The bare facts

IN the October 1998 issue of The Maritime Advocate, I wrote an article on conflicts of interest and disclosure statements. I was my obnoxious good self when I stated; "Attorneys or principals are quite sophisticated when selecting arbitrators. Why should it be necessary to state that in the 70s I was a vice-president of National Bank of North America/NatWest,in the 80s I worked for Cargill and now I am the president of Westmarine, when this background information is readily available from the SMA roster book? Why state the obvious, published data unless one wants to promote oneself? It is safe to assume that counsel wanting to appoint me know what I did in my business career."

The article may have raised a few questions among the magazine's subscribers, but did not prompt any reader responses or complaints. Issue 59 of The Maritime Advocate online newsletter, however, contained an item that was critical of disclosure statements, which did prompt a few outspoken reader responses, and in particular one from a New York arbitrator, whose remarks require a few comments:

"The general rule is, the more encompassing a disclosure, the better." I disagree. More is not always better. The critical issue is the relevance of the disclosure to the case and not the extent of the revelation. It is really irrelevant what an arbitrator did ten, twenty or more years ago. The only matter of concern is whether those activities are related to either of the disputants, counsel or the arbitrators and which potentially may have an impact on the arbitrator's ability to hear and decide a case fairly.

"The US Arbitration Act stipulates that evident partiality or corruption in the arbitrators is a basis for the vacation of an arbitration award." This, of course, is a correct statement, however, without nexus to the topic of disclosure. Title 9 of the United States Code (USC) in its index does not contain any reference to disclosure. The statute does not place the requirement of full and complete disclosure upon an arbitrator, but there is the expectation of fundamental fairness and the absence of any bias.

"The rule has led to arbitrators giving full disclosure, with the result that a maritime arbitration in the US has never been vacated. This is a credit to our arbitrators in the US." Unfortunately, this is an incorrect statement. Awards have been vacated and some for reasons related to disclosure and potential personal conflicts.

For example, in the Commonwealth Coatings case, albeit a non-maritime case, the third arbitrator failed to disclose at the outset and during the proceedings that he had performed consulting work for the respondent (he made the disclosure after the award had been rendered). No evidence or proof of fraud or bias was produced, but the court held that "evidence of even the slightest pecuniary interest is sufficient to void the award."

In the Statheros, vacated 948 F2d 1277 (2nd Cir. 1991), the chairman rendered his disclosure and stated that he and his employer had been involved in an arbitration with Sun Oil but that past events would not affect his ability to hear and decide the case. Sun challenged the chairman, who refused to step down. Subsequently, the arbitration was reheard before the same party-appointed arbitrators, but a different chairman.

The Ross Isle was set aside because the third arbitrator had acted as a non-party witness in another arbitration which involved the same law firms. The Court of Appeals reversed the decision, stating that "appearance of bias is not to be equated with evident partiality which is the standard."

Another case is the Mary S in which, on the motion to vacate, the owners argued that the third arbitrator had failed to make full disclosure of his business connections with the charterers and their counsel. Justice Brieant rejected the motion on the basis that the group of arbitrators and admiralty attorneys is relatively small, with their background and affiliations well-known to each other. He stated that parties "have regularly appeared before . . . and other arbitrators for a long time, with no real or apparent difficulty in having their commercial disputes settled quickly and fairly by 'commercial men.' This is all that the contract and submission of arbitration required. The statute does not require otherwise." The matter was then heard by the Court of Appeals, where it was reversed and remanded.

The crucial point of the court's ruling was that "the better practice is that arbitrators should disclose fully all their relationships with the parties." Again, I fully concur with the finding, but this is different from what the New York arbitrator argued. If the disclosure pertains to and covers past dealings with the parties, counsel or arbitrators, it is appropriate and necessary. There should be no confusion between "complete disclosure" and "pertinent disclosure." Quantity does not outweigh quality.

With respect to the statement "that other forums [sic] such as NASDAQ [sic] are even now insistent on full disclosure and, as part of the required disclosure, submit the arbitrators' CVs to the disputing parties," it is not really determinative of this issue. Any organisation involved in arbitration can fashion its own rules, which must meet the minimum expectations set forth in the Federal Arbitration Act (FAA).

For example, one of the landmark cases on disclosure and impartiality has been Astoria Medical Group v Health Insurance Plan of Greater New York, which accepted partisanship as a fact of life for the party-appointed arbitrator, but qualified it by stating that the arbitrator may not be dishonest by being deaf to the testimony or blind to the evidence presented. On the other hand, the SMA Rules require impartiality from all arbitrators and not just the chairman.

Judicial review of an arbitration award is narrowly limited, and an arbitration award will not be set aside unless it is completely irrational or evidences manifest disregard of the law. This concept arose as dictum. Commentaries have stated that "it is not a doctrine, it is not a principle. It did not originate in textbooks. It does not appear in any statute. It is a simple phrase, unnecessary for the holding, inserted by Mr Justice Reed." Ironically, it was placed in the opinion to support the opposite position, for which it has become "implanted in the law."

I fully agree with the concluding statement that "it is incumbent on anyone who acts as an arbitrator to disclose anything he or she thinks will affect their impartiality as an arbitrator." This is the point I have been trying to make. The fact that I took early retirement really has no place in a disclosure. The fact that I worked in a bank will only become important if a banking issue is involved in the dispute and I may have special knowledge, which my fellow arbitrators may not have. Furthermore, counsel must be made aware of this particular knowledge and have an opportunity to brief it and ensure a level playing field. Disclosure must serve a specific purpose within the framework of the arbitration process and should not be abused by arbitrators or counsel.

In Commonwealth Coating v Continental, the Supreme Court stated that an arbitrator cannot be expected to provide the parties with his complete and unexpurgated business biography. This finding was also confirmed in Andros v Marc Rich and Transmarine Seaways v Marc Rich.

Bringing this topic back to reality, in a recent New York maritime arbitration, with an all-lawyer panel, the party-appointed arbitrators submitted ever-so terse disclosure statements. The one arbitrator stated: "To the best of my knowledge, this firm has never represented either [Party A] or [Party B]. It goes without saying that I know my fellow arbitrators and counsel for both parties. I have no knowledge of the merits of the underlying dispute."

The second arbitrator presented an even shorter statement: "I refer to Mr. . . . . . .'s letter of May 24, 2002. Mr. . . . . . .'s disclosure mirrors my own."

Whoever accused lawyers of being verbose certainly has never met these two admiralty attorneys.

The first phase of disclosures happens at the time of appointment. When speaking to the appointing attorney, the arbitrator has to make a decision as to whether he has a conflict with either of the principals, counsel or the subject. Disclosure is not restricted to the preliminaries in an arbitration proceeding but is a continuous process for the duration of an arbitration. Most arbitrators must, therefore, conclude their disclosures by stating that they reserve their right to add to and/or amend their disclosure statement if it should become necessary up to the close of the proceedings.

I have stated before that disclosures are meant to clarify and assist. They are not meant to be billboards for the arbitrators to promote their wares or flaunt their accomplishments. Instead, disclosures should be the checks and balances for the integrity of the arbitral process.