Introduction

The International Chamber of Commerce in Paris ("the ICC") is presently considering the introduction of a new Rule which would attempt to protect an arbitrator (and perhaps the ICC itself) against the risk of an action for damages. Other organisations, such as the London Court of International Arbitration ("the LCIA") and the World International Property Organisation ("WIPO") have already introduced such a rule.1 We live in an increasingly litigious world and legal actions, even if they are highly speculative, can be expensive and time-consuming to defend.

It may seem a radical step for an organisation such as the ICC to introduce such a rule; but it does not necessarily run counter to arbitral tradition. Indeed, in the earlier days of arbitration, it was the practice in England for arbitrators to require and to be given an undertaking that they would be immune from legal proceedings, before accepting appointment: the arbitrator gave his services free of charge, as a friendly action, and he did not wish to be sued by a party disappointed by his decision. The English courts were quick to uphold such an undertaking, because they recognised the importance of the arbitrators' function and the risk that an arbitrator faced of being shot at by one party or the other - or even both. Thus in the mid-eighteenth century case of Lingood v. Croucher,2 for example, an agreement that the arbitrator would not be sued for anything done in the exercise of his function was held to be valid, so long as there was no "corruption or partiality". The court said that it would be "a very great hardship upon arbitrators, if they should be harassed with suit, when they undertake such an employment without any gratification".

I. The Bramwell Code

Eventually, the immunity of an arbitrator in English law came to be recognised and upheld by the courts without any undertaking by the parties to that effect. Just as judges were immune from legal proceedings in the carrying out of their judicial duties, so were arbitrators - even though they owed their appointment not to the state but to private parties.

One and a half centuries after Lingood v. Croucher, a determined attempt was made to codify the immunity of arbitrators as part of a much greater - and eventually unsuccessful - attempt to codify the English (and Scottish) law of arbitration. Lord Bramwell, an eminent judge of the Victorian era, with the assistance of lawyers such as Francis Russell (author of Russell on Arbitration) prepared an Arbitration Code which aimed to codify the existing common law of arbitration. Despite numerous attempts, the Bramwell Code failed to pass into law. It was eventually set aside in favour of a much less complete enactment, the Arbitration Act of 1889.3

In dealing with the liabilities of an arbitrator, the Bramwell Code stated in Section 71:

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(1) An action shall not lie against an arbitrator for negligence or want of skill in the performance of his duties as arbitrator.

(2) An action shall lie against an arbitrator for fraud or collusion in the performance of his duties as arbitrator; and if he has been a party to fraud or collusion in connection with an award, he may be joined as a defendant in proceedings to set aside such award and he may be ordered to pay costs and an action for damages shall in such case lie against him.

It is plain from this codification that under the law of England and Scotland, as it existed towards the end of the last century, an arbitrator's exemption from liability no longer depended upon any pre-existing, contractual agreement. By the terms of the Bramwell Code, arbitrators were taken to be immune from liability, unless they were guilty of fraud or collusion in the performance of their duties.

II. The present position in English law

For many years, it was taken for granted that arbitrators were immune from any action for damages in the performance of their duties. Thus in 1974, in the leading case of Sutcliffe v. Thackrah,4 the House of Lords - the highest court in England - held that whilst an architect who issued an interim payment certificate was not immune from legal proceedings, a person who acted as an arbitrator would be. Lord Reid, giving judgment, referred to the immunity of judges and then said:

Those employed to perform duties of a judicial character are not liable to their employers for negligence. This rule has been applied to arbitrators for a very long time. It is firmly established and could not now be questioned by your Lordships.

This was a very positive statement of the law; and yet, ironically, it was questioned by their Lordships, only three years later. The case of Arenson v. Arenson5 was a case in which a valuer, who had been appointed by both parties to put a valuation on shares in a private company, was sued for negligence. It was argued that a valuer appointed by both parties (a so-called "mutual valuer") was in fact carrying out a quasi-judicial function and should be given the same immunity as an arbitrator. However, the House of Lords refused to extend immunity to a valuer in such circumstances. It is understandable that some limit should be put on the spread of immunity, even if the limit seems somewhat arbitrary; but three of the five members of the court went further and questioned why it was that arbitrators themselves should be regarded as immune from legal proceedings, as a matter of public policy. Lord Kilbrandon said:

It is conceded that the arbitrator is immune from suit, aside from fraud, but why?

He went on to say that it was his belief that:

An arbitrator is indeed a person selected by the parties for his expertise, whether technical or intellectual, that he pledges skill in the exercise thereof and that if he is negligent … he will be liable in damages.6

Lord Salmon, in a concurring judgment, suggested that the immunity of arbitrators "may have to be examined in the future". Lord Fraser, the third of the doubting judges, said:

I share the difficulty of my able and learned friend, Lord Kilbrandon, in seeing why arbitrators as a class should have immunity from suit, if mutual valuers do not.

Accordingly, although in English law arbitrators are said to enjoy immunity from legal proceedings, some doubt has been thrown upon this traditional immunity by the House of Lords itself.

The case for immunity can be argued both ways.

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It may be said that, as a matter of public policy, men and women who are paid to carry out the functions of an arbitrator - and this is a difference from earlier centuries, when most if not all arbitrators were unpaid - should be obliged to carry out their duties with proper skill and care; and that if they fail to do so, they should be liable in damages to the injured party - in much the same way as the negligent lawyer or accountant or doctor may be liable in damages. Against this, it may be said that an arbitrator carries out a judicial function and that, just as it is recognised that as a matter of public policy a disappointed litigant cannot be allowed to fight the case again by suing the judge, so it should be recognised - as indeed in many, if not most countries, it is recognised - that the disappointed party to an arbitration cannot be allowed to fight the case again by bringing an action for damages against the arbitrator.

It may also be said that not only the arbitrator but also the arbitral institution which appointed that arbitrator - and which may indeed have administered the arbitration - should also be protected from legal action at the suit of a disappointed party. Of course, an arbitrator or an arbitral institution which is sued may defend himself or itself; and it may well be successful in that defence. But as Lord Kilbrandon ironically remarked, in Sutcliffe v. Thackrah,7 an arbitrator may well say:

I have no ambition, nor can I afford, to be a successful defendant, even in a leading case.

III. The proposed new Arbitration Act

This issue has recently been much debated8 in England in accordance with the proposed new arbitration bill.9 The balance of opinion is in favour of immunity; and the Arbitration Bill as at present drafted contains the following provisions:

Section 26 - immunity of an arbitrator

(1) An arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith.

(2) Subsection (1) applies to an employee or agent of an arbitrator as it applies to the arbitrator himself.

Section 60 - immunity of arbitral institutions

(1) An arbitral or other institution or person designated or requested by the parties to appoint or nominate an arbitrator is not liable for anything done or omitted in the discharge or purported discharge of that function unless the act or omission is shown to have been in bad faith.

(2) An arbitral or other institution or person by whom an arbitrator is appointed or nominated is not liable for anything done or omitted by the arbitrator in the discharge or purported discharge of his functions as arbitrator.

(3) The above provisions apply to an employee or agent of an arbitral or other institution or person as they apply to the institution or person himself.

If, as is to be hoped, this excellently drafted Arbitration Bill becomes law, then an arbitrator - and indeed an arbitral institution - acting in good faith, will be protected against legal actions under English law and this protection will be plain for all to see. However, the fact that the grass is greener in England will be of little or no comfort to the many arbitrators and arbitral institutions whose actions are governed by a different system of law - which may or may not offer similar protection. This is why, as it seems to me, it would be sensible for the ICC to follow the example of other reputable institutions and build such protection into its own Rules of Arbitration.

1
The LCIA rules, in Article 19, provide as follows: "Neither the Court [that is, the LCIA itself] nor any arbitrator shall be liable to any party for any act or omission in connection with any arbitration conducted under these Rules save that arbitrators (but not the Court) may be liable for the consequences of conscious and deliberate wrong doing." The WIPO rules, in Article 77, provide as follows: "Except in respect of deliberate wrong doing, the arbitrator or arbitrators, WIPO and the center shall not be liable to a party for any act or omission in connection with the arbitration."

2
Reported in 1742, 2 Atkin's Cases at p. 395.

3
The Bramwell Code, important though it was as part of the history of arbitration, was virtually forgotten until it was "unearthed", like the burial place of Tutankhamen, by two lawyers, John Veeder Q.C. and Brian Dye: for their account see Arbitration International, Vol. 8, No. 4.

4
[1974] AC 727.

5
[1977] AC 405.

6
Lord Kilbrandon went on to suggest, harking back unconsciously perhaps to the earlier cases, that the practical remedy was for an arbitrator to limit his liability in accepting appointment.

7
Cited at footnote 5.

8
Notably at a discussion forum at which leading arbitrators and representatives of arbitral institutions were present held at King's College, London on Friday the 14th July 1995.

9
This is the Bill which attempts to set out, in one single code, a modern formulation of English arbitration law.