The Party Arbitrator
ADR Journal
By Richard Hoffelt 

Commercial contracts very often provide for the submission of disputes to binding arbitration in which each party selects an arbitrator and they, together, are empowered and required to select an additional arbitrator.  California law (Code of Civil Procedure Section 1280 {d}) provides that the arbitrator thus designated is a “neutral arbitrator” who must comply with the ethical standards referred to in California Code of Civil Procedure Section 1281.85.  However, arbitration clauses do not always expressly provide for the ethical standards to which the party-appointed arbitrators must adhere in the process.  “There are different perceptions of the duties, obligations and practices of party-appointed arbitrators regarding whether the arbitrators are to be independent of the parties that appointed them; whether they are to be impartial; whether they may have publicly stated views that tend to favor one side of the dispute; whether and to what extent they may engage in ex parte communications with parties that have appointed them; the extent to which they must disclose certain relationships and interests; and compensation agreements.***As long as the law on the subject of court-appointed arbitrators remains confused and uncertain, full disclosure and agreement of the parties is a prudent course of action.” (American Arbitration Association Handbook On Commercial Arbitration, Chap. Five II., pp. 200 & 210, ‘Issues Surrounding Party-Appointed Arbitrators’ by Richard M. Mosk)  In order to assure the fairness and integrity of this process, therefore, it is imperative that counsel and the parties have a clear understanding with the party-appointed arbitrators as to the ethical standards that will guide their conduct in the process.

The American Arbitration Association recognized the need for such standards and, in concert with The American Bar Association, created its Code of Ethics for Arbitrators in Commercial Disputes (herein “the Code”), making it applicable “in those instances where the Code has been approved and recommended by organizations that provide, coordinate, or administer services of arbitrators. Canons IX and X thereof specifically address the ethical obligations of party-arbitrators.  These standards were very well thought out and implemented and deserve the consideration of counsel and parties in arriving at a clear understanding of the ethical standards to which the party- arbitrators should adhere in  all cases.

The Code presumes all three arbitrators to be “neutrals” (Canon IX A.), but declares that “Notwithstanding this presumption, there are certain types of tripartite arbitration in which it is expected by all parties that the two arbitrators appointed by the parties may be predisposed toward the party appointing them.  Those arbitrators…are not to be held to the standards of neutrality and independence applicable to other arbitrators.” (Canon IX B.)  Canon IX C. (1) prescribes the procedure to which each party-appointed arbitrator must adhere in order to determine his or her status as either “party or neutral” arbitrator.  If they conclude they are not to be “neutrals,” they should inform one another and the parties of that conclusion and need conduct themselves as neutral arbitrators as provided in Canon X “…unless or until a different determination of their status is made by the parties, any administering institution, or the arbitral panel. (Canon C. (2).”  In those situations in which the foregoing ethical standards are not applicable, party-appointed arbitrators should seek and obtain clarification of his or her role prior to serving.

Canon X provides that the party-appointed arbitrators “…are expected to observe all the ethical obligations prescribed by this Code except those from which they are specifically excused by Canon X.”

A.Obligations under Canon I (1) provides that party-appointed arbitrators “…should observe all of the obligations of Canon I [An arbitrator should uphold the integrity and fairness of the arbitration process.] subject only to the following provisions.  (1) Canon X arbitrators may be predisposed toward the party who appointed them but in all other respects are obligated to act in good faith and with integrity and fairness.  For example, Canon X arbitrators should not engage in delaying tactics or harassment of any party or witness and should not knowingly make untrue or misleading statements to the other arbitrators; and (2) The provisions of subparagraphs B (1), B (2), and paragraphs C and D of Canon I, insofar as they relate to partiality, relationships, and interests are not applicable to Canon X arbitrators.”

B. Obligations under Canon II “(1) Canon X arbitrators should disclose to parties, and to the other arbitrators, all interests and relationships which Canon II requires to be disclosed [Any interest or relationship likely to affect impartiality or which might create an appearance of partiality].  Disclosure as required by Canon II is for the benefit not only of the party who appointed the arbitrator, but also for the benefit of the other parties and arbitrators so that they know of any partiality which may exist or appear to exist, and (2) a Canon X arbitrator is  not obliged to withdraw under paragraph G of Canon II if requested to do so only by the party who did not appoint him or her.” 

C. Obligations under Canon III- “Canon X arbitrators should observe all of the obligations
of Canon III [An arbitrator should avoid impropriety or the appearance of impropriety in communicating with parties.] subject only to the following provisions:  (1) Like neutral party-appointed arbitrators, Canon X arbitrators may consult with the party who appointed them to the extent permitted in paragraph B of Canon III; (2) Canon X arbitrators shall, at the earliest practicable time, disclose to the other arbitrators and to the parties whether or not they intend to communicate with their appointing parties.  If they have disclosed the intention to engage in such communications, they may thereafter communicate with their appointing parties concerning any other aspect of the case, except as provided in paragraph (3); (3) If such communication occurred prior to the time they
were appointed as arbitrators, or prior to the first meeting or other meeting of the parties
with the arbitrators, the Canon X arbitrator should, at or before the first hearing or meeting of the arbitrators with the parties, disclose the fact that such communication has taken place.  In complying with the provisions of this subparagraph, it is sufficient that there shall be disclosure of the fact that such communication has occurred without disclosing the content of the communication.  A single timely disclosure of the Canon X arbitrator’s intention to participate in such communications in the future is sufficient.  (4) Canon X arbitrators may not during the arbitration:  (a) disclose any deliberations by the arbitrators on any matter or issue submitted to them for decision; (b) Communicate with the parties that appointed them concerning any matter or issue taken under consideration by the panel after the record is closed or such matter or issue has been submitted for decision; or disclose any final decision or interim decision in advance of the time that it is disclosed to all parties; (5) Unless otherwise agreed by the arbitrators and parties, a Canon X arbitrator may not communicate orally with the neutral arbitrator concerning any matter issue arising or expected to arise in the arbitration in the absence of the other Canon X arbitrator.  If a Canon X arbitrator communicates in writing with the neutral arbitrator, he or she shall simultaneously provide a copy of the communication to the other Canon X arbitrator.  (6) When Canon X arbitrators communicate orally with the parties that appointed them concerning any matter on which communication is permitted under this Code, they are not obligated to disclose the contents of such communications to any other party or arbitrator.  (7) When Canon X arbitrators communicate in writing with the party who appointed them concerning any matter on which communication is permitted under this Code, they are not required to send copies of any such written communication to any other party or arbitrator.”

D.  Obligations under Canon IV.  “Canon X arbitrators should observe all of the obligations of Canon IV [An arbitrator should conduct the proceedings fairly and diligently].” 

E.  Obligations under Canon V.   “Canon X arbitrators should observe all of the obligations of Canon V [An arbitrator should make decisions in a just, independent and deliberate manner.], except that they may be predisposed toward deciding in favor of the party who appointed them.”  Thus, while the neutrality of the party-appointed arbitrator is compromised to the extent that he or she may be predisposed toward deciding in favor of the party who appointed him or her, he or she nonetheless must decide in a “just, independent and deliberate manner,” meaning, in this writer’s opinion, that the decision is to be made by the party-appointed arbitrator even if unfavorable to the party who appointed him or her.  The writer further believes that this is a duty that should be carried out by party-appointed arbitrators in all cases.  Failure to do so may lead to a vacation of the award under section 1286.2 under California Code of Civil Procedure.   
                                                                       
F.  Obligations under Canon VI.  “Canon X arbitrators should observe all of the obligations of Canon VI [An arbitrator should be faithful to the relationship of trust and confidentiality inherent in that office.].”

G.  Obligations under Canon VII.  “Canon X arbitrators should observe all of the
obligations of Canon VII [An arbitrator should adhere to standards of integrity and
fairness when making arrangements for compensation and reimbursement of expenses.].”

H.  Obligations under Canon VIII.  “Canon X arbitrators should observe all of the obligations of Canon VIII [An arbitrator may engage in advertising or promotion of arbitral services which is truthful and accurate.].”

I.  Obligations under Canon IX. [Arbitrators appointed by one party have a duty to determine and disclose their status and to comply with this Code, except as exempted by Canon X].  +The provisions of Canon IX are inapplicable to   Cannon X arbitrators, except insofar as the obligations are also set forth in this Canon.”

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