International Arbitration: Past, Present and Future
The dynamic environment for international trade and investment has highlighted a growing need for the resolution of cross-border disputes through international arbitration. With parties increasingly reluctant to rely upon foreign courts for relief, especially on one party's 'home court', arbitration has gained wide acceptance within the international business and legal communities as a viable alternative method of settling disputes that are international in character. One study has estimated that 90 per cent of international contracts contain an arbitration clause.2
This growing preference for international arbitration has coincided with a sharp increase in international commercial disputes and international business transactions over the past few decades. In 1993, 11 of the leading international arbitration institutes had 1,392 cases filed that year.3 In 2001, the caseload of these same 11 institutions would nearly double, receiving 2,628 cases.4 International arbitration has become big business itself, fuelling competition, respectively, among arbitral institutions, arbitration venues, arbitrators and law firms. The arbitration cases themselves have presented new complex problems, many of them having arisen from the parties' differing commercial and cultural expectations.
In its nascent form, international arbitration had taken on a vastly different character and demeanor. The story of its evolution is intertwined with shifts in the international legal and business communities' prevalent practices and philosophies. While we may take the utility of arbitration for granted this day and age, most of today's arbitration-friendly jurisdictions were distrustful of arbitration several decades ago. This reluctance to embrace arbitration stemmed from the belief that the state had a monopoly in the dispensation of justice. Policymakers at the national level had to be convinced of the need for and benefits of arbitration. During the early part of this 'age of innocence', businessmen did not need a legal framework for the judicial enforcement of awards, for they were honour-bound to comply with the arbitral award, and relied on this moral imperative and industry pressure to enforce the obligation.5
The architects who laid the foundation of the international arbitration system in the 1930s were a small, intimate group of European international law scholars known as the 'grand old men'.6 These pioneers of modern international arbitration7 pitched international arbitration to the business community as a fast, private and low-cost means of resolving international commercial disputes through the application of lex mercatoria. These 'grand old men' would themselves serve as arbitrators to these disputes, and they proved able to bring the parties to an acceptable solution, taking business expectations and needs into consideration.8
There were, however, some legal practitioners, mostly Anglo-American, who questioned the infallibility of the 'grand old men' as well as the legitimacy and existence of lex mercatoria, which they criticised as vague and unpredictable.9 These 'technocrats' argued that international arbitration could only be viable if it became more legalised, resulting in predictability and reliability. The US's ratification of the New York Convention, coupled with the increasing realisation within Anglo-American law firms of the significance of Ð and potential revenue generated from — international arbitration, created another legal centre of gravity in the US alongside Europe, and promoted the notion of international arbitration as a form of offshore litigation.10 This new focus initiated the 'judicialisation' of international arbitration. In spite of the strong influence of the American legal tradition on international arbitration, it would be erroneous to characterise international arbitration as 'Americanised'. Ultimately, American common law did not supplant the civil law tradition of international arbitration. Rather, certain areas of arbitral procedure appear to reflect some degree of convergence of the civil and common law traditions.11 Even though it has proven possible to merge these legal systems in part, it is highly unlikely that this convergence will result in a single procedure for international arbitration over time. But a single international arbitration procedure may not be ideal, and it may be more appropriate at times if parties are able to select from a range of procedural options according to the circumstances of their disputes.12
While the current state of international arbitration was largely shaped by the Europeans and the Americans, the reality is that cross-border trade is now a common occurrence in other regions where countries have pursued economic policies based on interdependence. For international arbitration to remain relevant and dynamic, there is a clear need for more arbitrators from diverse national and cultural backgrounds.13 Disputing parties must be comfortable with the arbitration process. That end is served by having a pool of arbitrators who are not only impartial, well versed in the intricacies of international arbitration and bearing sound commercial sense, but who are also sensitive to differing cultural expectations that may create misunderstandings.
This is especially important in light of the continued suspicion by some in developing countries regarding the fairness of international arbitration, with the view that it represents a concerted effort to undermine national sovereignty and perpetuate western political hegemony.14 Given their unfamiliarity and lack of experience with international arbitration, some local lawyers would prefer to remain within their comfort zones and recommend domestic litigation, regardless of their clients' best interests. This apprehension is perhaps borne from the fact that the early trends that guided the development of international arbitration had not taken into account the dominant legal cultures and traditions in the Asian, African, Latin American and Middle Eastern regions. For as long as they feel excluded from participating in the development of international arbitration, lawyers and judges from these regions may not have the incentive to study and verse themselves in international arbitration. The virtues of international arbitration are best spread through meaningful dialogue with the various domestic legal communities, where both sides participate and learn from each other. In this dialogue, the proponents of arbitration should avoid assuming that the system as it stands leaves no room for improvement through exposure to the legal practices and traditions of emerging countries. After all, the philosophies of international arbitration evolved from various infusions by scholars and practitioners from differing and often contradictory backgrounds. In the long term, an international arbitration culture15 will best develop by teaching international arbitration in the law schools, which will in turn need to overcome their tendency to adopt a parochial perspective in legal education. The end goal must be to foster a culture of inclusion that not only encourages the training, development and participation of arbitrators from these countries but for international arbitration to evolve and be more accommodating and incorporate these norms and traditions.16 Ultimately, diversity is essential to international arbitration. Only when international arbitration is a global phenomenon and not just an affair of a select few countries will it enjoy wide-spread legitimacy. Beyond the continued survival of international arbitration, diversity is important, as an end in itself.
An empirical study conducted in 2007 on the appointment of arbitrators in ICSID arbitrations fortunately suggests that there is an increasing frequency of non-Western Europeans and non-Americans serving on ICSID tribunals. 2004 saw the appointment of arbitrators from 28 different countries.17 More than half of these arbitrators found themselves appointed for the first time to arbitrate in an ICSID arbitration.18 In 2005, 68 individuals served as an ICSID arbitrator at least once, and 20 of these were from developing states.19 While women are increasingly serving as ICSID arbitrators, with Professors Gabrielle Kaufmann-Kohler and Brigitte Stern getting frequent appointments, it still remains a fact that only 14 out of the 279 individuals who have served as ICSID arbitrators were female.20 Despite clear progress, there still is much to be done in the area of diversity.
No one is suggesting that international arbitration is perfect and that it is a panacea for all ills. But we have seen that it is a dynamic system that gradually evolves in order to better serve the needs of its users. The refinements in international arbitration have led to a more accommodating environment for its participants, for the system is not just about procedure, but also about culture. It fundamentally remains about people, businesses, and how they interact with one another.
While many challenges lie ahead, international arbitration has proven responsive to change and accommodating to innovations from many sources. A diverse international arbitration community with a global outlook will meet the challenges of tomorrow and ultimately rise above them.
1. Adapted from a paper presented at the International Arbitration Conference Brunei and the 2nd Regional Arbitration Institutes Forum (RAIF) Conference held in Bandar Seri Begawan, Brunei Darussalam, 16-17 August 2008.
2. Christopher R Drahozal, Commercial Norms, Commercial Codes, and International Commercial Arbitration, 33 VAND. J TRANSNAT'L L 79, 94 (2000).
3. Christopher R Drahozal, Arbitration by the Numbers: The State of Empirical Research on International Commercial Arbitration 22 J. INT'L ARB. 291, 299 (2006).
5. The ICC Arbitration Rules of 1923 provide that the parties were honour-bound to comply with the arbitral award. See W Laurence Craig, Some Trends and Developments in the Laws and Practice of International Commercial Arbitration, 30 TEX. INT'L L J 1, 7 (1995).
6. See Yves Dezalay & Bryant G Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (1996).
7. Resolving international disputes through arbitration can be traced back to ancient Greece. See Henry T King, Jr & Marc A LeForestier, Arbitration in Ancient Greece, 49-SEP DISP. RESOL. J. 38 (1994).
8. Dezalay & Garth, supra note 6, at 40 n.17 (As one Swiss arbitrator describes: 'I used to be fairly legalistic as an arbitrator. Give me the facts. Give me the law. And I'll decide it, okayÉ I was impressedÉ when I wasÉ secretary at several panels, for several arbitrations where Pierre Lalive was the chairman. HeÉ hardly ever decided a case. They would all be settled at some point. And that takes a lot of skillÉ from the chairman Ð skills which I clearly didn't have some years ago. And I think maybe I'm developing them a little more now. Probably a matter of aging.')
9. Id. at 41 n.19 (As one English barrister puts it: 'These people are just deciding by the seat of their pants. There's no such thing as the lex mercatoria.' An American in Paris expresses a similar view: 'And we don't want lex mercatoria. We want to know what law it is. In fact, we want to know which procedural law it is. We don't want to leave it up to the arbitrator.')
10. Roger Alford discusses that the Anglo-American law firms' success in international arbitration can be explained by their mastery of the 'soft power game'. Roger Alford, The American Influence of International Arbitration, 19 OHIO ST. J. ON DISP. RESOL. 69, 80-81 (2003) ('Soft power is cultural and economic power, and very different from its military kinÉ The United StatesÉ is definitely in a class of its own in the soft-power gameÉ This type of power Ð a culture that radiates outward and a market that draws inward Ð rests on pull not push; on acceptance not on conquestÉ [T]his kind of power cannot be aggregated, nor can it be balancedÉ All the movie studios [of Europe, Japan, China and Russia] together could not break the hold of Hollywood. Nor could a consortium of their universities dethrone Harvard et al., which dominate academia while luring the best and the brightest from abroad. So too we might add that the Anglo-American law firms are in a class by themselves in the soft-power game. The muscle of all of the other law firms of the world put together cannot match the attractive allure of these firms. It is their soft power Ð a power that rests on the magnetic attraction these firms hold on legal service providers and consumers that will ensure that they will be the defining feature in the future of international arbitration.') In contrast, Dezalay and Garth explain that the success of Anglo-American law firms in international arbitration is due to the clients' preference for the aggressive American style of advocacy. Dezalay & Garth, supra note 6, at 68 ('The U.S. 'lawyer,' in contrast, has no hesitation in demonstrating legal inventiveness and tactical aggressiveness. The cause of the client is defended by any available means. Far from considering the role of a mercenary as a liability, U.S. lawyers are proud of their effectiveness on behalf of their clients. Far from seeking to minimize tensions, therefore, the U.S. lawyers unapologetically exacerbate and magnify them. This characteristic U.S. focus on conflict, not surprisingly, appealed to the antagonistic situation in which the third-world leaders found themselvesÉ In such a fight, the third-world leaders could at least employ mercenaries who would, without any qualms, practice the tactics of total legal warfare Ð 'scored earth' litigation. In this way, the leaders could feel that their cause and their interests were defended as vigorously as possible.')
11. See Gabrielle Kaufmann-Kohler, Globalization of Arbitral Procedure, 36 VAND J.TRANSNAT'L L 1313 (2003).
12. Siegfried H Elsing & John M Townsend, Bridging the Common Law-Civil Law Divide in Arbitration, 18 J INT'L ARB 59, 65 (2002).
13. For a discussion on the lack of participation by US minorities in international arbitration, see Benjamin G Davis, The Color Line in International Commercial Arbitration: An American Perspective, 14 AM REV INT'L ARB 461 (2003).
14. See, for example, Amr A Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias Under the Specter of Neoliberalism, 41 HARV. INT'L L J 419 (2000); Ahmed Sadek El-Kosheri, 'Is There a Growing International Arbitration Culture in the Arab-Islamic Juridical Culture?', in International Dispute Resolution: Towards an International Arbitration Culture, ICCA CONGRESS SERIES, No. 8, 47 (Albert van den Berg editor, 1996).
15. For a discussion on the existence and development of an international arbitration culture, see International Dispute Resolution: Towards an International Arbitration Culture, ICCA CONGRESS SERIES, No. 8 (Albert van den Berg editor, 1996).
16. See Leon E Trakman, Legal Traditions and International Commercial Arbitration, 17 AM REV INT'L ARB 1 (2006).
17. Susan D. Franck, Empirically Evaluating About Investment Treaty Arbitration, 86 NCL REV 1, 77 (2007).