CHAPTER 15 ARBITRATION ETHICS: ARBITRATOR APPOINTMENT, ARBITRAL PROCEDURE, AND THE AWARD
| Jurisdiction | United States |
(Feb 2002)
ARBITRATION ETHICS: ARBITRATOR APPOINTMENT, ARBITRAL PROCEDURE, AND THE AWARD
Jonathan Sutcliffe
Freshfields Bruckhaus Deringer LLP
New York, New York
Index
Outline
Factual scenario for mock scenes
Checklist of Do’s and Don’ts for arbitrators, counsel and clients
List of handouts
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RMMLF: INTERNATIONAL ENERGY AND MINERALS ARBITRATION HOUSTON, FEBRUARY 7-8, 2002
OUTLINE
I. Introduction
A. Essential points of arbitration ethics
1. The available ethics rules
2. The concept of independent and impartial arbitrators, in particular the factors relevant to the disqualification of arbitrator candidates
3. Communications with party-appointed arbitrators
4. The arbitrators' duty to provide a fundamentally fair hearing
5. Challenging the arbitration award for arbitrator misconduct
B. Mock scenes
1. First mock is a scene where a CEO, GC and outside counsel discuss the selection of their party-appointed arbitrator in an international oil and gas arbitration - to illustrate some of the standards of impartiality and independence for arbitrators, party-appointed ones in particular
2. Second mock is an interview of the prospective arbitrator by the outside counsel - to illustrate the permissible topics in an initial interview with a potential arbitrator
C. Handouts
1. Checklist of Do's and Don'ts for arbitrators, counsel, and clients
2. Fact scenario for mock scenes
3. Backup material
D. Caveat: In international commercial arbitration, all arbitrators - even party-appointed arbitrators, are neutrals.
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II. Available Ethics Rules
A. The ethical obligations of an arbitrator begin when first approached for appointment and continue throughout all stages of the proceedings.
B. Various aspects of the conduct of arbitrators may be governed by agreement of the parties, by arbitration rules to which the parties have agreed or by applicable law.
C. Very little exists by way of detailed standards for the selection and conduct of arbitrators.
1. IBA, "Rules of Ethics for International Arbitrators" (1987) (attached)
2. AAA-ABA Code of Ethics for Arbitrators in Commercial Disputes (1977)
3. ABA, working draft "Code of Ethics for Arbitrators in Domestic and International Commercial Disputes" (2001) (attached)
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III. Independent and impartial arbitrators
A. While "justice" is an amorphous concept, one of its pillars is certainly confidence in the fairness of the process. This is the case in domestic and international arbitration.
1. In the US, Federal Arbitration Act, 9 USC § 10: one of the limited grounds for vacating an arbitration award is the "evident partiality or corruption in the arbitrators"; leading case is Commonwealth Coatings v. Continental Casualty, 398 U.S. 145 (1968).
2. In international arbitration, confidence in the process rests substantially on the perception that the arbitrators are impartial. The most fundamental standards for the qualification and conduct of arbitrators are impartiality and independence and all the major international arbitration rules contain some variation of these. Note that:
- The ICC Rules expressly require only independence, but the ICC test is not meant to exclude impartiality: the ICC has explained that its test of independence should be viewed as broad enough to include the concept of impartiality.
- The ICSID Arbitration Rules do not require impartiality and independence specifically, but do require the arbitrators to judge fairly between the parties according to the applicable law and to not accept any instruction or compensation other than as provided in the ICSID Convention.
3. The IB A Ethics Rules state that a prospective arbitrator shall accept an appointment only if fully satisfied that he or she is able to discharge his duties without bias; the criteria for assessing questions relating to bias are impartiality and independence.
- The rules require a prospective arbitrator to disclose all facts or circumstances that may give rise to justifiable doubts as to his or her impartiality or independence - failure to make such disclosure creates an appearance of bias, and may be a ground for disqualification even though the non-disclosed facts or circumstances would not of themselves justify disqualification.
4. Similarly, the ABA draft Ethics Code requires that a prospective arbitrator should accept appointment as an arbitrator only if fully satisfied of his or her ability to serve without bias and requires that an arbitrator should disclose any interest or relationship likely to affect impartiality or independence or which might create an appearance of partiality or bias.
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B. First key question: What do "impartiality" and "independence" mean
1. An impartial arbitrator is one who is not biased in favor of, or prejudiced against, a particular party or its case.
2. An independent arbitrator is one who has no close relationship - financial, professional or personal - with a party or its counsel.
3. My view: I agree with those who argue, including the drafters of the 1996 English Arbitration Act, that ultimately the test essentially boils down to one of impartiality - a lack of independence is not significant unless it gives rise to justifiable doubts about the impartiality of the arbitrator.
- The inclusion of independence can give rise to endless arguments where almost any connection, however remote, is put forward to challenge the independence of the arbitrator.
- In many situations the parties may desire their arbitrators to have familiarity with a specific field, rather than being entirely independent.
- Lack of independence may well give rise to justifiable doubts about impartiality, which is covered by the impartiality standard. In international arbitration practice, parties often waive a strict interpretation of independence, but may not waive the fundamental requirement of impartiality
4. Predisposition vs bias: One can - and should - select a party-appointed arbitrator in the hope that he or she will have a general sympathy or predisposition in favor of the appointing party or some aspect of its case through a shared or similar economic, political, social, cultural, national or legal background.
- In other words, a party can nominate an arbitrator compatible with its national and economic circumstances, so long as that arbitrator is impartial.
5. Standard of disclosure
- The standard of disclosure is the same for all arbitrators, whether party-appointed, sole or presiding; i.e., using the IBA Ethics Rules wording by way of illustration, all must disclose anything that might create justifiable doubts as to the prospective arbitrator's impartiality or independence.
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C. Second key question: How does one evaluate a potential arbitrator's impartiality
1. Doak Bishop and I set out various criteria in our 1998 article "Practical Guidelines for Interviewing, Selecting and Challenging Party-Appointed Arbitrators in International Commercial Arbitration (14 Arbitration International 394(1998)):
- Disqualifying factors
- Non-disqualifying factors
- Factors bearing close scrutiny
2. Preliminary points:
- The underpinning of the impartiality standard is full disclosure by arbitrator candidates.
- The obligation to disclose is one that continues after the arbitrator's appointment - the arbitrator must disclose any new facts or circumstances that would reflect on his or her impartiality or independence.
3. Disqualifying factors are those that are so indicative of partiality that they will generally disqualify the arbitrator candidate from appointment:
a. A significant financial interest in the relevant project or dispute, or in a party or its counsel (party includes party affiliates and employees and potentially important witnesses for the party's case)
- It is reasonable to assume that someone with such an interest will be tempted to decide consistently with that interest, and whatever the ruling the arbitrator will be subject to suspicion. For example:
- prospective arbitrator's employment with party or affiliate
- prospective arbitrator who is partner with or employed by party's counsel
- prospective arbitrator owns significant shareholding in a party (a mere $1,000 worth of stock of a large publicly traded company would not be a significant interest)
- prospective arbitrator's significant existing business relationship
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b. A close family relationship with a party or its counsel
- Close family relationships are assumed to be too personal to survive the impartiality test.
- Close family relations include the party's spouse, parents, grandparents, children, grandchildren, siblings, first cousins, nieces, nephews and in-laws.
c. Non-financial involvement in the relevant project, dispute or subject matter of the dispute
- Partiality is assumed where the arbitrator candidate is or has been in a decision-making or controlling role, or significantly involved, in the project, the dispute or the subject matter of the dispute. For example:
- prospective arbitrator who was/is the architect in a construction case or the attorney who drafted the agreement in a contract dispute or a manager of a petroleum exploration and production venture in a case focusing on that venture
d. A public position taken on the specific matter in dispute
- For example, where a prospective arbitrator is a professional who wrote an article or made an oral presentation referring to the specific dispute in issue and suggesting the proper outcome
- Note: It would not be automatically disqualifying that a prospective arbitrator took an intellectual position in an article or lecture on an abstract issue involved in the dispute.
e. Involvement in the settlement discussions of the parties
- For example, where a prospective arbitrator acted as mediator for the...
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