Ex ante Contracts to Arbitrate Tort Claims A law and economics perspective

Abstract

This research project concerns an analysis of the use of ex ante contracts to arbitrate tort claims using law and economics methodologies. More specifically this involves an analysis of claims which are purely domestic in nature and have no choice of law issues which could fall under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. This research takes up a niche space within the topics of arbitration, tort law, contract law, comparative law judicial systems and competition law. The composition of this project includes several discrete articles which address several sub-topics within the framework of ex ante contracts to arbitrate tort claims. The first substantive article uses a comparative methodology to assess several nations arbitration laws. Because of the “black box” that is arbitration, there is a need to look at proxy measurements. In each nation considered, ex ante contracts to arbitrate tort claims are used to varying degrees, however there is a lack of convergence on legal norms for domestic arbitration. Specifically, there is a large gap between the narrow approaches of the European nations considered and the United States broad deference to arbitration. There is little information which is publicly available to assess the use of arbitration for tort claims provided by arbitration tribunals, and that proxy measurements considered, which are a poor second-best option. This helps to identify why a theoretical approach to researching this topic is necessary. The second article uses a traditional law and economics methodology to assess the use of arbitration for tort claims. These ex-ante contracts can influence the standard economic model of negligence first identified by Judge Learned Hand. This chapter identifies a theoretical framework under which repeat player tortfeasors can behave strategically in arbitration in ways which are unavailable in litigation. Strategic behavior may lead to negative externalities for third parties and society. The use of arbitration for tort claims has the potential to frustrate the development of efficient due care standards and may allow repeat player tortfeasors to avoid taking efficient levels of care. The next article concerns the use of arbitration for mass tort claims, in which four theoretical scenarios are considered, adjudication with a collective action procedure and without, and arbitration with a collective action procedure and without. This assessment shows there is a need to weigh the various costs and benefits of each procedure and the potential for a collectivized claim to lead to the production of public goods from litigation which may have positive externalities. When a collectivized claim lacks the ability to lead to the production of public goods from litigation, the economic rationale for claims to be arbitrated is higher. When individual claims are positive in value there is less of an economic incentive for collectivizing claims. The final chapter addresses how the collusive use of ex ante contracts to arbitrate tort claims across an industry may lead to the selective development of law, shirking from taking care, and that it is in itself a form of price fixing. By using a comparative competition law methodology, a comparison of various aspects concerning United States law and European Union law, demonstrate in theory that there is a higher likelihood of conspiracies to use ex ante contracts to arbitrate tort claims being successful in the United States than within the European Union. This research also demonstrates how arbitrage strategies are more likely to be effectively used by industry to increase enforcement errors.