Contributed By Foley Hoag LLP
International arbitration is widely used across industries in the United States. US law – in particular the Federal Arbitration Act – provides predictability for parties aiming to resolve international arbitration disputes seated in the US, so the US continues to be a popular place of arbitration and US law – in particular New York law continues to be a popular choice of law in international agreements.
The International Chamber of Commerce’s International Court of Arbitration (ICC) has indicated that half of its arbitrations seated in the US in 2017 were based in New York. Of the 1026 cases handled by the International Centre for Dispute Resolution (ICDR) in 2017, 295 had a New York seat, followed by Miami (59), Los Angeles (44), Houston (35), and Chicago and Boston (24).
Recent trends in international arbitrations seated in the US include an increase in the use of emergency arbitration proceedings, with numbers reaching approximately ten per year at the ICDR in the last three years. By July 2018, parties had initiated 86 emergency arbitrator proceedings at the ICDR. At the ICC, the total number of applications for the appointment of emergency arbitrators expanded from two in 2012 to 21 in 2017. Parties have initiated approximately 80 emergency arbitrator proceedings at the ICC in total, eight of which were brought in the US, mostly in New York. On average, emergency arbitrators issue their decisions in two to three weeks.
In light of the efforts of the major arbitration organisations to increase efficiency and reduce costs in international arbitration, there has also been an increased focus on arbitral awards resolving cases on summary disposition. The arbitration rules of the major arbitration organisations, such as the ICDR, the ICC, the American Arbitration Association (AAA), the International Institute for Conflict Prevention and Resolution (CPR) and JAMS, either expressly or implicitly allow dispositive motions in arbitration. US courts generally confirm awards granted following summary disposition so long as the parties had an adequate opportunity to be heard – see Oracle Corp. v. Wilson, 17 Civ. 554 (ER), 2017 WL 3634611 (SDNY Aug. 22, 2017).
Arbitral institutions have also instituted expedited procedures to resolve certain cases. For instance, the ICC established expedited procedures as of 1 March 2017 to streamline international arbitrations in which the value of the claims and counterclaims is below USD2 million; this represents 30% of the cases filed with the ICC in 2016. In the future, these types of cases are expected to be resolved within six months.
As in prior years, third party funding continues to play an increasing role in arbitration disputes. In January 2018, a litigation and arbitration funding firm announced that it had committed more than USD1 billion to fund cases and portfolios of cases. Litigation funding has become a significant financial market, with the potential risk of transforming arbitrations into investment products. While such financing may make it possible for meritorious claims to be brought in certain circumstances, it also raises issues of the quality of the due diligence performed by funders, the potential waiver of the attorney-client privilege, potential undisclosed conflicts of interests, and the ability of the prevailing party in arbitration to seek recourse from hedge funds or other firms that funded its adversary.
Across the board, all major industries continue to resort to international arbitration for the resolution of their cross-border disputes. The main industries are construction, engineering and energy, and a growing number of international arbitrations involve finance, life sciences and technology.
There is a diverse range of institutions in the US. Parties tend to adopt the arbitration rules of the ICC, AAA, ICDR and the United Nations Commission on International Trade Law (“UNCITRAL”), and the rules of JAMS and CPR. Certain disputes involving securities are also arbitrated by the Financial Industry Regulatory Authority (“FINRA”).
International arbitration in the United States is governed principally by the Federal Arbitration Act (“FAA”), codified at 9 U.S.C. §§ 1 et. seq. The FAA is the United States’ general arbitration statute. Enacted in 1925, it predates the UNCITRAL Model Law by 60 years, and has not been amended radically since its entry into force. Compared to the UNCITRAL Model Law, the FAA is relatively succinct, and does not address some of the issues covered in the Model Law.
The FAA does the following, among other things:
Chapter 1 of the FAA (§§ 1 et seq.) applies to both domestic and international arbitration. It provides for, inter alia, the enforcement of agreements to arbitrate, the appearance of witnesses in arbitral proceedings, the enforcement of arbitral awards, and grounds for setting aside arbitral awards.
The FAA is part of federal law, which applies nationwide. Individual US states have also enacted legislation governing international arbitration, which applies in their respective territories. Such state-level legislation only supplements the FAA, which prevails if there are any conflicts between the FAA and state law.
Most recently, the state assembly of California (the world’s fifth largest economy) passed a bill to amend the state’s code of civil procedure – part of the California International Arbitration and Conciliation Act – to improve California’s reputation as an arbitration centre. This includes clarifying the prior ambiguity in the law as to whether it prohibited out-of-state attorneys from appearing in arbitrations seated in California. This change to California’s code of civil procedure may also further encourage the use of arbitration by parties engaged in business with technology companies in the Silicon Valley.
Moreover, because the United States – including its constituent states – is a common law jurisdiction, legislation is not the only source of law relevant to international arbitration. The decisions of US courts are another source of law, which have binding, precedential effect and supplement the FAA in two ways: they interpret the express provisions of the FAA and fill in gaps in the FAA, addressing issues not provided for in the statute.
No changes have been made to the FAA in the past year, nor is any legislation pending to amend the FAA directly.
Recent years have seen efforts to enact new legislation addressing the validity of arbitration agreements in consumer contracts. In a series of recent cases (eg, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013)), the Supreme Court has firmly upheld the validity of such clauses, overturning lower courts’ holdings that an arbitration clause contained in a contract of adhesion was unconscionable (and thus unenforceable) insofar as it waives access to judicial class action procedures for small value claims. Proposed legislation has been introduced in Congress in an effort to reverse some of the effects of those decisions and give courts freer rein not to enforce arbitration agreements contained in consumer contracts. However, none of the legislation introduced in Congress thus far has obtained enough support to be enacted, and this situation is likely to continue for the near future.
In 2017, the Second Circuit Court of Appeals clarified that state law determined whether an arbitral award can be enforced against a non-signatory to an underlying arbitration agreement – see CBF Industria de Gusa S/A, et al. v. AMCI Holdings Inc., et al.
In the past year, the Supreme Court issued another opinion upholding the validity of arbitration agreements that waive the right to class action proceedings, this time with respect to clauses contained in employment agreements rather than consumer contracts – see Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018). While this decision does not amend existing legislation, it sets a binding nationwide precedent with important implications for the enforcement of arbitration agreements in the United States.
More recently, on 25 June 2018, the US Supreme Court granted a writ of certiorari to consider the Fifth Circuit Court of Appeals decision in Schein, Inc. v. Archer & White Sales, Inc., regarding whether the FAA “permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is ‘wholly groundless'.” The case is currently pending before the Supreme Court.
Reflecting the policy in favour of arbitration, US law is relatively permissive regarding the requirements for an arbitration agreement to be enforceable. An agreement to arbitrate must be in writing, must arise out of a commercial relationship, and must not be subject to a contract defence. These criteria are reflected in two parts of the FAA.
Section 2 of the FAA provides that a written arbitration agreement in a commercial contract “is valid, irrevocable, and enforceable, except upon such grounds as exist at law or equity for the revocation of any contract.” Such grounds are not listed in the FAA but exist rather within general contract law, and include typical contract defences such as fraud and incapacity.
The New York Convention is incorporated into the FAA, and does not significantly alter the standard set out in Section 2. Article II(1) requires that Contracting States recognise agreements to arbitrate that are made in writing. Article II(2) further clarifies that an “agreement in writing” includes arbitration clauses contained in an exchange of letters, in addition to clauses in integrated contracts. On the fact of it, Article II is broader than Section 2 in that it does not require the arbitration agreement to be part of a commercial relationship, as Section 2 does. However, the United States ratified the New York Convention subject to a reservation that it will apply the Convention only to differences arising out of legal relationships that are considered commercial under US law.
Under the FAA, there is a general presumption in favour of respecting the parties’ agreement to arbitrate, including their decision as to which claims may be submitted.
Nearly all claims arising under federal statutes may be referred to arbitration. In a line of cases beginning with Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (confirming the arbitrability of antitrust claims), the Supreme Court has upheld the arbitrability of claims arising under a range of statutes, including consumer, employment, antitrust and civil rights claims. In Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227 (1987), the Court set out the guiding standard, which is mainly that statutory claims may be submitted to arbitration unless the statute indicates an intent by Congress to preclude arbitration.
The FAA was enacted to reverse courts’ hostility to the enforcement of agreements to arbitrate. The statute itself thus embodies a policy in favour of arbitration – see Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24–25 (1991).
Since the enactment of the FAA, US courts have relied on the policy in favour of arbitration, routinely citing the Congressional policy favouring arbitration and construing arbitration agreements liberally in order to give them effect.
US law considers arbitration clauses to be severable from the contract containing them. As a result, they may be enforced even if the underlying contract is invalid – see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006).
Accordingly, when a party challenges the validity of a contract as a whole, US courts will give effect to the arbitration agreement therein, and permit the arbitrator to determine the validity of the contract in the first instance.
Only when a party challenges the validity of the arbitration clause itself will a court decide the challenge before allowing the arbitration to proceed. The exception is when the parties have agreed that challenges to the validity of an arbitration clause will be submitted to arbitration, in which case a court will respect the parties’ agreement and permit the tribunal to hear the challenge. This is not an uncommon circumstance. The arbitration rules of the ICC, ICDR, AAA (Commercial Arbitration Rules), CPR (Rules for Administered Arbitration in International Disputes) and JAMS provide that the arbitral tribunal shall have the power to hear and determine challenges to its jurisdiction.
The FAA does not impose any limitations on parties’ ability to select arbitrators, nor on the qualifications for arbitrators.
When the parties’ arbitration agreement establishes a procedure to select arbitrators, US courts and arbitration organisations will defer to that procedure. The arbitration organisations also have default mechanisms in place if the parties fail to nominate an arbitrator, or fail to agree on the selection of a chairperson. These mechanisms may include the administrative appointment of an arbitrator or the circulation of lists of potential chairpersons to the parties with a request that candidates be ranked, among other things.
Where a party refuses to appoint an arbitrator in accordance with the parties’ agreement, under FAA § 206, the other party may move to compel the appointment of an arbitrator in accordance with the provisions of the arbitration agreement. Section 5 provides that, upon application by either party, a court shall appoint an arbitrator or arbitrators, who will act under the arbitration agreement with the same force and effect as if they had been appointed by the parties. Section 303 makes a similar provision for disputes falling under the Panama Convention.
A court may exercise this authority in three circumstances: when the arbitration agreement does not establish a procedure for selecting the arbitrator(s); when one or more parties does not follow the established procedure; and “if for any other reason there shall be a lapse in the naming of an arbitrator” – see 9 U.S.C. § 5.
The only circumstances under which US law provides for courts to intervene in the selection of arbitrators are those described under 4.2 Default Procedures above.
The FAA does not contain any provisions addressing the challenge or removal of arbitrators. As a result, US federal courts have consistently found that they lack authority to remove arbitrators during an arbitration, and will instead entertain challenges to the award after it is rendered, based on arbitrator bias or misconduct, as addressed in 11 Review of an Award, below.
The removal of arbitrators is governed by the applicable rules of the arbitration institutions, which rule on challenges at the earliest possible opportunity, most frequently at the outset of an arbitration proceeding. The AAA has publicised its standards for removing arbitrators and established the Administrative Review Council (ARC), an executive-level, administrative decision-making authority created to resolve issues such as objections to arbitrators. From 2013 through 2016, the ARC reviewed 743 issues, including 517 arbitrator challenges. The ICDR also created an ARC in the Spring of 2018.
The FAA does not directly set out any requirements for arbitrator independence, impartiality or the disclosure of potential conflicts of interest. However, § 10 sets an implicit standard by providing that an award may be set aside on the ground of “evident partiality or corruption in the arbitrators.” Under that standard, US courts have generally held that a mere failure to disclose a potential conflict of interest is not a sufficient basis to annul an award. Instead, the challenging party must demonstrate that the partiality is “direct, definite, and capable of demonstration rather than remote, uncertain or speculative” – see Republic of Arg. v. AWG Grp. Ltd., 211 F.Supp.3d 335 (D.C.C. 2016); Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Tr., 729 F.3d 99, 104 (2d Cir. 2013).
In a recent decision, the DC Circuit Court of Appeals addressed the extent of disclosure obligations imposed by FAA § 10. It clarified that the “evident partiality” standard requires arbitrators to disclose interests in one of the parties only when those interests are “substantial” rather than “trivial”. The court held that an arbitrator’s position on the board of directors of a company with a passive shareholding in two of the parties was tenuous, leading it to reject the challenge to enforcement of the award – see AWG Grp., supra.
In arbitrations seated in the US, many arbitration organisations and tribunals follow the IBA Guidelines on Conflicts of Interest in International Arbitration.
The rules of the major arbitration institutions expressly address the requirements for independence, impartiality and disclosure. For example, the ICC, ICDR, AAA, CPR and JAMS require both arbitrators and parties to disclose any circumstances that may give rise to justifiable doubts regarding the arbitrator’s impartiality or independence, and permit parties to challenge an arbitrator whenever such circumstances become known. The duty to disclose is ongoing. The requirement to disclose the number of previous and concurrent appointments by a party or law firm, among other things, can help foster the confidence of the parties in the fairness of the arbitration process.
Some state-level international arbitration acts also impose similar requirements.
US law embodies a policy favouring the enforcement of agreements to arbitrate according to their terms. Accordingly, when the parties to an agreement have agreed to arbitrate a claim, US courts will generally permit it to be arbitrated (see 3.2 Arbitrability for additional discussion). However, there are a few limited areas where legislators have aimed to protect consumers in class actions and individuals in certain employment claims – see Cullinane v. Uber Technologies, Inc., No. 16-2023 (1st Cir. 2018) (finding the class action dispute not arbitrable because Uber’s arbitration terms were not readily accessible to its users).
Under US law, there is a presumption that courts shall hear any objections as to whether the parties agreed to be bound by an arbitration clause, and whether a dispute is within the scope of an arbitration clause. This presumption may be overcome by clear and unmistakable evidence that the parties intended for the arbitral tribunal to determine these issues. It should be noted that the FAA does not expressly address this principle of competence-competence (the power of an arbitral tribunal to rule on objections to its own jurisdiction), but US courts consistently recognise such a power when the parties have granted it to the tribunal.
US courts have consistently found that an arbitration agreement’s incorporation of arbitration rules that grant the tribunal authority to rule on its own jurisdiction (ie, that contain a competence-competence clause) is sufficient evidence of such an intent. Faced with that situation, US courts will review even questions of arbitrability under a highly deferential standard.
When a tribunal has ruled on its own jurisdiction, US courts will give strong deference to the tribunal’s decision and will only disregard it in exceptional circumstances (see 5.5 Standard of Judicial Review for Jurisdiction/Admissibility below for further discussion).
It is possible for US courts to address the jurisdiction of an arbitral tribunal either at the outset of the arbitration, or when reviewing the arbitral award.
A ruling on the tribunal’s jurisdiction made at the outset of the arbitration will typically occur as part of a motion to compel arbitration, or as part of a motion to stay judicial proceedings pending arbitration. In this context, a court may be asked to rule on the existence or validity of the arbitration agreement, or on whether it applies to the parties’ particular dispute. However, insofar as the parties have agreed to submit such questions to an arbitral tribunal – either in the arbitration agreement itself or in the arbitration rules incorporated into the agreement – a court will permit the tribunal to resolve the jurisdictional issue in the first instance (see 3.4 Validity and 5.2 Challenges to Jurisdiction).
Once an award has been rendered, FAA § 10(a)(4) permits a court to vacate it if “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” While this provision permits courts to set aside awards rendered if the arbitrators exceeded their powers, awards are not frequently vacated. As discussed in 5.5 Standard of Judicial Review for Jurisdiction/Admissibility below, US courts will almost always grant substantial deference to the arbitrators’ rulings on jurisdiction when applying § 10(a)(4).
See 5.3 Circumstances for Court Intervention, above.
There is a policy in favour of arbitration in the US, and limited court intervention or interference with the arbitration process. In theory, US courts may review certain issues of admissibility and jurisdiction de novo. In practice, however, such de novo review occurs in only the rarest cases.
US courts typically review challenges to arbitral awards under a highly deferential standard. The Supreme Court has recognised an exception, however, for questions of arbitrability, which are presumptively reviewed under a de novo standard. In this context, the term “arbitrability” refers to a specific category of jurisdiction objection that deals with whether the parties have consented to submit a particular dispute to arbitration, such as “whether the parties are bound by a given arbitration clause, or whether an arbitration clause in a concededly binding contract applies to a particular type of controversy” (BG Group PLC v. Republic of Arg., 134 S. Ct. 1198, 1206 (2014)).
Not all objections to jurisdiction or admissibility present questions of arbitrability. For example, in BG Group, the petitioner sought de novo review of an arbitral tribunal’s ruling that it had jurisdiction over the dispute notwithstanding the claimant’s failure to comply with a requirement to exhaust domestic remedies prior to initiating an arbitration under the relevant bilateral investment treaty. The Supreme Court reversed the lower court’s decision to grant de novo review, holding that the domestic litigation requirement did not present an issue of “whether there was a duty to arbitrate,” but was merely a “procedural condition precedent to arbitration” and thus did not present an issue of arbitrability (BG Group, supra, at 1207).
The FAA makes express provision for a situation in which a party resorts to US courts where a dispute is subject to a valid arbitration clause. FAA § 3 requires the court in which such a lawsuit is brought to stay proceedings “until such arbitration has been had in accordance with the terms of the agreement,” once it is satisfied that the dispute is properly referable to arbitration.
Similarly, if a party refuses to comply with an arbitration agreement but does not file a suit in court, FAA § 4 permits any other party to the agreement to initiate an action seeking to compel arbitration before the court that would have jurisdiction over the dispute if it were not for the arbitration agreement.
Typically, an arbitral tribunal only has jurisdiction over the parties to the arbitration agreement – ie, the parties that have consented to arbitration. However, third parties may be considered to be bound by the arbitration agreement under the principles of contract law, by which one entity can be deemed bound by the commitments of another. This includes theories of agency, veil-piercing, third-party beneficiary, estoppel, and assignment of rights to the contract containing the arbitration agreement. See 2.2 Changes to National Law regarding the recent Second Circuit decision holding that whether an arbitral award may be enforced against a non-signatory is a matter of state law.
The FAA does not expressly address whether arbitral tribunals seated in the United States may order interim measures. However, in keeping with the general rule of giving effect to the parties’ agreement to arbitrate according to its terms, courts widely accept that tribunals may order interim relief when such an authority is granted by the arbitration agreement or the applicable arbitration rules. Among other things, this is provided for in the arbitration rules of the ICC, ICDR-AAA and CPR. Preliminary or interim relief typically takes the form of an injunction (eg, ordering the parties to preserve the status quo), or an attachment.
Emergency arbitrations also have the authority to order such relief (see Yahoo!, Inc. v. Microsoft Corp., 983 F. Supp. 2d 310, 319 (S.D.N.Y. 2013), confirming injunction issued by the emergency arbitrator). The US District Court for the Southern District of New York held that “if ‘an arbitral award of equitable relief based upon a finding of irreparable harm is to have any meaning at all, the parties must be capable of enforcing or vacating it at the time it is made’” (citation omitted).
As discussed in 6.2 Role of Courts, below, US courts will frequently issue orders to enforce interim measures ordered by a tribunal.
The FAA does not address whether US courts have authority to order provisional relief in support of arbitration, but US courts have frequently ruled that they do possess such authority.
The rules of the major arbitration organisations also provide that seeking provisional or interim relief from a court is compatible with these rules and does not constitute a waiver of the right to arbitrate. The authority to order preliminary or interim relief is not limited to the courts of the arbitral seat; for example, the courts of a jurisdiction where significant assets are located may have the authority to attach those assets.
Courts have issued preliminary or interim relief to preserve the status quo prior to the constitution of the arbitral tribunal – for instance, injunctions prohibiting the termination of long-term contracts. Courts have also issued such relief in aid of arbitration during the course of arbitration proceedings. Courts typically apply the same standard to a request for provisional relief in support of arbitration as they would apply to a request for provisional relief in any other case. The precise standard will vary depending on the nature of the relief sought and the jurisdiction.
Courts will also typically consider whether it is possible for the tribunal to order the provisional relief sought – ie, whether the tribunal has been constituted and whether the applicable rules permit it to order relief. If the relief sought can be granted by the tribunal, a court may defer to the tribunal. Similarly, it is not uncommon for courts to grant provisional relief that lasts only until the arbitral tribunal is able to consider the issue.
US courts may also enforce interim measures ordered by an arbitral tribunal, even if the arbitration is not seated in the United States. Although the New York and Panama Conventions provide for the recognition and enforcement of final decisions only, US courts have held awards of interim measures to be “final” and thus subject to judicial enforcement in certain circumstances.
As with many aspects of arbitral procedure, the FAA contains no provision addressing security for costs, and thus does not prohibit tribunals from ordering it. Instead, the specific arbitral rules will determine the possibility of awarding security for costs.
The FAA does not address most issues of arbitration management, and does not set out rules for the conduct of arbitrations. Arbitral tribunals and parties are generally free to determine the procedure to be followed, typically subject to the applicable arbitration rules.
Just as US law does not set out any particular rules for the conduct of an arbitration, it also does not provide that any particular procedural steps must be followed. The only real procedural constraint imposed as a matter of law is that whatever procedure is followed should not give rise to a circumstance that would result in vacatur of the award under FAA § 10. For example, a procedure that did not permit each of the parties to be heard could lead to vacatur under § 10(a)(3).
The powers vested in arbitrators under US law are essentially the powers granted to them by the parties to the arbitration agreement and the applicable arbitration rules. US courts will give effect to the parties’ intention within the limits discussed in this chapter.
The FAA does not directly impose any duties on arbitrators, but does indirectly constrain their behaviour by providing that certain behaviour or decisions can lead to vacatur of any award rendered by them (see FAA § 10). The American Bar Association and International Bar Association have both published codes of ethics for arbitrators that, while not legally binding, serve as a useful reference.
The FAA does not demand that legal representatives appearing in arbitrations in the United States hold any particular qualifications or meet any other specific requirements. However, each state and the District of Columbia has its own rules of professional conduct that govern the behaviour of individuals engaged in the practice of law within that jurisdiction. See 2.1 Governing Law regarding California law.
The FAA does not provide particular rules for the disclosure and use of evidence in international arbitration. Arbitral tribunals enjoy wide discretion in compelling the disclosure of information and determining the scope of applicable privileges. As a practical matter, an arbitration seated in a common law jurisdiction, such as the US, often involves some disclosure of information and documents. Arbitrators will typically abide by any guidance or limitations on the scope of disclosure of information imposed by the arbitration clause.
In addition, US law has created mechanisms to obtain disclosure of information from third parties in connection with arbitration proceedings. 28 U.S.C. 1782 may make it possible to obtain discovery from third parties in the US in aid of a foreign arbitration proceeding.
Most recently, on 10 July 2018, the Second Circuit Court of Appeals addressed such an application in Kiobel v. Cravath, Swaine & Moore LLP, where Kiobel filed an application under 28 U.S.C. 1782 seeking documents belonging to Royal Dutch Shell from its counsel, Cravath, Swaine & Moore, which was in possession of the documents from a prior litigation. The Court of Appeals found that the district court’s decision granting the petition constituted an abuse of discretion, and therefore reversed the decision on the grounds that producing the documents would jeopardise the policy promoting open communication between counsel and clients.
US law does not require the use of any particular rules of evidence in arbitration: parties are free to elect the procedure they desire. Courts reviewing arbitration awards grant deference to the evidentiary rulings of arbitrators, and do not require that the arbitrators follow the strict evidentiary rules that would apply in a court of law. Arbitrators and parties often refer to the IBA Rules on Taking Evidence in International Arbitration in the terms of reference or procedural orders in the arbitration.
Although arbitrators do not generally have authority over non-parties to the arbitration, FAA § 7 grants them the authority to summon “any person” to appear in the arbitration as a witness or to produce documents. If the recipient of the summons refuses to comply, § 7 permits the arbitrators to request judicial assistance to enforce the summons in the same manner it would enforce a subpoena for the witness to appear or produce documents before the court itself, including through contempt sanctions. This mechanism may make it possible to obtain testimony and documents from third parties in aid of an arbitration seated in the US.
Disclosure can also be sought from third parties in connection with arbitrations seated outside of the US under 28 USC 1782, as discussed in 8.1 Collection and SUbmission of Evidence. Although the statute was originally used in aid of foreign proceedings in domestic courts, the definition of “tribunal” was later interpreted to include international arbitration (see Intel Corp. v. AMD, Inc., 542 U.S. 241 (2004)). Subsequently, in In re Application of the Republic of Kazakhstan, the Southern District of New York held that a State sovereign constituted an “interested party” that could seek discovery under Section 1782 – Case No. 15-Misc.-0081 (S.D.N.Y. 2015).
US law does not address the confidentiality of arbitral proceedings or their constituent parts. Parties are free to draft confidentiality agreements to govern proceedings, and often do.
In light of the public policy of access to documents filed in open court, arbitral awards may become public upon the filing of a motion to confirm or vacate an arbitral award. To the extent confidentiality is a significant issue, the arbitration clause or confidentiality agreement should address this topic in order to maximise the likelihood that filings in court will be made under seal.
US law does not impose any specific requirements regarding the form of arbitral awards, although many of the applicable arbitration rules do set out certain requirements.
The FAA does not limit the types of remedies that an arbitral tribunal may award. Instead, courts will look to whether the parties’ arbitration agreement contains such a limit. If a tribunal awards a remedy that is not permitted by the arbitration agreement, it is subject to being set aside by the reviewing court.
Limitations on the remedies available may also exist within the governing law. For example, certain statutory claims may not permit punitive damages.
Although the FAA does not address awards of interest by an arbitral tribunal, courts widely recognise that tribunals may award both pre- and post-award interest, unless the arbitration agreement provides otherwise. Awards of interest are common.
Likewise, the FAA does not prohibit a tribunal from shifting costs. In international arbitration proceedings seated in the US, arbitrators frequently exercise their discretion to apply the principle that “costs follow the event”, which means that the parties bear the costs of the proceeding in shares corresponding to their measure of success. The parties can also address fee shifting in their contract, and their choices in this respect will typically be respected by arbitral tribunals and courts.
In June 2017, the International Commercial Disputes Committee of the New York Bar Association published a report entitled "Awards of Interest in International Commercial Arbitration: New York Law and Practice". It expressed the view that international arbitral tribunals have the discretion to award a rate of prejudgment interest different from New York’s 9% statutory rate. As described in that report, “New York courts acknowledge that, in the absence of express party agreement on the interest rate to be applied, arbitrators have discretion to determine interest based on a broad range of considerations.”
Under US law, arbitral awards are final and binding. They are not appealable, as that term implies the possibility of a court reviewing and issuing its own ruling as to the merits of the arbitration.
Instead, US law permits parties to apply for vacatur (that is, set-aside or annulment) of an award, based on a limited set of grounds that do not involve the court reviewing the merits of the award, but rather the integrity of the arbitral process. The grounds for vacating an arbitral award are set out in FAA § 10. A court may vacate an award when:
In light of the Supreme Court’s decision that the FAA provides the exclusive grounds for vacating an arbitral award, discussed in the following section, the non-statutory doctrine of manifest disregard of law now exists only as a “gloss” on the FAA’s grounds, if it remains a viable doctrine at all (an issue many courts have yet to decide). Arguments based on manifest disregard of law have had virtually no success in US courts.
Well-established jurisprudence supports the position that the manifest disregard of the law doctrine may only be applied, if at all, in the extremely rare instance where an arbitral panel intentionally ignored a governing and well-defined explicit legal principle. It cannot be invoked where a party disagrees with the interpretation of a law. The decision of a New York trial court in Daesang Corp. v. Nutrasweet Co. is currently under review by the First Appellate Division of the New York Supreme Court in regards to the court’s interpretation of the doctrine (2017 NY Slip Op 31023U (May 15, 2017)).
A court may also modify or correct an award on the following limited grounds set out in FAA § 11:
A party seeking vacatur, modification or correction of an arbitral award must do so by filing a motion in the US district court of the district in which the award was made. The decision on whether to seek such a remedy must be made quickly; FAA § 12 requires the party to serve notice of its motion on the opposing party within three months of the date of the award.
Most recently, the Second Circuit Court of Appeals clarified the process for converting arbitral awards into US court judgments in CBF Industria (see 2.2 Changes to National Law), finding that a party may have an award confirmed and enforce it against the opposing party’s assets in the same action.
US law does not permit parties to expand the grounds for judicial review of arbitral awards by agreement. The Supreme Court has held that the grounds set out in the FAA, discussed in 11.1 Grounds for Appeal above, are exclusive (see Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581 (2008)).
Courts are split, however, on whether parties may agree to limit the grounds for judicial review of awards, or even waive access to judicial review entirely. Some courts have permitted parties to restrict judicial review, citing the parties’ freedom to contract for the arbitration procedure they desire. Other courts have rejected parties’ attempts to limit judicial review of awards, citing the need to protect the integrity of arbitration generally.
US courts will not review the merits of an arbitral award; they will review the award only to determine whether one of the grounds for vacatur or modification discussed in 11.1 Grounds for Appeal are present. That review is almost always carried out under a highly deferential standard, as addressed in 5.5 Standard of Judicial Review for Jurisdiction/Admissibility.
The United States acceded to the New York Convention in 1970, subject to the following two reservations:
The United States ratified the Panama Convention in 1986, subject to several reservations:
To initiate an action to recognise and enforce a foreign or non-domestic award under the New York or Panama Conventions, the party requesting enforcement must file a petition to confirm the award in US court within three years of the date of the award (see FAA §§ 207, 302). A copy of the award and the agreement to arbitrate should be attached to the petition.
Recognition and enforcement of an arbitral award in the United States is a summary procedure. It is common for courts to decide petitions to confirm an award on the basis of written pleadings alone, without an evidentiary hearing or oral argument. The FAA requires courts to confirm a valid award unless one of the grounds for refusing recognition and enforcement set out in the applicable Convention is present (seeFAA §§ 207, 302).
More specifically, the award creditor presents its request to the court as a petition to confirm the award. “Confirmation” is the terminology used in US courts under the FAA, in contrast to the New York Convention, which uses the terminology “recognition and enforcement”. Confirmation is equivalent to recognition and enforcement when dealing with a Convention award in the US, as found in CBF Industria de Gusa v. AMCI Holdings, Inc., 850 F.3d 58, 72 (2d Cir. 2017).
Once the petition to confirm has been filed, the opposing party will have 60 days from the date of service to present either a response to the petition (the equivalent of an answer) or a motion to dismiss the petition (see28 U.S.C. § 1608(d)). In practice, defences under Article V of the Convention are presented in both of those formats.
Another option for resisting enforcement and recognition of an award is to seek its annulment in the primary jurisdiction. The judgment debtor does not need to wait for the creditor to seek recognition and enforcement: setting aside an award is a stand-alone remedy that is not merely a defence to recognition and enforcement.
For arbitrations seated in the US, the judgment debtor must serve notice of its motion to vacate the award under the FAA within three months of the date the award is “filed or delivered” (9 U.S.C. § 12). If the arbitration was not seated in the US, the procedure for setting aside the award will be governed by the law of the seat of arbitration. However, that circumstance opens up an additional option for responding to a petition to confirm in US courts. Article VI of the New York Convention permits courts to stay recognition and enforcement proceedings pending a set-aside action in the primary jurisdiction. It also permits the court to condition the stay on the provision of security.
Reflecting the United States’ policy in favour of arbitration, US courts rarely refuse to recognise and enforce awards. The burden is on the party opposing recognition and enforcement to establish that one of the grounds set out in the New York or Panama Conventions is satisfied. Moreover, US courts apply those grounds under a highly deferential standard, and will not review the merits of the award – see, eg, BG Group PLC v. Republic of Arg., 134 S. Ct. 1198, 1210 (2014) (courts ordinarily review arbitral awards with “considerable deference”); Leeward Constr. Co. v. Am. Univ. of Antigua – College of Med., 826 F.3d 634 (2d Cir. 2016) (“Arbitration panel determinations are generally accorded great deference ... as a general matter, a court is required to enforce the arbitration award as long as there is a barely colorable justification for the outcome reached” (quotation marks and citations omitted)).
Under the FAA, the grounds for refusal to recognise or enforce awards are as follows:
The approach is typified by US courts’ application of the New York and Panama Conventions' provisions permitting refusal of recognition and enforcement on public policy grounds. Courts construe the provision narrowly, and will not apply it unless enforcement of the award would conflict with a public policy of fundamental importance – as one oft-repeated standard puts it, when recognition and enforcement would violate the United States’ most basic notions of morality and justice.
Although it is extremely rare, US courts have recognised and enforced awards that were set aside in the primary jurisdiction – see, eg, Chromalloy Aeroservices v. Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C. 1996); Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploración y Producción, 832 F.3d 92 (2d Cir. 2016).
The most notable is the Second Circuit’s 2016 decision in the Pemex case, affirming the district court’s confirmation of an award that had been set aside by a Mexican appellate court. The Second Circuit nominally reaffirmed the standard that it and the DC Circuit had both applied to that point: that US courts will not recognise and enforce an award set aside in the primary jurisdiction unless the decision of the foreign court is “repugnant to fundamental notions of what is decent and just” in the United States (Corporación Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploración y Producción, 832 F.3d 92, 106 (2d Cir. 2016)). However, it held that the Mexican appellate court’s decision did just that, by retroactively applying legislation. The legal community’s reaction to that decision was that – notwithstanding its reaffirmation of the high bar for recognising and enforcing a set aside award – the Second Circuit displayed a surprising willingness to review the merits of the foreign court’s judgment.
Since Pemex, both the Second Circuit (in Thai-Lao Lignite) and the DC Circuit (in Getma) have affirmed district courts’ refusals to recognise and enforce awards set aside in the primary jurisdiction, which has been taken as evidence that results like Pemex will continue to be extremely rare (Thai-Lao Lignite (Thail.) Co. v. Gov’t of the Lao People’s Democratic Republic, 864 F.3d 172 (2d Cir. 2017); Getma Int’l v. Republic of Guinea, 862 F.3d 45 (D.C. Cir. 2017)).