The Preclusive Effect of Arbitral Awards: Who Decides? - Part 5 Chapter 14 - 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.
Businesses are increasingly using arbitration as an alternative method for resolving disputes. In recent years, the United States Supreme Court has permitted arbitration to be used to settle disputes in substantive areas previously treated as resolvable only in the courts, including claims brought under the federal securities and racketeering laws ("RICO"), the federal antitrust laws, and the federal age discrimination laws. As a result, the use of arbitration has increased, with every arbitration proceeding potentially resulting in an award.
This increasing number of arbitral decisions worldwide raises the issue of how these awards fit into the larger picture of third-party dispute resolution including, of course, court proceedings. Arbitral awards may be conclusive as to the specific dispute with which they deal and/or they may also be treated as binding authority for later decision-makers, particularly those faced with similar issues and parties. Thus, the issue of whether arbitral awards should be accorded—through the operation of the principles of res judicata and collateral estoppel—preclusive effect in subsequent judicial and arbitral proceedings is one that will probably arise with increasing frequency, in both domestic and international arbitration. Under the principle of res judicata, or "claim preclusion," a party is barred from asserting, in a subsequent proceeding, claims that were actually litigated or that could have been litigated in a prior proceeding that resulted in a final judgment. The principle of collateral estoppel, or "issue preclusion," bars relitigation of issues of ultimate fact between the same parties when those issues have been necessarily determined in a prior proceeding.
In New York, it is well established that the principles of res judicata and collateral estoppel apply to arbitration awards. That is, an arbitral award may preclude relitigation of a claim both in court and arbitral proceedings. This article discusses one important procedural issue that courts and practitioners in New York inevitably encounter in assessing the preclusive effect of a prior arbitration award in a subsequent arbitration: whether arbitrators or courts have the power to make that determination. The answer may depend on whether the underlying dispute is one covered by the Federal Arbitration Act ("FAA") or New York state law.