TDM Special Issue - Introduction to the VI Symposium on Salient Issues in International Arbitration: Does a Transnational Legal Order Exist in International Arbitration?
Article from: TDM 2 (2022), in Editorial
Is the worldwide growth of international arbitration contributing to a uniform law and practice in commerce and investment? Do state courts support the emergence of a transnational legal order beyond particular national rules of law to give expression to universal principles and values? Do international arbitral tribunals? Are states favorable to the shift of commercial and investment dispute resolution from state courts to arbitration? These and similar questions were raised on November 10 and 11, 2021 at the "Symposium on International Arbitration: Does a Transnational Legal Order Exist in International Arbitration?" that was organized by AUWCL's Center on International Commercial Arbitration and the Swiss Institute of Comparative Law. At the Symposium, the AUWCL Center was represented by its Director, Prof. Dr. Horacio A. Grigera Naón, and the Swiss Institute of Comparative Law was represented by its Vice-Director Prof. Dr. Krista Nadakavukaren Schefer.
With the participation of some of the world's leading voices in private international law and international economic law, as well as of emerging scholars in the field, a total of twenty academics and practitioners presented their research. Over the course of the two-day online program, the speakers were able to reach a global audience of more than two hundred practitioners and academics interested in this topic. Dynamic question and answer sessions permitted participants an opportunity to dig deeper into the insights brought out by the discussions and stimulated further thinking about the basic questions surrounding the development of transnational rules through public and private arbitration.
The Scholarly Inquiry into the "Transnational Legal Order" in International Arbitration
Legal rules or laws applicable in international arbitrations-particularly those governing the merits of the dispute-have traditionally been the subject of passionate debate among international commercial arbitration scholars and practitioners. From the 19th century notion of "rules of conflict," to interest analysis doctrines that started in the 1960s, or the exploration of "transnational" or "comparative law" approaches, scholars and practitioners have been involved in the perennial search for the most appropriate legal rules for international commercial dispute resolution. Part and parcel of such search has been-and continues to be-the question of if and how the resolution of disputes on the international plane interact with public policy notions or mandatory rules found in national legal orders. Such solutions, clearly, must take into account the existence of national sovereigns that often have competing claims to regulation of the same matters under their own laws and to be applied by their own courts.
The theoretical and practical questions of transnational law are not limited to commercial arbitration. They are also present in arbitrations arising out of bilateral or multilateral investment treaties in a public international law setting. International legal instruments referring to national laws as a source for decisionmakers, such as Article 38 of the Statute of the International Court of Justice (which refers to "the general principles of law recognized by [...] nations") or Article 42 of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (indicating the national law of the State Party to the dispute as well as international law), become particularly relevant in such contexts. Not excluding the consideration of national laws and principles, these sources leave open the need of addressing issues that are similar to those facing commercial arbitration.
A complete analysis of the role of national law in international arbitration should not be limited to questions of the applicable substantive law. It also covers legal questions about jurisdiction and procedural issues, such as the burden of proof, the impact of mandatory rules and public policy on the arbitrability of the claims, as well as the regulation of interim measures.
This Symposium took stock of the current state of the debates prompted by international commercial and investment arbitration from a procedural and substantive legal perspective. The panelists presented their research in four panels. These panels were chaired by Prof. Dr. Ignacio Tirado, UNIDROIT Secretary General; Prof. Dr. Jane Willems, Associate Professor at Tsinghua University in Beijing (China); Prof. Dr. Rodrigo Polanco Lazo, Legal Counsel for Hispanic Legal Systems at the Swiss Institute of Comparative Law (Switzerland); and Prof. Dr. Krista Nadakavukaren Schefer, co-organizer of the Symposium.
The following is a summary of the main findings of the research presented during the Symposium. The complete articles are part of this "Special Issue" published by the Symposium's media partner TDM.
The Transnational Legal Order and International Commercial Arbitration
Prof. Dr. Michael J. Bonell, Professor Emeritus at the University of Rome I Sapienza, and Eleonora Finazzi Agrò, attorney at law in Rome, address the application of the UNIDROIT Principles in International Commercial Arbitration. Their analysis reveals the existence of a substantial body of "transnational principles and rules" originating from a variety of sources (e.g., international conventions, model laws, guidelines, arbitration rules, private codifications of general contract law, etc.) applicable to international arbitration in lieu of or parallel to the various national laws. They observe that th e UNIDROIT Principles play a remarkable role in this respect. Despite their non-binding nature, the Principles perform two important functions: first, their primary and most important function is the so-called "restatement function" to which to resort when applying domestic laws in an international context. Second, the parties or the adjudicating body may select the UNIDROIT Principles either in their entirety or limited to individual provisions as the rules of law applicable to the merits of the dispute. Indeed, notwithstanding the continuing dominance of national laws, there exist "market niches," which the Principles fill with considerable success. Thus, parties of equal bargaining power, especially if they operate in so-called emerging countries and/or in countries with totally different cultural and legal traditions, more and more often prefer to choose the UNIDROIT Principles as the law governing their contract or applicable to the merits of their dispute over one of the few "neutral" national laws often used in international contracts. In this context, the Principles prove particularly useful in cases of implied negative choices. These are situations where neither party is prepared to accept the other's domestic law or any other national law, and as a result the contract is silent as to the applicable law or contains a reference to undefined formulas such as "general principles of law", or "lex mercatoria," and the adjudicating body decides the dispute on the basis of the UNIDROIT Principles.
Maryam Pourrahin, Ph.D. candidate at Tilburg University, focuses on common rules applicable to disputes emerging under FRAND ("Fair, Reasonable, and Non-Discriminatory") terms for the use of patents. Her research shows that arbitration cannot prevent contradictory decisions on the merits of these FRAND cases and that there still exist challenges that call for a higher degree of attention from public authorities and academia. As a possible solution, she suggests that patent validity in FRAND cases settled via arbitration could be granted some erga omnes effects to avoid fragmented and contradictory decisions.
Another area where the tension between transnational and local trends in international arbitration become apparent is the arbitrability of antitrust disputes. For many decades, courts around the world have progressively admitted the arbitrability of such disputes. Prof. Dr. Qingxiu Bu, Associate Professor and Chair of the Global Law Initiative at Sussex Law School, explains the challenges that China faces with the very notion of arbitrability in antitrust disputes as an obstacle to international arbitration. As he explains in his research, the Chinese Supreme People's Court (SPC) in Shell v Huili held that antitrust disputes are not arbitrable and are to be resolved by courts or administrative authorities, despite Shell's challenge of the courts' jurisdiction based on a pre-existing arbitration agreement. The Court justified its ruling on the ground that antitrust law is designed to promote the national interest in a competitive economy. Paradoxically, as Bo explains, such a ruling is untenable given the lack of adequate statutory basis. The 2008 Chinese Anti-Monopoly Law and the 2017 Arbitration Law do not establish that anti-monopoly issues must be settled by court litigation, and they also do not explicitly preclude other forms of alternative dispute resolution. With this judgment, the SPC has seemingly addressed the issue of arbitrability of competition claims in China. However, this does not mean the end of the nexus between antitrust issues and arbitration in China. Bo suggests that China should change its stance and adopt practices that are consistent with other relevant jurisdictions, such as the EU and the U.S., where anti-trust disputes may be arbitrated. As arbitration is increasingly important in cross-border transactions involving parties on Mainland China, a harmonious approach becomes more important. Bo therefore states that there should be a possibility for competition or antitrust issues to fall within the purview of arbitration. The SPC should initiate a ground-breaking approach, maybe by launching a "judicial interpretation," to facilitate the integration of Chinese law into the context of the global dispute resolution regimes.
Oluwaseun O. Ajayi, Senior Attorney at the Office of General Counsel, Government Accountability Office (GAO) in Washington, D.C., offers a review of the current status of the 1958 New York Convention in U.S. judicial practice. He observes that when faced with lacunae or incomplete rules in the New York Convention, U.S. courts referred to domestic legal theories and doctrines, for instance in the context of contract law. This application of domestic legal institutions to give effect to the international treaty of the New York Convention is not necessarily helpful for the consolidation of a transnational legal order on international arbitration, because U.S. domestic contract notions may not be an expression of common rules and principles such as the UNIDROIT Principles.
International Investment Arbitration and the Transnational Legal Order
The public law dimension of international investment law, looking mainly at questions from treaty-based investment arbitration, is taken up as a counterpoint to the articles addressing transnational law in commercial arbitration.
Prof. Dr. Mary Mitsi, Lecturer in Commercial Law at Queen Mary University of London, discusses the possible existence of a dialogue between legal systems, arbitrators, and judges in the development of international investment law and arbitration. Her research provides insight into how legal concepts spread across arbitral awards of investment arbitration tribunals by the force of their reasonableness, and how this practice leads to increased unification of the law of international investment protection.
In his research, Prof. Dr. Andres Talavera from the Universidad del Pacífico in Lima (Peru) adds to Mary Mitsi's explanation and argues for the emergence of a "transnational investment treaty lex" or "transit lex," in alluding to the notion of "lex mercatoria." He explains that the evolution of investment arbitration and its treaty-design lay the foundations for the FET [fair and equitable treatment] "transit lex" to emerge, almost in the same phases, terms and conditions as the lex mercatoria. The emergence of this concept was due to the establishment of a "transnational investment treaty community," with sub-treaty-based systems of state responsibility, together with the need to promote and protect foreign investments and investors. The "FET transit lex" is an autonomous body of principles and standards derived from an autonomous and progressively created methodology that is applied as a "fact of life" to solve transnational disputes within the transnational investment treaty community.
Ioana Bratu, Legal Counsel at GE Renewable Energy in London, focuses on the EU Court of Justice's preliminary rulings cases that maintain and nurture the EU's persistent objection against the formation of a transnational legal order in international investment arbitration, especially as to intra-EU disputes. Since the March 2018 Achmea decision, the European Court of Justice has firmly rejected investment arbitration between parties involving two EU member states. The "autonomy principle" that the European Court advocates of EU law, including when applied to investment protections, contributes to separate the EU legal order from parallel (but distinct) trends under general public international law. This growing fragmentation prevents a nascent transnational legal order from emerging in the field of international investment arbitration.
The research presented in this TDM Special Issue sheds new light on some of the underlying trends in international arbitration that for decades have occupied the minds of scholars and practitioners in this field: how much does international arbitration contribute to the formation of a legal order binding upon private parties that is transnational and reflective of common notions of legality and justice? This stocktaking provides some evidence to show the emergence of such transnational legal order, and other evidence that demonstrates strong backtracking forces.
The UNIDROIT Principles show the real possibility that a transnational legal order may become fully effective some day. The Principles are already often applied with positive results for the parties and the legal systems in which they are recognized. In investment arbitration specifically, some arbitral practice is leading scholars to proclaim a "transit lex," as a progressive development beyond lex mercatoria.
However, many challenges remain. This is shown in the studies about the competing "transnational legal orders" in commercial, investment, and sports law that do not necessarily share the same general rules. In addition, the studies about interim measures, allegations of corruption in arbitration, FRAND cases involving patents, and antitrust law, point to current divergent-rather than convergent-trends. In the context of investment arbitration, this divergence away from a homogeneous approach in international arbitration is well illustrated by the EU's Court of Justice's approach after the Achmea case and confirmed in more decisions of the ECJ and member states' courts.
 See Art. 38.1, and in particular section (c):
"1. The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply:
- international conventions, whether general or particular, establishing rules expressly recognized by the contesting states;
- international custom, as evidence of a general practice accepted as law;
- the general principles of law recognized by civilized nations;
- subject to the provisions of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rule."
Paragraph 2 authorizes the ICJ to use equity (ex aequo et bono) if the disputing parties consent to such decision-making.
 See particularly Art. 42.1 ICSID Convention:
1. The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.
Paragraph 3 provides for the tribunal to use equity (ex aequo et bono) for decision-making if the parties to the dispute consent.
 Michael Joachim Bonell and Eleonora Finazzi Agrò, "Does a Transnational Legal Order Exist in International Arbitration? The Case of the UNIDROIT Principles of International Commercial Contracts", published in this issue of TDM.
 Maryam Pourrahin, "Arbitration in FRAND-related disputes: challenges and issues," ibid.
 Qingxiu Bu, "The Arbitrability of Antitrust Disputes: The Critics of the Chinese Supreme People's Court in Shell v. Huili," ibid.
 Oluwaseun O. Ajayi, "Recognition of Foreign Arbitral Awards: The Success of the New York Convention in U.S. Courts and its Signal Contribution to International Arbitration," ibid.
 Mary Mitsi, " Transnational decision-making: Dialogue between legal systems, arbitrators, and judges," ibid.
 Andres Talavera, "The Evolution of The Lex Mercatoria and the Emergence of the Transnational Investment Treaty Lex (TRANSIT Lex)," ibid.
 Ioana Bratu, "The Preliminary Ruling's Role in the European Union's 'Persistent Objection' as to the Formation of a Transnational Legal Order," ibid.