Court Lists Manifest Disregard as a Standard To Seek Vacatur of an International Arbitral Award, though the Court Affirms the Award Nonetheless

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L’Object, LLC v. Samy D. Limited, et al., 11 Civ. 3856 (LBS)(S.D.N.Y. 2011), is another in the series of arbitral award challenges recently analyzed by the courts.  Nearly identical arbitration clauses required the arbitration in New York of “[a]ny controversy or claim arising out of or related to” various contracts.  For purposes of international dispute resolution, the decision makes the following rulings:

First, applying the review provisions of the Federal Arbitration Act, the Court followed settled law in holding that arbitral awards “are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation”.

Second, the Court’s authority to vacate an award is limited to vacating “only if one of the grounds specified in” Section 10 of the FAA exists — though the Court also adds the controversial provision for vacatur — that is, “if the award ‘manifest[ly] disregard[s] the law.  There remains uncertainty concerning whether that unspecified escape hatch exists in the law.  The Supreme Court has not decided the issue, and the courts have had varying things to say. For example, some courts have deterimed that the answer to the question turns on whether the controversy and motion to vacate are determined by the FAA or the New York Convention, which other courts have declared is incorporated into the FAA.  See our discussion of the interplay between the FAA and the New York Convention in our ebook, International Practice: Topics and Trends

Third, the Court was unwilling to find that the arbitrator exceeded his authority, and the Court found that an arbitrator cannot be said to have exceeded the scope of his powers unless “it may be said with positive assurance that the arbitration clause is no susceptible of an interpretation that covers the asserted dispute”.

Finally, the Court observed the parallel nature of applications to vacate and to confirm, holding that “denying the former implies granting the latter”.

Posted in Adjudication, Arbitration, International Practice | Tagged