The Law applicable to the substance of disputes in International Commercial Arbitration

In international commercial arbitration, once the procedural issues are resolved by an arbitral tribunal, it proceeds with the establishment of the facts of the dispute, issuing an award on them based on the contract between the parties and the applicable law.

It is worth mentioning that despite the fact that the agreements, rights, and obligations contained in the contract between the parties that gave rise to a dispute, in many cases may be enough for the arbitral tribunal to resolve a case, this must be supported by substantive law, or better known as applicable law, which will determine the interpretation and validity of the contract, the rights and obligations of the parties, and the consequences of non-compliance.

In general, the parties to an international commercial agreement are free to choose for themselves the applicable law, a principle that is known as “party autonomy” and that is widely accepted in legal systems subject only to good faith, legality, and public order. The parties generally choose this law at the time of entering the contract itself, since, even though it happens, it is less logical for the parties to choose the applicable law once a dispute has arisen.

The question that arises then is, can parties only opt for a national legal system, or can it extend beyond this? In fact, the parties have a variety of options including, but not limited to, the national laws of a legal system, international law, and equity and good conscience.

In most international commercial contracts, it is common for a certain legal system to be chosen as the applicable law. Such a system is not simply a set of general principles or isolated legal rules, but a set of interconnected and interdependent laws and rules, enacted by the state, and interpreted and applied by the courts.

Regarding international law, there are a variety of sources, including international conventions and customs, but probably the most relevant, as far as non-state parties are concerned, are “general principles of law”. Finally, it is also possible to request an arbitral tribunal to resolve a dispute based on what is “fair and reasonable”, instead of a law. Such power is conferred on them by the so-called equity clauses, which establish, for example, that the arbitrators decide according to an equitable and not strictly legal interpretation, or simply as “amiable composites”.


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