Regular readers of this blog (you know who you are) know that I have a soft spot for anything that has to do with international arbitration. This is one area of the law that both fascinates and perplexes. One minute you can be in New York applying Japanese law and the next minute you can be in Japan applying New York law. Throw a class action into the mix and things get really interesting.
This brings me to today’s opinion issued by the U.S. Supreme Court in Stolt-Nielsen SA v. AnimalFeeds International. The Court held that imposing class arbitration on parties when that issue is silent in the parties’ arbitration clauses is inconsistent with the Federal Arbitration Act (FAA).
The Second Circuit had ruled that construing the arbitration clause to permit class arbitration "did not manifestly disregard the law" because the parties specifically agreed that the arbitration panel would decide on the scope of the clause and, therefore, the panel did not exceed its authority.
However, the majority, in an opinion written by Justice Samuel Alito and joined by Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Anthony Kennedy, reversed. The abstract states:
A party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. Here, the arbitration panel imposed class arbitration despite the parties’ stipulation that they had reached “no agreement” on that issue. The panel’s conclusion is fundamentally at war with the foundational FAA principle that arbitration is a matter of consent.
The opinion is excerpted in its entirety below:
The lesson here: be sure to consider and include everything in the arbitration agreement. If a concept is silent, then it was never agreed to. For other practice pointers be sure to read my post 7 Ways to Bulletproof Your International Arbitration Agreement .