Quantity of Arbitrators - What are your thoughts?

| 11 Comments

or.png

When a contract is silent with respect to the quantity of arbitrators, what is the best way for an arbitral institution to handle this issue? Should there be a default to three arbitrators rather than one arbitrator based on the claim amount? If yes, what claim amount should be considered for the default? Rather than considering the claim amount, should the default to three arbitrators be based on the complexity of the case? What are the concerns about going with one arbitrator rather than three arbitrators?

Please provide your thoughts/comments below.


11 Comments

For an arbitration clause to be silent on the number of arbitrators, it would only require that disputes be submitted to arbitration. The drafter who specifies neither arbitration before a single arbitrator or by a panel of three leaves the number of arbitrators up to others. At the time when a dispute arises, the parties are best served by then addressing the issue, rather than defering the choice to the arbitration service provider. A default rule of 3 if no choice, or 3 if "complex", or 3 if more than "X $$$" doesnt consider party wishes. If parties at time of dispute, cannot agree, let them pick a single arbitrator in the normal course and delegate to that arbitrator the decision of whether 1 or 3 arbitrators shall decide case.

As I recall, in every case I have sat on, the number of arbitrators was set by the contract. If the contract is silent on that matter, or there is not a contract and the parties have agreed to arbitrate after the fact and still haven't decided on how many panel members, then it seems to me that this is a case where the arbitral institution needs to decide, taking the financial condition of the parties into account.

Perhaps the institution should consult with the Parties separately and find out the number of arbitrators that would foster their confidence in the process. The complexity of the issues and or the amount would also be factors for consideration. During my twenty-eight years of practice, I have had a couple of instances where a Panel of three had commenced the proceeding and at one point the case manager asked me if I would be amenable to continue the arbitration as a sole arbitrator. I accepted. The suggestion had apparently come from the parties and not from the case manager. I believe that the parties should have their input in this case. After all it is their choice to resort to arbitration and should also be their choice to have a sole arbitrator or a panel of three arbitrators. I had several instances where the amount in dispute was under $100,000 and yet the parties chose to have three panelists. In this case the fee was a flat fee which helped keeping the cost at a minimum. In any event, I believe that the institution should act in concert with the parties in order to come up with the most appropriate and acceptable panel.

I have found that one good arbitrator is as good as three good ones. And there's no chance of a consensus Award. It also cuts down on costs. If there is silence on the number, the default should be one arbitrator unless both parties request three.

I think that the AAA needs to further update its rules on the number of arbitrators. Three arbitrators is not economical or efficient for smaller cases. The ICDR threshold for three arbitrators is only $500,000 under the rules amendment of last year That should be more like $3 million (as in ICC arbitrations under agreements concluded on or after January 1, 2021), unless all parties request otherwise. The same rule should apply domestically in my view. For lower amounts, one arbitrator is fine. The threshold figure should also be adjusted periodically if and as meaningful inflation continues. While in the near term increasing the threshold would likely reduce the number of arbitrator engagements, doing so would be in the best interest of parties and, in the longer term, encourage increased use of arbitration. If we don't keep our offering economical and efficient, contract drafters will choose other options, be they courts or alternative administrators.

Unless the question implies rewriting the Rules of the Association, I respectfully submit that the issue is covered by Commercial Rule 16 and Rule L-2 of Rules For Large and Complex Cases.

Three arbitrators can be very expensive. But, as an arbitrator, I find a panel of three to be worthwhile. Having someone to bounce ideas off is always a great aid. and sometimes you miss something during the presentation of the case, and having someone to compare notes with can help a lot. But financial realities are what they are and it is understandable for parties to want to reduce costs. Even when on a panel with three hearing a large complex case, I often wonder how happy the parties are when they receive a bill for many hundreds of thousands of dollars. I don't buy the view that a large company doesn't care about costs. Everyone, even Elon himself cares about costs.

As a solo arbitrator, and I am sure this is true generally, my experience has ranged from the low thousands to cases where the dispute exceeds more than half a million dollars so I would not recommend a default on the basis of the claim amount. In fact the Commercial Rules for large complex cases allow the parties to agree to one arbitrator in cases that involve $1 million dollars. On the other hand, where the matter being arbitrated concerns very complex issues and requires the consideration of extensive evidence, I think most arbitrators would agree that a panel deliberation aids the division of work, the diversity of thought, and ultimately a more considered Award. These attributes highlight some of the concerns that would exist for a solo arbitrator handling a complex case-ie shouldering the responsibility to digest an abundant record solo without the ability to discuss diverse views on complex issues in aid of a sound Award. Nevertheless, I am sure there are and have been many such cases handled by a single arbitrator based on their expertise, reputation, and experience.

Assuming existing rules do not apply, or are to be rewritten, step one should be the joint preference of the parties. If they agree on the number of arbitrators that should be the end of the inquiry. If they fail to agree, an emergency arbitrator should be appointed by the administering agency to determine whether the controversy is sufficiently complex to warrant a panel of three arbitrators. The emergency arbitrator should not be a candidate for the panel should her ruling require one.

Two things can be accepted as givens: Most clauses providing for the arbitration of disputes are drafted long before there is a concrete set of facts framing a dispute, and, when a dispute arises if the parties can agree on the number of arbitrators, their determination should prevail but their respective interests at that time may preclude an agreement. In the latter circumstance, I believe having a diverse tribunal (whether by age, gender, or experience) can improve the quality of the award significantly and would favor a threshold of $3 - $5 million would be reasonable. In my experience, “complexity” is in the eye of the beholder and applying an administrative guideline uniformly could be challenging.

I agree with David Robbins (the 4th comment above).

Leave a comment

About this Entry

This page contains a single entry by Jeffrey Zaino published on May 24, 2022 7:22 PM.

Right to Challenge a Party Appointed Arbitrator - What are your thoughts? was the previous entry in this blog.

WIN SUMMIT 2022 is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

Categories

Monthly Archives

Pages

Powered by Movable Type 5.11