Source: http://www.trans-lex.org/100400/
Timestamp: 2016-10-22 21:26:41
Document Index: 770944478

Matched Legal Cases: ['§ 331', '§ 335', 'Art. 26', 'Art. 178', 'Art. 7', 'Art. 1020', 'Art. 1024', 'Art. 178', 'Art. 16', 'Art. 1053', 'Art. 21', 'Art. 16', '§ 9', 'Art. 178', 'Art. 3', 'in fine', 'Art. 7', 'Art. 3', 'Art. 2', 'Art. 7', 'Art. 1021', 'Art. 35', 'Art. 35', 'Art. 7', 'Art. 66', 'Art. 684', '§ 839', 'Art. 23', 'Art. 404', '§ 675', 'Art. 36', 'Art. 51', 'Art. 26', 'Art. 834', 'Art. 117', 'Art. 28', '§ 21', 'Art. 21', '§ 1034', 'Art. 1496', 'Art. 46', 'Art. 1054', 'Art. 187', 'Art. 117', '§ 3', '§ 18', 'Art. 28', 'Art. 28', 'Art. 4', '§ 1', '§ 212', 'Art. 5', '§ 188', 'Art. 13', 'Art. 4', 'Art. 4', 'Art. 3', 'Art. 28', 'Art. 117', 'Art. 4', 'Art. 13', 'in fine', 'Art. 187', 'Art. 33', 'Art. 17', 'Art. 18', 'Art. 19', 'Art. 19', 'Art. 4', 'Art. 28', 'Art. 15', '§ 2', 'in fine', 'in fine', 'Art. 11', 'Art. 73', 'Art. 104', '§ 246', '§ 352', 'Art. 1284', 'Art. 1907', 'Art. 1', 'Art. 104', 'Art. 104', 'Art. 106', '§ 288', 'Art. 2028', 'Art. 1153', 'Art. 1224', 'Art. 78', 'Art. 78', 'Art. 58', 'Art. 6', 'Art. 1225', '§ 2', '§ 1150', '§ 249', 'in fine', 'Art. 23', 'Art. 83', '§ 11', 'Art. 6', '§ 248', '§ 289', '§ 11', '§ 286', '§ 288', '§ 289', 'Art. 32', 'Art. 1154']

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Document-Id: 100400, Please cite as: "http://www.trans-lex.org/100400"TitleBerger, Klaus Peter, International Economic Arbitration, Deventer, Boston 1993Content[...]
Both the new laws and Art. II Sec. 2 of the New York Convention accept the arbitration agreement as formally valid if it is contained in a contract which is signed by the parties or in an exchange of letters, telegrams or telex/telefax722 messages which need not necessarily be signed by the parties or refer to the arbitration agreement. Going beyond the current case law relating to the New York Convention, the new laws leave room for arbitration agreements concluded through other modern means of telecommunication and data transmission such as "EDIFACT",723 "Teletex", "Btx",724 "electronic courier", data transmission via satellite and other means of electronic data inter-change (EDI) which are still unknown today.725 These means of communication may establish a formally valid arbitration agreement, if they help to record the body of the agreement for future proceedings and make the parties aware of the fact that they oust the jurisdiction of domestic courts. However, one should include only those agreements that appear on a computer screen and are then saved in the memory of the computer terminals.726 Only in these cases is the text of the arbitration agreement and the conditions of its conclusion known to the parties at the time of its conclusion and also the agree- 138
2. Arbitrators Immunity from Liability Parties who are dissatisfied with the conduct of the arbitral proceedings and the outcome of the case may consider to sue the arbitrator(s) for damages. Contractual claims for damages for the alleged 'wrong' decision of the case can be based on the contract between the parties and the arbitrator only in very rare cases. As in the case of the parties' action for specific performance of the receptum arbitri, this restrictive view is a direct consequence of the arbitrators' unique position which, at least with respect to the characteristics of his decision-making, resembles that of a judge in the ordinary court system. To ensure their free and independent decision-making, the arbitrators are granted far-reaching immunity from liability. The NAI provides an express waiver of liability clauses in its arbitration rules246 which becomes part of the contract between the parties and each arbitrator. Contrary to the broad wording of the clause and the broad liability granted under American law, general contract law forbids to extend this waiver to liability for grossly negligent or willful acts or omissions in the decision-making process247 . Even if neither the applicable arbitration law, nor the arbitration rules, or the receptum arbitri contain special exclusion of liability provisions, the contract between parties and each arbitrator contains an implied limitation of liability248 . As the Florida Task Force on International Arbitration has noted:
arbitrators to reach decisions without being influenced by the likely reaction of a party.'249 This limitation of liability is also applicable under Swiss law.250 German law goes even farther in that it shields the arbitrator from liability relating to his decision-making unless he commits crimes such as the unlawful acceptance of benefits or corruption under §§ 331 et seq. of the German Criminal Code.251 As the arbitrator is remunerated by the parties, he may run the risk of being accused of such crimes simply by demanding compensation for his services. Consequently, § 335 a of the German Criminal Code clarifies that an arbitrator's remuneration constitutes such crime only in those cases where the arbitrator demands or receives it 'behind the back of the other party'. Here, the German criminal law takes account of the Joint liability of the parties and the dangers of partiality where contacts between arbitrator and one of the parties are too close.252 The mere fact that the award has been set aside by the competent court may not in and of itself serve as a basis for arbitrator liability.253 However, a successful appeal against the award should be considered as a necessary precondition for a suit against an arbitrator for negligent or wrongful decision-making.254 A party who accuses the arbitrator of having rendered a wrong decision, but does not attack the award with the means provided for by the arbitration laws has to be suspected of using the suit against the arbitrator as a Surrogate for the missed opportunity to have the award set aside.
Finally, the question remains whether the arbitrator's duty to create an enforceable award arises out of his mandate with the parties, thus implying that a violation of this duty could render the arbitrators contractually liable. This view is maintained in German doctrine.258 There is no doubt that in conferring authority upon an arbitrator to settle a dispute arising out of an international transaction, a term is implied in the parties' contract with the arbitrator that he will render an award which is enforceable under the New York Convention.259 A court judgment rendered in international proceedings will frequently be enforced against assets located in the Jurisdiction where the court has its seat, thus relieving the judge from considering possible enforcement problems abroad. The international arbitrator, however, sitting in a neutral forum that usually has no connection with the business of either of the parties, carries an enhanced responsibility for the enforceability of his award abroad under the New York Convention or domestic enforcement provisions.260 Art. 26 ICC-ArbR261 is thus the expression of a general principle of international economic arbitration. However, ensuring the enforceability of the award is a difficult task, given the multitude of possible enforcement fora. Sometimes, ensuring enforcement will even prove to be impossible if the arbitrators have to reconcile conflicting ordre public principles of those enforcement fora which 239 they are aware of.262 Therefore, the international arbitrator's Obligation to ensure the enforcement of the award is a purely procedural Obligation, a nobile officium which every arbitrator has on his checklist.263 It is converted into a contractual duty only in those cases where a party draws the arbitrator's attention to a public policy issue which might stand in the way of enforcement of the ultimate award. Even in these cases, though, a contractual liability of the arbitrator is in place only if a prima facie examination of the case reveals that the arbitrator could have easily avoided the problem, the proof of which will be impossible in most cases.[...]
Focusing on the inherent function of interest adjudication to compensate for the damage caused by the withholding of the sum due also helps to overcome the highly disputed problem of compound interest.346 The prohibition to charge compound interest (Anatozismus, Anatocisme, "Anatocism") belongs to the common core of most jurisdictions and can be traced back to the prohibition to charge interest under canon law and to the multiple limitations on interest rates (laesio enormis, usury, rate ceilings, taux d'usure). However, the principle no longer conforms with the realities of modern commercial life. It is the usual commercial practice that banks, in some way or another, charge compound interest to finance complex credit facilities or at least apply a method of computing interest which has the same effect as charging compound interest.347 Consequently, these costs which the creditor incurs by taking out 631
compound interest merely serve to clarify the computation of interests thus serving purposes of legal expediency and therefore do not belong to the ordre public international nor to the group of mandatory laws (loi d'application immédiate) which the arbitrators have to apply irrespective of the applicable law.356 As a consequence of this view, the arbitrator may award compound interest even if the lex contractus would not allow the charging of compound interests in domestic contracts.
614Von Hülsen, AWD/RIW 1967, at 267, 268; Böckstiegel, Festschrift Bülow, at 1, 2.615See infra Chapter III at IV.A.616See infra Chapter III at I.617See infra Chapter IV at VI.618See infra Chapter VII at I.619See infra Chapter VII at II.620See Derains, in: Sanders (ed.), ICCA Congress ser. no. 4, at 229, 233.621Cf. Coing, in Coing/Ellwood/Fouchard/Waehler/Vondracek/Koschucharoff/Lando/Migliazza, at 13; Basedow, in: Glossner (ed.), JPS 1987, at 3, 10; Von Hülsen, Die Gültigkeit von internationalen Schiedsvereinbarungen, at 12 hinting at the desire to achieve "decisional harmony" in conflict of laws.622See Mänhardt, Festschrift Ostheim, at 651.623Von Hülsen, supra note 621, at 18.624Switzerland: arg. e. contr. Art. 178 Sec. 3 SIPL; Budin, RdA 1988, at 56; ML: Art. 7 Sec. 1; Netherlands: Art. 1020 Sec. 2 Dutch Act (exception: Art. 1024 Dutch Act).625Art. 178 Sec. 2 SIPL; Art. 16 Sec. 1 ML; see for the unfortunate systematic location and wording of this provision Calavros, Das UNCITRAL Modellgesetz über die internationale Handelsschiedsgerichtsbarkeit, at 42; Hußlein-Stich, Das UNCITRAL-Modellgesetz über die internationale Handelsschiedsgerichtsbarkeit, at 37; Art. 1053 Dutch Act; Art. 21 Sec. 2 UNCITRAL-ArbR ; Swiss Federal Tribunal BGE 59 I 177; LIAMCO v. The Government of the Libyan Arab Republic, ILM 1981, at 1, 40; BGHZ 53, 315; Hoge Raad of December 27, 1935, NJ 1936, No 492; Supreme Court of Hong Kong of October 29, 1991, YCA 1992, at 289, 297 (dealing with Art. 16 ML); cf generally Aden, Internationale Handelsschiedsgerichtsbarkeit, at 93; Sanders, in: Hommage á Eisemann, at 31 et seq.; Craig/Park/Paulsson, at 65 ("conceptual cornerstone of international arbitration"); Delaume, Transnational Contracts, § 9.07; Rubino-Sammartano, International Arbitration Law, at 136 et seq.; Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit, No. 392 ; Strohbach, Handbuch der internationalen Handelsschiedsgerichtsbarkeit, No. 130; Samuel, Jurisdictional Problems in International Commercial Arbitration, at 155 et seq. 626Craig/Park/Paulsson, International Chamber of Commerce Arbitration, at 69 ; Prima Paint Corp. v Flood and Conclin Mfg Co, 388 U.S. 395 (1967); Sauer-Getriebe KG v. White Hydraulics Inc., 715 F. 2nd 348, 351 (1983); cf. also Samuel, id., at 175.627See BGE 88 I, at 105 ; English Commercial Court, Harbour Assurance Co. Ltd. v. Kansas General International Insurance Co. Ltd., 1 Lloyd's L.Rep [1992] 81 ; Van den Berg, YCA 1987, at 10 ('non-existence [of the main contract] must be deemed to extend to the arbitration clause as well'); Lew, in: Lew (ed.), Contemporary Problems in International Arbitration, at 73, 76 et seq. ; Sanders, supra note 625, at 35 et seq.; UN Doc. A/CN.9/264, para. 2; Fouchard, Clunet 1979, at 816, 837; Lalive/Poudret/Reymond, Le Droit de L'Arbitrage Interne et International En Suisse, Art. 178, No. 23; cf. also Mann, Festschrift Flume, at 609; Broches, Handbook lnt'l.Com.Arb, UNCITRAL Model Law, at 75 et seq.; ad hoc award of January 14, 1982 Elf Aquitaine Iran (France) v. National Iranian Oil Co., YCA 1986, at 97, 102 : 'An arbitration clause may not always be operative in cases where it is clearly indicated by the facts and circumstances that there never existed a valid contract between the parties'; Redfern/Hunter, Law and Practice of International Commercial Arbitration, at 278 et seq.; see also Paul Smith Ltd. v. H&S International Holding Co. Inc., 2 Lloyd's L.Rep [1991] 127, 130 .628See generally infra C.3.629See Lew, in: Sarcevic (ed.), Essays on International Commercial Arbitration, at 80; Böckstiegel, in: Sanders (ed.), ICCA congress ser. no. 2, at 186.630Sanders, supra note 625, at 42; Van Houtte, TvPr 1982, at 703, 707; Lalive, AI 1989, at 10; ICC Award No. 2694, Clunet 1978, at 985; No. 6294, Clunet 1991, at 1050 with Note Arnaldez, id., at 1052 ; Art. 3 (a) Santiago de Compostela Resolution of the Institut de Droit International, adopted at the 18th session, September 5-13, 1989, ICSID Rev. FILJ (=RabelsZ 1990, at 160, 162 et seq.): 'Unless the arbitration agreement provides otherwise . . . [t]he arbitration agreement is separable from the legal relationship to which it refers'; cf. already Lena Goldfields Co. v. Union of Socialist Soviet Republics, Annual Digest of International Law Cases Vol. 25 (1929-1930), No. 258; ad hoc award of January 14, 1982, Elf Aquitaine Iran v. National Iranian Oil Company, YCA 1984, at 97, 102 et seq. 722Which is mentioned expressly in the Swiss law.723Legal aspects of EDIFACT, especially the uncertainties related "to national laws which require signed paper documents" are currently under review by an ICC Working party, see ICC Doc. No. 460/393, at 4 et seq.; see also the UNCID Rules, drafted by a team of representatives from various international associations, coordinated by the ICC, ICC Publication No. 452.724For a critical comment on the compatibility of domestic formal validity rules and Btx see Päfgen, Bildschirmtext aus zivilrechtlicher Sicht, at 44 et seq.725For Swiss law Vischer/Volken, Bundesgesetz über das Internationale Privatrecht (IPR-Gesetz), Gesetzesentwurf der Expertenkommission und Begleitbericht, at 178; Lalive, Le chapitre 12, at 215; Lalive/Gaillard, Clunet 1989, at 931; Giovanoli, Mélanges Piotet, at 425, 433 ; for the ML, Calavros, supra note 696 at 49 et seq.; Granzow, supra note 702, at 88 et seq.726See for the ML the statement of the US delegation during the deliberations in the UN, UN Doc. A/CN.9/263, para. 4: ". . . this definition has the necessary flexibility to take into account the wide variety of ways business in different trades is conducted and the modern means of communication utilized - now and in the future. The US interprets the phrase "other means of telecommunication" to include all forms of electronic computer techniques that provide a written record"; Holtzmann/Neuhaus, supra note 718, at 263 hinting at the fact that the Working Group declined to accept an alternative that required that the means of telecommunication "produce a record on paper automatically or at the option of the recipient", id., at fn. 27; cf. for Swiss law A. Bucher, supra note 711, No. 123 in fine; but see for the ML Hußlein-Stich, supra note 718, at 39, fn. 189; see also Giovanoli, id., at 447 who requires that the modern means of telecommunication have reached the quality of a usage.727Cf. for Art. 7 Sec. 2 ML UN Doc. A/CN.9/WG.II/WP.37, Art. 3 Sec. 2; but see Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit, No. 373 , who requires recording in written form; cf. also for Swiss law A. Bucher, supra note 711, No. 123: "The requirement "in writing" does no longer mean that the arbitration agreement exists in this substantive form; it suffices that the agreement is contained in a data carrier which allows the written reproduction and the confirmation of the mutual consent of the parties' (original in German).728UN Doc. A/CN.9/350, at 18 et seq.; UNCITRAL envisages the drafting of a standard communication agreement for use in international trade, intended to achieve harmonization of basic EDI rules for the promotion of EDI in international trade, possibly accompanied by the removal of mandatory requirements in national legislation regarding the use of paper and handwritten signatures, id. at 29 et seq.729Cf. Tschanz, RDAI 1989, at 753; Granzow, supra note 702, at 88 et seq.; Samuel, supra note 713, at 86; Kessedjian, RdA 1990, at 137; Redfern/Hunter, Law and Practice of International Commercial Arbitration, at 134 et seq.; see also the decision of the Austrian Supreme Court of November 17, YCA 1976, at 183 and the Swiss decision BGE 111 Ib, at 255; Cour d‘Appel Paris, Boman Oil NV v. ETAP, YCA 1988, at 466 (Telex); see also for the reproduction of documents by electronic means and its compatibility with formal validity rules of domestic law Goebel/Scheller, Elektronische Unterschriftsverfahren, at 38.730See for the necessity to interpret arbitration laws according to the need of modern international commerce supra Chapter I at III.B.2.731Wackenhuth, ZZP 1986, at 453.732Cf. the revised version of the CIF Clause (No. A 8), INCOTERMS in the version in effect as of July 1, 1990, ICC Publ. No. 460, at 56.733Art. 2 d) ICC Uniform Rules for Demand Guarantees, ICC Publ. No. 458.734Adopted at the thirty-fourth Conference in Paris, June 1990, see UN Doc. A/CN.9/333, para. 89; the International Rail Transport Committee (CIT) is undertaking a study to replace the paper-based rail consignment note provided for in the CMI rules with an electronic document, the Electronic CMI document (Docimel) which is intended to be ready for implementation in 1993; the International Road Transport Union (IRU) is preparing a standard EDI agreement for use between enterprises in the road transportation industry and users of road transportation services, see the survey in UN Doc. A/CN.9/350, at 13 et seq.735Schneider, RIW 1991, at 91, 96.736ICC Annual Report 1989, at 14.737See generally infra d.738See for the inclusion of "reality", i.e. the needs of international practice into the analysis of modern legislation supra Chapter I at III.B.2.739Cf. UN Doc. A/40/17, para. 87, where it was acknowledged that there might be an interrelation between the widening of the scope of the ML‘s formal validity requirements and the interpretation of the Convention.740Cf. generally the approach (not limited to arbitration) taken by Basedow, in: Kreuzer (ed.), Abschied vom Wertpapier?, at 67, 104; but see Van den Berg, New York Convention, at 192 who requires the actual exchange of documents.741Cf. for this practice Kritzer, Guide to Practical Applications of the UN Convention on Contracts for the International Sale of Goods, at 144; see for the significance of keeping written memoranda of oral negotiations as reflected in the experience of the Iran-US Claims Tribunal, Holtzmann, Private Investors Abroad 1987, at 16-11 et seq.742Cf. immediately infra b.743Cf. immediately infra d.744Swiss Federal Tribunal in Tracomin v. Sudan Oil Seeds Co. Ltd., BGE 111 Ib 253 (=YCA 1987), at 511, 513.745Art. 7 Sec. 2 ML; Art. 1021 Dutch Act; cf. also Granzow, supra note 702, at 89; the presentation of the written statements suffices in recognition and enforcement proceedings under Art. 35 Sec. 2 ML, Art. IV Sec. 1 New York Convention, Hußlein-Stich, supra note 718, at 41; Granzow, id., at 91; Calavros, supra note 696, at 46, fn. 203 contra Szurski, supra note 718, at 59, fn. 15 ("Without presentation in court of a written arbitration agreement, the recognition and enforcement of the arbitral award is not possible under the appropriate provisions of the draft Model Law, or under Art. IV, para. 1 of the New York Convention 1958"); cf. also UN Doc. A/40/17, para. 87; A/CN.9/264, Art. 35, para. 5, fn. 91 ("As regards [the requirement of submitting the arbitration agreement in recognition and enforcement proceedings], it is submitted that an exception be made for those cases where an original defect in form was cured by waiver or submission, for example, where arbitral proceedings were on the basis of an oral agreement initiated and not objected to by any party. In such case, the supply of any award, which records the waiver or submission, should suffice"). 746Nöcker, Das Recht der Schiedsgerichtsbarkeit in Kanada, at 73 et seq.; Hußlein-Stich, supra note 718, at 41.747UN Doc. A/40/17, para 87 ("It was pointed out in support of the suggested extension [now contained in Art. 7 Sec. 2 ML] that, although awards made pursuant to arbitration agreements evidenced in that manner would possibly be denied enforcement under the 1958 New York Convention, adoption of that extension in the model law might eventually lead to an interpretation of Article II (2) of that Convention whereby arbitration agreements evidenced in the minutes of arbitral tribunals would be acceptable").748See Sanders, Het nieuwe arbitragerecht, at 49 et seq. ; Böckstiegel, Festschrift Bülow, at 10; Craig/Park/Paulsson, International Chamber of Commerce Arbitration, at 79 ; see also Award No. 12/1974 of the Arbitration Court, Chamber of Foreign Trade, (East-) Berlin, YCA 1976, at 127: "The demand for arbitration, on the one hand, and the participation in the arbitral procedure by the respondent, on the other hand, constitute a valid submission to arbitration by this Court"; cf. generally for the preclusion principles infra Chapter III at IV.C.1.a.749See Holtzmann/Neuhaus, supra note 718, at 484.750Cf. for this "safety net function" of the Terms of Reference infra Chapter IV at II.D.1.751UN Doc. A/40/17, para. 87; UN Doc. A/CN.9/SR.311, para. 11; but see Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit, No. 374. 246Art. 66 NAI-ArbR.247This follows from ordinary contract law, cf. Van den Berg, supra note 233, at 64, fn. 16; see also Sanders, TvA 1991, at 31; Van Hof, Commentary on the UNCITRAL Arbitration Rules, at 49.248Glossner/Bredow/Bühler, Das Schiedsgericht in der Praxis, No. 265; Schütze/Tscherning/ Wais, supra note 176, No. 230; BGHZ 15,12,15 et seq.; Rüede/Hadenfeldt, supra note 232, at 157 et seq.; Strieder, supra note 228, at 156; Rechtbank Breda of September 11, 1990, cited by Sanders, 'Note', TvA 1991, at 28, 29; Van den Berg, supra note 233, at 59, 64; J.-F. Lalive, in: Lew (ed.), Immunity of Arbitrators, at 117, 128 et seq.; see from a comparative perspective Domke, supra note 244, at 40 et seq.; Van Hof, id., at 46 et seq.; see for a more restrictive view Hausmaninger, J.Int'l.Arb, No. 4, 1990, at 7, 20 et seq. (question of the individual case, the risk may be insured).249Loumiet, ILM 1987, at 949, 964, fn. 22; cf. also Art. 684.35 Florida International Arbitration Act of 1986, id., at 976: 'No person may sue in the courts of this State or assert a cause of action under the law of this State against any arbitrator when such suit or action arises from the Performance of such arbitrator's duty'.250Cf. Rüede/Hadenfeldt, supra note 232, at 157; see also J.-F. Lalive, supra note 248, at 123 et seq ; BGE 79 II 424, 438.251This follows from the analogous application of § 839 Sec. 2 German Civil Code (immunity from liability of ordinary court judges); Strieder, supra note 228, at 156; Real, supra note 232, at 172; Schwab/Walter, supra note 232, at 94; Schütze/Tscherning/Wais, supra note 176, No. 231; see also Triebel/Hyden, supra note 235, at 45 et seq.252These contacts may also constitute a ground for challenge of the arbitrator, see infra II.A.253Van den Berg, supra note 233, id. (for Dutch law); J.-F. Lalive, supra note 248, at 124 (for Swiss law).254Cf. the decision of the Rechtbank Breda of September 11, 1990, TvA 1991, at 29 et seq.; Tribunal de Grand Instance of Paris of October 2, 1985, RdA 1987, at 84; accord Cremades, IFLR, March 1991, at 32, 33; Sanders, TvA 1991, at 30 et seq.; Sanders, Het nieuwe arbitragerecht, at 64 et seq.; cf. also Robine, AI 1989, at 331 for French law.255The duty to conduct the proceedings in due course is inherent in every receptum arbitri, A. Bucher, Die neue Schiedsgerichtsbarkeit in der Schweiz, No. 156; Vogel, supra note 232, id. In administered arbitrations, this duty is frequently reiterated in the applicable arbitration rules, cf. e.g. Art. 23 Sec. 3 NAI-ArbR.256The claim for damages arising out of the arbitrator's premature termination of the contract follows from Art. 404 Sec. 2 and 398 Sec. 2 Swiss Law on Obligations, cf. Vogt, supra note 228, at 144; under German law §§ 675, 627 Sec. 2 Civil Code apply.257Habscheid, Festschrift Fasching, at 201, 'gross violation of duties'; cf. also Introductory Note, Rules of Ethics for International Arbitrators, YCA1987, at 199, stating that arbitrators are immune from liability 'except in extreme cases of willful or reckless disregard of their legal obligations'; cf. the similar terminology in Art. 36 AAA-ArbR ('conscious and deliberate wrongdoing'); this may be the case if the arbitrator violates his duty of confidentiality which constitutes an inherent contractual Obligation of any receptum arbitri even without express stipulation by the parties; in institutional arbitrations, this duty is reinforced in the applicable arbitration rules, see e.g. Art. 51 Sec. 1 ZuArbR.258See MüKo-Sonnenberger, Einl. EGBGB, No. 164; cf. also Juenger, Festschrift Rittner, at 233, 249 for the arbitrators' consideration of mandatory norms.259Poznanski, J.Int'lArb, No. 3 1987, at 71, 86.260See for Swiss law Nuber, Die objektive Schiedsfähigkeit im Zusammenhang mit der Gültigkeit der Schiedsvereinbarung (anwendbares Recht) und mit der Vollstreckung (Ordre public), at 150.261Art. 26 ICC ArbR states in pertinent part: '. . . the arbitrator . . . shall make every effort to make sure that the award is enforceable at law'.262See Craig/Park/Paulsson, International Chamber of Commerce Arbitration, at 303: 'While Article 26 of the ICC Rules obliges the tribunal to use every effort to make sure that the award is enforceable at law, there may be occasions when this interest must give way to the need to render an award which conforms to the contractual intention of the parties, particularly if the award may be enforced in other jurisdictions'.263Böckstiegel, RIW 1982, at 706, 709 ('. . . the arbitrator is not formally bound to consider mandatory norms in connection with a possible subsequent enforcement of the award, but an efficient international arbitrator should regard it as a nobile officium to take such norms into account in conducting the arbitration in order to give the parties a wholly enforceable award'); cf. also Böckstiegel, RIW 1979, at 161, 166 ('no formal legal duty but a nobile officium'); Böckstiegel, in: Sanders, ICCA Congress ser. no. 3, at 185 ('. . . the arbitrator has at least a moral Obligation to give the parties an award which can be expected to stand, both in case of setting-aside procedures and in case of enforcement procedures, before national courts').109Cf. for Swiss law Reymond, RDAI 1989, at 744; Lalive/Gaillard, Clunet 1989, at 43; for Dutch law Van den Berg/Van Delden/Snijders, Arbitragerecht, at 99.110Lalive, Le chapitre 12, at 222; Von Hoffmann, in: Böckstiegel (ed.), Die internationale Schiedsgerichtsbarkeit in der Schweiz (II), at 159.111See Art. 834 2nd sentence of the Italian Draft, Senato Della Repubblica 1989, N. 1686, at 18 et seq. 'Se le parti non provenono, si applica la legge con la quale il rapporto è più strettamente collegato'.112See Art. 117 Sec. 1 SIPL ('If no law has been chosen, a contract is governed by the law of the country most closely connected with it').113Cf. Gaillard, ICSID Review-FILJ 1987, at 424, 433.114Cf. already Art. VII European Convention on International Commercial Arbitration of April 21, 1961 ('Failing any indication by the parties as to the applicable law, the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable').115Art. 28 Sec. 2 ML.116§ 21.2 DIS-ArbR; Art. 21.2 ACB-ArbR.117ICC Award No. 5460, YCA 1988, at 106; cf. also ICC Award No. 6281, YCA 1990, at 96, 97 where the tribunal applied cumulatively the conflict-of-laws rules of both parties' home country and that of the seat of the arbitration (which all lead to the same result so that the tribunal was not forced to decide which conflict-of-laws rule should ultimately determine the applicable law); Lew, supra note 80, at 245 et seq.; Sauser-Hall, Rec.Cours, 1952 I, at 469; Klein, supra note 40, at 194; Von Hoffmann, Internationale Handelsschiedsgerichtsbarkeit, at 111; Mann, Festschrift Flume, at 613; Calavros, at 128.118ICC Award No. 2438, Clunet 1976, at 969 ; No. 2886, Clunet 1978, at 996; No. 3034, Clunet 1978, at 100; No. 4434, Clunet 1983, at 889; No. 2730, Clunet 1984, at 915 ; No. 6281, YCA 1990, at 96, 97 et seq. ; No. 4996, Clunet 1986, at 1132 ; No. 5118, Clunet 1987, at 1027 with Note Jarvin, id., at 1028 ('a principle which is both recognized and established'); Derains, RdA 1972, at 99 et seq.; Van Houtte, TvPr 1982, at 703, 715.119A. Bucher, supra note 105, at 35.120See generally Goodman-Everard, AI 1991, at 161 and supra Chapter I at III.B.2.121Böckstiegel, Festschrift Beitzke, at 453; Van Houtte, supra note 118, id.; Von Hoffmann, supra note 117, at 40, referring to the 'decisional harmony' as the guiding principle of conflict-of-laws; see also Basedow, in: Glossner (ed.) JPS 1987, at 17 et seq.; Hellwig, RIW 1984, at 426 ('lex mercatoria of conflicts of laws'); cf. also Goldman, Clunet 1990, at 433, 439; Dasser, Internationale Schiedsgerichte und Lex Mercatoria, at 178 with reference to ICC Award No. 2178 and No. 3894; Toope, Mixed Arbitration, at 55; Von Mehren, in: Études offertes à Berthold Goldman, at 217, 227; cf. also ICC Award No. 1717, Clunet 1974, at 890; No. 2680, Clunet 1978, at 997; No. 3316, YCA 1982, at 106; No. 3880, Clunet 1983, at 897 ; No. 5713, YCA 1990, at 70, 71 ('general trend in conflicts of law'); No. 6281, Clunet 1991, at 1054 with Note Hascher, id., at 1056 emphasizing that the principles contained in international Conventions are frequently regarded by international arbitrators as universally applicable rules); but see the critical statement of Calavros, Das UNCITRAL Modellgesetz über die internationale Handelsschiedsgerichtsbarkeit, at 127; Von Bar, supra note 98, No. 108, fn. 433.122ICC Award No. 4237, YCA 1985, at 52, 55 ; cf. also for the Iran-US Claims Tribunal's application of 'general principles of private international law', Van Hof, Commentary on the UNCITRAL Arbitration Rules, at 238 .123But see the prevailing opinion in Germany Baumbach/Lauterbach-Albers, Zivilprozeßordnung, at § 1034-1039, No. 2; Mann, supra note 123, at 613 et seq.124Lalive, Rass d'Arb. 1984, at 49, 50 et seq. ('disappointing and surprisingly conservative, indeed reactionary'; statement of Yves Derains, Rapporteur of the Working Group on Applicable Law during the deliberations of the UNCITRAL-ML); cf. also Jarvin, RdA 1986, at 523; Böckstiegel, RIW 1984, at 677; but see Herrmann, AI 1985, at 23.125Art. 1496 n.c.p.c; the Dutch legislature expressly referred to the French provision in MvT, at 40.126See also Art. 46 2nd sentence NAI-ArbR.127Art. 1054 Sec. 1 Dutch Act.128ICC Award No. 1776, Clunet 1974, at 886; ICC Award No. 3880, Clunet 1983, at 897; No. 4132, id., at 891 ; No. 4381, Clunet 1986, at 1102 with Note Derains, id., at 1107, 1109; Lew, supra note 80, at 295; David, Arbitration in International Trade, at 341; Van den Berg, TvA 1984, at 200.129See ICC Award No. 5103, Clunet 1988, at 1207 (cumulative application of French [as the law in force at the seat of the claimant] and Tunisian law (as the law in force at the seat of the respondent]).130See Redfern, Private Investors Abroad 1989, at 11-14.131Lando, Festschrift Zweigert, at 159; cf. also UN Doc. A/40/17, para. 236; see also for a 'functional conflict-of-laws methodology' for international arbitrators Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, at 83 et seq.132See infra IV.A.133See for a critical comment on the lacking judicial control of the arbitrators' application of the law Aden, RIW 1984, at 934, 935: 'Those who, like arbitrators, can decide without the supervision of higher courts, decide in a more liberal manner and in a sense also more arbitrarily than the state court judge whose decision-making is subject to the supervision of the higher instance; at least, their decisions can be more influenced by their individual notions and ideas' (original in German).134See the statement of the German delegate during the deliberations of the ML in UN Doc. A/CN.9/263, para. 3: '. . . businessmen often want a decision not according to the letter of the law but a decision based on practical economic factors'.135Cf., e.g. ICC Award No. 5103, Clunet 1988, at 1207 ; Derains, in: Sanders (ed.), ICCA Congress ser. no. 2, at 169, 189; Derains, in: Sanders (ed.), ICCA Congress series no. 4, at 239 et seq.; Franx, Het Ontwerp Boek IV van het Wetboek van Burgerlijke Rechtsvordering, at 35; Von Mehren, in: Études offertes à Berthold Goldman, at 227; Wenger, Bas.Jur.Mitt. 1989, at 337, 353; Lando, supra note 131, at 169; Lalive, RdA 1986, at 356 et seq.; cf. also the legislative materials for the new Italian draft arbitration law, in Senato Della Repubblica, 1989, N. 1686, at 8; the international arbitrator's obligation to respect the legitimate expectations of the parties is reflected in their duty to take into account the applicable trade usages, David, Arbitration in International Trade, at 347; UN Doc. A/CN.9/263, para. 12 and infra IV.B.136See ICC Award No. 4145, Clunet 1985, at 985; cf. also for the principle favor negotii as part of the lex mercatoria infra III.B.137Gaillard, in: Sanders (ed.), ICCA Congress ser. no. 4, S. 283, 288; in international arbitral practice, arbitrators often prefer a comparative reference to various legal systems in order to 'allow a solution which does justice to the individual case and to the equality of the parties' and in order to provide their decisions with more persuasive power, Böckstiegel, RIW 1984, at 677; this case-by-case approach puts the award close to a decision ex aequo et bono which always requires an express authorization by the parties; but see for the existing differences between decision in law and ex aequo et bono infra IV.A.1.138Reymond, RdA 1989, at 406; Lalive/Poudret/Reymond, supra note 104, Art. 187, No. 18; Lalive/Gaillard, Clunet 1989, at 946; but see Von Hoffmann, in: Böckstiegel (ed.), Die internationale Schiedsgerichtsbarkeit in der Schweiz (II), at 159.139Von Hoffmann, id., at 159 for the similar rule of French arbitration law; Drobnig, Festschrift Kegel, at 95, 116 ('deplorable arbitrariness of arbitrators in the determination of the applicable conflict-of-laws rules').140See ICC Interim Award No. 4710, ASA Bull. 1985, at 65, 70.141A. Bucher, Die neue internationale Schiedsgerichtsbarkeit in der Schweiz, No. 242 ; Lalive, RdA 1986, at 351; cf. also Markert, Rohstoffkonzessionen in der internationalen Schiedsgerichtsbarkeit, at 135. 142Cf. infra IV.A.143See Basedow, in: Glossner (ed.), JPS 1987, at 17; cf. also Von Bar, supra note 98, No. 106: 'Whether a decision as amiable compositeur is possible is a question of international private law . . ., only if this question can be answered in the affirmative may the arbitral tribunal decide unconcerned with any domestic conflict of laws' (original in German); Klein, Schw.Jb.Int.R. 1978, at 106; See for Dutch law Schultsz, Mededelingen, at 20; Schultsz, RdA 1988, at 222; Duintjer Tebbens, Neth.lnt'l.L.Rev. 1987, at 155, fn. 61.144Gaillard, ISCID Rev: FILJ 1987, at 433; Tschanz, RDAI 1988, at 447; Karrer, ASA Bull. 1989, at 13, 21; cf. also Loquin, Clunet 1983, at 340; Kokkini-Iatridou, Aspecten, at 324.145Van den Berg, TvA 1984, at 200.146Van den Berg, id.147UN Doc. A/40/17, para. 237.148See Lalive, RdA 1986, at 357.149A. Bucher, in: Schwind (ed.), Aktuelle Fragen des Europarechts aus der Sicht in- und ausländischer Gelehrter, at 36. 150See Reiner, ZRVgl. 1986, at 210.151Herrmann, AI, at 23, fn. 21.152Van den Berg/Van Delden/Snijders, Arbitragerecht, at 99 with reference to the case that an English arbitrator, sitting in the Netherlands, decides a dispute between a Jordan and a Saudi-Arabian party applying the voie directe-technique to determine the applicable law which makes the award unenforceable in the home country of the parties; cf. also Münchener Kommentar-Sonnenberger, Einl. EGBGB, No. 164, who focuses on the tribunal's obligation to create an enforceable award which, according to this view, forces the arbitrators to take account of the conflict-of-laws rules of the lex fori of possible enforcement courts; in many cases, this view will lead the arbitrators to take the comparative approach outlined above and apply both the conflict-of-laws rules of the claimant's and respondent's home country; in addition, the enforcement courts will usually refrain from investigating into the choice of law of the arbitrators, cf. Van den Berg, New York Convention, at 173 et seq.; cf. also infra Chapter VII at I.C.2.c. for the parallel problem of court control in setting-aside proceedings.153Cf. also Art. 117 Sec. 1 SIPL; Broggini, Schw.Jahrb.Int.R. 1988, at 132, 136 et seq.154Lalive, RdA 1986, at 355; Blessing, in: Böckstiegel (ed.), Die internationale Schiedsgerichtsbarkeit in der Schweiz (II), at 65 ; 'Minimum requirement which can be regarded as self-evident'; Delaume, Transnational Contracts, § 3.01; Lagarde, Rec.Cours 1986-I, at 196 et seq.; Kegel, Internationales Privatrecht, § 18 I 1 d; De Ly, De Lex Mercatoria, at 181 et seq.; Lando, Festschrift Zweigert, at 169; Ferid, Internationales Privatrecht, No. 6-37; Münchener Kommentar-Martiny, Art. 28, No. 14; Sandrock/Steinschulte, supra note 83, No. 289 for Dutch conflict-of-laws; but see also the critical Statement of Neuhaus, Grundbegriffe des Internationalen Privatrechts, at 165 et seq.155Art. 28 Sec. 1 1st sentence German Code on International Private Law (EGBGB), ILM 1988, at 18; Art. 4 Sec. 1 1st sentence Rome Convention on the Law Applicable to Contractual Obligations, supra note 83; cf. for the Convention's function as a model for international arbitrators ICC Award No. 1717, Clunet 1974, at 890; No. 4996 Clunet 1986, at 1132 ; No. 2730, Clunet 1984, at 914 with Note Derains, id., at 918 et seq.156§ 1 Sec. 1 Austrian Code on International Private Law.157Dicey/Morris, at 769 et seq.; Westlake, A Treatise on Private International Law, 2nd ed. 1880, § 212; cf. also Art. 5 Sec. 1 2nd sentence Foreign Economic Contract Law of the People's Republic of China of March 21, 1985, reprinted in Horn/Schütze, Wirtschaftsrecht der Volksrepublik China, at 438, 439; See also for Swedish conflict law Wetter, AI 1986, at 300.158§ 188 American Restatement of the Law (Second), 'Conflict of Laws'.159Art. 13 Sec. 3 Benelux Convention on International Private Law, supra note 83.160See Sanders, Het nieuwe arbitragerecht, at 186 ; Eisemann, Festschrift Bülow, at 59, 63; Lalive, RdA 1986, at 356; Robert in: Schultsz/Van den Berg (ed.), The Art of Arbitration, at 273, 277; cf. also ICC Award No. 3742, Clunet 1984, at 911 with Note Derains, id., at 912, 913 ('nul doute partie des principes généraux du droit international privé'); No. 4132, YCA 1985, at 49, 52 (absent any other connecting factors the tribunal applied the 'Center of Gravity Test'); No. 2730, Clunet 1984, at 914 ; No. 4237, YCA 1985, at 52, 55 ('The decided international awards published so far show a preference for the conflict rule according to which the contract is governed by the law of the country with which it has the closest connection'); No. 5717, ICC Bull. No. 2 1990, at 22 ; cf. also the Award of the Iran-US Claims Tribunal Harnischfeger Corp. v Ministry of Roads and Transportation, 7 CTR 1984, 90, 99 .161Jayme, in Sarcevic (ed.), International Contracts and Conflict of Laws, at 42.162ICC Bull., No. 2 1990, at 22 et seq. 163But see Vischer, Schw.Jahrb.Int.R. 1988, at 119, 130.164Basedow, in: Glossner (ed.), JPS 1987, at 18; see the catalogue contained in Art. 4 et seq. Rome Convention on the Law Applicable to Contractual Obligations, supra note 83, especially Art. 4 Sec. 2 (law of the country where the party who is to effect the characteristic performance has his habitual residence at the time of the conclusion of the contract); see for details Jayme, id., at 42 et seq.; cf. for the application of this catalogue by international arbitrators, Van den Berg, TvA 1984, at 200; ICC Interim Award No. 4710, ASA Bull. 1987, at 71; cf. also Art. 3 Sec. 2 Hague Convention on the Law Applicable to the International Sales of Goods of June 15, 1955, which was ratified by Switzerland but not by Germany and the Netherlands, see for a practical example ICC Award No. 6281, YCA 1990, at 96, 97 ; even without formal ratification, this and other conventions not yet in force may serve as an indication for a general trend in international conflict-of-laws to connect the contract to the law of the seller, see the ICC Awards No. 5713, YCA 1990, at 70, 71; ICC Award No. 2438, Clunet 1976, at 969 ; No. 6281, Clunet 1991, at 1054 with Note Hascher, id., at 1056, 1057 et seq.; No. 6360, ICC Bull. No. 2 1990, at 24; cf. generally for the 'anticipated effect' of Conventions of International Private Law which have not yet entered into force but reflect the growing harmonization of domestic conflicts of laws rules Basedow, id., at 18; Walter/Bosch/Brönnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz, at 193.165Art. 28 et seq. German Code of International Private Law (EGBGB) , ILM 1988, at 18 et seq.; Art. 117 et seq. Swiss SIPL; in Dutch conflict of laws the closest connection test with its various connecting factors is based on Art. 4 Sec. 1 Rome Convention , supra note 83, and Art. 13 Sec. 3 Benelux Convention, supra note 83, which, even though not ratified expresses a general trend of conflict of laws.166ICC Award No. 4650, YCA 1987, at 111, 112 .167ICC Award No. 2730, Clunet 1984, at 914 .168Gaillard, AI, 1988, at 25, 29.169Cf. Schnyder, Das neue IPR-Gesetz, at 127.170Lalive, ASA Bull. 1989, at 27, 32.171Lalive, id., at 37.172See Schütze/Tscherning/Wais, Handbuch des Schiedsverfahrens, No. 584 in fine ('As a matter of principle, the parties' designation of the applicable conflict of laws rules means nothing but an indirect choice of law'); Lew, Applicable Law in International Commercial Arbitration, at 230; Wetter, AI 1986, at 294, 298.173Samuel, AI 1991, at 47; Karrer, ASA Bull. 1989, at 13, 20.174See Lew, supra note 172, at 232.175See Lalive/Gaillard, Clunet 1989, at 946; Lalive/Poudret/Reymond, Le Droit de l'Arbitrage Interne et International en Suisse, Art. 187, No. 7; the parties may therefore also agree to have the conflict-of-laws rule of Art. 33 Sec. 1 UNCITRAL-ArbR applied by the arbitrators; but see Lalive, supra note 170, at 34 et seq.176See for arbitrators acting as amiables compositeurs infra IV.A.177Klein, in: Glossner (ed.), JPS 1988, at 92, 97.178Art. 17 (no application of provisions of a foreign law if the result is incompatible with Swiss public policy); Art. 18 (mandatory application of Swiss lois d'application immédiates); Art. 19 (taking into account mandatory provisions of a foreign law); see for Art. 19 SIPL Karrer, supra note 173, at 22 et seq.179See infra Chapter VII at I.C.2.a.180Böckstiegel, Festschrift Beitzke, at 448.181See the ICC Award No. 2930, YCA 1984, at 105, where the arbitrators state that '[t]he arbitral tribunal is even more convinced with this choice [of the law of Yugoslavia with which the contract has the closest connection] in that the Claimants, being under Yugoslav jurisdiction, are subject to the Yugoslav law controlling import and export control . . .'; see generally Großfeld/Junker, Das CoCom im Internationalen Wirtschaftsrecht, at 140 et seq.182Cf. the criticism of Ferid, Internationales Privatrecht, No. 1-138 et seq., who claims that cases with an international coloration should be concentrated within certain chambers or even certain specialized courts; cf. also for the phenomenon of 'Heimwärtsstreben' ('Homewardboundness') of domestic courts in the application of conflict-of-laws rules, Nussbaum, Grundzüge des Internationalen Privatrechts, at 36.183See Art. 4 Sec. 5 2nd sentence Rome Convention on the Law Applicable to Contractual Obligations , supra note 83; Art. 28 Sec. 5 German Code on International Private Law (EGBGB) , ILM 1988, at 19 (stating that the presumptions established in the law for the conflicts-of-law connection of a contract to a certain legal system 'shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another state'); Art. 15 Swiss SIPL; Schnyder, supra note 169, at 31.184See for the maxim of fairness in the application (not the construction) of a law as a guiding principle of conflict of laws, Kegel, Internationales Privatrecht, § 2 I.185Cf. for the efforts of the American 'better law approach' to reinterpret conflict-of-laws, Juenger, Zum Wandel des Internationalen Privatrechts, at 31 et seq.; attempts to apply this approach in international economic arbitration can be found in Lando, in: Sarcevic (ed.), Essays on International Commercial Arbitration, at 148 ; the theory may not be suitable in all areas of conflicts of laws, see the critical statements by Kegel, in: Juenger, id., at 35 et seq.; for the field of international economic arbitration, however, the approach corresponds to the legitimate interests of the parties who expect a resolution of their dispute which takes account of the constantly changing and rapidly evolving conditions of international trade and commerce, Blessing, supra note 154, at 68 (an arbitral tribunal has to be capable of 'basing its decision on the most up-to-date principles of international trade'); cf. also Von Hoffmann, in: Böckstiegel (ed.), Die internationale Schiedsgerichtsbarkeit in der Schweiz (II), at 159; see for the consideration of the legitimate interests of the parties (attentes légitimes) by international arbitrators supra II.2.a; ICC Award No. 5103, Clunet 1988, at 1206 ; Von Mehren, in: Études offertes à Berthold Goldman, at 227.186This negative function of the conflict-of-laws rules contained in modern arbitration laws is rightly emphasized by A. Bucher, Die neue internationale Schiedsgerichtsbarkeit in der Schweiz, No. 239 in fine; A. Bucher, Festschrift Keller, at 565, 569; Tschanz, RDAI 1988, at 447 for Switzerland; Schultsz, Mededelingen, at 20, fn. 26 in fine for The Netherlands and Granzow, Das UNCITRAL Modellgesetz über die internationale Handelsschiedsgerichtsbarkeit, at 171 for the ML.187See Art. 11 of the Resolution 'L'arbitrage en droit international privé' of 1957, Institute of International Law, 47-II Yearbook 1958, at 491 et seq. requiring that '[t]he rules of choice of law in force in the state of the seat of the arbitral tribunal must be followed to settle the law applicable to the substance of the difference'.294In 1989 in 34,1% of ICC arbitrations, the sum in dispute was between US$ 1 million and 10 million, ICC (ed.), Bulletin de la Cour Internationale d'Arbitrage, June 1990, at 8.295Cf. the decision of the Cantonal Court of Basel, ASA Bull. 1986, at 212, 217.296Cf. for the phenomenon of "forced taking of credit" the Protocols to the German Civil Code, Mugdan, Vol. II, at 509.297Hunter/Paulsson, Int'l.Bus.Lawy. 1985, at 153.298Lalive, ICSID Rev.-FILJ 1986, at 26, 30; cf. also supra Chapter I at II.299See generally supra Chapter IV at II.D.1.300See supra E.1.301See generally for this preventive function of statutory interest rates: Weber, Festschrift Keller, at 324, 330; Basedow, ZHR 1979, at 317, 336.302But see Sec. 34D (1) (b) of the new Hong Kong Arbitration Law which states: "The arbitral tribunal may, if it thinks fit, award interest at such rate as it thinks fit: (i) On any sum which is the subject of the reference but which is paid before the award, for such period ending no later than the date of payment as it thinks fit; (ii) On any sum which is awarded, for such period ending no later than the date of payment of that sum as it thinks fit"; cf. also Sec 19A English Arbitration Act 1950: "Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the arbitrator or umpire, may if he thinks fit, award simple interest at such rate as he thinks fit: (a) on any sum which is subject to the reference but, which is paid before the award, for such period ending not later than the date of the payment as he thinks fit; and (b) on any sum which he awards, for such period ending no later than the date of the award as he thinks fit"; cf. also Sec. 25 of the Part III of the new Australian Arbitration Act, reprinted in AI 1989, at 197.303Lalive, supra note 298, at 30.314Civil laws from the Continent usually contain statutory rates of interest: Switzerland: 5% (Art. 73 Sec. 1 Obligation Law); if the discount rate at the place where the claim is to be paid exceeds 5% merchants are allowed to compute a rate of interest on arrears which matches this discount rate (Art. 104 Sec. 3 Obligation Law; see for the practical application of this provision the ad hoc award of 1991, ASA Bull. 1992, at 202, 254 et seq. stating that "the place where the claim is to be paid" should not be taken literally but means the discount rate of the currency of the debt); Germany: 4% (§ 246 Civil Code), if the contract is a mercantile transaction for both parties: 5% (§ 352 Sec. 1 Commercial Code); Italy: 10% ( Art. 1284 Codice Civile); Netherlands: regular adjustment of interest rate by decree, since July 1, 1990: 11% (royal decree of June 27, 1990); Sweden: interest rate according to the discount rate plus 8 percent commencing thirty days after request to pay interest by the creditor (Law on Interest of 1975 as amended 1984); France: average interest rate of public treasury bonds of the last twelve months with fixed interest rate for thirteen weeks; in case of adjudication 5% increase until two months after leave, for enforcement of the judgment (Art. 1907 Code Civil, Art. Code Commerce in connection with Art. 1 Sec. 2, Sec. 3 Loi No. 89-421 of June 23, 1989 Code Civil); under English law the judge and the arbitrator have discretion in determining the starting point of the obligation to pay interest and the interest rate, see Hunter/Triebel, J.Int'l.Arb., No. 1, 1989, at 7, 11 et seq. 315See ICC Award Nr. 2930, YCA 1984, at 105, 108 (5% according to Art. 104, Swiss Code on Obligations); ICC Award No. 5294, YCA 1989, at 137, 145 et seq. ("the interest rate is the Swiss statutory rate for moratory interest of 5%, Art. 104 of the Swiss Code of Obligations; the higher rates demanded by the claimant have not been sufficiently justified . . ."); ICC Award No. 5485, YCA 1989, at 156, 173 ("Interest should be computed . . . at the Spanish statutory rates").316LIAMCO and The Government Of The Libyan Arab Republic, ILM 1981, at 1, 83 ; cf. also the recent decision of Pakistan's Federal Sharia Court holding that all forms of interest being paid or charged by banks and financial institutions are contrary to Islamic law and requiring the government to abolish all interest-based banking and financial systems by June 30, 1992; the case is currently on appeal before the Pakistan Supreme Court, see "Bank interest banned", IFLR, March 1992, at 42.317Cf. ad hoc award of July 23, 1981, YCA 1983, at 89, 94 ("The rate of interest must reflect . . . only commercial loss"); ICC Award No. 3226, Clunet 1980, at 959 ; No. 6219, Clunet 1990, at 1047 ("Comme le relèvent de nombreuses sentences arbitrales, les intérêts moratoires sont alloués pour réparer le dommage résultant du fait que le créancier a été privé, pendant un certain délai, de l'usage et de la disposition de sommes qu'il aurait du recevoir"); ICSID Award Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ILM 1991, at 580, 626 (". . . in assessing the liability due for losses incurred the interest becomes an integral part of the compensation itself . . ."); Concurring and Dissenting Opinion of Judge Brower to McCollough and Co. v. The Ministry of Post, Telegraph and Telephone, 11 CTR, at 41, 42 ; Wetter, supra note 307, at 21; Mann, in: Mann, Further Studies in International Law, at 377, 382 et seq. ; cf. also Dicey/Morris, at 907; Honnold, Uniform Law for International Sales, at 424 ("commercial fact that failure to receive funds is always a loss").318Art. 106 Sec. 1 Swiss Obligation Law; §§ 288 Sec. 21, 289 German Civil Code; Art. 2028 Sec. 3, Art. 1153 French Code Civil (statutory interest rate as default interest, unless special commercial usages exist); Art. 1224 Sec. Italy's Codice Civile; Rees and Kirby Ltd. v. Council of the City of Swansea, 30 Building Law Rep. 8, 23 [1985]; Dicey/Morris, at 907; Wetter, supra note 307, at 21 et seq., fn. 15 for Swiss law; cf. generally Treitel in: Von Mehren (chief ed.), International Encyclopedia of Comparative Law, Vol. VII ("Contracts in General"), at 88 et seq. 319ILM 1990, at 580, 626 (=ICSID Rev FILJ 1991, at 526, 5719): "The survey of the literature reveals that, in spite of the persisting controversies with regard to cases involving moratory interests, the case law elaborated by international arbitral tribunals strongly suggests that in assessing the liability due for losses incurred the interest becomes an integral part of the compensation itself . . .".320Page v. Newman, 9 B and C 378 (1829).321Boyd, AI 1985, at 153. 322Seckelmann, Zinsrecht, at 88 .323Lange, Schadensersatz und Privatstrafe, at 63 ; Horn, Festschrift Lange, at 769, 776 et seq. with reference to the glossa ordinaria and "Glossa" to the Corpus juris Canonici; cf. also for Islamic law Ali, IFLR, June 1992, at 30, 31 et seq. : "In case of default of repayment, the financier suffers an additional loss because of the delay in the fulfillment of his client's obligation . . . the defaulting client shall [therefore] pay the damages suffered by the financial institutions. These damages are determined by reference to the average return generated by the institution during the period of the default."324See generally Craig/Park/Paulsson, International Chamber of Commerce Arbitration, at 641 .325Cf. for prima facie proof supra Chapter IV at V.E.2.326The principle of basing the rates of default interest on borrowing rates from banks was also acknowledged by Chamber One of the Iran-US Claims Tribunal; to ensure uniformity of treatment of a large number of parties in many cases, the chamber preferred to seek guidance from a rate of interest based on return of investment in "six-months-certificates of deposit (cds)", Sylavania Technical Systems v. The Government of The Islamic Republic Of Iran, 8 CTR 298, 321 . This method may not be generalized; see the comment of Judge Holtzmann, id., at 321, fn. 13, pointing out that it is reasonable to assume that most businesses habitually borrow while fewer regularly invest in cds; accord Mann, supra note 317, at 384; in everyday arbitral practice tribunals sometimes leave the question open whether their computation of the interest rate is based on credit costs or lost return on investment, see ad hoc award of January 30, 1984, YCA 1985, at 39, 41 (10%); see also the ad hoc award of July 23, 1981, YCA 1983, at 89, 94. 327Bianca/Bonell, Commentary on the International Sales Law, Art. 78, No. 2.1 ; Honnold, supra note 317, Art. 78, No. 421 for the provision on interest rates of the UN Sales Convention; cf. also Art. 58 (dealing with interest rates) of the Draft of the UN Sales Convention in UN Doc. A/CN.9/SER.A/1976, at 136: ". . . not lower than the rate applied to unsecured short-term commercial credits in the country where the seller has his place of business". cf. also BGH NJW 1984, at 371; Tate & Lyle Food and Distribution Ltd. v. Greater London Council, 1 WLR 149 [1982]; Dicey/Morris, Rule 166 (3), at 906 et seq.328UNIDROIT Study L-Doc. 40 Rev.5, at 35, Art. 6.4.11 (1).329See Asam, RIW 1989, at 942, 946 .330See generally for the difference between "concrete" and "abstract" methods of calculating damages Treitel, in: Von Mehren (chief ed.), International Encyclopedia of Comparative Law, Vol. VII ("Contracts in General"), at 44 et seq. ; see for the application of this method to interest as damages, id., at 88 et seq.331See BGH NJW 1984, at 371; Weber, supra note 301, at 334 et seq.; Honnold, supra note 317, at 424.332ICC Award No. 3820, YCA 1982, at 134, 136 .333Brower, supra note 317, at 43 rightly points out that awarding interest cannot serve the creditor to recover his unusually high credit costs from the debtor; cf. also the ICSID Award AGIP Co. SpA v. Government of the Popular Republic of the Congo, YCA 1983, at 133, 143, where the claimant based his interest claim on the lowest interest rate paid in the relevant market.334See for the doctrine of foreseeability as a restriction of any damage claim for default interest Art. 1225 Italy's Codice Civile; Wetter, supra note 307, at 23; Boyd, supra note 321, at 158; cf. also the Holtzman Concurring Opinion in Starrett Housing Corp. et al. v. The Government Of the Islamic Republic Of Iran, 16 CTR 112, 237, 249 referring to the debtor's knowledge of the creditor's taking of credit and the obligation to pay interest connected with it; cf. generally for the foreseeability doctrine in American law, UCC § 2-714 (1), 2-715 (2); in English law ("test of reasonable contemplation or foresight") The Heron II, Koufos v. C. Czarnikow, Ltd., (1969) 1 A.C. 350 ; see also § 1150 French Code Civil .335The German formula of "adequate causation" (Adäquanz) is more restrictive than the "foreseeability" doctrine, as it refers to the viewpoint of an "optimal onlooker", and more liberal insofar as it does not refer to the moment of the conclusion of the contract but to the moment of the damaging event. However, the doctrine of the "protective function" (Schutzzweck) leads in any event to a restriction of the claim for damages and excludes all costs for a bad credit standing of the creditor, as "no dangers materialize in these costs which the concrete norm or contractual obligation is intended to cover", Cf. generally BGHZ 57, 412; Münchener Kommentar-Grunsky, § 249, No. 44.336Cf. v. Caemmerer/Schlechtriem-Eberstein, Kommentar zum Einheitlichen UN Kaufrecht, No. 38 in fine; Asam, supra note 329, at 946; OLG Frankfurt, NJW 1990, at 636; Swiss Federal Tribunal in BGE 109 II 436; see also Bühler/Waitz v. Eschen, IPrax 1990, at 62, 64; but see also OLG Hamburg, DIS Mitt. 1990, at 51, 55 .337See for the prohibition of "unjust enrichment" as a principle of the lex mercatoria supra Chapter V at III.B.; Sandrock, in: Glossner (ed.), JPS 1989, at 88 seeks to help in these cases by applying the law governing the currency; see also ad hoc Award of July 23, 1981, YCA 1983, at 89, 94 ("The rate of interest must reflect neither a bonus nor a punishment but only commercial loss").338McCollough and Co. v. The Ministry of Post, Telegraph and Telephone, supra note 308, at 29 .339Id.; ICC Award No. 6219, Clunet 1990, at 1049 ; cf. for damages arising out of foreign exchange loss Swiss Federal Tribunal BGE 109 II 436 stating that when a creditor asserts damages in excess of statutory interest for delay, which are comprised of foreign exchange loss as against the currency with official exchange rate at his place of residence, then according to experience and the customary course of things, it is assumed that such damages have occurred. The rule has been applied (Swiss law being the lex causae) in the ICC Award No. 6230, YCA 1992, at 164, 175.340London Interbank Offered Rate (interest rate for three- or six-month deposits by international banks in London); the interest rate for a borrower with average credit standing is approx. 1% above LIBOR); see for the practice of the English Commercial Court Cia Barca de Panama S.A. v. George Wimpey and Co. Ltd., 1 Lloyd's L.Rep. [1980] 598, 615 et seq.; see also the Partial Award Wintershall A.G. et al. v. The Government Of Qatar, ILM 1989, at 798, 809 ("generally prevailing LIBOR rate on the date of the award"); cf. also the claimant's request in the Sun Oil Arbitration ICC Award No. 4462, ILM 1990, at 567, 578: "Order Sun Oil to pay interest on all amounts [claimed] at a compounded annual rate of two percent above the LIBOR rate prevailing since the date of the filing of the Request for Arbitration"; cf. also Art. 23 MIGA General Conditions of Guarantee for Equity Investments of January 25, 1989, ICSID Rev. FILJ 1989, at 112, 124: ". . . interest [on any amount of compensation for which it is in default of payment] shall be at the average London Interbank Offer Rate (LIBOR) on six-month deposits of the Guarantee Currency during the time period for which interest is payable under this Article"; cf. also UNCITRAL Legal Guide on Drawing up International Contracts, at 213 .341Frankfurt Interbank Offered Rate; Frankfurt interbank offered interest rate for three- or twelve month deposits.342The Prime Rate is the lowest rate of interest from time to time charged by a specific lender to its best customers for short term unsecured loans, Black's Law Dictionary, at 1191; cf. the award of the Netherlands Hide and Leather Exchange of October 30, 1980 (Dutch seller/Italian buyer), YCA 1982, at 137, 138 (1% above US Prime Rate).343See ICC Award No. 4237, YCA 1985, at 52, 60 , where the tribunal, dealing with a contract that was subject to English law, adopted the rate of interest "which is usually applied by the English courts in the type of cases under consideration" which was "2% in excess of the Eurodollar base rate prevailing on the first day of every month of the period during which interest is to be paid". Alternatively, arbitrators sitting in England also tend to take a rough average rate and apply it over the whole period, Hunter/Triebel, supra note 314, at 7, 12.344Cf. Art. 83 Hague Sales Convention 1976, providing for an interest claim of the vendor in case of non-payment of the buyer at the rate of 1% above the official discount rate of the country where vendor has his residence or place of business; Asam, supra note 329, at 946, referring to the practical experience that the lending rates, even the "prime rates", are never below the discount rate of the country of the taking of credit; § 11 Sec. 1 of the new German Consumer Credit Act (BGBl. 1990, at I at 2840) allows the creditor to charge interest on arrears of 5% below the current discount rate of the German Federal Bank, which is the average interest rate charged for overdraft facilities of up to one million Deutsche Mark.345See Art. 6.4.11 Sec. (3) UNIDROIT Draft Principles For International Commercial Contracts, supra note 328, at 36.346The Iran-US Claims Tribunal has consistently refused to award compound interest, cf. Sylvania Award, supra note 326, id.; R.J. Reynolds Tobacco Co. v. The Government of the Islamic Republic of Iran, 7 CTR 181, 191; Anaconda-Iran v. The Government of The Islamic Republic of Iran, 13 CTR 199, 234f (contractual compound interest clause); Starrett Housing Corp. et al. v. The Government of the Islamic Republic of Iran, 16 CTR 112, 234 et seq. ; see also ICC Award No. 3572 Deutsche Schachtbau- und Tiefbohrgesellschaft et al. v. The Government of the State of R'as Al Khaimah et al., YCA 1989, at 111, 120 et seq., where the tribunal refused to imply from the missing term "simple" (interest) in a contractual stipulation dealing with interest that the parties intended to compound interest; but see The Government of the State of Kuwait v. The American Independent Oil Co. (AMINOIL), ILM 1982, at 976, 1042; Mann, supra note 317, at 380 et seq.; Wetter, supra note 307, at 23.347See the English decision of the House of Lords National Bank of Greece SA v. Pinios Shipping Co. No. 1 and another ("The Maira"), [1990] 1 All ER 78, 82 et seq. , stating that the bank's right for compound interest, lasting over the whole period during which contractual interest is payable, arises by virtue of a term to be implied into the contract between the parties by reason of a custom or practice of bankers, without the need of acquiescence of the customer or the accounts being "mercantile accounts current for mutual transactions"; Chitty on Contracts, Vol. II, No. 3174; see also Pagets Law of Banking, at 117; Concurring Opinion Judge Holtzmann, Starrett Housing Corp. et al. v. The Government of the Islamic Republic of Iran et al., 16 CTR 110, 237, 252 .348Mann, supra note 317, at 383 et seq. ("general principle of law"); Wetter, supra note 307, at 23; Boyd, supra note 321, at 159; Schmitz, Allgemeine Rechtsgrundsätze in der Rechtsprechung des Iran-United States Claims Tribunal, at 69 ; Clagett, Private Investors Abroad 1989, at 12-1, 12-18 for compensation for expropriation; Holtzmann, id., emphasizing that the debtor was "completely aware" of his creditor being forced to pay compound interest charged to him by his bank.349Cf. Mann, supra note 317, at 384; Concurring Opinion of Judge Holtzmann, supra note 347, at 252 emphasizing that the claimant "offered uncontested evidence that the banks charged it interest on a compound basis".350See, e.g. § 248 of the German Civil Code.351Langen, Transnationales Recht, No. I-37 ; see from a public international law perspective Witheman, Damages in International Law, Vol. 3, at 1997.352See, e.g. § 289 Civil Code: "No interest is due on interest on arrears. The creditor's right for damage caused by default remains untouched".353§ 11 Sec. 2 Verbraucherkreditgesetz, BGBl. I, at 2840 .354See § 286, § 288 Sec. 2, § 289 German Civil Code.355BGH, NJW 1991, at 832, 833 .356Von Hoffmann, IPrax 1989, at 261, 265 ; Münchener Kommentar-Martiny, Art. 32 EGBGB, No. 28 ; Hunter/Triebel, supra note 314, at 19 et seq.; OLG Hamburg, DIS Mitt. 1990, at 51, 55 (= YCA 1992, at 491); Jarvin, Int'l.Bus.Lawy. 1988, at 423 who favors contractual compound interest clauses under English law in order to conform with the interests and customs of international trade; cf. also Art. 1154 French Code Civil , which states that compound interest agreements are principally permissible, provided that the agreement refers to interest which is due for at least one year.Referring PrinciplesTrans-Lex Principle: VII.6 - Duty to pay interestTrans-Lex Principle: VII.7 - Right to charge compound interestTrans-Lex Principle: XII.2 - Proof of written contractTrans-Lex Principle: XIII.2.4 - Principle of separability of the arbitration clauseTrans-Lex Principle: XIII.2.7 - Immunity of arbitratorTrans-Lex Principle: XIV.2 - Law applicable to international contract How to search - Contact - Team - Trustees - Disclaimer / Legal information / Privacy - Twitter - FacebookA project of CENTRAL, University of Cologne.