Answer ... The Federal Arbitration Act (FAA) leaves it to the parties to agree on the method for selecting arbitrators (9 USC § 5). This is encouraged; and it has been held that the intention of the FAA is for the parties, rather than the courts, to appoint arbitrators (see Shell Oil Co v CO2 Comm, Inc, 589 F.3d 1105, 1109 (10th Cir. 2009)). The parties should therefore specify the process by which arbitrators are to be appointed in the arbitration agreement.

At the request of a party, however, the court has the power under Section 5 of the FAA to appoint the arbitrator(s) where:

• the parties have failed to agree on a selection method;
• the selection method is agreed, but one of the parties fails to abide by that method; or
• for any reason, there is a failure to appoint an arbitrator or fill a vacancy.

Where a party refuses to appoint an arbitrator in accordance with the parties’ agreement, the other party can file a motion with a court to compel the appointment of an arbitrator in accordance with the provisions of the arbitration agreement (9 USC § 6).

The district court has the authority and the obligation to appoint an arbitrator where there the selection process does not occur or is not followed (Odyssey Reinsurance Co v Certain Underwriters at Lloyd’s London Syndicate 53, 615 F App’x 22 (2d Cir 2015)). For example, the court appointed an arbitrator in circumstances where a party-appointed arbitrator largely failed to engage in the process of selecting the chair of the tribunal (see Nat’l Union Fire Ins Co of Pittsburgh, PA v Source One Staffing LLC, 16-CV-6461, 2016 WL 5940920, at *1 (SDNY, 13 October 2016)).

Answer ... The FAA starts from the position that there is to be a sole arbitrator instead of a panel of three (9 USC § 5). However, the parties are free to change this by agreement and often agree on three or more arbitrators in large or complex transactions. The parties may also agree to have their arbitration administered by an arbitral institution such as the American Arbitration Association (AAA). In that case, the institution decides on the number of arbitrators if the agreement is silent and the parties disagree.

Where the Panama Convention governs, a court must appoint three arbitrators unless the parties agree otherwise (9 USC § 303; Article 3 of the Panama Convention).

The FAA otherwise does not restrict the number of arbitrators, their qualifications or their method of selection.

Answer ... Section 10 of the FAA provides that an award may be vacated:

However, the FAA does not provide a process for challenging the appointment of an arbitrator before the award has been made. US courts therefore generally do not consider interlocutory challenges to an arbitrator’s appointment (AVIC Int’l USA, Inc v Tang Energy Grp, Ltd, 614 F App’x 218 (5th Cir 2015)); In re Sussex, 781 F3d 1065 (9th Cir 2015)). Indeed, US federal courts have found that they lack authority to remove arbitrators during an arbitration (In re Sussex, 781 F3d 1065 (9th Cir 2015)). After the award is made, an arbitrator can be challenged through a proceeding to confirm or vacate the award.

However, the parties are free to include in their arbitration agreement any ways they wish to challenge the appointment of an arbitrator; and provisions on this are usually included in procedural rules which govern arbitration, such as Rule 18 of the AAA Commercial Arbitration Rules and Mediation Procedures.

Answer ... The FAA states that if the arbitration agreement provides the method for replacing an arbitrator, that method must be followed (9 USC § 5). If no method is provided, then “upon application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators” (9 USC § 5).

Standard form procedural rules governing arbitrations all generally have provisions that address arbitrator replacement. For example, see Rule 15 of the JAMS Comprehensive Arbitration Rules & Procedures.

Answer ... The FAA contains no specific requirements regarding arbitrator independence, impartiality or the disclosure of potential conflicts of interest. It does, however, give rise to an implicit standard by providing that an award can be set aside on the ground of evident partiality or corruption (see question 14).

Pursuant to this standard, US courts have held that a mere failure to disclose a potential conflict of interest is not a sufficient basis to set aside an award. The challenging party must prove that the partiality is direct, definite and capable of demonstration rather than remote, uncertain or speculative (Republic of Argentina v AWG Group Ltd, 894 F3d 327, 334-35 (DC Cir 2018); Scandinavian Reinsurance Co v Saint Paul Fire & Marine Ins Co, 668 F3d 60, 74 (2d Cir 2012)).

Additionally, the rules of the major arbitration institutions expressly address the requirements for independence, impartiality and disclosure. For example, the International Chamber of Commerce Arbitration Rules 2021, the International Centre for Dispute Resolution International Dispute Resolution Procedures Rules 2021 and the AAA Rules 2021 require the arbitrators and the parties to disclose any circumstances that may give rise to justifiable doubts regarding an arbitrator’s impartiality or independence. Parties can challenge an arbitrator whenever these circumstances become known. However, a party cannot wait to see the results of the final award to challenge the arbitrator’s independence or impartiality if the basis for the challenge was known earlier (Lucent Techs, Inc v Tatung Co, 379 F3d 24, 31 (2d Cir 2004); Meyer v Kalanick, 477 F Supp 3d 52, 55 (SDNY 2020)).

Answer ... (a) Procedure, including evidence?

The FAA only addresses two very limited issues on procedure and evidence.

First, Section 7 of the FAA states that: “The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.” However, there has been some judicial debate over the scope of this provision. The Second and Third Circuit have held respectively that Section 7 does not grant an arbitrator authority to order non-parties to appear at depositions or provide parties with documents prior to a hearing (Life Receivables Tr v Syndicate 102 at Lloyd’s of London, 549 F3d 210, 216–17 (2d Cir 2008); Hay Grp, Inc v EBS Acquisition Corp, 360 F3d 404, 410 (3d Cir 2004)). The Eighth Circuit takes the view that although the statute does not “explicitly authorize the arbitration panel to require the production of documents for inspection by a party, ... implicit in an arbitration panel’s power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the hearing” (In re Security Life Ins Co, 228 F3d 865, 870–71 (8th Cir 2000)). A third, middle ground is represented by the Fourth Circuit, which – concerned that “arbitral efficiency would be ‘degraded if the parties are unable to review and digest relevant evidence prior to the arbitration hearing’” – has “read into the FAA an exception under which a party could petition the district court to compel discovery ‘upon a showing of special need or hardship’” (Comsat Corp v National Sci Found, 190 F3d 269, 275 (4th Cir 1999)). The courts are still in disagreement over which approach is to be adopted (see Matter of Roche Molecular Systems, Inc 60 Misc 3d 222 (2018)).

Second, Section 10(a)(3) of the FAA provides that the courts have authority to vacate an award where the tribunal “refuses to hear evidence pertinent and material to the controversy” (9 USC § 10(a)(3)). This provision is quite straightforward and has received little judicial commentary.

Other than on the two issues outlined above, the FAA does not provide rules of procedure or evidence, and arbitrators are typically bound by the arbitration rules and procedures agreed on by the parties in their arbitration agreement. Where the parties fail to designate applicable rules, the arbitrator will decide on questions of procedure and evidence after consultation with the parties, on an ad hoc basis.

(b) Interim relief?

The FAA does not expressly address whether tribunals can order interim remedies. However, courts have accepted that tribunals can order such relief if the arbitration agreement or the applicable arbitration rules grant them the authority to do so.

Interim relief generally takes the form of an interlocutory injunction to preserve the status quo until the tribunal has issued its award. Furthermore, tribunals may have (if applicable arbitration rules so provide) the authority to grant any interim relief necessary to secure assets to satisfy a final award. For example, a tribunal might order a party to deposit funds into escrow.

(c) Parties which do not comply with its orders?

Section 7 of the FAA provides that where a party fails to comply with a tribunal’s order to testify or produce documents, the party seeking to enforce the order may petition a court for enforcement. Indeed, an arbitral tribunal lacks the enforcement mechanisms that a judicial court has to compel document disclosure or testimony. Therefore, if a witness fails to appear or does not comply with an order of the tribunal, the innocent party may apply to a court in the jurisdiction of the arbitral tribunal to make an identical order. If the order is again not followed, proceedings for contempt of court can be commenced.

(d) Issuing partial final awards?

Section 16 of the FAA expressly contemplates both final and partial awards. The FAA therefore operates on the presumption that an arbitral tribunal situated in the United States can issue partial final awards. The grant of partial awards is also included in standard form arbitration rules. For example, Article 32(1) of the International Centre for Dispute Resolution Rules provides that: “In addition to making a final award, the arbitral tribunal may make interim, interlocutory, or partial awards.”

The courts are of the view that for a partial final award to be valid, it must resolve a discrete issue (Sperry Int’l Trade v Government of Israel, 532 F Supp 901, 909 (SDNY 1982), aff’d, 689 F2d 301 (2d Cir 1982); Southern Seas Navigation Ltd of Monrovia v Petroleos Mexicanos of Mexico City, 606 F Supp 692, 694 (SDNY 1985)). However, this threshold is not a particularly demanding one, as it has been held that a partial award will be enforced by a court “when such confirmation is necessary to ensure the integrity of the arbitration” (Companion Property and Cas. Ins. Co. v Allied Provident Ins., Inc, No 13-cv-7865, 2014 WL 4804466 (SDNY 2014).

(e) The remedies it can grant in a final award?

The FAA does not limit the types of remedies that a tribunal can award. However, the parties can agree to limits, either expressly or by adopting a particular set of arbitration rules.

If no limitations are stipulated (as is generally the case under standard form arbitration rules), the tribunal can award a wide range of remedies. The Supreme Court has held that arbitrators may award punitive damages unless the parties’ agreement expressly prohibits such relief (Mastrobuono v Shearson Lehman Hutton, Inc, 514 US 52, 58, 60-61 (1995)). Furthermore, if the substantive law governing the contract allows for equitable remedies such as rectification, rescission, specific performance or an injunction, the tribunal can order those remedies (EGI-VSR, LLC v Coderch Mitjans, 963 F3d 1112, 1124 (11th Cir 2020) (confirming the grant of specific performance); Benihana, Inc v Benihana of Tokyo, LLC, 15-CV-7428, 2016 WL 3913599, at *1 (SDNY, 15 July 2016) (confirming the grant of a permanent injunction)). Finally, it has also been held that arbitrators have the power to fashion relief that a court might not properly grant (see Sperry Int’l Trade, Inc v Gov’t of Israel, 689 F2d 301, 306 (2d Cir 1982)).

(f) Interest?

The FAA does not specifically address the calculation of interest. However, courts routinely grant interest when ordering judgments on awards.

Answer ... Where a party to an arbitration agreement does not participate in the arbitration, Section 4 of the FAA permits federal courts to compel the party to participate. If, after such action is taken, the party still does not participate in the proceedings, the institutional arbitration rules generally provide arbitrators with the power to enter a default award on the condition that the non-defaulting party can provide evidence in support of its claim. Once a default award is made, it can be enforced in the courts just like an ordinary award.

Answer ... The FAA is silent on arbitrator immunity. However, the courts are of the view that because arbitrators exercise quasi-judicial functions, they have absolute immunity for acts undertaken within the scope of an arbitration (see Lanza v FINRA, 953 F3d 159, 163 (1st Cir 2020); Landmark Ventures, Inc v Cohen, No 13 Civ 9044 (JGK), 2014 WL 6784397, at *4 (SDNY, 26 Nov. 2014)).The institutional arbitration rules also generally provide arbitrators and arbitral institutions with broad immunity for any acts undertaken in connection with an arbitration.

The only exception to this immunity was recognised in obiter dicta in Int’l Union, United Mine Workers of Am v Consol Energy, Inc, No 20-cv-01476, 2020 WL 7042815, at *6 (DDC, 1 December 2020), where it was stated that an exception to immunity arises “when there is evidence of bias or misconduct in the arbitration”.