Consideration of "Contracting Culture" in Enforcing Arbitration Provisions

By Schmitz, Amy J. | St. John's Law Review, Winter 2007 | Go to article overview

Consideration of "Contracting Culture" in Enforcing Arbitration Provisions

Schmitz, Amy J., St. John's Law Review


Form contract provisions requiring binding arbitration are becoming increasingly important due to their rising prevalence in a wide variety of contracting contexts. Furthermore, most countries, including the United States, strictly enforce agreements to arbitrate as signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly referred to as the "New York Convention").1 Meanwhile, domestic and international rhetoric touts the virtues of agreements requiring non-binding dispute resolution processes such as mediation, conciliation, or negotiation (I refer to these contracts as "ADR Agreements" to distinguish them from contracts requiring binding arbitration under the New York Convention, and the Federal Arbitration Act ("FAA") in the United States).2

Nonetheless, some commentators and policymakers have become skeptical of pre-dispute arbitration clauses because they require parties to waive rights to judicial recourse at a time when parties may not anticipate the development of disputes. Furthermore, United States law has diverged from law in many other countries by enforcing pre-dispute arbitration clauses that "repeat players," such as large retailers and manufacturers, routinely include in their form consumer contracts.3 These repeat players justify such clauses as allowing them to reduce dispute resolution costs, while others criticize the use of arbitration as a means for curbing consumer remedies and preventing class actions. In addition, critics of consumer arbitration question whether it improperly impedes the development of law and shields the public from information regarding health, safety, and other policy concerns.4 In this way, arbitration may allow private parties to escape public regulation and essentially to privatize law.5

United States courts have nonetheless condoned such use of arbitration. The United States Supreme Court has used the FAA to effectuate a pro-arbitration policy that has prevented courts from vigilantly policing the use of arbitration.6 In addition, courts have confirmed the limited review and finality of arbitration awards.7 This has left parties with one avenue for challenging arbitration agreements: general common law contract defenses. Meanwhile, this avenue is narrowing as courts become increasingly formalistic in applying contract defenses. Formalist law and efficiency concerns have prompted courts to shy away from substantive consideration of consent, contractual context, or repeat-player advantages.8

In relational contract theory and elsewhere, however, scholars have highlighted the importance of context, particularly within close-knit exchange communities.9 Indeed, this is particularly important in assessing the fairness and legitimacy of standardized pre-dispute arbitration provisions. This Article therefore seeks to remind courts of the importance of exchange context by proposing a "contracting culture" continuum that acknowledges the impacts of these provisions in a particular communal context. This continuum analysis also highlights the over-and-under-inclusiveness of current pro- and anti-arbitration arguments.

"Contracting culture" encompasses economic and noneconomic relational factors that impact dispute resolution agreements, but go beyond common conceptions of "culture" focused on ethnicity, nationality, or religion. This Article therefore explores beyond the primary domestic versus international factors10 and proposes a continuum of contracting cultures ranging from "intra communal" to "extra communal" in order to highlight how parties' relations, understandings, and values may have the greatest impact on the fairness of form arbitration provisions.

This "contracting culture" continuum also borrows from Professor Ian Macneil's "relational contracts," and his consideration of course of performance, course of dealing, usage of trade, and industry norms. It considers his critique of classical contract doctrine's formalistic "presentation" and narrow focus on exchange as bound by present events of offer and acceptance at the time of contract. …

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