Originally from American Review of International Arbitration - ARIA

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WHY ARBITRATE?
SUBSTANTIVE VERSUS PROCEDURAL THEORIES
OF PRIVATE JUDGING
Christopher R. Drahozal*

INTRODUCTION

The standard view is that parties agree to arbitration – to use private judges
rather than public court judges to resolve their disputes – because arbitration is a
process that improves upon the court system for dispute resolution. On this view,
arbitration may be preferred to litigation because it is cheaper and faster;1 because
it enables parties to pick a decision maker (the arbitrator) who is an expert in the
field;2 or because it provides a neutral forum (a reason most commonly cited for
international disputes);3 among other reasons. Some commentators, however,
have argued that parties use arbitration for substantive reasons – to “ensur[e] that
the contracting parties’ preferred substantive law is applied.”4 For example, Lisa
Bernstein concluded from reviewing a sample of trade association arbitration
awards that the commercial parties opted for arbitration to have their disputes
resolved by decision makers who applied more formalistic rules of decision than
courts would have applied.5 Others have argued that an important reason parties
use arbitration for international disputes is the ability to have arbitrators apply anational
rules of decision instead of national law.6

This article examines why it is that parties agree to arbitrate. Or more
specifically, it examines whether parties agree to arbitrate for procedural reasons
or for substantive reasons. Of course, these categories of reasons are not mutually
exclusive. Parties may agree to arbitrate for both procedural and substantive
reasons, and some reasons may be both procedural and substantive (depending on
how procedure and substance are defined).7 Moreover, the reasons parties agree
to arbitrate likely vary across types of parties and types of contracts. Just as there
is no single reason why parties agree to arbitrate, there is no single answer to
whether they agree to arbitrate for procedural or substantive reasons. But there
may be more common reasons and less common reasons, and it is the relative
frequency of the reasons that I explore here.