We live in a globalized world, where people, money and ideas flow easily across borders. Yet, our legal systems continue to be based on national territorial sovereignty. Thus, when it comes to a dispute between parties that are resident or present in more than one country, there is no international or transnational law that can be called on to resolve the dispute. Rather, the domestic system of one or more of the countries that have some territorial connection to the parties or the dispute steps in to govern the dispute.
This is obviously problematic. Which state's law should govern? States have developed numerous ways of attempting to resolve this quandary, including doctrines limiting jurisdiction. In the area of commercial contracts, many states allow parties themselves to agree in a contract as to which law shall govern. In the US, this approach was enshrined in M/S Bremen v Zapata Offshore Co., 407 U.S. 1 (1972). There, the Supreme Court adopted a hands-off approach to allowing commercial parties to contract the place and law that will govern their contract. Chief Justice Burger wrote in his opinion: "The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts.”
States have also turned to treaties as a method of filling the gaps between municipal legal systems. Once again in the commercial context, 142 states have signed the "New York" Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This convention obliges the signatories to enforce arbitration awards rendered by third-party (non-state) arbitrators. Again in the US, under Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985), the Court established that where parties in a commercial contract specify a third-party dispute resolution mechanism (an arbitrator), the judiciary will defer to that arbitrator's judgment in practically all areas, including areas involving important public policy concerns such as antitrust. Justice Blackmun wrote: "Concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes, all require enforcement of the arbitration clause in question, even assuming that a contrary result would be forthcoming in a domestic context."
Thus, in the context of commercial agreements, US law is clear: parties to an international agreement may appoint a third party to resolve any disputes arising under the agreement. We can reconcile this with Contract Theory generally: so long as it is the intent of the parties to be bound to the decision of the arbitrator, the courts should enforce that intention. The dispute resolution mechanism is nothing more than another contracted term.
That being clear, here is an interesting quandary. Let's say that the NY Convention included a clause (which in reality it does not) referring any disputes under the treaty to a third-party arbitrator. And let's say that the US did not enforce arbitral awards as required by the treaty. Another state brings an action before the arbitral body noted in the treaty, and the arbitral body says that in order to be in compliance with the treaty it signed, the US must begin enforcing arbitral awards. In other words, we have taken the third-party dispute resolution mechanism out of the commercial context and put it into the public international law context.
What status should this determination have under US law? Leaving aside the fact that commercial arbitrators only have authority to award damages and not to compel performance, is there a reason why a third-party dispute resolution mechanism should be binding in the case of commercial arbitration, but should not be binding on the U.S. when we have signed a treaty that establishes our intention to be bound by the decisions of the third party?
My next post will be on Sanchez-Llamas v. Oregon, 126 S.Ct. 2669 (2006), and a case currently under review by the Supreme Court, Medellin v. Texas. These cases deal with the issue of whether a decision of the International Court of Justice in binding on the US when the US has signed a treaty in which the ICJ is noted as a third-party dispute resolution mechanism for any disputes arising under the treaty.
But for the moment, I am curious if anyone has any thoughts on this. Is there a reason there should be enforceable third-party dispute resolution mechanisms in commercial contracts, but not in treaties? Should a party's obligations arising under a treaty be left solely to the interpretation of that party? I'm curious to hear your views.
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