8 – SELECTION, CHALLENGE AND REPLACEMENT OF ARBITRATORS IN INTERNATIONAL ARBITRATION

The selection and removal of arbitrators is one of the most important aspects of international arbitral proceedings.¹ This chapter first examines the selection of arbitrators, including by the parties’ agreement and by non-judicial appointing authorities. Second, the chapter considers the role of national courts in selecting arbitrators. Third, the chapter discusses requirements regarding the identities of arbitrators, including requirements regarding impartiality and independence, contractually-imposed requirements and other requirements. Fourth, the chapter addresses the procedures for challenging and removing arbitrators, focusing first on non-judicial appointing authorities and then considering appointment by national courts. Finally, the chapter discusses the problems presented by “truncated” tribunals, where one or more members of the tribunal refuse to participate in rendering an award.

A. SELECTION OF ARBITRATORS BY PARTIES OR APPOINTING AUTHORITY IN INTERNATIONAL ARBITRATION

One of the characteristic features of international arbitration is that there is no standing or pre-established “court” or tribunal to which disputes generally may be submitted. That is particularly true in international commercial arbitration, but it is also true in investment and inter-state arbitrations. The absence of any standing tribunal contrasts with national courts and many international tribunals (such as the International Court of Justice), which have a preexisting complement of judges who are assigned randomly to cases and generally-applicable, comprehensive procedural rules. In contrast, for most arbitral proceedings, an arbitral tribunal must be separately constituted by the parties (or otherwise), in accordance with the terms of the arbitration agreement and applicable law.

1. Parties’Autonomy in Selection of Arbitrators

As with other aspects of the international arbitral process, a dominant characteristic of the selection of the tribunal is the principle of party autonomy. As illustrated below, international arbitration conventions, national law and institutional rules all accord parties broad autonomy both to agree directly upon the arbitrators in “their” arbitration and to agree on indirect mechanisms for selecting such arbitrators. This autonomy is subject to only limited restrictions, directed at ensuring an impartial arbitral tribunal and safeguarding other similarly-important national and international public policies.

Many international commercial arbitration agreements provide a procedural mechanism for the selection of the arbitrator(s)—either expressly or by incorporating institutional arbitration rules. The almost universal contractual mechanism for selecting an arbitrator is designation of a neutral “appointing authority” to choose the arbitrator(s), if the parties cannot agree directly upon the identity of the arbitrators.² All leading institutional rules provide for such a role by the sponsoring institution when parties agree to arbitrate under the institution’s rules.³ As discussed below, international arbitration conventions and most national arbitration statutes give effect to agreements by which parties provide for the selection of arbitrators either by an appointing authority or by other means.

GENEVA PROTOCOL

Article 2 (1923)

The arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place. The Contracting States agree to facilitate all steps in the procedure which require to be taken in their own territories, in accordance with the provisions of their law governing arbitral procedure applicable to existing differences.

SUMUKAN LTD v. COMMONWEALTH SECRETARIAT

[2007] EWCA Civ. 1148 (English Ct. App.)

LORD JUSTICE WALLER. By an award dated 25 April 2005, arbitrators ruled in favour of The Commonwealth Secretariat (“CMS”) that on a proper construction of a contract between them, and Sumukan Ltd (“Sumukan”), the title in certain software had become that of CMS. Sumukan made various attacks on the validity of that award, attacking the substantive jurisdiction of the arbitrators under §67 of the Arbitration Act 1996 (“the Act”), attacking the award on the basis of irregularity under §68 of that Act…. Sumukan … say that the effect of the contract they signed was … to compel them to arbitrate before a tribunal effectively appointed by the other contracting party CMS giving rise to a perception of partiality, and that even in the process of that tribunal being appointed the procedures which might have protected them to some extent against any lack of independence or impartiality were not complied with.

CMS’s answer … [supported by the Tribunal] is that Sumukan are bound by the contract they signed; that the suggestion of any perceived lack of independence or impartiality is misplaced since the Tribunal appointed was of the highest calibre and clearly totally impartial; any failure to comply with procedures was not of a character that could undermine the jurisdiction of the Tribunal which sat and heard the arbitration; and in any event they say Sumukan went ahead with the arbitration in circumstances where with reasonable diligence they could have discovered any of the points now taken, and are precluded from complaining now by §73 of the 1996 Act….

[The parties’] contract contained an arbitration clause in the following terms: “The Secretariat and the consultant shall endeavour to settle by negotiation and agreement any dispute which arises in connection with this contract. Failing such agreement the dispute shall be referred to the Commonwealth Secretariat Arbitral Tribunal [CSAT] for settlement by arbitration in accordance with its statute which forms part of this contract and is available on request.” That clause referred to “its statute,” [which was,] available on request as forming part of the contract…. [T]he material terms of that statute [as it existed in 1999] were:

         “Article II

                1. The Tribunal shall hear and pass judgment upon any application brought by: (a) a member of the staff of the Commonwealth Secretariat, (b) the Commonwealth Secretariat, (c) any person who enters into a contract in writing with the Commonwealth Secretariat, which alleges the non-observance of the contract….

         Article IV

                1. The Tribunal shall normally be composed of one member who shall be the President or if the President is for any reason unable to sit, some other member of the Tribunal designated by the President.

                2. In exceptional cases where, in the opinion of the President the complexity of the matter requires it, the Tribunal shall sit as a three-member Tribunal empanelled by and including the President but no two members may be nationals of the same country….

                4. The members of the Tribunal, all of whom shall be Commonwealth nationals, shall be of high moral character and must: a. Hold or be qualified to hold high judicial office in a Commonwealth country; b. Be jurisconsults of recognised competence with experience as such….

                5. The president of the Tribunal and four other persons shall be appointed by the Commonwealth Secretary General on a regionally representative basis after consultation with governments and the Commonwealth Secretariat Staff Association to be available to serve as members of the Tribunal. Each appointment shall be for a period of three years and may be extended for further periods of three years….

                7. The President of the Tribunal shall hold office until a successor is appointed.

         Article XIII

                The present statute may be amended by the Secretary-General. Before making any amendment, the Secretary-General shall seek the views of the President and shall consult with Commonwealth governments and the Commonwealth Secretariat Staff Association….”

[Sumukan] suggested that “it would be an unusual and onerous term in a contract that an arbitration be conducted by a panel wholly appointed by one side and under statutes capable of being changed at any time by that one side.” [Sumukan] suggested that such terms would not be of contractual affect if they were not drawn to Sumukan’s attention…. This was a commercial contract. True, Sumukan had no choice as to the terms of the contract so far as arbitration was concerned but that is a common feature of and the reality of many commercial contracts. Sumukan are not a consumer with the protection of consumer legislation and are bound by the terms of the contract they made. It follows they were bound to accept a Tribunal appointed in accordance with the relevant statute to which the term refers.

As we will see there may be room for argument as to which that statute was, and what it requires. I will come to that. But what seems to me to flow from that first point is important. If … Sumukan would seek to attack the award on the basis that a procedure in accordance with the statute could not produce an impartial tribunal, and that on that basis there was a serious irregularity (relying on §68(2)(a) taken together with §33 of the Act), that attack is doomed to failure. Having agreed to it, they must be taken to have waived any objection….

The most difficult part of the case arises out of the fact that it is accepted that there was a degree of non-compliance with the relevant statute in the appointment both as a member and then as President of the CMS arbitral panel, Professor Chappel. It was he that presided over the Tribunal of three which sat and made the award. The key issues on the appeal are (1) whether any non-compliance with the relevant statute was such as to affect the substantive jurisdiction of the panel that sat and made its award; and (2) if so, whether CMS can succeed in their arguments that any failures to comply with the statute was cured in some way, or that the failures could with reasonable diligence have been discovered by Sumukan, so as preclude reliance on them by virtue of §73 …. [The court provided a chronology of Professor Chappell’s appointment both as a member of the Panel and as President thereof. In sum, Professor Chappell was inadvertently appointed to these positions without consultations among the members of the Commonwealth governments as required by Article 4(5) of the 1999 statute. Sumukan commenced its arbitration against CMS in 2003. In July 2004, Professor Chappell determined that the constitution of the tribunal to hear Sumukan’s claim should be himself, Ms. Weekes, and Dame Joan Sawyer, and Sumukan was notified accordingly. A hearing was held in February 2005, following which the tribunal made an award in favor of CMS, rejecting Sumukan’s claims.]

Any arbitration tribunal was to be presided over by the President of the Panel, and indeed the persons to sit on the Tribunal were selected by that President. If therefore there was a defect in the appointment of the President so as to make his appointment to the Panel invalid, that would as it seems to me have an effect on the substantive jurisdiction of the arbitrators. Furthermore if the arbitrators were to be selected from a Panel, and if there was a procedure for the appointment of the Panel aimed at guarding against any apparent lack of independence, it seems to me right that a substantial failure to comply with that procedure should have an effect on the jurisdiction of the tribunal itself.

It is accepted by CMS that prior to Professor Chappell being appointed as a member of the Panel there was no consultation with member states under Article IV(4) of the 1999 statute; it is accepted that prior to his appointment as President in 2001 there was no consultation with member states under Article IV(4)…. It follows there has been non -compliance with the appointment procedure. [The CMS statutes] were incorporated into the contract between Sumukan and the CMS, and Sumukan are prima facie entitled to have the agreed procedure for appointment of any arbitrator complied with. Thus once non-compliance is established it is for CMS to show that a failure to comply with the relevant statute was either inconsequential in some way or cured by the fact that the States clearly knew he was acting as a member and as a President and made no protest; or to show that the procedural failure was of a kind which did not lead to an invalid appointment. This latter they seek to do in reliance on the nature of the provision as surplusage or because they submit that a de facto principle applies in arbitration so as to cloak the tribunal that sat with jurisdiction….

We were referred to a number of cases [which] demonstrat[e] that the court will wrestle to avoid setting aside an otherwise perfectly good decision by virtue of non-compliance with a provision which really does not matter. In the instant case it seems to me that the correct question is whether, as a matter of contract, compliance with the obligation to consult member states was a provision simply for the benefit of the Commonwealth Governments so that they could check whether a fair balance between different parts of the world was being kept, or whether the provision was also for the benefit of those who might become involved in arbitration with CMS in the sense that the requirement to consult might assist in promoting the independence of panelists from whom arbitrators were to be drawn. I accept … that the main point of the requirement to consult was probably to enable member states to see that the balance of representation on the panel between different parts of the world was maintained. However CMS have difficulty in arguing that the provision had nothing to do with promoting the independence of the arbitrators or the President. Their own skeleton argument paragraph 63 says that one aim was to promote “independence”….

In my view, Sumukan are entitled to say that even if they must be taken to have agreed to a tribunal appointed without any input from them, and with a major influence of the party with whom they were contracting, they were at least entitled to rely on compliance with any measure that might protect even to a small degree the independence of the panel or the President. I should add, although the statute contemplated appointees of very high calibre that fact does not preclude Sumukan being entitled to so insist. I would thus hold unless the lack of consultation was cured or was something which Sumukan are precluded by §73 from relying on, Sumukan should succeed in their appeal.

Was any lack of consultation cured? … In truth … curing the lack of consultation is not pressed with any vigour [by CMS] and rightly. Informing the member states of a fait accompli cannot equate with consultation intended to take place before an appointment has been made. I would not hold that any failure to consult had been cured.

Does the de facto concept apply? I do not think it does in the arbitration context. The question is whether the agreement under which the arbitrators have been appointed has been complied with. Where one party has failed to abide by the procedure required for appointing the President it lies ill in his mouth to seek to rely on any de facto arguments. I understand an argument that it is unsatisfactory to allow an arbitration to go ahead with the costs incurred, and indeed the more unsatisfactory for the person who loses only to take a point on jurisdiction once they have lost, but it is §73 which will assist in that regard if it applies and not an appeal to a de facto principle.

I turn therefore to §73 [dealing with waiver of objections]. [Is it possible] to find that Sumukan could not with reasonable diligence have discovered the lack of validity? This again is not straightforward. As one sees from the language of the 1996 Act, e.g. §31, the Act is concerned that substantive jurisdiction points should be taken before expense and time is incurred. It could be said to be an obvious point to check whether the appointment procedures have been complied with….

However the [lower court] found that it would be wrong to construe §73 so as to hold that Sumukan could with reasonable diligence have discovered facts which it neither knew nor believed nor had grounds to suspect. Indeed since CMS were under the statute to be instrumental in carrying out the requisite procedures, and since it seems CMS did appreciate that the procedures had not been gone through, it can be said with some force it was for CMS to draw the matters to Sumukan’s attention and seek a waiver. Sumukan were (it might legitimately be said) entitled to rely on the fact that CMS would not be suggesting a particular Tribunal unless the procedures had been complied with.… I would uphold the [lower court’s] decision on this aspect. It thus follows that this award must be set aside and the matter remitted to a differently and properly constituted tribunal….

LORD JUSTICE SEDLEY …. In my judgment the requirement for consultation with the Commonwealth governments about the appointment of the president and members of the arbitral tribunal is a real and important safeguard for anyone with a claim against the Commonwealth Secretariat. The unusual set-up is dictated by the need to provide a forum which will impartially and bindingly adjudicate on disputes involving the London-based Secretariat without requiring the sovereign states which make up the Commonwealth to submit to the jurisdiction of the ordinary courts. The solution, underpinned by legislation, is an arbitral tribunal appointed entirely by the Secretariat, to which anyone who contracts with the Secretariat must agree to submit disputes. This makes the suitability and impartiality of the tribunal a critical safeguard for a party who of necessity has no say in its constitution.

How then could consultation with the governments make any difference to an appointment? [CMS] submits that it is tokenism and of no material consequence…. I strongly disagree…. [W]hile some officials … may nod it through without further debate, others may very well want to consider, first, the suitability of the particular candidate and, secondly and in any event, whether there is someone preferable. Take Professor Chappell. His integrity and ability are undoubted, but his CV shows him to be a criminologist with no background in contract law or arbitration, albeit strong recent experience as deputy president of the Australian Federal Administrative Appeals Tribunal. While it would have been noted that the CMS tribunal’s workload to date had concerned only staff issues, it might also have been noted that it potentially included anyone who had a contractual dispute with the Secretariat. It is therefore perfectly possible that, had the governments been consulted, someone with more experience of arbitration and contract law might have been proposed and … appointed as president. While this in no way undermines the standing of Professor Chappell …, it illustrates how important it is from the point of view of those who have no choice about the arbitration procedure or its personnel that the prescribed filters on appointment are used, so that the best candidate whom the collective knowledge of the member states can suggest is approached.… I would therefore hold that the appointment procedure exists at least in part for the protection of parties to arbitrations against the Secretariat. The departure from it rendered Professor Chappell’s participation as president in Sumukan’s arbitration unlawful and the award a nullity….

CERTAIN UNDERWRITERS AT LLOYD’S LONDON v. ARGONAUT INSURANCE CO.

500 F.3d 571 (7th Cir. 2007)

RIPPLE, Circuit Judge. Certain Underwriters at Lloyd’s London (“Underwriters”) entered into a reinsurance contract with Argonaut Insurance Company (“Argonaut”). A dispute over coverage arose, and Argonaut demanded arbitration in accordance with the contract. Further disputes arose related to the arbitration, and Underwriters … sought an order confirming a panel of arbitrators. The district court … confirmed the panel of arbitrators. Argonaut timely appeals…. [W]e affirm….

Underwriters, a reinsurance syndicate …, entered into certain reinsurance contracts, or “treaties,” with Argonaut, a California-based insurer. The treaties contain an arbitration provision as well as a further clause that details the responsibilities of the parties in selecting the arbitration panel…:

         “If any dispute shall arise between the Company and the Underwriters with reference to the interpretation of this Agreement …, this dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within thirty days after receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators, who shall choose the third.”

[After coverage disputes arose,] Argonaut sent an arbitration demand. That demand, made on August 4, 2004, included a request that Underwriters name its arbitrator within 30 days. Underwriters complied with the deadline and named its arbitrator on September 3. On August 6, 2004, before Underwriters nominated its arbitrator, it sent a demand that Argonaut nominate its arbitrator. Consistent with the treaty, Underwriters’ demand also invoked the thirty-day time limit; although the demand did not specifically so note, the expiration of Argonaut’s thirty-day period would come on Sunday, September 5, 2004. That day, however, came and went without any word from Argonaut regarding its nomination of an arbitrator. The following day, Monday, September 6, was Labor Day, a legal holiday in the United States, where Argonaut is located and where the arbitration proceedings were to take place, but a normal business day in the United Kingdom, where the Underwriters syndicate is based. On that day, one day after the expiration of thirty calendar days from the date of Underwriters’ request for Argonaut’s naming of an arbitrator, Underwriters faxed a letter to Argonaut invoking the default provision of the treaty’s arbitration clause and naming a second arbitrator.

In response, on Tuesday, September 7, thirty-two days after the demand had been made, counsel for Argonaut first sent an e-mail to Underwriters, representing that Argonaut’s named arbitrator had been selected properly on the previous Friday, and notice thereof sent to Underwriters the previous week. Later in the day on the 7th, when it became clear that, in fact, no notice had been sent during the previous week, Argonaut faxed a new letter to Underwriters naming its arbitrator. In that letter, Argonaut claimed it was not bound by the strict thirty-day deadline because its terminus was a Sunday followed by a legal holiday; instead, it claimed that it was not obligated to name the arbitrator on Sunday or on Monday and that the Tuesday, September 7, notice was a timely nomination of the second arbitrator within the meaning of the treaty.

Because of the competing demands for arbitrators, Underwriters filed a petition in the district court under 9 U.S.C. §5 for an order confirming the appointment of its two nominees as arbitrators in its dispute with Argonaut…. The court granted summary judgment for Underwriters.… [Argonaut appealed.]

[The Court first addressed] the most significant issue presented by this case: Whether, in interpreting an arbitration agreement that falls within the New York Convention, but that contains no choice-of-law provision, we should apply a federal common law rule of decision or, through the use of choice-of-law principles, determine what appropriate state law should govern…. Underwriters chiefly argues for the application of federal substantive law while Argonaut primarily seeks to have the law of California govern the present dispute….

A United States delegation participated in the 1958 negotiations [of the New York Convention;] … that delegation recommended against the United States becoming an original signatory to the Convention. In part, the delegation was concerned that the Convention would “override the arbitration laws of a substantial number of States and entail changes in State and possibly Federal court procedures.” … [T]welve years after it initially was opened for signature, the United States acceded to the treaty…. The concern for an unintended effect on domestic laws, which had counselled against the participation of the United States in 1958, was addressed in the implementation. Specifically, §202 of the FAA expressly limits the application of the Convention to disputes involving a foreign party, or, if only disputes involving exclusively United States citizens are involved, to circumstances in which the dispute has a “reasonable relation with one or more foreign states.” Further the implementing legislation makes clear that the standards contained in the FAA apply to disputes under the Convention “to the extent [the FAA] is not in conflict with [the Convention as implemented] or the Convention as ratified by the United States” although the Convention is codified as part of the FAA. 9 U.S.C. §208. Therefore, although the Convention would displace certain domestic laws, it would do so only in the narrow context of truly international disputes; within that narrow context, where appropriate, federal arbitration law under the FAA would fill the gaps left by the Convention…. With this history in mind, we turn now to the primary issue in the present case: What substantive law should be applied to interpret the terms of an arbitration agreement under the Convention when the parties have not included an explicit choice-of-law provision in their contract? …

[W]hen our sister circuits have been confronted with issues relating to agreements under the Convention—whether the question be arbitrability or enforcement or some other question—they appear to have resolved those issues by employing federal rules of decision, particularly when the parties have not provided otherwise by their contract.… Argonaut urges that these cases, primarily addressed to arbitrability of disputes, have no application to the present dispute, which is concededly arbitrable. We cannot agree. The interpretation of the portion of the arbitration clause related to the appointment of arbitrators seems to us very closely aligned with the other issues of interpretation of arbitration agreements under the Convention; such questions present an equally compelling case for a uniform federal rule in the absence of direction to use another law selected by the parties themselves.… “The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.” Scherk, 417 U.S. at 520 n.15 (emphasis added)…. [T]his overarching federal concern with the uniformity of treatment of international arbitration agreements requires that the issue before us be resolved by a federal common law rule, rather than by a state rule of decision….

In light of the recognition by the Supreme Court and by our sister circuits that uniformity in determining the manner by which agreements to arbitrate will be enforced is a critical objective of the Convention, we hold that, in this circumstance, the injection of a parochial rule that interprets a contractual deadline other than by its plain wording is con trary to the interests of the United States as embodied the Convention. Underwriters has identified a specific objective of federal law, namely, to ensure uniform enforcement of agreements to arbitrate. Were we to conclude that state law provided the applicable rule of decision in this case, we would sanction an interpretation of the contract that permitted, necessarily, non-uniform results.⁴ …

In the absence of a choice-of-law provision, we conclude that parties are to be bound to the explicit language of arbitration clauses, with no state-specific exceptions that would extend otherwise clear contractual deadlines. Of course, sophisticated commercial parties such as these may provide by contract that thirty days does not include Sundays and holidays, or that a contract with a terminus for performance on a Sunday or holiday (as recognized by some identifiable body—state, federal or otherwise) may be timely performed on the next business day. However, in the absence of such an agreement, or an agreement to apply particular parochial rules of interpretation, we believe a uniform federal rule that enforces strongly arbitration deadlines under the Convention is necessary and appropriate.

[The Court of Appeals affirmed the District Court’s judgment confirming the identities of the arbitrators.] …

KARAHA BODAS CO., LLC v. PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA

364 F.3d 274 (5th Cir. 2004)

[excerpted above at pp. 605–19]

JIVRAJ v. HASHWANI

[2011] UKSC 40 (U.K. S.Ct.)

[excerpted above at pp. 117–24]

AMERICO LIFE, INC. v. MYER

2014 WL 2789429 (Tex.)

JUSTICE BROWN. In 1998, Robert Myer and Strider Marketing Group, Inc. (collectively “Myer”) sold a collection of insurance companies to the petitioners (collectively “Americo”). The parties agreed on an up-front payment to Myer for the businesses and executed a “trailer agreement” to provide for additional payments based on the businesses’ future [excerpted above at pp. 605–19] performance. The trailer agreement included an arbitration clause with six paragraphs of terms agreed upon by the parties, including:

         “3.3 Arbitration. In the event of any dispute arising after the date of this Agreement among the parties hereto with reference to any transaction contemplated by this Agreement the same shall be referred to three arbitrators. Americo shall appoint one arbitrator and Myer shall appoint one arbitrator and such two arbitrators to select the third…. Each arbitrator shall be a knowledgeable, independent businessperson or professional….

                The arbitration proceedings shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association, except that Americo and Myer each shall be entitled to take discovery as provided under Federal Rules of Civil Procedure Nos. 28 through 36 during a period of 90 days after the final arbitrator is appointed and the arbitrators shall have the power to issue subpoenas, compel discovery, award sanctions and grant injunctive relief. The arbitrators shall be entitled to retain a lawyer to advise them as to legal matters, but such lawyer shall have none of the relationships to Americo or Myer (or any of their Affiliates) that are proscribed above for arbitrators.”

The agreement combines terms expressly chosen by the parties with the incorporation by reference of American Arbitration Association rules to govern the arbitration proceeding. When the parties executed their agreement, AAA rules did not require arbitrator-impartiality, but by the time Americo invoked arbitration in 2005 after disputes arose concerning the additional payments to Myer, the AAA rules by default required that “[a]ny arbitrator shall be impartial and independent … and shall be subject to disqualification for … partiality or lack of independence….” AAA Commercial Arbitration Rules R-17(a)(I)

(2003).

Myer alleged that Americo’s first-choice arbitrator, Ernest Figari, Jr., was partial toward Americo, and successfully moved the AAA to disqualify him. Americo objected to Figari’s disqualification but named another arbitrator, about whom Myer likewise complained, and whom the AAA likewise struck. Myer did not object to Americo’s third appointee, who ultimately served on the panel. The arbitration proceeding resulted in a unanimous award in Myer’s favor amounting to just over $26 million in payments due, breach-of-contract damages, and attorneys’ fees.

When Myer moved to confirm the award in the trial court, Americo renewed its objection to Figari’s disqualification. Americo argued that in disqualifying Figari for partiality, the AAA failed to follow the arbitrator-selection process specified in the parties’ agreement, which provided only that “each arbitrator shall be a knowledgeable, independent businessperson or professional.” The trial court determined the arbitration agreement was ambiguous but ultimately agreed with Americo’s reading and vacated the award. [After various appellate proceedings, the Texas Court of Appeals reversed, confirming the award.] …

Arbitrators derive their power from the parties’ agreement to submit to arbitration. They have no independent source of jurisdiction apart from the parties’ consent. Accordingly, arbitrators must be selected pursuant to the method specified in the parties’ agreement. Brook v. PeakInt’l, Ltd, 294 F.3d 668, 672-73 (5th Cir. 2002). An arbitration panel selected contrary to the contract-specified method lacks jurisdiction over the dispute. Accordingly, courts “do not hesitate to vacate an award when an arbitrator is not selected according to the contract-specified method.” Bulko v. Morgan Stanley DW Inc., 450 F.3d 622, 625 (5th Cir. 2006). So we look to the arbitration agreement to determine what the parties specified concerning the arbitrator-selection process….

In their agreement, the parties directly addressed the issue of arbitrator qualifications and agreed on a short list of requirements, namely that each arbitrator must be a “knowledgeable, independent businessperson or professional.” Americo argues the court of appeals improperly added “impartial” to the parties’ list of qualifications. Myer counters that because “independent” and “impartial” are essentially synonymous, Americo was always obligated to name an impartial arbitrator.

We disagree that “independent” may be read interchangeably with “impartial.” Various dictionary definitions might support some overlap between the two words, but when applied in the arbitration context, they carry distinct meanings. The parties in this case agreed to “tripartite arbitration,” through which each party would directly appoint an arbitrator, and the two party-appointed arbitrators would agree on a third panelist. This method was commonplace when the parties executed their agreement in 1998. See Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 630 & n.2 (Tex. 1997) (describing the method as “often-used”). In a tripartite arbitration, each party-appointed arbitrator ordinarily advocates for the appointing party, and only the third arbitrator is considered neutral…. Lozano v. Md. Cas. Co., 850 F.2d 1470, 1472 (11th Cir. 1988) (per curiam) (“An arbitrator appointed by a party is a partisan only one step removed from the controversy and need not be impartial.”)….

The AAA rules in place when the agreement was executed likewise reflect the prevalence of this practice. At that time, the rules provided that “[u]nless the parties agree otherwise, an arbitrator selected unilaterally by one party is a party-appointed arbitrator and not subject to disqualification pursuant to §19.” AAA Commercial Arbitration Rules §12 (1996). Section 19 contained procedures to challenge arbitrators for partiality. See id., §19. Accordingly, the AAA rules presumed party-appointed arbitrators were non-neutral, and the parties would have to “agree otherwise” to rebut this presumption.

The only indication the parties sought to “agree otherwise” is their requirement that party-appointed arbitrators be “independent.” Americo argues that the parties chose the word “independent” not to require impartiality, but to proscribe arbitrators employed by or otherwise under the control of one of the parties. Americo’s argument is certainly plausible; the practice of appointing arbitrators who are somehow formally associated with the party appointing them is not unheard of. See, e.g., [Matter of Astoria Med. Group, 182 N.E.2d 85, 86 (N.Y. 1962)] (party appointed “one of the incorporators of [the company] and its president from 1950 to 1957” who was at the time “a member of its board of directors and one of its paid consultants”)….

The industry norm for tripartite arbitrators when the parties executed their agreement was that party-appointed arbitrators were advocates, and the AAA rules in place at that time presumed such arbitrators would not be impartial unless the parties specifically agreed otherwise. Given the pervasiveness of the practice, and the clear AAA presumption the parties had to rebut, we believe the parties would have done more than require its arbitrators to be “independent” if they wished them to be impartial. “Independent” and “impartial” are not interchangeable in this context, and therefore we conclude the parties did not intend to require impartiality of party-appointed arbitrators.

Having concluded the terms of the agreement do not require impartial party-appointed arbitrators, we turn to the effect of the incorporated-by-reference AAA rules on arbitrator qualifications. There is no dispute the AAA rules would govern matters on which the agreement is silent. The question is whether AAA rules on arbitrator qualifications can, as the court of appeals concluded, supplement terms agreed on by the parties that specifically speak to the same point.

The court of appeals reasoned that the rules and the agreement “can be read together and harmonized to avoid any irreconcilable conflict.” In other words, because “impartial” could be added without negating any expressly chosen qualifications, it was proper to do so to effectuate all the agreement’s provisions. But this cannot be the end of our inquiry, or the specifically chosen terms of any agreement would be hopelessly open-ended whenever outside rules are incorporated by reference.

When an arbitration agreement incorporates by reference outside rules, “the specific provisions in the arbitration agreement take precedence and the arbitration rules are incorporated only to the extent that they do not conflict with the express provisions of the arbitration agreement.” The [FAA], which the parties agree governs their agreement, requires that if an agreement provides “a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed.” 9 U.S.C. §5. Similarly, the AAA rules in effect when the parties executed their agreement, as well as when arbitration was invoked, both provide that “[i]f the agreement of the parties names an arbitrator or specifies a method of appointing an arbitrator, that designation or method shall be followed.” AAA Commercial Arbitration Rules §14 (1996), R-12 (2003).

Any attempt to harmonize the AAA impartiality rule with the parties’ expressly chosen arbitrator qualifications misses the point. We do not construe “conflict” between an agreement and incorporated rules so narrowly as to find it exists only if the rule contradicts the agreement. A conflict can exist when an agreement and incorporated rules speak to the same point. Even if both can be followed without contradiction, they conflict because the parties have already addressed the matter and are not in need of gap-filling from the AAA rules. When the agreement and incorporated rules speak to the same point, the agreement’s voice is the only to be heard.

Here, the parties chose a short list of arbitrator qualifications, and in doing so we must assume they spoke comprehensively. The parties chose “knowledgeable” and “independent” but not “impartial,” and we think they meant not only what they said but also what they did not say. And though we can concede the parties embraced some uncertainty by adopting AAA rules that were subject to change, we cannot conceive that they agreed to be bound by rules that would alter the express terms of their agreement. Nor can we imagine they took the trouble to expressly agree on some terms if their decision to incorporate AAA rules would leave those terms open to alteration. The AAA impartiality rule conflicts with the parties’ agreement because the parties spoke on the matter and did not choose impartiality. When such a conflict arises, the agreement controls….

Because the AAA disqualified Americo’s first-choice arbitrator for partiality, the arbitration panel was formed contrary to the express terms of the arbitration agreement. The panel, therefore, exceeded its authority when it resolved the parties’ dispute. Because the arbitrators exceeded their authority, the arbitration award must be vacated. See 9 U.S.C. §10(a); Bulko, 450 F.3d at 625….

JUDGMENT OF 24 FEBRUARY 1994

XXII Y.B. Comm. Arb. 682 (1997) (Paris Cour d’appel)

The Frènch company, Bec Freres SA, and the Tunisian company, Grands Travaux d’Afrique, formed a group of companies (“Group”) and successfully bid on the tender offered by the Tunisian Ministry of Public Works (“Ministry”) for the construction of two road segments. The two contracts which they were awarded each contained an arbitration clause providing, inter alia, that disputes would be examined in the framework of Tunisian jurisprudence and, subsidiarily, French jurisprudence relating to public works. The arbitration clauses also provided that the arbitral tribunal was to consist of two arbitrators, one to be appointed by each party.

Difficulties arose between the parties which eventually resulted in the contract being terminated by the Ministry. [An arbitration was commenced and, after procedural disputes, the Group appointed one arbitrator and the Tunisian courts appointed a second arbitrator (following the Ministry’s failure to do so). Thereafter,] the arbitrators informed the parties that in order to conform with Art. 263 of the Tunisian Code of Civil and Commercial Procedure (“CCCP”) which requires an uneven number of arbitrators, they had appointed Mr. Revaclier as third arbitrator. [After further procedural disputes, the three arbitrators made an award in favor of the Group. The Ministry resisted recognition of the award in France, on the grounds that the tribunal had not been constituted in accordance with the parties’ agreement.]

The Ministry points out that the arbitration clause provides that all disputes will be submitted to an arbitral tribunal of two arbitrators, each of the parties appointing its arbitrator. Art. 263 CCCP prescribes that there be an uneven number when there is more than one arbitrator. They contend that the arbitrators exceeded their powers when they appointed a third arbitrator as neither the arbitration agreement nor the Tunisian procedural law confer such a power. The Group responded that the arbitrators proceeded in this way in order to comply with the Tunisian procedural law which prescribes that there be an uneven number and that they used their powers to make the arbitration clause effective. The will of the parties expressed in the arbitration clause to submit their future disputes to two arbitrators designated by them cannot frustrate the provisions of Art. 263 of the CCCP which prescribes an uneven number of arbitrators. The two arbitrators did nothing more than make themselves subject to the … mandatory law….

NOTES

    1. Parties’ autonomy under New York Convention to select arbitrators. Consider Article 2 of the Geneva Protocol and Articles II and V(1)(d) of the New York Convention, excerpted at pp. 1–2 of the Documentary Supplement. How does Article 2 of the Geneva Protocol deal with the parties’ autonomy to constitute the arbitral tribunal? What are the respective roles of the parties’ procedural agreements and the law of the arbitral seat under Article 2? Compare Article V(1)(d) of the New York Convention. What are the respective roles of the parties’ procedural agreements and the law of the arbitral seat under Article V(1)(d)?

                Compare Article 45 of the 1907 Hague Convention, excerpted at p. 44 of the Documentary Supplement. Note that it also rests on the principle that the parties are generally free to select the arbitrators to resolve their dispute. Is there any reason that party autonomy should be entitled to greater respect in inter-state than commercial arbitrations? To lesser respect?

    2. Parties’ autonomy under national arbitration legislation to select arbitrators. Consider Article 11 of the UNCITRAL Model Law and Article 179 of the SLPIL, excerpted at pp. 88–89 & 158 of the Documentary Supplement. Compare §5 of the FAA, which begins by providing that “[i]f in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire such method shall be followed.” What effect do these provisions give to the parties’ agreement on the identity of the arbitrators? To the parties’ agreement on an appointing authority or other mechanism for selecting arbitrators?

                Consider how the decisions in Sumukan, Americo, Certain Underwriters and Jivraj recognized the parties’ autonomy to select arbitrators. Note that in Sumukan, one party (the Commonwealth Secretariat) was permitted to select all the members of tribunals that decided claims against it; note the court’s flat rejection of objections that this was unfair. Note also the court’s decision in Certain Underwriters, that the parties’ agreement on 30 days would be strictly enforced—even if the consequence was one party appointing two members of the tribunal. Likewise, note the deference accorded the parties’ religious requirement in Jivraj and “partiality” requirement in Americo. Why is party autonomy accorded such deference?

    3. Rationale for parties’ autonomy to select arbitrators. Why do most national laws grant parties the autonomy to agree upon the identity, or means of selecting, individual arbitrators? What benefits are derived from permitting litigants to mutually agree upon the identity of the person who will decide their dispute? Does this necessarily ensure a more expert or legally-sound outcome? A more efficient proceeding? A greater chance of settlement? A result that will be voluntarily accepted by the losing party?

                Suppose the parties have a construction or reinsurance dispute, governed by New York law, with relevant documents and witness testimony in French and English. Or a complex joint venture dispute involving Mexican corporate law issues. What sorts of individuals are best placed to resolve these disputes in an expert manner? In a manner that the parties both respect? Suppose the parties to a dispute are from France and the United States. Would it be desirable for the decision-maker to be either French or U.S. in nationality? Why or why not?

                Are parties able to designate individual judges on a national court to resolve their dispute? Why not? Suppose a particular judge had very relevant legal or other experience and the confidence of the parties. Why would it not make sense for the parties to be able to select that judge (if they mutually agreed)?

    4. Parties’ autonomy to select arbitrators through agreement on appointing authority. The parties’ autonomy to select their arbitrators extends to—and is very frequently exercised by—agreeing upon an “appointing authority” that will select the arbitrators. Consider, for example, Article 2 of the Inter-American Convention: “Arbitrators shall be appointed in the manner agreed upon by the parties. Their appointment may be delegated to a third party, whether a natural or juridical person.” See also European Convention, Art. IV(1)(b). National arbitration legislation is similar. See, e.g., FAA, 9 U.S.C. §5 (“If in the [arbitration] agreement provision be made for a method of naming or appointing an arbitrator or arbitrators … such method shall be followed….”); UNCITRAL Model Law, Art. 11(2). See also Judgment of 23 June 1988, 1988 Rev. arb. 657 (Paris Tribunal de grande instance) (“by choosing the Paris Arbitral Chamber as the institution responsible for organizing their arbitration, [the parties] agreed to adhere to its procedural rules and thereby empowered the institution to organize the arbitral proceedings in accordance with those rules, and to resolve any difficulties which might arise”).

                If a national court were authorized to appoint arbitrators without regard to the parties’ agreed means of appointment, would this be consistent with the principles of party autonomy underlying Articles II and V(1)(d) of the New York Convention? See supra pp. 637–38, 652, 667. If one national court were to make such appointments, in international cases, would not other national courts also be free to do so? What consequences would this have for the arbitral process?

    5. Exceptions to parties’ autonomy to select arbitrators. Should the parties’ autonomy to select the arbitrator(s) be unlimited? If not, what types of exceptions to that autonomy should be recognized?

        (a)   Unacceptably one-sided procedures for constituting tribunal. Suppose that the parties agree that one party may unilaterally select the arbitrator(s). Suppose that the parties agree that the CEO or General Counsel of one party will serve as arbitrator. Consider how complaints about the impartiality of the tribunal were addressed in Sumukan. These issues are considered in greater detail below. See infra pp. 698–99, 713–14, 739–40. See also supra pp. 408–09. Suppose that the parties agree to a name to be randomly selected from a telephone book. See supra pp. 352–53, 393–412, 434–35, 671–72.

        (b)   Capacity limitations. Suppose the parties select an arbitrator who is not legally-competent (e.g., 15 years old) or a convicted criminal (e.g., serving a prison sentence for fraud). See infra pp. 712–13.

        (c)   Experience requirements. Suppose national law requires that arbitrators be legally-qualified. See infra p. 713. Note again that Articles 44 and 45 of the 1907 Hague Convention provided for the selection of arbitrators from a previously compiled list of arbitrators. This limits the parties’ autonomy to choose precisely the arbitrators that they consider appropriate for a particular dispute. What is the rationale for this limitation? Would comparable limits be appropriate in international commercial arbitration?

        (d)   Impartiality requirements. Consider the Texas Supreme Court’s conclusion that the parties’ agreement for partial co-arbitrators was binding and enforceable under the FAA. As discussed below, other jurisdictions may reach different conclusions.

    6. Consequences of violations of parties’ agreement regarding selection of arbitrators. Suppose the parties agree to a particular procedure for selecting the arbitrator(s) and that procedure is not followed. What are the consequences for the award?

        (a)   Contractual consequences. Note the consequences in Certain Underwriters of Argonaut’s failure to appoint an arbitrator within the contractual 30-day period. Some arbitration clauses provide that a party’s failure to appoint a co-arbitrator entitles its counter-party to designate its co-arbitrator as presiding arbitrator. G. Born, International Commercial Arbitration 1647-48 (2d ed. 2014).

        (b)   Removal of arbitrator(s). If the parties’ agreed procedures for selecting the arbitrators are not complied with, one course of action is to remove the arbitrator(s) from the tribunal, either through judicial or institutional challenge. This was essentially the course taken in Certain Underwriters (albeit, in reverse, with one party seeking judicial confirmation of the composition of the tribunal, rather than judicial removal of one of the arbitrators) and Jivraj. The challenge and removal of arbitrators under national law and institutional rules are discussed below. See infra pp. 758–76.

        (c)   Annulment of arbitral award. Consider Article 34(2)(a)(iv) of the UNCITRAL Model Law, excerpted at p. 94 of the Documentary Supplement. Note how a provision paralleling Article 34(2)(a)(iv) was invoked in Sumukan and Americo. What were the consequences of non-compliance with the parties’ agreement regarding selection of the arbitrator(s)? Is this the appropriate result? After an entire arbitration has been conducted, without any apparent procedural unfairness, should complaints about the means of constitution of the tribunal be permitted? Consider the analysis in Sumukan and the “de facto concept.”

                        Are there circumstances in which violations of the parties’ agreement regarding selection of the arbitrators should not result in annulment or non-recognition of the eventual award? What circumstances might these be? Suppose that there is a minor deviation from the parties’ agreed arbitral procedures. Suppose that the co-arbitrators are given 15 days to agree upon a presiding arbitrator, after which a specified appointing authority will make the selection; if the co-arbitrators select a presiding arbitrator after 18 days, should a subsequent award by the tribunal be annulled?

        (d)   Non-recognition of arbitral award. Consider Article V(1)(d) of the New York Convention and Article 36(1)(a)(iv) of the UNCITRAL Model Law, excerpted at pp. 2 & 95 of the Documentary Supplement. Note how Article V(1)(d) was invoked in Karaha Bodas. Should the standard for denying recognition of an award because of non-compliance with agreed procedures for constituting the tribunal be the same as that for annulling an award on the same grounds? Why might standards for annulment and non-recognition differ?

    7. Conflicts between parties’ agreed procedures for constituting arbitral tribunal and mandatory law of arbitral seat. Suppose the parties’ arbitration clause provides for constitution of a tribunal that would violate mandatory law in the arbitral seat. For example, what if the parties agree to a presiding arbitrator who is a non-Muslim, when legislation in the arbitral seat requires that arbitrators all be of the Muslim faith? What if, as in Judgment of 24 February 1994, the parties agree to arbitrate before an even number of arbitrators, when legislation in the arbitral seat requires an odd number of arbitrators? See infra pp. 687–88 & 712-13. Consider the lower court’s analysis in Jivraj.

                Consider Article 34(2)(a)(iv) of the Model Law. What does Article 34(2)(a)(iv) provide for when the parties’ agreement regarding constitution of the tribunal conflicts with the law of the arbitral seat? If the parties have agreed to a particular procedure, does Article 34(2)(a)(iv) permit annulment of the award because local law regarding constitution of the tribunal requires a different procedure? Consider again the hypotheticals in the preceding Note.

                Consider again Article V(1)(d) of the Convention and Article 36(1)(a)(iv) of the Model Law. Note that they contain the same language, with regard to non-recognition of awards, as contained in Article 34(2)(a)(iv), with regard to annulment of awards. How did the French Cour d’appel apply Article V(1)(d) in the Judgment of 24 February 1994? Didn’t the parties’ agreement provide for an arbitral tribunal constituted in a different manner than that which was adopted? Doesn’t Article V(1)(d) provide for non-recognition in these circumstances?

    8. Parties’ autonomy to select number of arbitrator(s). One aspect of the parties’ autonomy to select the arbitrator(s) is choosing the number of arbitrators. Consider Article 10(1) of the Model Law, excerpted at p. 88 of the Documentary Supplement. It reflects the general principle, under most arbitration statutes, that parties are free to select the number of arbitrators. Parties could theoretically choose almost any number of arbitrators (and historically have, as illustrated by agreements to arbitrate in Antiquity before tribunals composed of dozens or hundreds of arbitrators). See G. Born, International Commercial Arbitration 9 (2d ed. 2014) (describing arbitral tribunals of 600 Milesians, 334 Larissaeans, and 204 Cnidians). Could a proceeding before hundreds (or even dozens) of arbitrators really be an arbitration? Why or why not? Recall the definition of arbitration, supra pp. 116–37.

    9. Limitations on parties’ autonomy to select number of arbitrators. What if parties wish to arbitrate before two (or four) arbitrators? In a few jurisdictions, agreements to arbitrate before tribunals with an even number of arbitrators are invalid (and, typically, will be subject to revision, by the addition of another arbitrator). See, e.g., Italian Code of Civil Procedure, Art. 809; French Code of Civil Procedure, Art. 1451 (in domestic cases); Netherlands Code of Civil Procedure, Art. 1026(3) (“If the parties have agreed on an even number of arbitrators, the arbitrators shall appoint an additional arbitrator who shall act as the chairman of the arbitral tribunal”); 1966 European Uniform Law on Arbitration, Art. 5 (“(1) The arbitral tribunal shall be composed of an uneven number of arbitrators. There may be a sole arbitrator. (2) If the arbitration agreement provides for an even number of arbitrators an additional arbitrator shall be appointed.”); Judgment of 13 September 1995, 1995 Rev. arb. 630 (Paris Cour d’appel) (agreement providing for arbitration before two arbitrators and, if two arbitrators do not agree, an umpire, is null and void).

                Are these legislative restrictions on the parties’ autonomy wise? What if a tribunal of two (or some other even number of) arbitrators reached a “tie,” with each arbitrator insisting on a different result? How would deadlocks among the arbitrators be broken? Is it accurate to state that deadlocks would not, or would hardly ever, be broken? Considering the deliberations of a two-person tribunal pragmatically, how might such a tribunal reach unanimous decisions? If parties want such a procedure, why can’t they agree to it? Note the comment, quoted infra p. 1233, that parties can (probably) agree to trial by a panel of three monkeys. If so, why not two?

                There are examples of highly successful arbitrations conducted by two arbitrators. After very substantial disputes arose between IBM and Fujitsu regarding their respective intellectual property rights, the two parties arbitrated their disputes before two arbitrators. The parties did so notwithstanding existing arbitration agreements providing for a tribunal of three arbitrators. Ultimately, the two-member tribunal issued awards requiring Fujitsu to pay billions of dollars in compensation to IBM, while granting it access (under strictly controlled conditions) to, and use of, IBM’s intellectual property. The awards were implemented between the parties. See Mnookin & Greenberg, Lessons of the IBM-Fujitsu Arbitration: How Disputants Can Work Together to Solve Deeper Conflicts, 4(3) Disp. Resol. Mag. 16, 18 (1998); Buhring-Uhle, The IBM-Fujitsu Arbitration: A Landmark in Innovative Dispute Resolution, 2 Am. Rev. Int’l Arb. 113 (1991). If parties believe that a two (or four) person tribunal is likely to solve their dispute in satisfactory ways, why should they be forbidden from agreeing to such a mechanism? What should happen if the mechanism fails to produce a resolution?

                Are prohibitions on agreements for an even number of arbitrators consistent with the parties’ procedural autonomy under Articles II and V(1)(d) of the New York Convention? Consider the Judgment of 24 February 1994. Note that the parties’ agreement provided for arbitration before two arbitrators. How many arbitrators did the tribunal ultimately comprise? Was this in accordance with the parties’ agreement? Is there any way to interpret the parties’ agreement consistently with a three-person tribunal? Was the action of the two initial arbitrators wise? What else could they have done? Was the decision of the Paris Cour d’appel wise?

  10. Number of arbitrators in international commercial arbitrations. Recall that most arbitration legislation recognizes the parties’ autonomy to select the number of arbitrators that will hear their dispute. In practice, virtually all international commercial arbitrations involve tribunals consisting of one or three arbitrators. Why might that be? What alternatives exist?

                What are the advantages and disadvantages, respectively, of tribunals consisting of one and three arbitrators? In a case involving multiple legal systems, what does a three-person tribunal permit? In a case involving a complex technical background, what would a three-person tribunal permit? What are the possible procedural safeguards and benefits of a three (or five) person tribunal? What are the possible procedural and logistical disadvantages of a three (or five) person tribunal? Is it possible categorically to prefer one number of arbitrators over another number?

  11. Number of arbitrators in inter-state arbitrations. Consider the number of arbitrators agreed to in the Alabama Arbitration and Abyei Arbitration. See Treaty of Washington, Art. I and Abyei Arbitration Agreement, Art. 5, excerpted at pp. 65 & 80-82 of the Documentary Supplement. How many arbitrators are provided for in each agreement? What reasons might explain the different preferences regarding the number of arbitrators in commercial and inter-state arbitrations?

  12. Approaches to number of arbitrators where parties have not so agreed. Parties sometimes do not agree on the number of arbitrators for disputes under their agreements. In the absence of agreement, both national law and institutional rules provide fallback rules or presumptions regarding the number of arbitrators.

        (a)   Number of arbitrators under national arbitration statutes. Section 5 of the FAA provides that, where the parties have not agreed upon the number of arbitrators, “the arbitration shall be by a single arbitrator.” Compare the different approach, adopting a presumption in favor of three arbitrators, in the UNCITRAL Model Law, Article 10(2). Compare Netherlands Code of Civil Procedure, Art. 1026(2), providing that the number of arbitrators shall be designated on a case-by-case basis by the court. Which default rule is more appropriate? Why?

        (b)   Number of arbitrators under institutional arbitration rules. Compare the approaches of Article 7 of the 2010 UNCITRAL Rules and Article 12 of the 2012 ICC Rules to the number of arbitrators. See also 2012 Swiss Rules, Art. 6(2) (“As a rule, the Court shall refer the case to a sole arbitrator, unless the complexity of the subject matter and/or the amount in dispute justify that the case be referred to a three-member arbitral tribunal.”). Again, which of the various approaches is wisest?

2. Exercise of Parties’ Autonomy to Select Arbitrators

As important as the parties’ autonomy to select the arbitrators, either directly or by agreement upon an appointing authority or other selection mechanism, is how this autonomy is exercised. The parties’ selection of the arbitrator(s) occurs against a complex background of legal rules and tactical considerations.

Among other things, in selecting an arbitrator, parties must consider the procedural mechanisms set forth in their arbitration clause (including any institutional rules). They must also consider any applicable legal standards regarding the qualification and independence of arbitrators (discussed in detail below⁵), including national law, the arbitration clause and any institutional rules. In addition, parties must consider what personal characteristics, qualifications, and experience they would like an arbitrator to have, as well as how the appointing authority would likely exercise its authority to select an arbitrator in the absence of an agreement between the parties. The materials excerpted below explore the various issues that arise in the parties’ exercise of their autonomy to select the arbitrator(s) in an international arbitration.

O. GLOSSNER, SOCIOLOGICAL ASPECTS OF INTERNATIONAL COMMERCIAL ARBITRATION

in P. Sanders (ed.), The Art of Arbitration 143, 144-46 (1982)

“L’arbitrage vaut ce que vaut l’arbitre!” This phrase has a proverbial quality. To be an arbitrator is to exercise an honourable function. It is not a profession, although there are institutions which train arbitrators aiming more at the non-lawyer as it is not necessary that the arbitrator be a lawyer. He can be just as well a technical expert or an engineer. But he must be a person of knowledge and high moral standard. He must be able to appease parties who may quarrel over a contract. He may possibly have to see that the parties agree to a settlement. It is only natural that the parties listen more attentively to someone who speaks to them from a position of experience, knowledge, or reputation. To be an arbitrator is a noble task, which challenges the whole personality, all of its intellectual and physical capacities. He is entrusted by virtue of a contract with the parties to an arbitration to deal with their property, to decide on their investment, to present conclusions with far-reaching consequences, which can only be challenged, if there is proof that the parties’ basic rights of due process have been violated. The responsibility of an arbitrator is immense. If he fails there is practically no remedy available, because most laws do not allow one to sue an arbitrator for a wrong decision and, what is decisive, arbitrators cannot grant compensation for a possible damage caused to a party, even if they could be sued, for lack of means. This is what makes it difficult to believe that amiable composition, a foster child of French legal intellect, where the arbitrator is his own master in the decision making process, but for the mandatory provisions of the law, is in practice a recommendable form of arbitration. No one can finally appraise the arbitrator’s sense of justice and feeling for practical needs until decision has been rendered by him. It seems better to have the arbitrator observe controllable legal standards.

JIVRAJ v. HASHWANI

[2011] UKSC 40 (U.K. S.Ct.)

[excerpted above at pp. 117–24]

2010 NAI RULES

Article 14

14(1) As soon as possible … the Administrator shall communicate to each of the parties an identical list of names. If one arbitrator is to be appointed, the list shall contain not less than three names; if three arbitrators are to be appointed, the list shall contain not less than nine names.

14(2) Each party may delete from this list the names of persons against whom he has overriding objections, and number the remaining names in the order of his preference.

14(3) If a list is not returned to the Administrator within two weeks after its dispatch to a party, it will be assumed that all persons appearing on it are equally acceptable to that party for appointment as arbitrator.

14(4) As soon as possible after receipt of the lists, or failing this, after expiration of the period of time referred to in the previous paragraph, the Administrator shall, taking into account the preferences and/or objections expressed by the parties, invite one or three persons from the list, as the case may be, to act as arbitrators.

14(5) If and to the extent that lists which have been returned show an insufficient number of persons who are acceptable as arbitrator to each of the parties, the Administrator shall be authorized to invite directly one or more other persons to act as arbitrator. The same shall apply if a person is not able or does not wish to accept the Administrator’s invitation to act as arbitrator, or if there appear to be other reasons precluding him from acting as arbitrator, and there remain on the lists an insufficient number of persons who are acceptable as arbitrator to each of the parties.

14(6) If the arbitral tribunal is composed of three arbitrators, the arbitrators shall choose a chairman from amongst themselves, if necessary….

14(7) If the parties agreed only to the appointment of arbitrator(s) by the [NAI], without referring to arbitration by the [NAI] or arbitration in accordance with the [NAI] Rules, such appointment shall take place in accordance with the provisions of this article unless the parties agreed to another method of appointment by the [NAI].

14(8) For the application of the provisions of this article, the Administrator preferably shall draw the names of persons from the General Panel of Arbitrators which is established, expanded and amended by the NAI….

IBA RULES OF ETHICS FOR INTERNATIONAL ARBITRATORS

Article 5(1)

When approached with a view to appointment, a prospective arbitrator should make sufficient enquiries in order to inform himself whether there may be any justifiable doubts regarding his impartiality or independence; whether he is competent to determine the issues in dispute; and whether he is able to give the arbitration the time and attention required. He may also respond to enquiries from those approaching him, provided that such enquiries are designed to determine his suitability and availability for the appointment and provided that the merits of the case are not discussed. In the event that a prospective sole arbitrator or presiding arbitrator is approached by one party alone, or by one arbitrator chosen unilaterally by a party (a “party-nominated” arbitrator), he should ascertain that the other party or parties, or the other arbitrator, has consented to the manner in which he has been approached. In such circumstances he should, in writing or orally, inform the other party or parties, or the other arbitrator, of the substance of the initial conversation.

2014 IBA GUIDELINES ON CONFLICTS OF INTEREST IN INTERNATIONAL ARBITRATION

Green List

[excerpted in Documentary Supplement at pp. 377–78]

[The IBA Guidelines include a “Green List” of circumstances “where no appearance and no actual conflict of interest exists….”]

XL INSURANCE LTD v. TOYOTA MOTOR SALES U.S.A. INC.

Unreported judgment of 14 July 1999 (QB) (English High Ct.)

MR. JUSTICE AIKENS. This is an application by XL Insurance Ltd … for the appointment of a third arbitrator because the two arbitrators appointed by the parties in a dispute which has arisen between them are unable to agree the identity of the third arbitrator….

The applicant is a major insurer of excess liability risks. It is incorporated in Bermuda. Its business is based there. The two Respondents are in the Toyota group of companies.… XL was set up by a number of large United States corporations in 1986 to provide excess liability coverage for those corporations.… I am told that XL provides excess coverage in the present case for Toyota (Vermont) for the level of $25m to $l00m. Toyota have made claims on XL in respect of Toyota’s alleged liability to third parties arising out of personal injuries.… The issues in the arbitration are likely to cover at least four areas. First, there are coverage issues turning upon the proper interpretation of the policy…. The second issue is XL’s asserted right to rescind the policy for misrepresentation. The third issue is whether XL by its conduct has waived or is otherwise barred from asserting a right to rescind. The fourth issue concerns delay in responding to notices given by Toyota concerning claims….

[D]isputes under the policy are to be determined in London under the provision of the Arbitration Act 1950 or its successors. The board is to be composed of three arbitrators to be selected in respect of each dispute that arises…. Each party is entitled to nominate its own arbitrator. Then, within a specified period, those two arbitrators that have been nominated by the parties are themselves to nominate a third arbitrator. The clause then goes on to provide that if the two arbitrators fail to agree on a third arbitrator then the parties may apply to a judge of the High Court of England…. Condition V(q) … provides that the substantive law that governs the policy is “the internal laws of the State of New York.” However, there are certain restrictions that are imposed under the terms of the clause, which if they are operative means that all the laws of New York which otherwise might apply would not do so with regard to this policy….

On 4 September 1998 Toyota made its demand for arbitration to XL. Toyota stated that it had selected Robert Saylor as its party nominated arbitrator. He is a well-known United States lawyer. His background is one of acting for claimants in respect of insurance claims. On 5 October XL wrote to Toyota to nominate Mr. Stewart Boyd QC as their party nominated arbitrator. Mr. Boyd is … a very well-known English Queen’s Counsel who has a particular experience in insurance generally and also in arbitration. It was then for the two arbitrators to agree on a third. Most unfortunately, as things have turned out, the U.S. attorneys acting for XL suggested in a letter of 8 October 1998 that any arbitrator appointed by the two arbitrators should be subject to the parties’ approval. In effect, although the suggestion was never formally adopted by both sides, that is precisely what has happened. The only problem is that none of the suggested names has met with both parties’ approval.

What has happened is that each side has, whether consciously or not, seen some disadvantage in names put forward by the other side. Furthermore, each side has sought to ensure that the third arbitrator has qualities which it thinks are particularly important in the context of this arbitration. Not surprisingly, each side has different views on what it regards as the most important characteristics. Because it has proved impossible (inevitably) for the parties to find one Colossus who bestrides all the qualities that each wants, this application to the court became inevitable.

The qualities that the party have identified and, indeed, identified before me in argument are as follows. Toyota said that it was important, if not paramount, for the third arbitrator to have some knowledge of United States tort law and practice. Furthermore, in Toyota’s view, the third arbitrator should have experience and knowledge of New York and other of U.S. insurance law. On XL’s side it was said that the third arbitrator should be preferably someone who comes from or has particular experience of English arbitration in practice, and also English arbitration law. In XL’s view the third arbitrator should also have particular experience in relation to international arbitration practice as conducted in London.

In the course of the correspondence between Mr. Saylor and Mr. Boyd and the parties various names were canvassed. I should identify them for present purposes. First, Judge Renfrew was suggested by Mr. Boyd. He is a former U.S. District Judge. He has also, in the course of his distinguished career, acted as a United States attorney in practice, and has been a Vice President for Legal Affairs for the Standard Oil Company of California, subsequently renamed Chevron…. He was accepted by Mr. Saylor but was rejected when his name was put to Hanson & Peters, attorneys acting for XL. In particular, they thought it objectionable that he had for ten years served as a director general, counsel and vice president of Chevron Corporation.

Next Judge Estey was suggested by XL. He was rejected by Toyota. He is a former justice of the Supreme Court of Canada…. [I]t was thought unlikely he would have sufficient knowledge of the U.S. tort claims. The third name that has come to the fore is that of Lord Mustill. His name was suggested by XL. It was rejected by Toyota on the grounds that he too would be unlikely to have sufficient knowledge of U.S. tort law and practice or New York, or other U.S. insurance law and practice….

Two other U.S. candidates were suggested by Toyota. First, Mr. Fisk who is a partner in the distinguished law firm of Davis, Polk & Wardell. Secondly, Professor Young who is a distinguished U.S. academic lawyer. The last name that has been put forward is that of Mr.

Yves Fortier QC… He is a distinguished Canadian lawyer and diplomat. He is the current chairman of the [LCIA]. XL have objected to him on the personal ground that he is currently the chair of another arbitral tribunal which is dealing with a claim by Ford Motors against XL. That case deals with many issues which are said to be very similar to those in the present dispute. XL are concerned that it might be difficult in practice for him to keep these matters entirely distinct if he had to deal with the two cases….

Under §18 of the 1996 Act the court has a discretion in who it should appoint when exercising the power that it has under that section. This discretion is not fettered by §18 of the Act. It is also not fettered by the terms of the clause in the policy with which I am concerned.… In my view, the relevant factors in the present case are these. First, the parties have chosen London for the seat of the arbitration. They have done so, so it appears to me, because it is a neutral and independent venue.

Secondly, because the parties have chosen London as the arbitration venue, English law will be the curial law of that arbitration. Again, it seems to me that they have chosen that law because it will be neutral and independent. They have I think deliberately chosen the curial law to be different and independent from the substantive law of the contract, i.e., New York law.

The third factor is that the parties have chosen New York law as the substantive law of the contract, but have done so with modifications.… Those are specific terms and I am satisfied that the parties chose those in conjunction with a London arbitration venue in order to ensure that they could be considered dispassionately and independently by the tribunal that is appointed.

The fourth factor which appears to me to be relevant is that the parties in the policy deliberately left it to the two arbitrators to agree on the identity of the third. The wording of the clause makes it clear to my mind that the parties themselves were to have no part in the choice of the third arbitrator. In my view it is important, unless there is some overriding question of conflict of interest, that the parties do not have any say in the appointment of the third arbitrator. Moreover, I think it is important that the views of the parties should not in fact or have the appearance of interfering with the two arbitrators’ choice. Otherwise, in my view, it subverts the whole purpose of the clause.

Even more importantly, I think if the parties do appear to have some influence on the choice of the third party it detracts from the position of the two arbitrators. Once they are appointed as arbitrators they are entirely independent of the parties. To my mind they must be seen to be independent and must remain independent. Therefore, in my view, one or other or both parties’ view as to who is thought to be a proper third arbitrator are irrelevant and must be seen to be irrelevant.

Having considered these factors it seems to me that the overriding consideration for the court in exercising its discretion is to choose the best person for the job bearing in mind these factors. The qualities needed in the present case, as perhaps in every case, are threefold. First, the third arbitrator, who will inevitably be chairman, must be able to deal properly with the substantive issues that arise in the arbitration. Secondly, he must be able as chainman to deal with any procedural issues that arise in the course of the reference as best he can. In this context one has to bear in mind that the arbitration is in London and will be governed by English law as the curial law. Thirdly, the third arbitrator as chairman must command the full respect and confidence of both sides. I think that none of these three qualities is more important than the other two. They all bear equal weight….

How then should I apply those factors and the overriding consideration I have referred to in this case? To my mind the leading candidates as things now stand must be Lord Mustill and Judge Renfrew. I understand both are willing to be appointed as third arbitrator. To my mind both have all the qualities that I have identified. I think it is, in the circumstances, most unfortunate that this matter has had to come to court at all for the present application to be determined. Having considered the matter very carefully I think that I should order that Lord Mustill should be appointed as the third arbitrator…. First, XL have objected to Judge Renfrew. I have already referred to the grounds upon which they have objected to him. They are not, in my view, good grounds, but I do not think that it is proper that in a large and serious arbitration such as this the matter should go forward with one party feeling from the outset unhappy about the identity of the chairman of the tribunal. There is no similar personal objection to Lord Mustill on Toyota’s part.

The second reason why I have decided that Lord Mustill should be appointed is that when one examines the reasons why Toyota initially wanted a US lawyer as the third arbitrator they do not stand close examination. Once it was conceded by them that they were prepared to countenance a non-US lawyer, such as Mr. Fortier, being appointed, he does not meet their supposed requirements. He has no close experience of U.S. tort law. As [XL’s counsel] said in argument, “It is one thing to have first hand experience. It is another thing to have it, as English lawyers frequently do in commercial matters, at second hands.” Mr. Fortier does not have first hand experience as a US trial lawyer, and if Toyota were prepared to countenance him, then it suggests that they did not after all regard this as a paramount consideration. Secondly, Mr. Fortier does not have an intimate first hand knowledge of U.S. or New York insurance law. This also suggests that ultimately Toyota did not regard this as of paramount importance.

This means, to my mind, that ultimately Toyota have to accept that although having experience of US tort law and United States insurance law and New York insurance law may be valuable qualities, they are not paramount. Ultimately it is the ability to deal with all the issues of substance and to act as an effective chairman with the respect of the parties that matters. In my view Lord Mustill is very well qualified to do the job that he will have to do. I should add as a postscript that the U.S. lawyers of XL should not regard my decision as a victory for their view. Lord Mustill is absolutely independent and he will, I am sure, have no a priori views in favour of either the merits of the case or any particular aspect of procedure. He is, in my judgment, simply the right man for the job in this case.

NOTES

    1. Importance of selection of arbitrator. Consider the excerpt from Glossner. It is frequently said that the most important decision that a party makes in an arbitration is the selection of an arbitrator. Why is that so? Consider the different individuals from your law school, your personal background and from your professional acquaintances who might serve as an arbitrator. What strengths and weaknesses does each have? How big a difference would the choice of one or the other make? See Bishop & Reed, Practical Guidelines for Interviewing, Selecting and Challenging Party-Appointed Arbitrators in International Commercial Arbitration, 14 Arb. Int’l 395 (1998); D. Caron & L. Caplan, The UNCITRAL Arbitration Rules: A Commentary 144-45 (2d ed. 2013); Seppälä, Obtaining the Right International Arbitral Tribunal: A Practitioner’s View, 22(10) Mealey’s Int’l Arb. Rep. 1 (2007); Webster, Selection of Arbitrators in A Nutshell, 19 J. Int’l Arb. 261 (2002).

                Consider the arbitration agreement in Jivraj. How important was the identity of the arbitrators to the parties? Why? Why do you think Sir Anthony Evans was appointed?

    2. Selection of arbitrators under leading institutional arbitration rules. Recall that most national arbitration regimes recognize the parties’ autonomy to agree to procedures regarding constitution of the arbitral tribunal. See supra pp. 683–85. That autonomy extends to agreeing upon institutional rules providing mechanisms for selecting the arbitrators. Not surprisingly, different institutional rules provide for different mechanisms for selection of the arbitrators.

                Consider the excerpt from the NAI Rules. Consider also Articles 7-10 of the UNCITRAL Rules and Articles 11-13 of the ICC Rules, excerpted at pp. 165–66 & 186-88 of the Documentary Supplement. How do these mechanisms for selecting arbitrators differ and how are they similar? Consider the list procedure in the NAI, ICDR and UNCITRAL Rules. What are the advantages and disadvantages of such an approach? Role-play the selection of arbitrators using a list procedure. Consider again the Swiss Federal Tribunal’s Judgment of 21 November 2003, supra p. 342–45. Note the method that was provided for under the Zurich Chamber of Commerce Arbitration Rules for selecting the arbitrators. What are the advantages and disadvantages of such an approach?

    3. Selection of arbitrator in parties’ arbitration agreement. It is possible to name a specific individual as an arbitrator in an arbitration agreement made before any dispute has arisen between the parties (e.g., “The arbitrator shall be Ms. Natascha Born.”). Note the approving reference to such an approach in §5 of the FAA.

                National courts have generally enforced agreements making pre-dispute selections of arbitrators (subject, of course, to otherwise applicable challenges to the validity of the agreement and the independence of the arbitrator). See, e.g., Aviall, Inc. v. Ryder Sys., Inc., 913 F.Supp. 826, 833 (S.D.N.Y. 1996) (“when parties have validly contracted to have a particular arbitrator resolve their disputes, federal courts are loath to alter that selection”); Judgment of 26 May 1994, XXIII Y.B. Comm. Arb. 754, 761 (1998) (Affoltern am Albis Bezirksgericht) (“it is not forbidden to appoint the arbitrator(s) already in the arbitration clause. This is, however, a risky practice”). What risks do parties run when naming a specific individual as arbitrator in their pre-dispute arbitration agreement? What advantages and disadvantages does such an approach have?

    4. Selection of arbitrators in post-dispute negotiations between parties. After a dispute has arisen, parties may find it difficult to agree on much, if anything. Nonetheless, parties to international disputes are not infrequently able to reach post-dispute agreement on a sole or presiding arbitrator. This can be done either in direct discussions between the parties (or their counsel) or through the party-nominated arbitrators in three-person arbitral tribunals. See infra pp. 700–01. Why might hostile adversaries be able to agree upon a sole or presiding arbitrator? What is the alternative? Might it be worse? Why?

                In practice, parties fairly frequently agree upon the identities of “their” arbitrator(s). In roughly 21% of ICC cases in 2013 involving sole arbitrators, the arbitrator was chosen by agreement of the parties themselves. ICC, 2013 Statistical Report,

25(1) ICC ICArb. Bull. 5, 6 (2014). In contrast, in cases involving three arbitrators, the parties or the co-arbitrators were able to agree upon the presiding arbitrator in 60% of ICC cases in 2013. Ibid. What explains the significant difference in the ability of parties to agree upon a presiding arbitrator (in a three-person tribunal) and upon a sole arbitrator? Consider the XL Insurance decision and its allocation of authority for selecting the presiding arbitrator. Is it likely that the arbitrators, rather than the parties themselves, would be able to agree more readily upon a presiding arbitrator? Why? See also infra pp. 696–98.

    5. Importance of national law to selection of arbitrators. Parties to international arbitrations must take potentially-applicable national law requirements (discussed below at pp. 709–58) into account in making their selections of arbitrators. Consider the following hypothetical:

                       Company A is headquartered in State 1. Company B is headquartered in State 2. Companies A and B enter into a contract with an arbitration clause providing for arbitration in State 3, with the parties’ underlying contract being subject to the substantive laws of State 4. State 1 has an arbitration statute identical to §5 of the FAA, but also providing (like the Saudi and Ecuadorean legislation (now repealed), or the Uzbek legislation, infra pp. 711): “All arbitrators shall be nationals of State 1.” State 2 has an arbitration law providing that recognition shall be denied an arbitral award if the arbitrator was not “independent.” States 3 and 4 have arbitration statutes identical to the UNCITRAL Model Law. The language of the arbitration is not specified.

                You represent Company B, which is preparing to commence an arbitration (not under any institutional rules) against Company A. Consider the following: (a) how many arbitrators will there be, assuming nothing in the parties’ agreement resolves the issues; (b) what requirements apply to the arbitrators in terms of nationality and independence/impartiality; and (c) what relevance, if any, does the likely place of enforcement of an award have? What if State 3 had the same arbitration law as State 1 or State 2?

    6. Party’s selection of party-nominated arbitrator. Consider Article 11(3) of the UNCITRAL Model Law. How does it provide for selection of co-arbitrators in a three-person tribunal? Even apart from Article 11(3), it is common for international arbitration agreements, and most institutional rules, to expressly permit each party (in two-party disputes) to nominate a co-arbitrator, where three arbitrators are called for. All developed arbitration legislation gives effect to such agreements, consistent with general principles of party autonomy in the field. See, e.g., UNCITRAL Model Law, Arts. 11(2), 11(3)(a); SLPIL, Art. 179(1).

        (a)   Rationale for party-nominated co-arbitrators. What is the rationale for permitting one party unilaterally to designate an arbitrator in arbitrations involving three (or five) person tribunals? Is this not a fairly extraordinary power—to select one of the persons who will be empowered to make a binding decision regarding the parties’ dispute? Consider:

                       “It is critical to appreciate why party-nominated co-arbitrators have been a distinguishing feature of international arbitration for centuries, and why party-nominated co-arbitrators continue to be provided for in institutional rules from every legal system and culture. Considered in their proper international context, party-nominated co-arbitrators are an essential means of ensuring the expert, efficient and internationally-neutral arbitral procedure which is a central object of the parties’ agreement to arbitrate.

                            Party nomination of co-arbitrators seeks to guarantee that the tribunal in an international dispute will include individuals who speak each party’s native tongue, understand the cultural, economic and political environment in which that party acted, appreciate the procedural expectations (and misconceptions) that the party may have, and otherwise are likely to seek to understand and fully appreciate the nuances of that party’s case. Put concretely, when a Northern European company arbitrates against a Middle Eastern counterpart, it is entirely appropriate—and indeed essential to a truly neutral international dispute resolution procedure—that each party be able to select a member of the tribunal reflecting its national, legal, cultural and linguistic background and capable of fully appreciating its perspective on the dispute….

                            Experience teaches that the most efficient and effective way of selecting an appropriate tribunal is for the parties—who have the greatest incentive and information to do their jobs well—to play a leading role in the process. Although not perfect, the most efficient and equitable way of accomplishing this, in a three-person tribunal, is the simple, time-tested and balanced approach of each of the parties unilaterally selecting one arbitrator and then agreement being sought on a presiding arbitrator. In effect, party nomination of co-arbitrators is a means of quality control, aimed in part at ensuring that the members of the tribunal have the requisite experience and ability.” G. Born, International Commercial Arbitration 1809-10 (2d ed. 2014).

                        Is that persuasive? What are the costs of party-nominated co-arbitrators? What alternatives might exist?

                        Consider the approaches to nominating the members of the arbitral tribunal in the Treaty of Washington and Abyei Arbitration Agreement, excerpted at pp. 65 & 80-82 of the Documentary Supplement. Why is it that each of the parties in these disputes wanted the ability to nominate one (or two) of the members of the arbitral tribunal?

        (b)   Considerations affecting choice of co-arbitrator. Consider again the hypothetical in Note 5 above. As counsel to Company B, what considerations would influence your selection of a party-arbitrator? Important considerations can include a party’s confidence in the personal competence, time availability, and integrity of an individual, as well as the individual’s arbitration experience and knowledge of a particular industry or type of contract. Putting these points aside, what type of individual should Company B consider? Should the individual be qualified to practice law in State 3? Should the individual be qualified to practice law in State 4? What nationality will the presiding arbitrator have? How does that affect Company B’s choice of a co-arbitrator? See 2010 UNCITRAL Rules, Art. 6(7); 2012 ICC Rules, Arts. 13(1), (3), (5); 2014 LCIA Rules, Arts. 6, 7, excerpted at pp. 165, 187–88 and 258 of the Documentary Supplement.

                        More generally, what is it that a party wants from a co-arbitrator? Is it a neutral, objective and dispassionate judge? Is it a partisan advocate? Something else? Consider: “When I am representing a client in an arbitration, what I am really looking for in a party-nominated arbitrator is someone with the maximum predisposition towards my client, but with the minimum appearance of bias.” Hunter, Ethics of the International Arbitrator, 53 Arb. 219, 223 (1987). Why is it important to have a “minimum appearance of bias”? Imagine yourself as a presiding arbitrator: how would you be influenced by the views, respectively, of an objective and neutral co-arbitrator and a partisan and predisposed co-arbitrator? Compare Lowenfeld, The Party-Appointed Arbitrator in International Controversies: Some Reflections, 30 Tex. Int’l L. J. 59 (1995); infra pp. 749–55.

        (c)   Role of arbitrator’s nationalities. The role of nationality is important in the selection of international arbitrators. Note that most leading arbitral institutions will not select as presiding arbitrator a person with the nationality of one of the parties. Compare in this regard Article 6(7) of the 2010 UNCITRAL Rules and Article 13(5) of the 2012 ICC Rules. See also infra p. 712. (Note also that, in practice, some arbitral institutions are reluctant to select as presiding arbitrator a person with the nationality of one of the co-arbitrators.) Why is it generally inappropriate to select a presiding arbitrator with the same nationality as one of the parties? Is it not frequently the case in international litigations that the presiding judge (and appellate judges) will be of the nationality of one, but not the other, of the parties? Why is arbitration different? How does the likely nationality of the presiding arbitrator affect your choice of a co-arbitrator selected by one of the parties?

                        What does “nationality” mean? Are Germans and French nationals of the European Union? Are Austrians the same nationality as Bavarians? Is a U.S. citizen of Mexican descent and cultural background the same nationality as a Mexican? As a Maine resident of Irish or African descent?

        (d)   Arbitrator’s competence in applicable substantive law. Note that the applicable substantive law in the above hypothetical is that of State 4. How would that affect Company B’s choice of an arbitrator?

        (e)   Personal characteristics. As much as anything else, the personal characteristics of arbitrators play a vital role in selection. Recall the examples, set out above, of various types of disputes that may be arbitrated. See supra p. 684. Consider again selecting co-arbitrators (and a presiding arbitrator) from your law school colleagues and instructors. Who would you most want? Why? Who would you least want? Why? Does it depend on your case—how strong, or complex, it is?

        (f)   Likely identity of presiding arbitrator. The suitability of a co-arbitrator in a particular matter will often depend in part on the identity of the presiding arbitrator. However, the presiding arbitrator will virtually never be chosen until after selection of the co-arbitrators. Nonetheless, speculation about the likely identity, nationality and other characteristics of a future presiding arbitrator will inevitably influence choice of a co-arbitrator. For example, in the exercise referred to in the previous subparagraph, how would your thinking be influenced if you thought that the presiding arbitrator would be (i) your professor; (ii) your law school dean; (iii) me; or (iv) another.

        (g)   Timing considerations. Note the timetables pursuant to which co-arbitrators must be selected under various institutional rules. What advantages does a respondent have? Are there any ways that a claimant might avoid this?

    7. Institutional confirmation of party-nominated arbitrators. Under some institutional rules, parties may only “nominate” a co-arbitrator, who must then be confirmed and “appointed” by the relevant institution. What is the reason for this? Consider how different institutional rules deal with this topic. In particular, compare Article 9(1) of the UNCITRAL Rules with Articles 12 and 13 of the ICC Rules. Which is preferable? Why? What might be grounds for an arbitral institution refusing to confirm a party’s nomination of an arbitrator?

    8. Consequences of party failing to nominate arbitrator under institutional rules. Suppose a party intends to nominate a co-arbitrator, either directly by the arbitration agreement or indirectly by institutional rules which it incorporates. Suppose further that the party fails to make the nomination. What are the consequences of this failure?

                Consider the treatment of defaults in nominating an arbitrator in the ICC and UNCITRAL Rules. Suppose one party nominates an arbitrator and the other does not. Is it procedurally fair to proceed with an arbitral process where one party selects one of the arbitrators, but the other party selects none of the arbitrators? What alternatives exist? Suppose the arbitral process were stayed pending both parties’ nominations; wouldn’t most respondents be delighted? Suppose all three arbitrators were chosen by the appointing authority.

                Some arbitration agreements provide that, if one party fails to nominate an arbitrator, the other party may make the nomination itself—thus, choosing the two co-arbitrators, who would then in turn ordinarily select the presiding arbitrator. Is this approach fair? What if all three arbitrators are required to be “independent”? What if a party misses the time deadline for making an appointment by a few days? Recall the results of late nomination in Certain Underwriters.

    9. Consequences of party’s failure to nominate arbitrator under national law. If a party fails to nominate an arbitrator, and if the agreement provides no default rule in these circumstances (in contrast to the agreement in Certain Underwriters), applicable national law can impose severe consequences. These can include forfeiture of the right to make a nomination.

        (a)   Consequences of party’s failure to nominate arbitrator under FAA. U.S. courts have generally been lenient in excusing delays in the appointment of an arbitrator, at least where no bad faith delay or other improper motive existed. Rather than compelling a party to proceed to arbitration before arbitrators selected by its adversary, U.S. courts have granted the tardy party additional time to appoint an arbitrator and ordered arbitration before the resulting panel. See Ancon Ins. Co. v. GE Reins. Corp., 480 F.Supp.2d 1278 (D. Kan. 2007) (court refused to enforce clause in arbitration agreement, permitting party to select counter-party’s co-arbitrator, because it considered that time was not of the essence, and that five day delay of one party in appointment did not result from bad faith); New England Reins. Corp. v. Tenn. Ins. Co., 780 F.Supp. 73 (D. Mass. 1991) (party’s eight-day delay in appointing arbitrator held not to waive right to appoint); Compania Portorafti Commerciale v. Kaiser Int’l, 616 F.Supp. 236, 238 (S.D.N.Y. 1985) (“so minor a delay, uncomplicated by indications of bad faith, does not in equity deprive a party to an arbitration clause of its contracted for right to appoint an arbitrator of its choosing … unless the contract makes time of the essence”).

                        Nonetheless, as Certain Underwriters suggests, some U.S. courts have interpreted arbitration agreements strictly, holding that the failure to comply with time limits for nominating an arbitrator results in loss of the right to make a nomination. Universal Reins. Corp. v. Allstate Ins. Co., 16 F.3d 125, 129 (7th Cir. 1994) (party’s failure to nominate arbitrator within 30-day period waived its right to do so and, under arbitration agreement, entitled other party to make nomination; “the agreement is crystal clear, specifying a particular course for the appointment of a second arbitrator when one of the parties fails to make its selection within thirty days”).

        (b)   Consequences of party’s failure to nominate arbitrator under English Arbitration Act. Consider §17 of the English Arbitration Act, 1996, excerpted at pp. 115–16 of the Documentary Supplement, which provides that if a party fails to nominate a co-arbitrator within the agreed time limits, then (absent contrary agreement) its counter-party may elect to treat its nominated co-arbitrator as a sole arbitrator. Is this result appropriate? What are the advantages and disadvantages of the English rule?

                        Should an award, made by a sole arbitrator appointed unilaterally by one party, be recognizable in other jurisdictions? Consider Article V(1)(d) of the New York Convention. See infra pp. 1218–41.

  10. Selection of presiding arbitrator. After selection of the co-arbitrators, in a three-person tribunal, the presiding arbitrator must be chosen. Suppose an arbitration clause provides simply for a three-person tribunal, without any further details. Assuming no further agreements between the parties, how would appointment of the arbitrators proceed under the ICC Rules? How would appointment proceed under the UNCITRAL Rules? If you were drafting an arbitration agreement, which approach would you prefer?

  11. Procedure for selecting presiding arbitrator. There are numerous procedures for attempting to reach agreement on a presiding arbitrator. Additionally, the appointing authority (if one exists) can play various different roles in the discussions. For example, any of the following alternatives can be used:

        (a)   the two co-arbitrators agree in direct discussions, without the parties being present, on a presiding arbitrator and inform the parties;

        (b)   the two co-arbitrators discuss the choice of a presiding arbitrator directly, without the parties being present, but each of the co-arbitrators can “consult” with his or her nominating party, with agreement only being reached after the parties approve the selection;

        (c)   the same as (b), except the parties may express a preference, but not veto candidates;

        (d)   the parties’ representatives discuss the choice of a presiding arbitrator directly, without involvement of the co-arbitrators;

        (e)   the co-arbitrators agree, in discussions not involving either party, on a list of five potential presiding arbitrators, with each party being entitled to strike two names from the list, leaving the remaining name as the presiding arbitrator;

        (f)   the parties themselves directly exchange lists of persons whom they would accept, with any common name being deemed accepted.

                        What are the advantages and disadvantages of these various mechanisms? Suppose you were a co-arbitrator nominated by a party (e.g., Company B in the hypothetical in Note 5 above). How would you go about fulfilling your task of choosing a presiding arbitrator? What information would you want and with whom would you like to communicate? Why?

                        Compare the 2010 UNCITRAL Rules, which provide for a “list-procedure” in Article 8 in which the appointing authority sends both parties an identical list of at least three names; each party deletes names it finds unacceptable and numbers the remaining names in order of preference. Based on this, the appointing authority selects the prospective arbitrator with the greatest support. Use this procedure in connection with the hypothetical in Note 5.

  12. Limitations on parties’ involvement in selecting presiding arbitrator. Assuming that the co-arbitrators and/or parties are granted some role in selecting the presiding arbitrator, what limits are there to how the co-arbitrators and parties conduct themselves during the selection process? Consider XL Insurance. What does the English court hold with regard to the co-arbitrator’s right to discuss selection of the presiding arbitrator with his or her nominating party? Are such discussions absolutely forbidden? Are there limits on the nature of such discussions?

                Is the court’s conclusion in XL Insurance, that parties may play only a limited role in selection of the presiding arbitrator, persuasive? What was the basis for the court’s conclusion—the parties’ arbitration agreement or the English Arbitration Act? What if the parties’ arbitration agreement provides expressly that the parties themselves may agree upon the identity of the presiding arbitrator? What if the parties agree that the co-arbitrators may (or must) consult with their respective nominating parties? Under XL Insurance’s analysis, is this permitted by the English Arbitration Act? Is there any indication that this is what the parties’ arbitration agreement in XL Insurance required? Did the parties’ conduct in XL Insurance, on both sides, indicate that the parties considered that they were to be involved in the selection of a presiding arbitrator? How should silence by the parties regarding their involvement in the co-arbitrators’ selection of a presiding arbitrator be interpreted? Should silence be interpreted as permitting or excluding (as in XL Insurance) party involvement in selecting the presiding arbitrator?

                Is it a wise policy to exclude the parties from the co-arbitrators’ decision-making regarding selection of a presiding arbitrator? What benefits and costs does participation by the parties (or their counsel) provide? At the outset of the arbitration, do the co-arbitrators know the case and issues as well as the parties (and their counsel)? Do the co-arbitrators have the same incentives as the parties (and their counsel) in selecting the presiding arbitrator?

                Suppose that two co-arbitrators agree upon a prospective presiding arbitrator. Should each of them inform the party that nominated him? Must they? Can they? What purposes would be served by such disclosure? Should such information be given before or after the two co-arbitrators have agreed upon the identity of the presiding arbitrator? What if a party objects to a prospective presiding arbitrator? What if a party objects repeatedly and uniformly to every proposal by the co-arbitrators? Why might a party do so?

                Consider the approach to selection of a presiding arbitrator in Canon III(B)(2) of the AAA/ABA Code of Ethics. See also the IBA Guidelines on Conflicts of Interest. How does this compare to the approach in XL Insurance? Which approach is preferable?

  13. Role of appointing authority in selecting presiding or sole arbitrator. Suppose parties (or co-arbitrators) are unable to agree on selection of a sole arbitrator (or presiding arbitrator). Who then makes the selection? Consider who selects the sole or presiding arbitrator, in the absence of agreement by the parties, under Article 11 of the Model Law. The role of national courts in selecting arbitrators is discussed above at pp. 702–09.

                Consider who selects the sole or presiding arbitrator under the UNCITRAL Rules. Compare the selection of the sole or presiding arbitrator under the ICC Rules. What advantages or disadvantages are there to each approach?

  14. Appointing authority in inter-state arbitrations. Consider the selection of the presiding arbitrator in Article I of the Treaty of Washington, excerpted at p. 65 of the Documentary Supplement. Why do you think that the parties adopted this approach?

                Consider Articles 44 and 45 of the 1907 Hague Convention. If the parties (and co-arbitrators) are unable to agree upon a presiding arbitrator, how will he or she be chosen? Why isn’t the International Bureau selected as the appointing authority? What advantages does Article 45’s mechanism provide? What disadvantages? If you represented a respondent, which mechanism would you prefer?

                Compare Articles 8-10 of the PCA Rules, excerpted at pp. 282–83 of the Documentary Supplement. What is the mechanism for selecting arbitrators if the parties are unable to agree upon the composition of a tribunal? How does this compare with the Hague Convention?

                Compare the provision for inter-state arbitration in Article 9 of the U.K./Bosnia-Herzegovina BIT, excerpted at pp. 76–77 of the Documentary Supplement. How are the arbitrators selected there? How does that provision compare to the way in which arbitrators are selected in a BIT arbitration between a state (e.g., the United Kingdom) and an investor (e.g., a Bosnian national)? Why is there a difference?

B. SELECTION OF ARBITRATORS BY NATIONAL COURTS IN INTERNATIONAL ARBITRATION

Most developed arbitration statutes permit appointment of arbitrators by a national court in international arbitrations, but only in narrow circumstances. ⁶ In general, judicial appointment of arbitrators is limited to cases where the parties have not agreed upon means for selecting the tribunal or where their agreed means have failed to function. The availability of judicial appointment of arbitrators as a default mechanism ensures that arbitral proceedings can be pursued, even in the face of what would otherwise be grave difficulties in constituting the tribunal. At the same time, unless carefully exercised, the availability of judicial appointment authority creates risks of disregarding the parties’ procedural agreement(s) and of premature and/or conflicting actions by one or more national courts.

JUDGMENT OF 18 JANUARY 1991

1996 Rev. arb. 503 (Paris Tribunal de grande instance)

In order to settle a dispute between Mannesmann Demag AG (“MII”), Mannesmann An-lagenbau Dusseldorf (“MAB”) and Chérifienne des Pétroles (“SCP”), the latter [filed a Request for Arbitration with] the ICC and appointed Professor F as arbitrator; … the defendants [MII and MAB] appointed C. as arbitrator; … on recommendation of the Greek National Committee …, the [ICC] International Court of Arbitration appointed M.B., a Greek national, as third arbitrator and chairman of the arbitral tribunal; this decision was announced to the parties on 19 October [1990] and was confirmed by letter on 31 October 1990;

Considering the conditions of M.B’s appointment by the ICC to be wrong and invalid, … SCP [initiate suit against] the respondents and the ICC before the President of the Paris Tribunal de Grande Instance [under] Articles 1493(2), 1495 and 1455 of the [1981] NCCP; [SCP] argues that, from the moment the arbitral proceedings were carried out, it informed the Court orally that it was opposed to the appointment of a European national as the third arbitrator because both defendants have their head office in Europe; [SCP] considers that, by appointing a Greek national residing in the EU as [presiding arbitrator], the [ICC] Court breached its own rules and violated one of the parties’ express intent; consequently [SCP] requests us “to enjoin the ICC to appoint a non-European national as President in order to complete the arbitral tribunal, and to do so within a month”; … SCP claims that the President of the Paris Tribunal de Grande Instance has jurisdiction over, on the one hand, an international arbitration sitting in Paris and for which the provisions of Articles 1493 and 1506 of the NCCP must apply auxiliary to the ICC Rules, and on the other hand, over a difficulty affecting the constitution of the arbitral tribunal once the irregularity of this constitution is alleged; [SCP] firstly argues that the [ICC] Court breached its own rules, particularly Article 2(6)(3) which stipulates that “the sole arbitrator or the President of the arbitral tribunal shall be chosen from a different state than the ones from which the parties originate …,” unless the circumstances “justify it and the parties are not opposed to it”; [SCP] declares that a Greek President belongs to the same political, judicial and economic group as both defendants to the arbitration, which “usefully makes both European defendants benefit from a tribunal composed of two European arbitrators out three”; … [SCP argues:] “the reality of European citizenship” which is unquestionable within the European community and is established in particular by belonging to the same legal order, is assimilated to a nationality in the sense of Article 2(6)(3) of the ICC Rules; considering M.B.’s personality, who has exercised very important functions at the time of Greece’s accession to the European Union, SCP considers that “[the third arbitrator’s] appointment” constitutes an alteration of the rules and the spirit of international commercial arbitration;

Secondly, [SCP argues] that in deciding like it did, the [ICC] Court deliberately breached the instruction that it received from [SCP], and argues that all factual circumstances demonstrate that the Court was fully aware of it; it also refers to Article 1455 of the NCCP which stipulates that the arbitrator appointed by a settled center of arbitration must be accepted by all the parties; finally, SCP considers that, in order to ensure full transparency of the decision, the [ICC] Court should have exercised the current practice of national jurisdictions and centers of arbitration, which consists in referring to the parties for advice on the personalities likely to be chosen, so as to reach full consensus and mutual trust;

[T]he defendants and the ICC objected to the competence of the national jurisdiction referred to by arguing that since the arbitral tribunal was definitely constituted, the President of the Paris Tribunal de Grande Instance does not, in the present case, have the power to interfere in the dispute as it falls under the exclusive interpretation of the arbitrators; they observe that Article 1493 of the NCCP applies “except conflicting clause” agreed by the parties; since [the parties] agreed to the ICC Rules, which expressly stipulate: “the Court decides ‘with no recourse on appointment, confirmation, removal or ‘substitution of an arbitrator,’” the Paris Tribunal de Grande Instance has no jurisdiction to decide; finally, the defendants argue that the present interim hearing constitutes in reality a claim to remove the arbitrator, the assessment of which falls only within the [ICC] Court’s jurisdiction; on a subsidiary basis, the defendants consider the claimant’s allegations to be ill-founded;

[The Tribunal de Grande Instance held:] Whereas the seat of the present international arbitration is Paris, if constitution of the arbitral tribunal becomes difficult, the President of the Paris Tribunal de Grande Instance has jurisdiction to take the appropriate measures;

That this provision does not limit the national judge’s intervention to the constitution of the arbitral tribunal ab initio but also empowers him, with respect to the parties’ common intent, to resolve a difficulty relating to a subsequent event affecting the constitution of the arbitral tribunal which would prevent [the judge] from exercising his decision power; That however, once the arbitral tribunal is constituted, the President of the Tribunal de Grande Instance’s mission to assist and technically cooperate to arbitration [does not include the power] to interfere with the arbitrators’ jurisdictional prerogatives which fall within their own and autonomous legitimacy, nor to substitute for the settled center of arbitration, except recognized or established deficiency of the latter, to organize and carry out the arbitral proceedings in compliance with the parties’ agreement;

Whereas in the present case, the arbitral tribunal was constituted following the [ICC] Court’s decision dated 10 October 1990, which was notified to the parties on 19 and 31 October 1990; and that throughout its objection relating to the appointment of M.B., SCP criticizes the validity of this appointment which necessarily affects the validity of the arbitral tribunal’s nomination and consequently its decision-making power;

That finally, the provisions of Article 1455 of the NCCP, auxiliary to the parties’ intent, are not applicable in the present matter since the ICC Rules, agreed to as a primary source to resolve the procedure, stipulate that there is no possible recourse against the Court’s decision on appointment of arbitrators; Consequently, the present dispute only falls within the arbitrators’ competence, who may possibly decide on the validity of their nomination, provided [subsequent] recourse against their award; … In view of Article 1493(2) of the NCCP; [The Paris Tribunal de Grande Instance] declares itself incompetent to decide SCP’s claims….

ASTRA FOOTWEAR INDUSTRY v. HARWYN INTERNATIONAL

442 F.Supp. 907 (S.D.N.Y. 1978)

[excerpted above at pp. 431–33]

PARTIAL DECISION OF 2 APRIL 1992

1993 RIW 239 (Kassel Landgericht)

[excerpted above at pp. 429–30]

GATOIL INTERNATIONAL INC. v. NATIONAL IRANIAN OIL CO.

XVII Y.B. Comm. Arb. 587 (1992) (English High Ct. 1988)

[excerpted above at pp. 425–27]

XL INSURANCE LTD V. TOYOTA MOTOR SALES U.S.A. INC.

Unreported judgment of 14 July 1999 (QB) (English High Ct.)

[excerpted above at pp. 691–94]

NOTES

    1. National courts’ authority to appoint arbitrators in absence of parties’ agreement. Consider Article 11 of the UNCITRAL Model Law, excerpted at pp. 88–89 of the Documentary Supplement. In what circumstances does Article 11 permit a court to appoint an arbitrator? Compare Article 179 of the SLPIL, excerpted at p. 158 of the Documentary Supplement.

                Like other arbitration statutes, §5 and §206 of the FAA authorize a district court to “designate and appoint an arbitrator or arbitrators” or to “appoint arbitrators.” Section 206, by its terms, only authorizes the appointment of arbitrators “in accordance with the provisions of the [arbitration] agreement.” This arguably would not allow judicial appointment where an agreement failed to specify an appointment mechanism (which, of course, is the one time when judicial appointment is really useful). Notwithstanding this drafting, it is clear that §§5 and 206, taken together, authorize the appointment of arbitrator(s) in international arbitrations when the parties have neither selected an arbitrator nor a contractual appointment mechanism. Jain v. de Mere, 51 F.3d 686 (7th Cir. 1995) (§5 of FAA incorporated into FAA’s second chapter and permits appointment of arbitrator when parties have not agreed on means of appointment). Consider the court’s action in Astra.

                What is the appropriate role of national courts in appointing arbitrators in international matters? Should national courts be free to appoint arbitrators in any case where justice demands, provided the arbitration has a jurisdictional nexus to the country in question? Why not? What if the parties have agreed upon an arbitrator or upon a means of selecting an arbitrator (e.g., through incorporation of institutional rules)? Should national courts still be permitted to appoint the arbitrator? See supra pp. 683–87.

    2. Appointment of arbitrator by national court when parties have not agreed upon appointing authority. As described above, parties do not always agree upon an arbitrator or an appointing authority. See supra pp. 695–96. Alternatively, a party may refuse to comply with a contractual mechanism for selecting arbitrators, or the appointing authority agreed to by the parties may refuse or be unable to act. In those circumstances, most arbitration statutes provide for appointment of an arbitrator(s) by a national court, acting in a default role. Consider again Article 11 of the Model Law, Article 179 of the SLPIL and §§5 and 206 of the FAA.

    3. Appointment of arbitrator by national court when party refuses to appoint co-arbitrator. In cases involving three-member tribunals, one party will occasionally fail to appoint a co-arbitrator, either through neglect or a desire to frustrate the arbitral process. As we have seen, institutional rules provide mechanisms for selecting an arbitrator notwithstanding a party’s inaction. See supra p. 699. Similarly, national arbitration laws also provide appointment alternatives (for ad hoc arbitrations or when an appointing authority also refuses to act). Article 11(4)(a) of the Model Law is an example of such legislation. Similarly, §5 of the FAA specifically permits court appointment of an arbitrator where “any party [to the arbitration agreement] shall fail to avail himself of” his right to appoint. For cases where the court exercised this power, see, e.g., Pac. Reins. Mgt Corp. v. Ohio Reins. Corp., 814 F.2d 1324 (9th Cir. 1987); Neptune Maritime, Ltd v. H & J Isbrandtsen, Ltd, 559 F.Supp. 531, 533 (S.D.N.Y. 1983); Judgment of 7 June 2007, 2008 SchiedsVZ 200, 201 (Kammergericht Berlin). See also supra pp. 699–700.

    4. Judicial appointment of arbitrator when contractual appointment mechanism breaks down. Suppose the parties’ agreed mechanism for appointing a tribunal breaks down or appears to reach impasse. Consider Article 11(4)(c) of the UNCITRAL Model Law. Compare §5 of the FAA.

                How clear must it be that the parties’ agreed contractual appointment mechanism will not function, before a judicial appointment will be made? One U.S. decision reversed a lower court order under §5 of the FAA, directing that the appointing authority, specified in the institutional rules incorporated into the parties’ arbitration agreement, select the entire tribunal; instead, the appellate court ordered the parties to comply with their arbitration agreement by appointing co-arbitrators who, in turn, were to attempt to select a presiding arbitrator, before court appointment would be made. Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223 (4th Cir. 1994). Compare Pac. Reins. Mgt Corp. v. Ohio Reins. Corp., 814 F.2d 1324, 1327, 1329 (9th Cir. 1987) (affirming district court’s appointment of “umpire,” notwithstanding parties’ failure to conclude contractual selection process: “the contractual selection method seemed doomed from the start” and parties had received “ample time and opportunity to comply with their own agreement”) with Judgment of 29 January 2009, 2010 SchiedsVZ 168, 169 (Oberlandesgericht Munchen) (no judicial appointment of arbitrator until parties’ agreed appointment procedure fails) and Philips H.K. Ltd v. Hyundai Elec. Indus. Co., [1993] Arb. & Disp. Resol. L.J. 174 (H.K. High Ct.) (refusing to appoint arbitrator, pursuant to ambiguous ICC arbitration clause, where ICC had not been approached to appoint arbitrator). See also ATSA of Cal., Inc. v. Cont’l Ins. Co., 702 F.2d 172 (9th Cir. 1983), 754 F.2d 1394 (9th Cir. 1985). Consider the facts in Astra and XL Insurance. Would there have been any point to waiting for the parties to make further efforts to select an arbitrator? Consider the facts in Gatoil: note that England was not the arbitral seat.

    5. Judicial appointment of arbitrator when agreed appointing authority refuses to act. Suppose the parties select an appointing authority, but it refuses to act (like the ICC in Astra). If the parties’ agreed contractual appointing authority will no longer act, is the entire agreement to arbitrate invalid? Will a court appoint an arbitrator or will it conclude that the arbitration agreement is no longer valid (on grounds of frustration or otherwise)? See supra pp. 434–35. Consider the Astra court’s analysis.

                Suppose that, where the parties’ agreed appointing authority refuses to act, an arbitral institution makes an appointment. Is this permitted? What gives the institution authority to make an appointment? See Judgment of 16 April 1984, 1986 Rev. arb. 596 (Swiss Fed. Trib.) (in arbitration under ICC Rules, upholding ICC’s nomination of arbitrator after contractually-agreed Director General of World Health Organization declined to act as appointing authority); Preliminary Award in ICC Case No. 2321, I Y.B. Comm. Arb. 133, 139 (1976) (clause providing for arbitration under ICC Rules also selects “Chairman” of ICC to appoint sole arbitrator; when ICC Chairman refused to make appointment, ICC International Court of Arbitration did so, and one party challenged appointment: “when inserting an arbitration clause in their contract the intention of the parties must be presumed to have been willing to establish an effective machinery for the settlement of disputes … [when the parties’ agreed method of selecting an arbitrator] proved to be ineffective because of the refusal of the chairman to appoint an arbitrator, [the parties] must be said to have failed to nominate an arbitrator by common agreement. Then, according to Art. 7(2) of the [ICC] Rules, the arbitrator shall be appointed by the Court.”).

    6. Judicial appointment of arbitrator when agreement on appointing authority is indefinite or internally inconsistent. Parties sometimes attempt to designate an appointing authority (or procedure) in their arbitration agreement, but do so in either an incoherent or internally inconsistent fashion. This was one of the issues in Astra. If an arbitration clause contains an indefinite, inconsistent, or otherwise defective appointment mechanism, what are the consequences of this defect on the arbitration agreement generally? In particular, is the defective provision severed from the remainder of the clause (which is then enforced, with a national court appointing an arbitrator), or is the entire arbitration agreement invalid? This issue is discussed above. See supra pp. 353, 411, 435; G. Born, International Commercial Arbitration 1723-25 (2d ed. 2014).

                Are decisions such as Astra, which salvage a partially-defective arbitration agreement, wise? In international arbitrations, selection of the appointing authority is a crucial decision. After unsuccessful negotiations on the seat and/or appointing authority, parties sometimes are unable to agree upon an arbitration clause and either omit any reference to dispute resolution mechanisms in their contract or agree to a forum selection clause. If purported agreement on issues such as the appointing authority turns out to be absent, should one assume that both parties still wanted to arbitrate?

    7. Judicial appointment of arbitrator when parties’ agreement on appointing authority is frustrated. Recall the facts in Partial Decision of 2 April 1992 and Gatoil, where fundamental changes occurred affecting the parties’ agreed appointing authority. When do such changes result in frustration of the parties’ agreement on the appointing authority? See supra pp. 434–35. If the parties’ agreement on the appointing authority is frustrated, is the remainder of the parties’ arbitration agreement also invalidated? If not, does national law authorize judicial appointment of an arbitrator? Consider the results in Gatoil.

    8. Judicial appointment of arbitrator when arbitrator specified in parties’ agreement cannot or will not serve. Although it is usually inadvisable, parties sometimes provide in their arbitration agreement that a particular individual will act as arbitrator. See supra p. 695. That individual occasionally cannot (because of a conflict or otherwise) or will not serve. In those circumstances, assuming the parties cannot reach an agreement on a new choice and have not agreed upon an appointing authority, most national arbitration legislation (including §5 of the FAA) permits judicial appointment. (Note that these circumstances again raise the question whether the parties’ agreement to arbitrate remains binding. See supra pp. 353, 411, 434–35.)

    9. National courts’ ability to appoint appropriate international arbitrators. Consider the advantages and disadvantages of the appointment of international arbitrators by a national court. What experience and expertise does a national court judge have in selecting suitable international arbitrators? Compare that expertise and experience to the abilities of leading arbitral institutions. Consider also the possibilities of parochial or other predispositions, both of national courts and arbitral institutions.

                Note the conclusion in XL Insurance. Is the English court’s result—appointment of an English arbitrator—surprising? Consider its discussion of the parties’ objections to previous proposals. See also Quintette Coal Ltd v. Nippon Steel Corp., [1988] B.C.J. No. 492 (B.C. Sup. Ct.) (appointing Canadian presiding arbitrator in dispute between Canadian and Japanese parties, over objections of Japanese party), aff’d, [1988] CanLII 2923 (B.C. Ct. App.), modified by the British Columbia International Commercial Arbitration Act, §11(9). What types of individuals are national courts most familiar with? Most confident with to discharge their duties?

                Consider the reasoning in XL Insurance. Is the selection of an arbitrator a judicial function? What resources does a court have to make a selection of an arbitrator? Note that the XL Insurance court relied on the names already exchanged between the parties. Is that wise? Note that the court approved one name (Lord Mustill) that had been exchanged, but not accepted, by the parties. Is that wise? How would the court have gone about trying to identify additional candidates with the appropriate experience?

                Who would you prefer to appoint arbitrators in a case involving your client? Does it depend on the identity of the client and the national court making the selection? Does it depend only on these factors? Consider Articles 6(1), 11(3) and 11(5) of the Russian Law on International Commercial Arbitration, which provide that appointments of arbitrators, where the parties have not agreed upon an arbitrator or means of selecting an arbitrator, shall be performed by “the President of the Chamber of Commerce and Industry of the Russian Federation.” Is this a wise approach?

  10. What national court has competence to appoint an arbitrator(s)? Suppose parties do not agree on an arbitrator or appointing authority. What national court has jurisdiction to appoint an arbitrator? Assume Party A, domiciled in State 1, agrees to arbitrate with Party B, domiciled in State 2, and the arbitral seat is State 3. Can the courts of State 1, State 2, or State 3 appoint the missing arbitrator(s)? Can more than one state’s courts do so? What problems would arise if the courts of more than one state could appoint an arbitrator?

        (a)   Jurisdictional limits on judicial appointment of arbitrators under UNCITRAL Model Law. Consider Article 11 of the UNCITRAL Model Law. When does Article 11 permit a local court to appoint an arbitrator in an international arbitration? Does Article 11 authorize a court to appoint an arbitrator in a foreign-seated arbitration? Compare Article 179 of the SLPIL.

        (b)   Jurisdictional limits on judicial appointment of arbitrators under §5 of FAA. Consider §5 of the FAA. If the parties have agreed to arbitrate in a particular place in the United States, will §5 permit the district court at that place to appoint an arbitrator(s)? See Ore & Chem. Corp. v. Stinnes Interoil, Inc., 611 F.Supp. 237 (S.D.N.Y. 1985); Masthead Mac Drilling Corp. v. Fleck, 549 F.Supp. 854 (S.D.N.Y. 1982). Does §5 authorize a U.S. court to appoint an arbitrator in an arbitration seated outside the United States?

        (c)   Jurisdictional limits on judicial appointment of arbitrators under §206 of FAA. Under §206 of the FAA, the power to appoint arbitrators is granted in the same section as, and appears coextensive with, the power to compel arbitration. As discussed above, §206 permits orders compelling arbitration in U.S. judicial districts other than the arbitral seat. See supra pp. 658–69. Does §206 therefore permit U.S. courts to appoint arbitrators for foreign arbitrations? What happened in Astra? See also United States Lines, Inc. v. Liverpool & London SS etc., 833 F.Supp. 350 (S.D.N.Y. 1993). As to a U.S. court’s related power in such circumstances to specify the arbitral seat, see supra pp. 664–69. Suppose the parties have not agreed upon either arbitrators or an arbitral seat, or upon means of choosing either. In a dispute between two U.S. companies, what objection would there be to a U.S. court appointing an arbitrator? Suppose that a dispute involves a U.S. and a French (or Somali) company, and no arbitral seat is specified. What objection would there be to a U.S. court appointing an arbitrator?

        (d)   Applicability of §206 where parties have agreed on foreign arbitral seat. If the parties have agreed on a foreign arbitral seat, may a U.S. court appoint an arbitrator? If a §206 action is brought because one party refuses to arbitrate, the court can generally compel arbitration in the foreign seat under §206. See supra pp. 619–24. Given the inclusion of an appointment power in §206, does the U.S. court also have the power to select an arbitrator for the foreign arbitration? If it exists, should such a power be exercised? Compare the approach under the UNCITRAL Model Law and SLPIL.

  11. Exercise of authority to appoint arbitrator in foreign arbitration. Assuming a national court has the power to appoint arbitrators in both local and “foreign” arbitrations, as under §206 of the FAA, when should it use that power? Suppose one party to an international arbitration seated in London is a U.S. entity and the other is not (e.g., French or Somali). Assuming both parties are subject to U.S. personal jurisdiction, should a U.S. court exercise the power to appoint an arbitrator in the London arbitration? What about French (or Somali) courts? What about English courts? What national court, in this hypothetical, is the sensible one to make an appointment? Should a U.S. court’s exercise of its power depend on the power (and jurisdiction) of English courts to appoint an arbitrator?

  12. Judicial consideration of jurisdictional objections prior to appointment of arbitrator. Suppose that, when a national court is asked to appoint an arbitrator, one party challenges the existence, validity, or scope of the arbitration agreement. Should the court entertain such challenges or leave them for the arbitrators? Does Article 11 of the UNCITRAL Model Law provide any guidance? Consider Article 179(3) of the SLPIL, excerpted at p. 158 of the Documentary Supplement. What does it prescribe? Is that wise? See also supra pp. 285–86; Portuguese Law No. 31/86 of 1986, Art. 12(4) (“If the arbitration agreement is manifestly void, the president of the court of appeal shall declare that the appointment of the arbitrators … shall not take place….”) (repealed). Should disputes about the scope of the arbitration agreement be considered at all by a national court in the appointment process? Why or why not?

C. IDENTITY REQUIREMENTS FOR ARBITRATORS IN INTERNATIONAL ARBITRATION

As discussed above, the principle of party autonomy is central to the process of selecting arbitrators in international arbitration. Nonetheless, there are limits to the parties’ freedom to choose the arbitrators or the procedures for selecting the arbitrators.

These limits can arise variously from international arbitration conventions, national law and institutional rules. These restrictions include a range of different limits concerning nationality, experience, qualifications (i.e., legally-trained) and independence or impartiality. Additionally, there are instances in which the parties’ arbitration agreement (together with any institutional rules that are incorporated) may limit a party’s freedom to select an arbitrator in a particular case.

1. Restrictions on Arbitrators’ Nationality, Qualifications and Experience

The materials excerpted in this section illustrate restrictions that national arbitration legislation imposes concerning arbitrators’ nationality, qualifications and experience. These materials do not address requirements regarding the arbitrators’ independence and impartiality, which are discussed separately in the following section.⁷

NETHERLANDS CODE OF CIVIL PROCEDURE