Manifest Disregard of the Law in the New York Supreme Court, Appellate Division, First Department - Vol 15 No. 1 ARIA 2004
Hans Smit - Stanley H. Fuld Professor of Law and Director, Center for International Arbitration and Litigation Law, Columbia University.
Originally from American Review of International Arbitration - ARIA
On October 14, 2004, the Appellate Division, First Department, of the New York Supreme Court rendered a disconcerting decision.1 If allowed to stand, it would deal a major blow to arbitration as we know, and have come to like it. For the federal rule on judicial review of an arbitral award enunciated by the Appellate Division permits far-reaching judicial review of an arbitral award rendered in New York and, consequently rules out, to any discerning user of arbitration, selecting as the site of arbitration New York, and, if the decision were followed elsewhere, the whole United States. Furthermore, if, as will be shown below, a persuasive argument can be advanced for the view that manifest disregard of the law, as an instance of violation of public policy, may also provide a defense in an enforcement action, acceptance of the Appellate Division’s conception of the meaning of that term would also play havoc with enforcement actions in New York and the United States under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.2 It is rather amazing that so regressive a decision could be rendered by an appellate court in what is commonly regarded as the commercial center of the world.3
The action in which the court acted was one for annulment of an arbitral award rendered in New York under the American Arbitration Association's Commercial Rules between the representatives of eleven partnerships owning some of New York's most prominent commercial buildings, including the Empire State Building, and the successor to its corporate management agent, Helmsley-Spear, of which Harry Helmsley had been the principle owner. The owners of the buildings had sought to terminate the agent's agreement for cause on the ground that the agent had failed properly to discharge its contractual duties. The claimants also alleged that the agent had improperly assigned the contract to another corporation. In addition, the owners of some of the buildings had terminated the agency agreement without cause on the ground, contractually provided for, that it could be terminated upon a vote of a specified percentage of the owners of those buildings. These disputes had been referred to arbitration by a justice of the New York Supreme Court.