that interest rates higher than 12% would
amount to usury’).
395 See Iran v United States, Case A-19, 30 September 1987.
396 Iran v United States, at para. 6.
397 Iran v United States, at para. 6.
398 Iran v United States, at para. 12.
399 Iran v United States, at para. 13.
400 On the awarding of interest generally, see C.N. Brower and J.D. Brueschke, The Iran–United
States Claims Tribunal (The Hague, Nijhoff, 1998), 615 et seq.
401 Iran–United States General Declaration, at para. 7.
402 See Chapter 3, Section 3.3.1 (on public policy and mandatory rules: international public
policy).
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The Role of National Law when International Law Primarily Applies

265

merits.’403 Indeed, in Plama Consortium Limited v Bulgaria (2008), the host state
successfully demonstrated that the foreign investor had violated Bulgarian law; and as
a consequence, the ICSID Tribunal held that the foreign investor should be denied the
substantive protections of the Energy Charter Treaty (ECT), on which it has relied:
Claimant, in the present case, is requesting the Tribunal to grant its investment in Bulgaria the
protection provided by the ECT. However, the Tribunal has decided that the investment was
obtained by deceitful conduct that is in violation of Bulgarian law. [...] [I]n light of the ex turpi
causa404 defence, this Tribunal cannot lend its support to Claimant’s request and cannot,
therefore, grant the substantive protections of the ECT.405

In other cases, allegations of violations of national law, although examined, failed. First,
there is ADC Affiliate Limited, ADC & ADMC Management Limited v Republic of
Hungary (2006), which concerned a claim for expropriation under the BIT between
Cyprus and Hungary.406 After having concluded that Hungary had indeed expropriated the claimants’ investment, the ICSID Tribunal went on to discuss arguments of
illegality presented by the host state in response to the claimants’ claim for damages.407
According to the tribunal, ‘it seems appropriate for the tribunal to deal with [these
arguments] at this point and of course, if they are valid, take them in account when
accessing quantum.’408 Specifically, the host state contended that the Operating Period
Lease was invalid: since the company received from the Government of Hungary
certain operational rights by means of a concession, the company was in nature a
concessionaire.409 As such, Hungary claimed, in order to comply with section 45 of the
Hungarian Air Traffic Act, the company should have been incorporated as a company
limited by shares, and not as a limited liability company.410 The tribunal, however, was
satisfied that section 45(1)(b) did not apply to the case, as—in its view—the legal
requirement in section 45(1)(a) was fully met.411 It further stated that even if the
tribunal were wrong in so concluding, the respondent would still be time-barred in
challenging the validity of the Operating Period Lease: ‘[I]t is the opinion of the
Tribunal that the “five-year time bar” rule generally accepted by Hungarian judicial
practice applies on the facts of this case.’412
The host state further alleged that it was entitled to contest the contract in question
on the basis of section 201 of the Hungarian Civil Code, pertaining to situations in
which there is a ‘grossly unfair difference in value’ between service and counter
performance.413 This argument too was dismissed: ‘The Tribunal is clearly of the
view that section 201 of the Hungarian Civil Code could not have been intended to
apply to the facts of this case. This is not a case involving parties with markedly
different bargaining power [ . . . ].’414 As an additional ground for dismissing the host
state’s plea of illegality under national law, the tribunal held:
403 Phoenix Action, Ltd v Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009
(B. Stern, A. Bucher, J.-Fernández-Armesto, arbs), para. 104. See also at paras 102, 143.
404 Ex turpi causa non oritur actio is Latin for ‘from a dishonorable cause an action does not arise’
(footnote not in original).
405 Plama Consortium Limited v Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008
(C.F. Salans, A.J. van den Berg, V.V. Veeder, arbs), paras 143–146. See also at para. 97 (‘In the
Decision on Jurisdiction, the Tribunal concluded that Respondent’s allegations on misrepresentation
did not deprive it of jurisdiction in this case and, in light of the serious charges raised, the Tribunal
decided to examine these allegations during the merits phase’).
406 ADC v Hungary, fn. 89, Award.
407 ADC v Hungary, at paras 446–451.
408 ADC v Hungary, at para. 448.
409 ADC v Hungary, at para. 450.
410 ADC v Hungary, at para. 450.
411 ADC v Hungary, at para. 455.
412 ADC v Hungary, at para. 456.
413 ADC v Hungary, at para. 467.
414 ADC v Hungary, at para. 471.
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266 The Primary Applicability of International Law and the Role of National Law
[Hungary] entered into these agreements willingly, took advantage from them and led the
Claimants over a long period of time, to assume that these Agreements were effective. [ . . . ] In
so far as illegality is alleged, [Hungary] would in any event be seeking to rely upon their own
illegality. This matter is put to rest by Section 4 of the Hungarian Civil Code which states:
[ . . . ].415

Secondly, we note the argument made by the host state in Wena v Egypt (2000) that the
investor improperly sought to influence the Chairman of the Egyptian hotel company
with respect to the award of the leases for the hotels in contravention of both Egyptian
law and international bones mores (morality).416 The ICSID Tribunal dismissed this
argument: ‘[G]iven the fact that the Egyptian government was made aware of this
agreement [ . . . ] but decided not to prosecute [the Chairman], the Tribunal is reluctant
to immunize Egypt from liability in this arbitration because it now alleges that the
agreement [ . . . ] was illegal under Egyptian law.’417 The claim also failed on evidentiary
grounds.418
In sum, and with the notable exception of Plama,419 national law has rarely played a
determinative corrective role at the merits stage in cases where international law was
primarily applicable.420
It is important to observe, however, that in more than one case national law has been
of key significance at the jurisdictional stage. Investment treaties often require investments to be duly made in accordance with the law of the host state; if not, the
investments cannot benefit from the protection granted. There are various ways in
which states establish the ‘accordance with the laws of the host State clause’.421 One
mechanism used is to insert the requirement into the definition of ‘investment’ itself,
making it clear that for the purposes of that investment treaty only those made in
415 ADC v Hungary, at para. 475.
416 Wena v Egypt, fn. 113, Award, at para. 111.
417 Wena v Egypt, at para. 116.
418 Wena v Egypt, at para. 116.
419 Plama v Bulgaria, fn. 405, Award. Other tribunals have also considered the compliance-withnational-law requirement on the merits. See, e.g., Berschader v Russia, SCC Case No. 080/2004,
Award, 21 April 2006 (B. Sjövall, T. Weiler, S. Lebedev, arbs), 11; Gustav F.W. Hamester GmbH & Co
KG v Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010 (B. Stern, B. Cremades,
T. Landau, arbs), para. 127. For a discussion on the various approaches taken by tribunals faced with
allegations that investors had violated national law, see Kriebaum, fn. 421, at 334; Malicorp Limited v
Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7 February 2011 (P. Tercier,
L.O. Baptista, P.-Y. Tschanz, arbs), paras 117–119; A. Newcombe, ‘Investor Misconduct: Jurisdiction, Admissibility or Merits?’ in Evolution in Investment Treaty Law and Arbitration (C. Brown and
K. Miles, eds, Cambridge, Cambridge University Press, 2011), 187.
420 For the possibility to apply the law of the host state in a supervening fashion vis-à-vis another
applicable national law, see Joint Venture Yashlar and Bridas S.A.I.P.I.C. v Turkmenistan, ICC
Arbitration Case No. 9151/FMS/KGA, Interim Award, 8 June 1999 (S. Kentridge, J. Paulsson,
J. Kolrud, arbs), Part II, paras 244 et seq. (in this case, in which the applicable law was English law,
the host state argued that the contract at hand was void or voidable under the Turkmenian Civil Code
on the basis of collusion by the investor with another company in the bidding process, and that ‘such a
nullity is a matter of mandatory law which should be given effect even though Turkmenian law is not
otherwise applicable to the Agreement’). See also at para. 276 (the tribunal in that case found it
‘unnecessary’ to resolve the debate about the applicability of Turkmenian law ‘because it does not
accept the allegations at their simplest factual level’).
421 See Inceysa Vallisoletana S.L. v Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2
August 2006 (R.O. Blanco, B.A. Landy, C. von Wobeser, arbs), para. 135; U. Kriebaum, ‘Illegal
Investments’ (2010) Austrian Y.B. Int’l Arb. 307; UNCTAD, ‘Scope and Definition’ in II Series on
Issues in International Investment Agreements (1999), 24; C. Knahr, ‘Investments “in Accordance with
Host State Law” ’ in International Investment Law in Context (A. Reinisch and C. Knahr, eds, Utrecht,
Eleven International, 2008), 27. Cf. Case Concerning Elettronica Sicula S.p.A. (ELSI) (United States of
America v Italy), 20 July 1989, para. 72.
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The Role of National Law when International Law Primarily Applies

267

accordance with the laws of the host state will be deemed investments.422 Another
possibility is to exclude from the protection of an investment treaty investments made
illegally in the articles that indicate the scope of protection of the treaty in question.423
Additionally, states may incorporate ‘in accordance with law’ limitations into treaty
provisions requiring host states to admit or accept foreign investments.424 It has also
been recognized that the condition of compliance with national law does not need to be
expressly included in the treaty. The ICSID Tribunal held in Phoenix Action, Ltd v
Czech Republic (2009):
In the Tribunal’s view, States cannot be deemed to offer access to the ICSID dispute
settlement mechanism to investments made in violation of their laws. If a State, for example,
restricts foreign investment in a sector of its economy and a foreign investor disregards such
restriction, the investment concerned cannot be protected under the ICSID/BIT system.
These are illegal investments according to the national law of the host State and cannot be protected
through an ICSID arbitral process. And it is the Tribunal’s view that this condition—the
conformity of the establishment of the investment with the national laws—is implicit even when
not expressly stated in the relevant BIT.425

According to the ICSID Tribunal in L.E.S.I S.p.A. et ASTALDI S.p.A. v People’s
Democratic Republic of Algeria (2006), though, protection of investments is excluded
only if they have been made in breach of fundamental legal principles of the host
country (‘en violation des principes fondamentaux en vigueur’).426
Illustrative of the role national law can play in investment arbitration by virtue of
such treaty clauses is Fraport AG Frankfurt Airport Services Worldwide v Philippines
(2007).427 Article 9 of the Germany–Philippines BIT provided that disputes ‘concerning an investment’ may be brought to arbitration.428 The term ‘investment’ was
defined in Article 1(1) of the same instrument as ‘any kind of asset accepted in
accordance with the respective laws and regulations of either Contracting State [ . . . ]’.429
The Philippines Supreme Court had declared the concession contracts at issue null and
void ab initio on the basis of ‘serious violations of Philippine law and public policy’;430
and Fraport brought arbitration proceedings. The ICSID Tribunal dismissed the case
for lack of jurisdiction:

422 See Inceysa v El Salvador, para. 135.
423 See Inceysa v El Salvador, at paras 187–189.
424 See Inceysa v El Salvador, at paras 187–189.
425 Phoenix Action v Czech Republic, fn. 403, Award, at para. 101. See also at para. 145 (‘[T]he
Tribunal lacks jurisdiction over the Claimant’s request, as the Tribunal concludes that the Claimant’s
purported investment does not qualify as a protected investment under the Washington Convention
and the Israeli/Czech BIT’). But see Saba Fakes v Republic of Turkey, ICSID Case No. ARB/07/20,
Award, 14 July 2010 (H. van Houtte, L. Lévy, E. Gaillard, arbs), para. 112 (‘[T]he principles of good
faith and legality cannot be incorporated into the definition of Article 25(1) of the ICSID Convention
without doing violence to the language of the ICSID Convention: an investment might be “legal” or
“illegal,” made in “good faith” or not, it nonetheless remains an investment’).
426 L.E.S.I. S.p.A. et ASTALDI S.p.A. v People’s Democratic Republic of Algeria, ICSID Case No.
ARB/05/3, Decision on Jurisdiction, 12 July 2006 (P. Tercier, A. Faurès, E. Gaillard, arbs), para. 83.
Cf. Tokios Tokelés v Ukraine, fn. 198, Decision on Jurisdiction 29 April 2004 (P. Weil, P. Bernardini,
D.M. Price, arbs), para. 86.
427 Fraport v Philippines, fn. 389, Award. The award was later annulled as the tribunal failed to
respect the right to be heard. Decision on the Application of Annulment, 23 December 2010
(P. Tomka, D. Hascher, C. McLachlan, committee members), para. 197.
428 Fraport v Philippines, Dissenting Opinion by Arbitrator B.M. Cremades, at section 2. Cf.
Germany–Philippines BIT.
429 Fraport v Philippines, fn. 389, Award, at para. 300 (emphasis in original).
430 Fraport v Philippines, at para. 217.
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268 The Primary Applicability of International Law and the Role of National Law
The Compliance with the host state’s laws is an explicit and hardly unreasonable requirement in
the Treaty and its accompanying Protocol. Fraport’s ostensible purchase of shares in the Terminal
3 project, which concealed a different type of unlawful investment, is not an ‘investment’ which is
covered by the BIT. As the BIT is the basis of jurisdiction of this Tribunal, Fraport’s claim must
be rejected for lack of jurisdiction ratione materiae.431

Another example is the case of Alasdair Ross Anderson et al v Republic of Costa Rica
(2010), in which the ICSID Tribunal denied jurisdiction on the basis that the investment in question was made in contravention of the host state’s national law.432 Under
the Canada–Costa Rica BIT, stated the tribunal, not only must the claimants demonstrate that they own the assets which they assert constitute an investment, but they
must also demonstrate that they own or control those assets in accordance with the laws
of Costa Rica.433 The tribunal relied on the following factual findings when concluding
that this requirement was not satisfied:
By actively seeking and accepting deposits from the Claimants and several thousand other
persons, the Villalobos brothers were engaged in financial intermediation without authorization
by the Central Bank or any other government body as required by law. The courts of Costa Rica
after a lengthy and extensive legal process determined that Osvaldo Villalobos, because of his
involvement in the scheme, committed aggravated fraud and illegal financial intermediation. In
securing investments from the Claimants, the Villalobos brothers were thus clearly not acting in
accordance with the laws of Costa Rica. The entire transaction between the Villalobos brothers
and each Claimant was illegal because it violated the Organic Law of the Central Bank. If the
transaction by which the Villalobos acquired the deposit was illegal, it follows that the acquisition
by each Claimant of the asset resulting from that transaction was also not in accordance with the
law of Costa Rica.434

The tribunal emphasized that its interpretation of the words ‘owned in accordance with
the laws’ of the host state ‘reflects both sound public policy and sound investment
practice’.435 To the arbitrators, ‘Costa Rica, indeed any country, has a fundamental
interest in securing respects for its laws’; and further, prudent investment practice
requires that investors exercise due diligence and assure themselves that their investments comply with the law of the host State.436
Thus, while national law was not applied in a supervening fashion in the meaning
adopted in this study, i.e., as the law applicable to the merits, these cases illustrate that
in practice, national law may bar a claim in international law.437
We finally refer to a separate possibility of applying national norms in a supervening
fashion vis-à-vis otherwise applicable international norms. This possibility is exemplified by
431 Fraport v Philippines, at para. 404. See also at para. 402. Cf. Inceysa v El Salvador, fn. 421,
Award, at paras 144, 162. For a list of the many cases where the evidence has not been sufficient to
warrant a dismissal on the basis that the claimant had acquired or established its investment in a
manner that constituted abusive or bad faith, see A. Cohen-Smutny and P. Polášek, ‘Unlawful or Bad
Faith Conduct as a Bar to Claims in Investment Arbitration’ in A Liber Amicorum: Thomas Wälde: Law
Beyond Conventional Thought (J. Werner an A.H. Ali, eds, London, Cameron May, 2009), 277, at
fn. 2.
432 Alasdair Ross Anderson et al. v Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award,
19 May 2010 (S.M. Rico, J.W. Salacuse, R.E. Vinuesa, arbs), para. 59.
433 Anderson v Costa Rica, at para. 51.
434 Anderson v Costa Rica, at para. 55.
435 Anderson v Costa Rica, at para. 58.
436 Anderson v Costa Rica, at para. 58.
437 Cf. A. Reinisch, ‘ “Investment and . . . ”—The Broader Picture of Investment Law’ in International Investment Law in Context (A. Reinisch and C. Knahr, eds, Utrecht, Eleven International,
2008), 201, 203.
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General Conclusions

269

the CME award, in which the relevant bilateral investment treaty included the
following provision:
If the provisions of law of either Contracting Party or obligations under international law existing
at present or established hereafter between the Contracting Parties in addition to the present
Agreement contain rules, whether general or specific, entitling investments by investors of the
other Contracting Party to a treatment more favourable than is provided for by the present
Agreement, such rules shall to the extent that they are more favourable prevail over the present
Agreement.438

The effect of this clause is that national norms prevail over international norms to the
extent the latter are more favourable to the investor. In other words, the hierarchy
between national and international law is case specific, depending on the content of the
norm.439 With respect to its interest claim, and relying on the provision just cited,
CME invoked the ‘ “governing Czech statutes” fixing the interest rate “at double the
Czech National’s official discount rate prevailing on the first day of delay in repayment
of the debtor’s monetary obligation” (Art. 517 Czech Civil Code and } 1 Government Decree No. 142/1994, dated July 8, 1994)’.440 Agreeing with the investor’s
argument on this point, the tribunal also ‘took into account Czech law’ when determining the period of interest, referring to provisions of the Czech Civil Code, a legal
opinion of the Czech Supreme Court, as well as Czech legal treatises.441

4. General Conclusions
Both territorialized and internationalized tribunals may decide to apply international
law to the merits of investment disputes. Two factors in favour of such a decision are,
first, an agreement by the parties to the application of international law; and secondly,
the international nature of the claim. Arguments pertaining to the superior nature of
international law vis-à-vis national law should not play a role in ascertaining the
primarily applicable law. Such arguments only have a bearing on the choice-of-law
methodology once the tribunal has decided to apply international law to the merits.
In the absence of a choice-of-law agreement by the parties, the decision by the
ICSID ad hoc committee in Wena v Egypt that tribunals may apply international law
directly before assessing the conduct of the host state against national law442 constitutes
a watershed in the practice of ICSID tribunals. Prior to that, international law was
generally restricted to a complementary or supervening role.443 The better approach of
allowing tribunals directly to apply international law when ‘the appropriate rule is

438 CME v Czech Republic, fn. 153, Final Award, at para. 397. Cf. Netherlands–Czech/Slovak BIT,
art. 3(5).
439 See Chapter 5, Section 3.2.2.2 (the parties have agreed to the combined application of national
and international law or there is no agreement. Cf. K. Vandevelde, United States Investment Treaties:
Policy and Practice (Deventer, Kluwer Law and Taxation, 1992), 106 (such a provision ‘serves in effect
as an explicit choice of law provision for all dispute settlement mechanisms. Because treatment of
investment must never be less than that required by international law, international law provides the
governing rules of decision, except where national law is more favourable.’).
440 CME v Czech Republic, fn. 153, Final Award, at para. 621.
441 CME v Czech Republic, Final Award, at paras 631–632. See also at paras 642–643, 507.
442 Wena v Egypt, fn. 1, Decision on Annulment, at para. 40. See generally Section 2.2 (on the
international nature of the claim).
443 See generally Chapter 5, at Section 2.2 (host state sovereignty and territorial control over foreign
investors and investments).
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270 The Primary Applicability of International Law and the Role of National Law
found in this other ambit’,444 is supported by the practice of the Iran–United States
Claims Tribunal, and has been espoused by territorialized tribunals and scholars alike.
The direct application of international law does not necessarily exclude a role for
national law, as it may apply indirectly in the determination on the merits of the
international claims of expropriation and violations of ‘umbrella’ clauses. In these cases,
the role played by national law is more than that of facts; rather, tribunals will generally
need to apply national law in order to determine the parties’ right and obligations
pursuant to the allegedly expropriated property and breached commitment. Yet, as
correctly noted by Sasson, ‘[t]he principle of renvoi does not affect the supremacy of
international law. It permits the application of concepts developed for many years at a
municipal level when such application does not conflict with international law and does
not affect the characterization of an act as internationally wrongful.’445
Finally, arbitral tribunals may have recourse to national law in a gap-filling manner
for ancillary questions of law; and they are advised to consider, and if necessary apply,
relevant national public policy and mandatory rules. Still, there is not much arbitral
practice confirming the need to apply national law in a supervening fashion. This can
be explained on the basis of the general rule that a state may not invoke its own national
law in order to evade its international responsibility, as well as the fact that the
international public policy of the tribunal’s juridical seat or the state in which enforcement is sought has not been implicated, was not relevant, or that such policy norms
were applied indirectly or taken into account as facts underlying the merits of the
international claim. However, in recent years, this scarcity of practice has been
countered by some important decisions in which violations by the foreign investor of
host state national law have led tribunals, at either the merits or the jurisdictional stage,
to deny the investor the substantive protections of the investment treaty on which it
sought to rely. National law may also play a role where the investment treaty contains a
provision allowing investors to rely on more favourable provisions of national law.

444 Wena v Egypt, fn. 1, Decision on Annulment, at para. 40.
445 Sasson, fn. 223, at 200.

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7
Concurrent Application of and Reference
to National and International Law
in Case of Consistency
[C]onsidering and comparing judgments from various jurisdictions makes for
stronger, more considered decisions, even if the result is the same.1

1. Introduction
In the previous two chapters, we saw that arbitral tribunals often make a decision to
primarily apply either national or international law to the merits of disputes between
foreign investors and host states.2 While the ‘selection’ by arbitrators of one
governing legal system is only natural in cases in which the parties have explicitly
agreed to its application and/or where the arbitration agreement is limited to claims
pertaining to that system, other situations allow for resort to an alternative choice-oflaw methodology. This methodology, on which we will focus in this chapter, consists
of applying or referring to both national and international law. As we will see, it is
frequently resorted to in case of convergence in normative content and, in particular,
when the parties disagree on the respective roles of the national and the international
legal orders.
This arbitral practice emphasizes the simultaneous relevance of both national and
international law for the investor–state relationship.3 The ICSID Tribunal stated in
CMS Gas v Argentina (2005): ‘indeed there is here a close interaction between the
[Argentinean] legislation and the regulations governing the gas privatization, the
License and the international law, as embodied in the Treaty and customary international law. All of these rules are inseparable and will, to the extent justified, be applied
by the tribunal.’4
The widespread reference to consistency between national and international law by
investment tribunals also illustrates the oft-neglected concord that frequently exists
between the national and the international legal orders. This consistency is both
unsurprising and desirable. The different legal orders often protect the same values;
and, in the main, states seek to conform their laws to their international legal

1 C. L’Heureux-Dubé, ‘The Importance of Dialogue: Globalization and the International Impact
of the Rehnquist Court’ (1998) 34 Tulsa L.J. 15, 39 (Supreme Court Justice, Canada).
2 See Chapter 5, Section 2 (on reasons for the primary applicability of national law); Chapter 6,
Section 2 (on reasons for the primary applicability of international law).
3 See Chapter 1, Section 1 (on motivations for the study); Chapter 3, Section 3.2.2 (on the (non-)
applicability of national and international law).
4 CMS Gas Transmission Company v Argentine Republic, ICSID Case No. ARB/01/8, Award, 12
May 2005 (F.O. Vicuña, M. Lalonde, F. Rezek, arbs), para. 117. See also Occidental Exploration and
Production Company v Republic of Ecuador, LCIA Case No. UN3467, Final Award, 1 July 2004
(F.O. Vicuña, C.N. Brower, P.B. Sweeney, arbs), para. 93.
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272 Concurrent Application of and Reference to National and International Law
obligations.5 As United States Supreme Court Justice O’Connor noted in Roper v
Simmons (2005): ‘we should not be surprised to find congruence between domestic and
international values [ . . . ] expressed in international law or in the domestic laws of
individual countries [ . . . ].’6 Similarly, Judge Mosk at the Iran–United States Claims
Tribunal observed that ‘[a]s a practical matter, in many cases the choice of whether to
utilize public international law, general principles of law, municipal law (past or
present) or some other law will not affect the result’.7
The practice in investment arbitration of parallel application of or reference to both
sources of law may in part be seen as a consequence of the choice-of-law methodology
referred to in Chapter 5 relating to host state sovereignty and the supervening role of
international law.8 Under this paradigm, national law is primarily applicable but not
hierarchically superior, as national law will only be applied to the extent to which it is
consistent with international law.9 Tribunals may therefore be required to consider
both national and international law; and this enables arbitrators to point out consistency whenever this is the case. According to the ICSID Tribunal in Liberian Eastern
Timber Corporation v Government of the Republic of Liberia (1986), the second sentence
of article 42(1) of the ICSID Convention ‘envisages that, in the absence of any express
choice of law by the parties, the Tribunal must apply a system of concurrent law. The
law of the contracting state is recognized as paramount within its own territory, but is
nevertheless subjected to control by international law.’10 And the ICSID ad hoc
committee held in Klöckner Industrie-Anlagen GmbH and others v United Republic of
Cameroon and Société Camerounaise des Engrais (1985):
article 42 of the Washington Convention certainly provides that ‘in the absence of agreement
between the parties, the Tribunal shall apply the law of the Contracting State party to the dispute
[ . . . ] and such principles of international law as may be applicable.’ This gives these principles
(perhaps omitting cases in which it should be ascertained whether the domestic law conforms to
international law) a dual role, that is, complementary (in the case of a ‘lacuna’ in the law of the
State), or corrective, should the State’s law not conform on all points to the principles of

5 See P. Muchlinski, Multinational Enterprises and the Law (Oxford, Blackwell, 1999), 503; A.F.
M. Maniruzzaman, ‘State Contracts in Contemporary International Law: Monist versus Dualist
Controversies’ (2001) 12(2) Eur. J. Int’l L. 310, 323; K.M. Meessen, ‘Does International Law Matter?’
(2004) 98 Am. Soc’y Int’l L. Proc. 321, 322.
6 Roper v Simmons, 125 S.Ct. 1183, 1216 (2005) (O’Connor, J., dissenting). Cf. A. Peters,
‘Supremacy Lost: International Law Meets Domestic Constitutional Law’ (2009) 3 Vienna Online
Journal on International Constitutional Law 170, 197.
7 American Bell International Inc. v Government of the Islamic Republic of Iran et al., Interlocutory
Award, 11 June 1984, Concurring and Dissenting Opinion by R.M. Mosk, 6 Iran–U.S. C.T.R. 74, at
98. See also Harnischfeger Corp. v Ministry of Roads and Transportation et al., Award, 26 April 1985,
Dissenting Opinion of Judge R.M. Mosk, 8 Iran–U.S. C.T.R. 119, 140–1; Government of the State of
Kuwait v American Independent Oil Company (Aminoil), Award, 24 May 1982 (P. Reuter, H. Sultan,
G. Fitzmaurice, arbs), para. 10; PSEG Global, Inc., The North American Coal Corporation, and Konya
Ingin Electrik Uretim ve Ticaret Limited Sirketi v Turkey, ICSID Case No. ARB/02/5, Award, 19
January 2007 (F.O. Vicuña, L.Y. Fortier, G. Kaufmann-Kohler, arbs), para. 249; E. Gaillard, ‘The
Role of the Arbitrator in Determining the Applicable Law’ in The Leading Arbitrators’ Guide to
International Arbitration (L.W. Newman and R.D. Hill, eds, Huntington, NY, Juris Publishing,
2004), ch. 10, section I.
8 See Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign investors
and investments); Chapter 5, Section 3.2.2.2 (the parties have agreed to the combined application of
national and international law or there is no agreement).
9 See Chapter 5, Sections 2,2 and 3.2.2.2.
10 Liberian Eastern Timber Corporation (LETCO) v Government of the Republic of Liberia, ICSID
Case No. ARB/83/2, Award, 31 March 1986, rectified 10 June 1986, 2 ICSID Rep. 343, 358
(emphasis added).
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Introduction

273

international law. In both cases, the arbitrators may have recourse to the ‘principles of international law’ only after having inquired into and established the content of the law of the State
party to the dispute [...] and after having applied the relevant rules of the State’s law.11

As noted in Chapter 6, this paradigm has to a large extent given way to a more
‘pragmatic approach’12 whereby tribunals can primarily apply international (or
national) law ‘if the appropriate rule is found in this [ . . . ] ambit’.13 Still, we submit
that in all cases, including treaty arbitration, there may be valid reasons for tribunals to
apply, and/or refer to the consistency that exists between, international law and the
national law of the host state.
First, and in line with the principle non infra petita, we can conclude that reference to
both legal orders is appropriate in cases where the parties, in their submissions, have
explicitly requested relief pursuant to both national and international law.14 If not, and
in cases that do not involve fundamental rules of national or international law,15 a
parallel reference to both legal orders is not compulsory.16
Secondly, due to frequent divergent interests between the investor and the host state,
the substantive applicable law is often a delicate topic in arbitration proceedings. As
pointed out by Schreuer, ‘[i]n a particular dispute, the host State will typically insist on
the application of its own law, while the investor will seek shelter in international
standards.’17 With this in mind, the choice-of-law methodology of referring to both
11 Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision on Annulment, 3 May 1985 (P. Lalive,
A.S. El-Kosheri, I. Seidl-Hohenveldern, committee members), para. 69 (emphasis in underscore
added; italics in original; references omitted). See also Amco Asia Corp. v Republic of Indonesia,
ICSID Case No. ARB/81/1, Resubmitted Case, Award, 5 June 1990, para. 40; C.H. Schreuer et al.,
The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2009), 626;
C.H. Schreuer, ‘Failure to Apply the Governing Law in International Investment Arbitration’
(2002) 7 Austrian Rev. Int’l & Eur. L. 147, 157–8; Convention on the Settlement of Investment
Disputes between States and Nationals of Other States, Documents Concerning the Origin and the
Formation of the Convention, Vol. II-2, at p. 800 (Chairman Broches stated that the conjunction
‘and’ in article 42(1), second sentence, was used to avoid the impression that it was necessarily a
question of alternatives). See also Convention on the Settlement of Investment Disputes, Vol. II-1, at
268 (Chairman Broches noted that unless the parties had agreed to restrict the competence of the
tribunal to determine the validity of the act of expropriation by reference to municipal law, the tribunal
could look to municipal as well as international law).
12 See Chapter 6, Section 2.2 (on the international nature of the claim). Cf. CMS v Argentina, fn. 4,
Award, at para. 116.
13 Wena Hotels Ltd v Egypt, Decision on Annulment, 5 February 2002 (K.D. Kerameus, A. Bucher,
F.O. Vicuña, committee members), para. 40.
14 Cf. United Pet Group, Inc. v Texas International Property Associates, Case No. D2007-1039,
WIPO Arbitration and Mediation Center, 25 September 2007, para. 6; T. Giovannini, ‘What are the
Grounds on which Awards are most often Set Aside?’ (January 2001) No, 1 Bus. L. Int’l 8; Case
Concerning Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal ), Judgment, 12 November 1991,
Separate Joint Dissenting Opinion of Judges Aguilar Mawdsley and Ranjeva (translation) [1991] ICJ
Rep. 53, 120, para. 18; A. Orakhelashvili, ‘The International Court and its Freedom to Select the
Ground upon which it will Base its Judgment’ (2007) 56 Int’l Comp. L. Quart. 171, 178. See also
Chapter 1, Section 1 (on motivations for the study).
15 See Chapter 5, Section 3.3.2 (on the supervening role of international law); Chapter 6,
Section 3.2.2 (on the supervening role of national law). It is posited that the tribunals should also
refer to national law in case of expropriation and umbrella clause claims, regardless of whether the
investment agreement explicitly refers to national law. See Chapter 6, Section 3.1 (on the indirect
application of national law).
16 But see Chapter 6, Section 2.2, at fn. 184 (on the international nature of the claim) (statements
by Igbokwee, Begic, and Schreuer).
17 C. Schreuer, ‘Investment Arbitration: A Voyage of Discovery’ (2005) 71 Arbitration 73, 75. See
also Chapter 1, Section 1 (on motivations for the study). Note, however, that in investment treaty
arbitration these arguments may reflect the dual role of states as both home state and host state. See
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274 Concurrent Application of and Reference to National and International Law
legal orders may be explained in light of the fact that it avoids or mitigates the
potentially controversial finding of a primary applicable law.18 Indeed, the reference
to consistency is a common judicial technique,19 illustrated by the Dutch antikiesregel
(‘non-choice rule’) which provides that when a Dutch judge finds that the relevant
foreign rules are similar to the Dutch rules and would achieve the same results, s/he is
released from choosing explicitly which law to apply.20 Of interest here is the observation that the desire to accommodate the interests of both disputing parties may be more
present in arbitration than in other forms of dispute settlement.21 Lipstein’s statement
concerning mixed arbitral tribunals can be seen in this light:
[International courts] have felt it necessary to have recourse to general principles in order to lay
down their own rules of conflict of laws. With regard to the Mixed Arbitral Tribunals, two trends
can be distinguished: a strictly municipal and a comparative trend, according to whether the
principal aim of the court was to ascertain the municipal law most apposite to be exclusively
applied in the circumstances, or whether it aimed at achieving a degree of harmony between the
municipal systems available for choice.22

According to the same author, the ‘great advantage’ of the second trend he mentions
‘consists in dispensing altogether with the application of private international law [ . . . ].
The easiest method which, at first sight eliminates hardship, and secures the greatest
amount of justice, is that of coupling rules of substantive law of the countries
concerned.’23 Lando makes the following comment: ‘As the servant of the parties
[the arbitrator] must persuade them and especially the losing party of the justice of
his award. [ . . . ] The arbitrator will often refer to the law of the unsuccessful party to
show that this law confirms his findings.’24 Otherwise formulated: ‘considering and
A. Roberts, ‘Power and Persuasion in International Treaty Interpretation: The Dual Role of States’
(2010) 104 Am. J. Int’l L. 179, 218.
18 Cf. R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, Oxford
University Press, 2008), 270 (‘It is only where there is a conflict between the host state’s law and
international law that a tribunal has to make a decision on precedence’).
19 See C.H. Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University
Press, 2001), 577 (‘Avoiding difficult legal questions by declaring them immaterial to the facts under
review is a common judicial technique’). Cf. Klöckner v Cameroon, fn. 11, Award, 21 October 1983
(E. Jimenez de Aréchaga, W.D. Rogers, D. Schmidt, arbs), at section VI(C); J. Kadelburger, Applicable
Law: Russian or Swedish?, Stockholm Arbitration Report (1999:2) (Observations on SCC Case 16 1998).
20 See S. Geeroms, Foreign Law in Civil Litigation: A Comparative and Functional Analysis (Oxford,
Oxford University Press, 2004), 52; X.E. Kramer, ‘Dutch Private International Law: Overview 2002–
2006’ (2007) No. 54 IPRax, 59.
21 See P. Mayer, ‘Reflections on the International Arbitrator’s Duty to Apply the Law’ in Arbitration Insights: Twenty Years of the Annual Lecture of the School of International Arbitration (J.D.M. Lew
and L.A. Mistelis, eds, Alphen aan den Rijn, Kluwer Law International, 2007), 289, 298, para. 15–46.
22 K. Lipstein, Conflict of Laws Before International Tribunals: A Study in the Relation Between
International Law and Conflict of Laws, 27 Transactions of the Grotius Society: Problems of Peace and
War, Papers Read Before the Society in the Year 1941 143, 150–1 (Cambridge, Cambridge University
Press, 1941) (emphasis added), also available at <http://www.jstor.org/stable/742878> (last visited 1
May 2012.)
23 K. Lipstein, Conflict of Laws Before International Tribunals, at 151. But see at 152–3 (‘[I]t was
stated very correctly by the German–Roumanian Tribunal in the case of Negreanu v. Meyer and Sons
that far from resulting invariably in a reconciliation of municipal systems of laws, this method
endangers the strict application of even one municipal system, let alone of two. [ . . . ] Where a quick
glance shows an apparent identity of solutions, their specific application may reveal far-reaching
differences. The comparative method does not, in such cases, yield the expected results and the
tribunals have to apply the rules of conflict of laws’ [references omitted]).
24 O. Lando, ‘The Law Applicable to the Merits of the Dispute’ in Contemporary Problems in
International Arbitration (J.D.M. Lew, ed., London, Centre for Commercial Law Studies, 1986), 101,
107–8.
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Arbitral Practice

275

comparing judgments from various jurisdictions makes for stronger, more considered
decisions, even if the result is the same.’25
Thirdly and relatedly, in that the methodology of referring to both legal orders not
only balances the interest of the investor who may want the application of international
norms with the host state’s desire in the application of its own national law,26 but also
reconciles host state sovereignty with the interest of the international community, it
may further be said to enhance the legitimacy of the award. From this perspective, this
choice-of-law methodology dovetails with the statement that ‘[t]he requirements of
international law in this field [ . . . ] represent an attempt at accommodation between
the conflicting interests involved’.27
Fourthly, arbitrators must arguably attempt to render awards that are enforceable in
the country or the countries where enforcement may be sought.28 Seeing that one of
these countries is likely to be the host state and that this state may decline to enforce an
award that fails to consider its mandatory laws,29 this concern may lead tribunals
primarily applying international law to find a parallel in the national law of the host
state.30
Fifthly, and finally, the practice of referring to both national and international law
may at times reflect a desire by tribunals to resolve as fully as possible issues that have
been raised and discussed by the disputing parties.31

2. Arbitral Practice
Investment arbitration contains numerous examples of the application of or reference
to both national and international law, especially in situations where there is consistency between the norms at hand.32 Generally, this is a reflection of the arguments
presented by the parties; although at times, tribunals rely on national or international
law ex officio. In illustrating this practice, we will give examples, first, of the concurrent
or consecutive application of both national and international law (seriatim); and
secondly, awards in which the tribunal, while primarily applying norms from either
legal order, has emphasized the consistency that exists with norms from the other legal
order.
25 L’Heureux-Dubé, fn. 1, at 39. See also at 26–7.
26 See fn. 17.
27 R. Jennings and A. Watts, Oppenheim’s International Law (Harlow, Longman, 1996), 933,
quoted in C. McLachlan et al., International Investment Arbitration: Substantive Principles (Oxford,
Oxford University Press, 2007), 21. See also McLachlan et al. (the authors refer to ‘a conscious effort to
discern an appropriate balance between protection of the rights of foreign investors on the one hand,
and recognition of the legitimate sphere of operation of the host State on the other. After all, host States
have a responsibility to govern in the interest of all those within their jurisdiction, and to promote
many other public objectives as well as investment’).
28 See Chapter 2, Section 3.2.3 (on the (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards).
29 See Chapter 2, Section 3.2.3.
30 Cf. Lando, fn. 24, at 107–8.
31 Cf. S.D. Myers, Inc. v Canada, First Partial Award, 13 November 2000 (B.P. Schwartz,
E.C. Chiasson, J.M. Hunter, arbs), Separate Concurring Opinion by B. Schwartz, para. 90.
32 Cf. Schreuer et al., fn. 11, at 618; M.N. Kinnear, ‘Treaties as Agreements to Arbitrate:
International Law as the Governing Law’ in International Arbitration 2006: Back to Basics? (ICCA
Congress Series, 2006 Montreal Volume 13, A.J. van den Berg, ed., Alphen aan den Rijn, Kluwer Law
International, 2007), 401, 423; I. Marboe and A. Reinisch, ‘Contracts between States and Foreign
Private Persons’ in Max Planck Encyclopedia of Public International Law, para. 19, available at <http://
www.mpepil.com/home> (last visited 1 May 2012).
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276 Concurrent Application of and Reference to National and International Law
While we will see that the distinction between application of and reference to legal
norms is not always clear-cut, the following awards do display the existence of congruency between national and international law and the importance tribunals place on
such congruency in solving the dispute on the merits. In order to better demonstrate
this practice, it is worthwhile quoting more comprehensively from the various awards.

2.1. Concurrent application of national and international law and
reference to consistency
The concurrent application of both national and international law, including, in
particular, the reference to consistency, is illustrated by the practice of both territorialized and internationalized tribunals. As for the former category, we refer to Libyan
American Oil Company (LIAMCO) v Government of the Libyan Arab Republic (1977).33
The choice-of-law methodology employed must partly be seen as a function of the
choice-of-law clause, which provided that ‘[t]he Concession shall be governed by and
interpreted in accordance with the principles of law of Libya common to the principles
of international law, and in the absence of such common principles then by and in
accordance with the principles of law as may have been applied by international
tribunals’.34 After having examined in more detail the sources that comprise Libyan
domestic law, Arbitrator Mahmassani concluded that ‘Libyan law in general and
Islamic law in particular have common rules and principles with international law
[ . . . ]’.35
Accordingly, the arbitrator referred to both national and international law when
deciding the investor’s claims on the merits. With respect to the claim of unlawful
nationalization, he quoted from the Libyan Petroleum Law and referred to the Islamic
Maliki School for the principle that natural resources belong to the Community
represented by the state as a privilege of its sovereignty:
This view has been adopted in Libya and expressly laid down in its legislation on mines and
petroleum. For instance, article 1 of the Libyan Petroleum Law of 1955 stipulates in the
following terms:
Article 1: Petroleum Property of State:
1. All petroleum in Libya in its natural state is the property of the Libyan State.
2. No person shall explore or prospect for, mine or produce petroleum in any part of Libya,
unless authorized by a permit or concession issued under the Law.
Likewise, under Islamic law, particularly in the Maliki School, mines and underground resources
are the property of the Sultan (the State).36

Adding support to the same proposition, Mahmassani referred to state practice, several
United Nations resolutions, and scholarship on international law.37
The methodology of applying both national and international law was carried over to
the determination of whether Libya had breached the contract. First, the arbitrator
noted that the principle of the sanctity of contracts has always constituted an integral

33 Libyan American Oil Company (LIAMCO) v Government of the Libyan Arab Republic, Award, 12
April 1977 (S. Mahmassani, sole arb.), 20 I.L.M. 1 (1981).
34 LIAMCO v Libya, at 33 (referring to Clause 28).
35 LIAMCO v Libya, at 37.
36 LIAMCO v Libya, at 48.
37 LIAMCO v Libya, at 48–53.
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Arbitral Practice

277

part of most legal systems, including Libyan law and Islamic law.38 In this context, he
pointed out that ‘Libya adopted and incorporated this legal principle in its Article 147
of the Civil Code’;39 and he observed with reference to Islamic law that ‘no less than the
Great Caliphs Omar Ibn Al-Khattab and Imam ’Ali accepted to abide by their
agreements and to appear before the Cadis (Judges) as ordinary litigants without feeling
that this conduct was against their sovereign dignity’.40 Second, Mahmassani emphasized that ‘[t]he said Libyan law, whether in the text of the civil code or the complementary Islamic Jurisprudence appears clearly consistent with international law in this
connection, as exemplified by international statutes and custom’.41
Mahmassani also relied on both Libyan and international law when determining the
remedies to which the investor was entitled.42 Thus, on the claim of restitutio in
integrum, he stated: ‘This principal claim shall be examined in the light of the principles
of municipal law of Libya which are common to those of international law, and which
in fact are also consistent with the general principles of law.’43 As this claim failed,44 he
went on to state that ‘the principle of the necessity indemnification, being unanimously
and equally supported by municipal and international legal theory and practice, should
be applied in this dispute as being the proper law of the concession agreements, in
compliance with Clause 28 thereof ’.45
As concerns internationalized tribunals, we may refer to Amco Asia Corporation v
Republic of Indonesia (1984).46 In that case, the investor alleged that the host state,
having cancelled its investment licence and having seized, in a military action, its
investment in the form of a hotel, was liable for breach of contract and expropriation.47
Since the disputing parties had not expressed an agreement as to the applicable law, the
ICSID Tribunal found that, in accordance with article 42(1) ICSID Convention, it
had to ‘apply Indonesian law, which is the law of the Contracting State Party to the
dispute, and such rules of international law as the Tribunal deems to be applicable,
considering the matters and issues in dispute’.48 As to international law rules, the
tribunal noted that ‘the parties not only did not deny their applicability, but constantly
referred to them in their pleadings and in the final oral arguments’.49
On the merits, the tribunal applied both national and international law.50 In
concluding that Indonesia was in fact liable for wrongful expropriation,51 the arbitrators relied on the Indonesian Law of Foreign Investment,52 as well as international law

38 LIAMCO v Libya, at 54–8.
39 LIAMCO v Libya, at 54.
40 LIAMCO v Libya, at 56–7.
41 LIAMCO v Libya, at 56.
42 LIAMCO v Libya, at 61–77.
43 LIAMCO v Libya, at 63.
44 LIAMCO v Libya, at 66.
45 LIAMCO v Libya, at 67.
46 Amco Asia, fn. 11, Award, 20 November 1984 (B. Goldman, E.W. Rubin, I. Foighel, arbs),
paras 1, 142, 149.
47 Amco Asia, fn 46, Award.
48 Amco Asia, fn. 46, Award, at para. 148.
49 Amco Asia, fn. 46, Award, at para. 148.
50 See Amco Asia, fn. 11, Resubmitted Case, Award, 89 I.L.R. 580, 622 (1992) (‘There are thus
indications, both as a matter of Indonesian and international law, that the circumstances surrounding
BKPM’s decision tainted the proceedings irrevocably’ [emphasis added]).
51 Amco Asia, fn. 46, Award, at para. 178. See also at para. 156 (‘The question now is whether this
taking is or amounts to an expropriation which according to Indonesian law and to international law
can give rise to a claim for compensation’).
52 Amco Asia, at para. 157. See also at para. 157: (‘In Article 21 of the Indonesian Law of Foreign
Investment No. 1/197) it is stated [ . . . ] [that] ‘the Government has the obligation to provide
compensation, the amount, type and payment-procedure of which shall have been agreed upon by
both parties in accordance with principles valid in international law [ . . . ]’ [emphasis added]).
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278 Concurrent Application of and Reference to National and International Law
as expressed in scholarship53 and the International Law Commission Draft Articles on
State Responsibility.54
With respect to the claim for breach of contract, the tribunal held that in order to
characterize the investment application and its approval in the case at hand, it would
primarily apply Indonesian law, but that it would also resort to principles common to
several legal systems:
[A] ‘community’ of legal concepts is to be sought in the common definition of contract in several
legal systems, and in particular in the civil law systems, since Indonesian private law, largely
influenced by Dutch law, has a close affinity to said systems; and of course, before even trying to
find out such common principles, one has to consider Indonesian law itself, which as previously
stated, is applicable as being the law of the country which is a party to the dispute at hand.55

The tribunal concluded that under both Indonesian law and general principles of law,
the contract at issue had binding force.56 Concerning the manner in which the licence
was revoked, the tribunal held that ‘the procedure was contrary, not only to the
Indonesian regulations concerning the warning or warnings to be given before a
revocation of an investment authorization, but to the general and fundamental
principle of due process as well’.57 It applied Indonesian law when finding that
Indonesia was unjustified in revoking the licence.58
Having established that the acts by the host state constituted a failure to abide by its
obligations vis-à-vis the investor,59 the tribunal held that Indonesia was liable toward
the investor ‘under Indonesian as well as under international law, that is to say under
the two systems of law applicable in the instant case’.60 In this respect, it relied on the
principle pacta sunt servanda, ‘embodied in the Indonesian Civil Code by Article 1338
(contracts are the law of the parties)’;61 and article 1365 of the Indonesian Civil Code,
according to which ‘persons responsible for any act in violation of the law which results
in a loss to another party are obliged to replace said loss’.62 It added that pacta sunt
servanda reflected international law ‘because of it being a general principle of law in the
meaning of Article 38 of the Statute of the International Court of Justice, since it is
common to all legal systems in which the institution of contract is known’.63 Finally,
the tribunal applied the international principle of acquired rights.64

53 Amco Asia, at para. 158 (referring to B. A. Wortley, Expropriation in Public International Law
(Cambridge, Cambridge University Press, 1959)); and at para. 172 (referring to O’Connell, International Law, 2nd edn. Vol. 2).
54 Amco Asia, at para. 172.
55 Amco Asia, at para. 172.
56 Amco Asia, at paras 183–184.
57 Amco Asia, at para. 201. See also at para. 198 (‘In the instant case, this protection was not made
available to the Claimants, who were thus deprived of due process, contrary to Indonesian law as well as
contrary to general principles of law’).
58 Amco Asia, at para. 219.
59 Amco Asia, at para. 243.
60 Amco Asia, at para. 244 (emphasis added).
61 Amco Asia, at para. 247.
62 Amco Asia, at para. 247.
63 Amco Asia, at para. 248 (the tribunal refers to the law of the US, France, England, and Islamic
law).
64 Amco Asia, at para. 248. (the tribunal refers to judgments and awards of the Permanent Court of
Justice and the Iran–United States Claims Tribunal, as well as the Aramco award and the Shufeldt
claim). For criticism of the award, see S.J. Toope, Mixed International Arbitration (Cambridge,
Grotius, 1990), 243–4, 251.
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Arbitral Practice

279

Liberian Eastern Timber Corporation (LETCO) v Government of the Republic of
Liberia (1986)65 is a further illustration of the concurrent application of national and
international law and the attempt by arbitrators amicably to resolve differences between
the parties as to the respective roles of national and international law. The ICSID
Tribunal found that the reference in the parties’ agreement to the legislation of Liberia
appeared ‘to indicate an express choice by the parties of the Law of Liberia as the law
governing the Concession Agreement’.66 It went on to state, however, that even if there
was no express choice, Libyan law would apply by virtue of the second sentence of
article 42(1) ICSID Convention, alongside international law.67 The tribunal observed
that the role of international law as a ‘regulator’ of national systems of law has been
much discussed, with particular emphasis being focused on the problems likely to arise
if there is a divergence on a particular point between national and international law; and
in this respect, it stated: ‘No such problem arises in the present case; the tribunal is
satisfied that the rules and principles of Liberian law which it has taken into account are
in conformity with generally accepted principles of public international law governing
the validity of contracts and the remedies for their breach.’68
On the merits, we note that the tribunal considered ex proprio motu the possibility
that the host state’s action in depriving LETCO of its concession agreement could have
been ‘justifiable both under the law of Liberia and under international law, if accompanied by payment of appropriate compensation’.69 For a ‘generally accepted statement
of the international law governing acts of nationalization’, the tribunal referred to
United Nations Resolution 1803 (XVII) of 1962 relating to Permanent Sovereignty
over natural resources, scholarship, and arbitral jurisprudence.70 Applying these standards to the case at hand, the tribunal concluded that ‘even if the argument as to
nationalization had been raised, it would have failed’.71
Under the heading ‘Breach of contract and Right to remedies According to Liberian
Law’, the tribunal pointed out that it had ‘obtained statements from experts in Liberian
law, relevant articles of the Liberian Code of Laws of 1956 and reported decisions of the
Liberian Courts’.72 Quoting extensively from this Code as well as scholarship on
Liberian law, it held that the Government of Liberia had ‘acted in plain breach of
the terms of the Concession Agreement’.73
In its decision on damages, the tribunal referred to the approach taken by other
arbitral tribunals; but it noted that while these decisions may serve as a ‘useful guide to
this Tribunal, these cases, in and of themselves, are inadequate’.74 Consequently, it
continued, ‘[t]he Tribunal, once again, returns to the law of the Republic of Liberia as

65 LETCO v Liberia, fn. 10, Award.
66 LETCO v Liberia, at 358.
67 LETCO v Liberia, at 358. (pursuant to this provision, ‘in the absence of any express choice of law
by the parties, the Tribunal must apply a system of concurrent law. The law of the Contracting State is
recognized as paramount within its own territory, but is nevertheless subjected to control by international law’ [emphasis added]).
68 LETCO v Liberia, at 359. But see P. Peters, ‘The Semantics of Applicable Law Clauses and the
Arbitrator’ in Law and Reality: Essays on National and International Procedural Law in Honour of
Cornelis Carel Albert Voskuil (C.C.A. Voskuil et al., eds, Dordrecht, Nijhoff, 1992), 231, 249 (‘The
designation of the host country law as “paramount” and the finding, without any supporting detail,
that there was no divergence in this case between Liberian law and international law, are flaws in this
award which, had it been submitted to the scrutiny given to the Klöckner award [ . . . ] might have led
to a similar verdict’).
69 LETCO v Liberia, at 366.
70 LETCO v Liberia, at 366.
71 LETCO v Liberia, at 367.
72 LETCO v Liberia, at 367.
73 LETCO v Liberia, at 369.
74 LETCO v Liberia, at 371.
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280 Concurrent Application of and Reference to National and International Law
the law applicable in this case and therefore determinative of the nature of damages to
be awarded.’75
The parties in AGIP S.p.A. v People’s Republic of Congo (1979) had agreed to the
application of ‘the law of the Congo, supplemented if need be by any principles of
international law’.76 The case concerned the nationalization of AGIP pursuant to a
Congolese order subsequently ratified as law.77 Apart from wrongful nationalization,78
the foreign investor also claimed various breaches of the contract it had entered into
with the host state, including breach of stabilization clauses.79
While construing the choice-of-law clause to provide a primary role for national
law,80 the tribunal noted the relevance of international law: ‘The nationalization
decreed by Order No. 6/75 requiring the transfer of all Company assets and share to
the Hydro-Congo State Corporation must be considered first in relation to Congolese
law. The Tribunal must then consider whether the matter must also be examined from
the standpoint of international law.’81
On the merits, the tribunal first evaluated the respondent’s conduct in accordance
with national law. As to the scope of this law, it introduced the relevance of French
legislation in the Congolese legal order, the Constitution of the Popular Republic of the
Congo, and the Congolese Basic Act of the Military Committee of the Party.82 It also
observed that ‘Congolese law consists on the one hand of constitutional rules and on
the other of civil and commercial law rules’.83 It found that the measures taken against
the company were wrongful, although they were in accordance with the forms required
by Congolese constitutional law.84 In this respect, the tribunal found the stabilization
clauses to be of particular relevance:
Congo had a contractual relationship with AGIP which under Congolese law obliged it not to
alter the company’s status unilaterally. [ . . . ] As regards civil law, Article 1134 of the French Civil
Code, which asserts the principle that ‘agreements legally arrived at have the force of law for those
making them,’ provides a juridicial [sic] basis for the agreement signed between the parties to the
present dispute. It cannot be denied that the measures taken under the law cited above ignored
the obligation of the contracting State to perform the contract.85

The tribunal proceeded to state that its observations with respect to Congolese law did
not exempt it from examining the acts of nationalization from the point of view of
international law: ‘Indeed, the disputed Ordinance, being itself a piece of Congolese
Law, one must establish why it cannot thereby be considered as providing a juridical
basis for the measures taken pursuant to it.’86 Observing that the parties had specifically
stipulated that Congolese law can be ‘supplemented’ when the occasion arises by

75 LETCO v Liberia, at 371.
76 AGIP S.p.A. v People’s Republic of Congo, ICSID Case No. ARB/77/1, Award, 30 November
1979, paras 18, 43, 79.
77 AGIP v People’s Republic of Congo, at para. 28.
78 AGIP v People’s Republic of Congo, at para. 74.
79 AGIP v People’s Republic of Congo, at paras 48 et seq. See also at paras 84, 95.
80 The primacy of national law is supported by the reliance on national law in the discussion of
damages. See AGIP v People’s Republic of Congo, at paras 98–114.
81 AGIP v People’s Republic of Congo, at para. 71. Cf. N. Nassar, ‘Internationalization of State
Contracts: ICSID, The Last Citadel’ (1997) 14(3) J. Int’l Arb. 185, 199.
82 AGIP v People’s Republic of Congo, fn. 76, Award, at paras 46–47.
83 AGIP v People’s Republic of Congo, at para. 72.
84 AGIP v People’s Republic of Congo, at para. 73. See also at paras 76–79.
85 AGIP v People’s Republic of Congo, at paras 76–77.
86 AGIP v People’s Republic of Congo, at paras 79–80.
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Arbitral Practice

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principles of international law,87 the tribunal concluded that the Congolese nationalization Ordinance was contrary to international law.88 Again, the tribunal focused on
the stabilization clauses, resulting from the ‘common will of the parties expressed at the
level of international juridical order’:89
It is sufficient to focus the examination of the compatibility of the nationalization with international law to the stabilization clauses. [ . . . ] It is in fact in regard to such clauses that the
principles of international law supplement the rules of Congolese law. The reference to international law is enough to demonstrate the irregular nature, under this law, of the act of
nationalization which occurred in this case.90

The tribunal concluded that the wrongful conduct, as established both under national
and international law, gave rise to a duty on the part of the Government to compensate
AGIP.91
The arbitration in Goetz v Republic of Burundi (1999) was based on a bilateral
investment treaty, which stipulated:
The arbitral body decides on the basis of:
the domestic law of the contracting party to the dispute, on the territory of which the investment
is located, including its rules relating to the conflict of laws;
the provisions of the present Treaty;
the terms of the particular agreement which might have taken place regarding the investment;
the generally admitted rules and principles of international law.92

In its analysis of the applicable law, the ICSID Tribunal first noted the various
responses that the ‘problem of the links’ between national and international law had
received in the context of article 42(1), second sentence, ICSID Convention.93 Finding
that the present case related to the first sentence of this article, the tribunal concluded
that on the basis of the terms of the applicable law clause, which, like the second
sentence of article 42(1), included reference to both national and international law, ‘a
complementary relationship must be allowed to prevail’.94
The applicability of both national and international law to the case at hand is further
illustrated by the fact that the tribunal requested counsel for the claimants ‘to explain
further a number of matters and invite[d] him to submit written responses’.95 These
questions included the following:
22.6 What is the hierarchy between the sources of law set out in Article 8 of the Treaty
between the Belgium-Luxembourg union and the Republic of Burundi?
22.7 Has international law been incorporated into the domestic Burundian legal order?

87 AGIP v People’s Republic of Congo, at para. 82.
88 AGIP v People’s Republic of Congo, at para. 88.
89 AGIP v People’s Republic of Congo, at para. 85.
90 AGIP v People’s Republic of Congo, at paras 87–88.
91 AGIP v People’s Republic of Congo, at para. 97.
92 Antoine Goetz et al. v Republic of Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999
(P. Weil, M.M. Bedjaoui, J.-D. Bredin, arbs), para. 98 (referring to Belgium–Burundi Investment
Treaty, art. 8(5)).
93 Goetz v Burundi, at para. 97. See also Chapter 1, Section 1 (on motivations for the study).
94 Goetz v Burundi, fn. 92, Award, at para. 98 (emphasis added).
95 Goetz v Burundi, at para. 13.
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282 Concurrent Application of and Reference to National and International Law
22.8 What are, according to Burundian administrative law, the circumstances required in
order to be given compensation in the event of the changing of a regulation by the
Burundian State (the said case-law of the legislating State, invoked by the claimant)?
22.9 Does the International Pact on economic and social rights quoted in the memorial bind
the parties in this case?96

According to the tribunal, the need to apply Burundian law was ‘beyond doubt’ since
this source was cited in the first place by the applicable law clause of the treaty at
hand.97 As regards international law, the tribunal found its application to be ‘obligatory’ for two main reasons: ‘First, because, according to the indications furnished to the
Tribunal by the claimants, Burundian law seems to incorporate international law and
thus to render it directly applicable [ . . . ].’98 Secondly, stated the tribunal, ‘the
Republic of Burundi is bound by the international law obligations which it freely
assumed under the Treaty for the protection of investments, just as it can benefit from
the rights conferred on it under the Treaty [ . . . ].’99 Accordingly, it explained, the
tribunal’s role was not limited to examining the legitimacy and the legal consequences
of the disputed decision in relation to Burundian law, but it must necessarily extend to
examining the legitimacy and the legal consequences of the disputed decision in
relation to the international rights and obligations of the Burundian state.100
The need to apply both national and international law was further supported by
article 7 of the investment treaty, which specifically allowed foreign investors to invoke
provisions, national or international, being more favourable to them.101 The tribunal
stated:
Far from establishing a priori a hierarchy between the two systems of law which govern the
relationship between Burundi and Belgian investors and must serve as a base for the Tribunal’s
settlement of the dispute, the Belgium–Burundi investment treaty obliges the Tribunal to
examine the legal situation created in the wake of the [governmental measure] in the context
of both: each must reign in its own sphere of application, and in case of conflict between the two
it is, by common accord of the parties, the provisions which are more favourable to the investors
which must be applied.102

On the merits, the tribunal first analysed ‘[t]he Problem as it relates to Burundian
Law’.103 The claimants had alleged that the decision taken by the Burundi Government
withdrawing their free zone certificate violated Burundian law.104 Having dismissed

96 Goetz v Burundi, at para. 22. See also at para. 56 (‘As regards the law, the Tribunal regrets not
being able to hear the views of the defendant on Burundian constitutional and administrative law’);
para. 8 (‘The President expressed his regret, in the name of the arbitral Tribunal, that the Republic of
Burundi had not submitted its counter-memorial and was not present for the opening of oral
proceedings’); and at para. 53.
97 Goetz v Burundi, at para. 98.
98 Goetz v Burundi, at para. 98 (‘[B]y reason of the non-appearance of the defendant, the Tribunal
is not however in a position to reach a definite conclusion on this point’). See also Chapter 5,
Section 3.1.1 (on international law as part of the ‘law of the law’).
99 Goetz v Burundi, at para. 98. See also at para. 120 (‘Whatever the mastery over its domestic law
that the Burundian State derives from its sovereignty, it is obliged, by virtue of this same sovereignty, to
respect its international undertakings’).
100 Goetz v Burundi, at para. 98.
101 Goetz v Burundi, at para. 95.
102 Goetz v Burundi, at para. 99 (emphasis by underlining added).
103 Goetz v Burundi, at paras 100–119.
104 Goetz v Burundi, at para. 101.
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Arbitral Practice

283

this claim,105 the tribunal proceeded to consider ‘[t]he Problem as regards International
law’, and, in particular, any violation of the claimants’ rights pursuant to the investment
treaty.106 It concluded that, in order not to incur international responsibility, the
Republic of Burundi would need, within a reasonable period, ‘to give an adequate
and effective indemnity to the claimants as envisaged in Article 4 of the Belgium–
Burundi investment treaty, unless it prefers to return the benefit of the free zone regime
to them’.107
Finally, we note the case of Sempra Energy International v Argentine Republic
(2007).108 On the interplay between national and international law, the ICSID
Tribunal first observed: ‘While writers and decisions have on occasion tended to
consider domestic law and international law as mutually incompatible in their application, this is far from actually being the case. Both have a role to perform in the
resolution of the dispute, as has been recognized.’109
In examining the claimant’s allegation that Argentina had incurred a liability in
consequence of its conduct, the tribunal found ‘that there is generally no inconsistency
between the Argentine law and international law insofar as the basic principles
governing the matter are concerned’.110 While noting that international law would
prevail in case of any inconsistency with national law,111 it concluded that it would
‘consider both Argentine law and international law to the extent each is relevant to a
determination on liability’.112 On the merits, it held:
The Tribunal’s inescapable conclusion is that in considering the claims solely from the point of
view of the Argentine legislation as the law applicable to the dispute, the obligations and
commitments which the Argentine Republic owed in relation to the License were not observed.
Whether the question is examined from the point of view of the Constitution, the Civil Code or
Argentine administrative law, the conclusion is no different. Liability is the consequence of such a
breach, and there is no legal excuse under the legislation that could justify the Government’s noncompliance since the very conditions set out by the legislation and the decisions of courts have
not been met. As will be examined further later, these conclusions are no different from those that
could be reached under the Treaty and international law [ . . . ].113

105 Goetz v Burundi, at para. 119.
106 Goetz v Burundi, at para. 120 et seq. See also at para. 121 (The tribunal also considered, but
quickly dismissed the applicability of the International Covenant on Economic, Social and Cultural
Rights).
107 Goetz v Burundi, at para. 133. See also ICSID Rep. 3, 46 (2004) (the parties’ Settlement
Agreement).
108 Sempra Energy International v Argentine Republic, ICSID Case No. ARB/0/16, Award, 28
September 2007 (F.O. Vicuña, M. Lalonde, S.M. Rico, arbs).
109 Sempra Energy, at para. 236.
110 Sempra Energy, at para. 238.
111 Sempra Energy, at para. 239.
112 Sempra Energy, at para. 240.
113 Sempra Energy, at para. 268. Cf. Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic,
ICSID Case No. ARB/01/3, Award, 22 May 2007 (F. Orrego-Vicuña, A.J. van den Berg, P.-Y. Tschanz,
arbs), para. 209 (‘The Tribunal must also note that in examining the Argentine law as pertinent to various
issues disputed by the parties, it finds that there is generally no inconsistency with international law as far
as the basic principles governing the matter are concerned. The Tribunal will accordingly apply both
Argentine law and international law to the extent pertinent and relevant to the decision of the various
claims submitted’). See also M.C.I. Power Group v Republic of Ecuador, ICSID Case No. ARB/03/6),
Award, 31 July 2007 (R.E. Vinuesa, B.J. Greenberg, J. Irarrázabal, arbs), para. 305 (‘[T]he Tribunal finds
that the action of the Ecuadorian authorities in revoking Seacoast’s permit to operate in Ecuador did not
in itself constitute an act in conflict with domestic law or with the BIT’).
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284 Concurrent Application of and Reference to National and International Law
In accordance with the foregoing, we may conclude that both territorialized and
internationalized investment tribunals have applied national and international law in
a consecutive or concurrent fashion both in situations in which the parties have agreed
to the application of both sources of law, and where there is no agreement on the
applicable law.114 We further observe that tribunals often emphasize the consistency
that exists between the applicable sources of national and international law.

2.2. Reference to consistent national and international law
Arbitral tribunals may also decide to solve the dispute by primarily applying either
national or international law.115 Such primacy notwithstanding, tribunals frequently
point to the normative convergence between the two legal orders on relevant issues.116
The same technique is used by national courts. Based on a survey undertaken by the
International Law Association’s Committee on International Law in National Courts,
Guillaume observes: ‘it appears that national courts do on occasion justify their decision
by additional reference to international law such as by confirming that national law
already reflects, or has a parallel in, international law.’117
From the practice of territorialized tribunals, one example of this choice-of-law
methodology is the ICC award in SPP (Middle East) Ltd v Arab Republic of Egypt
(1983).118 The dispute in that case arose subsequent to the termination by the host
state of a tourist development project in the vicinity of the Egyptian pyramids; a project
that was based on agreements entered into between SPP and the Egyptian General
Company for Tourism and Hotels (EGOTH).119 The 1974 ‘Heads of Agreement’
stated in the recital that the agreement was made in accordance with several Egyptian
laws.120 A subsequent ‘Agreement for the Development of Two International Tourist
Projects in Egypt—the Pyramid and Ras-El-Hekma Area’ contained the same references to the law of Egypt.121 The tribunal did not find this to constitute an agreement
on the applicable law.122
114 But see C. McLachlan, ‘Investment Treaty Arbitration: The Legal Framework’ in 50 Years of the
New York Convention (ICCA Congress Series no. 14, A.J. van den Berg, ed., The Hague, Kluwer,
2009), 95, 111. (Commenting on the Goetz v Burundi case, the author states: ‘This approach of
considering every issue in terms respectively of host state law and international law has not gained
traction in subsequent investment treaty arbitrations. Despite some distinguished support [see
C. Schreuer, ‘Failure to Apply the Governing Law in International Investment Arbitration’ (2004) 7
Austrian Rev. Int’l & Eur. L. 147, 160], it is submitted that it cannot be accepted either as required by
the clause in the treaty or, more generally, by the logical methodology necessary to resolve such cases.
Instead [ . . . ] the tribunal must undertake a choice of law analysis in order to determine which of the
range of designated rules of law is applicable to the issue in question’ [emphasis in original]).
115 See Chapter 5, Section 2 (on reasons for the primarily applicability of national law); Chapter 6,
Section 2 (on reasons for the primary applicability of international law).
116 It is noted that in referring to consistency, rather than applying the relevant norms as such, the
tribunals enjoys a higher degree of flexibility with respect to the principle non ultra petita and the
parties’ right to be heard. See Chapter 6, Section 2.2 (on the international nature of the claim), at fn.
112. See also G. Petrochilos, Procedural Law in International Arbitration (Oxford, Oxford University
Press, 2004), 145; Fraport AG Frankfurt Airport Services Worldwide v Philippines, ICSID Case No.
ARB/03/25, Decision on the Application of Annulment, 23 December 2010 (P. Tomka, D. Hascher,
C. McLachlan, committee members), para. 197; B. Cheng, General Principles of Law as Applied by
International Courts and Tribunals (London, Stevens, 1953), 258, 290–8, 357, 398.
117 G. Guillaume, ‘The Work of the Committee on International Law in National Courts of the
International Law Association’ (2001) 3 International Law FORUM du droit international 39.
118 SPP (Middle East) Ltd v Arab Rep. of Egypt, ICC Award No. 3493, Award, 16 February 1983
(G. Bernini, A.H. Elghatit, M. Littman, arbs).
119 SPP v Egypt.
120 SPP v Egypt, at para. 12.
121 SPP v Egypt, at paras 14–20.
122 SPP v Egypt, at para. 49.
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Arbitral Practice

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In their pleadings, the claimants had emphasized the superior nature of international
law vis-à-vis national law: ‘no rules and/or principles drawn from the body of domestic
Egyptian law should be allowed to override the principles of international law applicable to international investment projects of this kind.’123 On its part, the host state had
refuted the claimants’ argument in favour of the so-called ‘denationalisation’ of the
applicable law, concluding rather that ‘the law governing the substantive issues could be
nothing but the Egyptian legal system’.124
In an obvious attempt to reconcile these differences, the tribunal observed that the
parties had come to conclusions that only partially diverged: ‘They both agree that in
view of the circumstances of the case the relevant domestic law is that of Egypt.’125 The
tribunal went on to conclude that ‘[i]n the case at issue the governing law is, in our
opinion, the law of Egypt. The Agreements were both made in Egypt. The place of
performance was almost entirely Egypt. There are numerous references to Egyptian law
in the agreements.’126 Still, it emphasized that also international law was applicable to
the case at hand: ‘we find that reference to Egyptian law must be construed so as to
include such principles of international law as may be applicable and that the national
laws of Egypt can be relied upon only in as much as they do not contravene said
principles.’127 Indeed, also at a later point it gave hierarchical primacy to international
law: ‘We have already found [ . . . ] that the general principles of international law are
the ultimate yardstick for the adjudication of Claimant’s claim.’128
In reaching its decision on the applicability and importance of international law, the
tribunal relied first on the claimant’s statement that the law of Egypt should be deemed
to include general principles of international law.129 This position, it noted, was
supported by Egyptian law specialists whose opinion aimed at demonstrating that
principles of international law such as pacta sunt servanda and just compensation for
expropriatory measures were not incompatible with the Egyptian legal system.130 The
tribunal observed:
Both Dr. Oteifi and Mr. Mansour point out that these principles are deeply rooted in the
Egyptian legal tradition, characterised by the general rule of ‘sivadat el kenoun’, i.e. supremacy of
the law [ . . . ]. They further specifically refer inter alia to Articles 147 and 148, Egyptian Civil
Code [ . . . ] and to Articles 34 and 35 of the Egyptian Constitution [ . . . ], expressly stating that
‘the contract makes the law of the parties’ and that ‘private ownership is safeguarded [ . . . ] and
may not be expropriated except for public use and with just compensation’.131

Secondly, and less convincingly, the tribunal invoked the reference in Egyptian Law no.
43 of 1974 to the ICSID Convention, which entered into force for Egypt in 1972.132
According to the tribunal, ‘[t]he adherence to the ICSID convention should then be
treated as conclusive evidence of Egypt’s declared intent to abide by these [general]
principles, which indeed represent the basic philosophy adopted by the Convention’s
drafters.’133 According to the present author, one should be cautious in construing a
reference in national law to the ICSID Convention as ‘conclusive evidence’ of any
123 SPP v Egypt, at para. 49.
124 SPP v Egypt, at para. 49.
125 SPP v Egypt, at para. 49.
126 SPP v Egypt, at para. 49.
127 SPP v Egypt, at para. 49.
128 SPP v Egypt, at para. 54.
129 SPP v Egypt, at para. 49.
130 SPP v Egypt, at para. 49.
131 SPP v Egypt, at para. 49.
132 SPP v Egypt, at para. 49.
133 SPP v Egypt, at para. 49. Thirdly, the tribunal referred to article 13(5) of the ICC Arbitration
Rules in force at that time, which stated that ‘in all cases the arbitrator shall take into account the
provisions of the contract and the relevant trade usages’. SPP v Egypt, fn. 118, at para. 49 (citing
Fouchard, L’Arbitrage Commercial International (Paris, Dalloz, 1965), 101, at para. 175).
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286 Concurrent Application of and Reference to National and International Law
intent on the part of the state to agree to the application of international law. This is
particularly so in light of the procedural, rather than the substantive, nature of the
Convention.134
On the merits, the tribunal found it established that the host state, by its various
actions, had prevented all further performance of the Pyramids Oasis Project; and
thereby it had committed such breaches of its obligations as amounted to total
repudiation.135 In this respect, it referred to ‘the general principle (recognised both
under Roman Law as well as under common law traditions) whereby a party is barred
from taking a contrary course of action [ . . . ] after inducing by its own conduct the
other party to do something which the latter would not have done but for such conduct
of the former party’.136
The tribunal proceeded to ‘consider the various grounds upon which the Defendants
justify the action that was taken’.137 One of Egypt’s arguments was that the steps it
took were ‘measures of a legislative and executive character [that] amount to an Act of
State, and as such cannot be condemned as a breach of contract’.138 The tribunal
rejected this defence:
The issue is whether submission to international arbitration by States and public entities should
be regarded as an implicit waiver of immunity thus preventing concurrent application of other
international or municipal rules granting sovereign immunity. In finding upon the governing law
we implicitly answered in the affirmative. It would indeed be frustrating to recognise full force
and effect of general principles of international law aimed at protecting foreign investors and then
admit that a state may, before an arbitral tribunal, rely upon domestic or international principles
granting sovereign immunity as an excuse for acts amounting to contractual breaches.139

In finding in favour of the investor, the tribunal further relied on ‘the principle “pacta
sunt servanda” (common to both the Egyptian and the international legal systems)’.140
It also perused articles 157 and 158 of the Egyptian Civil Code dealing with dissolution
of contracts, and which in its view, ‘embody a number of principles which are fairly
common under civil law systems [ . . . ]’.141
Additionally, the host state argued that ‘the shameful record of the Claimant’s
operations in Egypt from the very first day demonstrates clearly that they came to
Egypt not as investors, not as promoters, but with the sole purpose of obtaining by
fraudulent means exorbitant and illegal benefits’.142 In considering ‘with great care this
grave statement’, the tribunal, ex proprio motu, referred to Egyptian law:
No reference is made by Defendants to the provisions of the Egyptian Civil Code. The subject
matter of the contention, however, is expressly dealt with in Article 125, providing as follows:
‘A contract may be declared void on the grounds of fraudulent misrepresentation, when the
artifices practised by one of the parties, or by his representative, are of such gravity that, but for
them, the other party would not have concluded the contract. Intentional silence on the part of
one of the parties as to a fact or as to the accompanying circumstances constitutes fraudulent

134 See Chapter 2, Section 4.2 (on ICSID tribunals); Chapter 3, Section 3.2.2.1 (on the ICSID
Convention). Further, a distinction should be made between the superiority of international law in the
international legal order and the primacy of international law vis-à-vis national law as the law applicable
to the merits. See further Chapter 6, Section 2.3 (on the superior nature of international law vis-à-vis
national law).
135 SPP v Egypt, fn. 118, at para. 51.
136 SPP v Egypt, at para. 51.
137 SPP v Egypt, at para. 51 et seq.
138 SPP v Egypt, at para. 52.
139 SPP v Egypt, at para. 54.
140 SPP v Egypt, at para. 54.
141 SPP v Egypt, at para. 58.
142 SPP v Egypt, at para. 59.
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Arbitral Practice

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misrepresentation if it can be shown that the contract would not have been concluded by the
other party had he had knowledge thereof [ . . . ].’143

The tribunal then observed that it was again ‘faced with principles, generally prevailing
within the civil law systems’.144 Concluding that the host state had failed to prove any
substantial breaches on the part of the investor, and that in any event, if any breaches
did occur, they were not of such a character as to justify the cancellation of the
contract,145 the tribunal continued to determine the measure of damages according
to the law of Egypt.146
CME v Czech Republic (2001/03) is a further example of a case in which the
respective roles of national and international law were disputed, and in which the
tribunal pointed to congruence.147 In its first and partial award, the UNCITRAL
Tribunal relied solely on international law in holding that the host state was liable for
violating the BIT.148 In its Final Award, however, it also relied on national law, which,
it pointed out, was consistent with international law:
The Tribunal’s position is consistent with Art. 438(1) Czech Civil Code, according to which
tort-feasors are jointly and separately liable. Only for good reasons may a court decide that
someone who caused the damage shall be liable only in respect to the damage caused by him
personally (Art. 438(2) Czech Civil Code).149

Compatibility between the relevant provisions of international and national law was
also referred to during the tribunal’s discussion of the proper date for fixing the fair
market value of CME’s investment: ‘This date is in accordance with Art. 443 of the
Czech Civil Code [and] [i]t is in accordance with customary international law, with the
provisions of bilateral investment treaties, and with the holdings of tribunals applying
international law.’150 This reference to national law may be seen as a response to the
criticism raised against its focus in the Partial Award on international law. Schreuer
states: ‘The detailed reliance on Czech law in the Final Award is in clear contrast to the
Partial Award. It creates the impression that its treatment in the Partial Award of
the Applicable law, especially Czech law, was out of order and that is was necessary to
make amends.’151
BG Group Plc v Argentina (2007) is illustrative as well.152 Also in that case, the
parties had presented diametrically opposed arguments as to the applicability of
national and international law: ‘Where Claimant and Respondent disagree is on
[ . . . ] whether Argentina’s alleged liability is exclusively a function of domestic law,
as argued by Respondent, or whether this issue falls squarely under the terms of the BIT

143 SPP v Egypt, at para. 59.
144 SPP v Egypt, at para. 59.
145 SPP v Egypt, at para. 60.
146 SPP v Egypt, at para. 62.
147 See Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign
investors and investments); Chapter 6, at Section 2.2 (on the international nature of the claim).
148 CME Czech Republic B.V. v Czech Republic, Partial Award, 13 September 2001 (W. Kühn,
S.M. Schwebel, J. Hándl, arbs), paras 580–584; Final Award, 14 March 2003 (W. Kühn,
S.M. Schwebel, I. Brownlie, arbs), para. 452.
149 CME Czech Republic, Final Award, at para. 452.
150 CME Czech Republic, at para. 492; and at para. 629 (‘Czech law also provides interest on late
payments’). Cf. Schreuer, Failure to Apply the Governing Law in International Investment Arbitration,
fn. 11, at 191–2.
151 C.H. Schreuer, Comments Relating to Applicable Law on the Stockholm Tribunal’s Final Award of
14 March 2003, TDM 2(3) (2005), 4–5.
152 BG Group Plc v Argentina, Award, 24 December 2007 (A.M. Carro, A.J. van den Berg,
G.A. Alvarez, arbs).
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288 Concurrent Application of and Reference to National and International Law
and underlying principles of international law, as argued by the Claimant.’153 Before
primarily applying international law to the claims set forth by the foreign investor,154
the UNCITRAL Tribunal explained why it considered immaterial the question of any
hierarchy between the legal orders in the case at hand:
Regarding the remission in Article 8(4) of the BIT to national and international law, the Parties
seem to make much of the issue whether international law and Argentine law are to be deemed of
equal rank, as proposed by Respondent, or whether the latter ought to yield to the former, as
contended by Claimant. In the opinion of the Tribunal this focus in misplaced. In the first place,
the doctrinal and jurisprudential authorities brought to the attention of the Tribunal fail to yield
any collision or contradiction between the protection to which Claimant’s property rights are
entitled under Argentine constitutional and administrative law and the protection it receives
under international law. [ . . . ] Thus, the question of the hierarchy that one source of law bears
with regard to the other fades in relevance in this case, where property rights would be fully
protected under Argentine domestic law in any event.155

Also internationalized tribunals have frequently referred to the consistency between
national and international law. In the ICSID case Adriano Gardella S.p.A. v Côte
d’Ivoire (1977), the parties had agreed on the application of ‘the law of the Ivory
Coast within the framework of public international law’.156 Before proceeding to solve
the dispute on the basis of national law,157 the tribunal stated:
Both parties admit that their agreement is governed by the law of the Ivory Coast. Gardella has
pleaded, it is true, that the law of the Ivory Coast ought to apply, in this case, within the
framework and in the context of public international law. However, Gardella has not drawn any
other conclusion from that argument than that it is necessary to have regard to the rule ‘pacta sunt
servanda’ and to the principle of good faith, principles which are equally recognized by the law of
the Ivory Coast as well as by French law.158

Another case on point is Klöckner Industrie-Anlagen GmbH and others v United Republic
of Cameroon and Société Camerounaise des Engrais (1983).159 The ICSID Tribunal first
concluded that French law applied to the dispute.160 Still, it referred to general
principles of law when concluding that Klöckner had failed to respect its duty of
confidence and loyalty vis-à-vis its contractual partner: ‘the principle according to
which a person who engages in close contractual relations, based on confidence, must

153 BG Group, at para. 93.
154 BG Group, at para. 95 (‘[T]he Tribunal must rely on the terms of this bilateral treaty as the
primary source of law’).
155 BG Group, at para. 96 [references omitted]. See also at para. 97 (the tribunal placed importance
on the fact that the relevant sources of international law are incorporated into Argentine domestic law,
superseding conflicting domestic statutes). For other cases in which territorialized tribunals have
pointed to the consistency between national and international law, see, e.g., Biloune and Marine
Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana, Award on Jurisdiction
and Liability, 27 October 1989, at section VI; EnCana Corporation v Republic of Ecuador, LCIA Case
UN3481, Final Award, 3 February 2006 (J. Crawford, H.G. Naón, C. Thomas, arbs), Partial
Dissenting Opinion by H.G. Naón, at para. 25; National Grid plc v Argentine Republic, Award, 3
November 2008 (A.M. Garro, J.L. Kessler, A.R. Sureda, arbs), para. 88.
156 Adriano Gardella S.p.A. v Côte d’Ivoire, Case No. ARB/74/1, ICSID Rep. 283 (1993) (excerpts).
157 Gardella, at 288, 291, 294 (referring to articles 1832, 1865, 1869, and 1872 of the Civil Code
of the Ivory Coast).
158 Gardella, at 287.
159 Klöckner v Cameroon, fn. 19, Award.
160 See Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign
investors and investments).
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Arbitral Practice

289

deal with its partner in a frank, loyal and candid manner is a basic principle of French
civil law, as is indeed the case under the other national codes which we know of.’161
Applying the principle exceptio non adimpleti contractus, the tribunal, after having
discussed the principle pursuant to French law, decided to point out, ‘in view of the
parties’ divergence as to the applicable law’, that ‘English and international law reach
similar conclusions’.162 Interestingly, in its decision on annulment of the award, the ad
hoc committee found it necessary to comment critically on the tribunal’s reference to
the consistency between national and international law: ‘This superfluous observation
is rather difficult to reconcile with the Tribunal’s previous decision [ . . . ] that, as the
Claimant argued, “only that part of Cameroonian law that is based on French law
should be applied in the dispute.” ’163
Reference should also be had to the ICSID case Southern Pacific Properties (Middle
East) Limited (SPP) v Arab Republic of Egypt (1992).164 As we recall from Chapters 3
and 5, the applicable law in that case was subject to much debate between the parties as
well as the arbitrators.165 In particular, El Mahdi, in his dissenting opinion, criticized
the majority for not having found an agreement in favour of the application of Egyptian
law, as well as the majority’s decision that, in light of lacunae in the Egyptian legal
system, international law would apply regardless of any implied choice.166 In what
could be seen as an attempt to accommodate the divergent positions of the opposing
parties on the applicable law, the ICSID Tribunal reached its decision on the unlawfulness of the respondent’s measures by applying both Egyptian and international law:
The rules of Egyptian law and international law governing the exercise of the right of eminent
domain impose an obligation to indemnify parties whose legitimate rights are affected by such
exercise. Article 34 of the Egyptian Constitution provides: [ . . . ] The obligation to pay fair
compensation in the event of expropriation applies equally where antiquities are involved. Thus,
Article 11 of Law No. 215 of 1951 for the Protection of Monuments and Antiquities provides:
[ . . . ].167

We further note the case Desert Line Projects (DLP) v Republic of Yemen (2008).168
Having found that the respondent had violated the BIT’s provision on fair and
161 Klöckner v Cameroon, fn. 19, Award, at section VI(B). See also fn. 11, Decision on Annulment,
at para. 69 (The language employed by the tribunal indicates that it ‘may have wanted to base, or
thought it was basing, its decision on the general principles of law recognized by civilized nations, as
that term is used in Article 38(3) [sic] of the Statute of the International Court of Justice’).
162 Klöckner v Cameroon, Award, fn. 19, at section VI(C) (referring for international law authority
to Diversion of Water from the Meuse, Permanent Court of International Justice, 28 June 1937,
Opinion of Judge Anzilotti, Ser. A/B, No. 70, p. 50).
163 Klöckner v Cameroon, fn. 11, Decision on Annulment, at para. 168. See also Schreuer et al., fn.
11, at 620 (‘Such a parallel application may seem reasonable where compliance with mandatory
standards of international law is at stake. It is much less convincing where the rules of international
law derive from general principles of law. If a clear rule is offered by the host State’s domestic law, a
comparative search for general principles is of doubtful value. It will be difficult to argue that there is a
general principle of law which is at variance with the host State’s law. Moreover, general principles of
law do not necessarily set mandatory minimum standards which must be complied with’).
164 Southern Pacific Properties (Middle East) Limited (SPP) v Arab Republic of Egypt, ICSID Case No.
ARB/84/3, Award, 20 May 1992 (E. Jimenez de Arechaga, R.F. Pietrowski, M.A.E. El Mahdi, arbs).
165 Chapter 3, Section 3.1.2 (on express and implied choice of law); Chapter 5, Section 3.2.1 (on
the complementary function of international law).
166 SPP v Egypt, Award, fn. 164, Dissenting Opinion of M.A.E. El Mahdi, sections III(3)(i), III(3)
(iv).
167 SPP v Egypt, Award, at para. 159. Cf. G.R. Delaume, ‘L’affaire du Plateau des Pyramides et le
CIRDI. Considérations sur le droit applicable’ (1994:1) Revue de l’Arbitrage 39, 47–8.
168 Desert Line Projects (DLP) v Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February
2008 (P. Tercier, J. Paulsson, A.S. El-Kosheri, arbs), para. 104.
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290 Concurrent Application of and Reference to National and International Law
equitable treatment by exerting pressure on the claimant to sign a settlement agreement
subsequent to the rendering of an arbitral award in favour of the claimant,169 the
ICSID Tribunal concluded that the arbitral award must be implemented in its entirety.170 According to the tribunal,
This conclusion emerges from the combined effect of two basic rules having paramount place
within the Yemeni legal order and shared by all other systems of law as well as by international
law. [ . . . ] First, pacta sunt servanda [ . . . ]. Second, the mandatory implication of the fundamental
general principle of law commonly known as the legal doctrine of estoppel, which originated over
twelve centuries ago in the Islamic Jurisprudence [ . . . ] the precise wording of which can be
translated in English to read: ‘whoever tries to undo what he previously undertook, such act on
his part shall be turned against him.’171

A final example of the practice of ICSID tribunals of referring to consistency between
national and international law is the case Aguaytia Energy LLC v Republic of Peru (2008),
which concerned an alleged breach of contract by the host state.172 As the parties had not
agreed on the applicable law, the tribunal stated that ‘basically the laws of the Republic of
Peru shall apply together with such rules of international law as may be applicable’.173 In
any event, the parties did not dispute the primary applicability to the contract of the
Peruvian Civil Code, especially seeing the consistency between national and international law. Counsel for the applicant stated: ‘We submit that Peruvian law, properly
understood and applied, and international law lead to the same conclusion, so the issue is
really of limited currency.’174 With this in mind, the tribunal ‘reached the conclusion
that for the resolution of this dispute it need not look beyond Peruvian law’.175 On the
merits, the arbitrators referred to and quoted extensively from different expert opinions
on the exact meaning of relevant provisions on Peruvian law.176
With respect to the Iran–United States Claims Tribunal, it has been observed that
national law has played a limited role in its jurisprudence.177 According to Crook, the
seeming reluctance to apply national law should be seen in light of the generally tense
nature of US-Iranian relations.178 Indeed, he opines, ‘the sometimes strained
169 Desert Line Projects, at para. 194.
170 Desert Line Projects, at para. 205.
171 Desert Line Projects, at paras 205–207. See also S.A.R.L. Benvenuti & Bonfant v People’s Republic
of the Congo, ICSID Case No. ARB/77/2, Award, 8 August 1980, at para. 4.64 (‘This principle of
compensation in case of nationalization is in accordance with the Congolese Constitution and
constitutes one of the generally recognized principles of international law as well as of equity’);
Compañía del Desarrollo de Santa Elena, S.A. v Republic of Costa Rica, ICSID Case No. ARB/96/1,
Award, 17 February 2000, rectified 8 June 2000 (L.Y. Fortier, E. Lauterpacht, P. Weil, arbs), para. 64
(before proceeding to apply international law to the claim at hand, the tribunal noted that it was
‘satisfied that the rules and principles of Costa Rican law which it must take into account, relating to
the appraisal and valuation of expropriated property, are generally consistent with the accepted
principles of public international law on the same subject’).
172 Aguaytia Energy LLC v Republic of Peru, ICSID Case No. ARB/06/13, Award, 11 December
2008 (R. Briner, J.W. Rowley, C. von Wobeser, arbs).
173 Aguaytia v Peru, at para. 71.
174 Aguaytia v Peru, at para. 72. See also para. 73 (counsel for the respondent stated: ‘The question
is, does it matter, and maybe for different reasons both Parties are of the view that it does not ultimately
matter because Peruvian law applies here, and it is consistent in all material respects with international
law’).
175 Aguaytia v Peru, at para. 74.
176 Aguaytia v Peru, at para. 78 et seq.
177 J.R. Crook, ‘Applicable Law in International Arbitration: The Iran–U.S. Claims Tribunal
Experience’ (1989) 83 Am. J. Int’l L. 278, 297 (‘[N]ational law has played a limited role in the
Tribunal’s jurisprudence’).
178 Crook, ‘Applicable Law in International Arbitration’, at 310.
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Arbitral Practice

291

atmosphere of the Tribunal itself, [has] perhaps stimulated recourse to solutions that do
not give predominance to the law of either arbitrating party.’179 A similar observation is
made by Brower and Brueschke:
Perhaps surprisingly, where gaps or ambiguities have existed in contracts that could not be
resolved by reference or analogy to the terms of the contract itself, the Tribunal rarely has turned
to either Iranian or United States municipal law. This reflects a reluctance on the part of the
Tribunal to place one party’s municipal law above the other’s.180

Relatedly, Judge Mosk, in his dissenting opinion to the award in Harnischfeger Corp. v
Ministry of Roads and Transportation, et al. (1985), observed:
I recognize that it is not always necessary to discuss the source of the law utilized, even when
multiple jurisdictions are involved. It may be difficult for the Tribunal to obtain any consensus
on the appropriate source of the legal principles applied. Often the parties do not raise any choiceof-law questions. Moreover, under Article V of the Claims Settlement Declaration, the Tribunal
has great flexibility in its choice of law. Accordingly, the Tribunal sometimes has rejected the
application of municipal law and has applied general principles of law.181

While it is true that the tribunal has more often than not relied on the contract at issue
and public international law, including in particular general principles of law,182 it
should be emphasized that it has repeatedly called attention to the consistency that
exists between international law and national law. It is partly on the basis of such
practice that Crook draws the conclusion that counsel might have greater success if it
were to rest arguments upon rules that have received wide international acceptance, or
that can be shown to be general principles of law accepted by many legal systems.183
Further, he suggests, where conflict-of-laws arguments are appropriate, ‘it is advantageous to be able to show a “false conflict,” where all relevant conflict rules produce the
same result’.184
By way of example, we may refer to the interlocutory award in American Bell
International Inc. v Iran, et al. (1984).185 A pertinent issue in that case was whether
the respondent could rely on a clause in the contract that allegedly would limit its
liability. The tribunal rejected this, finding that ‘under principles of law acknowleged
[sic] in many legal systems, limitation-of-liability clauses in general will not be given
effect for a specific default when that default arose through an intentional wrong or
179 Crook, ‘Applicable Law in International Arbitration’. See also P. Bellet, ‘Foreword: Symposium,
The Iran–United States Claims Tribunal’ (1986) 16 Law Pol’y Int’l Bus. 667, 673; A. Avanessian, The
Iran–United States Claims Tribunal in Action (London, Graham & Trotman/Martinus Nijhoff, 1993),
248; C.N. Brower and J.D. Brueschke, The Iran–United States Claims Tribunal (The Hague, Nijhoff,
1998), 662–4, 169–71 (referring to the physical assault by Iranian judge Kashani on Swedish judge
Mangård, 3 September 1984); R. Briner, ‘The Iran–United States Claims Tribunal and Disputes
Involving Sovereigns’ (2002) 18(3) Arb. Int’l 299, 301; A.H. Hermann, ‘Disputes between States and
Foreign Companies’ in Contemporary Problems in International Arbitration (J.D.M. Lew, ed., London,
Centre for Commercial Law Studies, 1986), 250, 251; Toope, fn. 64, at 358–9. For correspondence
concerning the physical assault on Judge Mangård, see R. Briner, ‘The Appointing Authority’ in The
Iran–United States Claims Tribunal and the Process of International Claims Resolution (D.D. Caron and
J.R. Crook, eds, Ardsley, NY, Transnational Publishers, 2000), 157, 175 (Documents 12-1).
180 Brower and Brueschke, fn. 179, at 637.
181 Harnischfeger Corp. v Ministry of Roads and Transportation, fn. 7, Award, Dissenting Opinion of
Judge R.M. Mosk, 8 Iran–U.S. C.T.R. 119, 140–1.
182 Harnischfeger Corp, at 310 (‘In lieu of applying national law, the Tribunal has regularly looked
elsewhere for legal principles common to the parties or to international commercial conduct’).
183 Harnischfeger Corp, at 311.
184 Harnischfeger Corp (references omitted).
185 American Bell v Iran, fn. 7, Interlocutory Award.
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292 Concurrent Application of and Reference to National and International Law
gross negligence on the part of the one invoking the limitation’.186 It added that ‘[i]t
would appear that the law governing the contracts in question [i.e. Iranian law] takes
that position’.187
At a subsequent stage in the proceedings, the claimant contended that the actions by
Iran constituted expropriation under international law for which Iran was responsible.188 On its part, the respondent argued that the acts in question did not amount to
expropriation or usurpation under Iranian law, the governing law of the contracts.189
The tribunal stated:
[I]n the circumstances of the present case there is no need to discuss the applicable law at length.
Where, as here, both the purpose and effect of the acts are totally to deprive one of funds without
one’s voluntarily given consent, the finding of a compensable taking or appropriation under any
applicable law—international or domestic—is inevitable, unless there is clear justification for the
seizure.190

Another example of how the Iran-US Claims Tribunal relies on and cites sources of
both a national and an international nature is Benjamin R. Isaiah v Bank Mellat (1983):
Restitutionary theories such as unjust enrichment and enrichissement sans cause are found in the
laws of many nations. See J. Dawson, Unjust Enrichment: A Comparative Analysis (1951). In
Iranian law, Articles 301 and 303 of the Civil Code provide as follows [ . . . ]. In international law
unjust enrichment is an important element of state responsibility. See 8 Whiteman, Digest of
International Law 1035–36; 1 Schwarzenberger, International Law 577–79 (3rd ed.).191

Finally, reference is made to the case of Morrison-Knudsen Pacific Limited v Ministry of
Roads and Transportation (MORT) and Iran (1984).192 In that case, the respondents
argued that the right to terminate the contract, as provided by its article 16, was the
exclusive remedy for any delayed performance by MORT.193 The tribunal objected to
this contention on the basis that it was raised in an untimely manner.194 However, it
went on to state that, in any event, the termination provision was not exclusive; and
that as a general principle of law, a party may recover for losses suffered as a consequence of contract breach irrespective of whether a right also exists to terminate the
contract.195 It added that ‘[n]othing in Iranian law has been called to the Tribunal’s
attention that contradicts this general legal principle’.196

186 American Bell v Iran, at section IV, para. 6.
187 American Bell v Iran, at fn. 5.
188 American Bell v Iran, Award, 19 September 1986, at para. 149.
189 American Bell v Iran, at para. 149.
190 American Bell v Iran, at para. 150.
191 Benjamin R. Isaiah v Bank Mellat, Award, 30 March 1983, at section IV.
192 Morrison-Knudsen Pacific Limited v Ministry of Roads and Transportation (MORT) and Iran,
Award, 13 July 1984.
193 Morrison-Knudsen, at section III(1).
194 Morrison-Knudsen, at section III(3)(b).
195 Morrison-Knudsen, at section III(3)(b).
196 Morrison-Knudsen, at section III(3)(b). For other awards in which the tribunal referred to
consistency between national and international law, see, e.g., Dic of Delaware, et al. v Tehran Redevelopment Corp. et al., Award No. 176-255-3, Award, 26 April 1985, at section B(1); R.N. Pomeroy v Iran,
Award, 8 June 1983, at section V(1); and Concurring Opinion of Judge R.M. Mosk; Oil Field of Texas,
Inc. v Iran, National Iranian Oil Company, Oil Service Company of Iran, Interlocutory Award, 9
December 1982, 1 Iran–U.S. C.T.R. 347, 361–2 (1982); Bendone-DeRossi Int’l v Iran, 11 March
1988, Concurring Opinion, H.M. Holtzmann, Award No. 352-375-1, at section II; and Concurring
Opinion of Judge A. Noori.
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General Conclusions

293

In sum, also in situations where tribunals do not solve the dispute through a
consecutive or concurrent application of national and international law, they often
reconcile the two legal orders by pointing out any consistency that may exist.

3. General Conclusions
In this chapter, we saw that investment tribunals of both a territorialized and internationalized nature frequently apply or refer to national and international law in
resolving the dispute at hand. This choice-of-law methodology reflects the common
practice by the disputing parties to invoke and rely on provisions from both legal
orders; and hence it also instances the simultaneous applicability of both national and
international law to the investor–state relationship.
Moreover, we discussed the tendency of arbitral tribunals to refer to consistency
between the two legal orders. This methodology contrasts with the focus placed in
previous chapters on the primary application of either national or international law.197
Naturally, the foreign investor and the host state each favour the application of the legal
order that best protects its own interest; and any decision on the applicable law may
therefore cause discord. With this in mind, it is not surprising that arbitrators seek to
accommodate the interests of both parties by pointing to consistency.
To conclude, it is submitted that this choice-of-law methodology can be advocated
not only on the basis that it enhances the legitimacy of the award for the disputing
parties; in seeking and, if possible, emphasizing the concord that frequently exists
between national and international law it also contributes to a more harmonious
outlook on the relationship between the legal orders.

197 See Chapter 5, Section 2 (on reasons for the primary applicability of national law); Chapter 6,
Section 2 (on reasons for the primary applicability of international law).

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8
Concluding Observations
While on occasions writers and decisions have tended to consider the application
of domestic law or international law as a kind of dichotomy, this is far from being
the case. In fact, both have a complementary role to perform and this has begun
to be recognized.1

In this study, we set out to analyse the interplay between national and international law
as the law applied to the merits in arbitral proceedings between foreign investors and
host states. To this end, we first sought to determine the nature of the arbitral tribunals
(Chapter 2).2 This enabled us to conclude, in Chapters 2 and 3, that for their choiceof-law methodology, one category of tribunals—territorialized tribunals—operates
pursuant to the national framework provided by the state in which they are seated.3
These tribunals include those set up pursuant to various arbitration rules, such as the
UNCITRAL Arbitration Rules,4 the London Court of International Arbitration
(LCIA) Arbitration Rules,5 and the ICSID Additional Facility Rules.6 The other
category—internationalized tribunals—i.e., ICSID tribunals and the Iran–United
States Claims Tribunal, are grounded in the international legal order; and consequently, these tribunals need to look to the choice-of-law rules set out in their constituent documents as well as general rules of international law.7
Amongst our central findings was the observation in Chapter 3 that states, in their
national arbitration laws as well as in treaties promulgated on the international level in
the form of the ICSID Convention8 and the Iran–United States Claims Settlement
Declaration,9 grant the disputing parties and the arbitrators considerable flexibility as to
the applicable law. More specifically, the parties may stipulate the application of either
national or international law; and as a rule, an agreement to the combined application
of national and international law is respected.10 Where there is no choice-of-law
1 Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No. ARB/01/3,
Award, 22 May 2007 (F. Orrego-Vicuña, A.J. van den Berg, P.-Y. Tschanz, arbs), para. 207 (references
omitted). See also Sempra Energy International v Argentine Republic, ICSID Case No. ARB/02/16,
Award, 28 September 2007 (F. Orrego Vicuña, M. Lalonde, S. Morelli Rico, arbs), para. 236.
2 Chapter 2 (on territorialized and internationalized arbitration tribunals).
3 Chapter 3, Section 2 (on the linkage between lex arbitri and choice-of-law methodology).
4 UNCITRAL Arbitration Rules (as revised in 2010).
5 London Court of International Arbitration (LCIA) Arbitration Rules (effective 1 January 1998).
6 ICSID Additional Facility Rules (as amended and in effect from 10 April 2006).
7 See Chapter 3, Section 2 (on the linkage between lex arbitri and choice-of-law methodology).
8 The (ICSID/Washington) Convention on the Settlement of Investment Disputes between States
and Nationals of Other States, opened for signature 18 March 1965, 17 U.S.T. 1270, 4 I.L.M. 524.
9 For the text of the Algiers Accords, including the Declaration of the Government of the
Democratic and Popular Republic of Algeria (General Declaration) and the Declaration of the
Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims
by the Government of the United States of America and the Government of the Islamic Republic of
Iran (Claims Settlement Declaration), see 1 Iran–U.S. C.T.R. 3 (1981–2).
10 See Chapter 3, Section 3.1.1 (the parties may stipulate the application of national and/or
international law).
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Concluding Observations

agreement, the tribunals can generally apply national and/or international law.11
Accordingly, this latter situation closely resembles that in which the parties have
made an agreement for the application of national and international law: in both
cases the tribunals may apply both/either national and/or international law.12
As was seen, this flexible framework, which is also reflected in arbitration rules
adopted by institutions such as the Stockholm Chamber of Commerce13 and the Dubai
International Arbitration Centre,14 frequently results in a situation in which norms
from national and international law are prima facie applicable to the investment
dispute. Importantly, this is so regardless of whether the tribunal in question operates
in the international legal order; or whether it is subject to the national law of its juridical
seat. In this respect, investment tribunals distinguish themselves from national and
international courts, as the latter have less occasion to apply international or national
law, respectively.15
The flexibility that the parties and the arbitrators enjoy as to the applicable law can
be placed in the context of a global development whereby states seek to stimulate and
attract international commercial arbitration as a form of dispute resolution, and thereby
also commercial activity, such as foreign investment.16 Indeed, the lack of restrictions
placed on the arbitral process encompasses all stages of the proceedings; and it is
compounded by the deference granted to tribunals by national courts and ad hoc
committees at the annulment and enforcement stage.17
Procedural flexibility, finality, and enforceability of decisions are attractive features of
all systems of dispute resolution. Yet, in investment arbitration, lack of restrictions as to
the application of national and international law takes on added significance in light of
the concurrent relevance of both sources of law to the investor–state relationship.18
Judging from our examination of awards, it is clear that any other choice-of-law rule,
vetoing the possibility of arbitrators to apply either national or international law, would
be under-inclusive.19 It is for that very reason that the applicable law provision in the
UNCITRAL Arbitration Rules was revised in order to enable the parties, and in default
of their agreement, the arbitrators to decide on the application of national and/or
international law to the various disputes.20
At the same time, an inherent attribute of flexibility is ambiguity.21 Such ambiguity
comes to a forefront when we consider the often dissonant arguments by the parties as

11 See Chapter 3, Section 3.2.2 (on the (non-) applicability of national and international law).
12 See Chapter 3, Section 4 (general conclusions).
13 Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (2007).
14 Dubai International Arbitration Centre (DIAC) Arbitration Rules (2007).
15 See Chapter 1, Section 1 (on motivations for the study); Chapter 3, Section 3.2.3 (interim
conclusions).
16 See Chapter 2, Section 3.3 (on the influence of the delocalization theory on state practice).
17 See Chapter 2, Section 3.3; Chapter 2, Section 4 (on internationalized tribunals); Chapter 3,
Section 2 (on the linkage between lex arbitri and choice-of-law methodology).
18 See Chapter 1, Section 1 (on motivations for the study); Chapter 3, Section 3.2.2 (on the (non-)
applicability of national and international law).
19 See Chapter 3, Section 3.2.3 (interim conclusions).
20 UNCITRAL Arbitration Rules (2010), art. 35. Cf. UNCITRAL, Report of the Working Group
on Arbitration and Conciliation on the work of its forty-seventh session, Vienna, 10–14 September
2007, 25 September 2007, A/CN.9/641, at para. 111. See also Chapter 3, Section 3.1.1 (the parties
may stipulate the application of national and/or international law); Chapter 3, Section 3.2.2 (on the
(non-) applicability of national and international law).
21 Cf. J.D.M. Lew, ‘Proof of Applicable Law in International Commercial Arbitration’ in Festschrift
für Otto Sandrock zum 70. Geburtstag (K.P. Berger et al., eds, Heidelberg, Recht und Wirtschaft,
2000), 581, 599.
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Concluding Observations

297

to the application of national or international law.22 It is a characteristic of any dispute
that the opposing parties invoke the rules that best protect their respective interests.
Thus, while foreign investors may advocate the application of international law in cases
where its provisions contain a higher degree of protection, the host state may insist on
the application of its own national law not only to retain control over the investment or
investor in question, but also to make a (political) statement on the satisfactory quality
of its laws.23
With this in mind, a study of investment arbitration is bound to constitute a
stimulating ‘field trip’ for anyone interested in and attempting to create a sense of
structure as concerns the interplay between the national and the international legal
order. Our examination of scholarship and practice revealed several organizing considerations that have been suggested and applied in order to guide tribunals in their
application of national and/or international law. In brief, both territorialized and
internationalized tribunals will follow one of the following approaches, depending on
the scope of the arbitration agreement and the nature of the claims set forth by the
parties:24 they can primarily apply (i) national25 or (ii) international26 law to the merits;
or they can apply (iii) both national and international law successively or concurrently.27 Another possibility is (iv) primarily to apply national law, while at the same
time referring to consistency with international law;28 or they may (v) primarily apply
international law, but also point out consistency with national law.29
The use of the adverb ‘primarily’ serves to indicate that a decision by the tribunal
that national law applies does not exclude a role for international law and vice versa.
This is partly a consequence of our observation in Chapter 3 that choice-of-law rules
are designed to balance the interests of the parties with those of a particular state or the
international community as a whole.30 To this effect, they differ between three
situations: whether the parties have agreed on the applicable law, or not; and whether
there is a fundamental national or international norm that needs protection.31 As was
amply demonstrated in the foregoing chapters, the aforementioned scheme may result
in a rather intricate interplay between national and international law. Where national
law is primarily applicable (Chapter 5), international law may be applied or given effect
(a) in an indirect manner as part and parcel of the applicable national law or through
international-law-friendly interpretation.32 Since international law applies as function
of the national law itself, this form of interplay is less likely to undermine host state
sovereignty than (b) the corrective role that international law may play where a relevant
national norm conflicts with an international norm of a fundamental nature.33

22 See Chapter 1, Section 1 (on motivations for the study); Chapter 7, Section 1 (introduction).
23 See Chapter 1, Section 1 and Chapter 7, Section 1. Cf. C. Schreuer, ‘Failure to Apply the
Governing Law in International Investment Arbitration’ (2002) 7 Austrian Rev. Int’l & Eur. L. 147.
24 See Chapter 4, Section 2 (on characterization: the national or international nature of claims);
Chapter 4, Section 3 (on the scope of the arbitration agreement: national and/or international claims).
25 See Chapter 5, Section 2 (on reasons for the primary applicability of national law).
26 See Chapter 6, Section 2 (on reasons for the primary applicability of international law).
27 See Chapter 7, Section 2.1 (on the concurrent application of national and international law and
reference to consistency).
28 See Chapter 7, Section 2.2 (reference to consistent national and international law).
29 See Chapter 7, Section 2.2.
30 See Chapter 3, Section 3 (on fundamental national and international norms).
31 See Chapter 3, Section 3.
32 See Chapter 5, Section 3.1 (on the indirect application of international law).
33 See Chapter 5, Section 3.2.2 (on the supervening role of international law). International law can
also play a corrective role by filling lacunae in the national legal order. It is emphasized, however, that
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Concluding Observations

By reason of this corrective role, we concluded that while national law may be of
sequential primacy, it is not necessarily hierarchically superior; and this is the case for
territorialized and internationalized tribunals alike.34 It is noted, though, that the
corrective function of international law has a different basis for internationalized
tribunals than for territorialized tribunals. For the former, fundamental rules of
international law must be respected by virtue of the fact that they constitute the
ordre public of the international legal order in which the tribunals operate.35 Territorialized tribunals ought to observe similar norms because they form part of the international public policy of their juridical seat or the state in which enforcement will be
sought.36 Still, since domestic international public policy commonly encompasses (the
same normative content as) fundamental rules of international law, this may often, but
not always, constitute a distinction with more academic than practical relevance.37
When international law is primarily applicable (Chapter 6), the international cause of
action may necessitate an indirect application of national law in order to determine the
parties’ rights and obligations pursuant to that law, such as in cases involving expropriation and ‘umbrella’ clause claims.38 It is inaccurate to characterize the role of national
law in these cases as that of facts: national norms are indeed applied, albeit as a constituent
element of an international claim.39 The necessity to resort to national law in these cases is
evidenced by an increased willingness by investment treaty tribunals explicitly to recognize the relevance of that law.40 Further, in some cases, national law may be used in a
complementary or supervening manner; and we also saw the important role national law
can play at the jurisdictional stage in treaty arbitration.41 Whereas in this latter case
national law is not applied to the merits, and thereby does not fall within the exact scope
of this study, this feature is still noteworthy in that it may counterweigh the otherwise
comparatively limited role of national law in treaty arbitration.
While the primary application of either national or international law by virtue of the
rule of party autonomy is widely accepted,42 the situation in which there are two
potentially applicable leges causae is inherently subject to more debate. Amongst the
approaches taken in jurisprudence and scholarship, we found that tribunals may give
primacy to and apply norms from one legal order. As observed in Chapter 5, factors
that have been offered in favour of the primary applicability of national law are (i) host
state territorial sovereignty over the investor/investment in question, and (ii) the
nowadays, most national legal systems are so advanced that the question of lacunae will rarely occur.
See Chapter 5, Section 3.2.1.
34 This observation may explain the comment by Schwebel that ‘it appears to be assumed that
international arbitral tribunals, including those sitting between states and aliens, are “monist” rather
than “dualist” in the place they accord to international law’. S.M. Schwebel, International Arbitration:
Three Salient Problems (Cambridge, Grotius, 1987), 140.
35 See Chapter 3, Section 3.3 (on fundamental national and international norms); Chapter 5,
Section 3.2.2.1 (the parties have agreed to the sole application of national law).
36 See Chapter 3, Section 3.3; Chapter 5, Section 3.2.2.1.
37 See Chapter 3, Section 3.3; Chapter 5, Section 3.2.2.1.
38 See Chapter 6, Section 3.1 (on the indirect application of national law).
39 See Chapter 6, Section 3.1.3 (national provisions as facts or law).
40 Cf. G.A. Alvarez and S. Montt, ‘Investments, Fair and Equitable Treatment, and the Principle of
“Respect for the Integrity of the Law of the Host State”: Towards a Jurisprudence of “Modesty” in
Investment Treaty Arbitration’ in Looking to the Future: Essays in Honor of W. Michael Reisman
(M.H. Arsanjani et al., eds, Leiden, Nijhoff, 2011), 579, 600.
41 See Chapter 6, Section 3.2 (on the corrective role of national law).
42 See Chapter 3, Section 3.1.1 (the parties may stipulate the application of national and/or
international law); Chapter 5, Section 2.1 (on party agreement on the application of national law);
Chapter 6, Section 2.1 (on party agreement on the application of international law).
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Concluding Observations

299

national nature of the particular claim or counterclaim.43 In Chapter 6, we noted that
primacy has been given to international law on the basis of either (a) the international
nature of the claim at hand or (b) the professed supremacy of international law vis-à-vis
national law.44
It is worthy of special emphasis that there does not appear to be a marked difference
in the approach of territorialized and internationalized tribunals in their decision on the
primary applicability of either national or international law. For instance, ICSID
tribunals have frequently found national law primarily to apply on account of considerations of host state sovereignty,45 and territorialized tribunals have considered international law to be of primary applicability on the basis of a (perceived) superiority of
international law vis-à-vis national law.46 While national courts often apply international law,47 the practice of internationalized tribunals of interpreting and applying
national law is relatively unique. Alvik comments: ‘the novel aspect here lies in the
application of municipal law by international tribunals (instead of vice versa) [ . . . ].
[F]or investment tribunals, municipal law is not an incidental part of the factual
background of the case, but an integrated part of the applicable law.’48 To him,
ICSID tribunals can in fact be perceived not solely as ‘agents of international law’,
but also as ‘substitutes for municipal courts with an independent responsibility to apply
municipal law instead of, and in the place of, the otherwise competent municipal
courts’.49 Paulsson’s recommendation that investment tribunals give full effect to their
mandate of applying national law, to the point where they—much as courts of first and
last instance50—may strike down ‘unlawful laws’ without reference to international law
by broadly construing the concept of national law,51 even hints at a converse form of
dédoublement fonctionnelle in the sense suggested by Scelle,52 whereby the role
of investment tribunals can be compared to that of agents of the national legal order
of the host state.53

43 Chapter 5, Section 2 (on reasons for the primary applicability of national law).
44 Chapter 6, Section 2 (on reasons for the primary applicability of international law).
45 See Chapter 5, Section 2.2 (on host state sovereignty and territorial control over foreign investors
and investments).
46 See Chapter 6, Section 2.3 (on the superior nature of international law vis-à-vis national law).
47 See Chapter 1, Section 1 (on motivations for the study).
48 I. Alvik, ‘The Hybrid Nature of Investment Treaty Arbitration: Straddling the National/
International Divide’ in The New International Law: An Anthology (C.C. Eriksen and
M. Emberland, eds, Leiden, Nijhoff, 2010), 91, 94.
49 I. Alvik, ‘The Hybrid Nature of Investment Treaty Arbitration’, at 95. One possible comparison
can be made with internationalized or hybrid criminal courts/tribunals. Cf. W.W. Burke-White,
‘International Legal Pluralism’ (2004) 25 Mich. J. Int’l L. 963, 976–7 (‘Such courts are generally
established based on an agreement between a national government and the United Nations that
provides for the enforcement of international criminal law, while allowing the national government
some discretion with respect to judicial personnel, procedure, and even the applicable law’ [references
omitted]).
50 See Chapter 1, Section 1 (on motivations for the study) (investment tribunals function as ‘onestop shops’).
51 J. Paulsson, Unlawful Laws and the Authority of International Tribunals (Lalive Lecture, Geneva,
27 May 2009) (2008) 23(2) ICSID Rev.-FILJ 215.
52 G. Scelle, II Précis de droit des gens: principes et systématique (Paris, Recueil Sirey, 1934), 10–12;
G. Scelle, ‘La phénomène juridique de dédoublement fonctionnel’ in Rechtsfragen der Internationalen
Organisation: Festschrift für Hans Wehberg zu seinem 70. Geburtstag (Frankfurt, Klosterman, 1956),
324. Cf. A. Cassese, ‘Remarks on Scelle’s Theory of “Role Splitting” (dédoublement fonctionnel) in
International Law’ (1990) 1(1) Eur. J. Int’l L. 210.
53 See Chapter 5, Section 3.2.2.1 (on situations in which the parties have agreed to the sole
application of national law).
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Concluding Observations

Of the factors that are used to decide on the primary applicability of national or
international law, those that involve theories of (sequential) hierarchy are inherently
more value-laden and partial, as they—at least prima facie and from the point of view of
the parties—may be seen to favour the position of the host state or the foreign
investor.54 It is suggested therefore, that the preferred method is to rely on the nature
of the claim, rather than host state sovereignty and a professed superiority of international law vis-à-vis national law. Not only does the choice-of-law technique of
characterization benefit from more objectivity;55 allowing the parties to invoke the
provision that is most favourable to them—be it national or international in nature—is
more efficacious from an enforcement perspective. This method is also less complex
and consequently more predictable, in that it significantly curtails the need for ‘escape
clauses’ in the form of complementary and supervening roles for either international56
or national law,57 respectively. In fact, arbitral practice indicates that both territorialized
and internationalized tribunals now favour the characterization approach. The ICSID
Tribunal stated in Duke Energy Electroquil Partners & Electroquil S.A. v Republic of
Ecuador (2008): ‘The question is not about the preeminence of one rule over the other
but about applying the relevant rule depending on the type of norm that has been
breached. It is the tribunal’s task to identify the specific rules that dictate the consequences for each of these breaches.’58
In this context, it is notable that many investment treaties, in a non- or variable
hierarchical fashion, explicitly allow the foreign investor to invoke the norm—national
or international—that offers the best protection. The Austria–Libya BIT, for instance,
stipulates:
If the laws of either Contracting Party or obligations under international law existing at present or
established hereafter between the Contracting Parties in addition to the present Agreement
contain rules, whether general or specific, entitling investments by nationals or enterprises of
the other Contracting Party to a treatment more favourable than is provided for by the present
Agreement, such rules shall to the extent that they are more favourable prevail over the present
Agreement.59

This focus on the quality rather than the origin of the norm resonates with judicial and
scholarly developments in other areas of law such as human rights. Especially in the
54 Cf. J.H. Jackson, ‘Sovereignty-Modern: A New Approach to an Outdated Concept’ (2003) 97
Am. J. Int’l L. 782, 783 (‘National government leaders and politicians, as well as special interest
representatives, too often invoke the term “sovereignty” to forestall needed debate. Likewise, international elites often assume that “international is better” (thus downplaying the importance of
sovereignty) and this is not always the better approach’).
55 See Chapter 4, Section 2 (on characterization: the national or international nature of claims).
56 See Chapter 5, Section 3.2 (on the corrective application of international law).
57 See Chapter 6, Section 3.2 (on the corrective application of national law).
58 Duke Energy Electroquil Partners & Electroquil S.A. v Republic of Ecuador, ICSID Case No. ARB/
04/19, Award, 18 August 2008 (G. Kaufmann-Kohler, E.G. Pinzón, A.J. van den Berg, arbs), para.
441. But see A. Kulick, ‘The Integration of International Investment Law’ (2010) 23 Hague Yearbook
of International Law 171, 172 (Kulick concludes that ‘recent investment case law describes the legal
order applicable in investment disputes as a specific mélange of domestic and international law that
defines a clear-cut hierarchy of the two sources from which it draws, with international law at the top’).
59 Austria–Libya BIT, art. 8(2) (emphasis added). See also Netherlands–Czech BIT, art. 3(5).
Cf. Antoine Goetz and others v Republic of Burundi, ICSID Case No. ARB/95/3, Award (embodying the
parties’ Settlement Agreement), 10 February 1999, (P. Weil, M. Bedjaoui, J.-D. Bredin, arbs), paras
95, 99. See Chapter 5, Section 3.2.2.2 (the parties have agreed to the combined application of national
and international law or there is no agreement); Chapter 6, Section 3.2.2 (on the supervening role of
national law); Chapter 7, Section 2.1 (on concurrent application of national and international law and
reference to consistency).
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Concluding Observations

301

wake of the Kadi decision rendered by the European Court of Justice,60 scholars have
voiced the ‘need to qualify and refine the sacred principle of supremacy of international
law’ where national law offers better protection.61 Thus to Peters, ‘what counts is the
substance, not the formal category of conflicting norms.’62
A separate commendable method, next to characterization, was discussed in Chapter
7. There we observed that frequently, the relevant norms of national and international
law do not conflict. In such cases, territorialized and internationalized tribunals
habitually emphasize such normative convergence either when applying both systems
of law concurrently or consecutively,63 or when primarily applying national or international law.64 The repeated reliance by arbitrators on consistency, also in cases in
which it would—at least in theory—be possible to decide the case on the basis of solely
one legal order, not only demonstrates the importance arbitrators place on reaching a
balanced solution to the dispute with respect to the applicable law; it also corroborates
the relevance of both legal orders in the field of investment law and manifests that their
application is not reciprocally exclusive. While fairness is a hallmark of all dispute
resolution systems attempting to ‘do justice’, the following remark by Mayer recalls
the origin of the word ‘compromise’ and suggests that it might play a comparatively
more important role in arbitration in general, and in proceedings involving states in
particular:
It is also frequently said (Cicero shared that view) that arbitrators would be more inclined than
judges to go halfway, to find a compromise which would not entirely dissatisfy any party. Threemember arbitral tribunals would be particularly prone to adopt such an attitude. There is
certainly an element of truth in this remark, particularly as regards cases involving relationships
between states, thus necessarily introducing a diplomatic perspective.65

In conclusion, whereas the starting point of national and international courts is national
or international law, respectively, both territorialized and internationalized arbitral
tribunals settling disputes between foreign investors and host states are generally
freed from such (constitutional) restrictions, and may ascertain the more appropriate
law on the basis of more liberal considerations. In view of that, it is posited that we may,

60 Joined Cases C-402/05P and C-415/05P, Kadi v Council of the European Union [2009] AC
1225.
61 See A. Nollkaemper, ‘Rethinking the Supremacy of International Law’ (2010) 65 Zeitschrift für
öffentliches Recht 65, 83; A. von Bogdandy, ‘Pluralism, Direct Effect, and the Ultimate Say: On the
Relationship Between International and Domestic Constitutional Law’ (2008) 6 Journal of International Constitutional Law 397, 398.
62 A. Peters, ‘Supremacy Lost: International Law Meets Domestic Constitutional Law’ (2009) 3
Vienna Online Journal on International Constitutional Law 170, 197. See also W.M. van Gerven,
‘Plaidoirie pour une nouvelle branche du droit: le “droit des conflits de règles”’ (2011) 350 Recueil des
Cours 9, 69 (conférence inaugurale, session de droit international privé).
63 See Chapter 7, Section 2.1 (on concurrent application of national and international law and
reference to consistency).
64 See Chapter 7, Section 2.2 (on reference to consistent national and international law).
65 P. Mayer, ‘Reflections on the International Arbitrator’s Duty to Apply the Law’ in Arbitration
Insights: Twenty Years of the Annual Lecture of the School of International Arbitration (J.D.M. Lew and
L.A. Mistelis, eds, Alphen aan den Rijn, Kluwer Law International, 2007), 289, 298, para. 15–46. The
word ‘compromise’ has its origin in the Old French compromis, from late Latin compromissum
(‘a consent to arbitration’) Oxford English Dictionary (Oxford, Oxford University Press, 2005). See
also Center for International Legal Studies (CILS), ‘Second Biennial Conference on International
Arbitration and ADR Salzburg Austria 20–23 June 2002’ (2001) 14(4) Leiden J. Int’l L. 957, 958
(‘Determining the applicable law becomes a Gordian knot where with the arbitral rules, party
autonomy, the lex arbitri, the public policy and mandatory rules of “interested” jurisdictions, and
arbitrators’ Solomonic inclinations interact’ [emphasis added]).
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Concluding Observations

in the area of investment arbitration, perceive of a development away from the
traditional hierarchical doctrines of dualism and monism with their frequent focus on
conflict,66 in the direction of a system of ‘complementarity’ or even ‘mutualism’.67
According to this postulate, the two legal orders do not only coexist and may be applied
simultaneously; they are also interdependent, each complementing and informing the
other both indirectly and directly for a larger common good: enforcement of rights and
obligations regardless of their national or international origin. To end with the
visionary statement by Mann from 1959:
It is no longer attractive to suggest that international law and private international law, respectively, have fields of application which are clearly and perhaps even inflexibly defined and which
are determined by a priori or conceptualist reasoning [ . . . ]. Both branches of the law are branches
of the same tree. They apply in conformity with the demands of reasonable justice and practical
convenience. They overlap and pervade each other [ . . . ].68

66 See Chapter 1, Section 1 (on motivations for the study); Chapter 5, Section 3.2.2 (on the
supervening role of international law); Chapter 6, Section 2.3 (on the superior nature of international
law vis-à-vis national law).
67 Cf. Goetz v Burundi, fn. 59, Award, at paras 97–98 (portraying the relationship between national
and international law as ‘complementary’); Alvik, fn. 48, at 97; Alvik, Contracting with Sovereignty
(2011), 3, 5; T. Buergenthal, ‘Proliferation of International Courts and Tribunals: Is it Good or Bad?’
(2001) 14 Leiden J. Int’l L. 267, 270; C. Chinkin, ‘Monism and Dualism: The Impact of Private
Authority on the Dichotomy Between National and International Law’ in New Perspectives on the
Divide Between National & International Law (J. Nijman and A. Nollkaemper, eds, Oxford, Oxford
University Press, 2007), 134, 157.
68 F.A. Mann, ‘The Proper Law of Contracts Concluded by International Persons’ (1959) 35 Brit.
Y.B. Int’l L. 34, 56.

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Index
Introductory Note
References such as ‘138–9’ indicate (not necessarily continuous) discussion of a topic across a range of
pages. Wherever possible in the case of topics with many references, these have either been divided into
sub-topics or only the most significant discussions of the topic are listed. Because the entire volume is
about ‘applicable law’ and ‘arbitration’, the use of these terms (and certain others occurring throughout
the work) as entry points has been restricted. Information will be found under the corresponding
detailed topics.
Abu Dhabi 190
ad hoc committees 56–7, 121–2, 168–9, 191,
208–9, 226–7, 246
administration of justice 128–9, 137, 147,
149, 154
administrative contracts 111, 215
administrative law 7, 13, 162, 173, 282–3, 288
admissibility 106, 131, 133, 147–50, 153–5,
192, 266
agents 2–3, 16, 55, 203, 211, 252, 299
Aikens, J. 8, 33, 58, 225
Albania 110–11, 117–18, 176, 188–9, 210
Algiers Accords 4, 19, 46, 48–9, 51, 176, 201–2
Alien Tort Claims Act (ATCA) 178
all disputes 114, 118, 134
Alvik, I. 8–9, 22, 43, 215, 256–7, 299, 302
Amerasinghe, C.F. 44–6, 54
ancillary claims 135, 139, 148, 153
ancillary questions of law 194, 210–11,
259, 270
annulment 38–40, 55–8, 119–21, 160–3,
168–70, 226–31, 251–2
as exercise of control 31–5
applicability
of national and international law 77, 82–95,
107–8, 172, 251, 262, 296
primary see primary applicability
applicable law 2–7, 13–17, 61–3, 65–6, 106–9,
123–7, 204–6 see also Introductory Note
and governing law
clauses/provisions 71–2, 80, 116, 124–5,
137–8, 223, 281–2
direct and indirect method of
ascertaining 80–2
party agreement 68–96, 158–63, 213–24
substantive 2, 4–5, 11, 16, 42, 70–1, 74
see also lex causae
arbitrability 32, 115, 205–6, 262
arbitrable claims 122, 134–9, 141
arbitral clauses see arbitration, clauses
arbitral jurisdiction 112, 162, 250 see also
jurisdiction
arbitral practice 16–17, 53, 103, 114, 131,
246, 270–1
concurrent application of/reference to national
and international law 275, 293
arbitral procedure 25, 30–1, 38, 41, 49, 262
arbitral process 9, 20–5, 27–8, 39, 43,
45–6, 112

arbitral tribunals see tribunals
arbitration see also Introductory Note
agreements 8–9, 14–16, 23–4, 27–9,
105–55, 200, 216
and counterclaims by host states 133–47
scope 112–27
awards 10, 27, 38, 40–1, 81
clauses 20, 75, 113–15, 129–30, 136, 154–5,
215–16
commercial 2, 4, 12–13, 19, 29, 64, 68
courts 31, 114 see also tribunals
forum 63, 130, 144
ICSID 21, 53, 55, 58, 97, 137, 196–7
institutionalized 21–2
investment 2, 5–6, 8–14, 19–20, 33, 108–9,
247–8
laws 26, 28, 34, 36, 50–1, 81, 83–5
proceedings 11, 14, 16, 42–3, 45–6,
128–9, 261
process 22, 27, 34, 39, 41, 112
rules 21–3, 35–6, 65–8, 77–8, 80–2, 86,
141–3, 295–6
seat of 28, 30, 36, 38, 66
tribunals see tribunals
unilateral 117, 129
with privity 113–16
without privity 20–1, 72, 117–27, 129–30,
140, 200, 225
Arbitration Institute of the Stockholm Chamber
of Commerce 4, 21, 66, 68, 83,
129, 223
arbitrators 22–8, 30–2, 34–6, 38–43, 61–7,
80–2, 271–7
international 26, 65, 73, 198–9
Argentina 109–10, 119–21, 162–3, 185–6,
230–1, 249–53, 255–6
Argentina-United States BIT 179, 247
law 7, 121, 185, 233, 243, 256, 283
assets 40, 78, 115, 127, 160, 243–4, 267–8
investor 124, 166
Austria-Libya BIT 300
authority 3, 19, 22, 33–4, 37–8, 47–8, 202–3
Avanessian, A. 47, 51, 69, 71, 95, 151, 220
awards 22–43, 48–59, 165–76, 203–11,
221–31, 241–57, 259–68
enforceability 39, 52, 96, 199, 206, 211, 264
enforcement 36, 38, 97–8, 101, 196, 260
final 159–60, 165–6, 185–6, 188–9, 231,
245–6, 287–8

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304

Index

awards (cont.)
flawed 31
floating 23, 37, 40
interest 264
interlocutory 48, 51–2, 69, 94, 127–8,
175–6, 291–2
international 33, 37, 45
nationality 29–31
non-enforcement 38, 58, 82, 105, 201
partial 165–7, 172–3, 221, 231, 233–5,
246–7, 287
recognition 27, 36–9, 96, 98, 105, 196, 199
Bangladesh 34–5
Banifatemi, Y. 2, 6, 56, 67, 72, 228–9, 238
basis of law 94
basis of respect for law 69, 93–4
Belgium-Burundi investment treaty 281–3
Belgium-Luxembourg-Burundi BIT 134–5
Ben Hamida, W. 45, 129, 131, 135–6, 140,
143–4, 251
Besson, S. 35, 63, 66, 70, 74–5, 86, 96–7
bilateral investment treaties see BITs
BITs 117–22, 124–6, 136–43, 222–5, 227–8,
230–3, 241–4 see also investment treaties
Argentina-United States 179, 247
Austria-Libya 300
Belgium-Burundi 281–3
Belgium-Luxembourg-Burundi 134–5
Canada-Costa Rica 268
Canada-South Africa 140
Croatia 255
Dutch-Polish 122
Germany-Ghana 142
Germany-Philippines 267
Greece-Romania 138
Israeli-Czech 267
Netherlands-Czech/Slovak 134, 165–6, 207,
231, 233, 246, 269
Norway 141
Paraguay-Switzerland 118
Spain-Argentina 243
Spain-Mexico 222
UK 7, 139, 227, 243
US-Estonia 134–5, 139, 141
US Model 125–6, 145, 182
Blackaby, N. 14–15, 23, 28, 39–40, 66, 72–4,
112–13
Blessing, M. 28, 65, 73, 96, 100–1, 199, 261
Bouchez, L.J. 28, 74, 83, 85, 216
bribery 100, 201–2
Brierly, J.L. 163
Brueschke, J.D. 47, 52, 93–4, 151, 264, 291
Bulgaria 159–60, 179, 265–6
burden of proof 109, 244
Burgstaller, M. 204–6
Burundi 2, 71–2, 133–4, 138, 185, 222, 281–3
Cairns, D.J.A. 100, 108, 200
Cairo Regional Centre for International
Commercial Arbitration
(CRCICA) 21, 77, 81
Calvo Doctrine 163–4

Cameroon 143, 149, 151–2, 168–9, 208,
272–4, 288–9
Canada 10, 14–15, 32, 125, 226, 271, 275
Canada-Costa Rica BIT 268
capital 115, 196, 235
Caron, D.D. 3, 13, 38, 41, 43, 47–51, 126–9
Cassese, A. 177, 194–5, 203, 299
causes of action 108, 111, 123, 197, 247, 264
international 248, 252, 298
centre of gravity 80, 83–5, 87, 96, 103,
172–3, 175
test 80, 83–5, 87, 96, 103, 172–3, 175
characterization 120–2, 141, 154, 190, 209,
258, 300–1
choice-of-law technique 16, 105, 154
claims 106–11
purposes 44, 107, 110
Chile 56–7, 164, 167, 230, 251–2, 255–6
China International Economic and Trade
Arbitration Commission
(CIETAC) 21, 25
choice-of-forum agreements 146
choice-of-law 61–103, 167, 295 see also conflict
of laws; private international law
agreements 69, 71, 103, 107, 158, 160, 172
applicable law 80–96
clauses 6, 95, 124–5, 127, 174, 206–7, 232
identical 206, 219
express and implied 71–9
fundamental national and international
norms 96–102
general conclusions 103
implicit/implied 71–9, 116, 171, 217, 240
methodology 3–4, 9–10, 16–17, 61–6,
102–3, 105, 295–6
and lex arbitri 62–7
territorialized tribunals 63, 67, 101
tribunal 63, 67, 101, 124, 170, 232
peremptory norms of international law 101–2
provisions see choice-of-law, clauses
and public policy 97–101
rules 3–4, 13–14, 16, 59, 64–103, 105–6,
295–7
international 3, 67
non-mandatory nature 65, 103
private dimension 68, 80, 87, 96, 103
term 13, 94
technique of characterization 16, 105, 154
CIETAC (China International Economic and
Trade Arbitration Commission) 21, 25
civil law
France 168–9, 289
systems 278, 286–7
civilized nations 75, 169, 217–18, 289
CJEU see Court of Justice of the European Union
claims
ancillary 135, 139, 148, 153
arbitrable 122, 134–9, 141
characterization 106–11
contract 108–11, 113–14, 116, 118–20,
146–7, 149–51, 171–6
counter- see counterclaims
domestic law 125, 239

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Index
essential basis 110, 122, 211
expropriation 116–17, 124, 126–7, 135, 146,
166, 243–4
factual and juridical connexity with
counterclaims 147–54
international 4–5, 92, 106–7, 111–12, 127,
154, 170–2
investor 106, 123, 129–30, 137, 146–7,
243–4, 263
national 112–27
non-contractual 108, 112, 114, 116, 118–19,
123, 176–80
primary 128, 147, 152–3
principal 148–50, 277
and scope of arbitration agreement 105–55
treaty 78, 108–9, 111, 118–19, 146–7,
149, 151
umbrella clause 158, 213, 249, 252–3,
273, 298
Claims Settlement Declaration, Iran-United
States see Iran-United States Claims
Settlement Declaration
classification 106, 108, 119, 171 see also
characterization
COMESA see Common Market for Eastern and
Southern Africa
commercial arbitration 2, 4, 12–13, 19, 29,
64, 68
international 12–13, 19–21, 23–6, 29–31,
62–8, 98–9, 226
commercial disputes 12, 71, 116, 250
commitments 16, 46, 150, 178, 201, 247,
251–2
contract 133, 179, 249–50
Committee on International Commercial
Arbitration 98–9, 204, 226
Common Market for Eastern and Southern
Africa (COMESA) 143
companies see also enterprises
foreign 24, 26, 28, 70, 83, 100–1, 221
state-owned 122, 226
compensation 108, 117–18, 131–2, 226–8,
234–8, 241–2, 259–60
fair 235, 289
complementarity 170, 302
compromis 3–4, 20, 56, 146
compromise 88–9, 140, 301
concession 124, 137, 165, 184, 206,
218–19, 276
agreements 76–7, 114, 119, 190, 197,
217, 279
contracts 8, 84, 115, 121, 184, 214, 217–18
concurrent application of/reference to national
and international law in case of
consistency 271–93
arbitral practice 275–93
conditions precedent 145
conflict of laws 7, 13, 61–2, 66, 82–3, 85, 88–9
see also choice-of-law; private
international law
rules 61–6, 77, 81–7, 89, 94–5, 107, 274
Congo 8, 54, 58, 129, 148–50, 193, 280–1
connexity 106, 128–9, 147–50, 152–4

305

factual 147–54
strong 150–1, 154–5
juridical 136, 147–55, 177, 179
requirement 130, 133, 136, 146–7, 152
consensus 26, 29, 99–101, 291
consent 20–1, 46, 54, 130–1, 135–7,
139, 143–5
host state 20, 114, 117
investors 135–6, 144–5, 217
requirement 130, 142
scope of 130, 142, 145, 179
tacit 143–4, 172
consistency 10, 17, 19, 28, 39–40, 297, 300–1
and concurrent application of/reference to
national and international law 271–93
reference to 276–84
constitutions 1, 51, 164, 182–4, 186–7,
193, 260
contract claims 108–11, 113–14, 116, 118–20,
146–7, 149–51, 171–6
contract(s)
administrative 111, 215
binding 47, 175
commitments 133, 179, 249–50
concession 8, 84, 115, 121, 184, 214,
217–18
government 174
international 66, 73, 80, 161
international law of 219–20
internationalized 171, 215, 220–1
investment 75–6, 112–14, 158–62, 167,
171–2, 213–16, 250–1
investor-state 215, 229
law of 161, 163, 175, 217
sanctity of 184, 222, 247
state 80, 91, 171, 198, 209, 215, 221
termination 115, 162, 174, 197
contracting parties see parties
Contracting State parties 48, 55, 77–8, 120,
154, 196–7, 229–30
contractual claims see contract claims
contractual counterclaims 130–1, 146, 149, 151
contractual disputes 119, 122, 134, 146,
159, 215
contractual obligations 74, 98, 107, 114, 120,
154, 174
contractual relations 169, 172, 216, 288
contractual relationship 30, 63, 80, 96, 123,
140, 150
contractual rights 114, 173, 175, 222, 233,
246, 250
cooperation agreements 243–4
corrective application
of international law 170, 189–211, 257, 298
of national law 258–69, 300
Costa Rica 74, 79, 185, 191, 236, 252, 268
Côte d’Ivoire 129, 181, 185, 191, 288
counsel 55, 217, 281, 290–1
counterclaims 8–9, 16, 47–8, 106, 176,
179–80, 251
acceptance 134, 144–5
and arbitration agreements 105–55
consent 142–5

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306

Index

counterclaims (cont.)
contractual 130–1, 146, 149, 151
exclusion 129, 145–6
host state 106, 128–55, 180
and arbitration agreements 133–47
factual and juridical connexity with
claims 147–54
and juridical connexity 147–54
legitimate 144, 147
non-contractual 152, 180
rejection 130, 139
scope 136, 148
Court of Justice of the European Union
(CJEU—formerly ECJ) 184, 203–6,
238, 301
court(s)
arbitration 31, 36, 114
Bangladesh 34–5
domestic/local/municipal see national courts
international 3–5, 11, 15, 44, 95–6, 199,
273–4
involvement 41, 43
Iran 47, 126, 187
Mexico 239, 243
Mongolia 132, 153
national 3–5, 31–4, 55–8, 106–9, 181–3,
187–8, 202–5
Netherlands 38, 49–52, 183, 203
Sweden 30, 32–3, 42, 72, 81, 109, 231–2
United Kingdom 51, 58, 98
United States 38, 186–7
CRCICA see Cairo Regional Centre for
International Commercial Arbitration
Crook, J.R. 9–10, 47, 62, 69, 84, 93–5, 290–1
customary international law 5–6, 108–9, 130,
172–3, 182–3, 186–7, 248
Czech Republic 151–2, 165–7, 231–3, 246,
263–5, 269, 287
Daly, B.W. 13, 35
damages 76, 78, 131–2, 237–8, 264–5,
279–80, 287
moral 132, 139, 143, 237
declarations 4, 19, 22, 47, 61, 93–4, 295
Delaume, G.R. 5, 14, 30, 37–8, 76, 193–4, 222
delocalization theory 16, 19–20, 23–7, 30,
62–3, 65, 81
influence on state practice 41–3
denationalisation 5, 285
denial of justice 115, 119, 172
Denmark 31–2, 39, 259
dépeçage 107
deposits 52, 268
deregulation 19
DIAC see Dubai International Arbitration Centre
diplomatic immunity 144–5
diplomatic protection 8, 58, 92, 164, 196,
209, 225
diplomats 144–5
direct method of ascertaining applicable
law 80–2, 84, 86, 107
discretion 4, 37, 41, 86, 94, 231, 299
discrimination, racial 102

dispute resolution/settlement 2, 8–10, 12, 24–7,
40–2, 122–3, 135–6
clauses/provisions 46, 112, 118, 127, 134,
154, 162
narrow 124–5, 137–9
investment disputes 2, 19–20, 53–6, 87–8,
91, 117, 167–8
disputing parties see parties
Dolzer, R. 6, 9, 13, 119, 170, 216, 253
domestic courts see national courts
domestic law see national law
domestic public policy 98, 260, 298
Douglas, Z. 6, 108–10, 120, 122, 150–1,
228–9, 246
drafters 140–1, 285
dualism 1, 157, 198, 236, 302
Dubai International Arbitration Centre
(DIAC) 21, 82, 296
due diligence 224, 268
due process 19, 28, 32, 39–40, 242, 278
Dutch-Polish BIT 122
ECJ see Court of Justice of the European Union
economic development agreements 161, 171,
214–15, 220–1
economic interests 99, 114
economic rights 164, 256
Ecuador 8, 10, 33, 108–10, 184–5, 210, 244
Egypt 75–6, 117, 186, 192, 194–5, 226–8,
284–7
law 75–6, 184, 186, 192, 226–8,
284–7, 289
El Salvador 179–80, 266–8
enforcement 23, 27, 36–40, 57–8, 96–9,
203–4, 260
denied 38, 258
stage 38, 40, 43, 53, 260, 296
enrichment, unjust 114, 120, 154, 173–4,
216–17, 292
enterprises 115, 140, 165, 300 see also
companies
foreign 24, 26, 28, 70, 83, 100–1
state 24, 26, 100, 243
entitlements, claimed 110–11
equitable treatment 13, 134, 222, 227, 234
Estonia 131, 134, 143, 151, 180
EU see European Union
European Commission on Human Rights 52
European Community see European Union
European Court of Human Rights 15, 223
European Science Foundation 2
European Union (EU) 98, 170, 183, 187,
203–6, 263, 301
Court of Justice (CJEU—formerly ECJ)
184, 203–6, 238, 301
European Parliament 98
law 101, 177, 203–6
Member States 184, 203–5
norms 203–4
excess of mandate 42–3, 232
express choice-of-law 71–9
expropriation 108–9, 114–18, 124–7, 233–7,
241–2, 244–6, 253–5

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Index
claims 116–17, 124, 126–7, 135, 146, 166,
243–4
of investments 13, 134
without compensation 165, 228, 231,
241–6, 254
factual connexity
between claims and counterclaims 148–9
strong 150–1, 154–5
fair and equitable treatment 13, 134, 222,
227, 234
fair market value 238, 287
fairness 98, 144, 301
finality 19, 28, 32, 39–40, 43, 81, 97
floating awards 23, 37, 40
force majeure 113, 159, 218, 263
foreign companies/enterprises 24, 26, 28, 70,
83, 100–1, 221
foreign investments 5–6, 89–90, 130–1, 134,
164–5, 215–16, 237
law 75, 87, 117, 141, 188, 239, 249
foreign investors 115–18, 163–73, 176–7,
214–15, 221–2, 224–6, 236–8
foreign law 29, 63, 67, 98, 106, 171
foreign private parties 11, 80, 206, 219
forum 28, 47–8, 62–3, 74, 98–9,
119–20, 146–7
arbitration 63, 130, 144
neutral 46, 75, 144, 215
selection agreements 146–7, 154
selection clauses 120–2, 146–7, 162, 174
frameworks 12, 21, 64, 84, 117, 204, 288
national 15, 62, 67, 295
France 33, 38, 42, 58, 90, 113, 183
civil law 168–9, 289
law 65, 70, 107, 160, 168–9, 173, 288–9
freedom 3–4, 41–3, 61, 63–4, 70–1,
84–6, 93–4
procedural 22–3, 43, 59
Frick, J.G. 41, 63, 65, 81–2
gap-filling role of international law 191, 194
gaps/lacunae 2, 157–8, 189–95, 208–11,
229–30, 258, 297–8
GEM 152–3
general law 152
general principles of law 146, 195, 217, 259,
278, 289–90, 292
genocide 99–100, 102, 128–30, 140, 148–50,
153, 201
Germany 41, 86, 98, 129, 205, 225, 253
Germany-Philippines BIT 267
Ghana 78, 115–16, 122, 128, 132, 142
GIC Agreement 78, 115
good faith 90–1, 99, 160–1, 179, 217–18,
222, 267
Goode, R. 40
governing law 80, 82–3, 166–7, 198, 231–2,
246, 285–6 see also applicable law
governments 34, 47, 49, 88, 163, 186, 250
contracts 174
gravity, centre of 80, 83–5, 87, 96, 103,
172–3, 175

307

Gray, K.R. 177
Greece 124, 159, 172
grievances 131, 135–6, 151
Guinea 8, 55, 129, 160, 180, 258
Hague Rules 49–50
Halonen, L. 131, 137–8, 151–2
Happold, M. 242
hierarchy 9, 100, 170, 207–8, 281–2,
288, 300
home state 15, 24, 34, 54, 72, 87, 92
investors 6, 20, 45, 80, 112, 118, 129
host state
consent 20, 114, 117
counterclaims 106, 128–55, 180
laws 111, 158, 191, 209, 235, 262, 268
legislation 76, 250
obligations 122, 130, 136, 140, 154
parties 114, 165
sovereignty 157–8, 180–1, 194–5, 210, 221,
229, 299–300
and primary applicability of national
law 163–70
hotels 226–7, 246, 266, 277, 284
human rights 42, 51–2, 102, 164, 177–8,
182–3, 223–5
fundamental 99, 202, 263
law 42, 100, 116
standards 151, 183
Hungary 166, 205–6, 223, 260, 265–6
ICC (International Chamber of Commerce)
4, 10, 21–2, 36, 81, 107, 261
award 34, 73, 75, 83, 113, 167, 284
International Court of Arbitration 22, 36
Rules 12, 21–3, 25, 34, 36, 38, 81
tribunals 36, 83
ICJ see International Court of Justice
ICSID 11–12, 19, 53–8, 72, 87–9, 112–13,
208–10
ad hoc committees 57, 110, 112, 163, 165,
230, 251
Additional Facility Rules 19, 21, 61, 84, 94,
129–30, 295
Additional Facility Rules Tribunal
123–4, 263
arbitration 21, 53, 55, 58, 97, 137, 196–7
Arbitration Rules 113, 130
awards 55–9, 76, 168–70, 192, 194–6, 209,
228–9
Convention 53–9, 74–7, 87–93, 166–9,
196–9, 208–9, 226–30
and applicability of national/international
law 87–93
jurisdiction 112, 137, 147
member states 97, 209
proceedings 57, 92, 137
Secretariat 148–9, 153
system 9, 56
tribunals 15–16, 53–9, 62, 77–9, 91–2,
97, 196–8
IIAs see international investment, agreements
IIL see Institute of International Law

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308

Index

IISD (International Institute for Sustainable
Development) 143, 177
ILA see International Law Association
ILC see International Law Commission
illegal investments 266–7
illegality 265–6
immunity 25, 51, 55, 58, 129, 144–5, 286
diplomatic 144–5
doctrine of 144
sovereign 145, 286
implicit/implied choice-of-law 71–9, 116, 171,
217, 240
India 30, 50, 64, 89, 208, 253
indirect application
of international law 181–9, 297
of national law 240–58, 263, 273, 298
indirect method of ascertaining applicable
law 80–2
Indonesia 5, 84, 152, 169, 191, 209, 277–8
injuries 47, 241
non-material 132, 139
Institute of International Law (IIL) 24, 26–8,
62, 70, 100–1
institutionalized arbitration 21–2
institutions 4, 21–2, 35, 143, 241,
278, 296
interference 24–5, 55, 62, 96, 250
interlocutory awards 48, 51–2, 69, 94, 127–8,
175–6, 291–2
internal law 5, 72, 88, 223, 239, 241, 263
international adjudication 92, 147, 255
international agreements 48, 102, 172, 237, 239
international arbitral/arbitration tribunals see
international tribunals
international arbitrators 26, 65, 73, 198–9
international causes of action 248, 252, 298
International Centre for the Settlement of
Investment Disputes see ICSID
International Chamber of Commerce see ICC
international character 37, 45, 53, 57–8,
218, 221
international choice-of-law rules 3, 67
international claims 4–5, 92, 106–7, 154,
170–2, 246–7, 270
and scope of arbitration agreement 112–27
international commercial arbitration 12–13,
19–21, 23–6, 29–31, 62–8, 98–9, 226
Committee on International Commercial
Arbitration 98–9, 204, 226
international community 26, 68, 87, 97, 101,
201, 275
international constitutional law 26, 272, 301
international conventions 14, 66, 82, 85,
100, 179
international courts 3–5, 11, 15, 44, 95–6,
199, 273–4
International Court of Arbitration 22, 36
International Court of Justice (ICJ) 4–5,
14–15, 74–5, 90–2, 147–50, 153,
189–90
Barcelona Traction 258
International Criminal Court 170, 195
Permanent Court of International Justice
(PCIJ) 20, 66, 107, 147, 171–2,
214, 253

International Institute for Sustainable
Development (IISD) Model Agreement
on International Investment for
Sustainable Development 143, 177
international investment 5, 12, 143, 177, 247–8
agreements (IIAs) 6, 13, 15, 22, 33, 56, 67
law 2, 6, 10–12, 53–4, 57, 118–19, 250
international jurisdiction 170, 178
international law see also Introductory Note
agents 299
applicability 77, 82–95, 163, 176, 196,
208–9, 213–71
primary see primary applicability, of
international law
application 70–1, 77–9, 84–5, 89–91, 158,
161–3, 213–24, 295–8
combined with national law 71, 165,
206–10, 214, 219, 269, 272
complementary role/function 76, 189–95,
210–11, 259, 289
concurrent application with national law in
case of consistency 271–93
of contracts 219–20
corrective application/function/role 170,
189–211, 257, 298
customary 5–6, 108–9, 130, 172–3, 182–3,
186–7, 248
direct application 185, 270
gap-filling role 191, 194
general principles 72, 89, 166, 207, 226,
230–2, 285–6
incorporation 182, 185–6
indirect application 181–9, 297
law of the land 4, 32, 79, 157, 181–7,
207, 228
national law role when international law
primarily applies 240–69
non-applicability 82–95
obligations 254, 282
peremptory norms 97, 101–2, 177, 199
primary applicability see primary applicability,
of international law
principles 7–8, 95, 191–3, 206–8, 218–20,
236, 279–81
private see private international law
public 8, 51–2, 99–101, 173, 198, 225–6,
236–8
role 2, 157–8, 160, 162, 164–6, 170,
180–210
role when national law primarily
applies 181–211
rules 2–3, 73–4, 83–4, 92–4, 209, 236–8,
242–3
sole application 214, 221, 242, 259
as source of interpretation 187–9
subjects of 91–2, 127, 172, 220
superior nature vis-à-vis national law 236–40
superiority 17, 239, 286, 299
supervening function/role 1, 58, 101–2, 112,
165, 195–210, 272–3
supremacy 270, 301
International Law Association (ILA) 98–9, 101,
182, 202, 204, 226, 284
International Law Commission (ILC) 8, 14, 25,
101–2, 128, 172–3, 241

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Index
international legal order 3, 53, 59, 61–2, 67,
195–6, 295–8
international lex arbitri 26, 62
international nature of claims 106–11
international norms 96–102, 157, 198
fundamental 200–1, 211
international obligations 5, 97, 100, 114, 196,
199, 239–40
to comply with and enforce awards 52–3,
57–8
international organizations 49, 51, 92, 101–2
international public law see public international
law
international public order 99, 102
international public policy 67, 97–102, 157,
199, 201–2, 211, 260–2
international relations 99, 163, 216
international responsibility 45, 171, 208, 222,
229, 241–2, 253
direct 174, 254
international standards 73, 119, 183, 273
international treaties 26–7, 48, 55, 63, 121,
164, 185
international tribunals 2–3, 9–10, 44–9, 64, 97,
202, 298–9
international trump card 239
international validity 48, 204
internationalization 4–5, 27, 44–6, 75, 159–62,
167, 171
investment contracts 214–22
internationalized arbitration tribunals see
internationalized tribunals
internationalized contracts 171, 215, 220–1
internationalized tribunals 44–59, 61–2, 69–71,
94–7, 101–3, 196–7, 295–301
investment agreements 8, 80, 112, 123, 125–6,
134–5, 178
investment arbitration 2, 5–6, 8–14, 19–20, 33,
108–9, 247–8
investment authorizations 125–6, 134, 278
investment contracts 75–6, 112–14, 158–62,
167, 171–2, 214–22, 250–1
internationalization 214–22
investment disputes 2, 10–12, 53–7, 116–17,
119–25, 134–5, 167–8
settlement 2, 19–20, 53–6, 87–8, 91, 117,
167–8
investment laws 2, 6–7, 10, 20, 71–2, 80, 112
foreign 75, 87, 117, 141, 188, 239, 249
international 2, 6, 10–12, 53–4, 57,
118–19, 250
investment protection 13, 214, 222, 248–50,
267, 282
investment treaties 5–6, 8–10, 77–8, 108–12,
122–5, 229–30, 247–8 see also BITs
arbitration 9–11, 107–9, 128, 133, 222–6,
228, 298–9
express or implied agreement on application
of international law 222–4
multilateral 20, 71–2, 230
tribunals see investment tribunals
investment tribunals 4, 8, 15–16, 45–6, 187–8,
202–3, 298–9

309

jurisdiction 8, 16
investments
foreign 5–6, 89–90, 130–1, 134, 164–5,
215–16, 237
illegal 266–7
international 5, 12, 143, 177, 247–8
prohibition of expropriation see expropriation
investor-state arbitration 2, 6, 11–14, 30, 68,
70, 119–20
provisions 141, 247
investor-state contracts 215, 229
investor-state relationships 5–6, 85, 90, 92, 95,
222, 271
investors
acceptance of offers 134–5, 142
assets 124, 166
claims 106, 123, 129–30, 137, 146–7,
243–4, 263
consent 135–6, 144–5, 217
foreign 115–18, 163–4, 176–7, 214–15,
221–2, 224–6, 236–8
home state 6, 20, 45, 80, 112, 118, 129
locus standi 133, 140–1
obligations 131, 133–6, 138, 146, 154
private 49, 90, 253
rights 130, 134, 141, 177, 222, 256
Iran 46–52, 126–8, 167, 174–6, 233–5, 244–5,
263–4
courts 47, 126, 187
Government 47–8, 127, 167, 186,
218, 221
law 161–2, 174–6, 186–7, 220–1, 245,
264, 292
Model BIT 139
Iran-United States Claims Settlement
Declaration 16, 46–9, 51–2, 61–2, 69,
126–7, 140
and applicability of national/international
law 93–5
Iran-United States Claims Tribunal 9, 44–53,
62, 93, 126–7, 151, 290–2
Ireland 32, 199, 204
Islamic law 184, 191, 276–7
Islamic Republic of Iran see Iran
Ivory Coast see Côte d’Ivoire
Jaenicke, G. 74, 215–16
Japan 181, 183
Jenks, C.W. 255–6
judicial economy 129, 146, 148, 216
judicial review 13, 41–2, 65, 141
quasi-judicial review 130, 141
juridical connexity between claims and
counterclaims 147, 149–55
juridical persons 15, 47, 54, 140, 164
juridical seat 28–30, 35–40, 44, 61–3, 65–7,
96–9, 262
territorialized tribunals 65, 74
jurisdiction
arbitral 112, 162, 250
domestic 126, 241
exclusive 120–2, 132, 153, 162
international 170, 178

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310

Index

jurisdiction (cont.)
supervisory 34–5
tribunals 47, 125–7, 133, 137–9, 141–2,
146, 154
jurisdictional clauses 120, 125
jurisdictional seat see juridical seat
jurisdictional stage 266, 270, 298
jurisprudence 4, 10, 149–51, 161, 222–3,
290, 298
of international tribunals 195, 224
jus cogens 26, 97, 100–2, 183, 199, 201–2, 204
norms 97, 101–2, 199, 201
justice
administration of 128–9, 137, 147, 149, 154
denial of 115, 172
minimum standards of 39, 96
Kantor, M. 141
Kumm, M. 170, 240
Kuwait 130, 184, 272
Lachs, M. 255
lacunae see gaps/lacunae
Lalive, P. 23–4, 26, 63, 85, 131, 137–8, 151–2
Lando, O. 70, 274–5
last-in-time rule 4, 183
Latvia 31–2, 254, 259
Lauterpacht, E. 15, 27, 55–6, 116, 196,
216–17, 249
law of the land 4, 32, 79, 157, 181–7, 207, 228
law of the seat 3, 25–6, 30–2, 36, 45, 96–7, 107
LCIA see London Court of International
Arbitration
Leben, C. 214–15, 222, 249
legal orders 23–4, 67, 149–50, 182–4, 273–5,
293, 300–2
arbitral 26
national 23, 25–6, 43–4, 59, 181–2, 184–9,
194–5
legal systems 1–2, 28, 39, 68–70, 85, 183–6,
277–8
municipal/national 29, 83–4, 158–9, 193–5,
258, 274, 285
legitimacy 11, 13, 188, 275, 282, 293
Lew, J.D.M. 23–6, 41, 43, 68, 83, 99–100, 274
lex arbitri 15, 23, 35, 40, 52–3, 62–7, 295–6
international 26, 62
national 62, 64
lex causae 2, 11, 101, 107, 157 see also
substantive applicable law
lex domicilii 83
lex fori see law of the seat
lex loci actus 83
lex loci arbitri 40, 206
lex loci contractus 83, 175, 218
lex loci delicti 83, 96
lex loci solutionis 83, 175
lex mercatoria 13, 85, 100, 200
lex situs 83
Liberia 76, 193–4, 209, 272, 279–80
Libya 114–15, 159, 165, 184, 206–7, 219–20,
276–7
licences 159, 278

Lillich, R. 27, 215
Lipstein, K. 3, 97–8, 107, 254, 274
local courts see national courts
local law see national law
localisation of legal relationships 61, 85
locus standi 133, 140–1 see also standing
London Court of International Arbitration
(LCIA) 4, 21, 68, 81, 295
Arbitration Rules 36, 68, 129
losses 132–3, 135, 153, 173, 179, 278, 292
mandate, excess of 42–3, 232
mandatory provisions 29–30, 35, 41, 98
mandatory rules 35–6, 41, 67, 96, 97–102,
199–201, 261–4
Mann, F.A. 12, 15, 28, 40, 61–2, 239–40, 302
market value, fair 238, 287
Mayer, P. 97–8, 100, 203, 215, 251, 261, 301
Mehren, A.T. 24, 26–8, 101
methodology 16–17, 187, 228, 271,
275–6, 293
Mexico 34, 41–2, 123–4, 222–3, 239,
243–4, 254
mixed arbitral tribunals 97, 128, 274
model agreement 123
Model Agreement on International Investment
for Sustainable Development 143, 177
Model Law, UNCITRAL 12, 29–32, 38, 41,
68, 81, 129–30
Mohebi, M. 3, 6, 44–5, 69, 82, 93, 95
Mongolia 31, 66, 132, 147, 151–3
monism 1–2, 69, 157, 189, 193, 195, 302
morality 99–100, 238, 266
Morelli, J. 242, 258
Mouri, A. 44, 69, 93–4, 235
municipal courts see national courts
municipal law see national law
municipal legal systems see national legal systems
NAFTA (North American Free Trade
Agreement) 46, 123–4, 135, 140, 145,
172–3, 223
tribunals 223, 260
NAI see Netherlands, Netherlands Arbitration
Institute
narrow dispute settlement clauses 124–5, 137–9
national arbitration laws 16, 29–35, 41–3, 61,
65–8, 70, 80
national claims, and scope of arbitration
agreements 112–27
national courts 3–5, 31–4, 55–8, 106–9, 181–3,
187–8, 202–5
national frameworks 15, 62, 67, 295
national law 1–8, 157–200, 206–11, 238–47,
251–9, 261–70, 280–91
applicability 82–95, 157–211, 218, 229, 284
applicable 49, 181, 184–5, 188, 193,
200, 206
application 70–1, 105, 108, 154, 158–63,
213–14, 295–9
combined with international law 71, 165,
206–10, 214, 219, 269, 272
complementary role 159, 258–60

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Index
concurrent application with international law
in case of consistency 271–93
corrective application/role 189, 240, 258–69,
298, 300
indirect application 240–58, 263, 273, 298
international law role when national law
primarily applies 181–211
non-applicability 82–95
primacy 207, 280
primary applicability see primary applicability,
of national law
role when international law primarily
applies 240–69
sequential primacy 168, 240
sole application 15, 55, 58, 192–3, 197–206,
210–11, 298–9
superior nature of international law 236–40
supervening role 67, 101, 151, 165, 179,
260–9, 273
national legal orders 23, 25–6, 43–4, 59, 181–2,
184–9, 194–5
national legal systems 29, 83–4, 158–9, 193–5,
258, 274, 285
national legislation 20, 112, 208
national lex arbitri 62, 64
national nature of claims 17, 106, 106–11,
157–8, 180, 216, 299–300
and primary applicability of national
law 170–80
national norms 96–102, 182–3, 189, 199, 201,
258, 268–9
applicable 195–6, 199, 211
national provisions as facts or law 253–8
national public policy 99, 270
national rules 62, 162, 203, 210
nationality 15, 37, 39, 50, 54, 98, 172
of awards 29–31
nationalization 4, 115, 127, 165, 207, 219–20,
279–81
unlawful 115, 276
nationals 13–14, 19, 47–9, 53–4, 91–2,
163, 234
natural resources 131, 164, 167, 235, 276, 279
negotiations 48–9, 87, 228
Netherlands 30, 34, 46, 48–52, 55, 62, 181–3
arbitration law 34, 50–1, 53, 68, 81, 84
courts 38, 49–52, 183, 203
Dutch-Polish BIT 122
Government 50–1, 183
law 48–52, 278
Netherlands Arbitration Institute (NAI) 21,
82, 143
Netherlands-Belarus BIT 241–2
Netherlands-Czech/Slovak BIT 134, 165–6,
207, 231, 233, 246, 269
New York Convention 13, 32, 35–40, 45–6,
52, 58, 96
non-applicability of national and international
law 82–95
non-contractual claims 108, 112, 114, 116,
118–19, 123, 176–80
non liquet 191, 193–4
norms 96–7, 99–102, 198–9, 208–9, 211, 275,
300–1
applicable 87, 94, 98, 157, 198

311

applicable national 195–6, 199
EU 203–4
fundamental 96, 101, 210, 261–2
international 200–1, 211
national 158, 258
international 96–102, 157, 198
jus cogens 97, 101–2, 199, 201
national 96–102, 182–3, 189, 199, 201, 258,
268–9
peremptory 96–7, 101, 103
policy 98, 260, 270
North American Free Trade Agreement see
NAFTA
Norway 66, 68, 123, 141, 177, 188, 255
Draft Model Investment Agreement 123,
178, 255
Nygh, P.E. 87
objective approach 72–3
obligations
international 5, 52, 57–8, 97, 100, 196,
239–40
investors 131, 133–9, 146, 154
OECD (Organisation for Economic Cooperation and Development) 10,
120, 248
oil concessions 37, 190
ordre public 65, 96–8, 201–2, 211, 261, 298
ordre public international 97
Organisation for Economic Co-operation and
Development see OECD
organs 4, 26, 132, 203, 253
state 26–7, 218
ownership 235, 244–5, 257, 285
pacta sunt servanda 99–100, 198, 236, 247, 278,
285–6, 288
Pakistan 109, 133–4, 140, 143, 147, 182, 247
Panama 37, 65, 69, 81, 98
Paraguay-Switzerland BIT 118
Parra, A.R. 20, 70–1, 83–4, 134–5, 192–3, 229,
235
partial awards 165–7, 172–3, 221, 231, 233–5,
246–7, 287
parties 20–32, 34–43, 61–88, 111–26, 128–40,
142–50, 277–93 see also states parties
private see private parties
party agreement 22, 77, 80–4, 86–7, 95,
158–63, 196–7
applicable law 68–96, 158–63, 213–24
absence of 80–96
national and/or international law 70–1
party autonomy 17, 42, 64–5, 68–70, 181–2,
194–6, 213–14
Paulsson, J. 10, 23–5, 43, 71–3, 110–11,
124–5, 202–3
payments 107, 151, 195, 234, 263–4, 279
PCIJ see Permanent Court of International
Justice
peremptory norms 96–7, 101, 103
of international law 101–2
Permanent Court of International Justice
(PCIJ) 20, 66, 107, 147, 171–2, 214, 253
Peru 149, 166, 185, 210, 229, 257, 290
Model BIT 139

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312

Index

Peterson, L.E. 177
Petrochilos, G. 3, 27–8, 35, 42–6, 49–50, 52,
55–6
Philippines 9, 89, 118–19, 133–4, 143, 251,
267–8
piracy 99–100, 201
Poland 32, 82, 122, 183, 247, 252–3
policy norms 98, 260, 270
Poudret, J.F. 35, 63–6, 74–5, 86, 96–7,
261, 263
powers 24, 28, 56, 62–3, 87–91, 227–8, 264
precedent 9, 35, 110, 152
conditions 145
primacy 24, 157, 166–7, 180, 185, 284–6,
298–9
of national law 207, 280
sequential 168, 180, 240, 298
primary applicability
of international law 213–71, 284, 293,
297, 299
corrective application of national
law 258–69, 300
general conclusions 269–70
international nature of claim 224–35
national provisions as facts or law 253–8
and party agreement 213–24
reasons for 213–40
role of national law 240–69
of national law 157–211, 229, 236, 271, 293,
297–9
corrective application of international
law 170, 189–211, 257, 298
general conclusions 211
and host state sovereignty 163–70
and national nature of claims 170–80
and party agreement 158–63
reasons for 158–81
role of international law 181–211
primary claims 128, 147, 152–3 see also claims;
principal claims
primary source of law 79, 186, 227, 288
principal claims 148–50, 277 see also claims;
primary claims
principles
of good faith 99, 160–1, 168, 218, 267, 288
international 19, 188, 278, 286
of international law 7–8, 95, 191–3, 206–8,
218–20, 236, 279–81
general 72, 89, 166, 207, 226, 230–2,
285–6
of justice 189, 191
of law 95, 276, 291
general 6, 179–80, 184, 189–91, 219–20,
277–8, 288–92
imperative 26, 201
Libya 165, 184, 206–7, 219, 276
legal 78, 94, 152, 179, 190, 256, 291–2
of party autonomy 42, 68–70, 87, 211,
213–14, 259
of private international law, general 82,
88, 107
of public international law 85, 90, 223, 225,
236, 279, 290

of sovereignty 163–4, 180
private dimension of choice-of-law rules 68, 80,
87, 96, 103
private international law 3, 13, 62–3, 65–6,
81–3, 87–9, 106–8 see also choice-of-law;
conflict of laws
rules 66, 72, 94, 262
private investors 49, 90, 253
private parties 5, 12–13, 30, 47–8, 91–2,
148–9, 171
foreign 11, 80, 206, 219
privatization agreements 160
privileges 51, 163, 234, 276
privity 20, 112–13, 116–17, 129–30, 134–8,
162, 176
arbitration with 113–16
arbitration without 20–1, 72, 117–27,
129–30, 140, 200, 225
procedural economy 119, 128, 137, 147, 153–4
procedural law 3, 33, 36, 39, 49
proof 175, 232, 244, 296
burden of 109, 244
property 47, 114–15, 151, 234–6, 238–9,
255–7, 276
rights 47, 126–7, 234, 242–5, 252, 255, 288
protection 90, 100, 139, 214–15, 237–8,
248–50, 264–7
diplomatic 8, 58, 92, 164, 196, 209, 225
full protection and security 13, 149, 222,
224, 227
higher degree of 211, 297
international 8, 196
of investments 13, 214, 222, 248–50,
267, 282
legal 7, 205, 246
substantive 265, 270
umbrella of 248
public international law 8, 51–2, 99–101, 173,
198, 225–6, 236–8
principles 85, 90, 223, 225, 236, 279, 290
public order, international 99, 102
public policy 3, 32, 38–40, 58, 199–204,
262–4, 267–8 see also ordre public
and choice-of-law 97–101
domestic 98, 260, 298
international 67, 97–102, 157, 199, 201–2,
211, 260–2
national 99, 270
rules 97, 99, 107, 261, 263
transnational 100–1, 200–2
Qatar 78, 114, 173, 191
quasi-judicial review 130, 141
quasi-tortious fault 180
racial discrimination 102
Raimondo, F.O. 195
ratione materiae, jurisdiction 105, 114, 120,
133, 134–9, 141–2, 154
ratione personae, jurisdiction 133, 138–42
recognition and enforcement of awards 27,
36–9, 96, 98, 105, 196, 199
recourse 23, 40, 42, 67, 74, 192–4, 273–4
relief 12, 32, 38, 110, 130, 132, 144

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Index
residual law 193–4
resolution, disputes see dispute resolution/
settlement
resources, natural 131, 164, 167, 235, 276, 279
respect for law, on the basis of 69, 93–4
respondent counterclaims see counterclaims
review
judicial 13, 41–2, 65, 141
quasi-judicial 130, 141
Roe, T. 242
role splitting 203, 299
Romania 71–2, 133, 136–8, 144, 174, 192,
252–4
Ruggie, J. 164, 178
rules of law 64, 68–72, 80–2, 84–6, 88, 96,
106–7
Salvador see El Salvador
sanctity-of-contract clauses 9, 150, 171
Sasson, M. 241, 247, 251, 257–8, 270
Saudi Arabia 25, 82
SCC see Stockholm Chamber of Commerce
Scelle, G. 128, 203, 299
Schreuer, C. 2, 57, 62, 79, 120, 253, 287
scope of arbitration agreements 112–27
seat 23–8, 30–6, 39, 48–9, 55–7, 62–4, 259–61
of arbitration 28, 30, 36, 38, 66
fictional 43
juridical see juridical seat
law of the 3, 25–6, 28, 30–2, 36, 38, 45
physical 64
theory 16, 19–20, 23, 27–41, 43, 59, 62
tribunal see tribunals, seat
security 44, 102, 134, 173, 202, 224, 234
full protection and 13, 149, 222, 224, 227
Seidl-Hohenveldern, I. 58, 92, 144, 168–9,
248, 273
seizures 46–7, 244, 292
Senegal 40, 120, 173–4, 181, 273
sequential primacy 168, 180, 240, 298
settlement agreements 49, 71, 73, 283, 290, 300
settlement of investment disputes 2, 19–20,
53–6, 87–8, 91, 117, 167–8 see also
dispute resolution/settlement
shares 122, 245, 260, 265, 268
slavery 99–100, 102, 201–2
Smith, F.C. 35
social security premiums 151–2
sole application
of international law 214, 221, 242, 259
of national law 15, 55, 58, 192–3, 197–206,
210–11, 298–9
sovereign immunity 145, 286
sovereign rights 19, 29, 59, 211
sovereignty 8, 22, 30, 64, 163–4, 282, 300
permanent 164, 235, 279
principle of 163–4, 180
state 90, 163, 168, 172, 211
territorial 19, 43, 64, 298
Spain 15, 88, 108, 125, 183, 241, 263
Spanish-Mexican BIT 222
special agreements 166, 207, 227, 231
special legislation 50, 179, 235

313

Spiermann, O. 13, 74, 78, 120, 206,
225–6, 228
Sri Lanka 55, 78–9, 186, 223–4, 227, 259, 263
stabilization clauses 160, 165, 184, 206,
215–20, 280–1
standards 54, 100, 123, 185, 279
human rights 151, 183
international 73, 119, 183, 273
standing 8, 54, 75, 139, 183 see also locus standi
state contracts 80, 91, 171, 198, 209, 215, 221
state courts see national courts
state enterprises see state-owned companies
state organs 26–7, 218
state-owned companies 24, 26, 100, 122,
226, 243
state practice, and delocalization theory 41–3
state representatives 87–9, 91, 167, 198
state responsibility 111, 171–2, 222, 224, 231,
234, 252
state sovereignty 90, 163, 168, 172, 211
states parties 48, 55, 77–8, 120, 154, 196–7,
229–30
international obligation to comply with and
enforce awards 52–3, 57–8
Stockholm Chamber of Commerce (SCC)
4, 21, 25, 66, 129, 223, 296
Institute 30–1, 119, 138, 176, 261
Rules 21–2
Tribunal 74, 132, 138, 233
subjective approach 72–3
subsidiarity 2, 170
substantive law 2–3, 6, 14, 32, 63–4, 66, 73–4
Sweden 30–2, 42, 81, 204, 231, 238, 259
Arbitration Act 30, 42, 66, 81, 199, 204
courts 30, 32–3, 42, 72, 81, 109, 231–2
Model BIT 118
Switzerland 25, 31, 33, 42, 63, 68, 247
TAA (Technical Assistance Agreement) 175–6
Technical Assistance Agreement see TAA
termination of contracts 115, 162, 174, 197
territorial control 7, 172, 177, 180, 210, 229,
287–8
over foreign investors and
investments 163–70
territorial criterion 29–31, 36
territorial sovereignty 19, 43, 64, 298
territorialized tribunals 23–44, 54–6, 61–5,
95–6, 101–3, 158–9, 199–200
choice-of-law methodology 63, 67, 101
juridical seat 65, 74
territory 19–20, 27, 29, 37, 54–5, 148–50,
163–6
terrorism 99–100
Toope, S.J. 82, 163, 182, 233–4, 278, 291
tort 7, 83, 87, 106, 114, 116, 150–1
torture 102, 178, 183, 260
transactions 1, 47, 94, 151, 245, 262, 268
business 66, 68
transfers 117, 245, 280
transnational corporations 164, 177–8
transnational public policy 100–1, 200–2
transnationality 9, 23, 25–6, 37, 41, 46, 199–200

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314

Index

treaties
arbitration 5, 13, 42, 46, 95, 130–1, 298
investment 9–11, 107–9, 128, 133,
222–6, 228, 298–9
bilateral 186, 230, 233–4, 288 see also BITs
claims 78, 108–9, 111, 118–19, 146–7,
149, 151
international 26–7, 48, 55, 63, 121, 164, 185
interpretation 112, 248
law of 48, 91, 97, 101–2, 182–3, 239, 248
multilateral investment 20, 71–2, 230
nature 55, 57, 223–4
provisions 78, 95, 102, 184, 186, 197, 231
rights 111, 232, 234
tribunals 25–8, 38–41, 61–6, 85–9, 137–40,
143–8, 231–3
awards 49, 51–2
choice-of-law methodology 63, 67, 101, 124,
170, 232
competence 116, 127
composition 9, 31, 38
domestic 25, 64
ICC 36, 83, 113, 159, 184
ICSID 15–16, 53, 59, 62, 77–9, 91–2, 97
insulation from law of seat 48–52, 55–7
international 2, 64, 122, 124, 298
internationalized 19–59, 61–2, 69–71, 95–7,
101–3, 196–7, 295–301
investment 4, 8, 15–16, 45–6, 187–8,
202–3, 298–9
jurisdiction 8, 16
jurisdiction 47, 125–7, 133, 137–9, 141–2,
146, 154
ratione materiae 114, 120, 133, 154
mixed 97, 128, 274
NAFTA 223, 260
seat 25, 28, 31, 36, 43, 45, 63
juridical 28–30, 35–40, 44, 61–3, 65–7,
96–9, 262
territorialized 54–6, 61–5, 95–6, 101–3,
158–9, 199–200, 298–9
choice-of-law methodology 63, 67, 101
Tucumán 120–1, 163, 174
Turkey 89, 109, 181–3, 272
Ukraine 7, 53, 73, 125, 132, 138–9, 237–9
umbrella clauses 9, 122, 150, 171, 222, 247–53,
255–6
claims 158, 213, 249, 252–3, 273, 298
umbrella of protection 248
UNCITRAL (United Nations Commission on
International Trade Law) 4, 20–1, 29,
31, 68, 84–6, 107

Model Law 12, 29–32, 38, 41, 68, 81,
129–30
Rules 21–2, 30–1, 35, 48–9, 71, 128–31,
295–6
Secretariat 20, 29, 70–1, 85, 140
Tribunal 14, 26, 31, 114–15, 185, 231–2,
287–8
Working Group on Arbitration 71, 86
UNCTAD (United Nations Conference on
Trade and Development) 5, 9–11, 13,
15–16, 19, 131, 247–9
undertakings 5, 160, 249–50, 282
unilateral arbitration 117, 129
United Arab Emirates 56–7
United Kingdom 58, 91, 172, 199, 208,
224, 227
BITs 7, 139, 227, 243
courts 51, 58, 98
law 15, 33, 161, 182, 266
United Nations 5, 36–7, 102, 135, 178,
247, 299
Charter 102
Commission on International Trade Law see
UNCITRAL
Conference on Trade and Development see
UNCTAD
General Assembly 29, 90, 235
resolutions 100, 164–5, 199, 235,
276, 279
United States 26–7, 46–50, 52, 84, 102,
126–8, 264
Alien Tort Claims Act (ATCA) 178
courts 38, 186–7
and Iran see Iran
laws 187–8
Model BIT 125–6, 145, 182, 242–3
nationals 47
US-Estonia BIT 134–5, 139, 141
unjust enrichment 114, 120, 154, 173–4,
216–17, 292
unlawful law 14, 198, 203, 299
validity 35, 40, 53, 55, 59, 97, 208–9
international 48, 204
valuation of property 238–9, 260, 290
Venezuela 70, 76–7, 174, 191–2, 197–8,
209–10, 252
vertical relationship 171
voie directe 81, 85
Wena doctrine 229
Wong, J. 238–9
World Bank 21, 53–4, 56, 87, 91, 168, 252

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