Table of Contents

Arbitration and the Contract Exchange

Andrew A. Schwartz, University of Colorado Law School

Good Faith: A Puzzle for the Commercial Lawyer

Noel McGrath, UCD

Crossing the Threshold: Arbitral Jurisdiction after BG Group

Alan Scott Rau, University of Texas at Austin School of Law, University of Texas - School of Law, The Center for Global Energy, International Arbitration, and Environmental Law

Five Questions After Atlantic Marine

Stephen E. Sachs, Duke University School of Law


"Arbitration and the Contract Exchange" Free Download
Ohio State Journal on Dispute Resolution, Vol. 29, No. 2, 2014
U of Colorado Law Legal Studies Research Paper No. 14-7

ANDREW A. SCHWARTZ, University of Colorado Law School

A contract exchange, defined as an organized marketplace for the creation or trading of specific contracts, provides benefits to its members as well as the public at large. But legal disputes can arise on contract exchanges, just as they do anywhere else, and those disputes can be litigated, mediated, arbitrated, or resolved in some other way. This Essay claims that arbitration, rather than litigation, is a particularly useful and appropriate means for resolving exchange-related disputes, and that this is true not only for traditional contract exchanges, like the Chicago Board of Trade, but also for online "consumer contract exchanges," such as In support of this claim, this essay shows that the vast majority of disputes arising out of American commodities exchanges are resolved through arbitration, not litigation.

The nature of arbitration requires that judicial review of an arbitrator's decision be minimal, and it is under current law. But that does not mean that the state plays no role in contract-exchange disputes. To the contrary, the Commodities Futures Trading Commission and other government agencies regulate exchange arbitration to ensure that the process is sufficiently robust to be relied upon for just results. This regulation of contract exchange arbitration enhances the respect that courts will pay to the regulated arbitration clause, process, and decisions. The foundation for this enhanced respect is that the ex ante (regulatory) review acts as a substitute for ex post (judicial) review of exchange-related arbitration. In recent years, however, the Federal Arbitration Act has been read by the Supreme Court to mandate a high level of judicial respect for arbitration and arbitration clauses regardless of whether there was ex ante regulatory approval. Given the other significant costs of regulatory oversight, especially for a nascent and growing industry like consumer contract exchanges, it may be wise to rely solely on the FAA to protect exchange-related arbitration.

"Good Faith: A Puzzle for the Commercial Lawyer" Free Download
UCD Working Papers in Law, Criminology & Socio-Legal Studies Research Paper


To those educated in, or accustomed to the practice of, the common law system, good faith is a concept which is at once both familiar and alien. For most students, the first significant encounter with good faith occurs in the study of property law; as every second year law student knows, (or rather ought to know) the holder of an earlier equitable interest in real or personal property will, absent exceptional circumstances, lose priority to a subsequent purchaser of a competing legal interest if the latter is a bona fide purchaser for value of the legal estate without notice of the prior equity. In light of what follows it is interesting to note that in their discussion of this rule, the leading property law texts display a marked tendency to focus on the notice aspect of the rule and tend to devote merely the briefest of paragraphs to the question of what it means to be a good faith purchaser in this context. As the student moves on through his or her legal studies, the concept of good faith reappears in several contexts. Thus the company director, the trustee and other fiduciaries are required to exercise their powers in good faith – a concept variously associated with avoiding conflicts of interest, retaining a supervisory role with respect to delegated functions, refusing to improperly fetter one’s discretion and exercising powers purely for the purpose for which they were conferred. The student of commercial law, if sufficiently dedicated to immerse herself in the glorious mysteries of the law of negotiable instruments, will have further light thrown on the concept of good faith; section 29 of the Bills of Exchange Act 1882 prevents a purchaser of a bill of exchange from availing of the defences granted to a holder in due course unless "he took it in good faith and for value". Section 30 of the Act goes on establish that such good faith is to be presumed in all cases, unless the transaction is "affected with fraud, duress, or force and fear, or illegality". However, Sir Mackenzie Chalmers in drafting the 1882 Act, evidently did not think that the presence of fraud, duress and illegality are always inherently incompatible with the presence of good faith for section 30(2) leaves it open to a holder to defend a transaction so affected, by showing that it was involved value being given in good faith.

The foregoing serves to establish that Irish and English private law has no unified concept of good faith, instead our law contains "little more than intermittent, discrete and superficial references to a good faith standard of behaviour". The absence of such a requirement sets the common law system apart from German jurisdictions in which the §242 of the 1900 Civil Code requires parties to observe the requirements of "treu und glauben" in their mutual dealings, a requirement which has been described as both "the queen of rules" and a "baneful plague" by German legal scholars. The French legal system, and those jurisdictions to which it has been exported, have likewise recognised a concept of bonne foi in its law of contract. Good faith, or its analogues, has also emerged as important features of efforts at harmonising various aspects of contract and commercial law at both European and international level. Other common law systems, including the American states and Australia have also adopted a principle of good faith as a part of their law of contracts.

In light of the widespread adoption of good faith requirements in other jurisdictions and of efforts to achieve harmonisation of European contract law, it is not surprising that commentators have increasingly argued that Irish and English courts should follow their Australian counterparts and should adopt good faith as a standard against which the actions of contractual parties, or the parties to negotiations can be judged. Indeed one leading English academic has suggested that it is only a matter of time before the English courts "will come to accept the existence" of an obligation to act in good faith. This paper will argue that such a development should be resisted. Good faith is not a concrete and definite concept, it is rather a metaphor for a range of conduct and behaviours which the law accepts as complying with the standards of prudence and/or propriety required of particular actors in discrete situations. For this reason, it is be argued good faith should be thought of as an expression of a conclusion rather than an analytical tool which can be relied upon in reaching one.

The paper will be divided into three parts. The first part will consider what is meant by good faith generally and will argue that the uncertainty surrounding the meaning of the term make the adoption of a generalised good faith obligation undesirable. The second section will examine the current judicial attitude to contracts which commit the parties to negotiate in good faith. It will argue that the existing position is justified and that there is no good reason why courts should enforce such bargains. The third section will consider contracts in which the parties commit themselves to act with good faith towards each other. It will that the current approach to such agreements, which is to interpret the term in light of the rest of the agreement between the parties, is correct. A brief conclusion follows.

"Crossing the Threshold: Arbitral Jurisdiction after BG Group" Free Download
Melanges en l'honneur de Pierre Mayer (2015 Forthcoming)
Energy Center Research Paper No. 2014-04

ALAN SCOTT RAU, University of Texas at Austin School of Law, University of Texas - School of Law, The Center for Global Energy, International Arbitration, and Environmental Law

In a decision that was much anticipated and that has been much discussed, the Supreme Court has once again revisited the central question in our law of arbitration - the allocation of responsibility between national courts and arbitral tribunals. In BG Group v. Argentina this was addressed, as often in the past, in the familiar and fraught context of "procedural conditions" that the parties in their agreement have imposed on the duty to arbitrate.

For the first time, though, the question arose in the context not of an ordinary commercial contract, but in a bilateral investment treaty. The Argentina-UK BIT is somewhat unusual in that it provides that “disputes with regard to an investment? “shall? first be submitted to the local courts - and may only later be submitted to arbitration if the local courts have not given a “final decision? within 18 months, or if they have, if the parties are nevertheless “still in dispute.?

Although an arbitral tribunal assumed jurisdiction despite the claimant’s failure to comply with this provision, the DC Circuit reversed and ordered the award annulled - concluding that the arbitrators had “exceeded their power.? This decision was with virtual unanimity vigorously criticized by the US arbitration community; distinguished academics and practitioners inevitably claimed that this failure to give proper deference to arbitrators’ rulings on “threshold? issues would upset the “expectations of the international community? and discourage foreign users from choosing the US as an arbitral seat.

In light of this it was perhaps not surprising that the Supreme Court reversed, choosing to characterize the BIT’s local-litigation requirement as nothing more than a banal “claims processing requirement? - a “purely procedural? “condition precedent? - and thus essentially identical to those familiar cases where it is alleged that by operation of contract any right to arbitration is "not yet" or "no longer" present. The corollary is that just as in those cases, whether the condition has been fulfilled or excused is a question left for final determination by the arbitrators themselves.

I suspect that the proper resolution of this question is somewhat more complex than the Court’s fairly pedestrian approach seemed to suggest. It should not require too strong an infusion of “Legal Realism? for us to perceive that the “procedural? catchword is devoid of any explanatory power whatever. For surely it is a familiar point that just about every conceivable objection to arbitration, “procedural or not,? can be framed as implicating arbitral “jurisdiction,? in the sense that it potentially qualifies the nature and extent of party agreement. But the distinguishing feature of the BIT provisions here is that litigation in the judicial forum otherwise normally competent was not only contemplated, but required; this suggests that the challenge should be deemed “jurisdictional? in the sense that it was forum-dependent. At least the primacy of the alternative judicial forum was mandated for the first 18 months. The whole point of giving priority to "courts otherwise competent? would be eluded if it is up to an arbitrator to rule definitively on whether the duty to seize those courts had been excused.

Another problem lurking in the BG case is that by default under the treaty, any arbitration was to be governed by the UNCITRAL Rules. Given the perspective from which the Court viewed the case, it became unnecessary to address this - but what would be the proper outcome if, as I suggest, the “jurisdictional? analysis turned out somewhat differently?

Even if compliance with the BIT’s local-litigation requirement is something that should in the normal run of things properly be reserved for a court, the parties may nevertheless have chosen to vary this assumed baseline presumption by contract. US jurisprudence routinely holds that this is precisely what parties adopting the AAA rules have intended to do - that to arbitrate under these rules is itself a delegation to arbitrators of final decisionmaking power with respect to their own jurisdiction - but by contrast, no one could have had anything like that in mind when the facially identical rules of other arbitral institutions were drafted. Given the backstory and presuppositions that inform the rules, say of UNCITRAL or the ICC, it seems highly unlikely that either of these bodies of rules ought fairly to be read as a contractual delegation of decisionmaking authority to arbitrators - and most unlikely that they would be so perceived outside of the US.

Here is where US law, in its relentless privileging of party autonomy, seems to have painted itself into a corner. The conclusion we are left with is that US courts - whether through the default presumption governing arbitral competence that Justice Breyer has crafted, or through a misreading of institutional rules - are likely in any event to wind up in the same place - the inevitable result, an exaggerated deference to arbitral decisionmaking.

"Five Questions After Atlantic Marine" Free Download
Hastings Law Journal, Forthcoming

STEPHEN E. SACHS, Duke University School of Law

The Supreme Court's Atlantic Marine ruling did a lot to clear up the law of forum selection. But it also left a number of live questions in place. This essay briefly discusses five of them. When a party wants to move a case to the selected forum, what procedures can it use, other than venue transfer or forum non conveniens? When is a forum selection clause valid and enforceable, as a matter of state or federal law? If the clause isn't valid, should a federal court still give it any weight? What if there are multiple parties or claims, and the clause applies to some but not others? And what do the Court's new standards mean for parties appealing a forum selection ruling, either before or after a final judgment? Judges are already wrestling with these questions, but the answers aren't easy -- and may well require another trip to the Supreme Court.


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Contracts & Commercial Law eJournal

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