Jan Paulsson, “Arbitration Unbound: Award Detached from the Law of Its Country of Origin”, 30 International and Comparative Law Quarterly 358-387 (1981)
This article is Paulsson’s classic first statement of his now long-running argument for “delocalisation” of international commercial arbitration. Given that the article is now over 30 years old it might initially seem that the debate will have progressed too far for this article to be of any contemporary relevance. Despite its age, however, this article remains arguably the clearest and most persuasive statement of the delocalisation position. As a result, it is essential reading for anyone interested in the theory of international commercial arbitration.
As stated by Paulsson, the essence of the delocalisation position is the insistence that “international arbitration may create obligations even if no such effect is recognised by lex fori”. (363) More thoroughly, “the legal force of transnational arbitration is founded on the parties’ creation of a contractual institution; the effect of the proceedings may be left to be controlled by whatever legal system is requested to recognise the award once it is rendered, and that system need not necessarily be that of the place of arbitration”. (367)
In short, then, Paulsson’s argument is not that international commercial arbitration is entirely “delocalised”, and is therefore entirely detached from any legal system. Rather, he wishes to make the more modest claim that an international commercial arbitration is detached from the legal system of its seat, and only connects with national legal systems when it is finally brought to a national court for the purposes of enforcement. Because of this, the only legal system with any real right to interfere with an international arbitration is that of the enforcement jurisdiction, and only because one of the parties, by requesting enforcement, has invited it to do so.
Paulsson’s argument does not end there, however, as he does not wish merely to deny that any State other than the enforcement State has the right to interfere with an arbitration. Rather, he also wishes to place constraints upon the grounds on which the enforcement State itself can interfere in an international commercial arbitration, by refusing to enforce the resulting award. Paulsson argues, that is, that the courts at the place of enforcement have no right to refuse enforcement on any grounds that reflect solely national laws and policies, but instead may only legitimately refuse enforcement when an the arbitration from which the award arose violated “transnational minimum standards”. (370)
The enforcement State, that is, on Paulsson’s view, has no more legitimate a right to interfere with an international commercial arbitration than does any other State, including the seat of the arbitration, but it can legitimately act as a mechanism for the enforcement of a form of “transnational” public policy, reflecting the non-domestic nature of international commercial arbitration. It is a fairly major claim, and one that needs a fair bit of justification, but unfortunately Paulsson never develops a clear argument for this view.
This is a serious problem because it is not ultimately clear that a sound argument for Paulsson’s particular version of delocalisation is actually available. Paulsson, that is, wants to argue not just that the state of enforcement of an arbitral award retains the power to grant or deny that award legal effect within its territory. That much would be uncontroversial even under a non-delocalised understanding of international commercial arbitration. A State can, after all, give legal recognition to any type of agreement that it wishes to give legal recognition to. Arbitration agreements and arbitral awards are, in this respect, unexceptional.
Paulsson, however, simply cannot rest his argument on this traditional acknowledgement of a State’s power to give recognition to any agreement of which it approves because the understanding of State authority on which this view is based also acknowledges that because States have the freedom to decide whether or not to give their recognition, they also have the freedom to dictate the terms on which it will be done. That is, on the non-delocalised understanding of international commercial arbitration an enforcement State effectively has the right to say “You are welcome to use my power to collect on your arbitral award, but only on my terms, and they are these…”
Paulsson, however, as already noted, wants to limit the grounds on which an enforcement State can refuse enforcement, so cannot agree that States are free to decide for themselves the terms on which they will enforce arbitral awards. Rather, he wants to argue that they are bound to refuse enforcement only if arbitral awards are inconsistent with certain standards that those States themselves did not develop, ie. “transnational minimum standards”.
The difficulty is that although Paulsson enunciates and adopts this view, he never clarifies its justification. He does cite to expressions of the same view by French courts; but such statements by French courts merely reflect a French national policy regarding arbitration, so cannot be taken as reflecting a view binding on other States. Similarly, he refers to statements by prominent arbitrators endorsing his view; but these are just the opinions of prominent individuals, and again cannot affect the rights or obligations of States. Paulsson himself, that is, simply does not provide any adequate explanation of precisely where the obligation on enforcement States to adhere to “transnational minimum standards” comes from.
How big a problem this is for Paulsson is important to recognise. There are, that is, really only two ways in which such an obligation can arise, but neither can ultimately be acceptable for Paulsson.
It might, for example, be possible to base such an argument on the legal framework that has developed at the international level to support international commercial arbitration. Paulsson, for example, points to the recognition given to such a principle in international agreements and documents such as the UNCITRAL Rules. An argument based on the UNCITRAL Rules, however, has two problems. Firstly, while it is true, as Paulsson notes (369) that documents such as the UNCITRAL Rules acknowledge the primary responsibility of arbitrators to adhere to the will of the parties, rather than to the will of any particular national jurisdiction, this has no direct relevance to the existence on the part of enforcement States to adhere to “transnational minimum standards”, rather than to their own domestic law. The UNCITRAL Rules, that is, are practical rules designed to guide members of a particular profession, not principles developed to bind States to a particular understanding of their rights and obligations.
Even more problematically, the most important international document relating to arbitration, and the one that explicitly addresses the obligation of States to enforce arbitral awards, the New York Convention, simply does not embrace the delocalised view for which Paulsson is arguing. The New York Convention does not, it is true, obligate States to refuse enforcement to arbitral awards that have been set aside by the courts of the seat of the arbitration. It does, however, specifically identify the courts of the seat as the only courts with the power to set aside an award, and expressly includes the fact that an award has been set aside by the courts of the seat as one of the very few grounds on which an enforcement court can legitimately refuse to enforcement an arbitral award. The New York Convention, that is, while not embracing a conception of arbitration in which every arbitration fundamentally belongs to the jurisdiction in which it is seated, nonetheless expressly grants that jurisdiction powers and an importance that are simply inconsistent with the conception of delocalisation for which Paulsson is arguing.
Most problematically for Paulsson, however, even if the international agreements that create the legal framework of international commercial arbitration did reject the importance of the jurisdiction in which an arbitration is seated, and embraced the importance of the enforcement State that Paulsson argues is appropriate, this would not support Paulsson’s argument for delocalisation. These documents, after all, only have any relevance because they have been agreed to by States. This means, however, that if a State is bound to adhere to “transnational minimum standards” because that is what is required by the international agreements of which it is a member, then ultimately the source of the State’s obligation to adhere to those “transnational minimum standards” is not those international agreements, but the State’s own consent.
Once this is recognised, however, it is clear that Paulsson’s delocalisation has simply collapsed back into a form of the non-delocalisation. The enforcement State does indeed have a unique power to “control” international arbitral awards, and does have an obligation to do so in accordance with “transnational minimum standards”, but only because this is what the enforcement State has agreed should be the case. It cannot be, then, that the obligation on an enforcing State to respect “transnational minimum standards” arises from the international framework to which Paulsson alludes, as such a situation simply would not support Paulsson’s view of delocalisation.
The only alternative argument available to Paulsson, however, is that States, including the enforcement State, have no right to impose their own national laws and policies on an international commercial arbitration because they have no role in the creation of the arbitration’s legal status. Paulsson indeed does suggest that this might ultimately be the case: “The message seems clear: one is authorised to conclude that the binding force of an international award may be derived from the contractual commitment to arbitrate in and of itself, that is to say without a specific national legal system serving as its foundation.” (368)
Again, though, Paulsson doesn’t provide a clear argument as to why the parties’ agreement to arbitrate should be seen to create legal effects, rather than any other type of effect. There is, after all, certainly no question that an obligation binding on the parties can arise from an agreement between the parties, whether or not that agreement is given legal recognition by any State at all. This is not, however, enough for Paulsson’s argument to succeed, and what Paulsson needs to do is explain why the obligation arising from the parties’ agreement is a legal obligation, and why it is binding on the enforcement State, even though the enforcement State is not a party to that agreement.
Even more problematically for Paulsson, however, if the obligation on the part of the enforcement State to respect “transnational minimum standards” is ultimately founded on an obligation on the part of the enforcement State to respect the arbitration agreement between the parties, then it is the agreement of the parties, and not the legal system of the enforcement State, that is the source of the legal nature of the arbitral award. The enforcement State, that is, has merely interposed itself between the subject of the legal obligation (the award) and the source of the legal obligation (the parties agreement) because it has a favourable mechanism for the enforcement of the obligation. The obligation itself would still exist even if every State improperly refused enforcement of the award.
What this means, though, is that Paulsson’s approach to delocalisation connected to the legal systems of enforcement States ultimately just collapses into full-blooded delocalisation, in which the parties, through their agreement, can create legal obligations independent of any national legal system, and thereby bind national legal systems to their will.
Paulsson’s approach to delocalisation, then, is ultimately just not workable, and collapses either into non-delocalisation, or into a full-blooded delocalisation that is entirely divorced even from the legal system of enforcement States. That being said, however, his attempt to develop such an approach is theory of arbitration at its best, and essential reading for anyone with an interest in the subject.