Arbitration as means of settling commercial disputes between parties of different nationalities has been a popular and successful alternative to national court proceedings. Moreover, arbitration allows the parties to choose the applicable law governing their agreement. International arbitral rules generally allow the parties to an arbitration agreement to choose the substantive law that will govern the dispute. 1 However, this right of choice of applicable law involves various elements, one of the most troublesome of which is the choice of substantive law to be applied in a given dispute. An arbitrator is bound to reach a decision in accordance with the law chosen by the parties. But what happens if the parties fail to specify the applicable .law, either because they cannot agree on the choice of law, or else because they overlook the issue?2 Should it be assumed that parties who remain silent on this issue do so in order that the choice of law governing their dispute be made by the arbitrators ? If so, is an arbitrator free to apply any law? What rules do arbitrators use to determine the applicable law? Is an arbitrator bound by such rules?

This paper will deal with the various factors involved in determining the applicable law which governs the substantive law of arbitration by the parties and the arbitrators. It will also examine to what extent the national law recognizes a choice of procedures or the merits of the dispute in accordance with universal legal principles, rather than those derived from the legal system of individual states, or whether such decisions are made without reference to any legal principles and in accordance with some broader principle such as the Lex-Mercatoria .