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Transnational Private-Public Arbitration as Global Regulatory Governance: Charting and Codifying the Lex Mercatoria Publica

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New insight into arbitration

The rise of transnational arbitrations involving public law bodies and private economic actors raises important issues about their legitimacy, so understanding how they function as a governance mechanism and answering such legitimacy concerns will be crucial for private-public cooperation.

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Using arbitration to resolve private-public disputes raises concerns of a constitutional nature because arbitrators aren’t subject to the same norms and safeguards as domestic judges. The growing recourse to arbitration elicits questions about constitutional legitimacy involving principles like democracy, the rule of law, and the protection of human and fundamental rights. The EU-funded LEXMERCPUB project “looked at the growing practice of settling disputes between states and state entities on the one hand, and private economic actors on the other, not in domestic courts, but through arbitration,” says principal investigator Prof. Dr Stephan Schill.

Comprehensive approach to private-public arbitration

Findings show that private-public arbitration doesn’t only function to resolve individual disputes, but also operates as a system of transnational governance in which arbitrators not only settle individual disputes, but also contribute to further developing the law. Notably, they do so in a manner that overarches specific legal systems. In this sense, private-public arbitrators should be considered as exercising transnational public authority. This transnational public authority exercise isn’t a modern phenomenon, it can be traced back to cases of private-public arbitration in the early 19th century. In applying such authority, the EU-funded LEXMERCPUB study shows that arbitrators can create tensions with core constitutional principles. This exposes private-public arbitration to challenges of legitimacy that must be resolved if private-public arbitration is to be used as a means of dispute resolution. The LEXMERCPUB research also reveals that a comparative constitutional approach to these legitimacy challenges suggests private-public arbitrations can’t be considered illegitimate and contrary to public interest as such. Instead, most domestic legal systems accept that private-public disputes can be arbitrated, but are subject to public interest safeguards. The LEXMERCPUB team found that the arbitration of private-public disputes can contribute under specific circumstances to certain principles of constitutional rank. These include access to justice, dispute resolution in accordance with the rule of law and contribution towards the sustainable development of the involved states, particularly when there are problems with the rule of law domestically. However, to be legitimate, procedural and substantive safeguards must exist to ensure that private-public arbitration doesn’t undermine legitimate public interests.

Enhanced private-public arbitration policies for states worldwide

Project partners developed a conceptual framework that helps arbitrators to better achieve the mandate bestowed upon them, adapt arbitral procedures to public interest implications and avoid negative consequences of private-public arbitration proceedings for the public interest. Constitutional courts increasingly asked to assess the constitutionality of private-public arbitration arrangements will develop better strategies to guide arbitrators in how to adjudicate in ways that respect fundamental notions of public interest and constitutional values. “LEXMERCPUB will enable policymakers, arbitrators and courts to render better and fairer decisions concerning private-public arbitration,” concludes Prof. Dr Schill. “It will provide a solid foundation for improving transnational private-public arbitration as an institution of global regulatory governance.”


LEXMERCPUB, private-public arbitration, arbitrator, private economic actor, private-public dispute, regulatory governance, public entities

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