Challenging Awards for Lack of Disclosure

The May 2013 issue of the IBA Dispute Resolution Section’s journal, Dispute Resolution International, has a concise and compelling article by Mark H. Alcott addressing “Post-Award Attacks on Arbitrators.”  The title speaks for itself: the author is harshly critical of challenges to arbitral impartiality that are first asserted after an award has issued.

Challenges to “would-be arbitrators because of interests or relationships that are marginal, at best,” cause delay, unnecessary expense and “even voluntary withdrawal by a designee who had no obligation to do so, writes Alcott.

This is troublesome even when it arises at the outset of the proceeding.  Recently, however, there has emerged a growing practice of making the challenge after the proceeding is concluded and the award has been issued, on the ground that certain interests and relationships of the arbitrator should have been disclosed, but were not.

Citing Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Insurance, Alcott notes that an allegation of failure to disclose is entirely distinct from an allegation of partiality; that is, failure to disclose a fact that does not support a finding of “evident partiality” cannot support vacatur.   But Alcott notes the cost of the delay and expense that this challenge prompted, and asked how it could possibly be that the facts giving rise to the challenge came to the losing party’s attention not during due diligence in arbitral selection, not during the pre-hearing proceedings, not during or after the hearing, but only after issuance of an award against them?  Could it be that the losing party was prompted to seek out those facts only after being presented with an award they lost?  Or that they knew the information but withheld it in case they would win?

Wrapped within this question of good faith is, of course, the conundrum of what kind of prior relationship a reviewing court would deem evidence of partiality, such that failure to disclose would be grounds for judicial vacatur.

[Some arbitrators] opt for very broad and detailed disclosure.  But where does one stop?  Is it enough to say: “I worked at the XYZ firm 15 years ago, and for a time, petitioner’s counsel also worked there”?  Or must one go further and say: “He and I still see each other from time to time”?  Or further still: “We had dinner together last year”?  Must one add: “He picked up the cheque”?  How about: “I found him to be charming”?  Or is one duty-bound to admit “He was a terrible bore”?  Is it necessary to disclose that “When I worked at the ABC firm, one of my partners represented Company Z, which has subsequently become an affiliate of the respondent”?  If so, must one also disclose “He told me that the executives of Company Z were ethically challenged”?

Alcott proposes five judicial “barriers” to post-award challenges based on failure to disclose: (1) The movant must disclose when the facts were first learned, and why they could not have been learned sooner with reasonable diligence; (2) The movant must post a substantial bond, to be relinquished to the opponent in the event the motion fails; (3) No discovery shall take place; (4) The newly learned facts must be very damning before the challenge is upheld; and (5) The motion must be filed within 30 days of the issuance of the award.

Arbitrators have duties of disclosure, says Alcott, but parties also have duties of diligent investigation.  All of these duties continue throughout the arbitration process.  Were Alcott’s proposals to be adopted, instances where “newly discovered” information concerning arbitral non-disclosure should vacate an issued award should be very rare indeed.

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