Cases—Arbitration—Wrong answer isn’t “manifest disregard”

An arbitration panel’s failure to take mitigation into effect was not a “manifest disregard of the law” which would render the panel’s decision reversible, according to a federal district court in New York, applying federal arbitration statutes.

An Italian shipowner claimed damages against coal shippers who had breached its contract.  The parties had agreed to arbitration under a clause which provided that the arbitrators would be “shipping men”; each party would appoint one and the two selected would appoint the third.  The panel ultimately ruled 2-1 in favor of the shipowner, giving it damages of $860,000.  The shipowner sued to enforce the arbitral award; the coal companies asked the court to set the decision aside.

The coal companies argued, in part, that the tribunal erred in failing to take into account the monies that the shipowner earned in mitigation.  The tribunal, after full briefing, had rejected the claim and distinguished the authorities on which the coal companies relied.  The question is not whether the arbitrators got the answer wrong, said Judge Richard Conway Casey, it is whether they manifestly disregarded a rule they knew to be applicable. This was a “heavy burden” that the coal companies failed to meet.  Deiulemar Compagnia Di Navigazione, S.p.A. v. Transocean Coal Co., Inc., 2004 U.S. Dist. LEXIS 23948 (S.D.N.Y. Nov. 29, 2004).