That arbitration has replaced litigation as the leading method of transnational dispute resolution has become a cliche. (1) But like many cliches, neither its empirical basis nor its broader implications are entirely clear. From the perspective of actual or prospective disputants, the choice between litigation and arbitration, while often difficult, generally boils down to an analysis of a fairly standard set of characteristics that distinguish these two dispute resolution techniques. (2) You cannot, for example, pick your judge, but you can pick your arbitrator; litigation comes with preexisting rules of civil procedure, whereas the parties can tailor their own rules for governing the arbitral process; and in contrast to the transparency of litigation, steps can be taken to keep arbitral proceedings confidential. Arbitration also is potentially faster and less costly than litigation. (3) The implications of litigation versus arbitration are, in other words, relatively clear from a disputant-oriented perspective.
As important as these considerations are for transnational lawyering, this article instead provides a governance-oriented perspective on transnational litigation and transnational arbitration. Governance-oriented analysis of transnational law has two central features. (4) First, it focuses on the implications of transnational law not only for particular disputants, but also for the behavior of transnational actors more generally. (5) To help explore these implications, I take Robert Mnookin and Lewis Kornhauser's well known "shadow of the law" metaphor--used by them to elucidate the influence of divorce law and court decisions on the behavior of divorcing couples "outside the courtroom" (6)--and extend it to transnational law and transnational activity. I will refer in this article to the "transnational shadow of the law" to highlight the influence that domestic law and domestic courts have on transnational activity, including transnational arbitration. (7) Second, the governance-oriented approach involves not only doctrinal analysis of transnational law, but also descriptive, causal, and normative analysis of transnational law in action-including how judges actually decide cases. (8)
From a governance-oriented perspective, litigation and arbitration are not only distinct methods of transnational dispute resolution. They also provide foundations for two different forms of global governance: transnational judicial governance and transnational private governance. (9) From this perspective, the relationship between litigation and arbitration not only affects the micro-level decisions of individual disputants regarding the dispute resolution method that best advances their respective interests. It also has implications for global governance, that is, for how and by whom the rules of transnational activity are prescribed, applied, and enforced. (10)
This article explores these implications in three parts. (11) First, I explain the concept of transnational judicial governance, describing the role of domestic court decisionmaking in the regulation of transnational activity. Next, I explain the concept of transnational private governance, and argue that transnational arbitration is an example of this form of governance. I then turn to the relationship between litigation and transnational judicial governance on the one hand, and arbitration and transnational private governance on the other hand. I point to empirical evidence suggesting that the conventional wisdom may overestimate the extent to which transnational arbitration has replaced litigation. And I argue that arbitration is only partially autonomous from transnational judicial governance. Domestic courts perform a governance support function for transnational arbitration, (12) and except in narrow circumstances in which private enforcement is possible on the basis of reputational sanctions, transnational arbitration itself operates in the transnational shadow of the law. …