THE SELECTION OF ARBITRATORS
James H. Carter
Co-Chairman, Corporate Counsel Committee,
American Arbitration Association (AAA);
Sullivan & Cromwell, New York, United States of America
The three most important considerations in real estate transactions, we are told, are: "location, location, location." Similarly, one might say, the top three subjects of concern in international arbitration are: "the arbitrators, the arbitrators and the arbitrators."
The selection of arbitrators is the most important part of the arbitral process for counsel involved in international arbitration proceedings. If we get this step right, all the rest should follow in a predictable manner, and justice will be done. If not, we may be unpleasantly surprised. Nevertheless, such selections often are made in some haste and without much consideration of some of the issues. This is an unfortunate consequence of the fact that arbitration clauses and rules regularly put very short time limits on this important process.
The subject of arbitrator selection involves many issues, grouped around two themes: how to select arbitrators, and whom to select.
I. How to Select Arbitrators
Under the "how to" heading, I would like to discuss (1) the number of arbitrators; (2) allocation of selection responsibilities among parties, arbitral institutions and the arbitrators themselves; and (3) some selection techniques.
a. How Many Arbitrators?
An initial question is how many arbitrators are to be selected. Typically this will have been resolved expressly by the arbitration clause, specifying that either one or three arbitrators will be chosen. A single arbitrator of course may be selected more rapidly than three, has a much easier job in scheduling his or her availability and will cost only about one third as much as a three member tribunal. On the other hand, in international matters in particular, there often is a fear of the unknown and a corresponding tendency for each party to seek as much predictability as possible in the constituting of the tribunal. If each party has the right to select one of the three arbitrators, and some role in the selection of the third, this builds party confidence in the integrity of the process.
For those situations in which the parties have not resolved the matter expressly in their clause, arbitration rules normally provide a default mechanism automatically favoring either one or three arbitrators and often giving the administering agency some degree of discretion in making this numerical decision.
The American Arbitration Association's various rules show how this may operate. The International Arbitration Rules of the AAA, adopted in 1991 (1) resemble the well known UNCITRAL Arbitration Rules but have adapted them for administration rather than ad hoc use. These AAA rules specify that a sole arbitrator will be named if the parties have not agreed on the number, but they also add that a panel of three may be chosen if "the administrator determines in its discretion that three arbitrators are appropriate because of the large size, complexity or other circumstances of the case"
(Article 5). In practice, the AAA generally makes such a determination in favor of three arbitrators in matters involving damages alleged to be at least $250,000.
The AAA also has an older set of Commercial Arbitration Rules, designed for domestic cases but sometimes chosen for international cases in the United States as well. They too provide a default selection of a sole arbitrator but give the agency discretion to specify three. Both the International Chamber of Commerce's ICC Rules of Arbitration (Article 2.5) and the London Court of International Arbitration's LCIA Rules (Article 3.2) follow the same approach: a sole arbitrator default provision, but with administrator discretion to specify three arbitrators (2).
The UNCITRAL Arbitration Rules, designed for non-administered ad hoc arbitrations, take the opposite approach, specifying that in the absence of agreement to the contrary there will be three arbitrators. (With no administering body available to make a discretionary decision or to appoint an arbitrator, default in favor of a mechanism cable of operating autonomously is the natural solution).
The draft WIPO Arbitration Rules of October 18, 1993, adopt the typical pattern for administered cases, with a sole arbitrator default provision (Rule 14) (3). However, they do not include the usual caveat allowing the administering authority to opt for a panel of three arbitrators. (They do provide an exception, in Rule 16(d), for cases involving more than two parties, in which there will be three arbitrators, all appointed by WIPO.)
b. Who Selects Them?
If the decision is to appoint three arbitrators, is it preferable that two of these be party-appointed, or should all three be appointed by an administering agency?
In international arbitration, the norm is that all arbitrators are to be independent and impartial (4). Some authorities urge that all arbitrator appointments be made by an agency, as this will allow the parties appropriate participation through consultations but is more likely to assure uniform standards of impartiality for all of the arbitral tribunal members (5). On the other hand, appointments entirely by agency procedures may in practice take longer and will deprive the parties of what many perceive as the benefits to them of direct involvement in the selection separately of two party-appointed but nevertheless independent and impartial arbitrators.
In practice, the party appointment system predominates. An international arbitration clause therefore often provides that each of the two parties is permitted to designate one arbitrator, with the third to be chosen mutually if possible. As default provisions, however, the various rules typically give control over selection of third arbitrators in large measure to the administering institution.
Under the AAA International Arbitration Rules, as under most rules, the parties are free to agree on any procedure for appointing arbitrators; but if they do not do so, or if they do not complete the procedure to constitute the tribunal within 60 days after commencement of the arbitration, the administrator will make the necessary appointment or appointments. Since the AAA's International Rules were designed to be used by other administering organizations that might wish to adopt them as well as the AAA, they do not specify how the administrator is to make the appointment if this becomes necessary and the arbitration clause in question does not specify a method. The Rules merely state that in making such appointments the administrator "after inviting consultation with the parties" shall endeavor to select suitable arbitrators (Article 6). In practice, the AAA uses a list procedure similar to its domestic arbitration practice, discussed below.
The ICC Rules state that, where the dispute is to be referred to three arbitrators, each party nominates one and the ICC Court selects the third unless the clause specifically reserves this selection of the third to the party-nominated arbitrators (Article 4). The ICC Court also must "confirm" all arbitrators, including all party-appointed arbitrators, who must be "independent of" the nominating parties (Articles 1 and 4).
The LCIA Rules allow party "nominations" of arbitrators if a clause so specifies, including party selection of a proposed third arbitrator; but those rules contain a detailed set of provisions explaining that the LCIA Court must in fact review the independence and impartiality of all nominees (including party selections) and that the Court itself makes all actual "appointments" (Article 3). If nothing is said in the clause about the manner of selection of the third arbitrator, the LCIA will make an appointment as discussed below.
The UNCITRAL Rules state that, if there are to be three arbitrators and nothing more is said, each party if to appoint one arbitrator and the two appointees are to select the third (Article 7(1)). If they are unable to do so, then the third will be selected by an "Appointing Authority," a matter also discussed below.
The draft WIPO Arbitration Rules provide, uniquely among the major administered rules, that where a clause calls for three arbitrators without specifying a method of appointment, each party is to select one arbitrator and the two then are to select the third arbitrator (WIPO's Director General acts in the event of their inability to do so). The WIPO draft rules do not reserve this decision in default to the administering authority and thus incline in the direction of maximum party autonomy.
c. Selection Techniques
1. Party-Arbitrator Cooperation in Selecting a Third Arbitrator
Selection by each party of one arbitrator is procedurally simple, although it does raise questions regarding how to approach the candidate consistent with ethical requirements. The more difficult procedural question, however, is how to go about selecting a third arbitrator.
If the two parties or two party-appointed arbitrators are instructed by an arbitration clause or rules to make an initial attempt to find a third arbitrator, how should they proceed? It is now reasonably well settled that, if the selection is to be made by the party-appointed arbitrators, they should be free to consult separately with representatives of the appointing parties about possible candidates (6). The reasons for this are several and are entirely consistent with the ideally independent and impartial role of all arbitrators in international arbitrations: the parties will have knowledge about the nature of the dispute that may be relevant to the type of person to be chosen; they often will know of reasons why a particular person might have a conflict of interest that could not be known to the two appointed arbitrators; and they will have views on the urgency of making a selection and choosing a person able to proceed at once with the matter. The typical language of clauses and rules makes the selection that of the two arbitrators and not of the parties. Nevertheless, responsible arbitrators should consult with the parties to be sure that the decision will be as acceptable as possible to both sides.
The two arbitrators usually see themselves as charged to make the selection process work if at all possible and take professional pride in doing so. The parties thus may find themselves in the hands of the two arbitrators, whose responsibility the task is, after these consultations.
If parties seek to agree on the third arbitrator, either directly or through and with the assistance of the party-appointed arbitrators, prior to using the help of an administering agency, some mechanism must be devised for the exchange of names and the arrival at a consensus. Sometimes this is begun by discussions between counsel for the parties to identify the types of persons who might be most appropriate. If there is at least some common ground on this issue, each might submit a specified number of names simultaneously to the other so that a list is composed, and each party can advise the other of the need to strike the names of any persons discovered to have conflicts. The parties thereafter may engage in an ad hoc list selection procedure, numbering their preferences and simultaneously exchanging lists to determine a ranking of candidates. The parties may agree in advance to be bound by the result of this exercise, or they may try it simply to see if a consensus can be reached. If desired, an administrator or other neutral person can collect the lists and advise the parties of the result, so that neither party knows the rankings given by the other to specific individuals.
Alternatively, where the two arbitrators and the parties believe there is a reasonable chance of agreement as a result of more extensive face-to-face or telephonic discussions, it sometimes is helpful for each arbitrator separately to make a list of possible third arbitrators for consideration before any preferences are expressed and meet to discuss them. One technique is for the two arbitrators to equip themselves with, say, 10 possible names developed by each arbitrator from his or her own thoughts and after asking for the suggestions of the nominating party. The two arbitrators might exchange the first five names, to see if there are common views about specific individuals, or at least about the best type of individual. If that is not fruitful, they might go to a back-up list of five additional names, following the same process.
Another approach is for the two parties to compose a single list of suggestions for submission to the arbitrators for their consideration, perhaps combining an equal number of nominations (none of whom is prima facie disqualified, but without stating whether any is necessarily finally acceptable) without disclosing to the two appointees the source of any particular name. Discussions then may continue when the nominated arbitrators react to the suggestions.
A problem frequently encountered in making up such a list is the identification of suitable candidates, especially when there is time pressure. In international arbitration circles, the same set of names of retired judges, law professors and others frequently appears. There are published rosters and books of experienced arbitrators that may supply a longer list of possibilities, but learning about such candidates when they are of a different nationality than that of the party and its counsel can be difficult. Judges and others may have published decisions or other writings that can be consulted to learn about a candidate's attitudes toward some issues, and counsel who have appeared before candidates or as their opponents in litigation can be identified and contacted. Obviously, it is desirable to canvas as many sources as possible to make up a pool of possible names. Attorneys working on the matter should ask their colleagues and contacts for ideas. Sometimes a suggested name may not be eligible or the best person, but the name will stimulate thought about others with a similar background who should be considered. Published lists of persons who have agreed to serve on current standing arbitrator panels, such as the American Arbitration Association's Large, Complex Case Program, are particularly useful in this regard.
Under some systems of arbitration, it is presumed or even required that a presiding arbitrator (or, in some cases, all arbitrators) will be chosen from a closed roster of persons certified as capable to serve. While this helps assure impartiality and supplies names of persons generally available to serve, it of course severely restricts the range of choice. A roster may not contain the right mixture of arbitrators of varied nationality, skills and special expertise for a particular dispute. It also may not contain anyone with whom a party has had personal experience. All of these are attributes a party in an international arbitration might wish an arbitrator to have, and flexibility to appoint any suitable person is an important facet of modern arbitral systems. The closed roster system has not been the norm in recent years because it tends to restrict too narrowly the range of party choice.
Often the process by which a large number of names are generated and finally narrowed to a choice occurs without any contact with the people whose names are being discussed as possible appointees. Many of the names will be disqualified as having conflicts that might have been unknown to the person suggesting them or as unsuited for the particular type of arbitration involved for one reason or another. Even when a relatively small universe of "finalists" is identified, all of whom might be acceptable, most practitioners prefer to seek agreement ranking them by priority and to contact them seriatim as necessary rather than attempt to secure information about availability of several of them and then decide which to choose. Persons contacted in the abstract about the possibility of being chosen as an arbitrator naturally have less incentive to extend themselves to undertake what might be an inconvenient (though interesting) task than does a person approached by the two sides and specifically offered the job - and the honor - of presiding over their arbitration.
2. Assistance of an Administering Agency
Arbitrators typically will strive zealously to agree on a third nominee if possible, but there are situations in which this cannot be done. Sometimes the parties and/or the party-appointed arbitrators are from different legal backgrounds and have few if any common acquaintances. Sometimes the parties are so far apart in their views about the type of person who would be appropriate that it is best for that decision to be made by an administering authority.
If the two party-appointed arbitrators or the parties themselves are unable to agree, the various rules specify that an administering agency ultimately will provide a solution. The two approaches used by agencies can be classified broadly as the list procedure and the "black box" method - from which a candidate mysteriously just emerges. Both can yield an acceptable result, and sometimes a mixture of the two methods is used. Often arbitration clauses will address how a third arbitrator is to be chosen; but if they do not, or in the event that party-appointed arbitrators attempt but are unable to select a third arbitrator, the various rules provide default mechanisms.
Somewhat surprisingly, the rules based on a list procedure generally assume a dichotomy between the mechanism by which the "party-appointed arbitrators" (not the parties) choose the third arbitrator, which anticipates activity by the arbitrators but does not refer expressly to a role for the parties, and, on the other hand, administrative appointment through a list procedure in which the "parties" (but not the party-appointed arbitrators) have a defined role. Nevertheless, the process usually involves four participants (two parties and two arbitrators) in either case. When a list procedure is used, it is not unusual for the parties seeking to exercise strikes and number preferences from a list to consult the party-appointed arbitrator for his or her views.
The AAA's Commercial Arbitration Rules typify the list procedure. At the request of any party or at the discretion of the AAA, an administrative conference may be held at an early stage (Rule 10), and parties may communicate with the tribunal administrator concerning the type of persons they would like to see on a list of potential arbitrators. In selecting a third arbitrator, or in selecting a sole arbitrator or all three arbitrators, when acting under its Commercial Rules the AAA sends the parties a list of names from one of its panels of arbitrators, together with biographical information about each. The list will be designed to include persons of various types whose backgrounds might be particularly relevant to the subject of the dispute. The Rules do not specify how many names will be included, and this depends upon the nature of the dispute. In practice, even lists for selection of a sole arbitrator or chairperson in a commercial case typically include at least a dozen names. Each party is given 10 days within which to return the list, striking any names objected to and numbering the others in order of preference. If the parties fail to agree, or if mutually acceptable arbitrators are unable to act, the AAA has the power to make the appointment unilaterally (Rule 13). Although there is no reference to a right to a second list, in practice the AAA normally will supply a second list if no selection can be made from the first and, in unusual situations, will even provide a third list before making a unilateral appointment.
The draft WIPO Arbitration Rules of October 18, 1993, contain a rather detailed set of provisions concerning selection of arbitrators, many of which are similar to AAA practices. In selecting arbitrators, WIPO will use a list procedure: the Director General will send the parties a list containing at least six names in the case of a sole arbitrator and at least 10 names if three arbitrators are to be appointed. The parties will have 10 days to strike names that are unacceptable, and there is a right to a second list if an insufficient number of acceptable names emerge from the first round. At the end of the second list procedure round, the WIPO Rules specify that the Director General shall appoint an arbitrator or arbitrators if there is no agreement (Rule 15) (7).
If the arbitration clause specifies three arbitrators and says nothing more, the WIPO Rules require that each party appoint one arbitrator and that the third be selected, if possible, by the other two arbitrators within 30 days. If there are more than two parties and the clause calls for three arbitrators, the Director General will appoint all three (Rule 16).
At the other extreme are the "black box" procedures of the ICC and LCIA. The ICC Court appoints an arbitrator "after having requested a proposal from a National Committee of the ICC that it considers appropriate," and the arbitrator ordinarily is chosen from a country other than those of which the parties are nationals. There has been debate within ICC circles concerning the effect of a nomination made by a National Committee: is it binding (in the absence of a disqualifying fact) on the ICC Court, or may the Court reject a nominee without telling the parties and ask the same or another National Committee for another choice? In any case, the parties generally see only what comes out of the "black box" at the end: an arbitrator selected mostly without their participation.
The LCIA Rules simply state, with even more opaque "black box" language, that "The Court" (acting through its President or any Vice President) "will appoint the Tribunal" (meaning any non-party-appointed arbitrator), giving consideration, so far as possible, to "the nature of the contract, the nature and circumstances of the dispute, and the nationality, location and languages of the parties" (Articles 3.2 and 3.3). In practice, one of the LCIA's senior officers consults with knowledgeable persons other than the parties to find a candidate, who then is proposed to the parties and must be accepted or challenged for cause (8).
The UNCITRAL Rules solve the problem of who will choose a third arbitrator if the parties and two arbitrators are unable to do so with the concept of an "appointing authority." This usually is an administering agency that the parties designate in their UNCITRAL clause to act in such a circumstance. The appointing authority uses a list procedure, with a minimum of three names (Articles 6 and 7). If the parties have not agreed on an appointing authority, the UNCITRAL Rules provide that either of them may apply to the Secretary-General of the Permanent Court of Arbitration at The Hague to designate an appointing authority.
3. The Multi-Party Arbitration
Multi-party arbitrations present special problems, since there may be more than two perspectives among the parties and they may not be willing or able to group themselves into two camps, each of which appoints a single arbitrator (9). Sometimes drafters attempt in complicated ways to anticipate the various permutations that may result. On other occasions, they simply give the administering institution discretion, acting under its rules, to resolve the matter if the parties are unable to constitute themselves in such a way as to appoint two arbitrators. For example, if the parties are unable to align themselves into two groups for appointment purposes, the institution may unilaterally name all three arbitrators.
II. Whom to Select
One of the arts of arbitration practice is deciding whom to select as arbitrators. The choice depends, of course, on the nature of the dispute and the parties. In principle, arbitrators should be wise, experienced, fair, knowledgeable in the applicable law and the subject of the dispute, available to serve without serious time constraints and reasonable in their fees and other charges. In practice, various compromises have to be made.
a. Independence and Impartiality
Although all arbitrators in international matters should in principle be independent and impartial, use of party-appointed arbitrators inevitably presents questions concerning the degree of affinity or affiliation that such an appointee may have with a party or counsel for the appointing party. This is thought to have been a particular problem under United States law, which (at least in domestic arbitrations) has had a tradition of "predisposed" party-appointed arbitrators who may in practice be highly "predisposed" indeed.
An arbitrator in international proceedings, under the general understanding of practitioners, must not have a personal financial interest in the dispute and must be able to consider the issues fairly. But what does this actually mean? Who can or cannot be considered, and what can or cannot be done in approaching a potential appointee? I have discussed these matters in greater detail in an article accompanying these remarks.
Broadly speaking, the problems encountered may involve any of three subjects: an arbitrator's substantive views on legal issues, the arbitrator's organizational sympathies, and his or her personal sympathies. Case law does not provide adequate answers to the questions that arise, leaving ethical codes and commentary to fill the many gaps.
All of the principal international arbitration rules provide that arbitrators must be independent of the parties financially and impartial in their treatment of the two sides, but the rules, too, rarely explain much about what this means in practice. The AAA International Rules even make impartiality subject to variance by the parties' agreement, stating that, "Unless the parties agree otherwise, arbitrators acting under these rules shall be impartial and independent" (Article 7). Prospective arbitrators must disclose to the administrator "any circumstance likely to give rise to justifiable doubts" as to these matters.
The ICC Rules provide flatly that "every arbitrator appointed or confirmed by the Court must be and remain independent of the parties involved in the arbitration" and make appropriate disclosures (Article 2(7)), and the LCIA Rules require that all arbitrators "be and remain at all times wholly independent and impartial, and shall not act as advocates for any party" (Article 3.1). The UNCITRAL Rules state that "Any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator's impartiality or independence"
Most rules do not address what are permissible party contacts with a party-appointed arbitrator concerning third arbitrator selection, so that this subject is left to be dealt with in ethical codes (10). But the draft WIPO Rules go further than most in this regard. They specify that there are to be no ex parte communications with arbitrator candidates on "any matter of substance" except in a situation where a party has the right to select an arbitrator. In that case, the party may confer with candidates (Rule 18). All arbitrators are to be "neutral, impartial and independent," and they must disclose in writing "any financial or personal interest in the outcome of the arbitration and any other circumstances that might give rise to justifiable doubt as to the arbitrator's neutrality, impartiality or independence" (Rule 19). After all of the arbitrators are selected, there are to be no further ex parte communications with any of them, except that there may be communications regarding "matters of a purely organizational nature, such as the establishment of the date or time of hearings" (Rule 32).
b. Special Expertise
Our subject at this forum is the arbitration of intellectual property disputes, which raises the issue of special qualifications for the arbitrators. Arbitrators ideally bring greater knowledge of a subject to the proceeding than do non-specialized judges or jurors, increasing efficiency and predictability. Accordingly, arbitral institutions typically develop biographical information about potential arbitrators on their panels or rosters, including their specialized legal or business expertise. With a computer, these names can be sorted rapidly to develop highly individualized lists.
The WIPO Arbitration Center has prepared a very detailed and thorough questionnaire to be completed by those expressing willingness to accept appointment as arbitrators under its rules and procedures, which will assist in finding persons with various types of intellectual property experience.
It is helpful to have arbitrators who can "speak the language" of intellectual property, but detailed technological expertise may not always be necessary. Many intellectual property disputes involve contract principles that are not unique to particular technology. Some non-lawyer experts may be too closely identified with particular industry participants, or with certain sides of recurring issues. Also, arbitrators trained in the law may have more relevant expertise than technically qualified businessmen. When a three arbitrator panel is being selected, often neither party is willing to choose a non-lawyer as an arbitrator if the other has chosen a lawyer; and typically the presiding arbitrator will be someone (such as a lawyer) experienced in chairing proceedings. Accordingly, non-lawyer experts are less likely to be selected as arbitrators in intellectual property matters than might initially be supposed.
Another approach to expertise focuses on training or experience in the arbitration process. The American Arbitration Association, for example, in 1993, established a set of Large, Complex Case Procedures. In addition to the biographical information available, the persons listed on the published AAA rosters for this "LCCP" program (now numbering 800 names) must meet a minimum experience requirement of 15 years of business or professional practice involving complex legal or business matters, and all must have completed a training program for neutrals set up by the AAA.
Expertise is desirable, but efforts to require it may not be advisable. In international matters, the dispute may naturally fall to be resolved by arbitrators (or by a panel chaired by an arbitrator) of a particular nationality. If an arbitration clause requires a detailed type of expertise, or a specific number of years of experience in some job title, this may, when combined with nationality concerns, unduly narrow the number of potential candidates. In addition, as noted above, there are many intellectual property disputes in which broad commercial experience is the primary type of expertise needed and specialized intellectual property knowledge is secondary. Compromise thus may be in order: a preference can be indicated for certain expertise, but ironclad requirements might be best avoided.
A similar consideration may arise with regard to special qualifications of seniority or judicial experience. These may sound desirable in the abstract, but in practice they also may limit the pool of available candidates unduly and may even specify a type of arbitrator not ideal for the particular dispute that arises. A further problem regarding experience requirements is that persons who have retired after full careers eventually reach an age at which their stamina, attentiveness and other faculties may be questionable. It is difficult to know whether such a point has been reached without current personal experience with the arbitrator candidate. Accordingly, the best compromise may be to leave discussion of such specific qualifications until a dispute arises rather than covering it in a clause.
In international matters, arbitrators of differing nationality often are appointed by the parties. Should the third arbitrator then necessarily, or at least presumptively, be of some third nationality?
In some cases, selecting a third arbitrator of the same nationality as one (but not both) of the other two arbitrators could give the appearance of tipping the balance toward one party at the outset. But a panel with arbitrators of three nationalities can be a cumbersome thing, and sometimes such a complication is neither wise nor necessary. The parties may have contracted to be bound by the law of a particular country, dealt with each other principally in that nation and decided to arbitrate there. Even if their contacts have been more diffuse, it may be efficient to select a third arbitrator who is neutral, available at the arbitration site and experienced in the governing law, without much concern for his or her nationality. In such a case, it may be entirely acceptable to select a neutral third arbitrator of a particular nationality whether or not one party-appointed arbitrator shares that nationality. Indeed, it might be inappropriate to allow a party, by choosing an arbitrator of a particular nationality, automatically to disqualify the category of third arbitrators likely to be most appropriate for a dispute.
But in many cases, the parties are not content to risk possible national favoritism and draft an arbitration clause stating that the third arbitrator will be of a different nationality than that of the first two arbitrators; and even if they do not, arbitration rules sometimes express a view. Under the AAA International Rules, significant discretion is given to the administrators: if a party requests appointment of a third nationality arbitrator, or on its own initiative, the administrator "may" choose to make such an appointment (Article 6(4)). In contrast, under the AAA Commercial Rules, where the parties are nationals or residents of different countries any neutral arbitrator "shall," at the request of either party, be appointed from a third country (Rule 16).
The LCIA Rules also take an absolute approach to the question of third State nationals, providing that unless the parties have agreed otherwise, sole arbitrators or chairmen "are not" to have the nationality of a party in a case involving parties of different nationalities (with the nationality of a party specified as that of the "controlling shareholders or interests") (Article 3.3). The ICC Rules, as discussed above, provide for resort to a National Committee for nominations, which in practice will be a National Committee from the State of neither party. The UNCITRAL Rules, on the other hand, take a more flexible approach and merely instruct an Appointing Authority to "take into account the advisability of" a third State national appointment (Article 6(4)).
The draft WIPO Rules are silent on this issue, and many practitioners believe that there is no appropriate rule that is best for all situations.
Another area in which compromise typically is necessary is arbitrator availability. Arbitral institutions inquire of prospective arbitrators about their availability, but typically these inquiries are very general and may occur before much is known about what is involved.
The best people may be the busiest people; often they can be engaged as arbitrators, but their schedules may not allow them to be available for hearings of any length for a considerable time. When three busy people are members of a tribunal and their schedules all must be considered, the problem is particularly likely to occur.
Fortunately, this is not necessarily an insuperable problem. One of the benefits of arbitration is that it requires the parties and their counsel to begin to talk seriously to each other about the management of their dispute at a relatively early stage. They must make arrangements to appoint (and provide funding for) arbitrators and set schedules. This can lead to serious early evaluation of the dispute and possible settlement. It also means, however, that a schedule will be set that typically calls for a brief initial conference with the arbitrators and then a period of preparation of materials before the arbitrators are called upon to commit their time. It may be possible to fit such a phased schedule with the other commitments of the arbitrators.
A second aspect of availability is the fact that persons in some professions have schedules that may not be subject to easy interruption for hearings that may stretch over several weeks, or at least their schedules may permit this only at certain times of the year. Academics serving as arbitrators may find such scheduling a problem.
As a result, if particular speed is required or the merits hearings are expected to require a particularly large block of time, some compromises may be in order. A person who is retired or whose principal activity is arbitral service may be better in this regard than the arbitrator moonlighting from an active career.
e. Perspective of the Arbitrator Candidate
It is useful to stop for a moment in this cataloguing of party concerns to consider the perspective of the arbitrator candidate when approached. What can parties or counsel expect the candidate to inquire about?
He or she must consider conflicts, of course. This extends not only to situations in which the candidate may be or may have been involved previously with one or another of the parties or their counsel. It also requires, for the active attorney asked to serve as an arbitrator, consideration of "positional" aspects of relationships between the parties and the lawyer's firm's existing clients. If the lawyer or the firm regularly represents someone in the industry, would that cause difficulties for service as an arbitrator? The arbitrator candidate also must consider time requirements and availability to comply with them. This means that some discussion with the appointing entity of what the proceeding might involve will be required.
The arbitrator candidate also will be interested in compensation, a delicate subject to discuss but one which must be confronted. What will be the level, and may a party-appointed arbitrator negotiate compensation separately with his or her appointing party? Parties rarely make specific provisions for arbitrator compensation in their clauses, and most arbitral rules leave the matter purposely vague. National laws also vary.
When discussions of fees arise with a prospective arbitrator, it is helpful to be able to refer to the rules of an administering institution and to have that institution available to take the lead in making the necessary arrangements at the outset.
The AAA International Rules state (Article 33):
"Arbitrators shall be compensated based upon their amount of service, taking into account the size and complexity of the case. An appropriate daily or hourly rate, based on such considerations, shall be arranged by the administrator with the parties and the arbitrators prior to the commencement of the arbitration. If the parties fail to agree on the terms of compensation, an appropriate rate shall be established by the administrator and communicated in writing to the parties." (11)
Under ICC practice, the ICC Court sets an arbitrator's fees at the conclusion of the matter, based on a scale calibrated to the amount in issue. The scale contains a high and a low range for each level, and in fixing a fee within the scale the Court "takes into consideration the time spent, the rapidity of the proceedings and the complexity of the dispute, so as to arrive at a figure within the limits specified or, when circumstances require, higher or lower than those limits" (Appendix II, Rule 18).
The LCIA Rules include arbitrators' fees in "costs"
(Article 18.1), which are to be set in accordance with a Schedule of Costs not found in the rules themselves. That Schedule provides that fees will be negotiated and set at the outset, typically on an hourly or daily basis, and "advised by the Registrar of the Court to the parties at the time of the appointment of the tribunal." However, they "may be reviewed annually if the duration of the arbitration requires."
The UNCITRAL Rules, not being administered by an agency, leave the parties largely in the hands of the arbitrators, who fix their own fees and include them as costs to be awarded in the proceeding (Article 38). The fees are to be "reasonable in amount, taking into account the amount in dispute, the complexity of the subject-matter, the time spent by the arbitrators and any other relevant circumstances of the case" (Article 39(1)). If there is an appointing authority and it has a schedule of fees, that schedule is to be "taken into account" by the tribunal in fixing its own fees "to the extent that it considers appropriate in the circumstances of the case" (Article 39(2)). If a party so requests and the appointing authority agrees to assist in this manner, the arbitral tribunal may be asked to "consult" with the appointing authority concerning the fees (Article 39(4)).
In the case of WIPO, fees are to be fixed by WIPO's International Bureau, in consultation with the arbitrators and the parties (Rule 53). The draft WIPO Rules give an unusually detailed, and therefore a particularly useful, description of how this is to be done. In the absence of some other agreement between the parties, arbitrators' fees are to consist of two lump sum payments, one fixed at the time of appointment and covering the period up to and including the pre-hearing conference, and the second to be fixed at the pre-hearing conference and to cover, in principle, the balance of the arbitration. The second lump sum is to be calculated on the basis of an estimate of the number of hearing days, travel days and other working days expected to be required. If the actual number of hearing days exceeds the estimate, compensation will be paid for additional days on a per diem basis at the rate indicated in the WIPO Schedule of Fees in effect at the time.
The draft WIPO Expedited Arbitration Rules are more general, providing (Rule 52) that fees of the arbitrator and modalities of their payment are to be fixed as a single lump sum by the International Bureau at the time of appointment, in consultation with the parties and the arbitrator, taking into account the estimated time to be spent, the amount in dispute, the complexity of the matter and "any other relevant circumstances." However, if an oral hearing is required, an additional fee on a per diem basis at the rate indicated in the WIPO Schedule of Fees will be paid.
Finally, when arbitrators are identified, the selection process cannot be complete until they make appropriate disclosures. The candidates will be interested in how this might be handled procedurally.
f. Subjective Factors
All arbitrators of course should be intelligent, experienced in resolving disputes and fair minded. However, there are other important attributes.
When selecting a party appointee who will serve with two other arbitrators, it often is useful to choose a person with a background in common with the appointing party and/or with counsel who will be presenting the case for that party: training in the same system of law and general outlook, and perhaps even a similar type of industry experience. The appointee should be a person with an ego and temperament compatible with the task of working effectively with other arbitrators. A party sometimes can anticipate that the third arbitrator is likely to be of a certain nationality, and it may be prudent to nominate the initial arbitrator with that in mind.
When selecting a third arbitrator, the parties typically look for a person having, in addition to other desirable attributes, experience in presiding over hearings. It also is particularly important that he or she have sufficient time available to devote to the matter, because the presiding arbitrator carries a heavier burden in moving the matter forward as promptly as possible.
It often is said that particular types of persons should be avoided as arbitrators. Here are some types of arbitrators I have seen, whom you may wish to avoid:
the "Ego-Tripper" likely to treat the office as an opportunity to "flex some muscle" in support of his or her own pet views;
the "Superbarrister" who may be unable to resist the temptation to take over the advocacy role for one side (or even both);
the "Superjudge" who was a bully on the bench and has learned to like the taste of it, often causing counsel to jump through unnecessary hoops of the arbitrator's creation;
the "White Knight" on a quest for justice and truth, whether or not it is to be found within the applicable procedural framework, who may inject issues the parties have intentionally excluded or decide on the basis of matters not discussed with the parties;
the "Whimp" who is unwilling or unable to keep a sufficiently firm hand on the proceedings to make them run smoothly; and
the "Unemployed Timeserver," who may have the ability but lacks the inclination to bring matters to a close; after all, he or she may have nothing else as interesting or remunerative to return to doing (12).
With this many dangerous types to avoid, how can parties find the right arbitrators? As I have said, one key is to avoid writing clauses or otherwise acceding to restrictions that may unduly rush the selection process when a dispute arises. Beyond that, consult widely and think carefully about what is said by those who know the candidate and have seen him or her in action lately.
Personal preferences of course will differ, and each dispute has its own characteristics. But the ideal candidate in my view, if one can be identified so broadly, is a current or recently retired practicing attorney who may perhaps have had some judicial or prior arbitration experience along the way: someone familiar with the handling of contested commercial matters, but not so accustomed to the powers and peculiarities of judicial or strictly academic life as to present an untoward risk of turning out to be one of the types listed above; someone still vigorous, and with other interests in life beyond spending years on your case. This is not to say that there will not be situations in which particular academics or retired full-time jurists are not preferable to other candidates; but as a general rule, give me the experienced practicing lawyer. He or she probably will be busy with a number of other matters, but accepting a compromise in this regard may serve a party well.
1. See Hoellering, The New International Arbitration Rules of the American Arbitration Association Symposium on Private Investments Abroad, 1991; Smit, The New International Arbitration Rules of the American Arbitration Association, 2 Am. Rev. Int'l Arb. 1 (1991); Cournot, The New Arbitration Rules of the American Arbitration Association and the UNCITRAL Model Law: A Comparative Overview, 6(2) Int'l L. Practicum 20 (1993).
2. The ICC's rule of thumb is to choose a sole arbitrator in cases involving less than $1 million. Craig, Park & Paulsson, International Chamber of Commerce Arbitration, Part III § 12.02 (2d ed. 1990).
4. On "impartiality" as contrasted with "neutrality," see Redfern & Hunter, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 221 (2d ed. 1991); see also "The Selection of Arbitrators: The Experience of the AAA, ICC and ICSID in the Confirmation/Appointment Stage of an Arbitration," in ICC International Court of Arbitration, THE ARBITRAL PROCESS AND THE INDEPENDENCE OF ARBITRATORS (1991).
7. The WIPO Expedited Arbitration Rules also specify that a list procedure will be used in selecting the (sole) arbitrator, with a list containing at least six names, and a second list also may be sent (Rule 15).
8. "The LCIA does not publish panels of arbitrators but it has extensive information on potential international arbitrators worldwide. It maintains up-to-date information on the qualifications, expertise and experience of these potential arbitrators and this is available to the President and the Vice-Presidents when they make appointments." London Court of International Arbitration, A Users Guide to LCIA and UNCITRAL Administered Arbitrations, 7 (1993).
9. This has presented particular problems for arbitrations in France as a result of Siemens A.G. and BKMI Industrienlagen GmbH v. Dutco Construction Co. (Dubai), French Cour de Cassation decision of Jan. 7, 1992, Revue de l'arbitrage 470 (1992); see Schwartz, Multi-Party Arbitration and the ICC, 10(3) J. Int'l Arb. 5 (1993); Delvolve, Multipartism: The Dutco Decision of the French Cour de Cassation, 9(2) Arb. Int'l 197 (1993).
10. See Carter, supra; see also Coombe, The Selection and Conduct of the Party-Appointed Arbitrator: International and Domestic U.S. Ethical Considerations, American Bar Association International Law & Practice Section International Commercial Arbitration Committee Newsletter, Jan. 1993; Wetter, Ethical Guidelines, 1993 Yb. Stockholm Chamber of Commerce 99.
"Compensation for the arbitrators shall be based upon the magnitude and complexity of the case and shall be arranged by the AAA with the parties and the arbitrators prior to the commencement of the arbitration hearings. If the parties fail to agree to the terms of compensation, an appropriate rate shall be established by the AAA" (para. 3(b)).
12. I am indebted for the enumeration of some of these types to Francis O. Spalding, "Choosing the Arbitration Panel," in Roth, Wulff and Cooper, eds., The Alternative Dispute Resolution Practice Guide (1993).