In international commercial arbitration, the governing law is the fundamental basis upon which the Arbitral Tribunal determines the parties’ rights and obligations and adjudicates the substantive dispute, directly impacting the fairness, predictability, and ultimate enforceability of the award. Serving as the bridge connecting conflict-of-laws rules and the substantive award, the governing law provision constitutes the core of the arbitration rules. Article 38 of the ICDPASO Commercial Arbitration Rules, through two concise paragraphs, systematically establishes the framework for determining the law applicable to the substantive issues of the case before the Arbitral Tribunal.

I. Rule Text

Article 38. Governing Law

1. The parties may agree on the governing law to be applied by the Arbitral Tribunal to hear the substantive issues of the case; if the parties fail to agree on the governing law or their agreement conflicts with the mandatory legal provisions of the seat of arbitration, the Arbitral Tribunal may determine the governing law according to the doctrine of the most significant relationship.

2. The Arbitral Tribunal shall make an arbitral award in accordance with the terms of the contract concluded by the parties with due regard to the business practices applicable to the transaction.

Ⅱ. The Main Purpose and Significance Analysis of “Governing Law”

Article 38 of the ICDPASO Commercial Arbitration Rules establishes the fundamental principle of “which law applies” for the Arbitral Tribunal, serving as a core rule determining the substantive fairness and predictability of the arbitral award. The difference in the principles of applicable law is one of the significant distinctions between arbitration and litigation. In foreign-related civil litigation, the substantive law to be applied shall be determined according to the conflict-of-laws norms of the forum state, and the parties have no right to choose. In foreign-related arbitration cases, however, the parties may agree on the conflict-of-laws rules and the substantive law applicable to the case. If there is no agreement or the agreement is illegal, the Arbitral Tribunal shall supplement or correct it according to the law. Furthermore, in foreign-related arbitration cases, the applicable bases and rules for resolving international commercial disputes are not limited to the statutory or case law of relevant states, but also include international conventions, international customs, trade usages, etc. The design of these three levels profoundly reflects the fundamental value orientation of modern international commercial arbitration—seeking a delicate balance between respecting party autonomy and ensuring the Arbitral Tribunal’s efficient and fair exercise of adjudicative power.

The significance of the governing law clause lies in: First, taking party autonomy as the starting point, it clearly defines that the parties’ right to choose the law is the source and boundary of the Arbitral Tribunal’s power, fully safeguarding commercial entities’ arrangement of their own affairs, reflecting the contractual roots of arbitration, which is also the manifestation of the contractual nature distinguishing arbitration from litigation. Second, by introducing the mandatory provisions of the seat of arbitration as an external constraint, it grants the Arbitral Tribunal the discretion to apply the doctrine of the most significant relationship when the parties' choice is absent or illegal, ensuring the legality of the arbitration proceedings and the certainty of legal choice, avoiding procedural deadlock due to applicable law issues. Finally, it directs the Arbitral Tribunal's adjudicative focus from abstract legal choice to the specific contract text and vivid commercial practices, instructing the tribunal to take the contract terms as the ultimate cornerstone of the award and to give due consideration to business practices. This demonstrates the pragmatic character of ICDPASO commercial arbitration in serving international trade practices and respecting industry rules. This provision aims to create a legal environment that is both flexibly determined and stably predictable, thereby enhancing the attractiveness and credibility of ICDPASO commercial arbitration among global commercial entities.

Ⅲ. Analysis of Article 38, Paragraph 1: Party Autonomy and the Arbitral Tribunal’s Discretion

This paragraph establishes the fundamental principle of “party autonomy first” in matters of applicable law, and sets out the conditions and methods for the Arbitral Tribunal to exercise its discretion when this principle cannot be implemented.

This paragraph begins by clearly stating that the parties may agree on the governing law to be applied by the Arbitral Tribunal to hear the substantive issues of the case. This grants the parties absolute freedom to choose the lex causae applicable to substantive disputes such as contract interpretation, performance, and consequences of breach. The parties may include a choice of law clause in their contract, or reach an agreement after the dispute arises or even during the arbitration proceedings. This choice can point to the national law of a specific country, or agree on the application of international conventions, international commercial usages, or even general principles of law.

However, this freedom of the parties is not without limits. This paragraph also sets boundaries for their choice. If the law agreed upon by the parties conflicts with the mandatory legal provisions of the seat of arbitration, the agreement is invalid. The “mandatory legal provisions of the seat of arbitration” here mainly refer to the mandatory norms concerning procedural fairness and public policy of the state of the seat of arbitration. For example, parties cannot, by agreeing on a governing law, exclude the mandatory requirements of the law of the seat of arbitration that the tribunal must act fairly and grant both parties equal opportunity to present their case. Therefore, party autonomy must operate within the framework of procedural justice and public policy set by the law of the seat of arbitration. For instance, if the seat of arbitration is within China, due consideration must be given to the relevant provisions of the Law of the People's Republic of China on Choice of Law for Foreign-related Civil Relationships.

When the parties fail to agree on the governing law, or their agreement conflicts with the mandatory legal provisions of the seat of arbitration, the Arbitral Tribunal’s discretion is activated, and the tribunal has the right to determine the applicable law according to the doctrine of the most significant relationship. The “doctrine of the most significant relationship” is a method of choice of law in private international law, requiring the Arbitral Tribunal to identify and apply the law of the jurisdiction that has the most genuine and substantive connection to the contract dispute. In exercising this discretion, the tribunal will typically comprehensively consider a range of connecting factors, such as the place of contract conclusion, place of performance, location of the subject matter, parties’ places of business, domiciles or nationalities, and the place of arbitration. The tribunal needs to substantively evaluate these factors to identify the jurisdiction with which the legal relationship is most closely connected.

In the rules of other arbitration institutions, the ICC Arbitration Rules, the SCC Arbitration Rules and the SIAC Rules all stipulate that when the parties fail to expressly agree on the governing law, the Arbitral Tribunal may determine the applicable law on its own, but they do not explicitly specify the method for the tribunal's choice.①

Ⅳ. Analysis of Article 38, Paragraph 2: Returning to the Contractual Agreement and Considering Business Practices

This paragraph determines the ultimate basis upon which the Arbitral Tribunal makes the award, moving from the level of choice of law to the level of substantive reasoning of the award, encompassing two obligations that are both independent and interrelated. Arbitration institution rules such as those of the ICC and SIAC also have relevant provisions.②

This paragraph stipulates the fundamental position of the contract in the application of law in arbitration. The Arbitral Tribunal shall make its award in accordance with the terms of the contract concluded by the parties. In international commercial arbitration, the contract voluntarily concluded by the parties is regarded as the “mini-constitution” governing their rights and obligations. Regardless of the lex causae applied, the primary task of the Arbitral Tribunal is to interpret and enforce the express terms of the contract. This means that even if the tribunal determines a certain lex causae according to the preceding paragraph, the default rules of that lex causae cannot override the express terms of the contract. The suppletory, interpretative, or mandatory rules of the lex causae only intervene when there are gaps in the contract, ambiguous terms, or invalid agreements. This provision emphasizes the respect of arbitration, as a commercial dispute resolution mechanism, for party autonomy, embodying the core of the principle of sanctity of contract.

Based on deciding in accordance with the contract terms, the Arbitral Tribunal shall also give due regard to the business practices applicable to the transaction. “Business practices” here refer to customary practices or rules that are widely known, consistently followed, and generally considered binding within a specific industry, trade sector, or geographical area. The phrase “due regard” indicates that business practices are not a direct, mandatory source of law, but an important tool for interpreting and supplementing the contract. Their function is mainly reflected in: First, when contract terms are ambiguous, business practices can be referenced for clarification. Second, for matters not covered by the contract, recognized business practices in the trade can be introduced to supplement the parties’ true intent and fill contractual gaps. Third, in certain circumstances, performance standards can be determined based on business practices; the common practice of the industry itself defines what constitutes “proper performance”. Incorporating business practices into consideration makes the arbitral award more aligned with the practical operations and reasonable expectations of the specific commercial field, enhancing the commercial rationality and acceptability of the award. This also responds to the international community’s expectation that commercial arbitration should embody commercial thinking, thereby placing higher demands on arbitrators, who should not only be legal experts but also fully understand the relevant commercial background and business usages.

Ⅴ. Conclusion

This article, through its two concise paragraphs, constructs a well-structured, logically rigorous, and flexible system for determining applicable law. It is not merely a technical provision on “which law applies”, but a complete philosophy embodying multiple values such as respect for party autonomy, safeguarding procedural justice, adherence to business practices, and ensuring award enforceability. This provision provides clear, flexible, and solid guidance on applicable law for ICDPASO Arbitral Tribunals handling complex international commercial disputes, serving as a key regulatory guarantee for enhancing the institution's core competitiveness and global credibility.