The exercise of contract freedom in the making of arbitration agreements.

Author:Carbonneau, Thomas E.
 
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TABLE OF CONTENTS I. INTRODUCTION: CONTRACT'S EMPIRE IN ARBITRATION II. THE EFFECT AND DEVELOPMENT OF ARBITRATION AGREEMENTS III. THE QUESTIONS PRESENTED IV. THE CONTENT OF "MODERN" ARBITRATION AGREEMENTS. A. The Recourse to Arbitration: Voluntary, Necessary, or Coerced? B. Institutional Arbitration C. Selecting Arbitrators and the Question of Impartiality D. Arbitrator Accountability and Collegiality E. Controlling Authority in the Arbitration F. Governing Law G. The Character of the Arbitral Trial H. The Award I. The Standard of Review J. The Chromalloy Problem K. Foreign Practice Rules L. The "Universal" Jurisdiction of National Courts in Transborder Arbitration IV. CONCLUSIONS I. INTRODUCTION: CONTRACT'S EMPIRE IN ARBITRATION

A universal principle of contemporary arbitration law is that contract plays a vital role in the governance of arbitration. (1) The vitality of that role can vary by legal system, court, statute, or treaty. (2) Nonetheless, party agreement often provides the most significant rules for regulating arbitrations and conducting arbitral proceedings. (3) This is especially true in international commercial arbitration. There, the lack of a functional transborder legislative and adjudicatory process made contract the principal source of law for international commercial transactions and arbitrations. Although law-making is more possible within individual national legal systems, the rule of contract freedom is also firmly established in matters of domestic arbitration. (4) Within legal systems, contract's empire is founded upon a different rationale: in court doctrine, it serves to legitimate the privatization of adjudication by underscoring arbitration's ostensibly voluntary character. (5) Freedom of contract, therefore, is at the very core of how the law regulates arbitration. What the contracting parties provide in their agreement generally becomes the controlling law.

Courts can interpose their authority in arbitration. (6) They could assert their power by policing the formation and the content of arbitration agreements. But, from a practical standpoint, if courts were to become more active in the supervision of arbitration, they would more than likely focus their attention upon awards rather than agreements. Arbitral awards finalize the results of adjudication and represent one of the last steps in the process of the coercive imposition of legal liability. If there were to be a fight between national interests and the transborder commitment to arbitration, or if the policy of rights protection were to prevail over the functionality of adjudication, the contest would take place at the award-enforcement stage of the process. By comparison, arbitration agreements are more virtual instruments. Agreements have a symbolic standing: they represent a gateway to private adjudication and they codify the parties' intent regarding dispute resolution. Blocking their enforcement would signify opposition to the fundamental consensus surrounding arbitration rather than the implementation of a narrower strategy for the periodic defense of national interests through the vacatur of awards.

The support for and commitment to arbitration vary within the world community. (7) Judicial laissez-faire as to arbitration is especially characteristic of courts in developed Western nations. (8) In other countries and regions of the world, the protection of local enterprises can sometimes become more compelling, and political, religious, or cultural attitudes can disfavor arbitration, or at least some forms or aspects of it. (9) Protectionism and parochialism, however, are shortsighted and are likely to be counterproductive in the long run. They foster an isolationism based upon fear and insecurity and prevent the state of origin and outside countries from developing any real confidence in the local culture and its legal and economic institutions.

The Western, developed-state (and commercially predominant) view is that, no matter its degree, judicial intervention, in matters of transborder or domestic arbitration, is antagonistic to the autonomy and functionality of arbitration. (10) In the international arena, judicial interference with arbitration, therefore, thwarts the pursuit of international business itself. Merchants will not conduct business across national boundaries if there is no guarantee of either basic contractual accountability or the provision of remedies for material breach of contract.11 Arbitration civilizes the international marketplace and thereby makes it accessible to commercial parties. Arbitration may not be able to right the geo-political and socioeconomic disparities in the world community, but it can provide a workable form of world adjudicatory and transactional justice. It makes the risks of transborder commerce palatable. (12)

In domestic U.S. matters, hindering the recourse to arbitration through judicial supervision lessens the parties' access to an adjudicatory remedy that actually works. In arbitration, disputing parties have a forum. They are heard and can respond to the allegations made against them. The ruling of the tribunal is usually fair and final. Undoing the effectiveness of this process through judicial supervision could eventually result in a society-wide denial of justice.

The freedom-of-contract reasoning that underlies the legal doctrine on arbitration in transborder practice and national law aligns itself with a conservative U.S. domestic political ideology. The law of arbitration ostensibly emphasizes individual responsibility and accountability when it provides that arbitration agreements will be enforced as written. (13) It thereby reduces the role of the state and the prospect of state regulation. (14) The marketplace becomes the central purveyor of norms. In contradistinction to international arbitral practice, freedom of contract, however, plays a qualified role in judicial opinions involving domestic arbitrations. (15) In many cases, courts are bent on the enforcement of agreements rather than giving effect to the parties' freedom of contract. (16) The domestic bargains for arbitration generally do not arise from the free operation of market forces. In most instances, arbitration agreements, in fact, reflect the position of the economically dominant party. (17) In affirming these agreements, courts often turn a blind eye to their unilateral and adhesionary character. (18) In domestic consumer and employment contracts, the recourse to arbitration is a non-negotiable precondition to contracting. (19) Companies benefit because they can avoid the courts. There are no public proceedings or civil juries in arbitration, and the availability of class action relief and punitive damages is at least less certain. (20)

The political undercurrents of the legal doctrine on arbitration do not appear to have had much, if any, impact upon the U.S. Supreme Court. (21) In the main, the Court has exhibited an apolitical demeanor. (22) It has, however, been steadfast in its objective of achieving a substantively uniform and uniformly applied law of arbitration. (23) The Court has also been intolerant of allowing exceptions to the general proposition of the enforceability of arbitral agreements and awards. (24) Arbitration for the Court is a means for securing civil justice within the U.S. legal system. (25)

A final preliminary point needs to be made in regard to the law of arbitration. The decisions in Scherk (26) and Mitsubishi (27) confirmed what legal science had asserted all along: there was a recognizable and meaningful distinction between the international and domestic aspects of law. Accordingly, the Court could establish rules in the international context that were completely inapposite for incorporation into the domestic regulation applying to the same subject matter. (28) The needs of international business and transborder adjudication may have required the arbitrability of securities and antitrust disputes, but such statutory and regulatory conflicts remained outside the purview of arbitration in domestic transactions. (29) There was, therefore, an international and domestic law of arbitration--fully distinguishable in terms of underlying interests and dynamics, as well as on major issues of doctrine. (30)

The Court, however, eventually eliminated the boundary between these two branches of arbitration law. It began to integrate the holdings of international arbitration cases into the domestic law of arbitration and to sever the rules elaborated in the holdings from the specialty of transborder circumstances. (31) Statements asserting that statutory disputes were arbitrable in international business transactions for reasons of conflicts avoidance were transformed into propositions declaring that the governing domestic arbitration law (the Federal Arbitration Act, or FAA) contained no prohibition against the arbitrability of statutory disputes. (32) Moreover, the legal system's preoccupation with conflicts or choice-of-law considerations, in evidence since the end of II, (33) was on the wane. It was being replaced by an aspiration for the unity of law. Many states adopted the UNCITRAL Model Law (34) as their domestic law of arbitration. The legal regime on arbitration was being substantially liberalized in all its aspects. In some cases, the internal law on arbitration was less restrictive of arbitration than the highly accommodating international framework. (35)

It is, therefore, difficult---if not inaccurate--to refer separately to the international and domestic dimension of arbitration law, at least in terms of U.S. arbitration law. The U.S. Supreme Court no longer makes the distinction and is articulating rules of arbitration law that are of general application and not fitted to any special circumstances. (36) The analysis that follows incorporates that feature of the case law. It focuses upon general principles and concepts of the law of arbitration...

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