Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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Enforcement of Arbitration Provisions in Bankruptcy
Lawrence W. Newman and Michael Burrows
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.
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.
