AAA Sets Up Optional Appellate Arbitration Rules for Appealing Arbitral Awards

April 23, 2014

Most charter parties contain arbitration clauses because it is easier, less costly and more efficient to arbitrate a dispute than to resort to the courts, with all their rules, technicalities and appeals that can last for years. The parties can choose a maritime expert panel available from a number of arbitration societies in New York, London or elsewhere.

There was always the expectation of finality once the arbitrator made an Arbitral Award. When maritime arbitrators decide the issues in a dispute, their authority under maritime law is finished. According to the rule of “functus officio,” their authority over the dispute is ended once and for all. Without a maritime appellate option in arbitration rules, the loser usually went running to a Federal court with a complaint that the arbitrators were guilty of “manifest disregard” of the law.

In 2008, the Supreme Court ruled in Hall Street Associates that the limited grounds for appeals stated in the Federal Arbitration Act are exclusive and cannot be expanded by terms of a private contract. It led some federal courts to conclude that appeals on the grounds of “manifest disregard” were no longer valid.

What was needed was a way of appealing an arbitral award to an appellate arbitration panel.

In November 2013, the American Arbitration Association resolved the problem by issuing its own “optional” Appellate Arbitration Rules and set up a special way to appeal to its appellate tribunals.

The option is consensual and both parties must agree to use the new rules, either in the charter party or in a post-dispute agreement. They can appeal to a sole arbitrator or to a panel of three arbitrators. They can choose experienced arbitrators from panels maintained by the American Arbitration Association or by the International Center for Dispute Resolution. The panels are chosen by the AAA or ICDR if the parties cannot agree.

A party can appeal from an error of law, but only if it can be shown to be “material or prejudicial.” An appeal from an error of fact is allowed only if “clearly erroneous.” The appeal can be filed within thirty days and should be concluded within three months.

The option should help relieve the already overloaded federal courts. The AAA Rules are general and not just for maritime disputes.  They can be adopted in whole or in part by other arbitration societies.