The place of characteristic performance as the primary connecting factor

enhancing predictability in international commercial arbitration

Abstract

When parties fail to designate the applicable substantive law in international commercial contracts, arbitrators must decide which law governs the dispute. This paper employs doctrinal analysis, combined with evaluative reasoning, to systematically review the scholarly literature, arbitration laws, and institutional rules to identify the key connecting factors relied upon in making this determination. It examines the extent to which these factors support predictability and legal certainty in international commerce. The paper critically evaluates key connecting factors commonly employed in international arbitration, including the place of contracting (locus contractus), the habitual residence of the parties, and the place of performance (locus solutionis) The analysis identifies significant limitations with these connecting factors The place of contracting, for instance, may be fortuitous and hold little relevance for commercial transactions, while habitual residence can unfairly favour one party The paper argues that the locus solutionis – specifically, the principal place of characteristic performance – emerges as the most suitable connecting factor for international commercial arbitration It anchors the applicable law in the location that decisively determines the performance of the defining contractual obligation This approach best reflects the parties’ legitimate expectations while offering arbitrators principled guidance in exercising their discretion The paper recommends that arbitration laws expressly incorporate connecting factors, particularly the principal place of characteristic performance, to improve predictability and consistency in determining the applicable substantive law in international commercial disputes.