Trans-Lex Administrative Information
[click here to copy citation to clipboard]
Please Cite as: "http://www.trans-lex.org/127400".
Note, General Principles of Law in International Commercial Arbitration, 101 Harv.L.Rev. 1987/88, at 1816 et seq.
Table of Contents
GENERAL PRINCIPLES OF LAW IN INTERNATIONAL COMMERCIAL ARBITRATION
GENERAL PRINCIPLES OF LAW IN INTERNATIONAL COMMERCIAL ARBITRATION
International arbitral rules generally allow parties to an agreement containing an arbitration clause to choose the substantive law that will govern disputes.1 Although the parties may choose the law of a particular jurisdiction, they often specify that "general principles of law" apply.2 Sometimes an inability to agree on any other law motivates the choice of general principles; sometimes the parties believe the choice will ensure neutral outcomes. In either case, however, the benefits of choosing a neutral forum are reduced because of substantial uncertainty about the content of these general principles.
This Note seeks to reduce this uncertainty by restating general principles of law as applied in actual international3 commercial4 disputes and agreed upon by scholars, international organizations, and sovereign states. Part I frames the problem by explaining the various contexts in which parties choose the substantive law to govern their agreements in case of arbitration. Part II then discusses the factors parties typically consider in making their choice, the rules that govern this choice, and the reasons that parties often choose general principles of law. Finally, Part III illustrates the mariner in which such principles are determined and sets forth seven principles frequently used to decide international commercial arbitrations. The heightened certainty resulting from the derivation of such principles, whether in this Note or in future works that continue the endeavor, may increase reliance on international arbitration as an efficient means of resolving investment and trade disputes.
I. ARBITRATION AND THE PROBLEM OF SUBSTANTIVE LAW
Arbitration as a means of settling commercial disputes between parties of different nationalities has been a popular and successful
alternative to national courts for decades.5 Parties entering into economic agreements often include arbitration clauses in their contracts to ensure that any disputes can be solved without recourse to expensive and time-consuming litigation.6 Moreover, arbitration allows Parties to avoid having disputes judged in the national courts of the opposing party.7 It is not surprising, therefore, that the rise in international commerce and investment in recent years has brought an increased use of arbitration to resolve disputes.8
Arbitration in the international context involves numerous difficulties, one of the most troublesome of which is the choice of substantive law to be applied in a given dispute.9 The substantive law of the arbitration may be specified by the parties in their original agreement.10 In general, parties to an agreement containing an arbitration clause have virtually complete autonomy in selecting the substantive governing law;11 almost any choice of substantive
law by the parties is enforceable, so long as the arbitral award itself is enforceable12 Absent an express or implied
choice by the parties, the governing law may be chosen by the arbitrator.13
Although parties frequently specify the law of a particular jurisdiction as the background law governing the merits of any dispute, they often supplement such a choice, or avoid it altogether, by referring to lex mercatoria,14 customs of the trade,15 or general principles of law.16 Of these three substantive schemes, the last is especially vague because of its broad scope and lack of explication in the literature.17 Particularly because there is no delineated set of general principles, results become unpredictable, and parties to agreements have little ground on which to base their expectations. Moreover, because general principles of law are an especially popular choice of substantive law when sovereign governments are involved in an agreement,18 and because such agreements are likely to proliferate as developing nations make long-term economic development contracts
with companies from industrial nations,19 the application of this term will become an even more important issue.20
II. CHOOSING THE SUBSTANTIVE LAW
A. When Parties Specify a National Law
When the parties clearly designate the substantive law of a particular jurisdiction, there is little room for the application of general principles of law. Nor would there be much justification for the imposition of such principles, as the agreement by the parties on an explicit, developed national law exhibits a common understanding of or familiarity with such law, as well as an intention to be bound specifically to a relatively inflexible standard.21
It does not follow, however, that a national law is the best choice of substantive law available, for national laws may suffer from a variety of shortcomings in the context of international trade and Investment. Some national laws may not be sufficiently developed to provide a basis for international transactions; even sophisticated national systems may be conducive only to domestic transactions. 22 Other national laws may promote the national interest at the expense of private parties.23 Finally, the political realities in some nations make resort to national law unacceptably risky from the standpoint of a private contracting party, even though the law is acceptable at the time of contracting.24 For these reasons or because they cannot
agree on any particular national law, parties may wish to allow the arbitral tribunal to apply a substantive law not tied to any particular jurisdiction.25
Yet in some cases reference to a non-national standard, much less to arbitration, is unavailable because of these very political realities. In the case of Latin America, the Calvo Doctrine26 traditionally has held that foreigners may receive treatment only equal to that of citizens. Because international arbitration often gives foreigners but not citizens a right to arbitrate disputes, the Calvo Doctrine has opposed arbitration on the ground that it gives preferential treatment to foreign investors.27 Even more broadly, the historical legacies of the Calvo Doctrine and the Latin Americans' strict defense of national sovereignty have translated into a refusal to accept the application of general principles of international law in the Latin American context.
B. When Parties Allow a Non-National Standard
The parties may supplement their choice of a national law with reference to some non-national standard such as general principles of law, lex mercatoria, or the law of international trade, or they may specify only a non-national standard, without referring to any national law. Either choice grants the arbitral tribunal more discretion with respect to the applicable law, 28 but correlatively provides it with a diminished level of guidance. In either case, the arbitrator is forced to abandon a simple application of specific rules contained in a national law and instead to conduct an initial inquiry to determine the nature of the general principles invoked by the parties. Thus, the arbitrator in such cases must conduct an analysis to discover the
principles to be applied under the often vague, non-national Standards.29
C. When the Agreement Is Silent as to Substantive Law
In many cases the parties simply are unable to agree on a particular national or non-national law and are willing to put off any conflict over the applicable law until the need arises.30 Arbitrators in such situations have more discretion than in any other case, as they may apply any substantive law that their arbitral rules and other procedural provisions allow.31 Traditionally, scholars believed that the arbitrator was bound to apply the conflict-of-laws system where the arbitral tribunal had its seat,bel>32 but recently this view has been challenged; instead, arbitral tribunals now frequently apply the conflict of-laws system they view most appropriate.33
Alternatively, arbitrators may apply a variety of other conflict-of-laws standards that have only an indirect foundation in national law. The least significant departure from a national conflict-of-laws system is the cumulative application of the conflict-of-laws systems connected with the dispute. 34 A more substantial departure is the application of the conflict-of-laws system the arbitrator views as most appropriate and most responsive to international commerce.35 A third, still greater departure is the application of a basic conflict-of-laws rule derived from a comparison of competing systems.36 The last step before attaining a fully denationalized arbitral procedure is the application of a substantive national law without reference to any conflict-of-laws system.37
Finally, in the absence of any choice of Substantive law by the parties, an arbitrator in some cases may apply a fully non-national
standard such as lex mercatoria, standard usages, or general principles of law. In general, two elements in a contract might permit the application of such a non-national standard. First, the existence of an arbitration clause in an international transaction, together with the international character of the dispute and the reasons that parties choose arbitration to resolve disputes, although not sufficient to ensure the exclusive use of a non-national law to govern the agreement, provide a basis for the use, albeit nonexclusive, of non-national law in arbitrating the dispute.38 Second, when considering disputes over economic development agreements, particularly those containing stabilization clauses that limit a sovereign's capacity to alter the rights of the private party, arbitrators invoke a non-national standard to assess the validity of the stabilization clause in order to protect the private party's rights.39
When the arbitrator is free to choose and interpret any such non-national law, the arbitrator's inquiry must begin with the discovery and derivation of the general principles of law.40 Because there is no clearly delineated set of general principles, it is uncertain at the time of contracting what general principles will govern disputes arising under the agreement. Herein lies the greatest -weakness of the use of non-national law: it creates uncertainty in arbitral decisionmaking, with the ultimate result that parties to such agreements are unable to predict confidently the legality of their actions before arbitration.41 Here, too, lies the strongest argument for developing a coherent set of principles based on published arbitral awards. Delineating the non-national law of international arbitration would capture the advantages of neutrality and fairness that are the fundamental aim of non-national standards, and at the same time reduce the uncertainty that results from the process of deriving the general principles in each arbitration.
III. DERIVING GENERAL PRINCIPLES OF LAW
This Part seeks to enunciate the fundamental axioms of a non-national law of international arbitration, focusing particularly on the concept of general principles of law. These axioms are most likely to
be applied by tribunals in cases in which at least one of the parties is a sovereign state, but general principles of law may be of use in a private context, as well. In either case, the application of this substantive law presents special problems that the other non-national standards do not, most notably the vagueness and uncertainty that inhere in a "general" standard based loosely on practice.42
The ultimate aim of this listing is to initiate a sustained effort to achieve a consensus as to the content of the general principles of law in the international arbitration context. This consensus would lead to greater consistency of results in international commercial arbitrations and to a corresponding increase in certainty for contracting parties.43 Ultimately, it also may encourage greater reference to the general principles of law. This would serve the interests of contracting parties by enabling them to establish a neutral forum in which they control the language and procedure and avoid the various difficulties that arise from handling such disputes in a national court system. At the same time, a list of general principles will help maintain the stability and certainty that exist in a system currently dominated by national laws.
A. Jurisprudence and Methodology
The traditional approach in the secondary literature to the problem of general principles of law has been to discuss the choice-of-law issue and to suggest possible justifications for applying such a general substantive standard.44 However, if these justifications are legitimate, a more important task involves defining the general principles that make up such a standard. In the arbitration context, the best indication of the acceptance of a proposition as a general principle is its frequent invocation by arbitral tribunals and its recognition by scholars. Using such sources, along with occasional references to national practice to
predict outcomes when arbitral decisions have not yet confirmed the universality of such principles, this Note attempts to delineate some of the most basic tenets. To date, despite references to general principles, the literature does not contain any listing of these principles.45
Because parties often expressly require confidentiality, any attempt to delineate a list of general principles of law in the context of international commercial arbitration will be limited by the paucity of published arbitral awards. There is, however, a sufficient number of publicly available cases to begin the endeavor; in time, the list may be expanded as more information about arbitral awards becomes available. This Note catalogues approximately twenty awards of widely varying types that have been reprinted in the secondary literature or incorporated into the index sections of major arbitration reporters.46 These cases include some involving only private parties and others involving sovereign governments. They also include institutional arbitrations conducted under the aegis of the American Arbitration Association, the ICC, or ICSID, as well as ad hoc arbitrations conducted under the rules of UNCITRAL, the American Arbitration Association, or the ICC.47 Thus, although the sample is numerically limited, it is nonetheless broad.
Because foreign private parties frequently prefer general principles of law as the binding substantive law when entering into agreements with sovereign governments, and because arbitrations between such parties frequently involve nationalizations, this Note relies in part an arbitral awards based on disputes arising from nationalizations. Discussion of these disputes sheds light on a number of general principles. In the transactions that ultimately give rise to arbitrations, transfers of property rights from a sovereign to a foreign private party have almost always been through an express contractual agreement. In these situations, nationalization can be regarded as both a breach of contract and as a taking of property. In such cases, the issue first arises whether the particular investment or trade arrangement granting property rights constitutes a binding contract. If so, two additional questions are raised: first, whether the governmental action in question constitutes a breach of the contract; and second, whether the
breach constitutes a taking of property compensable under international law. Thus, the nationalization cases can animate a general discussion of such principles.
B. Some General Principles of Law
One difficulty that arises in delineating a set of general principles of law is that many of these principles are interrelated. In an effort to overcome this problem, this Note presents the principles separately but discusses their relationship to each other. What follows are seven general principles: five govern international contractual agreements, themeans of assigning liability, limits on the enforceability of contracts, and remedies in case of breach; one describes the limits on the right of a sovereign to take the property or to encroach upon the vested rights of a foreign private party; and one describes the theory of unjust enrichment that pertains in the absence of a contractual agreement or grant of property.
A sovereign government may make and be bound by contractual agreements with foreign Private Parties. - Governments may enter into contractual agreements with foreign private parties without negating their sovereignty; indeed, such commitments are viewed as reaffirmations of states' sovereign power of self-determination.48 Thus, claims of sovereignty are not ordinarily allowed as means to disregard earlier contractual commitments, at least in the commercial context.49
The corporate veil may be pierced to prevent a beneficial owner from escaping contractual liability. - Equity and the principles of international law permit the corporate veil to be lifted to protect third parties such as creditors or purchasers against abuses that would harm them directly, at least in the case of a corporation that is emptied of its assets by the parent.58 In the Westland decision, the United Arab Emirates, Saudi Arabia, and Qatar, in response to the Camp David Agreement, had liquidated the - Arab Organization for Industrialization, a multilateral organization of several Arab states including Egypt that engaged in joint ventures for the development of an arms indestry.59 The tribunal held that Westland was justified in bringing the former members of the organization to arbitration notwithstanding the fact that only the organization itself had signed the agreement.60
Force majeure61 justifies nonperformance of a contract such that the loss is borne fairly by the parties. - The occurrence of a force majeure renders nonperformance not a breach. However, the loss from the force majeure must be borne fairly by the parties.62 There is nonetheless little international agreement as to what constitutes force majeure, so this principle as yet offers little specific guidance.
Contracts that seriously violate bonos mores or international public policy are invalid. - An agreement involving behavior that seriously violates bonos mores or international public policy is invalid or unenforceable. 63 In a dispute involving an agreement to import goods, an arbitral tribunal refused to enforce the agreement on the
grounds that the major portion of the payments made pursuant to the agreement were to be used for bribes to customs officials and that the agreement therefore contravened international public policy favoring honest commercial dealings.64 Here, as in the case of force majeure, there is considerable debate as to the precise content of this general principle.65
Equitable compensation constitutes the primary remedy for damages. - Theoretically, the sanction for nonperformance of contractual obligations is restitutio in integrum.66 However, restoration of the status quo ante is usually impossible, rendering equitable compensation the far more common remedy.67 Moreover, remedies of specific performance and restitutio in integrum normally may not be applied against sovereigns and their agents.68 In view of this international practice, the arbitrators in the BP decision69 held that, when a sovereign government breaches a concession agreement, particularly through nationalization, in a way that "implies, finality," the injured party is entitled only to compensation.70 The principle of restitutio in integrum nonetheless has been applied in one example of breach by a sovereign, the TOPCO decision, so that the claimed inapplicability of restitutio in integrum to breaches by a sovereign may not be regarded as absolute.71
The right of property and of acquired vested rights is generally inviolable - a state may not effect a taking without equitable compensation.72 - A governmental taking in the arbitration context necessarily involves an abridgement of property rights granted by the government through an express contractual agreement, because a private party may bring a sovereign government to commercial arbitration only if the parties entered an agreement with an arbitration clause.73 Outside the commercial arbitral context, the public international
law argument regarding remedies for expropriation would be the same.
A party may not receive unjust enrichment. - In the absence of a prior, valid contractual agreement or grant of property rights, parties in the international commercial context can bring suit for unjust enrichment when a defendant has acquired money or value from a plaintiff. If the claim is judged meritorious, the value held by the defendant must be returned to the plaintiff. This rule against unjust enrichment is embodied in most recognized legal systems and is mentioned frequently in international and arbitral case law.95
To date, contracting parties of different nationalities who refer to general principles of law in their agreements have ensured themselves a theoretically neutral, non-national law to govern their agreements. Unfortunately, the use of this vague standard also produces uncertainty and unpredictability because these principles have been inadequately articulated and documented. Both parties and the tribunals
arbitrating their disputes therefore need a coherent list of such principles to ease the application of this non-national substantive law.
This Note has sketched seven general principles of law as the first step toward a unified set of rules. Although this compilation is by definition general and broad, any list is bound to heighten the certainty of those contracting parties who choose general principles as the governing law. Thus, even in its rudimentary form, this list may serve as a source for arbitral tribunals and contracting parties in deriving such general principles. Although much work remains to be done, the list may facilitate the use of general principles of law as the governing substantive law by providing a delineated set of such principles. If so, this may encourage parties to enter into international commercial agreements despite the substantial cultural and legal differences among their countries. In the end, this may prove to be the best way to foster economic development agreements in particular and international trade generally.
Footnotes1See A. REDFERN & M. HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 72-75 (1986).
2See id. at 84. For a discussion of the definition of general principles of law in the international context, see note 16 and accompanying text below.
3Although the term "international" often is used to refer to agreements or relations "between governments," as distinguished from "transnational," which means "between parties of different nationalities," this Note will use the term "international" to encompass both meanings.
4International commercial transactions between private parties and between sovereign governments and private parties are governed by private international law, whereas international relations between sovereigns, as well as noncommercial relations between sovereigns and private persons, are governed by public international law. This Note addresses arbitration only in the context of private international law.
5See de Vries, International Commercial Arbitration: A Contractual Substitute for National Courts, 57 TUL. L. REV. 42, 43-44 (1982); Wilner, Determining the Law Governing Performance in International Commercial Arbitration: A Comparative Study, 19 RUTGERS L. REV. 646 & n.1 (1965). For a thorough introduction to international commercial arbitration, see A. REDFERN & M. HUNTER, cited in note 1 above.
6See McClelland, Toward a More Mature System of International Commercial Arbitration: The Establishment of Uniform Rules of Procedure and the Elimination of the Conflict of Laws Question, 5 N.C.J. INT'L L. & COM. REG. 169, 169-70 (1980).
7See Higgins & Brown, Pitfalls in International Commercial Arbitration, 35 BUS. LAW. 1035, 1035-36 (1980); McClelland, supra note 6, at 169-70. Parties frequently feel that a foreign national court would favor the opposing party from that country. Cf. infra note 20.
8See Danilowicz, The Choice of Applicable Law in International Arbitration, 9 HASTINGS INT'L & COMP. L. REV. 235, 236 (1986); Dellett, Arbitration, Forum Selection, and Choice of Law Agreements in International Securities Transactions, 42 WASH. & LEE L. REV. 1069, 1070 & n.5 (1985); de Vries, supra note 5, at 45-46 & n.15.
9In general, arbitral tribunals recognize a distinction between the law of arbitration procedure, or lex arbitri, and the substantive or proper law governing disputes. See A. REDFERN & M. HUNTER, supra note 1, at 53-55. This Note will focus on the substantive law governing the merits of the dispute rather than on the many aspects of lex arbitri.
10See Branson & Wallace, Choosing the Substantive Law to Apply in International Commercial Arbitration, 27 VA. J. INT'L L. 39, 46 (1986); Croff, The Applicable Law in an International Commercial Arbitration: Is It Still a Conflict of Laws Problem?, 16 INT'L LAW. 613, 614-15 (1982); see also de Vries, supra note 5, at 74 (arguing that an express choice of substantive law by the Parties is desirable).
11See A. REDFERN & M. HUNTER, supra note 1, at 72-73; see also Branson & Wallace, supra note 10, at 46-47 (discussing the widespread enforceability of choice-of-law clauses); Croff, supra note 10, at 615 (stating that the principle of Party autonomy is widely recognized in both common and civil law). For a detailed summary of the jurisprudence and statutory provisions regarding party autonomy, see id. at 615-22. This party autonomy is possible because of the generally accepted principle of international arbitration that the law governing the merits is independent of the procedural law. This distinction between lex arbitri and lex causae, see Saudi Arabia v. Arabian Am. Oil Co., August 23, 1958 (Sauser-Hall, ref.; Badawi/Hassan & Habachy, arbs.), 27 INT'L L. REP. 117, 156 (1963) [hereinafter Aramco decision] (holding that "the law governing the merits is independent of the law governing the arbitration itself "), ensures the inviolability of the parties' choice of substantive law and enables the arbitration to be conducted in a timely and efficient manner even when the substantive law chosen is a difficult one. See supra p. 1817 & note 9. The lex arbitri that controls the procedural operation of the arbitration may be imposed by the particular organization under whose aegis the arbitration is being conducted, or it may be determined by the laws of the nation where the arbitration is taking place. For a discussion of the issues involved in determining the lex arbitri of an arbitration proceeding, see Danilowicz, cited in note 8 above, at 238-58. See also A. REDFERN & M. HUNTER, supra note I, at 53-55 (explaining the impact of the lex arbitri); Delaume, Arbitration with Governments: "Domestic" v. "International" Awards, 17 INT'L LAW. 687, 688-90 (1983) (comparing the three primary views of the lex arbitri problem); McClelland, supra note 6, at 174-77 (stating that it is not well established that parties are free to choose the law of the proceedings). Similar distinctions between the procedural and substantive sources of law have been maintained not only in arbitral awards themselves but also in the national courts enforcing such awards. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 636-37 & n. 19 (1985) (holding that arbitration and choice-of-law clauses were valid and enforceable and therefore compelled arbitration in Japan pursuant to Swiss law); Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-17 (1974) (holding that a choice-of-law clause is to be respected regardless of the place of enforcement); see also James Miller & Partners, Ltd. v. Whitworth St. Estates (Manchester) Ltd., 1970 A.C. 583, rev'g  1 W.L.R. 377 (holding that English law should govern the merits despite the choice of Scottish procedural law).
12An arbitral award is not enforceable unless the arbitrator had competence to decide the issues presented. The general arbitral principle of Kompetenz-Kompetenz dictates that the arbitral tribunal always has competence to decide the issue of its own competence. See Elf Aquitaine Iran (France) v. National Iranian Oil Co. (Iran), Ad Hoc Preliminary Award of January 14, 1982 (Gomard, arb.), 11 Y.B. COM. ARB. 97, 101 (1986); Libyan Am. Oil Co. v. Government of the Libyan Arab Republic, Award of April 12, 1977 (Mahmassani, arb.), 6 Y.B. COM ARB. 89, 97 (1981) [hereinafter LIAMCO decision];Texaco Overseas Petroleum Co. (U.S.) v. Government of the Libyan Arab Republic, Preliminary Award of November 27, 1975 (Dupuy, arb.), 4 Y.B. COM. ARB. 177, 179 (1979); von Mehren, International Commercial Arbitration: The Contribution of the French Jurisprudence, 46 LA. L. REV. 1045, 1053 (1986). Nonetheless, the arbitrator's decision as to competence might not be sustained by the court asked to enforce the arbitral award. Several international treaties govern the enforcement of arbitral awards, and some establish arbitration procedures. See, e.g., United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 3 [hereinafter the New York Convention]. With few exceptions, the New York Convention requires that any signatory country enforce an arbitral award made in any other country, thereby ensuring the enforcement of all foreign arbitral awards, subject to reciprocity reservations that some sovereigns have made. See A. REDFERN & M. HUNTER, supra note 1, at 57; Higgins & Brown, supra note 7, at 1035. For purposes of the Convention and in arbitration doctrine generally, the nationality of an arbitral award is determined by the country in which the award is made. See A. REDFERN & M. HUNTER, supra note 1, at 57. In addition to the New York Convention, a number of arbitration frameworks give preeminence to the substantive law chosen by the parties. See, e.g., United Nations Comm'n on International Trade Law Arbitration Rules, 31 U.N. GAOR Supp. (No. 17), U.N. Doc. A/31/17 (1976) [hereinafter UNCITRAL Rules]; International Chamber of Commerce Court of Arbitration Rules (April 1975) [hereinafter ICC Rules], reprinted in INTERNATIONAL CHAMBER OF COMMERCE, GUIDE TO ARBITRATION (1983); Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, opened for signature March 18, 1965, 17 U.S.T. 1270, T.I.A.S. No. 6090, 575 U.N.T.S. 160 [hereinafter the ICSID Convention]; European Convention on International Commercial Arbitration, April 21, 1961, 484 U.N.T.S. 349, art. VII.
13In such an instance the arbitrator generally uses one of a number of theories in choosing the substantive law. For a brief survey of these theories, see Wilner, cited in note 5 above, at 654-56. See also Branson & Wallace, supra note 10, at 43-44 (discussing the difficulties created by parties who fail to specify the applicable substantive law).
14Lex mercatoria is the "law-merchant" or commercial law; that is, it is that system of laws that is adopted by all commercial nations, and constitutes a part of the law of the land. See BLACK'S LAW DICTIONARY 821 (5th ed. 1979). See generally A. REDFERN & M. HUNTER, supra note 1, at 89-92 (explaining the origins of the term lex mercatoria and suggesting the need for a modern version of uniform international merchant law).
15Customs of the trade is a subset of lex mercatoria, which includes conventions and customary law. See Croff, supra note 10, at 635. Thus, customs of the trade is that part of lex mercatoria derived from common practice within specific usages, industries, or trades. See id. at 634.
16The Statute of the International Court of justice provides generally accepted guidance as to the content of general principles of law in the international context. It states that the Court, in deciding international conflicts, shall refer to international conventions, international custom, the general principles of law recognized by civilized nations, or judicial decisions. See Statute of the International Court of Justice, art. 38 [hereinafter I.C.J. Statute], reprinted in CURRENT INTERNATIONAL TREATIES 137 (T. Millar ed. 1984). For an example of an arbitral award that used the I.C.J. Statute as indicative of the meaning of general principles of law, see LIAMCO decision, cited in note 12 above, at 92-93.
17For a critical treatment of the sole use of general principles of law in the international arbitration context, see A. REDFERN & M. HUNTER, cited in note 1 above, at 84-87.
18Private parties are reluctant to commit themselves to an agreement governed by the national law of the state with which they are contracting, whereas sovereign governments are reluctant to commit to an agreement containing a foreign national law. See de Vries, supra note 5, at 59.
19See A. FATOUROS, GOVERNMENT GUARANTEES TO FOREIGN INVESTORS 21-28 (1962); see also Buffenstein, Foreign Investment Arbitration and Joint Ventures, 5 N.C.J. INT'L L. & COM. REG. 191, 194 (1980) (stating that joint capital ventures rapidly are assuming a position of considerable significance in the flow of investment in developing countries).
20International commercial arbitration governed by general principles is used most frequently in the context of long-term economic development agreements between sovereign governments in developing nations and corporations in industrial countries. For a statement of the reasons that parties from developing countries and those from industrial nations may wish to submit to arbitration, see Croff, cited in note 10 above, at 617. For a seminal discussion of the growing importance of the general principles of law in resolving conflicts arising out of international commercial agreements, see McNair, The General Principles of Law Recognized by Civilized Nations, 33 BRIT. Y.B. INT'L L. 1 (1957).
21See A. REDFERN & M. HUNTER, supra note 1, at 76. Thus, most scholars view a choice-of-law clause as desirable. See, e.g., de Vries, supra note 5, at 74.
22For example, a country might control the import and export trade or prohibit the free flow of currency. See A. REDFERN & M. HUNTER, supra note 1, at 77.
23National laws frequently restrict international transactions by imposing grain embargoes, import quotas, trade boycotts, and currency restrictions. See id. at 77-78.
24A national legislature might, for example, impose import restrictions that substantially affect the contractual rights of private parties. Thus, if an arbitral tribunal applied the law of such a nation in a dispute between the government and a private party, it might include as part of the applicable law the decree or legislation imposing the import restrictions, resulting in an automatic finding for the government. See id. at 78-79.
25See Danilowicz, supra note 8, at 237; see also Croff, supra note 10, at 623 (stating that parties to a contract often do not include a choice-of-law clause, for a variety of reasons).
26Carlos Calvo, a nineteenth-century Argentine jurist, developed the doctrine that a foreigner doing business in a country is entitled only to nondiscriminatory treatment, and conducting such business implies consent to be treated equally with nationals. See H. STEINER & D. VAGTS, TRANSNATIONAL LEGAL PROBLEMS 553 (3d ed. 1986). This doctrine was developed in the context of property rights claimed by foreign investors. For a discussion of the Calvo Clause, designed to make this understanding explicit, see the leading arbitral award on the topic, United States (North Am. Dredging Co. of Texas) v. United Mexican States, United States-Mexican Claims Commission, 1926, 4 U.N.R.I.A.A. 26 (1926). See also H. STEINER & D. VAGTS, supra, at 557-61 (discussing the interpretation and application of the Calvo Clause).
27See Szasz, The Investment Disputes Convention and Latin America, 11 VA. J. INT'L L. 256, 260-62 (1971).
28At least one critic of such clauses argues that an arbitrator should not respect automatically the choice of the parties when they specify only a non-national standard, claiming moreover that no country's rule of conflict of laws allows reference to a purely non-national rule. See Croff, supra note 10, at 623 (stating that "an arbitrator needs a set of national rules to fill the gaps within [broader standards]"); cf. A. REDFERN & M. HUNTER, supra note 1, at 84-87 (suggesting that general principles are "better used in conjunction with a defined system of national law").
29See Wilner, supra note 5, at 655-57.
30See Branson & Wallace, supra note 10, at 42; Croff, supra note 10, at 623-24.
31For a brief discussion of the various procedural guidelines for arbitrators, see note 11 above.
bel>32See Croff, supra note 10, at 625. The claimed merits of this theory are predictability and consistency, but it has attracted theoretical and practical criticisms. For an overview of this debate, see id at 625-27.
33See id. at 627-28.
34Thus, for example, a Swiss arbitrator in a dispute between a New York corporation and the West German government may look to the laws of New York, Switzerland, and West Germany. When the different laws lead to the Same result, the arbitrator may avoid applying one law, citing the existence of a "false conflict." For a discussion of this "denationalized" theory of arbitration, See id. at 629-30.
35See id. at 630-31.
36Cf. von Mehren, Special Substantive Rules for Multistate Problems: Their Role and Significance in Contemporary Choice of Law Methodology, 88 HARV. L. REV. 347 (1974) (discussing derivation of special substantive rules from competing domestic law rules).
37Thus, an arbitrator may settle a dispute by directly applying the laws of England, for instance, without referring to any of the foregoing conflict-of-laws analysis. See Croff, supra note 10, at 632-33.
38See Texaco Overseas Petroleum Co. v. Government of the Libyan Arab Republic, Award on the Merits of January 19, 1977 (Dupuy, arb.), 17 I.L.M. 1, 15-16 (1978) [hereinafter TOPCO decision].
39See id. at 16-18 (citing A. FATOUROS, supra note 19; Bourquin, Arbitration and Economic Development Agreements, 15 BUS. LAW. 860 (1960); Hyde, Economic Development Agreements, 105(I) RECUEIL DES COURS DE L'ACADEMIE DE DROIT INTERNATIONAL DE LA HAYE 267 (1962)); cf. Charney, Transnational Corporations and Developing Public International Law, 1983 DUKE L.J. 748, 762 (urging inclusion of nonstate entities in the international legal system).
40See supra pp. 1821-22.
41For a discussion of the disadvantages of general principles in the modern, commercial context, see A. REDFERN & M. HUNTER, cited in note 1 above, at 86-87. But see McClelland, supra note 6, at 183-84.
42See supra p. 1819; see also A. REDFERN & M. HUNTER, supra note 1, at 92 (discussing problems of building up an established body of international law on a piecemeal basis).
43See supra pp. 1823-24.
44See, e.g., A. REDFERN & M. HUNTER, supra note 1 at 84-87 (discussing general principles of law as a valuable source of law, but warning against their use to the exclusion of all national law); Croff, supra note 10, at 634-38 (discussing lex mercatoria and general principles as part of a new legal order); Danilowicz, supra note 8, at 272-78 (analyzing the rise of lex mercatoria, customs and usages of trade, and general principles of law to supplement and replace national laws); de Vries, supra note 5, at 75-77 (stating advantages of "internationalizing" language in the substantive law provision); McClelland, supra note 6, at 183-88 (arguing for a codified arbitration law of international character); see also Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 OHIO ST. L.J. 265, 266-68 & n.8 (1984) (discussing advantages of global harmonization of the law of sales and citing examples of specialized international legal regimes). See generally McNair, supra note 20 (discussing benefits of using general principles of international law but explicitly declining to prepare a list of such principles).
45Cf. McNair, supra note 20, at 15-19 (declining to prepare a list of the general principles of international law but proposing "respect for acquired rights" as a "likely candidate, among many, for recognition").
46Although International Legal Materials and other periodicals contain references to numerous arbitral awards, the index section of the Yearbook of Commercial Arbitration has been the most useful in locating awards that discuss general principles of law. By using this index and references in the secondary literature, it is possible to examine only those awards that discuss general principles. Some of the periodical reporters do not contain any index, however, so it is almost certain that some published arbitral awards dealing with general principles have not been included in this listing.
47See supra note 12 and accompanying text.
48See TOPCO decision, supra note 38, at 23.
49See id. at 24. The effect of such a rule is consistent with U.S. act of state doctrine and statutory provisions, which except from the defense of act of state any commercial activity of a foreign government that has a direct effect in the United States. See, e.g., Allied Bank Int'l v. Banco Credito Agricola, 566 F. Supp. 1440, 1443 (S.D.N.Y. 1983) (holding that the act of state doctrine prevents summary judgment), vacated on rehearing, 757 F.2d 516 (2d Cir. 1985) (holding that the act of state doctrine does not foreclose review of contractual claim (citing Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964) (holding that the act of state doctrine requires that the "Judicial Branch . . . not examine the validity of a taking of property within its own territory by a foreign sovereign . . . even if the complaint alleges that the taking violates customary international law," but that "the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches"))); see also Alfred Dunhill of London, Inc. v. Cuba., 425 U.S. 682, 695-706 (1976) (holding that a broad international consensus as to commercial dealings justifies the commercial act exception to the act of state defense). But cf. id. at 724-29 (Marshall, J., dissenting) (questioning the validity of the commercial act exception to the act of state doctrine and interpreting "commercial act" narrowly). The U.S. view on the effect of arbitration in this context is that, for purposes of enforcement of an arbitral award, the act of state defense is not ordinarily available to sovereigns entering into agreements providing for international commercial arbitration. See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 443 comment e, reporter's note 6 (1987).
58See Westland Helicopters Ltd. (U.K.) v. Arab Org. for Industrialization, ICC Interim Award of March 5, 1984, case no. 3879 (Bucher, Bellet & Mangard, arbs.), 23 I.L.M. 1071, 1087 (1984) [hereinafter Westland decision]; Barcelona Traction, February 5, 1970, 1970 INT'L CT. JUST. REP. 3, 39 [hereinafter Barcelona decision].
59See Westland decision, supra note 58, at 1073-74.
60See id. at 1073-74, 1085. In addition, the corporate veil may be lifted to prevent fraud or malfeasance or otherwise to enforce requirements or obligations; this protection may be extended to shareholders, as well. See Barcelona decision, supra note 58, at 39.
61Force majeure is a superior or irresistible force, particularly an event the cause of which is outside the control of the parties and could not be avoided by due care. See BLACK'S LAW DICTIONARY, supra note 14, at 581.
62See (Fed.) Germany v. Yugoslav defendant, Yugoslav ATFEC, Award No. T 52/67-54, June 25, 1970 (unreported) (breach of agreement to supply 200 tons of Dalmatian marasca because of crop failure), cited in J. LEW, APPLICABLE LAW IN INTERNATIONAL COMMERCIAL ARBITRATION, para. 397, at 519-20 (1978) (stating that this award was fair and just because the loss was not the fault of either party and that such a loss-sharing decision would foster future business between the parties). This result is mandated by the principle of unjust enrichment. See infra p. 1833.
63See ICC Award No. 1399, Doc. No. 410/1395, April 14, 1966 (Lagergren, arb.), cited in J. LEW, supra note 62, para. 423, at 554.
64See id. at 553-54.
65See generally Goldman, Les Confits de Lois dans l'Arbitrage International de Droit Privé, 109(II) RECUEIL DES COURS DE L'ACADEMIE DE DROIT INTERNATIONAL DE LA HAYE 347, 430-35 (1963).
66See TOPCO decision, supra note 38, at 32-36 (citing several arbitral awards affirming this principle in theory). Restitutio in integrum is the restitution of a thing in its entirety, or the restoring of a thing to its original state. See BLACK'S LAW DICTIONARY, supra note 14, at 1180.
67See TOPCO decision, supra note 38, at 36; Barcelona decision, supra note 58.
68See BP decision, supra note 54, at 348-49.
69See supra note 54.
70See BP decision, supra note 54, at 354.
71See TOPCO decision, supra note 38, at 36-37.
72See LIAMCO decision, supra note 12, at 117. Such a principle is analogous to the U.S. constitutional doctrine of just compensation, which permits private property to be taken for public use only with just compensation. See U.S. CONST. amend. V; Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922).
73For example, if a private foreign party purchases a factory from a citizen, a subsequent taking by the government will not be subject to a commercial arbitral remedy, because arbitral procedure requires the parties' prior agreement to submit disputes to arbitration. Thus, even if the contract between the citizen and the foreign party contained an arbitration clause, the government would not be bound to submit to commercial arbitration.
95See LIAMCO decision, supra note 12, at 94; Lena Goldfields Arbitration, 1929-1930 ANNUAL DIGEST, Case No. 1 and 258, at 3, 426; see also McNair, supra note 20, at 10-12 (discussing prohibition of unjust enrichment as a principle of law recognized by civilized nations).
Trans-Lex Administrative Information
[click here to copy citation to clipboard]
Please Cite as: "http://www.trans-lex.org/127400".
Referring Principles/Related DocumentsReferring Principle: No. IV.2.3 - No repudiation of contractual consent by state party
Referring Principle: No. IV.7.1 - Invalidity of contract that violates boni mores
Referring Principle: No. VI.3 - Force majeure
Referring Principle: No. IX.1 - Basic rule
Referring Principle: No. X.2 - Piercing the corporate veil
Referring Principle: No. XI.1 - Compensation for Expropriation
This document is included in TransLex by kind permision of the Harvard Law Review.
There are no Threads related to this document. Open one by yourself.
Trans-Lex in Social Media: