A comparison of commercial arbitration: the United States and Latin America.

• Author: Fulkerson, Bret

1. INTRODUCTION

   It has been said that the United States and Latin America have historically taken different attitudes toward arbitration.(1) Although there is some truth to this statement, it would be an oversimplification to say that arbitration has always been accepted in the United States and rejected in Latin America. In fact, arbitration has not always received favorable treatment in the United States; for most of its history, arbitration was viewed with skepticism and hostility. Nevertheless, there is a significant difference in the way arbitration is currently viewed in the two regions. The reasons for those differences will be the subject of this comment. A variety of factors contribute to the divergent treatment of arbitration, not the least of which are different legal cultures, histories, concerns about national sovereignty, and the role of the state in the administration of justice. Part II of this comment will discuss the history of arbitration in the United States and analyze its current state of development. Part III will proceed with a general description of arbitration in Latin America and conclude with a focus on Brazil, Venezuela, and Mexico.

2. THE DEVELOPMENT OF ARBITRATION IN THE UNITED STATES

   1. Common Law

      Although arbitration had existed as a form of dispute resolution since colonial times, it was not popular.(2) The origins of arbitration can be found in English common law and unfortunately, some of the same shortcomings that existed in England were transplanted to the United States.(3) The belief that arbitral agreements out courts of jurisdiction was the most crippling problem.(4) As explained by William Howard in The Evolution of Contractually Mandated Arbitration, the consequences of this attitude can be seen in an early sixteenth century statute that prohibited agreements barring lawsuits.(5) Additionally, the sixteenth century court decision known as Vynior's Case established a trend that "arbitration agreements were revocable by either party at any time prior to the award based on the concept that the arbitrator was the agent of both whose authority could be revoked at any time."(6) This conception of the arbitrator's proved to be the most serious limitation to widespread use of arbitration because it became strong precedent in both England and the United States.(7) Other explanations for the historical distrust of arbitration are the fear that it is more likely to result in a miscarriage of justice and the public policy argument that the state should maintain a monopoly over the resolution of disputes.(8)

      Even with these limitations, arbitration in the United States was an established form of dispute resolution before the American Revolution.(9) In 1768, the New York Chamber of Commerce created the first permanent board of arbitration in the colonies.(10) Initially, the New York Chamber of Commerce Arbitration Committee dealt solely with claims between merchants, but in 1817 the securities industry adopted a constitution that provided the nation's first comprehensive arbitration clause.(11) After the revolution, many states passed statutes permitting the enforcement of arbitral awards, but pre-dispute agreements were not recognized--a manifestation of the anti-arbitration hostility exemplified by the rule in Vynior's case.(12) In 1854, the Supreme Court showed signs of recognizing the importance of arbitration when it held that arbitrators should be given broad discretion subject to limited judicial review.(13) However, this holding was never strong precedent, and in 1874, the Supreme Court echoed the common law sentiment by holding that pre-dispute agreements oust courts of jurisdiction and are illegal and void.(14)

   2. Federal Arbitration Act

      In an effort to "overcome centuries of hostility," a pro-arbitration reform movement formed in New York.(15) The New York Chamber of Commerce and the New York Bar Association joined forces and lobbied the state legislature to pass a law that would make arbitration a viable form of dispute resolution both before and after a dispute arose.(16) The result was the 1920 New York Arbitration Act, which validated pre-dispute arbitration agreements, stayed court proceedings pending arbitration, and prohibited revocation of agreements to arbitrate.(17) Five years later, Congress followed New York's lead and passed the Federal Arbitration Act ("FAA") with the purpose of making arbitration agreements valid, irrevocable, and enforceable.(18) The bill passed unanimously in the both House and the Senate.(19) The FAA attempts to put arbitration agreements "upon the same footing as other contracts."(20) It furthers this goal by allowing a party to petition a federal district court to compel arbitration, to appoint an arbitrator if one has not been designated, and to enforce an award.(21)

      The FAA limits the grounds for nonenforcement of an arbitral award to those that "exist at law or in equity for the revocation of a contract."(22) In this context, courts have recognized defenses such as manifest disregard of the terms of the agreement and manifest disregard of the law.(23) These defenses, however, are construed quite narrowly in order to further the FAA's twin goals of settling disputes efficiently and avoiding long and expensive litigation.(24) Section 10 of the FAA provides courts with five specific grounds on which to vacate an arbitral award.(25) An award may be vacated when (a) it was procured by corruption, fraud, or undue means; (b) there was evident partiality or corruption in the arbitrators; (c) the arbitrators were guilty of misconduct in refusing to postpone the hearing for good cause shown, refusing to hear pertinent evidence, or any other misbehavior that prejudices the rights of a party; (d) the arbitrators exceeded their powers; or (e) the time which the agreement required for the award to be made has not expired.(26)

      In 1982, the Supreme Court upheld the constitutionality of the FAA.(27) Almost every state has since adopted an arbitration statute patterned after either the FAA or the Uniform Arbitration Act.(28) As noted above, Congress passed the FAA without dissent--but not without criticism. Its strong support among the business community raised suspicions that the FAA was a product of "business propagandists," designed to subvert the public system of courts.(29) Some considered the courts to be the only legitimate forum for dispute resolution; without it, the "strong could oppress the weak."(30) Critics claimed that in order to protect the public, states should, as a matter of social necessity, provide the only tribunals where disputes can be resolved.(31) Over time, the benefits of arbitration overshadowed the criticisms, and in 1960, the Supreme Court confirmed the strong public policy for arbitration in labor disputes by holding that any doubt should be resolved in favor of a dispute's arbitrability.(32) Seven years later, the Court further enunciated its pro-arbitration stance in Prima Paint v. Flood & Conklin Manufacturing Company.(33) In that case the plaintiff claimed a contract with an arbitration clause was fraudulently induced.(34) The court held that when a contract contains an arbitration clause, a court may consider only the issues that pertain to the making and performance of the arbitration agreement.(35) This is an example of the separability doctrine, which provides that an arbitration agreement, although part of the contract, is a separate and autonomous agreement.(36) The separability doctrine is an important feature in the arbitration process because it allows an arbitration clause to survive even though the underlying contract has expired or become invalid.(37) The doctrine has been criticized, however, because arbitration clauses are interrelated with the contracts in which they are located, so that a defect in one implies a defect in the other.(38) The separability doctrine is substantially related to the Kompetenz-Kompetenz doctrine that addresses an arbitrator's ability to determine its own jurisdiction without court intervention.(39) As with separability, Kompetenz-Kompetenz has far-reaching importance for the arbitration process, but the extent of its acceptance in the United States is uncertain.(40)

      In the 1980s, the Supreme Court expressed a renewed interest in arbitration as it strengthened its pro-arbitration stance even further.(41) The most significant case of the decade was Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., which held that unless "the agreement to arbitrate resulted from some sort of fraud or overwhelming economic power that would provide grounds `for revocation of any contract' ... the [FAA] itself provides no basis for disfavoring agreements to arbitrate statutory claims."(42) In so holding, the Supreme Court rejected twenty years of precedent for not enforcing arbitration agreements in antitrust claims.(43)

   3. The New York Convention

      Mitsubishi is not only significant for domestic arbitration; it also falls under the purview of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.(44) The New York Convention was held in 1958 under the auspices of the United Nations for the purpose of addressing the problems faced by parties who submit to arbitration in a transnational context.(45) It was a successor to the Geneva Protocol and Geneva Convention--which were the first and less successful multilateral treaties to address transnational arbitration.(46) The New York Convention was a great improvement on the Geneva Convention and is widely considered the most important multinational agreement in the field.(47) As with domestic arbitration, there was reluctance on the part of courts to enforce arbitral awards from other countries.(48) However, international arbitration had the added drawback of requiring sovereign courts to uphold the decisions of private foreign entities that lack the hierarchical institutions of domestic court...