Lloyd's Maritime and Commercial Law Quarterly
MANIFEST DISREGARD OF THE LAW
R. Glenn Bauer
the New York Bar.
In a recent arbitration decision, a panel of three arbitrators decided a dispute under the Exxonvoy 1969 form of charter, which involved a question of whether or not the charterer could change the port of discharge after the bill of lading had been issued and the vessel had sailed. The arbitrators decided that the charterer had no right to do so without being in breach of the charter. The Despina A.L., S.M.A. Award No. 1136.
Several months later, the same question came before another panel of arbitrators, and in a divided decision, the majority held that the terms of the Exxonvoy 1969 charter should be construed to permit the charterer to change the discharge port. The Rokos V., S.M.A. Award No. 1169. One arbitrator dissented. In the dissenting opinion, the dissenting arbitrator said:
“It is my opinion, that the majority erred in not following the law which specifically states once a port is designated as the discharging port, then the option having been exercised is at an end, but rather that they have manifestly disregarded it; …”.
This statement by the dissenting arbitrator amounted to an invitation to the attorney representing the losing party to take the matter before the court under the “manifest disregard of the law” doctrine. The case came before Judge Stewart of the United States District Court, Southern District of New York. Sun Oil Co. v. Western Sea Transport, Ltd., [1978] A.M.C. 1372. The Judge said that judicial review of arbitrators’ awards is extremely limited. He said the principal argument against the award was the fact that it had disagreed with a previous award, and he rejected the argument, saying, at p. 1373:
“… First, one arbitration decision by a different panel does not make undisputed law that all other panels must follow,—and the failure to follow such a decision does not constitute a manifest disregard of the law. In addition, there is law to the contrary, law specifically discussing clauses similar to 4(c). Thus the arbitration decision must be upheld, as the court cannot find any manifest disregard of the law on the part of the arbitrators”
Where did this expression, “manifest disregard of the law” come from? Why has it appeared not only in that case, but in a number of other cases decided in recent years ?
You can read the U.S. Arbitration Act, Title 9, U.S. Code, which gives certain grounds for vacation of arbitration awards because of bias, misconduct, etc., but nowhere in the Act is anything said about “manifest disregard of the law”.
The doctrine arose from a dictum by the U.S. Supreme Court in Wilko v. Swan, 346 U.S. 427, decided in 1953. Wilko was a customer of the brokerage firm of Hayden, Stone & Co. He claimed that he was induced to make a bad stock purchase by a false misrepresentation of the broker that a big merger contract was about to be signed. Suit was filed and a motion was made by the brokers to stay the trial pending arbitration. The question before the Supreme Court was whether an arbitration agreement in the customer’s contract was contrary to the U.S. Securities Act. The court held that the statute created a special right to sue for misrepresentation which was intended by Congress to override the general provisions upholding arbitration in the U.S. Arbitration Act.
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