This article has been written by Shubham Jadia, a student of Indore Institute of Law
Introduction
This article revisits the fundamental right of the parties to nominate or appoint arbitrators of their choice. It examines the selection process and practical considerations in choosing a sole arbitrator and a panel of arbitrators, dealing with party appointed arbitrators and the chairman. This is examined from the perspective of ad hoc and institutional arbitrations. The default provisions of various national arbitration laws are examined. In discussing institutional arbitration, the arbitration rules of various institutions provide necessary insight. Arbitral practice and relevant court decisions are also examined.
It is universally acknowledged that, “the quality of arbitration proceeding depends to a large extent on the quality and skill of the arbitrators chosen.” The parties have chosen to opt out of litigation where a judge is appointed for them, into arbitration where they choose their own judge. They are the constructors of their dispute resolution mechanism and are therefore presumed to know who best should resolve their dispute. Thus the importance of the selection and appointment of the right arbitrator for the dispute cannot be over emphasized.
This article is based on certain assumptions – One, that the intended arbitration is over an international dispute. This would in effect delimit the jurisdiction of the article. Two, that the arbitrators, whether sole, chairman or party appointed are expected to be neutral, adhering to the same standards of impartiality, independence and disclosure requirements. Third, the office of the umpire does not apply so that the arbitrators shall not thereby act as advocates of the parties at any time. The issues raised in this article regarding the selection and appointment of arbitrators equally apply whether the international dispute is strictly of a commercial, investment or public law nature (where a State, or a State-controlled entity is involved) However, it must be conceded that certain issues (for example, the nationality of the arbitrators) assume more significance depending on the nature of the parties involved.
Necessity of Selection of Arbitrators
One of the major differences between consensual arbitration and litigation (which is also seen as one of its main advantages) is the fact that the parties can and do select or choose their own dispute-resolver or judge called an ‘arbitrator’. In litigation, the parties accept whichever judge is assigned their case. In arbitration, the parties get to choose. Two prominent international arbitrators, writing on this point, have asserted that, “Once a decision to refer a dispute to arbitration has been made, nothing is more important than choosing the right arbitral tribunal. It is a choice which is important not only for the parties to the particular dispute, but also for the reputation and standing of the arbitral process itself.” Thus to make an informed choice, the party has certain clear attributes it must look for in the prospective arbitrator. This would of necessity, depend on what the party hopes to achieve from the arbitration. This of course, would differ depending on whether the party is a claimant or respondent, solvent or insolvent, amongst others. In recognition of the primacy of this empowerment in arbitration, most arbitration laws following the New York Convention and the Model Law, would set aside an award where, “The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties – – -”. This therefore makes it of utmost importance that the arbitral tribunal is properly composed. The proper composition of the arbitral tribunal is a matter the parties can waive during the arbitral proceeding. This the parties do, where (during the arbitral proceeding) they fail to raise the issue or contest it or reserve their right to raise it at the enforcement or setting aside stage. This waiver requirement ensures that parties do not (deliberately or otherwise) sleep on their rights and freely frustrate the whole arbitral process where the award goes against them.
The question of proper composition of the tribunal is also a jurisdictional one, which the arbitral tribunal is empowered by practically all arbitration laws to decide.
Parties embark on arbitration to resolve a dispute or difference arising between them. They commence the proceedings to get a recognizable and enforceable award (baring settlement). Thus anything that would deprive them of obtaining a valid award at the end of the procedure is anathema and must be avoided. The composition (i.e., The selection and appointment) of the tribunal must therefore be in accordance with the agreement of the parties.
Parties Agreement
As a prerequisite of achieving this, the parties must agree on the composition of the arbitral tribunal. There are several recognized ways by which the parties can ‘agree’ on such composition. The parties can exercise this right by expressly agreeing on the appointment procedure in their arbitration agreement. They can achieve this by agreeing on the number of arbitrators and how they would be appointed. All arbitration laws recognize this right of the parties. The parties can nominate a third party to make the appointment for and on their behalf. Appointments made thereto are validly made ‘by the parties’. This is because such appointments are made under the ‘seal’ of the parties. Thus the parties can validly nominate an appointing authority to make the necessary appointments. They can expressly choose to use a List procedure for the appointment. The parties can, in a Submission agreement, directly appoint the person(s) to act as arbitrator(s). These all apply in ad hoc arbitrations. Where the parties adopt institutional arbitration rules, without making any other express selection or appointment provision, they choose the selection and appointment procedure of the relevant institution as published in their rules (and unpublished internal rules). This is simply because the arbitration rules of the particular institution becomes an extension of the provisions of the arbitration agreement between the parties.
Some arbitration institution rules provide that the parties may nominate (or designate) arbitrators for its appointment. Such institutions are not bound to appoint the arbitrators nominated by the parties. This eventuality complies with parties appointing the arbitrators. This is because the parties, in their arbitration agreement (including the rules of the institution) have provided this protective caveat.
A necessary question that arises is determining at what point the institution’s arbitration rules become part and parcel of the arbitration agreement. If it is at the time of conclusion of the arbitration agreement, then the applicable rules would be the rules in force at the time of the conclusion of the arbitration agreement. However, arbitration institutions provide that the effective rules will be those in force when the dispute arises.
Another related point is the fact that the legal relationship between the parties and the arbitration institution does not come into existence until the dispute has arisen and the arbitration institution, having being notified of its choice, accepts to administer the dispute resolution process under its rules. It is at this point, when the offer by the parties to the arbitration institution to administer the arbitration has been accepted by the institution, that the arbitration rules of the institution can actually become effective as part of the arbitration agreement.
Party Selection
Thus having established the various ways parties can agree on the appointment of arbitrators, we now turn to the selection requirements. We start by posing the question: ‘Can parties select?’ To answer this question, we must look at various arbitration laws, rules and commentaries. Parties can and do select the arbitrators. Tore Wiwen-Nilsson sees the selection of an arbitrator as, “the process by which an individual is found suitable to become an arbitrator.” The selection process, of necessity, precedes the nomination, confirmation and appointment of the arbitrator(s).
Sole arbitrators
Where the arbitration agreement requires a sole arbitrator to be appointed, it may provide the method or means of appointment. In Submission agreements, the particular arbitrator to act may be appointed and named in the arbitration agreement. It is submitted that since Submission agreements are concluded after the dispute has arisen, the parties would contact and get the acceptance of the proposed sole arbitrator to act before naming him in the Submission agreement. This being the case, the sole arbitrator so named in the Submission agreement, would have consented to so act.
It is an acknowledged fact that most arbitration agreements are pre-dispute and do not contain the name(s) of the arbitrator(s). The arbitration agreement may however, indicate the number of arbitrators and how they would be appointed. In ad hoc proceedings, the arbitration agreement may nominate an appointing authority to make the appointment of the sole arbitrator.
Arbitration laws make default provisions for the appointment of arbitrators to apply where the parties have not made any provisions. The UNCITRAL Rules of Arbitration in article 6 provides that either party may propose, “the names of one or more persons, one of whom would serve as the sole arbitrator.” The UNCITRAL system envisages the presence of an appointing authority to function, especially where the parties cannot agree on an appointee. Therefore, UNCITRAL Rules provide that if the parties have not nominated an appointing authority then they can ask the Secretary General of the Permanent Court of Arbitration at The Hague to designate an appointing authority for them.
Panel of Three Arbitrators
In a panel of three or more arbitrators, the laws make subtle differences regarding appointment of arbitrators. Generally, it is acknowledged that in a panel of uneven number of arbitrators, each party appoints one arbitrator and the two party-appointed arbitrators would jointly appoint the third arbitrator to act as chairman. Some laws require the parties to appoint the chairman while some require the two party appointed arbitrators to make the appointment. In practice, it is admitted that generally, the party appointed arbitrators consult the appointing parties on the appointment of the chairman.
This becomes an issue because in international arbitration the party-appointed arbitrators do not act and are not perceived to act as agents or representatives of the appointing parties. Why then refer to the appointing party? The issue here might be the juggling of two very important principles of international arbitration: the fundamental right of the parties to appoint the arbitrators against the independence and neutrality of the party-appointed arbitrators.
In this scenario, the provisions of the relevant law become important. Where the law does not require an imput from the parties, then the party-appointed arbitrator can disregard consulting the appointing party (or its opinion). However, where the law provides or alludes to the appointing party’s ability or right to make imputs or make the appointment, then the party-appointed arbitrator cannot disregard the appointing party’s imput (or opinion). This became a real issue where in Tackaberry v Phaidon Navegacion S.A., the party-appointed arbitrators agreed fees with the umpire nominated by them (the nomination was with the approval of the parties) which the parties refused to pay. The judge held that by authorizing the party-appointed arbitrators to appoint the umpire (in this case) the parties by implication authorized them to agree his fees to which they are bound and should pay.
Selection Criteria
The criteria parties would take into consideration in selecting arbitrators depend on what the goals of the selecting party are with regards to its participation in the arbitration. Where the party does not have any interests or incentives in pursuing the arbitration (typically assumed to be the position of most respondents) it might decide not to cooperate with the other party and frustrate the proceedings as much as is possible. It might refuse or fail to meet appointment deadlines as provided in the laws/rules or even refuse to make any appointments. It might delay the proceedings by repeatedly asking for extension of time very close to agreed deadlines. The arbitral tribunal would have to indulge such dilatory tactics (for some time) so as not to jeopardize its award for failing to give the party an opportunity to present its case and answer to that of its opponent.
A party might seek to wear the other party out by a long drawn out arbitral process. This is especially true where the other party’s financial position is suspected of being unstable or on shaky grounds. The arbitrator must be able to identify this and deal with it appropriately. This calls for experience on the part of the sole arbitrator or chairman of the arbitral tribunal.
In a panel of three arbitrators, the arbitrators are a team and so each arbitrator must be a team player. He must be capable of working with the other members of the tribunal, especially where they are of different nationalities and legal backgrounds with the variable legal and socio-cultural differences. It is not enough (and may even be unnecessary) for the party-appointed arbitrators to each seek to ally with the chairman. Most rules require an award by a majority and not necessarily one in which the chairman concurred.
The professional qualification or expertise of the arbitrator would be dependent on the requirements of the parties (as provided in the arbitration agreement) and on the exegesis of the dispute. The need for the arbitrator to equally be an expert in the relevant field may be unnecessary. This is because international arbitral tribunals have access to expert witnesses. However, the nature of the dispute might require persons with technical knowledge in the requisite field.
The arbitrator must be available. It is not cost effective and can be quite frustrating to appoint arbitrators who just cannot devote the time needed to the proceedings, regardless of how experienced they are perceived to be. This is especially true of the very big names in international arbitration who, possibly may be constrained to take on more disputes than they can effectively and efficiently deal with.
The arbitrator must be reasonably familiar with the language(s) of the arbitration proceedings. Each language has connotations and anecdotes, the understanding of which comes with familiarity. This would help the arbitrator understand the dispute and the position of the parties. It of course is cost effective, as the additional costs (as per additional expenses and billable time) of interpretation would be avoided.
Nationality of parties and arbitrators is a prominent factor in international arbitration. A major factor of its internationality is the fact that in most cases, the parties have different nationalities. The ICC Court takes the nationality of the parties into consideration in appointing sole arbitrators or chairmen of panel of arbitrators.
Appointment Procedures
- Ad Hoc Arbitration
After the interviews of various prospective arbitrators, parties choose one to be appointed. In ad hoc arbitration, the nominee will simply be informed of his nomination. Once the nominee accepts, the appointment will be concluded and the other party notified of the names and details of the appointee. The other party would possibly go through the same process to appoint its arbitrator and give necessary notifications. The two party-appointed arbitrators would then meet to appoint the chairman.
In ad hoc arbitrations the relevance of the law of the seat of arbitration cannot be overemphasized. The non-mandatory provisions of the relevant law act as gap-fillers and make default provisions. These provisions would therefore apply in circumstances where the parties have not either made any provisions or provided otherwise. The parties cannot contract out of the mandatory provisions of the relevant law. This is regardless of the arbitration being ad hoc or institutional.
On procedure for composition of the arbitral tribunal, the default provisions of the laws also vary. The Model Law expects the parties to agree on the sole arbitrator, failing which the appointment will be made by the appointing authority (if any) or the court. In a panel of arbitrators, “each party shall appoint one arbitrator, and the two arbitrators thus appointed shall appoint the third arbitrator; – – -.” This is a mandatory provision of the Model Law in recognition of the freedom of the parties to choose their arbitrators. The party-appointed arbitrators (acting for the parties) choose the presiding arbitrator.
- Institutional Arbitration
Arbitration institution rules make different provisions regarding this. The common thread is that the parties can agree on the appointment procedure. Under the ICC Rules where the parties have agreed an appointment procedure, they may nominate the sole arbitrator for confirmation by the Secretary General of the ICC. Under CIETAC, the parties may jointly authorize the Chairman of the Arbitration Commission to appoint a sole arbitrator. The Rules of the Arbitration Court attached to the Hungarian Chamber of Commerce, requires the claimant to designate the sole arbitrator in its statement of claim and the respondent to accept such designation. The LCIA appoints the sole arbitrator.
The rules make default provisions where the appointing procedure provided by the parties fail or is frustrated by one party, The ICC court will make the appointment; the Chairman of the Arbitration Commission under CIETAC will appoint; the Arbitration Court of the Hungary Chamber of Commerce will make the default appointment. In Milan, The Arbitral Council will appoint while in Tunis the Center’s Scientific Council will make the appointment. The Administrator of the AAA will only make a default appointment if so requested by a party. The SCC Institute would appoint the sole arbitrator.
CONCLUSION
It has been shown that parties (and their lawyers) involved in international arbitration, increasingly interview prospective arbitrators as part of the selection process. There is no uniform practice in this area and arbitration laws, rules or codes do not directly regulate such matters. Arbitration laws and rules give the parties the freedom of deciding the number and appointment procedure of the arbitrators. The procedures parties adopt in effecting such appointment (or nomination) are not mentioned. This it is suggested may be to keep flexible the fundamental right of the parties to choose their arbitrators, directly or indirectly.
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