The Law Applicable to International Investment Contracts in the field of Arbitration

Prof. Ashraf Wafa Mohamad
Professor of Private International Law
Faculty of Law – University of Cairo – Egypt


The objective of the arbitration system is to help parties resolve their disputes by resorting to a “special court,” i.e. people selected by the parties to resolve the dispute, in order to avoid resorting to ordinary jurisdiction. The great increase in the volume of trade between various countries, especially by the end of the nineteenth century and at the beginning of the twentieth century, necessitated the need for a legal system appropriate to the nature of international trade disputes, a system that settles these disputes fast and responds to the needs of international trade at the same time. What legal thinking found was that the arbitration system could be a substitute for national jurisdiction in this regard.
Arab States have accepted resorting to the arbitration system as a means of adjudicating international investment contract disputes, because of the insistence of the foreign contracting party with the State not to submit to the national jurisdiction of the State party in the contract. The pressure of international trade played a crucial role in the Arab countries’ acceptance of the arbitration system, which led to the modernization of their internal laws related to arbitration so as to allow the use of arbitration in the settlement of international trade disputes. Therefore, many Arab countries issued laws regulating arbitration as a means of settling disputes related to international trade contracts; for example, the Egyptian Arbitration Law of 1994, the Algerian Arbitration Law of 1993, the Bahrain Arbitration Law of 1993, and the Kuwaiti Judicial Arbitration Law of 1995, and the UAE Arbitration Law of 2018. Moreover, international arbitration bodies were allowed to take into account the interests of developing countries in their recent decisions, another factor that contributed to the acceptance of the arbitration system by Arab countries.
While it is currently established that arbitration is the standard means of adjudicating disputes related to international investment contracts, there are some questions regarding the determination of the law applicable to arbitral proceedings and the subject matter of the dispute: Is the arbitrator subject to the law of will chosen by the parties? What is the solution in the absence of the law of will, should the arbitrator apply a national law closely related to the dispute, or is it possible, given the nature of international trade relations, to rely on the customs and traditions of international trade or what is known as international trade law? If the reliance on non-national legal rules by the parties or the arbitrator is legitimate as law applicable to the subject matter of the dispute, are these non-national rules sufficient to settle disputes concerning international investment contracts?
In this study, we have taken an analytical approach by analyzing the rules related to the conflict of laws in arbitration laws, international treaties and the decisions of the Institute of International Law. We have also taken a comparative approach in relation to private international law, because this legal branch is inherently based on comparative studies. Therefore, we compared the situation before both the arbitral tribunals and the national judiciary to clarify the differences between them with regard to the law applicable to investment contracts and to determine the role assigned to the international arbitrator in this regard.
The subject of this paper is the study of the law applicable in the area of international investment contracts before international arbitration bodies. It is limited to the discussion of the subject of the dispute; therefore, the question of the law applicable to the arbitration proceedings and to the arbitration agreement will not be covered in this study.
In the area of international investment contracts, the contract may be based on national law (section I), or it may be based on non-national legal rules (section II). A discussion of the main principles governing the determination of the applicable law in the area of international contracts precedes these sections (preliminary section). This research seeks to emphasize the importance of assigning investment contracts to national law, and to indicate the seriousness of their assignment to non-national legal rules, which often harms the interests of developing countries.
After reviewing these various topics, the study concludes with some proposals that are important to adopt, the most important of which is emphasizing how important it is for the parties to explicitly choose the law applicable in the contract so as not to leave the matter to the arbitral tribunal, which may lead to undesirable results. It also concludes by clarifying the role of non-national legal rules in the field of international investment contracts based on a detailed discussion in the main body of the paper.

Keywords: Conflict of laws, international arbitration, international investment contracts, the principle of willpower, applicable law.

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