Enforcement of Arbitration Provisions in Bankruptcy - Part 5 Chapter 8 - The Practice of International Litigation - 2nd Edition
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
As the trend of corporations expanding in the global marketplace continues to accelerate and the cost of judicial resolution of controversies continues to mount, inclusion of arbitration provisions in international business contracts has become increasingly frequent. Such provisions (along with domestic arbitration provisions) enjoy a strong federal policy favoring their enforcement as codified in the United States Arbitration Act, 9 USC §1 et seq. Increasingly, courts are being asked to determine whether an arbitration provision should be enforced when the American party to a contract containing an arbitration clause files for protection from its creditors under the United States Bankruptcy Code, 11 USC §101 et seq. This Chapter explores how courts have grappled with reconciling the Arbitration Act and Bankruptcy Code when confronted with an international arbitration provision.
Arbitration Act Policies
The Arbitration Act was enacted amid a growing recognition of arbitration as a viable and important mechanism for dispute resolution, and it officially ended the long-standing judicial aversion to arbitration that the American judiciary inherited from the English courts. The Arbitration Act provides that an arbitration provision shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” It further provides that, on application of a party, a court shall stay a trial of an action pending in a court of the United States that is subject to arbitration by written agreement of the parties until arbitration “has been had in accordance with the terms of the agreement.”
One of the central goals of the Arbitration Act is to encourage the inexpensive, quick and efficient resolution of controversies by arbitrators. Arbitration accomplishes that goal relative to judicial resolution of controversies by affording only limited discovery and procedural rules. Furthermore, arbitrators are often experts in their respective fields and are therefore considered better able to decide certain controversies than are judges. Unlike arbitrators, judges are typically bogged down with heavy caseloads, including criminal cases, which are given priority, thereby delaying resolution of civil controversies. Moreover, unlike most judicial determinations, arbitration rulings are not appealable. The Arbitration Act also seeks to hold parties to their freely chosen contractual undertakings to arbitrate their differences in accordance with the terms of their agreement.