There has been considerable discussion in recent years about the psychology of international arbitration. In particular, arbitration practitioners and scholars are increasingly paying attention to unconscious biases.
The impact of unconscious biases, even on professionals striving to eliminate them, has been known for some time.
This is why in medicine, "double-blind" trials are conducted in which neither a patient nor a doctor knows whether it is a drug or placebo that is being administered. For example, in a trial for a new cancer drug, if a doctor knew that one patient was receiving a drug and another patient was receiving a placebo, there is a very good chance that this knowledge would affect the doctor's behavior toward the two patients (and perhaps the doctor's selection of them in the first place), which in turn may influence the results of the trial.
Party appointment of arbitrators
In arbitration, one of the key unconscious biases that is now receiving attention is the one resulting from party appointment of arbitrators.
Conscious bias on the part of arbitrators has long been an important topic. All institutional rules state that an arbitrator may be removed from a tribunal if he/she is not independent and impartial. Arbitrators are also required to disclose any circumstance that might call into question their independence or impartiality. The IBA Guidelines on Conflict of Interest in International Arbitration are commonly referred to in this respect to decide whether there might be grounds for an arbitrator to be challenged.
Unconscious bias, however, is much more difficult to detect.
Arbitrators themselves may not be aware of it, and if it does operate, its impact is difficult to measure. Nonetheless, it is reasonable to assume that arbitrators, like doctors, are unconsciously affected to some extent by the knowledge of who has appointed them.
Debate about party appointment
There was a debate a few years ago, via arbitration conferences and journals, about the merits of party appointment of arbitrators. Most notably, in a speech at Miami Law School in 2010, Jan Paulsson argued that party selection was damaging to arbitration because of the risk that arbitrators selected in this way would not be impartial.1 He referred, as evidence of this, to dissenting opinions issued by party-nominated arbitrators, particularly in investment treaty arbitration.
In response, eminent arbitrators such as Charles Brower said that this risk was overstated, while the parties' right to nominate arbitrators is an important part of ensuring the legitimacy of the arbitration process.2
Parties have greater faith in a tribunal that they have chosen themselves. Also, parties are in the best position at the beginning of a case to identify appropriate arbitrators from their knowledge of issues involved.
Academic research into unconscious bias has now given greater impetus to this debate. In a study published in August 2016, researchers at the University of Arizona assigned 266 arbitrators one of three conditions: they were told that they were appointed by the claimant or respondent or simply that they were a member of a tribunal.3
The arbitrators were then given a hypothetical arbitration scenario and were asked how costs should be apportioned at the end of the case. The results indicated that the arbitrator appointed by the winning party was considerably more likely to order the losing party to pay all costs of arbitration compared to the arbitrator appointed by the losing party, while arbitrators who did not know who had appointed them lay between the two. The researchers concluded that this shows that there is a strong "affiliation effect" on arbitrators, i.e., arbitrators tend unconsciously to favor parties that have appointed them.
The researchers acknowledged the limitations of this study. It only looked at the impact on individual arbitrators and did not measure the effect of unconscious biases on a three-person tribunal making a decision together. There is an open question as to whether, with two party-appointed arbitrators on the panel, their unconscious biases will cancel each other in the thinking of the tribunal as a whole. On the other hand, it is possible that there may be an "accentuation effect," i.e., these biases may become more deeply entrenched as a result of the tribunal's deliberations, making the problem of unconscious bias worse.
Nonetheless, this research raises further questions about whether the current method of appointing arbitrators to three-person tribunals is the most appropriate one.
Alternative ways of appointing arbitrators
In 2010, Jan Paulsson called for party appointment of arbitrators to be replaced by a system in which arbitrators were all appointed by arbitration institutions. No institution has yet gone down this road. However, Paulsson's criticism of party appointment of arbitrators was picked up by the Chief Justice of Singapore, Sundaresh Menon,4 and was one of the factors in the creation of the Singapore International Commercial Court, where judges are appointed by the Republic of Singapore and not by parties.
In America, the International Institute for Conflict Prevention & Resolution (CPR) has adopted a "blind" method of appointing arbitrators in its 2014 Rules. Through this, parties must inform the institution who they wish to appoint, and the institution then contacts and appoints arbitrators without disclosing which party has nominated them. During arbitration, parties are expressly forbidden from giving any indication to party-appointed arbitrators as to which party selected them. The advantage of this approach is that it retains the benefits of having parties involved in the appointment of arbitrators while avoiding the affiliation effect. On the other hand, one criticism of this process is that it deprives parties of the opportunity of interviewing potential arbitrators before appointment. Such interviews can help parties choose who would be an appropriate arbitrator.
The challenge for India
Prime Minister Narendra Modi, in his speech to the National Initiative toward Strengthening Arbitration in India in October 2016, called for the creation of more arbitration institutions in India and for the adoption of global best practice in international arbitration. One of the ways in which this could be done is for Indian institutions to consider carefully how arbitrators are appointed under their rules in light of the debate within the global arbitration community and the recent academic research into unconscious biases.
Eliminating party appointment may be a step too far, but blind appointment might be a way forward, particularly if a way could be found of allowing parties to interview potential candidates without creating an affiliation effect. Institutions can also provide training to arbitrators to help avoid the impact of unconscious bias.
More generally, raising awareness of this issue among arbitration practitioners and users of arbitration through conference papers and discussion may promote a better understanding of the advantages and disadvantages of parties being involved in the appointment of tribunals and of the working of arbitration as a whole.
Footnote: 1. Moral Hazard in International Dispute Resolution, lecture delivered 29 April 2010, and available here. 2. See, for example, The (Abbreviated) Case for Party Appointments in International Arbitration, ABA Section of International Law, 2013 Volume 1, Issue 1, available here. 3. Sergio Puig and Anton Strezhnev, Affiliation Bias in Arbitration: An Experimental Approach, Arizona Legal Studies Discussion Paper No. 16-31, available here. 4. See the Chief Justice's speech at the ICCA Congress 2012, International Arbitration: The Coming of a New Age for Asia (And Elsewhere), available here.
Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.