Arbitration Decisions by Truncated Tribunals – An All-time Favorite

On 20 July 2010 Russia’s highest commercial court, the Supreme Arbitrazh Court, set aside an MKAS award in favor of the Moscow real estate corporation Sector-1 in a dispute with the Cyprus-based Open Society Institute Management Services. In its decision, the court reasoned that the fact that the award had been rendered more than two months after the death of one of the three arbitrators constituted a breach of the principle of equal treatment of the parties and equal representation in the arbitral tribunal. Critics have been harsh in dealing with this decision, pointing out the implications that it might have with regard to dilatory tactics in arbitral proceedings. The decision once again shows that we are far from an international consensus on the question of whether an arbitral tribunal can render a decision validly if one member of the tribunal refuses to take part in the deliberations or any part of the arbitral procedure (so-called truncated tribunal), and on the question of what constitutes a proper conduct in case of one arbitrator’s death.

In case an arbitrator refuses to take part in the arbitral proceedings, the prevailing view in international arbitration practice is that truncated tribunals should be allowed to proceed to render an award, thus preventing an obstructive or partisan arbitrator from impeding the entire arbitration. In some cases, it might even be considered the arbitral tribunal’s obligation to continue the proceedings (or the decision making) if an arbitrator refuses to participate with the aim to delay or hinder the proceedings. Consequently, various institutional rules, e.g. those of the DIS, LCIA, WIPO or PCA provide that decisions may be made by the remaining arbitrators under certain preconditions. Thus, in order for the tribunal to be allowed to proceed in such a situation, the refusing arbitrator must have been given reasonable opportunity to participate in the vote. Further, under most rules, e.g. those of DIS or LCIA, the parties must be given advance notice of the intention to make an award without the arbitrator who refuses to participate in the vote. This serves to enable the parties to motivate the refusing arbitrator to participate in the decision making or – wherever this is not possible – to take adequate steps for the replacement of the arbitrator. Further, under some laws and rules, a truncated tribunal may proceed only if an arbitrator fails to participate without justified reasons.

Certain institutional rules stipulate additional requirements for the admissibility of a decision rendered by a truncated tribunal. By way of example, the ICC Rules allow decision making by a truncated tribunal only in cases where the proceedings have already been closed. Prior to the closing of the proceedings, the ICC Rules require that an obstructing arbitrator is replaced and the proceedings are then continued with the participation of three arbitrators. Other institutional rules take a broader approach and admit decisions of truncated tribunals both prior to and after the closing of the proceedings (e.g. ICDR, WIPO, PCA Rules).

The decision of the Supreme Arbitrazh Court demonstrates that the admissibility of decision making by truncated tribunals is not undisputed. However, the arguments brought against truncated tribunal decisions often go further than those relied on by the Russian court. In international legal writing, it is sometimes argued that an award rendered by only two arbitrators is not in accordance with the agreement of the parties on a three member tribunal. A decision by a truncated tribunal might therefore be subject to refusal of enforcement or annulment by the courts, irrespective of whether the obstructing arbitrator was acting with the purpose of sabotaging the proceedings (which was clearly not the case in the challenge brought before the Supreme Arbitrazh Court).

On an overall level, it would not serve the arbitral process well if the deliberate obstruction of the arbitral process by an arbitrator was endorsed by a general prohibition of truncated tribunal decisions. There should be some form of mechanism that prevents such tactics from hurting the arbitral process.

If an arbitrator refuses or is unable to take part at an early stage of the proceedings, it is usually appropriate to have him or her removed and replaced. However, at the later stages of the arbitral process, in particular after the closing of the proceedings, the replacement of an arbitrator will often simply not be a feasible option. If a dispute is ripe enough to be decided, the delays associated with the replacement procedure and subsequent involvement of the replacement arbitrator are simply disproportionate and warrant a decision by the truncated tribunal, in particular in cases of wanton obstruction.

With specific regard to the Sector-1 decision, this leaves the question whether an arbitral tribunal is also allowed to render a decision in case of the death of one of its members or if the deceased arbitrator’s position must be replaced. Generally, the death of an arbitrator also terminates his or her mandate. Most arbitration laws and rules provide for a replacement procedure in situations like this. The question arises whether this procedure must be followed in all cases or not. It must be considered that the termination of an arbitrators’ mandate due to his or her death does not entail deliberately obstructive behavior of a party or an arbitrator. Excluding a party’s right to be “represented on the tribunal” must not be taken lightly in such a situation. The Supreme Arbitrazh Court’s decision is therefore understandable to this extent. However, it could be fatal to carry over its reasoning to cases in which there is in fact a partisan arbitrator trying to delay or derail the arbitral process, or where the truncation of a tribunal is based on abusive behavior or lack of diligence of one of the parties.