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Mobil Oil Indonesia Inc. v. Asamera Oil (Indonesia) Ltd.

43 N.Y.2d 276 Court N.Y. Decision date 1977-12-19 English

Delivered by Gabrielli, J.

Contents

Majority

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Mobil Oil Indonesia Inc., Appellant, v Asamera Oil (Indonesia) Ltd. et al., Respondents.
Argued November 17, 1977;
decided December 19, 1977
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POINTS OF COUNSEL
William E. Jackson, Adlai S. Hardin, Jr., Richard C. Tufaro and Edward G. Williams for appellant.
I. The court below erred in holding not subject to judicial review, except for complete irrationality, the arbitrators’ construction of the arbitration clause to determine their own powers to fashion the arbitral rules. (Matter of Granite Worsted Mills [Aaronson Cowen, Ltd.], 25 NY2d 451 ; Matter of Lipschutz [Gutwirth], 304 NY 58 ; Matter of Di Stasio [Avallone], 27 AD2d 726 , 21 NY2d 665 ; Matter of Siegel [Lewis], 40 NY2d 687 ; Matter of Orange Pulp & Paper Mills [Pulp Sales Corp.], 261 App Div 840 , 285 NY 752 ; Matter of Kingsbrook Jewish Med. Center v Katz, Waisman, Weber, Strauss, Blumenkrans, Bernhard, 37 AD2d 518 , 29 NY2d 854 ; Matter of Laboratorios Grossman, S. A. [Forest Labs.], 31 AD2d 628 ; Reisfeld & Son Import Co. v S. A. Eteco, 530 F2d 679 ; Lawn v Franklin, 328 F Supp 791 ; United States v American Employers Ins. Co. of Mass., 290 F Supp 139 .) II. The arbitrators exceeded their powers by compelling arbitration under the 1975 rules, contrary to the parties’ agreement. (Green v Doniger, 300 NY 238 ; O’Neil Supply Co. v Petroleum Heat & Power Co., 280 NY 50 ; Matter of Zim Israel Nav. Co. [Sealanes Int.], 17 AD2d 393 , 13 NY2d 714 ; Rottkamp v Eger, 74 Misc 2d 858 ; Hartford Acc. & Ind. Co. v Wesolowski, 33 NY2d 169 ; Madawick Contr. Co. v Travelers Ins. Co., 307 NY 111 ; Matter of Board of Comrs. of Washington Park of City of Albany, 52 NY 131 ; Jones v Cunard S. S. Co., 238 App Div 172 ; Lowry & Co. v S. S. Le Moyne D’Iberville, 253 F Supp 396 , 372 F2d 123 .) III. Neither
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the 1955 rules, New York law nor Federal law conferred upon the arbitrators authority to order prehearing discovery. (De Sapio v Kohlmeyer, 35 NY2d 402 ; Penn Tanker Co. of Del. v C. H. Z. Rolimpex, Warszawa, 199 F Supp 716 ; Porter Co., Connors Steel Div., W. Va. Works v Local 37, United Steelworkers of Amer., AFL-CIO, 400 F2d 691 ; Bigge Crane & Rigging Co. v Docutel Corp., 371 F Supp 240 ; Matter of Unicon. Mgt. Corp. [Pavcrete Constr. Corp.], 23 AD2d 837 ; Graig Shipping Co. v Midland Overseas Shipping Corp., 259 F Supp 929 ; Liggett & Meyers v Bloomfield, 380 F Supp 1044 .)
C. MacNeil Mitchell, Stephen R. Lang and Paul J. Weiner for respondents.
I. Mobil’s suggested basis for the court’s statutory jurisdiction to review the arbitrators’ interlocutory award—to "compel arbitration”—is wholly inapplicable here. (Mobil Oil Indonesia v Asamera Oil [Indonesia], 41 NY2d 1103 ; Matter of Lipschutz [Gutwirth], 304 NY 58 ; Matter of Di Stasio [Avallone], 21 AD2d 726 , 21 NY2d 665 ; Matter of Orange Pulp & Paper Mills [Pulp Sales Corp.], 261 App Div 840 , 285 NY 752 ; Matter of Kingsbrook Jewish Med. Center v Katz, Waisman, Weber, Strauss, Blumenkrans, Bernhard, 37 AD2d 518 , 29 NY2d 854 ; Matter of Laboratorios Grossman, S. A. [Forest Labs.], 31 AD2d 628 ; Dresdner v Czeisler, 33 Misc 2d 578 ; United Servs. Auto. Assn, v Cutrona, 42 AD2d 1033 ; Matter of Koreska [Perry-Sherwood Corp.], 253 F Supp 830 , 360 F2d 212 .) II. The arbitrators did not exceed their powers by rationally construing the agreement at the urging of both parties. (Matter of D. M. C. Constr. Corp. v Nash Steel Corp., 51 AD2d 1040 , 41 NY2d 855 ; Aerojet-General Corp. v American Arbitration Assn., 478 F2d 248 ; Pearl St. Dev. Corp. v Conduit & Foundation Corp., 41 NY2d 167 ; Matter of Motor Vehicle Acc. Ind. Corp. [McCabe], 19 AD2d 349 ; Matter of Welsted & Son [Hawkins], 18 AD2d 869 ; World Brilliance Corp. v Bethlehem Steel Co., 342 F2d 362 ; Boston & Maine Corp. v Illinois Cent. R. R. Co., 396 F2d 425 ; Rochester Tel. Corp. v Communication Workers of Amer., 340 F2d 237 ; Tobacco Workers Int. Union, Local 317 v Lorillard Corp., 448 F2d 949 ; Matter of Professional Staff Congress/City Univ. of N. Y. v Board of Higher Educ., 39 NY2d 319 .) III. Nor did the arbitrators’ ruling demonstrate "complete irrationality”, the only other conceivably relevant ground upon which it could have been challenged. (Lentine v Fundaro, 29 NY2d 382 ; Matter of Schine Enterprises [Real Estate Portfolio of N. Y], 26 NY2d 799 ; Gramling v Food Mach. & Chem. Corp., 151 F
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Supp 853 ; Aerojet-General Corp. v American Arbitration Assn., 478 F2d 248 ; I/S Stavborg [O. H. Meling, Manager] v National Metal Converters, 500 F2d 424 ; Parsons & Whittemore Overseas Co. v Societe Generale De L’Industrie Du Papier [RAKTA], 508 F2d 969 .) IV. In any event, and as the court below held, in construing the parties’ intent the arbitrators’ interlocutory award was both "rational beyond peradventure” and indeed correct as a matter of law. (Matter of Berkovitz v Arbib & Houlberg, 230 NY 261 ; Fotochrome, Inc. v Copal Co., 517 F2d 512 ; Matter of Level Export Corp. [Wolz, Aiken & Co.], 305 NY 82 ; Matter of Riverdale Fabrics Corp. [Tillinghast-Stiles Co.], 306 NY 288 .) V. The arbitrators acted well within their power in offering both parties a limited prehearing exchange of documents. (Reynolds Jamaica Mines v La Societe Navale Caennaise, 239 F2d 689 ; Weight Watchers of Quebec v Weight Watchers Int., 398 F Supp 1057 ; Matter of Omnium Freighting Corp. [United S. S. Corp.], 15 Misc 2d 800 ; Prima Paint v Flood & Conklin, 388 US 395 ; Matter of Rederi [Dow Chem. Co.], 25 NY2d 576 , 398 US 939 ; Scherk v AlbertoCulver Co., 417 US 506 ; Commonwealth Edison Co. v Gulf Oil Corp., 541 F2d 1263 ; Hilti v Oldach, 392 F2d 368 ; Matter of Katz [Burkin], 3 AD2d 238 ; Bigge Crane & Rigging Co. v Docutel Corp., 371 F Supp 240 .)

OPINION OF THE COURT

In this proceeding, petitioner seeks to vacate "the interlocutory award of the arbitral tribunal” on the ground that the arbitrators exceeded their authority in determining the applicable procedural rules to be used during the course of the arbitration. We decline to do so and hold that the courts have no authority to review an interlocutory ruling made by the arbitrators.

On July 16, 1968 the appellant entered into a contract with respondents involving rights to exploration and production of vast petroleum reserves in Sumatra, Republic of Indonesia. The contract contained a broad arbitration clause providing that "[a]ny dispute arising out of or relating to this Agreement shall be settled by arbitration in accordance with the Rules of the International Chamber of Commerce” (hereinafter rules). A dispute arose over the payment of certain royalties due under the agreement and the respondents then caused the International Chamber of Commerce to serve a

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request for arbitration on appellants. At the time the agreement was executed and indeed at the time of the institution of this arbitration proceeding, the rules promulgated June 1, 1955 were in effect. Article 13 of the 1955 rules provided that "[w]hen the parties agree to submit their case to arbitration by the International Chamber of Commerce, they shall be deemed to submit to arbitration in a accordance with the present Rules.” Under the 1955 rules the arbitrators were directed to apply the procedural law of "the country” where the arbitration was to be held.

On June 1, 1975 new rules became effective, providing, inter alia, that "[w]here the parties have agreed to submit to arbitration by the International Chamber of Commerce, they shall be deemed thereby to have submitted ipso facto to the present Rules.” The 1975 rules differ from the old rules by providing that in the absence of an agreement to the contrary and where the rules are otherwise silent, the procedural law to be applied is to be determined by the arbitrators which, of course, would not necessarily be the procedural law of the country where the arbitration was to be held.

The arbitrators were asked to determine which set of rules would govern the proceeding. The question arose in the context of a request for discovery. As noted, if the 1955 rules were applicable then the arbitrators would determine procedural rules on the basis of the law of the country where the arbitration was to be held. Under these rules the arbitrators would have to look to the law of New York (or Federal law) to determine whether they had the power to order discovery. However, if the 1975 rules were applicable then the arbitrators would have the authority under the agreement to determine whatever procedural rules they deemed appropriate and to order discovery aside and apart from the State or Federal policy regarding this subject.

The majority of the arbitrators decided that the arbitration clause reference to the Rules of the International Chamber of Commerce must be construed as a reference "to those Rules as they are from time to time”, and concluded that the 1975 rules were applicable. Consequently discovery was ordered. The dissenting arbitrator found that the parties intended the 1955 rules to apply. After the International Chamber of Commerce Court of Arbitration refused to interfere, the arbitrators formalized their decision in an interlocutory award declaring the applicability of the 1975 rules.

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Appellant moved to vacate the interlocutory award pursuant to CPLR 7511 (subd [b], par 1, cl [iii]) which provides that an "award shall be vacated” when "an arbitrator * * * [has] exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made” (emphasis added). No one contests the fact that there was a valid arbitration agreement and that the royalty dispute was covered by the agreement. The only contention made by appellant is that the arbitrators, in declaring the applicability of the 1975 rules, exceeded their authority.

There is no authority for this court or any court to intervene at this state of the progression of the arbitration proceeding. Early in the conduct of the arbitration proceeding, but well after the expiration of the time when there might have been judicial examination of one of the so-called threshold questions under CPLR 7503 (subd [b]), the arbitrators made what in judicial proceedings might be described as an interlocutory order; they decided under which of two alternative sets of arbitration rules the particular arbitration proceeding should thereafter be conducted. It is this intermediate procedural determination which petitioner asks the courts to overturn.

The only authority for judicial review of arbitration awards is found in CPLR 7510 and 7511 (Matter of Granite Worsted Mills [Aaronson Cowen, Ltd.] 25 NY2d 451 , 454), and petitioners rely only on CPLR 7511 in this instance. But before the court may intervene or even entertain a suit seeking court intervention, there must be an "award” within the meaning of the statute. The "awards” of arbitrators which are subject to judicial examination under the statute—and then only to a very limited extent—are the final determinations made at the conclusion of the arbitration proceedings. Generally, the award is the arbitrators’ decision and final determination upon the matters submitted (23 Carmody-Wait, NY Prac, § 141:120) and must be coextensive with the submission (see Jones v Welwood, 71 NY 208 , 212). The award here sought to be reviewed is "interlocutory”, involving only a very limited procedural question. It in no way constitutes a final determination on the matters submitted and therefore there is no authority for judicial intervention and the case should be remitted to Supreme Court with directions to dismiss the petition.

There can be no doubt that the State favors and encour

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ages arbitration "as a means of conserving the time and resources of the courts and the contracting parties” (Matter of Nationwide Gen. Ins. Co. v Investors Ins. Co. of Amer., 37 NY2d 91 , 95; Matter of Weinrott [Carp], 32 NY2d 190 ); and for the court to entertain review of intermediary arbitration decisions involving procedure or any other interlocutory matter, would disjoint and unduly delay the proceedings, thereby thwarting the very purpose of conservation. Not only the limitations of the statute, but policy considerations as well, dictate that the courts refrain from entertaining such interlocutory determinations made by arbitrators.

Accordingly, the order of the Appellant Division should be reversed and the matter remitted to Supreme Court with directions to dismiss the petition, without costs.

Chief Judge Breitel and Judges Jasen, Jones, Wachtler, Fuchsberg and Cooke concur.

Order reversed, without costs, and the matter remitted to Supreme Court, New York County, with directions to dismiss the petition. Question certified answered in the negative.

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