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Chicago International Dispute Resolution Association
Undisputed Facts
Newsletter of The Chicago International Dispute Resolution
Association
Winter 2003
The Seventh Circuit Says that Party-appointed Arbitrators are Supposed to be Advocates
by Mahir Jalili 1
In a surprising decision, the United States Court of Appeals for the Seventh Circuit recently stated that party-appointed arbitrators are supposed to be advocates. 3
The case related to an international arbitration, not a domestic one. The arbitration was between Sphere Drake, a U.K. company, and All American, a U.S. company, and was conducted under the auspices of the Association Internationale de Droits des Assurances ("AIDA").
Sphere Drake appointed Mr. Jacks, a Chicago lawyer, as its arbitrator. Four years before this arbitration, Mr. Jacks had been engaged by the Bermudan subsidiary of Sphere Drake as counsel in another arbitration. At the arbitrators' initial meeting, Mr. Jacks said that he had "known of Sphere Drake over the years." Subsequently, Mr. Jacks informed his co-arbitrators that he had provided limited corporate advice to the President of Sphere Drake's Bermudan subsidiary and that he recommended that his former law firm be retained to represent the company in arbitration. However, he did not disclose that he had personally rendered legal services in the prior arbitration.
The arbitral tribunal ruled, by a majority decision, in favour of Sphere Drake. Mr. Jacks joined the chairman of the tribunal to make a majority. All American asked the United States District Court for the Northern District of Illinois to set aside the award under Section 10(a)(2) of the Federal Arbitration Act on the grounds that Mr. Jacks displayed "evident partiality."
The District Court vacated the award but the Seventh Circuit reversed the judgment. The appellate court held that an arbitral award could not be vacated on the grounds of "evident partiality" under the FAA based on the fact that a party-appointed arbitrator had previously represented that party in an unrelated arbitration. In essence, the Seventh Circuit observed that Mr. Jacks could have served as a federal judge in this case without challenge on grounds of partiality, and that what was good for a federal judge was certainly good for an arbitrator.
The decision is probably correct because of Mr. Jacks's apparent limited involvement, some time ago, with a subsidiary of the party that had appointed him as an arbitrator in the present case. It is therefore unfortunate that the Seventh Circuit included in its decision the dictum that, "party-appointed arbitrators are supposed to be advocates."
This may be an accepted American rule in domestic arbitrations but, in international arbitrations, all arbitrators, including party-appointed arbitrators, must be and remain independent of the parties who have appointed them as arbitrators. See, e.g., Article 5.2 of the LCIA Arbitration Rules, which states that, "All arbitrators conducting an arbitration under these Rules shall be and remain at all times impartial and independent of the parties; and none shall act in the arbitration as advocates for any party." This statement reflects the accepted international practice.
1 Mr. Jalili practices from Chicago and London.
He is qualified as an English barrister and an American attorney. His practice
is concentrated on international arbitration.
3 Sphere Drake Insurance Limited v. All American Life Insurance
Company, decided October 9, 2002.
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President
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