Mutual v. Unilateral: the future of appointing arbitrators

(Published in The Lawyers Weekly, September 16, 2011)

Jan Paulsson is a name known throughout international arbitration circles. When he speaks, it is wise to listen. Indeed, when Mr. Paulsson speaks, or writes, or even muses, most of us interested in international dispute resolution – and to a lesser extent international commercial law – ought to listen. But as we listen, we must assess what we hear, critically.

Moral Hazard in International Dispute Resolution is the title of the speech Jan Paulsson delivered at the University of Miami School of Law (April 29, 2010). In it, Mr. Paulsson provocatively argues that the time has come to rid international commercial arbitration (and by implication, investor state arbitration) of unilateral party appointed arbitrators in favour of mutual appointments. The consequence of unilateral appointment, he argues, is inconsistent with the fundamental premise of arbitration: mutual confidence in arbitrators and by extension, their awards. This piece is a modest response to his viewpoint. It is modest in that it attempts only to draw attention to the hazard of using a lone statistic to support a view, which would change an important facet of ICA practice. It is perhaps less modest in concluding that Mr. Paulsson, who gained his experience under a system he now seeks to change, may make it more difficult for younger or less experienced individuals to flourish under his proposal.

His portentous argument is plain. Arbitrators appointed by one party act as advocates for them instead of neutral decision makers. To support this, he offers up a tantalizing statistic gleaned from a lecture delivered by Alan Redfern (The 2003 Freshfields – Lecture Dissenting Opinions in International Commercial Arbitration: The Good, the Bad and the Ugly) indicating that 95% of dissenting opinions in ICC arbitrations emanate from the losing party’s nominated arbitrator. At first blush, this statistic supports his thesis and is indeed damning. After all, if 95% of dissenting opinions are penned by the arbitrator appointed by – as it turns out – the losing party, more may be going on than mere disagreement.

What he fails to offer, however, is context for this statistic. A quick search of the ICC website reveals that from 2004 to 2008 the highest percentage of dissenting opinions from all three-member tribunals was 10%. In one year, it was as low as 5%. In 2008, 229 awards were handed down by three-member tribunals. Of these 229 awards, 23 included dissenting opinions from arbitrators appointed by the losing party (10%). To put it another way, in 2008, 90% of all three-member tribunals were unanimous even using the unilateral appointing method. With this statistical context in mind is it possible that these dissenting opinions – which in any event are fewer than 10% – may have had a point?
And even if we adopt his premise and question each dissenting opinion from an arbitrator appointed by a losing party, the statistic he offers up simply does not warrant overturning a convention that parties to arbitration have come to expect.

As a possible remedy, Mr. Paulsson suggests that arbitral institutions create lists of arbitrators that parties mutually appoint to form their tribunals. Parties remain restricted to this list. Getting on these lists without the experience gained most directly through the unilateral appointing method is difficult to imagine but even if young and inexperienced arbitrators manage to get on the list, without much experience, it is hard to imagine that they’d rank prominently. That aside, even under this system how unfathomable is it to
imagine that 10% of these tribunals may not reach unanimity? If labour arbitration is any indication, discord amongst tribunal members is common and some argue expected but not for the reasons detractors believe. It is not “splitting the baby” or bias that leads inexorably to disagreement by tribunal members, but differing views from equally reputable and experienced decision makers. Facts and evidence can resonate differently for each arbitrator for a number of reasons. Each arbitrator draws on his or her experiences when assessing arguments and evidence. To expect complete harmony is hardly realistic.

Finally, (and I hesitate here) it strikes me as somewhat disingenuous of Mr. Paulsson, who has undoubtedly gained much of his experience through the unilateral appointment process, to now forge against it. What’s more, a genuine complaint lodged by experienced practitioners and arbitrators alike is how arbitration has moved away from its original roots to instead resemble court procedures. Mr. Paulsson’s suggestion is a step in that wrong direction. While lists still offer parties a degree of choice they generally do not enjoy under most court processes, it is still a move closer to the divide between practitioners and their clients on the one hand, and judges on the other.

I read just about anything Jan Paulsson writes, including his dissenting opinion favouring the party that unilaterally appointed him in the Hrvatska Elektroprivreda DD v The Republic of Slovenia case, and I am always better for reading his words. But on this point, I am hard pressed to agree. I find solace, however, in his quoting of a well known continuity error: even Homer nods. Indeed.

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