March 3 - 4, 1994, Geneva, Switzerland
ANNEX
FROM THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION: ESSAYS IN HONOR OF HANS SMIT - THE PARTY-APPOINTED ARBITRATOR
Living With the Party-Appointed Arbitrator: Judicial Confusion, Ethical Codes and Practical Advice
The party-appointed arbitrator is a necessary but somewhat uncomfortable participant in international commercial arbitration. Is he or she to be wholly neutral, perhaps even bending over backwards to avoid showing any preference for the appointing party? Or, is such an arbitrator instead allowed or even expected to be inclined at least presumptively toward the position of that appointing party? American courts generally are uncomfortable with this question, and the resulting confusion has led to efforts to regulate the party-appointed arbitrator with ethical codes. The result is not yet entirely satisfactory, tending more toward theoretical than practical guidance.
It sometimes is suggested that the ambiguities could be minimized if arbitration tribunals were selected, either by the parties directly or on their behalf by arbitral institutions, from predesignated groups of disinterested neutrals comprising an arbitrator "court," panel or roster. Nevertheless, the prevailing pattern (particularly in international arbitration) still calls for each of the parties to make its own choice of one arbitrator, from whatever source the party wishes, and for some form of joint selection of a third arbitrator.
The reasons for this continuing preference for a system that includes two hand-picked, party-appointed arbitrators are not difficult to identify. In arbitration, parties accept virtually non-appealable finality of the arbitrators' decision largely in exchange for the ability to participate in the selection of their tribunal rather than accept an anonymous, governmentally chosen decision maker - a judge - whose rulings may be less predictable but generally are subject to appellate review. In such a setting, a party seeks maximum advantage from its right to control the identity of the decision makers and seeks to have as one of the members of the tribunal a person whose ability and general inclination of views can be assessed in advance. This is particularly important in an international arbitration, where arbitrators of three different nationalities may be chosen and each party may desire that one member of the tribunal be familiar with its own law and customs. Party-appointed arbitrators also may be expected to play a role in selecting the third arbitrator, bringing their judgment and experience to bear on this important task.
The designation of one party-appointed arbitrator thus often is permissibly within each party's control, and his or her identity may be a very important factor in predicting the result of the arbitration. Judges exhibit discomfort with this fact. On one hand, they are bombarded with appellate opinions and popular literature extolling the advantages of arbitration, which is described as (among other things) a panacea for helping busy courts clear crowded dockets. On the other, courts exhibit a tendency to view arbitrators as having, at least to some extent, the duties of judges and thus to require that they share some of their attributes, such as independence. Party-appointed they may be, but arbitrators remain decision makers having responsibility to a process which the public expects to be regulated by the courts to assure fundamental fairness.
Such a system, controlled by the parties, presents directly the question of what degree of affinity between the party and its appointee is acceptable. However, the courts have dealt mainly with the theoretical nature of the appointee (usually in cases involving a failure to disclose some business connection) and not with the practical issues involved in the appointing decision. Those issues typically fall into three categories, substantive views, organizational sympathies and personal sympathies.
Perhaps the broadest focus is that of the arbitrator appointee's substantive views on legal and commercial issues. Is the appointee permitted to be a person who has exhibited a general sympathy, in writings or public remarks, for legal, political or other positions relevant to and tending to favor one side of the dispute? Are prior rulings in another arbitration involving similar facts and issues even more relevant? What if the appointee has made public comments about the merits of this specific dispute? Is he or she able to listen with an open mind to evidence, and can he or she be sufficiently fair to participate in a collegial arbitral decision-making process?
Another set of issues focuses on the appointee's organizational sympathies. Can a party-appointed arbitrator be affiliated with another firm in the same industry or part of an industry as the party? Can he or she have been involved in a prior (but concluded) employment, consulting or other professional relationship with the party involving some separate matter? To extend the point further, can the appointee be employed currently by the party, or by some other part of the same organization (be it private or governmental)? What if the appointee has some financial interest in the party's general business affairs?
The third set of issues involves personal sympathies. Here one deals with the friendship and professional contacts that may exist between an arbitrator and the party's principals or lawyers. Also, what about prior appointment as an arbitrator by the same party (or by the same lawyers, representing some other party), in another matter? Is a remote family relationship with one of the party's principals or lawyers a disqualifying factor?
All of these issues also raise procedural questions. First, is it proper to approach the candidate at all before nominating him or her in order to explore these matters? If so, what can the candidate be told about the dispute and the party's view of its merits? Can the arbitrator candidate's own views of the issues typically found in this type of dispute, or even those involved in this specific dispute, be elicited? May the party discuss the selection of a third arbitrator with the candidate, including consideration of specific candidates? Once an appointment is made, may the party thereafter communicate with the arbitrator about selection of the third arbitrator? Regarding scheduling and procedural matters? About the merits of the dispute and the progress of the proceedings, or even about the arbitrators' deliberations?
1. In Search of a Standard: Judicial Attempts at Definition
American arbitration statutes provide little guidance regarding the party-appointed arbitrator, and what the case law teaches is more theoretical than practical. The Federal Arbitration Act, (1) dating from 1925, addresses aspects of the relationship between the courts and the arbitral process but does not provide details about most aspects of arbitration procedure. It includes, among the grounds on which a court may vacate an award, vaguely worded concepts which might be invoked to sanction improper activities of a party-appointed arbitrator: an award may be vacated "[w]here the award was procured by corruption, fraud, or undue means" or "[w]here there was evident partiality or corruption in the arbitrators, or either of them."(2) But the statute gives no guidance regarding the point at which such improprieties might be said to occur.
Similarly, the Uniform Arbitration Act enacted (often in a modified and not fully uniform format) in most U.S. States provides for the vacating of an award on generalized grounds of arbitrator impropriety such as "corruption, fraud or misconduct."(3) However, it couches the ground for vacating due to arbitrator partiality in terms of "partiality of an arbitrator appointed as a neutral," (emphasis added) which is the result of an evolution in thinking that began in the 1950s.
American law, and New York law in particular, is rich in decisional precedents on arbitral matters; but courts' attempts to apply these laws to the party-appointed arbitrator have produced more philosophy than practical guidance.
a. New York Law
Partisanship of an arbitrator, unless based on facts known to both parties and waived by them, may provide a basis for judicial challenge to the composition of the panel at the outset or to its award at the conclusion of the arbitration. When New York courts began to consider what standards of impartiality should be required of party appointees in commercial arbitrations in the modern pro-arbitration era beginning in the 1920s, their initial analysis was based on application of a quasi-judicial standard. In the leading case of American Eagle Fire Insurance Co. v. New Jersey Insurance Co., for example, the New York Court of Appeals condemned:
"the practice of arbitrators of conducting themselves as champions of their nominators ... as contrary to the purpose of arbitrations and as calculated to bring the system of enforced arbitrations into disrepute. An arbitrator acts in quasi-judicial capacity and should possess the judicial qualifications of fairness to both parties so that he may render a faithful, honest and disinterested opinion. He is not an advocate whose function is to convince the umpire or third arbitrator .... He must lay aside all bias and approach the case with a mind open to conviction and without regard to his previously formed opinions as to the merits of the party or the cause .... Although a known interest does not disqualify and the parties may not complain merely because the arbitrators named were known to be chosen with a view to a particular relationship to their nominator or to the subject matter of the controversy, they are entitled to expect that arbitrators thus chosen will proceed with indifference and impartiality (4).
Twenty-seven years later, in the 1952 case of Lipschutz v. Gutwirth, (5) the same approach prevailed: the New York Court of Appeals rejected an argument that "an arbitrator chosen by a party is merely that party's agent and will act in a partial manner."(6) An award made by a panel including a partial or interested arbitrator was subject to vacatur, in the same way as one obtained through fraud or corruption (7).
But American Eagle and Lipschutz were decided when the New York Arbitration Law provided that an award must be vacated when any arbitrator was evidently partial or corrupt. By the late 1950s, different standards had come to be expected for party-appointed members of tripartite tribunals, and moves were made to revise the Arbitration Law to reflect this. Indeed, New York courts reversed direction and came to regard the system of party-appointed arbitrators as designed precisely "to allow each party the opportunity to have his side represented on the tribunal."(8)
The New York Arbitration Law of the earlier era, Section 1462(2) of the Civil Practice Act of 1920, included language similar to that of the 1925 Federal Arbitration Act allowing vacation of an award when "there was evident partiality or corruption in the arbitrators or either of them." However, new thinking about the role of party-appointed arbitrators surfaced, with little apparent discussion of its implications, when the Uniform Arbitration Act was promulgated by the National Conference of Commissioners on Uniform Laws and the American Bar Association in 1956.
This law accepted a two-tiered approach to the impartiality and independence of arbitrators: in an arbitration panel consisting of two arbitrators appointed by each of the parties respectively and a third chosen by the two party-appointed arbitrators, the party-appointed arbitrator was presumed to act as partisan to the party who appointed him or her; only the third arbitrator-chosen arbitrator (or a single arbitrator) was required to act neutrally.
The Chairman of the Committee of the National Conference which drafted the Uniform Act, Professor Maynard Pirsig, explained this two-tiered standard as simply a recognition of the practice in labor and commercial arbitration of appointing an arbitrator to represent a party's interests and "in a loose sense, [to] be his advocate."(9) No more theoretical justification of the "double standard" system was offered.
In connection with his observation of the widespread recourse to non-neutral arbitrators, Professor Pirsig cited a detailed study of the use of tripartite boards in arbitration published as a student note in 1954 in the Harvard Law Review (10). The study observed that some 10 percent of commercial arbitrations conducted by the American Arbitration Association involved tripartite boards, while fewer than five percent of international commercial arbitrations handled by various institutions did so. It concluded that although partisan arbitrators may be appropriate in labor arbitration, this system was not necessarily advantageous in commercial arbitration. The tripartite labor panel, the authors maintained, was essentially a substitute for a strike and involved a legislative, bargaining process. A commercial dispute typically concerns justifiable rights rather than bargaining interests: party representatives thus are not critical to achieve a workable decision. Detrimental consequences of tripartite boards in commercial arbitration observed in the study included the problem of latent partisanship, because of the formal opposition towards partisan arbitrators in the business community, and that of recourse to dilatory tactics (11). The Harvard study therefore was equivocal in its support for the use of partisan arbitrators in commercial arbitration.
Nevertheless, this study and the 1956 Uniform Arbitration Act formed the basis of a 1958 report to the New York legislature on proposed amendments to the New York legislation to achieve a similar "double standard" system. The report noted that to confine challenges on the grounds of bias to those arbitrators appointed as neutrals "takes cognizance of the common practice of each party appointing his own arbitrator who is not individually expected to be neutral; obviously, partiality of such arbitrators should not be a ground for vacating the award."(12)
This approach was given statutory expression in the New York Civil Practice Law and Rules ("CPLR") which was enacted in 1962 and came into force in 1963. Although the CPLR requires all arbitrators to swear an oath that they will "hear and decide the controversy faithfully and fairly,"(13) it allows the vacating of an arbitral award on grounds of bias only if a party's rights were prejudiced by the partiality of an arbitrator appointed as a neutral (14). The participation of a non-neutral arbitrator may only be attacked on grounds of corruption, fraud or misconduct (15).
The leading New York case on the standards required of party-appointed arbitrators, Astoria Medical Group v. Health Insurance Plan of Greater New York, (16) was in fact decided before the new legislation had come into effect but nonetheless anticipated it. In Astoria, the New York Court of Appeals held that a member of the board of directors of a corporate party to an arbitration was qualified to act as that party's appointee to the arbitral panel. The Court rejected the argument that the appointment should be governed by criteria other than the agreement of the parties manifested in the arbitration clause in their contract. When the parties agreed to a tripartite arbitral tribunal, the Court said it must be assumed that they accepted "established practice and usage" in the field of arbitration. The popularity of tripartite boards in commercial and labor arbitration had led to "a common acceptance of the fact that the party-designated arbitrators are not and cannot be 'neutral,' at least in the sense that the third arbitrator or a judge is."(17) Acknowledgement of the "partisan character of tripartite arbitration" meant that "the parties must be deemed to have intended that each was to be free to appoint any arbitrator desired, however close his relationship to it or to the dispute"(18) (emphasis added).
The Astoria court noted that party-appointed arbitrators serving on tripartite tribunals generally were experts in the subject matter of the arbitration and held that to disqualify such an arbitrator because of his or her connection to a party would deny the neutral chairman specialized guidance on the context of the arbitration (19). New York law does not, however, sanction overt partiality or corruption in the actual conduct of the arbitration: "Partisan [an arbitrator] maybe, but not dishonest." (20)
New York courts, and those of other States as well, (21) continue to cite Astoria as precedent for a separate standard applicable to party-appointed arbitrators.
b. U.S. Federal Law
The Federal Arbitration Act, which governs arbitrations arising out of maritime transactions and interstate or foreign commerce, did not go through the same evolution in mid-century and thus differs from the New York and other Uniform Arbitration Act pattern laws. The Federal Act, unchanged in this regard since 1925, is part of the pattern of the pre-1950's U.S. laws that refer to a single standard for all arbitrators. Like the former New York Arbitration Law, two of the grounds it allows for vacation of an award are that the award was "procured by corruption, fraud or other undue means" or that there was "evident partiality or corruption in the arbitrators, or either of them."(22)
Federal law on its face therefore is stricter than New York law and other versions of the Uniform Arbitration Act. Whether an arbitrator on a tripartite tribunal is party-appointed or chosen by the party-appointed arbitrators as their chairman, the statutory language suggests that he or she is required to be impartial unless the parties expressly agree otherwise. In practice, however, courts have been reluctant to make much of the difference.
The leading federal precedent on arbitrator conduct is Commonwealth Coatings Corporation v. Continental Casualty Co., (23) decided six years after Astoria, in which the U.S. Supreme Court held that the failure of the chairman of a tripartite arbitral panel (clearly appointed "as a neutral") to disclose before the hearing that he had been paid about $12,000 in fees by a party to the arbitration over four or five years for consulting services, including services involving the project that was the subject of the dispute, amounted to an appearance of bias that came within the notion of "evident partiality" contained in the federal statute.
The challenged award had been unanimous but nevertheless was held subject to vacation. Justice Black's opinion, which was joined by only three members of the Court, identified the arbitral process closely with the judicial process, with implications for all arbitrators: an arbitrator was under the same duty of "strict morality and fairness" required of a member of a jury, or of a judge (24). Indeed, argued Justice Black, the impartiality of arbitrators was, if anything, more important than that of judges because of the autonomy of the arbitral system.
Although the judicial analogy drawn by Justice Black suggested that arbitral panels were required to be as independent of the controversy as possible, the actual ground for his opinion was the fact of non-disclosure of the arbitrator's relationship to one party. He did not appear to consider a prior business relationship per se disqualifying (25).
Nevertheless, some later decisions have focused on Justice Black's statement that judges and arbitrators should observe the same standards of independence and assumed that this, rather than non-disclosure, was the rationale for finding that there was a disqualifying appearance of bias in an arbitrator. For this reason, federal courts have been ambivalent towards Commonwealth Coatings' central thesis that appearance of partiality could amount to "evident partiality" under the Arbitration Act. Few of the cases have involved party-appointed arbitrators, however, and the issues have tended to center on a somewhat sterile division of "evident partiality" into "mere appearance of bias" (not disqualifying) and "proof of actual bias" (fatal) (26). The facts typically involve non-disclosure of a close relationship with a party; the more subtle varieties of conduct that might place a party-appointed arbitrator in one box rather than the other are little examined.
Judge Weinfeld of the U.S. District Court for the Southern District of New York summarized the predominant view - that all arbitrators are not quite judicial - without consideration of the possibly unique party appointee, in the following terms:
"Out of the welter of plurality, concurring and dissenting opinions in Continental, Chief Judge Feinberg of our Court of Appeals observed that the Supreme Court certainly did not decide that "the standards of judicial decorum apply equally to arbitrators." In fact, subsequent to Continental, our Court of Appeals noted that the standard to be applied in passing upon a claim of disqualification of an arbitrator for "evident partiality," or for alleged failure to disclose information, has been held to be less stringent than those for judicial officers because "to disqualify any arbitrator who had prior dealings with one of the parties (to say nothing of social acquaintanceship) would make it impossible, in some circumstances, to find a qualified arbitrator at all." Chief Judge Feinberg observed for the Court that under prior rulings "we have not been quick to set aside the results of an arbitration because of an arbitrator's alleged failure to disclose information," and that each case is to be decided pragmatically on "a case-by-case approach in preference to dogmatic rigidity." Were a person to be disqualified simply because he has professional or social relationships with one of the parties would make it virtually impossible in some instances to obtain qualified and experienced arbitrators. This is particularly applicable to this arbitration, which involved complex issues and a large international industry in which most of the major participants, many of whom are large corporations, are involved in the arbitration. Our Court of Appeals has held that to sustain a section 10(b) charge of "evident impartiality" against an arbitrator requires:
"a showing of something more than the mere "appearance of bias" to vacate an arbitration award ... "[E]vident partiality" within the meaning of 9 U.S.C. § 10 will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration. In assessing a given relationship, courts must remain cognizant of peculiar commercial practices and factual variances.
Recently, our Court of Appeals adhered to this doctrine:
... [t]he unique role of arbitrators, whose special expertise arises from wide experience in their fields, sometimes leads to a gain of their professional knowledge and skill at the cost of the appearance of less than complete impartiality. We generally adhere to the rule "[t]he mere appearance of bias that might disqualify a judge will not disqualify an arbitrator."
Moreover, to set aside an award for partiality, "[t]he interest or bias ... must be direct, definite and capable of demonstration rather than remote, uncertain or speculative."(27)
But while a lesser standard of impartiality is recognized as more appropriate for arbitrators than for judges, federal courts that have dealt with a party appointee tend to state that this standard applies uniformly to all arbitrators. In Florasynth, Inc. v. Pickholz, (28) for example, an arbitration clause providing for a tripartite tribunal of two party-appointed arbitrators and a third arbitrator chosen by them was held to require all members of the panel to be disinterested (29).
The greater federal emphasis on impartiality is evident in the reluctance of federal courts to find that a party has waived its right to an impartial tribunal. In Erving v. Virginia Squires Basketball Club, (30) for example, the Second Circuit upheld a decision to substitute a neutral arbitrator for the one specified in the arbitration clause, who was a member of a law firm representing one of the parties, in order to ensure a fair and impartial hearing (31). Federal courts also seem more willing to infer a waiver of objections to an arbitrator when they consider the arbitrator impartial (32).
Nevertheless, as a federal district judge in Connecticut recently wrote, "only scant case law exists on the subject of arbitrator bias in the tripartite context."(33) Accepting the authority of Astoria with respect to the propriety of some degree of "non-neutrality," the court nevertheless also cited Florasynth for the proposition that party-selected arbitrators "have a responsibility to be disinterested."(34) The Connecticut court stated that a party-appointed arbitrator has an ethical duty "to participate in the arbitration in a fair, honest and good-faith manner"(35) and applied that standard to characterize as "overt misconduct"(36) aspects of the arbitrator's communications with the appointing party prior to his appointment. Specifically, the arbitrator was charged with meeting with representatives of the party as its headquarters, having lunch, discussing the issues in the case and looking at one or more relevant documents, as well as allegedly seeking to discuss the case with the other party-appointed arbitrator prior to the selection of the third arbitrator.
In the absence of sufficient case law to address practical questions of party-appointed arbitrator conduct, and in the fact of somewhat inconsistent direction from those precedents, arbitration practitioners have sought to clarify the situation through the promulgation of codes of ethics lacking the force of law but designed to influence the courts.
II. Ethical Codes: Practitioners Fill Some Gaps
A document setting forth ethical principles for arbitrators should serve a variety of purposes. It should help acquaint prospective parties to arbitrations and prospective arbitrators with the aspirational norms of the process, lead them to think well of its potential and encourage them to participate in developing arbitration in a constructive way. But ethical codes also should provide practical guidance on preferred procedures, while doing so in a sufficiently general way to avoid usurping the function of detailed and not always entirely consistent procedural rules and requirements found in institutional rules and in governing arbitration statutes. Ethical codes ideally should also, to the extent possible, make clear what sorts of practices are clearly acceptable in a world of formalized private dispute resolution, so that frivolous challenges to arbitral awards on grounds of arbitrator misconduct are minimized and courts are given guidance.
a. The AAA-ABA Code of Ethics
As a result of a five-year process from 1972 to 1977, a Joint Committee of the American Arbitration Association and the American Bar Association prepared a "Code of Ethics for Arbitrators in Commercial Disputes"(37) which has been used widely since in the United States as a guide for parties, arbitrators and the courts (38). In preparing that Code, the Joint Committee directly addressed the question whether party-appointed arbitrators are required under all circumstances to be "neutral" in the same sense that judges are neutral or unbiased - that is, impartial in their view of the issues until evidence has been received, and independent of any overly close relationship with any of the parties, even if it is disclosed.
The Joint Committee ultimately decided that its Code should be a general one fitting all types of commercial arbitrations and therefore must accommodate the fact that in some types of arbitration it is traditionally expected and voluntarily accepted that party-appointees need not be entirely "neutral."(39) While the Code's preamble states a preference that parties agree that all arbitrators comply with the same ethical standards - i.e., neutrality - Canon VII of the AAA-ABA Code nevertheless deals expressly with such "non-neutral" party appointees by permitting them to vary their conduct in two basic ways: (1) by being "predisposed" toward the party appointing them (but nonetheless obligated "to act in good faith and with integrity and fairness" in all arbitral proceedings), and (2) by having continuing communications with an appointing party. Indeed, under the AAA-ABA Code such "non-neutral" arbitrators may, subject to the duty to disclose in general terms that they are doing so, communicate with the party to disclose in general terms that they are doing so, communicate with the party who appointed them about any aspect of the case. The Code states that it is sufficient for the arbitrator to disclose the intention to have such communications in the future, with no requirement that there be disclosure before each separate occasion on which such a communication occurs.
The Joint Committee memorialized the special status of the party-appointed arbitrator in Canon VII of the Code as one option available to parties; but it attempted to assure, as the Code states, that all concerned are aware from the start whether the party-appointed arbitrators are to be neutrals or non-neutrals. If one arbitrator is to act as a non-neutral (the implications of which the Code makes clear), then the other arbitrator, the party who appointed him or her, and the neutral chairman all should be told of this fact so that they may make appropriate adjustments in their own conduct (40). Assurance insofar as possible of a level playing field was judged more important than attempting to impose on party-appointed arbitrators standards of neutrality which conflicted with deep-seated (but not universal) traditions of U.S. arbitration. The result was a flexible procedure which recognizes differing degrees of neutrality.
Nevertheless, the Code made reference in passing to potential problems "in cases where the arbitration is conducted outside the United States," and where "the applicable law may require that all arbitrators be neutral," and counseled consideration of governing law before treating party-appointed arbitrators as "non-neutral."
Explicit U.S. recognition of the existence of "non-neutral" arbitrators for arbitrations based in the United States, as contrasted with arbitrations conducted elsewhere, has been a subject of criticism among practitioners of international commercial arbitration, a field in which there is at least a decided tendency toward requiring party-appointed arbitrators to be less than partisan. This field tends to be more closely identified with arbitration of "general" commercial disputes - i.e., disputes between parties to a particular contract who do not deal with each other regularly in other contexts as fellow members of the same industry or community - rather than with arbitration involving particular trades or communities where the "non-neutral" party-appointed arbitrator tradition is more likely to be found.
Critics of non-neutral arbitrators urge that all arbitrators in international arbitration, including party-appointed arbitrators, should be equally unaligned with the parties or with their views. However, they tend also to recognize that a party appointee in international arbitrations, like his or her counterpart in domestic U.S. commercial disputes, is selected by parties with the hope that the appointee will endorse the appointing party's position and help persuade the chairman of its correctness. The party may base such hope entirely on its assessment of the appointee's known views, writings in the field or prior arbitral decisions, without any suggestion to the arbitrator that he or she should be less than neutral; but the hope of predisposition nevertheless is common and often is well founded. Some observers believe that European practice is not substantially different from domestic U.S. practice in this regard (41). In particular, some international arbitration practitioners are dubious of the neutrality of arbitrators appointed by governmental entities, who may be employees of other agencies of the same government. The President of the American Arbitration Association has questioned whether the universally "neutral" party-appointed arbitrator in international practice is more than an "unreliable myth."(42)
Writers on this issue in international commercial arbitration have recognized that party appointees may not be entirely neutral; but they argue that appointees nonetheless should be held to an ethical norm requiring that they be formally unaffiliated with the appointing party and that they avoid post-appointment ex parte communications. Such arbitrators still are said to be "impartial" and "independent," even if they are "predisposed" toward one side and thus not entirely "neutral."(43) It thus appears that party-appointed international arbitrators are allowed to be predisposed, just as are "non-neutral" arbitrators under the AAA-ABA Code, so long as the predisposition arises from personal views of the issues or the parties rather than from formal affiliation with a party. Such international arbitrators, however, are not recognized as having the option of announcing that they will continue post-appointment ex parte communications with a party about the merits of a dispute, as do their U.S. counterparts under the AAA-ABA Code.
b. The IBA "Ethics"
Beginning in 1985, members of the International Bar Association ("IBA") drafted a set of principles intended to embody a detailed definition of this potentially "predisposed" but nonetheless "impartial" and "independent" international arbitrator that were cast in terms that recognized little or no formal distinction between party-appointed arbitrators and other arbitrators. This document also was intended to define certain presumptions and preferred procedures that sought to assure that all arbitrators would avoid post-appointment ex parte communications about the
dispute with the parties. These efforts resulted in the 1987 IBA Ethics for Arbitrators in International Commercial Disputes (44).
The IBA Ethics is a significant contribution to the development of thinking about the role of the party-appointed arbitrator, but it is only partly successful in meeting the goals for an ideal general code. The principal impetus for it was to codify international resistance to "non-neutral" arbitrators who engage in ex parte communications with parties and sometimes even have engaged in directly disruptive conduct such as provocation of postponements. The Ethics does a good job of defining "impartiality" and "independence" consistent with the understanding discussed above. It codifies as a "fundamental rule"(45) that all arbitrators will be held to the same standards of non-bias in this regard. The tone of the Ethics, however, tends to be rather heavily prohibitory, with procedural details designed to assure that deviations from ethical principles will be avoided or, if discovered, punished by being made generally known. The overall effect may suggest that unethical conduct by arbitrators is a significant danger to be anticipated, rather than emphasizing encouragement of high principles because these are good for the parties and the arbitral process.
It has been suggested that the IBA Ethics is unrealistic in leaving a party confronting an obviously partisan appointee for the other side little opportunity to level the playing field except through a successful challenge to the partisan - a remedy which may not always be available or appropriate.
The Ethics also has been criticized on a number of detailed points. Some urge that it should go further and address in greater detail subjects such as impartiality in the conduct of proceedings and the issue of confidentiality versus publication of awards. Some have suggested drafting changes that might be considered if the IBA prepares a second version of the Ethics (46). Others have suggested it should recognize an option for parties to agree expressly on the acceptability of two "non-neutral" arbitrators, reversing the AAA-ABA Code's presumption that party appointees are non-neutral unless otherwise agreed but still maintaining flexibility.
The prohibitory tone of the IBA Ethics and the nature of some of its procedural details ultimately led the draftsmen to suggest that it be made available for incorporation by parties as part of their contracts but not promulgated as a statutory model or a guide to which courts should look in all circumstances when ruling on challenges in international arbitrations. The IBA's introductory note to the Ethics states:
"The rules cannot be directly binding either on arbitrators, or on the parties themselves, unless they are adopted by agreement. Whilst the International Bar Association hopes that they will be taken into account in the context of challenges to arbitrators, it is emphasized that these guidelines are not intended to create grounds for the setting aside of awards by national courts.
...
[T]he International Bar Association wishes to make it clear that it is not the intention of these rules to create opportunities for aggrieved parties to sue international arbitrators in national courts."
c. Amendment of the AAA-ABA Code of Ethics
In order to align the AAA-ABA Code more closely with the general trend toward favoring neutrality of party-appointed arbitrators in international matters, the ABA House of Delegates adopted a resolution in 1990 suggesting that the Code be amended to clarify that this is a special concern in arbitrations occurring in the United States as well as those sited elsewhere or governed by foreign law. The amended Code (47) would continue to stress neutrality as an aspirational goal, to be followed insofar as practicable in the circumstances, in recognition of the fact that parties to international arbitrations nevertheless may agree to appoint "non-neutrals" or to accept standards of conduct for them at odds with those preferred under the Code.
However, to date the Code has not been amended; and the change suggested would not further the search for guidance on specific issues that arise.
III. Some Necessary Clarifications
Whether expressed in ethical codes or in some form of commentary, courts and arbitrators are in need of a clear delineation of practices that will or will not cause courts to question the actions of party-appointed arbitrators. Unless it is clearly agreed that all three arbitrators in a tripartite setting are to be held to the same standard in all respects, the problems will recur, and because the extent of agreed neutrality may not be clear at the outset - the time when a party appointee often has a role in selecting the third arbitrator - the party-appointee typically will face problems unique to him or her.
The three areas as to which guidelines for the non-neutral or potentially non-neutral arbitrator appointee are necessary include substantive views, organizational sympathies and personal sympathies. My own suggestions are as follows.
As to the first area, it should be agreed that prior statements generally supporting the position of the party or those similarly situated in disputes of the type in question are not a disqualifying factor, and that prior rulings in other arbitrations involving other parties and similar issues are not even appropriate subjects for mandatory disclosure to the other party. Prior involvement in arbitrations as appointee of the same party, or involving the same counsel, are appropriate matters for mandatory disclosure but ordinarily not a ground for disqualification (48). A public expression of views (other than in a related arbitration) on the very matter in dispute between the present parties, unless waived, probably should be a disqualifying factor.
Organizational sympathies should be handled with a bright line between present employment by or financial interests in the affairs of the appointing party - disqualifying factors unless disclosed and waived, in my view, although Astoria might not require this result - and more attenuated contacts. Affiliation with a similarly situated firm in the same industry and prior employment or professional relationships with the party or its counsel should be disclosed but ordinarily should not be a bar to arbitral service.
Personal sympathies derived from friendship and professional contacts likewise should be disclosed but ordinarily should not be a bar to service as a party-appointed arbitrator. Familial relationships, unless waived, in my opinion should be disqualifying.
It also follows, as the IBA Ethics make clear, that a party may approach the potential arbitrator to ascertain his or her appropriateness as well as willingness to serve. This ordinarily will involve at least a general explanation of the issues, and it may appropriately include some degree of discussion of the governing agreement (which normally contains the arbitration clause and governing law language relevant to the prospective appointee's acceptance of appointment). It is not inconsistent with having lunch. Such an interview also may properly explore the candidate's prior service as an arbitrator or other activities in which he or she may have taken a position on some issue relevant to the dispute. While I would find it a questionable ethical practice to go into the potential nominee's own views of what counsel have explained at the interview about the dispute beyond anything the candidate might feel compelled to volunteer based on prior activities (typically these would be things likely to deter appointment), this seems a poor area for courts to seek to regulate in the context of disqualifying arbitrators or vacating awards.
I also find it entirely appropriate for a party to discuss the selection of the third arbitrator with the party-appointee, both prior to the appointee's selection and thereafter in the process of designating the third panel member. The IBA Ethics recognize the propriety of such discussions, and the courts should do likewise.
Practical questions concerning the conduct of party-appointed arbitrators are regular subjects of discussion among arbitration practitioners. Until the relevant literature provides guidance to courts and to counsel beyond what is found in court decisions and ethical codes, however, this will remain an insufficiently examined subject.
Notes
2. 9 U.S.C. § 10(a) and (b). The reference to "either of them" reflects the archaic practice (in the U.S., although not in England) of naming a panel of two arbitrators, who select a third only if they disagree on the award.
3. See, e.g. N.Y. CIV. PRAC. L. & R. § 7511 (Mckinney 1992).
8. Statewide Insurance Company, Inc. v. Klein, 482 N.Y.S.2d 307 (App. Div. 2d Dept. 1984).
9. Maynard Pirsig, The New Uniform Arbitration Act, 11 BUS LAW. 44, 47 (1956). See also Maynard Pirsig, Some Comments on Arbitration Legislation and the Uniform Act, 10 Vand.L. REV. 685, 704 (1957).
10. Note, The Use of Tripartite Boards in Labor, Commercial, and International Arbitration, 68 HARV.L. REV. 293 (1954).
12. Second Preliminary Report of the Advisory Committee on Practice and Procedure. N.Y.Leg. Doc. No. 13, at 146 (1958).
13. N.Y. CIV. PRACT. L. & R. § 7506(a) (McKinney 1992).
16. 227 N.Y.S.2d 401 (N.Y. 1962).
21. See, e.g., Aetna Casualty & Surety Co. v. Grabbert, 590 A.2d 88 (R.I. 1991); Barcon Associates, Inc. v. Tri-Country Asphalt Corp., 430 A.2d 214 (N.J. 1981). For a case holding a party appointee to the same standard of neutrality as a pure "neutral" without discussion of Astoria, see Donegal Mutual Ins. Co. v. Longo, 610 A.2d 466 (Pa. Super. 1992) (arbitrator represented party as attorney in unrelated matter).
25. The strong reliance on judicial precedents for arbitrator conduct in Justice Black's opinion provoked a separate concurring opinion by Justice White, which was joined by Justice Marshall. Justice White stressed that it was disclosure of all relevant relationships rather than objective independence that was critical in arbitration. Idem. at 150. In dissent, three Justices argued that the Federal Arbitration Act was concerned only with "actual" partiality or bias and that "innocent failure to volunteer information" should be distinguished from active, calculated concealment. Idem. at 153.
26. See, e.g., International Produce, Inc. v. A/S Rosshavet, 638 F.2d 548 (2d Circ. 1981); Morelite Construction Corp. v. New York City District Council Carpenters Benefit Funds, 748 F.2d 79 (2d Cir. 1984); see also Sofia Shipping Company Ltd. v. Amoco Transport Company, 628 F. Supp. 116 (S.D.N.Y. 1986); Andros Compania Maritima v. Marc Rich & Co., A.G., 579 F.2d 691 (1978); Middlesex Mutual Insurance Co. v. Levine, 675 F.2d 1197 (11th Cir. 1982); Sanko S.C. Co. v. Cook Industries, Inc., 475 F.2d 1260 (2d Cir. 1973); Standard Tankers (Bahamas) Co. v. Motor Tank Vessel, Atki, 438 F.Supp. 153 (E.D.N.C. 1977) (no duty to disclose ownership of a small number of shares in corporation which does business with a party); Cook Industries, Inc. v. C. Itoh & Co. (America) Inc., 449 F.2d 106, 108 (2d Cir. 1971), cert. denied, 405 U.S. 921 (1972).
27. Hunt v. Mobil Oil Corp., 654 F.Supp. 1487, 1498 (S.D.N.Y. 1987) (citations omitted).
28. 750 F.2d 171 (2d Cir. 1984).
29. See also Reed & Martin, Inc. v. Westinghouse Electric Corp., 439 F.2d 1268, 1275 (2d Cir. 1971) (claim of bias of party-appointed arbitrator rejected under high standard: "There was no evidence of any taint whatsoever concerning any prior business relationship or otherwise on the part of any arbitrator which could be construed to impugn this impartiality.") But see Stef Shipping Corporation v. Norris Grain Co., 209 F.Supp. 1249, 1253 (S.D.N.Y. 1962) (accepting the Astoria statement of the inevitably partisan role of a party-appointed arbitrator; Petition of Dover Steamship Company, Inc., 143 F.Supp. 738 (S.D.N.Y. 1956) (parties are not required to appoint only completely disinterested arbitrators. There the arbitration agreement allowed each party to select an arbitrator and the party-appointed arbitrators would select a third arbitrator).
An arbitration clause specifying that the parties could appoint partisan arbitrators, with a neutral chairman to be appointed by the International Chamber of Commerce, has been enforced by a federal court because of the Arbitration Act's provision that the parties' method of appointing arbitrators must be followed. Asta of California, Inc. v. Continental Insurance Co., 754 F.2d 1394 (9th Cir. 1985).
30. 468 F.2d 1064 (2d Cir. 1972).
31. Idem. at 1067-68 n.2. See also Masthead Mac Drilling Corp. v. Fleck, 549 F. Supp. 854, 856 (S.D.N.Y. 1982).
32. See, e.g. Andros Compania Maritima S.A. v. Marc Rich & Co., A.G., 579 F.2d 691, 702 (2d Cir. 1978); Garfield & Co. v. Wiest, 432 F.2d 849, 853-54 (2d Cir. 1970), cert.denied 401 U.S. 940 (1971); Isaacson v. Hayden, Stone Incorporated, 359 F.Supp. 1050 (S.D.N.Y. 1973).
33. Metropolitan Property and Casualty Ins. Co. v. J.C. Penney Casualty Ins. Co., 780 F.Supp. 885, 891 (D. Conn. 1991).
37. Reprinted in Howard Holtzmann, The First Code of Ethics for Arbitrators in Commercial Disputes, 33 BUS. LAW. 309 (1977), as well as in 10 Y.B. COM. ARB. 131 (1985).
38. Cases citing the Code as authority include Aetna Casualty & Surety Co. v. Grabbert, supra note 21; Barcon Associates, Inc. v. Tri-County Asphalt Corp., supra note 21; Metropolitan Property & Casualty Ins. Co. v. J.C. Penney Casualty Ins. Co., supra note 33; Creative Homes and Millwork, Inc. v. Hinkle, 426 S.E.2d 480 (N.C. App. 1993); R.M. Bennett Heirs v. Ontario Iron Co., 426 N.W.2d 921 (Minn. App. 1988); Jenkins v. Sterlacci, 849 F.2d 627 (D.C. Cir. 1988); Grane v. Grane, 473 N.E.2d 1366 (Ill. App. 1985); Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673 (7th Cir. 1983); In the matter of an Arbitration between National Bulk Carriers and Princess Management Co. Ltd., 597 F.2d 819 (2d Cir. 1979); Freeport Construction Co. v. Star Forge, Inc., 378 N.E.2d 558 (Ill. App. 1978).
39. The Committee's special introductory note to Canon VIII, "Ethical Considerations Relating to Arbitrators Appointed By One Party," states:
"In some types of arbitration in which there are three arbitrators it is customary for each party, acting alone, to appoint one arbitrator. The third arbitrator is then appointed either by agreement of the parties or of the two arbitrators, or, failing such agreement, by an independent institution or individual. In some of these types of arbitration, all three arbitrators are customarily considered to be neutral and are expected to observe the same standards of ethical conduct. However, there are also many types of tripartite arbitration in which it has been the practice that the two arbitrators appointed by the parties are not considered to be neutral and are expected to observe many - but not all - of the same ethical standards as the neutral third arbitrator. For the purposes of this Code, an arbitrator appointed by one party who is not expected to observe all of the same standards as the third arbitrator is referred to as a "non-neutral arbitrator." This Canon VII describes the ethical obligations which non-neutral party-appointed arbitrators should observe and those which are not applicable to them.
In all arbitrations in which there are two or more party-appointed arbitrators, it is important for everyone concerned to know from the start whether the party-appointed arbitrators are expected to be neutrals or non-neutrals. In such arbitrations, the two party-appointed arbitrators should be considered non-neutrals unless both parties inform the arbitrators that all three arbitrators are to be neutral, or, unless the contract, the applicable arbitration rules, or any governing law requires that all three arbitrators are to be neutral.
It should be noted that in cases where the arbitration is conducted outside the United States the applicable law may require that all arbitrators be neutral. Accordingly, in such cases the governing law should be considered before applying any of the following provisions relating to non-neutral party-appointed arbitrators.
40. The American Arbitration Association requires disclosure of potentially disqualifying relationships from all arbitrators and regularly discusses neutrality with party-appointed arbitrators at the outset of an arbitration and solicits their agreement to serve as neutrals. For international cases administered by the AAA, that agency's International Arbitration Rules OF 1991 now effectively require party-appointed arbitrators in cases to which those rules apply to serve as neutrals by providing in Article 8 a right to challenge their partiality or independence. This right does not exist under Canon VII of the AAA-ABA Code as regards party appointees in purely domestic arbitrations. If parties to AAA international cases elect instead to use the agency's General Commercial Arbitration Rules, the same result is achieved by the AAA's invocation of its Supplementary Procedures for International Commercial Arbitration of 1986. See Michael Hoellering, Arbitrator Selection, 3 ADR REP. 13, 14 (1987); see also Stephen Bond, The Selection of ICC Arbitrators and the Requirement of Independence, 4(4) ARB. INT'L 300 (1988).
41. See, e.g. Richard Mosk, The Role of Party-Appointed Arbitrators in International Arbitration: The Experience of the Iran-U.S. Claims Tribunal, 1 TRANS. LAW. 253, 262 (1988); Francis Higgins, William Brown & Patrick Roach, Pitfalls in International Commercial Arbitration, 35 BUS. LAW. 1035, 1043-44 (1980).
42. Robert Coulson, An American Critique of the IBA's Ethics for International Arbitrators, 4(2) J. INT'L ARB. 103, 107 (1987).
43. Two leading commentators write:
"At first sight it might be thought that no valid distinction may be drawn between the concepts of impartiality and neutrality. However, it has been suggested that a party may nominate an arbitrator who is generally predisposed toward him, personally, or as regards his position in the dispute, provided that he is at the same time capable of applying his mind judicially and impartially to the evidence and arguments submitted by both parties."
Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 221 (2d ed. 1991); see also W. Michael Tupman, "Challenge and Disqualification of Arbitrators in International Commercial Arbitration." 38 Int'l & Comp L.Q. 26 (1989); W. Laurence Craig et al, International Chamber of Commerce Arbitration, Pt. III, para. 1204 (2d ed. 1991).
44. 26 I.L.M. 583 (1987), reprinted in Parker School of Foreign and Comparative Law, Guide to International Arbitration and Arbitrators (2d ed. 1992). The drafters decided not to call the document a "code" because this might suggest that courts should use its standards as a basis for setting aside arbitral awards on grounds of bias. They selected instead the title "Ethics". For a critique of the utility of ethical codes such as the IBA "Ethics," see Michael Mustill, Maritime Arbitration: The Call for a Wider Perspective, 9(2) J. INT'L ARB. 5, 25, 29 (1992).
46. For example, IBA Ethics Rules 3.3 and 4.2(b) make certain relationships between an arbitrator and a party or a "potentially important" witness a presumptive basis for justifiable doubts as to the arbitrator's impartiality or independence, but fail to include relationships with representatives of a party, such as the party's lawyers, in this category. See also J. Gillis Wetter, Ethical Guidelines, Y.B. Arb. Inst. Stockholm Chamb. of Com. 1993 at 99.
47. The amendment would replace the third paragraph of the Introductory Note to Canon VIII (Ethical Considerations Relating to Arbitrators Appointed by One Party) with the following:
"Many commercial arbitrations now involve parties from different countries, sometimes including governmental trading or other organizations. While these arbitrations often are similar to arbitrations between two American parties and involve the same considerations of arbitrator ethics, in international proceedings there may be a heightened need to assure impartiality of all the decision-makers. Whether these arbitrations occur in the United States or elsewhere, the standards of arbitrator neutrality applied may affect international enforceability of the award. Arbitrators in all international commercial matters should, to the extent practicable in the circumstances, serve as neutrals."
48. See Instituto de Resseguros do Brasil v. First State Ins. Co., 577 N.Y.S.2d 287 (App. Div. 1st Dept. 1991) (party-appointed arbitrator had been appointed previously by same party in similar dispute).