The Contractarian Model of Arbitration and its Implications for Judicial Review of Arbitral Awards

Abstract

Although arbitration is often characterized as a form of private adjudication, prominent arbitration theorists have argued that it is better understood as a species of contract. In this contractarian model of arbitration, the arbitrator is understood to function as a contract reader rather than a surrogate judge. The arbitrator's task is to give effect to the parties' agreement, not to determine rights and liabilities according to rules of law. While this model was originally used to conceptualize labor and commercial arbitration, it has driven the development of the law governing arbitration in all contexts. Across cases, courts decline to review arbitral awards except to ensure that the arbitrator actually interpreted the agreement, with the result that arbitrators have the freedom to ignore otherwise applicable rules of law. This article examines the implications of the contractarian model, concluding that rigorous application of the model should lead to greater scrutiny of arbitral awards in at least some cases. Under the contractarian model, the award is the equivalent of a contract term agreed upon by the parties ex ante. When an arbitrator issues an award that is contrary to the outcome dictated by the governing law, the parties may be understood to have contracted around the law. The arbitration literature typically condones that result as compelled by the principle of party autonomy. I argue that generally applicable rules of contract law limit the extent to which parties may avoid law through arbitration. If a particular outcome would be unenforceable as an exculpatory contract term, then an arbitrator's award reaching that outcome should not command the deference that courts routinely give. I suggest that a higher standard of judicial review should presumptively apply in the class of cases raising the most significant exculpatory contract issues.