It is an old adage that the quality of any arbitration as a method of dispute resolution is only as good as the arbitrators themselves. The lack of substantial scrutiny over the arbitrators’ decision rests on the assumption that the parties wish to avoid any extensive review of the arbitral award by the courts at the seat of the arbitration (or indeed anywhere else).
This does not mean that arbitrators have unfettered latitude to reach their decision in any way that they think fit. Arbitration is judicial decision-making, not an exercise in finding what is fair. Fairness of the outcome is often in the eye of the beholder in commercial disputes; it is not necessarily what parties expect from international arbitration. Parties want some predictability of outcome based on an impartial analysis of the facts and the governing law. Given the very limited rights of appeal, the quality of the tribunal becomes more critical to ensure the reliability of this analysis. The selection of arbitrators is therefore central to the perceived integrity of the arbitration process as a whole. If the arbitrators are not trusted, arbitration itself will always be regarded with a degree of scepticism by those who might be expected to use it.
For most arbitrations with three-member tribunals, each party will typically have a right to appoint an arbitrator, while the parties’ nominees often appoint the chairman. In older forms of arbitration, including the domestic American Arbitration Association procedure, these nominees fulfilled the role of advocate for the party nominating them, with the casting vote in the hands of an ‘umpire’. Nominees were expected to look after the interests of the party that appointed them, and they could communicate with them as they wished. In contrast, today, in most jurisdictions the nominees are legally obliged to be impartial and independent of the party who nominated them.
However, the concern remains that there is a more subtle form of partiality among at least some party-nominated arbitrators. Studies of commercial arbitrations found that approximately 95% of dissenting opinions were written by nominees of the losing party and another study of 150 publicly-reported international investment arbitrations by Albert Jan van den Berg came to a similar conclusion. One inference that could be drawn from this is that party-nominated arbitrators are more likely to find for the party who nominated them than for its opponent. Hence, it is contended, some party-nominated arbitrators are biased. These realities might threaten parties’ confidence in the system, since users value a fair process, perhaps even more than getting a favourable result.
Arbitrators are interested in retaining their reputation, while well-advised parties are interested in appointing arbitrators with sway over their co-arbitrators.
It can be counterproductive to appoint arbitrators advocating the case of the party nominating them, because these arbitrators tend to become marginalised. And advocacy in favour of the appointing party does not necessarily guarantee repeated appointments. Arbitrators are interested in retaining their reputation, while well-advised parties are interested in appointing arbitrators with sway over their co-arbitrators.
In response to claims from some quarters that fully institutionally-appointed tribunals should be introduced, users of international arbitration have made their views known. The overwhelming majority of them prefer, and want to retain, the party nomination system due to its advantages.
First, parties feel that they will have someone on the tribunal who they can trust to listen to and understand the case they are making. This may involve some cultural affinity, as well as being more confident that there is someone on the tribunal who will dedicate the time and have the intellectual ability to digest the argument.
Second, parties can expect their nominee not only to understand the case they are making, but also to ensure that the other members of the tribunal understand it. Irrespective of the outcome, they can be reassured that they have had a fair hearing.
Third, parties want to appoint someone who they think will see the case in the same way that they do. That is not to say that they are biased, only that their approach to the issue is likely to align with the approach that the party advances, in light, for instance, of the arbitrator’s background or industry-specific expertise.
Fourth, party-nomination allows parties to feel engaged with the tribunal and to have more control over the process.
To address concerns of impartiality and quality, while simultaneously retaining these advantages, Three Crowns’ Jan Paulsson has suggested that arbitral institutions should require that parties only appoint arbitrators from an approved list. This is rare but not unknown (for example, the Court of Arbitration for Sport has such a system). Still, at present, this is not happening with any frequency despite Paulsson having triggered this debate some years ago now.
The ultimate answer lies in the parties’ choice. If they want to have arbitrators chosen only from an approved pool, they can agree to that effect in their arbitration clause. For example, there is a list of approved arbitrators for energy disputes published by the International Centre for Dispute Resolution. This was created as a result of industry demand for arbitrators who understand the oil and gas industry in particular. Separately, parties can also choose to arbitrate in jurisdictions where the supervising courts are both trusted as impartial and prepared to intervene in appropriate cases. This may be one of the reasons why London is by far and away one of the most popular arbitration centres in the world.
Demand for change, such as wider scope of scrutiny of awards or fully institutionally-appointed tribunals, needs to come from users, and any change should be evolutionary. There is no obvious solution other than good arbitrators becoming self-selecting by virtue of the spread of knowledge of their expertise and impartiality.
Dr Anthony Sinclair specialises in international commercial arbitration, investment treaty arbitration, and public international law. His work spans a broad range of industry sectors, with particular focus on the oil and gas, energy and mining, telecommunications, infrastructure and utilities sectors, especially in emerging markets, as counsel and arbitrator. His experience includes handling disputes under ICC, LCIA, ICSID and UNCITRAL arbitration rules arising out of concession agreements, licences, production sharing and operating agreements, joint ventures, EPC and other construction agreements, host government and inter-governmental agreements, management and service agreements, distributorships, investment agreements, financing agreements and derivatives and post-M&A matters. He also has extensive experience as counsel for both private investors and states handling disputes under bilateral investment treaties and the Energy Charter Treaty, and has also been counsel in several ICSID annulment proceedings.
Quinn Emanuel Urquhart & Sullivan is the largest business disputes specialist firm in the world. The Wall Street Journal describes it as a ‘global force in business litigation’. International arbitration is one of the cornerstones of the firm’s practice. The firm has international arbitration specialists in all of its offices, globally. Operating as a single, integrated team, the firm’s lawyers have achieved success representing the world’s largest companies, high-net-worth individuals, states and state-owned enterprises, in all of the world’s major arbitration centres and applying all major applicable legal systems, including public international law, in international commercial arbitration, investor-state arbitration (including under bilateral and multilateral investment treaties), and state-to-state disputes.