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CIArb responds to US Securities & Exchange Commission’s arbitration proposal
Proposal would allow companies to compel aggrieved shareholders to submit disputes to arbitration
The Chartered Institute of Arbitrators (CIArb), the international organisation of excellence for private dispute resolution, welcomes the initiative of the US Securities and Exchange Commission currently under review to allow companies to compel aggrieved shareholders to submit their disputes to resolution by arbitration rather than by litigation in the courts, but believes for it to be successful, many aspects of the proposal will need to be worked out before implementation.
The relationship between a company and its shareholders is governed by its corporate bylaws. All companies, with the present exception of publicly held ones, may include an arbitration provision in their bylaws and compel disputes to be resolved by that method. Publicly held companies are restricted from including an arbitration clause in their bylaws by federal securities laws. The restriction serves primarily to allow shareholders unfettered rights in addressing their grievances and in doing so it facilitates class action litigation and allows cases to be presented to a jury, where the potential for punitive damages is greatest. Two forces come together at this time to commend the current proposal – tort reform and increasing federal and state support for dispute resolution by arbitration.
Commenting, Steven A Certilman, CIArb’s Trustee for the Americas Region, said:
“While the plaintiff’s bar and class-action litigators in particular can be expected to argue that the proposal will limit the remedies available to their clients, this argument ignores the elephant in the room: that class action securities litigation tends to benefit the attorneys disproportionately greatly (and their clients disproportionately little). In the broader picture, however, class action judgments and punitive damage awards make all U.S. public companies less attractive (and less competitive) in world financial markets. For that reason, the proposal also addresses the imbalance that has arisen between an individual’s right to seek redress and society’s interest in ensuring that the baby is not thrown out with the bath water.
Arbitration is a practical and reliable method of dispute resolution recognized the world over as being as effective as, if not more reliable than, court litigation. It is considered to be more cost-efficient and faster, and as shareholder claims are the bread and butter of many seasoned commercial arbitrators, most parties will benefit from the ability of arbitration parties to select their arbitrators. The Supreme Court has expressed that there is a strong public policy favoring arbitration and its recent Greentree decision enabled the resolution of class action cases by arbitration. As the U.S. is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, arbitral awards issued in this country can be enforced in most countries of the world, a benefit not achieved through litigation.
Even if it has widespread support, many aspects of this proposal will need to be worked out before implementation. For example, basic questions to be resolved include whether the usually private arbitration proceedings should be open to the public and whether companies should be permitted to bar class action suits against themselves. Arbitration of shareholder disputes would provide efficient and effective redress for shareholder claims while removing the burden on government and taxpayers of the cost of resolving disputes that affect only a small and select group of people.”
ENDS
About The Chartered Institute of Arbitrators
The CIArb is an international centre of excellence for the promotion and facilitation of dispute resolution. Widely regarded as the professional home for all dispute resolvers, CIArb membership supports the professional credibility of more than 11,000 individuals and gives users confidence that the very best individual is helping to resolve their dispute.
In addition to providing education and training for arbitrators, mediators and adjudicators, the CIArb acts as an international resource centre for practitioners, policy makers, academics and those in business concerned with the cost effective and early settlement of disputes.
Press Contact:
Noreen Shah
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