Under US arbitration law the question of whether multiple arbitration claims may proceed on a consolidated (or class) basis may well be a question for determination by the arbitral tribunal in the first instance. A recent decision from the US Seventh Circuit Court of Appeals, refusing to rule on the consolidation issue, and thus leaving that question to the arbitral tribunal, reminds us that the procedural posture in which the question is presented will often determine where the power to decide will reside.

In Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Insurance Co., 2011 WL 6382203 (7^th Cir. Dec. 16, 2011),  the appellate court held that it lacked jurisdiction to review a District Court order that had denied what the moving party denominated a “cross-motion to compel de-consolidated arbitration.”  Here, the Blue Cross entities in several states had commenced a consolidated arbitration of their respective claims against their captive reinsurer.  The entities and the reinsurer each appointed an arbitrator. But when the entities moved in federal court under Section 5 of the FAA for the appointment of the presiding arbitrator, the re-insurer made its cross-motion “to compel de-consolidated arbitration.”

When the District Court denied that motion, the reinsurer appealed, under Section 16 of the FAA, which provides for interlocutory appeal of an order denying a motion to compel arbitration. But the Seventh Circuit viewed this approach as an effort to recast, as a question of consent to arbitration, what the Court viewed as simply a procedural issue arising within a pending arbitration, i.e. the issue of whether the arbitral tribunal would hear several claimants’ claims in one proceeding or in several.  It held that the underlying motion was therefore not a motion to compel arbitration within the purview of the FAA, and therefore the District Court’s order denying the motion was not appealable on an interlocutory basis.

As a matter of litigation tactics, the advocate must wonder — as did the Seventh Circuit, it appears — why the reinsurer raised the (de-) consolidation issue only after having appointed an arbitrator, and only after an impasse on selection of the chair impelled the claimants to apply to the District Court. Had the reinsurer instead refused to appoint an arbitrator, the claimants would have had to petition the Court to compel arbitration in view of the reinsurer’s refusal to proceed (FAA Section 4).

And whereas FAA Section 4 only permits the district court to compel arbitration “in the manner provided for in [the] agreement,” it is possible the consolidation issue would have been resolved by the court as a matter of contract interpretation. The claimants’ motion to compel would have specified consolidated arbitration as the only relief sought — as the reinsurer would not have failed or refused to proceed with several unconsolidated cases. But the reinsurer equally could have cross-moved to compel case-by-case arbitration, the claimants having refused to proceed in that fashion. One of the two motions to compel arbitration would have been denied, and appellate review would be possible without awaiting a final award. 

A pragmatic first reaction to the Blue Cross case is that the FAA ought not to be construed to prevent pre-award appellate review of an issue so important as whether a dozen or more similar and substantial claims may proceed on a consolidated basis. But in fact it was the flaw in the reinsurer’s approach — seeking to make a mid-course correction after having participated in the arbitration by making its arbitrator appointment — and not any flaw in the statutory scheme,  that led to the outcome in this case.

The point of departure for today’s discussion is a pair of decisions by a respected federal district judge in New York, one granting a motion to disqualify counsel in a pending arbitration and the other denying reconsideration of the first decision. The misconduct involved was rather troubling: in a reinsurance arbitration apparently under AAA Commercial and ARIAS Rules, a party-appointed arbitrator resigned in ostensible protest of bias on the part of the other party-appointed, and then proceeded to share covertly with his appointing party’s counsel nearly 200 emails among members of the Tribunal, with the intent of helping that party challenge the other party-appointee for bias. The receiving counsel willingly accepted the delivery of these e mails and used them, at first covertly but later openly, in seeking to challenge the other party-appointed.  The federal court held that the court was the proper forum to address attorney disqualification, and granted disqualification. (Northwestern Nat’l Ins. Co. v. Insco, Ltd., 2011 WL 4552997 (SDNY Oct. 3, 2011), reconsideration denied, 2011 WL 6074205 (SDNY Dec. 6, 2011)).

As the Court’s explanation of the rationale for judicial power here was not on its face persuasive, it occurred to me to examine the authorities cited by the Court in support of its position that the court could properly decide the issue. The first case cited was Bidermann Indus. Licensing v. Amvar N.V., 173 A.D.2d 401 (NY Appellate Division, First Dep’t 1991). In Bidermann, the appellate court affirmed an order of Supreme Court that granted the motion to stay arbitration of the issue of whether petitioner’s attorneys should be disqualified as counsel in the arbitration, and granted leave to apply to the court for a ruling on the merits of the disqualification issue. The Bidermann Court stated that arbitration of the disqualification issue was properly stayed “as such matter is intertwined with overriding policy considerations.” But the lead case cited in Bidermann in support of that proposition was a 1968 New York Court of Appeals case holding that enforcement of New York state antitrust statute “should not be left within the purview of commercial arbitration.” Clearly that precedent was overruled by the Supreme Court’s Mitsubishi decision in 1985.

The Bidermann court reasoned that because attorney disqualification involves interpreting and applying the Code of Professional Responsibility, such issues “cannot be left to the determination of arbitrators selected by the parties themselves for their expertise in the particular industries engaged in.” This seems to be a discredited rationale for withdrawing a particular issue from arbitration in favor of judicial determination. There is no a priori reason to assume that arbitrators as a matter of public policy cannot handle attorney discipline issues related to the proceedings before them. Whether they may address the issues, however, depends on whether the parties have agreed that they should do so.

The next case cited in Northwestern was a more recent Southern District of New York case, in which the Court concluded that attorney disqualification was a “gateway question,” — as that term was used by the Supreme Court in the Howsam case, and thus was “appropriately decided by the Court.” (Employers Ins. Co. of Wausau v. Munich Re, 2011 WL 1873123 (S.D.N.Y. May 16, 2011). In Howsam, the Supreme Court reasoned that certain “gateway” issues, like arbitrability, are normally not considered by parties when drafting arbitration agreements and thus are presumptively issues the parties wish to have courts resolve unless there is clear evidence they want the arbitrators to resolve them. But attorney disqualification, unlike arbitrabiity, is not a contract dispute between the parties. Judicial power to resolve contract disputes is well-established. But New York’s Code of Professional Responsibility does not create a civil cause of action for attorney disqualification.

And even if the parties did wish to have the Court decide the disqualification issue, the question remains: what is the source of the Court’s power to decide disqualification in relation to a proceeding in any other forum but its own? If the Court may entertain a cause of action relating to disqualification to appear before an arbitral tribunal, logically it should also be able to entertain a cause of action to disqualify counsel from appearing before a foreign or international court, or before a domestic, foreign, or transnational administrative or regulatory body. But most of us would be stunned to read a Southern District decision purporting to disqualify a Canadian law firm from representing a client in a NAFTA arbitration in New York, or even to disqualify a New York law firm from appearing before an ICC arbitral tribunal with its seat in Geneva. 

A quick tracking back in the case law to the underlying rationale for a federal district court to entertain a motion to disqualify shows that “the district court bears the responsibility for the supervision of the members of its bar.” (Hull v. Celanese Corp., 513 F.2d 568, 571 (2d Cir. 1975) (emphasis supplied). But an attorney acting in a commercial arbitration whose seat is in New York may or may not be a member of the Southern District’s bar, and in any event is not acting in that capacity, and does not affect the integrity of proceedings in the Court, when he or she acts in a purportedly unethical fashion in relation to the arbitration, pre-award. As there is nothing in the FAA or CPLR Article 75 that purports to confer on courts supervisory power over the ethical conduct of attorneys in New York-venued arbitrations, the Court’s conclusion in Northwestern that the court was empowered to decide the disqualification issue lacks a convincing rationale. It may be seen, indeed, as reflecting a well-intentioned but misguided belief that the entire arbitration process is subservient to judicial control in ways that are implied as well as express in the structure of judicial-arbitral relations derived from federal and state law.

The last few years have been marked by intense attention to questions of counsel ethics in arbitration, and notably to whether codes of conduct should be adopted. Somewhat left aside in the dialogue has been any systematic examination of the source and extent of judicial power to regulate attorney conduct before arbitrators. The recent New York federal decision rests mainly on the discredited premise that arbitrators lack competence to handle counsel ethics issues, and the non sequitur that such supposed incompetence necessarily lands the ethics issue in the courthouse. It is to be hoped that arbitral bodies will be more active in promoting a ethical regulatory procedure that is self-contained within the arbitral process and eliminates the power vacuum that judges are altogether too eager to fill.

Arbitration Commentaries wrote several months ago that the US Second Circuit’s decision in the 2002 Monegasque case (Monegasque de Reassurances S.A.M. (Monde Re) v. NAK Naftogaz of Ukraine, 311 F.3d 488 (2d Cir. 2002)) — holding that the forum non conveniens (“FNC”) doctrine of discretionary dismissal applies to New York Convention summary confirmation proceedings — was a questionable precedent that is ripe for reconsideration.  (See “Denial of Award Enforcement Under Article III ‘Rules of Procedure’: An Expanded Commentary on Zeevi Holdings v. Republic of Bulgaria, Arbitration Commentaries, Apr. 26, 2011).

It was argued here (by no means as a new idea) that Article V of the New York Convention provides the exclusive grounds for a US court to refuse recognition of a Convention award, and that the “rules of procedure” of the courts in Convention Member States, to which the Convention refers in Article III stating that awards shall be recognized in accordance with such rules, covers rules that facilitate the seeking of relief in court but not discretionary doctrines (such as abstention or FNC) that permit a court to refrain from exercising its properly-invoked jurisdiction. It was further observed (again not as a novel thought) in that Commentary that if this is the correct, or at least the more persuasive, construction of the Convention, then the US acts in breach of its international obligations under the Convention, i.e. violates international law, when one of its courts refuses to grant recognition and enforcement to a Convention award for a reason not contained in Article V.

 That position was endorsed last week by one judge on the US Second Circuit, but regrettably the endorsement came in the dissenting opinion of a 2-1 decision that resulted in dismissal of a Panama Convention award confirmation case based on FNC. The majority overturned the order of the district court, which had rejected FNC dismissal as uncalled for in the circumstances. (Figueiredo Ferraz v. Republic of Peru, 2011 WL 6188497 (2d Cir. Dec. 14, 2011)).

More will be written here and elsewhere about the Figueiredo case in the coming days, especially as informed speculation percolates about the potential for a rehearing en banc in which the full complement of judges of the Second Circuit might revisit the Monegasque ruling. And readers will be interested not only in this mixed question of treaty interpretation and federal arbitration policy, but also in the particular application of FNC made by the Second Circuit in this case.

Essential facts to know aboout the Figueiredo case are these: First, the losing party in the arbitration, suffering a $21 million award, was an agency of the Government of Peru.  Second, it was not disputed that Peruvian sovereign assets sufficient to satisfy the award were to be found in the US. Third, Peruvian internal law provided that government agencies would dedicate only 3 percent of their annual budgets to the satisfaction of awards and judgments — with the result in this case that Claimant, before commencing proceedings in the US, had been paid only about $1.5 million.

Leaving to another Commentary whether these facts lend support to an FNC dismissal if FNC remains an applicable doctrine, let us consider here only how the scenario of this particular cqase might inform the debate over whether FNC should be a ground for a US court to refuse recognition of a Panama or New York Convention award. (I note as does the dissent that the American Law Institute has sided against the panel majorities in Figueiredo and Monegasque, declaring in the forthcoming Restatement of the Law of International Commercial Arbitration that FNC does not apply in Convention award recognition proceedings).

First, the Conventions’ purpose to secure international enforceability of awards has particular resonance with regard to awards against sovereigns. One of main accomplishments of the Conventions is to overcome sovereign efforts to frustrate their creditors through the protective enactments of domestic law or the protective practices of domestic courts. This is accomplished by permitting a sovereign’s award creditor to pursue recognition and enforcement against the sovereign’s foreign-sited assets in the courts of any Convention Member State.

Second, FNC in this case operated not as a rule of procedure but as a rule of substantive law. Whereas Peru’s payment cap was conceded by Peru to be inapplicable to proceedings in the US if the US court exercised jurisdiction, the FNC dismissal was in practical effect a merits-based dismissal based on the Peruvian payment cap law.

Third, FNC dismissal of a Convention award confirmation proceeding leaves the award creditor at liberty, in principle, to seek confirmation in any Convention Member State, and in most such States there is no FNC doctrine. Effectively Convention awards are less enforceable in the US under the Conventions than they are elsewhere, as a matter of law. At the same time, given US capital markets’ prominence, both sovereign and non-sovereign award debtors as groups are probably more likely to have assets in the US than in virtually any Convention Member State other than their domiciles. The value of the rights Member States secured for their citizens by adopting the Conventions — that is to say the Conventions’ value to the global economy as instruments of international business law — is materially diminished by US law restricting access to its courts for award enforcement.

Today Arbitration Commentaries writes in praise of a federal district judge in San Francisco, for rejecting a too-clever-by-half arbitration-avoidance argument: that a professed willingness to arbitrate, but only in a particular venue not specified in the contract, is not a “refusal” or “failure” to arbitrate under the Federal Arbitration Act. (Beauperthuy v. 24 Hour Fitness USA, Inc., 2011 WL 6014438 (N.D. Cal. Dec. 2, 2011).  The Court decided that this position was indeed a “failure” and “refusal” to arbitrate under Section 4 of the FAA — as it leads to paralysis rather than a launched arbitration. Accordingly, the court entered an order compelling arbitration to proceed in San Francisco — in the judicial district where the motion to compel arbitration had been filed.

This was a domestic arbitration involving former employee claims of unfair wage practices by a chain of fitness centers. But the issue of precisely where a federal court may direct that arbitration be held has significance for international arbitrations when the parties fail to provide in the contract for a seat of arbitration or a procedure for choosing a seat.  Chapter Two of the FAA implementing the New York Convention permits a federal district court to compel arbitration at any place provided for in the parties’ agreement, whether or not in the United States.  But what if the parties’ agreement does not provide for a seat, directly or indirectly?

Enter Section 4 of the FAA, residually applicable in international cases to the extent it does not conflict with Chapter Two.  Under Section 4, the only possible solution if the parties’ agreement does not designate a place of arbitration is for the district court to order that the “hearings and proceedings” take place in the district where the court sits. Thus, in a 9^th Circuit case from 1989, principally relied on by the district court in the recent Beauperthuy decision (and including on the panel Circuit Court Judge Anthony Kennedy, as he then was), arbitration between a Chinese party and an American party was ordered to proceed in Sacramento, California, where the motion to compel arbitration had been filed, as  the appellate court confirmed that the district court had no other option where the arbitration agreement did not specify any agreed situs. (Bauhinia Corp. v. China National Machinery & Equipment,  819 F.2d 247, 250 (9th Cir. 1989).

The limitations imposed by Congress on judicial power to select the place of arbitration would seem to be at odds with the contractual basis for arbitration. On matters where the parties have not made an agreement, they have a disagreement.  It seems strange that this particular disagreement would be resolved in effect unilaterally by the judicial forum chosen for the motion to compel arbitration by the party seeking that relief. A few district courts, notably in New York, have dodged the problem by treating a disagreement about the place of arbitration like any other dispute parties might agree to arbitrate under a broad arbitration clause extending to “any and all disputes,” and have referred the seat of arbitration dispute to the arbitrator. (E.g., National Network of Accountants Investment Advisors, Inc. v. Gray, 693 F. Supp.2d 200 (E.D.N.Y. 2010); Matter of U.S. Lines, Inc. and Liverpool & London Steamship Protections & Indem., 833 F.Supp. 350 (S.D.N.Y. 1993)). But that creative circumvention highlights a shortcoming of the FAA that Congress would do well to fix, if ever a thoughtful revision of the FAA rises to the top of the legislative agenda.

Until that occurs, however, perhaps another solution might be found.   It relates to interpretation of the phrase “hearing and proceedings,” in Section 4.  The “hearings and proceedings,” according to Section 4, must take place in the district of the court ordering the parties to arbitrate.  It seems arguable that when Section 4 applies in a case governed by the New York Convention and FAA Chapter 2, courts should not reverse engineer international arbitration concepts into Section 4. In particular, they should not import the concept of the seat of arbitration into the phrase “hearings and proceedings.” The notion that an international arbitration award may only be set aside by a court at the seat of the arbitration, or under the arbitral procedural law agreed upon by the parties, made its first tentative entry into American law with US accession to the New York Convention in 1970.  It was a tentative entry because it was only many years after 1970 that American jurisprudence developed the notion, derived from Article V(1)(e) of the Convention, that judicial power to vacate an international arbitration award resides exclusively in a court at the seat of the arbitration (or in the State whose lex arbitri applies by agreement of the parties).  The phrase “hearings and proceedings” in Section 4, on the other hand, most probably was included to ensure that the district court could not compel attendance at the arbitration by persons residing in another state who could not be compelled by judicial subpoena to appear before that court. Accordingly, Section 4 should not be seen by arbitrators as a limitation on arbitral power in a Convention case to fix the seat of the arbitration.  The parties might decide that the arbitral tribunal should not have this power – in effect adopting as the seat the place designated by the district court for “hearings and proceedings.”  But if the parties have agreed broadly that the arbitral tribunal may resolve all disputes between them arising out of or relating to the contract, the arbitrator may reasonably interpret the arbitration clause to enable her to resolve a dispute over the seat of the arbitration. This solution differs somewhat from the one adopted by New York federal district courts as mentioned above, particularly in being faithful to the statutory text of Section 4.  On this view, the court could not refer to the arbitrator the question of where to hold “hearings and proceedings.”  Section 4’s text, it would seem, clearly forecloses that solution.  But the arbitrator holding hearings and proceedings in New York, per the order compelling arbitration of a New York federal district judge, would retain the power under the arbitration clause to choose the lex arbitri of the dispute based on appropriate conflict of laws principles.   

The question of what law is to be applied to determine the existence, validity, or scope of a purported agreement to arbitrate between parties from different nations (and subsidiarily, how the answer might depend on whether the question is presented to a court or an arbitral tribunal) has long attracted considerable attention in the scholarly literature of international arbitration. But American doctrine on the subject is hard to find, there being rather few judicial decisions addressing the question in a systematic way.  So a decision on this question from a US Circuit Court of Appeals (Cape Flattery Ltd. v. Titan Maritime, LLC, 647 F.3d 914 (9th Cir. 2011)) presents a rare chance to take the measure of US law, and to assess its conformity with or divergence from doctrine and commentary elsewhere.

In Cape Flattery, the contract was between a shipowner and a salvage company, for the salvage of a vessel that had run aground on a Hawaiian coral reef. The contract provided for arbitration of disputes “arising under” the contract in London, in accordance with the English Arbitration Act and “English law and practice.” (The phrase “arising under” has generally been viewed in US law as a narrow designation for arbitration of only those disputes that involve the interpretation and performance of the contract itself, and not other disputes more or less derivative of rather than strictly within the contract).  

During the salvage operation, oil spilled from the vessel. The shipowner became liable for cleanup of the spill under US environmental regulatory law, and brought suit in federal court in Hawaii against the salvage company, for contribution and indemnity in regard to the cleanup costs imposed upon it by federal law.  The salvage company moved to compel arbitration, urged that the agreement required arbitrability to be decided according to English arbitrability law, and argued that the dispute was arbitrable under such law.

The Ninth Circuit, affirming the district court’s decision, held that US federal arbitrability law not English law applied to decide whether the indemnity dispute was within the scope of the agreement to arbitrate. The Court first considered whether under the FAA and the “federal substantive law of arbitrability” that (per Supreme Court decisions) it has created, a US court is even at liberty to enforce an agreement of the parties, if one exists, to have arbitrability decided under law other than the FAA.  Finding no clear indication in the Supreme Court’s arbitrability decisions that parties may not elect to have arbitrability decided under non-federal law, the Court concluded that, given the contractual nature of arbitration, logic dictates that they may so agree. Turning then to how a court should decide whether such an agreement has indeed been made, the Court identified two potential approaches: (i) apply state contract law and simply determine if the parties have objectively manifested a common intention to have non-federal arbitrability law apply, or (ii) for reasons relating to federal arbitration law and policy, require  particularly clear evidence in the contractual language that the parties had chosen non-federal arbitrability law.

The Court decided upon the latter approach, reasoning by analogy to the Supreme Court’s First Options decision that choice of arbitrability law is an arcane matter that contracting parties will rarely consider specifically, so that silence or ambiguity about this choice of law, if construed in favor of non-federal law, might to often result in the application of law the parties did not expect would apply. Therefore, the Court held, there should be “clear and unmistakable evidence” that the parties wished to have non-federal arbitrability law apply.

I question whether this the best methodology, and suggest that it invokes a presumption in favor of the lex fori that has no persuasive theoretical foundation when the forum and the seat of arbitration are not one and the same. Once the Ninth Circuit had concluded that application of US federal arbitrability law based on the FAA was not mandatory by command of the law itself, it was faced with a choice of law issue in a contract case. Had the Court looked within the FAA for guidance — to the New York Convention — it would have seen that Article V(1)(a) provides that enforcement of an award may be refused if the arbitration agreement was not valid under the law to which the parties had subjected the arbitration agreement, or failing any indication thereon, under the law of the place where the award was made. And while the issue in the Cape Flattery case was not validity of the agreement to arbitration but rather the scope of arbitrable issues, the choice of law rule embodied in Article V(1)(a) of the Convention would seem to be a good indication of the choice of law rule that would apply to a post-award challenge to arbitrability based on the scope of the clause under Article V(1)(c). No persuasive reason appears for deciding arbitrability differently on a motion to compel arbitration than in an award confirmation setting. Further, Article V(1)(a) essentially embodies a choice of law rule common to many jurisdictions and arguably having the status of a general principle of international law: that the law applicable to a contract dispute is the law agreed by the parties, and if not agreed then the law of the pace having the closest connection to the dispute.

Broad consensus is said to exist in the world of international arbitration that the place with the closest connection to a dispute over an arbitration contract is the place where that contract — viewed separately from the main contract in which it is placed — is to be performed: at the seat of the arbitration.  (With apologies for oversimplification, see, e.g., K.P. Berger, Re-Examining the Arbitration Agreement: Applicable Law – Consensus or Confusion?, from A.J. van den Berg (ed.), International Arbitration 2006: Back to Basics? ICCA Congress Series 2006 Montreal 13 (Kluwer 2007) pp. 301-334). And while it is written, notably in French commentary, that the seat may be a relatively weak link chosen by the parties for reasons of convenience or chosen by an institution in the absence of party choice, in the Cape Flattery case the parties had subjected disputes under the salvage contract to a venue and legal system thousands of miles away from the Oahu coral reef where the contracted services to salvage the grounded vessel were to be performed. Morever, the parties’ arbitration clause stated expressly that the arbitral proceedings should be governed by the English Arbitration Act, whose Section 30 broadly enshrines the compétence-compétence principle. The Ninth Circuit could have endorsed the widely-held US law view that an agreement to arbitrate under rules that enshrine compétence-compétence is clear evidence of an agreement to arbitrate arbitrability (e.g. Republic of Ecuador v. Chevron Corp., 638 F.3d 384 (2d Cir. 2011); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. 2006); Terminix Int’l Co. v. Palmer Ranch Ltd., 432 F.3d 1327 (11th Cir. 2005); Contec Corp. v. Remote Solution Co., 398 F.2d 205 (2d Cir. 2005)), and could have compelled arbitration on this basis without breaking any new jurisprudential ground.

Perhaps the Cape Flattery case is not predictive of how other US courts would address, in the setting of a motion to compel arbitration, the question of what law applies to determine arbitrability. But in the international arbitration context, the path to a correct solution is clearly identifiable in US law. If the parties have agreed to arbitrate under arbitration rules or a national arbitration law that enshrines compétence-compétence, there is an agreement to arbitrate arbitrabillity and the court should compel arbitration and thereby leave the choice of arbitrability law issue to the arbitrator.    If there is no such agreement to arbitrate arbitrability, the arbitrability law choice should be guided by Article V(1)(a) of the New York Convention, there being no sound reason why pre-arbitral and post-award determinations of arbitrability of the same dispute should be governed by different law (and there usually should be no reason to distinguish, for choice of law purposes, between a dispute over validity of the clause and a dispute over scope). These solutions admittedly leave a small gap: cases where the parties have neither agreed on arbitrability law nor selected an arbitral seat. In such cases choice of law principles should suffice to reach the correct solution, and the facts leading one of the parties to bring suit in a US court should often justify the conclusion under choice of law principles that US federal arbitrability law controls.

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.