Encyclopaedia U v. Encyclopaedia B
In a case brought to enforce a foreign arbitration award, the United States Court of Appeals for the Second Circuit affirmed the district courtís decision denying the application on the ground that the composition of the arbitration panel did not conform to the arbitration agreement between the parties. However, the appellate court rejected the district courtís alternate holding that the award should also be vacated (set aside) because the arbitrators "exceeded their powers," concluding that while this is grounds for challenge under the Federal Arbitration Act, it is not grounds for refusing to enforce an award under the New York Convention, which governed in this case. The Court also vacated Ė for the same reasons Ė the remainder of the district courtís order setting forth the procedures to be followed during re-arbitration
DMC Category: Confirmed
Case Note contributed by Matthew H. James of Healy & Baillie, LLP in New York. Healy & Baillie are the International Contributors to the website for the United States of America
The parties appointed their respective arbitrators who thereupon discussed the scope of the proceedings and the procedures that would be followed, but not the merits of the dispute or who would serve as the third arbitrator. A few months later, the plaintiffís arbitrator wrote to the Tribunal to request that a third arbitrator be appointed from the Chamberís list because the party-appointed arbitrators could not agree who would serve as the third arbitrator. Upon learning of the request, the defendantís arbitrator immediately wrote to the Tribunal and objected to any such appointment. He stated that he and plaintiffís arbitrator had, in fact, never discussed who would serve as the third arbitrator, and also suggested that a New York lawyer or London resident familiar with New York law serve as the third arbitrator because the agreement required the application of New York law. However, the presiding judge of the Tribunal had already appointed a Luxemburg attorney as the third arbitrator before receiving the objection.
When the Tribunal judge learned of the objection, he suspended the arbitration proceedings and ordered a hearing to address the dispute. In response to the letter from the defendantís arbitrator, the plaintiffís arbitrator wrote to the Tribunal and stated that he did not agree that the third arbitrator should be a New York or London lawyer and, therefore, concluded that the party-appointed arbitrators could not agree who would serve as the third arbitrator, thereby justifying the Tribunalís appointment. Following the hearing, the judge ordered that the arbitration proceed with the Tribunal-appointed arbitrator. Both the defendant and its arbitrator refused to appear at the arbitration, and the remaining arbitrators conducted the arbitration and entered an award in favor of the plaintiff.
The plaintiff then commenced an action in the Federal Court for the Southern District of New York to confirm the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). At the behest of the district court, the plaintiff moved for summary judgment. However, the district court denied the motion because (1) the request to the Tribunal to appoint the third arbitrator was premature, as there was no evidence that the party-appointed arbitrators had discussed who would serve as the third arbitrator and (2) the panel had no authority to grant an award because it was improperly composed. In addition, the district court disqualified the plaintiffís arbitrator and the Tribunal-appointed arbitrator from re-hearing the dispute and ordered that if the two arbitrators ultimately selected by the parties could not agree upon a third arbitrator, they must select one from a list maintained by the London Court of International Arbitration.
Judgment of the Appellate Court
However, the appellate court reversed the district courtís alternate holding that the panel had "exceeded its powers" within the meaning of the Federal Arbitration Act, 9 U.S.C. ß 10(a)(4). While this is an available defense to enforcement under the FAA, the award here at issue was governed by the New York Convention, which specifically enumerates the seven specific grounds to justify the refusal to confirm an award. The argument that a panel "exceeded its powers" is not one of the grounds enumerated under the Convention.
Finally, the appellate court vacated (set aside) the district courtís order disqualifying the prior panel members who entered the award and directing that the party-appointed arbitrators ultimately chosen must select from the Chamberís list if they cannot agree upon a third arbitrator. The appellate court noted that controlling precedent concerning the New York Convention strictly limited a district courtís review to whether or not an award be enforced. Therefore, the appellate court concluded that the district court lacked authority to specify any subsequent arbitration procedures after it denied enforcement.
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