Arbitration in the United States of America
From the Native American tribes to the 20th century
The United States of America has been at the forefront of the modern development of alternative dispute resolution during the past decades. However, similarly to the rest of the world, the development of alternative dispute resolution and arbitration, in particular, has a much longer history than initially perceived. The first traces of arbitration in the United States date back to the Native American tribes that used arbitration not only to resolve disputes that arose within the tribe but also for the resolution of disputes that arose between the different tribes.
Subsequently, from the European colonization of the U.S., arbitration operated following the British customary law. Already by 1632, the colony of Massachusetts had introduced legislation in support of arbitration as a means of dispute resolution, followed by Pennsylvania in 1795. But while there was arbitration in the colonial era, however, it was not popular and not widely accepted. Arbitration was met with hostility and skepticism. The distrust in arbitration was due to the fear of displacement of justice and public policy and the belief that the state should keep its monopoly in conflict resolution. But even with these reservations, arbitration in the USA was an established form of dispute resolution before the American Revolution.
In 1768 the ‘New York Chamber of Commerce’ was created, which was the first permanent board of arbitration and its main activity was initially to resolve disputes between merchants and in 1794 the arbitral tribunal in New Haven was established. In 1799 George Washington in his will, which included an arbitration clause, stated the explicit intention that all differences (if any arise, unfortunately) must be solved by three impartial and intelligent men, known for their honesty and their good understanding. Two would be chosen by each of the disputants, the third chosen by the initial two, and the decision would be binding similar to a Supreme Court of the United States decision. In 1891 in Philadelphia, the Chamber of Commerce was established. Arbitration received the full supporting of the Supreme Court in 1854 when the court upheld the right of arbitrators to issue binding decisions. Arbitration was formally institutionalized in the USA in 1822 when business leaders created an educational organization called ‘The Arbitration Society of America’ and in 1854 the Supreme Court recognized the importance of arbitration by giving arbitrators broad discretionary power.
In 1919 a small group of industrialists, traders, and businessmen decided to create an organization that would represent businesses everywhere and that would bring hope to a world destroyed by the recent war. They managed to replace fear and suspicion with a new spirit of friendship and international cooperation. They founded the ‘International Chamber of Commerce’ (ICC) and called themselves the ‘The merchants of peace’. In an attempt to overcome the distrust and animosity in dealing with arbitration, the Chamber of Commerce and the ‘Bar Association of New York’ contributed to establishing arbitration as a viable form of dispute resolution. In 1920 New York City's first Modern Law on Arbitration was established. The statute served as a model for other state laws. In 1925 the ‘Arbitration Foundation’ was founded. The ‘Arbitration Foundation” as well as the ‘Arbitration Society of America’ ceased to exist in 1926 and were replaced by the ‘American Arbitration Association’ (AAA). In 1925 Congress passed the Act known as the ‘Federal Arbitration Act’ (FAA) which allowed companies to agree on a private contractual settlement of commercial disputes, and awards in cases of interstate or international commerce became enforceable. The vast growth of arbitration in the United States of America became a crucial component in the development of economic life. The increased need for interstate trade applied a variety of means and methods for facilitating its conduct, with emphasis on the exchange of benefits. One of the more successful and popular methods amongst them was arbitration.