Right of the Parties to Challenge an Arbitral Award on Grounds of Error of Law - Essay Example

Right Of The Parties To Challenge An Arbitral Award On Grounds Of Error Of Law In The Context Of The Position Taken In The United s In Regards To The Case Of Hall Street Associates V. Mattel Introduction The recent decision of the Supreme Court in United States in regards to the case of Hall Street Associates v. Mattel (2008)1 has left the legal world confused with contradictory views about the issue. Both the aspect of the decision is analysed with justification to extract the real essence for which Arbitration was initiated. Statutory Background Section 9 of the act provides that a court must confirm an award unless it is vacated, modified or corrected as prescribed in Sections 10 and 11 of the act. Under Section 10, an award may be vacated where: it was procured by fraud, corruption or undue means; there was evident partiality or corruption in some or all of the arbitrators; the arbitrators were guilty of misconduct in refusing to postpone the hearing; or the arbitrators exceeded their powers. Pursuant to Section 11, an award may be modified for: evident material miscalculation; evident material mistake; dealing with matters not submitted to the arbitrators; or imperfections not affecting the merits of the award. In the course of a long span of jurisprudence the federal agencies were divided and split over the interpretation of these provisions, while some courts opined considering Sections 10 and 11 to be the exclusive grounds on weather to vacate or modify an award and others considered them as mere open to expansion by agreement. The debate continued and persisted and renewed as Hall Street made headlines in the courts, Federal Arbitration Act (2006)2. Congress enacted federal Arbitration Act 1925 with the intention of settling disputes through arbitration. There are diverse views about the FAA’s post arbitration position for judicial review and weather the contracting parties can expand it. In the case of Hall Street Associates v. Mattel (2008)3, Inc. the Supreme Court held that 9-11 sections of FAA provide the exclusionary aspect of speedy judicial review of arbitration awards. The approach of courts many times has been minimalist. The resolution of the issue led to larger issues and disputes being remained unresolved. It led to a situation where the lower courts of late started to disagree with the narrow approach of the Supreme Court. Hall Street judgment creates a lot of ambiguity in the aspect of altered minimalism. Tenant Mattel leased a property for a manufacturing site from landlord Hall Street. There was a clause indemnifying Hall Street for any costs incurred by Mattel’s failure to follow environmental. In 1998, tests was carried out of the property’s well water and it revealed high levels of contaminations and other pollutants, and after three years, Mattel gave notice of with intention to terminate the lease. Hall Street filed suit in federal court, seeking compensation for the expenses incurred to clean up the polluted premises. The parties agreed mutually to submit the indemnification claim in front of arbitration. The district court authorized and entered the subsequent arbitration agreement as a court order, Ellis (2008)4. The agreement stated that the Court shall vacate, modify or correct any award: (i) Where the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) Where the arbitrator’s conclusions of law are erroneous. The arbitrator decided in favour of Mattel, the fact being that the Oregon Drinking Water Quality Act (Water Act)5 is in respect of human health rather than environmental pollution, and therefore did not give rise to the particular indemnification clause. The district court negated and also vacated the award. It cited that arbitration agreement authorizing judicial review for legal mistake, the court held that the Water Act should be treated as an environmental law constituted legal error and justified giving reason for vacating the award. The court held in an example of that of a recent case of, Kyocera Corp. v. Prudential Bache Trade Servs. Inc. (2003)6, which stated, “private parties may not contractually impose their own standard on the courts” because in the FAA it is specified “the exclusive standard by which federal courts may review an arbitrator’s decision.” The court ordered with strict directions to justify the arbitrator’s award, unless the district court determines that the award should be vacated on the grounds allowable under 9, 10, or modified or corrected under the grounds allowable under 9, 11. Later the court vacated the arbitration because the arbitrator’s dubious interpretation exceeded the powers vested on the arbitrator in violation of section 10. The Supreme Court stated that sections 10 and 11 are compulsory and exclusive and confirmed and remanded for resolution of independent issues. The Court’s analysis was focused on weather private parties will be allowed to contract for expanded judicial review, so regardless of going to the fact weather this judgment will popularize arbitration or ruin it stated that under statutory ground there is no provision for expanded view. It stated that the national consensus and policy to be build up which favors arbitration with limited review power of arbitrators are needed to maintain arbitrations essential elements to settle and examining the FAA provisions, the Court discerned “a national policy” favoring arbitration with just the limited review needed to maintain arbitration’s resolve disputes. The Court was skeptical and commented that any expanded meaning will open new and more cumbersome and time consuming judicial process. The Court rejected the argument of Hall Street’s contention that expanded judicial review was accepted as the law since Wilko v. Swan, 346 U.S. 427 (1953)7. Specifically, according to Hall Street the argument was that the Supreme Court in Wilko had recognized that if courts can disregard awards and vacate orders so can the contracting parties by disregarding awards on different ground. The Court negated the argument by stating that the argument is a convenient shift from judicial expansion to private expansion by contract. The court described three possible meanings of the “manifest disregard” and set standard, but the Court took no definite position, and did not impart any importance as was demanded by Hall Street. Finally, it was stressed by the Court that holding sections 10 and 11 as the exclusive for Federal Arbitration Act review, it is not intended to say that they exclude more search reviews based on authority out of the purview of the statute. Parties who want to review awards of arbitration enforcement can contemplate to implement it under state statutory or common law, where judicial review of different ambit can be contested. The Court has to determine whether such outside authority existed, specifically the District Court’s authority to manage its cases under Federal Rules of Civil Procedure Hall Street Associates v. Mattel (2008)8. Analysis and consecutive litigation have revealed that by implicating and without resolution of potential disagreement, Hall Street creates at east four questions requiring answers these are: (1) Wether the manifest disregard doctrine is valid; (2) A judge’s expansion of judicial review should impact a private party’s expansion through contract or not; (3) The other avenues of judicial review outside the FAA are viable or not; (4) If parties can still contract for expanded review by doing so within the text of the FAA. First, the Court has to clarify the manifest disregard standard of review. Lower courts have interpreted manifest disregard in different ways a different ground for review beyond section 10, reasons for authorizing vacatur when arbitrators were found guilty of misconduct or exceeded their powers. The courts have finally thought that interpretation is possible if no clarification is required for the correct answer. It is a fact that undue speculations are wastage of considerable resources in courts across the nation; a minimalist Court should discuss in its limited ambit only the doctrinal disagreements, which it can readily decide. In order to emphasize on manifest disregard doctrine the court misinterpreted the effect of judicial review and its effect on private party expansion. The argument of Hall Street was that as the court has increased the ground of its review so the parties can also contract for increase in review. However the court out rightly rejected this argument but this view of Court is proved wrong from the point of view of history and expansion by private parties is more conformed to the FAA. The legislation demanded a strong adherence to the awards in arbitration even by courts and put restriction on judges to enforce their own views. Another unresolved aspect has been the authority to expand judicial review beyond the FAA. According to court sections 10 and 11 are exclusive that means enforcement under common or statutory law is also allowed where different judicial review is accepted. This policy is problematic as instead of having a national policy and resolve disputes straightaway the court needs to set up new avenues to enforce arbitration awards. The final question which needs answer is weather arbitrators can have power to misinterpret law or errors in law and the award is vacated or modified in an appeal. The exclusive ground for vacator may be an arbitrator exceeding his powers. After the Hall Street judgment there have been increase in the number of judicial reviews and this has led to the exception of rule of limited judicial review, Ellis (2008)9. Hall Street has shed many limitations of a minimalist jurisprudence. The Supreme Court in Hall Street gave a very narrow interpretation, which has the effect of painstakingly avoiding contentious divisive issues. This narrow approach was not settled properly which led to more disagreement, the over all narrow decision created more unresolved questions in place of the one solution. As lower courts are already struggling with the decision, Hall Street is beginning to provide empirical support for the hypothesis that casts doubts on the concept that overall costs in the legal and political systems will be minimized by a Supreme Court decision that of cases decided in a narrow and with out any depth. Even staunch supporters of minimalism acknowledge that the philosophy is less adequate under certain circumstances. Minimalism is particularly dangerous in the respect of arbitration, where predictability and finality are equally important, Ellis (2008)10. Post ‘Hall Street’ influence in judicial decisions Recently US District court of the Southern District of New York has held that In Robert Lewis Rosen Associates, Ltd. v. Webb (2008)11 held that as per the Hall Street case superseded regards for manifest disregard of law as an additional reason created by judiciary as a vacatur. The Southern District Court held that the grounds for judicial vacatur of an arbitration award under the review provisions of sections 9-11 of the U.S. Federal Arbitration Act are now limited to the four grounds expressly stated in Section 10 of the Act. For almost 50 years, it has been a tradition that U.S. Court of Appeals for the Second Circuit has held that, the four grounds for vacatur identified in Section 10 of the Federal Arbitration Act, a finding of "manifest disregard of the law" constitutes an independent ground for overturning an arbitration award, and this was overturned by the Hall Street judgement, Gibson, Dunn and Crutcher LLP (2008)12. The ultimate effect of the Supreme Court’s decision in Hall Street remains needs to be tested.  The reasoning offered in Rosen case is persuasive and it can be expected an increasing number of courts will refuse to recognize manifest disregard of the law as a valid basis to challenge arbitral awards under the FAA, this will result in a significant change in the law applicable to award challenges under the Federal Arbitration Act13. In practical aspect, however, this potential drift in the law may have little impression on parties seeking to challenge arbitral awards in the federal courts.  The courts that have recognized the manifest disregard standard in the past have consistently emphasized that the standard is set extremely high for parties seeking vacatur on this particular grounds14. In addition, there are two positive sides of the potential change in the law, which needs to be focussed: First, the elimination of the manifest disregard standard would reinforce the finality of arbitration.  Parties could be more certain of fixation of criteria a court will apply when considering challenges to an award, and there is no need to be worried about by the concerned parties as to the individual views of a federal judge leading to vacatur on the grounds of a subjective manifest disregard standard.  Second, the manifest disregard standard was extracted out of the legislation as it comes to enforcement of arbitration awards under Chapter 1 of the FAA it had the effect of bringing the standards for vacatur provided by Chapter 1, which governs international arbitrations more closer to those permissible under Chapter 2, which governs international arbitral awards in respect of the arbitration subjected in a foreign state.  Chapter 2 of the FAA sets out the reasons under which an award can be refused to enforce as is provided by the New York Convention. The manifest disregard standard never found application to international arbitrations covered by Chapter 2.  As a result of Hall Street the effect was that the manifest disregard standard no longer applies to arbitrations falling under Chapter 1 of the FAA, international arbitrations positioned and seated out of the U.S. in case of arbitration will no longer be seen as outsiders.  The sense of consistency that Hall Street (as interpreted by Rosen) adds to the review of international arbitration awards acted as and advances in arbitration procedure and a positive aspect of arbitration law.  The four grounds are where an award can be set aside are: (1) The award was obtained by corruption, fraud or undue means. (2) There was evidence of partiality or corruption in the arbitrators. (3) The arbitrators were guilty of misconduct and refused to postpone the hearing or in refused to hear evidence relevant, concerned and material to the controversy; or of any other misbehaviour by which the rights of any party have been unduly affected. (4) The arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made15. Pursuant to the New York Convention, an award may not be recognised and enforced only if the party opposing enforcement shows that: (a) The parties to the agreement were under some incapacity, or the said 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 awards was made; (b) The party against whom 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 his case; (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. (d) 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; (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the laws of which, that award was made16. The Arbitration Act 1996 As compared to Scotland Bill The 1996 Arbitration Act places onus on the parties or arbitrator for unnecessary delays and expenses which include in case of arbitrator accountable for their fees and also parties can be pulled up for their erroneous action by the arbitrators, he has powers to act exparte i.e. they have specific powers well defined in the Act. The main objective of arbitration is to get a reasonable award, which is fair and just and time and cost effective. There is an aspect of fair balancing by the arbitrator who has to be judicious in coming to a conclusion. Parties in arbitration may follow a reading of the Arbitration Act 1996 which makes clear the wide scope of procedures. There should be no doubt casted about the responsibilities and that the new statute has changed the authorities it is a strong means to settle dispute in a smooth and hassle free manner, Dilloway (2001)17. The Scotland’s arbitration Act is derived primarily from case law and has not been codified into statute. The law is ambiguous and is not readily accessible, nor does it reflect modern practice on arbitration. The Arbitration (Scotland) Act 1894 contains some limited provisions on the appointment of arbiters, while the Arbitration Act 1950 contains some provisions applying to Scotland regarding the enforcement of some foreign awards. The Arbitration Act 1975 provides for the stopping or putting of hold of court proceedings where an arbitration agreement is invoked and also gives effect to the New York Convention, Consultation on Arbitration [(Scotland) 2009]18. Section 66 of, and Schedule 7 to, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 adopted the United Nations Commission on International Trade Law, Model Law on arbitration for international law, i.e. for commercial arbitration where one of the parties is not domiciled in Scotland. The existing law in Scotland is nearly all un-codified common law and difficult to access, the powers and duties of an arbitrator in any particular case may not be clear, unless they have previously been set out in an arbitration agreement, and/or until they are set down in a separate agreement among the parties and the arbitrator. By contrast codes or legislation in many other countries provide clear ambit and broad aspect to allow arbitrations to be commenced efficiently and without delay or undue expense. The Scottish courts are supportive of arbitration, again the courts their role is not clear as in some other jurisdictions. Modern legislation in other jurisdictions sets out how courts may support the arbitration process by recognising arbitration agreements and halt court processes. A committee was set up with the intention or consideration of the reform of the law, particularly in the light of the UNCITRAL Model Law on arbitration which is widely recognised around the world of international arbitration by the then Lord Advocate to consider in 1986. The Committee continued their work on the provisions of a modern arbitration law for domestic arbitration and a draft Bill was introduced in 1996, but the overall effect was lacking and Scottish arbitration law still remained uncodified. The Scottish Arbitration Code in 1999 was compiled and developed by Scottish Council for International Arbitration and the Chartered Institute of Arbitrators (Scottish branch). This brought about groundwork to set out a general framework for arbitration and the rules and principals under which arbitration should be conducted. But this is basically a voluntary code, which is not legally binding, Consultation on Arbitration [(Scotland) 2009]19. Conclusion The Arbitration Act establishes a dispute resolution process that is flexible it is there to be utilized and experimented for the benefit of disputing parties, for the benefit of arbitrators and lawyers who are ready to settle their disputes in accordance to the specified law. The narrow approach taken by the Supreme Court in US may open up a long legal tug of war, but still it is a process through which there will be a churning of legal brains. Finally the best purpose for the society will be served; it will extract the true spirit for which the Arbitration Act was legislated. In this way it will help scores of people to resolve disputes in a hassle free and economic manner. References Act of Feb. 12, 1925, ch. 213, 43 Stat. 883 (codified at 9 U.S.C. 1–16 (2006) Arbitration – USA 2008 Courts Grapple with Landmark Hall Street Ruling International Law Officehttp://www.internationallawoffice.com/Newsletters/Detail.aspx?g=8275111c-1927-4678-9466-b70d597fd902 Consultation on Arbitration (Scotland) 2009 Bill The Scottish Government http://www.scotland.gov.uk/Publications/2008/06/26134341/3 Dilloway, C.2001 Expert EvidenceArbitration   Mediation Arbitration under the Arbitration Act 1996 http://www.endispute.co.uk/cliff/auaa.htm Ellis, R 2008 Imperfect Minimalism: Unanswered Questions In Hall Street Associates, L.L.C. v. Mattel, Inc.,128 S. Ct. 1396 (2008) Harvard Journal of Law & Public Policy [Vol. 32 http://www.harvard-jlpp.com/wp-content/uploads/2009/05/EllisFinal.pdf Federal Arbitration Act, 9 U.S.C. (2006) Gibson, Dunn and Crutcher LLP 2008 Recent Decisions Cast Substantial Doubt on Whether "Manifest Disregard of the Law" Constitutes a Valid Independent Ground for the Judicial Vacatur of Arbitration Awards under the United States Federal Arbitration Act  Publications http://www.gibsondunn.com/Publications/Pages/RecentDecisionsCastSubstantialDoubtonManifestDisregard.aspx Goldstain, M. J. 2009 Hall Street Associates v. Mattel And the Uncertain Future of ManifestDisregardoftheLaw http://www.cobar.org/repository/Inside_Bar/International/Manifest%20Disregard%20Paper%20-%20Colo%20.pdf Hall Street Associates v. Mattel (128 S. Ct. 1396, March 2008) Justin, K 2008 Confusion about "Manifest Disregard" After Hall Street v. Mattel Publication: Dispute Resolution Journal Date: Saturday, November 1 2008 Kyocera Corp. v. Prudential Bache Trade Servs. Inc., 341 F.3d 987, 998 (9th Cir. 2003) Oregon Drinking Water Quality Act (Water Act) 1996 Record - Hall Street Assoc. v. Mattel, Inc 2008 Citation 128 S.Ct. 1396 Document Case - Hall Street Assoc. v. Mattel, Inc.pdf The Legal Research System for International Law in U.S. Courtshttp://ilex.asil.org/details/?id=d670a6e53f6b737e0c31c842a880eefa Robert Lewis Rosen Associates, Ltd. v. Webb, 566 F. Supp 2d 228, 233, S.D.N.Y (2008) Smith, H. 2008 Arbitration e-bulletin http://www.herbertsmith.com/NR/rdonlyres/046D8B65-9A02-4F4D-8922-5C01895AD988/5547/RecentArbdevelopmentsFeb08.html Van Buren, V. on October 8th, 2009 Texas Court Hears Case On Standards of Judicial review for Arbitration Awards after Hall Street http://www.karlbayer.com/blog/?tag=hall-street Wilko v. Swan, 346 U.S. 427 (1953) Read More