## Facts

- Two companies from the United Arab Emirates (UAE) entered into a distribution agreement under which one company (the distributor) would act as the exclusive distributor of the other company’s (the manufacturer’s) products in specified countries.
- The agreement contained an arbitration clause providing for arbitration under the International Chamber of Commerce (ICC) Rules.
- The agreement also contained a choice-of-law clause stating that the contract “shall be governed by the laws as defined by the EEC (European Economic Community).”
- The EEC existed when the parties contracted, but it was incorporated into the European Union in 1993 and no longer existed as a separate entity when the dispute arose, creating uncertainty about the meaning of the contractual reference.
- A dispute arose and the manufacturer commenced ICC arbitration against the distributor.
- In the arbitration, the tribunal had to identify the substantive law governing the parties’ dispute given the outdated reference to the EEC.
- The manufacturer argued that the applicable law should be the United Nations Convention on Contracts for the International Sale of Goods (CISG), along with rules drawn from the CISG such as good faith in performance, contractual liability for breach, and full compensation for harm caused by breach.
- The UAE had not ratified the CISG, raising the question whether the CISG could still apply in this ICC arbitration as a result of the parties’ contractual choice.

## Issues

1. What substantive law governs a distribution agreement when the choice-of-law clause refers to “laws as defined by the EEC,” an entity that no longer exists at the time of the dispute?
2. Can the tribunal apply the CISG (and rules drawn from the CISG) where the parties are from a non-Contracting State, based on the parties’ contractual reference to the EEC?

## Decision

- The tribunal treated the “laws as defined by the EEC” clause as a usable choice-of-law clause rather than disregarding it as void for uncertainty.
- The tribunal interpreted the clause as reflecting an intention to subject the contract to a European-oriented body of commercial rules associated with cross-border trade.
- On that basis, the tribunal accepted the manufacturer’s position that the CISG could be applied in the arbitration as the relevant set of rules for an international commercial contract of this type, even though the UAE was not a CISG Contracting State.
- The tribunal also relied on rules drawn from the CISG—such as good faith in contractual performance, liability for breach, and compensation principles—to decide the parties’ dispute under the selected rules of law.

## Legal Principles

- A choice-of-law clause that uses outdated institutional terminology may still be given effect if it reasonably indicates the parties’ intended legal framework.
- In arbitration, the applicable “rules of law” may be identified through contract interpretation, and may include uniform international instruments such as the CISG when the parties’ agreement points to that result.
- The CISG may apply in arbitration by party choice or by interpretation of the parties’ chosen legal framework, even if the parties’ home state has not adopted the CISG as treaty law.
- General rules drawn from the CISG may be used to resolve questions of performance and breach, such as good faith in performance, a breaching party’s responsibility for resulting harm, and an expectation of full compensation for proven loss.

## Conclusion

In ICC Case No. 18203, the sole arbitrator addressed an obsolete choice-of-law clause referring to “laws as defined by the EEC” and treated it as an effective selection of a European-linked set of commercial rules. Interpreting that reference, the arbitrator applied the CISG and rules drawn from the CISG to resolve the distribution dispute, despite the UAE not being a CISG Contracting State.


Final Award in ICC Case No. 18203, XLI Y.B. Comm. Arb. 276 (2016)