Yale Law School’s Seminar in Private Law: The Sociology of International Commercial Arbitration

Post by Sadie Blanchard, Research Fellow Yale Law School

Last week, I introduced a series of blog posts on Yale Law School’s Seminar in Private Law. The Seminar’s first session considered the sociology of international commercial arbitration. Emmanuel Gaillard and Yas Banifatemi of Shearman & Sterling’s international arbitration practice spoke alongside Emily Erikson, a professor of sociology at Yale who specializes in social network analysis. Before the seminar, participants read a working paper by Erikson and Sampsa Samila entitled Networks, Institutions, and Encounters: Information Flow in Early-Modern Markets and Gaillard’s recently published article The Sociology of International Arbitration.

Erikson’s paper is a study of the routes of trading ships of the British East India Company (EIC). She examines information-sharing among ship captains and finds that “fleeting and heterogeneous interaction” supported cooperation in this context, in seeming contradiction with the predominant new institutionalist view that, where formal institutions are absent, only strong ties such as kinship or long-term, closed group interactions can support cooperation. In her study, cooperation took the form of ship captains’ sharing information about the desirability or undesirability of visiting certain ports when they encountered one another during stays in the EIC’s “factories,” which were centers where EIC personnel lived and socialized in close quarters during their stays in certain ports.

Gaillard’s paper describes how the sociology of international commercial arbitration has changed since the publication of a comprehensive study of the field in the 1990s. International arbitration has become a social field over the last 20 or 30 years. A social field is a recognized area of social life having a common meaning system and populated by people who interact more frequently with each other with other social actors. A few decades ago, international arbitration did not fit this definition: its players—both counsel and arbitrators—were generalist commercial lawyers, professors, or statesmen who occasionally participated in international arbitration. Now, law firms have large and growing specialist international arbitration practices, and many of the same firms face each other as counsel repeatedly and appear repeatedly before the same arbitrators, many of whom are full-time professional arbitrators. Other specialist actors also have emerged, including international arbitration damages experts, public relations agents, third-party funders, and market-makers for international arbitration claims and awards. In each of these functions, new players continue to enter at an accelerating pace, but they enter as specialists in international arbitration.

Simultaneously with the development of specialization, the field has shifted from what Gaillard calls a “solidaristic” to a “polarized” model. Under the former model, a small number of players rotated among various functions—counsel, arbitrator, expert witness on law—with a strong sense of shared values and of what is expected from them in every function. For example, when appearing as an advocate, one is partisan, but when appearing as an expert or an arbitrator, one is independent and impartial. Reputation was a strong factor policing appropriate behavior in each function. Under the polarized model, by contrast, players have emerged with more diversified strategies. That is, there are players who take on specific roles, such as protectors of states or protectors of investors, and hew to those roles regardless of the function they fulfill at any particular time. There are people actively positioning themselves as promoting divergent values within the system. In this sense, investor-state arbitration has dramatically impacted commercial arbitration.

Several connections were drawn between the papers. Both fields could be viewed as studying enterprises: the English East India Company can be seen less as a corporation than as a massive enterprise that facilitated global investment and trade. This characterization is particularly apt because the corporation authorized captains to trade on their own accounts in addition to trading for the company. The company had jurisdiction over the factories, but headquarters were far away and could not exercise strong control. Both social systems involve intense competition and offer opportunities for conflict and cooperation.

If Erikson emphasizes the gains from cooperation, Gaillard describes a scenario in which certain types of cooperation have, perhaps intentionally, been broken down. A comparison was drawn to the early years of the United States, when judges also acted as advocates. It may be that in both cases, institutions came to insulate information so that it could not move as easily between different role sets. The legal governance of the flow of information was emphasized: there are now legal constraints on arbitrators leaking information—so, even if they have social interactions with other players, they cannot share certain information.

During the discussion, external legitimacy emerged as a driving factor in the international arbitration field that seemingly was not an issue faced by the East India Company during the period studied. It has become the case that international arbitration has to defend its legitimacy not only in the eyes of insiders but also to those outsiders who persuasively argue that they or others are affected by it. The discussion revealed an apparent consensus that the field’s professionalization and polarization arose at least in part because this configuration promotes external legitimacy by opening the field to outsiders who might be hostile to it. A comparison was drawn to the World Trade Organization Dispute Settlement Body’s expansion of the scope of considerations in resolving trade disputes to include environmental factors.

A theme that emerged from the discussion is that of cooperation and conflict across broad social fields. In international arbitration, cooperation and conflict characterize not only the interaction between two disputants plus the neutral third, but also the entire social field. The legitimacy constructed by the social field of international arbitration impacts the ability of particular parties to cooperate—to resolve their disputes—within the field. As the Seminar takes up other cases throughout the term, we can ask whether we need to broaden our perspective similarly. In the next session, together with Jan Paulsson and Diane Desierto (whose papers are here), we will consider that question, among others, as it relates to investor-state arbitration.