Chapter 3 - § 3.13 • APPLICABILITY OF SUBSTANTIVE LAW TO ARBITRATION

• Jurisdiction: Colorado

§ 3.13 • APPLICABILITY OF SUBSTANTIVE LAW TO ARBITRATION

When the agreement to arbitrate requires the arbitrator to apply the substantive law of a given jurisdiction, the arbitrator is bound by that provision. However, when the arbitration agreement is silent about the arbitrator's applying any given law, is the arbitrator under any obligation as to application of law?

Generally, the answer is no. In such a situation, the arbitrator is not obligated to apply or follow any law. However, there are growing expectations that an arbitrator will apply law in those situations that involve substantial public policy, constitutional limitations, statutory claims, or issues of fairness.⁶⁵ For example, are the constitutional limits on punitive damages defined by the U.S. Supreme Court in BMW of North America, Inc. v. Gore⁶⁶ and State Farm Mutual Auto Insurance Co. v. Campbell⁶⁷ applicable to arbitration? Probably yes.⁶⁸

See §§ 16.8 and 17.4.15.

Notwithstanding the strong current of expectations that arbitrators should endeavor to follow the law, there are voices of exception:

Judges are in duty bound to apply the applicable rule of law in deciding cases. Because an arbitrator derives his powers from the parties and not from the law of the land and because that power includes that of deciding the law as well as the facts, "He may do what no other judge has a right to do; he may intentionally decide contrary to law and still have his judgment stand. . . ."
"They [arbitrators] are also generally expected to frame their decisions on broad views of justice which may sometimes deviate from the strict rules of law."⁶⁹

See also § 17.4.15.

An arbitrator who chooses to disregard applicable law decisive of the merits does so at a risk.

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Notes:

^[65] See generally M. O'Connor Contracting, Inc. v. City of Brockton, 809 N.E.2d 1062 (Mass. App. 2004).

^[66] BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996).

^[67] State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003).

^[68] But see Stark v. Sandberg, Phoenix & von Gontard, P.C., 381 F.3d 793 (8th Cir. 2004). See Annot., Contract Providing that it is Governed by or Subject to Rules and Regulations of Particular Trade, Business or Association as Incorporating Agreement to Arbitrate, 41 A.L.R.2d 872.

^[69]...