Vacating Arbitration Awards for Mistakes of Fact

Article excerpt

I. INTRODUCTION

Arbitration awards are generally understood to be final. Nevertheless, national legislatures and international decisionmakers have seen the need to limit the finality of arbitration awards under certain circumstances. Generally, a defeated party to an arbitration award may try several different routes in order to destroy the effectiveness of the award. First, according to the arbitration rules of most institutional arbitration organizations, the arbitrator himself may correct or clarify the award.1 Second, the party may initiate a judicial proceeding before the competent court to vacate or set aside the arbitration award.2 Third, the unsuccessful party may seek to defend the recognition of the arbitration award in a foreign jurisdiction. Fourth, the party may invoke judicial recourse to hinder enforcement of the arbitration award. This Note addresses the second route only, where the defeated party engages the courts in an attempt to vacate the arbitration award.

Among other sources of law, Article 34 of the UNCITRAL Model Law on International Commercial Arbitration, 9 U.S.C. § 10 (United States Federal Arbitration Act), and section 1059 of the German Code of Civil Procedure (Zivilprozefiordnung (ZPO)) list grounds for vacating an arbitration award. While the German provision has been interpreted to provide an exhaustive list of vacatur grounds, U.S. courts have expanded on the independent bases included in section 10 of the Federal Arbitration Act (FAA) and created common law grounds for vacatur, such as a violation of public policy, a manifest disregard of the law by the arbitrator, and the rendering of an arbitrary and capricious arbitration award.5

Neither the UNCITRAL Model Law nor the U.S. or German provisions expressly address the issue of whether an arbitration award may be judicially reviewed for errors of fact. This Note attempts to create a systematic picture detailing how U.S. courts handle factual reviews of arbitration awards. The U.S. analysis is then contrasted with the position adopted by German courts and commentators. Finally, a solution to the question of how to judicially review arbitration awards for factual errors is proposed.

The Note is organized as follows:

First, it will be pointed out that no international mandatory provisions either mandate a review of facts by domestic courts or generally forbid such a review. In particular, it is argued that, despite some contrary authority, the grounds listed in Article V of the New York Convention do not limit the grounds available in vacatur proceedings. Article 34 of the UNCITRAL Model Law serves as a guideline for harmonizing arbitration laws internationally, but stops short of prescribing mandatory grounds for the annulment of arbitration awards.

Second, the U.S. statutory framework and its interpretation through the courts is analyzed. While one frequently encounters language suggesting that courts generally deny a vacatur of arbitration awards based on errors of fact, this Note argues that federal courts review the arbitrator's factual findings in certain situations. It will be established that a review of the arbitrator's factual findings is mandated with regard to the arbitrability issue, which, in essence, is a review of the underlying agreement rather than the arbitration award itself. The Note also shows that U.S. courts review the arbitrator's fact finding to ascertain whether an arbitration award is arbitrary and capricious. In addition, courts are likely to review facts in order to determine whether a conflict exists between an arbitration award and an established public policy. With regard to U.S. state law, it is noted that any state law providing for a broader factual review of arbitration awards risks being preempted by federal law. Furthermore, this Note explores whether parties are allowed to agree on a broader review of factual errors under U.S. federal and state law.

Third, the German legal framework for setting aside an arbitration award based on factual errors is presented. …