Upcoming Mallesons seminarsYou may wish to consider the issues outlined in this article when drafting a contract which contains an arbitration agreement.
The number of arbitrators together with the identity and appointment of the arbitral tribunal is a matter of consensus between the parties to an arbitration agreement. Parties are unlikely to agree to the actual identity of the members of a tribunal, particularly at the time of entering into a contract containing an arbitration agreement. However, parties are likely to be in agreement as to how the tribunal will be formed, should a dispute arise. For example, the parties may agree to specific, tailor-made, provisions or they may adopt a set of Rules (such as the UNCITRAL Arbitration Rules, ICC Rules of Arbitration, SIAC Rules or LCIA Arbitration Rules) to govern the arbitration.
If no provision has been made by the parties for the formation of the tribunal, then the parties can rely on default provisions in the international arbitration legislation of the agreed seat of the arbitration to govern its formation. In Australia, these default provisions are set out in the Model Law. The Model Law is also substantially adopted in a number of other jurisdictions, including Hong Kong, Singapore and New Zealand. This article assumes that if the seat of the arbitration is in Australia, the parties have not opted-out of the Model Law (which would result in the relevant State or Territory Commercial Arbitration Act applying).
Number of arbitrators
In deciding the number of arbitrators, you may wish to consider:
(a) cost (a greater number of arbitrators will naturally increase costs)
(b) the likely complexity of a dispute and possible areas of technical or legal expertise
(c) timing requirements (the greater the number of arbitrators the more diaries will need to be consulted when agreeing a timetable), and
(d) the parties' personal preferences.
In international arbitrations, the parties often choose to have three arbitrators, thus ensuring at least one of the arbitrators meets each party's desired legal and/or technical and/or cultural background. If you have not expressly agreed to the number of arbitrators, but have agreed to a set of Rules to govern the arbitration, then those Rules will likely allow for a default position of one or three arbitrators and may provide a mechanism for the number of arbitrators to be determined by the agreed appointing authority.
If you have not agreed to the number of arbitrators and you have not agreed to a set of Rules, then the default provisions in the international arbitration legislation of the agreed seat will govern the decision. If the seat of the arbitration is in Australia, Article 10 of the Model Law states that the parties are free to determine the number of arbitrators and, should they fail to do so, the default position will be three arbitrators (note, however, that if the seat of the arbitration is Singapore, the default position under the Model Law has been changed in that jurisdiction to one arbitrator).
It should be noted that the adoption of Rules which have a different default position to the Model Law on the number of arbitrators, or which allow an appointing authority to determine the number of arbitrators, is not inconsistent with the operation of the Model Law(see Articles 2(d) and (e)).
Nationality of arbitrators
Article 11 of the Model Law provides that an arbitrator cannot be precluded on the basis of nationality unless the parties have agreed otherwise. However, you may wish to agree to exclude nationalsof either party from participating on a tribunal or, more commonly, from taking the role of chairperson of a tribunal or acting as a sole arbitrator, to avoid concerns regarding impartiality.
Appointment of a tribunal
If you agree to a tribunal of three arbitrators, and there are two parties to the dispute, each party will generally appoint an arbitrator and the two appointed arbitrators will then appoint a third arbitrator (the chairperson). This is reflected in most sets of Rules as well as the Model Law.
When you are considering who to appoint as an arbitrator, you should consider the qualifications (including legal background) of the arbitrator, the arbitrator's reputation and standing, the availability and existing workload of the arbitrator, the arbitrator's location and, depending upon the Rules adopted, the fees of the arbitrator. Of course, a party-appointed arbitrator must be independent of the parties, providing no basis for a reasonable apprehension of bias. Most arbitral authorities and appointing authorities (including Australian Centre for International Commercial Arbitration (ACICA)) maintain lists of arbitrators, and can assist you in determining potentially suitable arbitrators.
Problems may arise during the appointment process where there are more than two parties to an arbitration and only three places to fill in the arbitral tribunal. However, Rules such as those of the LCIA and ICC can overcome the problems created by the potential for multiple parties participating in the appointment process by allowing the relevant institution to appoint the tribunal if agreement cannot be reached.
Most Rules will include a procedure to deal with a breakdown in the appointment process. For example, in an ICC arbitration the Court of International Arbitration will "step up to the plate", in an LCIA arbitration the LCIA Court will do likewise and in arbitration conducted in accordance with the UNCITRAL Arbitration Rules the nominated appointing authority (such as ACICA or the HKIAC) will undertake the role. If the process set out in the Rules fails, then the Model Law default position remains.
If the seat of the arbitration is in Australia, and if there is a failure to follow an agreed appointment process, the default position under the Model Law is that the Supreme Court in the relevant State or Territory may appoint the arbitrator(s). In contrast, if the seat of the arbitration is Hong Kong the HKIAC is authorised to appoint the arbitrator(s) and similarly, if the seat is Singapore the authorised person is the Chairman of the SIAC. Thus, a recalcitrant party cannot stop the formation of an arbitral tribunal.
Closing thought
When drafting an arbitration agreement, it is important that you give due consideration to how your arbitral tribunal will be formed, for this is the body that will finally determine any dispute that arises, and the process set in place for formation of the tribunal will impact on how quickly the arbitration can commence.
Stephen Barrett-White
Senior Associate
T +61 2 9296 2305
stephen.barrett-white@mallesons.com