A Reflection on the Theory of Denationalization in International Commercial Arbitration

Document Type : Research Paper

Authors

1 Department of Law, Faculty of Law, Islamic Azad University of Najafabad, Iran.

2 Assistant Professor of Law, Najafabad Branch, Islamic Azad University, Najafabad, Iran.

Abstract

Arbitration has become the most prominent and common method for resolving disputes in international trade. Most contracts in this field contain an arbitration clause. The theory of denationalization in international commercial arbitration argues that arbitrators, acting as private judges, should apply transnational rules and avoid interference from national courts during the arbitration process, regardless of the procedural and substantive rules of the seat of arbitration. This theory rests on the assumption that international trade arbitration is inherently international and non-governmental, and therefore, shouldn't be influenced by the local laws of any one country.
Unlike the theory of localization, which emphasizes the territoriality principle and the law of the seat of arbitration, the denationalization theory respects the transnational character of arbitration. It considers intervention by national courts, especially those of the seat, to be contrary to the nature of arbitration in international trade. Consequently, this theory suggests that an arbitration award can still be recognized and enforced in another country, even if it's annulled by the courts of the seat.
Denationalization theory reflects the emergence of a new legal order for international trade arbitration. This order has evolved independently from domestic legal systems, driven by globalization and the needs of the international business community. Numerous cases in international commercial arbitration demonstrate this trend. Arbitrators, acting as private judges, have increasingly applied rules rooted in this new legal system. In various cases, the administration of the arbitration process hasn't followed the law of the country hosting the arbitration, despite being located within its territory.
Considering this growing trend and its significance for international commercial arbitration, this research will examine various aspects of denationalization theory. The key question will be: How does this theory address the needs of the arbitration institution in international trade? Furthermore, what specific principles of international commercial arbitration underpin this theory, and why is it more compatible with the nature of arbitration in this context?
By analyzing arguments and foundations related to the importance of denationalization theory for maintaining efficiency in international commercial arbitration, this research aims to show that the denationalization approach, influenced by the globalization of trade and international commerce, signifies a new order at the transnational level. This "new legal order of arbitration" possesses its own distinctive and independent features. It advocates for the suitability of the denationalization approach and rejects intervention by national courts, particularly the court of the seat of arbitration, as incompatible with the transnational nature of foreign trade arbitration.
Choosing arbitration to resolve disputes in international trade implicitly indicates the parties' desire to avoid relying on the domestic laws of any specific country. Instead, they prefer to manage their contract based on transnational arbitration rules rather than the formal or substantive rules of the seat country.
Therefore, this research hypothesizes that international arbitration has a transnational character and shouldn't be bound by national rules or limitations imposed by national laws, such as the law of the seat of arbitration. These limitations can undermine the usefulness and non-governmental character of arbitration, which are its core advantages over litigation in national courts.
To support this hypothesis, we will employ a descriptive-analytical method to examine various aspects of the theory of denationalization and compare it with its opposing theory, localization. We will also demonstrate how denationalization aligns with the contractual and international nature of arbitration in foreign trade. We will explore how it responds to the realities and demands of the international business community, including features like self-regulation, the inadequacy of domestic laws, and inefficiencies caused by national court interference. These factors have all contributed to the development of this theory. Our argument will be that the denationalization approach is essential for the continued growth and development of the arbitration institution in foreign trade.
The recognition of a new legal system for international trade arbitration is not solely derived from common practice. Today, national legal systems, such as those of France and the United States, acknowledge the international personality of arbitral awards in foreign trade through various national court decisions. The non-governmental nature of arbitration also necessitates such an approach. The transnational perspective on the arbitration institution in foreign trade preserves its advantages over national courts in several ways. Compared to the nationalization approach, which emphasizes control through the court of the seat of arbitration, denationalization is more compatible with the presumed will of contracting parties in foreign trade who choose arbitration to avoid being governed by national laws.

Keywords

References

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