Get it right the second time: remand of arbitral awards to correct or clarify awards

April 2023 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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We typically consider an arbitrator’s job complete when a final award is issued. The functus officio (task performed) doctrine provides that, once an arbitrator issues a final award and discharges the duties of the office, the arbitrator lacks any continuing power to revise the award or to issue a new one. At this point, an arbitrator’s “contractual powers have lapse[d]”, according to Green v. Ameritech Corp. But arbitrators and parties should be aware that numerous courts recognise a “clarifying exception” to the functus officio doctrine that permits courts to remand arbitral awards back to arbitral tribunals to “clarify” unclear or unexplained arbitral awards. This can result in drawn-out litigation to enforce awards, as well as surprise to arbitrators who, many months or even years after issuance of a “final” award, have the award sent back to them for clarification.

Remand to arbitral tribunals by US courts

On 17 January 2023, in Smarter Tools Inc. v. Chongqing SENCI Imp. & Exp. Trade Co, the Second Circuit issued the latest appellate court ruling holding that a district court can remand rather than vacate unclear arbitral awards to provide arbitrators with an opportunity to explain their reasoning. Smarter Tools sought to vacate an arbitral award on the grounds that the arbitrator failed to produce a reasoned award as required by the parties’ contract. The district court agreed that the award was not a reasoned award where the arbitrator gave “no reason... other than the negative credibility determination as to [Smarter Tools’] expert witness”. Rather than vacate the award, the district court instead chose “to remand to the arbitrator for clarification of his findings”. Following remand, the arbitrator issued a revised award that provided the same relief but explained why Smarter Tools’ claims failed. The Second Circuit, holding that the district court’s remand was appropriate, noted that “only a barely colorable justification for the outcome reached by the arbitrators is necessary to confirm the award”, and “[i]t simply makes no sense to redo an entire arbitration proceeding over an error in the form of the award issued after the hearing”. According to the Second Circuit, this promotes “the twin objectives of arbitration: settling disputes efficiently and avoiding long and expensive litigation”.

This is not the first time that the Second Circuit ruled that remand is appropriate. For example, in N.Y. Bus Tours, Inc. v. Kheel, the court deemed remand appropriate where an arbitral award was ambiguous and “provide[d] no clear instruction as to how a court asked to enforce the award should proceed”. More recently, in Gen. Re Life Corp. v. Lincoln Nat’l Life Ins. Co., the court held that remand is appropriate “where an arbitral award fails to address a contingency that later arises or when the award is susceptible to more than one interpretation”.

In another recent case, Romanzi, the Sixth Circuit also recognised the clarification exception to the functus officio doctrine. In Romanzi, the parties to arbitration agreed to abide by the arbitral panel’s “brief reasoned decision”. In arguing against enforcement at the district court, the respondent argued that the arbitral panel’s single-paragraph award in favour of the bankruptcy trustee was insufficiently reasoned and should be vacated. Despite agreeing that the award was insufficiently reasoned, the district court refused to vacate the award and, instead, remanded it to the arbitral tribunal. The district court later approved the arbitral panel’s subsequent supplemental award, which included additional reasoning for the result reached in the original award. The Sixth Circuit affirmed, holding that remand was appropriate and “makes sense”, and explained that “[t]he proper remedy for falling short of the level of explanation agreed to by the parties is remanding back to the panel, rather than starting from scratch”.

Remand to arbitral tribunals by courts in other jurisdictions

Courts’ willingness to avoid vacating ambiguous or inadequate awards by remanding back to arbitrators is not confined to the US. However, other jurisdictions take different approaches, which parties should anticipate before seeking to enforce awards in those jurisdictions.

In Switzerland, for example, article 393(e) of the Swiss Code of Civil Procedure provides that an arbitral award in domestic Swiss arbitration will be set aside if the findings are evidently contrary to the record or if it was rendered in evident violation of the law or of equity. However, article 395(2) provides that the arbitral tribunal must decide the award anew, rather than the enforcing court simply vacating an improper award without further recourse to arbitration. Similarly, article 394 provides for remand for correction or completion of an award. Recent case law demonstrates that this permissive approach to remand can result in lengthy litigation and extensive arbitration proceedings. In Decision 4A_348/2020, for example, the Swiss Supreme Court upheld the third award rendered by an arbitral tribunal in the same domestic arbitration. The previous two awards had been set aside on the grounds of arbitrariness and the case was remanded twice.

Recent case law from the Supreme Court of India demonstrates a stricter approach. In 2021, the Supreme Court held in Parthasarathy & Ors v.E Springs Avenues Pvt. Ltd & Ors. that the High Court of India could not remand the matter back to the same arbitrator unless both parties consented to the remand. More recently, in February 2022, the Supreme Court held in Mutha Construction v Strategic Brand Solutions (I) Pvt Ltd that where there was a lack of a reasoned award, remand by the High Court was appropriate because both parties had agreed to set aside the award and submit the matter to the arbitrator for a fresh reasoned award.

Practical considerations for arbitrators

Remand of arbitral awards raises practical considerations for parties and arbitrators. Some basic considerations include the additional costs for the parties and the arbitrator, whether the arbitrator has retained the case file (given that confidentiality agreements may require destruction of confidential material immediately after a final award is issued), and whether the arbitrator’s alternative dispute resolution (ADR) insurance covers their further involvement in the matter.

Another consideration is whether the arbitration agreement even permits the arbitrator to revisit an award. Where parties agree that an arbitrator cannot revisit an award, even where otherwise permitted under exceptions to the functus officio doctrine, the arbitrator lacks authority to reconsider the award. In Smith v. Transp. Workers Union of Am., the court explained that “[t]he plain wording of the arbitration agreement contemplates that the arbitrators will not consider correcting the arbitral award at all at the behest of the parties, and forbids a correction or amendment on the arbitrators own motion more than three business days after the award” and, therefore, the “modification made was beyond the reach of the arbitrators’ power”.

Arbitrators must also assess the limited scope of what they may do if an award is remanded for clarification. If remanded for clarification, the arbitrators’ review is typically limited to the specific issue on which clarification is sought. In Brown, for example, the Fifth Circuit explained that, “on remand, the arbitrator is limited in his review to the specific matter or matters remanded for his clarification and he may not rehear or redetermine matters outside the scope of the remand order”. “[I]f the arbitrator exceeds the scope of a limited remand order, then the court may vacate those portions of the arbitrator’s decision on remand that go beyond his limited authority to clarify, complete, or correct the award that he has already made.”

Sarah Reynolds is a managing partner and James Coleman and Sarah Kinter are associates at Goldman Ismail Tomaselli Brennan & Baum LLP. Ms Reynolds can be contacted on +1 (312) 881 5998 or by email: sreynolds@goldmanismail.com. Mr Coleman can be contacted on +1 (312) 881 5576 or by email: jcoleman@goldmanismail.com. Ms Kinter can be contacted on +1 (312) 881 5960 or by email: skinter@goldmanismail.com.

Sarah Reynolds, James Coleman and Sarah Kinter

Goldman Ismail Tomaselli Brennan & Baum LLP