Initiating an Arbitration
An arbitration clause calling for New York arbitration does not customarily impose a time limit within which the first moving party is required to appoint an arbitrator. Issues of time bar and laches are for arbitrators to decide and those decisions are often influenced by analogous statutes of limitations, such as the U.S. Carriage of Goods by Sea Act’s one-year time bar for cargo claims, the Uniform Commercial Code’s four-year time limit for contracts of sale of goods, and the six-year period prescribed by New York State law for contract causes of action.
Usually, a panel consists of three arbitrators, although the parties are free to agree to a sole arbitrator in any proceeding. Under the amended Shortened Arbitration Procedure of the SMA, the dispute will be referred to a sole arbitrator [Document No. 2].
A typical New York arbitration begins with the claimant or first moving party serving a demand for arbitration upon its contract partner that names its appointed arbitrator and describes the nature and amount in dispute. Upon receipt of the claimant’s demand for arbitration, the respondent or second party is then required to appoint an arbitrator within the time limits set out in the contract or the rules governing the arbitral proceeding. The two arbitrators thus chosen appoint the third, who generally acts as Chairman of the panel for procedural matters. Absent the requirement for a unanimous decision, the decision of any two of the three arbitrators will be final and binding on both parties. Disputes are often arbitrated in New York under other types of arbitration clauses, some requiring the two party-appointed arbitrators to agree, failing which the decision defaults to an Umpire.
Under a Charter Party or other maritime contract which provides for New York arbitration but does not include the Rules of the Society of Maritime Arbitrators nor specify the time limits within which the respondent must appoint its arbitrator, the claimant may petition the appropriate Court to “compel arbitration” under Section 4 of the Act [Document No. 5].
In such an application, the claimant may also request the Court to appoint an arbitrator on behalf of the other party under Section 5 of the Act. The Court will examine the agreement to arbitrate and decide whether its language and scope is sufficient to grant the claimant’s request to compel the respondents to proceed to arbitration. Issues relating to the merits of the claim are left to the arbitrators.
If the Charter Party provides for the arbitration to be conducted under the Rules of the SMA, Section 10 of the Rules for standard arbitration allows the claimant to appoint the second arbitrator if the other party does not appoint an arbitrator within 20 days of receipt of such notice. In order for this section to take effect, the claimant must first have given requisite notice to the other party. If the arbitration agreement calls for a panel of three arbitrators, the third arbitrator is selected by the two appointed by the claimant.
Under the Shortened Arbitration Procedure of the SMA, the respondent has 10 days to reply to the claimant’s nomination, failing which, the person nominated by the claimant becomes the sole arbitrator.
Conduct of the Arbitration
A. Standard Arbitration
It is the practice among New York arbitrators to disclose any potential conflicts of interest they may have with either party, their respective attorneys, the subject matter of the dispute and with each other. Such disclosures are usually made soon after the panel has been constituted, prior to the first hearing or initial submissions.
The parties have the right to challenge a particular panel member for cause, e.g., if that arbitrator has a financial, business or personal interest in the outcome of the arbitration. If the challenged arbitrator considers the challenge to be without merit, the arbitration shall proceed with due reservation of the challenger’s right to seek recourse from the appropriate United States District Court after the Award has been issued. If a party-appointed arbitrator decides to withdraw from the panel, his/her appointer will name a replacement. If the challenge concerns the third arbitrator, the two party-appointed arbitrators are required to promptly appoint a replacement. Once the panel has been established, the parties are required to direct all communications, documents and exhibits to the Chairman, with copies to the other arbitrators and their commercial counterparts or opposing counsel. In keeping with judicial decorum of the arbitration, no ex-parte communications are permitted. Once the disclosures have been made and the panel has been accepted by both parties, the arbitrators are then sworn [Appendix A of Document No. 1].
Parties are free to argue the case themselves, be represented by legal counsel or by a duly appointed representative. Each party submits the documents and other evidence upon which it relies. If witnesses are called to testify they must do so under oath and submit to cross-examination. Unless the parties agree otherwise, a court reporter is customarily on hand to record the proceedings. Following the close of the evidentiary phase of the proceeding, it is customary for the parties to exchange written post-hearing briefs summarizing their position and view of the evidence, accompanied by supporting legal and arbitral authorities. These are followed by reply briefs, the purpose of which are to respond to the position each party’s opponent has advanced in its post-hearing brief. In lieu of post-hearing main and reply briefs, the SMA rules permit the parties to present their final arguments at a Final Oral Hearing before the arbitrators.
B. Shortened Arbitration
This procedure, first presented to the industry in January 1989, is designed to provide a quick and inexpensive method to resolve relatively small and straight-forward disputes. In the original procedure, the disputants were encouraged to agree on a sole arbitrator but were permitted to have a three-person panel. Disputants were also permitted to have a hearing, with no limit to the number of issues to be heard.
The procedure was revised as of September 15, 2010 [Document No. 2] and applies to contracts entered into on or after September 15, 2010. It now calls for the claimant to nominate an arbitrator from the SMA roster to act as sole arbitrator and to simultaneously request the respondent’s agreement. Failing a response from the respondent within 10 days, the claimant’s nominated arbitrator becomes the sole arbitrator. If the parties cannot agree upon a sole arbitrator, upon request, the then president of the SMA will make that appointment.
The revised procedure provides short deadlines for submission of the claim, defense and possible counterclaim. In the interest of economy, the revised procedure does not allow oral hearings but instead encourages the parties to proceed on documents alone. Although the current procedure limits the number of issues to only four items, at the sole arbitrator’s discretion, a reasonable increase is permitted. Except as required by the arbitrator, neither party is entitled to discovery from its opponent.
The decision of the sole arbitrator is required to be issued within 30 days from receipt of final replies or from the date the proceeding is formally closed. Neither the arbitrator’s fee and expenses nor an award for those charged by the prevailing party’s legal or commercial advocate can exceed the amounts expressly set out in the terms of the procedure.
When called upon to do so, a panel may issue an interim or partial final award on a subject that is ripe for decision and is both independent of and severable from the remaining issues in dispute. The panel’s ability to rule on such interim and threshold questions often simplifies the case and in some instances may even dispose of it in its entirety. The final award is only issued when the arbitration has been completed.
As soon as practicable after the exchange of reply briefs or after the proceedings have been declared closed, the arbitrators meet and deliberate as often and as long as is necessary to arrive at either a unanimous or majority decision. The next step is to reduce the decision to a writing which is simultaneously released to the parties or their counsel. If the decision is not unanimous, the views of the dissenting arbitrator are added to the final award as an appendix. SMA Rules urge speedy issuance of awards, i.e. within 120 days from receipt of the last submission or close of the proceedings. Under the Shortened Arbitration Procedure, the award must be issued within 30 days.
In addition to resolving the parties’ disputes, the final award will fix and allocate the arbitrators’ fees as well as other arbitral costs. Under Section 30 of the SMA Rules, the arbitrators are empowered and, in the vast majority of cases, do award reasonable attorneys’ fees and expenses or costs incurred by the prevailing party in the prosecution or defense of the case. In those instances where the arbitration clause requires the agreement of the two party-appointed arbitrators, failing which the case would be referred to an Umpire, the final decision and award rests with the Umpire. The role and authority of that Umpire closely resembles that of a sole arbitrator.
Once the final award is issued, the panel becomes functus officio and does not have the power to hear reargument. It may, however, correct inadvertent clerical or arithmetical errors which are apparent on the face of the award.
Confirming the Award
Most final awards rendered by New York arbitrators are promptly paid or otherwise complied with. However, should an award go unpaid for a specified number of days, it is common practice for the award to require that interest resume from the date of the final award. Moreover, Section 9 of the Act [Document No. 6] provides that the award may be confirmed by a court of competent jurisdiction, thereby allowing the prevailing party to obtain and collect upon the ensuing court judgment.
Pursuant to Chapter 2 of the Act, the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a/k/a The New York Convention), [Document No. 6], the decisions of New York arbitrators are enforceable in virtually all jurisdictions throughout the world. A motion to confirm an award is required to be brought within one year from the date of the award under Section 9 of the U.S. Federal Arbitration Act or within three years under Section 207 of The New York Convention.
Vacating the Award
The U.S. Congress has severely limited the grounds for valid attacks upon arbitration awards made in the United States An award may be vacated on only a few specific grounds pertaining to the fairness of the arbitration procedure or, very rarely, because it is against “public policy.” A mistake in law or fact is not a ground for vacatur. Absent demonstrable misconduct or evident partiality on the part of the arbitrators, pursuant to the strong Federal policy favoring arbitration, U.S. courts tend to enforce the final and binding provisions of the parties’ arbitration agreement. A motion to vacate, modify or correct an award must be made within three months following the date the award was issued.