On 12 January 2018 we released the results of our annual International Arbitration survey. In 2017 our survey focused on the issue of diversity on arbitral tribunals. This year we wanted to consider the issue of party appointed arbitrators.
In recent years the system of party appointments has been the subject of some criticism. It has been suggested that there are sound reasons for ending and replacing it with arrangements by which an institution or other neutral body would make all appointments. This may have the further advantage of improving diversity on arbitral tribunals.
Arbitrations routinely begin with each side naming an arbitrator. Arbitration agreements often provide for this and the appointment procedures of many institutional and ad hoc rules permit party appointment or nomination. Large numbers of users of arbitration favour party appointments and it is said that the ability to select one of the arbitrators gives a party a sense of control and proximity to the arbitration proceedings that engenders confidence in its outcome. However, there are also criticisms of the system of party appointments, many of which are based on concerns that it can result in the appointment of partisan arbitrators. The practice of party appointments has been described as a “moral hazard” and a practice based on “comfort in the status quo”. So is it time for a change?
Who We Asked
We asked arbitrators, corporate counsel, external lawyers, users of arbitration and those working at arbitral institutions for their views on the arguments for keeping, or for discarding, the present system of party appointments.
We received 151 responses to the survey with respondents from East and West Africa, Central and Southern Asia, East and South East Asia, Australasia, the Middle East and North Africa, North America, Latin America, Western and Eastern Europe and the Caribbean. We would like to thank all those who responded to the survey.
Key Findings From Our Survey
The results of the survey confirmed that there is a strong body of opinion in favour of retaining party appointments. However, the risk of partisan arbitrators is recognised, as is the potential benefits for diversity on tribunals if there were fewer party appointments.
66% of respondents considered the retention of party appointments to be desirable. 55% of respondents who sat as arbitrators and 46% who practise as both arbitrator and counsel ranked retaining party appointments as “very desirable”. In contrast, 33% of respondents acting as counsel regarded party appointments as “very desirable”.
Looking at the reasons for retaining the system of party appointment, 68% of respondents took the view that the parties know more about the dispute and are therefore better placed to select arbitrators. 82% of respondents felt that the system gives a party some degree of control over the background and expertise of the tribunal and 79% felt that party appointments give a party a greater confidence in the arbitration process.
Do All Party Appointed Arbitrators Play Fair?
One of the major criticisms of party appointments is the perceived risk of partisan arbitrators. 52% of respondents saw an increased risk of partisan arbitrators as a legitimate reason for ending party appointments. Our survey also looked at arbitrator conduct in the context of party appointments and asked about individual experiences of the conduct of party appointed arbitrators. 55% of respondents who sat as arbitrators said that they had experience of a party appointed arbitrator who tried to favour the appointing party by some means. 70% of respondents who had acted as counsel had been in a situation where they believed a party appointed arbitrator tried to favour the party that had appointed them.
Impact on Diversity
A significant number of respondents agreed that an increase in institutional appointments would bring about greater diversity on arbitral tribunals and would create greater opportunities for younger practitioners to sit as arbitrators. 41% felt that more institutional appointments would help gender diversity and 31% that it would also help ethnic/national diversity. 45% of respondents felt that it would provide increased opportunities for younger arbitrators.
Alternatives to Party Appointments
The alternative approach to party appointments favoured by the largest number of respondents involved the drawing up of a short list of potential arbitrators by the appointing authority into which the parties would still have some input – either by making proposals of arbitrators or by a ranking system. The clear message from respondents was that the parties wish to have a role in the appointment process.
59% of respondents felt that not all institutions could be trusted to maintain an inclusive and well-qualified list of arbitrators from which appointments would be made. Clearly, any move towards more institutional appointments under particular rules will only work if parties have confidence in the ability of that institution to appoint suitable arbitrators.