On May 21, ALI membership will be presented with Tentative Draft No. 6 of the Restatement of the Law, The U.S. Law of International Commercial and Investment Arbitration. This draft includes Chapter 3, which addresses the roles that courts might play during the pendency of international arbitral proceedings.
Two Sections address the role of courts in the arbitrator selection process – § 3-2 Court Appointment and Removal of Arbitrators and § 3-3 Court-Ordered Provisional Relief in Aid of Arbitration. This is the first of two posts that present the Black Letter and Comments from the draft.
Black Letter and Comments from Tentative Draft No. 6:
§ 3-2. Court Appointment and Removal of Arbitrators
(a) Upon request, courts appoint an arbitrator only if the international arbitration is seated in the United States and:
(1) the parties have so agreed;
(2) the international arbitration agreement does not provide a method for appointing an arbitrator; or
(3) the agreed-upon method for appointing an arbitrator has failed in whole or in part.
(b) Federal courts ordinarily do not remove an arbitrator appointed in an international arbitral proceeding unless the parties have so agreed. State courts in the arbitral seat remove an arbitrator appointed in an international arbitral proceeding only to the extent permitted by the law of the forum and not preempted by federal law.
a. Generally. The appointment of the arbitral tribunal is a critical phase of an international arbitral proceeding. Typically, the parties’ arbitration agreement, either directly or through the incorporation of institutional arbitration rules, sets out a method for appointing the tribunal. But when the parties’ agreement does not address the issue, or for some reason the agreed-upon method of appointment fails (such as when one party refuses to participate in appointing an arbitrator), national arbitration laws commonly authorize a court in the jurisdiction in which the arbitration is seated to appoint an arbitrator for the parties.
b. Court appointment of arbitrators under the New York Convention and the FAA. The New York Convention does not address the appointment of arbitrators. FAA § 206, implementing the Convention, permits a federal court to “appoint arbitrators in accordance with the provisions of the agreement.” If the parties’ arbitration agreement does not address arbitrator appointment, or when the agreed-upon method of appointment fails, FAA § 5 (made applicable through FAA § 208) rather than FAA § 206 is the relevant provision. Section 5 provides that if the arbitration agreement does not provide a method of appointing arbitrators or if for any reason “there shall be a lapse in the naming of an arbitrator,” then upon the request of a party the court “shall designate and appoint” the arbitrator. A number of state international arbitration statutes have similar provisions. Implicit in these statutes is that only a court where the international arbitration is seated has the authority to appoint an arbitrator in an appropriate case.
The agreed-upon method of appointing an arbitrator “lapses” or fails when there is a breakdown in the method by which the parties agreed to select an arbitrator, and the parties have not agreed on a means by which to resolve the breakdown. In such a case, FAA § 5 authorizes a federal court upon request to appoint the arbitrator.
1. Party A and Party B enter into an arbitration agreement, which provides that the parties will “mutually agree” on a sole arbitrator to resolve their dispute. The arbitration agreement does not address what happens if the parties are unable to agree on the sole arbitrator. Party A insists on arbitrator Y; Party B insists on arbitrator Z. Because the parties cannot mutually agree on the sole arbitrator to resolve their dispute, the agreed-upon method for selecting the arbitrators has failed, and either party can request a federal court to appoint the arbitrator.
2. Party A and Party B enter into an arbitration agreement, which provides that each party will select an arbitrator, and then the party-appointed arbitrators will jointly select the presiding arbitrator. The arbitration agreement does not address what happens if a party fails to appoint its party-appointed arbitrator. Party A timely appoints arbitrator Y. Party B, however, refuses to appoint its arbitrator. Because of Party B’s refusal, the agreed-upon method for selecting the arbitrators has failed, and Party A can request a federal court to appoint an arbitrator in place of Party B’s arbitrator. Arbitrator Y and the arbitrator appointed by the court then jointly select the presiding arbitrator.
A party can request a federal court to appoint an arbitrator under the FAA either as part of an action to compel arbitration or a motion to stay litigation pending arbitration, or as a free-standing action. A free-standing action for appointment of an arbitrator must meet the prerequisites for bringing any action in U.S. court, including subject matter jurisdiction, personal jurisdiction, and venue.
c. Court appointment of arbitrators under the Panama Convention. The Panama Convention provides that the “[a]rbitrators shall be appointed in the manner agreed upon by the parties” but that any gaps in the arbitration agreement (including the absence of any method for appointing arbitrators) shall be filled by the arbitration rules of the Inter-American Commercial Arbitration Commission (IACAC). Article 5 of the IACAC Rules specifies default procedures for appointing arbitrators and designates the IACAC, rather than a court, as the appointing authority for making appointments and ruling on challenges.
d. Court removal of arbitrators. As a general matter, federal courts have held that they do not have the authority to remove an arbitrator during an international arbitral proceeding. If the parties are arbitrating under the auspices of institutional arbitration rules, those rules likely set out a procedure for challenging or removing an arbitrator. The UNCITRAL Arbitration Rules, commonly used in ad hoc arbitrations, likewise set out such a procedure. Court challenges to an arbitrator on grounds of alleged bias instead are to be raised as a ground for vacating an award under § 4-20, infra, or as a defense to enforcement of an award under § 4-13 or § 4-15, infra.