THE APPLICABLE SUBSTANTIVE LAW TO THE DISPUTE IN CONTEXT OF ICSID ARBITRATION SYSTEM (IN THE ABSENCE OF PARTIES AGREEMENT)

The 1965 Washington Convention on the settlement of investment disputes between states and nationals of other states created international center for settlement of investment disputes (ICSID). This center conducts investment disputes arbitration according to the rules of the convention. The choice of law rules of the Washington Convention have been provided in article 42. Second sentence of article 42 (1) specifically deals with the applicable law in the absence of choice of the parties and set forth that “the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.” Regarding to this rule، different interpretations have been made both in practice of ICSID arbitral tribunals and in views of scholars and arbitration authors. The differences of interpretations are from one extreme of the application of internal law of host state alone and in all circumstances، up to the other extreme of supremacy of international law and independent application of it. After considering all view points، this article reaches to the conclusion that initial purpose of the Washington Convention or ICSID and the parties’ (investor and host state) interests require that the national law of the host state must necessarily be applied، but، also in certain and special circumstances another law or rules of law including rules of international law will be applicable.