An arbitration award is issued when an arbitration ends by the arbitrator or arbitration panel. Similar in some ways to a judgment from a court, an arbitration award decides how the dispute will be resolved. However, it also has some distinct differences from a litigation judgment. In some cases, an arbitral award will not be binding. Most arbitration awards cannot be appealed or challenged. The enforcement mechanism is often different between judgments and arbitration awards as well. Still, an arbitration award is the eventual result of an arbitration, and understanding what an arbitration award is and how it works will give parties confidence in choosing to participate in the arbitration.
Arbitration: A Brief Description
To understand the ins and out of an arbitration award, it is best to quickly describe the arbitration proceeding. While a thorough discussion of the arbitration process is a separate article, a quick understanding of the process will be sufficient to understand an award. An arbitration proceeding is a private alternative dispute resolution process in which the parties present and submit their case to a single arbitrator or a panel, and the panel issues a decision on the case called an award. In most cases, an arbitration award is binding, meaning that the decision is final and can be enforced. An arbitration will usually include the following steps:
- Arbitration Agreement: To submit a dispute to arbitration, the parties must agree to arbitrate. This is usually done in a contract between the parties before the dispute arises, but the parties may agree after a dispute arises as well.
- Invitation: The parties can choose and invite arbitrators. They can choose a specific arbitrator, or reach out to arbitral organizations for an arbitrator referral. The parties will then extend an invitation.
- Appointment: The arbitrator will be appointed to the dispute and begin to set up the format for the arbitration.
- Initial Hearing and Discovery: The arbitrator will usually hold an initial hearing to establish rules, schedule deadlines, and ask the parties to exchange information.
- Arbitration Hearing: During the hearing, the arbitrator will hear each side of the case.
- Award: The arbitrator will issue an arbitration award that outlines the outcome of the case.
Important Considerations for Arbitration:
While the arbitration process has many benefits, as other parts of this article will discuss, there are certain limits placed on arbitration awards that will need to be considered when choosing to use arbitration. These considerations include:
- Final Nature: An arbitration award is final and, as will be discussed later, there is very little room for appeal or challenge. Parties considering arbitration should do a full and realistic evaluation of their chances of winning. If the parties’ positions are very close and the parties are not certain they would like the outcome, it may be best to proceed with a less final option, which could be litigation or mediation.
- Binding: Unlike mediation, which allows the parties to decide to agree at the end or leave, once the parties begin the arbitration, the arbitrator’s award at the end will be binding and enforceable unless the parties have agreed otherwise.
- No Subsequent Trial: Agreeing to arbitrate a dispute will waive any rights to trial that a party may have. A subsequent trial cannot be held on the same facts.
Arbitration Award Defined:
An arbitration award, as discussed above, is the decision in the case as decided by the arbitrator. The award can offer a variety of remedies to the parties depending on the issue of the dispute. These possibilities include:
- Money: Many awards will decide that one party will need to pay the other party based on the contract or dispute controlling the award.
- Injunctive Remedies: When a court orders that a party must take an action or stop an action, it is called an injunction. An arbitrator may offer a similar award in a dispute where one party needs such relief.
- Incentives: An arbitrator may add incentives for certain behaviors to encourage the parties to comply with the award.
- Creative Relief: Often, the dispute between the parties will have many underlying emotions and interests that are driving the parties. While the arbitrator will not have as much freedom as a mediator to help the parties come to a creative agreement, an arbitrator may have one party issue an apology or provide a positive employment reference.
Laws Governing Arbitration Awards:
Depending on where and how an arbitration takes place, certain laws will govern any challenge or enforcement of the award. Additionally, most arbitral organizations will have rules that establish the procedure for challenging the award or enforcing it. It is important to understand which rules govern the arbitration because they will affect the ability of the parties to enforce or challenge an award.
In the United States, arbitrations are governed by the Federal Arbitration Act. This act allows parties to compel arbitration under an arbitration agreement, determines what should happen when a dispute is in both court and an arbitration proceeding and creates grounds for an arbitration award to be challenged and vacated. This will usually apply to disputes that concern the United States in some way.
However, many arbitrations also take place outside of a single country. Many commercial arbitration proceedings involve companies that are not in the same state or even companies that are present in multiple countries. In these cases, the arbitrations are usually reliant on the rules of the organization that the parties choose. Usually, these are based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, but organizations may create their own law along with countries creating their law as well. The Model Law establishes the procedure of the arbitration, qualifications, grounds for removal of arbitrators, and guidelines for enforcement.
Knowing which rules apply will establish the procedure for any post-award decisions or actions. This can also be important when beginning an arbitration or drafting an arbitration clause in an agreement because the parties may agree on which law applies in the dispute. Choosing a law more favorable may help one of the parties win, but also understanding why the award may be enforced or challenged can help them protect their award in the end.
What Happens After an Award?
There are a few different ways that the parties may proceed after an award is issued. While the award will likely be enforced in the end, a party may put significant challenges in the way of enforcement. There are also remedies if there was a mistake in the award or if there needs to be clarification. These different post-award decisions include:
- Correction: If the award includes a minor error such as a clerical error or a computation, the parties may ask the tribunal to correct it.
- Interpretation: Occasionally, the award will not be clear, so some systems allow one or both parties to ask the court for clarification on a point in the award.
- Annulment: This can also be called a challenge or to set aside the award. This is an attack on the procedure of the arbitration that makes the decision incredibly unjust.
- Enforcement: The party that is allowed to collect the judgment or enforce the requirements of the award will need to follow the correct procedure to gain the benefit conferred by the award.
These options are available after each arbitration; however, there are strict requirements for each action under certain laws, so it is important to be aware of the reasons and deadlines for each post-award action.
Correction and Interpretation:
Under the Federal Arbitration Act, a court in and for the district where the award was made can make an order modifying or correcting the award if:
- Miscalculation or Mistake: If there is a miscalculation of computations that is evident and material or a mistake in the description of any person, thing, or property that is evident and material.
- Not in Jurisdiction: If a tribunal issues an award on a matter that is not part of the agreement to arbitrate before the tribunal, a court may correct it, as long as it would not affect the merits of the issue before the arbitral tribunal.
- Minor Mistake: If there is a mistake that does not affect the merits of the decision, a court can remedy it.
Alternatively, under the UNCITRAL Model Law, the arbitral tribunal may correct or interpret an award within 30 days after the award is issued, unless another period is agreed upon. These grounds are:
- Correction: A party can ask the tribunal to correct any errors in the calculations, any clerical or typographical error, or similar errors in the ward. The moving party must give the other party notice. The tribunal may also correct a mistake like this on its own.
- Interpretation: If the parties have agreed to interpretation, a party may request that the tribunal give an interpretation of a specific term or point in the award.
- Additional Award: If a party gives the other party notice, they may request an additional award based on what was presented to the panel but was not addressed in the award.
All of these options provide a way for a party to clarify or correct an evident or minor mistake in the award, or to get an award for an aspect that was not included in the award. This type of post-award action is best when there is an evident mistake, a minor mistake, or a need for further clarification. But if the award was the product of unfair proceedings in front of the panel, then a party may need to look for annulment to provide a better outcome.
Annulment is the recourse when there is an incredibly unfair action that disrupts the neutrality that is at the core of an arbitration. The actions that allow an annulment are incredibly limited, so very arbitration awards are annulled. Under the Federal Arbitration Act, an award may be set aside by a district court if there are issues in:
- Procurement: If the award is procured by corruption, fraud, or undue means.
- Partiality: If the arbitrators are partial or corrupt and this was evident in the award.
- Arbitrator Conduct: If the arbitrators are guilty of misconduct by refusing to postpone the hearing when there was cause shown, by refusing to hear evidence pertinent and material to the dispute, or by misbehavior that has prejudiced a party.
- Power: If the arbitrators exceed their power or so poorly execute their power that a mutual, final, and definite award on the subject matter was not made.
Additionally, the UNCITRAL Model Law provides similar grounds for annulment or setting aside. These grounds include:
- Incapacity: If the agreement to arbitrate can be shown to be made when one of the parties was incapacitated, there are grounds to set it aside.
- Notice: If one of the parties was not given proper notice of the proceedings or tribunal appointment in such a way that they were not able to prepare their case, that is the ground for annulment.
- Extra Decisions: If the arbitral tribunal decides on an issue that is outside the terms of the agreement or beyond the scope, the parts that go beyond the original agreement may be set aside if they can be separated. If they cannot be separated, the whole award may be set aside.
- Tribunal Composition: If the composition of the tribunal is not what was contemplated between the parties, the award may be set aside.
- Judicial Determination: If a court finds that the subject matter of the dispute is not capable of settlement under the laws of the country or the award is against the public policy of the country.
Again, these grounds are severely limited and often read to be fairly strict so that arbitration agreements and awards will be upheld.
Once there is an award and the parties are satisfied that nothing needs to be corrected, interpreted, or set aside, the award will be enforced. Again, the way that an award is enforced will be dependent on the laws applicable to the arbitration. However, the New York Convention establishes a list of countries that agree that they will be responsible for enforcing arbitration awards rendered in other countries that are parties to the Convention. Most countries or states will have one or many offices where arbitration awards may be submitted and registered so that they can be enforced. While there may be certain rules depending on where the award needs to be enforced, the awards will usually be enforced and the party who can recover should recover.
Arbitration awards are the final, binding decisions in an arbitration. They set forth the recovery that the parties are entitled to. A variety of different laws and rules apply to arbitration and the process of awards, but there are common themes. While there are options for recourse when an award has a mistake or is unjust, countries and courts prefer to honor arbitration awards to encourage the use of alternative dispute mechanisms. Awards will be enforced and ensure that a party entitled to the arbitration award receives what is due to them.