November 22, 2011

“Clerical Error” and the Functus Officio Doctrine: Common Law Limits on Amendments to Awards?

As arbitrators we think quite a lot about “functus officio,” this being a quaint latin expression for our status on the morning after delivery of a final award. But we do not often enough think about or discuss where this disempowered status fits within the scheme of arbitration law — a question to which the answer would advance analytical clarity when courts must resolve controversies over an arbitrator’s actions in modifying a purportedly final award. 

US courts often refer to “functus officio” as a “doctrine,” as did the US Fifth Circuit Court of Appeals in a decision earlier this month. (Martel v. Ensco Offshore Co., 2011 WL 5299612 (5th Cir. Nov. 2, 2011)).  In American law, the “doctrine” was recognized as part of the common law well before the enactment of the Federal Arbitration Act. The earliest reference I have found in federal case law dates to 1833, when a federal circuit court in Virginia, invoking the doctrine by analogy to invalidate a warrant for sums due to the US Treasury based on an government auditor’s purported modification of a final statement of account, observed: “I take it to be sound principle, that when a special tribunal is created, with limited power, and a particular jurisdiction, that whenever the power given is once executed, the jurisdiction is exhausted and at an end — that the person thus invested with power is, in the language of the law, functus officio.” (Ex Parte Randolph, 20 F. Cas. 242, 251 (C.C. Va. 1833)).

With the enactment of the Federal Arbitration Act in 1925, the grounds for vacatur of an award to which the act applies became codified, but only into such broad general categories as “exceed[ing]… powers” and “evident partiality.” Obviously an arbitrator exceeds her powers, and her modified or corrected award should be vacated, if she has functioned when she is functus. So the scope of the statutory standard (FAA Section 10(a)(3) will depend in turn on the scope of the common law doctrine, or perhaps on whatever agreement the parties have made – directly or by adoption of arbitration rules — to permit the tribunal to change an award.

Thus if the parties by direct agreement or adoption of institutional rules have agreed (as they typically do) that arbitrators may only correct a final award within a certain period of time, upon the application of a party, and to correct a clerical or typographical or computational error, then it is the agreement of the parties rather than the functus officio doctrine that mainly determines whether the arbitrator has exceeded her powers.

But suppose the parties disagree over whether a particular change made to a final award, and incorporated in an amended final award, is “clerical” (as opposed to, say, judgmental, resulting for a misinterpretation or overlooking of evidence by the tribunal). The party that is relatively more satisfied with the original final award views the change as prohibited reconsideration of the merits. How should a Court decide? One approach, taken last year by the US Second Circuit Court of Appeals, is to say that the parties bargained for the arbitrator’s judgment about whether the correction is a permitted one or not, and so that question is no more judicially reviewable than any other decision of the tribunal on a matter of arbitral procedure. (T. Co. Metals LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010)). But the difficulty with that approach, and a source of criticism of the T. Co.  decision (Jennifer Kirby, T. Co. Metals v. Dempsey Pipe & Supply: Are There Really No Limits on What an Arbitrator Can Do in Correcting An Award?,  (2010) 27 J. Int’l Arb. at pp. 519-528), is that interpretation of the parties’ agreement on correction of awards is a decision concerning the jurisdiction of the tribunal (revival, for a limited purpose, of a grant of jurisdiction that has otherwise expired). Courts generally regard questions of arbitral jurisdiction as matters for judicial determination without deference, unless the parties have clearly and unmistakably agreed that arbitrators should resolve those issues with the same finality as they resolve the merits. And when the jurisdiction issue is whether the parties agreed that an arbitral tribunal rather than a court should decide the merits of a dispute, courts have said that an agreement to arbitrate under rules that confer power on arbitrators to decide jurisdictional issue is itself the necessary clear and unmistakable evidence. Let’s call this, for discussion purposes, the “Competence-Competence Deference Rule.”

But does the same rationale suffice to commit to the discretion of arbitrators, subject only to very deferential review for total irrationality or manifest disregard, a decision about the revival of their jurisdiction, as opposed to its existence in the first place? There are policy reasons underlying the Compétence-Compétence Deference Rule: to discourage resort to the courts when an arbitration is in its formative stages, and to encourage voluntary compliance with awards on the merits by giving broad issue-preclusive effect to arbitral determinations of their own power to act.

Once the arbitrators have issued a purportedly final award, however, different considerations come into play. One is the concern that underlies the functus officio doctrine — that the arbitral determination should not be altered based on external influences that might be brought to bear upon the arbitrator once she has made a decision and the decision has become known.  (The feminine pronoun is used here , as it often is in Arbitration Commentaries, to recognize that many of our finest arbitrators are and increasingly should be women, and not to suggest that they are more prone to error). The arbitrator who fears that the administering institution perceives an error in her award, and that this perception of being error-prone might cause her not to be appointed by that institution in future cases, might be inclined to stretch the notion of “clerical error” in the interest of preserving her reputation for complete accuracy. More generally, some arbitrators will value their reputations for precision more than the finality of their decisions, and take liberties to correct, as “clerical,” errors that were more or less judgmental. Another consideration is the parties’ probable assumption that arbitral rules do not provide for reconsideration by the arbitrator, any that any substantive nullification of, or change in, the final arbitral award can only be a made by a court, and only for the very limited reasons that law allows. Thus it seems unlikely that parties who have agreed to arbitrate under (e.g.) AAA, ICC, or UNCITRAL Rules assumed that the (very similar) provisions of those Rules concerning correction of clerical error in an award meant that in substance that “the arbitrator shall in her sole discretion decide whether an error is clerical in nature.” The evidence that this is what the parties intended, to qualify as clear and unmistakable, should approximate the inclusion of this language expressly.  To impute the intent of these words to the language of standard Compétence-Compétence rules, seems to impose upon those rules a meaning that their drafters probably did not consider.

And if it is up to courts to decide, without deference, whether an error corrected by an arbitrator was “clerical” or not, then it makes sense that courts would look to the functus officio doctrine as an interpretive guide, if one is needed, to fix the outer  boundaries of what constitutes a correctible clerical error.

Historically, the functus officio doctrine provided that an error, to be correctible by the arbitrator, had to be one that appeared on the face of the award. That principle was later modified to permit correction of some errors that become evident upon comparing the award to a document in the record the contents of which the arbitrator was required to take notice — such as a stipulation of fact or an admission against interest of a party. The Fifth Circuit in its recent case follows the latter approach, and thus permitted correction of a mis-stated damages quantum ($3,000,000 not $300,000).

It seems quite sensible that arbitral rules allowing clerical errors to be corrected, and the scope of permitted correction under the common law, should be approximately the same. The functus officio doctrine had a long history before the promulgation of those rules.  While drafting history of those rules is sparse, it is a fair assumption that they were intended to codify the functus officio doctrine in plain and relatively unmalleable language. Courts would do a service to the arbitral system by rendering decisions that promote this symmetry, and that constrain arbitral tribunals that are tempted to use the “clerical error” rules to address errors of a different order or to grant reconsideration.




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