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14 February 2022

Appointment of the Arbitrators and Constitution of the Arbitral Tribunal

14 February 2022 UK & Europe

1. Introduction

A special feature of arbitration and a major reason for its popularity among business partners is certainly the possibility to appoint arbitrators that are more suitable to decide on the dispute. In the first place, it is, usually, the parties that are asked to nominate the arbitrator(s). This practice traces back to the origins of arbitration and its rather fundamental for its existence and the future of international arbitration. Nonetheless, the process is not always without problems that are sometimes so difficult to resolve that the involvement of a third party, such as an arbitration institution or a state court becomes necessary. This article examines the process of the appointment of arbitrators under the arbitration rules of International Chamber of Commerce (ICC) and the German Arbitration Institute (DIS) as well as in the ad hoc arbitration with seat in Germany.

Arbitrator Appointment under the ICC Arbitration Rules
The ICC Arbitration Rules stipulate in Article 11 what is rather obvious, namely that every arbitrator must be and remain impartial and independent of the parties involved in the arbitration. To ensure that, before appointment or confirmation, a prospective arbitrator shall sign a statement of acceptance, availability, impartiality and independence and disclose in writing any facts or circumstances which might be of such a nature as to call into question the arbitrator’s independence in the eyes of the parties, as well as any circumstances that could give rise to reasonable doubts as to the arbitrator’s impartiality. The same obligation burdens the arbitrators also during arbitration.

Against this background, the ICC Rules regulate in Articles 12 and 13 the constitution of the arbitral tribunal. These provisions are applicable provided that the parties have not agreed otherwise.

Generally, the disputes shall be decided by a sole arbitrator or by three arbitrators. In the absence of party agreement, the International Court of Arbitration of the International Chamber of Commerce (the "Court ") shall appoint a sole arbitrator, save where it appears to the dispute is such as to warrant the appointment of three arbitrators. The latter is usually the case where, for example the value in dispute is particularly large or the case itself quite complex. In such circumstances, the claimant shall nominate an arbitrator within 15 days from receipt of the notification of the decision of the Court, and the respondent shall nominate an arbitrator within 15 days from receipt of the notification of the nomination made by the claimant. If a party fails to nominate an arbitrator, the appointment shall be made by the Court.

Have the parties already agreed that the dispute shall be resolved by a sole arbitrator, they may, by agreement, nominate the sole arbitrator for confirmation. However, if they cannot reach an agreement in this regard within 30 days from the date when the claimant’s Request for Arbitration has been received by the other party or parties, or within such additional time as may be allowed by the Secretariat of the Court, the nomination of the sole arbitrator by the parties subsequently fails. In that case, the sole arbitrator shall be appointed by the Court.

Where there is an agreement of the parties in place, according to which the dispute shall be resolved by three arbitrators, each party shall nominate in the Request for Arbitration and the Answer to the Request for Arbitration, respectively, one arbitrator for confirmation. If a party fails to nominate an arbitrator, the appointment shall be made by the Court. The third arbitrator, who will act as president of the arbitral tribunal, shall be appointed by the Court, unless the parties have agreed upon another procedure for such appointment, in which case the nomination will be subject to Court’s confirmation. Should such procedure not result in a nomination within 30 days from the confirmation or appointment of the co-arbitrators or any other time limit agreed by the parties or fixed by the Court, the third arbitrator shall be appointed by the Court.

It is worth mentioning that, in accordance with the ICC Rules and notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, in exceptional circumstances, the Court may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.

Once an arbitrator has been appointed by each of the parties or by the parties together following a respective agreement, it is necessary that the Court confirms and appoints the nominated arbitrator(s). In doing so, the Court will consider the prospective arbitrator’s nationality, residence and other relationships with the countries of which the parties or the other arbitrators are nationals and the prospective arbitrator’s availability and ability to conduct the arbitration in accordance with the ICC Rules. It generally applies that the sole arbitrator or the president of the arbitral tribunal shall be of a nationality other than those of the parties. However, in suitable circumstances and provided that none of the parties objects within the time limit fixed by the Secretariat of the Court, the sole arbitrator or the president of the arbitral tribunal may be chosen from a country of which any of the parties is a national.

Arbitrator Appointment under the DIS Arbitration Rules

The provisions regarding nomination and appointment of arbitrators under the DIS Arbitration Rules are very similar to the ones in the ICC Rules. Like the ICC Rules, the DIS Rules explicitly emphasise, in Article 9, the need of impartiality and independence of the arbitrators. Every arbitrator shall be impartial and independent of the parties throughout the entire arbitration and shall have all qualifications, if any, that have been agreed upon by the parties. Subject to the above, the parties may nominate any person of their choice to act as an arbitrator. The DIS may propose names of potential arbitrators to any party upon such party’s request. Following a respective nomination, every prospective arbitrator shall declare in writing whether they accept to act as arbitrator. In case of acceptance, the prospective arbitrators shall sign a declaration in which they shall state that they are impartial and independent of the parties, that they have all qualifications, if any, that have been agreed upon by the parties, and that they will be available throughout the arbitration. In addition, each prospective arbitrator shall disclose any facts or circumstances that could cause a reasonable person in the position of a party to have doubts as to the arbitrator’s impartiality and independence. Every arbitrator shall have a continuing obligation throughout the entire arbitration to promptly disclose in writing to the parties, the other arbitrators and the DIS any facts or circumstances that could possibly put their impartiality and independence into question.

The nomination and appointment of the arbitrators is further regulated in articles 10-13 of the DIS Rules with the whole procedure exhibiting only a few differences from the same procedure under the ICC Rules.

Naturally, the parties are, also under the DIS Rules, free to agree on the number of arbitrators that may be, in particular, one or three, or any other odd number of arbitrators, unless agreed otherwise. In case the parties have not agreed upon the number of arbitrators, any party may submit a request to the DIS that the arbitral tribunal be comprised of a sole arbitrator. The Arbitration Council of the DIS shall decide on such request after consultation with the other party. If no request for the appointment of a sole arbitrator has been made, or if a request has been made but not granted, the arbitral tribunal shall be comprised of three arbitrators.

If the arbitral tribunal is to be comprised of a sole arbitrator, the parties may jointly nominate the sole arbitrator. If the parties do not agree upon a sole arbitrator within a time limit fixed by the DIS, the Appointing Committee of the DIS (the “Appointing Committee”) shall select and appoint the sole arbitrator. In such case, the sole arbitrator shall be of a nationality different from that of any party, unless all parties are of the same nationality or have agreed otherwise.

If the arbitral tribunal is to be comprised of three arbitrators, each party shall nominate one co-arbitrator. If a party fails to nominate a co-arbitrator, such co-arbitrator shall be selected by the Appointing Committee. The co-arbitrators shall jointly nominate the president of the arbitral tribunal (the “President”) within 21 days after being requested to do so by the DIS. It is to be noted, that the DIS Rules explicitly allow for each co-arbitrator nominated by or appointed on behalf of a party to consult with such party regarding the selection of the President. In case that the co-arbitrators do not nominate the President within the above lime limit of 21 days, the Appointing Committee shall select and appoint the President. Then, the President shall be of a nationality different from that of any party, unless all parties are of the same nationality or have agreed otherwise.

Every arbitrator must be appointed by the DIS, even when such arbitrator has been nominated by a party or by the co-arbitrators. Generally, the Appointing Committee is responsible for deciding on the appointment of arbitrators. The arbitral tribunal is constituted once all of the arbitrators have been appointed.

Arbitrator Appointment in ad hoc arbitration in Germany

In case that the parties have not selected an institution to administer the arbitration, we are dealing with a so-called ad hoc arbitration. Such an arbitration offers the parties great flexibility as to its conduct of the arbitration, but, at the same time, less to no external support for the process. While an ad hoc arbitration may, in certain cases, be quicker than institutional arbitration, that is not the case where the parties have difficulties agreeing on the appointment or conduct of the tribunal. Without an institution overseeing the appointment of the arbitrators and the constitution of the tribunal, the parties may agree upon an authority that shall be responsible for the appointment of arbitrators should the process fail for any reason. Such an authority may, for example, be an arbitral institution or a trade or professional association. Otherwise, the court of the seat of arbitration will be called to fill the gap, which, generally, can have disadvantages manifested, mainly, in delays, increased costs, and loss of confidentiality. For ad hoc arbitrations with seat in Germany, the provisions in the 10th book of the German Code of Civil Proceedings become applicable in cases that the parties to the arbitration have not regulated individual aspects of the procedure.

In an ad hoc arbitration with seat in Germany, the parties are free to agree on the number of arbitral judges. Absent such agreement, the number of arbitral judges shall be three.

The parties to the dispute may agree on a procedure for the appointment of one or several arbitral judges. Unless they have agreed otherwise, a party shall be bound by the appointment of an arbitral judge that it has made as soon as the respective other party has received the notice of that arbitral judge’s appointment.

In the absence of an agreement regarding the appointment of the arbitrators, the higher regional court (Oberlandesgericht, OLG) designated in the arbitration agreement or, if no such designation was made, the higher regional court in the district of which the venue of the arbitration proceedings is located shall appoint the sole arbitrator upon a party having filed a corresponding petition, if the parties to the dispute are unable to come to agreement regarding his appointment. 

In arbitration proceedings in which three arbitrators shall be involved, each of the parties shall appoint one arbitrator and these two arbitrators shall in turn appoint the third arbitrator, who shall preside over the arbitral tribunal. Should a party have failed to appoint the arbitrator within one month of having received a corresponding notice from the other party, or should the two arbitrators be unable to come to agreement, within one month of their having been appointed, regarding the third arbitrator, the court is to appoint the third arbitrator upon a party having filed a corresponding petition.

In appointing an arbitrator, the court is to consider all prerequisites required by the parties’ agreement for the arbitrator(s) and is to take account of all aspects by which the appointment of an independent and impartial arbitrator is ensured. In appointing a sole arbitrator or a third arbitrator, the court is to also deliberate the option of whether appointing an arbitrator of a different nationality than that of the parties might serve the intended purpose.

From the above, it becomes obvious that, with respect to the appointment of arbitrators, in ad hoc arbitration, a state court undertakes the role that in institutional arbitration is fulfilled by the respective arbitration institute. As already mentioned, this might have an effect on the duration of the whole procedure, the costs and, naturally, the confidentiality as, as a general rule, proceedings before state courts are not confidential. The parties need thus to carefully consider whether they want to go this way should it comes down to a disagreement during the composition of the arbitral tribunal.

General considerations

Undeniably, the right of the parties to nominate arbitrators belongs to the core of arbitration as an institution of the Alternative Dispute Resolution which is why it is recognised not only by the arbitration institutes but also by the law in Germany and other states that have, in particularly, adapted the UNCITRAL Model Law on International Commercial Arbitration of 1985 as state law. The nomination and appointment process is not to be taken lightly as, in certain cases, non-compliance with the agreed procedure may result in non-recognition of an award as confirmed by Article V para 1 lit. d of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958). In accordance with this provision, recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, if that party furnishes to the competent authority where the recognition and enforcement is sought, inter alia, proof that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.

Many experts argue that the parties to the dispute, as the actual stakeholders, are better placed to choose the right individuals to act as arbitrators in that specific dispute considering the parties’ possible differences in culture, legal origin, language and perspectives. A party appointed arbitrator will, probably, be familiar with the nominating party’s cultural and legal background ensuring an arbitral tribunal not oblivious to any such peculiarities. However, there are also voices that point out to the risks of having (all) arbitrators appointed by the parties and not by an institute. Parties tend to appoint arbitrators for whom, given their professional or academic background, they have reasons to believe that would favour their position in the ongoing dispute. This can, sometimes, result in problems, even preventing the tribunal from reaching a final decision. It has been observed, for example, that, in many cases, the arbitrator nominated by the losing party issues a dissenting opinion.

While the parties should, of course, remain free to agree on the appointment procedure for the arbitrators and also – unilaterally – nominate an arbitrator, it is strongly advised that parties take extra care when appointing an arbitrator and consider ways to avoid risks caused by the party appointments. In ICC and DIS institutional arbitration, the fact that each party nomination has to be confirmed by the respective institute that only then can appoint the nominated arbitrator probably provides an extra layer of safety making sure that no arbitrator was nominated with the objective of sabotaging the arbitration by, for example, later resigning or advocating in favour of a specific party.
 
Practicalities
Generally, when comforted with an arbitrator nomination, a party will result in a rather long list of potential candidates and try to shorten it until to the point that only the most suitable candidate is left.

At the beginning of the selection process, potential candidates are suggested on a basis of a broad research of CVs and professional or academic backgrounds. The applicable law, the seat of arbitration, the sector of the dispute as well as the party’s or its legal counsels’ previous experiences in similar arbitration cases constitute the main criteria for this first selection of candidates.

In a second step, the party, usually with the support of its attorneys, will look more closely into the publications of the candidates as well as any reports that possible mention them. In that stage, previous experiences became of particular importance as, in order to narrow down the initial – usually – long list, the party will try to find out how each candidate conducted themselves in previous cases similar to the one at hand. Apart form researching the candidates’ experience, the objective of this research is to also find out possible connections between the candidates and any of the arbitration participants, such as the opposing party, the other already arbitrator, or the counsels. Arguably, this review stage is aided by arbitrator databases and directories, which, generally, tend to become more detailed as the years go by and help parties and counsels take more well-informed decisions.

In a last decision stage, the party will have to choose only one individual whom it will nominate as arbitrator. It goes without saying, that the decision is very important and, in many cases, also difficult. Personal and professional networks might prove critical for that final decision. The good news is that, assuming that due diligence was applied in the two previous stages, it is rather inaccurate to talk about a “wrong decision” as there is hardly such a thing, at this last stage of the decision process. While there may be choices that, in retrospective, might be considered as “more suitable”, it is rather difficult to go completely wrong from here after coming so far.

Obviously, the choice of an arbitrator is not simple. It requires extensive research and, usually, a wide professional network. Given the importance of the decision, it is strongly advised that the party seeks expert support when nominating an arbitrator not only to ensure a tribunal properly qualified to arbitrate its case but also to avoid possible future delays and costs.

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