In any international commercial dispute, determining which country's law governs the merits can be as consequential as the underlying facts. Whether a contractual clause is enforceable, whether a defense succeeds, what damages are recoverable, and how long a party had to bring a claim — all of these turn on the substantive law the tribunal applies. For parties operating across U.S. and Latin American jurisdictions, where legal systems differ materially on contract interpretation, remedies, and mandatory protections, the choice-of-law question is often where the dispute is won or lost.
The Choice-of-Law Question and Why It Matters So Much
In international arbitration, three bodies of law potentially apply to any dispute: (1) the law governing the arbitration agreement itself — its validity, scope, and interpretation; (2) the procedural law of the arbitration, determined primarily by the seat and the institutional rules; and (3) the substantive law governing the merits — the law that determines whether a party has breached, what damages follow, and whether defenses are available.
The third category — substantive law — is where the outcome often turns. Whether a contract clause is enforceable, whether a representation was fraudulent, whether a force majeure event excuses performance, what limitation period applies, whether consequential damages are recoverable — all of these depend on which country's law the tribunal applies. The difference between applying Florida law, New York law, Ecuadorian law, or English law to the same set of facts can produce radically different results.
Unlike domestic litigation, where the choice-of-law question is resolved by conflict-of-laws rules of the forum court, international arbitral tribunals have broader discretion. The rules of most major arbitral institutions give the tribunal authority to apply "the rules of law it considers appropriate" when the parties have not chosen a governing law — a formulation that is broader than simply applying the conflict-of-laws rules of the seat jurisdiction.
When the Parties Have Chosen a Governing Law
Most well-drafted international commercial contracts include an express choice-of-law clause: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York" or "This Agreement shall be governed by the laws of England and Wales." When the parties have made this choice, the tribunal generally honors it.
The caveat is mandatory rules. Even with a valid choice-of-law clause, tribunals and courts in the enforcement jurisdiction may apply "mandatory rules" of another legal system that cannot be displaced by party agreement — for example, consumer protection statutes, certain employment law provisions, or public policy limitations in specific industries. In cross-border disputes involving Latin American parties, mandatory rules of the relevant domestic legal system may limit the parties' choice even in arbitration.
A second caveat is scope: the choice-of-law clause governs the contract, but it may not govern non-contractual claims that arise from the same transaction — tort claims, unjust enrichment claims, or fraud claims that are substantively different from the contractual breach. Courts and tribunals sometimes apply different laws to different aspects of the same dispute (known as dépeçage), particularly when the chosen law addresses contractual obligations but is silent on extra-contractual theories of recovery.
When the Parties Have Not Chosen a Governing Law
The absence of a choice-of-law clause is a significant drafting failure, particularly in cross-border contracts. Without a party choice, the tribunal must determine the applicable law on its own.
Under the ICC Rules (Article 21), the tribunal applies "the rules of law it deems appropriate." Most ICC tribunals in this situation apply conflict-of-laws principles to identify the law most closely connected to the contract — which typically means the law of the place of performance, the residence of the characteristic performer, or the place of contracting. The tribunal is not required to apply the conflict-of-laws rules of the seat — it may draw on general principles of private international law.
Under ICDR rules, the tribunal is directed to apply "the law or rules of law that it determines to be most appropriate." This gives ICDR tribunals similar, if not broader, discretion. In practice, ICDR tribunals in U.S.-LATAM disputes often apply U.S. law — frequently New York or Florida law — based on the commercial relationship's center of gravity, but this is not automatic.
Tribunals sitting in matters without a governing law clause sometimes apply "general principles of law" or "lex mercatoria" — transnational commercial law principles recognized across multiple legal systems. This approach is more common in large, state-involved commercial disputes and is controversial in purely private commercial arbitration.
Dépeçage: Applying Different Laws to Different Aspects of the Dispute
Dépeçage refers to the application of different national laws to different issues within the same dispute. A tribunal might apply New York law to the contractual interpretation questions (because the contract says so), apply the law of Colombia to determine whether a specific type of penalty clause is enforceable (because Colombia's mandatory rules govern the performance in Colombia), and apply English law to the fraud claim (because the representations were made in London).
Dépeçage is theoretically permissible under most institutional rules and is occasionally unavoidable when different aspects of a transaction connect to different jurisdictions. But it creates procedural complexity — parties must present expert testimony on multiple legal systems, briefing and hearing time increases, and inconsistencies between the applied laws can create gaps or overlaps in coverage.
In practice, parties who have drafted a clear, broad choice-of-law clause substantially reduce dépeçage risk. The preferred formulation extends the chosen law to non-contractual obligations: "This Agreement, and any non-contractual obligations arising out of or in connection with it, shall be governed by the laws of [jurisdiction]." This extension addresses the tort and unjust enrichment gap that standard choice-of-law clauses often leave open.
Mandatory Rules and Public Policy in LATAM Cross-Border Disputes
For disputes involving parties from Latin American jurisdictions, mandatory rules are a recurring source of complexity. Many LATAM legal systems have statutes — particularly in labor, consumer protection, real estate, and regulated industries — that cannot be waived by contract and that courts in those jurisdictions will enforce regardless of choice-of-law clauses.
More importantly for arbitration practitioners, even if the arbitral tribunal applies U.S. law as chosen by the parties, a court in the enforcement jurisdiction may refuse to enforce the resulting award if it violates mandatory rules of that jurisdiction. An award that ignores labor protections required under Ecuadorian law, for example, may be challenged in an Ecuadorian enforcement proceeding on public policy grounds.
This means the choice of applicable law in LATAM-connected disputes is not just a question for the arbitration itself — it affects enforcement strategy. Understanding the mandatory rules of the likely enforcement jurisdictions, and ensuring the award's analysis is defensible under those rules, is part of sophisticated arbitration counsel's job.
Practical Guidance: Drafting and Litigating the Choice-of-Law Question
At the drafting stage: specify governing law expressly and broadly (including non-contractual claims), choose a neutral jurisdiction with a well-developed commercial law body (New York and English law are the most common choices for international contracts), and confirm that the choice will be honored in the enforcement jurisdictions you anticipate.
At the arbitration stage: if governing law is disputed, address it as a threshold issue — or request bifurcation so it is resolved before merits briefing. File expert reports on foreign law early, and frame the legal analysis in the context of the law you are arguing for. Do not assume the tribunal will apply any particular law simply because it is written into the contract. A contested choice-of-law question requires substantive advocacy, not just a citation to the clause.
When the governing law question is genuinely unresolved — because the clause is absent, ambiguous, or challenged — it is worth briefing the choice-of-law analysis independently of the merits, and asking the tribunal to establish the applicable law before the parties incur the full cost of merits development. That procedural step, taken early, can prevent the parties from building their entire case on an assumption about applicable law that the tribunal ultimately rejects.