The Specificity of International Arbitration: The Case for FAA Reform

By Park, William W. | Vanderbilt Journal of Transnational Law, October 2003 | Go to article overview

The Specificity of International Arbitration: The Case for FAA Reform


Park, William W., Vanderbilt Journal of Transnational Law


TABLE OF CONTENTS

   I.  INTRODUCTION
  II.  THE ARCHITECTURE OF AMERICAN ARBITRATION
       LAW

       A. Scope of the Federal Arbitration Act
       B. The Need for a New Statute
       C. Manifest Disregard of the Law
          1. The Wilko Dictum
          2. Westerbeke v. Daihatsu
 III.  THE SPECIFICITY OF INTERNATIONAL ARBITRATION
       A. Arbitration's Role in Cross-Border
          Transactions
       B. What Makes Arbitration International?
  IV.  JUDICIAL SCRUTINY OF AWARDS
       A. Statute, Treaty, and Public Policy
       B. Why, When, and How Courts Review Awards
          1. Alternatives
          2. Situs Review
          3. Efficiency
          4. Vitality of National Substantive Law
   V.  THE DEVIL IN THE DETAILS: POSSIBLE CONTOURS
       OF NEW FAA PROVISIONS
       A. Optimal Judicial Review for International
          Arbitration
       B. Secondary Matters
          1. Jurisdictional Determinations
          2. The Impact of State Law
          3. Arbitral Venue
          4. Modification of Court Scrutiny
       C. Consumer and Employment Contracts
          Revisited
          1. The Current Scope of the FAA
          2. Making Distinctions
          3. Importing the European Experience
       D. A Smorgasbord Approach
  VI.  FEAR OF REFORM OVERDOSE
       A. A Pandora's Box of Special Interests
       B. Random Change or Reasoned Reform?
 VII.  INVESTOR-HOST STATE ARBITRATIONS
       A. Blurred Lines: The NAFTA Experience
       B. Judicial Review and Investment Arbitration
       C. Political Reaction and Notes of
          Interpretation
VIII.  CONCLUSION
       APPENDIX

I. INTRODUCTION

If a pollster asked a random selection of Americans for a one-line verbal portrait of arbitration, common responses might include the following: (i) private litigation arising for construction and business disputes; (ii) a mechanism to resolve workplace tensions between management and labor; (iii) a process by which finance companies and stock brokers shield themselves from customer complaints; (iv) a way to level the playing field in deciding commercial controversies among companies from different parts of the world; (v) the way big corporations use NAFTA to escape regulation. To some extent all would be correct. (1)

Unfortunately, these different varieties of arbitration have all been squeezed into the same antiquated arbitration statute. Enacted 75 years ago as a simple procedural device to enforce arbitration in federal courts, the Federal Arbitration Act (FAA) has now been pressed into service as a body of substantive law that binds state courts as well, requiring that arbitration agreements be enforced on the same footing as other contracts. (2) The Act is as ill-suited to such use as an all-terrain vehicle. As drafted, the FAA ignores critical distinctions in the level of judicial supervision suitable to different types of cases. The laissez-faire court scrutiny appropriate to an international proceeding, between sophisticated business managers with access to competent counsel, may be quite misplaced in a consumer case, where an arbitration clause might require an ill-informed individual to seek uncertain remedies at an inaccessible venue. (3) Moreover, basic arbitration notions are hidden in a maze of inconsistent cases that are anything but user friendly: they disorient and confuse litigants from abroad, adding significant transaction costs to the choice of arbitration in the United States. (4)

The time has come to consider amending the FAA to provide greater clarity for international arbitration. One springboard for reform can be found in the UNCITRAL Model Arbitration Law, (5) which has already engendered a rich case law that could serve as a prism to separate and identify many of the interrelated themes in cross-border arbitration. (6) The Model Law, however, should not be imported wholesale. (7) Any amendment of the Federal Arbitration Act must take account of homegrown arbitration concerns and precedents. …

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