Book Review
The Culture of International Arbitration and the Evolution of Contract Law by JOSHUA D. KARTON. Published by Oxford University Press, 2013, ISBN 9780199658008 (296 pages)
Some say that seeing yourself described flatteringly in print is the number one reason to read a book. If so, members of the international arbitration community are going to queue up around the block to get their hands on Professor Joshua Karton's new publication, 'The Culture of International Arbitration and the Evolution of Contract Law'.
Karton, who teaches at Queen's University in Ontario, takes a sociologically minded lawyer's look at those of us who practice international commercial arbitration, as counsel and/or arbitrators or as commentators, and describes what he finds to be our 'culture'. In short, he likes what he sees: a pattern of four shared values that sound pretty darned good, namely respect for party autonomy, the service of business, neutrality and internationalism. Karton goes further, however, and argues that this culture is leading to substantive arbitral interpretations of contract law that may differ from judicial interpretations. Whether the evidence supports that leap will be the subject of debate among his readers.
Karton's book takes off from the pioneering work on the sociology of international arbitration by Yves Dezalay and Bryant Garth in their 1996 book, 'Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order,' which discussed the 'symbolic capital' (the recognition that successful members of a community receive from the rest of the group) found among arbitration practitioners. Like Dezalay and Garth, Karton conducted in-depth interviews of a cross-section of the relevant community, using a rather open-ended series of questions to see what themes emerged. He describes this as 'theoretical sampling,' in which the researcher looks over the data he has collected (here, from just twenty anonymous interviewees, all either full or part-time arbitrators) 'based on whether the data will help to identify and describe social norms, and not on the basis of statistical representativeness or generalization'.
Although that description of the project (based, Karton admits, on 'qualitative rather than quantitative data') might make one dubious about its statistical validity (Dezalay and Garth, after all, conducted more than 300 interviews for their study), what Karton comes up with sounds accurate enough. As he puts it, 'where economic globalization has given rise to the establishment of a corpus of specialist transnational legal practitioners who work primarily with each other and outside the governance of any one state, autonomous professional norms will coalesce – into a culture of ICA' ('ICA' being the somewhat clunky academic shorthand for international commercial arbitration). Overall, Karton concludes, 'market and social forces act together to disincentivize arbitrators from making decisions that might harm the interests of the ICA community (which overlap with but are distinct from the interests of the parties who employ that system)'.
So, what are the cultural norms that are pressing us to 'avoid harming the interests of the ICA community'? The common values that Karton identifies as the core of this culture also sound familiar, albeit rather benign. First, it seems that the 'ICA community' has been working assiduously for years, with remarkable success, to 'enshrine party autonomy within the treaties, national arbitration laws, rules of procedure, national court judgments, and international arbitral awards that collectively constitute the body of international arbitration law'. Party autonomy, Karton writes, 'has become so pervasive because arbitrators have dedicated themselves to expanding its scope'.
One might wonder whether this development owes quite so much to the energies of a cabal of self-interested arbitration practitioners and publicists as it does to the working out of the inherent logic of an alternative system of justice suitable for global business. But in any case, as Karton says, the arbitration community has benefitted.
By 'service of business', Karton means simply that arbitrators engage in such laudable exercises as active case management, seeking to minimize costs and delays and encouraging settlements, all of which flow from 'collegiality, informality, and an identification by the arbitrators with the mutual interests of the parties before them'.
'Neutrality' as a social norm needs little explanation, but 'internationalism' is more complex. Here, Karton has in mind something more than cosmopolitan experience or a broad perspective on the variety of national laws and practices that exist, although he is in favour of those things. For him 'internationalism' means a 'point of view that reflects a dedication to subordinating national perspectives and distinctions in favour of a transnational or global ideal. In practical terms, arbitral internationalism manifests itself in a desire among arbitrators to establish for arbitration an international space autonomous from national legal systems and traditions'. Karton is not an alarmist warning of blue helmeted troops in black helicopters come to devour all that is good in time honored national legal traditions; rather, he favors this 'internationalism' and sees it as a key to what interests him most, allegedly creeping lex mercatoria fostered by arbitral culture.
Karton builds to this thesis about 'internationalism' gradually, starting with a discussion of the uncontroversial fact that 'international arbitral practice' has evolved as a set of procedural practice norms independent of national court rules. But he then advances the argument that arbitrators are developing substantive transnational rules of law to fill gaps in or even alter national contract law. They look to transnational instruments such as the UNIDROIT Principles of International Commercial Contracts, the UN Convention on Contracts for the International Sale of Goods ('CISG') and so forth, he says, and are steadily moving away from national law as it likely would be applied by domestic courts.
He develops this theory at length in two chapters designated 'case studies' of substantive contract law trends as shown in: (1) suspension of performance as a remedy and (2) consideration of extrinsic evidence. For these analyses, Karton moves away from his twenty interviews and relies on a more traditional, if limited, source: published commercial arbitration awards (mainly ICC). His data base is comprised of a mere twelve awards in the case of his essay on suspension of performance, but it is a universe of fifty-three awards for the chapter on extrinsic evidence.
Suspension of performance as a concept separate from a right of termination is primarily a civil law doctrine akin to but different from common law contractual promissory conditions (precedent, concurrent and subsequent). The basic idea under either approach is that a party may suspend performance if the counterparty breaches seriously in its own performance. Karton concludes that contemporary US law, rather more than English law, is broadly similar in effect to civil law outcomes, although arrived at from a separate conceptual starting point. International contract law instruments, notably the UNIDROIT Principles and the European Principles of Contract Law, explicitly include the suspension of performance concept.
In five of the twelve published awards discussing suspension of performance, Karton says, the arbitrators stated that a particular national law governed but then also appealed to general principles of contract law, such as those found in international instruments. In another five, they applied national law; and in the two remaining awards, the arbitrators decided on the basis of amiable composition. But overall, 'most of the awards refer to general principles and, when they do, invariably declare the right to suspend performance to be a general principle'. From this review, Karton determines that international arbitrators show a readiness to declare that 'a general principle of international law permits contractual parties to suspend performance,' even though he finds the existence of such a general principle 'dubious'.
All of this, then, is related to international arbitration 'culture' because suspension of performance is a flexible doctrine whose use can make good business sense (i.e., in Karton's conceptual terms, the awards 'show the influence of the norms of internationalism, neutrality, and service of business'). As Karton puts it, 'Suspending performance is an intuitive course of action and is probably the first instinct of most business people who are faced with a breach of contract. More generally, expanding the range of available self-help remedies is in the interests of commercial parties . . . .' International arbitrators thus have a demonstrated tendency to be flexible and economically efficient rather than blindly wedded to national law doctrine, and the result is or is tending toward a bit of lex mercatoria.
The second case study relies on a larger universe of awards that deal with aspects of the use of 'plain meaning' and extrinsic evidence as sources of interpretation of contract terms. A majority of these awards approach contract interpretation by applying the rules of a national law, but six of the fifty-three awards apply general principles of international law to the substance of the contract. Only a small number mention international contract law instruments. There is relatively little observed lex mercatoria in sight, but what emerges is the rather unsurprising conclusion that the tribunals all tended to be of the 'let it in for whatever its worth' persuasion in dealing with evidence. As Karton summarizes it, they 'tended to give primacy to the written text of a contract, but admitted extrinsic evidence in all cases where it was submitted,' considering the extrinsic evidence decisive only when the contract was unclear or incomplete.
Again, Karton sees international arbitration 'culture' at work: arbitrators respect party autonomy and try to serve business interests. Unconstrained by evidentiary exclusionary rules designed to protect lay juries, they let the parties 'take the lead in building the evidentiary record' and are unlikely to respond positively to arguments from counsel that extrinsic evidence must be excluded from the record.
The conclusion that a common culture underlies the awards seems sound, at least in the second case study, based at it is on essentially procedural aspects of how arbitrators go about their business. One would expect the evidence to support the idea that international arbitrators look for models that make the process more uniform and predictable, whether that involves referring to the IBA Rules on the Taking of Evidence or allowing parties to shovel a reasonable amount of extrinsic evidence into the record without spending time quibbling over admissibility. Perhaps culture explains that. The result may be characterized as showing arbitrators tending to rule differently from the way evidence relating to contract interpretation might be handled in a domestic court, which tends to prove Karton's point.
But making good the argument that arbitral culture is leading to new variants of contract law in a more substantive way, such as advancing the use of a 'general principle' of suspension of performance, may require additional evidence to convince the arbitration community.
This is a stimulating book that breaks new ground in our field.
Originally published in Arbitration International, Volume 29, Issue 3.
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