Originally from: Lowenfeld on International Arbitration

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Courts and Arbitration

Andreas F. Lowenfeld

13. CAN ARBITRATION COEXIST WITH JUDICIAL
REVIEW? THE LAPINE V. KYOCERA CASE

      Once parties to a commercial relationship agree to submit their
differences to arbitration, the understanding in the United States has
been that they commit themselves to abide by the decision of the
arbitrators, subject to very limited review by the courts. Under the
Federal Arbitration Act, as well as the Uniform Arbitration Act and
the arbitration law of most states, a court may set aside an award if it
finds gross misbehavior by the arbitrators, such as corruption, fraud,
undisclosed conflict of interest, or refusal to hear pertinent evidence.
Some courts — and a good many losing counsel — have sought to
build on the suggestion by the Supreme Court in Wilko v. Swan that
arbitral awards may be set aside for “manifest disregard of the law.”
But even if that standard is valid, it can hardly ever be shown, except
in association with corruption or comparable misconduct. Honest
arbitrators do not manifestly disregard the law. But they may well
misconstrue the law, or misapply it, or get the facts wrong. So, of
course, may judges, administrative agencies, tax assessors, and other
decision-makers. But whereas in virtually every judicial system a
losing party has at least one chance to challenge the outcome of a
legal proceeding, arbitration is different.
      Why is this so? The proposition may be formulated in different
ways, but comes down to saying that by agreeing to arbitration, the
parties have agreed to abide by the decision of their chosen tribunal,
and how a court might have decided the same controversy is not
significant. Looked at from the other side, arbitration relieves
overburdened courts of a substantial workload; if they are brought
back in to oversee the results of an arbitration, much of this
advantage is lost.
      Putting aside the burden on the courts, the question comes up
whether parties can opt for a hybrid regime. Can they enjoy the
benefits of arbitration — quicker resolution, avoidance of juries,
participation in the selection of the decision-maker, less formality and
more confidentiality — and still provide in their agreement to
arbitrate for substantive control by the courts?