Incorporation of Arbitration Rules by Reference: Clear and Unmistakable Evidence of an Intention to Delegate the Authority to Arbitrate?

When questions about who should decide issues related to the existence, scope or validity of an arbitration agreement arise, the key rule is that “courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clear and unmistakable’ evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).

In the case of arbitration agreements that incorporate rules of arbitral procedure containing a provision that allocates the responsibility to decide issues of arbitrability to the arbitrators, a majority of U.S. courts have found that the incorporation by reference of such rules does satisfy the First Options“clear and unmistakable” evidence test. However, the American Law Institute’s Restatement of the U.S. Law of International Commercial and Investor-State Arbitration recently concluded that those cases were incorrectly decided. Restatement§ 2-8 Reporter’s Note (b)(iii) (Tentative Draft No. 4, 2015).

In Henry Schein Inc. v.Archer & White Sales Inc., the parties entered into a Dealers Agreement that referenced AAA Commercial Arbitration Rules, which grant arbitrators the power to decide their own jurisdiction. The Fifth Circuit found that the issue of arbitrability was for the court, not the arbitrator, to decide on the basis of the “wholly groundless” doctrine. According to this doctrine, if an assertion of arbitrability is wholly groundless, the court does not need to submit the issue of arbitrability to the arbitrator. Schein then filed a Petition for Writ of Certiorari to the U.S. Supreme Court to review the question of whether the “wholly groundless” exception exists under federal arbitration law.

George Bermann, JeanMonnet Professor of EU Law, Walter Gellhorn Professor of Law, and Director off the Center for International Commercial and Investment Arbitration, saw this case as the perfect opportunity to settle the meaning and application of the First Options test. He submitted an amicus curiae brief to the U.S. Supreme Court, explaining why he considers the incorporation of arbitration rules containing “competence-competence” language to not constitute clear and unmistakable evidence of the intent of the parties to arbitrate arbitrability.

First, according to Professor Bermann, granting arbitrators the authority to determine their own jurisdiction means that an arbitral tribunal is allowed to resolve challenges to its own jurisdiction during the course of the arbitration and without having to suspend the proceeding. However, this arbitral power does not mean that courts are divested of all authority to make such determination. Under U.S. law, there is a strong presumption that the responsibility to determine arbitrability belongs to the courts. Such presumption can only be overcome by clear and unmistakable evidence to the contrary.

Second, Professor Bermann states that reserving courts the authority to determine arbitrability is the rule and that divesting them of that authority should be the exception. Today, virtually all modern arbitration rules and laws incorporate a competence-competence clause. Professor Bermann explains that if we treat them as clear and unmistakable evidence of an intention to delegate the authority to arbitrate, this in effect makes delegation of such powers the rule and the court’s right to determine arbitrability the exception.

Unfortunately, the issue of whether the incorporation of arbitration rules by reference constitute clear and unmistakable evidence of an intention to delegate was not part of the question presented to the Supreme Court in HenrySchein.  For this reason, it seems unlikely that the Supreme Court’s decision will resolve the issue posed by Professor Bermann in this case.  However, this topic has been brought up in a Young-OGEMID discussion group by the arbitrator Mark Kantor, who pointed out that Professor Bermann’s amicus argument opens the door for opportunistic counsel in other cases to raise this question to the Supreme Court in the future. For this reason, Kantor suggests that the “next big arbitration issue” to come before the U.S. Supreme Court will be whether or not an arbitration agreement that incorporates rules of arbitral procedure containing a provision that allocates the responsibility to decide issues of arbitrability to arbitrators, satisfies the “clear and unmistakable evidence” test in FirstOptions.

By Francisco Sepúlveda Burgos, Junior Staffer

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