Civil Liability of Arbitrators and Arbitration Institutions

Arbitration is a process by which the disputes between two parties regarding their mutual rights and liabilities are settled judicially by one or more persons other than the court. This person is called the arbitrator. There are two types of arbitration

  1. Ad-Hoc Arbitration: The process of arbitration is not regulated and determined by an institution. The parties to the agreement have to decide all the aspects of the arbitration like the appointment of arbitrator, procedures, rules applicable, etc.
  2. Institutional Arbitration: A specialised institution intervenes and assumes the function of aiding and administering the arbitration process in lieu of fees.

The role of the arbitrator is often seen as that of a judge. This perspective makes us draw a comparison between judicial review of arbitration awards and judicial orders. Despite the superficial similarity, the arbitration proceeding is to be viewed as a product of a contract. The contract between the parties and arbitrator contains terms negotiated between by the two sides. Since the role of the arbitrator is based on a contract, it is the duty of the arbitrator to follow rules and carry his functions in good faith,  the absence of which can enable the parties to sue the arbitrator. In the case of ad-hoc arbitrators, it is easy to locate the civil liability of the arbitrator according to the arbitration contract. But there has been a substantial increase in institutional arbitration which has been criticised as being illegitimate, inefficient, and inflexible. The desire is to imbibe civil liability clauses in institutional arbitration agreement so that the institution administering the arbitration process showcases its willingness to accept its civil liability for the essential contractual obligation. Neither of the parties know the internal mechanisms of the arbitral institution or their internal mechanism of enforcement of code of conduct because such institutions are not very transparent which leads to irregularity in institutional arbitrators and affects the awards pronounced by them.

In the United States, the arbitrators enjoy immunity like that of judges. The Second Circuit noted in Austern v. Chicago Board Options Exchange, 898 F.2d 882 (2d Cir. 1990), that the arbitrators have immunity from civil liability for acts done in their arbitral capacity. Courts have extended this immunity to arbitral institutions as well. In Owens v. American Arbitration Ass’n, No. Civ. 15-3320 (D. Minn. Dec. 15, 2015), Judge Magnuson held that it is well settled that the arbitral immunity extends from sole arbitrators to the institutions as well who sponsors the arbitrators or administer the arbitration process.

In Austrian Law, the appointment of an arbitrator is considered as an act of public law but the rights, obligations, and liabilities of the arbitrator are governed by the contract between the party and the arbitrator. Thus, it enables the party to sue the arbitrator for breach of contractual liability. While in Germany, the right to sue the arbitrator arises only in cases of breach of liabilities penalised by public law and not a contractual obligation. Greece and Spain, on the other hand, have express provisions for liability while France has implied provisions. In Finland, the court recognised contractual obligation of the arbitrators and thus, held them liable for contractual obligation. England’s Arbitration Act, 1996 provides for statutory immunity but provides for liability in cases like

  • When the arbitrator acted in ‘bad faith’
  • When the court determines that the resignation by the arbitrator is unreasonable, thus giving the right to parties to sue the arbitrator for intentional misconduct.

The side that appreciates the immunity of arbitrators presents the argument that if arbitrators will be made liable for their acts, they will not be willing to accept the appointment. The argument may be true in an earlier time but has lost its ground in lieu of the recent changes and development in the arbitration process. With the entry of arbitration institution and payment of professional fees to the arbitrator, they can be compared to other professionals like doctors and lawyers, who did not stop their service once they were made liable for their acts.

Thus, it is very important to stress that allowing absolute immunity and letting unethical practice go unpunished does not send an encouraging message to the parties opting for the process of arbitration for the resolution of their disputes.




Nikunj Poddar, Gujarat National Law University


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