Saipem America v. Wellington Underwriting Agencies Limited, et. al.

Issue Discussed: Power of Arbitrators

Submitted by John R. Cashin

Date Promulgated: June 9, 2009

Issue Decided: Scope of the Arbitration, Power to Award Attorneys’ fees and Grounds for Vacatur.

In Saipem America v. Wellington Underwriting Agencies Limited, et. al. The Court of Appeals for the Fifth Circuit affirmed the district court’s confirmation of an arbitration award that included actual damages, attorneys’ fees and 50% of the costs of the arbitration.

This dispute arose from damage caused to an offshore platform while it was being transported from Texas to Israel. Samedan Mediterranean Sea (“Samedan”) contracted with Heerema Marine Contractors Nederland B. V. (“Heerema”) for the transportation and installation of the platform. Under the terms of the towing contract, Heerema was required to purchase insurance covering the load-out, transportation and installation of the platform. Several underwriters (“Underwriters”) provided the necessary insurance, naming both Heerema and Samedan as insureds.

During the course of the transport, the platform was extensively damaged when the main boom broke free. Both insureds filed claims with the Underwriters. The Underwriters then made claims against Saipem America, Inc. (“Saipem”), under two contracts Saipem had with Samedan and Heerema, whereby Saipem agreed to act as Samedan’s Certified Value Agent and as Marine Warranty Surveyor for both insureds. The Underwriters claimed that Saipem’s performance as marine surveyor was inadequate, that Saipem was negligent and that Saipem was guilty of negligent misrepresentation. The negligent misrepresentation claim was based on Saipem’s issuance of a certificate of approval that the platform could be safely towed to Israel from Texas.

The contract between Heerema and Saipem contained an arbitration clause stating that any dispute would be referred to arbitration in The Hague under the Rules of the International Chamber of Commerce. Any settlement agreement or arbitration award was to be final and binding on both parties.

The arbitral tribunal found that Saipem was liable on the negligent misrepresentation claim and awarded Underwriters $1,110,657, attorneys’ fees and expenses of $399,000 and 50% of the costs of the arbitration in the amount of $105,000. The district court confirmed the award in all respects and Saipem appealed.

Saipem asserted that the arbitrators exceeded their authority because the award is solely for a claim for negligence, a claim upon which the contract has no applicability or bearing and, therefore, it is not rationally inferable from the contract and thus beyond the scope of the arbitration contemplated under the contract. Saipem further claimed the tribunal exceeded its authority by awarding attorneys’ fees.

In a Per Curiam opinion with the Honorable Sandra Day O’Connor, Associate Justice of the United States Supreme Court, (Ret.) sitting by designation, the court confirmed the district court’s decision. In stating the standard of review of arbitration awards the court stated: “Our review of the arbitration award is exceedingly deferential and the award must be upheld if it is rationally inferable from the letter or purpose of the underlying agreement.” Am. Laser Vision, P.A. v. Laser Vision Inst. L.L.C., 487 F.3rd 255 (5th Cir. 2007) and Kegosien v. Ocean Energy, Inc., 390 F.3d 346, 352 (5th Cir. 2004).

While the court acknowledged that it had previously recognized both statutory as well as common law grounds for vacating an arbitration award, it had since accepted that Fifth Circuit precedents holding that nonstatutory grounds can support vacatur have been effectively overruled by the Supreme Court’s recent decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008.) Citing its own previous decision in Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) the court stated “manifest disregard of the law as an independent, nonstatutory ground for setting aside an award must be abandoned and rejected.” Id at 358. “Accordingly, we may vacate the arbitration award in this case only if a statutory ground supports the vacatur.”

The court then considered Saipem’s assertion that a claim of negligence went beyond the contact between the parties and was therefore not an issue to be decided by the arbitration tribunal. In order to determine whether the parties agreed to submit an issue to the arbitrator, the court turned to the contract and the Terms of Reference submitted to the tribunal.

The parties agreed to and submitted the following Terms of Reference to the tribunal: “The Arbitral Tribunal is to resolve, by a preponderance of the evidence all issues of fact and law that shall arise from claims and pleadings as duly submitted by the parties, including, but not limited to, the following issues as well as any additional issues of fact or law which the Arbitral Tribunal, in its own discretion, may deem necessary to decide upon for the purpose of rendering any Arbitral Award….”

The tribunal record indicated that Samedan and Underwriters submitted the claim of negligent misrepresentation before the tribunal and Saipem argued that such claims were barred. Separately, Saipem also argued that it was not negligent and that it conducted its work in a professional and diligent manner. Both parties requested an award of costs, including attorneys’ fees and submitted the issue to the tribunal in the Terms of Reference. The court held that because the parties submitted all of these issues to the tribunal it was empowered to consider them. The court found the arbitral tribunal made detailed findings which were well supported by governing law, and it did not exceed its powers or so imperfectly execute them that a mutual, final and definite award was not made.

* John R. Cashin is the Group Chief Compliance Officer at Zurich Financial Services, Zurich, Switzerland. He is an ARIAS Certified Arbitrator. At Zurich his responsibilities include oversight of business operations for compliance with local governance rules, laws and regulations in the 130 jurisdictions where Zurich provides insurance products. He joined Zurich in 2004 from the law firm of Stroock & Stroock & Lavan LLP in New York City. Prior to his law firm practice he served as Deputy Superintendent of the New York State Insurance Department and spent twenty years in the reinsurance brokerage business.