Ethics for Arbitrators

Ethics for Arbitrators

Use of Arbitration: Arbitration is used to resolve a wide variety of disputes has grown.  It is typically agreed upon by contract (i.e. construction contracts, municipalities, etc.).  Persons who act as arbitrators therefore undertake serious responsibilities to the public, as well as to the parties.

Many different types of arbitration and ethics that relate to the same.

–  Code of Ethics for Arbitrators in Commercial Disputes

–  Code of Professional Responsibility for Arbitrators of Labor-Management Disputes

 Why Use Arbitration: Most proceedings are by voluntary agreement of the parties, but certain types of disputes are by reason of particular laws.

–  Arbitrators, like judges, have the power to decide cases. During arbitration, the arbitrator may engage in discourse with the parties or their counsel, draw out arguments or contentions, comment on the law or evidence, make interim rulings, and otherwise control or direct the arbitration. These activities are integral parts of an arbitration.

–  Theory is that it is less expensive

–  You are able to select a person or persons who may be an expert in the field the parties wish to resolve.

–  The rules of evidence are slightly relaxed (more items may be considered).

–  the applicable law is still considered.

–  The ruling is binding upon the parties (in most instances).

–  The appeals process is very difficult.

–  The parties can set the laws and ground rules that will govern the proceedings.

 Appointment of Arbitrators:

 –  By party agreement

–  By the American Association of Arbitrators

–  By party selected arbitrators who then appoint a 3rd arbitrator

Neutrality: Arbitrators are to maintain their neutrality (even if selected by a party originally).  To be neutral is to be independent and impartial, and to comply with ethical standards. A requirement is that all arbitrators make pre-appointment disclosures of any facts that might affect their neutrality, independence, or impartiality.

AN ARBITRATOR SHOULD UPHOLD THE INTEGRITY AND FAIRNESS OF THE ARBITRATION PROCESS.

A.        An arbitrator has a responsibility not only to the parties but also to the process of arbitration itself, and must observe high standards of conduct so that the integrity and  fairness of the process will be preserved.

B.        One should accept appointment as an arbitrator only if fully satisfied:

(1) that he can serve impartially;

(2) that he can serve independently from the parties, potential witnesses, and the other arbitrators;

(3) that he is competent to serve; and

(4) that he can be available to commence the arbitration in accordance with the requirements of the proceeding and thereafter to devote the time and attention to its completion.

C.        After accepting appointment and while serving as an arbitrator, a person should avoid entering into any business, professional, or personal relationship, or acquiring any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality. Existence of any of the matters or circumstances described does not render it unethical for one to serve as an arbitrator where the parties have consented to the arbitrator’s appointment or continued services.

D.        Arbitrators should conduct themselves in a way that is fair to all parties and should not be swayed by outside pressure, public clamor, and fear of criticism or self-interest. They should avoid conduct and statements that give the appearance of partiality toward or against any party.

E.         When an arbitrator’s authority is derived from the agreement of the parties, an arbitrator should neither exceed that authority nor do less than is required to exercise that authority completely. Where the agreement of the parties sets forth procedures to be followed in conducting the arbitration or refers to rules to be followed, it is the obligation of the arbitrator to comply with such procedures or rules.

F.         An arbitrator has no ethical obligation to comply with any agreement, procedures or rules that are unlawful or that, in the arbitrator’s judgment, would be inconsistent with the code.

G.        An arbitrator should conduct the arbitration process so as to advance the fair and efficient resolution of the matters submitted for decision. An arbitrator should make all reasonable efforts to prevent delaying tactics, harassment of parties or other participants, or other abuse or disruption of the arbitration process.

H.        The arbitrator’s ethical obligation is to continue throughout all stages of the proceeding. and begin as soon as a person is requested to serve as an arbitrator.

I.          Once an arbitrator has accepted an appointment, the arbitrator should not withdraw or abandon the appointment unless compelled to do so by unanticipated circumstances that would render it impossible or impracticable to continue. When an arbitrator is to be compensated for his or her services, the arbitrator may withdraw if the parties fail or refuse to provide for payment of the compensation as agreed.

J.         If withdrawing, an arbitrator should take reasonable steps to protect the interests of the parties in the arbitration, including return of evidentiary materials and protection of confidentiality.

AN ARBITRATOR SHOULD DISCLOSE ANY INTEREST OR RELATIONSHIP LIKELY TO AFFECT IMPARTIALITY OR WHICH MIGHT CREATE AN APPEARANCE OF PARTIALITY.

A.        Persons who are requested to serve as arbitrators should, before accepting, disclose:

(1) Any known direct or indirect financial or personal interest in the outcome of the arbitration;

(2) Any known existing or past financial, business, professional or personal relationships which might reasonably affect impartiality or lack of independence in the eyes of any of the parties. They should also disclose any such relationships involving their families or household members or their current employers, partners, or professional or business associates that can be ascertained by reasonable efforts;

(3) The nature and extent of any prior knowledge they may have of the dispute; and

(4) Any other matters, relationships, or interests which they are obligated to disclose by the agreement of the parties, the rules or practices of an institution, or applicable law regulating arbitrator disclosure.

B.       Make a reasonable effort to inform themselves of any interests or relationships

C.        The obligation to disclose interests or relationships is a continuing duty which requires a person who accepts appointment as an arbitrator to disclose, as soon as practicable, at any stage of the arbitration, any such interests or relationships which may arise, or which are recalled or discovered.

D.        Any doubt as to whether or not to disclosure should be resolved in favor of disclosure.

E.         Disclosure should be made to all parties unless other procedures for disclosure are provided in the agreement of the parties, applicable rules or practices of an institution, or by law. Where more than one arbitrator has been appointed, each should inform the others of all matters disclosed.

F.         May serve if parties permit after full disclosure.

G.        If an arbitrator is requested by all parties to withdraw, the arbitrator must do so. If an arbitrator is requested to withdraw by less than all of the parties because of alleged partiality, the arbitrator should withdraw unless either of the following circumstances exists:

(1) An agreement of the parties, or arbitration rules agreed to by the parties, or  applicable law establishes procedures for determining challenges to arbitrators, in which case those procedures should be followed; or

(2) In the absence of applicable procedures, the arbitrator determines that the reason for the challenge is not substantial, and that he or she can nevertheless act and decide the case impartially and fairly.

H.        If compliance by a prospective arbitrator would require disclosure of confidential or privileged information, the prospective arbitrator should either:

(1)  Secure the consent to the disclosure from the person who furnished the information or the holder of the privilege; or

(2)  Withdraw.

AN ARBITRATOR SHOULD AVOID IMPROPRIETY OR THE APPEARANCE OF IMPROPRIETY IN COMMUNICATING WITH PARTIES.

A.        If an agreement of the parties or applicable arbitration rules establishes the manner or content of communications between the arbitrator and the parties, the arbitrator should follow those procedures notwithstanding any contrary provision.

B.        An arbitrator or prospective arbitrator should not discuss a proceeding with any party in the absence of any other party, except in any of the following circumstances:

 (1) When the appointment of a prospective arbitrator is being considered, the prospective arbitrator:

                                    (a) may ask about the identities of the parties, counsel, or witnesses and the general nature of the case; and

(b) may respond to inquiries from a party or its counsel designed to determine his suitability and availability for the appointment. In any such dialogue, the prospective arbitrator may receive information from a party or its counsel disclosing the general nature of the dispute but should not permit them to discuss the merits of the case.

(2) In an arbitration in which the two party-appointed arbitrators are expected to appoint the third arbitrator, each party-appointed arbitrator may consult with the party who appointed the arbitrator concerning the choice of the third arbitrator;

(3) Submission of routine written requests for payment of compensation and expenses in accordance with such arrangements;

(4) In an arbitration involving party-appointed arbitrators, each party-appointed arbitrator may consult with the party who appointed the arbitrator concerning the status of the arbitrator (i.e., neutral or non-neutral);

(5) Discussions may be had with a party concerning such logistical matters as setting the time and place of hearings or making other arrangements for the conduct of the proceedings. However, the arbitrator should promptly inform each other party of the discussion and should not make any final determination concerning the matter discussed before giving each absent party an opportunity to express the party’s views; or

(6) If a party fails to be present at a hearing after having been given due notice, or if all parties expressly consent, the arbitrator may discuss the case with any party who is present.

C.        Unless otherwise provided in applicable arbitration rules or in an agreement of the parties, whenever an arbitrator communicates in writing with one party, the arbitrator should at the same time send a copy of the communication to every other party, and whenever the arbitrator receives any written communication concerning the case from one party which has not already been sent to every other party, the arbitrator should send or cause it to be sent to the other parties.

AN ARBITRATOR SHOULD CONDUCT THE PROCEEDINGS FAIRLY AND DILIGENTLY.

A.        An arbitrator should conduct the proceedings in an even-handed manner. The arbitrator should be patient and courteous to the parties, their representatives, and the witnesses and should encourage similar conduct by all participants.

B.        The arbitrator should afford to all parties the right to be heard and due notice of the time and place of any hearing. The arbitrator should allow each party a fair opportunity to present its evidence and arguments.

C.        The arbitrator should not deny any party the opportunity to be represented by counsel or by any other person chosen by the party.

D.        If a party fails to appear after due notice, the arbitrator should proceed with the arbitration when authorized to do so, but only after receiving assurance that appropriate notice has been given to the absent party.

E.         When the arbitrator determines that more information than has been presented by the parties is required to decide the case, it is not improper for the arbitrator to ask questions, call witnesses, and request documents or other evidence, including expert testimony.

F.         Although it is not improper for an arbitrator to suggest to the parties that they discuss the possibility of settlement or the use of mediation, or other dispute resolution processes, an arbitrator should not exert pressure on any party to settle or to utilize other dispute resolution processes. An arbitrator should not be present or otherwise participate in settlement discussions or act as a mediator unless requested to do so by all parties.

G.        Co-arbitrators should afford each other full opportunity to participate in all aspects of the proceedings.

AN ARBITRATOR SHOULD MAKE DECISIONS IN A JUST, INDEPENDENT AND DELIBERATE MANNER.

A.        The arbitrator should, after careful deliberation, decide all issues submitted for determination. An arbitrator should decide no other issues.

B.        An arbitrator should decide all matters justly, exercising independent judgment, and should not permit outside pressure to affect the decision.

C.        An arbitrator should not delegate the duty to decide to any other person.

D.        In the event that all parties agree upon a settlement of issues in dispute and request the arbitrator to embody that agreement in an award, the arbitrator may do so, but is not required to do so unless satisfied with the propriety of the terms of settlement. Whenever an arbitrator embodies a settlement by the parties in an award, the arbitrator should state in the award that it is based on an agreement of the parties.

AN ARBITRATOR SHOULD BE FAITHFUL TO THE RELATIONSHIP OF TRUST AND CONFIDENTIALITY INHERENT IN THAT OFFICE.

A.        An arbitrator is in a relationship of trust to the parties and should not, at any time, use confidential information acquired during the arbitration proceeding to gain personal advantage or advantage for others, or to affect adversely the interest of another.

B.        The arbitrator should keep confidential all matters relating to the arbitration proceedings and decision. An arbitrator may obtain help from an associate, a research assistant or other persons in connection with reaching his or her decision if the arbitrator informs the parties of the use of such assistance and such persons agree to be bound by such confidentiality.

C.        It is not proper at any time for an arbitrator to inform anyone of any decision in advance of the time it is given to all parties. In a proceeding in which there is more than one arbitrator, it is not proper at any time for an arbitrator to inform anyone about the substance of the deliberations of the arbitrators. After an arbitration award has been made, it is not proper for an arbitrator to assist in proceedings to enforce or challenge the award.

D.        Unless the parties so request, an arbitrator should not appoint himself to a separate office related to the subject matter of the dispute, such as receiver or trustee, nor should a panel of arbitrators appoint one of their number to such an office.

AN ARBITRATOR SHOULD ADHERE TO STANDARDS OF INTEGRITY AND FAIRNESS WHEN MAKING ARRANGEMENTS FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES.

A.        Arbitrators who are to be compensated for their services or reimbursed for their expenses shall adhere to standards of integrity and fairness in making arrangements for such payments.

B.        Certain practices relating to payments are generally recognized as tending to preserve the integrity and fairness of the arbitration process. These practices include:

(1) Before the arbitrator finally accepts appointment, the basis of payment, including any cancellation fee, compensation in the event of withdrawal and compensation for study and preparation time, and all other charges, should be established.  All parties should be informed in writing of the terms established.

(2) In proceedings conducted under the rules or administration of an institution that is available to assist in making arrangements for payments, communication related to compensation should be made through the institution.

(3) Arbitrators should not, absent extraordinary circumstances, request increases in the basis of their compensation during the course of a proceeding.

AN ARBITRATOR MAY ENGAGE IN ADVERTISING OR PROMOTION OF ARBITRAL SERVICES THAT IS TRUTHFUL AND ACCURATE.

A.        Advertising or promotion of an individual’s willingness or availability to serve as an arbitrator must be accurate and unlikely to mislead. Any statements about the quality of the arbitrator’s work or the success of the arbitrator’s practice must be truthful.

B.        An arbitrator is not precluded from printing, publishing, or disseminating advertisements in any electronic or print medium, from making personal presentations to prospective users of arbitral services conforming to such standards or from responding to inquiries concerning the arbitrator’s availability, qualifications, experience, or fee arrangements.

ARBITRATORS APPOINTED BY ONE PARTY HAVE A DUTY TO DETERMINE AND DISCLOSE THEIR STATUS

A.        In some types of arbitration in which there are three arbitrators, it is customary for each party, acting alone, to appoint one arbitrator. The third arbitrator is then appointed by agreement either of the parties or of the two arbitrators, or failing such agreement, by an independent institution or individual.

B.        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.

C.        A party-appointed arbitrator has an obligation to ascertain, as early as possible but not later than the first meeting of the arbitrators and parties, whether the parties have agreed that the party-appointed arbitrators will serve as neutrals or not, and to provide a timely report of their conclusions to the parties and other arbitrators:

(1) Party-appointed arbitrators should review the agreement of the parties, the applicable rules and any applicable law bearing upon arbitrator neutrality. In reviewing the agreement of the parties, party-appointed arbitrators should consult any relevant express terms of the written or oral arbitration agreement. It may also be appropriate for them to inquire into agreements that have not been expressly set forth, but which may be implied from an established course of dealings of the parties or well-recognized custom and usage in their trade or profession;

(2) Where party-appointed arbitrators conclude that the parties intended for the  party-appointed arbitrators not to serve as neutrals, they should so inform the parties and the other arbitrators. The arbitrators may then act until a different determination of their status is made by the parties, any administering institution or the arbitral panel; and

(3) Until party-appointed arbitrators conclude that the party-appointed arbitrators were not intended by the parties to serve as neutrals, or if the party-appointed arbitrators are unable to form a reasonable belief of their status from the foregoing sources and no decision in this regard has yet been made by the parties, any administering  institution, or the arbitral panel, they should observe all of the obligations of neutral arbitrators

TEXAS GENERAL ARBITRATION ACT 171.098(A) OF THE TAA

Section 171.098(a) states:

A party may appeal a judgment or decree entered under this chapter or an order:

(1) denying an application to compel arbitration . . . ;

(2) granting an application to stay arbitration . . . ;

(3) confirming or denying confirmation of an award;

(4) modifying or correcting an award; or

(5) vacating an award without directing a rehearing.

 FEDERAL ARBITRATION ACT

United States Arbitration Act: An Act to make valid and enforceable written provisions or agreements for arbitration of disputes arising out of contracts, maritime transactions, or commerce among the States or Territories or with foreign nations.

The Federal Arbitration Act (Pub.L. 68–401, 43 Stat. 883, enacted February 12, 1925, codified at 9 U.S.C. § 1 et seq.) is an act of Congress that provides for judicial facilitation of private dispute resolution through arbitration. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating. It applies where the transaction contemplated by the parties “involves” interstate commerce and is predicated on an exercise of the Commerce Clause powers granted to Congress in the U.S. Constitution.

The Federal Arbitration Act provides for contractually-based compulsory and binding arbitration, resulting in an arbitration award entered by an arbitrator or arbitration panel as opposed to a judgment entered by a court of law. In an arbitration the parties give up the right to an appeal on substantive grounds to a court.

The Federal Arbitration Act requires that where the parties have agreed to arbitrate, they must do so in lieu of going to court.

Once an award is entered by an arbitrator or arbitration panel, it must be “confirmed” in a court of law. Once confirmed, the award is then reduced to an enforceable judgment, which may be enforced by the winning party in court, like any other judgment. Under the Federal Arbitration Act awards must be confirmed within one (1) year; while any objection to an award must be challenged by the losing party within three months. An arbitration agreement may be entered “prospectively”—that is, in advance of any actual dispute; or may be entered into by disputing parties once a dispute has arisen.

The Supreme Court ruled in Hall Street Associates, L.L.C. v. Mattel, Inc. that the grounds for judicial review specified in the FAA may not be expanded, even if the parties to the arbitration agreement agree to allow expanded review of the decision.

EXEMPTIONS FOR ARBITRATORS APPOINTED BY ONE PARTY WHO ARE NOT SUBJECT TO RULES OF NEUTRALITY.

A.        Obligations under Canon I

“Canon X arbitrators” should observe all of the obligations of Canon I 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

B. Obligations under Canon II

(1) Canon X arbitrators should disclose to all parties, and to the other arbitrators, all interests and relationships which Canon II requires be disclosed. Disclosure 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 may know of any partiality which may exist or appear to exist; and

(2) Canon X arbitrators are not obliged to withdraw if requested to do so only by the party who did not appoint them.

C. Obligations under Canon III

(1) Like neutral party-appointed arbitrators, Canon X arbitrators may consult with the party who appointed them to the extent permitted;

(2) If such communication occurred prior to the time they were appointed as arbitrators, or prior to the first hearing 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.

(3) Canon X arbitrators may not at any time 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

(c) disclose any final decision or interim decision in advance of the time that it is disclosed to all parties.

(4) Unless otherwise agreed by the arbitrators and the parties, a Canon X arbitrator may not communicate orally with the neutral arbitrator concerning any matter or 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 written communication to the other Canon X arbitrator;

(5) 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 oral communications to any other  party or arbitrator nor are they required to send copies of any such written communication to any other party or arbitrator.

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Patel Hammond, PLLC Disclaimer: This news entry is intended to highlight selected laws regarding arbitrations in Texas. It is not comprehensive. Not laws that may impact arbitration or arbitrators are included, and for brevity, identified laws, most exceptions and many details are omitted. This news entry is intentionally brief to provide a quick list of priority items. It is not intended to replace the advice of competent legal counsel or arbitrators, or to address a particular situation. The information in this document and this blog is for informational purposes only and should not be relied on. Patel Hammond PLLC disclaims any warranty as to accuracy or completeness. Nothing herein creates an attorney-client relationship.