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( Source of the document: ICC Digital Library )
A Report of the ICC's Commission on International Arbitration
The Working Party on the status of the arbitrator was constituted by a decision of the ICC Commission on International Arbitration on 27 April 1992 (Doc. No. 420/324).
Seven meetings were held (on 20 October 1992, 22 January, 7 May and 27 October 1993, 28 April and 16 September 1994 and 26 June 1995).
It comprised the following persons:
Chairman: Philippe Fouchard (France)
Members: Nabil B. Antaki (Canada), Ramon Aviolat (Switzerland), Marc Blessing (Switzerland), John D. Cooke (Ireland), Juan Antonio Cremades (Spain), Yves Derains (France), Antonias Dimolitsa (Greece), Jacques Divin (Switzerland), Mauro Ferrante (Italy), Anghelos Foustoucos (Greece), Serge Gravel (Canada), Sami Habayeb (Jordan), Sigvard Jarvin (Sweden), Khaled Kadiki (Libya), Fathi Kemicha (Tunisia), François Knoepfler (Switzerland), Robert Knutson (Canada), Klaus Lionnet (Germany), Joao Luis Lopes Dos Reis (Portugal), Dobrosav Mitrovic (Serbia and Montenegro), Roger Pichard du Page (France), Alan Redfern (United Kingdom), Andreas Reiner (Austria), Cari F Salans (United States), Toshio Sawada (Japan), Wagih Shindy (Egypt), Ercus Stewart (Ireland), Tadeusz Szurski (Poland), Ferdi Tongsir (Turkey), David Winter (United Kingdom).
Secretariat: Dominique Hascher (ICC).
The opinions, recommendations and conclusions set out in this report do not modify the ICC Rules of Arbitration. In addition, they are not binding on the International Court of Arbitration or its Secretariat.[Page28:]
The arbitrator is an individual 1 nominated by the parties with a view to finally settling the dispute between them. Here the word arbitrator is used in the widest sense of the term, whether he is acting alone or as one of a panel of arbitrators, whether he is chairman of the arbitral tribunal or a co-arbitrator, whether he has been appointed by the parties directly, by a permanent arbitration institution or indeed by the relevant judicial authority, and finally whether the arbitration is ad hoc or institutional.
The word status is defined to mean the set of rules and customs governing the situation of the arbitrator or arbitrators comprising an arbitral tribunal. More specifically, in carrying out his task, the arbitrator has the benefit of a certain number of rights or guarantees, and finds himself subject to a certain number of obligations, which if disregarded will be sanctioned directly or indirectly.
Before studying the status of the arbitrator, a number of materials relating to arbitration law had to be collected from various sources. This was the Working Party's first task. With the help of information communicated by its members on a regular basis, as well as the replies to a detailed questionnaire,2 we were able to group together a substantial body of reliable documentation relating to the national regulations of numerous countries 3 and the practice of arbitration centres.4
In an appendix to this report,5 you will find a comparative synthesis of current substantive law in various countries. This does not claim to be exhaustive, but it reveals the dominant trends of the main legal traditions, and-apart from a number of national particularities-shows how extensively the definitions of arbitrators' rights and obligations parallel one another. You will also find analyses of the law of certain countries drawn up by members of the working party.6
Strong similarities are also to be seen in the arbitration practice, particularly as expressed in arbitration rules or other instruments (contractual, ethical). Certain differences can be noted, however, in the drafting of such instruments in relation to the concept of the independence of the arbitrator or his 'immunity'.7
The Working Party had no mandate to submit to the relevant authorities at the ICC proposed improvements to the current rules and practice relating to the International Court of Arbitration's administration of arbitrations. Moreover, the Working Party considered the subject from the standpoint of international arbitration in general, and did not confine itself to arbitrations administered by the ICC.
In addition, the Working Party did not deem it appropriate to undertake the drafting of a code of ethics or a set of rules of conduct for international commercial arbitrators. It took the view that-even assuming a consensus could be reached-detailed rules would rather be a source of additional difficulties.
Hence, it was illusory to hope to define the precise nature and content of the various contractual [Page29:] relationships which are concluded when an arbitral tribunal is set in place, or the exact meaning of the duties of independence and impartiality that are binding on each arbitrator.
On the other hand, the group felt it useful to distill from the teachings of comparative law, the experience collected, and the views expressed by its members and the numerous specialists consulted, a number of principles which constitute or should constitute the elements of the status generally accorded to international arbitrators. Such clarification was useful from two standpoints. On the one hand, the rapid surge in international commercial arbitration has led to numerous lawyers or technicians from every specialist field and from all over the world being called to act as arbitrators, not all of whom had had the opportunity of acquiring progressively the necessary knowledge, know-how and experience. On the other hand, not even arbitrators are spared in today's intensification of contentious proceedings, during, on the fringe, or at the end of the arbitration procedure, with distrustful or discontented parties being increasingly ready to implicate them.
In the face of developments of this type, it appeared to us appropriate to attempt to stress the responsibilities implicit in the role of the international commercial arbitrator whilst at the same time affording protection to such arbitrators.
These component principles of the arbitrator's 'status' hence emphasize the general rights and duties of arbitrators in relation to the parties, but they do not include the arbitrators' actual prerogatives and role in the conduct of the procedure, which will naturally depend on the rules applicable to the procedure in question.
As a conclusion to its studies, the group has therefore tried to offer a report that is as simply and generally worded as possible, which will be a guide for arbitration practitioners whatever the legal context of the arbitration. It has deliberately excluded specific features of particular national laws, where these exist. This is the aim of the first part of this report (I).
On the other hand, the Working Party had some reservations as to whether it was appropriate to issue other recommendations of a more practical character (II).
I. Defining a status for international arbitrators: elementary principles
A. The arbitrator's relationship with the parties and the arbitration institution
In every case, the arbitrator and the parties are bound by a specific contract. The subject matter of this receptum arbitrii, sometimes referred to as the 'contract of investiture', is the arbitrator's performance of a very special task: to settle the dispute between his contracting parties.8
If the arbitration is administered by a permanent arbitration centre, two other contractual relationships are concluded: one between the parties and the arbitration institution, and the other between the institution and the arbitrator.9
In the international field, these various contracts are governed by the law applicable in accordance with the will of the parties. If no express choice of such law is made (which would not result solely from the choice of the law applicable to the arbitration), such contracts might be subject to the law of the place of arbitration, or, where applicable, of the headquarters of the arbitration centre or the domicile of each arbitrator. They would then be interpreted in accordance with the procedural rules that apply in this situation.
The court which has jurisdiction to deal with disputes resulting from such relationships is the court with jurisdiction over the defendant's domicile or usual place of residence.
The contractual relationship between the parties to the dispute and each arbitrator, and the arbitration centre if any, is concluded at the moment that the last of the said contracting parties expresses its acceptance. [Page30:]
From that date, no party may dismiss any arbitrator unilaterally, nor may any arbitrator resign without valid reason.10
B. Rights and obligations of the arbitrator
Every arbitrator must be and remain independent in relation to all the parties and their representatives, and show complete impartiality.
In consequence, as soon as he is proposed for such a task, he must disclose to the parties and where applicable to the arbitration centre, any fact and any circumstance which might give rise to any doubt as to his independence or impartiality in the mind of the parties.
The arbitrator is bound to conduct the procedure equitably, respecting the principle of equal treatment of the parties and their right to be heard.
The arbitrator must complete his task within a reasonable time limit.
He must respect the confidentiality of the arbitration, even after the award has been handed down.
The arbitrator is entitled to reasonable remuneration by way of fees 11 and to the reimbursement of any expenses he incurs in performing his task.12
Throughout the duration of the procedure, the arbitrator is entitled to expect honest cooperation from the parties and appropriate assistance from the arbitration institution.13
C. Remedies and sanctions
Any party may challenge the arbitrator on the ground of his lack of independence or impartiality as well as his failure to disclose facts and circumstances of a kind which might give rise to valid doubts in the mind of the parties as regards such characteristics.
Any errors by the arbitrator in the conduct of the procedure and the settlement of the substantive issues in dispute are only sanctioned by means of and in the context of any recourse to the courts to which his award is subject. They cannot constitute grounds for invoking any personal liability of the arbitrator.
Acts or omissions by the arbitrator which constitute negligence or inaptitude are valid grounds for his dismissal, either by mutual agreement between the parties or by decision of the arbitration centre or the relevant court.
In the course of carrying out his task as arbitrator, the arbitrator is not liable for any detriment caused by his acts or omissions, except in the case of deliberate wrongdoing 14 or if he resigns without valid reason.
The parties may withhold or claim back all or part of the arbitrator's fees should he be guilty of any of the wrongful acts or omissions covered by the preceding article. [Page31:]
II. Practical recommendations
Although the Working Party had little difficulty in agreeing on the drafting and content of the above principles, it was more divided-and especially more hesitant-with regard to the practical consequences that should be derived from them.
In particular, it discussed at length whether it was appropriate to insert, either in arbitration rules such as the ICC rules, or in documents or correspondence recording the arbitrator's acceptance of his task, a clause excluding or restricting the arbitrator's liability. In the latter case, however, a particular difficulty might arise, if the clause repudiating liability was only brought to the parties' attention after they had chosen a particular system of arbitration or the arbitrators constituting the arbitral tribunal. Could it be invoked against them?
A number of arbitration rules (AAA, LCIA, CACNIQ) have moved in this direction.
In most national laws, total exclusion of liability by such a contractual approach would be ineffective if the arbitrator was accused of certain particularly serious faults (deliberate or inexcusable wrongful acts or omissions). Indeed, they state that clauses restricting or excluding liability may not be invoked as a defense to such wrongful acts or omissions. Yet, in the national laws which do not allow the arbitrator absolute immunity, the only wrongful acts or omissions for which the arbitrator is liable to incur liability are acts of this kind.
Accordingly, if the clause reserves the arbitrator's liability for such wrongful acts, it is unnecessary, and if it does not contain such a reservation, it is invalid.
The AAA Rules of International Arbitration bear witness to this difficulty. Article 36 of the version that came into force on March 1, 1991, stipulated that arbitrators could not incur liability for their acts or omissions, subject to the reservation that they 'may be liable towards a party for the consequences of conscious and deliberate wrongdoing.' Yet, in the more recent version of these Rules, which came into force on November 1, 1993, this reservation has disappeared, and the exclusion of liability is entirely general.
Hence, certain members of the Working Party proposed that the question should not be raised and that no clause limiting or excluding liability should be recommended, taking the view that the lawfulness of such a clause would depend solely on the applicable law. Others, on the other hand, wanted an absolute exclusion of any liability. However, the majority of the Working Party were in favor of the clause set out in paragraph 11, subparagraph 2 of the elementary principles above, which restricts the liability of the arbitrator to exceptionally serious wrongful acts or omissions. Indeed, the Working Party considered that such a clause would protect arbitrators against reckless claims, rather than, to the contrary, encouraging discontented parties to instigate such proceedings.
Should the arbitration centre also benefit from such a clause excluding liability? The AAA rules cited above follow this line. The Working Party showed a cautious approach to centres being included in the same category as arbitrators, because of the specific function of such permanent institutions, which in principle are only responsible for administering and supervising the arbitration.
In any case, as the Commission gave no particular mandate to examine this question, which does not affect the status of the arbitrator, the Working Group deemed it inappropriate to move in this direction.
On the other hand, it was generally agreed that is was appropriate for civil liability insurance to be taken out by the arbitrator or, in the case of institutional arbitration, by the arbitration centre on behalf of the arbitrator. However, there was one reservation: certain legal systems hold that deliberate wrongful acts are not insurable.15
As we have seen, the arbitrator's financial liability is largely hypothetical; assuming that the action were admissible and the serious or deliberate wrongdoing substantiated, the definite loss directly caused by such wrongdoing will be even more difficult to prove. Therefore the premiums for such insurance should not be excessive. [Page32:]
Appendix I - Questionnaire and Summary of Replies.16
1(a) - What information about the dispute can the individual approached to be arbitrator receive or ask for?
All the replies mention the nature of the dispute and the identity of the parties (both present and potential). But others require the prospective arbitrator to be informed of the law applicable to the dispute, the language of the file and the arbitration, as well as the place of arbitration. Other information may turn out to be essential to the acceptance or refusal of the task in question.
Should certain items of information about the dispute be sent to the prospective arbitrator when he is nominated by a party or an arbitrator?
1(b) - Until what point in time can the person approached discuss the details of the dispute with the party who proposed his appointment?
The replies reveal a consensus that exchanges of information between the prospective arbitrator and the party proposing him should be limited to the subject matter of the dispute and should not touch on the substantive issues of the dispute.
2 - What factors or circumstances should a person approached to be an arbitrator take into account before accepting or refusing the appointment?
2(a) - Independence vis-à-vis the parties, their Counsel and the other arbitrators
Regarding the absence of any link with the parties, the replies expressed a unanimous view that this was essential. On the other hand, some correspondents consider that it is not necessary to concern oneself with any links between the arbitrator and the parties' counsel or the other arbitrators.
2(b) - Absence of conflicts of interest
2(c) - Availability for the foreseeable duration of the arbitration
Absence of conflicts of interest and availability for the foreseeable duration of the arbitration are considered to be essential preliminaries to the arbitrator's taking any decision.
2(d) - Linguistic, technical and/or legal abilities.
While they are generally considered to be factors of any decision, legal, linguistic and technical skills are not deemed to be equally important. So far as technical skills are concerned, certain correspondents point out that they can always be provided with additional assistance-for example, by an expertise procedure.
2(e) - Others
Here the correspondents restated the information already set out in 1.a, insofar as they enable the arbitrator to decide whether to accept his appointment a td to verify that there is no conflict of interest.
2(f) - How should the arbitrator who has been approached react if he has any doubt about any of these factors or circumstances?
The replies suggest different reactions depending on the degree of doubt. In case of serious doubt in relation to the factors listed (in 2.a, b, c, d and e), the arbitrator must refuse to act. In the face of a faint doubt, the arbitrator may either obtain information from the party proposing him prior to taking his decision, or inform the parties of this doubt-by applying first to the party proposing him and then to the other party. Their acceptance will then constitute a waiver of any subsequent court proceedings on this ground.
3 - When two arbitrators have the duty of choosing the third arbitrator to chair the arbitral tribunal, can each of them consult for that purpose the party who appointed him?[Page33:]
The vast majority of correspondents considered it to be customary, or even a necessary practice, that each arbitrator should consult the party who nominated him prior to choosing the chairman of the arbitral tribunal. However, certain correspondents specify that the party's opinion should be merely treated as advisory.
4(a) - At what time does the legal relationship between the parties and the arbitrator start?
All the replies seem to indicate that the existence of a legal relationship between the parties and the arbitrator presupposes that the arbitrator has accepted his mandate. Certain note that the relationship may be concluded a little later, either when the arbitrator nominated by one party is accepted by the other, or, in the context of an ICC arbitration, when the Court of Arbitration confirms the appointment.
4(b) - Between the arbitrator and the arbitral institution?
The same view is expressed, to the effect that the nomination or confirmation by the arbitration institution marks the starting point of relationship with the arbitrator. Thus, a triangular relationship takes shape (linking the parties, the arbitrator and the arbitration institution), which is finally constituted at the moment the last acceptance is issued.
4(c) - What is its nature?
Whereas certain correspondents define the relationship between the parties and the arbitrator as an 'agency'-in the Swiss sense of the term as used in intellectual services contracts, others would tend to class this contract as sui generis.
All correspondents recognize that it is contractual in character.
So far as the relationship between the arbitrator and the institution is concerned, it is a relationship that should be compared to the relationship between the parties and the arbitrator, because the arbitration institution represents the parties in certain of their dealings with the arbitrator (financial dealings, supervision of the progress of the proceedings...).
4(d) - Can a party reconsider the appointment of the arbitrator he has named?
4(e) - For what reasons?
4(f) - Until when?
In principle, unilateral dismissal does not seem to be possible, in the absence of a ground for challenge or for cancellation of the arbitration contract that comes to light after the constitution of the arbitral tribunal (and on condition that action is taken before the hearings have been closed). According to certain correspondents, joint dismissal is the only possible means of reconsidering the appointment of an arbitrator who has acted negligently or with acknowledged incompetence in conducting the procedure. Lastly, a minority consider that once the tribunal has been constituted it exists outside the will of the parties and as a consequence cannot be modified.
5 - Can the arbitrator exclude his liability and to what extent?
The replies to the question on exclusion of liability reveal a certain disapproval. While it is considered possible, it seems to be limited by certain conditions relating to the lawfulness of such exclusion, which stem from the applicable law. This often excludes serious wrongful acts or omissions, fraud, and criminal acts.
6(a) - To what extent (if at all) is an arbitrator entitled to require an indemnity against any liability he might otherwise be under, as a consequence of agreeing to act as an arbitrator?
Clauses limiting liability are not common, but correspondents overall agree that they should be used insofar as they are lawful.
6(b) - What warranties can he require before accepting this appointment?
Rather than requiring a warranty in relation to the payment of the arbitration fees or costs, the correspondents indicate that the most appropriate method is for the arbitrator to take out insurance against professional risks.
7 - What rights and obligations generally result from the legal link which is established between the arbitrator, the parties (and possibly the arbitral institution): [Page34:]
7(a) - Obligations of the arbitrator:
- to organize fair and equitable proceedings;
- to render an award in the time limits of the arbitration;
The correspondents agree unanimously that the arbitrator is subject to two general obligations relating to the organization of a procedure that respects the principles of the ECHR specified by its case law (equitable procedures, principle of due process), and with regard to the speed of the arbitration proceedings.
Moreover, certain highlight the fact that the study of the file should be both effective and personal in view of the intuitu personae nature of the task conferred, or that the award should comply with the terms of reference and be capable of being enforced. Confidentiality is included among the arbitrator's main obligations.
7(b) - Rights of the arbitrator:
- to obtain the cooperation of the parties during the trial;
- to a remuneration;
In consideration of the said obligations, the arbitrator is entitled to certain rights. There is consensus regarding the right to remuneration.
A majority took the view that the arbitrator should have a right to receive cooperation from the parties during the process. Certain members of this majority prefer to link such behavior by the parties to an obligation of good faith, which would possibly extend to the co-arbitrators and the arbitration institution.
8(a) - In your legal system, are the circumstances in which the liability of the arbitrator may arise duplicated exactly by those determining the liability of judges?
8(b) - Should they be so determined?
The replies followed two different lines depending on the provisions of the national law of reference.
Where the national law classes arbitrators as judges, established case law has modified the judge's absolute immunity into relative immunity solely applying to judicial acts (e.g. in Great Britain, the judgment in Arenson v. Arenson played this role). In those countries where the law does not lay down any provisions regarding the arbitrator's liability, there is no desire to have the rules applicable to judges transposed.
9(a)- What failings can be made the subject of a complaint against an arbitrator?
An arbitrator's infringement of his obligations-lack of due diligence, or partiality-insofar as it relates to his personal behavior or his conduct of the procedure, is the 'hard core' of the wrongdoings that the most correspondents would level against the arbitrator.
So far as the substantive issues of the dispute are concerned, certain correspondents take the view that the arbitrator would only be liable as a result of a serious wrongful act or omission or fraud. However, the case of errors of judgments is generally put on one side.
9(b) - Can those be the same as the grounds for invalidating an award?
9(c) - Conversely, must they be different?
Although the replies are expressed in a variety of different ways, they translate the opinion that wrongdoings that can be invoked against an arbitrator and the grounds for invalidating the award are not identical. Cases giving rise to claims of liability would seem to be more limited.
9(d) - What degree of gravity must they have?
The correspondents unanimously agree that only matters constituting a particularly serious degree of wrongdoing should be taken into account-intentional, fraudulent, or serious.
10 - Must one distinguish between errors in the conduct of the proceedings as opposed to those related to the arbitrator's understanding of the substance of the dispute?
Although the solution in principle is that a distinction should be drawn between errors committed in the conduct of the proceedings and those relating to the assessment of the substantive issues in dispute, the reasons invoked vary (national legal system, absolute separation of such types of errors, etc.).
11 - What means are at the disposal of the parties (or the arbitral institution) in case of misconduct by the arbitrators: [Page35:]
11(a) - Challenge or replacement?
The correspondents generally agreed that parties are able to challenge and replace an arbitrator who commits a wrongful act or omission.
11(b) - Action for civil or criminal liability?
Likewise, the arbitrator would be civilly liable if one of the parties suffers detriment as a result of a recourse against the arbitrator or the award rendered; or again when the arbitrator blocks the procedure by failure to act.
On the other hand, an action for criminal liability would seldom be allowed, even where such a possibility exists in the applicable national law (corruption).
11(c) - Request for recovery of or refusal to pay his fees or the reimbursement of his costs?
According to most of the correspondents, measures relating to the arbitrator's fees or costs may be taken preferably after the national court has assessed the amounts in question. Prior to payment, these will take the form of a plea non adimpleti contractus or of refusal to pay, and after payment, they will take the form of set-off-between fees and loss-or recovery.
11(d) - Others
The correspondents outline a number of types of sanctions: disciplinary sanctions first of all, if the arbitrator is under the aegis of a body which has such a power; informal sanctions, left to the appraisal of practitioners and arbitration institutions; lastly judicial sanctions under certain national laws.
12(a) - Can an arbitrator resign after accepting his appointment and before completing the arbitration?
12(b) - In what circumstances and under what conditions?
Although most correspondents dismiss the possibility of resignation, overall they exclude extreme cases where the arbitrator has to be allowed such a right of withdrawal. For example, resignation has to be justified by a 'valid reason' which corresponds, in particular, to the parties' loss of confidence in the arbitrator, or the emergence of a new element after the arbitrator has accepted his task. In the case of a small number of correspondents, resignation is only allowed in a case of force majeure-serious illness, task rendered impossible through the parties' fault.
13 - When can the arbitrator be held responsible for any damages consequent on the pronouncement and the execution of his award (vis-à-vis the parties or a third party)?
The arbitrators' liability towards third parties corresponds-if one relies on the spirit underlying a disparate set of replies-to cases of serious wrongdoing, lack of due diligence or lack of independence. Certain replies go so far as to require that such wrongdoing has been recognized by the courts (cancellation of the award, for example).
Cases of liability towards third parties do not seem very clear. If the latter suffer detriment as a result of the award, the arbitrator is liable. This assumption of liability seems marginal since it presupposes both the exhaustion of any rights of recourse against the award and the existence of detriment caused by the arbitrator's wrongdoing which would not consist of an error in judgment on his part.
14 - To what extent should an arbitrator remain available after the rendering of his award in order to:
14(a) - Rectify any possible material errors it might contain?
The correspondents agree that the arbitrator should be responsible for rectifying any material errors contained in the award for a reasonable period after notification of the award.
14(b) - Repair an omission?
14(c) - Interpret his award?
14(d) - Other tasks?
Doubts were expressed as regards the possibility of intervention in the case of omission or interpretation of the award. Such hesitations stem from an arbitrator's a priori lack of jurisdiction of an arbitrator functus officio.
Other tasks are rarely envisaged. [Page36:]
15 - Is an arbitrator responsible for acts after the award such as:
15 (a) - Failure to respect confidentiality?
15 (b) - Assistance or participation in the nullification of the award?
15 (c) - Acting as counsel to a party to the dispute in connection with the arbitrated case?
15 (d) - Other behavior?
When the acts committed have an impact on confidentiality (for example, disclosure of a disagreement within the arbitral tribunal), the correspondents all take the view that the arbitrator should be held to be liable.
It will be noted, however, that it is proposed that this type of behavior should be censured by codes of practice.
The question whether an arbitrator might act as counsel is starting to be discussed. Although most correspondents agree that where there is an established link between the case in which they acted as arbitrator and the dispute where they are acting as counsel, such behavior is sanctioned by a claim for liability, case law precedents are also cited in support of the opposite view.
The replies do not reveal any other examples of liability for acts carried out by arbitrators after they have rendered their award.
16 - What is the law applicable to the relationship between the arbitrator and the parties?
16(a) - Law of the seat of arbitration?
16(b) - Law agreed by the parties or the arbitrator?
16(c) - Law of the domicile of each arbitrator?
16(d) - Law of the seat of the arbitral institution (in case of an institutional arbitration)?
16(e) - Others?
The analysis of the replies reveals three clear stages:
- in the first place, it is up to the parties (and the arbitrator) to determine the law applicable to their relationship-even if they do not often make use of this possibility;
- if no such choice is made, the law of the seat of arbitration should be chosen;
- lastly, but subject to reservations owing to the resultant problems of split procedures, the law of the domicile of each arbitrator is applicable.
There is marked opposition by the correspondents to recourse to the law of the headquarters of the arbitration institution.
Lastly, it was noted that the law governing the relationship between the parties and the arbitrator may be determined by a national judge who will follow the rule of conflict of laws.
17 - Which court would have jurisdiction to rule on a dispute which arises from the relationship between the arbitrator and the parties?
From the standpoint of jurisdiction ratione loci, the majority view specifies the judicial forum of the defendant (arbitrator) first of all, then of the seat of the arbitral tribunal.
As regards jurisdiction ratione materiae, from the analysis of the replies designating a professional forum (National Committee, Bar, etc....), it appears that this depends on the nature of the dispute between the arbitrator and the parties (contractual or tortious).
The inclusion of a clause electing the judicial forum might simplify such questions. [Page37:]
Appendix II - Comparative Synthesis of Current Substantive Law in Various Countries
In comparative law, the arbitrator's status (in other words, his rights and obligations) depends directly on the characteristics attributed to his task (I); certain consequences stem from this, which can be defined as sanctions or 'remedies' (II).
The position occupied by the arbitrator in relation to the parties who nominated (or accepted) him and where applicable in relation to the permanent arbitration institution, is determined by the contractual relationship that links them, which is characteristic of arbitration. But it also results from the mandatory rules that are essential prerequisites of any dispute settlement system, even a private court.
For want of a legislative model, the position occupied by the arbitrator or arbitrators has been compared to that of the judge, although this analogy does not comprehend the whole of the arbitrator's activity. Moreover, the legal systems examined (at least academic writers from the various countries) all recognize the fundamental position occupied by the receptum arbitrii - the arbitrator's contract-which contains the arbitrator's acceptance and seals the start of the arbitration operations.
The status of the arbitrator appears to consist of a set of elements of a contractual character in addition to rules adapted to the particular function of dispute settlement. A study of the national laws reveals that assessments of the importance of the contractual basis differ from one country to another (A), whereas there are clearer similarities in relation to the content of the arbitrator's task (B).
It is acknowledged that the relationship between the arbitrator and the parties is contractual in form. How closely the arbitrator's contract reflects the structure of the relationship in question will depend on the legal system concerned.
According to Spanish academic writers, such a contract implies that the parties have chosen the arbitrators freely, rather than that they have been chosen by a permanent arbitration institution or by the national courts. The arbitrator's acceptance of the task for which the parties have nominated him is a key feature.
German law, on the other hand, recognizes that a contract exists-or is even implied-solely as a result of the arbitrator's acceptance of his task (Schiedsrichtervertrag ), which is a separate contract from the arbitration agreement (Schiedsvertrag ). However, in both these legal systems, there is very little established case law relating to the status of the arbitrator. These concepts are principally of theoretical value.
In Great Britain, whereas certain academic lawyers have laid emphasis on the concept that the position of the arbitrator may be governed by status, case law has opted for linking the relationship between arbitrators and parties to the arbitration agreement, with the contractual relationship becoming trilateral (K/S Norjarl A/S v. Hyundai Heavy Industries Co. Ltd (1991), 1 Lloyd's Rep., p. 524). In this case, the Vice-Chancellor, citing a 1986 decision (Cie Européenne v. Tradax , 2 Lloyd's Rep., p. 301), pointed out that by accepting their appointment, the arbitrators become parties to the arbitration agreement. Any obligations and rights not stipulated in a special clause in the said agreement are deduced from the arbitrator's 'quasi-judicial' status. The interpretation of the trilateral arbitration agreement is facilitated by implied [Page38:] terms which come into force under English law whereas public policy considerations determine the specific position of the arbitrator. In fact, even the most detailed strictly contractual conceptions are incapable of embracing the whole of an arbitrator's task.
In the case of the Swiss Concordat of 1969, the contractual nature of the legal relationship linking arbitrators and parties is set out in Article 14. However, depending on the particular linguistic version of the text, the arbitrator's task is defined as a 'function' (Amt ) in German, but an 'agency' (mandat )-and hence contractual-in French. Although the 1987 LDIP does not take a stand on this definition, it contributes to strengthening the contractual component of arbitration, in the international field.
Whatever form the arbitrator's link with the arbitration agreement takes, it is established that he must complete the task the parties have charged him with.
This task consists of conducting the arbitration procedure carefully, with due diligence and appropriate speed. The arbitrator also has a duty to comply with the rules applicable both to arbitration procedure and to the settlement of the substantive issues in dispute.
All the legal systems studied consider that the arbitrator, as a service provider, must fulfill his task with care and diligence, and in return will receive fair remuneration (K/S Norjarl v. Hyundai Heavy Industries Co. Ltd . (1991), 1 Lloyd's Rep., p. 260; Mr. Justice Phillips, Commercial Court). In consideration of the confidence the parties vest in him, the arbitrator is bound to treat all documents dealing with the parties' business relationship as secret and confidential. This constitutes what might be termed the contractual cornerstone of the status of the arbitrator.
Nonetheless, the arbitrator's obligations are not limited to this contractual field. Substantive law has rapidly accepted that the arbitrator's function was also that of a private judge. For example, German case law, after drawing a distinction between the position of the arbitrator and that of the ordinary judge, in that the contractual basis of arbitral jurisdiction was incompatible with the regulations ensuring the independence of the legal system, recognized that their functions were similar (Reichsgericht (RG) 65, 175; 59, 247 (248/9)).
Because of the judicial function carried out by the arbitrator, for many years substantive law has recognized the need to temper the contractual concept. First of all, it added to the rights to remuneration and the obligations of care and diligence-the hard core of the arbitrator's status-the obligation to hand down his award within a reasonable time limit.
In particular the following should be noted:
- court decisions:
- Austria: GIUNF.5557; 26.10.1915, GIUNF.7623, JB 238;
- USA: Ernst Inc. u Manhattan Court Co. of Texas, 551 E 2D 1026 - US Court of Appeals, 5th Cir. (1977); (an arbitrator who is not diligent can no longer be compared to a judge).
- statutory provisions:
- Belgium: Judicial Code, art. 1687 (which enables the Court of First Instance to replace an arbitrator who does not complete his task);
- Netherlands: Art. 1031(2) Code of Civil Procedure (whereby the preconstituted third party or the President of the Court of First Instance may terminate the arbitrator's mandate in the event of 'unacceptable slowness' on his part;
- Argentina: Art. 748 and 756 of the National Code of Civil and Commercial Procedure; - United Kingdom: Section 13 Arbitration Act 1950;
- Swiss Concordat, Arts. 17 and 22 (whereby an application may be made to the court in the event of unjustified delay by the arbitral tribunal or may terminate an arbitrator's mandate, 'provided there are valid reasons');
- Italy: Code of Civil Procedure (law of 5 January. 1994), Art. 813, para. 3 (whereby a negligent arbitrator may be replaced by the preconstituted third party or by the president of the relevant court);
- UNCITRAL Model Law, Art. 14.1 (which takes the same line). [Page39:]
Next, the requirement of independence, which is a necessary element of the exercise of any judicial function, has been sanctioned by substantive law. In the first place it implies that the arbitrator must of his own accord disclose any fact liable to affect his independence and his impartiality which would constitute a ground for challenge in the eyes of the parties. Numerous national laws contain such an obligation of disclosure by the arbitrator.
Indeed, these qualities of independence and (if one wishes to add a further, more subjective, requirement) impartiality, are sanctioned in a variety of ways.
If one of the parties is unhappy with the way in which the arbitrator carried out his task, it first of all has a right to instigate a challenge against the award (appeal, recourse for cancellation, opposition to enforcement). This is a possible remedy for the arbitrator's failure to comply with certain of his obligations of a judicial nature, and this remedy is in the hands of the national court.
Nonetheless, the arbitrator may be implicated personally, either by challenging him or requesting his replacement during the procedure (A), or by entering a claim for liability against him (B).
In all the legal systems studied, a challenge procedure generally commences when a party complains of an arbitrator's lack of independence or impartiality. It is then up to the appointment authority, the permanent arbitration institution, and in their absence, or as a last resort, the national courts, to assess the validity of the grounds invoked. Challenge is also a means of censuring the arbitrator's failure to disclose links he had with one of the parties, and that he should have notified before accepting his task. Thus was the decision, for example, in Canada as long ago as 1966, by the Supreme Court of Canada (Ghirardosi v. Ministry of Highways for British Columbia ).
Subject to certain conditions, when an arbitrator does not act with due diligence, or when his personal qualities and experience fall short of the expectations of the party or parties who nominated him, he may be dismissed.
In all such cases, where the arbitrator's task is terminated, as a personal sanction, the arbitrator is replaced.
A number of examples of the latter provisions have been given above.
1) Criminal liability
From an examination of the substantive law, it is clear that few States have legislated on the question of the arbitrator's criminal liability.
It seems that essentially they have been concerned to censure the most serious wrongdoings (corruption, collusion with one of the parties) by specific criminal provisions. These criminal offenses are aimed at people in public office, including judges and arbitrators.
The German Penal Code lays down criminal sanctions for arbitrators who are guilty of passive corruption (Art. 331(2)), active corruption (Art. 332(2)) and partiality (Art. 336). In Norway and Switzerland corruption by the arbitrator is sanctioned by the criminal law (Art. 114 Norwegian Penal Code; Art. 315 and 316 of the Swiss Penal Code); in Argentina too, corruption by the arbitrator is an offense, as is failure to comply with the substantive law-though this is debatable (Arts. 257 and 269 of the Penal Code respectively).
2) Civil liability
In order to complete the task of settling the dispute that the parties have entrusted him with, the arbitrator fully exercises the decision-making function that is usually accorded to judges. It is up to him to determine the legal context in which the arbitration operations will taken place (procedural rules), to settle the dispute (rules applicable to substantive issues) and to take any appropriate steps for safeguarding the parties' claims (interim and conservatory measures). [Page40:]
In the event of erroneous application of the rules of law only the arbitrator's judicial function is implicated. Yet, when this function is being carried out by a judge, in principle the judge is accorded immunity. He has the benefit of a 'right to error' which protects him against any actions on the ground of errors of judgment. Thus, legislators and national courts guarantee the arbitrator immunity in principle.
On the one hand, it is noted that modern legislation is in favor of eliminating the right to instigate civil liability claims against arbitrators. Whereas under the former Dutch law, an action could have been instigated for liability (Art. 628 former Code of Civil Procedure), the 1986 Code of Civil Procedure clearly sets out solutions which preclude any such action. For example, the court sanctions slowness in conducting the arbitration proceedings by terminating the arbitration case (Art. 1031(2) C.C.P.); lack of objection at the beginning of the procedure is deemed to constitute the waiver of a subsequent challenge or request for replacement (Art. 1065 C.C.P.).
Legal systems based on the common law tradition, such as Australia or Bermuda, have recently adopted arbitration laws containing express provisions excluding civil liability.
Thus, according to the Australian law of 1989, 'an arbitrator is not liable for negligence in respect of anything done or omitted to be done in the capacity of arbitrator, but is liable for fraud in respect of anything done or omitted to be done in that capacity'.
Likewise, Great Britain, which has started amending the 1979 Arbitration Act, envisages inserting a provision in the latest version of the Arbitration Bill which accords immunity to arbitrators except in the case of substantiated 'bad faith' (Art. 26). Although the pertinence of this criterion remains to be proved, this initiative illustrates the present concerns of certain legislators.
On the other hand, in certain countries established case law in the field of arbitrators' liability states that arbitrators, like judges, are protected by the principle of immunity or lack of liability:
- in the United States (Forrester v White , 484 US 219, 277, 'immunity is justified and defined by the functions that it protects and serves, and not by the person to whom it applies');
- with slight differences, in the United Kingdom (Sutcliffe v. Thackrah , A.C. 727 (1974) and Arenson v. Arenson & Casson, Beckman, Rutley & Co. (1977) A.C. 405, third parties in this case held to be liable since they had acted as 'valuers' and not as arbitrators);
- in Canada, where immunity is accorded to arbitrators (Zittrer v. Sport Maska , Quebec Court of Appeal, 1985), but not to mere certified valuers (same case, Canadian Supreme Court, 1988);
- and in France (TGI Reims, 27 September 1978, Florange v. Brissart et Corgie , unpublished), TGI Paris, 13 June 1990, Gaz. Pal. 1990.1I. Somm., p. 417, and Paris 22 May 1991, Bompard et Carcassonne , unpublished).
In parallel, judges take the view that permanent arbitration institutions should be immune from liability. The rules of liability that apply to them is closely based on the rules applicable to arbitrators, by virtue of their quasi-judicial status (thus in the United States, Ruberstein v. Otterbourg , 78 Misc. 2d 376, N.Y.S. 2d 62 (1973), and the more recent judgments cited in appendix III).
Lastly, often legislation and case law specify that the recourse should be directed against the award rather than against the person who rendered it. Indeed, the rule is that the courts must not hold that an action claiming liability is well-founded unless they have first checked that all rights of recourse against the award have been exhausted. For example, the Paris Court of First Instance (13 June 1990 cited above) warns against any attempt to replace recourse against the award by the instigation of an action against the arbitrator, when he is claimed to have ruled wrongly on the substantive issues.
Despite the basic principle of immunity of the arbitrator, there are exceptions to the rule where the arbitrator's shortcomings are serious.
a) Liability for an act or omission that constitutes negligence
If the arbitrator's wrongful act or omission constitutes a clear failure in his contractual obligations, various national laws recognize that he is liable. This is especially so in the case of acts or omissions that constitute negligence. [Page41:]
The extent of his obligation to pay compensation varies with the extent of the loss for which he is held liable. In the absence of case law on this question, academic lawyers state that it will be limited to the arbitration costs incurred or to those incurred as a result of the instigation of a new procedure-whether arbitration or court proceedings (Netherlands, Sweden).
Cases where civil legislation relating to the arbitrator's liability has been set in place are rare. Certain laws provide that failure to comply with a contractual obligation will entail a financial sanction. For example, if the arbitrators fail to render an award within the time limit accorded, they will lose the right to remuneration (Argentina: Art. 756 National Code of Civil and Commercial Procedure; USA/Bever v. Brown , Iowa (1981)). They sometimes lay down an obligation to compensate for the loss resulting from their negligence (Spain: Art. 16 Arbitration Law of 1988; Argentina, text cited above; Brazil: Art. 1083 C.C.P. referring to Art. 133 C.C.P. which applies to judges-opens a right of action against any arbitrator who has exceeded the time limits granted for rendering his award or who resigns without valid grounds; Greece: Art. 73 of the law introducing the Code of Civil Procedure, which enables a claim for damages to be lodged against the arbitrator in the event of fraud, serious negligence or denial of justice).
There are very few national court decisions dealing with the question of liability. Nonetheless, to our knowledge, in several countries (United States, United Kingdom, France, Australia and Austria, in particular) the courts have had to deal with cases concerning such liability.
The case of Austria should be left to one side. Here the case dates from the inter-war period (liability for resignation without valid reason, GIUNF.676: 7.5.1918, ZBI. 1919 Nr 222; wrongdoing by the arbitrator resulting in nullity of the award, ZBI. 1929 Nr 79).
The analogy with the judge was the starting point for common law case law, whereas France rejected this method fairly early on (CC Civ., 29 January 1960, Houdet ). Yet, while judges have the benefit of absolute immunity under the common law, the Romano-German tradition (Germany, Austria, France, Spain, Switzerland, etc.) applies the general principle of the judge's liability in the case of serious and personal wrongdoing, it being understood that the State safeguards the victim and reserves the right to exercise the action itself in the case of personal wrongdoing.
However, the treatment of the issue of the arbitrator's civil liability in France is comparable to that defined by case law in the United States. We must not be put off the scent by the terminology, which reflects the underlying premises of two different legal systems. The regime called 'limited immunity' in the United States is called 'responsibility' in France.
In compliance with the receptum arbitrii, the arbitrator must conduct the arbitration procedure with due care and diligence. Accordingly, he will fail in his obligations if:
- he fails to commence the arbitration,
- resigns without a valid reason,
- exceeds the time limits laid down (United States: Baar v. Tigerman, 140 Cal. App. 3d 979, 189 Cal Rptr, 834, 41 A.L.R. 4th 1004 (1983)).
Such forms of behavior, which hinder the smooth-running of the arbitration procedure, all constitute wrongdoing sanctioned by a claim against the arbitrator for civil liability. French arbitration law bases this liability on article 1142 of the Civil Code (Houdet, CC Civ., 29 January 1960, D. 1960.262; Bompard, TGI Paris, 13 June 1990 (unpublished)).
An arbitrator who had omitted to disclose a link between himself and one of the parties which affected his independence, was ordered to repay the fees received (in Australia: Supreme Court of Western Australia, 1993, Vale v. The Official in Bankruptcy ; in France; TGI, Paris, 9 December 1992, Société Annahold B.V. ; TGI Paris, 12 May 1993, Gaz. Pal., 1993. II Somm., p. 478).
Generally, this liability is contractual in character, except where it is recognized over and above the arbitrator's contract there is room for other obligations giving rise to criminal liability (failure to comply with a legal obligation)...
However, here the national courts have shown great caution. They take care to ensure that such [Page41:] wrongdoing is clearly substantiated and is of a serious character. To date, only one decision in France has made use of this right (Duval , cited above).
In the United States, the rule is limited immunity for any wrongful act or omission in relation to the conduct of the arbitration procedure, as demonstrated by a decision of the Court of Appeals of the State of California (Coopers & Lybrand v. Superior Court , 1989). For the arbitrator to be held liable it must be substantiated either that he acted fraudulently (decision cited above), or that he acted in bad faith (City of Durham v. Reidville Engineering Co. , 120 S.E. 2d 564; 255 N.C. 98 (N.C. 1961), where the lifting of the immunity was refused in the absence of bad faith on the part of the arbitrators).
American case law likewise precludes liability by the permanent arbitration institution (Corey v. NYSE, 691 F. 2d 1205 (1982) ; Griffin v. AAA (1990) regarding the choice of an arbitrator; Austern v. CBOE (1990) for the composition of the arbitral tribunal and a lack of notification of a hearing to a party), in the absence of an act which objectively has consequences on the award (Baar v. Tigerman , cited above).
b) Liability for deliberate or fraudulent wrongdoing
There are extreme cases where the immunity which usually protects the arbitrator's exercise of his judicial function has to give way in the face of the essential requirement of the good administration of justice. It is possible to summarize the position by restating the rule laid down in Germany by the Bundesgerichtshof whereby the arbitrators too are liable, but not more liable than judges (BGH 15,12).
In fact, the recognition of what Swiss academic writers term 'the right to error' should not make us forget the right to justice. Accordingly, the judge may hold the arbitrator personally liable for the 'injustice' resulting from his award.
Thus, the arbitrators' immunity is limited in the case of averred fraud, deceit or deliberate wrongdoing. In France, the judgment rendered in the Florange case (cited above), limits the arbitrators' liability 'in the event of serious wrongdoing, equivalent to fraud, deceit or connivance with one of the parties'. North American case law similarly tempered the absolute protection of the arbitrator exercising a judicial function when it ascertained 'willful and malicious wrongdoing' (Lundgren v. Freeman , 307 F 2d 104 (1962) and hence held an arbitrator liable.
Indeed, where an award contains deliberate injustice-'arbitrariness'-this is evidence that the state of mind of the person (or persons) who rendered the award is in clear contradiction with the confidence entrusted in him (or them) by the parties. The arbitrator's wrongdoing ceases to spring from his judicial tank, and becomes detachable from it. As the Paris Appeal Court judgment underlined in relation to the Carcassonne case (CA Paris, 22 May 1991), in order to be a source of liability, the arbitrator's personal wrongdoing must be 'incompatible with the judicial function'; in other words it only targets an arbitrator who is manifestly partial or malicious. This decision draws a distinction between a charge linked 'directly to the content of the judicial act' and one relating to the organization of the procedure.
One point still needs to be clarified: if 'the alleged serious wrongdoing results from the actual content of the decision and if that decision is final'-wording borrowed from E.C. 29 Decision 1978, Darmon t, D.S. 1979, 278, note Vasseur-should one consider that res judicata authority would constitute an obstacle to the arbitrator's liability? This is highly unlikely.
But, might an action claiming personal civil liability succeed independently of any procedural initiative against the award and the outcome of such recourse?
Finally, one last question: does the substantive law allow the arbitrator to exclude his liability contractually? Usually, the general law considers that only clauses excluding liability simply for error, and devoid of any fraudulent intention or deceit, are lawful. Any other contractual exclusion of liability would contravene public policy (France, Sweden, Norway, Germany, Switzerland, Japan, etc...). Accordingly, it only allows the arbitrator a possibility of limiting his liability that is both narrow and uncertain.
Moreover, it does not seem that arbitrators may shelter behind the institution administering the [Page43:] arbitration. No doubt the institution may be sued for liability if its administrative structures have failed in their obligations to administer and supervise the arbitration procedure. In this sense, US case law (Baas v. Tigerman, cited above) has held that an arbitration institution is liable for activities carried out by the arbitrator while it was administering the procedure. However, default by the institution is no excuse for the arbitrator's personal wrongdoings. (On US case law's recent trend towards extending the immunity of arbitration institutions, see Appendix III.)
Appendix III - Part I: Status of Arbitrators under English Law
By Alan Redfern, Barrister, London. This text was finalized in April 1993.
Traditionally, English law accords an arbitrator immunity from civil suit on the ground that he exercises a judicial function. Persons exercising judicial functions should be accorded such immunity on 'grounds of public policy'. This traditional formulation begs two questions. First, who is considered to be an arbitrator and, secondly, when is he or she considered to be exercising judicial functions? Furthermore, even if the relevant definitions are satisfied, is an arbitrator always immune from suit when exercising judicial functions?
Prior to the leading case of Sutcliffe v. Thackrah ( AC, 727 HL), both arbitrators in the proper sense of the word and a hybrid creature called a 'quasi-arbitrator' were entitled to immunity. A quasi-arbitrator was a person who undertook the task of determining a question as between two parties whose interests were opposed. The parties would not need to present argument or evidence and a dispute need not have arisen. The classic example of a quasi-arbitrator was a mutual valuer. Where a purchaser agreed to purchase and the vendor to sell property at a price to be agreed upon by a neutral third party, that third party would be determining a question as between two parties with opposing interests. Consequently, he would be entitled to arbitral immunity. This immunity was first properly considered in the case of Chambers v. Goldthrope (1901) where A L Smith MR (in a majority judgment) considered that such a person was 'clothed with the duty of exercising an impartial judgment' and consequently entitled to immunity.
The House of Lords in Sutcliffe rejected the earlier authorities and concluded that such a person does not exercise a judicial function and is not therefore entitled to immunity. The case concerned a firm of architects who, in their capacity as quantity surveyors, had certified work by the contractors as properly done which had, in the event, turned out to be either improperly done or not done at ail. As the architect, in certifying the work, had to reach a fair decision as between the contractor and the employer concerning the price to be paid to the contractor by the employer for the works, he claimed immunity on the grounds established in Chambers v. Goldthorpe . The House of Lords rejected this immunity unanimously. [Page43:]
According to the Court, when performing such a role, the architect was acting as an expert and not as an arbitrator. His rote was essentially an investigative one. Furthermore: 'The mere fact that an architect must act fairly as between a building owner and contractor does not of itself involve the architect in discharging arbitral functions' (per Lord Morris.). Lord Salmon considered such immunity a heresy and used the example of an art dealer who was approached by a client to value a painting for the purposes of sale or insurance. If he were negligently to undervalue the painting, the valuer could be sued by the client. He would be liable for damages. On the other hand, if the client informed the valuer, at the time of valuation, that the purpose was to fix a price at which he was to sell the painting to a third party, at which price the third party agreed to be bound, the valuer would have a complete defense to any action for negligence. Lord Salmon concluded that he found 'no sensible basis for such an astonishing proposition.'
The views of the House of Lords in Sutcliffe were confirmed in their decision in Arenson v. Arenson  AC, 405. In this case, the auditors of a private limited company were employed to value the shares of an outgoing shareholder, which would then be purchased by the controlling shareholder at the value fixed by the auditors. The auditors negligently undervalued the shares and claimed immunity under the Chambers v. Goldthorpe principle. Not surprisingly, the House of Lords rejected this immunity and were unable to distinguish the case from Sutcliffe . It is therefore clear that the quasi-arbitral functions exercised by a mutual valuer or quantity surveyor are not sufficient for an immunity claim to succeed. A mere demonstration that two parties seeking a decision have opposing interests will not suffice. The immunity only extends to those persons exercising a judicial function.
This question was considered in the judgments of Lords Reid and Morris in Sutcliffe . In order to claim the immunity, they considered that the following elements had to be present:
(a) A dispute already in existence between two (or more) parties;
(b) The submission by each party of:
(i) Evidence; and
(c) The decision of the arbitrator on the matters in dispute without the need for personal investigation; and
(d) The agreement of the parties to accept (subject to rights of appeal) that decision.
These are the essential elements of an arbitration and it is only where the arbitrator is exercising his functions in the resolution of such a dispute that he will be able to claim immunity. The question is not therefore whether the person is called an arbitrator, but whether the person called upon to take the decision exercises his functions judicially according to the above criteria.
Two issues should be raised in considering the nature of this immunity once it is established that the case involves an arbitrator exercising judicial functions. First, does the immunity relate to all claims including those for fraud or misconduct or is it only in respect of his proper functions? Secondly, how firmly rooted is the immunity under English law?
The question of an arbitrator's fraud or misconduct is usually considered as a question going to the removal of the arbitrator or the setting aside of the award pursuant to Section 23 Arbitration Act 1950. There are no reported cases where intentional wrongdoing by the arbitrator has resulted in his personal liability. Nevertheless, if the source of the immunity derives from 'public policy', it would seem an odd result if 'public policy' required the protection of a dishonest or fraudulent arbitrator.
As it is generally acknowledged that an arbitrator's immunity is a derivation of judicial immunity, an arbitrator cannot be entitled to greater protection than a judge. A judge is personally liable if he does not exercise his office in good faith and the same must surely apply to an arbitrator (see for judicial immunity the Court [Page45:] of Appeal decision in Sirros v. Moore  1 QB, 118). Indeed this position was adopted in a draft bill put before Parliament over 100 years ago by Lord Bramwell: 'an action shall not lie against an arbitrator for negligence or want of skill in the performance of his duties as arbitrator. An action shall lie against an arbitrator for fraud or collusion in the performance of his duties as arbitrator ... '
Where an arbitrator has caused loss due to the wrongful exercise of his administrative functions, there would appear little reason to excuse him from personal liability. The immunity derives from the judicial nature of his functions and must relate to his substantive decision-making and not to the procedural steps which he is obliged to follow. Consequently, an arbitrator may well be personally liable where he is guilty of, for example, inexcusable delay or unjustified resignation. However, if that position were adopted by English law (and once again there is a dearth of relevant authority), it could result in the harassment of the arbitrator for any procedural concern that the parties might care to raise. Consequently, public policy might intervene to protect the arbitrator in such a situation by affording him immunity for necessary functions ancillary to his principal decision-making functions.
The detailed consideration of whether an arbitrator's immunity extends to fraud, misconduct or maladministration is, however, premised on the existence of a fundamental judicial-type immunity. That premise was severely undermined by the speeches of two Law Lords in Arenson v. Arenson .
In Arenson v. Arenson , a minority (Lords Kilbrandon and Fraser) considered that the abolition of immunity for those persons exercising what were considered quasi-arbitral functions (such as mutual valuers) created a distinction between such persons and true arbitrators which could not be validly upheld.
Lord Fraser considered that arbitrators are employed by the parties because of their skill and judgment as experts and should therefore be liable for negligence in the same manner as valuers. He commented that: '... many arbitrators are chosen for the expert knowledge of the subject of arbitration and many others are chosen from the legal profession for their expert knowledge of the law or perhaps because they are credited with an expertise in holding the balance fairly between parties. It does not seem possible, therefore, to distinguish between mutual valuers and arbitrators on the ground that the former are experts and the latter are not. I share the difficulty of my noble and learned friend, Lord Kilbrandon, in seeing why arbitrators as a class should have immunity from suit if mutual valuers do not.'
Lord Kilbrandon was equally unimpressed by the new distinction. According to him: 'It is a necessary conclusion to be drawn from Sutcliffe v. Thackrah ... and from the instant decision that an arbitrator at common law or under the Arbitration Acts is indeed a person selected by the parties for his expertise thereof and that if he is negligent in that exercise he will be liable in damages.'
The emphasis of both Lord Kilbrandon and Fraser was on the 'choice of the parties'. The very fact that an arbitrator is chosen by the parties distinguished him, in their opinion, from a judge. Lord Kilbrandon in particular considered that immunity should stem from the origin and character of the appointment and not by the duties of the appointee or his methods of performing them. Judges, in his opinion, should be accorded immunity because they are appointed by the State and owe a duty only to the State to uphold its laws and administer justice in accordance with its law. The origin and character of the appointment of judges is essentially different from that of arbitrators since: 'The citizen does not select the judges in his system, nor does he remunerate them otherwise than as a contributor to the cost of government. The judge has no bargain with the parties before him. He pledges them no skill. His duties are to the State: it is to the State that the superior judge at least promises that he will do justice between all parties, and behave towards them as a judge should. I do not suppose that there is any English lawyer, and he would be a bold Scottish lawyer, who would say that there is a contract between the [Page46:] State and a judge with a jus quaesitum tertio in the litigant. It is for the State to make such arrangements as may be necessary for the correction of careless or erroneous judicial decisions; if those arrangements are deemed to be inadequate, it is for Parliament to put this matter right.'
Consequently, the contractual nature of the arbitrator's appointment and his promise to them to perform his functions with due care and diligence, distinguishes him from his State-appointed counterpart.
However, is this purely contractual examination of the relationship the correct one? The overriding duty of the arbitrator to act fairly is a requirement in the interest of the State. The relationship remains subject to review by the courts where the arbitrator's duties have not been properly exercised. Furthermore, once the arbitrator is appointed, he owes his duties to all the parties even though he was not appointed by all of them. It is difficult to see how a contract could come into existence as between the arbitrator and the party or parties who did not appoint him. Mustill and Boyd (Commercial Arbitration , 2nd edition) are of the view that it would be a mistake to assume that the relationship is a contractual one unless such a contract in fact exists. They note that: 'Even in the extreme case of a massive reference, employing a professional arbitrator for a substantial remuneration, we doubt whether a businessman would, if he stopped to think, concede that he was making a contract when appointing the arbitrator. Such an appointment is not like appointing an accountant, architect or lawyer. Indeed it is not like anything else at all.'
However, recent English case law suggests that contractual principles should be applied to the arbitrator's position. In KS Norjarl AS v. Hyundai Heavy Industries co. Ltd.  1L1. Rep, 524, the Court of Appeal confirmed that, in accepting an appointment, an arbitrator undertakes a due diligence obligation in exchange for reasonable remuneration for his services. As Sir Nicholas Browne-Wilkinson VC pointed out: 'The arbitration agreement is a bilateral contract between the parties to the main contract. On appointment, the arbitrator becomes a third party to that arbitration agreement, which becomes a trilateral contract: see Cie Européene de Cereals SA v. Tradax Export SA  2 LI Rep, 301. Under that bilateral contract, the arbitrator undertakes his quasi-judicial functions in consideration of the parties agreeing to pay him remuneration.'
It is indisputable that, in exercising judicial functions, the role of an arbitrator is, to an extent, sui generis . However, as Lords Kilbrandon and Fraser point out in Arenson v. Arenson , the arbitrator is appointed and paid for the exercise of his skill and care. The argument that he should be personally liable if he fails to carry out those duties properly cannot therefore be dismissed lightly.
Further indirect support for withdrawing the immunity accorded to arbitrators can be drawn from the essential weakness of the 'public policy requirements' which are often invoked in support of the immunity. Lord Reid, in the commencement of his judgment in Sutcliffe barely disguises his doubts: 'The argument ... starts from the undoubted rule, based on public policy, that a judge is not liable in damages for negligence in performing his judicial duties. The next step is that those employed to perform duties of a judicial character are not liable to their employers for negligence ... I am not aware of any authoritative statement or the reason for it. It think it is right but it is hardly self-evident.'
One public policy reason suggested by Lord Reid was that: 'Coming to a wrong but honest decision on materials submitted for adjudication is rarely due to negligence or lack of care, and it is seldom due to such gross failure to exercise professional skill and would amount to negligence. It is in the vast majority of cases due to error of judgement and there is so much room for differences of opinion in reaching a decision of a judicial character that even the most skilled and experienced arbitrator or other person acting in the judicial capacity may not infrequently reach a decision which others think is plainly wrong.' [Page47:]
However, this cannot be a good enough reason per se . If an error of judgment is not negligence, then an arbitrator will not be held liable for such an error of judgment. The quality of the English judiciary will provide the necessary protection to ensure that arbitrators are sufficiently protected against tactical, frivolous or vexatious actions. It does not provide a compelling reason why he should be immune from the suit in the first place. However, Lord Reid continues: 'But a party against whom a decision has been given that is generally thought to be wrong may often think that it has been given negligently, and I think that the immunity of arbitrators from liability for negligence must be based on the belief-probably well founded-that without such immunity arbitrators would be harassed by actions which would have very little chance of success.'
Lord Reid suggests a further 'public policy' reason: 'It may also have been thought that an arbitrator might be influenced by the thought that he was more likely to be sued if his decision went one way than if it went the other way, or that in some way the immunity put him in a more independent position to reach the decision which he thought right.'
This public policy reason demonstrates a singular lack of faith in the integrity of the arbitrator. Lord Reid appears unconvinced by his own arguments. 'But whatever be the grounds of public policy which have been rise to this immunity of persons acting in a judicial capacity, I do not think that they have anything like the same force when applied to professional men when they are not fulfilling a judicial function.'
Lord Salmon suggests that the immunity is based on the fear that disgruntled and possibly impecunious persons who have lost their cause might subsequently harass the arbitrator with litigation. This reason has already been considered.
It can be argued that a professional person should be liable in negligence unless there are compelling reasons of public policy to the contrary; and that it is wrong to start off with the immunity granted to an arbitrator for reasons of public policy. According to Lord Simon in Arenson v. Arenson : 'In my judgment this is a secondary and subordinate consideration of public policy. There is a primary and anterior consideration of public policy which should be the starting point. That is that, where there is a duty to act with care with regard to another person and there is a breach of such duty causing damage to the other person, public policy in general demands that such damage should be made good to the party to whom the duty is owed by the person owing the duty. There may be a supervening and secondary public policy which demands, nevertheless, immunity from suit in similar circumstances. But that the former public policy is primary can be seen from the jealousy with which the law allows any derogation from it.' (at page 419)
There is no authoritative statement of the public policy pursuant to which this liability should be withdrawn for an arbitrator. The only reasons provided by their lordships could not in any way be considered as compelling. Consequently, there would appear to be a strong case for withdrawing the immunity accorded to arbitrators currently under English law. As Brett J commented in Turner v. Goulden (1873): 'Where a person undertakes to carry on a business for reward, he is bound to bring to the exercise of it an ordinary degree of skill, and to act with reasonable care and diligence. For a default in either respect, an action will lie against him.'
The current English position is clearly most unsatisfactory; someone must bite the bullet. The void which remains will only be resolved by legislation or a case in point reaching the House of Lords. Although the immunity of arbitrators was raised before the DTI's committee on Arbitration Law Reform, the controversial nature of the topic caused it to be omitted from the ambit of inquiry.
The present situation is in England very unsatisfactory, although not for very long [Page48:] anymore. A new Arbitration Bill has been prepared, under the skilful guidance of Lord Justice Saville and it contains the following provisions as to the immunity of both arbitrator and arbitral institutions:
'26 - (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.'
'60 - (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.'
It is to be hoped that this Bill will become law without further delay.
Appendix III Part II: Arbitrator Immunity in the United States
By Carl F. Salans, Partner, Salans Hertzfeld & Heilbronn, Paris.
There has developed in United States courts a fairly consistent view that arbitrators and the arbitral institutions which sponsor or administer arbitrations are immune from civil (not criminal) liability for all acts performed in their arbitral capacity.
This view is based on the theory that arbitrators are quasi-judicial officers who must exercise their judgment independently, free from the threat of lawsuits. The arbitrator's decision-making must be free from undue influence, harassment or intimidation and from reprisals by dissatisfied litigants. Arbitral institutions derive their immunity from the arbitrators.
The proper remedy for an aggrieved party who alleges violations of due process in the arbitral proceedings or misconduct by an arbitrator or arbitral institutions is to seek annulment or setting aside of the arbitral award in the courts.
Some US courts have not given arbitrators absolute immunity from civil liability, protecting the arbitrator by immunity against attacks with respect to his decision but not granting immunity, for example, 'for failure to decide a case, for failure to respect time limits, for fraud, misconduct, or for gross mistake implying bad faith (see NL Industries Inc. v. GHR Energy Corporation, US Court of Appeals, 5th Circuit, attached hereto).
<b>Baar v. Tigerman</b>
California Court of Appeal, Second District, 1983
This was an action against an arbitrator and the American Arbitration Association which appointed him for damages for failure to render an award within the time limits fixed by the parties' contract. The court held that an arbitrator has immunity for his judicial actions. However, arbitration is a contractual arrangement between parties. Where an arbitrator fails to abide by [Page49:] contractual terms, he is liable for damage caused. Here the parties' contract provided that the arbitral award be rendered within a specified time period. The American Arbitration Association had set a deadline for making the arbitral award, pursuant to the contract. The AAA granted one extension of this time limit. The arbitrator still had not made the award.
The court held the arbitrator and the AAA liable for damages for breach of contract.
The court stated that appellants did not seek to circumvent the arbitrator's immunity in order to attack the award. Rather, appellants seek to hold the AAA liable for the arbitrator's inaction and the AAA's improper administration, i.e. for failure to properly administer the case.
The AAA is not immune from liability when the arbitrator is not immune. Organizations which sponsor and administer arbitrations derive their immunity from the arbitrator.
N.B. A law was enacted in California which superseded Baar v. Tigerman and granted absolute civil immunity to arbitrators.
<b>L & H Airco Inc. v. Repistan Corp.</b>
Supreme Court of Minnesota, 1989
In this case, the arbitrator failed to disclose prior business and social contacts with the party appointing him. He was sued for damages based on fraud and misrepresentation. The court held that arbitral immunity from civil suit, based on considerations of public policy to encourage arbitration and to preserve the integrity and independence of quasi-judicial officers, does not protect every action of an arbitrator. However, failure to disclose a possible conflict of interest is not subject to civil suit. The proper remedy is to ask a court to set aside the award because of the partiality of an arbitrator. The court also said arbitral immunity does not prevent criminal liability for fraud or corruption.
<b>E.C. Ernst Inc. v. Manhattan Court Co. of Texas</b>
US Court of Appeals, 5th Circuit, 1977
This case involved architects acting as arbitrators under a construction contract.
The court held that an arbitrator is a creature of contract, paid by the parties to perform a duty, and his decision binds the parties because they make a specific, private decision to be bound. When in discharging his function the arbitrator resembles a judge, the court stated that the integrity of his decision-making should be protected against the fear of being sued for damages. But he should be immune from liability only to the extent that his action is functionally judge-like. 'In his role as interpreter of the contract and as private decision-maker, the arbitrator has a duty, express or implied, to make reasonably expeditious decisions. Where his action, or inaction, can fairly be characterized as delay or failure to decide rather than timely decision-making (good or bad), he loses his claim to immunity because he loses his resemblance to a judge. He has simply defaulted on a contracting duty to both parties.'
The court made a distinction between a delay in deciding (which is not protected by immunity) and bad judgment in the decision itself (which is protected).
The court found a pattern of consistent failure to make decisions in a way that could enable construction to continue. Damages represent compensation for the arbitrator/architects' failure to decide.
<b>Hoosac Tunnel Dock and Elevator co. v. O'Brian</b>
An arbitrator is not liable to a civil action by one party for fraudulently conspiring with the attorney of the other party to induce the other arbitrators to join him in an unjust award. An arbitrator is a quasi-judicial officer exercising judicial functions. To protect and insure his impartiality, independence and freedom from undue influence, he is exempt from liability to an action from any judgment given by him in the due course of the administration of justice.
<b>Bever v. Brown</b>
The arbitrator sued the party to an arbitration for payment of his fees. [Page50:]
The court, in its opinion, stated that immunity protects an arbitrator from liability for damages for a fraudulent and corrupt award, which award had been overturned by a court because of illegal acts and wrongs committed by the arbitrator. However, arbitral immunity does not allow the arbitrator to claim compensation for an act rendered useless by his willful misconduct.
<b>Lundgren v. Freeman</b>
US Court of Appeals, 9th Circuit, 1962
Architects, acting as arbitrators in a construction contract, were sued for malicious interference in the contract because of their finding that the contractor had failed to substantially perform his contract. The court held that architects, acting as quasi-arbitrators, are immune from suit, i.e. when they resolve disputes between owner and contractor.
'If their decisions can thereafter be questioned in suits brought against them by either party, there is a real possibility that their decisions will be governed more by fear of such suits than by their own unfettered judgment as to the merits of the matter they must decide.'
An arbitrator should be protected by immunity when he acts in good faith. If he acts fraudulently or with willful and malicious intent to injure, he should be liable.
<b>City of Durham v. Reidville Engineering Co.</b>
Supreme Court of North Carolina, 1961
Engineers acting as arbitrators under a contract, with respect to their decisions on all matters of dispute invoking the character of the work, etc., are acting in the capacity of arbitrators and cannot be held liable in damages to either party in the absence of bad faith.
<b>Coopers & Lybrand v. Superior Court </b>
California Court of Appeal, 2nd District, 1989
The dispute involved the acquisition of one company (A) by another company (B). Coopers & Lybrand was appointed by the parties to audit A's balance sheet in accordance with generally accepted accounting principles. The Auditor's determination was to be conclusive and binding upon the parties.
Claimants sued Coopers & Lybrand for professional negligence and malpractice in the performance of its audit.
The court held that an arbitrator has the immunity of a judicial officer from civil liability when acting in the capacity of arbitrator. Arbitrators serve in a quasi-judicial capacity. The court rejected the argument that the arbitrator's misconduct or fraud cuts off arbitral immunity. The remedy for arbitrator misconduct lies in vacation of the award.
An arbitrator's failure to comply with the procedures for the conduct of arbitration proceedings does not give rise to a cause of action against the arbitrator but to attacking the award.
<b>Corey v. New York Stock Exchange (NYSE)</b>
US Court of Appeals, 6th Circuit, 1982
An arbitration of an investor's claim against a stockbroker under the NYSE rules was decided against the claimant. He then filed a claim against the NYSE on grounds that the procedures followed in the arbitration were wrongful and caused him injury, that he was prevented from submitting evidence, that the composition of the arbitral tribunal was violative of the NYSE rules, that hearings were postponed over his objection, depriving him of a fair hearing, etc. 'To extent that Corey's complaint may be construed to allege wrongdoing by the arbitrators for which the NYSE is liable ... the NYSE, acting through its arbitrators, is immune from civil liability for the acts of the arbitrators arising out of contractually agreed upon arbitration proceedings.'
The court stressed the need for independent judgment, free of threat of lawsuits, and the need to protect the decision-making process from undue influence and from reprisals by dissatisfied litigants. Extension of immunity to arbitrators where arbitration is pursuant to a private agreement between the parties is especially compelling because arbitration is the means selected by the parties themselves for disposing of controversies between them. An aggrieved party alleging a due process violation in the conduct of the hearings, fraud, misconduct, a violation of public policy, or lack of jurisdiction by arbitrators should pursue remedies through appeal from the arbitral award. [Page51:]
Extension of arbitral immunity to boards (the NYSE) which sponsor arbitration is a natural and necessary product of the policies underlying arbitral immunity. To decide otherwise would render immunity extended to arbitrators illusionary.
<b>Griffin v. American Arbitration Association </b>
Court Appeals Michigan, 1990
The court decided that the AAA enjoyed statutory immunity from liability in a suit brought against it by medical malpractice plaintiffs for alleged negligence in the choice of an arbitrator in a medical malpractice case. The arbitral decision itself had been vacated by a court based on a finding that the license to practice medicine of the doctor who was a member of the arbitral tribunal had been revoked at the time he served on the panel.
<b>Austern v. Chicago Board Options Exchange, Inc. (CBOE)</b>
US Circuit of Appeals, Second Circuit, 1990
This case involved an arbitration held pursuant to the rules of the CBOE.
The arbitral tribunal held an ex-parte hearing without notice of the hearing having been received by claimant and without its knowledge or presence. The composition of the arbitral tribunal was contrary to the rules of the CBOE. For these reasons, the arbitral decision had been vacated by a US court. A party to the arbitration sued the CBOE for damages on grounds of negligent empanelling of the arbitral tribunal and failure to provide adequate notice of the hearing. The court rejected the claim for damages. 'Based primarily on the "functional comparability" of the arbitrator's role in a contractually agreed upon arbitration proceeding to that of his judicial counterpart, the Courts of Appeals that have addressed file issue have uniformly immunized arbitrators from civil liability all acts performed in their arbitral capacity.'
The court stated that freeing the adjudicative process and those involved therein from harassment or intimidation was an important public policy. Individuals cannot be expected to volunteer to arbitrate disputes if they can be caught up in the struggle between the litigants and saddled with the burdens of defending a lawsuit.
Arbitrators in contractually agreed upon arbitration proceedings are absolutely immune from liability in damages for all acts within the scope of the arbitral process.
The CBOE, as the commercial sponsoring organization, is entitled to immunity for all functions that are integrally related to the arbitral process (citing Corey). reducing the CBOE's immunity based on the arbitral deficiencies present here would serve to discourage its sponsorship of future arbitrations-a policy that is strongly encouraged by the Federal Arbitration Act.
Absolute immunity is 'justified and defined by the functions it protects and serves, not by the person to whom it attaches.' (Forrester v. White 484 US 219, 277).
<b> American Arbitration Association v. Superior Court of the State of California</b>
California Court of Appeal, First Division, 1992
A grant of immunity to the arbitrator must be accompanied by a grant of the same immunity to the AAA, an entity as indispensable to the arbitrator's job of arbitrating as are the courts to the judge's job of judging.
<b>Vickie Howard v. Robin Drapkin</b>
Court of Appeal, California, Division 3, 1990
Absolute quasi-judicial immunity is properly extended to neutral third persons who are engaged in mediation, conciliation, evaluation or similar dispute resolution efforts.
This case was a family law dispute involving child custody. Defendant, a psychologist, performed an evaluation of plaintiff and her family. Plaintiff sued her over the report she issued based on her evaluation. The court rejected the claim, stating that it was necessary to protect the independence of persons involved in dispute resolution by insulating them from vexatious actions prosecuted by disgruntled litigants. One must look at the [Page52:] nature of the act challenged to determine if it is truly judicial in character and therefore deserving of immunity. 'We therefore hold that absolute quasi-judicial immunity is properly extended to these neutral third parties for their conduct in performing dispute resolution services which are connected to the judicial process and involve either (1) the making of binding decisions, (2) the making of findings or recommendations to the court or (3) the arbitration, mediation, conciliation, evaluation or other similar resolution of pending disputes. As the defendant was clearly engaged in this latter activity she is entitled to the protection of such quasi-judicial immunity.'
<b>NL Industries, Inc. v. GHR Energy Corporation</b>
US Court of Appeals 5th Circuit, 1991
An engineering firm was designated to act as arbitrator to determine whether an oil producer's well-enhancement designs were faulty.
The court held that the arbitrator's decision is final and conclusive unless the arbitrator is guilty of fraud, misconduct, or such gross mistake as would imply bad faith or failure to exercise an honest judgment. Mere negligence is not sufficient.
United States jurisprudence and legislation has continued to develop and expand the immunity of arbitrators and arbitral institutions from civil liability for acts performed in their arbitral capacity.
A summary of recent cases is enclosed.
Several states in the United States have enacted legislation codifying absolute immunity for arbitrators, e.g. Florida Stat. § 44.107 (providing immunity to the same extent as a judge when arbitrator appointed by court or selected by party); North Carolina Gen. Stat. § 7A37.1 (e) (providing judicial immunity to arbitrators participating in court-ordered non-binding arbitration); South Carolina Codified Laws Am. § 21-25B-26 (providing absolute immunity for health services arbitrator); Wisconsin Stat. 93.50 (2)(c) (immunizing arbitrators for acts or omissions within the scope of duty under a law providing for arbitration of disputes between farmers and creditors); California Code of Civil Procedure 0280.1 (providing that arbitrators have the same immunity as a judge from civil liability when acting in the capacity as arbitrator under any contract or statute).
<b>Feichtinger v. Conan</b>
893 P.2d 1266 (Alaska 1995)
A former police officer sued an arbitrator alleging that the arbitrator deprived him of due process rights during an arbitration proceeding regarding the officer's dismissal from employment.
The Alaska Supreme Court, noting that 'arbitral immunity is the rule in virtually all jurisdictions', held that arbitrators would be immune from liability for all of their quasi-judicial actions.
The court indicated that arbitrators would be immune even when they fail to act in good faith, commit gross negligence, fraud, corruption, gross error, egregious misconduct, or when the arbitrator's conduct is extreme and outrageous. The court distinguished Lundgren v. Freeman, 307 F.2d 104 (9th Cir. 1962) and City of Durham v. Reidville Engineering Co., 120 S.E.2d 564 (N.C. 1961), which imposed limits on immunity when an arbitrator acts in bad faith, on grounds that those cases involved engineers or architects performing quasi-judicial functions and employed by one of the parties, rather than 'true arbitrators'.
<b>Boraks v. American Arbitration Association</b>
517 N. W.2d 771 (Mich. Ct. App. 1994)
A property owner sought damages from AAA, alleging that AAA misrepresented the [Page53:] effectiveness of arbitration services and that it breached its duty to provide a competent panel of arbitrators to resolve a dispute under a construction contract.
The court denied plaintiff's claim on grounds that the arbitrator immunity doctrine applies not only to statutory and court-appointed arbitration, but also to arbitration arising from a contractual agreement between the parties.
Although plaintiff argued that AAA's misconduct-overstating the effectiveness of its services and failing to provide competent arbitrators-was outside the scope of arbitral immunity, the court held that plaintiff's complaint was comparable to a claim of dissatisfaction with arbitration services and thus within the .scope of the recognized immunity. The plaintiff's available remedy was to appeal the arbitrator's award.
<b>Sullivan v. Elliot</b>
602 N.Y. S. 2d 317 (N.Y. Dist. Ct. 1993)
The court held that an attorney appointed as a small claims arbitrator is protected by judicial immunity 'except when acting in clear absence of all jurisdiction'.
<b>Thiele v. RML Realty Partners</b>
18 Cal Rptr. 2d 416 (Cal. Ct. App. 1993)
Plaintiff sought recovery from AAA for its alleged negligence in releasing an arbitral award after parties involved in arbitration had reached an independent settlement agreement. Plaintiff had informed AAA of the settlement and instructed AAA not to release an arbitration award. When AAA sent out an award that was less than the settlement, respondents in the arbitration proceeding claimed the dispute had not been settled.
Plaintiff argued that Baar v. Tigerman , 211 Cal. Rptr. 426 (1983) controlled, and did not extend immunity to organizations sponsoring the arbitration proceeding unless the individual arbitrator was also immune. The court rejected plaintiff's argument, holding that a statute enacted in response to Baar was clearly intended to provide immunity to sponsoring organizations as well as individual arbitrators.
Plaintiff also argued that even if arbitral immunity applied to sponsoring organizations, AAA's allegedly negligent conduct was administrative, rather than part of the adjudicative process, and thus was outside the immunity's coverage. Following the reasoning of Austern v. Chicago Bd. Options Exchange, Inc., 898 F.2d 882 (2nd Cir. 1990), the court held that the immunity shields all functions which are integrally related to the arbitral process and that AAA's act of sending out the award was part of such process. Thus, it was sufficiently associated with the adjudicative phase of the arbitration to justify application of the immunity.
<b>U.S v. City of Hayward</b>
36 F.3d 832 (9th Cir. 1994)
In response to the 1988 amendments to the Fair Housing Act, a mobile-home park owner terminated a park's adult-only status. After tenants complained that the change in status resulted in decreased services, a city-appointed arbitrator concluded that such a decrease in services required a reduction in rent pursuant to a local rent control ordinance. The federal government then sued the City for penalizing the mobile-home park owner for complying with federal law. Finding in favor of the federal government, the US District Court enjoined the City from penalising the park owner but declined to award damages. On appeal, the federal government sought compensatory and punitive damages from the City.
The City argued that it was not liable for the decision of the arbitrator to reduce the rent of the mobile-home park tenants. It contended that it was protected by arbitral immunity and that it was merely a sponsoring organization that should not be liable for the arbitrator's decision. The Court of Appeals rejected the city's arguments, holding that the City was not protected by arbitral immunity because the doctrine 'ordinarily protects the individual arbitrator from liability'. In addition, the City did not qualify as a sponsoring organization entitled to immunity under Corey v. NYSE , 691 F.2d 1205 (6th Cir. 1982), which granted immunity to sponsoring boards, because the City appointed the arbitrator pursuant to an ordinance mandating arbitration. Unlike a typical sponsoring board, which has no adjudicatory power and merely nominates an impartial arbitrator, the City ordered the [Page54:] arbitration and was therefore liable for the arbitrator's interpretation of the rent control ordinance.
<b>Wagshal v. Foster</b>
28 F.3d 1249 (D.C. Cir. 1994)
Plaintiff sought recovery from a court-appointed mediator alleging that the mediator's conduct as a case evaluator forced plaintiff to settle a case against his will and resulted in a lower recovery for plaintiff than if he had pursued his claim.
The court set forth a three-part inquiry to determine whether an individual is protected by quasi-judicial immunity: '(1) whether the functions of the official in question are comparable to those of a judge; (2) whether the nature of the controversy is intense enough that future harassment or intimidation by litigants is a realistic prospect; and (3) whether the system contains safeguards which are adequate to justify dispensing with private damage suits to control unconstitutional conduct.'
As to the first prong of the inquiry, the court held that the general process of encouraging settlement, in which the mediator participated, was a natural concomitant of adjudication and there was nothing in the mediator's role that a superior court judge might not have performed. Applying the second consideration, the court found that pre-trial mediation was likely to inspire efforts by disappointed litigants to recoup their Tosses or harass the mediator. Lastly, there were adequate safeguards present to protect the plaintiff because he could seek relief for the mediator's conduct from the judge in the case. Because the three prongs of the court's test were satisfied, immunity was extended to the mediator.
Appendix IV - The Status of the Arbitrator as Defined by Codified Practice
By Philippe Fouchard, Professor at the University of Paris II
1. Before drafting a proposed set of 'elementary principles' defining a status for international arbitrators, the Working Party felt it was important to acquaint itself on the one hand with current substantive law in a certain number of countries,1 and, on the other, with trends in practice, particularly those expressed in arbitration rules and codes of ethics.
Accordingly, the Working Party studied a number of arbitration rules in both the international 2 and domestic 3 fields, and several texts that could be termed codes of ethics.4
2. The present study simply aims to present a synthesis of their provisions in this field. It also shows that, in drawing up the 'principles' it deemed necessary for resolving the problems raised by the arbitrator's status, the Working Party based its studies on trends in practice, while at the same time seeking to derive the most appropriate and most widely acceptable solutions from them.
3. These instruments do not contain any general provisions regarding the nature of the relationship between the arbitrator and the parties, and, where applicable, arbitration centres. On the other hand, the following points are covered and defined, at least in part: the rights and obligations of the arbitrator (I), as well as certain means available to practitioners for ensuring that these rights and obligations are respected (II).
4. Most arbitration rules require the arbitrator to be independent and impartial,5 while some of them require him merely to be independent of the parties to the case.6 On the other hand-very wisely-these instruments seldom contain any definition of these qualities, because situations in practice are so diverse that general criteria could be unsuited to dealing with them.7
This requirement applies to all arbitrators, even those nominated by one single party. There is one exception to this, of American origin, which draws a distinction between 'neutral' and 'non-neutral' arbitrators: the AAA/ABA Code of Ethics.8[Page56:]
5. It is of particular note that virtually all the rules and codes contain an obligation of disclosure which applies to every prospective arbitrator. When he accepts his task, the arbitrator must of his own initiative notify every fact and circumstance which might affect his independence or impartiality in the eyes of the parties.9 This duty of transparency is certainly the most effective means of ensuring that the arbitrator does indeed have the qualities required for deciding the case.
6. On the other hand, very few rules stipulate expressly, as obligations directly binding on arbitrators, the requirements to treat the parties equally, to apply the rules of due process and to afford each party an opportunity to present its case.10
Obviously, this silence does not mean that the procedures concerned are not subject to such rules, but rather that the draftsmen of the rules in question have left the task of laying down and enforcing these principles to the national laws.11
7. More surprising, however, is the relative silence of arbitration rules regarding the arbitrator's duty to conduct the procedure with due diligence.12 Admittedly, certain rules impose such an obligation indirectly, by providing for the possible dismissal of an arbitrator who is negligent,13 or by allowing a truncated arbitral tribunal to continue its task despite lack of participation by a minority arbitrator.14 This obligation could justifiably have been stated more firmly and systematically as could the arbitrator's duty not to resign prematurely. However, certain rules provide that the arbitration centre has the power to decide whether or not accept such a resignation.15
8. Although there is unanimous agreement that the confidentiality of arbitration is one of the major advantages that this type of procedure has over court proceedings, the content of this obligation of confidentiality, its duration, and who the benefit and burden of this obligation apply to is more difficult to express in codified practice.
In the LCIA Rules, confidentiality is first of all viewed as a right of the arbitrator (and the arbitration centre), since once the award is handed down neither any arbitrator (nor the LCIA) 'shall be under any obligation to make any statement to any person about any matter concerning the arbitration', in particular as 'a witness in any legal proceedings arising out of the arbitration'.16
However, confidentiality is more often referred to as a duty of the arbitrator, extending to the procedure itself, the award and the evidence relating to information that is not in the public domain.17
9. On the other hand, ail arbitration rules contain provisions relating to the arbitrator's right to remuneration for his services (in the form of the payment of fees) and the reimbursement of the expenses he has incurred for carrying out his task.
Most institutional rules of arbitration lay down a scale for determining the amount of the arbitrator's fees. This scale takes account of the economic importance of the dispute, and, in some cases, the difficulty of the case and the time the arbitrators spend in settling it.18 Although UNCITRAL obviously could not lay down such a scale, its rules rightly lay down the principle that the fees charged must be reasonable.19 But this fairly vague directive (which would possibly permit the judge to assess the amount of fees that an arbitrator may claim) should not distract us from the fact that the amount of the fees should normally be determined by the parties to the contract of arbitration (in other words the litigants [Page57:] and the arbitrator), and that the institutional scales of charges indeed have such a contractual force.
All arbitration rules implicitly lay down a fundamental principle, by prohibiting any unilateral financial arrangement between an arbitrator and the party who nominated him. The IBA Rules of Ethics take care to state this prohibition expressly.20
10. In order to ensure a posteriori that the qualities of independence and impartiality demanded of the arbitrator are respected, all arbitration rules carefully provide for and organize a challenge mechanism. If an arbitrator that one of the parties has doubts about refuses to resign, the party in question will bring the incident before one of the authorities of the Centre itself, or in the case of the UNCITRAL rules, before the preconstituted third party. This principle, which is very widely recognized, reinforces the autonomy of international arbitration, especially if the national laws accept-as they do increasingly often-that the centre's decision in relation to challenge cannot be disputed before the national courts.
11. Many rules stipulate that the arbitrator is to be dismissed for default or negligence on his part in carrying out his task, or for any other misconduct in handling the case, and they entrust this power of dismissal to the arbitration centre itself 21 or the preconstituted third party,22 who will then replace the arbitrator. Only one set of rules provides expressly that the parties may mutually agree to relieve the arbitrator of his duties.23 And two other sets of rules, much more strictly-but in a manner that is no doubt very effective in the case of delaying tactics-allow two of the three arbitrators making up the arbitral tribunal to continue with their task despite the absence of the third.24
12. Nowadays few arbitration rules concern themselves with the possibility of the arbitrator's civil liability so as to exclude it totally or partially. Out of the twenty sets of rules studied, six were found in this position.25 The IC's pre-arbitral referee procedure should be added to this, because undoubtedly it reflects a change at the ICC.26 Moreover, most rules extend the benefit of a clause excluding or limiting liability to the centre itself, which would not otherwise necessarily be the case.27
Only two sets of rules stipulate the total exclusion of any liability, including the AAA's new international rules of 1993.28 Curiously enough, this radical solution-whose lawfulness seems doubtful in the light of numerous national laws-is closely akin to a rule contained in the original ICC Rules of Arbitration.29
When it is considered appropriate to deal with the question, arbitration rules more often and more cautiously confine themselves to inserting a clause limiting liability that excepts the case of a conscious or deliberate act or omission by the arbitrator,30 or fraud.31 The Rules of the Quebec Centre, for their part, merely stipulate that 'arbitrators shall have the same immunity as that accorded to judges'.32
13. In addition, only a very few arbitration rules provide that centres may withhold all or part of the fees intended for the arbitrators on the ground of wrongdoing by the arbitrator.33
14. In conclusion , it seems that the arbitration rules and codes of ethics studied above contain only fragmentary elements of a status for arbitrators. Had this study been wider, this finding would have been reinforced, because the rules selected are among the most recent and the most developed, and are certainly the most attentive to these questions.
As excessive regulation and precautions often have harmful consequences for international arbitration, this restraint is perfectly valid, in itself. But it has given the Working Party an additional reason for reflecting calmly on the issues raised by the relationships between arbitrators, parties and possibly arbitration centres, and to propose elementary principles for defining a status for arbitrators that are as balanced and as universal as possible.
Certain legal systems (Switzerland, Greece, etc...) however, accept that the arbitrator's duties may be carried out by an entity. And, in practice, a number of arbitration institutions (in particular professional associations) hand down arbitral awards in their own name, even though the arbitrator's duties were in fact carried out by individuals.
The questionnaire (the text of which is set out in appendix I to this report) was sent to the members of the Working Party, the members of the ICC Commission on International Arbitration, the correspondent members of the ICC Institute of International Business Law and Practice, and to the ICC National Committees.The replies received provided information and opinions on the law and practice of numerous countries, in particular the following: Algeria (M. Issad), Germany (K. Lionnet, O. Sandrock), Argentina (H. Grigera Naon), Australia (M. Pryles, J.J.A. Sharkley), Austria (I. Seidl-Hohenveldern), Belgium (L. Matray), Brazil (C. Nehring Netto), Canada (N. Antaki, E. Chiasson), Spain (B. Cremades), USA (C. Salans, A. Von Mehren), France (R. Benrubi, R. Bourdin, P. Haffner, Ch. Jarrosson, P. Mayer, R. Mouzon, R. Pichard du Page, E. Robine, J.L. Sauvage, D. Schlumberger, J. Thieffry), Greece (A. Dimolitsa, A. Foustoucos), Hong Kong (T. Hill), Italy (P. Bernardini, M. Ferrante), Japan (H. Hattori), Jordan (S. Habayeb), Lebanon (A.H. El Ahdab), Mexico (I. Zivy), Netherlands (P. Sanders, A.J. Van den Berg), Poland (T. Szurski), United Kingdom (A. Redfern), Sweden (S. Jarvin), Switzerland (M. Blessing, J. Droin, F. Hoffet, F.E. Klein, F. Knoepfler. J.F. Poudret, Cl. Reymond), Tunisia (H. Malouche).
In particular, first-hand information and documentation was received about the law of the following countries : Germany, Argentina, Austria, Australia, Bermuda, Brazil, Canada, Spain, United States, France, Greece, Italy, Japan, Norway, Netherlands, Poland, Portugal, United Kingdom, Sweden, Switzerland.
See, in Appendix IV to this report, the list of arbitration rules and codes of ethics examined by the Working Party and the analysis of their provisions.
See Appendix II to this report.
See Appendix III to this report.
See Appendix IV to this report.
An arbitrator who is an individual is appointed intuitu personae ; the task entrusted to him is a personal one and may not be assigned or delegated.
The existence of this third contractual relationship is sometimes questioned. The arbitrator agrees to carry out his task in compliance with the rules of the arbitration centre and the prerogatives that these rules accord to the institution, whereas, the institution for its part, also in application of its rules, undertakes certain obligations towards the arbitrator. Such obligations indirectly flow from the first two contracts and, more particularly, some of the duties of the administrating arbitration centre are performed as agent of the parties in dispute.
The Working Party decided not to add that this contractual relationship normally ends on the date that the award is handed down, since certain contractual relationships, such as the duty of confidentiality, the conservation of documents, or the issuance of copies continue after the expiry of the arbitrator's task.
This standard of reasonable remuneration means that it is not arbitrary and takes account of various factors. Naturally, the scales laid down by the centres in their rules or any other agreed stipulation will be applicable.
Such remuneration and indemnification are owed to him by the parties to the dispute, and where applicable the arbitration centre acts as their agents and as trustees of any advances paid to it for this purpose.
The extent of this assistance will depend on the provisions of the centre's rules of arbitration. It is customary for it to assist the arbitrator in the organisation of the procedure (holding of hearings, problems of translation or interpretation), and, where applicable, the settlement of difficulties of a material character or any resulting from the arbitrator's lack of experience.
The Working Party considered that such limited immunity on the part of the arbitrator corresponds to the most widely accepted solutions in comparative law; it was not deemed appropriate to refer specifically to the case of inexcusable error since, when this is known in a particular national law, it is generally classed as a deliberate wrongful act. On the other hand, the arbitrator cannot in any circumstances be held liable for detriment caused by any errors of fact or law that may be contained in his award.
In this sense, e.g., the French Insurance Code, Art. L. 113 para. 2.
Appendix 1 The synthesis of replies has been drawn up by Amance Perrot, Barrister at the Nice Bar. The questionnaire equally concerns ad hoc and institutional arbitration.
Appendix IV See above, Appendices II and III to this report.
UNCITRAL Rules of Arbitration of 1976 (UNCITRAL); ICC Arbitration Rules in force with effect from January 1, 1988 (ICC); ICC Rules for a Pre-arbitral Referee Procedure in force with effect from January 1, 1990; International Centre for the Settlement of Investment Disputes Arbitration Rules, 1984 edition (ICSID); Rules of Arbitration of the Chambre officielle franco-allemande de commerce et d'industrie (FGOCCI); World International Property Organization Arbitration Rules in force with effect from October 1, 1994 (WIPO).
American Arbitration Association, International Arbitration Rules, in force as of November 1, 1993 (AAA); Italian Arbitration Association, in force with effect from October 1, 1985 (IAA); Quebec Centre for Domestic and International Commercial Arbitration, in force with effect from February 9, 1988 (CACNIQ); Belgian Centre for the Study and Practice of Domestic and International Arbitration, in force with effect from April 1, 1988 (CEPANI); International Arbitration Centre of the Vienna Federal Economic Chamber (Vienna); Zurich Chamber of Commerce, Rules of International Arbitration of January 1, 1989 (Zurich); Milan Domestic and International Arbitral Chamber (Milan); Chinese International Economic and Commercial Arbitration Commission, rules of March 17, 1994 (CIETAC); Stockholm Chamber of Commerce, Arbitration Rules, in force with effect from January 1, 1988 (Stockholm); London Court of International Arbitration Rules in force with effect from January 1, 1985 (LCIA).
AAA and American Bar Association Code of Ethics for Arbitrators in Commercial Disputes of 1977 (AAA/ABA); International Bar Association, Rules of Ethics for International Arbitrators of 1987 (IBA).
UNCITRAL, Art. 9: WIPO, Art. 22, a; IBA, Art. 3; CIETAC, Art. 29; Milan, Art. 19, para. 6.
ICC, Art. 2 § 7; COFACI, Art. 14-2; CACNIQ, Art. 24; LCIA, Art. 3.1.6; Stockholm, Art. 6.
See the IBA's interesting attempt (Art. 3), which moreover shows the difficulty of any measure that is not merely empirical.
Canon VII, limiting the duties of arbitrators nominated by only one party.
UNCITRAL, Art. 9; ICC, Art. 2 § 7; ICSID, Art. 6; WIPO, Art. 22, b; AAA Internal Rules, Art. 7; LCIA, Art. 3-1; AIA, Art. 10; CACNIQ, Art. 27; Stockholm, Art. 6; CIETAC, Art. 28; AAA/ABA, Canon II; IBA, Art. 4.
UNCITRAL, Art. 15; AIA, Art. 21; Stockholm, Art. 16; WIPO, Art. 38, b; IBA, Art. 1.
Hence the more general wording featuring in certain rules, like the ICC rules, whereby both the arbitrator and the centre must 'make every effort to make sure that the award is enforceable at law' (ICC, Art. 26); in this sense see too, LCIA Art. 20, para. 2.
For an express provision in this sense, see WIPO, Art. 23, a; AAA/ABA, Canon IV; IBA, Art. 1 and 7.
Regarding this sanction, see infra no. 11.
See infra , no. 11.
ICSID, Art. 8; ICC, Art. 2 § 10; CEPANI, Art. 18, para. 4: WIPO, Art. 30.
LCIA, Art. 19, para. 2.
AAA, Art. 35; Milan, Art. 10; Zurich, Art. 51; Vienna, Art. 5, para 5; WIPO, Art. 76; AAA/ABA, Canon VI; IBA, Art. 9; AIA, Art. 32, which, however, makes this obligation of confidentiality apply to the parties and to 'any other person taking part in the arbitration'.
See e.g. (for it is not necessary to cite here all the institutional rules detailing such criteria or laying down such a scale), ICC Internal Rules, Art. 18 and scale of January 1, 1993, Appendix III.
UNCITRAL, Art. 39.
IBA, Art. 6.
ICC, Art. 2 § 11; LCIA, Art. 3, para. 6; AIA, Art. 12, 2; CACNIQ, Art. 31; CEPANI, Art. 18, para. 4; WIPO, Art. 32; Zurich, Art. 17; Vienna, Art. 12; Stockholm, Art. 8; Milan, Art. 22, para. 4; COFACI, art. 14-8.
UNCITRAL, Art. 13, para. 2.
WIPO, Art. 31.
AAA, Art. 11, para. 2; WIPO, Art. 35.
LCIA, Art. 19; WIPO, Art. 77; CACNIQ, Art. 25; AAA, Art. 36; AIA, Art. 34; COFACI, Art. 33.
Under Article 6.8 of these Rules, the Referee (... shall not be liable) 'to any person for any loss or damage arising out of any act or omission in connection with the Rules except that the Referee may be liable for the consequences of conscious and deliberate wrongdoing.'
In fact, the arbitrator's lack of liability in principle-or his immunity-is based on his judicial task, whereas the arbitration centre's function is purely administrative. Although for reasons of appropriateness American case law has been led to make such an extension, the validity of total contractual exclusion of liability-already doubtful in the case of arbitrators-would be even more debatable, in the eyes of certain legal systems, if it were to be invoked by a centre organizing the arbitration.
AAA, Art. 36: 'The members of the tribunal ... shall not be liable to any party for any act or omission in connection with any arbitration conducted under these rules'. The second rule that follows the same line is COFACI, Art. 33.
Under the ICC Rules of 1923 (Art. XXIV of section 'B' or XLV of section 'C').
LCIA, Art. 19; WIPO, Art. 77.
AIA, Art. 34.
CACNIQ, Art. 25.
AIA, Art. 12, para 3; Milan, Art. 22, para. 6.