Arbitral Award
ICC International Court of Arbitration, Paris 7375





A United States seller (Defendant) and a Middle Eastern buyer (Claimant) entered into a contract for the supply of goods. The Claimant, a government agency, claimed damages and interest in connection with a delay in the delivery of the goods. The contract contained no choice of law clause. The Defendant, invoking the application of the law of Maryland as the place where the significant contractual obligations, i.e., the manufacture of the goods, had been performed, deemed the claim to be time-barred. The Claimant relied on its own domestic law under which the action would not be time-barred, and, subsidiarily, invoked the application of general principles of law.

In investigating the intent of the parties, the Arbitral Tribunal found that the absence of a choice of law clause in the contract demonstrated that neither party was prepared to accept the other's domestic law. Given such an implied negative choice, the Arbitral Tribunal was faced with three alternatives: to apply a neutral law, to adopt the tronc commun doctrine, or to choose a de-nationalised solution and apply generally accepted principles of law. After rejecting the first two solutions the first because it considered it artificial and arbitrary, the second because it would require lengthy comparative law research and might not lead to any conclusion the Arbitral Tribunal, by a majority, opted in favour of the third solution which it considered would fully maintain the equilibrium between the parties and respond to both parties' reasonable expectations. With express reference to ICC Award No. 7110, it decided to apply those general principles and rules of law applicable to international contractual obligations which qualify as rules of law and which have earned a wide acceptance and international consensus in the international business community, including notions which are said to form part of a lex mercatoria, also taking into account any relevant trade usages as well as the UNIDROIT Principles, as far as they can be considered to reflect generally accepted principles and rules.

In the Arbitral Tribunal's view the UNIDROIT Principles contain in essence a restatement of those principes directeurs that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice.

However, it also pointed out that the UNIDROIT Principles have not as yet stood the test of detailed scrutiny in all their aspects so that some of their individual provisions might not reflect international consensus. It was for this reason that the Arbitral Tribunal was prepared to apply the UNIDROIT Principles only to the extent that they actually reflect generally accepted principles and rules.

On the merits of the case, the Arbitral Tribunal declared that it was not ready to make a final decision. Though admitting that general principles of law and the lex mercatoria were by their very nature too vague as to provide precise answers to the statute of limitations and that the UNIDROIT Principles did not contain any specific provisions dealing with the issue, the Arbitral Tribunal nevertheless invited the parties to submit their memorials on substance having regard to applicable general principles of law rather than to their sole domestic laws.


Between 1971 and 1978, Defendant […] sold to the Imperial Government of Iran or the Imperial Iranian Air Force certain air defense radar equipment under nine different contracts concluded during that period.


[…] In more detail, the Contracts obliged Defendant, or one of its wholly owned subsidiaries, to manufacture for and deliver to the Iranian buyers certain equipment […].


Only Contract No. 1, i.e. Contract FE-34267 contained an arbitration clause, which reads as follows:

All disputes arising out of or in relation to or in connection with this Agreement including termination for failure to deliver which cannot amicably be settled by discussion and mutual accord, shall be Aurally settled by arbitration at Zurich, Switzerland, in accordance with the rules then in effect of the International Chamber of Commerce […].


In the instant case […] none of the Contracts contains a choice of law provision, and the determination of the applicable law is of a key importance, because of Defendant's contention that any and all of Claimant's claims are, since many years, time-barred, because of the four-year statute of limitation according to the laws of Maryland (which in its view is the law applicable to the dispute).

In contrast […] Claimant argues that Iranian law must be applied to the substance of the dispute; its pre-revolution ten-year statute of limitations has been abandoned since the 1980s, such that Claimant's claims are still valid and not time-barred.


Claimant made reference to Article 13(3) of the ICC Rules which provides that in the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the law designated as the proper law by the rule of conflict which he deems appropriate.

Claimant explained […] that Iranian law is the proper law governing the Contracts, because (i) all nine Contracts in dispute were concluded in Iran, (ii) their performance was most closely related to Iran, (iii) the Contracts were negotiated in Iran, (iv) the situs of the subject matter of all nine Contracts was/is Iran, and (v) finally the Contracts had their most significant connection to Iran.


[…] Claimant argued that the conflict rules of the Swiss Private International Law ("PIL") are not applicable to this case, because the fact that the Tribunal has its seat in Switzerland does not lead to an application of the conflict rules of Switzerland and, in particular, of Art. 187 PIL.

According to the conflict of law rule in Article 968 of the Iranian Civil Code, the law of the place of the conclusion of the transaction applies, except where both parties are foreign nationals. Since Defendant was well advised and had registered several companies in Iran, it must have been aware of that conflict of law rule, and nevertheless decided to enter into the Contracts in Iran. […]

As an alternative to Iranian law, Claimant argued that the dispute should be decided according to general principles of law […].


Defendant, on the other hand, stressed that it would not have agreed to enter into the Contracts if they had to be made under Iranian law as the governing law and argued that the law of the state of Maryland is applicable to the merits of the dispute as being the law with the closest connection to the case.

To summarize, Defendant emphasized the strong links to Maryland and the United States in general, as being the locality of the Seller's place of business, as well as being the place of performance and delivery under each of the Contracts. Maryland, thus, is said to have the most significant connection to the case, wherefore its law must be applied to the merits of the dispute, including the issue of the statute of limitations.

Defendant, as an alternative, also argued that the Tribunal need not decide which law applies and whether the Iranian statute of limitations, if applicable, continue to be effective when applied to international arbitrations, for the following reason:

When the parties entered into Contract No. 1, they both understood and expected that claims would be precluded and time-barred after a maximum period of ten years, either under Iranian or Maryland law, because at that time, the Iranian statute of limitations was ten years and the one of Maryland four years.

Based on this, the fair and reasonable expectations of the Parties were that they would have to bring any claims within a maximum time-limit of ten years […].

Defendant finally argued that, in view of the clear links to the law of a specific country (namely the law of Maryland), the Tribunal should not apply general principles of law to this arbitration, because this would not be based on the implicit will of the Parties […].


First, the Tribunal remarks that, as a consequence of its determination regarding its arbitral jurisdiction […] the applicable law will only have to be determined in respect of Contract No. 1. […]

The Tribunal takes note of the fact that Contract No. 1 does not contain an express choice of law clause agreed on by the Parties.

Indeed, the absence of an express choice of law does not have the necessary consequence, in the opinion of this Tribunal, that the Parties could not have made an implied choice of law or, at least, impliedly intended to exclude the application of national legal systems. The contemplation of an implied choice by the Parties under Article 13 (3) ICC Rules would be consistent with the interpretation of, e.g., the UNCITRAL Arbitration Rules and the UNCITRAL Model Law (see Holtzmann/Neuhaus, Guide to the UNCITRAL Model Law on International Commercial Arbitration, 778, 784).

(b) Excursus: The objective Approach

In the instant case, where the issue is to determine the law (or the rules of law) which are applicable to Contract No. 1, the objective approach would consist in applying the usual criteria for determining the substantive rules of law which are to govern a contract, i.e. by applying an appropriate conflict of laws rule, as provided for in Article 13 (3) of the ICC Rules […]

Thus, in proceeding under Article 13 (3), the arbitral tribunal is not bound to determine any particular (national) conflict of laws system […], but - in the opposite - is only asked to select one (or more) conflict of laws rule(s) deemed "appropriate" […].

In the following, three steps will have to be discussed:

The first step to be made now is to determine the "conflict rule" […].
The conflict rule which, beyond doubt, has received, on an worldwide basis, the strongest support, is the so-called "closest connection rule" which indeed is common to most (national) conflict of laws system.

Most private international laws, as well as most arbitral awards, when aiming to determine the closest connection of a particular contractual relationship, attach a preponderant weight to the place of business or habitual residence of the Party which has to perform the so-called "characteristic performance […].


Some (few) countries attach a preponderant weight to the place where such characteristic performance has to be rendered (lex loci solutionis). This approach is mainly known in civil law countries influenced by French law traditions.

Only very few civil law countries, such as Spain and, until very recently, Italy (prior to the enactment of its new law in 1994), still seem to attach a preponderant importance to the place of the formation of a contract lex loci contractus). […]. This, moreover, still seems to be the prevailing view under the Iranian Civil Code.
The above remarks suffice to indicate that, very clearly, the prevailing solution supported in international arbitration is the solution to use the closest connection as the relevant conflict rule under Article 13 (3) of the ICC Rules and, when applying such test to the instant case, to essentially determine the most characteristic performance which had to be rendered by one or the other Party pursuant to the Terms of Contract No. 1. In addition, the Tribunal will also take into account further connecting factors.

As the second step, we will now have to apply the closest connection test, […]

The Contract No. 1 does not explicitly indicate the place where it had been signed; Claimant has alleged that the Contract had been signed in Teheran, but without clear substantiation in support of its allegation. Defendant contested that the Contract had been signed in Teheran, but also failed to substantiate more precisely the place of signing […].


Not only Defendant's duty to manufacture the equipment was to take place in its own plants in Maryland, but also all further significant elements are located in Maryland, respectively in the United States, such as in particular the delivery of the equipment FAS (free alongside ship) at a US port at Defendant's choice. Moreover, acceptance was deemed to take place upon delivery in the USA.

The above analysis also reveals that Contract No. 1, as it is before the Arbitral Tribunal, does not contain any significant obligations of Defendant which would have had to be rendered outside Maryland […].

However, even if Contract No. 1 had contained such elements of contractual duties to be performed in Iran, such elements would have to be weighed against the weight of contractual elements to be performed in Baltimore/USA, and only if, in an overall appreciation, a more preponderant weight had to be given to the performance in Iran would it be justified to conclude that the closest connection of Contract No. 1 (or its "centre of gravity") was located in Iran.


Conclusion to be drawn from this excursus:

All of these elements, therefore, very clearly indicate -in the opinion of the Majority Arbitrators- that, under the objective approach and the closest connection test, having regard to the characteristic performance and all other connecting factors, the centre of gravity of Contract No. 1 is, beyond doubt, located in Maryland/USA, wherefore the proper law of the Contract would be Defendant's national law, i.e. Maryland/US law.

(c) The Subjective Approach: Implied Negative Choice


More particularly, regarding the present case:

It was not a contract between parties operating within the same environment and legal culture […]

It was not a contract between parties that had a long history of dealing and cooperating together; it cannot be assumed that a very particular mutual confidence had already been in place while entering into Contract No. 1 […];
It was not a contract concluded between equal parties (e.g. both being common city traders accustomed to respect the rules of their common trade), in the opposite;

It was not a contract containing extensive provisions, addressing all possible eventualities as could occur in the "runway" of performance under the contract […];

In other words, if a contract such as Contract No. 1 does not contain a choice of law provision, then this must be viewed as a "shouting silence", at least an "alarming silence", "un silence inquiétant"; thus, a silence which must ring a bell and requires the Tribunal to look "behind" so as to understand why the Parties have failed to include "the obvious".

In this situation, a research into the history of Contract No. 1 could easily have clarified the situation, for instance if the Parties had been able to produce earlier drafts, working papers and internal memoranda on the contract negotiations, or if live witnesses had been available to testify on those negotiations in 1971. Most civil law countries accept that such materials can serve for interpretation purposes; compare also the interpretation rules of Article 4 UNIDROIT Principles (in particular Article 4.3). However, apparently due to the Iranian Revolution that material has either disappeared, or was destroyed, or has otherwise become unavailable to either one of the Parties. Thus, the Tribunal is left alone with the scarse evidence which is before it.


The Majority Arbitrators have no reason to doubt that, indeed, none of the Parties, when entering into Contract No. l, would have been prepared to accept the other Party's national law.


Against this background, the absence of a choice of law clause must be understood as a so-called "implied negative choice" of the Parties […] in the sense that none of the Parties' national laws should be imposed on any of the Parties.


The non-explicit - but implied - rejection by one Party of submitting itself to the other Party's national law (as the governing law of contract) is thus -in the opinion of the Majority Arbitrators- an implied term of contract.

In this sense, an interpretation of what had been agreed and what, perhaps even more significantly, had not been agreed upon in the Contract, provides a clear answer, although only a negative one in the above sense: The Contract should not, according to the implied negative choice of the Parties, be governed by any of the Parties' national laws.


(d) Three Possible Solutions Respecting the Negative Choice
So far, in the above discussion, the Majority Arbitrators have reached the decision that Contract No. 1 should not be subject to either Party's national law. Thus, the Tribunal will not apply Iranian law, nor will it apply US law or the law of Maryland.

What law or rules of law should then be applied? - Should the Tribunal
elect to determine that the substantive law of a neutral country should apply, such as e.g. Swiss law (as a law which may seem to be "equally far away" from the Parties' national laws)?
or should the Tribunal elect to follow RUBINO-SAMMARTANO'S tronc commun-Doctrine which, essentially, proposes that the relationship should be "governed at least by the part of the other and of his own legislation which is common to them. If the common part of the two legislations applies, is this solution not more satisfactory, since it is closer to the intention of the parties?" (sc. closer than to apply a third legislation with which the parties are not familiar and which may contain regulations which may surprise them) […].

or should it rather elect to fully denationalize Contract No. 1 and determine that a-national or transnational rules of law and general principles of law will be applied, including rules that are said to form part of the lex mercatoria, and taking into account the UNIDROIT Principles promulgated in 1994, and trade usage?

(i) Choosing a Neutral Law?

Pro: This would be, as far as the Arbitrators are concerned, the easiest and most practical solution, because it will be relatively easy to deduct the answers to legal issues that cannot be determined by simply applying the terms of the contract. For instance, Swiss law (merely as an example) has very frequently been chosen simply for the sake of neutrality.

Contra: Swiss law, or indeed any other third country's national law, does not appear to have any natural connection with the case and, more importantly, does not seem to have been within the contemplation of the Parties concerned;


On balance: The Majority Arbitrators find that it would be entirely artificial and arbitrary to rule that a third neutral (national) law should apply. Any choice would be extremely critical. […]


(ii) Adopting the "tronc commun-Doctrine"?

Pro: Rubino-Sammartano's approach sounds convincing in many respects. Indeed, parties cannot complain if treated as they are treated under their respective national laws, insofar as they coincide. The Doctrine thus assures the maximum common ground to which the parties are accustomed.

Contra: […] Even more important is the observation that the doctrine gives no tangible answer how to deal with issues in respect of which the two national laws (here: Iran and US/Maryland) do not coincide. And indeed, this is clearly the case in respect of the immediately burning issue, i.e. the issue as to the statute of limitations.

On balance: The Majority Arbitrators, although basically sympathetic to the approach made by this Doctrine, must discard it here, because it will not provide the solution in respect of the statute of limitations and provides no direct answer to the legal regime that should control in case of divergent answers found in the two national laws.

(iii) Choosing a De-nationalized Solution?

Pro: This solution has the advantage to protect both Parties against the application of a national law which might contain particular provisions which they had not expected, and which may not be suitable in a truly international context of the present nature.

Freeing the Parties from the constraints of a national law thus would ascertain and warrant that the dispute shall be decided by having regard to those rules of law and notions which deserve to be qualified as being "generally accepted". Thus, a decision based on generally accepted principles has moreover the advantage to ascertain foreseeability of the outcome and certainty of law.

Contra: It is always a more difficult and more demanding task for a tribunal to decide a case by the only reference to, and guidance by, general principles of law, lex mercatoria etc., instead of simply having regard and applying the solution as provided for in a particular national law, its case law and doctrine.[…]

On balance: The Tribunal, by majority vote, is of the opinion that, despite the difficulty referred to above under "contra", with which it will have to cope, the denationalization of the Contract No. 1 […]

The de-nationalization of the Contract at issue, therefore, is the solution which the Tribunal, in the opinion of the Majority Arbitrators, owes to both Parties.
It is at the same time the only solution which fully maintains the equilibrium between the Parties and responds to both Parties objectively fair and subjectively justified and reasonable expectations, discarding any pro domo arguments of the Parties in support of their respective cases.

Thus, the Tribunal will decide legal issues by having regard to the terms of the Contract and, where necessary or appropriate, by applying truly international standards as reflected in, and forming part of, the so-called "general principles of law"; the Tribunal will more clearly explain the meaning of this term under the Sub-Section letter (f) below.


(e) Brief References to Arbitral Practice

Again, the Tribunal does not wish to refer extensively to other cases, because no other case would qualify as a "precedent". This Tribunal must reach, and in actual fact has reached, its decision independently of what other tribunals in the past may have considered and decided in somehow comparable situations. […]


(g) Conclusion: General Principles (including, UNIDROlT Principles as the Proper Law of Contract
The Majority Arbitrators are aware that various terms are used, such as general principles of law, generally accepted principles of private law, a-national rules of law, transnational law rules, lex mercatoria, principles of international law etc. […]

The Tribunal will apply those general principles and rules of law applicable to international contractual obligations which qualify as rules of law and which have earned a wide acceptance and international consensus in the international business community, including notions which are said to form part of a lex mercatoria, also taking into account any relevant trade usages as well as the UNIDROIT Principles, as far as they can be considered to reflect generally accepted principles and rules.

The Majority Arbitrators are of the opinion that these "General Principles of Law" (in the wide understanding as described above) are established in sufficiently concrete fashion so as to enable the Tribunal to adjudicate any and all issues as may arise in the framework of this arbitration.


As regards the reference to the UNIDROIT Principles […] the Majority Arbitrators believe that these Principles, prepared by a working group established in 1981 and composed of leading experts and academics of all major legal systems, contain in essence a restatement of those 'principes directeurs" that have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice.

On the other hand, the UNIDROIT Principles, as now laid down, have not as yet, in all their details, stood the test of detailed scrutiny in all their aspects, and thus it is at least conceivable that a particular rule would not seem to reflect the international consensus; because of this concern, the Tribunal has added the qualification "as far as they can be considered to reflect generally accepted principles and rules " In this direction see the critical comments made by HILMAR RAESCHKE-KESSEER, The UNIDROIT Principles for International Commercial Contracts: A New lex mercatoria? in: ICC/Dossier of the Institute of International Business Law and Practice, 1995, 167 ss. who raises formal concerns that there are certain rules that differ from the principles and rules as reflected in the United Nations Sales Convention of 1980 and, possibly, also with the "Principles of European Contract Law" prepared by the "Commission on European Contract Law" chaired by Professor Ole Lando (Denmark). He expressed the opinion that the United Nations Sales Convention "already provides a rather complete set of rules on a lex mercatoria" (at p. 174, with reference to the view expressed by Drobnig in The American Journal of Comparative Law 1992, 635 ss.


The application by an arbitral tribunal of a-national legal rules, general principles of law and the lex mercatoria is recognized under the Swiss Arbitration Act (Chapter 12 PIL).

With reference to Article 26 of the ICC Rules, it may be stated that the Majority Arbitrators are not aware that, in connection with a potential enforcement of the Final Award against Defendant in the USA (or in European countries, where assets might exist), the exequatur could be refused on the ground that this Tribunal applied general principles of law and a-national rules of law, instead of applying a particular national law.

Finally, for clarification's sake, it should be stressed that this Tribunal, in proceedings on the basis as described above, will decide the case by applying the so-called "rule of law", and of course by respecting fully the terms of Contract No. 1.

In other words, the Tribunal does not interpret the implied negative choice of the Parties in the sense that they would, by their silence, have tacitly empowered this Tribunal to rule merely on the basis on the basis of "natural justice" or "fairness", or on an ex aequo et bono - basis; nor will the Arbitrators consider themselves authorized to act as amiables compositeurs (unless such further powers would, in the further course of the proceedings, be conferred to them explicitly with the consent of both Parties).



Original in English:
- 11 Measley's International Arbitration Report, 1996, A-1 A-69

Abstract published in English and French:
- Uniform Law Review / Revue de droit uniforme, 1997, 598 - 599}}