ICA in the Context of Theories of Legal Discourse

Chapter 2
ICA in the Context of Theories of Legal Discourse

Capturing the Phenomenon: The Search for Tools

The unprecedented success of international commercial arbitration in the last decades of the twentieth century, and the characteristic features of this method of resolution of private, cross-border disputes, lead to a question of the determinants and status of legal interpretation in ICA. This chapter aims at placing arbitration – an anational, highly prosperous, privately developed alternative to State-administered litigation – in the context of contemporary theories of legal discourse and legal interpretation. When approached with regard to its historical development, arbitration may serve as an illustration of the prevalence of discursive, dynamic, non-linear models of legal reasoning over the syllogistic, linear ones, based on the Montesquieuan claim that the role of an adjudicator is to be no more than the mouth of the law.1 However, the recent, observable trend of judicialization or colonization of arbitration by litigation (as discussed in detail in Chapter 5) calls for a renewed interest to be paid to conceptualizations of legal interpretation in arbitral decision-making.

The private character of arbitration and its significant (though certainly not absolute) level of procedural detachment from the influence of domestic legal orders; the (nowadays ubiquitous) presence of this method in the field of commercial disputes with an international element emerging worldwide; advanced global and regional institutionalization; the increasingly formalized (processualized) character of arbitral proceedings; as well as the wide discretionary powers of arbitrators in regard to determining applicable rules of law – all these factors affect the conceptual and pragmatic framework, course and tools of interpretive activity performed by commercial arbitral tribunals.

These specific features of international arbitration, distinguishing it from domestic adjudication, make an inquiry on legal interpretation in this field a task as challenging as it is captivating. This task requires an identification of relevant theoretical background, offered by jurisprudence and other disciplines, such as jurislinguistics and legal social studies, which would enable putting the phenomenon of legal interpretation in ICA in the context of contemporary theories of legal discourse and interpretation.

Vijay Kumar Bhatia, Christopher Candlin and Jan Engberg capture an essential difficulty of preserving the original claim to non-ambiguity and precision of legal interpretation, extended and sought to be protected under the auspices of domestic legal systems, in the conditions of increasingly globalized areas of law and its administration – with arbitration being perhaps the most prominent of such fields. As they observe in regard to the strive towards certainty of legal language and, consequently, legal interpretation:

There are several other factors that make this claim somewhat problematic: the legal system, the language, the socio-political and the cultural context within which a specific instance of legal discourse is embedded. One of the main issues arising from this variation is the extent to which the integrity of a specific legal genre is likely to be maintained when it crosses linguistic, socio-political, cultural or legal boundaries in the present-day global business, trade or other professional environment. These issues of diversity in construction and interpretation of legal discourse acquire a more serious importance when we see law losing its jurisdictional character in this rapidly changing corporate world of international trade and commerce.2

Whereas the interpretation and application of proper substantive rules to the merits of the dispute in arbitration are based largely on domestic law, the recourse to it in ICA is specific. First, it is the domestic law applied outside its usual context, by adjudicators not acting from the positions of insiders to this system in a way, in which the domestic judges perform their function. Even if arbitrators resolving a controversy are in fact primarily trained in the legal system, the rules of which they are going to apply to the merits of the dispute – which, due to the international character of the arbitral profession, as well as to the neutrality requirements governing the appointment of arbitrators, is very often unlikely – the tribunal itself is a private body, which does not act and render awards in the name of the State.

First, the bonds between the tribunal and lex fori (while still existing, due to the territoriality principle permeating the New York Convention, as discussed in Chapters 1 and 7) are also remarkably weaker than in case of the domestic courts, up to the point of leading many commentators to claim that arbitration is an anational or floating way of resolving disputes. The fact that lex causae does not necessarily have to be either the system of the forum or that of the place of anticipated enforcement (which nevertheless remain relevant due to setting aside and enforcement concerns) steers legal interpretation in ICA further away from the strictly national legal orientation and enriches it with additional, comparative components.

Second, the law of particular national systems is not the only source of rules applicable to the merits of the dispute resolved by the means of international arbitration and the saturation of arbitral decision-making with international and transnational considerations (including interpretive directives and methods) is higher than in the private international cases resolved by the domestic courts. These considerations cover a wide range of interpretive issues – from substantive rules, such as the new lex mercatoria; through transnational public policy principles, channelling and modifying the process of application of domestic law; to particular methods of legal interpretation, originally rooted in domestic adjudication, but further developed and used with increased intensity in arbitration (as the comparative method, extensive use of which is necessarily and naturally connected with arbitral decision-making, as well as amiable composition and deciding ex aequo et bono, enjoying much more popularity in the ICA practice than their historical, national counterparts).

Third, what seems to make legal interpretation in arbitration specific is also its intrinsically international institutional and cultural setting, which puts rendition and application of the domestic legal provisions in a general context very different from that of national courts’ adjudication. This includes circumstances and considerations much broader than strictly legal ones, as the functioning of arbitration adds in the field of private commercial dispute resolution an entire net of new threads to the complex fabric of international trade, economic, social and political relations. What Robert Benson characterizes as the semiotic web of the law3 – or the context in which the legal discourse sensu largo functions – is in ICA very different from that of domestic courts, even when they happen to face a case of substantially the same kind.

One of the crucial factors, decisive for arbitration gaining its current position, has been the achievement of the status of a neutral forum. In case of national courts such status is augmented by the official authority of a State, which the courts represent and in the name of which they render the decisions. The character of adjudication as belonging to the States’ imperium sphere is also emphasized by the visual and ritual aspects of court proceedings, from the judges’ robes to the spatial organization of a courtroom – the parties are ever reminded about the decisive role of the State in the resolution of their controversy. As Oscar Chase and Jerome Bruner remark, in the context of American trial:

[s]uch ceremonial features evoke deeply held values through the use of symbols appropriate to the task for that culture. As the judge is both instrumentally and symbolically the personification of state authority, it is not surprising that her activity is intensely ceremonial. Adherence to the details of the rites helps to maintain belief in the impersonal nature of the result. Otherwise puzzling behaviors are almost entirely in the service of depersonalization and sacralization.4

However, it is precisely what in a domestic setting augments the position of a judge as an impartial umpire that in international commercial cases makes it problematic. The direct, official and socially accentuated connection of an adjudicator with a particular State and its legal system may be perceived as not securing sufficient neutrality in relation to parties coming from different legal orders. Additionally, if the court is acting in the name of the State of one of the parties, this party gains the advantage of relatively closer access to justice, relevant legal services, familiarity with the judicial system and court proceedings, lack of linguistic barrier, etc.

The current status of arbitration – private (not representing any State), yet institutionalized – has been indicated as supportive to its neutrality in the context of international commercial relations. As Yves Dezalay and Bryant G. Garth observe, arbitration does not need to seek legitimization through lack of formality, as a flexible, efficient and simple merchants’ tool anymore. The new source of legitimacy is, as they argue, to be found in its increased processualization.5 It seems, though, that the crucial legitimizing attribute of arbitration can be rather its neutrality, successfully advocated in both phases of development of modern ICA, as represented in arbitration literature: the renaissance of expeditiously acting, anational tribunals for business disputes and current institutions operating in proceduralized and complex case settings.

The discussion is vivid in legal doctrine as to whether arbitration currently fulfils a role exceeding that of merely offering legal services on an a casu ad casum basis, and has also gradually undertaken a more general function of an autonomous, transnational, institutional network, serving the needs of administration and preservation of justice (previously reserved for public courts), and performing a de facto judicial function.6 Certainly, ICA has been generally successful in creating an image of a global, institutionalized system, largely independent from the States’ judicial interference and what have been described as parochial legal influences. At the same time, arbitral centres are private institutions, intensely participating in the competition in the market of dispute resolution services on a global and regional scale (as further described in Chapter 5) – which is an aspect not present in the functioning of the domestic courts. This makes them more directly, organizationally and procedurally responsive to the evolving needs of international commerce, but also turns the challenge of developing standards of neutrality for cross-border cases to a more consciously undertaken one.

In the context of providing a functional framework for legal discourse and legal interpretation, this aspect of continuous, intentional design (instead of reproduction of institutional and procedural patterns) seems to be a highly important feature of arbitration. Conclusions on the place of proceedings, language or admissibility of particular types of evidence – predetermined in litigation – are examples of decisions to be made by an arbitral tribunal with regard to parties’ intent, so as to offer the contestants a fair opportunity to present their claims and to provide equal footing for all throughout the entire procedure. Flexibility as to the determination of the language of proceedings, instantly broadening the limits of legal discourse in ICA, is one of its key features. Indeed, one of the most frequently commented-upon innovations in the 2012 CIETAC Rules, indicated as a sign of a broader international opening of the centre, has been the introduction of the competence of the tribunal to designate, in the absence of relevant parties’ agreement and with regard to circumstances of the case, Chinese or any other language as the language of arbitration (Art. 71(1)) – as opposed to the 2005 version of the Rules, Art. 67(1), under which Chinese was the default language of the proceedings unless the parties explicitly stipulated otherwise.

International commercial arbitration thus forms a specific setting for the functioning of legal discourse, affecting its flow and outcomes. As a private, globalized, highly institutionalized, dispersed and competitive network that claims legitimacy through securing procedural and personal neutrality in an international context, arbitration has adopted and developed new ways of using the existing legal interpretive instrumentarium.

This unique phenomenon and its functioning on the level of legal interpretation will be further addressed in the context of various streams in modern legal theory. As argued later in this volume, the practice of international commercial arbitration can not only be explained (that is, serve as a passive object of analysis, undertaken from one of the possible theoretical perspectives) but has also consciously derived inspiration from legal theory in formulating its own regulatory framework and related jurisprudence.

Legal Positivism

This conscious approach seems particularly noticeable in the context of legal positivism, which assumes the necessary connection between the law and the will of a sovereign. Legal discourse perceived from this perspective is thus not dialogical, but rather seen as a series of communications which bear a necessary mark of formal authority; an official legitimization by the State. The attention of an interpreter is thus focused on rendition of a legal text possibly close to its authentic, encoded meaning; the Montesquieuan vision of the role of an adjudicator, rendering judgments which are no more and no less than ‘a precise text of the law’ (as the judges are ‘only the mouth that pronounces the words of the law, inanimate beings who can moderate neither its force nor its rigour’7) results in a perception of the process of legal interpretation as a formalized search for legal Logos.8

The authentic meaning, permeating the letter of the law, has to be uncovered by an interpreter. The dominant model of legal reasoning is thus a syllogistic one, taking the form of a possibly straight path, leading to the goal: the decoded meaning, embedded in a legal text. Also the soft versions of legal positivism assume this functional orientation of legal interpretation and concentrate on the act of decoding and on overcoming possible obstacles to reaching this goal. The natural indeterminacy and openness of language is a major one: in Herbert L.A. Hart’s works the opposition against ‘mechanical jurisprudence’ is an effect of recognition of the infinite richness of factual situations to which the rules of law apply, but also of the character of the expression of the rules, the linguistic openness of which increases the difficulty of the process of legal subsumption.9

Language as a vehicle for the meaning is thus an object of main inquiry and relevant logical operations. Inspiration that legal positivism has derived from analytic philosophy is its important characteristic. It has influenced further development of formal analytic jurisprudence, as well as the proposition by Hart (after John L. Austin) that legal theory be based on ordinary language philosophy. While rejecting the fiction of the possibility of an always-precise subsumption, Hart nevertheless continues the discussion on verifiability/falsifiability of performatives (which E.J. Lemmon defined as verifiable by their use10), including the laws. The core of Hart’s longstanding polemic with Ronald Dworkin, as elaborated in an extensive Postscript to the 1994 edition of The Concept of Law, relates in fact to diverging concepts of legal discourse. It was Dworkin’s postulate that descriptive legal theory has a primarily semantic character (as lawyers apply the category of truth to propositions of law and explain them through a recourse to meaning) that raised Hart’s objections on the grounds of lack of sufficient distinction between communications external and internal to the legal system.11 The latter, internal elements were in Hart’s theory tantamount to rules (it should also be noted that Dworkin, after criticizing such an approach as limiting, eventually acknowledged the difference between Hart and himself in defining rules12). Hart also rejects Dworkinian arguments on legal interpretive activity as a search for the best possible solution, available on the grounds of a particular legal culture.

Analytic orientation, focus on decoding legal texts, as well as the emphasized link between the law and the State, and legitimization of rules through formal authority (effected, according to Hart, through the secondary rule of recognition13) have significantly influenced the development of legal positivism. These features have also made the capturing of the phenomenon of international arbitration and its functioning within this paradigm a challenging task.

The embedment of law in the State and the State’s endorsement validating the administration of justice, recurring motifs of positivist legal analysis, had to be reinterpreted in the context of the quickly developing network of international commercial arbitration. The entirely private character of arbitration, combined with its currently ubiquitous presence, have led some authors to question the grounds of its official myth of origin. The possibility for arbitrating has been traditionally (and along the lines of positivist legal theory) explained as a specific exercise of contractual freedom, which can be undertaken by the parties precisely and solely because of a State’s initial concession in this regard. In this localized vision of international arbitration, it is enabled as an available method of dispute resolution from within particular national legal systems, as States acting in their sovereign authority may choose to allocate relevant rights to private actors.

Creation of the global legal framework for ICA, in particular the entry into force of the New York Convention, is similarly an expression of the will of the States which have decided to accede to the international regime of recognition and enforcement of arbitral awards. Consequently, private parties seeking resolution of their controversies through arbitration, and the subsequent enforcement of rendered awards, are acting with the limits set by the national legal systems.

Legal positivism thus offers a necessary, plausible explanation of the legality and legitimization of arbitration, without detriment to the traditional theory of hierarchy of sources of law of domestic as well as public international origin (as on both levels the sovereign authority of the State controls admissibility of arbitration and recognition of its effects). It seems, however, that such view, while formally correct, is also reductionist, as some important institutional and functional aspects of modern arbitration escape an analysis thus oriented. An important issue is the scale of autonomization and the unprecedented popularity of arbitration, which results in administration of justice in the entire field of international commercial contracts being (by and large) effectively outsourced to private bodies and beyond the mechanisms and institutions of the States. As a result, arbitration has been often indicated as a model example of successful legal globalization,14 to a large extent escaping the intervening control of the State (as the grounds for refusal of enforcement of an award under The New York Convention are generally procedural, and not related to the merits of the decision). The process of gradual autonomization of international arbitration has been addressed by a number of commentators, as further described in the following chapters.

Another object of controversy is the definition of the role and limits of discretionary powers of arbitrators, noticeably wider than in the case of domestic judges (which serves as a main model and point of reference for positivist theories of adjudication). While the judges function primarily as agents of the State, arbitrators do not render the awards from the positions of insiders to a particular domestic legal system; in fact their detachment from the legal system applied to the merits of the case supports their claim to neutrality, that has to be achieved in the transnational context of the cross-border relationship between the parties. The formal requirement that arbitrators should not be of the nationality of any of the parties to a dispute, introduced by some arbitral centres (as seen, for example, in the LCIA Rules, Art. 6), considering that lex causae is very likely to be determined as the law of one of the parties, further augments the status of arbitrators as outsiders to the applicable legal system.

On the textual level of their interpretive activity arbitrators also act as outsiders in the sense that their application of proper substantive law is mandatorily readjusted in the light of international customs and usages of trade. The intrinsically international character of the analysed transactions thus directs legal analysis. Regard for additional, modifying elements, such as securing enforceability of an award by respecting public policy rules of the countries of anticipated enforcement, intensifies this process. Positivist orientation on the text of the law, being analysed with regard to the hierarchical structure of the sources of the law, is challenged in the process of arbitral interpretation, in which the adjudicator might face a mosaic of provisions belonging to different domestic legal systems, public policy considerations, international instruments, rules of transnational origin and established ways of interpretation of model agreements and standard contractual clauses, as well as self-validating contracts.15

Finally, some highly creative aspects of arbitral decision-making turned out to be hardly reconcilable with positivist model of adjudication based on linguistic inquiry of rules, enacted by the sovereign State. In particular, the key role of international commercial arbitration in formulating the principles of the new lex mercatoria turned out to be controversial and was claimed to be exceeding the limits of discretionary powers of the arbitrators. The autonomous status of lex mercatoria as law (and a valid ground for arbitral decision-making) has also been denied by different authors for several reasons. One of the most prominent is the lack of endorsement by a sovereign State authority, which has been indicated in positivist jurisprudence as a necessary condition for creation of valid legal norms.16 Lex mercatoria as a set of rules of transnational, yet private origin, largely developed through arbitral case law (that is, private adjudication), might appear as a highly subversive concept, when approached from the perspective of the traditional hierarchy of the sources of law. This has led Gunther Teubner to characterize the phenomenon of lex mercatoria as double taboo-breaking in regard to the State monopoly on regulating international relations: first, as it accepts that private undertakings can be a source of valid rules without State control and authorization; and second, as lex mercatoria is applied (predominantly by arbitral tribunals) without formal, global recognition, and official legitimization extended by the governments.17

Legal Hermeneutics

An alternative concept of legal discourse is offered by legal hermeneutics. The term ‘hermeneutics’ has an ancient Greek etymology: an expression hermēneutikos, denoting a master of interpretation, derives from the words hermeneuein (to interpret) and hermeneus