The United States Court of Appeals for the Seventh Circuit has ruled that a party’s appointment of an arbitrator was invalid because the party failed to make the appointment within 30-days as required by the reinsurance treaties. Because the New York Convention applied to the arbitration agreement, the court held that the party could not resort to state law that would extend the appointment period due to a holiday. Certain Underwriters at Lloyd’s London v. Argonaut Insurance Company, No. 06-3395, 2007 WL 2433139 (7th Cir. Aug. 29, 2007).
In this case, the reinsurer requested that the cedent designate its arbitrator within 30 days as required by the reinsurance treaties. When the cedent failed to designate its arbitrator by the 30-day deadline, the reinsurer selected the second arbitrator in accordance with the terms of the treaties.
The cedent argued that it was not bound by the strict 30-day deadline because the 30th day was a Sunday and the 31st day was a U.S. federal holiday. The cedent appointed its arbitrator on the 32nd day. In response, the reinsurer petitioned a federal court for an order confirming its appointments of two arbitrators.
According to the Seventh Circuit, “the most significant issue presented by this case” is what substantive law should apply since the reinsurance treaties lack a choice-of-law provision. The cedent argued that the court should apply California law (which arguably extended the time for appointment of the arbitrator due to the federal holiday). The reinsurer argued that dispute should be resolved by a federal common law rule of decision.
The Seventh Circuit agreed with the reinsurer, particularly because the parties’ arbitration agreement fell within the New York Convention. The court explained that “a critical objective” of the Convention is the uniform treatment of arbitration agreements to facilitate efficient international arbitration. Given this goal of uniform treatment of arbitration agreements, the court concluded that the parties’ dispute over the appointment of the second arbitrator should be resolved by a federal common law rule rather than by a state law rule of decision. Otherwise, if state law governed, the court would permit necessarily “non-uniform results.”
As a matter of federal common law, the court held that, in the absence of a choice-of-law provision calling for application of a particular state’s law, the parties “are to be bound to the explicit language of arbitration clauses” and cannot resort to “state-specific exceptions that would otherwise extend clear contractual deadlines.” “[D]eadlines included in arbitration agreements under the Convention will admit of no exceptions. Thirty days must mean thirty days.”