Chapter VI. Selected legal opinions of the secretariats of the United Nations and related intergovernmental organizations

SELECTED LEGAL OPINIONS OF THE SECRETARIATS OF

THE UNITED NATIONS AND RELATED INTERGOVERN-MENTAL ORGANIZATIONS

1. Legal opinions of the Secretariat of the United Nations

   (Issued or prepared by the Office of Legal Affairs)

   Contracts

   1. DETERMINATION OF THE APPLICABLE LAW TO CONTRACTS CONCLUDED BETWEEN THE UNITED NATIONS AND PRIVATE PARTIES — “SERVICE CONTRACTS” AND “FUNCTIONAL CONTRACTS” — UNCITRAL ARBITRAL RULES

      Letter to the Legal Counsel, Organization for Economic Cooperation and Development

   1. Your letter of 2 December 1987, to which this responds, requested our views and the experience of the Organization on the determination of the applicable law to contracts concluded between the United Nations and private parties.

   2. The particular questions in that letter to which you requested our response do raise, as you will appreciate, a number of issues which are not only of a fundamental legal nature but also are highly controversial.1 I am sure, therefore, that you will understand and excuse the delay in replying to your letter.

      Issues

   3. In the absence of some indication of the facts which have given rise to the dispute under arbitration by the Organization for Economic Cooperation and Development (OECD), and the particular law that you are concerned about, it is difficult to be very specific in response to your questions. We have, therefore, attempted to deal with the issues you raised below in a general way in the light of the United Nations experience in this area.

   4. Your letter states that the arbitration against the OECD arises from a contract concluded with a French firm for provision of travel agency services, presumably at OECD headquarters in Paris. The United Nations treats such contracts, which are concluded for provision of services, materials and equipment incidental to performance of its functions, as “service contracts” and distinguishes them from “functional contracts”, which are concluded for the fulfilment, directly, of its mandate.2

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   5. Functional contracts include, inter alia, contracts for employment of United Nations staff members and contracts for the direct delivery of United Nations assistance. The position of the Organization is that such contracts must be interpreted and applied consistently with the internal law of the Organization and the agreements concluded with Governments and other intergovernmental organizations which may be involved in the delivery of United Nations assistance.

      Applicable law in United Nations service contracts

   6. The United Nations legal opinion cited in your letter was itself based substantially on a study of the subject conducted in 1967 by the International Law Commission.3 Since that time, there have been a number of developments in the area of international trade law, and in the contract practices of the Organization.4 The experience of the Organization is derived, essentially, from negotiations with contractors and in the course of settlement of contract claims through the internal mechanism evolved by this Office for negotiated settlement of claims and, only occasionally, arbitration.5

      UNCITRAL Arbitration Rules

   7. The most significant development was the decision of the Organization some six years ago to propose the UNCITRAL Arbitration Rules for insertion into contractual instruments to govern arbitration of claims with private contractors; these Rules assume that a national law determined to be the proper law of the contract will be applicable in the settlement of disputes.6 However, while the applicable law would be certain where the parties include a choice-oflaw clause in the contract, or do so later in an arbitration agreement, the situation is less clear where no law is chosen by the parties.7 According to the UNCITRAL Rules, the arbitrators, in absence of a choice of law by the parties, determine the applicable law in accordance with the conflict of laws rules which the arbitrators deem applicable.8 But, again, since the conflict of laws rules are a part of municipal law, the arbitrators must of necessity select a-national law, normally the proper law of the contract, whose conflict rules are to applied.9

      Choice-of-law clause

   8. It is still true that in the majority of cases, contracts concluded between the United Nations and private parties do not, as a matter of principle, contain a choice-of-law clause.10 However, this deliberate omission has to do more with our concern that parties or courts seized of the matter could form the mistaken view that, despite its immunity from judicial process, the Organization intended, by the choice-of-law clause, to submit to the jurisdiction of the State of the chosen law.11 An additional reason might be that it is difficult for an international organization to choose a particular national law to govern its contractual relations, and quite often contractors are reluctant to agree on application, exclusively, of a-national law or general principles of law, the precise nature of which is still uncertain and with which they or their attorneys may not be too familiar.12

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      International law

   9. By virtue of the public international law character of the Organization, a contract concluded by the United Nations cannot be subjected exclusively to national law, as the jurisprudence of international commercial arbitration indicates, particularly in the case of contracts between States and foreign private parties.13 In the event of an arbitration, we consider that the inclusion in United Nations contracts of such provisions as are derived from the internal law of the Organization and general principles derived from general conventions in the commercial law area, uniform rules and international commercial usage, otherwise referred to as lex mercatoria, is sufficient expression of the United Nations’ intent to rely on international law, in its widest sense.14

      A-national law

   10. Furthermore, it has been argued that an arbitrator may select a-national law as the proper law of the contract, to supplement and even supplant any otherwise applicable national law. Once selected by the arbitrator, such a-national law could be applied for the interpretation and application of the contract, as a whole or certain aspects of it, based on a principle generally referred to as depecage.15 This argument has been advanced by a number of scholars and some arbitrators in the case of international commercial arbitration and can, arguably, be adopted in arbitration proceedings involving an international organization and a private party.16

       Arbitration based on law

   11. In our experience, in the course of negotiations with private contractors, we have found an almost universal desire by contractors for certainty of result in the event of arbitration of a claim, which can only be attained if arbitration is based on law. This does not mean, however, that an arbitrator has to adjudicate the dispute as if it were a dispute of a purely domestic nature. It seems undesirable, on the other hand, that an arbitrator should be entirely free to settle a dispute as if he were a conciliator.17 There must be in this respect a distinction between arbitration at law and arbitration ex aequo et bono.18

       National law

   12. We do, therefore, in the formulation of contracts, consult national law and often attempt to follow the substantive requirements of the national law where the contract is formed or will be executed. At times, we have expressly referred to national legislation in specialized fields such as banking, and have even relied on national legislation or case law where this appeared particularly necessitated by the nature of the contract.19 We do this because we recognize that a contract cannot exist in vacuo. On the other hand, we seek to expressly exclude national law where it is to our disadvantage or where it seems to contradict the terms of the contract or infringe on the privileges and immunities of the Organization.

   13. There is a growing opinion for a-national law to govern international arbitration, and there would be even more reason for so doing where one of the parties is an international legal person. It seems, however, that there is as yet no

       universal acceptance for the notion, expressed by many scholars and international arbitrators over the last two decades, that a new body of law independent of the national and public international legal systems, generally lex mercatoria, has emerged and would be applicable to international arbitration.20

       Settlement of claims

   14. We have not had any arbitration conducted under the UNCITRAL Arbitration Rules although many cases arise which have been settled amicably through negotiations on the basis of a review of the merits of the dispute by this Office. In practice, we review the claims on the basis of the contract terms,21

       which we interpret in the light of the proper law of the contract, the internal legal rules of the Organization, where these have been referred to expressly or by implication in the contract, and by application of the general principles of law and commercial practice and usage applicable to the transaction.22

       Conclusion

   15. In the particular case you referred to, relating to a service contract between OECD and a travel agency incorporated in France for provision of services in France, determination of the applicable law may very well depend on the arbitration procedure provided for in the contract and the view an arbitration tribunal might take regarding the relevance of article 1496 of the French International Arbitration Law of 1981.23 However, it might be possible for OECD to successfully argue for exclusion of the whole or certain provisions of French law (even if this were found to be the proper law of the contract), based on the arguments advanced in paragraph 10 above.

       5 February 1988

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   2. CONTRACT BETWEEN UNITED NATIONS INSTITUTE FOR DISARMAMENT RESEARCH AND THE INSTITUT FRAN_AIS DES RELATIONS INTERNATIONALES — FINANCIAL RULES 110.10, 110.18 AND 110.19 —...