Petitioner Corp. v. Respondent Co., Index No. 655019/2016 5/15/2017 (Ramos, J.)

Manifest Disregard of the Law; Commercial Arbitration; Motion to Vacate; Fraudulent Inducement; Breach of Contract; Contractual Rescission

By: Ashleigh Shelton | Staff Member

Petitioner and Respondent entered into a series of agreements in which Petitioner sold its aspartame business to Respondent; the sales contract stated that Petitioner was in compliance with all applicable laws, and contained an arbitration clause which selected the International Chamber of Commerce (“ICC”) as its tribunal. Additionally, section 10 of the Joint Defense & Confidentiality Agreement (“JDA”) provided that Respondent may rescind within five years if a customer purchasing a large volume of aspartame commenced an antitrust action against both parties. Respondent exercised their right to rescind after a class action was brought. Pursuant to the sales contract, Petitioner brought a request for arbitration against Respondent for breach of contract. The ICC issued a partial award in favor of Petitioner’s right to recover the entire amount owed, rejecting all of Respondent’s counterclaims and defense of contractual rescission; the final award declared that Respondent waived their breach of contract counterclaim. In this present action, Petitioner commenced a petition to confirm the final award. In response, Respondent moved to vacate the awards alleging that the Tribunal’s dismissal of its counterclaims and defenses was in manifest disregard of the law.

Respondent supported its motion to vacate the award with three arguments: (1) the tribunal irrationally interpreted Section 10 of the JDA and improperly denied Respondent’s right to contractual rescission; (2) the tribunal disregarded New York law regarding whether a party may bring a fraudulent inducement claim based on a misrepresentation in a contract; and (3) the tribunal improperly failed to consider Respondent’s counterclaim for breach of contract.  A court may vacate an arbitration award “if it was rendered in manifest disregard of the law.” Here, the Court held that Respondent did not demonstrate “manifest disregard” for their contractual rescission counterclaim. Petitioner opposed all arguments, claiming that the award was valid and enforceable.

The Court reasoned that Respondent’s first argument was unsubstantiated because the ICC had the authority to interpret Section 10 of the JDA and their decision could not be vacated simply because the Court did not agree with their interpretation. However, with respect to Respondent’s second argument, the Court held that the ICC did manifestly disregard New York law. Additionally, the Court reasoned that Respondent’s third argument was valid.  In dismissing Respondent’s claim for fraudulent inducement, the ICC chose to disregard the principle that a fraud claim can be based on a breach of contractual warranties where the misrepresentations are present facts. Here, Petitioner represented that they were in compliance with all applicable laws when in fact they were violating antitrust laws. Further, the ICC erroneously concluded that Respondent waived their breach of contract claim by citing the wrong portion of the transcript of testimony given during closing arguments.

Therefore, the Court granted Respondent’s motion to vacate the partial award and the final award in part, and remanded the fraudulent inducement and breach of contract claims back to the ICC for redetermination.

Petitioner Corp. v. Respondent Co., Index No. 655019/2016 5/15/2017 (Ramos, J.)

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