Following on from Jeff Glen’s presentation on Arbitration at the Kiev AGM…
Increased Controversy in the US Over Arbitration
Shortly after my presentation on challenges to arbitration in the United States Federal courts at the Kiev AGM, the New York Law Journal published an article on compulsory arbitration by agreement under American law. The article sets out the disputes over arbitration within the US, highlighting the problem of eliminating recourse to the courts in contract, like employment or brokerage agreement, where there is no realistic alternative to either agreeing to arbitration or not entering into the contract at all.
The article notes several cases that were then pending in the US Supreme Court in which this issue arose. On June 21, 2010, the Supreme Court decided, in a 5-4 decision , that where an arbitration agreement specifically confers on the arbitrator the exclusive power to "resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including ... any claim that all or any part of this Agreement is void or voidable," a court has no power to void the Agreement, or the arbitration provisions contained in the Agreement, on the ground of unconscionability. Rent-a-Center, West v. Jackson, 2010 WL 2471058. The effect of the decision is to empower the arbitrator to decide whether the party that agreed to arbitration, perhaps in situations where was grossly unequal bargaining power, will be relieved of his "choice" of arbitration. A few days later, the Supreme Court held, this time without dissent on the point, that whether a particular dispute had been committed to arbitration in a less all-encompassing agreement is a matter for judicial determination. Granite Rock Co. v. International Brotherhood of Teamsters, 2010 WL 2518518.
I do not know the position of other countries regarding enforcement of arbitration in situations of allegedly unequal bargaining power. "Unconscionability" is a claim to avoid a contract that is prominent in the Uniform Commercial Code, which governs contract interpretation in most American jurisdictions. If, as the accompanying article suggests, legislation will empower the courts to review these types of claims, there will be a substantial question whether American courts will enforce foreign arbitration awards under the New York Convention where a challenge of "unconscionability" is raised, particularly in countries in which that defence is not part of the local jurisprudence.
Jeff Glen