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Jun 10, 2010

The Law Applicable in Investment Treaty Arbitration

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"The Law Applicable in Investment Treaty Arbitration (Chapter 9)", in Arbitration Under International Investment Agreements: A Guide to the Key Issues, Katia Yannaca-Small (ed.), Oxford University Press, 2010

The inquiry into the law ‘applicable’ to a dispute seems, on its face, a fairly simple question: identifying the law that will govern the resolution of the dispute.

Given the fundamental principle of party autonomy in international arbitration, the arbitrators’ inquiry is primarily guided by the determination of whether the parties themselves have chosen the law governing their dispute. It is only in the absence of such choice that the arbitrators must determine the law that will apply to the dispute.

The framework of the analysis is therefore discernible. The choice of law process must first be distinguished from the arbitrators’ subsequent investigation concerning the determination of the content of the law that will apply and the manner in which such content must be evidenced. Equally, it is distinct from the review, at the back end of the arbitral process, of the manner in which the arbitrators have applied or failed to apply such law to the merits of the dispute.

Finally, a further distinction must be made between the substance of the dispute and the procedure governing the arbitration: choice of law is essentially concerned with the substance of the dispute, the conduct of the arbitration not being subject to any particular national legal system but allowing for a great degree of freedom for the parties (including their choice of the arbitration rules which will govern the arbitral process) and, in the absence of agreement between them, the arbitrators.

That is not to say that choice of law is of no consequence. To the contrary, in investment treaty arbitration just as in international commercial arbitration, it is a fundamental process in that the outcome of the dispute may sometimes greatly depend on the rules determined to be applicable. Being an arbitral process, investment treaty arbitration in no way differs from international commercial arbitration in that the principle of party autonomy is the primary rule governing the arbitration, including as regards the law applicable to the substance of the dispute.

When the applicable law has been chosen by the parties, the arbitrators have a duty to apply such law and nothing but such law. It is only in the absence of a choice by the parties that the arbitrators are entitled to exercise a degree of discretion in the determination of the applicable law. Each of these situations will be examined in turn, before considering whether the specific nature of investment protection treaties has implications in terms of choice of law process.

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Authors and Contributors

Yas Banifatemi

Partner

International Arbitration

+33 1 53 89 70 00

+33 1 53 89 70 00

Paris