Recent Developments Affecting U.S. Maritime Arbitration
This article highlights some recent legal developments relevant to maritime arbitration although, as will be seen below, not all of the developments specifically involve maritime cases. This fact serves as a good reminder that maritime arbitration in the United States is but a subset of a broad and well-developed body of law relating generally to international and commercial arbitration.
Recent Supreme Court Jurisprudence
Although the United States Supreme Court has not recently decided a case specifically addressing maritime arbitration, it has been active in the past few years in deciding cases that are directly relevant to arbitrating maritime claims. For instance, in Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023), the Supreme Court held that a district court must stay its proceedings while an interlocutory appeal on the issue of arbitrability is pending. Notably, an interlocutory appeal on this issue is generally only available where the district court has denied a petition to compel arbitration, and not when such a motion has been granted.
ZF Automotive US, Inc., 142 S. Ct. 2078 (2022): The Court held that a party may not use 28 U.S.C. § 1782 to obtain discovery in aid of foreign arbitration because a foreign arbitral panel is not a “foreign tribunal” within the meaning of the statute. This resolved a circuit split in which some circuits had found that such discovery was available, and others found not. Notably, discovery in aid of foreign proceedings is still often available in support of foreign court proceedings and can be a powerful discovery tool.
Badgerow v. Walters, 142 S. Ct. 1310 (2022): The Supreme Court held that in applications to compel arbitration under § 4 of the Federal Arbitration Act (“FAA”), a federal court must “look through” the complaint to the subject matter of the action to decide whether it has subject matter jurisdiction. Thus, for instance, if the dispute involves a maritime contract, that fact will give the federal court subject matter jurisdiction to decide the petition. On the other hand, where a party seeks to challenge or confirm an arbitration award under § 9 or 10 of the FAA, the court may not consider the subject matter of the underlying dispute but may only analyze whether subject matter jurisdiction exists over the enforcement action—i.e., of a contractually agreed arbitral award. As a result, absent diversity jurisdiction, federal courts will rarely have subject matter jurisdiction to enforce arbitral awards under the FAA, even where the underlying dispute arose under a maritime contract. That said, where the dispute concerns an award governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (aka the New York Convention), federal subject matter jurisdiction will still exist on the basis that the Convention is a “treaty obligation” of the United States.
Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022): The Court held that a district court need not find “prejudice” as a condition to finding that a party has waived its right to stay litigation or compel arbitration under the Federal Arbitration Act; waiver of an arbitration clause should be construed just as any other contract provision. This is in keeping with the general principle that while arbitration is to be favored, contract terms relating to arbitration should not be given special treatment or be construed differently from other contractual terms.
Who Decides Arbitrability?
In Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), the Supreme Court held that where the parties have clearly and unmistakably delegated to the arbitrators the question of arbitrability of a particular dispute, the court may not ignore that delegation and decide the dispute even where it finds that the party’s assertion of arbitrability is “wholly groundless.”
The question of who, as between the court and the arbitrators, should decide the question of arbitrability continues to be a hot topic. The basic rule in the United States is that the courts decide threshold issues of arbitrability unless the parties have “clearly and unmistakably” delegated that duty to the arbitrators. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). Some arbitration rules, such as the AAA Rules, expressly delegate issues of jurisdiction to the arbitrators, and courts have broadly found that such delegation meets the “clear and unmistakable” test. The Rules of the Society of Maritime Arbitrators do not contain such a provision; accordingly, the question whether the parties have agreed to arbitrate is usually left for the courts in maritime arbitration. That said, a few recent arbitration awards reveal some possible exceptions to this rule.
Arb. Between CF Clip Tenacious LLC and Sompo Japan Nipponkoa Insurance, Inc., SMA No. 2243 (2021): The panel acknowledged that the question whether the parties agreed to arbitrate is ordinarily left for the courts unless the parties have “clearly and unmistakably” delegated that question to the arbitrators. The panel found, however, that both parties had submitted the question of arbitrability to the arbitrators and, consequently, “the question is squarely the panel’s to answer.”
Arb. Between Transportacion Maritima Mexicana, SA and Alia Global Logistics SA, SMA No. 4429 (2021): The petitioner sought an award under an ASBATANKVOY charter in which the parties had not struck out either London or New York as the place of arbitration. Respondent declined to participate in the arbitration. The panel found that the charter evinced a clear intention to arbitrate and noted that respondent never objected to New York as the forum nor sought to bring the arbitration to a different forum. Also, New York was more closely associated with the dispute, which concerned transportation of a cargo from Mexico to the United States. Accordingly, the panel found that respondent waived its right to object to arbitrating in New York and, by failing to object, agreed that the intent of the parties was to arbitrate in New York.
Time Bar
There is little dispute that questions of time bar are for the panel to decide and, in appropriate cases, an arbitration panel will not hesitate to grant a motion to dismiss a time-barred claim. In M/V BETTY K IX, SMA No. 4413 (2020), for instance, a consolidated arbitration over off-spec bunkers, the owner claimed against the charterer and the charterer sought indemnity from the bunker supplier. Supplier moved to dismiss the indemnity claim as being time barred under its terms and conditions. Charterer opposed the motion, seeking discovery as to communications between the supplier and owner. The panel, on the facts, found the time bar provision enforceable and found that Charterer “has not made a case (factual, legal, equitable or under laches) for the Panel to allow the requested discovery or delay its decision on the time bar issue any further, or until the entire consolidated arbitration proceeding is concluded.” Accordingly, the motion to dismiss was granted.
Functus Officio
Arbitration panels routinely issue partial final awards which are themselves separately enforceable in the courts even while the remainder of the arbitration proceeding moves forward. Questions often arise as to the arbitrators’ power to revisit a partial final award once it has been issued. In Arb. Between Daelim Corp. and Integr8 Fuels, SMA No 4420 (2021), for instance, the panel closely examined its authority to issue partial final awards even where the governing arbitration rules do not expressly so state and held that “since the panel has rendered its decision with respect to the claims that were the subject of the Partial Final Award, it lacks jurisdiction to reconsider those issues.”
Meanwhile, in M/V BETTY K IX, SMA No. 4414 (2021), following partial final award dismissing the claim as time barred, the losing party challenged award to the district court on grounds of alleged bias, which application was denied. The prevailing party subsequently sought an award of attorneys’ fees both in connection with the motion to dismiss and in opposing the petition to vacate. The losing party argued the panel was functus officio and lacked jurisdiction to consider the fee application in respect to fees incurred in connection with the petition to vacate. The panel found that it was not functus officio since other aspects of the dispute were still ongoing; however, it declined to award fees on the facts of the case.
Conclusion
While at least one purpose of arbitration is generally to streamline legal proceedings, as can be seen above, sometimes thorny questions pertaining to the scope of the authority of the arbitrators can make things more complicated rather than less. In the main, however, the roles of the arbitrators and the courts in such matters have been well defined, such that these threshold questions of jurisdiction and authority can usually be answered with reasonable confidence without intervention by the courts.
This article is one in a series of articles written for Blank Rome’s MAINBRACE: September 2023 edition.