In Daesang Corporation v NutraSweet Company,(1) the New York Appellate Division reaffirmed that the manifest disregard doctrine is a "severely limited… doctrine of last resort" that requires more than a mere error of law to warrant vacatur of an arbitral award.
This case involved the acquisition contracts between Daesang and NutraSweet, in which NutraSweet reserved the right to rescind the deal if it was sued for antitrust law violations. After NutraSweet exercised this right, Daesang commenced an arbitration proceeding for breach of contract. NutraSweet asserted four defences and counterclaims. The arbitral tribunal:
- found in favour of Daesang;
- dismissed NutraSweet's defences and counterclaims; and
- granted Daesang damages.
After Daesang sought to confirm the award, NutraSweet filed a motion to vacate, arguing that the tribunal's award was a "manifest disregard of clearly established law". The Supreme Court agreed, holding that the tribunal's dismissal of three defences amounted to a manifest disregard of New York law. However, this was overturned on appeal.
The appellate division explained that an award may be vacated for manifest disregard of the law only if both: "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." It concluded that neither requirement had been satisfied and that the Supreme Court erred when it invoked the doctrine because it effectively substituted its own legal and factual judgments for those of the tribunal.
The case demonstrates that the New York courts are highly deferential to international arbitral awards and that, when considering motions to vacate an award, the courts hesitate to conclude that a party has met the high standard required to establish manifest disregard of the law.
Benjamin Grant, associate, assisted in the preparation of this article.
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