Robert J. Ward and Robert M. Abrahams | Schulte Roth and Zabel
Arbitration
UNCITRAL Model Law
Is the arbitration law based on the UNCITRAL Model Law?
Congress enacted the Federal Arbitration Act (FAA) in 1925 to validate agreements to arbitrate and to provide mechanisms for their enforcement. The Supreme Court has held that the FAA applies in both federal question and diversity jurisdiction matters, and in some cases pre-empts state statutes precluding arbitration. The FAA is not based on the UNCITRAL Model Law, and differs from it in several ways, including the basis for setting aside an award, the power to modify or correct an award, the procedure for the appointment of arbitrators and the arbitral tribunal’s power to rule on its own jurisdiction.
Arbitration agreements
What are the formal requirements for an enforceable arbitration agreement?
According to FAA section 2, an agreement will be valid, irrevocable and enforceable, except upon such grounds as exist at law or equity for the revocation of any contract, if there is a written provision or contract evidencing a transaction involving commerce to settle by arbitration a controversy arising thereafter, or a transaction or refusal to perform the whole or part thereof of such contract, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract, transaction or refusal. Generally, courts will apply the ordinary state-law principles that govern the formation of contracts to determine the validity of an agreement. An agreement to arbitrate is considered a separate contractual undertaking; the validity of an arbitration clause does not depend on the validity of the underlying contract.
Choice of arbitrator
If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?
Typically, parties will specify the procedure for the appointment of arbitrators, or adopt procedural rules of an administering arbitral institution such as the American Arbitration Association (AAA), JAMS or the International Chamber of Commerce International Court of Arbitration, which provide default rules for the appointment of arbitrators. In the absence of a contractual provision regarding the procedure for the appointment of arbitrators or the adoption of the procedure of an administering arbitral association, the appointment of arbitrators shall be made upon application to the court. The court may designate and appoint any arbitrator or arbitrators as the case may require. If the contract is silent about the number of arbitrators, the court shall appoint a single arbitrator for the action (FAA section 5).
Arbitrator options
What are the options when choosing an arbitrator or arbitrators?
The available arbitrator options will depend on the chosen arbitral association or court. Generally, each arbitral association or court maintains a roster of available mediators and arbitrators. Eligibility for those rosters is based on each association or court’s own criteria and evaluation. For example, the JAMS roster mainly comprises retired judges and other professional neutrals. The AAA roster tends to include arbitrators with more varied industry experience. Usually, the arbitral association or court can provide arbitrators with sufficient knowledge or experience to address the complexity of the issues presented.
Arbitral procedure
Does the domestic law contain substantive requirements for the procedure to be followed?
The domestic statutory law provides almost no requirements regarding the procedure to be followed. The arbitrators once appointed typically control the procedure, conducting the hearings, administering oaths and making awards. The FAA grants an arbitrator or arbitrators the power to summon the attendance of witnesses. The courts defer to the arbitrator on procedural matters.
If the parties have contractually adopted an administering arbitral association’s rules, those rules will bind the arbitrator or panel’s actions. The AAA provides different rules of procedure depending on the type of case (commercial, construction, labour, international, etc). Any procedural rules in the arbitration agreement will overrule the institutional rules.
Court intervention
On what grounds can the court intervene during an arbitration?
Federal courts have jurisdiction to hear arbitration-related issues for matters with federal question jurisdiction or diversity jurisdiction. Judicial intervention is commonly sought when the arbitration demand is made (to compel or stay a proceeding) or after the award (to enforce, modify or vacate). However, during an arbitration, parties may turn to the courts to enforce a subpoena issued by the arbitrator. If a person summoned to testify refuses or fails to appear, the parties may petition the district court in which the arbitrator (or a majority of the arbitrators) sits to compel attendance or punish said persons for contempt (FAA section 7).
Interim relief
Do arbitrators have powers to grant interim relief?
The FAA does not provide for provisional remedies, but the majority view is that arbitrators can and should grant preliminary injunctive relief to preserve the status quo pending arbitration. Likewise, administering arbitral associations often give arbitrators the power to grant interim relief.
Award
When and in what form must the award be delivered?
Under the FAA, there are no formal requirements regarding the delivery and form of the award. The rules of the administering arbitral association may require, or the parties may stipulate, that the award be in writing and signed by the majority of arbitrators. The timing of the award may also be governed by the administering arbitral association or the arbitration agreement.
Appeal
On what grounds can an award be appealed to the court?
An award can be appealed to the courts on limited grounds. The FAA lists the following grounds for vacating an award:
- where the award was procured by corruption, fraud or undue means;
- where there was evident partiality or corruption in the arbitrators, or any one of them;
- where the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehaviour by which the rights of any party have been prejudiced; or
- where 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.
Once an action on the award is brought to the courts, the normal rules governing the appeal of a court decision or an order will attach.
Enforcement
What procedures exist for enforcement of foreign and domestic awards?
Foreign and domestic awards are enforced through the courts. Domestic awards may be enforced under FAA section 9. The party seeking enforcement need not commence a civil action, but rather can make an application to the appropriate federal district for an order confirming the award within one year after the award is issued. The party seeking confirmation must also serve the adverse party with notice of the application.
There are two methods under which foreign commercial arbitral awards may be recognised and enforced. First, as part of the FAA, the United States has adopted the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (FAA section 201). A party seeking to enforce an award must establish a prima facie case for enforcement under the New York Convention, and provide an original or certified copy of both the award and arbitral agreement to the appropriate judicial forum. Enforcement may be challenged on five grounds:
- absence of a valid arbitration agreement;
- lack of fair opportunity to be heard;
- the award exceeds the scope of the submission to arbitration;
- improper composition of the arbitral tribunal or improper arbitral procedure; and
- the award has not yet become binding or stayed.
The party opposing enforcement has the burden to prove the invalidity of the award.
Alternatively, the United States has also adopted the Inter-American Convention on International Commercial Arbitration. Foreign commercial arbitral awards will be recognised and enforced on the basis of reciprocity; if the foreign state has ratified or acceded to the Inter-American Convention, that award will be recognised and enforced (FAA section 304). If both the requirements for the application of the New York Convention and the Inter-American Convention are met, unless expressly agreed otherwise, the Inter-American convention will apply if the majority of parties to the arbitration are citizens of a state or states that have ratified or acceded to the Inter-American Convention or are a member state of the Organization of American States. In all other cases, the New York Convention will apply (FAA section 305).
Costs
Can a successful party recover its costs?
In general, parties normally bear their own costs, unless otherwise agreed in the arbitration clause. The arbitrator may award administrative costs if the parties have contracted for such or the rules of the administering arbitral association so provide. Typically, costs do not include attorneys’ fees, but an arbitrator may award attorneys’ fees when allowed by the governing law, such as when authorised by a specific statute, when the applicable arbitration rules so provide or as a matter of contract as provided for by the parties.
Law stated date
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18 May 2020