16 September, 2015
1. The importance of choice
Parties can specify in an arbitration clause how many arbitrators there will be. Arbitral rules typically state that there must be one or three arbitrators; some national arbitration laws have the same requirement. With three arbitrators, parties can normally each nominate one arbitrator. With a sole arbitrator, there is no such choice, and, in the absence of agreement between the parties on a sole arbitrator, the appointing authority will choose someone.
The identity of the arbitrator is one of the main factors determining how an arbitration will run and what the outcome will be. As Professor William Park has noted, just as housebuyers refer to "location, location, location", parties involved in an arbitration need to think of "arbitrator, arbitrator, arbitrator".1 You lose the chance to have a say in the make-up of the tribunal if there is only one arbitrator.
Further, the possibility of choosing an arbitrator is a key element of party autonomy in arbitration. It distinguishes arbitration from court litigation, where you cannot choose the judge. It is also a way for parties to "buy into" the arbitral process: this can be important for your internal conversations about a case.
2. Bias and sympathy
On the other hand, with three arbitrators there is the possibility that an arbitrator may incline towards the party selecting them. This comes in degrees:
- the arbitrator may consciously prefer that party (without being so partial as to warrant removal from the tribunal);
- they may subconsciously be well-disposed towards the nominating party on the basis of feelings of reciprocation, as explained by Robert Cialdini;2
- as Professor Catherine Rogers has noted,3 they may feel obliged to ensure, in a constructive manner, that the nominating party's position is taken into account during the tribunal's discussions; or
- at a basic level, if an arbitrator is from the same culture as a party, they may find it easier to understand that party's arguments and evidence compared to the other arbitrators.
3. Cost and time
Cost is also relevant. A sole arbitrator's fees in a US$ 5 million dispute using the ICC Rules will be around US$ 87,000. In contrast, the fees of a three- person tribunal will be around US$ 260,000.4 Travel and accommodation expenses will increase as well.
A three-person tribunal will typically mean the arbitration will take longer. A sole arbitrator only has their own diary to check when fixing hearings, but three arbitrators have to find dates that all can make. When writing the award, a sole arbitrator can focus on the task without needing to consult others, but three arbitrators need to take time to discuss and agree.
4. Sharing the burden
Running an arbitration can be a difficult task. A tribunal needs to keep on top of what happens during the arbitration, and process all the submissions and evidence at the end when preparing the award. A sole arbitrator must do this by themselves, while a three- person tribunal can share the burden between them.
And the more complex the case, the greater the risk that an arbitrator by themselves may miss something: arbitrators are not infallible. (The scrutiny processes offered by institutions such as the SIAC and the ICC only check for computational and other basic errors, not mistakes of fact or law.) Three arbitrators can help each other to eliminate any mistakes, and, since there is no possibility of appeal from an arbitral award, some feel as a result that it is safer to have three arbitrators.
5. The dynamics of three arbitrators
There are other features in the way a three-person tribunal operates that do not arise with a sole arbitrator. For a start, it is possible that the three arbitrators may have never worked together before. A three-person tribunal needs a good presiding arbitrator who can ensure they work well together and carry out their tasks efficiently.
It is also possible that a three-person tribunal can display the group dynamics that are identified by psychologists.5 Groups tend to promote conformity in thinking among their members. The leader of a group can also have undue influence, either because other members of the group want to please the leader, or because the leader's point of view has an "anchoring" effect, setting the agenda for the group's discussion.
In our experience, arbitrators are generally able to avoid such tendencies and maintain independent points of view (the inclination towards a nominating party, described above, may help as a counter-balance here). But the risks of such behaviours remain; and there can also be a risk that party-nominated arbitrators may become over-reliant on the presiding arbitrator – leaving the presiding arbitrator to do much of the work, particularly when it comes to writing the award. The first draft of an award is normally prepared by the presiding arbitrator and can again be an "anchor" for the tribunal's deliberations.
A good presiding arbitrator knows to involve the other arbitrators appropriately throughout, and knows to facilitate and not direct the discussion between them.
6. Leave it open
As an alternative, you could choose not to specify the number of arbitrators. The appointing authority will then decide, after asking the parties for their views. We do not often see this in practice, but it can be suitable in some situations such as where there is the likelihood of both small and large disputes arising from a contract. Not specifying the number of arbitrators gives the flexibility to appoint a suitably-sized tribunal after the dispute has arisen.6
Practical tips
- If the contract is high value, specify three arbitrators in the arbitration clause: the resulting extra time and expense will normally be worthwhile.
- If the contract is low value, a sole arbitrator may be best but weigh up the importance to you of saving time and cost, against having a say in who the arbitrator will be.
- If it is not clear how valuable a future dispute will be, do not specify the number of arbitrators. The appointing authority will then decide.
For further information, please contact:
Ben Giaretta, Partner, Ashurst
ben.giaretta@ashurst.com
