Arbitration Award Vacature The Nordic Case.

Hawaii Supreme Court issues important decision addressing vacature of arbitration awards for alleged partiality of the arbitrator due to nondisclosure of potential conflicts.

The Hawaii Supreme Court overruled an ICA decision that had vacated a very large ( nine million plus dollars) and hard fought (31 arbitration hearing days) construction industry arbitration award because of the arbitrator’s alleged nondisclosure that he was one of several trustees of a prominent Hawaiian eleemosynary trust. The trust had many business interests and consequently was involved in extensive business and commercial transactions as well as involvement in many legal matters and disputes which required the engagement of many of Hawaii’s top law firms.

In the underlying arbitration case, the losing party sought to vacate the arbitrator’s award, asserting as one of its grounds that the arbitrator had not disclosed that attorneys in one of the large law firms representing the party who prevailed in the arbitration had represented the trust in several prior legal matters and that since the arbitrator was one of the trustees of the trust, the arbitrator’s role as a trustee of a trust represented by the law firm involved as an advocate in the arbitration should have been disclosed. The arbitrator was a prominent and well respected retired Circuit Court Judge who served as a neutral arbitrator and/or mediator on other matters involving all of the law firms involved as advocates in the underlying arbitration and whose role and participation as a trustee of the prominent Hawaiian trust may well have been a matter of public knowledge in the local business and legal community. Complicating the circumstances, one of the name partners of the law firm that represented the party that was seeking to vacate the arbitration award reportedly had a brother in law who worked as a vice president for the same Hawaiian trust thus raising the prospect that the arbitrator’s role as a trustee of the trust might have been known to the law firm or its client who lost in the underlying arbitration as a factual or legal matter. The Hawaii ICA in Nordic PCL Construction, Inc. v. LPIHGC, LLC, (No. CAAP-11-0000350), (ICA, Feb. 14, 2014) applied the “reasonable impression of partiality” standard and issued a decision vacating the arbitrator’s award due to insufficient and non-disclosure of past and ongoing connections and relationships with Counsels and their law firms.

In NORDIC PCL CONSTRUCTION, INC., fka NORDIC CONSTRUCTION, LTD., vs. LPIHGC, LLC, (SCWC-11-0000350, July 23, 2015), the Hawaii Supreme Court reversed the ICA and remanded the matter for further proceedings. The case presents very complex factual circumstances and raises multiple legal issues regarding an arbitrator’s duty of disclosure under Hawaii’s Revised Uniform arbitration Act (HRS Ch. 658A), the effect of the arbitrator’s partial disclosure, party and counsel knowledge of facts that may raise a duty to inquire or object to service by the arbitrator and whether the failure to inquire and object constitutes a waiver of the right to later object.

Among its rulings, the Supreme Court stated that:

• “…a party who has actual or constructive knowledge of a relationship of the arbitrator requiring disclosure but “fails to raise a claim of partiality . . . prior to or during the arbitration proceeding is deemed to have waived the right to challenge the decision based on ‘evident partiality.’” Daiichi, 103 Hawaii at 345-46, 82 P.3d at 431-32 (“In the arbitration context, waiver has been defined as consisting of knowledge, actual or constructive, in the complaining party of the tainted relationship or interest of the arbitrator and the failure to act on that knowledge.”)
• …courts do not endorse the “wait and see approach.” 103 Hawai#i at 348, 82 P.3d at 434 (citing Hobet Mining, Inc. v. Int’l Union, United Mine Workers of Am., 877 F. Supp. 1011, 1019 (S.D.W.Va. 1994) (“[W]here information about an arbitrator is not known in advance, but could have been ascertained by more thorough inquiry or investigation, a post-award challenge suggests that nondisclosure is being raised merely as a ‘tactical response to having lost the arbitration’ or an inappropriate attempt to seek a ‘second bite at the apple’ because of dissatisfaction with the outcome.”)
• Due to the lack of an evidentiary hearing, there are no findings regarding the actual or constructive knowledge of Nordic’s representatives or counsel, including when Nordic’s representatives or other counsel actually discovered the Arbitrator’s position as a trustee of the QLT, and Carlsmith Ball’s representation of him in that capacity, assuming the Arbitrator’s duty of reasonable inquiry required disclosure of such facts, as discussed previously. There are also no findings as to when Nordic or its other attorneys learned of the Arbitrator’s additional retention as a neutral by other attorneys in LPIHGC’s counsel’s law firms. Therefore, on remand, if necessary, the circuit court can determine the sufficiency of the initial disclosure, Nordic’s actual or constructive knowledge, and the timeliness of Nordic’s objection to determine whether Nordic waived its right to claim evident partiality.