Arbitration as a dispute resolution process: historical developments Florian Grisel (Research Fellow (Centre national de la recherche scientifique); Reader in Transnational Law (King’s College London)) Introduction: The basic mechanism of appointing a third party to settle disputes cuts across societies and time periods. Agamemnon settled the dispute between Ajax and Ulysses over the armour of Achilles by organising a contest between the two soldiers.1 Similarly, Thucydides noted the numerous attempts to settle disputes between Greek city-states through arbitration during the Peloponnesian War.2 Social scientists and lawyers have highlighted the ways in which dispute settlement processes akin to arbitration have existed in various social groups at different stages of human history.3 In the past centuries, arbitration has been used to solve disputes between traders, companies, states, and private individuals. Famous examples include the development of arbitration as a dispute settlement mechanism among traders in the Middle Ages,4 states after the late eighteenth century,5 and within trade associations starting in the nineteenth century.6 Although arbitration has a rich past as a dispute settlement method, efforts to retrace its history have been sporadic and limited.7 These difficulties probably arise from the daunting – and perhaps impossible8 – task of extracting common institutional features from the various historical and legal contexts in which these features have arisen.9 Instead of drawing a general history of international arbitration, the present chapter focuses on the ways in which arbitration has emerged as the favoured method for the settlement of international business disputes over the last century. The number of cases resolved through international arbitration has risen steadily during this time period. In addition, international arbitration has undergone a process of institutionalisation over the same time period: arbitral 1 See, for instance, Sophocles (transl. by Oliver Taplin), Four Tragedies, Oxford University Press, 2015, p. 132. See Thucydides, The War of the Peloponnesians and the Athenians (transl. by Jeremy Mynott), Cambridge University Press, 2013, pp. 19, 26 84, 285, 309, 342. 3 See, for instance, Lisa Bernstein, “Opting out of the Legal System: Extralegal Contractual Relations in the Diamond Industry,” Journal of Legal Studies, Vol. XXI, 1992, p. 115; Jane Fishburne Collier, Law and Social Change in Zinacantan, Stanford University Press, 1973, Ch. 2; Henry Sumner Maine, Ancient Law, Cosimo, 2005, Ch. 1. 4 See Mary Elizabeth Basile, Jane Fair Bestor, Daniel R. Coquillette & Charles Donahue, Lex Mercatoria and Legal Pluralism : A Late Thirteenth-Century Treatise and its Afterlife, The Ames Foundation, 1998. 5 See Mikaël Schinazi, The Three Ages of International Commercial Arbitration: Between Renewal and Anxiety (PhD Thesis, Sciences Po Paris, 2019), Part 1. 6 See, e.g., Lisa E. Bernstein, “Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions,” (2001) 99 Michigan Law Review 1724. 7 See the overview of the literature in the introduction of Mikaël Schinazi, The Three Ages of International Commercial Arbitration: Between Renewal and Anxiety (PhD Thesis, Sciences Po Paris, 2019). 8 See Pierre Legrand, “On the Singularity of Law,” (2006) 47/2 Harvard International Law Journal 517. 9 See, in this regard, the historical overview of international arbitration made by Gary Born, International Commercial Arbitration, 2d ed., Kluwer Law International, 2014, Chapter 1. See also the broad scholarship of Derek Roebuck on the history of international arbitration. 2 1 institutions have come to virtually monopolise the settlement of international business disputes and exercise a determining influence on the evolution of international arbitration.10 Instead of drawing a general history of international arbitration, the present chapter will take up the narrower task of examining its developments in the last century throughout the study of the two most important institutions for commercial and investment arbitration: the International Chamber of Commerce (ICC) and the International Centre for the Settlement of Investment Disputes (ICSID). In focusing on the history of the ICC and ICSID, the present chapter will examine the evolution of both institutions along common analytical lines. This approach is based on the assumption that commercial and investment arbitration share procedural features that allow common analysis. To that extent, the present chapter runs counter to the bulk of the scholarly work on this subject which tends to separate the study of commercial and investment arbitration. This chapter will also rely on the important literature that has emerged in the social sciences on the emergence and evolution of (judicial) institutions. This literature has been generally ignored by legal scholars (particularly in the field of international arbitration), despite its fundamental relevance and theoretical span. The goal is not to reflect on the possible limitations or shortcomings of this literature, but rather to use it as a reference point for the analysis of international arbitration. Of particular relevance is the analysis of (judicial) institutions as entities that fulfil specific social goals when operating under certain conditions. The rich literature on the emergence of “private orders” adopts such a perspective.11 The present chapter will rely on a simplified account of this literature, which distinguishes between “relation-based” and “rule-based” governance.12 The first model (relation-based governance) assumes that under certain conditions (namely, perfect information and the repetition of social interactions), social agents may operate at an optimal social equilibrium by interacting (and cooperating) with one another. This model works best in tightly-knit communities where the aforementioned conditions are more likely to be present.13 The second model (rule-based governance) operates in a world where these basic conditions no longer exist, and where institutions are needed to promote, maintain and enforce cooperative norms among individuals. The evolutionary development predicted by the model is that “self10 This influence was noted, inter alia, in Alec Stone Sweet & Florian Grisel, The Evolution of International Arbitration: Judicialization, Governance, Legitimacy, Oxford University Press, 2017, Ch. 2 and Giacomo Marchisio, The Notion of Award in International Commercial Arbitration: A Comparative Analysis of French Law, English Law, and the UNCITRAL Model Law, Kluwer Law International, 2017, Ch. 3. 11 A similar analytical frame has been applied to international arbitration by Christopher Drahozal, “Private Ordering and International Commercial Arbitration,” (2009) 113/4 Penn State Law Review 1031. 12 See Avinash K. Dixit, Lawlessness and Economics – Alternative Modes of Governance, Princeton University Press, 2004, Ch. 3 ; Avinash K. Dixit, “Institutions and Economic Activity,” The American Economic Review, Vol. 99/1, 2009, p. 3. See also Alec Stone Sweet & Florian Grisel, The Evolution of International Arbitration, Oxford University Press, 2017, Ch. 1. 13 See the literature cited in Norman P. Li & Satoshi Kanawaza, “Country roads, take me home … to my friends: How intelligence, population density, and friendship affect modern happiness,” British Journal of Psychology (2016), 107, p. 675, p. 678. 2 governance must eventually give way to formal rule-based governance” as “economies become larger and more globalized.”14 This prediction appears to hold true in the context of international arbitration. Based on the examples of the ICC and ICSID, the chapter will show how international arbitration has successively embraced a “relation-based” and a “rule-based” model of governance. Initially, the systems of dispute resolution promoted by the ICC and ICSID displayed the features of the relation-based model. The ICC and ICSID sought to promote self-governance by pooling information concerning business participants. A related goal was to create repeat business by encouraging an equitable method of dispute settlement that relied, to a large extent, on the participation of its users. The second step came, however, when self-governance failed to maintain cooperation, causing both the ICC and ICSID to promote a rule-based model of governance where third party-arbitrators gained increasing powers over the disputing parties. As a final step, arbitral tribunals evolved towards a fully-judicialised system of dispute resolution which increasingly resembles national courts.15 I. The Search for a Method of Dispute Resolution: Exploring Relation-Based Governance This section explains how the ICC and ICSID initially embraced relation-based governance by promoting systems of dispute resolution that were ultimately guided by the maintenance of business relationships. The ICC and ICSID primarily sought to minimise disputes, or even avoid them altogether, rather than resolve them. For that purpose, both institutions sought to promote self-regulation by business actors (as opposed to regulation by a third-party entity). A presentation of the origins of the ICC and ICSID will cast light on the features of this relationbased model. A. Institutionalising Third-Party Dispute Resolution The ICC Court of Arbitration and ICSID emerged to provide responses to the growing need for dispute resolution in international trade that arose throughout the twentieth century. This need manifested itself in traders, investors, and states turning to the ICC or the World Bank for support in settling their disputes. Both institutions responded favourably to these requests, on the grounds that their overall purposes included contributing to global peace16 and promoting foreign investment.17 By offering a platform for businesses to settle their disputes, the ICC and the World Bank pursued their mission to contribute to greater international peace and 14 Avinash K. Dixit, Lawlessness and Economics – Alternative Modes of Governance, Princeton University Press, 2004, p. 78. 15 This last evolutionary step is further described in Alec Stone Sweet & Florian Grisel, The Evolution of International Arbitration, Oxford University Press, 2017. 16 Statutes of the ICC (1920), Art. 1(2). 17 IBRD Articles of Agreement, Art. 1(2). 3 prosperity. These dispute settlement activities were mostly consensual, as disputing parties turned towards these institutions to mediate or conciliate rather than arbitrate their disputes.18 Businesses began turning to the ICC Banking Commission in the early 1920s to obtain support and resources for settling their disputes.19 The first arbitration cases were submitted to ICC in 1921, before the adoption of the first ICC rules of arbitration in 1922, and the first arbitral award was rendered in 1922, before the creation of the ICC Court of Arbitration in 1923.20 Thus, to a large extent, the practice of ICC arbitration antedated its institutionalisation. The chronology of events was similar at the World Bank, to which foreign investors and States turned for the settlement of disputes in the 1950s (prior to the creation of ICSID). These disputes often concerned expropriations that occurred in post-colonial States after the Second World War. For instance, the World Bank was called on to resolve the dispute between the Iranian government and the Anglo-Iranian Oil Company after the nationalisation of the Abadan oil refinery in 1951 (the largest oil refinery in the world at the time). The World Bank’s vicepresident, Robert Garner, mediated this dispute,21 and although these mediation efforts failed, they paved the way for a successful settlement in 1954 (after the overthrow of Prime Minister Mossadegh).22 Similar efforts were made after the Suez crisis and the Egyptian government’s nationalisation of foreign assets in 1956. The President of the World Bank, Eugene Black, successfully settled the dispute over the valuation of the British and French assets seized by the Egyptian authorities.23 Other disputes, such as the Indus Basin dispute between India and Pakistan and the dispute between private French bondholders and the City of Tokyo, were resolved through President Black’s efforts at conciliation in the late 1950s. The need to create institutions specialising in the settlement of commercial and investmentrelated disputes grew naturally out of these conciliation efforts carried out by the ICC and the World Bank. In fact, the World Bank’s experience in mediating disputes was a strong “selling point” when the World Bank’s General Counsel Aron Broches and President Black promoted the creation of an institution specialising in the settlement of investment disputes.24 For instance, Black made the following comments when introducing the idea of a specialised institution to resolve investor-State disputes before the Board of Governors of the International Bank for Reconstruction and Development (IBRD) in 1961: 18 Eugene Black emphasised the fact that the World Bank had never been asked to arbitrate disputes, but simply to offer “good offices, services, mediation,” see The World Bank/IFC Archives, Oral History Program, Transcript of interview with Eugene R. Black, p. 51. 19 Florian Grisel et al, “Aux origines de l’arbitrage commercial contemporain: l’émergence de l’arbitrage CCI (19201958)” (2016) 2 Revue de l’arbitrage 403, 407. 20 Ibid. 21 Garner gave an interesting account of his mediation efforts between the Anglo-Iranian Oil Company and Iran, see The World Bank/IFC Archives, Oral History Program, Transcript of interview with Robert Garner, pp. 56-66. 22 Id., p. 65. 23 See The World Bank/IFC Archives, Oral History Program, Transcript of interview with Eugene R. Black, pp. 42-47. 24 See World Bank History Project, Transcript of interview with Aron Broches (20 October 1990), p. 28. 4 “[…] the Bank as an institution, and the President of the Bank in his personal capacity, have on several occasions been approached by member governments to assist in the settlement of financial disputes involving private parties. We have, indeed, succeeded in facilitating settlements in some issues of this kind, but the Bank is not really equipped to handle this sort of business in the course of its regular routine. […] The fact that governments and private interests have turned to the Bank to provide this assistance indicates the lack of any other specific machinery for conciliation and arbitration which is regarded as adequate by investors and governments alike. I therefore intend to explore with other institutions, and with our member governments, whether something might not be done to promote the establishment of machinery of this kind.”25 The ICC Court of Arbitration and ICSID were therefore established in order to institutionalise the existing dispute settlement activities of the ICC and the World Bank.26 However, disputing parties chose to turn to ICC and ICSID (as opposed to other institutions) for reasons that have remained unexplored to date. In order to explore these potential reasons, it should first be noted that disputing parties initially submitted claims to other more traditional avenues for the settlement of business disputes, but these efforts were largely unsuccessful. For example, the UK submitted claims on behalf of the Anglo-Iranian Oil Company against Iran before the International Court of Justice, but the ICJ dismissed the case on jurisdictional grounds in 1952.27 Similarly, the dispute between French bondholders and the City of Tokyo had been litigated before French and Japanese courts for decades to no avail prior to being submitted for mediation by President Black.28 Then-existing national and international tribunals lacked the legal apparatus to settle international business disputes in efficient ways. Similarly, ad hoc arbitration was not an option in high-stakes cases where defendant parties were likely to renege on their promise to arbitrate. For instance, the oil concession agreement between the Anglo-Iranian Oil Company and the Government of Iran contained an arbitration clause; however, Iran argued that it was not obligated to submit to arbitration after it repudiated this clause in 1951.29 In a world where traditional dispute settlement bodies were unavailable or ineffective, business parties turned to the ICC and to the World Bank as possible avenues for the settlement of their disputes. Until the effectiveness of national and international tribunals was improved, and until the enforceability of arbitration agreements (and arbitral awards) was fully recognised, businesses and States had no alternative but to attempt to settle disputes on their own. In that context, 25 Excerpt from address by President Eugene R. Black to the Annual Meeting of the Board of Governors (September 19, 1961, Vienna) in History of the ICSID Convention, Vol. II, Part 1, 1968, p. 3. 26 This goal was explicit in the case of ICSID, see Note by the General Counsel transmitted to the Executive Directors (January 19, 1962) in History of the ICSID Convention, Vol. II, Part 1, 1968, p. 7 : “[The present proposals] aim at ‘institutionalizing’ the Bank’s present dispute settlement activities.” 27 ICJ, Anglo-Iranian Oil Co. Case (UK v. Iran), Judgment of July 22, 1952. 28 See The World Bank/IFC Archives, Oral History Program, Transcript of interview with Aron Broches (May 23, 1984), p. 35. 29 Antonio R. Parra, The History of ICSID, Oxford University Press, 2012, pp. 17-18. 5 disputing parties turned to third-party institutions such as the ICC or the World Bank because these institutions were ideally positioned in the transnational arena, at the intersection of various geographically based (local/national/international) and agency (State/firm) structures, giving them access to centralised information related to business actors. For example, the ICC created a network of “National Committees” which nurtured strong links with local industries. In 1935, ICC boasted that it was “in close touch with all the great industrial and trading industries of nearly every country in the world,” with membership from “all the most important economic bodies in the world.”30 The World Bank similarly situated itself at the crossroads of capital markets: it maintained close associations with capital-exporting countries (which made voluntary contributions to the Bank’s lending activities) in the course of monitoring the activities of its borrowers (typically capital-importing countries).31 As a consequence, the World Bank kept a record of investor-State disputes arising in capital-importing countries (e.g., expropriations or nationalisations) that were likely to affect the willingness of capital-exporting countries to contribute financially to its lending activities. President Black reported this monitoring activity in the context of the Egyptian nationalisation of Belgian assets in 1960: “[…] at the time of the Congo situation, [Nasser] seized all Belgian properties. I have sent word to him and his government that we’re not going to make any loans to them now until they settle with the Belgians. We won’t lend money to any country that seized property, until they make proper payment.”32 This relational arrangement was all the more important as national courts were badly equipped to enforce contracts or judgments that involved elements of extraterritoriality. In addition, parties were unlikely to use ad hoc methods of private ordering since one of the conditions of self-governance (i.e., repeated business interactions) was unlikely to be met at the transnational level owing to the atomised character of these business relationships. In other words, a third-party institution was needed to facilitate discussions and for good offices, but also to offer centralised information so as to enhance future enforcement. The ICC and the World Bank could play that role because of their unique position at the intersection of various (private and public) networks. A similar model, where a third party facilitating the settlement of disputes gathered information concerning business actors, was employed by the arbitral tribunals which emerged from the Champagne Fairs of the Middle Ages.33 In a landmark article, Milgrom, North, and Weingast analysed how these tribunals restored the effectiveness of a reputation-based system by encouraging merchants to behave honestly, imposing sanctions on violators, becoming adequately informed about how others had behaved in the past, and providing evidence concerning cheaters.34 Similarly, the ICC and the World Bank positioned themselves as repositories of information that facilitated dispute settlement, rather than 30 International Commercial Arbitration – Practical Hints, ICC, 1935, p. 7. Antonio R. Parra, The History of ICSID, Oxford University Press, 2012, pp. 21-22. 32 The World Bank/IFC Archives, Oral History Program, Transcript of interview with Eugene R. Black (August 6, 1961), p. 46. 33 Paul R. Milgrom, Douglass C. North, and Barry R. Weingast, “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges and the Champagne Fairs,” (1990) 2 Economics and Politics 1. 34 Ibid. 31 6 offering themselves as true dispute settlement institutions or alternatives to local courts. Their role as hubs of an information network resulted in their preference for conciliation and, in the case of ICC, in the consensual nature of the early arbitration system. B. The Early Emphasis Placed on Conciliation From the outset of their existence, the ICC and ICSID showed a strong preference for conciliation over arbitration. Conciliation differs from arbitration insofar as the parties are free to adopt or reject a settlement proposed by a conciliation body, whereas, in contrast, disputing parties are bound to respect the terms of an arbitral tribunal’s award. In accordance with their objectives of promoting greater peace and prosperity, the ICC and ICSID sought to preserve the continuity of business relationships by favouring conciliatory modes of dispute settlement. However, for both entities, this preference for conciliation was unsuccessful. When it launched its dispute resolution system in the 1920s, the ICC strongly encouraged parties to resort to conciliation rather than arbitrate disputes.35 This apparent preference for conciliation was in reality dictated by pragmatism and common sense, as the existing legal framework could barely support the development of arbitration (as further developed below). In 1922, the ICC insisted that disputes should be settled through conciliation “without recourse either to the Courts or to arbitration properly so called.”36 In its 1922 Rules, ICC distinguished between conciliation services, arbitration services “without legal sanctions,” and arbitration services “with legal sanctions.”37 The first part of the 1922 Rules accordingly laid out “rules of procedure for the conciliation and good offices.” Pursuant to these Rules, parties could submit their disputes to a standing body called the “Administrative Commission,” in charge of making “friendly suggestions” for the settlement of their disputes.38 Delegates of National Committees of the same nationality as the disputing parties sat on this Administrative Commission.39 The goal was to use the networks which the ICC developed at the local level in order to induce parties into agreeing to and enforcing settlements. The ICC Rules of Conciliation and Arbitration reflected that goal by providing that, in case of a failure of one or both of the parties to appear, the Administrative Commission was empowered to communicate the proposed settlement to the relevant National Committees and to request them “to use their influence with the parties to accept the settlement proposed by the Commission.”40 The goal clearly was to pressure 35 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, p. 3: “Conciliation should be tried before arbitration.” 36 ICC Rules of Conciliation (Good Offices) and Arbitration (1922), Introduction (as cited by Steuart Hamilton, “ICC Conciliation: A Glimpse into History,” in Special supplement 2001 – ADR: International Applications, Paris, International Chamber of Commerce, 2001, p. 23, p. 24. 37 George L. Ridgeway, Merchants of Peace – Twenty Years of Business Diplomacy through the International Chamber of Commerce 1919 – 1938, New York, Columbia University Press, 1938, p. 322. 38 ICC Rules of Conciliation (Good Offices) and Arbitration (1922), Section A, Article I. 39 See “La procédure de conciliation de la Chambre de Commerce Internationale,” L’Economie internationale, 1938, p. 22. 40 ICC Rules of Conciliation and Arbitration (1927), Art. 3(3). 7 parties into accepting settlements by relying on the importance of reputational bonds at a more local level.41 At first, this policy appeared to be relatively successful. For instance, between 1923 and 1928, 71 cases were resolved through conciliation or agreement of the parties “at the suggestion of” the ICC.42 By contrast, only 12 cases were resolved through arbitration during this time period.43 Between 1934 and 1938, 81% of the cases brought to ICC were settled through conciliation.44 The purpose of the ICC was very clear: by encouraging parties to rely on conciliation, the ICC made repeat business between and among them more attractive and likely—in 1935, the ICC accordingly advised that “the more conciliatory the parties show themselves, the more likelihood there is that they will remain on good terms and continue to do profitable business together in the future.”45 In 1954, the ICC re-affirmed its position that “[c]onciliation is always to be preferred to Arbitration […].”46 However, the ICC progressively gave its preference to arbitration over conciliation.47 As a sign of this changing policy, the ICC referred to “optional conciliation” (instead of “conciliation”)48 Its 1934 Rules clarified that the initiation of an arbitration was not conditioned on a prior conciliation between the parties.49 In 1969, the ICC reported the “[…] relatively modest number of conciliation cases.”50 In 1997, only seven requests for conciliation were filed with ICC (as compared with 462 requests for arbitration).51 In 1998, the ICC renamed its rules “ICC Rules of Arbitration” (replacing the former “ICC Rules of Conciliation and Arbitration”).52 In fact, a review of the figures made public by the ICC in 1928 might offer an explanation as to why the recourse to conciliation prevailed over arbitration, and then progressively declined. Prior to that year, 147 out of 260 matters had been dropped because the defendant declined to 41 Elinor Ostrom noted how some institutions are organized in “multiple layers of nested enterprises” in order to operate over a larger territory. See Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990, Ch. 3. 42 Journal of the International Chamber of Commerce, No. 17, 1928, p. 21. 43 Ibid. 44 Brochure from the International Chamber of Commerce, Paris, International Chamber of Commerce, February 1938, p. 14. 45 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, p. 4. 46 Practical Hints on International Commercial Arbitration, ICC Brochure, 1954, p. 4. 47 Steuart Hamilton, “ICC Conciliation: A Glimpse into History,” Special Supplement 2001: ADR: International Applications, Paris, International Chamber of Commerce, 2001, p. 23, p. 29. 48 th Resolutions adopted by the Seventh Congress of the International Chamber of Commerce Vienna, May 29 – June rd 3 1933, Brochure No. 83, Paris, International Chamber of Commerce, Resolution No. 19, p. 23. 49 “Un nouveau texte du Règlement de Conciliation et d’Arbitrage de la Chambre de Commerce Internationale,” L’Economie Internationale, Janvier 1934, Vol. VI/N° 1, p. 11. 50 “50 ans d’arbitrage de la CCI,” Nouvelles de la CCI, Juin-Juillet 1969, Vol. XXXV, No. 5-6 : “[…] le nombre relativement modeste des recours à la conciliation” 51 “1998 Statistical Report,” ICC International Court of Arbitration Bulletin, Vol. 10, No. 1, p. 4. 52 It should be noted, however, that ICC replaced the Conciliation Rules with ADR Rules in 2001. The ADR Rules have not met with significant success so far: 21 new cases were filed under the ICC ADR Rules in 2012, as compared with 759 arbitration cases (“2012 Statistical Report,” ICC International Court of Arbitration Bulletin, Vol. 24, No. 1, 2013). 8 arbitrate, deeming itself “not . . . bound by the arbitration clause.”53 In other words, plaintiffs wished to submit their claims to arbitration for the majority of disputes, but could not successfully do this because arbitration clauses (and arbitral awards) were not enforceable at the time. Because of these enforcement issues, conciliation was a second-best option for disputing parties. As will be seen further below, enforcement issues were resolved over time, and the ICC then encouraged the users’ growing preference for arbitration. Similarly, ICSID offered and promoted conciliation services from its inception, without success. In fact, as seen above, the ICSID system arose out of a need to institutionalise the intervention of the World Bank (or its prominent figures) as a conciliator in the late 1950s and early 1960s. The ICSID Convention put conciliation on equal footing with arbitration, devoting a full section to its conciliation services.54 Early on, ICSID officials favoured these conciliation services,55 but this policy has been relatively unsuccessful—since the creation of its conciliation services, only 10 conciliation cases have been submitted to ICSID, as compared with 597 arbitration cases.56 In the mid-2000s, ICSID tried to revive its conciliation procedure—the ICSID Secretariat decided that, when acknowledging receipt of a request for arbitration, it should draw the disputing parties’ attention to the possibility of using ICSID conciliation services.57 This policy was also discussed in the following extract from a Discussion Paper released by ICSID in 2004: ICSID also provides facilities for the settlement of disputes by conciliation. The Centre now actively promotes conciliation as a relatively low-cost alternative to arbitration that may better preserve business relationships between the parties. On receipt of a request for arbitration, ICSID calls the attention of the parties to the conciliation alternative. Mediation may in some cases be a more effective means of reaching an amicable settlement than the comparatively formal conciliation procedures. In addition to promoting its conciliation facilities, ICSID has therefore begun to examine the possibility of helping to sponsor the establishment of a mediation service for investor-to-State disputes.58 A follow-up paper issued by ICSID in 2005 greeted the “[u]niformly positive comments” received from the public on the proposed creation of mediation services.59 However, ICSID does not appear to have initiated further steps to implement this service subsequent to this paper. 53 See the figures reported in Journal of the International Chamber of Commerce, No. 17, 1928, p. 21. ICSID Convention, 1965, Section 3. 55 See, e.g., Aron Broches, “The Convention on the Settlement of Investment Disputes between States and Nationals of Other States,” Recueil des Cours de l’Académie de Droit International de La Haye, Vol. 136, 1973, p. 332, p. 341: “In my view conciliation under the Centre’s auspices may in certain situations be preferable to arbitration.” 56 See the list of cases on www.icsid.worldbank.org (last checked on 11 January 2017). 57 Antonio R. Parra, The History of ICSID, Oxford University Press, 2012, p. 257. 58 “Possible Improvements of the Framework for ICSID Arbitration,” Discussion Paper of 22 October 2004, ICSID Secretariat, para. 18. 59 “Suggested Changes to the ICSID Rules and Regulations,” Working Paper of the ICSID Secretariat, May 12, 2005, para. 5. 54 9 The examples of the ICC and ICSID illustrate how efforts to promote consensual methods of dispute resolution (such as mediation and conciliation) have been pursued without much success. The reasons for this failure have not been explored to date.60 These reasons are closely associated with the fact that the ICC and ICSID attempted to implement a relation-based model, with all its inherent limitations. The relation-based model works under certain conditions; namely, if information concerning business actors is freely available and if actors anticipate that their business relationships will continue over the long term (if this latter condition is not fulfilled, there is an “end-game” problem which causes actors to cease cooperating). The necessity of the first condition appears to have raised difficulties because arbitral institutions have proved unable to successfully act as information hubs (as further developed below). The second condition has similarly come under strain in the context of economic crises where business actors no longer anticipated continuing relationships with their counterparts. As a result of these structural defects, the desire to favour conciliation-based systems ceded ground to the necessity of providing a more legalistic and rigid dispute resolution system, while still an attempt was made to keep some of the characteristics of the relation-based model. This desire to maintain the relation-based model was particularly visible in the case of the ICC, which sought to revive the medieval system identified by Milgrom, North, and Weingast in which the dispute resolution body acts to gather and share information concerning business participants. C. Reviving the Medieval Law Merchant The example of the ICC is striking as an effort to combine a more formalised dispute resolution system with features of the relation-based model. It appears that the ICC pushed for a mixed model because it concluded that no other system was sufficiently reliable to sustain an efficient system of dispute resolution. The influence of this relation-based approach has left traces in at least three areas: the enforceability of arbitration clauses, the appointment of arbitrators, and the enforcement of awards. - Enforceability of arbitration clauses At the time the ICC was created, some legal systems did not fully recognise the enforceability of contractual agreements to arbitrate. This was the case for instance in France until at least 1925. Despite this, the ICC still sought to promote the inclusion of arbitration clauses in international contracts, arguing that it was in a position to ensure their enforceability independently from national legal systems. For instance, the ICC advised in 1924 that businesses should include its model arbitration clause in their contracts on the basis that it could enforce these clauses through pressure and retaliation against non-compliant parties: 60 See, however, in the context of investment disputes, W. Michael Reisman, “International Investment Arbitration and ADR: Married but Best Living Apart,” (2009) 24/1 ICSID Review – Foreign Investment Law Journal 185, 191. 10 “This clause has great value as it has behind it the prestige of the International Chamber of Commerce, a federation of 600 industrial Organizations, Chambers of Commerce, Associations of Bankers and Shipping Associations belonging to 40 of the principal countries of the world. Anyone who signed this clause and attempted to repudiate his obligation by refusing to accept arbitration by the International Chamber of Commerce when a dispute arose, would be subjected to pressure on the part of the International Chamber of Commerce and of the commercial organization, whether national or local, to which he belonged. Should he persist in his refusal, he would run the risk of ruining his commercial reputation and losing his credit.”61 The goal of ICC was clear: instead of relying on juridical means of enforcement, it promoted the strength of its arbitration clauses by relying on its networked structure, which could be used as an information hub through which the contractual obligation to arbitrate could be enforced. This fits perfectly with the relation-based model, in which institutions can, in Dixit’s account, “disseminate information about any misbehaviour more quickly and widely, and can better arrange sanctions such as denial of future trading opportunities.”62 In parallel to this policy, the ICC sought to improve the legal framework guaranteeing the enforceability of arbitration agreements. For instance, it actively encouraged the efforts leading to the adoption of a statute guaranteeing the validity of arbitration clauses in France in 1925.63 The ICC also encouraged states to sign and ratify the Geneva Protocol on Arbitration Clauses.64 It is interesting to note the pragmatic policy of the ICC, which encouraged the use of conciliation while constructing a legal framework that would allow the future development of international arbitration. - Appointment of arbitrators The ICC’s relation-based model also applied to the appointment of arbitrators. In the 1920s and 1930s, the ICC appointed arbitrators in coordination with its National Committees. The ICC Arbitration Rules of 1922 provided that the Court of Arbitration “shall request the National Committees to furnish it with the names of technically qualified arbitrators, as and when required, for appointment as arbitrators in the cases submitted to it, and from amongst them 61 See The Arbitration of the International Chamber of Commerce, ICC, 1924, p. 3. Avinash K. Dixit, Lawlessness and Economics – Alternative Modes of Governance, Princeton University Press, 2004, p. 50. 63 These efforts are retraced in Mikaël Schinazi, The Three Ages of International Commercial Arbitration: Between Renewal and Anxiety (PhD Thesis, Sciences Po Paris, 2019), Part 1, Chapter 2 ; see also Florian Grisel, Emmanuel Jolivet & Eduardo Silva Romero, “Aux origines de l’arbitrage commercial contemporain: l’émergence de l’arbitrage CCI (1920-1958,” (2016) 2 Revue de l’arbitrage 1, 17. 64 See Florian Grisel, Emmanuel Jolivet & Eduardo Silva Romero, “Aux origines de l’arbitrage commercial contemporain: l’émergence de l’arbitrage CCI (1920-1958,” (2016) 2 Revue de l’arbitrage 1, 18. There is some debate in the literature as to whether the ICC had any active role in the negotiations leading to the Protocol. See Mikaël Schinazi, The Three Ages of International Commercial Arbitration: Between Renewal and Anxiety (PhD Thesis, Sciences Po Paris, 2019), Part 2, Chapter 1. 62 11 the Committee shall proceed to appoint.”65 The Explanatory Commentary of the 1922 Rules also stated that arbitrators were rarely jurists or lawyers at that time;66 instead, most arbitrators were influential actors in various branches of trade and industry.67 The ICC insisted on the “trust” relationship between parties and arbitrators that were selected from among “all the great industrial and trading industries of nearly every country in the world”.68 As part of this trust relationship, it was not unusual for arbitrators to work for free. For instance, in ICC Case No. 301, the arbitrator did not ask for fees.69 The original features of ICC arbitration reflected a conception of arbitrators as prominent members of a community, who exercised authority and gained prestige (rather than money) from the settlement of important disputes within this community. This conception of the role of arbitrators remained widespread for some time, as shown, for example, by the decision of the US Supreme Court in Commonwealth Coatings v. Continental Casualty Co., holding that arbitrators were “men of affairs, not apart from, but of, the marketplace.”70 Promoting the appointment of arbitrators drawn from the marketplace was a way to sustain the circulation of information concerning cheaters and to encourage self-regulation. The cooperation-based nature of international arbitration was emphasised by legal scholars; for instance, one of the first scholars to study ICC arbitration described international arbitration as “a truly private jurisdiction, sustained by corporative authority, and whose decisions are backed by sanctions that are psychological but nonetheless efficient.”71 - Enforcement of awards Most importantly, the ICC developed a system of enforcing arbitration awards that relied on self-enforcement mechanisms that are typical of private orders.72 The ICC played an active role in this system of self-regulation by publicising the names of non-complying parties, and by requesting its National Committees to pressure these parties to abide by the terms of arbitration awards. The ICC Arbitration Rules of 1922 reflected these efforts by providing that “[t]he parties are in honour bound to carry out the award of the arbitrators.”73 The same Arbitration Rules provided that ICC could pressure a losing party into accepting an award, for instance by publicising its name as well as details of the unenforced award, or by requesting that its National Committees take action against non-complying parties: 65 ICC Rules of Conciliation (Good Offices) and Arbitration (1922), Articles VI/XXVI. Explanatory Commentary of the Rules of Conciliation (Good Offices) and Arbitration, Appendix to Brochure No. 21, ICC, 1925, p. 4. 67 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, pp. 6-7. 68 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, p. 7. 69 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, p. 10. 70 U.S. Supreme Court, Commonwealth Coatings v. Continental Cas., 393 U.S. 145 (1968), 150. 71 Robert Vulliemin, De l’arbitrage commercial particulièrement en matière internationale, Paris, Rousseau & Cie, 1931, p. 161: “(…) une véritable juridiction privée, appuyée sur l’autorité de la corporation et dont les décisions sont munies de sanctions qui pour être d’ordre psychologique n’en sont pas moins efficaces.” 72 See, for instance, Lisa Bernstein, “Opting out of the Legal System: Extralegal Contractual Relations in the Diamond Industry,” Journal of Legal Studies, Vol. XXI, 1992, p. 115, pp. 138 et seq. 73 ICC Rules of Conciliation (Good Offices) and Arbitration (1922), Articles XX/XLI (Emphasis added). 66 12 b) In the event that the party against whom the award has been rendered fails to comply with the terms thereof within a period of 30 days, counting from the notification of the award, the party in whose favour the award has been rendered may notify the National Committee or the Organization Member of the International Chamber of Commerce, as the case may be, that the award has not been carried out by the opposite party; thereupon the Court shall notify the Chamber of Commerce or other business organization to which such defaulting member may belong and shall request such Chamber of Commerce or business organization to apply such disciplinary measures as it may think fit and proper under the circumstances, in respect of the defaulting member. c) The Court of Arbitration of the International Chamber of Commerce shall also have the right to request that the name of the defaulting party be published in the official publications of the International Chamber of Commerce, in those of the National Committees, together with the text of the award so remaining unexecuted.74 Under this system, the ICC served as a conduit for moral sanctions and as a repository of information. The goal was to threaten or harm the reputation of the defaulting party, so that the latter would voluntarily comply with an arbitral award. In this system, the dispute resolution institution played a role similar to that identified by Milgrom, North, and Weingast, in which an institution maintained a centralised bank of information and shared it with business actors in order to promote self-regulation. The institution becomes an information hub, or the place where a ledger is kept providing a complete record of transnational business disputes. These self-enforcement mechanisms did not exclude the possibility of legal enforcement before local courts, but the ICC reported in 1924 that “[t]he moral penalties are nearly always a sufficient guarantee for the execution of the award without having to refer to Civil Courts.”75 Despite the publicity given to its relation-based system of enforcement, the ICC quickly abandoned it in the face of several problems. The reasons for this change of policy are multifaceted and will be identified below. What appears to have been crucial are the difficulties of sustaining the core conditions of self-governance, namely the possibility of long-term business relationships and the free circulation of information concerning members. II. The Emergence and Consolidation of Rule-Based Governance: The Judicialisation of International Arbitration Relation-based governance declined as arbitral institutions progressively faced constraints that undermined the conditions on which this type of governance is based. In this context, the judicialisation of international arbitration unfolded at a rapid pace, with both commercial and investment arbitration progressively taking on the features of rule-based governance. 74 75 ICC Rules of Conciliation (Good Offices) and Arbitration (1922), Articles XX/XLI (Emphasis added). The Arbitration of the International Chamber of Commerce, Paris, International Chamber of Commerce, 1924, p. 8. 13 A. The demise of relation-based governance in international arbitration The relation-based model is premised on two conditions. First, actors must have an incentive to cooperate by entering into long-term, potentially infinite, relationships with other business actors. Axelrod emphasised the “importance of long-term interaction for the stability of cooperation.”76 Second, the information concerning these business actors must be shared in effective ways, either directly or indirectly through an institutional mechanism. Ostrom highlighted the role of “monitoring” (based on free flows of information or, alternatively, on an institutional hub of information) in successfully organising self-governance.77 However, arbitral institutions such as the ICC were unable to guarantee the fulfilment of both conditions. For example, the prospect of longterm business relationships was disrupted by the Great Depression. In addition, the ICC failed to efficiently monitor the behaviour of business actors. - The impairment of long-term business relationships Self-governance can emerge when business actors do not expect their ongoing business relationships to cease at any specific point in time. If business actors anticipate that their business relationships will end, they will tend to renege on their promises to cooperate and breach contractual undertakings. They might deem themselves unbound by arbitration clauses, or decide not to comply with arbitral awards. This “end-game” problem may arise for a variety of reasons. For instance, a party may decide to put an end to a business relationship in order to gain shortterm benefits. Also, a trader may anticipate dire economic conditions to affect the prospect of future business relations, thus creating an incentive for breaching contractual promises. These “end-game” problems can in turn generate a demand for legal certainty, as certain actors may seek to preserve their existing contractual relationships. As a side effect, litigants may become increasingly attached to predictability in the settlement of their disputes. The latter scenario occurred in the late 1920s in the context of the Great Depression. During that period, the ICC saw a steep increase in the number of cases submitted to its arbitration system.78 76 Robert Axelrod, The Evolution of Co-operation, Penguin Books, 1990, p. 60. Elinor Ostrom, Governing the Commons – The Evolution of Institutions for Collective Action, Cambridge University Press, 1990, pp. 93-94 : “It is obvious from our case studies, however, that even in repeated settings where reputation is important and where individuals share the norm of keeping agreements, reputation and shared norms are insufficient [94] by themselves to produce stable cooperative behavior over the long run. If they had been sufficient, appropriators could have avoided investing in resources in monitoring and sanctioning activities. In all of the long-enduring cases, however, active investments in monitoring and sanctioning activities are quite apparent.” 78 M. Rothé, La clause compromissoire et l’arbitrage depuis la loi de 1925, Paris, Domat-Montchréstien, 1934, pp. 144-145: “Une circulaire du Secrétariat général en date du 15 janvier 1932 a fait connaître que la crise actuelle a eu, entre autres conséquences, celle d’augmenter le nombre des litiges soumis à la Cour d’arbitrage de la Chambre de commerce internationale. En particulier, de nombreuses difficultés soulevées à propos de contrats conclus en livres sterling par la récente dépréciation internationale de la livre sont actuellement en voie de règlement. Plus que jamais, dit le document auquel nous nous référons, les industriels, commerçants et banquiers ont intérêt [145] à attribuer d’avance dans leurs contrats avec l’étranger, compétence à la Cour d’arbitrage de la Chambre de 77 14 Disputing parties began acting in ways that betrayed a lack of confidence in the future and a corresponding need for legal certainty. For example, in a written correspondence with the ICC at the end of 1929, the general counsel of a Wisconsin-based company made clear that his company expected legal certainty from the dispute settlement process offered by the ICC, and could not “believe that [the ICC] can seriously mean to state […] that arbitration tribunals will interpret a dispute between two contracting parties on the basis of some vague general considerations of equity, and will totally disregard the specific written undertakings of the parties.”79 After the devaluation of the pound sterling in September 1931, the ICC came under similar pressure to increase legal certainty by publicising awards and scrutinising not just the form but also the substance of draft awards.80 The publication of awards would allow parties to consult the emerging case law of the ICC in order to anticipate how their own disputes would be resolved; and an extended review of draft awards by the ICC Court would increase the predictability of the whole system by increasing consistency across decisions.81 The need for a system of provisional measures also arose during this time period. The “urgent cases”82 that arose during the Great Depression prompted the ICC to give power to the President of its Court of Arbitration (before an arbitral tribunal was constituted) or to the arbitral tribunal itself (once it had been constituted) to appoint one or several experts “to make statement of facts, adopt all conservatory measures and if necessary to sell, after having stated the facts, the goods in dispute for the account of their lawful owner […].”83 In sum, the end-game problem raised by the Great Depression moved the institution towards rulebased governance. Business actors could no longer rely on a relation-based model, as the prospect of long-term business relationships was gravely impaired by the economic crisis. In this context, the expectation that business partners might renege on their contractual promises increased sharply, and self-regulation based on the prospect of repeated interactions became problematic. In addition to this end-game problem, ICC seemed unable to manage information efficiently, or to create the hub of information networks that it initially intended to put in place. commerce internationale ; ils s’épargnent ainsi des frais de justice considérables et de longs délais dans le règlement des affaires.” 79 Correspondence between the Commercial Attorney of Company X and the ICC (Paper No. 3897) ; see also Florian Grisel, “Droit et non-droit dans les sentences arbitrales CCI: une perspective historique,” (2014) 25/2 ICC International Court of Arbitration Bulletin 13, 16. 80 Florian Grisel et al, “Aux origines de l’arbitrage commercial contemporain: l’émergence de l’arbitrage CCI (19201958)” (2016) 2 Revue de l’arbitrage 403, 422 81 Florian Grisel, “Control of Awards and Re-centralisation of International Commercial Arbitration,” (2006) 25 Civil Justice Quarterly 166. 82 See Robert Marx, “The Court of Arbitration of the International Chamber of Commerce – Revision of the Rules,” World Trade, No. 11, August 1931, p. 301, p. 302: “Experience has shown that urgent cases may arise which necessitate, outside the monthly meetings of the Executive Committee, a decision concerning conservatory measures to be taken in the interest of one or other of the parties.” 83 ICC Rules of Conciliation and Arbitration (1932), Article 11. 15 - The failure to manage information through institutional means The system put in place by ICC for the enforcement of awards through information-sharing devices progressively fell into disfavour. The informational remedies designed by the ICC appear to have been inadequate in the context of a growing adversarialism among disputing parties. In this context, the ICC increasingly ran the risk of being perceived as a non-neutral actor in the settlement of business disputes. As early as 1927, the ICC revised its system of self-enforcement, fearing that it would be sued for libel by disgruntled losing parties whose names had been publicised pursuant to the ICC Rules of Arbitration. The travaux préparatoires leading to the revision of its rules of arbitration in 1927 reflected the failure of the system put in place by the ICC Court of Arbitration: The old Rules provided for the publication of the names of parties who refused to comply with arbitral awards. This provision was never applied. It was without practical value. An award not complied with might be annulled by the Courts, in which case the party whose name had been published could have sued the Court of Arbitration for libel and claimed damages for the injury sustained. So the Court of Arbitration could only take such a measure after the Courts had ordered the enforcement of the award, that is when such publication was no longer of any practical value. So the Committee decided to delete the paragraph altogether.84 Following these discussions, the ICC abandoned the option of publicising the names of losing parties who refused to comply with the terms of arbitral awards, but maintained the option of notifying local Chambers of Commerce and business organisations, asking them to take “suitable measures” against non-complying parties. Art. 25 of the ICC Rules of Conciliation and Arbitration adopted in 1927 provided in relevant part that: 2. In case the party against whom the award is made does not comply therewith within thirty days of the notification of the award, the party in whose favour the award is made may so inform his National Committee or Organization Member of the International Chamber of Commerce as the case may be. 3. The latter in such event shall inform the Court of Arbitration which shall then ask the Chamber of Commerce or any other organization to which the recalcitrant member belongs to take suitable measures.85 In 1947, the third paragraph of the above provision was amended to provide that the Court of Arbitration could “ask the [ICC] National Committee, or in the absence of a National Committee, any other organisation to which the recalcitrant member belongs, to take suitable measures.”86 84 ICC Brochure No. 50, Report of the Secretary General comparing the old and new Rules and describing the principal amendments, 1927, p. 6. 85 ICC Rules of Conciliation and Arbitration (1927), Art. 25. 86 ICC Rules of Conciliation and Arbitration (1947), Art. 26(3). 16 However, the ICC had trouble using these powers effectively. For example, in ICC Case No. 786, the winning party (a French company) requested the assistance of the ICC Court of Arbitration against the losing party (a British company), because the latter refused to comply with the terms of an arbitral award.87 The ICC Court of Arbitration requested its UK National Committee to take “suitable measures” against the losing party.88 However, the UK National Committee refused to do so on the grounds that the losing party was not an ICC member and that any action against this party could be potentially harmful to the ICC: “We feel it to be both unavailing and harmful to I.C.C. work, for us to press a firm, not one of our members, to carry out an award which they refuse to recognize.”89 When recommending the suppression of these powers from the Rules of Arbitration in 1955, the ICC Secretary General, Frédéric Eisemann, emphasised the “inefficient or even impossible” character of the “moral pressures” exercised by the ICC through its National Committees.90 The relation-based system for the enforcement of arbitral awards therefore seems to have been abandoned because of its inefficiency. Two explanations can be offered for the impracticality of this system. First, the difficulties of enforcing awards through reputational devices grew in a business universe that had become increasingly large and complex, in which information was increasingly difficult to gather through institutional means. The UK National Committee of ICC could not exercise pressure on a company which was not a member of the ICC and with which it had no prior relationship. Second, the ICC’s involvement in the enforcement of awards was less permissible in an adversarial environment where disputing parties progressively developed a preference for due process. In that context, to avoid the appearance of partiality, the ICC could no longer be seen as intervening on behalf of one party to facilitate the enforcement of an arbitral award.91 The decline of relation-based governance paved the way for the legal enforcement of arbitral awards before national courts. It seems that the ICC had been using moral pressure as a second-best alternative to legal enforcement from the beginning; indeed, the ICC appears to have favoured judicial enforcement before national courts (as opposed to self-enforcement) from the outset of its existence, but could not count on a sufficiently reliable legal framework to achieve that purpose. During the Congress held in London in 1921, the ICC recommended that the national courts of the Member States improve their regime of legal enforcement 87 Transcript of the 204th session of the Court of Arbitration, 11 April 1951, ICC Document n° 410-50. See Florian Grisel et al, “Aux origines de l’arbitrage commercial contemporain: l’émergence de l’arbitrage CCI (1920-1958)” (2016) 2 Revue de l’arbitrage 403, 440. The award was rendered by Pieter Sanders and published in (1951) 365 Arbitrale Rechstpraak 511. 88 Ibid. 89 Transcript of the session of 4 July 1941 of the Court of Arbitration, ICC document n° 410-63. 90 See “Le nouveau règlement de conciliation et d’arbitrage,” note presented by Frédéric Eisemann at the session of 22 June 1955 of the Court of Arbitration, ICC Document n° 410/346, p. 7. 91 Some arbitral institutions provide still today for similar mechanisms to favour the enforcement of arbitral awards. See, for instance, the CAM-CCBC Arbitration Rules (2011), Art. 11.2: “If the arbitral award is not complied with, the injured party can communicate this fact to the CAM-CCBC so that it can disclose this fact to other arbitration institutions and chambers of commerce or analogous entities in Brazil or abroad.” 17 (exequatur) of arbitral awards.92 In order to improve legal enforcement of arbitral awards, the ICC actively encouraged the creation of a multilateral treaty very early in its existence—in 192627, the Arbitration Committee of the ICC requested the League of Nations to consider the question of the enforcement of arbitral awards and participated in the drafting of a convention concerning the execution of foreign arbitral awards. The final text, drafted by the League of Nations with the support of the ICC,93 was signed on September 26, 1927 in Geneva,94 and created uniform conditions for the enforcement of arbitral awards among State parties. These efforts were taken up again with the ICC’s active involvement in the negotiations leading to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958.95 The ICC acted on two parallel fronts: it contributed to creating uniform grounds for the enforcement of arbitral awards while at the same time adapting its rules to the possibility of such enforcement. This possibility was reflected in the ICC Arbitration Rules adopted in 1947, which provided that “[n]othing in the aforementioned provisions shall in any way prejudice the right of the successful party to seek enforcement of the award.”96 Following on its submission of a preliminary draft convention to the United Nations in 1953, the ICC abandoned all reference in its 1955 Rules of Arbitration to the policy of applying moral pressure to enforce awards. Under these new rules, the ICC Court of Arbitration had to make “best efforts for the award to be enforceable at law”,97 a phrase that appears in the most recent version of the ICC Arbitration Rules.98 Although ICSID has never formally relied on reputational mechanisms to enforce its awards, some authors have highlighted the so-called “World Bank factor” arising from that organisation’s lending activities: countries would be reluctant to renege on their promise to comply with ICSID awards99 because this could negatively affect negotiation of future loans with the World Bank.100 As a 92 Resolutions adopted at the London Congress 1921, Paris, International Chamber of Commerce, 1921, p. 20: “[…] in all countries an effort be made to secure legislation that will render executory the awards of foreign arbitrators without reference to the nationality of the parties, without further discussion upon the merits, limiting the enquiry merely to ascertaining whether or not the rules of procedure in force in the country where the award was made have been complied with, and whether or not such awards contain anything contrary to public order in the country in which the enforcement or exequatur is demanded.” 93 Résolutions votées au Congrès de Stockholm (27 juin – 2 juillet 1927), Brochure No. 60, Paris, International Chamber of Commerce, Resolution No. 8. 94 See George L. Ridgeway, Merchants of Peace – Twenty Years of Business Diplomacy through the International Chamber of Commerce 1919 – 1938, Columbia University Press, 1938, p. 329. 95 See Florian Grisel, “Treaty-Making between Public Authority and Private Interests: The Genealogy of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” (2017) 28/1 European Journal of International Law 73. 96 ICC Rules of Conciliation and Arbitration (as of January 1st, 1947), Article 26 (Emphasis added). 97 ICC Rules of Conciliation and Arbitration (as of January 1st, 1955), Article 31 (Emphasis Added). 98 ICC Rules of Arbitration (2012), Article 41: “In all matters not expressly provided for in the Rules, the Court and the arbitral tribunal shall act in the spirit of the Rules and shall make every effort to make sure that the award is enforceable at law.” 99 ICSID Convention, Article 53(1). 100 Lucy Reed, Jan Paulsson, et al., Guide to ICSID Arbitration, Kluwer Law International, 2010, p. 16. 18 consequence, the affiliation of ICSID to the World Bank would indirectly support the enforcement of arbitral awards by states. For both the ICC and ICSID, rule-based governance became the dominant model, almost completely replacing the relation-based model. Both arbitral institutions gradually designed rules and procedures that would accommodate its users’ demands—the ICC described arbitral institutions as “private legislators”101 that must continually respond to the needs of business users by codifying rules and procedures.102 B. The emergence and consolidation of rule-based governance in commercial arbitration In the post-War period, ICC officials concentrated their efforts on building streamlined procedures pertaining to the constitution of arbitral tribunals, the conduct of arbitral proceedings, and the enforcement of arbitral awards. These efforts at codification were undertaken in response to user demands for “judicial” certainty and due process in arbitration.103 I will focus here on three examples of this process. - Arbitrators as impartial and independent judges of international business disputes During this period, the conception of the role of arbitrators evolved. For example, the ICC gradually promulgated rules concerning the impartiality and independence of arbitrators. Previously, the ICC had linked the notion of “fairness of the trial” with the personal qualities of the arbitrators assigned to decide disputes submitted to arbitration.104 The arbitral process was deemed to be fair because the ICC appointed individuals who were best-suited to impartially resolve business disputes. As pointed out above, the ICC insisted on the “trust” relationship that parties should have with their arbitrators, a distinguishing feature of the relation-based model. According to the ICC, this trust relationship was generated from its ability to select the best arbitrators from the business world: The International Chamber is […] in close touch with all the great industrial and trading industries of nearly every country in the world and can always find the right man, no 101 « Un nouveau texte du Règlement de Conciliation et d’Arbitrage de la Chambre de Commerce Internationale », L’Economie Internationale, Janvier 1934, Vol. VI/N° 1, p. 11: “En effet, cette jurisprudence selon laquelle les dispositions légales doivent céder le pas à la volonté des parties – jurisprudence due en partie à l’autorité dont jouit la Cour d’Arbitrage de la C.C.I. dans le monde – ouvre un vaste champ d’activité aux organisations arbitrales ainsi promues au rang de législateurs privés.” 102 « L’action de la C.C.I. dans le domaine juridique », L’Economie Internationale, Mai 1949, N°2/Vol. XV, p. 17: « Le Règlement [d’arbitrage de la CCI], auquel il est à souhaiter que les hommes d’affaires de tous les pays recourent toujours davantage, est donc une œuvre vivante qui emprunte ses dispositions aux besoins de ceux qu’il sert. » 103 The “judicialization” of international arbitration is further described in Alec Stone Sweet & Florian Grisel, The Evolution of International Arbitration: Judicialization, Governance, Legitimacy, Oxford University Press, 2017. 104 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, p. 4: “[…] the presence of an arbitrator nominated by the parties adds nothing to the fairness of the trial, the single arbitrator being quite capable as an umpire of arriving at an impartial and just decision,” and “[the arbitrator] is an expert selected for his knowledge of the business, his common sense and impartiality, rather than for his legal attainments.” 19 matter what qualifications the parties are entitled to expect. If arbitrations have to take place in a country far distant from the domicile of either or both of the parties—in Shanghai or Buenos Aires, Quebec or Calcutta, Mexico or Helsingfors—the International Chamber is always able to find a competent arbitrator of neutral nationality and proved impartiality.105 As its system of arbitration evolved and came under increasing strain from litigants, specific provisions were added to the ICC Rules aimed at ensuring the impartiality and independence of its arbitrators. The first relevant provision appeared during the Great Depression, when the ICC codified the possibility for parties to challenge arbitrators. This amendment to the 1932 Rules of Conciliation and Arbitration provided that the ICC Court of Arbitration would be entitled to decide such challenges (without specifying the grounds upon which these challenges could be based).106 A member of the ICC Court explained this amendment as necessary to ensure the confidence of the parties in the impartiality of their arbitrators: […] the Executive Committee [of the ICC Court of Arbitration] has in the past allowed arbitrators to be challenged, for instance in cases where business relations had at one time existed between the arbitrator and one of the parties. The confidence of both parties to the dispute in the impartiality of the arbitrator is one of the elements most essential to successful arbitration, and it is this very factor of confidence on which the argument is based in favour of the settlement of disputes between nationals of different countries by international arbitration instead of in a law court in which the foreign party frequently, though possibly without justification, has not complete confidence. […] In view of this position, it was not considered sufficient to leave the right to challenge the arbitrator to be inferred from [the old rules].107 The second provision appeared later when the practice of the parties appointing arbitrators (as opposed to the nomination of arbitrators by the institution) became generalised. This practice first appeared in the ICC Arbitration Rules of 1947, in which each party was granted the possibility of nominating a co-arbitrator.108 This practice has become dominant over time—in a recent period (between 2007 and 2011), 95% of the co-arbitrators in three-member tribunals were appointed by the parties themselves, not by the ICC Court.109 Of course, parties might expect the arbitrator that they have selected as being positively predisposed towards their particular legal positions.110 A prominent arbitrator testified to the potential issues raised by the appointment of arbitrators by disputing parties: 105 International Commercial Arbitration – Practical Hints, Paris, International Chamber of Commerce, 1935, p. 7. ICC Rules of Conciliation and Arbitration (1932), Article 12(3). 107 Robert Marx, “The Court of Arbitration of the International Chamber of Commerce – Revision of the Rules,” World Trade, No. 11, August 1931, p. 301. 108 st ICC Rules of Conciliation and Arbitration (as of July 1 , 1947), Article 12(1). 109 The Secretariat’s Guide to ICC Arbitration, ICC, 2012, p. 3-457 (Table 17). 110 On this phenomenon, see Serge Lazareff, “L’arbitre singe ou comment assassiner l’arbitrage,” in Liber Amicorum in honour of Robert Briner, 2005, p. 477, p. 483. 106 20 I have strong reservations about the desirability of permitting party-appointed arbitrators. Even when a party-appointed arbitrator properly discharges his or her obligation impartially to decide the case, an appearance of partiality on the part of the party-appointed arbitrator is almost inevitable.111 The ICC anticipated those difficulties as early as in 1975, when it amended its Arbitration Rules to require that a “[party-appointed arbitrator] shall be independent of the party nominating him”.112 The ICC Arbitration Rules were again amended in 1988 to extend this requirement by providing that “[e]very arbitrator appointed or confirmed by the Court [including partyappointed arbitrators] must be and remain independent of the parties involved in the arbitration.”113 In 2012, the duty broadened from “independence” to “impartiality”.114 The creation of “judicial” duties of impartiality and independence marks the evolution towards rule-based governance, in which the third party in charge of resolving a dispute cannot be viewed as having close ties to the disputing parties (in contrast with relation-based governance which assumes that the arbitrator is a member of the community in which the dispute arose). Another sign of this judicialisation process concerns the conduct of the proceedings. - The conduct of the proceedings In recent decades, litigants before ICC tribunals have behaved in ways that are increasingly adversarial, using procedural devices that are characteristic of litigation before courts. An ICC tribunal dismissed a case for lack of jurisdiction for the first time in 1951,115 and now challenges to the jurisdiction of arbitral tribunals are routinely advanced. In addition, disputing parties increasingly incorporated choice-of-law clauses in their contracts beginning in the 1960s and 1970s. As a consequence, arbitrators have more frequently applied the national law chosen by the parties rather than their own sense of business equity. Parties have also claimed that mandatory laws could displace the terms of contractual agreements. For instance, a sole arbitrator applied a mandatory rule of French law in five related cases between 1951 and 1955,116 inaugurating a practice that would develop further in subsequent years. The ICC began offering new services including fast-track arbitration; a program to provide tribunals with “neutral” technical experts; and a system for processing requests from parties for interim relief (recently, an Emergency Arbitration service has also been made available). These procedural developments have deeply impacted the composition and work of arbitral tribunals. For example, one can observe an increasing number of legal specialists (a category that includes attorneys, law 111 Hans Smit, “Dissenting Opinions in Arbitration,” (2004) 15/1 ICC International Court of Arbitration Bulletin 37 (footnote 15). 112 ICC Rules of Conciliation and Arbitration (as of June 1st, 1975), Article 2(4). 113 ICC Rules of Conciliation and Arbitration (as of January 1st, 1988), Article 2(7) (Emphasis added). 114 ICC Rules of Arbitration (2012), Article 11(1). 115 See ICC Case n° 787 (Award rendered in 1951). 116 See ICC Cases n° 760, 761, 762, 763 and 764 (the Paris Court of Appeals approved the decision of the sole arbitrator to apply French mandatory law on 13 April 1953). 21 professors, and judges) among ICC arbitrators over the years;117 Graph 1 shows the growing proportion of these specialists in the period from 1922 to 1972. These legal specialists do not conceive of their role as an “honourable” one within an international community of traders and businesses, but as a judicial one akin to that of judges. The present period is, in effect, one of fullfledged judicialisation. C. The emergence and consolidation of rule-based governance in investment arbitration The judicialisation of ICSID arbitration has unfolded in ways that can be distinguished from the evolution of ICC arbitration. Indeed, the procedural framework set out under the ICSID Convention has been remarkably stable, remaining untouched since 1965. Unlike the ICC framework, which became gradually more judicialised over time, the ICSID framework was to some extent judicialised from the outset. The 1965 ICSID Convention already offered a rule-based model, to which disputing parties increasingly turned over time. In 2006, three amendments were made to the ICSID procedural rules which further pushed the ICSID framework closer to a “judicial” model. The first change was the admission of amicus curiae submissions from non-litigant parties. The result of this procedural change was to provide access to the proceedings to a larger public which traditionally had been excluded from participation in arbitral proceedings. The second change fulfilled the same goal by allowing the public to attend arbitral hearings, subject only to either party’s objection. The third change was intended to respond to an increasing adversarialism in ICSID proceedings, and specifically to situations where a party claims that its opponent’s case is devoid of merit at an early stage of the proceedings. The ICSID arbitration rules were amended to allow a party to seek early dismissal of a case only on the basis that it is “manifestly without legal merit.”118 ICSID arbitration, like ICC arbitration, came under pressure from disputing parties to evolve towards a fully developed rule-based model, increasingly resembling that of courts. Conclusion: To conclude, international arbitration has been characterised by a fundamental evolution which occurred throughout the twentieth century and has continued into the twenty-first century. This type of dispute resolution has evolved from a model in which parties were discouraged from turning towards adversarial proceedings. Under this model, arbitrators were members of the relevant business community, applying equity rather than law to the merits of disputes, and their final decisions were enforced on a voluntary basis rather than by filing suit before local courts. The goal of this relation-based model was to promote self-governance, and encourage business actors to sustain long-term relationships. However, the fundamental characteristics of this model, namely, potentially infinite business interactions and perfect information, came under increased pressure with the unfolding of economic crises and the disputing parties’ adoption of increasingly adversarial behaviour in arbitral proceedings. Under these circumstances, an alternative model developed in which arbitrators were expected to apply clearly defined rules and to adopt a 117 On this sociological evolution, see Florian Grisel, “Competition and Cooperation in International Commercial Arbitration – The Birth of a Transnational Legal Profession,” (2017) 51/4 Law & Society Review 790. 118 ICSID Arbitration Rule 41(5) (2006). 22 legalistic approach in reaching decisions, and where arbitral awards were enforced before national courts. The ICSID dispute resolution system adopted features of this rule-based model from the beginning of its existence, but also sought to promote a relation-based model emphasising conciliation, to no avail. The ICC arbitration system gradually developed rule-based features over its long history, a phenomenon that has been ignored in research to date. This historical development is an example of social evolution in which governance systems grow organically in scope and complexity to match the needs of the communities they seek to regulate. 23 Graph 1: The sociological evolution of ICC arbitration (1922-1972) 24