A Tale of Three Cities: Arbitrator Misconduct by Abuse of Retainer and Commitment Fee Arrangements – Vol. 3 No. 1-4

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AuthorLawrence F. Ebb*

Published: December 1992

United States
Arbitrators and Arbitral Tribunals
Responsibility of Arbitrators
Challenge of Arbitrators
Code of Ethics for Arbitrators
Independence and Impartiality
Commercial Disputes

Description: The three cities in this tale are Tel Aviv, Washington and London. The story concerns alleged misconduct by international commercial arbitrators having as their forum a city in Israel in one situation, and London in another; and resultant litigation in Tel Aviv, Washington and London.

A decision of the Tel Aviv-Jaffa District Court on July 30, 1982 and its aftermath in the United States have set one more landmark in the continuing problem area of distinguishing between arbitrator-party conduct that is proper and that which constitutes misconduct. The American aftermath took the form of a legal malpractice suit brought against a local law firm in the United States District Court for the District of Columbia. They furnish a dramatic illustration of the painful consequence of the failure of an impartial, independent arbitrator or prospective arbitrator to make full disclosure — that is, failure to make timely disclosure, to the institution or organization that appointed such person, of material facts or circumstances that might be likely to give rise to justifiable doubts regarding the arbitrator’s independence. This applies equally to an ad hoc arbitral tribunal to which each of two parties has appointed an independent arbitrator, and the two have chosen a chairman.

These interrelated cases arising in Tel Aviv and Washington, each of which was settled in due course, are discussed in Section II and III below. Preliminarily, Section I surveys the principles of arbitrator independence and the disclosure requirement. A form of commitment fee, the booking fee arrangement of the London Maritime Arbitration Association, is discussed in Section IV; the 1990 English decision in the Hyundai case concerning a commitment fee arrangement sought by the arbitrators after consenting to appointment, in Section V; and the lessons to be learned, in Section VI.

Since the article concerns the demarcation line between proper conduct and misconduct of arbitrators in negotiating and receiving retainer/commitment fees, the approach taken is highly empirical. As such, it focuses in narrative detail upon the precise actions taken and communications made by parties and arbitrators.

Concomitantly it reviews in equally abundant detail the reactions and pronouncements of the courts of three countries in this very sensitive area, whose problems, never absent, have become increasingly apparent in the last ten years.

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*Attorney and Arbitrator. Formerly Professor and Director of the International Legal Studies Program, Stanford University School of Law. Retained counsel for General Electric Company, Washington, D.C., for international arbitration.