Disparities in the Choice of Arbitrators - Chapter Summary in English

The principle of equal treatment is the general principle governing the choice of arbitrators in Austrian, German and Swiss law : the parties must be on equal footing and each party must effectively have its say when they nominate an arbitrator (Gleichberechtigung, Parität). The law regards this as a requirement of impartiality and independence.

Where the choice of arbitrators is made pursuant to an arrangement whereby a party has a prerogative or a right of its own which is denied to the other, this may amount to a case of preponderant influence (Übergewicht) in the constitution of an arbitral tribunal. Austrian, German and Swiss law regard preponderant influence by a party in the constitution of the arbitral tribunal as a legal defect. The remedies available under Austrian and Swiss law on the one hand, and German law on the other are different.

The Swiss Federal Supreme Court laid down the first principles in this respect in a handful of decisions made after World War II in connection with the recognition and enforcement of foreign arbitral awards made under various arbitration rules. The following principles were laid down :

• A tribunal established under the rules of a private association is entitled to hear disputes between the members of the association, as opposed to disputes involving a 'non-member' ; this is so whenever the rules of the association are made to further 'only the interests of their members', especially where the association is involved in promoting certain general policies ; the Federal Supreme Court decided that an employer was not entitled to rely on an arbitration clause as against its employee where the clause made provision to a tribunal in which there would be in addition to the president one arbitrator appointed by the employers' union and one appointed by the workers' union since the claimant employee was not member of any union and did not agree to submit to the jurisdiction of such a tribunal (Esrig v. Theatergenossenschaft Bern).

• However, the Court also decided that certain private institutions, in particular 'chambers of commerce' were not subject to this rule because they operated in a different way and could not be regarded as being concerned with the promotion of the interests of a particular category of businesses ; the decisions made by the tribunals instituted by such chambers are awards proper, capable of recognition and enforcement in Switzerland ; this was decided with reference to awards made under the arbitration rules of the Chamber of Commerce of former Czechoslovakia, the former GDR, but also GAFTA, the Chambre Arbitrale de Paris and the Tribunal arbitral du Marché de Coton de Gand.

• In those cases the Court held that a 'closed list of arbitrators' was 'unobjectionable' and did not amount to predominant influence in the constitution of the arbitral tribunal ; this was so even when the list contained only names of arbitrators having the same nationality and domicile ; this meant in turn that there was no such thing as a right for any party to have an arbitrator from its own country or even one coming from its part of the world, a point which the Swiss courts restated years later in the Westland case to answer the complaint made by the Arab Republic of Egypt.

• The party who agreed to submit to the arbitration rules in force in a country which had a radically different political and economic system than its own country was not entitled to rely on public policy to escape the consequences of its own choice ; the Federal Supreme Court repeatedly stated that this was a matter for the Swiss Government, not the Swiss courts.

There are two more recent decisions on which opinion is divided today. They deal with proceedings taking place in Switzerland in two specific areas.

The first area is multi-party arbitration. The decision in Westland deals with the question whether several respondents for which the ICC had appointed one arbitrator had enjoyed equal treatment, whereas the claimant in the arbitration had had an opportunity to appoint its own arbitrator. The respondents in Westland (the AOI in liquidation, the Arab Republic of Egypt, Qatar and the Arab United Emirates) pressed the point that that amounted to granting Westland a preponderant influence on the constitution of the arbitral tribunal, an outcome not countenanced by Swiss law. The Court of appeal of Geneva and the Federal Supreme Court disagreed, and found that the tribunal as constituted in Westland complied with the requirements of Swiss law.

Opinion is divided today over whether Westland still represents good law. Some commentators take the view that Westland is still good law, others say that the provisions on multi-party arbitration in most arbitration rules show that this decision is no longer in line with recent developments. It is true that a Swiss court is entitled today to appoint all the arbitrators in a multi-party arbitration ; the rule gives the court discretion. Today, a Swiss court may follow or not follow the approach in Westland.

The second decision is Lazutina, a decision in which the Federal Supreme Court held that the CAS, the Lausanne-based Court of Arbitration for Sport was sufficiently independent of the International Olympic Committee so that decisions made by CAS panels are awards proper as a matter of Swiss law even where the Olympic Committee is involved as a party in the arbitration. The CAS modus operandi was examined in detail as well as the question whether CAS was financially independent. The Court concluded that the closed list of CAS arbitrators complied with basic constitutional requirements in terms of arbitral impartiality and independence.

Certain commentators have pointed out that the Court in Lazutina did point out that there remained room for improvement in the CAS system. Certain commentators take the view that the CAS closed list (containing 134 | ICC Institute of World Business Law Jurisdictional Choices in Times of Trouble some 300 names) does not always allow the appointment of qualified arbitrators which have a suitable distance from the sport, particularly the Olympic establishment, pointing out that a certain distance from the parties and their counsel as well as from the co-arbitrators is an ingredient of independence and impartiality. The question how interested circles can effectively have a bearing on who is on the list and who is not is still an entirely open question as well as the method for the appointment of the president of each CAS panel.

Closed lists of arbitrators are admissible as a matter of Swiss law provided that they are justified in principle, and that the restrictions imposed on party autonomy are reasonable and strike the right balance without restricting autonomy more than is required in order for their objective to be achieved. If a party proves that the other exercised preponderant influence over the constitution of the arbitral tribunal, then the whole tribunal may be challenged under Art. 368 Code of Civil Procedure. The law of international arbitration contains a gap since only individual arbitrators may be challenged.

German law has an original provision in § 1034(2) ZPO which is not in the Model Law : any party may apply to the courts in order that the tribunal should be constituted in derogation from a clause giving a party preponderant influence on the constitution of the tribunal to the detriment of the other ; appointments made may be revoked and new arbitrators may be appointed under this provision. The interested party must apply to the court within two weeks of the day on which it became aware of the constitution of the arbitral tribunal. According to a German decision this provision cannot be invoked for the first time in setting aside proceedings against the award.

This rule changes the pre-existing German law on one important point : under the old law offending clauses were null and void. Under the new law a clause conferring a party predominant influence over the constitution of the arbitral tribunal is no longer null and void on this ground. The arbitration may take place, but with an arbitral tribunal properly constituted under § 1034(2) ZPO.

What remains of the old law are all the examples of predominant influence one finds in the cases decided before the new CCP came into effect. It was held for instance that the clause granting the purchaser an option to go to arbitration and to appoint alone the sole arbitrator was a case of preponderant influence (Bundesgerichtshof). Similarly the clause under which a party is entitled to have the arbitrator it appointed sitting as a sole arbitrator where the other party is in default in the proceedings is a case of preponderant influence (Bundesgerichtshof).

This shows how procedural cultures and expectations vary from one jurisdiction to another if one considers that such a method of appointment applies by operation of law in England under Sect. 17 of the Arbitration Act, 2006. The German Supreme Court nevertheless accepted that an award made in England by a sole arbitrator appointed and operating under Sect. 17 of the Arbitration Act, 2006 could be recognised and enforced in Germany.

The question to be discussed is whether the parties should be allowed to intervene with more creative solutions in the appointment process, relying on their autonomy, and whether the principles on preponderant influence could possibly be more narrowly construed. The answer by the present writer is in the negative. More predominant influence is bound to mean less impartiality and independence. Impartiality and independence should not be paid lip service, they should be observed and upheld in the application of the law. One still does not see enough impartiality and independence on the part of arbitrators in real life.