International Arbitration Case Watch: California Court Virtually OKs Review of Awards on the Merits

Last week, the California Court of Appeal refused to enforce an arbitration award, finding that an ICDR arbitrator exceeded his authority. In Gueyffier v. Ann Summers, Ltd., a citizen of France, living in the U.S., alleged that the defendant, a British chain of lingerie/sex-toy shops, breached their franchise agreement. Ms. Gueyffier's plan to open an Ann Summers shop in a swanky Beverly Hills mall wasn't exactly well-received by dignified BH shoppers, who threw tomatoes at her storefront before it even had the chance to open. Gueyffier blamed her store's subsequent failure on the franchisor for failing to provide US-friendly training manuals and some much-needed PR, among other things. However, Gueyffier apparently failed to provide the sex shop with notice and an opportunity to cure the alleged breach before proceeding to arbitration, as was required by their franchise agreement.

Long story short, an arbitration was held in California, and the arbitrator found in favor of Gueyffier, without making specific findings as to when she learned of the contract breaches, whether she gave prompt notice thereof and whether Ann Summers had a reasonable opportunity to cure. Instead, the arbitrator determined that any such attempts by Gueyffier would have been futile and were thus not required.

Enforcement of the award was later sought, and disputed, in the California courts. The case on appeal involved cross-proceedings to confirm and vacate the award. Justice Turner defined the issue on appeal as "whether it was within the arbitrator's power to construe the franchise agreement as allowing him to excuse the notice and cure requirement by finding it would have been an idle act to comply." After a lengthy discussion of the origins and importance of the New York Convention and UNCITRAL Rules, the court ruled that the award would not be enforced. In his decision, Justice Turner found that the arbitrator exceed his power because he "modified and changed the explicit terms of the notice and cure requirement when he found it had been excused." In other words (my words), the arbitrator exceeded his power by making determinations of fact and law, thus justifying the appellate court's own factual determinations.

Huh?

It seems to me that this decision clearly calls into question errors of fact or law in the underlying award, and then tries to fit this reasoning into an argument for abuse of power on behalf of the arbitrator. It flies in the face of state, federal and international law.

Moreover, it's particularly interesting to me how often Justice Turner refers to California's long-standing commitment to promoting the state as a situs for such proceedings. Are we to assume that this holding will further encourage the use of international arbitration in the Golden State?