Including Non-Signatory Subcontractors in Arbitration Clauses in Construction Contracts

Jaime Dewees | Framing Issues

Arbitration is an increasingly popular forum for the resolution of construction disputes.  It often provides a more predictable procedural process specially designed for the industry in light of construction-specific rules and mediation procedures enacted by alternative dispute resolution providers, such as the American Arbitration Association (AAA). Of course, there are pros and cons to private arbitration proceedings administered by AAA and other organizations, including, among other things, those discussed in last week’s post about the increased up-front costs incurred to initiate an arbitration proceeding and paying the fees and expenses associated with a single arbitrator or multiple arbitrator panel. On the other hand, construction arbitrators are generally highly-qualified and experienced construction attorneys and industry professionals capable of resolving complex and highly-technical disputes  Given the complexity of construction disputes this is often advantageous and preferable to a state court judge or jury of laypersons with little or no construction experience.

When planning a construction project, construction professionals should anticipate claims or controversies and make an informed decision up front about the ideal forum for resolving these disputes when they inevitably arise.  Whether arbitration or litigation is preferred depends on a number of time and expense factors, as discussed above.  However, if arbitration is preferred, then “consistency is key” in order to bring all claims and controversies into an arbitration involving many contractors and subcontractors (and their subcontractors and vendors) and to avoid piecemeal dispute resolution outside of arbitration.

The arbitration clause in construction contracts defines the scope of the claims, controversies, and disputes arising from construction projects and directly influences the parties that are bound by an agreement to arbitrate.  The contracting parties should express a clear intent to arbitrate, and must also consider other parties who do not actually sign the construction contract but are nevertheless contemplated by the terms of the operative agreement. In Texas, a non-signatory to an agreement to arbitrate within a construction contract—including a subcontractor, for example—may be compelled to arbitration under legal theories establishing the non-signing subcontractor’s agency with and for another contractor, or as an alter ego of a general contractor that is in essence the same entity as between the general contractor and subcontractor (which is, generally, difficult to prove absent fraud).

At the outset of beginning a construction project, contracting parties can contemplate and capture non-signatories to the main construction contract through incorporating by reference the respective party’s signed subcontract agreements or even reference to the subcontractors themselves. Generally, contracting parties seeking to arbitrate their disputes must establish both a valid agreement to arbitrate and that their claims fall within that agreement’s scope. See Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 629 (Tex. 2018) (citing In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005)). If the goal is to keep construction disputes wholly confined in the arbitration forum, the arbitration clause must be given special focus.  That is, the owner/developer and its general contractor, and all subcontractors and second-tier or below subcontractors, should be expressly contemplated by and accounted for in the arbitration clause.  The parties to the prime construction contract should endeavor to reference all of their respective signed subcontract agreements, to the extent they exist, as well as develop the arbitration clause to capture all disputes arising from the construction project and include joinder or consolidation with the arbitration proceeding of any other person or entity that is necessary to resolve the claim, controversy, or dispute, or that is substantially involved in or affected by the same. In doing so, the contracting parties can better avoid bringing piecemeal, fact-intensive litigation against subcontractors.

It is often penny-wise and pound-foolish not to consult with an experienced attorney when drafting a construction contract on any project of significance.  A well-drafted arbitration provision can later save significant time and expense in an effort to avoid costly multi-party (and potentially multi-forum) litigation.  The KRCL Construction Team has significant experience guiding clients through the contract formation process.  The cost of preparing an enforceable arbitration provision costs pennies on the dollar as compared to potential extensive discovery and prolonged litigation in state or federal court.

Prospective Additional Insureds may be Obligated to Arbitrate Coverage Disputes

Danielle S. Ward | Balestreri Potocki & Holmes

The Court of Appeal closed out 2019 by ruling that an additional insured can be bound to the arbitration clause in a policy when a coverage dispute arises between that additional insured and the carrier. (Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal. App. 5th 834, 837.)

In 2009, Future Farmers of America (“Future Farmers”) entered into a license agreement with SMG Holdings Incorporated (“SMG”) to use the Fresno Convention Center. As part of the agreement, Future Farmers was required to secure comprehensive general liability (“CGL”) coverage and name SMG and the City of Fresno as additional insureds (“AI”) on its policies.

Future Farmers purchased a general liability policy from Plaintiff Philadelphia Indemnity Insurance Company (“Philadelphia”). Neither SMG nor the City of Fresno were added as AIs, but the policy contained a “deluxe endorsement” which extended coverage to lessors of premises for “liability arising out of the ownership, maintenance or use of that part of the premises leased or rented” to the named insured. The policy also contained an endorsement that extended coverage where required by a written contract for liability due to the negligence of the named insured. Philadelphia’s policy also stated that if the insurance company and insured “do not agree whether coverage is provided . . . for a claim made against the insured, then either party may make a written demand for arbitration.”

A patron to Future Farmer’s event at the Fresno Convention Center was seriously injured after he tripped over a pothole in the parking lot and hit his head. He sued both Fresno and SMG. In turn, Fresno and SMG tendered their defense to Philadelphia. Philadelphia denied coverage finding that the incident did not arise out of Future Farmer’s negligence, and that SMG had the sole responsibility for maintaining the parking lot.  Consequently, Philadelphia concluded that neither Fresno nor SMG qualified “as an additional insured under the policy” for the injury in the parking lot.

The coverage dispute continued, and in 2016, Philadelphia issued a demand for arbitration which was rejected by SMG. Philadelphia then petitioned the state court to compel arbitration arguing that SMG could not avoid the burdens of the policy while seeking to obtain policy benefits. SMG used Philadelphia’s conclusion that it did not qualify as an AI under the policy to argue that Philadelphia was “estopped from demanding arbitration”. In other words, SMG argued that it could not be held to the burdens of the policy without being provided with the benefits of the policy.

The trial court sided with SMG finding that there was no arbitration agreement between the parties. The court noted that while third party beneficiaries can be compelled to arbitration there was no evidence that applied here, and Philadelphia could not maintain its inconsistent positions on the policy as its respects SMG.

Disagreeing with the trial court, the Court of Appeal concluded that SMG was a third-party beneficiary of the policy. The AI obligations in the license agreement and the deluxe endorsement in the Philadelphia policy collectively establish an intended beneficiary status. The Court saw SMG’s tender to Philadelphia as an acknowledgement of that status.

Relatedly, the Court found that SMG’s tender to Philadelphia – its demand for policy benefits – equitably estopped them from avoiding the burdens of the policy. The Court stated it defied logic to require a named insured to arbitrate coverage disputes but free an unnamed insured demanding policy coverage from the same requirement.  Conversely, the Court found no inconsistency in Philadelphia’s denial of coverage to SMG and its subsequent demand for arbitration. Philadelphia did not outright reject SMG’s status as a potential insured, but rather concluded that there was no coverage because the injury occurred in the parking lot. In other words, the coverage determination turned on the circumstances of the injury not SMG’s status under the policy.

In short, the Court concluded that the potential insured takes the good with the bad. If one seeks to claim coverage as an additional insured, they can be subject to the restrictions of the policy including arbitration clauses even if they did not purchase the policy.

Securing additional insurance has become increasingly more difficult and limited over the years, and this holding presents yet another hurdle to attaining AI coverage. For those seeking coverage, it is important to note that the Court’s ruling may have turned out differently had the carrier outright denied SMG’s AI status, rather than concluding that the injury was not covered.

Your insurance scenario may vary from the case discussed above. Please contact legal counsel before making any decisions. BPH’s attorneys can be reached via email to answer your questions.

Is Arbitration on the Briefs Right for your Client?

Megan K. George | Forum on Construction Law

As clients increasingly demand options for timely, efficient dispute resolution, attorneys need to stay apprised of all available alternatives. Private arbitration was developed with efficiency in mind and has become wildly popular in the construction industry, providing parties a means to avoid delays caused by backlog in state and federal court dockets as well as evidentiary and procedural formalities. The American Arbitration Association’s Fast Track Procedures within the Construction Rules further trim the usual arbitration procedures, pushing parties through a streamlined pleading and discovery process. However, even the AAA Fast Track Procedures require significant time and resources, primarily those invested in conducting a hearing before an arbitrator.

Submitting a case for decision on briefs alone, without presenting in-person evidence or argument to the adjudicating body, is common in appellate litigation. It is also frequently used in trial court-level litigation, sometimes without the parties’ consent. Parties agreeing to arbitration on briefs alone, however, is exceedingly rare. Yet, when employed in the appropriate situation, agreeing to submit a dispute to an arbitrator on briefs alone can be a useful tool for quick and efficient dispute resolution and a highly satisfied client. On major construction projects, the commitment to arbitrate certain matters is often made before a dispute arises. So, when is arbitration on the briefs the right choice for your client’s project? And, what can you do to ensure a successful resolution? Let’s explore.

Arbitration on the briefs has two primary benefits. First, it can be highly cost-effective. Eliminating the costs associated with witness and hearing preparation and presentation can significantly reduce the overall price tag of arbitration. Second, arbitration on the briefs provides for speedy dispute resolution without sacrificing equity or expertise. Again, jettisoning a hearing can expedite a final resolution on the merits by weeks, if not months; certain disputes may even be submitted for a decision on the briefs without a traditional discovery process, which all practitioners know can be extremely time-consuming. Furthermore, the arbitration agreement allows the parties to dictate the timeline for decision, eliminating uncertainty and facilitating easy mid-project or mid-term dispute resolution.

Foregoing a hearing is not without its downsides. Without a hearing, an arbitrator may miss or misunderstand certain complex factual issues, and the parties have limited opportunity for clarification. Thus, astute construction attorneys will recognize that arbitration on the briefs is not one-size fits all. Predicting the nature of disputes likely to arise on your project and the evidence necessary to resolving those disputes is critical in 1) deciding whether arbitration on the briefs is appropriate for your client’s project and 2) drafting the terms of such an arrangement. When considering an agreement to arbitration on the briefs, keep in mind the following tips for success.

Identifying the Issues Subject to Arbitration. Not all disputes lend themselves to resolution on written arguments alone. For the same reasons decisions without a hearing are regularly issued in an appellate court setting, an arbitrator’s decision on the briefs is most successful when the dispute is straightforward and turns on a few narrow questions if not a single, objective issue. Lay witness and/or subjective evidence-heavy fact patterns and other, more complex disputes may be difficult for an arbitrator to grasp on paper alone and key details may be lost without an opportunity for the arbitrator to ask questions. Conveying witness credibility and evidentiary context may also be difficult. Accordingly, disputes involving competing expert testimony are not well-suited to resolution by this method. By contrast, a foreseeable, single-issue quarrel that requires either interpretation or application of a contract clause to a limited factual scenario is easily decided with limited party input. For example, in an agreement based primarily on unit prices, disputes over adjustments to unit prices may be well-suited to arbitration on the briefs. Adjustments to unit pricing are often necessitated by either 1) market fluctuations or 2) significant changes to the quantity of units subject to the agreement. Hence, few subjective factual issues will compound a dispute over the equity of an adjustment to an agreed unit price. Design ambiguity controversies and cost-only change order disputes may also lend themselves to resolution through arbitration on the briefs, particularly when employed mid-project to mitigate damages resulting from postponing a final resolution.

Careful Clause Drafting. Once you have identified the types of disputes amenable to arbitration on the briefs, your arbitration clause should carefully identify and describe those disputes to be subjected to arbitration. In addition, the language should plainly outline the particularities of the arbitration process itself. Each condition applied to the process should promote swift and cost-effective adjudication. Contemplate the following terms when developing an agreement to arbitrate without a hearing:

Arbitrator Selection. Before agreeing to arbitration on the briefs, consider the qualifications an arbitrator needs to provide a speedy and fair resolution. Ideally, an arbitrator should be able to jump into a dispute with minimal education on the intricacies of the particular dispute. In pricing disputes, an arbitrator with an accounting or financial background might be valuable. Alternatively, in a design ambiguity scenario, an arbitrator with architectural or design expertise will require less explanation to understand the parties’ respective positions and reach an equitable decision. To avoid wasting the expediency provided by arbitration on the briefs, the parties should also delineate explicit terms as to how a candidate pool will be developed and how the arbitrator will be selected in the event the parties cannot agree.

Specific Timeframes. As discussed above, a timely resolution of your dispute is a principal benefit of arbitration on briefs alone. Thus, the parties should settle on hard and fast deadlines for brief submission and the arbitrator’s decision. If needed, a limited timeframe for seeking clarification or enforcement of the arbitrator’s decision should also be employed.

Evidentiary Limitations. Your arbitration agreement should place strict limitations on the type and volume of evidence each party is permitted to submit in conjunction with its brief. Disputes that may be decided on objective, empirical, and/or documented evidence will find the most success in arbitration without a hearing. This is not to say that no fact witness testimony should be admitted; a successful arbitration on the briefs provision will permit submission of an affidavit or similar sworn statement to verify documentary evidence and provide necessary project details to put the dispute in context. Still, the primary source of evidence submitted to the arbitrator should be documentary, not testimonial. Taking it a step further, restricting evidence included in the briefs to evidence exchanged prior to submitting the case to arbitration may facilitate the arbitrator’s decision making process, and may even promote interparty resolution without arbitration. Similarly, you might also consider a page limitation on the briefs; a limited writing will force each party to concisely state its position, and it will assist the arbitrator in identifying the key issues she must consider in making her decision.

Decision Implementation and Cost Allocation. Finally, consider how an arbitrator’s decision should be effectuated. Should the decision or award be applied retroactively? If so, at what point should its application begin? Take our example of a unit price disagreement. Should the arbitrator’s decision apply only to future units? Or, if the pricing decision applies retroactively, should it apply to all units from the time the adjustment was requested forward? Or from the time the dispute was submitted to arbitration? The answers to these questions depend on the projected disputes and your client’s anticipated position. Another important term to consider in an arbitration on the briefs agreement is an attorney fee-shifting provision. In keeping with the cost-efficiency goal of opting for arbitration on the briefs, an agreement that the prevailing party will recover its attorney’s fees will aid in ensuring only truly unresolvable disputes reach the arbitration phase and dis-incentivize over-lawyering.

Arbitration on the briefs is an interesting dispute resolution procedure to consider for your clients’ future projects and disputes. While it may not benefit all clients or all projects, under the right circumstances, proposing this procedure can yield dividends for your client and allow you to appear strategically savvy and cost-minded.

In Brief: Enforcing and Challenging Arbitral Awards in USA

Matthew E. Draper | Draper & Draper

Proceedings subsequent to issuance of award

Interpretation and correction of awards

Does the arbitral tribunal have the power to correct or interpret an award on its own or at the parties’ initiative? What time limits apply?

Most institutional rules grant tribunals a limited amount of time to correct or interpret minor clerical, typographical or computational errors (ICDR Rules, article 33; CPR Rules, Rule 15.6; and JAMS Rules, article 38.1). The ICDR and CPR Rules further grant arbitrators a short period in which to make an additional award on claims presented in the arbitration but not disposed of in the initial award.

FAA section 11 vests district courts with the power to modify or correct the award where it contained a material miscalculation or mistake, where it ruled upon a matter outside of the tribunal’s jurisdiction or where it ‘is imperfect in matter of form not affecting the merits of the controversy’. Nonetheless, courts may refuse to do so on the basis that the arbitrators already considered, and declined, such a request (eg, Daebo Int’l Shipping Co v Americas Bulk Transport (BVI) Ltd, 2013 WL 2149591 (SDNY 2013)).

Challenge of awards

How and on what grounds can awards be challenged and set aside?

FAA section 10 sets forth the standard and procedure for setting aside arbitral awards made in the United States. Many US courts have held that the section 10 standards for vacatur will also be applied to international or foreign awards seated in the United States. Under section 10, awards may be vacated where:

  • the award was procured by corruption, fraud or undue means;
  • there was evident partiality of the arbitrators;
  • the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehaviour by which the rights of any party have been prejudiced; or
  • the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.

Some courts have interpreted the arbitrators’ excess of powers to permit vacatur on the basis that the tribunal acted in ‘manifest disregard of the law’. In recent years, this standard has been considerably limited by many circuit courts of appeals, and it is rare for awards to be vacated on this basis (see, eg, Daesang Corporation v NutraSweet Company, 85 NYS 3d 6 (2018) (reversing the trial court’s vacatur of a foreign arbitral award on the grounds of manifest disregard of the law)).

Levels of appeal

How many levels of appeal are there? How long does it generally take until a challenge is decided at each level? Approximately what costs are incurred at each level? How are costs apportioned among the parties?

Normally, arbitral awards themselves are not subject to appeal on the merits by courts or arbitral institutions. Nevertheless, parties to AAA, CPR, or JAMS arbitrations may opt in to those institutions’ appeal procedures.

However, court orders with respect to confirmation, vacatur or recognition and enforcement of awards are subject to the normal appeal procedures of US litigation. Parties wishing to challenge a final federal district court order can appeal to the federal circuit court of appeals in which the district court sits. In general, the circuit courts of appeals have the final word on the matters before them; in rare cases, the Supreme Court may grant a request to review a circuit court decision.

Recognition and enforcement

What requirements exist for recognition and enforcement of domestic and foreign awards, what grounds exist for refusing recognition and enforcement, and what is the procedure?

Courts generally uphold arbitration awards in line with the United States’ strong public policy in favour of arbitration. Awards made by US-seated tribunals may be recognised and enforced (ie, confirmed) by any court agreed upon by the parties or, in the absence of such agreement, by a court sitting in the district in which the arbitration agreement was made, provided no ground for vacatur or modification exists under sections 10 or 11 of the FAA.

For foreign-seated arbitrations, the FAA incorporates the grounds for denial of recognition and enforcement of awards set forth in the New York and Panama Conventions (FAA sections 207 and 301). In limited circumstances, the United States may also permit denial of recognition or enforcement of a foreign award on the basis of certain procedural defences, such as the court’s lack of personal jurisdiction over the award debtor, or the doctrine of forum non conveniens.

Time limits for enforcement of arbitral awards

Is there a limitation period for the enforcement of arbitral awards?

A petition to confirm a domestic arbitral award ‘may’ be filed within one year from the date of the award (9 USC section 9). Whether this limitation is mandatory depends on the court in which it is brought (see FIA Card Servs, NA v Gachiengu, 571 F Supp 2d 799, 803-804 (SD Tex 2008)). For foreign awards, a petition to confirm must be filed within three years (9 USC sections 207 and 302). The FAA provides a three-month limit for motions to vacate, modify or correct an award (9 USC section 12).

Enforcement of foreign awards

What is the attitude of domestic courts to the enforcement of foreign awards set aside by the courts at the place of arbitration?

Citing concerns for international comity, US courts usually do not enforce foreign awards set aside by the courts at the place of arbitration (eg, Getma Int’l v Republic of Guinea, 862 F 3d 45 (DCC 2017); and Thai-Lao Lignite (Thailand) Co v Gov’t of Lao People’s Democratic Republic, 864 F 3d 172 (Second Circuit, 2017)).

However, several courts have held that they may enforce an award despite vacatur by the courts of the seat in extraordinary circumstances. For instance, one recent decision upheld the enforcement of an award that had been vacated in Mexico on the basis of newly enacted legislation that had been applied retroactively by the Mexican courts, stating that to hold otherwise would be ‘repugnant to fundamental notions of what is decent and just in this country’ (Commisa v Pemex, 832 F 3d 92 (Second Circuit, 2016)).

Enforcement of orders by emergency arbitrators

Does your domestic arbitration legislation, case law or the rules of domestic arbitration institutions provide for the enforcement of orders by emergency arbitrators?

The enforceability of awards issued by emergency arbitrators is somewhat uncertain. Although courts have enforced emergency awards on a number of occasions, some courts have refused to enforce them on the basis that they are not final and therefore not reviewable under the FAA (compare Yahoo! Inc v Microsoft Corp, 983 F Supp 2d 310, 319 (SDNY 2013) (enforcing an emergency award) with Chinmax Medical Sys, Inc v Alere San Diego, Inc, 2011 WL 2135350 (SD Cal 2011) (refusing to enforce an emergency award)).

Cost of enforcement

What costs are incurred in enforcing awards?

In general, each party bears its own costs and fees in connection with post-award litigation pursuant to the ‘American Rule’. US court fees are quite minimal; the bulk of a party’s costs for enforcement will be attorneys’ fees, which will generally be borne by the enforcing party absent agreement to the contrary. However, the position may be different if the parties contractually agree to fee shifting in post-award proceedings, or if a party opposes confirmation or enforcement on a ground deemed to be frivolous (in which case fees may be awarded as a sanction).

In Brief: Arbitration Formalities in USA

Robert J. Ward and Robert M. Abrahams | Schulte Roth and Zabel

Arbitration

UNCITRAL Model Law

Is the arbitration law based on the UNCITRAL Model Law?

Congress enacted the Federal Arbitration Act (FAA) in 1925 to validate agreements to arbitrate and to provide mechanisms for their enforcement. The Supreme Court has held that the FAA applies in both federal question and diversity jurisdiction matters, and in some cases pre-empts state statutes precluding arbitration. The FAA is not based on the UNCITRAL Model Law, and differs from it in several ways, including the basis for setting aside an award, the power to modify or correct an award, the procedure for the appointment of arbitrators and the arbitral tribunal’s power to rule on its own jurisdiction.

Arbitration agreements

What are the formal requirements for an enforceable arbitration agreement?

According to FAA section 2, an agreement will be valid, irrevocable and enforceable, except upon such grounds as exist at law or equity for the revocation of any contract, if there is a written provision or contract evidencing a transaction involving commerce to settle by arbitration a controversy arising thereafter, or a transaction or refusal to perform the whole or part thereof of such contract, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract, transaction or refusal. Generally, courts will apply the ordinary state-law principles that govern the formation of contracts to determine the validity of an agreement. An agreement to arbitrate is considered a separate contractual undertaking; the validity of an arbitration clause does not depend on the validity of the underlying contract.

Choice of arbitrator

If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?

Typically, parties will specify the procedure for the appointment of arbitrators, or adopt procedural rules of an administering arbitral institution such as the American Arbitration Association (AAA), JAMS or the International Chamber of Commerce International Court of Arbitration, which provide default rules for the appointment of arbitrators. In the absence of a contractual provision regarding the procedure for the appointment of arbitrators or the adoption of the procedure of an administering arbitral association, the appointment of arbitrators shall be made upon application to the court. The court may designate and appoint any arbitrator or arbitrators as the case may require. If the contract is silent about the number of arbitrators, the court shall appoint a single arbitrator for the action (FAA section 5).

Arbitrator options

What are the options when choosing an arbitrator or arbitrators?

The available arbitrator options will depend on the chosen arbitral association or court. Generally, each arbitral association or court maintains a roster of available mediators and arbitrators. Eligibility for those rosters is based on each association or court’s own criteria and evaluation. For example, the JAMS roster mainly comprises retired judges and other professional neutrals. The AAA roster tends to include arbitrators with more varied industry experience. Usually, the arbitral association or court can provide arbitrators with sufficient knowledge or experience to address the complexity of the issues presented.

Arbitral procedure

Does the domestic law contain substantive requirements for the procedure to be followed?

The domestic statutory law provides almost no requirements regarding the procedure to be followed. The arbitrators once appointed typically control the procedure, conducting the hearings, administering oaths and making awards. The FAA grants an arbitrator or arbitrators the power to summon the attendance of witnesses. The courts defer to the arbitrator on procedural matters.

If the parties have contractually adopted an administering arbitral association’s rules, those rules will bind the arbitrator or panel’s actions. The AAA provides different rules of procedure depending on the type of case (commercial, construction, labour, international, etc). Any procedural rules in the arbitration agreement will overrule the institutional rules.

Court intervention

On what grounds can the court intervene during an arbitration?

Federal courts have jurisdiction to hear arbitration-related issues for matters with federal question jurisdiction or diversity jurisdiction. Judicial intervention is commonly sought when the arbitration demand is made (to compel or stay a proceeding) or after the award (to enforce, modify or vacate). However, during an arbitration, parties may turn to the courts to enforce a subpoena issued by the arbitrator. If a person summoned to testify refuses or fails to appear, the parties may petition the district court in which the arbitrator (or a majority of the arbitrators) sits to compel attendance or punish said persons for contempt (FAA section 7).

Interim relief

Do arbitrators have powers to grant interim relief?

The FAA does not provide for provisional remedies, but the majority view is that arbitrators can and should grant preliminary injunctive relief to preserve the status quo pending arbitration. Likewise, administering arbitral associations often give arbitrators the power to grant interim relief.

Award

When and in what form must the award be delivered?

Under the FAA, there are no formal requirements regarding the delivery and form of the award. The rules of the administering arbitral association may require, or the parties may stipulate, that the award be in writing and signed by the majority of arbitrators. The timing of the award may also be governed by the administering arbitral association or the arbitration agreement.

Appeal

On what grounds can an award be appealed to the court?

An award can be appealed to the courts on limited grounds. The FAA lists the following grounds for vacating an award:

  • where the award was procured by corruption, fraud or undue means;
  • where there was evident partiality or corruption in the arbitrators, or any one of them;
  • where the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehaviour by which the rights of any party have been prejudiced; or
  • where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.

Once an action on the award is brought to the courts, the normal rules governing the appeal of a court decision or an order will attach.

Enforcement

What procedures exist for enforcement of foreign and domestic awards?

Foreign and domestic awards are enforced through the courts. Domestic awards may be enforced under FAA section 9. The party seeking enforcement need not commence a civil action, but rather can make an application to the appropriate federal district for an order confirming the award within one year after the award is issued. The party seeking confirmation must also serve the adverse party with notice of the application.

There are two methods under which foreign commercial arbitral awards may be recognised and enforced. First, as part of the FAA, the United States has adopted the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (FAA section 201). A party seeking to enforce an award must establish a prima facie case for enforcement under the New York Convention, and provide an original or certified copy of both the award and arbitral agreement to the appropriate judicial forum. Enforcement may be challenged on five grounds:

  • absence of a valid arbitration agreement;
  • lack of fair opportunity to be heard;
  • the award exceeds the scope of the submission to arbitration;
  • improper composition of the arbitral tribunal or improper arbitral procedure; and
  • the award has not yet become binding or stayed.

The party opposing enforcement has the burden to prove the invalidity of the award.

Alternatively, the United States has also adopted the Inter-American Convention on International Commercial Arbitration. Foreign commercial arbitral awards will be recognised and enforced on the basis of reciprocity; if the foreign state has ratified or acceded to the Inter-American Convention, that award will be recognised and enforced (FAA section 304). If both the requirements for the application of the New York Convention and the Inter-American Convention are met, unless expressly agreed otherwise, the Inter-American convention will apply if the majority of parties to the arbitration are citizens of a state or states that have ratified or acceded to the Inter-American Convention or are a member state of the Organization of American States. In all other cases, the New York Convention will apply (FAA section 305).

Costs

Can a successful party recover its costs?

In general, parties normally bear their own costs, unless otherwise agreed in the arbitration clause. The arbitrator may award administrative costs if the parties have contracted for such or the rules of the administering arbitral association so provide. Typically, costs do not include attorneys’ fees, but an arbitrator may award attorneys’ fees when allowed by the governing law, such as when authorised by a specific statute, when the applicable arbitration rules so provide or as a matter of contract as provided for by the parties.

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18 May 2020