The problem of the application by international arbitrators of rules or principles of law not derived from State law is as old as this very method of settling international trade disputes. The parties' power to choose a-national rules2 in international arbitrations is founded on the principle of party autonomy and has been widely recognized in arbitration laws enacted in the last two decades. State courts, however, do not always recognize this choice as having the effects of a choice of law within the meaning of conflicts of law. Practice shows that there are various reasons that lead parties to make this choice.

A. State contracts

There was a time when it was necessary for private parties negotiating State contracts to secure a reasonable level of protection for their investments in the territory of the host State. This need still exists today, although the presence of a network of instruments for investment protection at international level has made it less acute.3 The solutions devised by imaginative law firms in the 1950s and 60s included carefully drafted choice-of-law clauses designed to 'denationalize'- or even 'internationalize' -their client's contract with a State, or State-owned entity, by avoiding the application of the law of the State party or by providing for the application of international law. This was felt at the time to be indispensable as a means of overcoming what French scholars have called 'l'aléa de la souveraineté' , i.e. the State's ability to resort to its law-creating power, not in the public interest, but to improve its contractual position or extricate itself from contractual liability and thereby modify the contractual balance to its advantage.

The 'delocalization' of State contracts was achieved through reference to a variety of rules and principles in the choice-of-law clause, as envisaged in the 1979 Athens resolution of the Institute of International Law:

The parties may in particular choose as the proper law of the contract either one or more domestic legal systems or the principles common to such systems, or the general principles of law, or the principles applied in international economic relations, or international law, or a combination of these sources of law.4

The undefined and general nature of the rules so chosen by the parties led inevitably to uncertainty and unpredictability in the solutions adopted. However, this was felt to be an acceptable risk, and certainly less of a risk than exposure to the legislative power of the State as a contractual partner. It was generally believed that the inclusion of an international arbitration clause in the State contract would be a way of ensuring that a-national rules of law could be applied so as to place the contract under the regulation of some sort of transnational law - or ' tiers droit'5 - capable of infusing into the deal a sufficient degree of fairness. This is borne out by the numerous arbitral awards that [Page59:] have settled disputes arising out of State contracts, particularly in the field of petroleum concession agreements.6 It is worth commenting on some of these arbitral awards, both with respect to the authority of the arbitrators involved and the basis on which recourse is made to a-national rules.

1. Arbitral awards

In the Saudi Arabia v. Aramco case of 1958, the arbitrators reasoned that the Saudi Arabian law chosen by the parties

must, in case of need, be interpreted and supplemented by the general principles of law, by the custom and practice in the oil business and by notions of pure jurisprudence; in particular, whenever certain private rights - which must inevitably be recognized to the concessionaire if the concession is not to be deprived of its substance - would not be secured in an unquestionable manner by the laws in force in Saudi Arabia.

There is here a clear suggestion that the agreement should undergo a measure of denationalization to protect the private party.

The three Libyan arbitration cases resulting from the nationalization of certain petroleum concessions by Colonel Kedafi in 1971 represent a landmark in this field. Although the choice-of-law provisions in the different concession agreements were identical, the awards came to different conclusions on the subject. Clause 28, paragraph 7, of the Libyan concession agreements read as follows:

The 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.

a) The arbitrator in the BP case ruled that the clause in question did not imply the sole application of Libyan law or public international law or the contract. The arbitrator held that it was first necessary to apply 'the principles common to Libyan law and to public international law' and then, if such common principles were found to be lacking, 'the general principles of law', which were regarded as the general principles of internal laws.

b) The Topco/Calasiatic award, on the other hand, did not place Libyan law on the same level as public international law. It found that the contract was in any event governed by public international law due to the fact that the governing law clause referred first to 'principles of international law' and subsidiarily to 'general principles of law'. The arbitrator identified the latter with those referred to in Article 38 of the Statute of the International Court of Justice as one of the sources of public international law

c) The Liamco award took yet a different position. Here, the arbitrator interpreted the choice-of-law clause as implying that 'the law governing the Liamco concession agreement . . . is firstly Lybian law when the latter is consistent with international law, and secondly general principles of law'. Libyan principles were regarded as including not only legal provisions but also the principles of Islamic law, custom, natural law and fairness (équité), which are referred to as subsidiary sources of law in Article 1 of the Libyan Civil Code. The arbitrator identified the principles of international law with [Page60:] reference to Article 38 of the Statute of the International Court of Justice and the 'general principles of law' as those tenets 'universally accepted in theory and in practice' that are found in the majority of legal systems.

These different solutions regarding the applicable law led the arbitrators to different conclusions as to the nature of the compensation due to the nationalized concessionaires. The BP and Liamco awards excluded full compensation in the absence of any principles relating thereto common to Libyan and international law. The Topco/Calasiatic award, on the other hand, held that according to the principles of both Libyan law and public international law restitutio in integrum was the normal sanction for non-performance of contractual obligations.

A significant step was taken on the question of the proper law of State contracts in a subsequent arbitration between the Government of Kuwait and Aminoil. Unlike the Libyan cases, the State party here took an active part in the arbitration. The dispute arose out of the nationalization by Kuwait of a petroleum concession granted to Aminoil in 1948, with a guarantee that the terms would remain stable. The applicable law clause in the parties' 1979 agreement read as follows:

The law governing the substantive issue 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.

It may be assumed from this vague formulation, redolent of a rule of conflict, that the parties failed to agree on a direct choice of applicable law. The tribunal found Kuwaiti law to be applicable to many matters as 'the law most directly involved'. It was not mentioned, however, to which matters Kuwaiti law should apply or which law should apply to other matters. The arbitral tribunal held that the applicable law clause should be interpreted on the basis of a clause agreed in principle by the parties in a draft contract of 1973. This clause, which reflected provisions generally found in Kuwaiti petroleum concession agreements, referred to 'principles common to the laws of Kuwait and of the State of New York' and, in their absence, to the 'general principles of law recognized by civilized nations'.

The tribunal further held that the various sources of law it was required to apply should not contradict each other, as evidenced in the most significant passage of the award, where the tribunal added:

if, as recalled above, international law constitutes an integral part of the law of Kuwait, the general principles of law correspondingly recognize the rights of the State in its capacity of supreme protector of the general interest.

By referring at the same time to Kuwaiti law and to the general principles of law and by reconciling these two sources of law, the tribunal satisfied both the State, which had argued for the application of its own laws to all the issues in dispute, and Aminoil, which wanted general principles of law alone to be applied.

The Aminoil award marked an important development insofar as it recognized the possibility of applying both the law of the host State and international law as part of national law. The award rejected the notion of transnational law as a third order between international and national law and implicitly recognized that neither the quality of a party as a State nor the nature of the agreement justifies the sole application of public international law to govern the parties' relations in the absence [Page61:] of a clear expression of their will. Since the 1970s, the sole application of public international law had become less acceptable as State parties were increasingly State-owned entities rather than States themselves, and new types of agreements, subject to private law (such as service contracts, technical assistance contracts and build-operate-transfer agreements) were increasingly replacing traditional concession agreements.

The tendency of international arbitrators to attenuate the application of State law by concurrently referring to other principles (be they general principles of law or principles of international law) can be found even when the parties have chosen the law of the State or State entity party to the contract. In the context of an ICC arbitration, this concurrent reference may be partly justified by the requirement placed on arbitrators by the ICC Rules of Arbitration to take account of trade usages in all cases, i.e. even when the law has been chosen by parties. This of course begs the question of whether general principles of law or similar references may rightly be characterized as trade usages.7

The problems and uncertainties arising from the wording or lack of choice-of-law provisions, as illustrated in the above-mentioned cases, are to some extent overcome whenever the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States (Washington Convention) is applied.8

2. Washington Convention

Under Article 42(1) of this convention,9 parties may decide, in the exercise of their autonomy, to subject their investment agreement to 'rules of law'. This expression is designed to include not only domestic law but also public international law or other anational systems, or a combination of rules such as a treaty not yet in force, general principles of law, principles common to various States or non-binding codes of conduct (such as the World Bank's 1992 Guidelines on the Treatment of Foreign Direct Investment).10 Failing an express choice by the parties, the arbitral tribunal shall apply the law of the host State 'and such rules of international law as may be applicable'.

Although the Convention marks an important step forward with respect to the difficult matter of the law applicable to State contracts, it leaves certain questions unanswered, as shown by a series of awards in which arbitrators were called upon to interpret Article 42(1). Not least of these questions is the hierarchy to be established between the State's domestic law and international law, as both systems are referred to without any apparent differentiation.

Two decisions rendered under the Washington Convention have clarified that in normal circumstances the tribunal has first to determine the content of the State law and then to test its conformity with the principles of public international law. The award in vKlöckner v. Cameroon was annulled on the ground that the tribunal had rendered its decision on the basis of international law without having first established the content of the host State law.11 In Letco v. Liberia the tribunal had construed the reference made in the preamble of the concession agreement to Liberia's general business law as a choice of law. It held that even if such reference were not to be so construed, Liberian law would in any case be applicable under the second part of Article 42(1) of the Washington Convention. With regard to the concurrent reference [Page62:] to international law, the tribunal stated that 'the law of the Contracting State is paramount within its own territory, but is nevertheless subjected to control by international law' and concluded that the rules of Liberian law were 'in conformity with generally accepted principles of public international law governing the validity of contracts and the remedy for their breach'.12

It may be concluded from this review that under Article 42(1) of the Washington Convention public international law serves both to fill a gap in the domestic law of the host State and to prevent the application of a domestic rule that is not in conformity with public international law. The position is explained as follows in Amco Asia et al. v. Republic of Indonesia:13

This Tribunal notes that Art 42(1) refers to the application of host-State law and international law. If there are no relevant host-State laws on a particular matter, a search must be made for the relevant international laws, they must be checked against international laws, which will prevail in case of conflict. Thus international law is fully applicable and to classify its role as 'only' 'supplemental and corrective' seems a distinction without a difference. In any event, the Tribunal believes that its task is to test every claim of law in this case first against Indonesian law, and then against international law.

The question of whether public international law also has a role to play when parties have expressly chosen a domestic system of law to govern their relationship under the first part of Article 42(1) is a more difficult one to answer. It might be thought that the arbitral system created by the Washington Convention, based as it is on an international legal instrument providing for the suspension of any recourse to diplomatic protection by the investor's State during the proceedings (Art. 27(1)) and for other relevant effects of international law, is so much a part of 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 qualification they have assumed the conformity of such law with the rules of public international law.

B. Private law contracts

Some international trade circles, supported by scholars, have expressed the view that State law is inadequate to cope with the dynamism and the level of flexibility required by contractual relations in what has been aptly called 'espace transnational'.14 For this reason, parties to transnational contracts sometimes prefer to choose a-national rules of law to govern their contractual relations.

Rules of law specifically aimed at regulating such relations are established by international conventions containing uniform rules for conflicts of law 15 or uniform substantive laws.16

Practice has tried to address the specificities of transnational trade relations by the progressive standardization of various types of contracts, the adoption of forms of agreement or general conditions of contract prepared by private bodies 17 and intergovernmental organizations,18 and through the publication of standard clauses regulating specific contractual provisions.19 The increasing use of these various means of regulation has not, however, avoided the problems caused by their being [Page63:] subject to the State law governing the relevant contract, with the attendant risk of disharmonious solutions depending on the content of that law.

The regulation of transnational trade relations is thus held to be unsatisfactory. Authors have, in particular, underlined the inconsistency between the international character of these relations and the national regulations to which they are subject. It has been pointed out that international trade has developed in a transnational context 'de sorte que les actes par lesquels il se realise dépassent, par-là même, le cadre d'un droit national et viennent réclamer des règles compatibles avec leur nature, leurs exigences et leurs fins', 'un droit apte à créer le cadre juridique dont le commerce international a besoin pour se développer'.20

Forty years ago, Clive Schmitthoff opened the London Colloquium on the New Sources of the Law of International Trade with words that prefigured what was to be later called 'the new law merchant':

The evolution of an autonomous law of international trade, founded on universally accepted standards of business conduct, would be one of the most important developments of legal science in our time. It would constitute a common platform for commercial lawyers from all countries, those of planned and free market economy, those from civil law and common law, and those of fully developed and developing economy, which would enable them to co-operate in the perfection of the legal mechanism of international trade.21The search for specific regulations for transnational trade, distinct from State law and better able to satisfy the particular characteristics and requirements of those relations, has led to a sharp confrontation between the partisans and the opponents of such rules.

It is beyond the scope of this article to elaborate on what is commonly called lex mercatoria. Suffice to say that the plethora of scholarly writings on the subject 22 would not appear to have been matched by an equivalent interest on the part of international operators when choosing the law to govern their contractual relations, or international arbitrators when deciding on the rules to apply to the merits of a case in the absence of a choice by the parties.

Let us examine the two situations separately. Before doing so, it is worth noting that while the parties' choice is made when they enter into their contract, with a view both to regulating the contract even in the absence of any disputes and settling disputes should they arise, the arbitrator's decision is limited to the settlement of a dispute the content of which is known at the time the decision is made. [Page64:]

1. Parties' choice of a-national rules

The parties' power to choose a-national rules instead of a State law is universally recognized when the contract provides for disputes to be settled by international arbitration.23 Most State laws allow parties to choose rules of law rather than limiting them to law in the strict sense of a State law. This is the case in the French law of 1981 (Nouveau Code de procedure civile, Article 1496), the Dutch Code of Civil Procedure (as amended 2 July 1986: Article 1054), the Swiss Private International Law Act (PILA) of 1987 (Article 187)24 and all laws enacted on the basis of the UNCITRAL Model Law on International Commercial Arbitration of 1985.25

It is generally acknowledged that the words 'rules of law' (règles de droit ) reflect a deliberate legislative choice designed to allow parties in arbitral proceedings to freely select from among a variety of a-national rules of law to the exclusion of State law.26

It is also widely acknowledged that international arbitrators must respect the parties' will and fully apply the rules of law they have chosen, without investigating whether these are appropriate for deciding the case. By the same token, international arbitrators must respect the choice of a national system of law by the parties and have no power to decide of their own accord to refer to a-national rules or principles instead. An arbitrator's duty to apply the rules of law (or the law) chosen by the parties is subject to two limitations: so-called transnational public policy and mandatory rules ( lois d'application nécessaire or lois de police ).27

With regard to the first, international arbitrators are not national judges and, accordingly, have no lex fori. It is therefore not the international public policy of the State of the arbitral seat (more often than not chosen merely for reasons of convenience) or of any other State that comes into play, but rather a public policy which, being common to the generality of States, is referred to as 'truly international' or 'transnational' public policy.28

With regard to the second, the issue is to what extent arbitrators have to take into account mandatory rules of a legal system other than that which the parties have chosen to govern their contract, when such mandatory rules have a close connection with the subject matter of the dispute.29

Statistical data recorded by arbitral institutions indicate that the parties' choice of a-national rules of law is quite exceptional. The ICC International Court of Arbitration records for the year 2003 that 80% of the contracts specified a national system as the applicable law, and that only eight contracts indicated rules or principles other than [Page65:] national laws.30 The ICC Court figures for the years 2000, 2001 and 2002 are very similar, thus evidencing a fairly steady trend and bearing out our earlier observation that international operators and their legal advisers regard the reference to a-national rules of law, notably lex mercatoria, with a measure of distrust, which contrasts with the scholarly interest in the subject.

2. Arbitrators' choice of a-national rules

Can international arbitrators apply a-national rules of law when no provision has been made by the parties regarding the rules to be applied to the merits of their disputes? The answer depends on a number of factors. According to some authors,31 the parties' silence with regard to a State law may be interpreted as a 'negative' choice, allowing - or even requiring - the arbitrator to discard any State law and apply a-national rules. This conclusion is not always warranted, as the parties' silence may, in some instances, be due to their wish to rely on the arbitrator's choice of the most appropriate State law or, alternatively and quite often, to their inability to reach agreement as to which of their own national laws should apply.

The first step is for the international arbitrator to examine what are the limits to his or her powers regarding the choice to be made. Consideration should be given to the rules prevailing at the place of arbitration. Thus, arbitrators sitting in France, Switzerland or the Netherlands will have no limitations on their choice, as the laws of these States provide that, in the absence of any choice by the parties, arbitrators are free to apply 'rules of law'.32 Most other national systems, however, take the opposite line, namely that the arbitrator has to apply a 'law', not 'rules of law'.33

Significantly, this is also the rule found in the UNCITRAL Model Law on International Commercial Arbitration, which is thought to be representative of the most modern views regarding the regulation of international arbitration. Article 28(2) of the Model Law - and, accordingly, all national laws that have adopted this text 34 - denies arbitrators the power to apply a-national rules of law on their own initiative, since it refers to 'the law determined by the conflict of laws rules which it [the arbitral tribunal] considers applicable'. The conflict of laws rules may, in principle, lead only to the designation of a State law.35

Consideration will also need to be given, in the case of an administered arbitration, to the rules of the chosen institution, which may indeed empower the arbitrator to apply rules of law in the absence of the parties' agreement.36 Should this be the case, the arbitrator's choice will be in lieu of the parties' agreement, so that if, under the law of the seat, a-national rules of law could have been validly chosen by the parties, arbitrators may apply such rules of their own accord.37 Accordingly, only in the case of ad hoc arbitrations can the arbitrator's power to choose a-national rules be limited by the law of the seat.

It should be mentioned that the 1958 United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1961 European (Geneva) Convention on International Commercial Arbitration help to guarantee the effectiveness of references to a-national rules, since they exclude review by State courts, in enforcement or setting-aside proceedings, of the merits of the case or the rules of law applied to decide the case, subject only to public policy considerations. [Page66:] The same holds true under the great majority of national laws on international arbitration.38

As far as the attitudes of international arbitrators towards a-national rules of law are concerned, practice shows a general reluctance to apply such rules, even if arbitrators are permitted to do so of their own accord. Arbitrators may conclude, on the basis of a number of circumstances (including consultation with the parties), that choosing a State law will better meet the parties' legitimate expectations. They may also wish to base their awards on the more solid grounds offered by national legislation, including the body of decisions in which courts have analysed the content of the law in the specific circumstances of the case. Reference to a State law will further ensure that the award cannot be regarded as having been made ex aequo et bono , as might happen if ill-defined a-national rules are applied.

C. Identification of a-national rules

State courts normally view a choice of rules of law by the parties as a reference to a set of rules deemed to be incorporated in the contract (so-called 'incorporation by reference'). They will be given effect only to the extent that they do not derogate from the mandatory provisions of the proper law of the contract.39 On the other hand, if such choice is made in the context of an international arbitration, the rules so chosen are an alternative to the State law otherwise applicable, including its mandatory rules. However, the choice of a-national rules by the parties does not exempt the arbitrator from verifying their conformity with transnational public policy 40 or applying lois de police or lois d'application nécessaire .41

Given the far-reaching effect a choice of a-national rules may have, it is worth considering what is covered by such a choice. It is important first to establish the legal character of such rules of law, which has been somewhat neglected in scholarly writing on the subject and arbitral awards in which they have been applied.42 In the absence of any particular requirements, the inventory of rules of law that might be chosen by the parties is quite broad. Contractual practice and arbitral awards show that parties may refer to:

- public international law, as sometimes contemplated in State contracts;

- general principles of law derived from a comparison of different national legal systems,43 e.g. pacta sunt servanda, rebus sic stantibus, exceptio non adimpleti contractus, non venire contra factum propium ;44

- drafts of international treaties not yet in force; [Page67:]

- rules of public or private organizations designed to harmonize trade practices in certain fields, such as the ICC Incoterms or the FIDIC rules for construction contracts;

- general principles of international commercial law, as applied by national and international tribunals;<footnote-45>

- general standards and rules of international contracts;

- international trade usages that are generally followed as contractual practices in a specific trade sector but do not amount to a consuetude;46

the various rules or principles which, in addition to the above, are considered to constitute lex mercatoria, the latter being rather a method of identifying, in the absence of a precise choice by the parties, 'tous les elements - usages professionnels codifiés, clauses contractuelles répétées, sentences arbitrales appliquant des principes généraux … - susceptibles de manifester la volonté des parties, des juges ou des arbitres de s'écarter de l'application d'une loi étatique designée suivant la méthode traditionnelle des conflits de lois';47

the UNIDROIT Principles of International Commercial Contracts, an unofficial codification of rules regulating certain aspects of international trade relations, adopted in Rome in 1994 under the auspices of the International Institute for the Unification of Private Law (UNIDROIT) and expanded in 2004;

- the Principles of European Contract Law, published by the Commission on European Contract Law in 1995 and expanded and revised in 1999.48

No one could seriously challenge the convenience of regulating transnational trade relations in such a way as to take into account the specificities and requirements of such relations, as opposed to those confined to a domestic legal system. The efforts of those who look to international trade practices when giving effect to non-State rules therefore deserve attention and respect. Nonetheless, the law of international trade should not remove the requirement for international trade operators to ensure that their contractual relations retain a reasonable degree of certainty and predictability. How can a party expect to be safely advised by its legal counsel about the prospects of potential litigation if the relevant contract provides that the arbitrator is to decide 'fairly'49 or in accordance with general principles of contract law, trade usages or lex mercatoria?

One need only look at the various lists of a-national rules purported to constitute lex mercatoria50 to observe that, although somewhat varied in content, these rules are limited in number, not always widely acknowledged, are quite often so general as not to provide a reliable reply to a specific case and frequently coincide with rules already present in a great many national laws.51 It is difficult not to share the fear expressed [Page68:] by Jean Robert more than 25 years ago that such references might be 'un appel à un certain laxisme pour introduire ce que celui qui prétend appliquer la lex mercatoria voudra y trouver'.52Lex mercatoria has accordingly been criticized as being 'very fragmentary',53 as denying 'any measure of predictability and certainty'54 and as 'an adventure in unchartered waters'.55

Similar fears may be expressed over the great majority of a-national rules mentioned above. Their general and undefined content risks being used to justify solutions which, rather than being based on a rigorous analysis of the rules to be applied, are the result of the arbitrator acting as an amiable compositeu r or ex aequo et bono .56 While the risks arising from the ill-defined content of a-national rules of law were felt acceptable in the case of State contracts, given the need for delocalization, this is not so to the same extent with private law arrangements, which explains why relatively few transnational contracts and awards are based on a-national rules. The issue at stake is therefore how to reconcile the need for appropriate rules for international trade relations with the requirement of certainty and predictability in the regulation of these relations. It is precisely this goal that has inspired the UNIDROIT Principles of International Commercial Contracts ('UNIDROIT Principles').

D. UNIDROIT Principles

Since their adoption in 1994, the UNIDROIT Principles have acquired undoubted authority, although their application cannot as yet be regarded as universal.57 Their scope is set out in the Preamble, which provides for their application when the parties have referred to them as governing their contract or have agreed that their contract will be governed by general principles of law, lex mercatoria or the like or, since 2004, when the parties have not specified any choice of law.

Although the practical application of the 1994 UNIDROIT Principles was limited by the fact that they covered only certain aspects of international commercial contracts,58 the persuasive authority they have acquired has led to their application even when parties did not choose them.59 UNIDROIT has taken steps to overcome this limitation by recently extending the Principles to other areas of contractual regulation.60

The success of the UNIDROIT Principles is due to the clarity and simplicity with which the various rules - each accompanied by a commentary defining its scope - are formulated. They offer international operators a written codification of rules covering the most recurrent issues in contractual trade relations, easily accessible to different parts of the world 61 and 'coherently organized in a systematic way'.62 They are the [Page69:] result of an in-depth comparative analysis by a group of eminent personalities belonging to a representative number of different legal traditions.63 As such, the Principles help to overcome the uncertainties and unpredictability arising from the ill-defined and badly coordinated rules thought to constitute lex mercatoria64 and remove many of the reasons underlying the critical remarks addressed at a-national rules.

The Preamble to the UNIDROIT Principles, as revised in 2004, indicates the various situations in which they may be applied, distinguishing between:

a) cases where parties have agreed that their contract be governed by them, in which case they 'shall ' be applied, and

b) cases where parties have agreed that their contract be governed by general principles of law, lex mercatoria or the like, or when the parties have not chosen any law to govern their contract, in which case the Principles 'may ' be applied.

Therefore, when a dispute arising from the contract is to be settled by arbitration and the parties had the power to choose rules of law, the arbitrator has to apply the UNIDROIT Principles if the parties have made reference to them - whether alone or, as is frequently the case, in combination with a State law - but is not obliged to do so if the parties have chosen other rules of law.

Shortly after the UNIDROIT Principles were approved by UNIDROIT's Governing Council in May 1994, some commentators questioned whether they could qualify as rules of law and be applied as such in international arbitration and, more generally, as a kind of codification of lex mercatoria . It was said that only international practice would tell whether these objectives were attainable.65 Ten years later, the answer is decidedly yes, considering the level of attention and respect that has been given to the UNIDROIT Principles worldwide and the applications to which they have been put. Confirmation of how favourably they have been received by international operators and the role they have played in arbitral practice is to be found in the decisions where the Principles have been applied. An analysis of published arbitral awards 66 shows that the applications of the UNIDROIT Principles fall into three categories. They have been applied

a) as the law governing the contract, consequent upon the parties' express choice, the arbitrator's interpretation of the parties' implicit choice, or the arbitrator's own choice in the absence of any reference by the parties; 67

b) as a means of interpreting and supplementing applicable domestic law; 68

c) as a means of interpreting and supplementing international uniform law (specifically, the United Nations (Vienna) Convention on Contracts for the International Sale of Goods of 1980). 69

The recently published revision of the UNIDROIT Principles,70 which includes rules regulating such important matters as limitation periods, set-off, the assignment of contracts and third-party rights, will undoubtedly lead to greater acceptance of the Principles by international operators and arbitral tribunals. These enlarged Principles will further contribute to the disfavour of ill-defined a-national rules of law, thereby improving the quality of international arbitral awards.

1
The views expressed in this article are personal to the author.

2
The expression droit a-national (a-national law) is believed to have been coined by the late Professor Philippe Fouchard in his work L'arbitrage commercial international (Paris: Dalloz, 1965).

3
e.g. bilateral investment treaties, the 1965 Convention on the Settlement of Investment Disputes between States and National of Other States (Washington Convention) and the 1985 Multilateral Investment Guarantee Agency Convention (MIGA Convention).

4
The Athens resolution is cited in J.F. Lalive, Contrats entre Etats ou entreprises étatiques et personnes privées : Développements récents, Hague Academy of International Law, Collected Courses, vol. 181 (1983) 9 at 51-52. An inventory of choice-of-law clauses in State contracts may be found in K.H. Böckstiegel, Arbitration and State Enterprises: A Survey on the National and International State of Law and Practice (Deventer: Kluwer, 1984) at 29.

5
M. Virally, 'Un tiers droit? Réfléxions théoriques' in Le droit des relations économiques internationales. Etudes offertes à Berthold Goldman (Paris: Litec, 1982) 373.

6
See (1) Petroleum Development (Trucial Coast) Ltd. v. The Sheikh of Abu Dhabi, award of 28 August 1951 by Lord Asquith of Bishopstone, (1952) I.C.L.Q. 247; (2) Ruler of Qatar v. International Marine Oil Company Ltd., award of June 1953 by Sir Alfred Bucknill (referee), (1953) 20 International Law Reports 534; (3) Government of Saudi Arabia v. Arabian American Oil Company (Aramco), award of 23 August 1958 by a tribunal composed of Sauser-Hall, M. Hassan and Saba Habachi, (1963) Rev. cri. dr. internat. privé 272, (1960) 27 International Law Reports 117; (4) Sapphire International Petroleum Ltd. v. National Iranian Oil Company (NIOC), award of 15 March 1963 by Pierre Cavin, (1964) 13 I.C.L.Q. 1011, (1967) 35 International Law Reports 136, (1962) Annuaire suisse de droit international 273; (5) BP Exploration Company (Libya) v. Government of the Libyan Arab Republic, award of 10 October 1973 by Gunnar Lagergren, (1980) Rev. arb. 117; (6) Texaco Overseas Petroleum Company / California Asiatic Oil Company v. Government of the Libyan Arab Republic, award of 19 January 1977 by René-Jean Dupuy, (1977) 104 J.D.I. 350, (1978) 21 I.L.M. 10; (7) Libyan American Oil Company (Liamco) v. Government of the Libyan Arab Republic, award of 12 April 1977 by Sobhi Mahmassani, (1980) Rev. arb. 132; (8) The American Independent Oil Company (Aminoil) v. The Govt. of the State of Kuwait, award of 24 May 1982 by a tribunal composed of Paul Reuter (chairman), Hamed Sultan and Sir Gerald Fitzmaurice, (1982) I.L.M. 976, (1984) IX Y.B. Comm. Arb. 71. A commentary of some of these awards may be found in P. Bernardini, 'The Law Applied by International Arbitrators to State Contracts' in Law of International Business and Dispute Settlement in the 21st Century: Liber Amicorum Karl-Heinz Böckstiegel (Cologne: Heymanns, 2001), 51.

7
See e.g. award of 30 April 1982 in ICC case 3896, (1983) 110 J.D.I. 914, (1985) X Y.B. Comm. Arb. 47, S. Jarvin & Y. Derains, Collection of ICC Arbitral Awards 1974-1985 (Kluwer Law & Taxation/ICC Publishing, 1990) 161); commented by B. Oppetit, 'Arbitrage et contrats d'Etats: L'arbitrage Framatome et autres c/ Atomic Energy Organization of Iran' (1984) 111 J.D.I. 37.

8
As of 1 December 2004, 141 States had ratified the Washington Convention.

9
'The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such 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.'

10
I.F.I. Shihata & 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. 183 at 198ff.; C.H. Schreuer, The ICSID Convention: A Commentary (Cambridge University Press, 2001) at 560ff.

11
Decision of the ad hoc Committee of 3 May 1985, (1987) 114 J.D.I. 163 (excerpts translated into French), (1986) 1 ICSID Rev. 89 (in full in English). It is interesting to note that the ground for annulment was the fact that the tribunal had 'manifestly exceeded its powers', which is one of the few grounds for annulment contemplated by Article 52(1) of the Convention.

12
Liberian Eastern Timber Corporation (LETCO) v. Government of the Republic of Liberia (ICSID case no. ARB/83/2), award of 31 March 1986, (1987) 26 I.L.M. 647 at 658.

13
Final Award of 5 June 1990, (1992) XVII Y.B. Comm. Arb. 73 at 76; (1991) 118 J.D.I. 172 at 174 (excerpts translated into French). This position has been criticized by E. Gaillard & 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. 375, who favour an autonomous role for international law as the proper law like the host State law, as held in the annulment proceedings in Wena Hotels Ltd. v. Arab Republic of Egypt, 5 February 2002, (2002) 41 I.L.M. 933.

14
F. Rigaux, Droit public et droit privé dans les relations internationales (Paris: Pedone, 1977) at 366ff.

15
e.g. The Hague Convention of 30 October 1985 on the Law Applicable to Contracts for the International Sale of Goods, The Hague Convention of 14 March 1978 on the Law Applicable to Agency, the Rome Convention of 19 June 1980 on the Law Applicable to Contractual Obligations.

16
e.g. United Nations (Vienna) Convention of 11 April 1980 on Contracts for the International Sale of Goods (CISG) and various conventions promoted by international organizations like UNCITRAL and UNIDROIT.

17
e.g. FIDIC (Fédération Internationale des Ingenieurs-Conseils) Conditions of Contract for Works of Civil Engineering Construction, and ICC (International Chamber of Commerce) Uniform Rules for Demand Guarantees, Rules of Arbitration and ADR Rules.

18
e.g. United Nations Economic Commission for Europe.

19
e.g. ICC Incoterms and hardship and force majeure clauses.

20
T. Popescu, 'Le droit du commerce international : une nouvelle tache pour les législateurs nationaux ou une nouvelle lex mercatoria ?' in New Directions in International Trade Law, Proceedings of 2nd Congress on Private Law held by UNIDROIT (Dobbs Ferry/Oceana, 1977) vol. I, 25. [Translation: with the result that the acts through which it is performed go beyond the framework of national law and require rules that are compatible with their nature, requirements and purposes; a law that is capable of creating the legal framework needed by international trade for its development]

21
Cited by K.P. Berger, 'The New Law Merchant and the Global Market Place: A 21st Century View of Transnational Commercial Law' [2000] Int. A.L.R. 91.

22
See especially F. Marrella, La nuova lex mercatoria: Principi Unidroit ed usi dei contratti del commercio internazionale, Trattato di diritto commerciale e di diritto pubblico dell'economica dir. by F. Galgano, vol. XXX (Cedam, 2003). With more than 900 pages of text and over 30 pages of bibliography, this work represents a remarkable contribution to lex mercatoria.

23
If there is no provision for arbitration, it is doubtful whether a choice of law other than State law would be considered valid. Party autonomy, like other connecting factors such as nationality and lex rei sitae for immovables, generally serves to identify State law rather than a-national rules in conflicts of law systems. Likewise, international conventions such as those mentioned supra in note 15 provide for criteria identifying State law. Hence, a-national rules may not be recognized by State courts as having the effects of a choice of law within the meaning of conflicts of law rules.

24
For an analysis of the PILA 'travaux préparatoires' and the difference between the French text (referring to 'règles de droit') and the German text (referring to 'Recht'), see P. Lalive,J.-F. Poudret, C. Reymond, eds., Le droit de l'arbitrage interne et international en Suisse (Helbing & Lichtenhahn/Payot, 1989) at 392ff.

25
Article 28(1) of which provides: 'The 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. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of the State and not to its conflict of laws rules.' As of 1 December 2004 50 States had adopted the Model Law; for a full list see <www.unictral.org>.

26
This has been confirmed for Switzerland (see P. Lalive, J.F. Poudret, C. Reymond, supra note 24 at 394), the Netherlands (A.V.M. Struycken, 'La lex mercatoria dans le droit des contrats internationaux' in L'évolution contemporaine du droit des contrats (Paris, 1986) 207) and Italy (F. Marella, supra note 22 at 49 and note 65).

27
S. Lazareff, 'Mandatory Extraterritorial Application of National Law Rules' in ICCA Congress Series No. 7 (The Hague: Kluwer Law International, 1996) 550; D. Hochstrasser, 'Choice of Law and "Foreign" Mandatory Rules in International Arbitration' (1994) 6:1 J. Int. Arb. 57; P. Mayer, 'Mandatory Rules of Law in International Arbitration' (1986) 2 Arbitration International 274.

28
P. Lalive, 'Transnational (or Truly International) Public Policy in International Arbitration' in ICCA Congress Series No. 3 (Deventer: Kluwer Law & Taxation, 1987) 257 and the reports by K.H. Böckstiegel, S.M. Schwebel & S.G. Lahne, and Y Derains, ibid., 177, 205 and 227 respectively.

29
As contemplated by Article 7 of the Rome Convention of 19 June 1980 and Article 19 of the PILA.

30
(2004) 15:1 ICC ICArb. Bull. 13. Given the large number of arbitration cases handled by the ICC Court each year, these figures may be considered as sufficiently representative of the actual content of choice-of-law clauses in transnational contracts. This observation is confirmed by leading commentators and international commercial arbitration experts; see e.g. P.A. Karrer in S.V. Berti et al., eds., International Arbitration in Switzerland: An Introduction to and a Commentary on Articles 176-194 of the Swiss Private International Law Statute (The Hague: Kluwer Law International, 2000), 479 at 498: 'In the practice of international arbitration the parties almost always choose state substantive laws as the law to apply, and most of the time the arbitral tribunals apply state laws."

31
M. Blessing, 'The New International Arbitration Law in Switzerland: A Significant Step Towards Liberalism' (1988) 6:2 J. Int. Arb. 9 at 60-61.

32
Article 1496, NCPC; Article 187, PILA; Article 1054, Dutch Code of Civil Procedure (as amended by the law of 2 July 1986).

33
The Italian Code of Civil Procedure (Article 834) provides for the application of the law with which the contractual relations are most closely connected, when the parties have not expressed a choice.

34
See supra note 25.

35
According to P. Lalive, this reference does not necessarily imply a connection with a State law as no territorial link is hinted at; see P. Lalive, J.-F. Poudret, C.Reymond, supra note 24 at 400.

36
As in the ICC Rules of Arbitration (Article 17) and the LCIA Rules (Article 22(3)).

37
P. Bernardini, L'arbitrato commerciale internazionale (Giuffrè, 2000) at 201.

38
Non-observance of the applicable law is normally not a ground for setting aside an international award. (Article 829, para. 2, of the Italian Code of Civil Procedure provides for annulment on this ground, but Article 838 excludes its application to international arbitration.)

39
See P. Karrer, supra note 30 at 498.

40
See A. Bucher, Le nouvel arbitrage international en Suisse (Helbing & Lichtenhahn, 1988) at § 281 (with reference to opinions on the subject).

41
See e.g. UNIDROIT Principles of International Commercial Contracts, Article 1.4: 'Nothing in these Principles shall restrict the application of mandatory rules, whether of national, international or supranational origin, which are applicable in accordance with the relevant rules of private international law.' Comment no. 3 relating to this provision clarifies that the text refers to 'lois d'application nécéssaire'.

42
e.g. P. Karrer, supra note 30 at 64: 'One should not put the legal character of the applicable norms to too stringent a test.'

43
Ph. Kahn, 'Les principes généraux du droit devant les arbitres du commerce international' (1989) 116 J.D.I. 305.

44
It has been remarked that these principles, whose Latin formulation makes their authority higher and underlines their universal character, are not always of a-national origin; see J.F. Poudret & S. Besson, Droit comparé de l'arbitrage international (Schulthess, 2002) at 634.

45
Or 'recognized by international organizations', according to Article 9, para. 2,, of the 1994 Inter-American Convention on the Law Applicable to International Contracts. Such choice must be accepted in lieu of a State law by the courts in all States parties to this convention.

46
Trade usages have a special place in arbitration since some State laws and rules of arbitration refer initially to a choice of rules of law and then place upon the arbitrator a requirement to take into account trade usages in all cases (French NCPC, Article 1496; Italian Code of Civil Procedure, Article 834(2); UNCITRAL Model Law on International Commercial Arbitration, Article 28(4); ICC Rules of Arbitration, Article 17(2); UNCITRAL Arbitration Rules, Article 33(3)). This implies that they are not considered rules of law. The relevance of usages in international trade is illustrated by the CISG, Article 8(3) of which provides that when interpreting the parties' intent, consideration shall be given to 'any practices which the parties have established between themselves, usages and any subsequent conduct of the parties'.

47
E. Gaillard, 'La distinction des principes généraux du droit et des usages du commerce international' in Etudes offertes à Pierre Bellet (Paris: Litec, 1991) 203 at 203. [Translation: all factors - codified professional usages, repeated contractual clauses, arbitral awards applying general principles, etc. - capable of demonstrating the intention of the parties, courts or arbitrators to depart from a State law designated in accordance with the traditional method of conflicts of law]

48
O. Lando, H. Beales, Commission on European Contract Law, Principles of European Contract Law, Parts I and II (Kluwer Law International, 2000). More limited in scope (inasmuch as they reflect solutions prevailing in countries of the European Union), these Principles are less widespread than the UNIDROIT Principles.

49
ICC case 9474, (2001) 12:2 ICC ICArb. Bull. 60.

50
e.g. that contained in Lord Mustill, 'The New Lex Mercatoria: The First Twenty-five Years' in Liber Amicorum for The Rt. Hon. Lord Wilberforce (Oxford: Clarendon, 1987) 149 at 174-177.

51
See J.-F. Poudret & S. Besson, supra note 44 at 635.

52
Travaux du Comité français de droit international privé, 1977-1979 at 260. [Translation: a call to a certain laxity so as to give lex mercatoria whatever content the person seeking to apply it wishes it to have] F. Rigaux, commenting on the arbitrator's application of general principles of law, custom and practice in the oil industry and notions of pure jurisprudence in the Aramco award of 1958, notes: 'L'arbitre ne saurait plus clairement dire qu'il choisit le droit applicable en fonction de la solution qu'il a, a priori, décidé d'apporter au litige dont il est saisi' [Translation: The arbitrator could not state more clearly that he selects the applicable law according to the solution he has a priori chosen for the dispute before him.] ('Des dieux et des héros : réflexions sur une sentence arbitrale' (1978) 67 Rev. cri. dr. internat. privé 435 at 439).

53
J.-F. Poudret & S. Besson, supra note 44 at 635.

54
F.A. Mann, 'England Rejects "Delocalized" Contracts and Arbitration' (1984) 33 I.C.L.Q. 193 at 197.

55
G.R. Delaume, 'The Proper Law of State Contracts and the Lex Mercatoria: A Reappraisal' (1988) 3 ICSID Rev. 79 at 81

56
Most national laws require that the power to decide as amiable compositeur or ex aequo et bono be expressly granted to the arbitrator (Italian Code of Civil Procedure, Article 834; PILA, Article 187(2); German Code of Civil Procedure, Article 1051(3); English Arbitration Act 1996, s. 46(1)(b); UNCITRAL Model Law on International Commercial Arbitration, Article 28(3)). The absence of such power may be a ground for annulment of an award that has been decided ex aequo et bono.

57
M.J. Bonell, The Unidroit Principles in Practice: Case Law and Bibliography on the UNIDROIT Principles of International Commercial Contracts (Transnational, 2002).

58
The UNIDROIT Principles are known to have been largely inspired by the CISG, which explains why they have applied mainly in connection with disputes arising from international sales of goods (as confirmed by the awards referred to in the following footnote).

59
For extracts from ICC awards referring to the UNIDROIT Principles see (1999) 10:2 ICC ICArb. Bull. 33-109, (2001) 12:2 ICC ICArb. Bull. 56-115.

60
The new edition covers such matter as the authority of agents, limitation periods, the assignment of rights, the transfer of obligations and assignment of contracts, set-off and third party rights.

61
They are available in most major languages.

62
ICC case 7110, (1999) 10:2 ICC ICArb. Bull. 39 at 49.

63
An account of the genesis and characteristics of the Principles is given by M. Fontaine, a member of the UNIDROIT Working Group, in a paper for the seminar jointly organized by ICC and UNIDROIT in Paris in 2001, published in the 2002 Special Supplement, ICC ICArb. Bull. (ICC Publication 642) 95.

64
The fact that the Preamble indicates that the Principles may be applied when the parties have agreed that their contract be governed by lex mercatoria does not imply that they may be equated with lex mercatoria, as the characteristics of each are quite different.

65
A. Giardina, 'Les Principes UNIDROIT sur les contrats internationaux' (1995) 122 J.D.I. 547.

66
For the texts of arbitral decisions referring to the UNIDROIT Principles, see M.J. Bonell, supra note 57 (Part III) and the issues of the ICC International Court of Arbitration Bulletin mentioned supra note 59.

67
In 12 out of the 38 cases listed in the ICC International Court of Arbitration Bulletin, supra note 59.

68
In 18 of the 38 cases listed in the ICC International Court of Arbitration Bulletin, supra note 59.

69
In five of the 38 cases listed in the ICC International Court of Arbitration Bulletin, supra note 59.

70
UNIDROIT Principles of International Commercial Contracts 2004 (UNIDROIT 2004).