Readers of these Commentaries will have been exposed recently to Second Circuit decision in January 2010 concerning the powers of an international arbitrator to reconsider and change the outcome under the rubric of correcting “clerical” and “typographical” errors. (T. Co. Metals LLC v. Dempsey Pipe & Supply, Inc., 2010 U.S. App. LEXIS 893 (2d Cir. Jan. 14, 2010)).
On the heels of that decision — which sustained the powers of the arbitrator to change the award, as a consequence of the deference due to the arbitrator’s interpretation of the ICDR’s “clerical error” rule — comes a decision of the British Columbia Court of Appeal holding that an arbitrator exceeded his powers by issuing a corrected award in which the arbitrator (i) admitted that there was error in his reliance upon certain evidence, and (ii) provided an alternative rationale for reaching the same result as in the original award. (Westnav Container Services Ltd. v. Freeport Properties Ltd., 2010 BCCA 33 (Jan. 25, 2010)).
Here the arbitration was conducted pursuant to British Columbia’s Commercial Arbitration Act (“BC Act”), not (as in Dempsey) under institutional arbitration rules adopted by the parties in their agreement. The BC Act provided, much like the ICDR Rule 30.1 implicated in the Dempsey case, that an arbitrator was empowered to correct “a clerical or typographical error”, an “arithmetical error” or “an accidental error, slip, omission or other similar mistake.”
In Westnav, the arbitrator was asked to determine the fair market rent for a certain property. In the original award, he relied upon the rent for a certain property as being comparable to the property to be valued. He erred in interpreting the evidence, using a rental value for that comparable property that he attributed solely to the buildings on the parcel, when in fact that figure represented the rental value of the building and underlying land. When the error was called to the arbitrator’s attention, he issued a corrected award that excluded any reliance on that property as a comparable, and furnished different reasons for reaching the same conclusion as to value as had been stated in the original award.
This, the Court of Appeal held, exceeded the arbitrator’s powers, as viewed through the lens of a legal standard (in Canadian and U.K. law) that permits corrections to express accurately the arbitrator’s “first thoughts” but not to have “second thoughts.”
The Dempsey and Westnav cases have much in common. In each case, after issuance of the original award, the aggrieved party asserted that the arbitrator had misinterpreted evidence, and in consequence had misplaced reliance on that evidence. In each case, the arbitrator agreed. In Dempsey, the arbitrator’s response was to disclaim reliance on that evidence, reassess the remaining evidence, and change the outcome. In Westnav, the response was to disclaim reliance on that evidence, and to furnish different reasons for the original outcome.
Each case presents a clear instance of the arbitrator having “second thoughts.” So what explains the divergent results — the arbitrator in Dempsey having had power to change the outcome sustained, while the Westnav arbitrator was denied power to change the rationale of the original result?
The most evident difference is the role of the State — and hence the State’s courts — in controlling the arbitration. In Dempsey, the correction rule was an aspect of the private system of rules, created by the ICDR and adopted by the parties with the understanding the arbitrator would interpret those rules. In Westnav, the arbitration was pursuant to the BC Act, and the correction rule appeared in the BC Act, and it is implicit in the Westnav Court’s decision that in interpreting the BC Act, the Court owes no particular deference to the arbitrator.
Is this a sufficient justification for the different outcomes? The ICDR’s rule on correction of awards, like the correction provision of the BC Act, lies curiously at the boundaries of arbitral power and public policy concerning the finality of arbitral decisions. But the ICDR rule, having no explicit connection to any national law regulating arbitration — despite its provenance in national laws (including the UNCITRAL Model Law) governing arbitration — is, under United States law, to be primarily construed by the arbitrator unless there is egregious abuse. So long as the United States remains a jurisdiction that elects not to adopt the UNCITRAL Model Law or otherwise to establish uniform standards for the conduct of international arbitrations, there will be significant potential for arbitrators to interpret and apply institutional rules of arbitration in ways that would not be sustained under parallel provisions of national arbitration laws.