1 Legal framework
1.1 What is the relevant legislation on arbitration in your jurisdiction? Are there any significant limitations on the scope of the statutory regime – for example, does it govern oral arbitration agreements?
The Federal Arbitration Act, 9 USC § 1 et seq (FAA), governs arbitration agreements in contracts involving interstate commerce; it applies in both federal and state courts. The only specific requirement for enforceability under the FAA is that the arbitration agreement be in writing (9 USC §§ 2-4). Section 12 of the FAA provides that where the FAA applies, an agreement to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract" (9 USC § 12). The same contract principles that apply to contracts generally under state law apply to arbitration agreements under the FAA.
1.2 Does this legislation differentiate between domestic arbitration and international arbitration? If so, how is each defined?
The same arbitration law governs both domestic and international arbitration proceedings, and is set forth in three chapters located in Title 9 of the US Code.
Chapter 1 (9 USC § 1 et seq) codifies the FAA and sets forth general provisions applicable to arbitration agreements involving maritime, interstate or foreign commerce.
Chapter 2 (9 USC § 201 et seq) implements the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention'). The provisions of Chapter 1 apply to foreign arbitral awards and proceedings only "to the extent that chapter is not in conflict with" the New York Convention (9 USC § 208).
Chapter 3 (9 USC § 301 et seq) implements the 1975 Inter-American Convention on International Arbitration (‘Panama Convention'). Should a conflict arise between Chapter 1 and Chapter 3, the provisions in Chapter 3 apply (9 USC § 307). Where both the New York and Panama Conventions could apply to the enforcement of an arbitral award, the New York Convention controls, unless the parties indicate that the Panama Convention should apply (9 USC § 305).
1.3 Is the arbitration legislation in your jurisdiction based on the UNCITRAL Model Law on International Commercial Arbitration?
The United States has not enacted the UNCITRAL Model Law. Eight states, however, have enacted statutes based on the Model Law: California, Connecticut, Florida, Georgia, Illinois, Louisiana, Oregon and Texas. The FAA and the Model Law have several similar provisions, but differ in other significant respects. The main differences relate to:
- the number of arbitrators and the method of their selection in the absence of party agreement;
- the authority of the arbitral tribunal to rule on its own jurisdiction (competence-competence);
- the power of the courts to correct or modify an award; and
- the grounds for setting aside an award.
Several issues addressed by the Model Law are not addressed by the FAA. These include:
- the availability of provisional measures from a court;
- the disclosure obligations of the arbitrators;
- the means of challenging an arbitrator's alleged impartiality;
- the arbitrator's authority, in the absence of party agreement, to determine the venue and language of the arbitration and the governing law;
- the tribunal's right to appoint experts;
- procedures to follow upon default; and
- the form of the arbitral award.
1.4 Are all provisions of the legislation in your jurisdiction mandatory?
The FAA contains no mandatory rules governing arbitral proceedings sited in the United States.
1.5 Are there any current plans to amend the arbitration legislation in your jurisdiction?
There are no current plans to significantly amend the FAA. However, courts continue to interpret its provisions. A divided US Supreme Court, in Epic Sys Corp v Lewis, __US__, 2018 WL 2292444 (21 May 2018), held that class action waiver provisions in employer-imposed arbitration agreements are enforceable and do not violate the National Labor Relations Act. The court observed that: "In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings." The controversial decision resolves a split in the federal courts of appeals on the issue.
1.6 Is your jurisdiction a signatory to the New York Convention? If so, have any reservations been made?
The United States acceded to the New York Convention in 1970 and implemented its provisions in Chapter 2 of Title 9 of the US Code. There are two reservations. First, the United States recognises only awards made in another state that has ratified the Convention. Second, the United States applies the convention only to matters recognised under domestic law as "commercial". Courts have construed these reservations narrowly (Karaha Bodas Co v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F3d 274 (5th Cir 2004)).
1.7 Is your jurisdiction a signatory to any other treaties relevant to arbitration?
Chapter 3 of the FAA (9 USC § 301 et seq) implements the Panama Convention. In addition, the United States has signed and ratified the Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965). The United States also has 20 bilateral free trade agreements in force and is a party to 42 bilateral investment treaties. These trade and investment agreements provide a limited right for investors from one contracting state to arbitrate claims lodged against the state in which they invested.
2 Arbitrability and restrictions on arbitration
2.1 How is it determined whether a dispute is arbitrable in your jurisdiction?
Enforcement of an arbitration provision involves two analytical steps: determining whether the parties entered into an arbitration agreement and whether the dispute at issue is covered by that agreement. In addition, there is a third crucial question: whether the agreement clearly and unmistakeably delegated these threshold questions of arbitrability to the arbitrator or whether they remain with the court (Rent-A-Center, West, Inc v Jackson, 561 US 63, 79 (2010)).
2.2 Are there any restrictions on the choice of seat of arbitration for certain disputes?
Arbitrations have hearing locations as well as the place of legal residence, also known as where venue is located or, in international arbitrations, as the arbitral seat. The arbitral seat is the domicile of the arbitration, where courts that have jurisdiction to enforce arbitration orders (or, in certain circumstances, appoint arbitrators) are located. While the legal residence is often the physical location where the hearings take place, the parties are free to designate the seat they wish, regardless of the location of the arbitration hearings. There are no restrictions on the choice of seat based on the nature of the dispute.
3 Arbitration agreement
3.1 What are the validity requirements for an arbitration agreement in your jurisdiction?
Under the Federal Arbitration Act (FAA), an arbitration agreement must be in writing. Apart from this requirement, an arbitration agreement can contain whatever terms the parties wish. However, to ensure the enforceability of the arbitration clause and any award, the agreement should:
- unambiguously designate arbitration as the form of dispute resolution, specifying that any award rendered is binding on the parties;
- clearly define the scope of the arbitration clause – that is, the categories of disputes subject to arbitration – so that it covers any and all such disputes arising under or in connection with, or relating to, the commercial contract;
- designate the procedural rules of the arbitration and any administering institution;
- designate the place of arbitration – that is, where the arbitration is formally located as a matter of law or its juridical seat;
- specify the number of arbitrators, their qualifications and the method of their selection;
- specify the language of the arbitration;
- include a choice of law clause specifying the substantive law applicable to the contract and the resolution of any disputes;
- provide that the FAA governs the arbitration agreement and the arbitration process; and
- provide that judgment may be entered on the arbitral award by any federal or state court having jurisdiction.
3.2 Are there any provisions of legislation or any other legal sources in your jurisdiction concerning the separability of arbitration agreements?
Federal and state courts have held that an arbitration clause is severable from the underlying contract (Prima Paint Corp v Flood Conklin Mfg Co, 388 US 395, 401 (1967) ("arbitration clauses as a matter of federal law are ‘separable' from the contracts in which they are embedded"); Rent-A-Center, West, Inc v Jackson, 561 US 63 (2010) (affirming Prima Paint rule); Hamblen v Hatch, 242 Ariz 483 (2017) (separability doctrine applies under Arizona's Uniform Arbitration Act)). Accordingly, an arbitrator has jurisdiction to hear a contract dispute, without court intervention, when a party challenges the contract but not the arbitration clause itself (Prima Paint, 388 US 395 at 403-04 (contract alleged to have been fraudulently induced)). The separability principle is recognised by the rules of the various arbitral associations (eg, see American Arbitration Association (AAA), Commercial Arbitration Rule R-7(b) ("The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract")).
3.3 Are there provisions on the seat and/or language of the arbitration if there is no agreement between the parties?
When the parties have not agreed on the seat and/or language of the arbitration, the institutional rules governing arbitrations typically provide default rules. AAA Rule R-11(a), for example, provides that: "When the parties' arbitration agreement is silent with respect to locale, and if the parties disagree as to the locale, the AAA may initially determine the place of arbitration, subject to the power of the arbitrator after appointment, to make a final determination on the locale."
Where the parties have not agreed upon the language of the arbitration, the arbitrators will make that determination, unless the applicable institutional rules provide for a default language. Some institutional rules consider the language of the contract to be a particularly relevant factor, while others point to the relevance of the language of the arbitration agreement. For example, Article 20 of the International Chamber of Commerce Arbitration Rules provides that in the absence of agreement by the parties, the arbitrators should give "due regard" to "all relevant circumstances, including the language of the contract". Similarly, Article 18 of the International Centre for Dispute Resolution Arbitration Rules provides that, absent agreement by the parties, "the language(s) of the arbitration shall be the language(s) of the documents containing the arbitration agreement, subject to the power of the arbitral tribunal to determine otherwise".
4 Objections to jurisdiction
4.1 When must a party raise an objection to the jurisdiction of the tribunal and how can this objection be raised?
This is a matter addressed by the relevant arbitral rules. Under American Arbitration Association Rule R-7, "[a] party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection. The arbitrator may rule on such objections as a preliminary matter, or as part of the final award".
4.2 Can a tribunal rule on its own jurisdiction?
The parties to a contract can agree to arbitrate so-called ‘gateway' questions, including:
- whether a valid agreement to arbitrate exists; and
- whether the particular dispute sought to be arbitrated falls within the scope of the arbitration clause.
However, courts cannot assume that the parties agreed to arbitrate these issues absent "clear and unmistakable evidence that they did so" (Rent-A-Center, West, Inc v Jackson, 561 US 63, 79 (2010)). Most of the leading institutional arbitral rules provide that the arbitral tribunal is competent to resolve questions about its own jurisdiction (eg, see Rule 8.1 of the International Institute for Conflict Prevention and Resolution (CPR) Rules for Non-Administered Arbitration (effective 1 March 2018)). Courts have held that when the parties incorporate such rules into their agreement to arbitrate, the incorporation constitutes "clear and unmistakable" proof of an intention to delegate questions of arbitrability to the tribunal (Galilea, LLC v AGCS Marine Ins Co, 879 F3 d 1052 (9th Cir 2018).
The Supreme Court recently granted certiorari to determine whether the FAA allows a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes that the claim of arbitrability is "wholly groundless" (Henry Schein, Inc v Archer and White Sales, Inc, No 17-1272, 2018 WL 1280843 (25 June 2018)).
4.3 Can a party apply to the courts of the seat for a ruling on the jurisdiction of the tribunal? In what circumstances?
As noted, the arbitral tribunal has the authority to decide its own jurisdiction if the parties have "clearly and unmistakably" agreed to give it this authority (First Options of Chicago, Inc v Kaplan, 514 US 938, 943 (1996); BG Group PLC v Republic of Argentina, 134 S Ct 1198, 1207 (2014)). Where the parties have agreed that an issue is for the arbitrators to decide, the court will defer to the arbitral resolution of the question (Oxford Health Plans LLC v Sutter, 133 S Ct 2064, 2068 (2013)). Nonetheless, the court will "make up its mind about [an issue] independently" where the parties did not agree the issue should be arbitrated (First Options, 514 US at 942).
5 The parties
5.1 Are there any restrictions on who can be a party to an arbitration agreement?
There are no restrictions on who can be a party to an arbitration agreement. Notably, in Epic Sys Corp v Lewis, __US__, 2018 WL 2292444 (21 May 2018), a divided US Supreme Court ruled that class action waiver provisions in employer-imposed arbitration agreements are enforceable and do not violate the National Labor Relations Act. And on 1 November 2017, President Trump signed legislation overturning a rule of the Consumer Financial Protection Bureau that had prohibited providers of consumer financial services and products from relying on a pre-dispute arbitration agreement that bars a consumer from filing or participating in a class action.
Finally, when a proceeding is brought to enforce a judgment against a sovereign state, the proceeding is controlled by the Foreign Sovereign Immunities Act (28 USC § 1604) and the extensive case law developed under the statute. Foreign states are immune from liability, as well as discovery and the burdens of trial, unless one of the statutory exceptions to immunity applies.
5.2 Are the parties under any duties in relation to the arbitration?
Most domestic commercial arbitrations are governed by the Federal Arbitration Act (FAA). The FAA does not mandate that the arbitration be conducted under a specific set of procedural rules. Rather, the parties can specify in their agreement the rules under which the arbitration will be conducted – that is, whether the FAA, state law or other rules such as those provided by arbitral institutions (eg, the American Arbitration Association (AAA), the International Institute for Conflict Prevention and Resolution or JAMS) shall apply. The contract should establish the procedural law and the substantive law that will apply to the arbitration; it is this law and the terms of the agreement that govern the duties of the parties (see Stolt–Nielsen SA v AnimalFeeds Int'l Corp, 559 US 662, 683-84 (2010) (where the FAA applies, arbitration agreements are to be enforced according to their terms)).
5.3 Are there any provisions of law which deal with multi-party disputes?
The FAA does not address multi-party disputes. However, the rules of the arbitral institutions do address multi-party practice. For example, Article 7 of the International Centre for Dispute Resolution Arbitration (Joinder of Additional Parties) provides in part: "A party wishing to join an additional party to the arbitration shall submit to the Administrator a Notice of Arbitration against the additional party." An additional party cannot be joined after the confirmation or appointment of any arbitrator unless all parties, including the additional party, agree. Articles 8 and 9 apply to "claims between multiple parties" and "multiple contracts". Claims may be made by any party against any other party, but "no new claims may be made after the Terms of Reference are signed or approved by the Court without authorization of the arbitral tribunal". "[C]laims arising out of or in connection with more than one contract may be made in a single arbitration irrespective of whether such terms are made under one or more than one arbitration agreement under the Rules."
6 Applicable law issues
6.1 How is the law of the arbitration agreement determined in your jurisdiction?
The Federal Arbitration Act (FAA) does not include choice of law rules. The parties are generally free to select the substantive law that will apply in the arbitration. It is advisable for parties to state clearly the law applicable to the dispute in advance, to avoid complicated choice of law disputes (Mastrobuno v Shearson Lehman Hutton, 514 US 52 (1995) (parties wishing to apply state arbitration law cannot rely on a general choice of law provision in the contract, but must explicitly require the application of state arbitration law)). The FAA pre-empts state laws that directly conflict with the FAA, that single out or discriminate against arbitration, or that "stand as an obstacle to the accomplishment of the FAA's objectives" (AT&T Mobility LLC v Concepcion, 563 US 333, 334 (2011)).
6.2 Will the tribunal uphold a party agreement as to the substantive law of the dispute? Where the substantive law is unclear, how will the tribunal determine what it should be?
The tribunal will uphold a party agreement specifying the substantive law of the dispute. If the parties have not specified the applicable law, arbitrators will determine the applicable substantive law. Institutional arbitral rules typically give arbitrators the discretion to apply whatever law they deem appropriate (see JAMS Arbitration Rule 24(c); International Institute for Conflict Prevention and Resolution Administered Arbitration Rules (2013), Rule 10.1).
7 Consolidation and third parties
7.1 Does the law in your jurisdiction permit consolidation of separate arbitrations into a single arbitration proceeding? Are there any conditions which apply to consolidation?
The Federal Arbitration Act (FAA) does not address consolidation, but the issue is addressed by the rules of most arbitral institutions. For example, Rule 8 (Consolidation) of the International Centre for Dispute Resolution Arbitration Rules provides that:
[a]t the request of a party, the Administrator may appoint a consolidation arbitrator, who will have the power to consolidate two or more arbitrations pending under these Rules . . . into a single arbitration where: (a) the parties have agreed to consolidation; or (b) all of the claims and counterclaims in the arbitration are made under the same arbitration agreement; or (c) the claims, counterclaims, or setoffs in the arbitrations are made under more than one arbitration agreement; the arbitrations involve the same parties; the disputes in the arbitrations arise in connection with the same legal relationship; and the consolidation arbitrator finds the arbitration agreements to be compatible.
Some states allow courts to order consolidation of cases. Under California law, a party to an arbitration agreement:
may petition the court to consolidate separate arbitration proceedings, and the court may order consolidation of separate arbitration proceedings when: (1) Separate arbitration agreements or proceedings exist between the same parties; or one party is a party to a separate arbitration agreement or proceeding with a third party; and (2) The disputes arise from the same transactions or series of related transactions; and (3) There is common issue or issues of law or fact creating the possibility of conflicting rulings by more than one arbitrator or panel of arbitrators. (Cal Code Civ Pro, § 1281.3).
7.2 Does the law in your jurisdiction permit the joinder of additional parties to an arbitration which has already commenced?
No statute addresses this issue. The rules of most arbitral associations, however, address joinder. Article 7 of the International Chamber of Commerce Arbitration Rules, for example, provides that "no additional party may be joined after the appointment of any arbitrator, unless all parties, including the additional party, otherwise agree".
7.3 Does an arbitration agreement bind assignees or other third parties?
The fact that a party did not sign an arbitration agreement is not dispositive of the question of whether it is bound to such agreement. "[A] nonsignatory party may be bound to an arbitration agreement if so dictated by the ‘ordinary principles of contract and agency'" (Thomson-CSF, SA v Am Arbitration Ass'n, 64 F3d 773, 776 (2d Cir 1995)). Accordingly, traditional state law contract principles govern the applicability of an arbitration agreement to non-signatories. Courts have held that non-signatories may be bound to arbitration agreements under various theories, including:
- incorporation by reference of the agreement to arbitrate into another contract;
- assumption or assignment;
- veil-piercing/alter ego;
- third-party beneficiary; and
(Arthur Andersen LLP v Carlisle, 556 US 624 (2009) (arbitration agreements are enforceable by and against non-signatories, under state law contract principles); Color-Web, Inc v Mitsubishi Heavy Industries Printing & Packaging Machinery, Ltd, 2016 WL 6837156 (SDNY 21 November 2016) (applying estoppel to bind non-signatory plaintiffs and defendants to arbitration, including corporate parents, agent, and successor)).
Independent contractors, however, are not ‘agents' that can be bound as non-signatories to an arbitration clause (Oudani v TF Final Mile, LLC, 876 F3d 31 (1st Cir 2017)).
8 The tribunal
8.1 How is the tribunal appointed?
There are generally no restrictions on the parties' autonomy to select the arbitrators. The Federal Arbitration Act (FAA) expressly favours the selection of arbitrators by the parties rather than the courts (Shell Oil Co v CO2 Comm, Inc, 589 F3d 1105, 1109 (10th Cir 2009)). In their arbitration agreement, therefore, the parties may specify the number of arbitrators, their qualifications and the method of their selection.
Section 5 of the FAA (9 USC § 5) authorises judicial intervention in the arbitral process to select an arbitrator, on a party's application, if:
- the arbitration agreement does not specify a method for selecting arbitrators;
- any party fails to follow the method specified in the agreement for selecting arbitrators; or
- there is a "lapse in the naming of an arbitrator or arbitrators".
Unless the agreement specifies otherwise, the court shall appoint a single arbitrator. The arbitrators chosen by the court "shall act . . . with the same force and effect" as if they had been specifically named in the arbitration agreement (id).
State laws may also expressly empower courts to appoint arbitrators (see New York Civil Practice Law and Rules (NY CPLR), § 7504: "If the arbitration agreement does not provide for a method of appointment of an arbitrator, or if the agreed method fails or for any reason is not followed, or if an arbitrator fails to act and his successor has not been appointed, the court, on application of a party, shall appoint an arbitrator").
8.2 Are there any requirements as to the number or qualification of arbitrators in your jurisdiction?
There are generally no restrictions, statutory or otherwise, on the parties' autonomy to select the arbitrators. The FAA expressly favours the selection of arbitrators by the parties rather than the courts (Shell Oil Co v CO2 Comm, Inc, 589 F3d 1105, 1109 (10th Cir 2009)). In their arbitration agreement, therefore, the parties may specify the number of arbitrators, their qualifications and the method of their selection.
8.3 Can an arbitrator be challenged in your jurisdiction? If so, on what basis? Are there any restrictions on the challenge of an arbitrator?
The FAA does not provide procedures for challenging the appointment of an arbitrator. Except in rare cases, a court will not intervene pre-award to remove an arbitrator for bias, corruption or evident partiality (eg, see John Hancock Life Ins Co USA v Employers Reassurance Corp, 2016 WL 3460316 (D Mass 21 Jun 2016) ("challenges to a party-appointed arbitrator, such as allegations of bias, are properly considered by courts only at the conclusion of the arbitration").
Section 10 of the FAA provides that an award may be vacated:
(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) 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 (4) 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. (9 USC § 10(a)).
A majority of the circuits follow the rule that evident partiality means that an award will be vacated "only when a reasonable person, considering all of the circumstances, would have to conclude that an arbitrator was partial to one side" (Applied Indus Materials Corp v Ovalar Makine Ticaret Ve Sanayi, AS, 492 F3d 132, 137 (2d Cir 2007)).
8.4 If a challenge is successful, how is the arbitrator replaced?
Under the FAA, if the arbitration agreement provides the method for replacing an arbitrator, that method must be followed (9 USC § 5). If no method is provided, then "upon application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators" (id). State laws may also expressly empower courts to appoint arbitrators (see NY CPLR § 7504: "If the arbitration agreement does not provide for a method of appointment of an arbitrator, or if the agreed method fails or for any reason is not followed, or if an arbitrator fails to act and his successor has not been appointed, the court, on application of a party, shall appoint an arbitrator").
Most arbitral organisations have provisions in their rules that address arbitrator replacement. Under American Arbitration Association (AAA) Rule R-20(a), for example: "If for any reason an arbitrator is unable or unwilling to perform the duties of the office, the AAA may, on proof satisfactory to it, declare the office vacant. Vacancies shall be filled in accordance with the applicable provisions of these rules."
8.5 What duties are imposed on arbitrators? Are these all imposed by legislation?
Arbitrators' powers are determined by the terms of the arbitration agreement, the designated arbitration rules and the provisions of the FAA. State law may also potentially apply.
8.6 What powers does an arbitrator have in relation to: (a) procedure, including evidence; (b) interim relief; (c) parties which do not comply with its orders; (d) issuing partial final awards; (e) the remedies it can grant in a final award and (f) interest?
(a) Procedure, including evidence?
The FAA does not refer to rules of evidence except to provide, in Section 10(a)(3), that courts have authority to vacate an award where the tribunal "refuses to hear evidence pertinent and material to the controversy" (9 USC § 10(a)(3)). The parties are free to address evidentiary matters in their agreement and incorporate institutional arbitral rules that address document disclosure. Arbitral tribunals typically do not follow the Federal Rules of Evidence or the Federal Rules of Civil Procedure.
Section 7 of the FAA (9 USC § 7) provides that "[t]he arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case". Courts are divided as to whether arbitrators can order the production of documents before the hearing or order witnesses to appear for a pre-hearing deposition. Some courts, including the Second Circuit, have held that the FAA does not grant an arbitrator authority to order non-parties to appear at depositions or provide parties with documents prior to a hearing (Life Receivables Tr v Syndicate 102 at Lloyd's of London, 549 F3d 210, 216–17 (2d Cir 2008); Hay Grp, Inc v EBS Acquisition Corp, 360 F3d 404, 410 (3d Cir 2004)).
(b) Interim relief?
It is generally accepted that arbitrators have inherent authority to order interim or preliminary relief pending a final award. Arbitrators may also have express authorisation to order interim relief by the terms of the arbitration agreement and/or the terms of the chosen arbitral rules (see AAA Arbitration Rule R-37(a): "The arbitrator may take whatever interim measures he or she deems necessary"). Interim relief may also include preliminary injunctions and temporary restraining orders, as well as measures intended to preserve evidence.
(c) Parties which do not comply with its orders?
Under Section 7 of the FAA (9 USC § 7), when a party fails to comply with a tribunal's order to testify or produce documents, the party seeking to enforce the order may petition a court for enforcement. If the subpoenaed party does not comply with the court order, the party may be held in contempt. However, Section 7 does not provide an independent grant of federal subject-matter jurisdiction.
(d) Issuing partial final awards?
The FAA refers to final and partial awards. Section 16, for example, which concerns appeals, expressly allows an appeal from both a final and a partial award.
The JAMS arbitration rules provide that arbitrators can "render a Final Award or a Partial Final Award" (JAMS Comprehensive Arbitration Rules and Procedures, Rule 24(a) (2014)). Courts have enforced arbitrators' partial awards that have, among other things:
- removed a lien on a vessel;
- ordered accountings;
- required that documents be produced;
- ordered the sale of property;
- determined that claims were not time barred; and
- required that tax records be made available.
The interim award must fully resolve a discrete issue (Sperry Int'l Trade v Government of Israel, 532 F Supp 901, 909 (SDNY 1982), aff'd, 689 F2d 301 (2d Cir 1982) (order of arbitrator requiring defendant to place letter of credit in escrow pending final determination was "a final Award on a clearly severable issue"); Southern Seas Navigation Ltd of Monrovia v Petroleos Mexicanos of Mexico City, 606 F Supp 692, 694 (SDNY 1985) ("[j]ust as a district court's grant of a preliminary injunction is reviewable as a discreet and separate ruling…so too is an arbitration award granting similar equitable relief")). State arbitration laws may differ (eg, see Kaiser Foundation Health Plan, Inc v Superior Court, 13 Cal App 5th 1125 (Ct App 2017) (partial final arbitration award lacked finality under the state arbitration statute and could not be appealed, but was subject to mandamus jurisdiction)).
(e) The remedies it can grant in a final award?
The FAA does not limit the remedies available in arbitration. Subject to the parties' agreement, arbitrators may award any type of relief, including damages, specific performance, injunctions, interest, costs and attorneys' fees. On the other hand, an arbitration agreement that expressly eliminates certain relief will be enforced (Archer & White Sales v Henry Schein, Inc, 878 F3d 488 (5th Cir 2017) (enforcing the terms of an agreement that eliminated injunctive relief as an available remedy), petition for cert granted on other grounds, 2018 WL 1280843 (25 June 2018)). The Supreme Court has held that under the FAA, arbitrators may award punitive damages unless the parties' agreement expressly prohibits such relief (Mastrobuono v Shearson Lehman Hutton, Inc, 514 US= 52, 58, 60-61 (1995)). The AAA Arbitration Rules permit any relief deemed "just and equitable" within the scope of the parties' agreement (Rule R-47(a)).
The FAA does not address interest. Whether interest is permitted and at what rate will depend on the agreement of the parties, the applicable institutional rules and the substantive law governing the contract. AAA Arbitration Rule R-47(d)(i), for example, permits the inclusion of interest in the award "from such date as the arbitrator(s) may deem appropriate" (see Bergheim v Sirona Dental Sys, Inc, 2017 WL 354182, at *4 (SDNY 24 January 2017) ("There is a presumption in favor of awarding pre-judgment interest running from the time of the award through the court's judgment confirming the award, at a rate prescribed by the state statutory law governing the contract")).
Federal law controls post-judgment interest in federal cases, including cases based on diversity of citizenship. Under federal law, once a court judgment confirming the award is entered, the award is merged into the judgment and the interest rate is governed by the federal post-judgment interest rate statute (28 USC § 1961) (see Bayer Cropscience AG v Dow Agrosciences LLC, 680 Fed App'x 985, 1000 (Fed Cir 2017): "Numerous circuits have concluded that once a federal court confirms an arbitral award, the award merges into the judgment and the federal rate for post-judgment interest presumptively applies"). The parties may contract around the statute if they clearly and expressly agree on a different post-judgment interest rate and that rate is consistent with state usury laws. Alternatively, they can agree to submit the question of post-judgment interest to arbitration.
8.7 How may a tribunal seated in your jurisdiction proceed if a party does not participate in the arbitration?
Where a party to a valid arbitration agreement does not participate in the arbitration, the FAA permits federal courts to compel the party to participate (see 9 USC § 4: "A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement"). Most state arbitration acts confer similar authority on state courts. If a party nevertheless does not participate in the proceedings, the rules of most arbitral institutions empower arbitrators to enter a default award, but require that the non-defaulting party provide evidence in support of its claims. Such default awards are enforceable in the United States.
8.8 Are arbitrators immune from liability?
While the FAA does not address arbitrator immunity, the decisional law recognises that arbitrators exercise quasi-judicial duties and, like judges, have absolute immunity from civil suits for acts taken within the scope of the arbitral process (Landmark Ventures, Inc v Cohen, No 13 Civ 9044 (JGK), 2014 WL 6784397, at *4 (SDNY 26 November 2014: "Under well-established Federal common law, arbitrators and sponsoring arbitration organizations have absolute immunity for conduct in connection with an arbitration"). The institutional arbitral rules also provide arbitrators and arbitral institutions with immunity from liability for conduct in connection with an arbitration. For example, AAA Arbitration Rule R-52(d) provides that "[p]arties to an arbitration under these rules shall be deemed to have consented that neither the AAA nor any arbitrator shall be liable to any party in any action for damages or injunctive relief for any act or omission in connection with any arbitration under these rules" (see also International Institute for Conflict Prevention and Resolution (CPR) Arbitration Rule 20: "Neither CPR nor any arbitrator shall be liable to any party for any act or omission in connection with any arbitration conducted under these Rules"; JAMS Arbitration Rule 30(c) (same)).
9 The role of the court during an arbitration
9.1 Will the court in your jurisdiction stay proceedings and refer parties to arbitration if there is an arbitration agreement?
Section 3 of the Federal Arbitration Act (FAA) states that a federal court, with a valid agreement before it, "shall on application of one of the parties stay the trial of the action until such arbitration has been had" (9 USC §§ 2-3). Thus, when a party initiates litigation despite having an arbitration clause in its agreement, the counterparty may move to stay the litigation, pursuant to Section 3 of the FAA, and to compel arbitration under Section 4 of the FAA. Where appropriate, a stay of litigation "enables parties to proceed to arbitration directly, unencumbered by the uncertainty and expense of additional litigation, and generally precludes judicial interference until there is a final award" (Katz v Cellco P'ship, 794 F3d 341, 346 (2d Cir 2015)). A party may waive the right to arbitration when it engages in protracted litigation that prejudices the opposing party.
9.2 Does the court in your jurisdiction have any powers in relation to an arbitration seated in your jurisdiction and/or seated outside your jurisdiction? What are these powers? Under what conditions are these powers exercised?
Under the FAA, courts do not have jurisdiction over procedural issues that arise during an arbitration, with the exception of arbitrator appointment issues.
However, most federal and state courts have held that under the FAA, a court may grant interim relief pending arbitration (Sojitz Corp v Prithvi Info Solutions, Ltd, 921 NYS 2d 14, 17 (App Div 2011); Stemcor USA Inc v CIA Siderurgica Do Para Cosipar, 870 F3d 370, 374-79 (5th Cir 2017)). And under Section 7 of the FAA, when a party fails to comply with a tribunal's order to testify or produce documents, the party seeking to enforce the order may petition a court for enforcement (9 USC § 7).
Courts also have the power to grant anti-suit injunctions in cases concerning a pending or threatened foreign arbitration (Citigroup, Inc v Abu Dhabi Inv Auth, No 13 Civ 6073 (PKC), 2013 WL 6171315 (SDNY 25 November 2013) (enjoining actions filed in Greece raising claims covered by the arbitration agreement), aff'd, 776 F 3d 126 (2d Cir 2015)). In the Second Circuit, a court may enjoin a party from pursuing a foreign action if "two threshold requirements are met: first, the parties must be the same in both proceedings, and second, resolution of the case before the enjoining court must be dispositive of the action to be enjoined" (Eastman Kodak Co v Asia Optical Co, 118 F Supp 3d 581, 586 (SDNY 2015)).
Finally, US courts have the authority, pursuant to 28 USC § 1782, to compel the production of evidence for use in international proceedings. The statute requires that the documents or testimony sought by the parties be for use "in a proceeding in a foreign or international tribunal". While courts have ruled that investor-state arbitration panels are covered by Section 1782, they are divided as to whether private international arbitrations constitute tribunals.
9.3 Can the parties exclude the court's powers by agreement?
While the parties can provide in the arbitration agreement that gateway issues involving jurisdiction can be decided by the tribunal, assuming that intention is clearly and unmistakeably expressed, the court's powers cannot be entirely excluded by agreement. Under the FAA, for example, the court is empowered to issue a stay of proceedings when litigation is subject to arbitration, as well as an order to compel arbitration (9 USC §§ 3, 4). Further, in the absence of agreement, the court must appoint arbitrators (9 USC § 5), enforce summonses issued by the tribunal (9 USC § 7), confirm and enforce awards, and vacate awards (9 USC §§ 9, 10).
10.1 How will the tribunal approach the issue of costs?
The general practice is that the parties bear their own costs and fees. The parties are free, however, to agree on a different rule of cost allocation in their arbitration agreement, including by adopting institutional arbitral rules that give arbitrators the authority to grant such relief. American Arbitration Association (AAA) Rule R-47(c), for example, provides that in the final award, the arbitrator shall assess fees, expenses and compensation, and that the award may include attorneys' fees if all parties have requested such an award or it is authorised by law or an arbitration agreement. International Institute for Conflict Prevention and Resolution (CPR) Arbitration Rule 19 provides that the tribunal shall fix the costs of arbitration in its award, including fees. The CPR Rules for Non-Administered Arbitration of Domestic and International Disputes became effective as of 1 March 2018. Under Rule 17.3, in apportioning costs, arbitrators may take into account, among other things, "the circumstances of the case" and "the conduct of the parties during the proceeding". "This broad power is intended to permit the arbitrators to apportion a greater share of costs than they otherwise might to a party that has employed tactics the arbitrators consider dilatory, or in other ways has failed to cooperate in assuring the efficient conduct of the proceeding."
10.2 Are there any restrictions on what the parties can agree in terms of costs in an arbitration seated in your jurisdiction?
Arbitration costs include the arbitrators' fees and expenses, expert witness fees, costs of interim or emergency relief, legal fees and administrative costs. Further, most arbitral bodies charge a fee, in addition to the arbitrators' fees, which cover the costs of managing the dispute. The parties can expressly state in their agreement the costs and fees that are recoverable and those that are not. Alternatively, the parties may give the arbitrators discretion to:
- allocate costs and decide fees;
- provide an allocation of costs and fees to the prevailing party;
- allocate costs and fees in proportion to success; or
- split costs equally.
11.1 Is third-party funding permitted for arbitrations seated in your jurisdiction?
The FAA does not prohibit an unrelated third party from funding a party in an arbitration. State law addresses third-party funding through:
- laws that regulate funders;
- the doctrines of maintenance, champerty and barratry; and
- rules regulating attorney conduct and the application of attorney-client privilege.
For example, American Bar Association Model Rule 5.4(a) prohibits an attorney or law firm from sharing legal fees with a non-lawyer, except in narrow circumstances.
12.1 What procedural and substantive requirements must be met by an award?
Under some arbitral rules, the arbitrator announces the result and provides a numerical award. This "unreasoned award" can be handed down quickly, but is harder to challenge. The arbitration agreement, however, can provide for a "reasoned award", which provides key findings and the reasons for those findings (see Tully Constr Co/AJ Pegno Constr Co v JV Canam Steel Corp, 2015 WL 906128, at *14 (SDNY 2 March 2015)). Courts have held that "an arbitrator exceeds his or her authority by issuing an improper form of award" (Tully Const Co, 2015 WL 906128 at *18). The agreement, in any event, must provide that the arbitral award will be final and binding (see 9 USC § 9).
12.2 Must the award be produced within a certain timeframe?
The parties are free to incorporate time limits into their arbitration agreements. The applicable arbitration rules may also require that the parties proceed on a certain schedule. For example, Rule 15.7 of the International Institute for Conflict Prevention and Resolution Rules for Non-Administered Arbitration of Domestic and International Disputes requires the parties and the arbitrator(s) to use best efforts to ensure that the dispute will be submitted to the tribunal for decision within six months of the initial pre-hearing conference, and that the final award be rendered within one month of the close of proceedings. Rule 9.2 authorises the arbitrator(s) to establish time limits for each phase of the proceeding.
13 Enforcement of awards
13.1 Are awards enforced in your jurisdiction? Under what procedure?
At least as to domestic arbitration awards and international arbitration awards rendered in the United States (non-domestic awards), the award must be "confirmed" before it can be enforced. The Federal Arbitration Act (FAA), which governs confirmation in federal courts, requires the filing of a petition to confirm along with certain supporting documents (eg, a copy of the agreement and a copy of the award) (9 USC §§ 9, 13). A petition to confirm a domestic award "may" be filed "at any time within one year after the award is made" (9 USC § 9). Notice of the petition must be filed on the adverse party (id). In CBF Industria de Gusa/S/A v AMCI Holdings, Inc, 850 F 3d 58 (2d Cir), cert denied, 138 S Ct 557 (2017), the Second Circuit held that, as to foreign arbitral awards rendered by tribunals seated outside the United States, there is no requirement to "confirm" the award in accordance with the procedures set forth in the FAA. Rather, the party wishing to enforce the award can bring a single action. The court explained that "confirmation", as used in the FAA sections enabling the New York Convention, "is the equivalent of ‘recognition and enforcement' as used in the New York Convention for the purposes of foreign arbitral awards" (id at 72). There is a split in the New York decisional law as to whether a party seeking to enforce a foreign judgment in New York courts must establish personal jurisdiction over the judgment debtor.
14 Grounds for challenging an award
14.1 What are the grounds on which an award can be challenged, appealed or otherwise set aside in your jurisdiction?
Section 10 of the Federal Arbitration Act (FAA) contains the exclusive grounds for seeking vacatur:
(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) 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 misbehavior by which the rights of any party have been prejudiced; or (4) 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. (9 USC § 10(a)).
A party seeking to invoke one of these statutory grounds "must clear a high hurdle" (Stolt-Nielsen SA v Animal Feeds Int'l Corp, 559 US at 671).
14.2 Are there are any time limits and/or other requirements to bring a challenge?
Under Section 12 of the FAA (9 USC § 12), a motion to vacate, modify or correct an arbitral award must be served on the opposing party within three months of the award being filed or delivered. The action must be brought in the district where the award was made. When the challenge to an award is made in federal district court, the moving party must establish that the court has both subject-matter jurisdiction over the dispute, (ie the claim exceeds $75,000 and the parties are citizens of different states, or the claim arises under federal law) and personal jurisdiction over the parties.
14.3 Are parties permitted to exclude any rights of challenge or appeal?
The FAA contains no procedure for "appeal" of legal or factual determinations made by an arbitrator. However, certain arbitral institutions have optional appellate arbitration procedures that the parties can incorporate into their arbitration agreement, or agree to after the arbitration is ongoing, and can vary the finality of the arbitration process (eg, see International Institute for Conflict Prevention and Resolution Appellate Arbitration Procedure (2015)).
The Supreme Court, in Hall St Assocs, LLC v Mattel, Inc, 552 U.S. 576 (2008), held that the grounds for vacatur under Section 10 of the FAA are exclusive and cannot be expanded by contract. Some state courts (including California, Connecticut, New Jersey and Rhode Island) have held that their state arbitration statutes permit expanded review and are not pre-empted by the FAA (see Cable Connection, Inc v DIRECTV, Inc, 190 P3d 586 (Cal 2008) (requiring an explicit and unambiguous contract provision for expanded review); Nafta Traders Inc v Quinn, 339 SW3d 84 (Tex 2011)). Other state courts have held that their state statutes do not permit expanded review (Brookfield Country Club, Inc v St James Brookfield, LLC, 696 SE 2d 663 (Ga 2010)).
Some courts have held that parties to an arbitration agreement can reduce the scope of judicial review by agreement or preclude judicial review entirely (eg, see West Virginia Investment Management Board v Variable Annuity Life Insurance Company, 2018 WL 2769058 (W Va App Ct 16 May 2008) (arbitration clauses that prohibit appellate review of a district court's order confirming an arbitration award are valid so long as intent is clear)).
15.1 Is arbitration seated in your jurisdiction confidential? Is a duty of confidentiality found in the arbitration legislation?
The Federal Arbitration Act (FAA) does not address confidentiality and there is no case law establishing a general duty of confidentiality in arbitrations. However, the parties can provide for confidentiality in their arbitration agreement. Institutional arbitral rules also typically authorise arbitrators to issue orders protecting the confidentiality of materials. International Institute for Conflict Prevention and Resolution (CPR) Arbitration Rule 20, for example, requires the parties, the arbitrators and the CPR to treat proceedings, related document disclosure and tribunal decisions as confidential, subject to limited exceptions. Many state laws recognise the authority of the tribunal to issue protective orders and confidentiality orders.
15.2 Are there any exceptions to confidentiality?
Publicly held companies may be required by US securities law to disclose the arbitration proceeding if it is material to the company's financial condition or performance. In addition, post-award judicial proceedings to confirm or vacate will likely make the award public.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.