The Modern Lex Mercatoria and International Arbitration

[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