Policing Contracts for Unconscionability: Guidelines for International Arbitrators Subject to the Scrutiny of US Courts
Arbitration, Vol. 73, pp. 382-393, 2007
13 Pages Posted: 3 Jan 2008
Date Written: December 26, 2007
In the United States private contracts are policed using a combination of statutory prohibitions and the doctrine of unconscionable contracts. With the exception of Australia and perhaps Canada, in this the United States stands alone, For the rest of the world, including common law jurisdictions such as England, contracts are policed almost exclusively by statutory prohibitions. In civil law countries it is common place for lawyers to consult statutes that contain long lists of prohibited provisions. If a given type of clause is listed, it is deemed per se unenforceable and the role of the judiciary is simply to enforce the statute. In civil law jurisdictions the element of judicial subjectivity is absent from the policing process.
What accounts for the dramatic difference between the two approaches to the policing of contract term? And is the difference really all that surprising? In this article the point is made that the differences are attributable to an underlying cultural bias that favors individual choice. Many refer to both countries as having a cowboy mentality, a mindset that allows for risk taking even if doing so results in an otherwise unfortunate outcome. Both the United States and Australia highly prize the right of the individual to take risks with limited governmental oversight. In both countries so long as the individual is aware of the terms contracted for, and so long as the decision to accept a term isn't manipulated in a manner that offends the contracting system, the individual is usually allowed to decide what is and what isn't best, given the unique circumstances of a given contract. The only exceptions are terms that (1) violate statutory law, in which case the clause is per se unenforceable or (2) violates public policy, in which case the clause may be considered per se unenforceable upon a determination of applicable public policy or (3) is so one sided and unduly harsh as to be grossly unfair in which case the term can be challenged as being unconscionable. The later two types involve determinations made by courts and are subject to judicial subjectivity.
The article compares and contrasts the laws of numerous countries with those in the United States and Australia and discusses the implications of the differences within the context of arbitration proceeds brought before arbitrators trained in the civil law tradition. Recent case law (Buckeye Check Cashing v. Cardegna, 126 S. Ct. 1204 (2006)) suggests that arbitrators must resolve the issue of unconscionability if there is a challenge to the contract in the entirety as opposed to a challenge to the arbitration clause itself. Therefore, arbitrators trained in the civil law tradition may be called upon to provide rulings involving a theory of law that is totally unfamiliar to them. The article is constructed with these readers in mind.
Keywords: arbitrartion, uncosncionabile contracts, comparative law, civil law, common law
JEL Classification: K10, K12, K19, K29, K40, K41, K49
Suggested Citation: Suggested Citation