Reinsurance arbitration clauses frequently include a time frame, often 30 days, during which the parties must appoint their party-arbitrators in response to an arbitration demand. For a variety of reasons, some parties wait until the last minute to make their appointments but doing so increases the risk of an unintentional default triggering the opposing party’s right to appoint a default party-arbitrator. Some courts have taken a flexible approach to the enforcement of such appointment deadlines and have allowed technically late appointments. However, in an important U.S. Court of Appeals for the Seventh Circuit decision, a new and very strict rule was imposed – in the absence of a choice-of-law provision in the arbitration agreement, the federal common law rule is that 30 days literally means 30 days without any exceptions for weekends and holidays as may be allowed under state law.
In this case, the cedent demanded arbitration and requested its foreign reinsurers to name their party-arbitrator within 30 days as required by the reinsurance agreement, which did not include a choice-of-law clause. Two days later and before appointing its party-arbitrator, the reinsurers filed a demand that the cedent nominate its party-arbitrator, thereby triggering a separate 30-day appointment period. Although the reinsurers timely named their party-arbitrator, the cedent failed to do so although it mistakenly thought that it had. The cedent’s 30th day happened to fall on a Sunday, and the following day was Labor Day, a national holiday in the U.S., but not in the reinsurers’ domicile, the United Kingdom. On that holiday Monday, the reinsurers notified the cedent that they had appointed a default party-arbitrator.
On Tuesday, the 32nd day, the cedent’s counsel sent an e-mail to the reinsurers initially representing that it had timely named its arbitrator prior to the deadline. When it was later determined that in fact no such notice had been sent, the cedent faxed a new letter to the reinsurers naming its party-arbitrator. The cedent claimed not to be bound by the agreement’s 30-day deadline because the last day fell on a Sunday which was then followed by a legal holiday. The cedent contended that under the California Civil Code its notice of appointment was timely within the meaning of the treaty because it was filed on the next possible business day.
The reinsurers responded by seeking confirmation of their appointment of both party-arbitrators in Illinois federal district court pursuant to Section 5 of the Federal Arbitration Act (“FAA”). The cedent then attempted to withdraw its arbitration demand and sought to have the case dismissed for want of jurisdiction; however, the district court refused to do so on the ground that the cedent could not circumvent the reinsurer’s right to appoint the second party-arbitrator simply by ending the first arbitration proceeding with the clear intent to begin a new one. The district court concluded that it had jurisdiction over this international arbitration dispute pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention” or the “Convention”), 9 U.S.C. § 201 et seq., and granted summary judgment for the reinsurer. The cedent appealed to the Seventh Circuit.
The question of first impression framed by the Seventh Circuit was whether, in the absence of a choice-of-law provision, a uniform federal common law or state law should apply to the enforcement of the arbitration agreement’s 30-day deadline when the 30th and 31st days fell on Sunday and national holiday, respectively. Affirming the district court’s judgment, it held that a uniform rule that strongly enforced arbitration deadlines under the Convention, i.e., “thirty days must mean thirty days,” is “necessary and appropriate” in this case.
The starting point for the Seventh Circuit’s analysis was the Convention, which is applicable to an arbitration dispute involving international contracting parties. In the absence of a choice-of-law provision, the reinsurers argued for the application of uniform federal substantive law. The cedent sought to have California law govern. The court unanimously concluded that the Convention and its implementing federal legislation expressed a clear federal interest in uniform rules by which international agreements to arbitrate were to be enforced. The federal government, according to the court, has a very specific interest in ensuring that its treaty obligation to enforce arbitration agreements covered by the Convention find “reliable, consistent interpretation” in U.S. courts.
In this case, the injection of a state’s “parochial rule” that interprets a contractual deadline other than by its plain wording is contrary to the interests of the U.S. as embodied in the Convention. To conclude otherwise “would sanction an interpretation of the contract that permitted, necessarily, non-uniform results.” In the absence of a choice-of-law provision, which sophisticated commercial parties such as these could have provided for in their contracts if they preferred a different result, the court held that the parties “were bound to the explicit language of arbitration clauses, with no state-specific exceptions to extend otherwise clear contractual deadlines.”
In short, when deadlines are included in arbitration agreements without choice-of-law clauses that are subject to the Convention, they will “admit of no exceptions” – 30 days means 30 days. According to the Seventh Circuit, when the 30th day falls on a Saturday, Sunday, a national holiday, or a state or parochial holiday, “the parties will be bound nonetheless to comply with the deadline for which they bargained.” Query whether a similarly strict rule would be applied by the other federal circuits and whether this circuit would be equally stringent about other important deadlines (e.g., for umpire selection, briefing, and hearings) that are sometimes included in reinsurance arbitration agreements subject to the Convention.
Certain Underwriters at Lloyd's, London v. Argonaut Insurance Co., No. 06-3395, 2007 U.S. App. LEXIS 20620 (7th Cir. Aug. 29, 2007).