Saving the Federal Arbitration Act

SAVING THE FEDERAL ARBITRATION ACT*

Any debate over reform of an arbitration statute will likely touch some of the larger issues related to the function of courts and law in the international arbitral process. Eminent scholars and practitioners support divergent views.

At a symposium organized by the American Bar Association (ABA) in New York in April 2004, several positions were presented and later memorialized in the newsletter of the ABA International Commercial Dispute Resolution Committee. One school of thought suggested wholesale change with adoption of the United Nations Commission for International Trade Law (UNCITRAL) Model Arbitration Law. Another point of view saw minor tinkering with statutory language as the most prudent course. Another group advocated doing nothing, from fear of making matters worse. Yet another voice urged abstention from any action at all. A final perspective suggested the establishment of a legal regime for international arbitration that would be structurally and conceptually separate from the one covering domestic arbitration. This last position is set forth in more detail in the chapter titled “Amending the Federal Arbitration Act.” (Part II, Section D, Chapter 2).

The following excerpt from the proceedings of that colloquium attempts to touch on the rival outlooks.

A. A Time to Be Proactive

The varieties of arbitration

Our first President, George Washington, provided in his will that disputes among his heirs were to be arbitrated by “three impartial and intelligent men” who would declare the testator’s intention “unfettered by law or legal constructions.”¹ Perhaps this admonition against relying on law derived from exposure to a judicial saga similar to Jarndyce v. Jarndyce, the famous Chancery Court dispute featured in Charles Dickens’s novel Bleak House, described as a case which in course of time became “so complicated that no man alive knows what it means.”²

Doubtless the current Federal Arbitration Act (FAA) would have been sufficient to meet Washington’s needs. The American economy, however, has grown ever more complex during the past two hundred years. Few would quarrel that increased cross-border trade and investment requires a procedurally and politically neutral dispute resolution process, without which many wealth-creating transactions either would not be consummated or would be concluded at higher costs to reflect the greater inherent risks.

In international arbitration, the United States remains a victim of a self-inflicted competitive disadvantage imposed by its legal framework for arbitration. The spillover of domestic precedents into international cases will inevitably chill selection of American cities for international arbitration, with foreign parties understandably anxious to avoid excessive judicial interference. Consequently, American businesses will increasingly be forced to accept foreign arbitral venues with more intelligently designed legal frameworks, which of course means fewer fees to American arbitrators and counsel.