By: Daria Pustilnik 
Published: March 2022

We have all been there: an arbitrator looks great on paper but proceeds to dislike your client or make irrational decisions. I arbitrated one client’s identical agreements in two separate proceedings under the same rules and with the same arbitrator. He gave opposite rulings on the same discovery issues. Recently, without any input from the parties, a court appointed a neutral who had made public comments adverse to our position, but the neutral has been fair thus far. Therefore, it sometimes appears that it is easier and cheaper to roll the dice on the arbitrator. However, another school of thought is that the careful selection of an arbitrator is important as it allows the party to retain some control.

Selection vs. unilateral appointment

Agreement of the parties is the most obvious way of arbitrator selection. Otherwise, the basic methods are: (1) selection from a list where the parties strike or rank the arbitrators the institution proposed, and (2) unilateral appointment by the authority (“rolling the dice”).[2]  Widely-used rules use both methods.[3] Generally, U.S.-centric institutions prefer the list selection process, and international institutions and UNCITRAL favor unilateral appointment.[4] Unilateral appointment may save costs because negotiations are minimized, but the downside is the lack of control. If you prefer not to roll the dice, helpful information is available.

Ex parte pre-appointment interviews and considerations in arbitrator selection

The arbitrator’s independence, impartiality, qualifications, willingness to serve, and security measures taken to protect the parties’ data are paramount. These factors either must be disclosed or can be discovered through the institution or pre-appointment interviews. Unless prohibited by the arbitration clause or applicable rules, limited ex parte communications with the arbitrator may be permissible.[5]  These should be relevant to the appointment process and exclude discussions of the merits.[6]  For example, a party may ask whether the arbitrator represented a certain government or party even if they are not in the case, and had past business or professional relationships or current involvement in other arbitrations with the opposing party or counsel.

Other aspects that are harder to discover are also important: efficiency of case management, speed of resolving cases, past discovery rulings, average claim and award amounts, and percentage of pre-award settlements. Services have started to offer reports on arbitrators. As the volume of data increases, these reports will become more useful.

Award enforcement proceedings confirm that arbitrator selection process matters

Inappropriate arbitrator selection may undermine the award. For example, in PoolRe Insurance, the disputes were governed by two contracts, one requiring AAA arbitration, and the other an ICC arbitration with the Director of Insurance in Anguilla selecting the arbitrator. [7] The Director of Financial Services Commission of Anguilla advised that there was no such official and designated the arbitrator acting under the first contract to make the selection.[8] The arbitration proceeded under the AAA rules over objections.[9] The district court vacated the award under both contracts and the Fifth Circuit upheld on two grounds: (1) the arbitrator selection process was not followed, and (2) the arbitrator exceeded his authority by applying AAA instead of the ICC rules.[10] In a footnote, the court addressed the fact that because no Director of Insurance existed in Anguilla, the ICC arbitration clause could not have been followed, and noted that the Federal Arbitration Act allowed a party to ask the district court to appoint the arbitrator.[11] Thus, the proper method of arbitrator selection is critical and mistakes in arbitration clauses can be fixed early.

In sum, there are two schools of thought on arbitrator selection: unilateral appointment by the institution and selection by the parties. Unilateral appointment comes with potential savings but less control. Helpful tools exist for uncovering critical information but failing to follow the proper process will undermine the award. Relatedly, Anguilla is a lovely destination in the Caribbean where rolling the dice may not be too bad.

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Daria Pustilnik is a lawyer with Kobre & Kim, a disputes and investigations firm with offices worldwide. Daria has represented clients in their domestic and cross-border complex commercial disputes in state and federal courts; under the rules of the American Health Lawyers Association, American Arbitration Association, International Centre for Dispute Resolution, and the London Court of International Arbitration; and in arbitration-related litigation, such as arbitration award enforcement cases. Daria is experienced in handling matters involving simultaneous arbitration, bankruptcy, civil and agency proceedings in multiple jurisdictions, such as the U.S., UK, BVI and Russian Federation. Before joining Kobre & Kim, she practiced at Shutts & Bowen LLP, and served as a law clerk for Judges Kenneth A. Marra and James M. Hopkins in the Southern District of Florida. Daria can be reached at [email protected] or 347-899-0423.

For additional ADR tips and resources go to https://www.palmbeachbar.org/alternative-dispute-resolution-committee/

 

[1] This brief article focuses on selection of a neutral arbitrator as opposed to nonneutral party-appointed arbitrators.

[2] Another method is for the parties to appoint two arbitrators who then select the presiding member of the panel. This process merits a separate discussion that is beyond the scope of this article.

[3]

Rules	Method
American Arbitration Association Commercial Arbitration Rules (2018) https://www.adr.org/sites/default/files/CommercialRules_Web_FINAL_0.pdf	List (Rule R-12)
International Centre for Dispute Resolution International Arbitration Rules (2021) https://go.adr.org/rs/294-SFS-516/images/ICDR_Rules.pdf	List (Article 13(6))
JAMS Comprehensive Arbitration Rules & Procedures (2021) https://www.jamsadr.com/rules-comprehensive-arbitration/	List (Rule 15)
American Health Law Association Commercial Arbitration Rules (2021) https://www.americanhealthlaw.org/dispute-resolution-services/arbitration/rules-of-procedure-for-arbitration/commercial-arbitration#Section%203	List (Rule 3.2)
FINRA Customer Code (2007) https://www.finra.org/arbitration-mediation/printable-code-arbitration-procedure-12000	List (Rule 12400)
UNCITRAL Arbitration Rules (2010) https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/arb-rules-revised-2010-e.pdf	Unilateral appointment (Article 8)
International Chamber of Commerce Arbitration Rules (2021) https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/	Unilateral appointment Article 12(3))
London Court of International Arbitration, Arbitration Rules (2020) https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx	Unilateral appointment (Article 5)

 

[4] In the unilateral appointment cases, a party can usually still challenge an appointment where necessary.

[5] The College of Commercial Arbitrators, Guide to Best Practices in Commercial Arbitration (4^th Ed.), James M. Giatis (Editor in Chief) (2017), Ch. 2.

[6] Id.

[7] PoolRe Ins. Corp. v. Organizational Strategies, Inc.783 F.3d 256, 258-65 (5th Cir. 2015).

[8] Id.

[9] Id.

[10] Id.

[11] Id., fn. 12.