What is an Arbitration Award?
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 or settlement agreement often differs between judgments or court orders and arbitration awards. 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
It is best to quickly describe the arbitration proceeding to understand the ins and outs of an arbitration award. While a thorough discussion of the arbitration process is a separate article, a quick understanding of the arbitration process will be sufficient to understand an award. An arbitration proceeding is a private alternative dispute resolution process in which the parties present and submits 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 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 also agree after a dispute arises.
- Invitation: The parties can choose and invite arbitrators. They can choose a specific arbitrator or contact arbitral organizations for an arbitrator referral. The parties will then extend an invitation.
- Appointment: The arbitrator will be appointed to the dispute and begin setting up the arbitration format.
- Initial Hearing and Discovery: The arbitrator usually holds 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 outlining the case’s outcome.
Important Considerations for Arbitration:
While the arbitration process has many benefits, as other parts of this article will discuss, there are certain limits placed by the district court and state courts on arbitration awards that must 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 fully and realistically evaluate their chances of winning. If the parties’ positions are very close and they 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 state court or the arbitrator. The arbitral 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 must pay the other party based on the contract or dispute controlling the award.
- Injunctive Remedies: When a court orders that a party must take 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 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 to a definite award or enforcement of the award. Additionally, most arbitral organizations will have rules establishing the procedure for challenging or enforcing the award. Therefore, it is important to understand which rules govern the arbitration because they will affect the ability of the parties to enforce or challenge or enforce an award.
In the United States, arbitrations of disputes 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 in federal court. 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. For example, many commercial arbitration proceedings involve companies not in the same state or even companies present in multiple countries. In these cases, the arbitrations usually rely on the rules of the organization that the parties choose. Usually, these arbitration agreements are based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. Still, organizations may create their law along with countries creating them. The Model Law establishes the arbitration procedure, qualifications, grounds for removal of arbitrators, and guidelines for enforcing foreign judgments.
Knowing which rules apply will establish the procedure for post-award decisions, appeals, 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 more favorable law may help one of the parties win, but also understanding why the award may be enforced or challenged unless the parties can help them protect their award.
What Happens After an Award?
The parties may proceed after an award is issued in a few different ways. While the award will likely be enforced in the end, a party may put significant challenges in the way of enforcement to enforce awards. There are also remedies if there is 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 to clarify 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 arbitration procedure that makes the decision incredibly unjust.
- Enforcement: The party allowed to collect the judgment or enforce the award’s requirements will need to follow the correct procedure to gain the benefit conferred by the award.
These options are available after each first arbitration hearing; however, there are strict requirements for each action under certain laws, so it is important to know 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 confirming, modifying, or correcting the award if the courts so:
- Miscalculation or Mistake: If there is a miscalculation of computations that is evident and material or a mistake in describing 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 issue’s merits before the arbitral tribunal.
- Minor Mistake: If a mistake does not affect the merits of the decision, a court can remedy it.
Alternatively, in limited circumstances, 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 for appeal are:
- Correction: A party can ask the tribunal to correct any calculations errors, clerical or typographical errors, 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. This type of post-award action is best when there is an evident mistake in the arbitrator’s award, a minor mistake, or a need for further clarification. But if the award was the product of unfair proceedings in front of the panel, a party may need to look for annulment to provide a better outcome for the losing party.
Annulment is the recourse when an incredibly unfair action disrupts the neutrality at the core of an arbitration agreement. The actions that allow an annulment are incredibly limited, so very few arbitration awards are annulled. However, under the Federal Arbitration Act, an award may be set aside by arbitrators exceeded 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, 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 is not made.
The UNCITRAL Model Law also provides similar grounds for annulment or setting the final judgment 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 could not 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. The whole award may be set aside if they cannot be separated.
- Tribunal Composition: If the tribunal’s composition 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 country’s public policy.
Again, these grounds are severely limited and often read to be fairly strict so that federal courts will uphold arbitration agreements and arbitration awards.
Once there is an award and the parties to compel arbitration are satisfied that nothing needs to be corrected, interpreted, or set aside, the award will be enforced. Again, how an award is enforced will depend 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 the jurisdiction 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. Various laws and rules apply to vacating arbitration awards and the process of vacating arbitration 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. In addition, awards will be enforced and ensure that a party entitled to the arbitration award receives what is due.
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