The appointment of the arbitrators and the constitution of the Arbitral Tribunal are an extremely important stage of any arbitration. As the saying goes, arbitration is only as good as the arbitrators.
In performing his/her duty, the arbitrator shall proceed with impartiality, independence, competence, diligence and discretion, as set forth in art. 13, paragraph 6, of the Brazilian Arbitration Act of 1996 (Law n. 9.307). Art. 14 of the Brazilian Arbitration Act establishes that individuals that have relevant connections with the parties or that may have an interest in the dispute are prevented from serving as arbitrators (to the extent that it may be applicable, for the same reasons and relationships that characterize the impediment or suspicion of judges, as per the Brazilian Code of Civil Procedure).
Therefore, the appointment and the constitution of the Arbitral Tribunal must be carried out in a clear and straightforward way, in order to appoint competent, impartial and independent arbitrators. The lack of impartiality or independence of the arbitrators may lead to the award being later set aside in the courts, in accordance with art. 32, II, of the Brazilian Arbitration Act.
In ordinary cases, claimant appoints one coarbitrator, respondent appoints the other coarbitrator, and either the two coarbitrators or the institution choose the President of the Arbitral Tribunal. If the case is to be handled by a sole arbitrator, either the parties agree on a name, or the appointment is made by the institution. It is a simple and fair process.
However, the constitution of the Arbitral Tribunal in a multiparty arbitration may be more complicated, as several claimants or respondents may not be able to agree on who to jointly appoint. Therefore, institutions usually provide for special rules for the appointment of arbitrators in multiparty cases.
Art. 4.16 of the Arbitration and Mediation Center of the Chamber of Commerce Brazil-Canada's Arbitration Rules (CAM-CCBC Rules) establishes that "in arbitration cases with multiple parties as claimants and/or respondents, if there is no consensus regarding the appointment of an arbitrator by the parties, the President of the CAM-CCBC shall appoint all the members of the Arbitral Tribunal, designating one of them to act as President, with observance of the requirements of article 4.12 of these Rules".
Art. 12(8) of the Court of Arbitration of the International Chamber of Commerce's Arbitration Rules (ICC Rules) defines that "in the absence of a joint nomination pursuant to Articles 12(6) or 12(7) and where all parties are unable to agree to a method for the constitution of the arbitral tribunal, the Court may appoint each member of the arbitral tribunal and shall designate one of them to act as president. In such cases, the Court shall be at liberty to choose any person it regards as suitable to act as arbitrator, applying Article 13 when it considers this appropriate".
These kinds of rules seek to avoid unequal and unfair treatment between the Parties that could affect the validity of the arbitration award. If one side is not able to appoint an arbitrator, then it is better that the institution appoints the whole Arbitral Tribunal, so that the balance is kept between all the Parties.
Now that there is a growing trend in Brazil in the filing of class arbitrations, particularly in corporate disputes, it is important to analyze how and if those rules could be applied in a class arbitration.
For example, if a class arbitration is filed to protect the rights of minority shareholders against an alleged abuse of power of the controlling shareholder, should these best practices in the constitution of the Arbitral Tribunal in multiparty arbitrations be applicable?
It is important to highlight that the interests of several minority shareholders will be involved in a class claim filed to protect their homogeneous individual rights, even all these shareholders will not act each as a Party in the arbitration. The claimant of claimants may act as substitutes for the whole class and the arbitral award will have erga omnes effects.
Thus, it is desirable that the process for the appointment of the arbitrators and the formation of the Arbitral Tribunal has some degree of publicity before its conclusion, so that the legitimacy and effectiveness of the class arbitration are guaranteed.
The same way as in the case of multiparty arbitration, claimants and/or respondents in a class arbitration may disagree about the arbitral tribunal's constitution. Moreover, substituted shareholders parties that are not formally parties to the arbitrations, but whose rights are at stake, may also disagree with the appointment made by their substitute. In such situations, the practices applicable to multiparty arbitration could be applied to class arbitrations involving these corporate disputes and, if the joint nomination is not possible, the institution would be in charge of constituting the whole arbitral tribunal.
It is relevant to mention that Brazilian institutions still have not enacted specific rules for class arbitrations. In this context, on the one hand, it is important to honor the autonomy of the will of the Parties, and give them the chance to agree on the appointment of the arbitrators. On the other hand, one cannot forget that class arbitration is a procedure in which there is a significant likelihood that individuals who did not participate in the constitution of the arbitral tribunal may intervene later on in the case.
Therefore, if all the arbitrators (or the sole arbitrator) are initially chosen by the institution, it is arguable that the process of the constitution of the Arbitral Tribunal would be more legitimate. It would also be a disincentive for a later challenge of the arbitrators or even the filing of an annulment action based on an alleged unfair constitution of the Arbitral Tribunal.
In the USA, the birthplace of class arbitrations, the American Arbitration Association administers class arbitrations for cases in which the underlying agreement specifies that disputes arising out of the parties' agreement should be resolved by arbitration and the agreement does not preclude class claims, consolidation, or joinder of claims. In relation to the appointment of arbitrators, the AAA's Supplementary Rules for Class Arbitrations establish, in art. 2, that "in any arbitration conducted pursuant to these Supplementary Rules, at least one of the arbitrators shall be appointed from the AAA's national roster of class arbitration arbitrators" and that "if the parties cannot agree upon the number of arbitrators to be appointed, the dispute shall be heard by a sole arbitrator unless the AAA, in its discretion, directs that three arbitrators be appointed".
De lege ferenda, it might be useful and advisable that Brazilian institutions adopt rules that provide for the appointment of the Arbitral Tribunal by the institutions themselves in the cases of class arbitrations. Once clear rules are enacted, any risks about the validity of the constitution of the Arbitral Tribunal, and of the award rendered by it, will be greatly reduced.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.