International arbitration is increasingly being accepted by the international business community as an efficient and flexible method of dispute resolution. The increased use of arbitration has led to the publication of awards and the evolution of a considerable body of juridical writing on the subject. The publication of awards would contribute to the systematic elaboration of rules governing choice of law in international commercial arbitrations.
Juridical writings, which are often cited in arbitral awards, would also play a useful role in this regard. The majority of the critics admit that the essential elements of international arbitration are thus its consensual and binding nature, and the active role played by the participants in choosing the arbitrators and determining the procedure for resolving their disputes. However, the role of national law in international arbitrations is noteworthy, the scope of national law interventions in international arbitrations is continuously being circumscribed and streamlined.
During the early stages of the twentieth century, when international commercial arbitration was still in its infancy, the regulation of international arbitration was essentially left to national jurisdictions. With the development of better means of transportation and communication and the attendant increase in the volume of international trade and commerce, the practice of arbitration was increasingly embraced in international trade.
In no time it became obvious that domestically cultivated laws of arbitration–which mostly reflected attitude and policy amenable to the needs of the domestic community–were ill-suited for the regulation of international arbitration. This realization argued the need for the development of effective international regimes that would not only unify the law relating to international arbitration but also formulate rules that are appropriate in an international arena. The arbitrations that fell outside the convention were subject to the procedural rules of the place of arbitration that were often not well developed to handle international arbitrations. Several countries still had arbitration laws dating from the period when national courts were hostile to arbitration (Anton and Beaumont 34).
Additionally, the divergence in national arbitration laws complicated the ability of arbitrators to familiarize themselves with arbitration laws and procedures (Bondzi-Simpson 3). The above factors underscored the need for the modernization and harmonization of national laws relating to international commercial arbitration. It is hardly useful to stress that the above conventions and the Model Law apply only in those countries that have either ratified or enacted them into law. Despite this fact, Dolzer and Schureuer (33) make constant reference to these conventions and the Model Law because they embody an emerging consensus on how the practice of international arbitration should be organized and regulated.
An arbitration clause is significantly different from the substantive agreement in which it is contained. While the latter outlines the rights, duties, and obligations of the parties, the former contains the procedure for resolving any disputes that have arisen or may arise under the substantive agreement.
Thus the one may be described as substantive and the other procedural (Dolzer and Schureuer 62). The issue may arise whether or not an arbitration clause survives the invalidity of the substantive agreement in which it is contained. Does the invalidity of the main contract adversely affect an arbitration clause contained therein? If the question is answered in the affirmative, an arbitrator cannot assume jurisdiction in situations where one of the parties contends that the substantive agreement containing the arbitration clause is invalid, at least until the validity of the substantive agreement is determined (perhaps by a national court) (Dolzer and Schureuer 66).
According to Bondzi-Simpson (3), It does not take much effort to see that if the validity of the international public policy clause is dependent on the validity of the main contract, a party seeking to frustrate or delay the arbitration process need only plead that the main contract is invalid in order to preempt the arbitrator’s jurisdiction and seek a court resolution of that preliminary objection. The principle of the autonomy of arbitration agreements is designed, in part, to prevent the use of this kind of tactic installing the process of arbitration.
The principle of the jurisdictional autonomy of the arbitration agreement proclaims that an arbitration agreement is autonomous in relation to the contract from which it originates. In this sense, an arbitration clause is independent of the commercial agreement in which it is contained, and cannot be automatically affected by the fortunes of the substantive contract (Jacobs 211). One effect of the principle is that the arbitration clause survives the invalidity of the substantive contract unless it is shown that the cause of the invalidity also specifically applies to the arbitration clause (Anton and Beaumont 75).
The primacy accorded to party autonomy in the determination of applicable substantive and procedural law meshes neatly with the private nature of the arbitration. Nevertheless, it should always be remembered that arbitration can never be entirely privatized, for it must continually respond to the policy demands of those jurisdictions whose legitimate interests are implicated in the proceedings. It would seem that the survival of international commercial arbitration as a legitimate system of dispute resolution depends not only on its responsiveness to the needs of the participants but, perhaps more crucially, on its respect for vital juridical interests (Anton and Beaumont 41).
This preeminent public policy is sometimes labeled transnational public policy or truly international public policy. Like the concept of public policy in national law, the concept of transnational public policy presupposes the existence of “a certain community and of certain fundamental values.” Unlike national public policy, the relevant community here is not a national community but the international community.” (Jacobs 201).
While the public policy of a State embodies the moral and ethical philosophy of the State, transnational public policy performs the same role for the international business community. There is a certain similarity between the two: principles that embody the fundamental and ethical values of a national community would in most cases be equally fundamental in the international community.
For example, the requirement of fair hearing and due process is considered a basic element of justice in both national and international communities. However, so long as national public policy represents particular and narrow national interests, while transnational public policy represents the values of the world community, the two strands of public policy can not be identical (Jacobs 215). Thus, while the act of gambling is against public morals in some societies, it can hardly be said that the abhorrence of gambling is part of the fundamental values of the world community (Jarvin 85).
The transnational public policy represents the fundamental values, the basic ethical standards, and the enduring moral consensus of the international community. Its principles are derived from “the fundamental rules of natural law, the principles of universal justice, jus cogens in public international law” and the public policy accepted in the generality of nations (Jarvin 85). These principles, which include the abhorrence of racial, religious, and sexual discrimination and the repudiation of corrupt practices, are in a sense the mandatory rules of international commercial relations that must be respected in all arbitrations. The application of transnational public policy is seen as crucial to the maintenance of minimum standards of conduct and behavior in international commercial relations (Anton and Beaumont 77).
Arbitrators are particularly suited to apply the principles of transnational public policy because they have a responsibility to maintain a certain element of equity and fair play in the international commercial arena, and they are not guardians of the public policy of any particular State (Jnger 176). Responsibility is partly discharged by their balancing the will of the parties with the legitimate interests of the international community in preserving the basic notions of contractual morality and justice (Jarvin 85).
Arbitrators, as guardians of the international commercial order, refuse to enforce a contract if it contravenes transnational public policy. This was the result in ICC Case No. 1110. In that case, the claimant claimed some money as commission for his efforts in helping the respondent procure an Argentinian government contract. Having determined that the commission amounted in effect to a bribe, the sole arbitrator held the contract in violation of transnational public policy:
[I]t cannot be contested that there exists a general principle of law recognized by civilized nations that contracts which seriously violate bonos mores or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators. This principle is especially apt for use before international arbitration tribunals that lack a “law of the forum” in the ordinary sense of the term (Reported by J. Lew, supra note 23 at 553 cited Jnger 177).
Transnational public policy could also be a ground for an arbitrator’s refusal to apply the mandatory rule of relevant national law. The transnational public policy represents values that are superior to those of particular national systems.
Therefore, when a mandatory national rule is in conflict with a transnational policy, the latter prevails, at least in an international arbitral forum, This is because arbitrators owe a paramount duty to the international community. Illustrating this principle, Jnger (196) gives us an example of certain boycott laws that establish restrictions on the grounds of race and religion. He rightly argues that an arbitrator should in the name of transnational public policy refuse to enforce such mandatory laws because they seek to institute racial or religious discrimination which contravenes transnational public policy.
The contractual theory emphasizes the contractual nature of the arbitration. The jurisdiction and powers of an international arbitrator are, as noted above, dependent on the mutual intention of the parties as reflected in their agreement, and without their agreement, there can be no valid arbitration (Jnger 176). The classical version of the contractual theory contends that arbitration is wholly a product of the consent of the parties and argues against State intervention in the process. Critiquing the classical version of the contractual theory, A. Samuel (cited Jnger 176) points out that an arbitrator cannot be regarded as an agent of the parties for a variety of reasons.
First, unlike an agent, the authority of an arbitrator can be made irrevocable and the duty of the arbitrator to render an impartial and unbiased award is inconsistent with an agent’s obligation to conform with the wishes of the principal. Second, since no agent could do something that the principal is incapable of doing, an arbitrator cannot be acting on behalf of the parties in conducting an arbitration because the parties are not in a position to judge impartially the merits of their dispute (Anton and Beaumont 75).
The modern version of the contractual theory repudiates the idea that the arbitrator is an agent of the parties as understood in the law of agency and disowns the belief that an award is primarily a contractual document. However, it emphasizes the contractual nature of arbitration; it stresses the fact that the arbitral process is a product of the consent of the parties, and that the parties should be given a free hand in adapting the process to their particular needs. It thus recognizes the competence of the parties to choose the law to govern the arbitral process, free from the interference of national legal systems (Jnger 176).
In terms of international public policy, every State has the right to supervise and regulate any activity occurring within its territory (Jnger 54). The arbitration agreement is binding on the parties not just because of their mutual consent, but because a national legal system decides to attach some legal consequences to their agreement. It follows then that the intentions of the parties as reflected in their agreement can only be binding to the extent they are sanctioned by the laws of the place where the arbitration is conducted. This theory is useful because it stresses the importance of national laws in the conduct of the arbitration.
Unlike the contractual theory, it underscores the fact that national laws are an essential component in the process of understanding the nature of the arbitration. However, just like the contractual theory, it overemphasizes what is at best a singular, albeit significant, consideration in the arbitration process: that is, the role of national legal systems. It does not give sufficient regard to the role of the parties’ agreement.
Much as it is correct to state that it is a national law that confers legitimacy and efficacy to arbitration, it is also valid to state that there can be no arbitration without the agreement of the parties, except in cases of compulsory arbitration It is a recognition of the significance of the parties’ agreement, and the need to respect their desire to resolve their dispute privately and outside the confines of national judicial systems, that explains the current trend toward limiting judicial interference in the arbitration process (Chen 28).
The importance of international arbitration theories is that they also suggest that unhindered party autonomy is crucial to the full development of arbitration. Respect for the parties’ freedom of choice, the theory maintains, will fulfill the aspirations of those who use arbitration and also help in the development of arbitration as an institution (David 109). It is true that an understanding of the goal and purpose of arbitration is useful in appreciating the character of arbitration.
Those who realize the fact that parties who consent to arbitration consciously intend to opt-out of the judicial resolution of the dispute by national courts in favor of a private and flexible arena are more apt to appreciate the need for minimal judicial interference in the arbitration process. Parties to arbitration do not expect the arbitration process to be frustrated by unrestricted judicial intrusion into the process (Anton and Beaumont 61).
It is useful to enter a caveat regarding the use of transnational public policy in refusing to apply national mandatory rules. If the use of this doctrine is not placed under careful and continual scrutiny, it may become a ready tool at the hands of some jurists who wish to utilize this theory in refusing to recognize or apply those national laws that they deem unsuitable to their regional interests.
Now and again one hears all sorts of rules being pleaded as part of transnational public policy, rules that often do not embody generally accepted principles (Lalive 285). For example, the doctrine of pacta sunt servanda and the principle of good faith are often pleaded in support of an alleged principle of transnational policy that ordains the immutability of State contracts in the absence of a common agreement of the parties to alter the contractual provisions.
This argument is made despite clear and readily accessible evidence that State practices in many jurisdictions (for example, State practices in France and those jurisdictions whose legal systems are modeled on the French) adopt the theory of administrative contracts whereby the State in municipal relations has, under certain conditions, extracontractual powers to alter the provisions of a government contract. The type of transnational public policy that could exclude the application of mandatory rules of national law should be interpreted as including only those policies, standards, and principles that truly represent a consensus of the world community and that are necessary for securing contractual morality in international commercial relations (Born 55).
The theory of transnational public policy originates from an attempt by arbitrators to enforce those fundamental ethical and moral values that are necessary for the security of international commercial relations. It is the case that the concept of transnational public policy is rarely raised before arbitrators as a ground for invalidating a contractual obligation (Baird 583). Nevertheless, its presence in arbitral practice is a constant reminder to potential arbitrating parties that the relative independence of the arbitral process does not imply that the process could be used to circumvent the application of basic concepts of morality and justice (Anton and Beaumont 73).
Mandatory rules are one of the ways in which the doctrine of party autonomy is adapted to the legitimate interests of States in ensuring that the arbitral process affirms the basic elements of contractual morality. Of course, arbitrators are not expected to apply each and every mandatory rule that is pleaded as relevant to the case. Their mission in this regard is to examine the nature and purpose of relevant mandatory rules and ascertain whether the enacting State’s connection with the parties’ transaction warrants the application of such rules. Where the connection is limited or merely speculative, the arbitrator should decline to apply such rules (Hunter and Redfern 72).
Arbitrators should also ensure that disputes before them conform to the requirements of truly transnational public policy. The enforcement of appropriate mandatory rules by arbitrators would send a signal to prospective arbitrating parties that the arbitral process is certainly not a device for circumventing imperative laws of States with which their transaction is substantially connected. (Mistelis, 21). This attitude will justify the confidence of those States that believe arbitrators are well suited to adjudicate claims involving sensitive matters of State policy (Baird 583).
Most of the attempts to determine general principles so far have involved the comparative examination of the laws of developed Western countries. The rationale for this may be that laws in most developing countries are largely influenced by those in countries that formerly colonized them. This view contains some element of truth, but there are still large areas in which laws in developing countries take their own individual courses.
Thus, the problem of identifying general principles would be further compounded if the comparative methodology involved in this process includes the examination of laws in developing countries, as indeed should be the case (Mistelis, 12). A commentator has suggested that the problem of identifying general principles may be attenuated by comparing only the principles recognized in the legal systems of the parties involved in the particular dispute. Thus, in a dispute between a Swiss party and a Taiwanese party, the arbitral tribunal, in applying general principles, will apply those principles of law that are common to Switzerland and Taiwan (Anton and Beaumont 72).
This is an idea that merits serious consideration, but where the laws of the parties’ nationalities differ radically from each other, the process of elaborating general principles would be no less onerous than a project involving a broad selection of legal systems. Even if the principles in both States coincide, they cannot, properly speaking, be labeled general principles as they would not necessarily be generalized to a broad selection of other States (Bondzi-Simpson 101).
Lord McNair in his seminal article on general principles of law suggested that those principles are particularly suitable for application to economic development agreements. He argued that public international law was inapplicable to these agreements because public international law is an “inter-State system” that applies only to inter-State relations.
In his view, general principles of law constitute a “legal system” and its principles, which share “a common source of recruitment and inspiration” with public international law, are amenable to State contract disputes (Anton and Beaumont 71). Other critics (David 33; Carbonneau 56) have also advocated the application of general principles to State contracts. These principles have sometimes been adopted by parties as their choice of law, and arbitral tribunals have had to apply them in some arbitrations. In some instances, arbitral tribunals have had to apply general principles in situations where the parties did not expressly adopt them (Bondzi-Simpson 107).
An example is ICC Case No. 3572 of 1982, where the agreement between the parties did not contain a choice of law. The truth is that despite the attraction of the concept of general principles of law to academic critics and some arbitrators, these principles do not constitute a readily identifiable and comprehensive system of rules to regulate the complex contractual relations that are often involved in State contracts. It would seem that any principle that is indeed general to a genuinely representative selection of legal systems would often be too broad as to be unhelpful in specific cases (Anton and Beaumont 72).
In terms of international public policy, state contracts are, however, much more unstable than private contracts because the intervening events that affect the contractual equilibrium include the public interests of the State party and the necessity for it to secure its ability to discharge its public duties (Anton and Beaumont 72). The situation in State contracts is further complicated by the fact that some State contracts–for example, those dealing with the exploration and exploitation of mineral and other resources–may be so central to the economic well-being of a State that the activity contemplated by the contract is considered an integral part of the State party’s economic policy. Take the case of States that are members of the Organization of Petroleum Exporting Countries (OPEC) (David 87).
The economies of most OPEC members are often so dependent on the vagaries of the oil market that they take particular interest in the contracts involving the exploitation or sale of their petroleum resources (Bondzi-Simpson 101). The private party, on the other hand, is continuously afraid of being made to bear singly the brunt of a State policy, a policy that may, in furtherance of some public good, result in the frustration of the private party’s contractual expectations.
It is true that private parties do not enter into contractual arrangements in order to promote the public interests of the State party; their interests are normally that of profit maximization and the furtherance of their individual or corporate interests. It is then dear that the tension that is evident in State contracts emanates from the conflicting interests of the State party’s need for contractual flexibility and the private party’s insistence on contractual stability (David 77).
All the efforts to subject State contracts to international law or general principles of law, or to engraft stabilization clauses into these contracts, are commonly targeted at the same goal: the freeing of the contract from the control and regulation of the State party and its laws. Advocates of these clauses do not give adequate regard to the considerations of public interest that the participation of the State party impresses upon a State contract. A more realistic approach would be to recognize the right of State parties to terminate a Stale contract, subject to the payment of appropriate compensation (Anton and Beaumont 98).
International public policy is drawn from the fundamental rules of natural law, the principles of universal justice, jus cogens in public international law, and the general principles of morality and public policy acceptable to the generality of countries. The international public policy includes a synthesis of the fundamental presumptions and practices that underlie legislative and judicial practice in a broad selection of countries.
It, therefore, includes such transnational principles as good faith, estoppel, and pacta sunt servanda, principles that are present in most legal systems (Bondzi-Simpson 23). If States and their agencies were to comply with the prohibition of arbitration agreements under their national laws by not entering into such agreements, problems would not arise (Bondzi-Simpson 101). But there is a certain element of bad faith in a State or its agency consenting to arbitration, only to turn back later and seek to deny the agreement by relying on its incapacity under its national law. Such approbation and reprobation are not conducive to the need for trust and reliability in international commerce.
A State should be sovereign enough to abide by its promises. More important, reliance on incapacity would be inconsistent with the notion of good faith and the principles of pacta sunt servanda, which are embodied in the concept of international public policy (Bondzi-Simpson 23).
This viewpoint endorses the position that a State or its agency should not be able to rely on its incapacity to arbitrate under its domestic law as grounds for invalidating an arbitration agreement to which it had willingly consented. Some arbitral awards have addressed the issue of capacity of State agencies to arbitrate. In these cases, State agencies pleaded their incapacity under their national laws to enter into arbitration agreements as a bar to the jurisdiction of arbitral tribunals. The consensus among arbitrators was that such a plea is unacceptable (Buchanan 511).
The general consensus is that a State cannot plead lack of capacity under its national law as a bar to the jurisdiction of the arbitral tribunal. International public policy repudiates the idea that a State, after consenting to arbitration and carrying into effect the underlying commercial agreement, can turn back to plead incapacity to arbitrate. Such an attitude is incompatible with the need for trust and reliability in the commercial world (Carbonneau 71).
While it amounts to bad faith for a State to plead incapacity to enter into an arbitration agreement, it will be contrary to the principle of party autonomy–that cardinal principle of arbitration–to impose arbitration on a State if it did not in fact consent to it. An arbitrator should as a preliminary step examine the consensual basis of the arbitration agreement. Unless a State conducted itself in a manner that makes it unconscionable for it to rely on its lack of consent to the arbitration, Carbonneau (32) underlines that of no reasons of policy why it may not challenge the arbitrator’s jurisdiction on that ground.
Private parties should ensure that they deal with authorized agents of the State (Bondzi-Simpson 29). In the absence of any law regulating authority to bind the State, the private party may rely on the ostensible authority of appropriate State officials. As arbitration continues to gain prominence as a method of resolving international commercial disputes, restrictions on the ability of States and their agencies to consent to arbitration will be gradually dismantled. Foreign investors will no doubt be skeptical about investing in a country that insists on resolving all contractual disputes under its own national legal system (Carbonneau 78).
However, it is possible to conceive of a situation where an arbitrator need not apply the mandatory rules of the law chosen by the parties. An example would be cases where the underlying purpose and objective of the rule indicate that it is aimed at purely domestic situations as opposed to cases involving international disputes. Additionally, an arbitrator may decline to apply a mandatory rule of a law chosen by the parties in the unlikely event that the rule is contrary to “transnational public policy (Carbonneau 73).
An question in this area of arbitration is whether arbitrating parties can legitimately exclude the application of the mandatory rules of the law that they choose to govern their agreement. In effect, can the parties slice off unacceptable portions of the governing law of their contract? In theory, it could be argued that since the parties selected the governing law, they could as well determine which parts of that law would govern their agreement; after all they could very well have chosen another law as the governing law. And since the arbitrators are bound to apply the law chosen by the parties, they should have no choice but to respect the will of the parties (Bondzi-Simpson 37).
The will of the parties is not sacrosanct; the parties’ will prevails so far as it is consistent with relevant public policy. Consequently, since mandatory rules are designed to apply regardless of the parties’ choice of governing law, arbitrators may legitimately refuse to recognize the parties’ exclusion of mandatory rules of the lex contractus in cases where the parties’ transaction is very closely connected with the jurisdiction whose law is the lex contractus, and the mandatory rules were designed to regulate such transactions (Carbonneau 71).
For example, if a Canadian company enters into a distribution agreement with a Japanese auto company for the distribution of cars in Ontario (and the parties choose Ontario law as the applicable law), an arbitral tribunal may refuse to apply a contractual provision excluding Canadian competition laws. To respect the parties’ will in such a case would be tantamount to the subjugation of Canada’s legitimate interest in regulating its business environment to the interest of private contracting parties (Bondzi-Simpson 23).
The plea of uncertainty as a justification for nonapplication of foreign mandatory rules sits a little ill when it is remembered that other principles of law are no less certain. For example, in the absence of an express choice by the parties, arbitrators usually apply the law most closely connected to the contract. Certainly, this process of determining applicable law does not afford complete certainty of application. Moreover, one wonders why the need for certainty should supersede the necessity of respecting the mandatory rules of foreign laws that are substantially connected to the dispute (Chen 48).
The application of foreign mandatory rules should involve a balancing of the public interests of the enacting State with the private interests of contracting parties. In contrast, the favorable approach to the application of mandatory rules recognizes that foreign mandatory rules may be so connected with the dispute as to compel their application, even though they are not part of the governing law. This approach, acknowledging the fact that the will of the parties has to be reconciled with the interests of those States that are closely connected to the dispute, entertains the possibility of applying foreign mandatory rules in appropriate cases (Carbonneau 53).
One of the enduring areas of tension in arbitral practice is how to strike a balance between arbitral autonomy and vital juridical interests. True, arbitration is a private system of dispute resolution, but does this imply that the arbitral process is to remain totally unregulated by national laws? Is arbitration in essence a system of private justice unfettered by national interests? (Bondzi-Simpson 123). The theories and critics mentioned above stress the reciprocal and dynamic interaction between the will of the arbitrating parties and the interest of various national legal systems in ensuring the fairness of the arbitral process and its respect of vital national interests (Chen 61).
The process of arbitration cannot be totally understood without an appreciation of the role that national legal systems play in supporting arbitration at three crucial stages. These are the stages of enforcing the agreement to arbitrate, aiding the conduct of the arbitration proceedings, and recognizing and enforcing arbitral awards. Without this help provided by national legal systems, arbitration would be nothing more than a convergence of conduct and expectations between the parties, totally unenforceable at law.
Arbitrators recognize the central place of national legal systems in the survival of arbitration. They thus respect the public policies of relevant national jurisdictions in determining the arbitrability of subject matters, in the conduct of the arbitration proceedings, and in determining and applying the law governing the merits of the dispute (Chen 85). This is as it should be, for arbitration should not be allowed to become a means for businesspeople to escape the mandatory rules of jurisdictions in which they do business; neither should the fairness and justice of the arbitral process go unsupervised by national law (even if such supervision is done by reference to international standards) (Bondzi-Simpson 38).
The requisite test should be the connection of the jurisdiction (whose policy is at issue) to the dispute and the nature of the policy involved. An arbitral tribunal should first determine that a particular jurisdiction is so closely connected with the dispute that its public policy ought to be respected or enforced in the proceedings. In addition, the tribunal should determine that the particular policy is designed for application to international commercial relations (David 87).
It was also argued that an otherwise applicable national public policy could be denied application if it is contrary to transnational public policy (for example, policies that enact discrimination based on race, religion, or ethnic origins) (Chen 88).
In sum, it is clear that the answer to the above questions directly affects the way critics and researchers view what role the legal process should play in arbitration. A contractual theorist would necessarily advocate unhindered party autonomy, whereas a critic would argue for substantial judicial supervision of arbitration. An adherent of the mixed or hybrid theory is likely to favor an effective mixture of autonomy and regulation, whereas an autonomist would focus on what is necessary to ensure that arbitration meets the needs and objectives of the parties. Each legal system must struggle to reconcile these conflicting interests.
As argued above, no one approach is entirely satisfactory: current international public policy represents a way of looking at arbitration. A fuller and richer view must, of course, contemplate its object from all possible perspectives. In this regard, the law should reflect a blend of the above theories so as to ensure that arbitration meets the larger needs of society. The mixed or hybrid theory meets this objective by focusing on both the contractual and the jurisdictional basis of arbitration.
This theory cautions us always to remember that international arbitrations cannot be entirely divorced from the legal systems with which they come into contact. While supporting the conclusion reached by the arbitrators, it must be reiterated that reference to the proper law as a determinant of capacity may result in discordant results depending on the content of the applicable proper law.
Even if the proper law is adopted as a suitable guide, it does not lead to the evolution of a single substantive rule on the capacity of States to arbitrate because the different approaches adopted by States on the issue of capacity to arbitrate preclude the extraction of a common principle from national laws. Refusal to recognize national laws denying capacity to States and their agencies should be founded on international public policy. The principles of good faith, pacta sunt servanda, and estoppel are common to most if not all legal systems. These principles coalesce into a substantive rule of public policy that precludes a State from relying on its national law to challenge its capacity to arbitrate.
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