13 December, 2013

Previously, we examined the principle of party autonomy as a cornerstone of arbitration, with courts upholding the policy of minimal curial intervention in the exercise of its supervisory jurisdiction over arbitrations. However, whether parties should retain the right to select the tribunal to determine their dispute has given rise to considerable recent debate. Some institutions and commentators have advocated greater control over parties’ choice of their arbitrator, which has received mixed reactions from the broader arbitration community.

It has long been an established principle of arbitration that parties should be allowed to choose their arbitrator. Historically, parties have been given the right to appoint an arbitrator of their choice, and parties’ freedom of choice in this respect has remained the status quo in many arbitral institutions.¹

However, some commentators have expressed concerns about unbridled freedom of choice in parties’ selection of arbitrators, identifying what they perceive to be the creation of a ‘moral hazard’. Put shortly, the concern is that a party-appointed arbitrator, in pursuit of his personal commercial interest, will rule in that party’s favour as opposed to deciding the matter objectively.²

One aspect of this interest is the relationship between the arbitrator and the party or his lawyers. This is addressed by the current widely accepted rules mandating disclosure of circumstances which could give rise to doubts as to the arbitrator’s impartiality or independence.³ The other aspect is the uncertainty as to whether the selected tribunal will be sufficiently qualified and competent for the issues at hand. This uncertainty would be especially worrying for parties given the lack of an appeals procedure in arbitration and the recent jurisprudence declining to set aside an arbitral award on the basis that an arbitrator has made a mistake of law.⁴

Various institutional rules now say that the institution, not the parties, will “appoint” or “confirm” the arbitrator(s) for any given dispute. In 2007, the Singapore International Arbitration Centre (SIAC) amended its Arbitration Rules such that in all cases, parties would only be allowed to nominate an arbitrator. This nomination would then be subject to confirmation by the Chairman (Rule 5.3). This rule has not been changed since it was introduced.

The most recent edition of the Hong Kong International Arbitration Centre Administered Arbitration Rules also provides that the HKIAC shall finally confirm the parties’ designation of any arbitrator (Rule 9.1). Similarly, the London Court of International Arbitration (LCIA) Rules also provide that it is for the LCIA Court to appoint the arbitrator nominated by parties, and that the LCIA Court may refuse to appoint any nominee if it determines that he is not suitable, independent or impartial (Rule 7.1). 

There have also been further proposals that institutions exercise even greater control over the selection of the arbitrator. Among these was the proposal of Attorney-General Sundaresh Menon, SC (as he then was) to draw up a regulatory framework to govern arbitrators, such as through a code of conduct and practice to guide arbitrators and arbitration counsel.⁵ A more extreme proposal was offered by Professor Jan Paulsson that parties only be allowed to choose an arbitrator from a pre-existing list of arbitrators qualified by the institution. 

These proposals have not met with universal approval. The proposal that arbitrators only come from a pre-existing qualified pool has sparked concerns over the infusion of politics into the arbitration system.⁶ The idea that an institution might be responsible for appointing a tribunal has been seen by some as stripping parties of one of the core tenets of arbitration, namely the parties’ right to choose who should determine their dispute. Meanwhile, the proposed introduction of a regulatory framework for arbitrators has raised questions over what those regulations should comprise, and where the balance should be struck between having open-textured rules that are susceptible to being ineffective, and excessively robust regulations susceptible to being struck down by local courts.⁷

Ultimately, the debate regarding the amount of control institutions have over parties’ choice of arbitrators is fuelled by the need to preserve or enhance the legitimacy of arbitration in the eyes of the end-user. While institutional control over parties’ choice of arbitrators seeks to enhance the quality and objectiveness of arbitrators hearing arbitrations, preserving party autonomy in this area seeks to enhance parties’ perceived legitimacy of the process by involving them intimately with this process. The debate is likely to develop further in the coming months. It remains uncertain how international institutions and the community of professional arbitrators will respond to the challenges in sight.

End Notes:

1 See for example Charles N. Brower & Charles B. Rosenberg, “The Death of the Two-Headed Nightingale: Why the Paulsson-Van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded”.
2 Jan Paulsson, “Moral Hazard in International Dispute Resolution”, Inaugural Lecture as Holder of the Michael R. Klein Distinguished Scholar Chair, University of Miami School of Law, 29 April 2010.
3 E.g. Rule 10.4 of the SIAC Rules 2013 & Article 11(2) of the International Chamber of Commerce Arbitration Rules.
4 Kempinski Hotels SA v PT Prima International Development [2011] 4 SLR 633 at [51].
5 Sundaresh Menon, SC, “International Arbitration: The Coming of a New Age for Asia (and Elsewhere)”, ICCA Congress 2012 Opening Plenary Session at [66] – [71].
6 Charles N. Brower & Charles B. Rosenberg, “The Death of the Two-Headed Nightingale: Why the Paulsson-Van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded”.
7 Jan Paulsson, “Is Self-Regulation of International Arbitration an Illusion?”, London School of Economics Transnational Law Project Debate, 9 May 2013.

Related:

Party Autonomy: Whither The Pendlum?

For further information, please contact:

Tan Chuan Thye, Director, Stamford Law
[email protected] 

Timothy Cooke, Stamford Law
[email protected]