In Grynberg v. BP Exploration Operating Co., the New York Supreme Court Appellate Division, First Department has upheld a decision that disqualified an arbitrator who had refused to follow a previous order. The order required that he determine whether certain payments claimed as expenses in the arbitration were in fact bribes (7 N.Y.S.3d 125 (1st Dep't), appeal dismissed, 38 N.E.3d 799 (N.Y. 2015)).

An arbitration between the parties arose from the settlement of their disputes over an oil field off the shores of Kazakhstan. As part of the settlement, the petitioners were to receive payments in an amount equal to a portion of the net profits from the respondents' interest in the oil fields. The respondents sent a statement to petitioners showing their revenue and costs to calculate the amount due under the settlement agreements. The petitioners then commenced the arbitration, asserting claims that they were entitled to additional funds.

Following many years of arbitration, the arbitrator issued a final decision and award (Original Award) dismissing all of the petitioners' claims for additional money under the settlement agreements. One of the arguments made by the petitioners at the arbitration, which the arbitrator rejected, was that "signature bonuses" that had been paid to government officials by the respondents should not have been deducted as costs in calculating the payout owed to the petitioners because the bonuses were in fact bribes. The arbitrator rejected this argument, concluding that as long as the signature bonuses were paid, the issue of whether the signature payments were bribes was not relevant. The trial court confirmed the Original Award but the Appellate Division reversed with respect to the signature bonus payments and remanded the bribery issue to the arbitrator for a redetermination. According to the First Department:

(938 N.Y.S.2d 439 (1st Dep't 2012).)

The arbitrator then issued another award (New Award) in which he refused to make the determination required by the First Department, namely to determine whether the signature bonus payment constituted a bribe. Instead, his decision explained why he believed the First Department decision remanding the bribery issue to him was wrong and why the respondents should appeal that decision to New York's highest court, the Court of Appeals. In sum, the arbitrator opined that the remand was based on the Appellate Division's erroneous holding that public policy can be considered when enforcing an arbitral award.

The petitioners then moved in the Supreme Court to vacate the New Award and to remand the arbitration to another arbitrator or arbitration panel. That motion was granted.

On appeal, the Appellate Division affirmed the order vacating the New Award and remanding to a new tribunal. The court held that the "arbitrator's explicit failure to follow the clear directive of this Court warrants vacatur of the new award and remand to a new arbitrator."

This case is to be contrasted with Visiting Nurse Ass'n of Florida, Inc. v Jupiter Med. Ctr., Inc., 154 So. 3d 1115 (Fla. 2014), where the Florida Supreme Court enforced an award notwithstanding the claim that the award impermissibly construed the parties' contract in a manner that violated multiple federal laws. Refusal to enforce an arbitral award based on underlying illegality remains rare in the US.

Grynberg v. BP Exploration Operating Co., 7 N.Y.S.3d 125 (1st Dep't), appeal dismissed, 38 N.E.3d 799 ( N. Y. 2015).)