Day: April 16, 2014

1. Introduction:

In today’s ever-globalizing world, it has become increasingly important for jurisdictions to promote commerce with foreign parties.  One manner in which jurisdictions can encourage international business is to modernize their international commercial arbitration statutes.  The UNCITRAL Model Law on International Commercial Arbitration (the Model Law) is designed “to assist States in reforming and modernizing their laws on arbitral procedure.”[1]  The United States has not adopted the Model Law on the federal level, and its main source of arbitration law is the Federal Arbitration Act (the FAA).[2]  While federal law is one source of U.S. arbitration law, there are several situations in which state law can complement or supplement the FAA,[3] and can fill in procedural gaps that are not directly addressed under the FAA.[4]  As such, in 2010, Florida adopted the International Commercial Arbitration Act; by adopting this act, Florida has become one of eight U.S. states to enact the Model Law in order to promote international arbitration and international business within its state boundaries.[5]  More recently, in June of 2013, Florida further attempted to attract international business by clarifying ambiguities in its International Commercial Arbitration Act.[6]

2. The Federal Arbitration Act:

Prior to 1925, there was no federal statutory law on arbitration.[7]  The FAA was enacted by Congress in 1925, and then codified in 1947.  When the FAA was adopted in 1925, U.S. courts held a negative attitude towards arbitration.[8]  Congress’ main goal in enacting the FAA was to “…overrule this hostility towards arbitration and to ensure judicial enforcement of arbitration agreements.”[9]  The FAA explicitly states that an agreement to arbitrate “an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable….”[10]  Courts have generally held that the FAA only pre-empts state law that conflicts with the intent of promoting arbitration.[11]

Some critics argue that the FAA is not a comprehensive international arbitration statute when compared to the Model Law.  Attorney Daniel Kolkey is one such critic of the FAA.  Kolkey states that “[t]he FAA addresses too few subjects of international concern, leaves too many issues unresolved, and shares far too much jurisdiction with an increasingly diverse set of state arbitration laws for foreign parties to enthusiastically choose it for arbitrating international commercial disputes.”[12]  For example, there are several subjects not addressed by the FAA, such as “…challenging the arbitrators, provisional relief, selecting an arbitral situs, the conduct of arbitral proceedings, and choice of law.”[13]  Accordingly, “…gaps in the FAA leave room for the enactment of state laws governing interstate and international arbitrations.”[14]  Kolkey further states that “[p]roblems concerning the relationship between federal and state law are compounded by the enactment of different state statutes governing, or at least applying to, international arbitrations.”[15]  Thus, this divergence among state statutes means that there is no uniform law governing international commercial arbitration in the United States.[16]  There is now a clear trend among states to adopt the more internationally uniform UNCITRAL Model Law, in order to complement or supplement the FAA, and fill in procedural gaps that are not directly addressed under the FAA.

3. State Law Regarding International Commercial Arbitration:  

According to commentator Daniel A. Zeft, there are several situations in which state international arbitration law may complement or supplement the FAA in an arbitral proceeding.  The first situation is when a state court action is brought pursuant to a state international arbitration statute, regarding an arbitration agreement or award that is within the scope of Chapter 1 or 2 of the FAA; in this scenario, the provisions of the state international arbitration statute may apply only if they do not conflict with the corresponding provisions in the FAA.[17]  In Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., the United States Supreme Court held that “…state law may nonetheless be pre-empted to the extent that it actually conflicts with federal law-that is, to the extent that it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’”[18]  Zeft claims that federal pre-emption of state international commercial arbitration law is not significant because “…few provisions contained in the state international arbitration statutes examined conflict directly with provisions in [C]hapter 1 or 2 of the FAA, or frustrate the purposes and policies of the FAA or the New York Convention.”[19]  Furthermore, according to the Supreme Court in Volt, “[t]he FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration.”[20]  Adoption of the UNCITRAL Model Law by states has been said to improve state laws and create a climate favorable towards arbitration.[21]  Thus, the UNCITRAL Model Law’s goal is in line with the FAA’s goal of promoting international commercial arbitration, and the FAA will likely not pre-empt the Florida International Commercial Arbitration Act in this first situation.[22]

The second situation in which a state international arbitration statute may apply is when an arbitration agreement falls within the scope of a state international arbitration statute, but is outside the scope of Chapter 1 of the FAA.  According to Zeft, in this scenario, “the FAA’s [C]hapter 1 cannot pre-empt the pertinent state statutory provisions.”[23]

Thirdly, state law that is inconsistent with the FAA may even apply to international arbitrations when the parties have expressly agreed upon the application of state law to the arbitration.[24]  In Volt, the parties chose to arbitrate in accordance with California law.[25]  The court held that while the FAA is fully applicable in state court proceedings, it does not prevent the application of California law “where, as here, the parties have agreed to arbitrate in accordance with California law.[26]  Accordingly, “[w]hen Volt is cited as precedent on the issue of pre-emption, it is much more likely that state arbitration law will play some role in the arbitration process.”[27]  More recently, the court clarified the Volt holding in Mastrobuono v. Shearson Lehman Hutton, Inc., suggesting “…that state arbitration law inconsistent with the FAA may only apply to an arbitration if the parties include in their contract a choice of law clause that expressly selects such state law over federal law.”[28]  Some commentators stated that the FAA is simply a set of default rules that apply when the parties have not selected an alternative mechanism.[29]  The coexistence of the FAA and different state international arbitration statutes offers maximum party autonomy, with “choices among varied legal frameworks supportive of the international arbitral process.”[30]  

Various U.S. states have adopted international arbitration statutes in order make their jurisdictions more attractive forums for conducting international commercial arbitrations.[31]  This means that both the seat of arbitration and state law are relevant in United States’ arbitration proceedings.  The seat of arbitration remains an important choice for parties in international commercial arbitration due to variation among state and national arbitration law.[32]  As such, it is beneficial to a U.S. state (such as Florida) to adopt the UNCITRAL Model Law in order to promote international commercial arbitration within its jurisdiction.

4. The Florida International Commercial Arbitration Act:

Florida has become a center for international business and a popular arbitral seat for international arbitrations involving Latin American parties.  According to Miami international arbitration attorney Pedro Julio Martinez-Fraga, “it does appear that Miami is considered and selected more frequently as a seat of arbitration.”[33]  Historically, Floridian courts were antagonistic towards international arbitration.  However, since 1986, Florida has been actively modernizing its arbitration law.  First, in 1986, Florida adopted the International Arbitration Act.  Second, effective on July 1, 2010, Florida enacted the UNCITRAL Model Law through the Florida International Commercial Arbitration Act (ICAA); the ICAA “…is a detailed statute granting wide-ranging powers to arbitral tribunals.”[34]  Finally, in June of 2013, the Florida Legislature adopted the “Glitch Fix Bill,” in order to clarify ambiguities in the 2010 International Commercial Arbitration Act.[35]

According to Florida Senator Dan Gelber, the passage of the ICAA “…will send a strong message to international businesses that Florida is the right place to settle their business disputes. By providing a reliable framework, more businesses will come here to use our professional services, stay in our hotels and make Florida their destination.”[36]  Commentators have stated that this act will have a huge impact on the Florida economy, because international arbitrations involve large dispute amounts and generate a need for ancillary services such as lawyers, translators, court reporters, accountants, and investigative services.[37]  If an agreement falls under the scope of the ICAA,[38] then the ICAA may be chosen as the applicable law in lieu of the FAA, which ordinarily applies to a transaction involving interstate commerce.[39]  According to Martinez-Fraga, “the Florida act is most relevant not as a comprehensive legislative scheme, but rather when it fills in procedural gaps that are not directly addressed under the FAA.”[40]

Florida has further attempted to attract international business by passing the “Glitch Fix Bill” in June of 2013.  This bill made minor changes to the Florida International Commercial Arbitration Act, with the goal of “enhance[ing] the business climate in Florida by streamlining legislation related to international law matters in order to increase Florida’s attractiveness as a business friendly state.”[41]  This bill broadened §684.0002 regarding the scope of application by adding an “or” to the definition of an international arbitration.  The bill also made minor changes to the wording of §684.0019 and §684.0026.  Finally, the bill added §684.0049 regarding consent to jurisdiction in Florida.[42]

5. Conclusion:

Jurisdictions around the world are increasingly adopting laws favoring and unifying international arbitration law; this trend has led some commentators to conclude that the seat of arbitration is diminishing in significance.[43]  However, other commentators have stated that as long as there is no supranational international arbitration law, then “[t]he choice of a particular arbitral seat over another one can still have implications for parties and the conduct of the arbitration and should therefore be given due consideration.”[44]  There is no uniform law governing international commercial arbitration in the United States, and there are several situations in which state law can complement or supplement the FAA, and fill in procedural gaps that are not directly addressed under the FAA.[45]  Thus, Florida and several other internationally conscious state legislatures have taken it upon themselves to encourage international commercial arbitration within their jurisdictions, by adopting the UNCITRAL Model Law on International Commercial Arbitration.