This article has been written by Sonali, pursuing a Certificate Course in International Commercial Arbitration and Mediation from LawSikho.

Introduction

The legitimacy of International Arbitration is often criticised by several participants of the regime including but not limited to the judges, journalists, governments and parties as well because a law propounded can be made legal but not legitimate. The lawmaking in the international regime is often questioned on grounds of its validity, sanctioning power and morality. Hereunder, an analysis is done on a pragmatic basis by applying a political model to find out the legitimacy of international arbitration with respect to the participants involved in the system.

What is legitimacy pragmatism?

Traditional definition of legitimacy

In Political Science, legitimacy denotes acceptance of an authority, governing law or regime. It hereby refers to a system of government wherein the government is a sphere of influence. In the words of S.M. Lipset, Legitimacy involves the capacity of the system to engender and maintain the belief that existing political institutions are most appropriate for society. The legitimacy of a law creates a moral force or duty to obey it and also decides its future (depending on how stable it is). The obedience towards law is limited to the extent of its legitimacy.

International law is based on certain principles including state’s consent, equality of status in sovereignty, prohibition of the use of force and being state-centred. But the contemporary international law is expanding its scope by loosening its link to the state’s consent and strengthening compulsory adjudication and enforcement mechanisms. Therefore, the growing authority and importance of international institutions have made relevant participants debate the legitimacy of lawmaking by these institutions.

Pragmatic approach to defining legitimacy

Presently, there is no generally accepted or universal definition of legitimacy. The concept can be given a constructive meaning because if a concept is given universal meaning just for the sake of clarity it might separate analytical thinking from reality. As put up by WITTENGSTEIN- “My father was a businessman and I’m a businessman; I want my philosophy to be business-like, to get something done”. Therefore, the analysis of a concept should start from a pursuit of its utility. By applying this pragmatic philosophy the definition of legitimacy can be curated to the suitability of the international arbitration regime. 

To assess whether a regime is legitimate or not we should first decide why we are even concerned about its legitimacy in the first place itself? A concept can be multi-purpose and may mean different things in different scenarios. Take for example the doctrine of good faith, it may mean different in different legal systems, different branches of law and different scenarios. Legitimacy is also one such concept. It may derive its meaning peculiar to the purpose and use to which it is applied. Currently, several well-known authors define legitimacy from different perspectives. Some call it “the right to rule”, some define it as one which marks a distinction between political normativity and applied morality and others argue it as some combination of sociological elements and moral elements. But these discussions forget to acknowledge that these definitions are looking to achieve different things.

Legitimacy pragmatism in international arbitration

As we discussed that the concept of legitimacy can do multifarious jobs, the question remains: Why are we concerned about the legitimacy of lawmaking in International Arbitration or What do we want to achieve? The use of legitimacy can be decided by studying its neighbouring concepts such as authority, fairness, justice, values, ethics, morality and also crisis, opposition, resistance and change. For example,  the purpose of legitimacy can be to define authority and to know why people obey rules or legitimacy can be used to explain or justify why a regime or system changes or needs change. Accordingly, the following purposes and uses shall be relevant in the International Arbitration regime, not meant to be exhaustive but suggestive:

Justification

Legitimacy is often used for justificatory purposes. A government or regime coerces its participants/actors into doing something and that is worthy of compliance because it is justified. There should be no external interference because it is a legitimate situation and that coercive power is legitimate. 

This reasoning also applies to the non-coercive powers of the regime. A system is legitimate if the power of one actor over another and the exercise of that power is justified. The power of an arbitrator is justified over the parties on the grounds of being legitimate because there is party autonomy and parties have consented to it. But a more proper definition of legitimacy can be one that pertains to the moral orientation of the specific audience to whom we are trying to justify something. Also apart from moral justification, there can be a justification of someone’s social position or action.

Objection

This is contraposition to justification. Whatever is not justified should be resisted, objected to or contested. Once again, the definition of legitimacy captures the moral orientation of the public and the general sense that injustice must not be condoned. This is a part of natural law that if something is not legitimate; there is no moral obligation to follow the same.

Explanation

Sometimes legitimacy can be used to explain an authority rather than to ‘stay’ a regime (justification) or ‘change’ a regime (contest). If the power of authority is legitimate then it will be obeyed even in the absence of coercion, habit or self-interest. Simply put, the parties follow rules and laws made in international arbitration because they find them legitimate. The job of the legitimacy concept here is to find out why people obey certain orders even when they are not forced or coerced to follow them, have no self-interest and are not mistaken about them. 

Analysis of pragmatic legitimacy in international arbitration

Stability of a regime

One definition of legitimacy which is relevant to our discussion or understanding is how and who can affect the stability of structures of lawmaking in international arbitration. Practically, a regime is less likely to be altered if its actors find it in their self-interest. This self-interest is not a reason to comply with the rules or system but a factor to input or not input changes. Therefore, there is no universal standard and it all depends upon the perspective of the actors.

Now, next is to identify the relevant actors who can alter the regime in international arbitration. As put by Henry Kissinger: “An international order, the basic arrangements of which are accepted by all the major powers of the regime may be called legitimate”. “Major” in the sense of those who can affect it. 

Consequently, the legitimacy of an arbitral regime DEPENDS on the perspective of these major actors because they may affect its stability. It is neither legal legitimacy which is concerned with whether parties are legally obligated to submit themselves under the international arbitration regime nor moral legitimacy which talks about the moral obligation of parties to submit and not even social legitimacy which motivates obedience even for those who are consistently disadvantaged by it.

David Easton’s Model to analyse the stability of a regime

The legitimacy perceived here is basically an outcome-based or interest-based or output legitimacy. In Sharpf’s classification, output legitimacy means ‘government for the people’ which as per our requirement can be redesigned as ‘lawmaking to advance the interests of the addressee of the regime’. This will allow us to understand the evolution of lawmaking in the international arbitration regime and assess stability. 

Inputs are attempts by the actors to advance their self-interests in the system and the system then transforms it into output. Output is the authoritative allocation of value i.e. who gets what, when and how – a political model developed by David Easton. A simple idea is that the actor from whose perspective the regime is legitimate is unlikely to input much change and vice-versa if a regime is not legitimate to another actor; they are likely to input change. As a result, the disappointed actor will provide new input. This reaction is called Feedback Loops from output to input by Easton.

Each actor tries to influence the regime to advance their interests and this reallocation of interests, in turn, shall harm the self-interest of another actor and make the regime less legitimate for them who is then likely to push back the regime to advance their own self-interest. This will continue until equilibrium is reached among the actor’s advancing their self-interests corresponding to their power to influence the system. The model assumes rational utilitarian behaviour and the availability of finite resources. 

Application of this Model in Investment Arbitration

Herein, the model is applied to investment arbitration and the states, arbitrators, arbitration institutes and investors are the actors of this system. They rationally try to push the model towards a given direction to suit their investment law requirements. The input by several actors can be identified as the activities which influence the system to articulate a particular understanding. The state’s input is their consent to arbitrate, their treaty-making activity, behaviour during the arbitration process and domestic legislative changes. 

The investor’s input is the claim they file, the procedural rules they opt for the relief sought, behaviour during proceedings and so on. The framing and determining of awards are the inputs by the arbitrator representing their choices and procedural rules drafted by arbitral institutions are their inputs in the system. Lastly, the arbitral awards are the system’s output which feedbacks into the system due to the reaction of actors affected by it. Simultaneously, there are indirect actors who can influence major actors to input change in the regime which includes NGO’s, various institutions, industries, motivated individuals and media.

Therefore, now the relevant question is whether international arbitration lawmaking is legitimate for these actors and to what extent it advances their self-interest? Remember it has nothing to do with the consent of the parties or moral obligation. As per the model, the actors whose self-interest is advanced will find the regime more legitimate. The next question would be whether the current investment arbitration regime is stable? 

Again, the answer is subjective and it DEPENDS on the perspective of its actors. The cumulative effect of different forces and attempts by these actors, however small it may be, will determine its stability. The regime generally may not seem legitimate to many states but it might be for investors, arbitral institutions and arbitrators, thereby, making the regime indeed stable.

Importance of legitimacy pragmatism in international arbitration

Let’s get back to our initial query: Why are we concerned about legitimacy in international arbitration lawmaking? One pragmatic reason as stated above is that a regime is less likely to be stable or unchanged if the actor who can input change finds it illegitimate because it fails to serve his interest. These different perspectives will pull the regime in different directions. Therefore, the future of a system can be defined on how stable it is and if we care about arbitration we should then identify the actors who can change it and the effects of the arbitral regime on different actors which would then require pragmatic research. Only then the participants/actors can anticipate the actual effect of this regime on their self-interest and can avoid overreacting/underreacting to the wrongly perceived legitimacy. To date, no such empirical study has been conducted to know whether the current reactions of actors to investment arbitration are more, less or adequate. 

Conclusion

International Arbitration is considered legitimate generally on the grounds of moral obligation, consent of the parties to the system and self-assurance that it serves the business community hence public community. But pragmatic research of legitimacy in the context of relevant change-maker actors, its effect on them and the role of indirect actors would bring to light what can create a change in international arbitration and predict the stability of this regime.

References

[THIS ARTICLE IS BASED ON THE RESEARCH PAPER OF THOMAS SCHULTZ, King’s College London Dickson Poon School of Law, Legal Studies Research Paper Series: Paper No. 2018-25 – Legitimacy Pragmatism: An framework for analysis.]

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