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Arbitration Awards
The award
Requirements
What legal requirements are there for recognition of an award? Must reasons be given for the award? Does the award need to be reviewed by any other body?
The Federal Arbitration Act provides that an arbitral award “shall” be confirmed, unless any of the narrow, enumerated grounds for vacatur is present. As stated in Florasynth, Inc v Pickholz 750 F.2d 171, 176 (2d Cir 1984), “the confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court".
For an international arbitral award, a party can apply to a district court to confirm the award within three years of the making of the award (9 USC Section 207). The party seeking recognition must furnish:
- the duly authenticated original award or a duly certified copy;
- the original arbitration agreement between the parties or a duly certified copy; and
- an official or sworn translation when the award is not made in an official language (Article IV of the New York Convention).
For the recognition of a US domestic arbitral award, Section 9 of the act provides:
“If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award.”
When no court is designated, the act provides no time limits on an application for the confirmation of an award. Under Section 13, the party seeking enforcement must file several documents from the underlying arbitration with the court, including:
- the arbitration agreement;
- any agreements regarding the selection or appointment of arbitrators;
- any agreements regarding the making of the award; and
- the award.
Under Section 9 of the act, the party seeking enforcement must also give notice to the adverse party.
There is no requirement that the award be reasoned. In United Steelworks of America v Enterprise Wheel & Car Corp, 363 US 593, 598, the court stated: “Arbitrators have no obligation to the court to give their reasons for an award.” In Sobel v Hertz, Warner & Co, 469 F.2d 1211, the court stated: “forcing arbitrators to explain their award even when the grounds for it can be gleaned from the record will unjustifiably diminish whatever efficiency the process now achieves”.
Timeframe for delivery
Are there any time limits on delivery of the award?
The Federal Arbitration Act places no time limits on rendering an arbitral award. The parties are therefore free to decide on any time restrictions or the issue can be left to the tribunal to resolve. However, in the absence of agreement, domestic procedural rules may require that the award be rendered within a specified timeframe (eg, Rule R-45 of the Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association, Including Procedures for Large, Complex Commercial Disputes requires awards to be made within 30 days of closing of the hearing).
Remedies
Does the law impose limits on the available remedies? Are some remedies not enforceable by the court?
The Federal Arbitration Act places no limitations on the available remedies. The parties are free to agree on the kinds of dispute and available remedies that are available in the arbitration. In Mastrobuono v Shearson Lehman Hutton, 514 US 52, 58, the court stated:
“if contracting parties agree to include claims for punitive damages within the issues to be arbitrated, the Federal Arbitration Act ensures that their agreement will be enforced according to its terms”.
In Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc, 473 US 614, 629 (1985), the court held that in an international arbitration, an antitrust statutory claim with the possibility of being awarded treble damages was arbitrable.
What interim measures are available? Will local courts issue interim measures pending constitution of the tribunal?
The Federal Arbitration Act does not address interim measures; however, the district courts maintain original jurisdiction over disputes that were first brought in federal court and then stayed pending arbitration (9 USC Sections 3 and 4).
Whether the courts are authorised to grant interim measures can depend on the agreement between the parties to submit their disputes to arbitration; but, where authorised, courts can issue standard interim measures. In Merrill Lynch, Pierce, Fenner & Smith, Inc v Hovey, 726 F 2d 1286, 1292 (8th Cir 1983), the court held that “where the Arbitration Act is applicable and no qualifying contractual language has been alleged, the district court errs in granting injunctive relief”. In Erving v Virginia Squires Basketball Club, 468 F 2d 1064, 1066 n 1, 1067 (2d Cir 1972), the court affirmed the grant of a preliminary injunction pending arbitration where the contract expressly provided for such relief and in Merrill Lynch, Pierce, Fenner & Smith, Inc v Bradley, 756 F 2d 1048, 1054, the court allowed injunctive relief in the context of an employment contract that contained a non-solicitation clause because immediate relief was necessary for the clause to have any effect.
Interest
Can interest be awarded?
If a domestic litigation ensues following arbitration, the courts can award pre-judgment interest from the time that the award was rendered until the date of the court decision (eg, in Ft Hill Builders, Inc v National Grange Mut Ins Co, 866 F.2d 11, 16 (1st Cir 1989), the court “confirm[ed] the arbitration decision and award[ed] interest from the date of the arbitration decision”). In such cases, the substantive law applicable to the arbitration will determine whether pre-judgment interest can be applied and, if so, at what rate.
With respect to post-judgment interest, absent an agreement between the parties, the courts will assess statutory interest pursuant to 28 USC Section 1961. Further, arbitrators are not authorised to grant post-judgment interest absent an agreement between the parties. In Tricon Energy Ltd v Vinmar Int’l, Ltd, 718 F 3d 448, 457 (5th Cir 2013), the court stated: “the circuits have unanimously agreed that ‘an arbitration panel may not establish a post-judgment interest rate’” (quoting Newmont USA Ltd v Ins Co of N Am, 615 F.3d 1268, 1277 (10th Cir 2010), in which the court held that the lower court had erred in modifying the final award’s granting of interest because the arbitrators had the authority to determine the issue since post-judgment interest was arbitrable under the parties’ agreement).
At what rate?
Courts can allow the awarding of pre-judgment interest pursuant to the substantive law governing the dispute, and post-judgment interest at the statutory interest rate pursuant to 28 USC Section 1961 or a non-statutory rate depending on the agreement between the parties. In Newmont USA Ltd (1268, 1276-77), the court stated:
“An agreement to apply a post-judgment interest rate other than that § 1961 specifies is enforceable so long as the parties indicate their intent to override the statute using ‘clear, unambiguous and unequivocal language’” (quoting Soc’y of Lloyd’s v Reinhart, 402 F.3d 982, 1004 (10th Cir 2005)).
Finality
Is the award final and binding?
Although awards are final, domestic awards are subject to review according to the enumerated grounds in Section 11 of the Federal Arbitration Act and international awards are subject to review according to the enumerated grounds in the New York Convention (9 USC Section 207).
What if there are any mistakes?
If there is a mistake, a party may apply to a US district court “wherein the award was made” and petition for “an order modifying or correcting the award” (9 USC Section 11). Under Sections 11 (a)-(c), there are grounds for modifying or correcting an award where:
- there is an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award;
- the arbitration tribunal has awarded on a matter not submitted to it, unless it is a matter not affecting the merits of the decision on the matter submitted; or
- the award is imperfect in matter of form not affecting the merits of the controversy.
Can the parties exclude by agreement any right of appeal or other recourse that the law of your jurisdiction may provide?
In Hall Street Associations, LLC v Mattel, Inc 552 US 576, 590 (2008), the Supreme Court held that the grounds for vacating an award enumerated in Section 11 are the exclusive grounds. An agreement by the parties to exclude the limited review provided for by the Federal Arbitration Act is likely not enforceable. In Kyocera Corp v Prudential-Bache T Servs, 341 F 3d 987, 1000, the court held that:
“a federal court may only review an arbitral decision on the grounds set forth in the Federal Arbitration Act. Private parties have no power to alter or expand those grounds, and any contractual provision purporting to do so is, accordingly, legally unenforceable.”
Appeal
What is the procedure for challenging awards?
The applicable procedure for challenging an award depends on where the award was rendered.
For an international award covered by the New York Convention, a party may apply to the district court to refuse enforcement and recognition according to the grounds enumerated in Article V of the convention (9 USC Section 204 grants original jurisdiction to the district courts for issues arising out of the New York Convention).
For a domestic arbitral award, a party may apply to the district court for an order vacating the award (9 USC Section 10(a)). When applying to the district court to modify or vacate an award, the party must give its counterparty notice of the application (9 USC Section 12).
However, the Federal Arbitration Act does not provide district courts with federal-question jurisdiction, so parties must generally show subject-matter jurisdiction through diversity of the parties. If the parties are not completely diverse (or the amount in controversy does not exceed $75,000), then the award must be challenged in state court under the applicable state law.
On what grounds can parties appeal an award?
If an award is governed by the New York Convention, a district court “shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention” (9 USC Section 207). According to Article V(1)(a)-(b) of the convention, the recognition and enforcement of an award may be refused under any of the following circumstances:
- The parties to the agreement referred to in Article II were – under the law applicable to them – under some incapacity; or the agreement is not valid under the law to which the parties have subjected it or – failing any indication thereon – under the law of the country where the award was made.
- The party against which the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case.
- The award deals with a difference not contemplated by, or not falling within, the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. If the decisions on matters submitted to arbitration can be separated from those not submitted, the part of the award that contains decisions on matters submitted to arbitration may be recognised and enforced.
- The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or – failing such agreement – was not in accordance with the law of the country where the arbitration took place.
- The award is not yet binding on the parties or has been set aside or suspended by a competent authority of the country in which (or under the law of which) the award was made.
Under Article V(2)(a)-(b), the award may also be refused when the district court finds the following:
- “The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
- The recognition or enforcement of the award would be contrary to the public policy of that country.”
Regarding US domestic awards, under Section 10(a)(1)-(4) of the Federal Arbitration Act, the grounds for challenging or vacating an award in federal court are as follows:
- The award was procured by corruption, fraud or undue means;
- There was evident partiality or corruption in the arbitrators, or either of them;
- The arbitrators were guilty of misconduct in:
- refusing to postpone the hearing on sufficient cause shown;
- refusing to hear evidence pertinent and material to the controversy; or
- any other misbehaviour by which the rights of any party have been prejudiced; or
- The arbitrators exceeded their power, or so imperfectly executed it that a mutual, final and definite award on the subject matter submitted was not made.
However, if an award is challenged in state court, the applicable state law will determine the possible grounds for vacatur.
Enforcement
What steps can be taken to enforce the award if there is a failure to comply?
The award creditor can apply to the district court and obtain a judgment enforcing the award. The award-judgment creditor will have the available recourses under US law for the enforcement of domestic judgments (9 USC Section 13).
Can awards be enforced in local courts?
Yes ‒ domestic and international awards can be enforced in US district courts. Domestic awards can also generally be enforced in state courts under the applicable state law.
How enforceable is the award internationally?
Arbitral awards rendered in the United States are enforceable in foreign jurisdictions where the New York Convention is in force (Article III).
If enforcement is sought in a state that is not a party to the New York Convention, the awards properly entered for confirmation before a US court will have the same weight as a domestic court judgment and thus be enforceable to the same extent as a US court judgment abroad (9 USC Section 13).
To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?
The state action doctrine is precluded under the Federal Arbitration Act. According to Section 15 of the act:
“Enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders confirming such awards shall not be refused on the basis of the Act of State doctrine.”
A state or state entity may successfully raise a sovereign immunity defence at the enforcement stage in limited circumstances. However, under the Foreign Sovereign Immunities Act, a foreign state waives its sovereign immunity from the jurisdiction of US courts when it agrees to arbitrate disputes with a private party (28 USC Section 1605(a)(6)). However, this waiver of immunity does not extend to later enforcement proceedings. Whether an award could reach the assets of a foreign state in the United States would depend on whether the assets independently satisfied the exemptions to sovereign immunity (28 USC Sections 1610-1611). For example, in Letelier v Republic of Chile, 748 F.2d 790, 779, the court held that the Foreign Sovereign Immunities Act “did not allow execution against the assets of LAN, the Chilean National airlines” because an act of political terrorism was not covered by the exceptions to sovereign immunity enumerated in the act.
Are there any other bases on which an award may be challenged, and if so, by what?
An award may be challenged for “manifest disregard of the law”. The Supreme Court has held that the enumerated grounds for vacating an award listed in Section 10 of the Federal Arbitration Act are exclusive grounds (Hall Street Associates LLC, 576, 584-85). However, there is a split among various federal circuit courts of appeal concerning whether manifest disregard is a valid basis for vacating an award or whether it is merely a shorthand for the statutory grounds listed in Section 10. In Compare Affymax, Inc v Ortho-McNeil-Janssen Pharm, Inc, 660 F 3d 281, 284-85 (7th Cir 2011), the court held that manifest disregard is an invalid ground for challenging an award, while in Stolt-Nielsen SA v AnimalFeeds Int’l Corp, 548 F 3d 85, 95 (2d Cir 2008), the court found that an arbitrator who is in manifest disregard of the law is “exceeding their powers” under Section 10.