1. In 1995, approximately a year after the launch of the UNIDROIT Principles of International Commercial Contracts, Professor Claude Reymond, in his introduction to a forum on the UNIDROIT Principles and international commercial arbitration, stressed that the Principles 'offer reasonable solutions to respond to the needs of the modern economy in light of the experience of some of the major legal systems' and asked: 'In what circumstances and how can the arbitrator use the Principles to respond to the questions he faces?' 1 Arbitration practice during the ensuing six years has begun to provide an initial answer to this question.

2. Analysis such as that of F. Marrella and F. Gélinas in their article in the Fall 1999 issue of the ICC International Court of Arbitration Bulletin2 reveals two main types of application of the UNIDROIT Principles: either they are applied as the lex contractus or as supplementing a national law or an international convention, usually the United Nations Convention on Contracts for the International Sale of Goods (CISG). Use of the Principles both as lex contractus and to supplement national law and international conventions had been contemplated by their authors, as reflected in the Preamble to the Principles.

3. The study of arbitration practice shows, however, that arbitrators do not consider themselves confined to the 'self-given criteria of application' 3 of the Principles and that they resort to them in circumstances which had not been expressly foreseen by their authors. Obviously, there are several examples of awards where the UNIDROIT Principles are used to supplement CISG. The final award of December 1996 in ICC case 8769 4 is a good example:

Claimant is entitled to interest on the sums awarded pursuant to Art.78 of the Vienna Convention. Art. 78 Vienna Convention does not specify a particular interest rate. The sole Arbitrator considers it appropriate to apply a commercially reasonable interest rate (see Art. 7.4.9 subs. 2 UNIDROIT Principles). The interest rate claimed is commercially reasonable for the award currency, Austrian schillings.

An example of the application of the UNIDROIT Principles as lex contractus pursuant to the agreement of the parties can be found in ICC case 8331, 5 where, in its final award of December 1996, the arbitral tribunal stated: [Page10:]

The parties have agreed that the Arbitral Tribunal shall apply the relevant agreements between the parties and, to the extent that the Arbitral Tribunal finds it necessary and appropriate, the UNIDROIT Principles of International Commercial Contracts of May 1994 shall be applied by the Arbitral Tribunal.

Yet, these predictable uses of the UNIDROIT Principles are not wholly representative of the important role the Principles already play in international arbitration as a means of convincing the parties that the solution adopted by the arbitral tribunal meets their legitimate expectations. This is a role that will doubtless increase in importance as time goes on. It will be better understood if consideration is first given to the position of the international arbitrator when deciding on the law applicable to the merits of the case.

The international arbitrator's position with respect to the determination of the law applicable to the merits of the dispute

4. An international arbitrator has considerable freedom when deciding on the rules of law applicable to the merits of a case. In using that freedom, the arbitrator seeks to find an answer to the legitimate expectations of the parties.

The arbitrator's freedom

5. The arbitrator's freedom in determining the law applicable to the merits of the case is more often than not implied. This arises from the fact that when enforcement proceedings are brought in state courts, the court's review usually does not focus on which law was applied to the merits of the case. It may be that this law violates the international public policy of the country where enforcement of the award is sought, but in this case it is not the choice of law as such that is at issue, but the solutions it provides with respect to the merits. For example, an award ordering a party to pay interest may not be enforced in Saudi Arabia. It is irrelevant upon which law such an award is based, be it German, English, French, or another. The cause of the refusal of enforcement is not the choice of one law rather than another, but the fact that it provides a solution contrary to the notion of public policy as defined by the Islamic sharia.

6. The New York Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards also implicitly confirms the arbitrator's freedom in this field. In the list of grounds upon which the enforcement of awards may be refused (art. V), no reference is made to the question of the law applicable to the merits of the case.

7. Some more recent texts expressly recognize the arbitrator's freedom. Article VII(1) of the European Convention on International Commercial Arbitration of 21 April 1961 is worded as follows :

The parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the substance of the dispute. Failing any indication by the parties as to the applicable law, the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable. In both cases, the arbitrators shall take account of the terms of the contract and trade usages.

Since 1981, the French New Code of Civil Procedure provides in article 1496:

Arbitrators shall decide disputes according to the rules of law chosen by the parties or, failing such a choice, according to those they deem appropriate. [Page11:]

In all cases, they shall take into account trade usages.

Section 46 of the 1996 English Arbitration Act reads:

46. - (1). The Arbitral Tribunal shall decide the dispute -

(a) in accordance with the law chosen by the parties as applicable to the substance of the dispute, or

(b) if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal.

(2) For this purpose the choice of the law of a country shall be understood to refer to the substantive laws of that country and not its conflict of laws rules.

(3) If or to the extent that there is no such choice or agreement, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

8. The Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) on 21 June 1985, which is the basis of many national laws, provides in article 28:

(1) 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 that State and not to its conflict of laws rules.

(2) Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

9. The extent of the arbitrator's freedom is obviously limited by the parties themselves and by the law from which the arbitrator's powers derive (lex arbitri). When the parties have agreed on the lex contractus, the arbitrator must apply this law. It may be a national law, or it may be transnational rules described as rules of law in national or international legislation referring to them. When the parties have not agreed upon the lex contractus, the extent of the arbitrator's freedom depends on the lex arbitri, which may authorize an arbitrator to apply rules of law and not just a national law. However, the parties' choice of arbitration rules also plays a significant role, as shown by a comparison between the arbitration rules of ICC and UNCITRAL.

Article 17 of the 1998 ICC Rules of Arbitration reads:

(1) The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.

Article 33(1) of the UNCITRAL Arbitration Rules reads:

The arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

As a result, in an ICC arbitration seated in London, the arbitral tribunal is free to apply the 'rules of law which it determines to be appropriate', and not only 'a law', whereas in an arbitration under the UNCITRAL Rules seated in Paris, the arbitral tribunal must apply a 'law' and not 'rules of law'. 6

10. Whatever the circumstances, the consequence of the arbitrator's freedom to determine the law applicable to the merits of the case is that an arbitrator has no lex fori within the meaning of private international law. Consequently, the [Page12:] arbitrator's position is fundamentally different from that of a state court faced with a question of conflict of laws.

11. A court rules on behalf of a state, which imposes two types of procedure for regulating international relations:

- rules of conflict, which set the dividing lines between the legislative jurisdiction of different states;

- substantive rules peculiar to international relations.

Courts must also apply mandatory rules or laws of immediate application, which apply regardless of whether a given relationship is international or not.

12. Thus, as far as a court is concerned, there is always a law to be applied, either directly or through its system of conflict of laws.

Arbitrators do not rule on behalf of states when performing the role with which the parties have entrusted them. They are therefore not subject to binding rules of conflict or substantive rules requiring compulsory application. There is no system regulating international private law relations that is specific to international arbitration.

As early as 1957, Henri Batiffol pointed out that an international arbitrator 'is not bound to apply the rules of conflict of one country rather than another' . 7 ICC arbitrators had therefore no doubt been aware of their freedom here long before it was confirmed in the ICC Rules. In 1971, in ICC case 1512, 8 the sole arbitrator, Pierre Lalive, stated: 'The international arbitrator has no lex fori from which he can borrow rules of conflict of laws.'

13. An important consequence of the absence of lex fori for the international arbitrator is that there is no foreign law in international arbitration in the sense of a rule that is not part of the legal system of the authority responsible for resolving the dispute. All national laws have the same status. This has important implications, not only as far as proving the content of the applicable law is concerned, but also for the coming into play of so-called 'overriding public policy'. The international arbitrator does not have a duty to ensure compliance with concepts that are purely national.

14. Without a lex fori, an international arbitrator cannot adopt the same approach to the determination of the law applicable to the merits of the dispute as would a court. The arbitrator reasons differently and attempts to convince the parties that the law or rule of law deemed to be applicable meets their legitimate expectations. 9

The legitimate expectations of the parties

15. Apart from those cases in which they decide to place themselves within the framework of a national system of conflict of laws, arbitrators generally look for the law applicable to the merits in one of the following three ways: 10

- combined application of the different systems of conflict of laws related to the dispute,

- recourse to general principles of private international law,

- voie directe.

Under the first of the above methods, the arbitrator considers in turn the conflict of laws rules of each of the national legal systems connected with the dispute. If these rules, which almost always differ in content, converge towards one single domestic law, the arbitrator declares that this is the applicable law. 11[Page13:]

Under the second method, the arbitrator refers to a rule of conflict of laws that is widely accepted internationally.

According to the direct method (voie directe), the arbitrator does not bother to refer to a particular system of conflict of laws, but decides that the contract must be subject to the law of a certain country in view of its nature and characteristics.

16. What all these methods have in common is that they result in the selection of the law whose application best corresponds to the parties' legitimate expectations. This is clearly so with the first and second methods, both of which select a law that has been recognized as applicable by a given community, whether national, as in the first option, or international, as in the second. The concern to respond to the parties' legitimate expectations is also present when the arbitrators use the direct method. Their analysis of the contract demonstrates to the parties that they could not legitimately expect the arbitrators to apply any law other than the one finally chosen. To quote Arthur von Mehren, writing about arbitrators, 'their approach can and should be more in terms of what the parties' expectations or understanding were or would have been, had they addressed the issue'. 12

17. When in 1976 Pierre Lalive presented the methods used by arbitrators to determine the law applicable to the merits of a dispute, these methods led to the application of a national law in the majority of cases. Since then, the perspective has changed considerably. Due to the efforts of several scholars, in particular Berthold Goldman, 13 it has been accepted that international arbitrators may apply transnational rules, which sometimes go under the name of lex mercatoria. Although the subject of much debate, this opened up the range of solutions at the arbitrators' disposal when attempting to meet the legitimate expectations of the parties as regards the rules to be applied to the merits of the dispute. A number of arbitrators considered that no national rules were capable of meeting legitimate expectations in international transactions to the same extent as transnational rules like lex mercatoria. The final award of September 1995 in ICC case 8385 14 provides a good illustration. The arbitral tribunal decided that it should apply 'the law that best accords with the need of the international commercial community, that is not in conflict with the reasonable expectations of the parties, that produces uniformity of results, and that provides for a reasonable solution of the issue'. Dealing more particularly with the problem of raising the corporate veil, the arbitral tribunal stated:

Application of international standards offers many advantages. They apply uniformly and are not dependent on the peculiarities of any particular national law. They take due account of the needs of international intercourse and permit cross-fertilization between systems that may be unduly wedded to conceptual distinctions and those that look for a pragmatic and fair resolution in the individual case. This area therefore offers an ideal opportunity for applying what is increasingly called lex mercatoria.

18. This is a special case of the use of the direct method of determining the applicable law. Here, the rules applied are not national but transnational and, more significantly, the content of these rules, specifically intended for international trade, allow the legitimate expectations of the parties to be met. The UNIDROIT Principles of International Commercial Contracts, due to both their origin and their content, will contribute to the development of this trend in international arbitration and are already proving to do so. [Page14:]

The UNIDROIT Principles as a means of meeting parties' legitimate expectations

19. A number of awards show the UNIDROIT Principles being used by arbitrators to convince parties that a solution found in a national law meets their legitimate expectations because it is also accepted transnationally. The UNIDROIT Principles thus give national solutions a transnational status. Furthermore, taking advantage of the freedom they are given by laws or arbitration rules to apply rules of law, arbitrators may decide to resort to the UNIDROIT Principles as a major component of the 'better law' for transnational contracts.

The UNIDROIT Principles as a way of giving a transnational status to national solutions

20. When parties have not agreed on the law applicable to the merits of their case, arbitrators are always reluctant to impose a solution that might not meet their legitimate expectations. The interim and final awards of December 1989 and June 1996, respectively, in ICC case 5835, 15 involving a Kuwaiti company and an Italian company, show how the UNIDROIT Principles may be used by arbitrators to stress that the legitimate expectations of the parties are met. In the interim award the arbitral tribunal decided that Kuwaiti law was applicable on the basis of the method of a combined application of different systems of conflict of laws:

The Arbitral Tribunal does not deem it necessary in this case to designate a national private international law in view of the fact that all rules of conflict which may be found in legislations which have some connections with this case, indicate to Kuwaiti law as the proper law of the Agreement.

This alone did not enable the arbitral tribunal to meet the legitimate expectations of the parties. It added:

However, in accordance with a well-established practice in international commercial arbitration, the arbitrators shall take account also of the principles generally applicable in international commerce . . . This proviso is particularly justified in view of the fact that the Parties refrained from choosing explicitly Kuwaiti law as the law on the merits . . .

The Arbitral Tribunal concludes that Kuwaiti law and, to the extent necessary, principles generally applicable in international commerce are applicable to the merits of the dispute.

Here, the arbitral tribunal decided to apply a national law - Kuwaiti law - but wanted to supplement it with transnational principles.

In 1996, when it issued its final award, the UNIDROIT Principles were available to lend substance to such transnational principles. The arbitral tribunal did not in fact use them to supplement Kuwaiti law, which includes a modern civil code based on Egyptian law and an extensive commercial code, but to show that their solutions complied with transnational standards. Three examples may be given.

(i)

The wording of Article 300 Sect. 1 of the Kuwaiti Law No. 67 ('Compensation shall be estimated by the court . . .') indicates that apart from the debtor's failure other factors which may have contributed to the extent of the damages, will have to be taken into consideration when the quantity of damage claims is to be assessed. This is particularly true with respect to the creditor's conduct as a contributing factor. This generally accepted principle may be summarized as follows: 'Where the harm is due in part to an act or omission of the aggrieved party or to another event as to which that party bears the risk, the amount of damages shall be reduced to the extent that these factors have contributed to the harm, having regard to the conduct of each of the parties.' [Page15:] (UNIDROIT Principles of International Commercial Contracts, Rome 1994, Article 7.4.7.) Applying these principles to the instant case and considering the conduct of each of the Parties as described in the Tribunal's Interim Award III and in the Expert's Report, the Tribunal concludes that the amount of damages to be awarded to Respondent shall normally be reduced by one quarter.

(ii)

The Tribunal holds that a contractor's manpower disruption caused by a subcontractor's delay falls into the category of damages which may normally not be established, in a claim for damages, in an arithmetically satisfactory manner. Manpower disruption belongs to the category of damages not ascertainable by calculation, which must be determined by the Tribunal, taking into account the ordinary chain of events. This approach is in accordance with Art. 300 Sect. 1 of the Kuwaiti Civil Law No. 67 of 1980, which provides that compensation shall be 'estimated' by the Court. It is also in accordance with generally accepted principles in international commerce (cf. e.g. UNIDROIT Principles of International Commercial Contracts, Rome 1994, Article 7.4.3 Subs. 3: 'Where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court.').

(iii)

The Tribunal holds that Kuwaiti law restricts the rate of interest only with respect to contractual rates and to the interest rate applicable when the payment of money the amount of which is known to the debtor, is delayed (cf. Arts. 110 and 111 of the Kuwaiti Commercial Code No. 68), but not however to interest aimed at compensating the aggrieved party for the fact that the damages awarded shall only be paid some time after the damage occurred and that the creditor may have incurred financial charges in order to survive the period during which he was awaiting compensation of his damages . . . Kuwaiti law provides that the compensation shall include 'the damage suffered by the creditor . . . provided that this is a natural result of non-fulfilment of the obligation or delay thereof' (Art. 300 Sect. 2 of the Civil Law No. 67/1980). The Tribunal holds that the said financial charges may qualify, according to the circumstances of the case, as a 'natural result' of a debtor's delay in paying damages owed to his contractual partner. Particularly, if the basis of the debtor's liability is 'grave mistake' . . . the normally applicable limits on interest rates are no longer applicable (Art. 300 Sect. 3 and Art. 304 Civil Law per analogiam).

This understanding of Kuwaiti law is in accordance with internationally accepted principles which otherwise would become applicable pursuant to the Tribunal's First Interim Award. Reference may again be made to the UNIDROIT Principles of 1994, which provide in Art. 7.4.9(3) that the aggrieved party is entitled to additional damages if the non-payment caused it a greater harm than covered by the normally applicable interest rate.

In reality, the arbitrators could have easily relied on Kuwaiti law only. The UNIDROIT Principles were used as a way of demonstrating that their decisions were up to what was to be expected in a transnational transaction.

21. Such an approach may even cause national solutions to be adapted to meet the needs of international trade. In ICC case 8486 16 involving a Dutch company and a Turkish company, the arbitrator, having decided that Dutch law was applicable, applied this law in the light of the 'legal convictions valid in international contract law', and found these 'convictions' mainly in the UNIDROIT Principles:

The requirements of the provision [Art. 6:258 Dutch Civil Code] are not met in the present case, however, the premise being that this provision should only be applied with much prudence. This is firstly because it is a special rule giving general authorization to consider specific contractual provisions as inapplicable in the given circumstances according to standards of fairness and reasonableness ('redelijkheid en billijkheid'), pursuant to Art. 6:248, para.2 taken in conjunction with Art. 3:12 of the Dutch Civil Code . . . As it is, this general provision is applied only with much prudence in internal legal [Page16:] practice within the Netherlands . . . The prime decisive factor here, according to Art. 3.12 of the BW, is the 'legal conviction valid in the Netherlands'. In the case of application of the provision in an international context, this is replaced by the legal convictions valid in international contract law. The decisive characteristic here, however, is the principle of pacta sunt servanda, as expressed to some extent in Article 1.3 of the UNIDROIT Principles of International Commercial Contracts . . . These legal convictions are also to be taken into consideration when applying national law to international matters . . . The necessity and admissibility of interpreting national law in the light of the UNIDROIT Principles has also been specifically advocated for Dutch law . . .

22. It is also interesting to note that arbitrators have a similar approach when the applicable national law has been agreed upon by the parties as opposed to having been determined by the arbitrators themselves.

In ICC case 8223 17 between a US company and a French company, to which French law was applicable according to the contract, the arbitrator felt it necessary to draw support from the UNIDROIT Principles:

The arbitral tribunal's analysis is borne out by article 2.19 of the UNIDROIT Principles of International Commercial Contracts which deals with the operation of standard terms. It is often the case that an inalienability clause is drafted in advance. Although subscribed to in the same way as all the other clauses, unlike these, which are considered to be essential and to reflect the true agreement between the parties, it is not the subject of discussion or negotiation, unless otherwise indicated.

In ICC case 9593, 18 concerning a dispute between two Ivory Coast companies, one of which was a joint venture of UK/Japanese origin, the parties had agreed upon the application of the law of the Ivory Coast. However, when deciding that one of the parties had breached its obligation to cooperate in the performance of the contract, the arbitral tribunal did not content itself with a reference to article 1134(3) of the Ivorian Civil Code providing that contracts must be performed in good faith, but also referred to the usages of international trade as reflected in several ICC awards and the UNIDROIT Principles:

Article 1134 para. 3 of the Ivorian Civil Code stresses that contracts must be performed in good faith. Furthermore, Article 1135 of the same code recalls that a contract binds the parties not only according to its wording, but also to the consequences thereof resulting from equity, custom and the law. In a contractual relationship which is the extension in time of previous relations between a Japanese Group and an Ivorian Group, constitutes the result of negotiations between English, Japanese and Ivorian parties and deals with the distribution in the Ivory Coast of Japanese products, the custom to be taken into consideration by the Arbitral Tribunal within the framework of Article 1135 of the Ivorian Civil Code is to be found within the usages of international trade.

One consequence of the principle recalled by Article 1134 para. 3 of the Ivorian Civil Code, according to which contracts must be performed in good faith, is that the parties must cooperate in good faith to reach the common goals contractually agreed upon. It is on the basis of the identical text of Article 1134 para. 3 of the French Civil Code that French courts have decided that good faith and loyalty oblige a party to a contract to facilitate the performance of its obligation by the other party. . . . Indeed, as written years ago by the French lawyer Demogue: 'les contrats forment une sorte de microcosme (…) une petite société où chacun doit travailler dans un but commun, qui est la somme des buts individuels, poursuivis par chacun, absolument comme dans la société civile ou commerciale' (R. Demogue, Traité des Obligations, 1927, [Vol.] IV, p. 191). 19 Such obligation to cooperate in good faith in the performance of the contract has also become a fundamental element of the usages of international trade applicable to this case through Article 1135 of the Ivorian Civil Code and Article 13(5) of the ICC Rules. Such usage was pointed out by several awards rendered under the aegis of the International Court of Arbitration of the ICC. . . . [Page17:]

Further to a comparative study, UNIDROIT came to the conclusion that the obligation to cooperate in good faith in the performance of a contract amounted to a general principle applicable to international trade. Accordingly, this principle was reflected under Article 5.3 of the UNIDROIT Principles of International Commercial Contracts: 'Each party shall cooperate with the other party when such co-operation may reasonably be expected for the performance of that party's obligations.'

In conclusion, the Arbitral Tribunal will make its decision on the validity of the termination of the Agreement on the basis of the text thereof, in the light of the law of the Ivory Coast which requires good faith in the performance of contracts, such requirement also deriving from the usages of international trade.

23. In this case, from a conceptual viewpoint, the arbitral tribunal had no need to refer to international trade usages to justify a decision based on the obligation to cooperate in good faith when performing a contract. The law of the Ivory Coast, chosen by the parties, provided a solid enough basis in itself. However, arbitrators are well aware that when parties agree upon a specific national law to govern their contractual relations, they do not necessarily feel obliged to adapt their general behaviour in performing the contract to the practices laid down in that law. In the majority of cases, when that law is a foreign law, the parties have only a remote idea of its content and fulfil what they consider to be their obligation as they would do for any similar contracts anywhere in the world. This explains why arbitrators are reluctant to make decisions that may have significant economic consequences simply by referring to a national law or a national legal tradition that may take at least one of the parties by surprise. They prefer to show that their solution, although nationally based, is also recognized transnationally. This can be achieved through reference to the UNIDROIT Principles, alone or together with other components of lex mercatoria.

The UNIDROIT Principles as a major component of the 'better law' for transnational contracts

24. The 1995 partial award in ICC case 7110 20 describes the nature of the UNIDROIT Principles in such a way as to explain why arbitrators use them to show that the national solutions on which they rely have transnational status if they are confirmed by the UNIDROIT Principles:

The reasons why this Tribunal considers the UNIDROIT Principles to be the central component of the general rules and principles regarding international contractual obligations and enjoying wide international consensus, which constitute the proper law of the Contracts, are manifold: (1) the UNIDROIT Principles are a restatement of international legal principles applicable to international commercial contracts made by a distinguished group of international experts coming from all prevailing legal systems of the world, without the intervention of states or governments, both circumstances redounding to the high quality and neutrality of the product and its ability to reflect the present stage of consensus on international legal rules and principles governing international contractual obligations in the world, primarily on the basis of their fairness and appropriateness for international commercial transactions falling within their purview; (2) at the same time, the UNIDROIT Principles are largely inspired [by] an international uniform-law text already enjoying wide international recognition and generally considered as reflecting international trade usages and practices in the field of the international sales of goods, which has already been ratified by almost 40 countries, namely, the 1980 Vienna Convention on the International Sale of Goods; (3) the UNIDROIT Principles are specially adapted to the Contracts being the subject of this arbitration, since they cover both the international sale of goods and supply of services; (4) the UNIDROIT Principles (see their Preamble) have been specifically conceived to apply to international contracts in instances in which, as it is the case in these proceedings, it has been found that the parties have agreed that their [Page18:] transactions shall be governed by general legal rules and principles; and (5) rather than vague principles or general guidelines, the UNIDROIT Principles are mostly constituted by clearly enunciated and specific rules coherently organized in a systematic way . . .

Can there be a more eloquent expression of the argument that the use of the UNIDROIT Principles in international arbitration is the best way to meet the legitimate expectations of the parties?

25. Later in the same award, the arbitral tribunal confirms its finding when it explains that it would have applied the UNIDROIT Principles even in the absence of an express or implied choice of law by the parties: 21

. . the determination of the applicable law is an exercise which may not remain indifferent to the substantive outcome of the choice-of-law process. If projected to the field of international commercial arbitration and the interpretation of the relevant part of Art. 13(3) of the ICC Arbitration Rules, the necessary conclusion is that the very distinction between voie indirecte and voie directe becomes blurred and on the verge of fading away, since both would pursue the same ends through essentially the same means, namely, the application of the 'better law', i.e. the substantive rules, laws and principles best adapted to a just and fair decision of the dispute on the basis of the circumstances of the case and the parties' expectations by directly taking into account, for so doing, the contents of the substantive rules and principles to be applied. . . . [W]ith respect to the Contracts such 'better law' is found in the general rules and principles regarding international contractual obligations enjoying wide international consensus. Since such rules and principles are deemed to become directly applicable, in absence of a choice of law, to transactions characterized as commercial and international state contracts, their application may be also explained in terms of the voie indirecte, because such characterization is precisely a conflicts rule, though differing from traditional ones in that its operation does not depend on the geographical localization of a connecting factor . . .

. . .

Nevertheless, on the basis of at least two grounds, this Tribunal would not have been thereby prevented from referring to the UNIDROIT Principles as a part of the law applicable to the Contracts in absence of an express or implicit choice-of-law situation: (i) . . . the Contracts are governed, as a result of a preliminary finding, by general rules and principles regarding international contractual obligations enjoying wide international consensus, i.e. they are not governed by any discrete domestic or national law. In consequence, in the present case, no clash between any discrete municipal law and the UNIDROIT Principles is possible; and (ii) the application of the UNIDROIT Principles does not depend on their self-given criteria of application, but on the powers vested with this Tribunal under Art. 13(3) of the ICC Arbitration Rules, which are not limited to the voie indirecte and authorize it to directly determine the applicable law it deems more appropriate to govern the merits, i.e., in this case, the general legal rules and principles regarding international contractual obligations enjoying wide international consensus, including, without limitation, the UNIDROIT Principles as an adequate restatement and expression of such general legal rules and principles. The application of the Principles in case of absence of choice then rests upon Art. 13(3) of the ICC Arbitration Rules and the mandate conferred on this Tribunal to find and determine the law applicable to the Contracts.

To sum up, the arbitral tribunal is of the view that the UNIDROIT Principles amount to the 'substantive rules, laws and principles best adapted to a just and fair decision of the dispute on the basis of the circumstances of the case and the parties' expectations', on account of the fact that their substantive content represents an 'adequate restatement and expression' of 'general rules and principles regarding international contractual obligations enjoying wide international consensus'. [Page19:]

Obviously, the arbitral tribunal stresses the particular circumstances of this case, where the parties had excluded the application of any national law. Yet, their reasoning typifies the trend among international arbitrators who express doubts as to the adequacy of applying national laws to the solution of transnational disputes. It is not unrelated to the attitude of those arbitrators who, when obliged by the parties' agreement to apply a national law, use the UNIDROIT Principles to prove to the parties that the national solution applied is consistent with transnational standards.

Conclusions

26. In the mid 1980s, Professor Ole Lando wisely wrote the following:

By choosing the lex mercatoria the parties oust the technicalities of national legal systems and avoid rules which are unfit for international contracts. Thus they escape peculiar formalities, brief cut-off periods, and some of the difficulties created by domestic laws which are unknown in other countries, such as the common law rules on consideration and privity of contract. Furthermore, those involved in the proceedings - parties, counsel and arbitrators - plead and argue on an equal footing; nobody has the advantage of having the case pleaded and decided by his own law and nobody has the handicap of seeing it governed by a foreign law. 22

Many international arbitrators are convinced of the accuracy of such a statement. Such a view underlies the statement made by the arbitrator in ICC case 8385 that '[a]pplication of international standards offers many advantages. They apply uniformly and are not dependent on the peculiarities of any particular national law.' 23 One of the main objections to this approach has been the lack of predictability of lex mercatoria. 24 How can the parties validly choose rules of law whose content they are unable to ascertain? Probably the best reply to this criticism has been given by Andreas Lowenfeld, 25 but with the UNIDROIT Principles and also the Principles of European Contract Law, the question should no longer arise. As indicated by Klaus Peter Berger: 'In order to justify the application of a certain legal principle or rule of transnational law, international arbitrators may refer to a collection of the lex mercatoria developed by "neutral" scientists and practitioners instead of having to base their decision on a single arbitral award which may suffer from an ideological or economic bias.' 26 One of the effects of the UNIDROIT Principles in international arbitration practice will be an increasing number of awards applying principles of transnational trade law.

Use of the UNIDROIT Principles will also have the effect of changing international arbitrators' perceptions of the legitimate expectations of the parties when determining the law applicable to the merits of the dispute. So far, arbitrators have mainly, although not exclusively, focused on the choice of a legal system that does not take the parties by surprise. With the existence of published and known international principles such as the UNIDROIT Principles, this focus will more and more shift to the content of the rules to the applied. A national law will be preferred when its solutions are supported by such principles, which show that the decision of the arbitral tribunal is not grounded on parochial concerns. This new approach to the analysis of the parties' legitimate expectations will also lead to the conclusion, in cases where the parties have not chosen the applicable law, that the 'better law' is not a national law, not contemplated by the parties, but a corpus of international rules of law, in relation to which the UNIDROIT Principles will play a leading role.

Finally, increasing use of the UNIDROIT Principles by international arbitrators will also have an influence on the Principles themselves, as they will acquire a more specific meaning. To use the words of Hans van Houtte, arbitral awards will 'give body to the notions of the UNIDROIT Principles'. 27

1
C. Reymond, 'Introduction' to Part II (The UNIDROIT Principles and International Commercial Arbitration) of The UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria? (Paris: ICC Publishing, 1995 (ICC Publication No. 490/1))141.

2
F. Marrella & F. Gelinas, 'The UNIDROIT Principles of International Commercial Contracts in ICC Arbitration' (1999) 10:2 ICC ICArb. Bull. 26.

3
Partial award of June 1995 in ICC case 7110, (1999) 10:2 ICC ICArb. Bull. 39 at 51.

4
Final award in ICC case 8769, (1999) 10:2 ICC ICArb. Bull. 75.

5
Final Award in ICC case 8331, (1999) 10:2 ICC ICArb. Bull. 65; French translation: (1998) 125 J.D.I. 1041 (Annot. Y. Derains).

6
No consequence is to be drawn from the fact that some laws or rules refer to conflict-of-laws rules, whereas others instruct the arbitrator to determine the law or rules of law that he or she considers appropriate. When giving the reasons why a law or rule of law is appropriate, an arbitrator expresses a rule of conflict, at least for the case in hand, even when guided not by connecting factors but by the substantive rules that may be applicable.

7
H. Batiffol, 'L'arbitrage et les conflits de lois' [1957] Rev. arb. 110 at 111.

8
(1976) I Y.B. Comm. Arb. 128 at 129.

9
See Y. Derains 'Attente légitime des parties et droit applicable au fond en matière d'arbitrage commercial international' in Travaux du Comité français de droit international privé, 1984-1985 (Paris: CNRS) 81.

10
cf. P. Lalive, 'Les règles de conflit de lois appliquées au fond du litige par l'arbitre international siégeant en Suisse' [1976] Rev. arb. 155.

11
For more details see Y. Derains, 'L'application cumulative par l'arbitre des systèmes de conflit de lois intéressés au litige' [1972] Rev. arb. 99.

12
A. T. von Mehren, 'To What Extent is International Commercial Arbitration Autonomous?' in Le droit des relations économiques internationales. Etudes offertes à Berthold Goldman (Paris: Litec, 1982) 217 at 227.

13
cf. B. Goldman, 'Frontières du droit et lex mercatoria', Archives de philosophie du droit (Paris: Sirey, 1964); 'La lex mercatoria dans les contrats et l'arbitrage international: réalité et perspectives' (1979) 106 J.D.I. 475; 'Nouvelles réflexions sur la Lex Mercatoria' in Etudes de droit international en l'honneur de Pierre Lalive (Basel: Helbing & Lichtenhahn, 1993) 241.

14
(1997) 124 J.D.I. 1061 (Annot. Y. Derains) [in French].

15
(1999) 10:2 ICC ICArb. Bull. 33.

16
(1999) 10:2 ICC ICArb. Bull. 69 [translation into English from original German]; French translation: (1998) 125 J.D.I. 1047 (Annot. Y. Derains).

17
(1999) 10:2 ICC ICArb. Bull. 58 [original in French].

18
(1999) 10:2 ICC ICArb. Bull. 107.

19
Translation: Contracts form a kind of microcosm (…) a small company in which everyone has to work towards a common goal, which is the aggregate of the individual goals that each person pursues, exactly as in a civil law partnership or a commercial company.

20
(1999) 10:2 ICC ICArb. Bull. 39.

21
The contracts at stake referred to 'natural justice' for the settlement of disputes.

22
O. Lando, 'The Lex Mercatoria in International Commercial Arbitration' (1985) 34 I.C.L.Q. 747 at 748.

23
Although made after the publication of the UNIDROIT Principles, this award does not mention them, maybe because they do not directly solve the problem to be addressed.

24
See inter alia Lord Mustill, 'The New Lex Mercatoria, The First Twenty-five Years' in Liber Amicorum for the Rt Hon. Lord Wilberforce (Oxford: Clarendon, 1987) 149.

25
A.F. Lowenfeld, 'Lex Mercatoria: An Arbitrator's View' in T.E. Carbonneau, ed. Lex Mercatoria and Arbitration: A Discussion of the New Law Merchant (Juris, 1998) 71.

26
K.P. Berger, The Creeping Codification of the Lex Mercatoria (The Hague: Kluwer, 1999) 143.

27
H. van Houtte, 'The UNIDROIT Principles of International Commercial Contracts and International Commercial Arbitration: Their Reciprocal Relevance' in The UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria? (Paris: ICC Publishing, 1995 (ICC Publication No. 490/1)) 181 at 185.