The death or health-related resignation of an arbitrator during the course of the proceedings is a vexing problem that admits of no easy or fully satisfactory solution. If proceedings have been extensive in a complex case, the substitute arbitrator may never fully “catch up,” and may never fully gain the parties’ confidence that he or she understands the case. Yet starting the case over, or recycling to an early stage, may be a sacrifice of time and cost that one or both parties find unacceptable.
A recent federal district court case in New York (In re Ins. Co. of North America v. Public Serv. Mut. Ins. Co., 2009 U. S. Dist. LEXIS 55271 (S. D. N. Y. June 29, 2009)) addressed a special wrinkle on this problem: what to do when the resigned party-appoonted arbitrator, not yet replaced, returns to health and is able to resume duties.
Before I discuss the INA case, a short survey of international rules is in order. The issue of appointing a repacement is rarely difficult, with most rules providing for replacement according to the original agreed selection method. The more troublesome issue is what becomes of the prior proceedings. The perceived collision of two core values in international arbitration — party equality and procedural efficiency — have led to a variety of approaches.
ICDR Rule 11(2) provides that the reconstituted tribunal will decided in its sole discretion what if any proceedings shall be repeated. The UNCITRAL rules provide, in Article 14, that “if the sole or presiding arbitrator is replaced, any hearings held previously shall be repeated; if any other arbitrator is replaced, such prior hearings may be repeated at the discretion of the arbitral tribunal.” The UNCITRAL approach is followed, for example, in the Singapore and Kuala Lumpur rules. But several institutions have found the UNCITRAL approach inadequate.The Hong Kong International Arbitration Centre in its recently-enacted Rules for Administered Arbitration provides that “if an arbitrator is replaced, the proceedings shall resume at the stage where the arbitrator who was replaced ceased to perform his/her functions, unless the arbitral tribunal decides otherwise. ”
The arbitration rules of the ICC, Stockholm Chamber of Commerce, and World Intellectual Property Organization (WIPO), provide that in case any arbitrator is replaced, the reconstituted Tribunal will decide whether and to what extent proceedings shall be repeated.
United States law, notably in the federal Second Circuit Court of Appeals in New York, contains a “general rule” of long standing that upon the death of a party-appointed member of a three-member tribunal, the entire arbitration must be repeated before a new panel, save for any issue already finally decided in an interim or partial award.
In INA, the arbitration was conducted before a three-member tribunal under insurance industry rules that did not address the issue of replacement. The Respondent’s party-appointed arbitrator resigned with a grave illness just after the Tribunal had issued a unanimous decision granting summary judgment against Respondent on several issues including its principal legal defense. Under the applicable arbitration rules, that decision was non-final, and Respondent moved for reconsideration just prior to its arbitrator’s announcement of his need to resign.
Following the resignation, Respondent moved in court for a permanent stay of proceedings before the original panel, and to vacate the interim award granting partial summary judgment The Court initially granted the stay motion, invoking the “general rule” applicable upon death of a party-appointed arbitrator — unaware that, even before oral argument on the stay motion, the resigned arbitrator had sufficiently recovered to begin seeking new appointments (a fact known to Respondent’s counsel and not disclosed to the Court). When Claimant’s counsel learned of the resigned arbitrator’s return to health, it moved the Court to vacate its order staying the arbitration and to exercise its powers of appointment under Section 5 of the Federal Arbitration Act to reinstate the resigned arbitrator to the panel. Reliance was placed on Federal Rule of Civil Procedure 60(b)(2), permitting relief from a judgment order, upon presentation of new evidence that could not have been presented at the time of the original proceedings.
In the INA decision, the motion to vacate the Court’s original order staying the arbitration was granted. In practical terms, the parties were directed to resume where the arbitration had left off, before the reinstated original Tribunal.
The Second Ciricuit’s “general rule” that the death of a party-appointed arbitrator requires a new start with a new tribunal has its roots in the U. S. domestic tradition of partisan party-appointed arbitrators. But the rule has never been stated by the courts as one that applies only when the party-appointed arbitrators are not impartial. It has been explained as being necessary “to avoid forcing a party to proceed over its objection before a panel where its own arbitrator would not have the full benefit of participating in the hearings.” (In re Pemex – Refinancion v. Tblisi Shipping Co., 2004 U. S. Dist. LEXIS 17478 (S. D. N. Y. Aug. 29, 2004)). But the rule has been applied even where no evidentiary hearings have occurred, and so the influence of the party-appointed arbitrator’s advocacy role is evident. As the Court stated in the Pemex case: “Given the
crucial role that arbitrators play, from assessing the credibility of witnesses to serving as advocates for the respective appoint[ers] (sic), it makes sense that it is only in instances where a panel is completely without power to revisit an issue that the Court has approved the appointment of a replacement.” Id. at *19.
A much-cited decision from the early 1970s, in justifying the rule, refers to the party-appointee’s role as “an amalgam of judge and advocate.” (Cia de Navegacion Omsil, S. A. v. Hugo Neu Corp., 359 F. Supp. 898 (S. D. N. Y. 1973)).
And yet the rule has been applied by courts without explicit reference to the appointee’s impartiality or lack of it.
In the INA decision, no mention is made of whether the party-appointees were, by agreement, not impartial. One suspects that this was the case, as otherwise Claimant could be expected to have argued that the impartiality of the party-appointees should be a “special circumstance” justifying an exception to the “general rule.”
For the past five years since the revision of the ABA/AAA Code of Ethics, even in domestic arbitrations the party-appointees must be independent and impartial unless there is an express agreement that they shall not be. And so it is useful to underscore the provenance of the Second Circuit’s “general rule,” so that the courts may consider in future cases whether impartiality of the party-appointed arbitrators may lead to a different outcome in many cases.
The international rules mentioned above reflect a widely accepted norm that, at least within a Tribunal of impartial arbitrators, the discontinuity of having to replace a party-appointed arbitrator is not such a significant disadvantage in every case that a per se or presumptive start-over rule is warranted.
Further, even where the party-appointed arbitrators are by agreement partisan advocates, the Second Circuit’s “general rule” is arguably obsolete. The duration of the typical contemporary complex commercial arbitration is measured in years, making a start-over rule antithetical to arbitration’s aspirations to be a more efficient than court adjudication. Even in cases where an arbitrator dies after hearing testimony, in a non-routine case with multi-day hearings there will typically be a transcript if not also a video record. Parties appearing before arbitrators of a certain age or frailty have the ability to manage the risk of death or resignation by preserving the testimonial record. And where a partisan arbitrator has resigned, but months or years of further proceedings are likely, the replacement arbitrator can assume the advocacy mantle and the appointing party will not ordinarily face the prospect of deliberations on key issues without the benefit of effective advocacy within the Tribunal.
One might expect, or ar least hope, that when the Second Circuit is called upon to re-assess its start-over “general rule,” it will take these factors into account and adopt a more pragmatic case-by-case approach.