Challenges to Arbitration Tribunals: Vital Safeguard or Opportunity for Mischief?

As California works towards increasing its visibility as a center for international arbitration, it is almost inevitable (if the global trend is anything to go by) that arbitrations seated in the state will see increasing attempts by parties to unseat members of arbitration tribunals who they feel will not see life the same way as their clients.

While (contrary to the situation in the United Kingdom or the UNCITRAL Model Law) the Federal Arbitration Act does not provide any specific mechanism for challenging an arbitrator while an arbitration is ongoing. Institutional arbitration rules, such as those by the American Arbitration Association and the International Institution for Conflict Prevention and Resolution, generally contain procedures that allow a party to challenge the independence or impartiality of an arbitrator before the relevant arbitration institution. This can be done either at the time of selection or during the arbitration. A similar mechanism exists for domestic arbitrations under the California Code, CPC Section 1281.91.

Traditionally, challenging an arbitrator was likened to shooting the King -- something that if you were to attempt, you better not miss. The modern trend appears to disregard the fear that an unsuccessful challenge might leave a hostile arbitrator on the tribunal to decide on your dispute. Perhaps this is due to a greater faith in arbitrators understanding that such a challenge is not personal? Another consideration is that such challenges are being increasingly brought, not at the outset of a proceeding, but rather at some point before the award, in a (desperate?) attempt to tactically knock off an arbitrator who is being perceived to be negative to that side's case. As a result, what does the party have to lose?

There are no hard and fast statistics, but the trend appears to lean towards a significant increase in such challenges. This trend is particularly observable in the high stakes world of investor-state arbitration. By way of unscientific example, Global Arbitration Review has reported (as of Oct. 22, 2018) on 19 challenges to arbitrators in investor-state arbitrations since the beginning of 2018. To put that in context, the International Centre for Settlement of Investment Disputes (ICSID) has registered 38 new cases this year. That would suggest a challenge rate of almost one in every two cases. While some challenges are undoubtedly meritorious and form an important procedural safeguard against true bias, others are more difficult to understand in that context, at least from the perspective of being outside the proceedings. Is it becoming more the norm now to raise a tactical challenge?

In the recent case of Kruck v. Spain, a challenge was brought by Spain against one of the tribunal on two grounds: (i) remarks made in a dissenting award in a case against the Czech Republic, and (ii) questions he had posed of witnesses as arbitrator in two separate unrelated cases in which Spain was also a party. The challenge was ultimately dismissed, but the timing of when it was raised (13 days before the merits hearings were due to start -- and three years after the claim was first registered) meant that the tribunal considered it had no choice but to abandon the planned merits hearing. Given the congestion of the diaries of leading arbitrators, this no doubt led to a much longer delay to reaching an award than the month it took to resolve the challenge.

Similarly, in March of this year, Turkmenistan brought a challenge against an arbitrator six years into an arbitration -- a few days before closing arguments were due to proceed. The (unsuccessful) challenge was based on an accusation that the arbitrator had pre-judged the dispute based on his ruling in an unrelated case against Kazakhstan, as well as alleged non-disclosures. As a result, the closing arguments were postponed.

Embracing the concept that if you are going to challenge an arbitrator, you have to go (at least partially) all in, Venezuela brought three challenges this year against Alvaro Castellanos Howell, who was appointed as arbitrator in three separate annulment cases involving the state. The complaint related to a column he had written in a Guatemalan newspaper, in which he reported the arguments certain parties in Guatemala had made previously in criticizing the Venezuelan judicial process. His co-arbitrators disagreed with the complaints made in all three cases -- including a complaint that he had been appointed by the ICSID secretariat in five cases involving Venezuela and therefore owed some sort of undue loyalty to the (neutral) ICSID. Wry commentators might consider it interesting that Venezuela only brought this challenge in three of the five cases he was sitting on. Equally, the complaint that he had been appointed by a neutral body five times in cases involving Venezuela sits oddly with the fact that Venezuela itself has appointed the same arbitrator (who is required to be neutral and independent under the ICSID rules) in six different cases.

Incidentally, that arbitrator who Venezuela appointed six times is facing (and so far surviving) challenges in relation to the fact that she has been appointed five times by Croatia in ICSID claims it is facing.

Such challenges are not uniquely limited to the world of investor-state arbitration however. By way of example, 76-year-old Swedish arbitrator Sigvard Jarvin has just survived an attempt by the respondent state in an ICC construction arbitration to have him disqualified as chairman. The core ground of challenge? The fact that he was 76.

There is no doubt that the ability to police the independence, partiality and competence of a tribunal is a vital safeguard in the arbitral process. However, the safeguard stands at risk of being weaponized into a means of delaying hearings and attacking arbitrators who the parties fear are not as receptive to arguments as they may like. The courts of arbitral seats should be mindful of this, and, if they wish to promote themselves as being pro-arbitration, encourage parties to show appropriate restraint. Equally, parties should be cautious in selecting arbitrators, to ensure the other side is not given any ammunition to challenge the chosen arbitrator which may cause unnecessary delay and cost.