Originally from The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration, Fifth Edition

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I.            INTRODUCTION

In commercial arbitration, it is expected that the arbitrators will be neutral, unless the parties otherwise agree. In deciding whether to accept appointment, and what disclosures to make initially and during the course of the case, an arbitrator should take every step necessary to demonstrate that neutrality and to protect the integrity of the final Award. A nominated arbitrator should assure that the selection process and the arbitrator’s qualifications conform to the parties’ arbitration agreement and comply with applicable law, ethical rules, and institutional rules. A nominated arbitrator should inform the parties of the arbitrator’s past and present connections to the participants and issues in the case, enabling the parties to decide whether any of those give rise to an appearance of bias.  An arbitrator builds further trust by conducting the case in a manner that is fair, reasonable, impartial, and independent and is perceived as such; and taking such action as may be appropriate to minimize the risk of vacatur on the grounds of bias or evident partiality.

In the U.S., the Code of Ethics for Arbitrators in Commercial Disputes, as revised effective March 1, 2004 (AAA/ABA Code), is perhaps the best known statement of standards of ethical conduct for domestic commercial arbitrators, including standards relating to appointment, disclosure, and disqualification of arbitrators. The AAA/ABA Code defines a “neutral” arbitrator as one who is both independent and impartial. The hallmark of an “independent” arbitrator is that he or she has no relationship with any of the arbitration participants, and/or whose disclosure of such relations is acceptable to the parties.  “Impartiality” signifies that an arbitrator has no bias or prejudice with regard to any issue or any participant. This chapter examines the subjects of appointment, disclosure, and disqualification in relation to neutral arbitrators. Some of the topics in this chapter also are addressed in chapter 11, infra, pertaining to arbitrators serving on tripartite panels. Chapter 3, infra, discusses appointment, disclosure and disqualification of arbitrators who are not expected to act as neutrals.

The following discussion draws primarily on the AAA/ABA Code, which an arbitrator who accepts appointment from AAA must commit to follow.  There are other codes of arbitrator ethics, for example, the JAMS Arbitrators Ethics Guidelines.  Standards for arbitrator disclosure and disqualification may also be imposed by state law, as in California. When considering and undertaking the role of arbitrator, one should identify and comply with the requirements of all relevant codes.

II.           APPOINTMENT OF NEUTRAL ARBITRATORS

The first contact an arbitrator has with a case ordinarily will be an inquiry concerning their suitability and availability to serve. The arbitrator should respond in accordance with applicable law, ethical standards, arbitral institutional rules, the parties’ agreement, and prevailing practice. The arbitrator should ask to see the agreement if it has not been provided. In responding to such an inquiry, each arbitrator should consider their competency and availability to serve, as well as their potential conflicts and the significance of any prior relationships to the participants or of life experiences that might raise doubt about the arbitrator’s neutrality or ability to be impartial, in the eyes of the parties.

The selection process can occur in a variety of ways.  For example, the parties’ agreement may identify a specific person or group from which the arbitrator is to be selected, or it may specify a method of appointment.  It may select rules that provide the governing method. It is also possible for the parties to mutually agree on an arbitrator.  Alternatively, an arbitrator may be selected using the strike-and-rank process, or an arbitral institution may be authorized to make an administrative appointment. Where the parties’ agreement is silent and the parties are unable to agree on an arbitrator, the parties may petition the court to appoint an arbitrator. See 9 U.S.C. § 5; Cal. Code Civ. Proc. § 1281.6.

Upon nomination, one of the first steps an arbitrator should take is to read the parties’ agreement to confirm that the manner in which he or she will be appointed comports with any procedures set forth in the arbitration agreement. When the provisions of the parties’ agreement conflict with the procedures set forth in institutional rules incorporated by the agreement, the terms of the agreement may prevail. For example, in Americo Life, Inc. v. Myer, 440 S.W.3d 18, 21-25 (Tex. 2014), the Supreme Court of Texas vacated an award because the provisions in the parties’ arbitration agreement allowing party-appointed arbitrators were not followed by the administering institution when it struck a party-appointed arbitrator because he was not impartial; the Texas Supreme Court held that party-appointed arbitrators of that time were permitted to be partial and that the agreement’s

only requirement that arbitrators be a “knowledgeable, independent businessperson or professional” controlled. It vacated the award that was entered without the struck arbitrator having been permitted to serve on the panel.  Likewise, in Brook v. Peak International Ltd., 294 F.3d 668, 674 (5th Cir. 2002), the court noted that the AAA must follow the selection procedures outlined in the arbitration agreement rather than the method set forth in its own rules and that the AAA’s departure from the selection process in the arbitration agreement fundamentally contradicted its role in voluntary dispute resolution. Nevertheless, the court upheld the arbitrator’s award because the aggrieved party did not object to the appointment of the arbitrator when the hearing commenced and so waived the right to object.

In the absence of direction in the arbitration agreement, the appointment process is derived from applicable state or federal law and in some instances, from industry custom and practice.