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January 20, 2009

Corrections to Arbitral Awards and the Functus Officio Doctrine

Dear Readers
In the coming weeks I will argue a case in the United States Court of Appeals for the Second Circuit that involves a rarely addressed arbitration issue: the power of the arbitrator to make corrections in a final award by issuing an amended final award.
I will therefore not discuss the issue at length in this posting, reserving full commentary until after the Second Circuit decides the case. But a brief synopsis of the issue is in order.
Virtually all institutional and ad hoc rules governing international arbitrations provide, in nearly identical terms, that the arbitrator may correct clerical, typographical, or computational errors in the award. There is no mention in such rules of the possible correction of “mental” or “judgmental” errors.

Suppose that the arbitrator, in weighing a substantial body of evidence germane to an important issue, overlooks an assumption or an underlying fact that affects the probative value of one or more items — but the oversight does not affect many or most of the items of evidence that factor in the initial determination of the issue. Suppose further that the oversight is not evident on the face of the original award, as the initial determination is logically consistent with a correct appreciation of the supposedly mis-appreciated evidence. The oversight only becomes apparent when the matter is raised by a disappointed party, in a timely motion to “correct” the award, and the arbitrator, in agreeing to make the proposed correction, agrees that the oversight did in fact occur. Finally, assume the arbitrator now proceeds to re-balance the entire body of evidence, reaches a different conclusion, and reduces the monetary award by a substantial amount.
A federal district court judge in New York held, in this scenario, that the arbitrator’s error was neither clerical, typographical, nor computational; that the arbitrator therefore ceased to have adjudicatory power after issuing the original award; and that the amended award should be vacated as an exceeding of powers by the arbitrator. Section 10 of the Federal Arbitration Act permits the court to vacate an award where an arbitrator exceeds the powers conferred by the parties. The District Court held that this ground for vacatur of the amended award was present.
Should you have an interest in reading the District Court’s opinion, or the briefs filed in the Second Circuit Court of Appeals, I will be pleased to furnish them.