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Advances in Social Sciences Research Journal – Vol. 10, No. 2
Publication Date: February 25, 2023
DOI:10.14738/assrj.102.14129.
Fulena, V., & Chittoo, H. B. (2023). The “Arbitral Immunity” Dilemma – What is the Balance? Advances in Social Sciences Research
Journal, 10(2). 465-473.
Services for Science and Education – United Kingdom
The “Arbitral Immunity” Dilemma – What is the Balance?
Viraj Fulena
Lecturer in Law at the University of Technology, Mauritius
Hemant B. Chittoo
Professor in Public Policy and Management at the University of Technology,
Mauritius
Abstract
As recipients of bad news are inclined to blame the messenger, a losing party in
arbitration will tend to blame the arbitrator. Arbitrators will usually respond by
asserting the doctrine of arbitral immunity. The main objective of this paper is to
investigate how arbitrators and the parties who appointed them are protected from
certain liabilities imposed on them. Since arbitrators carry out some judicial or
quasi-judicial functions that render them comparable to judges, is it fair to compare
them to court judges? Do they possess the same powers as court judges? It is often
said that arbitrators should be treated as mere professionals hired to provide their
services and they should not be protected by the shield of immunity. Some scholars
would argue that if immunity is not granted to them, they will work under constant
fear of reprisals from unsatisfied parties. Emphasis, in this paper, is laid on the
similarities and differences between arbitrators and judges and also in how
different legal and arbitral rules approach the concept of arbitral immunity under
different jurisdictions. Also, a comprehensive analysis is made on how arbitrators
and aggrieved parties to the arbitration are duly protected. A close examination is
also undertaken on how to improve the system and move towards a more unified
model. After having critically analyzed the basis of arbitral immunity, it is firmly
believed that some degree of immunity is important in order to maintain the
independence and impartiality of the arbitration process. It can be postulated that
arbitral immunity should be qualified and not absolute. By qualified immunity it is
understood that when an arbitrator has committed gross negligence, has had a
willful conduct or has acted in bad faith, he should not be shielded by the blanket of
immunity.
Keywords and terms: Arbitral Immunity, Arbitral Systems, Independence, Need for
Qualified Immunity
INTRODUCTION
Globalization has nowadays made the world borderless. This has led to a considerate increase
in international commercial activities among countries. Consequently, the number of
international disputes in this arena has also risen especially when a party fails to honor its
obligation under a contract. International commercial arbitration is mostly used by the
international business community to settle disputes of a commercial nature as the system is
simple, flexible and it is known throughout the world. Unlike court proceedings, arbitration is
a method of dispute resolution arising from the consent of the parties pursuant to a particular
agreement. So, the main foundation of arbitration is the mutual consent of parties.
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An arbitrator plays a crucial role in arbitration. Unlike mediation, a decision known as the
arbitral award is given at the end of an arbitral process, and the arbitrator is the ultimate
decision maker. There are some very important ethical duties attached to him. It includes the
duties to act impartially, fairly, diligently and to disclose any conflict of interests. He also has to
act with due care to preserve the integrity of the arbitration, respect the procedural rules of
imposed the contract by which he is bound and the law of the seat (the lex arbitri). A question
therefore arises: can the arbitrator be held liable if there is a breach during the performance
and scope of his duties as an arbitrator?
This paper will focus mainly on the following points: Firstly, an analysis will be made on
whether the doctrine of judicial immunity should be extended to arbitral immunity. Secondly,
an explicit demonstration will be made on how different jurisdictions approach the issue of
immunity differently, followed by an overview of the legal and arbitral rules granting immunity
or imposing liability on arbitrators. Then, an examination will be undertaken on how
arbitrators and aggrieved parties to the arbitration are duly protected. Finally, some
recommendations and proposals on how to improve the system and move towards a more
unified model will be displayed.
SHOULD THE DOCTRINE OF JUDICIAL IMMUNITY BE EXTENDED TO ARBITRAL
IMMUNITY? LESSONS FROM DIFFERENT JURISDICTIONS
As recipients of bad news are inclined to blame the messenger, so many a losing party in an
arbitration will blame the arbitrator.1Some would want to sue the arbitrator for breach of
contracts while others would rather choose to go under torts. Others would sadly compel the
arbitrator to testify at a trial when they want to recover damages from an opposing party.
Therefore, to prevent arbitrators from frivolous lawsuits brought by dissatisfied parties, the
doctrine of arbitral immunity came into existence. This was necessary to protect and preserve
the independence and neutrality of arbitrators and let them do their job without any fear of
reprisals. It is also important to note that constant suits and subpoenas against arbitrators will
surely undermine the use of arbitration as one of the most successful forms of alternative
dispute resolution mechanism.
Arbitrators, unlike many other professionals, such as architects, lawyers, doctors enjoy a
certain degree of immunity depending on the jurisdictions in which they are based. For
instance, in the United States, arbitrators are granted absolute immunity from civil actions for
damages but they can be subject to criminal liability and possibly for injunctions. Parties cannot
even sue an arbitrator who has made a wrong decision arising from either a clear factual
mistake or an obvious legal error.2 Furthermore, arbitrators are immune even if they have
acted maliciously or ultra vires.
By contrast, in other civil jurisdictions, like Spain, no immunity is granted to arbitrators and
they can be held liable for any breach of their arbitral duties.3 In Austria, the civil code provides
for arbitrators’ liability only in special circumstances such as failure to meet the obligations of
1 DR Nolan , 'Arbitral Immunity' [1989] 11 (2) BJELL <http://scholarship.law.berkeley.edu/bjell> accessed 4 July
2017
2 PB Rutledge , ‘Toward a Contractual Approach For Arbitral Immunity’ (2004)
3 Prosser & Keeton, Law of Torts (5th edn, 1984) 185-88
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Fulena, V., & Chittoo, H. B. (2023). The “Arbitral Immunity” Dilemma – What is the Balance? Advances in Social Sciences Research Journal, 10(2).
465-473.
URL: http://dx.doi.org/10.14738/assrj.102.14129
their appointments.4In India, there is no case law or direct provision defining arbitral immunity.
Arbitration in India is governed by the Arbitration and Conciliation Act, 1996 which is derived
from the United Nations Commission on International Trade Law (UNCITRAL) Model Law,
1985.5
Various legislations, as well as arbitral rules, offer protection and immunity to arbitrators. For
instance, Article 34 of the International Chamber of Commerce rules 1998 provides that:
“Neither the arbitrators, nor the Court and its members, nor the ICC and its employees, nor the
ICC National Committees shall be liable to any person for any act or omission in connection with
the arbitration.”
6
The main piece of legislation in England that governs Arbitration is the Arbitration Act 1996. It
provides for immunity, for all acts or omissions of arbitrators, but not if the arbitrator has acted
in ‘bad faith’.7This is the only provision dealing with arbitrator immunity in English law and
there are no statutes which define the concept of ‘bad faith’.8
From the various descriptions and definitions of arbitral immunity, it is clear that arbitrators
do enjoy some kind of protection but what about the aggrieved parties who have hired them?
Is it fair for arbitrators to enjoy such broad immunity after all? If an arbitrator or a panel of
arbitrators has acted beyond the scope of their duties, negligently or even maliciously, they
should not be allowed to hide behind the shield of immunity. Similar to other professionals like
lawyers, accountants, etc., arbitrators have been retained to provide their services and if they
fail to do so correctly, their misconduct should result in liability. The immunity should not
shield them if they have acted in bad faith as their conduct may harm the party or parties who
have hired them. This will be dealt with more thoroughly in the section that follows.
IMPOSING LIABILITY ON ARBITRATORS – GOOD OR BAD?
After having critically analyzed the basis of arbitral immunity, it is firmly believed that some
degree of immunity is important in order to maintain the independence and impartiality of the
arbitration process. Most of the scholars that were quoted following a comprehensive survey
of literature are on the same wavelength that arbitral immunity should be qualified and not
absolute. By qualified immunity it is understood that when an arbitrator has committed gross
negligence, has had a willful conduct or has acted in bad faith, he should not be shielded by the
blanket of immunity.
There are many reasons as to why arbitrators require protection and need to benefit from
qualified immunity. Firstly, as mentioned earlier, the efficiency of the decision-making process
4 Ibid
5 PR Appaji, 'Arbitral Immunity: Justification and Scope in Arbitration Institutions' [n.d.] 1 (1) IJAL
<http://www.ijal.in/sites/default/files/IJAL%20Volume%201_Issue%201_Prathima%20Appaji.pdf> accessed
11 July 2017
6 Ugo Draetta, Riccardo Luzzatto, The Chamber of Arbitration of Milan Rules: A Commentary (Jurisnet, LLC, New
York) 26
7 Arbitration Act 1996, Section 29.
8 Hazem Hebaishi, 'Should Arbitrator Immunity be preserved under English Law?' NELR 45
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has to be safeguarded.9 As stated in the case of Cahn V International Ladies’ Garment Union,
10in
the absence of any immunity, the probability of arbitrators working under constant fear of
reprisals from dissatisfied parties are very high. This would also have a very negative impact
on the arbitration process. Also, it is expected that guaranteeing immunity would attract more
arbitrators since they would not be “caught up in the struggle between the litigants and saddled
with the burdens of defending a lawsuit.”
11If we follow the same line of thought, immunity will
also contribute towards the finality of the award.12
Different jurisdictions approach the issue of arbitral immunity differently. As posutlated by
Professor Lew, there seems to be no jurisdiction in which arbitrators are fully liable for any
error of view or judgment in the decisions they reach. “Between, the state of absolute immunity
and absolute liability, the state of qualified immunity arises in respect of acts performed by
arbitrators in the exercise of their functions and of which they will or should exercise judgment
and discretion within the terms of the law and the applicable arbitration rules.”
13 Many
countries, such as Austria, Germany and Norway, have adopted that qualified middle way,
whereas others, such as, France, Spain Sweden, shift towards greater liability.14 The United
States is the only exception where arbitrators benefit from full liability. Is it a good thing?
The majority of commentators would agree that it is definitely not a good thing as after all
arbitrators are mere professionals and hence though arbitral immunity is derived from judicial
immunity, it should not in any case supersede judges' immunity. In the process of arbitration,
private arbitrators, who do not have any knowledge of law, deliver final and binding judgments
as to not only the parties' contractual rights, but also statutory rights and liabilities, including
the possibility of collective and class action claims.15 If there has been a serious breach such as
bias, it would be right if the losing party who has suffered loss should be able to recover that
loss from the offending arbitrator, even in countries that traditionally confer immunity from
liability of arbitrators.16
Most importantly, if arbitrators are given absolute immunity and cannot be sued, it defeats the
whole purpose of the arbitration. All losses such as time, devotion, attorneys' fees, payments
for logistics, and other incidental and consequential damages that follow cannot be
compensated by setting aside the award per se. Hence, the parties must be able to render the
arbitrator liable and sue them for damages. When the parties have hired them, they have put
all their trust and confidence in them to adjudicate their dispute, and acting in bad faith is not
tolerable and it is regarded as a breach of trust and confidence. Imposing liability on arbitrators
would surely deter from acting in bad faith in the future and this will boost the quality of
services offered by them.
9 Sornum (n 98) 123
10 311 F.2d 113, 114-15 (3rd Cir. 1962)
11 Tamari v Conrad, 552 F 2d 778 (7th Cir, 1977)
12 Sornum (n 98) 123
13 Tsakatoura (n 29) accessed 20 September 2017
14 ibid
15 Green Tree Fin. Corp. v. Bazzel, 123 S. Ct. 2402, 2406-07 (2003)
16 Redfern (n 31)
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Fulena, V., & Chittoo, H. B. (2023). The “Arbitral Immunity” Dilemma – What is the Balance? Advances in Social Sciences Research Journal, 10(2).
465-473.
URL: http://dx.doi.org/10.14738/assrj.102.14129
Absolute judicial immunity guarantees independence in the judicial system but such privilege
should be extended to arbitrators who are regarded as quasi-judicial figures. Arbitrators and
judges do not share the same characteristics or have the same roles. Even their qualifications
and the way they are hired are different, so the analogy does not really make sense here.17
Besides those important differences in roles, the lack of arbitrator accountability is considered
as the most worrying aspect of granting arbitrators absolute immunity. Unlike litigation, there
are few safeguards which exist if ever an arbitrator abuses his discretion. While ensuring
judicial independence is crucial to safeguarding the integrity of the system, arbitrator
accountability should not be sacrificed in the process.18After considering the major drawbacks
of granting absolute immunity to arbitrators, it is high time for the United
States to have a serious discussion about arbitral immunity as the US is a clear example where
arbitrators enjoy broad immunity even for acts made with malice or in bad faith.19
In the US, following the of case of Malik v Ruttenberg20, the court had a chance to find a new way
out and move away from the status quo of absolute immunity. The court refused to do so. It is,
therefore, more difficult now to implement substantive change in the future. The Malik decision
is disappointing because it is very clear that change is a must. By adopting the more limited
approach of qualified immunity, the courts and legislatures would be able to strike a balance
which is more in with the goals of integrity and accountability. In doing so, they would finally
implement a policy that works out best for participants, arbitrators, and the ADR community
alike.21
As the court clearly failed to analyze the doctrine of arbitral immunity, it is now much more
difficult to make changes in arbitral immunity policies in the future. This is quite upsetting for
the arbitration community. Without accountability within the system, the very integrity and
viability of arbitration proceedings is at risk and the future looks bleak. Individuals will start to
lose confidence in a system that is largely private and unaccountable to the public. The adoption
of qualified immunity would be regarded as the best and most thoughtful approach.22
CONCLUSION
Qualified immunity emerges as the only type of immunity that will provide a balance that
“protects arbitral decision making while not shielding non-decisional acts, administrative acts,
failure to follow internal administrative or procedural rules, or egregious misconduct, breach
of ethics, fraud, or statutory violations.”
23The example of the Arbitration Law in England could
be taken into consideration. If emphasis is laid on s. 29(1) of the Arbitration Act 1996, it is clear
that arbitrators in England do not benefit from absolute immunity and they can he held liable
if they have acted in “bad faith”. In other words, a claimant may invoke Section 29 of the same
act to render an arbitrator liable. So a concluding note would be that adopting the qualified
immunity approach would definitely help to protect the independence and impartiality of
17 Jenny Brown, ‘Expansion of Arbitral Immunity: Is Absolute Immunity a Foregone Conclusion’ (2009)
18 ibid
19 Rutledge (n 2)
20 398 N.J. Super. 489, 942 A.2d 136 (App. Div. 2008)
21 Brown (n 229)
22 ibid
23 Weston (n 41)
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arbitrators on one side and the parties on the other side, as the liability imposed on arbitrators
for acting in bad faith would act as a deterrent to them.
RECOMMENDATIONS
Many commentators are clearly in favor of a uniform approach regarding arbitrator’s liability,
which means that it would be great and helpful if some of the overriding principles could be
established at an international level to provide comfort to the arbitrators in the exercise of their
functions.24 These voices recommend the adoption of a qualified immunity standard, which
balances the needs of arbitrators to function independently and render just decisions without
concern for personal reprisal against the need to avoid bad-faith conduct by arbitrators who do
not wish to follow the rule of law.25 Qualified immunity should be the standard applicable law
for arbitrator’s liability in international commercial arbitration and it should be incorporated
in the Model Law to promote uniformity among arbitrators and arbitral institutions.
At present there exists no uniformity regarding arbitration at international level; it all depends
on the law of the seat of the arbitration the (lex arbitri). The attitude of the jurisdiction of the
seat towards arbitrator’s immunity is definitely one of the most important factors when
choosing the place of arbitration. Often, this is overlooked by the parties. Therefore,
standardizing the liability of arbitrators will certainly be more efficient to the tribunal process
and the integrity of international commercial arbitration as a highly reputable forum for
dispute settlement will be upheld.
According to Peter B. Rutledge, there exists a simple but novel thesis. Arbitrators and arbitral
institutions should not benefit from any form of legal immunity in cases where disputes are
voluntarily submitted to them. Instead, any limit on or waiver of the arbitrator's or institution's
liability should come in the form of a contractual release either mentioned in the parties’
arbitration agreement or negotiated by mutual consent between them.’26
In his thesis a distinction between two types of immunity namely the contractual immunity and
the legal immunity is made. The main feature of contractual immunity is an agreement to
release the arbitrator and, where relevant, the arbitral institution from liability. It is almost
always incorporated into the parties' arbitration agreement at the very outset by reference to
a set of institutional rules such as the ICC Rules or ad hoc rules such as the United Nation's
Commission on International Trade Law UNCITRAL Rules.27
Under some rules, the liability waiver is designed as absolute. For example, Article 34 of the
ICC's Rules of Arbitration provides that “[n]either the arbitrators, nor the Court and its
members, nor the ICC and its employees, nor the ICC National Committees shall be liable to any
person for any act or omission in connection with the arbitration.”
28 Under other rules, the
liability waiver contains some explicit exceptions. For example, Article 35 of the AAA's
International Arbitration Rules provides that "[t]he members of the tribunal and the
24 Redfern (n 10) 288
25 Franck (n 18)
26 Rutledge (n 2)
27 ibid
28 ICC Rules of Arbitration, art 34
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Fulena, V., & Chittoo, H. B. (2023). The “Arbitral Immunity” Dilemma – What is the Balance? Advances in Social Sciences Research Journal, 10(2).
465-473.
URL: http://dx.doi.org/10.14738/assrj.102.14129
administrator shall not be liable to any party for any act or omission in connection with any
arbitrator conducted under these rules, except that they may be liable for the consequences of
conscious and deliberate wrongdoing."29Appendix II of this Article summarizes the immunity
provisions of the various arbitral institutions.
The second type of immunity is “legal immunity”. Compared to contractual immunity, legal
immunity does not really take into consideration any term of the parties' agreement or the
arbitrator's mandate. Instead, the legal immunity applies by operation of law usually the law of
the arbitral forum not considering the parties' intentions. In this respect, this second form of
immunity functions much like official immunity defenses, which insulate government officials
from liability for monetary damages arising from their official acts.30
The main distinction between contractual and legal immunity is essential to the market-based
model of dispute resolution. Under this model, arbitration is considered as one type of
“product” in a market for dispute resolution services. A unique feature about this product is
that, with few exceptions, is the fact that it is undertaken voluntarily, by mutual consent, not
only among the litigants, but also between them, the arbitrator, and, in many cases, an arbitral
institution. The parties, the arbitrator, and the arbitral institution are in a position to negotiate
over the terms of their relationship just like professionals in any other setting.31
The rule of legal immunity is definitely not in line with the market-based model. It does not
really encourage the use of arbitration. In a way, it involuntarily forces the parties to provide a
remedy when the decision maker is guilty of misconduct. It lifts up the price of arbitration by
allowing the arbitrators to reap the benefits of immunity without having to make a transfer
payment in return for the parties foregoing the right to sue. Finally, it undermines competition
among providers of dispute resolution services because arbitrators cannot really differentiate
themselves along this axis.32
By contrast, limiting immunity and adopting a contractual form tally with the market-based
model. It preserves the parties' freedom of choice to structure the arbitration their own way. It
ensures that any waiver of remedies by the parties will be effectively compensated in the form
of a transfer payment from the arbitrator. Finally, it enables competitors in the dispute
resolution marketplace to differentiate themselves by offering the parties partial or full
remedies as a guarantee of their performance as clearly explained by the ICC and AAA rules.33
Matthew Bricker proposes a new rule of arbitral liability that better holds arbitrators
accountable for the professional services they provide. Admittedly, the drafting of such a rule
was not an easy task. The law must be firm enough to punish arbitrators who act beyond the
duties imposed on them or without adequately fulfilling their duties, but lenient enough to
protect arbitrators of good faith from suits when they use their independent judgment.
29 ICC Rules of Arbitration, art 35
30 Rutledge (n 2)
31 ibid
32 ibid
33 ICC Rules of Arbitration, art 34, 35
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Luckily, corporate law has a long history of dealing with similar problems of director liability
and has come up with a more effective solution known as the business judgment rule. The
business judgment rule therefore protects the independent judgment of the director by
providing that “[c]ourts should not second-guess good faith decisions made by independent
and disinterested directors.”
34If this rule is extended to arbitration, arbitrators would be civilly
liable under a standard of gross negligence but would benefit from absolute immunity from suit
if they (1) disclosed all actual and potential conflicts of interest reasonably known to them, (2)
became duly informed before exercising their judgment, and (3) exercised their judgment in a
good faith effort to solve the dispute.35
Adopting such a rule would give arbitrators a good opportunity to show their good faith and
independent judgment without the fear of incurring liability, but on the other hand it would
also reprimand arbitrators for acting in bad faith or beyond the scope of their duties. Because
the rule already represents an optimal resolution of conflicting interests, it therefore supports
the public interest in assuring a fair and competent system of arbitration - the rule largely
cannot be contracted around.36Most importantly, even if the arbitrator violates one of the three
criteria of the arbitral judgment rule, and therefore loses the protection of the rule, the
arbitrator would not necessarily be negligent.37
Just like the corporate liability for directors, arbitral liability would require a standard of gross
negligence for all liability.38 An arbitrator who lost the protection of the arbitral judgment rule
could also seek to abrogate himself of liability by showing that the award he rendered was fair
and just under the circumstances.39If ever the arbitrator was found liable, the prevailing party
would be entitled to compensatory and possibly punitive damages.40
Susan D. Franck who is in favor of a qualified immunity for International Arbitrators proposes
a model statute for various countries to adopt in their international arbitration statutes. The
statute takes into account the desire for immunity in common law countries, and also balances
this against the need of civil and Islamic law jurisdictions to address the issue of bad-faith
misconduct and concerns about the failure to perform essential arbitration functions.41
As per the Proposed Statute: Qualified Immunity for International Arbitrators generally:
“International Arbitrators shall be immune from civil liability to parties to the arbitration
agreement for anything done or omitted to be done in their capacity as arbitrators, except as
qualified in section (2)”. Exceptions include: “(a) An arbitrator shall be liable if she/he
unjustifiably fails to render an arbitral award; (b) An arbitrator shall be liable for bad-faith
34 William Allen, Commentaries and Cases on The Law of Business Organization (4th ed. 2012) 227-228
35 American Bar Association, Corporate Director’s Guidebook 27 (6th ed, 2011)
36 Bricker (n 123) accessed 23 September 2017
37 ibid
38 Re Citigroup Inc S'holder Derivative Litig, 964 A.2d 106, 122 (Del. Ch. 2009)
39 Emerald Partners v Berlin, 787 A.2d 85, 91 (Del. 2001)
40 ibid
41 Frank (n 18)
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Fulena, V., & Chittoo, H. B. (2023). The “Arbitral Immunity” Dilemma – What is the Balance? Advances in Social Sciences Research Journal, 10(2).
465-473.
URL: http://dx.doi.org/10.14738/assrj.102.14129
conduct done in his/her capacity as an arbitrator. Bad-faith conduct may involve an intentional
act that is based upon, but not limited to, fraud or corruption.”
42
Just like balance between independence and liability of arbitrators is the recommended way
forward, the recommendations for a unified model would, in general, have to walk the tight
rope of balance.
42 ibid