Choice of law in third-millennium arbitrations: the relevance of the UNIDROIT Principles of International Commercial Contracts.

Author:Marrella, Fabrizio

TABLE OF CONTENTS I. INTRODUCTION II. ON CHARACTERIZATION III. ON PRELIMINARY QUESTIONS IV. ON CHOICE OF LAW APPLICABLE TO THE MERITS OF THE DISPUTE A. Models of Choice B. The UNIDROIT Principles in Action 1. UNIDROIT Principles as a Lex Contraetus 2. Positive Choice of Law by the Parties: ICC Award Number 7110 3. Negative Choices and Application of the UNIDROIT Principles by Arbitrators: Award Number 7375 C. Is Renvoi Really Phantomatic? V. UNFORESEEN APPLICATIONS OF THE UNIDROIT PRINCIPLES: INTERPRETATION OF THE NATIONAL LEX CONTRACTUS A. A New Instrument for International Arbitrators, the TNT Test B. A First Example: ICC Award Number 8264 C. A New Risk for the Development of International Arbitration: The Lex Cognita Approach D. Transnational Rules and International Uniform Law Conventions 1. Arbitral Practice 2. One Practical Example: ICC Award Number 8769 3. Future Applications E. Excluding the UNIDROIT Principles VI. UNIDROIT PRINCIPLES DO NOT CLASH WITH STATE CONTROL MECHANISMS VII. CONCLUSION I. INTRODUCTION

In 1584, Lanfranco da Oriano, one the first scholars of commercial arbitration in the period of the Law Merchant, published an essay in Venice in which he noticed that the "subject of arbitration is of a great utility but it is always badly explained by legal scholars." (1) Five centuries later, many businessmen still agree with Lanfranco since their perception of the law of international trade seems completely different from that of many legal scholars, including their lawyers.

In truth, a reconciliation of the two visions is possible since it is the most important task of any (good) international arbitrator. This task is easier today with reference to the UNIDROIT Principles for international commercial contracts. The growth of a global economy rooted in the cosmopolitan nature of commerce and the development of new means of transportation and communication demand the prompt formation of a uniform transnational commercial law. (2) Whether one agrees or disagrees with lex mercatoria doctrines, one must accept the fact that a significant number of awards have made reference to them, whatever that means. (3) Legal scholars have tried to solve the Babel of law dilemma, which was announced with much worry by the French comparatist Rene David, by creating a compilation of principles intended to provide one codified answer to the challenge of lex mercatoria. The dawn of the third millennium witnesses the spread of one of the twentieth century's most striking legal innovations: the codification of general principles of international commercial contract law under a nonbinding format by an international organization. New actors of international trade call for new rules, and the winds of change are affecting the regulatory activity patterns of some international organizations. A striking example is UNIDROIT.

The International Institute for the Unification of Private Law (UNIDROIT) was established at the beginning of the 20th century in order to promote the international uniformity of state legislations. However, UNIDROIT has elaborated an international code in which general principles of contract law specifically adapted for non-national transactions have been compounded. (4) Paradoxically, this Institute aimed at conventional unification of law (5) has carried out the work of scientific unification of transnational commercial law, something never tried before.

Today, every reader of the imposing legal literature on the UNIDROIT Principles is confronted by a phenomenon which has reunited international, private, and comparative law scholars in common reflection, and has torn down the common state-centered partitions of legal science, at least in continental Europe. (6) A leading Italian scholar has warned that we might face a turning point in the legal thinking of international trade:

[T]he effectiveness of this new Digest relies on the ongoing number of international arbitral awards that, in resolving disputes by applying lex mercatoria, make textual reference to the UNIDROIT principles, assuming them to be a credited source. The essence of this compilation resides in the blend of contractual practice with universally accepted general principles of law. Here, the political mediation of competing interests, peculiar to the law created by States is replaced, just like in the ancient times of lex mercatoria, by the cultural mediation of legal scholars. (7) Further evidence of the growing importance of lex mercatoria and the UNIDROIT Principles is offered in the European Commission green paper "on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernisation." (8) In Europe, it is now time to transform the 1980 Rome Convention into an E.C. regulation, and the Commission has pointed out that "traditionally, most academic writers have ruled out the possibility of choosing non-state rules, particularly because there is not yet a full and consistent body of such rules." However, in 2003 the situation seems different from the one prevailing in 1980. The hundreds of scholars throughout the world who repeat that lex mercatoria (and the UNIDROIT Principles) does not exist, or worse, is not applied to international contracts, risk to be outdated.

Hence, the European Commission suggests a modification of Article 3 of the Rome Convention (on choice of law by the parties) to encompass a choice of transnational rules. Such a modification is necessary because:

[I]t is common practice in international trade for the parties to refer not to the law of one or other state but direct to the rules of an international convention such as the Vienna Convention of 11 April 1980 on contracts for the international sale of goods, to the customs of international trade, to the general principles of law, to the lex mercatoria or to recent private codifications such as the UNIDROIT Principles of International Commercial Contracts. (9) The present analysis aims to build up some models of application of transnational rules, including the UNIDROIT Principles, on the basis of patterns observed in arbitral jurisprudence. This will help to estimate, in a more accurate way, the role of these rules in the development of international commercial arbitration law at the dawn of the third millennium. (10)

Since their official presentation in May 1994, the UNIDROIT Principles on international commercial contracts have received various applications, either in the framework of institutional arbitration, or in the context of ad hoc arbitration. (11) The importance of ICC institutional arbitration leads one to focus the present study on patterns of international jurisprudence rendered in that specific framework. In this respect, a recent study on those awards has shown that the UNIDROIT Principles on international commercial contracts have been applied in at least 38 awards in the period comprising May 1994 to December 31, 2000. (12)

The preamble to the UNIDROIT Principles states that these rules become applicable: "[w]hen the parties have agreed that their contract be governed by them. They may be applied when the parties have agreed that their contract be governed by 'general principles of law,' the 'lex mercatoria' or the like." Moreover, "they may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law. They may be used to interpret or supplement international uniform law instruments. They may serve as a model for national and international legislators." (13)

The issue of choice of law in international arbitration has long been debated in specialized private international law literature by international commercial arbitration scholars. (14) Today, there is little doubt that arbitrators are, to a large extent, free from the constraints imposed by conflict-of-law rules of the seat of the arbitration, the lex situs arbitri.

Conversely, if an international arbitrator opposes the rules of the lex situs arbitri, it follows that the arbitrator will face more complex issues than would be faced by domestic courts. In fact, sometimes the obligation or the chance to apply the forum law by a domestic court is a good excuse to avoid further research for the most appropriate rules of law to resolve the disputes. International arbitrators, on the other hand, do not have the chance to hide behind the simple application of the forum law. They do not render the award in the name or on behalf of the state in which the situs arbitri is located. Rather, their decision is the result of a jurisdictional activity which finds its roots in the parties' will. Thus, the international arbitrator is called to realize a particular kind of multistate (or better transnational) justice where conflict rules and the consequent determination of the proper law of the contract should lead to the application of rules and general principles of substantive law enjoying wide international consensus. (15)

The implication of the UNIDROIT Principles for contemporary private international law applied to arbitration can be summarized by referring to four issues: characterization, discussed in Section II; preliminary questions, discussed in Section III; the concept of foreign law, discussed in Section IV; and the relationship between foreign law and state control mechanisms, discussed in Section V. All these issues will be addressed with reference to institutional arbitration, leaving aside specific problems of ad hoc arbitration.


    Whenever determining the applicable law, domestic courts and even international arbitration tribunals may face problems of characterization (or classification). (16) Despite different perceptions of this problem developed in U.S. and European doctrines, (17) there are few doubts that it concerns a process of labeling legal issues by deciding if they fall into the category of "contracts" or...

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