Arbitration’s History Prior to the Twentieth Century
We now move to the most formal alternative dispute resolution process: arbitration. Often, people speak of “binding arbitration,” but as arbitration generally is binding, the adjective “binding” adds little.
Historically, however, arbitration was not necessarily binding. Nutshell points out that early in our history, courts on this side of the Atlantic
“adopted the English courts’ antagonism”
toward arbitration, and that even when parties did submit to arbitration
“they were often permitted to withdraw before the arbitration decision was rendered.” -Nutshell at 139.
“centuries of judicial hostility toward arbitration agreements….”
The historical basis for this was a sense that arbitration was simply a means of bypassing the jurisdiction otherwise exercised by the courts, although the legal reasoning underlying this particular rationale seems not to hold up under close scrutiny.
EXAMPLE: Bob is a merchant. Craig is a ship owner. Craig agrees to transport Bob’s goods for a price, and they further agree that any dispute arising from, or related to, the transaction should be settled in arbitration. Does this in any way circumvent our courts’ ability to render justice? Does it somehow give both Craig and Bob an advantage over those businessmen whose disputes are settled in court, such that a court should later refuse to enforce the outcome of the arbitration if one party decides not to abide by the arbitrator’s decision?
If your intuition here is that Bob and Craig are not at any advantage over others, and that the results of the arbitration should be upheld in court, then you are probably in the majority. As indicated above, the reasoning that led courts to feel threatened and thus refuse to uphold arbitration does not hold water.
Despite the apparent distaste with which courts early in our nation’s history viewed arbitration, arbitration proceedings were not at all uncommon. In Folberg (pp. 454 – 455) we are provided with a brief, but informative, history of arbitration. According to Folberg, archaeologists have discovered evidence of arbitration being used as a method of dispute resolution by Phoenicians. Folberg also points out that the Biblical stories of King Solomon recount his skills as an arbitrator.
More to point, in Anglo-American legal history, Folberg notes that by the year 1281, arbitration was recognized in England as part of its judicial system. Surprisingly, given American courts’ view of arbitration prior to the twentieth century, Folberg notes that arbitration was common among merchants in the American colonies and that George Washington not only
“served as an arbiter of private disputes before the Revolution”,
but even included in his will a provision that any disputes arising under the will should be resolved by a panel of three arbitrators.
Formal acceptance of arbitration was slow in 18th and 19th century America. It was not, however, entirely lacking. For example, in New York as early as 1768, the Chamber of Commerce, when first established, permitted for arbitration as a resolution mechanism. Also, in New York, almost fifty years later, the New York Stock Exchange in 1817 provided for arbitration in its constitution. It should therefore not be surprising that during the rise of arbitration legislation in the early twentieth century, New York would again be at the forefront.