On the eve of the 52d Session of the UNCITRAL Working Group II (Arbitration and Conciliation), which convenes at the United Nations in New York on February 1 for a five-day deliberation, arbitration practitioners in the United States have just been reminded, by a decision of the influential Second Circuit U.S. Court of Appeals, that when parties agree to arbitrate under arbitration rules like those of the UNCITRAL, they bargain for the nearly unreviewable discretion of the arbitrator in the interpretation of those rules.

As the UNCITRAL Working Group undertakes its “third reading” of the proposed revised UNCITRAL Arbitration Rules, perhaps the penultimate step in a process that began in earnest at the 45th session of the Working Group held in Vienna in September 2006 (and may culminate in approval of the revised rules when UNCITRAL, i.e. the Commission itself, convenes in New York in June), it seems useful to ask: Who shall be the guardians of the drafters’ intentions once this arduous process has been completed? And if the answer is that this responsibility devolves upon arbitrators appointed in individual cases, who will have nearly unreviewable discretion in the interpretation of the rules, then what measures might be taken by UNCITRAL to furnish coherent guidance in written form?

A perusal of the Provisional Agenda for the forthcoming Working Group sessions gives an indication of just how daunting may be task, for arbitrators who will not have attended all of the sessions, to ascertain why the revised text of a rule was so revised, or why an unrevised text of a rule was left as is. The listed background documents pertinent to the discussions to be held this week include 8 reports on the work of the Commission, covering its 32d through 42d sessions, 6 reports of the Working Group covering its 45th through 51st sessions, and 8 notes, and 7 addenda to notes, of the Secretariat concerning revisions of the rules. This week’s session should culminate in a report summarizing its main conclusions, for submission to the 43d session of the Commission scheduled to be held in June.

For those attempting to follow along, the current working documents issued by the Secretariat are working paper (WP) 157
(Draft Rules 1-16), 157 addendum (“Add”) 1 (Draft Rules 17-32), and 157 addendum 2 (Draft Rules 33-43). The prior drafts, from which the current drafts are most directly descended, are found in WP 151 and WP 151, Add. 1.

For the ambitious, all of this material is found on the UNCITRAL website.

It is an imposing challenge to track the history of any particular
change. Take as an example what is the currently proposed draft Article 30(1)(a). It concerns the powers of the tribunal to terminate proceedings if the claimant fails to transmit its statement of claim. The Secretariat’s “Note” (WP 157, Add 1) contains the draft text, which provides that the tribunal “shall issue an order for termination of the arbitral proceedings, unless there are remaining matters that may need to be decided and the tribunal considers it appropriate to do so.” That first portion of the language is essentially unchanged from present Article 28(a). The “unless” clause is a new feature. But the explanatory note in WP. 157 Add 1 is obscure about the purpose of the change, stating that the provision “has been redrafted to clarify that the power of the arbitral tribunal in case the claimant fails to submit its statement of claim is not linited to a dismissal order for termination.” To track the drafting history, one must first go to the Working Group Report from the previous session (A/CN.9/684), which discusses the text of the previous proposed revised draft, which text is found as draft Article 28(1)(a) in WP.151 Add. 1. The enterprising student of drafting history will find that paper on the UNCITRAL website, and will find that the “unless” clause proposed in that draft was “unless the respondent has submitted a counterclaim.” The Working Group report of the Vienna session in Septmber 2009 (CN 684) contains extensive commentary reflecting (1) dissatisfaction with limiting the tribunal’s option to conduct further proceedings to the circumstance of a respondent’s counterclaim; (2) some sentiment in favor of language that would clearly signal the power of the tribunal to conduct preceedings leading to dismissal with prejudice of claimant’s claim; (3) some concern that in some jurisdictions a dismissal with prejudice of claimant’s claim where claimant had not submitted a statement of claim, but only a notice of arbitration, might be subject to annulment; and (4) an underlying motive to expand the tribunal’s discretionary powers to adjudicate claims not fully pleaded, derived from experience that claimants sometimes present vexatious claims in a notice of arbitration, which the Tribunal may wish to address on the merits for reasons (inter alia) of deterrence. One also learns from the Working Group report that the Working Group “requested the Secretariat to reformulate the text, taking account of the suggestions made….” Which is to say — and I say so here with the benefit of having been an observer at the the Vienna session — that several dozen of the best arbitration thinkers on the planet were unable to reach consensus on suitable language, that the Secretariat’s current draft does not necessarily give expression to a consensus view expressed by the Working Group, and that it may be quite hazardous to treat the Working Group reports as authoritative guides to interpretation of a redrafted rule, most especially where the rule emerges from drafting delegated to the UNCITRAL Secretariat after the Working Group’s earlier deliberations failed to find a solution.

One lesson to be learned is that these revised rules often are meant to express permissible rather than mandated or recommended approached to a procedural issue. They are often intended as procedural chameleons, whose complexion will change depending on the applicable procedural law, the nature of the dispute and the disputants, and a variety of other factors.

Still, one may hope that when this revision process reaches an end, as it might this year, the UNCITRAL will see fit to produce an annotated synthesis of the drafting history that offers arbitrators some accessible guidance, to which they may refer day-to-day and in the course of a hearing, to the changes and the deliberative process from which the revised rules emerged.

(Marc J. Goldstein acts from time to time as a mediator in commercial arbitrations and commercial cases in state and federal courts in the United States. Beginning with this post, Arbitration Commentaries will occasionally be a forum for mediation commentaries as well.)

A not unusual dynamic in the mediation of complex cases is that one party insists, through the course of a full day of mediation or even multiple sessions, that it will not make a material move toward settlement, and that it would rather try the case, and yet the same party expresses willingness to continue the mediation and even to return to further sessions.

The situation presents several concerns for the mediator. One is the possibility that the party taking this position is using the mediation process merely as a vehicle to delay the progress of the case in court or in arbitration (assuming that some stay of proceedings pending mediation is in effect). It is a fair question to raise with that party in private session. However unless the circumstances are extreme, it should be for the other party to form a judgment about whether the mediation continues to be a productive route toward settlement. The mediator’s role is to help the parties toward settlement so long as they desire help — and to encourage them, with conviction but not coercion, that they should continue to desire the mediator’s help.

Another difficulty in the stubborn case arises when the parties (through counsel) openly welcome evaluative comments by the mediator, to be delivered in private session, but will not concede to the mediator in confidence any uncertainty about
the outcome on critical disputed issues of law or fact. Should the mediator suggest the futility of the exercise? Or be critical of the party for a perceived lack of candor? I think not.

For as long as the mediation is continuing with voluntary participation of parties effectively represented by counsel, the mediator should assume that his invited confidentially-expressed evaluative comments have an important impact on both sides, especially when the case is advanced and the mediator has become familiar with the key legal principles and essential disputed fact issues. Even with a mediator who enjoys great confidence from the parties, litigation counsel will understandably be reluctant in many cases to show outwardly any doubt of their positions on the merits.

But the mediator should persevere. Often there will be an advance on settlement terms without any accompanying explanation. And often the mediator will learn, at the conclusion of a difficult but successful session, that the party who was most aggressive defending its position against evaluative mediator input, is most grateful for the mediator’s determination in creating uncertainty about the outcome.

Dear Readers:
In my continuing quest for objective reactions to my non-objective analysis of T. Co. v. Dempsey, with regard to the reconsideration of the award by the arbitrator, I present the following further provisional thoughts. Your comments are most welcome.

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Parties adopting the ICDR Rules do not agree to arbitrate the issue of correctible errors in the award to the same degree that they agreed to arbitrate the merits. By adopting the ICDR Rules, they agree that either party may present the correction issue to the arbitrator without prejudice to the right of that party to submit the same correction issues to a judge under FAA Section 11, either without first asking the arbitrator to make corrections, or notwithstanding the decision of the arbitrator refusing to make corrections. By actually submitting a corrections issue to the arbitrator, they do not, under the Rules or existing law, foreclose consideration of the same corrections by a federal judge.

Moreover the process for obtaining a decision on corrections from the arbitrator is not the same process as that for obtaining an award. The arbitrator is not required to hear the parties. The arbitrator may deny the application without any statement of reasons, indeed without issuing an order or decision.

Further, whereas the ICDR Rules do not mention an amended final award or a corrected final award as types of awards the arbitrator may issue, the parties, by adopting the Rules and submitting the 30(1) dispute to the arbitrator, do not manifest an expectation that the arbitrator will decide the corrections issue in the form of an award. Rule 30(1) states that if the arbitrator finds the application to have merit, the arbitrator shall make the corrections. The reasonable expectation of the parties is that, if the arbitrator finds the application to have merit, this would normally result in a few handwritten (or word-processed) corrections of typos or miscalculations, which could readily be done on the face of the award without issuance of an amended award. And if the requested corrections are without merit, the parties’ expectation is not to receive an award deciding as such, but to hear nothing from the arbitrator or perhaps to hear from the ICDR that the arbitrator refused to make the requested corrections.

The Second Circuit proceeded to analyze the District Court’s order vacating the amended award from the assumed premise that the arbitrator was empowered by the parties to decide the corrections issue in the form of an award. The fact that the arbitrator did in fact issue an amended award, and also issued before that an intervening Amendment Order that stated the reasons for the Amended Award, seems to have led the Second Circuit to assume that the issuance of such an Amended Award was part of the agreement of the parties to arbitrate the issue of corrections. That is incorrect. Corrections made or not made to an award have a different status under the ICDR Rules — they are simply accepted or rejected corrections to an award. As such, those decisions are not final and binding decisions of the arbitrator under the ICDR Rules or the parties’ agreement to arbitrate. Certainly the parties could have made the agreement the Second Circuit attributed to them, i.e. to arbitrate the issue of corrections, to have the arbitrator issue an award upon the corrections applications, and even to have the arbitrator withdraw or suspend the effectiveness of the original award. But the parties in the Dempsey case made no such agreement.

Thus, the Amended Award exceeded the powers of the arbitrator not because the arbitrator misconstrued ICDR Rule 30(1), but because there was no basis in the ICDR Rules for issuance of any Amended Award. The arbitrator decides the corrections application after having issued the final award, after having become functus officio under applicable law. Rule 30(1) notably does not state that the arbitrator’s jurisdiction is reinstated by the Rule 30(1) application. The better view of the arbitrator’s powers under 30(1) is that they are ministerial powers, not adjudicative powers, and that they are assigned to the arbitrator rather than the administrator simply because the arbitrator is in the best position to know whether the words used in the award were those he or she intended to use, and if indeed a typist in the arbitrator’s office mis-transcribed.

The proper framework for confirmation of an award that would embrace the arbitrator’s Rule 30(1) corrections is for a party or the parties jointly to move the District Court under FAA Section 11 to modify and correct the Original Award in accordance with those corrections, and to confirm the Original Award as so modified and corrected by the District Court. Within that framework, the arbitrator’s scope of discretion is limited as a practical matter by the text of Section 11 and jurisprudence surrounding it. And if that framework is followed, there would be one functus officio doctrine — the one applied by the District Court in the T. Co. v. Dempsey case, based on the jurisprudence of FAA Section 11. As things now stand in the Second Circuit, there are two functus officio doctrines, one applicable if the corrections are sought from the District Court, and another (whose content may vary from case to case) if the corrections are sought from the arbitrator.

Even without accepting the “ministerial not adjudicative” view of the arbitrator’s correction powers under ICDR 30(1) and comparable clerical error rules, one can reach the conclusion that arbitral discretion to make corrections to a final award is constrained by FAA Section 11.

The ICDR Rules do not provide for the arbitrator to vacate or withdraw a final award as part of the powers conferred by Rule 30(1). Nor do the Rules state that if the arbitrator accepts to make corrections, the corrected award shall be deemed the final award and the uncorrected final award shall be a nullity. The parties of course could make such impact on an original final award part of their agreement to arbitrate, but in the Dempsey case they did not do so.

As such, the original award remains a confirmable award after the arbitrator issues corrections. Assuming it is a domestic award, Section 9 of the FAA governs and provides that the upon a timely application the court “must grant” an order confirming the award “unless the award is vacated, modified, or corrected as prescribed in section 10 and 11 of this title.” The arbitrator’s purported amendment of the award is not a ground for vacatur under Section 10. The party seeking confirmation of the award subject to the arbitrator’s Rule 30(1) corrections must cross-move to modify and correct the original award in accordance with Section 11. The Court lacks power to implement an arbitral award correction that does not fall within the Section 11 categories, and so arbitral corrections exceeding the boundaries of Section 11 are ineffectual as a matter of law. The Court is subject to the affirmative command of the FAA to confirm awards unless modified or corrected according to Section 11. The First Options rule of deferential review of arbitral decisions on matters the parties clearly and unmistakably agreed to arbitrate is derived from the pro-arbitration policy of the FAA generally. But it should not trump a clear affirmative command of the FAA concerning judicial review of awards.

I do not think the Second Circuit panel in the Dempsey case would disagree with this framework of analysis. The Court’s error, in my view, is to have viewed the parties’ submission of the corrections issues to the arbitrator under 30(1) as an agreement to arbitrate the corrections issue and to have the arbitrator supersede the original award if he found the corrections to have merit. But this reads too much into the agreement to arbitrate under ICDR Rules, and into the submission of corrections issues to the arbitrator under Rule 30(1) without further agreement of the parties on the consequences of a disposition under Rule 30(1).

Judicial enforcement of arbitral provisional measures orders
remains an area of considerable uncertainty and anxiety. But United States law on the subject is becoming clearer.

On January 15, a federal district judge in Dallas, Texas entered an order based on Section 9 of the FAA confirming as an award a preliminary injunction order entered by a three-member tribunal. Western Technology Services Int’l v. Caucho Industriales S.A., 2010 U.S. Dist. LEXIS 3279 (N.D. Tex. Jan. 15, 2010). The Court was invited by the party seeking confirmation to find that it had jurisdiction to confirm the preliminary injunction order as an award on either of two grounds: first, that Section 9 of the FAA permits confirmation of interlocutory orders as awards because it contains no finality requirement, and second, that the issue decided in the preliminary injunction order was sufficiently distinct and separate from the remaining issues in this case that the order could be confirmed as a final disposition of that issue. The Court here elected the second option, and reached the conclusion that the order had sufficient finality based in part on the parties’ expressed intent to have judicial review of temporary injunction orders.

The Court’s analysis is not particularly elaborate, but the approach is an interesting one. The underlying merits of the case involved termination of distribution agreements, the Claimant having commenced the arbitration to obtain a declaration that its termination decisions were lawful. The preliminary injunction order held, based upon a showing of probable success on the lawful termination issue, that Claimant was entitled to enforcement of the non-compete provisions in the contracts during the pendency of the arbitration.

One can readily understand the Court’s reliance on the parties’ expression of intent to have the preliminary injunction order judicially reviewed. The ability of a terminated distributor to engage in a competing business venture during the pendency of the arbitration often will have enormous commercial significance. Given to uncertain and possibly lengthy duration of a complex arbitration, competition rights during the pendency of the case may be as important to the parties’ business interests as the final determination of the legality of the termination. The Court’s reliance on the parties’ intent to make preliminary injunction orders reviewable should not be seen as acceding to a conferral of power under the FAA by consent, but as the acceptance of convincing evidence that the competitive rights of the parties during the arbitration were of sufficient importance to the parties that the determination of those rights should be viewed as a separate and distinct issue capable of a final decision. While the arbitral tribunal might ultimately find in a final award that the non-compete is unenforceable, the preliminary injunction order has potentially significant and irreversible economic impact for the duration of the proceedings, and is effectively a final determination of the enforceability of the non-compete during that substantial period of time.

In reaching its decision, the District Court in Western Technology relied on decisions of two federal circuit courts of appeals, each having held that “‘[a] ruling on a discrete, time-sensitive issue may be final and ripe for confirmation even though other claims remain to be addressed by the arbitrators.'” Arrowhead Global Solutions, Inc. v. Datapath, Inc., 2006 U.S. App. LEXIS 2786 at *9 (4th Cir. Feb. 3, 2006), quoting from Publicis Commun. v. True North Communs. Inc., 206 F.3d 725, 727 (7th Cir. 2000).

Decisions like these are encouraging for users of arbitration. Greater certainty about the enforceability as awards of arbitral interim measures orders encourages parties to use the arbitral process rather than go to court for interim measures in the first instance, and encourages voluntarily compliance with arbitral interim measures by the affected party in view of the likely futility of an application to vacate an award.

(For a review of other U.S. case law, the reader is encouraged to consult Gary Born, International Commercial Arbitration, Cases and Materials (3d ed. 2009) at page 467, and to note the distinction drawn there in the case law between interim orders that deal in permanent fashion with a substantive aspect of the disputes, and those that address procedural or evidentiary matters).

Dear Readers:

In anticipation of a more formal article to be published elsewhere that will comment upon the T. Co. v. Dempsey decision (2010 U.S. App. LEXIS 893 (2d Cir. Jan. 14, 2010)), and in the interest of the objectivity of that article (this writer was on the losing side of the reconsideration issue), I offer some remarks here for your consideration and comment.

The Second Circuit holds that the parties’ adoption of ICDR Rule 30(1), and their submission of applications to the arbitrator under that Rule, constitute “clear and unmistakable evidence” of their intention to allocate to the arbitrator, subject to very narrow and deferential judicial review, the task of determining the scope of the arbitrator’s powers under the Rule.

I wonder how the following considerations, not examined by the Court, might be seen to affect the soundness of that conclusion.

1. Article 30(1) permits a party to ask the arbitrator to correct clerical, typographical, and mathematical errors. But Section 11 of the FAA also provides that a party may apply to the District Court to correct an “evident material miscalculation of figures” or “an evident material mistake in the description of any person, thing or property referred to in the award.” Nothing in the ICDR Rules requires a party to seek corrections before the arbitrator under Article 30(1), either as a precondition for, or as a substitute for, an application to a court for such corrections under FAA Section 11. Thus, the arbitrator and the District Court have concurrent jurisdiction on the corrections issue. If a party selects the judicial path, the District Court’s presumably reasoned correction decision is reviewed de novo by the Court of Appeals. If the party selects the arbitral path, a poossibly unexplained correction decision by the arbitrator is to be reviewed, under T. Co. v. Dempsey, with extreme deference. The adverse party has no control over the forum selection when the dispute arises; the Rule 30(1) application is made unilaterally not consensually. These considerations would seem to cut against the conclusion that either the a priori agreement to arbitrate under the ICDR Rules, or the unilateral submission of a correction application under ICDR Rule 30(1), is “clear and unmistakable evidence” of both parties’ intention to have the correction application resolved by the arbitrator with only limited deferential review by a court.

2. The ICDR Rules do not provide that the arbitrator’s decision on an application under Rule 30(1) shall take the form of an award. Indeed, the Rule does not provide for the issuance of an amended award in case the application is granted. It provides only that the arbitrator shall “comply with [the] request.” And ICDR Rule 27(7), which sets out the types of awards (“final”, “interlocutory,” “interim,” “partial”) does not mention an “amended” award.

3. The ICDR Rules do not even require that the granting or denial of an application for corrections under Rule 30(1) be supported by a statement of reasons. Indeed, the Rule does not require the arbitrator even to respond if the arbitrator concludes that the application lacks merit. Given the Rules’ requirement of reasoned awards, a court should be reluctant to conclude that the parties intended that unexplained changes to an award under Rule 30(1), altering the outcome, would receive the same deferential scope of review as the initial reasoned award itself. The fact that the arbitrator in T. Co. v. Dempsey did explain himself seems to have obscured the importance of the fact that he need not have done so.

4. The categories of corrections permitted by Rule 30(1) — clerical, typographical, mathematical — are so well-defined and objective that Rule itself stands as evidence that the parties did not bargain for arbitral discretion and judgment in the Rule’s application. It is a rule whose application the layperson would reasonably expect to involve ministerial, not judgmental, decisions. Any judgmental application of the Rule is contrary to reasonable a priori expectations. If the parties had addressed themselves specifically to the question of what scope of judicial review should apply, one would expect them to have wanted full-bore de novo review because of the substantial possibility that any exercise of discretion might be a misapplication of the Rule.

I look forward to your comments.

Dear Readers:

It is not often I have the opportunity to write about my own cases. But today I do.

The Second Circuit yesterday decided a case called T. Co. Metals LLC v. Dempsey Pipe. It is found on 2d Cir. website, where you may read/download.

The portion of the decision that I hope is of interest involves the arbitrator’s issuance of an amended award altering the outcome on the merits, based on the arbitrator’s construction of ICDR Rule 30(1) permitting correction of “clerical” errors. Reversing the District Court, the Second Circuit holds that the arbitrator’s construction of the Rule was entitled to deference — and vacates the order confirming the original award, and remands for the amended award to be confirmed.

I invite your comments, as I am troubled by the decision for reasons that I think go beyond the disappointment of having my client on the losing side on this issue.

I argued that there had to be a limit to deference here, because there is no ground for the original award to be vacated. If the arbitrator may construe the clerical error rule, given judicial deference, to permit substantive chsnges in the outcome, there can be two enforceable awards with different outcomes (not to mention evisceration of the rules, like ICDR 30(1), limited changes to clerical,typographical and calculation errors.

The Court solves that problem by vacating the original award. But as I see it, there is no basis in the NY Convention (assuming it is a Convention award) to refuse confirmation of the original award, nor any such basis in FAA Chapter 1 if it is a domestic award. An appellate order vacating confirmation
strikes me as equivalent of district court order refusong confirmsation, and must be subject to the same FAA/Convention limits.

Is the vacatur of the order confirming orginal award is improper? I welcome your views on that!

Thanks.

Marc