Practical Law

The usual practice in international arbitration is for each party to appoint an arbitrator, and then for the two party-appointed arbitrators to appoint the chair or president of the tribunal. Some have criticised this approach as creating a “moral hazard” in which party-appointed arbitrators may be inclined to rule for the party that appointed them. Professor Albert Jan van den Berg noted that “[a] nearly 100 percent score of dissenting opinions [are] in favour of the party that appointed the dissenting arbitrator” and this “raises concerns about neutrality” (Albert Jan van den Berg, Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration, in Looking to the Future: Essays on International Law in Honor of W. Michael Reisman (2011)). Yet others have emphasised the right of parties to choose the arbitrators and the ability of an arbitrator to express disagreeing views in a dissenting opinion as necessary for the continued viability of international arbitration (see 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, 6 World Arb. & Med. Rev. (2012)).

The International Institute for Conflict Prevention & Resolution (CPR) has developed a unique approach to balance these concerns. The CPR Rules for Administered Arbitration of International Disputes contain an optional provision that enables the parties to agree to a screened selection of the party-designated arbitrators in a three member tribunal. Under this process, CPR appoints the party-designated arbitrators without letting them know which party has designated them. Under this procedure:

• CPR provides each party with a copy of a list of candidates from the CPR Panels together with the candidates’ responses from the query.
• Within ten days after receipt of the CPR list, each party designates from the list three candidates, ranked in order of preference, for its party-designated arbitrator, and sends this list in writing to CPR and the other party.
• Within the same ten-day period after receipt of the CPR list, a party may also object (to the appointment of any candidate on the list on grounds of lack of independence or impartiality by written and reasoned notice to CPR, with a copy to the other party.
• CPR decides the objection after providing the non-objecting party with an opportunity to comment.
• If there is no objection to the first candidate designed by a party, or if the objection is overruled by CPR, CPR appoints the candidate as the arbitrator.
• CPR decides any later challenges of that arbitrator through CPR’s Challenge Protocol.

Because this is an opt-in procedure, and parties often have difficulty agreeing to arbitral procedures after a dispute arises, counsel drafting arbitration clauses should consider providing for this procedure in advance. CPR suggests the following clause:

Any dispute arising out of or relating to this contract, including the breach, termination or validity thereof, shall be finally resolved by arbitration in accordance with the International Institute for Conflict Prevention and Resolution (“CPR”) Rules for Administered Arbitration of International Disputes by three arbitrators to be appointed in accordance with the screened appointment procedure provided in Rule 5.4. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The seat of the arbitration shall be (city, country). The language of the arbitration shall be (language).

For developing these procedures, CPR was a winner of Global Arbitration Review’s (GAR) Innovation Awards 2016 in Shanghai. While it is too early to report on the results of parties using screened selection of arbitrators, the CPR approach is certain to add to the continuing debate on the use of party-appointed arbitrators.