Vacating An Arbitration Award Remains Difficult

February 24, 2017
Vincent M. DeOrchis

Types : Alerts

ICC Chemical Corp. v. Nordic Tankers Trading A/S

The issue of whether an arbitration award in the U.S. can be set aside because the arbitrators were in “manifest disregard of the law” has been pulled along in the wake of recent case law, in spite of the U.S. Supreme Court’s 2008 decision in Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (2008), which suggested that the principle of “manifest disregard of the law” was dead.  In a very recent published opinion from the federal court in New York, titled I.C.C. Chemical Corp. v. Nordic Tankers Trading, the lower court was confronted with a motion to vacate an arbitration award based on manifest disregard. The federal judge rejected the application, finding that the arbitrators had not been in manifest disregard of the law when they held that a that a shipowner was not liable for 36 tons of contaminated foot samples of Paraxylene that were tested three times and failed each time for being off spec, at which point the charterers cancelled the charter.

The federal judge noted that the majority of the Panel was justified in their conclusion because the majority had found that the Charterer failed to conduct the necessary tests to determine if the product was contaminated before loading.  The majority was also critical of the inspector’s procedures.

Charterer sought to vacate the award for manifest disregard of the law because the Panel did not require the shipowner to first prove due diligence to make the vessel seaworthy.  The federal judge disagreed, holding that the Panel did make a finding that the Owner made every effort possible to present a clean and suitable vessel, and that the burden was on Charterer, as the shipper, to show the cargo was fit.

The judge confirmed that seeking vacatur of an arbitrator’s decision must clear a “high hurdle.” More importantly, the disctrict court noted that an arbitrator’s rationale for an award need not be explained, and the award will be confirmed so long as the grounds can simply be inferred from the facts in the case. “Only a barely colorable justification for the outcome reached by the arbitrators is necessary to confirm an award.”

The district court also accepted as a general principle that, “where a dispute centers on contaminated cargo, the shipping party bears the burden of showing its cargo was not contaminated prior to loading; however, where the dispute regards fitness of a vessel, the burden is on the vessel owner to show its due diligence in presenting a fit vessel.”

ST Shipping & Transport PTE, Ltd. v. Agathonissos Special Maritime Enterprise

The ICC Chemical Corp. decision was followed a month later by the decision in ST Shipping & Transport PTE, Ltd v. Agathonissos Special Maritime, in which another Charterer, ST Shipping, sought  to vacate an award in favor of an Owner for demurrage following delays from a collision.  The Charterer complained that the Panel made a decision although they had “incomplete discovery and evidence on the record” as to whether the delays were in fact attributable to the collision.

The federal judge, citing the “high bar” needed to vacate an arbitration award, noted that “only the most egregious error which adversely affects the rights of the party constitutes misconduct” to support vacatur, and that even” erroneous exclusion of evidence does not provide a basis to set aside an award absent harm to the moving party.”  Indeed, the federal judge went on to note that the Panel did not refuse the evidence, but rather ST Shipping never offered any evidence, nor did ST Shipping ever request an opportunity to cross examine the other side’s witness or even object to their testimony. Given the fact that an SMA Panel can hear evidence solely on the documents submitted, an arbitration panel has no obligation to provide a hearing.

In conclusion, while American law does permit some very limited grounds for vacating an arbitration award, pursuing such an argument on the basis that the Panel was in “manifest disregard of the law” requires a very tough and high standard of demonstrating that the Panel did not just make a mistake or committed misconduct.  The moving party must demonstrate that the misconduct amounted to “a denial of fundamental fairness of the arbitration proceeding,” which federal judges were very cautious in determining.




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