Arbitration has long been used to resolve commercial disputes faster and more economically than would be possible in court. One of the principal factors contributing to that success is the finality, which derives from the limited judicial review that awards receive under current federal and state law. When awards are vacated for mere error of law or fact, that finality is lost, and arbitration becomes only the first round in protracted litigation. This is what has occurred in the recent case of Westerbeke Corp. v. Daihatsu Motor Co., 162 F. Supp. 2d 278 (S.D.N.Y. 2001).
Both the Federal Arbitration Act[1]� and New York’s Civil Practice Law and Rules[2]� permit vacatur of awards for misconduct such as partiality or corruption by an arbitrator or fraud or corruption by a party. Additional grounds for vacatur have been adopted by the courts, principal among them “manifest disregard of the law” in the federal courts. Manifest disregard is another form of misconduct where an error of law (1) is “obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator” and (2) is disregarded, that is, a “clearly governing legal principle” is appreciated as such but is purposely ignored.[3]� This is the ground for vacatur relied on by the court in Westerbeke.
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