Emerging Voices: Interstate Arbitration: Awakening the “Sleeping Beauty of the Peace Palace”

[Tamar Meshel is an SJD Candidate at the University of Toronto Faculty of Law.]

In the early 1990s, a trend emerged among international legal scholars and practitioners aimed at reviving the Permanent Court of Arbitration (PCA) and, by extension, the use of arbitration to resolve interstate disputes peacefully. The PCA was created during the 1899 Hague Peace Conference, following a century of successful interstate arbitrations such as those between the United States and Great Britain under the Jay Treaty and the Treaty of Ghent, and it reflected the high hopes of the conference participants that the institution would bring about world peace through arbitration. However, after a decade or two of glory, the PCA gradually fell into disuse as states lost interest in arbitration as a dispute resolution mechanism, and it became aptly known as the “Sleeping Beauty of the Peace Palace” (Sam Muller & Wim Mijs, “The Flame Rekindled” (1993) 6(2) Leiden Journal of International Law). There are many political, historical, and legal rationales for this downturn, including the outbreak of the two World Wars, changes in the international political system, and the creation of the PCIJ and ICJ. This post focuses on another development that, while perhaps less recognized, is arguably responsible in part for the decline of interstate arbitrations during the 20^th century, and is still relevant today. This development is the gradual ‘judicialization’ or ‘legalization’ of interstate arbitration to the point of being effectively equated with judicial settlement and both its original nature and distinctive qualities becoming imperceptible and inconsequential.

The evolution of interstate arbitration

The origins of arbitration can be traced back to ancient Greece, where arbitrators were seen as quasi-diplomats rather than judges, and could therefore “consider the equity of the case, whereas a judge is bound by the letter of the law” (Aristotle, cited in M.C.W. Pinto, “The Prospects for International Arbitration: Inter-state Disputes” in A.H.A. Soons, ed, International Arbitration: Past and Prospects (Martinus Nijhoff Publishers, 1990)). Arbitration continued to be used during the Middle Ages to end wars by reconciling the warring parties, and when the modern era of interstate arbitration began with the signing of the 1794 Jay Treaty between Great Britain and the United States, it was perceived as a hybrid process that combined legal proceedings with diplomatic negotiations. For instance, some of the disputes submitted to arbitration under the Jay Treaty were to be decided according to “justice, equity, and the laws of nations”, and their successful settlement was largely credited to the commissioners’ “spirit of negotiation and compromise”. While they rendered binding decisions and applied legal principles, the commissioners also “act[ed] to some extent as negotiators rather than as judges … temper[ed] justice with diplomacy [in order] to give a measure of satisfaction to both sides” (Pinto, 1990).

This perception of interstate arbitration persisted in the first decades of the 20^th century. Some states, for instance, distinguished between judicial settlement, designed to resolve “legal disputes”, and arbitration, designed to resolve all other disputes ex aequo et bono while “having regard to the general principles of international law” (e.g., the 1928 Geneva General Act for the Pacific Settlement of International Disputes (.pdf); the 1957 European Convention for the Peaceful Settlement of Disputes). Arbitrators were also “prepared to waive a strict application of the law in order to achieve an acceptable settlement” in interstate disputes, such as the 1909 Casablanca case and the 1910 North Atlantic Fisheries case (M.C.W. Pinto, “Structure, Process, Outcome: Thoughts on the ‘Essence’ of International Arbitration” (1993) 6 Leiden Journal of International Law). However, as a result of the growing global quest during the 20^th century for “orderly” interstate dispute settlement through the application of law, this quasi-diplomatic use of interstate arbitration gradually fell into disuse, and the dominant perception became that of the International Law Commission, which viewed it as “a procedure for the settlement of disputes between States … on the basis of law” (Pinto, 1990 (.pdf)). Accordingly, states increasingly restricted or excluded the power of arbitrators to decide disputes on the basis of equity or non-legal considerations and in all but a few rare, yet successful, cases (e.g., the 1968 Rann of Kutch arbitration; the 1986 Guinea-Guinea Bissau arbitration) arbitrators followed suit. The perception that only ‘judicial’ arbitration based on law should be “arbitration properly so called” thus became the conventional wisdom, even though in some cases, such as the 1977 Beagle Channel arbitration, it failed to resolve the parties’ dispute (Pinto, 1990, 1993).

The limits of ‘judicialized’ interstate arbitration

This modern ‘judicialized’ conception of interstate arbitration perhaps introduced a certain degree of procedural order and uniformity into arbitral practice, but it also transformed it from a mechanism for the final settlement of disputes based on respect for the law to a mechanism for the application of law to disputes, resulting in its steady decline during the 20^th century (Pinto, 1990, 1993). While states’ interest in arbitration has been somewhat renewed in recent years through attempts to revive the PCA and update the UNCITRAL Arbitration Rules, among others, it continues to be perceived as a system of “high legal refinement” that is functionally assimilated with judicial determination, and its use continues to be largely confined to the resolution of legal questions on the basis of international law (Pinto, 1990). While arbitration is not an unsuitable mechanism for this purpose, the perception that strict ‘legal’ determination is all that it has to offer states is overly restrictive for two reasons.

First, it underplays the significance of the differences between arbitration and judicial settlement, which make the former a genuine alternative to the latter rather than merely a more flexible version of it, and enable the settlement of precisely those disputes that are unsuitable for strict ‘legal’ resolution. The ability of states to choose their arbitrators and to decide the rules and principles to guide their decision-making, among others, are not mere technical advantages. They mean that states can appoint arbitrators who are familiar with the unique circumstances and background of the dispute, or who are experts in a non-legal field that is relevant to its resolution. They also mean that states can have their non-legal interests, as well as their legal rights, considered and reconciled, and obtain an equitable and practical solution from decision-makers who favor the needs of the parties and the effective settlement of the dispute over the development of consistent jurisprudence and the advancement of international law (Charles H. Brower, II, “The Functions and Limits of Arbitration and Judicial Settlement Under Private and Public International Law” (2007-2008) 18 Duke J. Comp. & Int’l L.). Finally, they mean that states become significantly more involved and invested in the dispute resolution process, which in turn strengthens their confidence in the arbitration and in the tribunal and increases the likelihood of compliance with unfavorable decisions. All of these factors should be considered by states when choosing a dispute settlement mechanism, and certainly call for a separate evaluation of arbitration and judicial settlement.

Second, interstate disputes often involve complex extra-legal issues that do not lend themselves, or that the parties are reluctant to submit, to judicial determination on the basis of international law. At the same time, these disputes may also be difficult to resolve by way of non-binding mechanisms, such as negotiation or mediation, which require states to make voluntary concessions and may lead to deadlock. While arbitration constitutes a separate and distinct mechanism that could resolve such disputes through a final and binding, yet flexible, process, states may not recognize it as such due to its modern ‘judicialization’. Disputes concerning the use and allocation of transboundary freshwater resources, such as that currently ongoing between Ethiopia and Egypt over the construction of a dam on the Nile River, are a case in point. These disputes tend to involve economic, historical, political, national security, and other non-legal interests, and, where no treaty is applicable, are governed by customary international law principles that are often seen by states as inadequate, ambiguous, and even contradictory. Where negotiations flounder and states refuse to submit such disputes to legal resolution by international courts, they may well lead to military confrontations. Still, neither Egypt and Ethiopia nor other states involved in similar disputes seem to consider arbitration as a viable option distinct from judicial determination.

‘Back to the future’ for interstate arbitration

All this is not to say that there are no advantages to ‘legal’ or ‘judicial’ dispute resolution, that arbitration is a panacea for all interstate conflicts, or that it does not necessitate states’ good faith and political will to make peace rather than wage war, as do all interstate dispute resolution mechanisms. Rather, this post is merely intended to serve as a reminder of arbitration’s original purpose and its potential to provide “mediatory decisions, exempt from the strict norms of the law of nations”, and thereby resolve “the Gordian knot of non-legal disputes” (J.H.W. Verzijl, cited in P.H. Kooijmans, “International Arbitration in Historical Perspective: Past and Present” in A.H.A. Soons, ed, International Arbitration: Past and Prospects (Martinus Nijhoff Publishers, 1990)). Only when states realize this true nature of interstate arbitration, it seems, will the “Sleeping Beauty of the Peace Palace” be truly awakened.