The Modern Lex Mercatoria and International Arbitration

by Jan Dalhuisen

[Jan H. Dalhuisen is Professor at King’s College in London, the Miranda Chair of Transnational Financial Law at the Catholic University in Lisbon, and is Visiting Professor at UC Berkeley]

Professor Dalhuisen is guest-blogging with us this week on the transnationalization of private law. Links to his other posts can be found under “Related Posts” below.

With the model of a transnational commercial and financial legal order and its own lex mercatoria in mind, it is quite easy to explain what modern international commercial arbitration is and is not, or no longer. It is denationalized or delocalised to start with. Thus the arbitration clause is separated from the rest of the contract and derives its recognition and power from this transnational order as do therefore arbitrators, whose status derives institutionally also from that order.  Indeed the separation and Kompetenz-Kompetenz principles are themselves matters of transnational law. So are the concepts of jurisdiction and arbitrability in international arbitrations, the authority of arbitrators to find the applicable law even if regulatory, and the rules of procedure and evidence. I said earlier that arbitrators act here like equity judges when developing the substance of the lex mercatoria further. The award itself is based in the transnational order also, so is its enforceability even if in the practicalities, recognition is still necessary in the states where enforcement is sought as they (for very good reasons) maintain the monopoly of enforcement powers on their territories and still want a minimum of control.

The seat of the arbitration and its laws have here no longer much relevance except in aid of the international arbitration taking place on its territories unless a true public interest of the country of the seat became involved. Naturally, it should guard against a cowboy culture in arbitration on its territory or ban or dissolve any meetings in its country for public policy reasons in appropriate cases, but not much more. Injunctions could not go beyond this either. This approach is long borne out by the fact that even annulment of an award at the seat is no longer decisive in the transnational legal order and does not rule out recognition of the awards elsewhere or resumption of the same case in another country. Once the double exequatur was abolished by the New York Convention, the writing was on the wall and only those who still believe that all law emanates from states still hold to the old truths in this regard.

One finer point may be of interest.  It is often assumed by the de-localists that international arbitration is based merely upon party autonomy as independent source of law. I prefer to say that even party autonomy needs a broader framework to be legally operative and I believe that it is in such cases itself based in the transnational legal order and depends for its legitimacy on it.  It is then also subject to its public order requirements. Of course one can say that the international legal order itself must also be based in something higher, etc, it is an old question but one got to stop somewhere. The essence is that party autonomy is no legal order of its own; it would make it too easy to set other legal orders aside, especially the statist legal order including its mandatory rules which cannot that easily be ignored

3 Responses

  1. I share some of your enthusiasm and some of your prudence.  I have heard the delocalized and denationalized vision of arbitration for at least 30 years by the “brothers and sisters” of international commercial arbitration yet I have sat in hearings at even the most pro-international commercial arbitration courts such as in France where the state has exercised its prerogative to recharacterize an arbitral order as an award and make it subject to the annulment process.  States have power and the power to fly of arbitrators is related to the willingness of states to allow arbitrators to unfurl their wings in the tradewinds. That symbiosis and the intersection of the parties agreement (party autonomy), arbitral institutions (organizational discretion), national legislation (at each place the arbitration touches whether seat, enforcement, assistance in gathering evidence) and treaty form the multitiered and nuanced human space that has been allowed some freedom to peaceably resolve commercial disputes. In all that, we should recognize the modest but important role that the actors can play and eschew too much of the rabid triumphalism that you no doubt have seen in some quarters.

  2. Indeed, in international arbitration the delocalisation issue has been with us for some time but imposes itself with ever more urgency because of the progressing globalisation of the market place and the emergence of an international commercial and financial legel order, in which arbitration is the natural dispute resolution mechanism. This is not merely phantasy but more likely where we find ourselves today.

    Naturally States have the power to regulate these arbitrations to the extent there is conduct and effect under them on their territories, and this will happen when their public policy or order is engaged. But as a starting point they should recognise and support these international mechanisms at least if they wish to participate in international commerce and finance. That is the trade off. Alternatively they could close their borders and would be poorer; it is not a scandal and there may be reasons but it is nothing to be very proud of either.

    In this connection, the new French Arbitration Act surprises.  The Cour de Cassation (in Hilmarton and Putrabali) had recognised the international arbitral order but the French legislator still appears to take the view that international arbitration in France is a French creation rather than  a matter of recognition (subject to public order constraints) of an international facility on its territory. The severability of the arbitration clause is fully accepted but the conclusion that it is governed by transnational law is not drawn either.  Although the new Act sorts out a number of practical  issues, they seem minor and one may wonder why it was necessary and even more whether France is now losing its intellectual and practical advantage in these matters.

    It seems to me less surprising that international commercial and other arbitrators may still be confused. I have had the privilige of sitting in a number of important arbitrations and know this very well, but arbitrators must primarily solve a problem for the parties. They are pragmatic and moved the posts more than many think, but  they  are hardly called upon to reflect on broader issues. That is foremost for academia to do and it does not do so half enough, hence also this discussion on transnationalisation. It is the delocalisation model of international arbitration that now  would seem to clarify more, to simplify the debate, and to allow us  better to handle the situation.  It concerns here primarily the institutional status, jurisdiction and powers of international arbitrators, but also  the challenges and recognition of awards. This all hangs together and is also connected with the important issues of transparency and accountability, all in principle under transnational law. That would appear to give us the better perspective and the better way to critique and guide the present situation.

    Best, Jan

  3. Fair enough Jan.   Thoroughly enjoy your refreshing and high minded posts which bring me back/forward to the best of a certain tradition.

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