REUTERS | Ilya Naymushin

The appointment and confirmation of arbitrators and adjudicators: why the secrecy?

The implications of repeat appointments of arbitrators and adjudicators are very much in the zeitgeist. The Royal Institute of Chartered Surveyors (RICS) announced recently that of its 110 adjudicators, 85% got at least one referral every six months. In Cofely v Bingham, we learned that over three years, 18% of Mr Bingham’s appointments and 25% of his income derived from cases involving the same claims consultant. In W v M, an arbitrator was appointed by the London Court of International Arbitration (LCIA) without anyone (not even him) being aware that the respondent was a subsidiary of a substantial client of his firm, contrary to paragraph 1.4 of the Non-Waivable Red List of the IBA Guidelines.

There is a persistent concern among practitioners and clients about undisclosed conflicts, apparent or actual bias, and the way in which arbitrators and adjudicators are appointed. This problem is seen as particularly acute in specific sectors, such as construction and investment disputes, where there is a small pool of recognised and experienced arbitrators.

Domestic and international institutions and appointing bodies have been obliged to reconsider their appointment practises and to scrutinise the processes involved in managing their panels of dispute resolvers.

Real steps are being taken and those are welcome. However, in light of the reputational issues for arbitration and adjudication as processes, thought may need to be given both to the rules and procedures set by the institutions for nominating and appointing arbitrators and adjudicators, and the level of transparency of those processes. Are the institutions doing enough to avoid recurring appointments and circumstantial apparent bias? Are stakeholders sufficiently informed and involved? What more can be done?

Appointment or confirmation?

On appointment, there is something of a “sliding scale” of party involvement, transparency and choice. In a  RICS adjudication, the referring party may make suggestions as to suitable or unsuitable candidates, but there is (formally) no mechanism for the responding party to be heard. In a Chartered Institute of Arbitrators (CIArb) arbitration, the CIArb will, failing agreement between the parties, appoint a sole arbitrator at the request of a party.

The parties have a stronger role in international cases. In the International Chamber of Commerce (ICC), while the ICC Court will appoint a sole arbitrator or President, for co-arbitrators on a panel of three, typically the parties appoint and the court confirms. So the parties can choose some of the arbitrators, but not the central decision-maker.

The LCIA Court appoints arbitrators, but takes into account any written agreement or joint nomination by the parties. The LCIA draws up an initial list. The candidate(s) are required to confirm their availability, independence and impartiality. If the LCIA Court determines that any nominee is not suitable, independent or impartial, it has discretion to decide whether or not to follow the original nominating process.

The “black box” of institutional appointment

There is a problem with the secretive nature of the institutional appointment process. Superficially it is absurd: parties agree to have their dispute resolved by an individual to be appointed by a particular body, without knowing the pool from which that individual will be chosen or the criteria which will be applied. Panels of arbitrators of the ICC, LCIA, CIArb and RICS are secret. The process of appointment and the reasons for appointing an individual are also secret.

This secrecy is guaranteed by Article 11 of the ICC Rules. While in late 2015 the ICC Court announced that it would communicate reasons for administrative decisions (such as on the challenge of an arbitrator), that is only if all parties agree. ICC Court appointments are generally based on a proposal from a national committee or group of the ICC. However, the parties are not informed of the choice, and few have any understanding of the criteria of those committees.

The CIArb usually appoints from its Presidential Arbitrators Panel, but may appoint an arbitrator who is not on the Panel if it considers it appropriate.

This “black box” approach has the merits of preventing one party from tailoring its nominee requirements to target certain “favourable” individuals on the database. But such lack of transparency goes against the spirit of giving the parties a clear choice, and crucially avoids the party scrutiny that may reveal facts which indicate actual or apparent bias of the nominee.

Two modest proposals: transparency in appointment

Parties choose institutional arbitration to get the benefit of an institution’s candidates. But is their freedom of choice fettered by the secrecy of the list and the wide discretion of the institutions? If an institution were to make its lists publicly available, then the parties or their appointed co-arbitrators could agree on the sole or presiding arbitrator without involvement by the institution. Parties could consider the best candidates from a range of professional backgrounds, experience and skills. To minimise the risk of apparent bias and challenges due to recurring appointments, the institution could maintain records of previous appointments by parties and their representatives. The institution’s key role would be to resolve any deadlock.

Another element which could be opened up is the declaration of independence and impartiality. This is established practice internationally: both the ICC and LCIA forward the arbitrator’s declaration to the parties for comment. Would it not be reasonable for the parties involved in a RICS adjudication to receive similar treatment? The argument that practises adopted in the international context may be inappropriate to a different, domestic procedure does not convince here: parties to domestic adjudications have just as much right to be confident of the impartiality of their dispute resolvers as parties to international arbitrations.

Widening not deepening

The underlying problem the size and demography of the list. One response to the issues posed by repeat appointments, which is being addressed by several institutions, is to enlarge and broaden the pool of dispute resolvers. This should reduce the incidence of repeat appointments and broaden the skills base that the institutions can offer.

It is in everyone’s interest to encourage a new generation of professionals to sit as arbitrators or adjudicators. This will require some considerable effort. For specialist institutional arbitration, such as the Court of Arbitration for Sport (CAS) and International Centre for Settlement of Investment Disputes (ICSID), it is not a simple matter to increase the size of the pool of arbitrators. In the construction industry, even if the pool is increased, the challenge will then be to change the habits of law firms and claims consultants who consider it their role to influence the choice of dispute resolver and to place disputes in a pair of “safe hands”.

Final thoughts

The institutions continue to seek improvements to their rules and procedures. The ICC has taken vital steps towards disclosing the reasons for administrative decisions. RICS has now committed to publish information about its process for appointing adjudicators.

The challenge for the institutions is how to enhance party choice, increase transparency of the lists and ensure that this new generation of professionals actually gets appointments.

 

Berwin Leighton Paisner Marcus Birch

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