International arbitration law and rules in New York

New York has developed a significant body of state law on arbitration, both through the common law and statutory modifications; however, the application of the FAA has limited the number of arbitration agreements and disputes that are subject solely to New York state law. Unlike many other jurisdictions, arbitration in New York is not based on the UNCITRAL Model Law.

The statute governing arbitrations in the United States is the Federal Arbitration Act (FAA). 1 This chapter primarily addresses the reach and import of the FAA on international arbitration agreements and arbitral proceedings seated in New York, where the FAA has been broadly applied due to the United States’ federalist structure and the supremacy of federal law. New York state law  (which is not based on the UNCITRAL Model Law)  is discussed in this chapter where it is of particular importance, either because it supplements the application of the FAA or because the rule it offers is of particular note. 

2.1.1 The FAA was initially introduced in 1925 in order to eliminate historic judicial hostility to arbitration agreements in the United States and to place arbitration agreements on the same footing as other contracts. 2  The statute was further amended, codified and restructured in 1947. More recently the FAA was updated to mandate the enforcement of the New York Convention and the Panama Convention, when these treaties were ratified. The FAA now consists of three chapters: (i) General Provisions (Chapter 1); 3 (ii) Enforcement of the New York Convention (Chapter 2); 4  and (iii) Enforcement of the Panama Convention (Chapter 3). 5

2.1.2 The scope and application of the FAA depend on the type of agreement, transaction or award at issue, as discussed below.

2.2.1 The FAA applies to arbitral proceedings seated in the United States that relate to “foreign commerce” 6  and “maritime transactions” 7  (including general matters of admiralty jurisdiction and other common activities associated with maritime trade). Unlike the explicit and specified nature of the “maritime transactions”, the FAA defines “foreign commerce” broadly as “… commerce among the several states, other nations or the various territories…”. 8 Any activity that may impact interstate commerce, even if that transaction is not commercial in nature, may be considered “commerce” under this definition. 9

2.2.2 In light of this broad definition, almost all commercial arbitration agreements that involve transactions or proceedings connected with the United States – whether by the domicile of the parties, the nature of the transaction or the enforcement of the award – will be subject to the FAA. 10  International arbitrations seated in New York and awards that parties seek to confirm or enforce in New York will be subject to the provisions of the FAA. 11

Application of Chapter 2 of the FAA: Enforcement of the New York Convention

2.2.3 The provisions for the enforcement of the New York Convention in the United States are set out in Chapter 2 of the FAA. 12  This chapter can only be applied to arbitration agreements and awards that relate to commercial relationships (as defined by federal law), where one of the parties is not considered a “citizen” of the United States and / or the dispute has some other relation to a foreign state. 13

2.2.4 In relation to arbitration agreements, the Second Circuit Court of Appeals (Second Circuit)
– the relevant court of appeal for federal cases in New York – has determined that Chapter 2 (ie, the New York Convention) applies if the arbitration agreement:

1. is in writing;
2. provides that the arbitration will be seated in a territory of a signatory to the New York Convention;
3. has a commercial subject matter; and
4. is not entirely domestic. 14  Commonly, in these circumstances, both Chapters 1 and 2 of the FAA may apply. Where the rules in each chapter do not conflict, the parties have a choice as to enforcement, otherwise the provisions of the New York Convention prevail.

Application of Chapter 3 of the FAA: Enforcement of the Panama Convention

2.2.5 Chapter 3 serves to enforce the provisions of the Panama Convention and its relationship to the other provisions of the FAA. 15

Which Convention Governs: The New York Convention or the Panama Convention?

2.2.6 There are a number of jurisdictions that have acceded to or ratified both the New York Convention and the Panama Convention, which may give rise to a conflict of laws issue. 16  Chapter 3 resolves this issue by putting forward two clear possibilities:

1. if the majority of parties to the arbitration agreement are nationals of member states of the Organization of American States (OAS) and those member states have ratified or acceded to the Panama Convention, then the Panama Convention will apply; or
2. the New York Convention will apply. 17

2.2.7 There are differences between the New York Convention and the Panama Convention, so deciding which treaty applies may have an impact in certain cases. Situations of particular note are set out below. In any case, the Conventions are largely enforced through the same mechanism of applications made by the parties through the federal district courts. 18  Chapter 1 of the FAA serves to supplement both Conventions in this regard. 19

2.3.1 While the FAA does not explicitly set out a purpose or guiding principles, the Supreme Court and the vast majority of commentators have agreed that the following fundamental principles guide the interpretation of arbitration law in the United States, including New York:

• A policy favouring arbitration. The FAA represents a federal public policy decision to favour arbitration and is now universally recognised to supervene contrary state policies (where the parties can be considered to have agreed to arbitration). 20   
• A common intention to arbitrate. The federal policy favouring arbitration is predicated on the agreement of the parties to submit their dispute to arbitration. 21  United States courts therefore place significant importance on contract validity and scope of the arbitration agreement and seek to ensure that parties compelled to arbitrate their claims actually agreed to arbitration.
• Freedom of contract or “party autonomy”. Other than to show the existence of an agreement to arbitrate (eg, a written agreement) there are few mandatory requirements for arbitration in the United States. 22 Parties may waive the provisions of the FAA in favour of state law (by referring to the state law explicitly), agree to whatever procedure they may wish and freely limit or expand the scope of issues to be considered by arbitration. 23

3.1.1 Under the FAA, there must be the existence of a valid, written agreement to arbitrate a dispute or claim. This agreement may be a separate agreement between the parties or a clause within a commercial contract (the terms “arbitration agreement” and “arbitration clause” are used interchangeably in this chapter). 24  This is the only formal requirement under the FAA.

3.1.2 For international commercial arbitration agreements governed by the New York Convention, the Second Circuit interprets “written” to include “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”. 25  The Second Circuit has held that the New York Convention requires that an arbitration agreement must either be signed by the parties or combined in a series of letters or telegrams in order to be effective. 26

3.1.3 Beyond these basic requirements, there may be larger questions concerning the validity of the arbitration agreement. For instance, disputes may arise concerning the existence or scope of the arbitration agreement. These two issues have been termed “gateway issues” 27  and how they are resolved is fundamental to understanding both the procedure and process of enforcing arbitration agreements in New York. The Supreme Court has sought to resolve some of these issues through its jurisprudence on the issue of severability.

3.2.1 Federal law supports the concept of severability (also referred to as “separability”), pursuant to which an arbitration clause should be considered separately from the underlying contract (Container Agreement). 28  This concept ensures that although there may be defences against the existence of the contract as a whole, eg, fraudulent inducement (sometimes referred to in other jurisdictions as “deceit” and/or “fraudulent misrepresentation”), a court considering the objections of a party contesting the validity of the arbitration agreement may only consider defences that relate specifically to the formation of the arbitration agreement. 29  All other defences concerning the Container Agreement (apart from issues concerning the validity of the arbitration agreement) are left to be considered by an arbitral tribunal. 30

3.2.2 The concept of severability is interconnected with the doctrine of arbitrability (addressed below at paragraph 5.1.1) and the authority of arbitrators to define their own jurisdiction.

3.2.3 However, the issue of whether an arbitral tribunal can consider defences to the formation of the arbitration clause (as opposed to the Container Agreement) is an open debate. There is varying case law on this point in United States circuit courts, particularly concerning the issue of fraudulent inducement, suggesting that this is still a developing area of the law. 31

3.3.1 The choice of New York as the seat for an international arbitration will, in almost all situations, mean that the provisions of the FAA apply. However, depending on the issue and the circumstances, the FAA may not be self-sufficient. Although the FAA constitutes federal substantive law, 32  it sometimes requires the existence of supplemental law where there is no substantive law on point. For example, while the FAA requires that agreements to arbitrate be enforced, neither the FAA nor federal law defines what an “agreement” is (eg, offer and acceptance, consideration, etc). 33  As a result, the application of the FAA will depend on the applicable substantive law and, as demonstrated below, the applicable substantive law may be determined by the wording of the Container Agreement or arbitration clause, the stage in the proceedings and the issues considered.

Where there is a governing law clause

3.3.2 Where parties have explicitly included a valid governing law clause for the Container Agreement or a governing law clause specific to the arbitration clause, courts in New York will generally apply the law chosen by the parties to questions concerning the existence, formation and validity of the arbitration agreement based on the principle of party autonomy. 34  However, there are two exceptions to this rule:

• when a party is seeking to apply an arbitration agreement against a non- signatory to the contract; 35 or
• when there is basis for asserting the authority of federal law and the law chosen by the parties is adverse to arbitration, at least as compared to the federal policy embodied by the FAA. 36

3.3.3 If the courts in New York refuse to enforce the governing law clause for the reasons set out above, they may choose to apply only those provisions of law that are “non-offensive” to arbitration. 37

3.3.4 The second situation set out in paragraph 3.3.2 occurs mainly when the parties choose state law as the governing law. As noted above, the FAA is more “pro-arbitration” than New York state law. 38  When parties specify New York law in the Container Agreement’s governing law provision, courts in New York have applied substantive New York law to issues of general contractual interpretation while ignoring more restrictive statutes that are specific to arbitration. 39

3.3.5 If the parties have specified foreign law in the governing law clause (eg, English law), they should be aware that certain mandatory statutory rights under United States law may still exist outside the scope of the arbitration agreement. Recent cases have suggested that where a forum selection clause and choice of law clause operate together as a prospective waiver of a United States citizen’s (both individuals and corporations) statutory rights, then that arbitration clause may be deemed unenforceable with regard to those statutory claims. 40  Parties seeking to include the application of foreign law should be aware of this potential difficulty and add language to their choice of law clause that explicitly waives statutory rights under United States law.

Where the agreement does not provide for the governing law

3.3.6 Where the parties have not specified a law governing the arbitration agreement, then the courts of New York will apply a conflict of laws analysis to determine the relevant substantive law that will be used to supplement, when necessary, the applicable provisions of the FAA. 41

3.3.7 The New York approach to determining the applicable substantive law is an “interest analysis”, which seeks to apply the law of the jurisdiction with the greatest interest in the outcome of the dispute. 42 This analysis will consider the domicile of the parties, the place of execution and the place of performance of the contract, among other factors. 43

Construction of the New York Convention and Panama Convention

3.3.8 A further issue to consider in an international arbitration is how the relevant treaties will be interpreted. This is an issue of statutory interpretation. Parties to non-domestic arbitration agreements can be assured that, at the very least, the provisions of the applicable Convention will be enforced. However, there is not a uniform method as to how these provisions, and the “null and void” provision in particular, will be applied by New York courts.

4.1.1 The FAA does not provide a formal method for the constitution of the arbitral tribunal. Rather, the FAA relies on the parties’ agreement, either within the arbitration agreement or separately, as to how the arbitral tribunal is to be constituted. This is done through the incorporation of institutional rules or on an ad hoc basis where the parties agree their own arbitral procedures, including the constitution of the arbitral tribunal.

4.1.2 Where the parties disagree on the appointment process, eg, where the arbitration clause is unclear on the appointment mechanism and the parties cannot subsequently agree an alternative method of appointment, the issue may come before the courts, whereby the court will seek to determine the intention of the parties. The courts may unilaterally appoint arbitrators 44 or refer the parties to an appropriate arbitral institution. 45

4.1.3 In rare cases, the courts may determine that the failure to incorporate proper institutional rules undermines the intention to arbitrate and they will refuse to enforce the arbitration agreement. 46

4.1.4 In certain circumstances, the arbitration clause may clearly indicate the parties’ intention to arbitrate the dispute, but fail to specify any method for choosing arbitrators. In this case either party may apply to a federal district court to make an appointment. 47  Courts in New York typically nominate sole arbitrators where the agreement is completely silent as to the constitution of the arbitral tribunal. 48 While the courts do receive occasional applications through this statute or by other means, they do not retain lists of arbitrator candidates and have no standing procedures for appointments.

4.2.1 The FAA does not explicitly provide for the removal of arbitrators during arbitral proceedings. The New York courts have held that, except in very specific situations, the courts will not entertain applications for the removal of arbitrators because of alleged “inadequate qualifications or partiality”. The courts will consider these concerns only when an award has been rendered. 49

4.2.2 A New York court will remove or order the substitution of an arbitrator when it considers that the intention of the parties to conduct an impartial arbitration has been frustrated, for example, when it concludes that one party has deceived the other concerning the nature of its relationship with the arbitrator. 50  The types of situations in which the courts will intervene are very limited. The applicant must sufficiently demonstrate that failure to remove the arbitrator would frustrate the intent of the parties. 51

4.2.3 Where a court does intervene, or in other instances where an arbitrator needs to be replaced (eg, on the death of an arbitrator), the method of appointment is at the discretion of the court. In some cases, a court has simply ordered the relevant party or parties to appoint a new arbitrator. 52  A party may make an application under the FAA to request a court to appoint a replacement arbitrator, as discussed above at paragraph 4.2.1. 53

4.3.1 Parties are free to agree to split the arbitrator fees and expenses as they wish. The FAA does not require that parties split these fees, and where the parties determine that fees should be borne unevenly, or even by one of the parties entirely, the courts will defer to the agreement of the parties. 54

4.3.2 Where the parties are silent as to how arbitrators’ fees and expenses should be split or where the arbitration agreement provides for it, the issue may be determined by the arbitral tribunal. If the arbitration agreement is silent on this point, this will not render the arbitration agreement invalid. 55

4.4.1 The United States courts generally subscribe to the “jurisdictional theory” of judicial immunity whereby any party who undertakes a judicial function is entitled to absolute immunity. 56  Within the Second Circuit, arbitrators in commercial arbitrations are considered the functional equivalent of judges and therefore are entitled to absolute immunity. 57  This immunity has also been held to apply to arbitral institutions that appoint arbitrators and supervise the arbitration. 58

4.4.2 An exception to absolute immunity arises where an arbitrator has clearly acted outside the scope of his or her jurisdiction. 59  However, this exception is limited, particularly given the typically broad authority generally granted to arbitrators in arbitration agreements (eg, the authority to resolve “any and all” disputes).

5.1.1 On the issue of competence-competence, in contrast with arbitration law in other jurisdictions, the Supreme Court has held that the courts shall determine the jurisdiction of the arbitral tribunal, absent the agreement of the parties. 60 Courts in New York will require clear and unmistakable evidence that the parties intended the arbitrators to determine their own jurisdiction. 61 Where the requisite intent is demonstrated, a court will order the arbitral proceedings to commence and the arbitral tribunal will have the authority to determine the issues that are arbitrable under the clause. Courts in New York show considerable deference to the determinations of the arbitrator on jurisdiction. 62

5.1.2 The “clear and unmistakable evidence” standard required to determine jurisdiction ensures that arbitration remains consent-based. 63  The standard can, however, be easily satisfied. Where parties indicate that “any and all disputes” should be resolved by arbitration, New York courts will enforce that intention to the fullest, and arbitrators will determine their own jurisdiction. 64 Where the parties incorporate arbitral rules that confer the same authority or specifically grant arbitrators the power to determine their own jurisdiction, the courts will enforce those rules. 65

5.1.3 Where the “clear and unmistakable evidence” standard is met, both substantive and procedural issues will be submitted to the arbitral tribunal. If a court does not find clear and unmistakable evidence that the parties intended the arbitral tribunal to determine its own jurisdiction, the court should determine the issues that may be addressed by an arbitral tribunal and compel arbitration on these issues alone. 66  Procedural defences will normally be submitted to the arbitral tribunal (barring language in the agreement suggesting otherwise). This includes procedural defences predicated on issues such as the statute of limitations, contractual time limitations, the doctrine of laches, etc. 67

Merits-related issues

5.2.1 As noted above, the default federal rule is that, unless the parties “clearly and unmistakably” specify the arbitral tribunal’s authority to determine its own jurisdiction, the courts will decide the jurisdiction of the arbitral tribunal. However, regardless of who actually determines the arbitral tribunal’s jurisdiction, the default presumption is that any ambiguity concerning the scope of the arbitral tribunal’s jurisdiction should be resolved in favour of arbitration. 68 Where the parties wish to limit the issues that an arbitral tribunal may consider, they must express that intention explicitly. 69

Formation-related issues

5.2.2    Issues concerning the jurisdiction of the arbitral tribunal, and the formation of the Container Agreement and the arbitration clause, have been a topic of recent consideration by the Supreme Court. 70 The Supreme Court has held that where the formation-related issue is concerned with the validity of the Container Agreement, it is an issue for the arbitral tribunal to consider. However, where the formation-related issue concerns the validity of the arbitration clause specifically, it is an issue for a court to resolve.

5.3.1 Where parties provide the arbitral tribunal with a broad mandate to fashion remedies (eg, “to resolve any and all disputes”), the arbitral tribunal has comprehensive authority to resolve the dispute and ensure a meaningful resolution, including the ability to grant interim relief. The courts will not undermine the authority of the arbitral tribunal in this regard as long as they have not exceeded the powers granted to them by the arbitration agreement. 71 This power is expansive, even allowing arbitrators to fashion remedies (interim and otherwise) that courts in New York may not grant and that may include remedies of injunctive relief and specific performance. 72

5.3.2 Although an arbitral tribunal will typically have the power to grant these interim measures, such measures must be capable of being enforced. The process must abide by the due process requirements of United States courts. 73  Additionally, interim measures should conform to the requirements of an “arbitral award” where the dispute is subject to the New York Convention or the Panama Convention. 74  This is not to suggest that interim measures are, in and of themselves, “awards” in the sense of being permanent and lasting. Rather, it means that the order of an arbitral tribunal communicating such interim measures must be reasoned and unappealable.

5.3.3 As a general rule, courts in the Second Circuit are reluctant to vacate interim awards aimed at ensuring a meaningful resolution of the dispute. 75

6.1.1 Arbitration should be commenced in accordance with the terms of the arbitration agreement. Frequently, where the parties have incorporated private institutional rules, there will be institutional mechanisms and requirements that need to be fulfilled. If one of the parties refuses to participate in the process, they may be compelled by the courts to arbitrate (this is discussed below at section 8.3).

6.1.2 If the terms of the arbitration agreement are silent as to how the arbitration commences, but clearly indicate the parties’ intention to arbitrate, then proceedings may be commenced through the courts to compel arbitration. 76

6.2.1 Arbitral tribunals are permitted to conduct arbitral proceedings as they see fit, so long as the proceedings are in accordance with the intention of the parties, as expressed in the arbitration agreement. Where the arbitration agreement is silent as to how the arbitration will proceed, the arbitral proceedings will generally be administered by the subsequent agreement of the parties or the decision of the arbitral tribunal (usually through the means of a procedural hearing). An exception to this principle arises when an arbitration agreement is governed by the Panama Convention, which expressly incorporates the rules and procedures of the 1988 Inter-American Commercial Arbitration Commission (Inter-American Commercial Arbitration Rules). 77  In this situation, for arbitration agreements also subject to the FAA, the Inter-American Commercial Arbitration Rules will apply. 78

6.2.2 In addition to any agreement by the parties, the arbitral proceedings must meet minimum standards of fundamental fairness and due process to avoid grounds for vacating the eventual award. This amounts, at the very least, to notice of the hearing and the opportunity for both parties to present evidence and be heard before an impartial arbitral tribunal. 79

Consolidation

6.3.1 Where there are multiple arbitrations involving the same facts or claims, consolidation may be an option to aid the efficiency of the process. Courts in New York consider consolidation to be a “procedural issue” that is presumptively for the arbitral tribunal to decide. An arbitral tribunal’s decision concerning consolidation will only be overturned by the courts if the arbitral tribunal has “exceeded its powers” 80 (and a court will only have jurisdiction to overturn such decision if one of the parties submits a motion to vacate the award, as discussed below at paragraphs 9.1.1  and following). 81

6.3.2 With regard to the consolidation of arbitral proceedings by the courts, there are varying approaches among the several circuits. Consolidation is possible under the FAA, however, the Second Circuit considers that courts have no authority to consolidate arbitrations without party consent. 82

Joinder and intervention of additional parties

6.3.3 Joinder or intervention of third parties in international arbitration is limited. Participation in arbitration is a matter of consent: the parties must consent to the addition of another party to the arbitration (either in the arbitration agreement, through rules incorporated in the agreement or after the arbitration has commenced through subsequent agreement by the parties).

6.3.4 There may be instances where the parties have already agreed to participate in an arbitration and, on this basis, are subject to joinder. Frequently, in joinder cases, these parties are non-signatories to the arbitration agreement. As presented by the Second Circuit, the primary basis for joinder of parties in this situation falls along the basis of agency and interrelated agreements. Within the Second Circuit there are a number of established theories for arbitration with a non-signatory to the agreement:

1. Incorporation by reference. A party to an agreement that does not contain an arbitration clause explicitly incorporates an agreement that does. The signed contract need not specifically reference the arbitration clause. 83
2. Assumption by conduct. Where a party indicates that it is assuming the obligation to arbitrate, it may be bound to the agreement. 84
3. Principles of agency. Where an agent signs on behalf of a non-signatory principal with either actual or apparent authority to do so. 85
4. Piercing the corporate veil. Where one legal entity dominates the other to the extent that it assumes the latter’s obligations; the test for piercing the corporate veil is borrowed from New York corporate law. 86
5. Estoppel. Courts have applied a theory of equitable estoppel whereby a party cannot purposefully take advantage of some of the benefits of a contract (eg, the performance by the other party) without being subject to the obligations of the same contract (eg, the arbitration clause). 87
6. Third-party beneficiaries. An estoppel analysis might also apply when parties to the contract intend that a non-signatory third party may be able to rely on or be bound by the terms of the agreement. 88

6.3.5 When a non-signatory seeks to compel a signatory to arbitration, courts will generally find that the intention of the parties is a matter for the arbitrator to decide. However, when a signatory seeks to compel a non-signatory to arbitrate, the very existence of the agreement to arbitrate arises. As a result, courts frequently assert jurisdiction in determining whether a non-signatory can be compelled to participate in arbitration by other parties. 89

6.4.1 The expectation of “fundamental fairness” and considerations of due process require that the arbitral tribunal give the parties an opportunity to be heard and present evidence. Arbitral tribunals must allow the parties to present all evidence that “is pertinent and material to the controversy”, although an arbitral tribunal is afforded broad discretion regarding what is “pertinent and material”. The arbitral tribunal is not required to hear all the evidence providing each party has an adequate opportunity to present its case. 90

6.4.2 While the arbitral process may be informal, it commonly includes both written submissions and oral hearings; however, an arbitral tribunal has discretion in deciding whether to conduct an oral hearing. 91 The minimum requirements of the “fundamental fairness” test are illustrated by what the courts have required in actions to vacate an award on the basis of “denial of the opportunity to present one’s case”. These are set out below at paragraphs 9.2.2 and 10.2.4 (ii).

6.5.1 The majority of institutional rules provide for the event where one party fails or refuses to take part in the arbitral proceedings. These rules typically permit the arbitral tribunal to render an award, notwithstanding the failure of one of the parties (often the respondent) to participate in the proceedings. As the rules are agreed to by the parties, a federal court will enforce any resulting award so long as it meets the requirements for enforcement under the FAA and the relevant Convention (see below at section 10). 92

6.5.2 If the incorporated rules do not specify a procedure for default by a party, a court may still confirm the award. 93 Case law is scarce on this issue, but the courts will look to whether or not the “fundamental fairness” standard is achieved by the proceedings. 94 In difficult situations where the issue of default has not been contemplated in the arbitration agreement or where the arbitration agreement is to be enforced against a non-signatory, it may be preferable for the party seeking arbitration to seek the intervention of the courts and an order to compel the reluctant party to arbitration (see below at section 8.3).

6.6.1 Both the FAA and New York state law recognise the right of the arbitral tribunal to compel witness testimony. The ability to compel witness testimony also applies to entities that are not party to the arbitral proceedings. 95

6.6.2 In addition, the Second Circuit has interpreted this grant of authority to extend to documents and pre-hearing discovery. 96 There has been some debate among the federal courts about the scope of this authority and whether or not an arbitral tribunal may order pre-hearing discovery against non-parties to the arbitral proceedings. 97 The Second Circuit has found that the arbitral tribunal may only compel pre-hearing discovery from parties that are engaged in the arbitral proceedings. 98  In addition, pre-hearing discovery may be further limited either by the agreement of the parties or the discretion of the arbitral tribunal (which may be impacted by other limits on its authority). 99

6.6.3 In the words of the Supreme Court, when a party agrees to arbitrate, it “trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration”. 100  For this reason, unless agreed by the parties, the evidentiary rules of commercial litigation in the United States do not apply to international arbitrations in New York. As a result, discovery (and disclosure) is significantly more limited for arbitrations in New York, as compared to New York court-based proceedings.

6.6.4 However, where the parties have specified something contrary to this rule, for example, that the Federal Rules of Civil Procedure should apply, the courts will enforce this agreement. Where the evidentiary rules of federal or state courts are explicitly incorporated into the agreement, the degree of discovery is likely to be broader than in other jurisdictions; incorporating depositions of witnesses, interrogatories and expansive requests for admissions.

6.6.5 In certain situations, the arbitral tribunal or the parties may seek to rely on the courts to obtain evidence that the arbitral tribunal does not have the authority to compel. The most notable of such measures is a motion under 28 U.S.C. § 1782 (assistance to foreign and international tribunals and to litigants before such tribunals). The current view of the Second Circuit on this issue is discussed in more detail at paragraph 8.6.1 below.

6.7.1 While international arbitration is generally characterised as private and confidential, under both federal and state case law there is no duty of confidentiality absent party agreement. If the arbitration agreement does not contain a confidentiality clause or obligations of confidentiality via institutional rules, either party may disclose the details of the arbitration to any third party. 101

7.1.1 The FAA does not provide guidance on the issue of remedies. Subject to the agreement of the parties, or where the arbitration agreement is silent as to the issue of remedies, the arbitral tribunal has wide discretion on the range of remedies it may consider and / or issue. In fact, an arbitral tribunal may issue relief that a court may not have permission to grant had the parties chosen to litigate the dispute. 102 However, arbitral tribunals typically apply the substantive law, either of the forum or the law chosen by the parties, to the calculation of damages. Although there are numerous theories of damages that may apply under New York law, there are several common categories of damages that may apply:

• Actual Damages. As held by the Second Circuit and New York courts, the key limitation to actual damages is causation. An injured party must show that the other party’s conduct directly and proximately caused its loss. 103 The amount of damages is limited to reasonable compensation for loss, although parties may be entitled to “lost profits” (subject to some limitations). 104
• Special (or consequential) damages. New York law defines “special damages” as those which do not flow directly from a breach of contract. They are recoverable only in very limited circumstances. When parties specifically disclaim or include the possibility of special damages, the terms of the agreement will determine the matter (unless the terms are found to be unconscionable). 105
• Punitive damages. Arbitrators are not permitted to award punitive damages in arbitrations governed solely by New York state law. However, the FAA pre-empts state law in this regard. If the FAA is applicable to the arbitration agreement, the arbitral tribunal has the discretion to award punitive damages in accordance with the intention of the parties. 106 For arbitration agreements that are subject to the FAA, parties may wish to specifically disclaim the application of punitive damages in the arbitration clause.
• Specific performance. The general rule in New York is that the use of specific performance as a remedy should be limited to situations where monetary damages are inadequate to redress the harm. This may occur if goods or services are unique and it is difficult to establish a market value for them. 107 Where applicable, an arbitral tribunal may prescribe these remedies, although ultimate enforcement of the remedy will likely fall to the courts.

7.2.1 Under the FAA there is no limit to an arbitral tribunal’s discretion with regard to interest. New York law does not regard pre-judgment or post-judgment interest as a penalty, but rather as the cost of using another’s money for a specified period. New York law provides that pre-judgment interest be awarded at a rate of 9% for all breach of contract actions (subject to waiver or agreement by the parties). 108 Post-judgment interest at 9% is always applied by New York courts and will be enforced if awarded by the arbitral tribunal. Parties may vary the post-judgment rate up to the rate of usury (25%). 109

7.3.1 The FAA does not provide explicit directions as to the form and content of the award. As interpreted by the federal courts, the FAA requires that an award be in writing and represent a “final and binding” determination of the issues. 110  The terminology ascribed to the award by the arbitral tribunal (ie, terming it an “award”) will not be determinative; rather, courts look to the substantive effect of the award. If the written award resolves substantive issues before the arbitral tribunal in a final and binding manner, it can be considered enforceable by the courts. 111 If the resolution reached by the arbitral tribunal is predicated on the future resolution of other issues in other proceedings, then the award will not meet the “final and binding” criteria and will not be enforced.

7.3.2 There is no requirement under the FAA that an award be a “reasoned award” unless required by the terms of the arbitration agreement or institutional rules incorporated by the parties. 112

7.4.1 The general rule in the United States is that each party pays its own costs and this is also the standard set out by New York law. Absent an agreement of the parties otherwise, parties will bear their own costs in arbitration.

7.4.2 However, as construed by the Second Circuit, a broad arbitration clause may allow the arbitral tribunal to administer costs at its discretion. 113 Parties may also specifically allow the arbitral tribunal to administer costs (either explicitly or through the incorporation of institutional rules). In such cases, arbitrators will have nearly unfettered discretion – including the discretion to determine whether the costs of ancillary litigation may be included. 114

8.1.1 The appropriate court in which to challenge an arbitration agreement, to seek the enforcement (or confirmation) of an award or to make any other motion relating to arbitral proceedings (collectively, Arbitration-Related Motions) will depend on both the court that maintains the appropriate jurisdiction and, in some cases, the preference of the parties.

8.1.2 Arbitration-Related Motions may only be brought before a federal district court if that court has a basis of jurisdiction. There are three applicable bases of jurisdiction:

1. subject matter jurisdiction; 
2. diversity jurisdiction; or 
3. admiralty. 

8.1.3 For arbitration agreements and awards that fall under the New York Convention or the Panama Convention, the FAA grants the federal courts subject matter jurisdiction. Arbitration-Related Motions relating to an arbitration that addresses a controversy that “arises under” federal law can be brought before a federal district court. Proper federal jurisdiction may also be established under Chapter 1 of the FAA through diversity jurisdiction; so long as no party on one side of the dispute shares a state of citizenship with a party on the other side of the dispute (so-called “complete diversity”) and the amount in dispute is greater than USD 75,000. All disputes concerning admiralty law may be heard by federal district courts.

8.1.4 The vast majority of arbitrations, and all international commercial arbitrations, will have a basis in one of these areas of jurisdiction, and therefore a party will be able to bring an Arbitration-Related Motion before a federal court.
In addition to the requirements discussed above, courts must have personal jurisdiction over the party the motion is made against. 

8.1.5 In all instances where the Arbitration-Related Motions relate to people, property or proceedings (held or to be held) in New York, the New York state supreme courts (so called because they are supreme in general jurisdiction) will have jurisdiction. 115  As a result, for all disputes seated in New York or for motions that impact property held in New York (eg, bank accounts), the New York state supreme courts will have a jurisdictional basis. However, the mere applicability of New York law to a dispute is not a sufficient basis for jurisdiction in New York; there must be more than a subject-matter basis for there to be proper jurisdiction. If proper service of process can be made, a New York state Supreme Court would then have proper jurisdiction over the Arbitration-Related Motion as well.

In federal court

8.2.1 The FAA provides that the appropriate venue for filing Arbitration-Related Motions is in any federal court, which, save for the arbitration agreement, is where the dispute could be brought. 116  There are therefore two appropriate venues for a party to bring Arbitration-Related Motions. The first is in the court where the dispute would have been brought had the arbitration agreement not existed. 117  The second is in the federal district where the seat of the arbitration is located. 118 If the arbitration is seated in New York City, this would be in the United States District Court for the Southern District of New York.

8.2.2 For motions to vacate an award, a separate venue provision applies. The FAA specifies that a motion to vacate an award should be made in the district where the award was made. 119  The Supreme Court has interpreted this as a permissive provision, so a motion to vacate can be made either where the award was made or before any other federal court that has proper jurisdiction. 120

8.2.3 If a party brings Arbitration-Related Motions in the wrong federal district court, the opposing party may make a motion under the Federal Rules of Civil Procedure to dismiss the motion. 121  Alternatively, a motion to transfer the proceedings to an appropriate venue may be made by either party under the Federal Rules of Civil Procedure. 122

In state court

8.2.4 As mentioned above, Arbitration-Related Motions relating to international commercial arbitrations are rarely, if ever, brought before New York state courts. Where they were, it would likely result in the application of the FAA through procedural motions dictated by New York state law. These include motions to commence arbitration and the application of a one-year statute of limitation on the confirmation of an award. 123  In the instance that a party brings a matter in a New York state supreme court, the opposing party may make a motion to remove the matter to the appropriate federal district court. 124

8.3.1 Application of the FAA prior to the arbitral hearing is centred around two motions: a motion to stay arbitral proceedings; 125  and a motion to compel arbitral proceedings. 126  Pursuant to a motion under either of these provisions, a court undertakes an analysis of: (i) the prima facie validity of the arbitration clause; (ii) a determination as to who decides issues of arbitrability (discussed above at paragraph 5.1.1) and, depending on the answer to “who decides”, the court may also consider (iii) the issues to be determined by an arbitral tribunal (discussed above at paragraph 5.1.3).

8.3.2 Applications under Section 3 and 4 of the FAA (primarily concerning stay of arbitral proceedings and orders to compel arbitration) are to be made as motions in accordance with the standards set out in the FAA and the Federal Rules of Civil Procedure. 127  In addition, individual federal district courts have discrete standards for the form and filing of motions and the majority of federal district courts now allow for the e-processing of applications and motions (though notice and service of process still must be made according to the rules of the relevant forum).

8.4.1 As a preliminary matter, courts may consider two questions:

1. The existence of the arbitration agreement. If the court finds the arbitration agreement to be prima facie valid – that is, there is no allegation  of fraud with regard to the arbitration clause specifically – then the arbitral tribunal will consider the issues referred to arbitration.
2. The issues the arbitral tribunal may resolve. Where the parties have “clearly and unmistakably” agreed to submit the scope of the arbitrator’s jurisdiction to the arbitral tribunal itself, the court will refer the issue of what the arbitral tribunal may consider to the arbitral tribunal. If, however, the parties have not indicated that the arbitral tribunal should resolve these issues, the court will determine the issues that the arbitrators may resolve. 128

8.5.1 Arbitral tribunals generally have broad authority to grant interim measures to protect the position of the parties. In some cases, the measures available to the arbitral tribunal may even exceed those available to courts in New York.

8.5.2 The effect of partial awards and interim measures is a matter of debate before United States courts. The Second Circuit has taken a favourable view of interim measures: allowing interim measures that reach a “final and binding” determination on issues to be enforceable as awards under the FAA and refusing to enforce or overrule interim measures that do not amount to a “final and binding” determination. 129  This is not to suggest that interim measures are “final” in a permanent sense; rather, it means that the interim measure is not subject to appeal.

8.5.3 In addition, federal courts remain available to consider injunctions and other interim measures that will help to ensure the efficacy of any award. Parties may seek a motion by applying either state law or federal law standards for injunctive relief under the Federal Rules of Civil Procedure. 130  The latter approach has been applied by federal courts in New York with more success, 131  as state courts appear unwilling to grant preliminary injunctions and attachments where international commercial arbitration agreements are governed by the New York Convention. 132

Court assistance for arbitral proceedings outside the United States

8.6.1 Under the FAA, arbitral tribunals may summon witnesses. The Second Circuit has interpreted Section 7 of the FAA to allow arbitral tribunals also to compel the parties to disclose documents through discovery where determined, as an interim measure by the arbitral tribunal. 133  However, the Second Circuit has explicitly prevented the application of this provision to pre-hearing discovery as applied to third parties who will not be called as witnesses at a hearing. 134

8.6.2 In rare instances, New York state supreme courts may be willing to aid an arbitral tribunal in obtaining evidence, particularly in ordering discovery, but this will only happen in exceptional circumstances where it is a matter of “necessity”. 135

8.6.3 As a practical matter, arbitral tribunals rarely rely on the courts to help obtain evidence during an arbitration. Rather, parties typically comply because an arbitral tribunal may draw adverse conclusions from a party’s failure to comply with its order. 136

Court assistance for arbitral proceedings outside the United States

8.6.4 A Section 1782 motion can only be made in relation to foreign proceedings, ie, where the seat of the arbitration is in a foreign country. Interested parties to these foreign proceedings may request the assistance of a federal court in procuring either testimony or the disclosure of documents from entities within that court’s jurisdiction. In order to do so, parties must at least demonstrate the following:

• that the party seeking the information is an “interested person”;
• that the documents are being obtained “for use in a foreign or international tribunal”;
• that such adjudicative proceedings are within “reasonable contemplation”; and
• that such materials are not privileged. 137

8.6.5 It should be noted that a court is not required to grant a Section 1782 motion. Federal district courts have discretion to grant such motions and compliance is not mandatory. 138  The Supreme Court has set out several factors that courts may consider in making such determinations:

• whether the individual from whom the information is sought is party to the proceedings or a third party;
• the nature of the tribunal, the character of the proceedings and the receptivity of the relevant government, court or agency to such assistance;
• whether the request seeks to circumvent proof-gathering limitations of the foreign country or the United States; and
• whether the request is unduly intrusive or burdensome. 139

8.6.6 The Second Circuit has since ruled on the application of these discretionary factors and has re-emphasised that the applying party does not need to show that the information would be discoverable in the foreign jurisdiction. 140

9.1.1 Where an award is rendered by an arbitral tribunal in the United States, a party who opposes the award may seek to have the award vacated. That party must serve a notice of a motion to vacate on the opposing party within three months of the “date of the award” (as defined at paragraph 9.2.2 below). 141  The circuit courts have interpreted this provision strictly and have denied a motion to vacate an award where a party filed its motion within three months but failed to serve the notice to the opposing party within three months. 142  A party seeking to vacate an award cannot simply wait to raise the application during the other party’s application to confirm the award, and doing so may forfeit the ability to challenge the award.

9.1.2 Applications to challenge an award are made through motions to the court. 143  The procedure and format of the motion will vary depending on the federal district court judge. Parties may submit affidavits, legal briefs and documentary evidence in support of the motion. One of the key requirements for an action that seeks to confirm, modify or correct an award is that the party attach the written award. 144

9.1.3 If a party files a petition 145  before a New York state supreme court in accordance with state procedural law and the petition is removed to the appropriate federal district court, the pending petition will be treated by the federal district court as a motion. However, the procedural rules of the state court process will accompany the removal to the federal district court; meaning any state law deadlines for filing a response will apply in this situation. 146

9.1.4 In the absence of the operation of state rules, the methods specified by the FAA for service of process of motions can be more complicated. 147  With regard to parties that reside in the district where the award was made, the rule is simple: apply the rules for the relevant federal district court. For parties located outside the federal district court where the award was made, the FAA references a method of service of process (service by the U.S. Marshal) that has long been abolished. 148  The present rule is that where the adverse party is not a resident of the district where the award was made then service of process should be made in accordance with Federal Rule of Civil Procedure 4, which sets out various options for service of process. 149  This is implicitly also the rule for service of process on parties located outside the United States.

9.2.1 The substantive grounds for challenging an award, in particular, seeking to vacate an award, depend crucially on where and when the award was “made”. Awards made outside the United States cannot be vacated. An award is made at the time it is “originally decided by the arbitrators”. 150  To avoid ambiguity on this point, some institutional rules require (and some parties set out) that the arbitral tribunal should specify the precise date and place where the arbitral tribunal made the award. If an award is made in a foreign country, the courts in New York do not have jurisdiction to vacate the award. 151

9.2.2 The provisions of the FAA specify the grounds on which an award made in the United States might be vacated. 152  Courts have interpreted these grounds narrowly, consistent with the federal goal of enforcing agreements to arbitrate. 153  Parties are limited to these grounds when moving to vacate an award and they cannot be expanded on, even with the agreement of the parties. 154  Each of these grounds is set out below:

1. Where the award is procured by corruption, fraud or undue means. 155  The courts in New York require that the party seeking to vacate the award demonstrates the existence of the alleged fraud or corruption, shows due diligence in attempting to discover the fraud or corruption prior to the award and shows that the fraud or corruption was material to the decision of the arbitral tribunal. The standard of proof for demonstrating these elements varies among the cases in the Second Circuit, but a common standard is “clear and convincing” evidence. Each basis for vacating the award, “corruption, fraud or undue means” requires intentional misconduct. 156
2. Where there was evident partiality or corruption in the arbitral tribunal. 157  The courts are reluctant to remove arbitrators on the mere allegation of partiality or corruption. However, where a party can show that “a reasonable person would have concluded that an arbitrator was partial to one party”, the resulting award may be vacated. While a demonstration of actual bias is not required, there must be something more than the mere appearance of bias. 158  If a party has a relationship with an arbitrator, the other party has no reason to know of that relationship and that relationship is not disclosed, then the court may take non-disclosure as evidence of partiality and it may vacate the award. 159
3. Where the arbitral tribunal is guilty of misconduct that prejudiced the rights of a party. 160 The misconduct that falls under this section may be characterised as the failure to postpone a hearing or a failure to entertain relevant and material evidence or other misbehaviour. 161  With regard to the nature of the hearing and general conduct of the arbitral tribunal, the courts in New York apply the “fundamental fairness” test discussed above at paragraph 6.4.1. 162  Particularly when considering whether or not a hearing was properly adjourned, the courts will provide wide latitude or discretion to the arbitral tribunal, upholding the decisions of the arbitral tribunal where there is a reasonable basis for doing so. 163
4. Where the arbitral tribunal exceeded its powers or imperfectly executed them. 164  The courts will vacate an award where an arbitral tribunal has exceeded its authority. To determine this, a court will look to the validity of the arbitration agreement and consider who determines the arbitral tribunal’s jurisdiction, as discussed above at section 5.1.

9.2.3 In addition to these provisions, there may also be the optional ground of “manifest disregard of the law”. 165  Although the Supreme Court has called into question the merits of this ground, 166  the Second Circuit continues to acknowledge its existence. 167

9.2.4 The application of “manifest disregard of the law” is severely limited. Mere factual error by the arbitral tribunal or misapplication of complex legal principles will not suffice. Arbitral awards are subject to judicial review only for exceptional irregularity in the process. To successfully vacate an award under this standard, a party must show that the arbitral tribunal knew of the governing legal principle, that the governing legal principle was explicit, certain and clearly applicable to the instant facts, and that the arbitral tribunal refused to apply that governing principle. 168

9.2.5 A party seeking to vacate an award on these grounds must demonstrate these factors both subjectively and objectively. It must be shown that, subjectively, the arbitral tribunal actually knew the governing law and refused to apply it 169  and in doing so, that party must rely on actual statements by the arbitral tribunal (either in the transcript of the arbitral proceedings or in the award) as a party cannot depose the arbitral tribunal to provide a foundation for its motion. 170  It also must be shown, objectively, that there is a clear, explicit and clearly applicable legal principle under the governing law. 171  The more complex the factual situation, the less likely that the second criterion can be demonstrated.

9.2.6 The courts in New York have very rarely vacated an award on “manifest disregard” grounds and will only do so in the most obvious cases. 172

9.3.1 The FAA expressly permits the correction and modification of awards by the courts in three circumstances: 

1. where there is an evident miscalculation or mistaken reference; 
2. where the arbitral tribunal has produced a final and binding result on an issue that was not actually submitted to it (unless the resolution of this issue impacts the decision on the matter submitted); and 
3. when the award is imperfect as to its form in a way that does not affect the merits of the controversy (ie, a date reference within the award is incorrect). 173

9.3.2 A party seeking a modification or a revision must submit a motion in the same way as it would a motion to vacate or confirm (as discussed in section 9.2 above). A party seeking such a correction should note that corrections and modifications are constrained by the actual intention of the arbitral tribunal and should indicate that this is the purpose of the motion. 174

10.1.1 Pursuant to the FAA, enforcement of a domestic award (ie, awards that are not subject to the provisions of the New York Convention or the Panama Convention) is sought through “confirmation”. For commercial awards governed solely by Chapter 1 of the FAA (primarily domestic awards), a party must apply to confirm the award within one year. 175

10.1.2 Under the FAA, a court may confirm an award “if the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration.” 176  The courts in New York have held that they have no jurisdiction to enforce awards without an indication that the parties intended the award to be enforced by a court judgment. 177  The use of the words “final or finally” will be sufficient to communicate this intent. 178  The vast majority of standard arbitration clauses meet this minimal requirement. Where doubts remain, other facts outside the arbitration agreement may be used to demonstrate that the parties intended the award to be enforced by a court judgment. 179

10.1.3 On a motion to confirm, the only barrier to confirmation by the courts is a counter-claim by an adverse party to vacate, correct or modify the award. 180

10.2.1 Awards subject to the New York Convention or the Panama Convention (also referred to as international awards) are exempt from the requirement that the parties demonstrate an intention to have the award confirmed by court order. This includes awards made in the United States but subject to the provisions of either Chapter 2 or Chapter 3 of the FAA because of their international characteristics. 181

10.2.2 The FAA creates an extended period of three years in which parties may make a motion for the confirmation of a non-domestic award. In addition, the FAA specifies simplified procedures for non- domestic awards. A party need only make a motion to the relevant court for confirmation, supported by a “duly certified copy of the award” (or the original), a “duly certified copy of the arbitration agreement” (or the original) and a certified translation of these documents if they are in a language other than English.

10.2.3 As referenced at paragraph 9.2.1 above, the Second Circuit does not have jurisdiction to vacate an award made outside the United States. However, the courts in New York do possess the authority not to recognise awards made outside the United States. While this does not prevent the recognition of the award in other foreign countries, a ruling by a federal district court to this effect would assure the non-recognition of the award throughout the United States (barring the decision of the court being overturned on appeal).

10.2.4 The New York Convention provides the grounds on which a jurisdiction may refuse to enforce an international award. The FAA and case law supplement the New York Convention to the extent they are not in conflict. 182  As a result, courts in New York have severely restricted the scope of review in accordance with the federal policy favouring the enforcement of arbitration agreements. 183  There are seven express grounds for non-recognition under the New York Convention; these and the standards applied by courts in New York are set out below.

1. Absence of a valid arbitration agreement. 184  The courts in New York will apply the FAA to determine whether or not the arbitration agreement is valid. As discussed above at section 3.2, the court will inquire as to whether or not the arbitration clause itself (as distinct from the Container Agreement) is valid. If the court finds that the arbitration clause is valid, then the court will inquire as to whether the arbitral tribunal had the jurisdiction to determine the validity of the Container Agreement. As discussed above at paragraph 5.1.2, the court will determine this on the basis of the “clear and unmistakable evidence” standard. If the parties intended for the arbitral tribunal to determine questions concerning the validity of the arbitration agreement, then the court will defer to its decision. 185  Notably, courts in the United States will apply this line of analysis even when the arbitration agreement is made outside the United States. 186
2. Denial of an opportunity to present one’s case. 187  The courts in New York have interpreted this ground to imply the forum state’s standards of due process. 188  As a result, the courts in New York will ensure that the arbitral proceedings meet the “fundamental fairness” test set out above at paragraph 6.4.1.
3. Exceeding authority. 189 In determining whether an arbitral tribunal has exceeded its authority, the courts in New York will initially enquire whether the parties intended for the arbitral tribunal to determine the issues to be arbitrated. Where this intention is found, the court’s review of this issue will end. Even if this issue is left to the court to decide, courts in New York have interpreted this ground of non-recognition narrowly. A party seeking non-recognition of the award must overcome a “powerful presumption” that the arbitral tribunal acted within its authority. 190
4. Violations of arbitral procedures or the law of the arbitral seat. 191  The courts in New York have established that the New York Convention prioritises the procedural choices of the parties, supplemented by the procedural requirements of the forum. A party seeking non-recognition of an award on this ground must demonstrate that the arbitral tribunal either ignored specific procedural guidelines agreed by the parties, 192  or ignored arbitral procedures required by the seat. In either case, the party seeking non-recognition of the award on these grounds must show a “substantial prejudice” due to the failure to follow procedure. 193
5. Awards that are not binding or have been set aside. 194  Once an award is set aside by courts in the seat of arbitration, courts in other jurisdictions may refuse to recognise the award. Citing concerns regarding reciprocity and comity, the New York courts generally do not confirm awards that have been set aside by foreign courts.
6. Awards that address non-arbitrable issues. 195  A party seeking non-recognition on these grounds must demonstrate that the subject matter of the dispute is not an arbitrable issue in the United States. The Supreme Court has limited these exceptions to instances where Congress has explicitly recognised that an issue cannot be arbitrated. 196  The courts in New York rarely find these grounds applicable. 197
7. Awards that violate public policy of the forum state. 198 Given the ambiguous language of this provision, this is probably the most widely asserted basis for the non-recognition of an award in the United States; it is also the most likely to be refused. The courts in New York interpret this provision in an extremely narrow way. A court will refuse to recognise an award only in the instance that it violates “the forum state’s most basic notions of morality and justice”. 199  The instances where the claims of a party approach this standard are exceptionally rare and generally only occur when there is clear partiality exhibited by an arbitrator, 200  or where an award has been procured by obvious fraud and/or duress. 201

10.2.5 Unless there are grounds for the deferral of recognition or enforcement as set out above, federal courts will enforce an award. 202