Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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Disclosure of Conflicts by Arbitrators
Lawrence W. Newman and Michael Burrows
International arbitrations often involve significant amounts of
money. The stakes are high and the choice of the persons who will decide
the disputed issues is therefore important. Indeed, there are lawyers who
have ascribed to the selection of arbitrators a large percentage of what a
party can do to influence the outcome of an international arbitration. But
arbitrators, unlike judges, do not come from a cloistered world. Rather, they
– with the exception of a small number of persons who only serve as
arbitrators – usually come from the hurly burly worlds of business,
commerce and investment and from law firms that advise the active
participants in these worlds.
The two poles of bias and impartiality have always been concerns
of the institution of international arbitration. The Federal Arbitration Act
specifically refers to the possibility that an arbitrator may be biased in favor
of one of the parties. It provides that an arbitral award may be vacated by a
U.S. district court “when there was evident partiality or corruption in the
arbitrators or either of them” (emphasis added), 9 USC §10(a) (2).
The universally expected response to the potential problem of
arbitrator bias is disclosure, at the outset, by potential arbitrators of facts
that might be regarded as bearing on their independence. A case recently
decided by the Second Circuit, Applied Industrial Materials Corp. v. Ovalar
Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir. 2007), sheds some light
on the extent to which information bearing on possible bias must not only
be disclosed but also ferreted out by the arbitrator possessed of information
suggesting possible conflicts of interest with either of the parties.
The Case
The case concerned an application by a party to vacate an award
because of purported bias on the part of the chairman of the arbitral
tribunal, Charles Fabrikant, the Chairman, President and CEO of Seacor
Holdings, a “multi-billion dollar company with 50 offices in 30 countries,”
in the words of the Court of Appeals. Before the proceedings began, the
arbitrators were informed that Applied Industrial (“Armcor”) was being
sold to Oxbow Industries and that the transaction might be relevant to the
disclosure of conflicts by the arbitrators, as required by the agreement by
which the parties had submitted their dispute to arbitration. That agreement
contained the following provision, which focused the arbitrators’ attention
on potential conflicts: “No arbitrator shall accept or sit on a Panel where
the arbitrator or arbitrator’s current employer, has a direct or indirect
interest in the outcome of the arbitration.”
Shortly after the commencement of the liability phase of the
arbitration proceedings, Mr. Fabrikant informed the parties that a subsidiary
of Seacor known as SCF had been in conversations with Oxbow about the
transportation of petroleum coke for Oxbow. Mr. Fabrikant said that he did
not plan to participate in these contract negotiations and that he did not
believe his ability to decide the case had been impaired.
There was no reaction or objection by the parties to this disclosure
at that time. Subsequently, the panel, in a 2-to-1 decision in which Fabrikant
cast the deciding vote, ruled in favor of Armcor with respect to the issue of
breach of contract.
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
