Arbitrators and the Interpretation of Contacts

Professor Alan Scott Rau, Mark G. & Judy G. Yudof Chair in Law at the University of Texas at Austin School of Law, has published “Arbitrators and the Interpretation of Contacts,” American Review of International Arbitration, 2019 (Forthcoming).  In his scholarly paper, Professor Rau expands upon a recent presentation regarding how international arbitrators perform contract interpretation.

Here is the abstract:

This paper is a revised and expanded version of a presentation made at the IBA 2018 Conference in Rome, as part of a panel devoted to the subject, “How Do International Arbitrators Interpret International Contracts?”

I suspect that most issues of “contract interpretation” call for the application of what Stefan Vogenauer has termed “universal hermeneutic truths” —that is, the search for meaning by going no further than “common sense” and how language is “commonly and naturally deployed.” The arbitrator does this not only by “worrying” the text of the agreement, but more broadly by attempting to identify the underlying narrative—“the sense of the transaction.” These are universal “lawyerly skills.” And should an agreement run out of guidance for settling a dispute, a further step would ask us to move from “interpretation,” as commonly understood, to the process of “filling a gap” in a responsible way. When we are in the realm of “default rules,” or “presumptions,” or “burden of proof”—similar if not identical notions—recourse has to be made to the contract law of the legal system governing the contract.

After first dispensing with some lingering red herrings [for example, the supposed dichotomy between “subjective” and “objective” standards of interpretation, on which so much ink has been spilled, or the supposed preference in some legal systems for a “textual” or “literal” rather than purposive style], I turn to the main event, which is the particular ethos and peculiar contribution of arbitral justice. However framed, the questions we are addressing begin very much to look as if they belonged to the realm of appreciation of context and of commercial reality—-questions that arbitrators are thought particularly well placed to answer and which are routinely entrusted to them.

As they are not organs of the state in which they sit, arbitral tribunals are liberated, first, in their choice of the appropriate governing law. Second, (and a far more interesting subject), is their freedom in the appreciation and application of “the law.” To suggest that arbitral tribunals are to be mediums channeling the voice of state courts, or parrots mimicking them—applying “the law” “strictly in the manner of the courts” of a particular jurisdiction— is I believe misguided: How naïve it would be to take as a self-evident premise the unfailing and continuing ability of judges (let alone juries) to produce, over time, reliable results, which remain responsive to the needs either of participants in the market or of the general polity? It may in fact be the peculiar contribution of arbitrators to test these rules of law, questioning and qualifying them, reconstructing commercial law incrementally by realigning arbitral decisions with changing practices.

By contrast, distinguished commentators have written that the arbitral tribunal’s “insulation from consequences is not the same thing as conferral of discretion.” But I fear that such a proposition could only be seriously advanced by those quite untouched by any notion of Legal Realism.

This and other publications authored by Professor Rau may be downloaded free of charge from the Social Science Research Network.

Photo by: Christine Roy on Unsplash