A ground-breaking report on arbitrator selection suggests that parties could secure improved outcomes by adopting more formalised processes and actively taking account of diversity considerations (see “The Usual Suspects: Decision-Making in Arbitrator Selection”, available here).
Presented as part of Hong Kong Arbitration Week 2023, the report is the output of the “Usual Suspects Project”, a collaboration between the Hong Kong International Arbitration Centre and Cortex Capital, supported by Herbert Smith Freehills and other leading law firms (reported here).
Led by Herbert Smith Freehills alumnus and Cortex Capital founder Dr Ula Cartwright-Finch, the goal of the project was to “unlock the black box” of party appointments, including the extent to which diversity is considered by key decision-makers.
Drawing upon detailed interviews with senior arbitration practitioners in Hong Kong and a broader global survey of arbitration community members (including lawyers, arbitrators and in-house counsel), the report finds that selection processes tend to be informal, relying on past practice and personal contacts and without a systematic written framework to guide participants.
By far the most common approach to identifying candidates is through personal knowledge or contacts, with 93% of survey respondents doing so compared with 55% who consult the panels or lists of arbitral institutions and 52% who refer to internal databases of their own organisations.
The report cautions that this approach is “particularly subject to cognitive bias”. For example, arbitrators whom practitioners know and believe to be good will be summoned from memory more readily (“recency bias”), and practitioners will tend to spend more time getting to know arbitrators who they feel are “like them” (“affinity bias”) and to evaluate such arbitrators more positively (“ingroup bias”).
These factors can operate to reduce and skew the pool of available candidates, often resulting in repeat appointments for a relatively small group of “usual suspects” and a failure to identify and appoint other suitable (and potentially better-qualified) candidates.
Although outside the scope of the report, it is worth noting that frequent repeat appointments by a particular law firm or client can also give rise to problems from a conflicts of interest perspective, increasing the risk of arbitrators either ruling themselves out or being ruled out by the lawyers considering them, as well as the likelihood of disclosures by arbitrator candidates and challenges by opposing parties.
By adopting a more formal and structured process (as recommended by the report), participants in the arbitrator selection process could improve decision-making and potentially secure better selection outcomes (including by reducing the scope for conflicts of interest challenges) through access to a wider pool of candidates. In particular, the report recommends that participants should:
- Put it in writing. Implement a written process and checklists; capture the ideal arbitrator profile for a case in writing so it can be used systematically in evaluating candidates; and record the due diligence and decision-making processes in writing.
- Be systematic. Make sure that all relevant resources have been consulted (including external lists and not only personal contacts); conduct checks and stress-tests for each step of the process; and evaluate and rank each candidate against the same (written) specification or criteria.
- Integrate diversity considerations. Take account of the organisation’s commitments under diversity initiatives such as the Equal Representation in Arbitration Pledge (the “ERA Pledge”), discussed below; include diversity checks for the initial shortlist and final list; and discuss diversity considerations with clients.
Drawing out the final point in particular, the report provides valuable data on attitudes to diversity in the party appointment process (as distinct from statistics on diversity outcomes, which we have covered previously here).
Most interview respondents reported actively factoring diversity into the decision-making process in some way (often as a way of “sense checking” a shortlist of candidates). Only 35% of survey respondents, however, “always” consider diversity when selecting candidates, with 48% doing so only sometimes and 17% never doing so. Diversity was “important” or “extremely important” to 39% of survey respondents, but “unimportant” or “not important at all” to 34% (with the remaining 28% being “neutral” towards diversity).
A substantial majority (80%) of interview respondents reported that they considered gender when selecting candidates, with 43% reporting that their organisation had signed the ERA Pledge and 38% reporting that compliance with the ERA Pledge was monitored by their organisation. Race and ethnicity were considered by 60% and age by 50% of respondents. Fewer than 10% of respondents reported considering other factors such as sexual orientation, disability and faith.
These statistics suggest that, whilst diversity considerations have gained significant traction and visibility in recent years, work remains to be done in the context (at least) of arbitrator selection.
Arbitral institutions are increasingly taking account of diversity in their own appointments processes. For example, appointments by the Belgian Centre for Arbitration and Mediation (CEPANI) must reflect “considerations of diversity and inclusion” (Article 15 of the CEPANI Rules), and the ICC Note to National Committees and Groups on the Proposal of Arbitrators encourages the consideration of “diversity, broadly defined, including but not limited to racial, ethnic, cultural, generational, and gender diversity” (paragraph 40).
Party appointments are, however, less diverse than appointments by arbitral institutions and co-arbitrators according to the statistics of major arbitral institutions. Placing greater onus on parties themselves, the recently launched Scottish Arbitration Centre Rules 2023 expressly require parties and their lawyers (as well as co-arbitrators and the Court of the Scottish Arbitration Centre) to have regard to the ERA Pledge and REAL (Racial Equality for Arbitration Lawyers) in proposing or appointing an arbitrator (Article 8.1).
The Hong Kong International Arbitration Centre and the Singapore International Arbitration Centre are both currently consulting on revisions to their rules, including provisions which would require diversity and inclusion considerations to be taken into account during the appointment process. If other institutions follow suit in incorporating express diversity language into their rules, this may accelerate the move towards more formalised and systematic arbitrator selection processes.
It is uncontroversial that parties will always wish to appoint the best person for the job. The real question is how best to identify that person. The “Usual Suspects” report and the research underpinning it play an important role in drawing attention to the potential missed opportunities for parties whose lawyers do not take diversity considerations into account during the arbitrator selection process.
For further information, please contact:
Kathryn Sanger, Partner, Herbert Smith Freehills