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January 02, 2014

Congratulations On Your New Appointment. Or Was It Only A Nomination?

Under the arbitration rules of many arbitral institutions around the world, a nominated arbitrator-candidate only becomes an appointed arbitrator when the administering institution, acting through the administrative body identified in its Rules, notifies the candidate that he or she has been appointed (or as the terminology appears in some rules, “confirmed”).  A quick review indicates that this is the case under the arbitration rules of the ICC, LCIA, CPR, SIAC, Kuala Lumpur Centre and Vienna Centre, and under the Swiss Rules. The arbitrators must await a formal notification of appointment from the institution that follows after the nominated arbitrator candidate has submitted his or her statements of availability, independence/impartiality, and willingness to serve.

It may come as something of a surprise to many arbitration lawyers and arbitrators that the same is not true in international cases administered by the American Arbitration Association  (AAA) International Centre for Dispute Resolution (ICDR) under the Commercial Rules or the International Rules of the American Arbitration Association, either as a matter of the rules’ text or as a matter of administrative practice. The reason this may come as a surprise is that many of us, whether functioning as counsel or arbitrator, simply assume that the Tribunal cannot function until, at the earliest, the expiration of any time period fixed by the AAA for parties to comment on the disclosures, if any have been made, of each of the arbitrators.  As arbitrators in AAA-administered cases, we therefore refrain from beginning to organize the case until that time has expired — and some arbitrators will even refrain from having initial discussions with their co-arbitrators, let alone the parties. And as counsel in such cases, we ordinarily refrain from contacting the Tribunal-in-formation until this period for comments has expired or all parties have indicated that they have no such comments.

The practice of the ICDR in case of receipt of completed appointment documentation that includes disclosures is to immediately transmit that documentation to counsel/the parties, with a cover letter giving notice to the parties that the arbitrator has been appointed, and fixing a period of time (generally two weeks) for any party to submit comments (or a challenge) based on the disclosures.  Despite the statement in such letter that the arbitrator “has been appointed,” the ensuing invitation for comment upon the disclosures by a deadline two weeks later may well cause the letter to be interpreted, by the parties and the arbitrators, as meaning that the appointment is conditional on expiration of the comment period without comments, or upon the rejection of any timely challenge.

In certain cases the clarification of this ambiguity, one way or the other, could have significant consequences. One issue that could arise in such a situation is how the Tribunal or a reviewing court might apply a provision in the arbitration agreement that requires the Tribunal to issue a Final Award within a rather short period from the date the third arbitrator is selected, say 45 days. Unless both parties consent to the timetable of proceedings, can the Tribunal be comfortable that proceedings may be scheduled such that the Award would be made within 45 days measured from expiration of the comment period? Or is there a risk in that situation that a recalcitrant party might object that the Tribunal became functus officio on day 45 from the notification to the parties of the selection of the third arbitrator? Conversely, if the Tribunal attempts to proceed on a timetable of 45 days from notification to the parties of the selection of the third arbitrator, might a recalcitrant party object at the end of the arbitration that the Tribunal exceeded its powers by taking actions before it was duly constituted? Granted these issues ordinarily should not present insuperable obstacles when both parties are represented by counsel and are actively participating in the arbitration. But that is not always the case. An opportunistic absentee Respondent might make either argument, depending on the course of action  selected by the Tribunal, to interfere with recognition of a Final Award.

One might suppose that a possible perceived virtue of the ICDR practice is to prevent a recalcitrant Respondent from delaying formation of the Tribunal, and the launching of the case, by making a vexatious challenge. But if the parties have agreed to have party-appointed arbitrators, an interval of two weeks for comments on the disclosures made by the Claimant’s party-appointed arbitrator, before that arbitrator is confirmed, is unlikely to delay the case. The Tribunal will still be in the process of formation during this time. Suppose instead that the Respondent wishes to delay the case by making a challenge based on the initial disclosures submitted by an administratively-appointed presiding arbitrator or by one or more of the arbitrators selected via the AAA-favored list procedure. If the Claimant has indicated a need for urgent Tribunal action, e.g. some urgent provisional relief, the ICDR has means at its disposal, other than its automatic appointment practice, to accelerated formation of the Tribunal. The ICDR in its discretion could accelerate the time for the nominee to submit his/her disclosures, and accelerate the time for either party to submit comments on the disclosures. The ICDR also has discretion to fix stringent deadlines for compliance by the nominee with any supplemental requests for information submitted by a party, and for submissions by the parties in support of and in opposition to a challenge. And of course the ICDR retains the capacity to rule quickly, and without a statement of reasons, on any challenge that is made. So it would seem that there are other means available to regulate the use of an initial challenge by a Respondent’ as a dilatory tactic, and that those means do not entail burdens or costs that make them less acceptable than automatically appointing an arbitrator who has furnished a qualified statement of independence.

To fully evaluate the ICDR practice, one must also consider the impact on a challenge that the Claimant might wish to bring, particularly against a party-appointed arbitrator selected by the Respondent. And let us assume that the Claimant, characteristically, is eager for the case to proceed rapidly, perhaps even to obtain some form of provisional relief from the Tribunal, subject to a countervailing desire to avoid having either a co-arbitrator or a presiding arbitrator about whom there could be justifiable doubts as to independence and impartiality.  The ICDR’s automatic appointment practice means that the Claimant in these circumstances might have an array of unattractive options: (i) forego any challenge, (ii) avoid making any request for additional disclosures by the arbitrator, despite a possibly perceived need for additional information, and limit the basis for the challenge to the disclosures initially made, so that the ICDR need not transmit a communication to the arbitrator that would indicate a challenge has been made, and so the challenge process might run its course before the appointment of the presiding arbitrator, (iii) proceed with the case before the Tribunal as constituted until the challenge is resolved, even though the challenged member would know, from having received a request for additional disclosures, that a party is concerned about his or her relationships that might give rise to justifiable doubts, and even though it is likely that the affected arbitrator might share these facts with the other members of the Tribunal, or (iv) ask the Tribunal to stay proceedings until the challenge is resolved, thereby making a disclosure to the full Tribunal that a challenge has been lodged, which unless accompanied by an explanation of the basis for the challenge might reflect negatively on the challenging party and its counsel in the eyes of the Tribunal (or at least the challenging party and its counsel would be concerned that this would be the case).  This unsatisfactory array of options would not arise if the Tribunal were not deemed constituted until a challenge if any based on initial disclosures is resolved.

The potential partisanship of party-appointed arbitrators has been usefully addressed in the ICDR by having an institutional preference for use of a list procedure. When arbitrators are selected from an ICDR-provided list, the chances that either party would suspect bias based on an arbitrator’s initial disclosures are small. And it is understandable that the ICDR would view its procedures for formalizing the appointment of arbitrators in light of the relative infrequency of challenges to list-based appointees resulting from initial disclosures. But there will always be at least a small universe of AAA international cases in which the parties agree to have party-appointed arbitrators. And for so long as the notion of an independent and impartial party-appointed arbitrator remains alive, some parties will strive to appoint arbitrators who have the maximum predisposition toward the appointing side, and they will hope for a minimum of disclosure by the appointee of the foundations for such predisposition.

Rules that provide for confirmation of arbitrator nominees by the institution after an interval for party comments and internal review by the institution have at least two virtues that the ICDR automatic appointment process lacks.  One virtue is that the institution may more effectively enforce its own standards of independence and impartiality and related criteria for arbitrator disclosure. (And in this respect it is significant that the AAA and ICDR espouse a scope of arbitrator disclosure that is considerably broader than what is indicated by the guidance found in the color-code lists of the IBA Conflict Rules). Another virtue of the nomination-then-confirmation sequence follows from the first: when there is a delay in the confirmation, or the institution requests further disclosures by the arbitrator, it is possible that the institution is enforcing its own criteria, and it is not necessarily the case that the non-appointing party has raised a challenge.  This ambiguity serves the useful purpose of leaving the affected arbitrator-nominee in doubt about whether confirmation delay or a request for supplemental disclosure was initiated by the non-nominating party or by the institution itself.

I suggest that there is room for administrative discretion in application of the current AAA International and Commercial Rules to provide for a pre-appointment interval in all cases or in cases of party appointments. The matter might also usefully be addressed by rule amendment in the process of revising the AAA International Rules, a process said to be in its late stages at this writing. (Readers who concur in the position might register their views with the ICDR).