The Code of Ethics for Arbitrators in Commercial Disputes

The Code of Ethics for Arbitrators in Commercial Disputes was prepared in 1977 by a joint committee consisting of a special committee of the American Arbitration Association and a special committee of the American Bar Association. It has been approved and recommended by both organizations.

Preamble

The use of commercial arbitration to resolve a wide variety of disputes has grown extensively and forms a significant part of the system of justice on which our society relies for fair determination of legal rights. Persons who act as commercial arbitrators therefore undertake serious responsibilities to the public as well as to the parties. Those responsibilities include important ethical obligations.

Few cases of unethical behavior by commercial arbitrators have arisen. Nevertheless, the American Bar Association and the American Arbitration Association believe that it is in the public interest to set forth generally accepted standards of ethical conduct for guidance of arbitrators and parties in commercial disputes. By establishing this code, the sponsors hope to contribute to the maintenance of high standards and continued confidence in the process of arbitration.

There are many different types of commercial arbitration. Some cases are conducted under arbitration rules established by various organizations and trade associations, while others are conducted without such rules. Although most cases are arbitrated pursuant to voluntary agreement of the parties, certain types of dispute are submitted to arbitration by reason of particular laws. This code is intended to apply to all such proceedings in which disputes or claims are submitted for decision to one or more arbitrators appointed in a manner provided by an agreement of the parties, by applicable arbitration rules, or by law. In all such cases, the persons who have the power to decide should observe fundamental standards of ethical conduct. In this code all such persons are called "arbitrators" although, in some types of case, they might be called "umpires" or have some other title.

Various aspects of the conduct of arbitrators, including some matters covered by this code, may be governed by agreements of the parties, by arbitration rules to which the parties have agreed, or by applicable law. This code does not take the place of or supersede such agreements, rules, or laws and does not establish new or additional grounds for judicial review of arbitration awards.

While this code is intended to provide ethical guidelines in many types of arbitration, it does not form a part of the arbitration rules of the American Arbitration Association or of any other organization, nor is it intended to apply to mediation or conciliation. Labor arbitration is governed by the Code of Professional Responsibility for Arbitrators of Labor-Management Disputes, not by this code.

Arbitrators, like judges, have the power to decide cases. However, unlike full-time judges, arbitrators are usually engaged in other occupations before, during, and after the time that they serve as arbitrators. Often, arbitrators are purposely chosen from the same trade or industry as the parties in order to bring special knowledge to the task of deciding. This code recognizes these fundamental differences between arbitrators and judges.

In some types of arbitration, there are three or more arbitrators. In such cases, it is sometimes the practice for each party, acting alone, to appoint one arbitrator and for the other arbitrators to be designated by those two, by the parties, or by an independent institution or individual. The sponsors of this code believe that it is preferable for parties to agree that all arbitrators should comply with the same ethical standards. However, it is recognized that there is a long-established practice in some types of arbitration for the arbitrators who are appointed by one party, acting alone, to be governed by special ethical considerations. Those special considerations are set forth in the last section of the code, headed "Ethical Considerations Relating to Arbitrators Appointed by One Party."

Although this code is sponsored by the American Arbitration Association and the American Bar Association, its use is not limited to arbitrations administered by the AAA or to cases in which the arbitrators are lawyers. Rather, it is presented as a public service to provide guidance in all types of commercial arbitration.

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

A. Fair and just processes for resolving disputes are indispensable in our society. Commercial arbitration is an important method for deciding many types of disputes. In order for commercial arbitration to be effective, there must be broad public confidence in the integrity and fairness of the process. Therefore, 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. Accordingly, an arbitrator should recognize a responsibility to the public, to the parties whose rights will be decided, and to all other participants in the proceeding. The provisions of this code should be construed and applied to further these objectives.

B. It is inconsistent with the integrity of the arbitration process for persons to solicit appointment for themselves. However, a person may indicate a general willingness to serve as an arbitrator.

C. Persons should accept appointment as arbitrators only if they believe that they can be available to conduct the arbitration promptly.

D. After accepting appointment and while serving as an arbitrator, a person should avoid entering into any financial, business, professional, family or social relationship, or acquiring any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality or bias. For a reasonable period of time after the decision of a case, persons who have served as arbitrators should avoid entering into any such relationship, or acquiring any such interest, in circumstances which might reasonably create the appearance that they had been influenced in the arbitration by the anticipation or expectation of the relationship or interest.

E. Arbitrators should conduct themselves in a way that is fair to all parties and should not be swayed by outside pressure, by public clamor, by fear of criticism or by self-interest.

F. When an arbitrator's authority is derived from an agreement of the parties, the 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.

G. 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 ethical obligations of an arbitrator begin upon acceptance of the appointment and continue throughout all stages of the proceeding. In addition, wherever specifically set forth in this code, certain ethical obligations begin as soon as a person is requested to serve as an arbitrator and certain ethical obligations continue even after the decision in the case has been given to the parties.

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

Introductory Note

This code reflects the prevailing principle that arbitrators should disclose the existence of interests or relationships that are likely to affect their impartiality or that might reasonably create an appearance that they are biased against one party or favorable to another. These provisions of the code are intended to be applied realistically so that the burden of detailed disclosure does not become so great that it is impractical for persons in the business world to be arbitrators, thereby depriving parties of the services of those who might be best informed and qualified to decide particular types of case. See Footnote.

This code does not limit the freedom of parties to agree on whomever they choose as an arbitrator. When parties, with knowledge of a person's interests and relationships, nevertheless desire that individual to serve as an arbitrator, that person may properly serve.

Disclosure

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

1. any direct or indirect financial or personal interest in the outcome of the arbitration;
    
2. any existing or past financial, business, professional, family or social relationships which are likely to affect impartiality or which might reasonably create an appearance of partiality or bias. Persons requested to serve as arbitrators should disclose any such relationships which they personally have with any party or its lawyer, or with any individual whom they have been told will be a witness. They should also disclose any such relationships involving members of their families or their current employers, partners or business associates.

B. Persons who are requested to accept appointment as arbitrators should make a reasonable effort to inform themselves of any interests or relationships described in the preceding paragraph A.

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

D. Disclosure should be made to all parties unless other procedures for disclosure are provided in the rules or practices of an institution which is administering the arbitration. Where more than one arbitrator has been appointed, each should inform the others of the interests and relationships which have been disclosed.

E. In the event that an arbitrator is requested by all parties to withdraw, the arbitrator should do so. In the event that an arbitrator is requested to withdraw by less than all of the parties because of alleged partiality or bias, the arbitrator should withdraw unless either of the following circumstances exists.

1. If an agreement of the parties, or arbitration rules agreed to by the parties, establishes procedures for determining challenges to arbitrators, then those procedures should be followed; or,
    
2. if the arbitrator, after carefully considering the matter, 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, and that withdrawal would cause unfair delay or expense to another party or would be contrary to the ends of justice.

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

A. If an agreement of the parties or applicable arbitration rules referred to in that agreement, establishes the manner or content of communications between the arbitrator and the parties, the arbitrator should follow those procedures notwithstanding any contrary provision of the following paragraphs B and C.

B. Unless otherwise provided in applicable arbitration rules or in an agreement of the parties, arbitrators should not discuss a case with any party in the absence of each other party, except in any of the following circumstances.

1. Discussions may be had with a party concerning such 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 its views.
    
2. If a party fails to be present at a hearing after having been given due notice, the arbitrator may discuss the case with any party who is present.
    
3. If all parties request or consent to it, such discussion may take place.

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 each other party. Whenever the arbitrator receives any written communication concerning the case from one party which has not already been sent to each other party, the arbitrator should do so.

CANON IV. AN ARBITRATOR SHOULD CONDUCT THE PROCEEDINGS FAIRLY AND DILIGENTLY.

A. An arbitrator should conduct the proceedings in an evenhanded manner and treat all parties with equality and fairness at all stages of the proceedings.

B. An arbitrator should perform duties diligently and conclude the case as promptly as the circumstances reasonably permit.

C. An arbitrator should be patient and courteous to the parties, to their lawyers and to the witnesses and should encourage similar conduct by all participants in the proceedings.

D. Unless otherwise agreed by the parties or provided in arbitration rules agreed to by the parties, an arbitrator should accord to all parties the right to appear in person and to be heard after due notice of the time and place of hearing.

E. An arbitrator should not deny any party the opportunity to be represented by counsel.

F. If a party fails to appear after due notice, an arbitrator should proceed with the arbitration when authorized to do so by the agreement of the parties, the rules agreed to by the parties or by law. However, an arbitrator should do so only after receiving assurance that notice has been given to the absent party.

G. When an 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.

H. It is not improper for an arbitrator to suggest to the parties that they discuss the possibility of settlement of the case. However, an arbitrator should not be present or otherwise participate in the settlement discussions unless requested to do so by all parties. An arbitrator should not exert pressure on any party to settle.

I. Nothing in this code is intended to prevent a person from acting as a mediator or conciliator of a dispute in which he or she has been appointed as arbitrator, if requested to do so by all parties or where authorized or required to do so by applicable laws or rules.

J. When there is more than one arbitrator, the arbitrators should afford each other the full opportunity to participate in all aspects of the proceedings.

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

A. An 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 an arbitrator to embody that agreement in an award, an 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.

CANON VI. 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. Unless otherwise agreed by the parties, or required by applicable rules or law, an arbitrator should keep confidential all matters relating to the arbitration proceedings and decision.

C. It is not proper at any time for an arbitrator to inform anyone of the decision in advance of the time it is given to all parties. In a case in which there is more than one arbitrator, it is not proper at any time for an arbitrator to inform anyone concerning the deliberations of the arbitrators. After an arbitration award has been made, it is not proper for an arbitrator to assist in post-arbitral proceedings, except as is required by law.

D. In many types of arbitration it is customary practice for the arbitrators to serve without pay. However, in some types of cases it is customary for arbitrators to receive compensation for their services and reimbursement for their expenses. In cases in which any such payments are to be made, all persons who are requested to serve, or who are serving as arbitrators, should be governed by the same high standards of integrity and fairness as apply to their other activities in the case. Accordingly, such persons should scrupulously avoid bargaining with parties over the amount of payments or engaging in any communications concerning payments which would create an appearance of coercion or other impropriety. In the absence of governing provisions in the agreement of the parties or in rules agreed to by the parties or in applicable law, certain practices relating to payments are generally recognized as being preferable in order to preserve the integrity and fairness of the arbitration process. These practices include the following.

1. It is preferable that before the arbitrator finally accepts appointment the basis of payment be established and that all parties be informed thereof in writing.
    
2. In cases conducted under the rules or administration of an institution that is available to assist in making arrangements for payments, the payments should be arranged by the institution to avoid the necessity for communication by the arbitrators directly with the parties concerning the subject.
    
3. In cases where no institution is available to assist in making arrangement for payments, it is preferable that any discussions with arbitrators concerning payments should take place in the presence of all parties.

CANON VII. ETHICAL CONSIDERATIONS RELATING TO ARBITRATORS APPOINTED BY ONE PARTY

Introductory Note

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. In some of these types of arbitration, all three arbitrators are customarily considered to be neutral and are expected to observe the same standards of ethical conduct. However, there are also many types of tripartite arbitration in which it has been the practice that the two arbitrators appointed by the parties are not considered to be neutral and are expected to observe many but not all of the same ethical standards as the neutral third arbitrator. For the purposes of this code, an arbitrator appointed by one party who is not expected to observe all of the same standards as the third arbitrator is called a "nonneutral arbitrator." This Canon VII describes the ethical obligations that nonneutral party-appointed arbitrators should observe and those that are not applicable to them.

In all arbitrations in which there are two or more party-appointed arbitrators, it is important for everyone concerned to know from the start whether the party-appointed arbitrators are expected to be neutrals or nonneutrals. In such arbitrations, the two party-appointed arbitrators should be considered nonneutrals unless both parties inform the arbitrators that all three arbitrators are to be neutral or unless the contract, the applicable arbitration rules, or any governing law requires that all three arbitrators be neutral.

It should be noted that, in cases conducted outside the United States, the applicable law might require that all arbitrators be neutral. Accordingly, in such cases, the governing law should be considered before applying any of the following provisions relating to nonneutral party-appointed arbitrators.

A. Obligations under Canon I

Nonneutral party-appointed arbitrators should observe all of the obligations of Canon I to uphold the integrity and fairness of the arbitration process, subject only to the following provisions.

1. Nonneutral 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, nonneutral 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.
    
2. The provisions of Canon I.D relating to relationships and interests are not applicable to nonneutral arbitrators.

B. Obligations under Canon II

Nonneutral party-appointed arbitrators should disclose to all parties, and to the other arbitrators, all interests and relationships which Canon II requires be disclosed. Disclosure as required by Canon II is for the benefit not only of the party who appointed the nonneutral arbitrator, but also for the benefit of the other parties and arbitrators so that they may know of any bias which may exist or appear to exist. However, this obligation is subject to the following provisions.

1. Disclosure by nonneutral arbitrators should be sufficient to describe the general nature and scope of any interest or relationship, but need not include as detailed information as is expected from persons appointed as neutral arbitrators.
    
2. Nonneutral arbitrators are not obliged to withdraw if requested to do so by the party who did not appoint them, notwithstanding the provisions of Canon II.E.

c. Obligations under Canon III

Nonneutral party-appointed arbitrators should observe all of the obligations of Canon III concerning communications with the parties, subject only to the following provisions.

1. In an arbitration in which the two party-appointed arbitrators are expected to appoint the third arbitrator, nonneutral arbitrators may consult with the party who appointed them concerning the acceptability of persons under consideration for appointment as the third arbitrator.
    
2. Nonneutral arbitrators may communicate with the party who appointed them concerning any other aspect of the case, provided they first inform the other arbitrators and the parties that they intend to do so. If such communication occurred prior to the time the person was appointed as arbitrator, or prior to the first hearing or other meeting of the parties with the arbitrators, the nonneutral arbitrator should, at the first hearing or meeting, disclose the fact that such communication has taken place. In complying with the provisions of this paragraph, it is sufficient that there be disclosure of the fact that such communication has occurred without disclosing the content of the communication. It is also sufficient to disclose at any time the intention to follow the procedure of having such communications in the future and there is no requirement thereafter that there be disclosure before each separate occasion on which such a communication occurs.
    
3. When nonneutral arbitrators communicate in writing with the party who appointed them concerning any matter as to which communication is permitted under this code, they are not required to send copies of any such written communication to any other party or arbitrator.

D. Obligations under Canon IV

Nonneutral party-appointed arbitrators should observe all of the obligations of Canon IV to conduct the proceedings fairly and diligently.

E. Obligations under Canon V

Nonneutral party-appointed arbitrators should observe all of the obligations of Canon V concerning making decisions, subject only to the following provision.

1. Nonneutral arbitrators are permitted to be predisposed toward deciding in favor of the party who appointed them.

F. Obligations under Canon VI

Nonneutral party-appointed arbitrators should observe all of the obligations of Canon VI to be faithful to the relationship of trust inherent in the office of arbitrator, subject only to the following provision.

1. Nonneutral arbitrators are not subject to the provisions of Canon VI.D with respect to any payments by the party who appointed them.

1. In applying the provisions of this code relating to disclosure, it might be helpful to recall the words of the concurring opinion, in a case decided by the U.S. Supreme Court, that arbitrators "should err on the side of disclosure" because "it is better that the relationship be disclosed at the outset when the parties are free to reject the arbitrator or accept him with knowledge of the relationship." At the same time, it must be recognized that "an arbitrator's business relationships may be diverse indeed, involving more or less remote commercial connections with great numbers of people." Accordingly, an arbitrator "cannot be expected to provide the parties with his complete and unexpurgated business biography," nor is an arbitrator called on to disclose interests or relationships that are merely "trivial" (a concurring opinion in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 US 145, 151#152, 1968). Return to Canon II .