It is not possible to overemphasize the importance of the law applicable to the contract. However precise the terms in which the parties express their respective obligations, only in rare cases is it not necessary to interpret them, for example, when confronted by an unforeseen situation. Above all, the law applicable to the contract is not merely a guide for the person interpreting it. It also contributes to determining the extent of the parties' respective obligations by filling in gaps in the contractual provisions where this is necessary. Continental laws do this by linking each individual contract to a more general legal framework (sales, agency, enterprise agreement, etc.). The common law legal systems have recourse to the theory of "implied terms". Lastly, essentially, the law applicable to the contract will be used for determining the validity of the parties' agreements.

Nowadays all legal systems allow the parties freedom to designate the law applicable to the contract, at least insofar as the substance is concerned. However, the parties do not always make such a choice, although contracts without a clause attributing the applicable law are substantially in the minority.

Lack of choice leads to dangerous uncertainty.

Contrary to an idea that has become too widespread, the question as to which law is applicable to the contract does not only arise in the event of a dispute. It arises as soon as the contract is concluded and sometimes even before, since the validity of the obligations the parties are preparing to undertake in the contract will depend on this choice. In any case, there is no doubt that in the course of the performance of the contract the parties need to know what law is applicable to it, as the contractual provisions will not always spell out the full range of their respective rights and obligations. Hence, in this connection, it is no exaggeration to state that ignorance of the law applicable to the contract not only complicates the settlement of any disputes, but may well even result in their occurrence. If they do not know which rule of law applies to their joint contractual relationship, each of the parties, in total good faith, will be tempted to perform the contract by reference to the law it knows best - its own national law - without perceiving that in so doing the parties are no longer performing the same contract, thus making a dispute entirely likely. It goes without saying that a party in bad faith will take advantage of any uncertainty regarding the applicable rule of law to convince itself that it is free to comply with the law which best serves its own interests.

It is true to state that failure to choose the law applicable to the contract at the outset is a factor of complication in the event of a dispute. While it is correct that in the realm of the law of contracts, national laws are closely similar in a number of respects, it would be incautious to assume that the application of one particular law or another is a matter of indifference. Numerous examples can be cited of the issues on which national laws contradict one another: variety in the length of time before the action becomes time-barred, whether or not the "theory of unforeseen circumstances" is allowed, the role of the service of formal notice in the event of failure to perform, the significance of pre-contractual negotiations in the interpretation of contracts, etc.

How is a submission of claim to be drafted, how is a defence to be worded when whether or not the approach adopted is well-founded will depend on the application of one particular law or another. Obviously, it is not impossible, and in practice alternative grounds can be presented to the arbitrators for their consideration. But this does not contribute to simplifying the discussion. [Page11:]

Moreover, before arguing on the substantive law, it is necessary to convince the judge or the arbitrator that this law is applicable, and this is a source of increasing costs and delays. Lastly, as Stephen Bond underlined in an earlier issue of this Bulletin, in practice it is easier to choose an arbitrator when one knows in advance what law he will have to apply (cf. S. Bond, "How to draft an arbitration clause", Bulletin of the ICC International Court of Arbitration, December 1990, p. 19).

It is hence strongly recommended that parties choose the law to be applied to their contract. However, an ill-considered choice may have disastrous consequences. That is why it is important to reflect on the various factors the parties should weigh up before they decide that their contract is to be governed by one or another specific law (I). Moreover, where the parties have specified that any disputes should be settled by arbitration, one has to consider, in the light of arbitral case law precedents, what attitude an international arbitrator is likely to adopt with regard to the parties' choice of the law applicable to the contract (II).

I. How to choose the law applicable to the contract

Two preliminary questions can be easily settled: when should the law applicable to the contract be chosen? Whereabouts in the contract should this choice be expressed?

From the foregoing, it is clear that the law applicable to the contract must be chosen during the negotiation of the contract. Naturally, it is up to the parties to define the parameters of the economic operation they wish to set in place at the outset, but one cannot overemphasize the need for them to concern themselves fairly early on with the legal framework into which the operation is to be inserted. This is essential to ensure consistency.

The position in the contract where the clause relating to the applicable law is to be inserted is not a matter of indifference. In a number of contracts, this choice is expressed in the arbitration clause. This is not a good solution. As we have underlined above, the importance of the choice of the law applicable to the contract can be demonstrated even where no dispute has occurred. Moreover, and we will return to this point, the law applicable by the arbitrator is not exactly the same thing as the law applicable to the contract. It is hence preferable to introduce a special clause in the contract, referring solely to the choice of the law applicable thereto.

A. The tendency to choose one's national law

Naturally, the most delicate question is the substantive decision as to the choice. Why choose one law rather than another? Each party will wish to have the law it considers the most favourable to itself applied. An approach of this kind - which is perfectly valid in itself - is not likely to facilitate agreement between the parties. What is more, the concept of "favourable law" is quite imprecise and often ambiguous.

Negotiators have a natural tendency to consider that it is in their interest to manage to have their national law chosen as applicable to the contract. This attitude is constantly criticised by lawyers on the ground that the national law of one party is not necessarily favourable to it. This comment is true. Thus, for example, a French seller has no interest in applying French law because French law lays down a presumption of liability on the part of professional sellers. However, it should not be too quickly deduced from this that one can draw up a list of laws that are favourable or unfavourable to one particular category of parties involved in international commercial dealings. In reality, depending on the particular circumstances of the case, one and the same law will be favourable or unfavourable to a party. Thus, whereas French law may be characterised as unfavourable to the seller in a supply contract in relation to the extent of its obligation, it will be favourable to it if the buyer claims a price revision on the ground of a sudden fall in prices on the international market. Indeed, French law, unlike many other laws (Algerian, Egyptian, Italian, Swiss, etc.) does not allow the theory of unforeseen circumstances which enables the contractual provisions to be adapted in the event of major changes in the prevailing circumstances at the time the contract was concluded. It will be noted immediately that the disallowance of the theory of unforeseen circumstances in French law may in its turn run counter to the seller's interests if the prices rise instead of falling. This illustrates [Page12:] the fact that the concept of the unfavourable law not only has to be qualified but that, all in all, it is misleading in character. It is clear that a party who believes that its national law is favourable to it is on the wrong track. But it is likely that a party who is looking for the law that is the most favourable to it, taking into account its position in the commercial operation it is preparing to conclude, is undertaking a step which, while it is not unnecessary, nonetheless is uncertain as regards its outcome.

Despite criticisms from lawyers, the tendency of a layman to wish to have his national law applied to the contract is not as naive as is sometimes alleged. If the content of the national law is not necessarily favourable to one party, its application to the contract always presents a substantial advantage for that party, that of avoiding a split between the administration of domestic contracts and that of export contracts. Yet, apart from a few major exceptions, most enterprises achieve most of their turnover on the domestic market, and their contracts are then subject to the national law. To submit contracts for export deals to one or more totally different legal systems is of necessity a source of complication. How each firm copes with such a disparity in the legal system applicable to contracts will depend on its particular structure. There is no doubt however that small and medium-sized firms encounter more difficulties than large ones in this respect. Unfortunately, it is not certain that they are all aware of this because experience has shown - and this is not surprising - that they are the least sensitive to the economic consequences of the choice of the applicable law. For many of them, the specific nature of export contracts is restricted to matters of transport, international payment, customs and the choice of the appropriate INCOTERM. They do not perceive that the administration of the performance of a contract will differ depending on whether its substance is subject to one particular law or another. For example, that the requirements relating to formal notice are not the same under Swiss law and French law or that in English law acceptance of a "repudiation" of the contract has consequences which are unknown under Italian law, insofar as the notion of "repudiation" can be transposed to it. The administration of the performance of each contract according to its own legal system is an excessively weighty task which is very difficult to achieve for any enterprise - beyond a certain degree of diversity of systems, variable for each enterprise. Accordingly, a preference for the application of the national law is perfectly understandable, even when this law is less favourable than another would be in any given case.

However, such a preference is often to no avail because it is confronted by an identical preference on the part of the future co-contracting party. If each of the negotiators of a contract insists that its national law should be applied, the contract will not be concluded. Either one of the two parties has to give way or they both have to agree to choose a third law. It would be presumptuous here to seek to provide negotiators with a valid solution for every case. The relative strengths of the parties, the economic attraction of the planned commercial operation, the content of the national law of the other prospective contracting party (insofar as one is in a position to assess this) are all parameters which play a significant, but necessarily variable, role at the time the decision is taken in each particular case. The fact remains that a number of factors always have to be taken into account before accepting the national law of the other prospective contracting party or opting for the choice of a third law.

B. Criteria for a sound choice

The first criterion is knowledge of the solutions this law provides and, hence, its accessibility. It is suicidal to make a contract subject to a law whose content one does not know. It boils down to entering into commitments without knowing their real scope. Yet, accessibility to a given national law is not always easy. In many countries, probably most of them, case law precedents are not published systematically. Most often the known law consists of a number of codes, old court decisions, or recent laws that are difficult to situate in a more general legal system. This results in a risky imprecision for the contracting parties.

A second criterion of choice of the law applicable to the contract, when this is not the firm's national law, is based on an analysis of how great an impact the intrusion of a particular foreign law will have on the administration of that firm's contracts. The aim here is to limit to the maximum the consequences of disparities between the law applicable to a given contract and the overall body of contracts administered by the firm. It is up to each firm to define the solutions which best suit [Page13:] it according to its own particularities. Here, too, knowledge of the applicable law, and its accessibility, play a major role and have a variety of effects depending on the nature of the company's commercial dealings.

A firm which exports worldwide is well-advised to decide once and for all which third law should be used for all its international contracts, and to urge its application whenever it cannot or does not wish to have its own national law applied. Thus, overall, it will administer two categories of contract: those subject to its national law and those subject to the third law in question. It will rapidly come to know the second as well as the first, will have legal advisors in both laws, and will thus restrict to the maximum the risk of unforeseeability which is related to the law applicable to the validity, the extent and the conditions of performance of the contractual obligations. It is in the firm's interest to select a third law belonging to a legal system of the same type as its own national law so as to avoid too great a disparity, and a law that is easily accessible so that it is easy to follow changes in it, These characteristics go a long way towards explaining the popularity of Swiss law as the law applicable in dealings between firms from countries belonging to the family of Romano-Germanic laws (civil law countries). Its concepts are close to those of all the legal systems of the countries of continental Europe, Latin America, North Africa and French-speaking Sub-Saharan Africa, and a great number of countries in Asia and the Middle East, and it is regularly published in German, French and Italian as well as in English. French law, which has had a determining influence on the codifications of the civil law countries, plays a similar role, but to a lesser extent, due to the fact that it is not widely published in languages other than French.

On the other hand, a firm specialised in commercial dealings with a given country probably has a greater interest in developing its knowledge in the law of that country and agreeing to its application to its contracts if it is unable to use its own national law or if it does not want to. In this way, its legal administration of contracts will remain easy to supervise and will be a more or less accurate reflection of its involvement in two different principal markets. Naturally, this presupposes that the content of the law of the foreign country with which it has dealings is easily accessible.

C. Sophisticated solutions

Other more sophisticated solutions available to the parties deserve attention. These consist of making the law applicable to the contract play a strictly supplementary role, providing for the combined application of several national laws or making the whole or part of the contract subject to anational rules. None of these solutions excludes the others.

The parties may wish to confine the law applicable to the contract to a purely supplementary role. For example, they will stipulate that "for all questions not settled in the contract, the law of country X shall be applicable". We will see below that a stipulation of this kind is binding on international arbitrators and, in particular, prohibits them from calling the validity of the contractual provisions into question in the name of the public policy of the law designated by the parties provided they are not incompatible with truly international public policy (on this concept, cf. P. Lalive "Ordre public transnational (ou réellement international) et arbitrage international", Rev. arb. 1986, p. 329). Such a solution presents a special advantage for the firm - and one that is always sought - that of ensuring that the contracts it concludes at the international level are as uniform as possible. A detailed contract will endeavour to provide precise solutions for any difficulties that may arise from the economic operation set in place by the parties, whatever the nationality of the other contracting party. The law designated by the parties will then only intervene in the unlikely event that the contract contains gaps. Attractive as this seems, this process is not risk-free, especially if the law chosen as supplementary varies depending on the nationality of the co-contracting party while the text of the contract remains intangible. Indeed, the performance and interpretation of a contract are as inseparable as the content and form of a literary work. For instance, while the expression résiliation (termination) has a clearly defined meaning in French law, in Italian law, which is closely similar, there has been considerable controversy as to its scope.

Dépeçage

Dépeçage consists of making the contract subject to an assemblage of different laws at one and the same time, each of them limited to a [Page14:] different issue. This solution is allowed (cf. Article 3(1) of the Rome Convention of 1980) and, as will be underlined below, practised by arbitrators even where the parties had not expressly provided for it. Most often this solution will correspond to the desire of one of the parties to maintain the hard core of all the contracts it concludes within the sphere of one single national law, while agreeing that another law may apply to particular questions dealt with differently depending on the nationality of the other contracting parties (payments, transfer of title, patents, competition problems, import licences, etc.). Dépeçage is often unnecessary because a correct assessment of the scope of the law of the contract would be sufficient for resolving the difficulties. But above all it gives rise to problems of classification and boundaries and accordingly is more likely to give rise to disputes than to prevent them.

Anational rules

Nobody seriously disputes nowadays that the parties may make their contract subject to anational rules. This is the stance taken, inter alia, by Article 1496 of the French New Code of Civil Procedure, Article 187(1) of the Swiss Federal Law on private international law and Article 28 of the UNCITRAL Model Law. One can also cite inter alia Article 813 of the Lebanese New Code of Civil Procedure, Article 458-bis(14) of the Algerian Legislative Decree of 23 August 1983, and Article 73(1) of the Tunisian law of 26 August 1993. This right was expressly recognised in 1992 by the work of the International Law Association's Cairo Conference. Hence the question does not necessarily have to be approached in terms of its lawfulness, but rather of its appropriateness.

The main objection of resort to international rules, whatever they are called (lex mercatoria, general principles of law, international commercial customs, etc.), is the fact that they are ill-defined, and are hence a source of unforeseeability and uncertainty. When stated in absolute terms, the argument goes too far. Lord Mustill, who is particularly sceptical as regards the existence of the lex mercatoria has conceded that there are 20 principles (cf. Lord Mustill, "The New Lex Mercatoria: The First Twenty-Five Years"). More recently, UNIDROIT's work has led to the establishment of the principles of law of international contracts. Moreover, this argument becomes irrelevant when one compares the uncertainty generated by failure to choose the law applicable to the contract with the alleged uncertainty of resort to anational rules. In the first case, the parties are unaware of the legal context in which they are performing their contractual obligations until this question is settled by the arbitrator, with all the risks referred to above, which are all the more important as the arbitrator is not bound to rule according to a predetermined system of conflict of laws. In the second case, the reference to anational rules designates a legal framework that, while it is incomplete, is nonetheless known and is in accordance with practices generally followed by the international commercial community. What is more, the stability linked to national legal systems should not be overestimated. Often more than ten years have to pass before the disparate decisions of the Appeal Courts lead the Supreme Court to amend what up till then was presented as the substantive law. What degree of legal certainty do the parties have during this period?

Thus, very often, when the parties are unable to agree as to which national law should be applied to their contract - each challenging the other's proposals - recourse to anational rules is to be recommended. They may also refer to them for filling in gaps or limiting the effects of the national law selected, where they fear it is partially incompatible with international commercial practice. All in all, this kind of solution seems less artificial than the solution, used for different though closely related reasons, of freezing the selected national law at the date of the contract.

II. The arbitrator and the law chosen by the parties

The arbitrator is bound to apply the law designated by the parties. This was pointed out expressly in the 1971 award rendered in ICC case no. 1581:

Whereas the arbitral tribunal derives the whole of its powers and its jurisdiction from the terms of reference and, unlike a national court, is bound by the will of the parties, when they have expressed it by mutual agreement;

Whereas accordingly, despite the fact that, surprising as it might seem, prima facie in the [Page15:] light of the principles of private international law a case whose main elements are situated in Switzerland has been linked to French law the tribunal is bound to declare French law applicable to the case. (cf. Journal du droit international, 1974, p. 887)

The arbitrator does not have to assess whether the parties' choice as regards the applicable law is well founded. He simply has to respect it. Moreover, this is the principle employed by the 1961 Geneva Convention, Article VII(1) of which specifies that: "The parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the substance of the dispute." This wording is virtually word for word the same as that used in the ICC Rules of Arbitration. The solution is the same in all modern texts on international arbitration, which tend to prefer terms such as "rules of law" to the term "legislation" or "law" in order to underline that reference to anational sets of rules is lawful.

A. Limits to the will of the parties

The arbitrator's respect of the rules of law chosen by the parties does not however imply that these rules will supply the solution to every question in dispute. First of all, the arbitrator will try to find the solution in the contract itself before considering the applicable law. Do not the ICC Rules of Arbitration (Article 13(5)) invite the arbitrator to take account of the provisions of the contract "in all cases"? And more peremptorily, does not the UNCITRAL Model Law (Article 28(4)) provide that "in all cases, the arbitral tribunal shall decide in accordance with the terms of the contract"? But it is clear that this can be a source of difficulty if the contractual stipulations are incompatible with the public policy of the law chosen by the parties. Does the arbitrator have to give precedence to the will of the parties as expressed directly in the contract or to the provisions of public policy of a law that is applicable solely as a result of this same will?

It is possible to resolve this problem by analysing the parties' intention. So far as the choice of the applicable law is concerned, as we have seen, it is unrestricted. Not only are the parties free to choose any law they wish, but they may also exclude the application of any national law whatsoever by referring to the general principles of law or to the lex mercatoria; alternatively, they may restrict the field of application of the national law chosen by combining it with the general principles of law, freeze this law at a given date (cf. the ICC award in case no. 3093/3100 which held that the law applicable to the contract is the law in force at the moment the contract was concluded: J.D.I. 1980, p. 251). They may also perfectly well exclude certain provisions which cancel certain clauses of the contract from the applicable law chosen. However, if this is their wish, it must be expressed clearly.

The clause mentioned above, "for all questions not settled in the contract, the law of country X shall be applicable", obliges the arbitrators to apply all the contractual stipulations, even when these are apparently null and void by virtue of the public policy of the law of country X. To the contrary, a clause specifying that "this agreement shall be governed by French law" means that there is a hierarchical link between French law and the clauses of the contract: the parties have chosen to give these clauses the effects conferred on them by French law. A clause that is null and void according to French public policy will therefore have to be excluded by the arbitrators. In the award rendered in 1980 in ICC case no. 3380 (JDI 1981, p. 928), the arbitrators considered that a clause which specified "this Agreement shall be subject to and constructed in accordance with the laws in Syria" meant that the contract was governed and should be interpreted by Syrian law, "in its entirety and without restriction (for example with regard to its mandatory rules of public policy)…" Likewise, in 1978, in ICC case no. 2119, the arbitrators held that a clause indicating that a contract should be "performed and interpreted in accordance with French law" meant that "the contractual provisions were directly applicable, insofar as they did not run counter to the mandatory provisions of French law" (JDI 1979, p. 977). Indeed, if a contract has to be performed "in accordance with" a given law, and contains stipulations which are contrary to that particular law's public policy, the contract cannot be performed as stipulated.

It is important to underline the fact that, for arbitrators, there is no natural hierarchal link between the contract and any particular law. To the contrary, a law will only apply provided the parties intended it to and within the limits of that intention. If the parties have expressly excluded certain rules of the law in question, the arbitrators [Page16:] cannot dictate that these rules should apply, in the name of a national public policy of which they are not the guardians. By introducing appropriate clauses into their contract, it is possible that the parties have intended to reject the public policy provisions of a law the remainder of whose terms they wish to apply. (For further information on this point, cf. Y. Derains, "L'ordre public et le droit applicable au fond du litige dans l'arbitrage international", Rev. arb. 1982, p. 375 et seq.).

The particular problem of the compatibility of the contractual provisions with the public policy provisions of the law applicable to the contract is not the only case where the arbitrator may be led to consider the scope of application of this law - far from it. Despite the fact that it is very common for rules of arbitration and the texts of laws or conventions to refer to "the law applicable to the substance of the dispute", it is difficult to admit straightaway that the law chosen by the parties applies to all the questions in dispute even if the parties have specified in the contract and more specifically in the arbitration clause, that the arbitrator should settle any disputes according to the law of one particular country or another. Indeed, it is difficult to imagine the arbitrator deciding issues of capacity or power according to the law chosen by the parties in the contract. Questions such as the capacity of a party, whether or not the signatory to a deed has the power to bind a company, cannot vary at the whim of the contract, according to the law that the parties have declared to be applicable for settling any disputes that may arise from it. The same will apply to the effects of the insolvency of a company.

In every case of this kind, the arbitrator would have to interpret the parties' stipulation as restricting the field of application of the law that they have designated for disputes of a contractual nature. But although this was certainly the spirit in which the parties chose the law applicable to settling disputes ensuing from the contract, or, as certain clauses indicate, "from disputes arising in the course of its performance", there is no doubt that this interpretation stretches the letter of the parties' agreement. When a party refuses to perform a contract by invoking that its signatory was unauthorised, this is indeed a dispute ensuing from the contract or arising in the course of its performance, Yet, the existence of this authorisation cannot seriously be assessed in the light of the law chosen in the contract.

Accordingly, the parties cannot be too strongly advised - as we have already underlined (no. 5) - to stipulate as a contractual provision the law applicable to the contract, rather than the law applicable "to disputes".

B. Law applicable to the arbitration clause

Questions relating to the law applicable to the arbitration clause itself as well as to contractual liability are even more delicate.

Despite the principle of the autonomy of the arbitration clause, an award in 1977 rendered in ICC case no. 2626 (JDI 1978, 981) stated without hesitation:

It is commonly admitted that the choice of the law applicable to the principal contract also tacitly governs the situation of the arbitration clause, in the absence of any specific provisions.

Indeed, when parties are concluding an arbitration clause it is rare for them to envisage that it might be governed by a law other than the one stipulated in the contract. If the parties fail to choose a law applicable both to the contract and to the arbitration clause, in most cases the identification of the means of localising that law should lead to the application of the same law to both these autonomous legal acts. The autonomy of the arbitration clause and of the principal contract does not mean that they are totally independent one from the other as evidenced by the fact that the acceptance of the contract entails acceptance of the clause, without any other formality.

However, arbitrators are increasingly taking the view that the law applicable to the substance of the case is not the law to be used for resolving problems relating to the validity of the arbitration clause. An award rendered in Berne in 1990, in ICC case no. 5721 (JDI 1990, 1020), is particularly significant in this respect. Whereas the parties had chosen Egyptian law to be applied to the substance of the dispute, the arbitral tribunal decided to assess the validity and scope of the arbitration clause by reference to the lex mercatoria, in the following terms:

The arbitral tribunal will not examine this delicate question solely in the light of the law applicable to the substance of the dispute, Egyptian law (see appeal court judgment Isover St Gobain, [Page17:] v. Dow Chemical France & others, CA Paris, 21 Oct. 1983, Rev. arb. 1984, 98). Article 13, paragraph 5 of the ICC Rules of Arbitration, invites the arbitral tribunal to take account of trade usages and the provisions of the contract. From this standpoint, the tribunal is entitled to refer to the lex mercatoria. The autonomy of the arbitration clause, widely recognised nowadays, is justification for referring to a non-national rule deduced solely front international trade usages. In particular, it is justifiable to separate the substance of the contract from the validity and scope of the arbitration clause. Hence the arbitral tribunal will decide by virtue of the general concept of good faith in business, and in trade usages.

Here one cannot fail to make a comparison between the principle laid down by the decision of the French Cour de Cassation on 20 December 1993 in the Dalico case (Cass. Civ. 1ère, 20 December 1993, Rev. crit. dr. int. priv. 1994, p. 663, note P. Mayer; Rev arb. 1994, p. 120, note H. Gaudemet-Tallon; JDI 1994, p. 494, note E. Gaillard):

By virtue of a substantive rule of the international law of arbitration, the arbitration clause is legally independent of the principal contract which contains it directly or by reference and, subject to the overriding rules of French law and international public policy, its existence and effectiveness are assessed according to the common will of the parties, without it being necessary to refer to any national law.

C. Claims in tort

The relationship between the law applicable to the contract and tortious liability also gives rise to a problem. This question was particularly studied by Professor Claude Reymond (C. Reymond, "Conflits de lois en matière de responsabilité délictuelle devant l'arbitre international", Travaux du Comité français de droit international privé, Année 1988-1989, p. 97). Professor Reymond pointed out that in a good many cases, arbitrators have declared that the law governing the contract is applicable to liability for tortious acts committed in the course of its performance. However, he also provides examples of awards which apply either the law of the place where the loss or damage occurred, or the lex loci delicti (op. cit., pp. 102 and 103).

However, it seems that analysis of the will of the parties should lead the arbitrator to extend the field of application of the law chosen by the parties for governing the contract to tortious liability, in any case if the tort was committed in the course of its performance.

D. International public policy

The field of application of the law chosen by the parties to govern their contract may also be restricted by the intervention of mandatory public order legislation originating in a different legal system, to which the commercial operation implemented by the parties is related. For example, an arbitrator may be led to consider the application of European competition law to a contract concluded between German and Belgian firms that is subject to Swiss law. In most cases, by analysing the will of the parties, the arbitrators should consider that the fact that the parties chose Swiss law did not exclude the intervention of mandatory public order legislation from other legal systems, and particularly the law of the place of performance of the contract. However, it is quite possible that in the example presented, the parties deliberately made a contract that was contrary to European competition rules subject to Swiss law, for the sole purpose of avoiding the sanctions ensuing from those rules. The fact remains that such an intention cannot be presumed, and in order to be taken into account it has to have been stated expressly. If this is the case, the question then arises as to whether the international arbitrator's obligation to respect the will of the parties as regards the choice of the applicable law must lead him to give effect to a deliberate fraud against the law of a state which is validly entitled to be applied.

This problem can only be resolved through the concept of truly international public policy. Indeed, if the mandatory public order legislation excluded by the parties is aimed at safeguarding principles that the arbitrator considers to form part of truly international public policy (fight against corruption, for example), the arbitrator should invoke that policy to make that law, or at least the principle that it applies, prevail over the will of the parties. Conversely, if the law excluded has a content that is contrary to truly international public policy, the arbitration should give effect to the will manifested by the parties and exclude its application. However, situations settled in this [Page18:] way are seldom encountered in practice. Most often, mandatory public order legislation expresses economic and social policies which, even if they correspond to the legitimate needs of the states that lay them down, cannot be placed at the level of truly international public policy. From this point of view, different, or even contrary, policies would each be as legitimate as the other, and the arbitrator cannot take a stand as the guardian of one or the other in the name of truly international public policy. On the other hand, truly international public policy cannot allow the arbitral institution to be the instrument of a fraud on states' legitimate interests. Indeed, the express intention of the parties to avoid the application of the mandatory public order legislation of the place of performance of the contract through the combined choice of arbitration and of a law which bears no relationship to the commercial operation in question, should be classed as such. Fraud of this kind constitutes a misappropriation of the function of arbitration, and it is this misappropriation that is contrary to truly international public policy. Hence it is up to the arbitrators to penalise it.

In conclusion, it is noted that the importance of the choice of the law applicable to the contract should not be underestimated. The validity and extent of the parties' obligations depend on this choice. If no such choice is made, this provides the opportunity for disputes, and a choice made lightly is a source of setbacks that are often difficult to measure. However, when choosing the law applicable to the contract, the parties should make no mistake as to their objective. It is entirely rash to view this as a means of obtaining advantages over the other contracting party that could have been set out in suitable contractual clauses. The real objective should above all be an objective of administering the contract. It is essential for the contract to be able to be performed in a context that is clear, known to both parties, and that does not give rise to excessive disparities in the traditional contract administration methods of each of the firms concerned. Moreover, parties should not imagine that by deciding on the law applicable to the contract, or even to disputes that may arise from the contract, they will thus ensure that their legal relationship is severed from any contact with other legal systems. Even though arbitrators have a greater duty to respect the parties' choice than national judges do, there are areas that are not covered by the law they have selected.