Establishment and Organisation of an Arbitral Tribunal


4


ESTABLISHMENT AND ORGANISATION OF AN ARBITRAL TRIBUNAL



A. Background


(a) Introduction



[4.01] Once the decision to start an arbitration has been taken and the appropriate form of notice or request for arbitration has been delivered, the next step is to establish the arbitral tribunal. Whilst a national court of law is a standing body to which an application may be made at almost any time, an arbitral tribunal must be brought into existence before it can exercise any jurisdiction over the parties and the dispute. The contrast between the two is seen most clearly when a dispute has arisen, attempts at settlement have failed, and one of the parties has decided that the time has come to pursue its legal rights. If the dispute is to be taken to court, the claimant need only initiate whatever form of originating process is appropriate to set the machinery of justice into operation before the court. The parties will have no role to play in the composition of that court. It is different if the dispute is to be referred to arbitration: there is no permanent standing body of arbitrators and, absent some specific mechanism in the applicable rules for a separate ‘pre-arbitral’ phase for urgent decisions,1 no decisions can be taken or relief sought until the tribunal has been established.



[4.02] The establishment of the tribunal may be a relatively lengthy process, especially where one party (almost always the respondent) fails to nominate an arbitrator. Even where the relevant rules provide for the institution to make the remaining appointments, including the president of the tribunal, such process can be time-consuming as the institution consults regarding suitable candidates.2 Other than in cases that are expedited, the establishment of the tribunal takes at least two months from the submission of the notice or request for arbitration.



[4.03] The question then arises: what can be done pending constitution of the arbitral tribunal if urgent measures are required? The traditional response is to rely on the relevant national courts for critical relief. Most modern arbitral systems permit an application for interim measures to be sought from national courts pending the formation of the tribunal, without such application constituting a waiver of the arbitration agreement.3 However, the need to rely on the national court system to decide upon what may be a critical issue in the arbitration right at the start of that process goes against one of the very purposes of arbitration: to grant to an expert authority outside the formal court system the power to make decisions related to a dispute. To address the need of the parties to obtain a quick decision, most institutions have therefore adopted a specific mechanism in their rules.4 The different approaches among arbitral institutions include summary arbitral proceedings,5 expedited formation of the tribunal,6 and (increasingly) the expeditious appointment of an ‘emergency arbitrator’.7


(b) Commencement of an arbitration



[4.04] The commencement of an arbitration is a significant step, not merely as evidence of a real conflict between the parties, but also in terms of compliance with any limitation period for the presentation of claims.



[4.05] Time limits for bringing legal proceedings by way of arbitration or litigation are imposed by the law of most, if not all, countries. It is said that the interest of the state is that litigation should be started within a reasonable time of the events that gave rise to it. Time limits in litigation or arbitration must always be considered with care. Failure to observe them may be fatal in terms of both commencing a claim and complying with any time agreed for rendering the award. Time usually starts to run from the date on which the cause of action arises. It may well be necessary to take some positive step to commence an arbitration (such as the notification of a request for arbitration, or the service of a notice requiring the appointment of an arbitrator) in order to prevent a claim failing through time bar. Prescriptive time limits may also be imposed by contract (as in many standard forms of contract—whether for the charter of a ship or for the carrying out of a major civil engineering project).



[4.06] Whereas contractual time limits are often short—generally, a matter of months—those imposed by law are longer—generally, a number of years. This in itself creates no special problem. In principle, it is right that a claimant should have adequate time in which to prepare and bring a claim.



[4.07] Most problems arise in the area of conflict of laws. In particular, there may be a difference in both the length and the nature of the time limits laid down by different national systems of law. One system of law, for example, may provide that claims under a contract are to be brought within three years, whilst another system of law may allow six years. More importantly, one system of law may classify time limits as matters of procedure, to be governed by the law of the place of arbitration, while another system may classify time limits as matters of substance, governed by the same law as that which governs all of the other substantive matters in issue.


(c) Commencement of an arbitration under institutional rules



[4.08] In order to stop time running, arbitration proceedings must be commenced in accordance with the contract or relevant applicable law, or both (see Chapter 1). If there is any difference between this law and any institutional rules of arbitration adopted by the parties, the non-waivable provisions of the applicable law will prevail. In most cases, however, national laws permit parties to modify rules for commencement of arbitration by agreement, in which case the claimant need only be concerned with complying with the relevant institutional rules (or rules set out in the arbitration clause itself). By way of example, the Rules of the International Chamber of Commerce (ICC) require a party wishing to have recourse to arbitration to submit a ‘request for arbitration’, which must contain, inter alia, a description of the nature and circumstances of the dispute, details of the relief sought, and particulars concerning the number and choice of arbitrators. Article 4(2) of the ICC Rules state that: ‘The date on which the Request is received by the Secretariat shall, for all purposes, be deemed to be the date of commencement of the arbitral proceedings.’



[4.09] The date designated under the ICC Rules as being ‘for all purposes’ the date of commencement of the arbitral proceedings may well be the same date under a particular national system of law. This is the case in English and French law, under which time will stop running if and when a request for arbitration is made in conformity with the relevant arbitration clause. In other cases, the institutional requirements for the commencement of an arbitration may differ from what is required by national systems of law. For example, an arbitration under the International Centre for the Settlement of Investment Disputes (ICSID) is deemed to have commenced on the date of ICSID’s registration of the request for arbitration.8



[4.10] These issues can be summarised as follows.



•  Institutional rules providing for the date on which an arbitration shall be deemed to commence are valid for the purposes of the institution concerned.


•  Institutional rules may also mark the ‘commencement of an arbitration’ for the purpose of any time limit contained in the contract, where the contract refers disputes to arbitration in accordance with the rules of that particular institution.


•  Institutional rules may mark the ‘commencement of an arbitration’ for the purpose of statutory time limits, but only if the provisions of the relevant legislation permit the parties to override the statutory limits or coincide with the rules of the institution.


•  If there is any conflict between the institutional rules and the relevant legislation, the latter determines the ‘date of commencement of the arbitration’ for the purpose of any statutory time limits that must be observed.


(d) Commencement of an ad hoc arbitration under the applicable law



[4.11] If the dispute resolution clause refers only to arbitration, without referring to an arbitral institution, the relevant legislation usually prescribes the steps required to achieve the ‘commencement of arbitration proceedings’. These steps differ from one arbitration clause to another and from country to country. The relevant country in this regard will be that of the seat of the arbitration, the law of which will govern the mechanism for commencing an arbitration in the absence of the application of institutional or other pre-agreed rules. It may be necessary:



•  to send a notice of arbitration to the opposing party, briefly describing the dispute, nominating an arbitrator, and requiring the opposing party to nominate its own arbitrator within a given time period; or9


•  to commence the procedure for designation of the arbitral tribunal, as provided in the arbitration agreement; or


•  to require the opposing party to appoint or to concur in the appointment of an arbitrator.



[4.12] By way of example, the Swiss Private International Law Act 1987 (Swiss PIL) provides that, in the absence of contrary agreement, proceedings are commenced ‘when one of the parties initiates the procedure for the constitution of the arbitral tribunal’.10 In contrast, the Brazilian Arbitration Act 1996 provides that ‘an arbitral procedure is commenced when the appointment is accepted by the sole arbitrator or by the arbitrators if several’.11


(e) Selecting an arbitral tribunal



[4.13] Once a decision to refer a dispute to arbitration has been made, choosing the right arbitral tribunal is critical to the success of the arbitral process. It is an important choice not only for the parties to the particular dispute, but also for the reputation and standing of the process itself. It is, above all, the quality of the arbitral tribunal that makes or breaks the arbitration, and it is one of the unique distinguishing factors of arbitration as opposed to national judicial proceedings.12



[4.14] In addition to choosing an arbitrator with appropriate knowledge of the relevant substantive area of law, it is particularly important for parties to recognise the importance of experience in arbitration, particularly for a sole arbitrator or the presiding arbitrator, who must take control of the proceedings. The rights of the parties—and, in particular, the right to a fair hearing—must be scrupulously observed. The sole or presiding arbitrator may have to perform this function against a background of a conflict of culture and legal backgrounds of the parties’ representatives. At the same time, the proceedings must maintain their momentum. They must not be allowed to sink in a quagmire of procedural problems. There may be language problems, both in relation to communications between members of the arbitral tribunal and in the reception of evidence. A timetable must be set for the various steps to be taken in the arbitration (production of documents, exchange of witness statements, and so on), as well as dealing with travel and hotel arrangements, and other administrative matters. These are all tasks that call for skill and, above all, experience in the practice of international arbitration.



[4.15] It is difficult to choose the qualifications of an arbitrator before the dispute has arisen. Will a claim be large or small? Is it essentially a legal problem, or does it turn mostly on the facts? Is particular expertise required to evaluate the facts quickly and correctly? These are the kinds of question that need to be answered before the most suitable arbitrator(s) can be chosen; ‘horses for courses’ is a rule that applies beyond the race track and is one best applied once the parties know the nature of the dispute.



[4.16] In principle, the parties should be free to choose their own arbitrators, so that the dispute may be resolved by ‘judges of their own choice’.13 Sometimes, however, parties to an arbitration will find that this choice is limited by the restrictions placed on that choice by the clause, the institution, or the applicable statutory rules. For example, the qualifications of the arbitrator may have been designated in advance of any conflict, requiring a lawyer of ‘not less than five years’ standing’, or ‘a native English speaker with experience in Brazilian law and the oil and gas industry’. While such qualifications may seem like a good idea at the time that an arbitration clause is drafted, they are usually more trouble than they are worth: not only may they cause delay in ascertaining whether or not a particular arbitrator comes within the qualification (or, indeed, whether any such person exists who would be ready and available to act), but they may also create unnecessary additional grounds for an obstreperous losing party to challenge an unfavourable award.


(f) Emergency arbitrators



[4.17] Emergency arbitrator procedures are increasingly common in the main institutional arbitration rules as an alternative to the parties seeking interim relief from national courts prior to the arbitral tribunal being constituted. At the time of writing, the following institutional rules provide for the appointment of emergency arbitrators: the ICC Rules;14 the London Court of International Arbitration (LCIA) Rules;15 the International Centre for Dispute Resolution (ICDR) Rules;16 the Swiss Rules of International Arbitration (Swiss Rules);17 the Rules of the Stockholm Chamber of Commerce (SCC);18 the Hong Kong International Arbitration Centre (HKIAC) Rules;19 and the Singapore International Arbitration Centre (SIAC) Rules.20



[4.18] It is hoped that these new rules will be more effective and useful to parties than their precursors, which required parties expressly to opt in. The new emergency arbitrator procedures apply automatically to arbitrations under the given arbitration rules, unless the parties expressly opt out of their application.21



[4.19] In general, these rules allow parties to appoint an ‘emergency arbitrator’ to determine applications for interim relief as soon as a request for arbitration has been filed, or, in some cases, even earlier.22 Indeed, some institutional rules now give the emergency arbitrator the power to order ex parte relief,23 subject to the other party being heard immediately after the preliminary order is granted.



[4.20] A notable example of an ‘emergency arbitrator’ procedure is that found in the latest version of the ICC Rules. Pursuant to Article 29 and Appendix V to those Rules, a party may make an application for such measures by sending an application to the Secretariat, together with the relevant supporting documentation required under the Rules and payment of the prescribed fee.24 Although an application can be made before the applicant files its request for arbitration, a request for arbitration must be sent to the Secretariat within ten days of the application to avoid the termination of the emergency proceedings.25 The emergency arbitrator will be appointed within two days of the Secretariat receiving the application and may make an order within fifteen days of receiving the file (although this can be extended by the president of the International Court of Arbitration of the ICC if deemed necessary).26 The procedure will not be available, however, if: (a) the arbitration agreement under the Rules was concluded before the date on which the latest Rules came into force; (b) the parties have agreed to opt out of these provisions; or (c) the parties have agreed to another pre-arbitral procedure that provides for the granting of conservatory, interim, or similar measures.27



[4.21] Under most rules, including the ICC Rules, the emergency arbitrator’s decision is interim in nature and will not bind the arbitral tribunal with respect to any question, issue, or dispute determined in the order.28 Although Article 29(2) of the ICC Rules requires the parties to undertake to comply with any order made by the emergency arbitrator, the consequences of non-compliance are uncertain. Parties will still need to rely on the support of the national courts to enforce interim measures granted by an emergency arbitrator against non-compliant parties. It is not yet clear how local courts will react to such requests, given that an interim ‘order’ is unlikely to qualify as an award under the New York Convention. In some jurisdictions, specific legislative changes have been introduced to ensure that orders of emergency arbitrators are treated in the same way as those of an arbitral tribunal.29


(g) Sole arbitrators and multi-arbitrator tribunals



[4.22] The establishment of an arbitral tribunal involves many considerations. First is the question of numbers: should there be more than one arbitrator, and if so, how many? Is there any general rule as to the number of arbitrators that should be appointed, or does this depend upon the circumstances of the particular dispute? The laws of some countries sensibly provide that the number of arbitrators must be uneven and this should be borne in mind by the drafters of arbitration clauses. Clauses providing for two arbitrators and an ‘umpire’, used principally (but not exclusively) in shipping and commodities disputes, are unsuitable for modern international arbitration. Tribunals of five (or more) arbitrators are best reserved for arbitrations between states.30 Thus an important consideration in the drafting of an arbitration clause or a submission agreement is the number of arbitrators to be appointed. In commercial cases, the choice, in practice, is between one and three.


(i) Sole arbitrators


[4.23] Article 12(2) of the ICC Rules provides that, where the parties have not agreed upon the number of arbitrators, a sole arbitrator will be appointed unless ‘the dispute is such as to warrant the appointment of three arbitrators’. Following the same policy, Article 5(8) of the LCIA Rules states: ‘A sole arbitrator shall be appointed unless the parties have agreed in writing otherwise, or if the LCIA Court determines that in the circumstances a three-member tribunal is appropriate (or, exceptionally, more than three).’



[4.24] The ICDR Rules follow the same approach, with a sole arbitrator the default solution, but adding the criteria of size and complexity to the administrator’s discretion as to whether to constitute a three-member tribunal. Article 5 provides:


If the parties have not agreed on the number of arbitrators, one arbitrator shall be appointed unless the administrator determines in its discretion that three arbitrators are appropriate because of the large size, complexity or other circumstances of the case.



[4.25] There is much to be said for such a provision on grounds of speed and economy. The advantages of referring a dispute to a sole arbitrator are self-evident. Appointments for meetings or hearings can be more easily arranged with a sole arbitrator than with a tribunal of three arbitrators. The interests of economy are also served, since the parties will have to bear the fees and expenses of only one arbitrator rather than three. Moreover, the arbitral proceedings should be completed more quickly, since a sole arbitrator does not need to ‘deliberate’ with colleagues in an attempt to arrive at an agreed, or majority, determination of the matters in dispute. If the parties to an international arbitration are able to agree upon the appointment of a sole arbitrator in whom they both have confidence, it makes sense for them to do so.



[4.26] However, if the parties cannot agree on the identity of a sole arbitrator, an arbitrator will be ‘imposed’ upon them—that is, an arbitrator will be chosen by a national court or by a designated appointing authority, such as the president of a professional body or one of the specialised arbitral institutions.31 The arbitrator so chosen may or may not be suitable for the task. What is certain is that he or she will not have been chosen by the parties, but by someone else on their behalf, thus depriving the parties of one of the fundamental benefits of arbitration: choosing the judge. There is also a greater risk of error resulting from the failings of a sole arbitrator who does not benefit from the balancing factor of two further arbitrators analysing the issues in dispute.



[4.27] As a consequence, there is typically a preference for the appointment of three arbitrators in all but the smallest cases. The Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) reflect this preference by providing that if the parties have not previously agreed otherwise, three arbitrators will be appointed.32 A similar provision is contained in the Model Law.33


(ii) Two arbitrators


[4.28] In certain trades and specialised markets, the practice is to submit disputes to an arbitral tribunal of two arbitrators, with a subsequent reference to an umpire if the two party-nominated arbitrators cannot agree between themselves. This practice derives from the concept of arbitration as a ‘friendly’ method of settling disputes and it is a system that may work reasonably well within the context of a defined trade or market. However, it is not a practice to be recommended more generally in international arbitrations. It is important, particularly in a highly contentious dispute, that there should be someone who can take the lead within the arbitral tribunal. If there is only one arbitrator, there is no problem: a sole arbitrator is unmistakably in charge of the proceedings. The position is the same with a tribunal of three arbitrators, in which case the presiding arbitrator is plainly in charge. However, if there are two arbitrators, which of them is to lead? How much time are they required to spend in discussion before deciding (if such is the case) that they cannot agree? If they cannot agree, whose responsibility is it to inform the parties and to ensure that steps are taken to appoint an umpire? Within the confines of a trade association, these kinds of problems rarely arise; if they do arise, they may be dealt with relatively easily by trade practice. In mainstream international arbitration, it is preferable to avoid such problems by avoiding altogether the ‘two arbitrator’ system.


(iii) Three arbitrators


[4.29] Modern preference is for international disputes to be referred to an arbitral tribunal comprising three arbitrators, unless the amount in dispute is small. This preference has much to commend it. Each of the parties will usually have the right to nominate at least one arbitrator, leaving the third arbitrator to be chosen by agreement or by a third-party institution.



[4.30] The advantage to a party of being able to nominate an arbitrator is that it gives the party concerned a sense of investment in the arbitral tribunal. Each party will have at least one ‘judge of its choice’ to listen to its case. This is particularly important in an international arbitration, in which, in addition to the matters formally in issue, there may well be differences of language, tradition, and culture between the parties, and, indeed, between the members of the arbitral tribunal themselves. An arbitrator nominated by a party will be able to make sure that the arbitral tribunal properly understands the case of the appointing party. In particular, such an arbitrator should be able to ensure that any misunderstandings that may arise during the deliberations of the arbitral tribunal (for example because of differences of legal practice, culture, or language) are resolved before they lead to injustice. In this way, a party-nominated arbitrator can fulfil a useful role in ensuring due process for the party that nominated him or her, without stepping outside the bounds of independence and impartiality.34



[4.31] A three-member tribunal is more expensive than an arbitration conducted by a sole arbitrator and will usually take longer to render an award. However, the ‘quality of justice’ is likely to be less subject to the foibles and failings of an individual member. Indeed, in a process in which there is no effective appeal on the merits, the risk of an error of law or fact by a three-member tribunal is far lower than that of a sole arbitrator with no colleagues to correct or with whom to debate an inadvertent mistake or misunderstanding.


(iv) Four or more arbitrators


[4.32] It is difficult to envisage circumstances in which it would make sense to appoint four arbitrators—or, indeed (leaving aside trade tribunals), any even number. As far as the mainstream of international arbitration is concerned, it is sensible to follow the lead of those countries that make it compulsory for an uneven number of arbitrators to be appointed. Nor is there usually any good reason for appointing an arbitral tribunal of more than three members. Even in a case of major importance, three carefully chosen and appropriately qualified arbitrators should be sufficient to dispose satisfactorily of the issues in dispute. The practice of states in appointing arbitral tribunals of five, seven, or more is usually dictated by political, rather than by practical, considerations.


B. Appointment of Arbitrators


(a) Introduction



[4.33] There are several different methods of appointing an arbitral tribunal. The most usual are:



•  by agreement of the parties;


•  by an arbitral institution;


•  by means of a list system;


•  by means of the co-arbitrators appointing a presiding arbitrator;


•  by a professional institution or a trade association; or


•  by a national court.


Each method is now considered in turn.


(i) Agreement of the parties


[4.34] A major attraction of arbitration is that it allows parties to submit a dispute to judges of their own choice rather than requiring that choice to be exercised by a third party on their behalf.35 Where an arbitral tribunal is to consist of more than one arbitrator, it is usual for each party to nominate one arbitrator, leaving the third arbitrator to be appointed by one of the other methods mentioned above.