United States: The Arbitrator

This part of the conference brings together a number of issues relating to the arbitrators, their status, their appointment, their removal or resignation as a consequence of challenges based on their lack of impartiality or independence, etc. Although my focus is on the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (the "Rules") and Swedish law, occasional references will be made to international practice outside of Sweden.

Under the heading "The Arbitrators" the Swedish Arbitration Act of 1999 (the "Act") deals with the requirements that must be fulfilled by an arbitrator, in particular in terms of impartiality, disclosure of any circumstances which might be considered to have the effect of preventing the arbitrator from serving, the procedure for challenges, the manner of appointment including exchange of notifications between the parties and the arbitral tribunal, the replacement of an arbitrator that is discharged or resigns, the discharge of the arbitrator for causing a delay, etc. The same subjects are covered more concisely by Articles 16 to 19 of the Rules.

The underlying principle is that of party autonomy and there is a high degree of convergence between the Swedish legal framework and the UNCITRAL Model Law. Because the Model Law has been extremely influential even in countries that have not adopted it formally, there is widespread conformity between nations in respect of many of the provisions we shall deal with under this heading.

The only requirement laid down by the Arbitration Act is that the arbitrator must be of legal age with full legal capacity in respect of his actions and his property.

Contracting parties are free to prescribe further conditions, for instance requiring that the arbitrator must be a professional judge from the court system, or a person with experience of the insurance business. At least when it comes to the question of experience, this is a matter that will presumably be determined with regard to circumstances as they are known or can be established at the time when the arbitrator is appointed. It is customary in Sweden to appoint lawyers, although not necessarily practicing attorneys. The traditional trade arbitration system based on laymen performing a dispute resolution service in their field of business has generally become outdated over recent decades, if not before. This should not prevent a party from appointing for instance an accountant, a banker or an engineer, preferably with some arbitration experience, in cases where it is useful to have the relevant type of background represented inside the tribunal, so that a party’s pleadings and evidence can be better understood. I should add here that I use the word pleadings in the English sense which comprises not only legal argumentation but all statements and submissions made by a party to the arbitral tribunal.

Although the standard tribunal under the Act and the Rules will consist of three arbitrators, the parties are free to determine the number. The most frequent alternative to a three member tribunal is a tribunal consisting of a sole arbitrator. The normal scheduling complexities are multiplied when an arbitration proceeds with more than three arbitrators. That difficulty is added to the question of costs which will also play a part when contemplating a tribunal going beyond the minimum number of arbitrators. Due to the strength of the vote of the chairman, it is possible to have a tribunal made up of an even number of arbitrators.

The right of each party to select a person of its choice to serve as arbitrator is often mentioned as one of the advantages of arbitration. In a concrete case, it is not sufficient, in order to safeguard the integrity and success of the arbitral proceedings, merely to choose a person that is generally acceptable, for instance because he is of the same nationality as the appointing party. Although nationality tends to play an important role in arbitration, so that, for instance, institutions avoid appointing as chairman a person that is of the same nationality as one of the parties, there are other important considerations. In my view, a party does well to appoint an arbitrator that will be listened to with respect by the other arbitrators and who can be counted on to understand the presentation of the case as made by the appointing party. I will have more words to say about this under the heading of impartiality. Suffice it to say at this point that the character of the case will very much decide whether the suitable arbitrator is likely to be found among practicing lawyers, academics or lawyers with special qualifications, for instance in the insurance industry, banking or transportation.

The Act requires all arbitrators, not just the chairman, to be impartial. The Rules require an arbitrator to be "impartial and independent". However, in this regard there is no difference between the legal requirements and the requirements of the Rules. There is no definition of impartiality or, indeed, independence, and those words may be assumed to have their common sense meanings. It may be observed that the English Arbitration Act 1996 refers only to the "arbitrator’s impartiality" and not also to his "independence", thus agreeing with the Act but differing from the Model Law and from some, but not all, institutional rules.

It has been accepted in international arbitration literature that impartiality denotes that quality of the arbitrator’s mind which enables him or her to decide the issues without a disposition to favour one side over the other. Independence, on the other hand, denotes the absence of any degree of relationship between the arbitrator and a party or parties, or between the arbitrator and the substance of the dispute, which would make it inappropriate for him or her to adjudicate between those parties on that dispute.

It used to be said that arbitration was a friendly and gentlemanly way of resolving disputes, but, in today’s world, arbitration is often as antagonistic and aggressive as any litigation can be. This change of atmosphere has been reflected in the increasing tendency to challenge arbitrators, for instance based on their supposed lack of independence. It is obvious that it is highly difficult to demonstrate any degree of impartiality before an arbitrator has been seen to perform in an arbitration. On the other hand, existing or historical relationships between an arbitrator and one of the parties can be demonstrated more easily. It is now the practice of the Arbitration Institute of the Stockholm Chamber of Commerce to ask that arbitrators declare any circumstances known to them that may give rise to justified doubts as to their independence. This is done in a declaration which is to be submitted to the Institute at the time of the appointment. There is no clear international practice in respect of the type of relationships that need to be declared. For instance, if one arbitrator is habitually appointed by one party, or by one firm of lawyers acting on behalf of various parties, is that habit of a nature to disqualify that arbitrator? My personal view is that this question should most likely be answered in the negative, but there is no established practice and the question keeps being raised even though there are in fact very limited numbers of disqualifications on this ground.

The circumstances when an arbitrator can be removed give an indication as to the requirements that should be fulfilled in the first place, when the arbitrator is first nominated. Section 8 of the Act stipulates as follows:

"Section 8

An arbitrator shall be impartial.

If a party so requests, an arbitrator shall be discharged if there exists any circumstance which may diminish confidence in the arbitrator’s impartiality. Such a circumstance shall always be deemed to exist:

1. where the arbitrator or a person closely associated to him is a party, or otherwise may expect benefit or detriment worth attention, as a result of the outcome of the dispute;
2. where the arbitrator or a person closely associated to him is the director of a company or any other association which is a party, or otherwise represents a party or any other person who may expect benefit or detriment worth attention as a result of the outcome of the dispute;
3. where the arbitrator has taken a position in the dispute, as an expert or otherwise, or has assisted a party in the preparation or conduct of his case in the dispute; or
4. where the arbitrator has received or demanded compensation in violation of Section 39, second paragraph."

It must be noted that the definition of the circumstances when an arbitrator shall be discharged is not exhaustive. It appears that where an attempt is made to remove an arbitrator, a party often relies on one of the specified cases and additionally also on the general provision referring to circumstances which diminish confidence in the arbitrator’s impartiality.

I should mention a few words about the case stated under 3., relating to an arbitrator that has taken a position in the dispute. This requirement makes it very important for an arbitrator, when he is first approached by a party wishing to nominate him, not to get involved in the facts of the case, which should be discussed only in broad terms and without any conclusions or advice being offered by the prospective arbitrator.

It is often discussed whether it is permissible to appoint an arbitrator who has published views on a legal question which appear to support the nominating party’s case in an upcoming arbitration. This is where it becomes necessary to refer to the often stated maxim that no hard and fast rules can be drawn up to cover all cases of suspected lack of independence and impartiality. Suffice it to say that in my view, where I join a number of better-known arbitration specialists, it should be permissible to appoint an arbitrator who has advocated a certain legal conclusion to a familiar set of facts. It is worth remembering that in a three-member tribunal, the view of one arbitrator may be completely irrelevant up to the point where he convinces one more arbitrator to accept his reasoning. It is my general view, based on my own practice as arbitrator, that an arbitrator who appears to be guided by the interests of one party will become irrelevant very quickly and therefore potentially less useful to the nominating party than a more circumspect and open minded arbitrator could have been.

This is one of the cases where time is of the essence. An arbitrator’s lack of impartiality does not invalidate the award under Section 33 of the Act. If an arbitrator turns out to have been dependent on one of the parties, or partial, then the award may be set aside by the court at the request of the injured party. If, however, the relevant circumstance was known to the party, then the party is deemed to have accepted the lack of independence or impartiality. Consequently, a challenge must be brought immediately, within 15 days, after the circumstance became known to the party. The question of the existence of grounds for removal will be adjudicated by the arbitrators, unless the parties have agreed differently. If the challenge is successful, then the decision is not subject to appeal. On the other hand, if the motion to dismiss the arbitrator is not granted by the arbitral tribunal, the party may apply to the District Court for the removal of the arbitrator. That application must be submitted within 30 days from the date when the party was notified of the arbitrators’ decision. Where the Rules apply, the decision is taken by the Arbitration Institute.

A moment of reflection will tell us why there is such emphasis on speed in this connection. Arbitrations are expensive exercises with important consequences. If a party is allowed to speculate in the outcome of the arbitration, bringing a challenge only if the party is dissatisfied with the award, then a great injustice may be done to the party that has continued the arbitration in good faith, not aware of the potential serious objections of the other party. It is this same consideration that makes it imperative for a prospective arbitrator to divulge any circumstance relating to him or her which could jeopardise the validity of an award, or risk disrupting the proceedings, if that circumstance became known to the parties in the course of the arbitration.

I have had several cases involving the effect of changed circumstances on the possible disqualification of an arbitrator. In one case, the company that nominated the arbitrator was acquired, in the course of the arbitration proceedings, by a larger group of companies which comprised an entity that had been instructing that particular arbitrator, a practicing lawyer, in the very recent past. The arbitrator notified the parties and the arbitrators, inquiring if there was any objection. Indeed there was, and a new arbitrator was appointed by the arbitral institution, upon nomination by the party that had nominated the arbitrator that had to be replaced.

In another recent case, the respondent had nominated an arbitrator who was at that time a practicing attorney. In the course of the arbitration, the attorney in question became in-house counsel at a firm of consultants involved in the same business as the claimant. It was likely that the outcome of the dispute would be of interest to the company that was the employer of the arbitrator, at least in the longer run. The claimant had to make a quick decision, within 15 days, whether to challenge the arbitrator. Otherwise, the opportunity would have been lost forever. Although all the details as to the arbitrator’s new functions as in-house counsel were not known, the claimant decided to file a challenge. This challenge was rejected after the arbitrator had assured the arbitral tribunal and the parties that the particular question on which the dispute centred had not come up in the operations of his new employer. The arbitration continued with the same arbitrator in place. The challenge had been made in the most polite and academic manner possible, in order to preserve relationships, and in my view the claimant did the right thing by raising the issue so that the details could be investigated, and the arbitrator could become aware that the searchlight was on him.

It is possible to say that the increasing frequency of objections and challenges to the appointment of arbitrators, often made in order to disrupt and delay the proceedings, have been countered by courts and arbitral institutions in many countries taking a firm stand in favour of the appointed arbitrator to a greater degree that we would have expected a couple of decades ago. In fact, in the old friendly and gentlemanly world of arbitration, arbitrators regularly stepped down as soon as they were challenged, thinking that the fact of the challenge was enough to justify their resignation. Due to the increasing frequency of challenges, that type of gentlemanly behaviour rather played into the hands of possibly disloyal arbitrants, and it is fully understandable that international practice does not support the challenge of arbitrators on feeble grounds.

Under Section 17 of the Act, an arbitrator may be removed by the District Court if he has delayed the proceedings. The Court will also appoint another arbitrator. Under the Rules, the Institute has the power to remove the arbitrator, which it will not do before soliciting the views of the parties and the arbitrators. The Institute will also solicit the views of the appointing party before proceeding with the appointment of a replacement. It appears that in Swedish practice it is very rare for arbitrators to fail to participate in the proceedings to a reasonable extent. In other words, the arbitrators typically handle the dispute in the practical and speedy manner required by Section 21 of the Act. In international practice, it is not unknown to find varying degrees of sabotage, and I am not saying that this is an unknown phenomenon in Sweden. Because of the many legitimate reasons for delays, illness, etc., there is no doubt that it will take some time before systematic obstruction by an arbitrator is determined to exist. Due to the character of arbitration, it is a sensitive matter to remove a party-appointed arbitrator, and we can note with satisfaction the existence of means to deal with such cases, when the necessity arises.

The Act provides that the arbitrators are entitled to reasonable compensation, for which the parties are liable, jointly and severally. This is the same solution as applied in, for instance, the English Arbitration Act 1996, but Swedish practice deviates from English practice by hardly ever including specific agreements between the arbitrants and the arbitrators in respect of the method for determining the costs of the award. The reason is probably to be found in the long Swedish tradition of ad hoc arbitrations where arbitrators, often practicing attorneys, established their right to be remunerated in accordance with their normal charging rates, a practice that has been upheld by the courts in cases where the parties have used their entitlement to appeal to the court against the arbitrators’ decision in respect of fees.

The situation in an arbitration under the Rules is different due to the existence of a schedule of fees which is appended and made part of the Rules and which will consequently form part of the original contract to arbitrate and be applicable in any arbitration which the parties have agreed to conduct under the Rules.

In respect of Swedish arbitration generally it may be said that costs are very competitive when compared to arbitration on the continent of Europe or in England. This is the result of many factors, both the intentionally competitive tariffs contained in the Rules, based on the amount in dispute, and the increased competitiveness of all Swedish industrial and service industries following a series of devaluations of the Swedish currency. The relative economy of arbitrating disputes in Sweden, when compared with other countries in Western Europe or the United States of America, is underlined by reasonable rates for hotels, meals and meeting rooms.

In contrast to international practice, Swedish arbitrators are not allowed to withhold their award until payment has been received. On the other hand, the arbitrators are specifically empowered by the Act to require the parties to pay an advance as security for the cost of the arbitration, and the Arbitration Institute of the Stockholm Chamber of Commerce follows the standard practice of obtaining suitable advances which normally fall well below the upper limits of the schedule of fees. Those advances are intended to provide the parties with protection against surprises at a later stage, unless there is a development in the case which is itself a surprise making it necessary to reconsider the level of the advance.

Whereas the Act does not contain any rules with respect of the liability of arbitrators, the Rules provide that the Arbitration Institute and the arbitrators shall be liable only in case of gross negligence. This provision is probably based on the general liability principle in Scandinavian law, under which disclaimers are not recognised as valid if they attempt to exclude a party’s liability for wilful misconduct or gross negligence. There are no cases helping delineate the extent of arbitrators’ liability, nor is there any extensive case law in respect of the arbitrators’ right to be remunerated if they have been negligent, for instance by issuing an award that has such procedural defects that it is not enforceable. When I asked a question about the experience of the International Chamber of Commerce in Paris in this regard, the reply said that no such case had occurred, nor was it likely to occur due to the care taken in the adjudication of disputes. I do not think that this is the full description of reality, but it is clear that the issues of the arbitrator’s liability and possible immunity have not developed to any stage where it is meaningful to start a discussion of it in a presentation of this general nature.

In Scandinavia the practice of arbitration goes back to the Middle Ages, and most practical situations can be dealt with on the basis of established practice. In my view it is a sign of the robust health of arbitration in Sweden that although there is standard practice on a number of issues normally encountered in arbitration, there are very few disputes and court cases relating to such practice. This indicates a businesslike approach to dispute resolution, undoubtedly one of the factors that have made Swedish arbitration widely accepted by international business.