A Study On Substantive Applicable Law In ICSID Arbitration

The International Center for Settlement of Investment Disputes (hereinafter referred to as the "ICSID" or "Center") is one of the important institutions for dealing with the disputes between private investors and states, the selection and application of substantive law in ICSID arbitration is a significant issue, also it is the most controversial and confusing issue. Although the Article 42 of Washington Convention has stipulated the issues which are related to substantive applicable law, the substantive applicable law issues initiate many problems in practice as a result of Article 42 is too brief and vague. In addition, there is only one relief system for errors in determining applicable law, which is unable to provide effective relief when the tribunals misread substantive applicable law. A large number of ICSID tribunals' practice shows that there are common problems existing in the field of identifying substantive applicable law, such as expansion of discretion, having no faith in host state's law and feeling disappointed with lacking of consistency of awards.People begin to wander what is the root of the problem, for finding the answer, this dissertation chooses to study from a critical perspective on matters of the substantive applicable law in ICSID arbitration, and put forward the following propositions:owning to ICSID tribunal's ignoring power delimitation of Article 42 of Washington Convention, the tribunals expand their discretion constantly; since second sentence of Article 42(1) uses the neutral word "and " to connect international law and domestic law, the order of application of two legal systems becomes unknown, which leaves room for arbitral tribunals to make different interpretations; due to the only one relief system doesn't distinguish the following two important concepts:failure to apply applicable law and applying inaccurate applicable law, failure to state reasons and failure to state sufficient reasons, it is unable to estimate weather tribunals compose manifest excess of powers and failure to state reasons in awards respectively (both of them are legal reasons for revocation of the award). In addition to foreword and conclusion, this dissertation is divided into six parts to analyze and expound issues of substantive applicable law in ICSID arbitration, and how to deal with the issues of applicable law when China participates in ICSID arbitration, the foreword illustrates origin of the topic, literature review, key issues to be addressed and research methods.The first chapter begins with normative analysis, and explains related concepts of substantive applicable law. Since ICSID tribunals accpet and hear most of investment disputes cases in the world, which makes the outside mistakenly confused with investment treaty arbitration and ICSID arbitration. As the object of this study, it is necessary to define connotation and denotation of ICSID arbitration in detail, but also to distinguish differences between ICSID arbitration and international commercial arbitration. There are many statements of substantive applicable law, and its concepts is diverse during different periods. Therefore, section two of the chapter specifically defines the notion of substantive applicable law and attached context, as well as various types of substantive applicable law in ICSID arbitration.The second chapter analyses issues of choice of substantive applicable law. Firstly, it discusses manner and form when parties choose it by party autonomy, since the pre-make choice of law is only an ideal state, the post choice of law in arbitration proceedings becomes part of the discussion. Secondly, it discusses measures to deal with the applicable law when it is modified, and scope of party autonomy. Finally it discusses remedies if the parties fail to make a choice.The third chapter analyses problems of applicable law selection mechanism in ICSID arbitration. The first problem is that tribunals are not strictly in accordance with Article 42(1) of Washington Convention, even some tribunals think whether parties make a choice of law is not important, obviously owning to tribunals' disregard of their power ambit, their discretion expand unceasingly. The second problem is confusion of the relationship between domestic law and international law in practice, since second sentence of Article 42(1) blends remedies for parties fail to make a choice of law and applicable relationship of different legal systems, which exacerbates conflicts with international law and domestic law. The third problem is tribunals can not manage authority of amiable composition properly, they make awards that based on the principle of principle of justice and equity without parties authorization.The fourth chapter analyzes relief system for errors in determination of applicable law: set aside an award, which can only be reviewed on procedural matters, does not involve substantive issues review. Therefore, ad hoc committee responsible for revocation has no authority to review the aspects of identifying applicable law, which is part of legal reasoning. If tribunals fail to apply applicable law or haven't been able to state reasons in awards for identifying applicable law, ad hoc committee can set aside the award by manifest excess of powers and failure to state reasons.The fifth chapter focuses on solution to the problems about choice and identification of applicable law in the above analysis, to avoid taking stop-gap measures, this chapter not only pays close attention to the issues, but also tries to reconstruct overall rules for determining applicable law in ICSID arbitration. In the reconstruction of choice of law, the related clauses should be rebuilt in investment treaties, the choice of law rules in Article 42(1) of Washington Convention should be refined, and it's better to expressly prohibit implied choice of law and explain the applicable order of international law and domestic law, and improve international investment law in order to avoid errors in determination of applicable law caused by ambiguity. By means of discussion and analysis of de facto precedent system, appeals facility and preliminary ruling, concluded that precedent system helps to increase consistency in the practice of ICSID tribunal for determining applicable law, appeals facility is short of operability and preliminary ruling is the most feasible solution.The six chapter inquires into the issues of applicable law China should take care when it participates in ICSID arbitration. For China's new generation of BITs become effective which will bring some new troubles, this study proposes that China should actively adopt principle of party autonomy when China concludes new BIT in the future, and gain the initiative in choice of law, also it needs to improve the substantive law related to foreign investment, thus averts ICSID tribunals apply international law due to there are no provisions of domestic law. In the case of applying international law, China should add some restrictive conditions. Finally, China should encourage more Chinese scholars and arbitrators actively participate in ICSID arbitration.