The Goose with the golden eggs

"THINKING to get at once all the gold the goose could give, he killed it and opened it only to find nothing."

That's how Aesop described one of mankind's worst traits, greed. More recently, in 1993, London maritime arbitrator Bruce Harris addressed an audience of arbitrators on the subject of What to charge and how to get paid. I would recommend that arbitrators occasionally review his paper, just so they remember that their fees shouldn't be based on the concept of "What the market will bear", and should instead take as their leitmotif the recommendation, "Don't be greedy".

When the issue of arbitrators' fees comes up, the two topics most often raised are the amounts charged and the failure to receive timely and full payment.

Anything can be categorised as too expensive - a suit, a vacation, an arbitrator's fee. Anything. But whereas there is a basis for cost comparison in the case of the suit or the holiday, the same can't be said for arbitrators' fees, unless you compare a particular fee to the fees of other arbitrators serving on the same panel.

I recently had a call from an attorney who had apparently got over losing an arbitration, by majority, but who was still recovering from the shock of the fees charged. The arbitrators had asked for a $20,000 security deposit to cover the panel's fees. It seems the amount was used down to the last penny to issue an interlocutory award, on documents only.

Arbitrators' fees and expenses are not usually a hot topic because most cases go on and finish without discussion of the amount charged or the allocation of the fees. Only once in a while do matters come to the surface and give rise to discussion.

A judge in the Southern District of New York once said, when counsel raised the issue of arbitrators' fees, that fees are for arbitrators what gasoline is for a car - if you don't arrange for it, it just won't run.

When the issue of arbitrators' fees comes up, the two topics most often raised are the amounts charged and the failure to receive timely and full payment.

When I started arbitrating, the fees were usually the same for each member of the panel. It always puzzled me how arbitrators' fees could be identical, or why they should be. But then, I was the new kid on the block and I didn't question it at the time. I must admit that there were a few occasions when I received a higher fee than I thought I deserved.

On occasion, the third arbitrator would charge extra for administrative expenses incurred in arranging the hearings, drafting the award, etc. Then came a time when the third arbitrator would bill his fellow arbitrators for their share of the administrative expenses. Not a very satisfactory arrangement, particularly if the chairman assessed his charge after fees had already been stated in the award.

Another odd arrangement was the payment of the total fee to the chairman for distribution. I recall a case a number of years ago when a panel was asked to make an interlocutory ruling. The party-appointed arbitrators had previously considered and disagreed on the very same issue (time bar under COGSA). After the issue had been decided, the chairman asked the arbitrators to state their fees for inclusion in the award: one wanted $1,500, the second (writing a dissent) asked for $1,800. When the award came out, the appendix referring to the fees listed $13,300 payable to the chairman for distribution to the panel. This certainly was misleading. I do not question a chairman's entitlement to charge a higher fee than arbitrators, but I do object to the lumpsum approach.

A while ago, I chaired a panel with one of the more experienced New York arbitrators and a relative newcomer. The case was not difficult. When we discussed the arbitrators' charges, the newcomer's fee was substantially more than what we were charging. The arbitrator explained that he had had to do a lot of reading to familiarise himself with the underlying legal principles, which he had not encountered previously.

Whereas the intentions were probably quite noble, the result was unacceptable. Every arbitrator is supposed to have a basic understanding of the law and a better understanding of the arbitral process, and should be proficient with respect to industry knowledge. Arbitrators have an obligation to remain current, but this should be for their own account and should not become a charge against the parties to an arbitration.

In another case, a party petitioned the court to vacate an award, using "evident partiality" as one of the reasons. The case also referred to the "exorbitant" fees. In his decision, the judge rejected the issue of partiality and went on to state that even if the arbitrators' fees were "exorbitant", it would not cast any doubt on the arbitrators' impartiality as between the parties, because the panel had allocated the fees equally between owners and charterers.

In this particular case, the court also inquired into the details of the panel's fees and expenses and, based on the timesheets submitted, ruled that the fees did not rise to the level of "exorbitant". Subsequent to this decision, there have been other cases where the arbitrators' fees have been used as one of the arguments for a motion to vacate. In those instances, as far as I know, the judges requested the underlying documentation for the panels' fees and, after review, confirmed the quantum along with the awards.

Here are a few hypotheticals.

If one party in the course of an arbitration refuses to establish an escrow account for potential arbitrators' fees and expenses, what should the arbitrators do? If you follow the judge's analysis, the car without gas is not going anywhere. I disagree with the approach of refusing to continue an arbitration when one side fails to establish an escrow fund for fees. Arbitrators have a duty to conclude a matter and should not abandon the process because one of the parties defaults or they do not have the full assurances that payment of fees will be made. It really comes down to one's opinion of what the duties of an arbitrator are whether the process or the money comes first.

Should full-time arbitrators charge differently than those who are working full-time in the maritime industry and arbitrate on a part-time basis? Should arbitrators be entitled to charge for cancellations or postponements of hearing dates? If so, what is a realistic notice of cancellation/postponement? Should it be a week or two, a month, . . . ? It must be apparent that, for the part-time arbitrator with a full-time job, the cancellations are less of a problem.

Should arbitrators have to mitigate their cancellation charges? If attorneys sit as arbitrators, should their fees reflect the firm's overhead? Should arbitrators charge different rates for different circumstances, i.e., hearing time, study time, administration, the time when you wake up at night and think about a case or when you walk your dog? Should busy, more experienced arbitrators charge differently than those who do one or two cases a year?

For some of these questions, there are yes and no answers, for others the answers lie somewhere in between. The important factor is not necessarily the answer in itself, but the fact that arbitrators from time to time genuflect, and derive guidance from that particular exercise.

Some attorneys have asked that the arbitrators specify their hourly or daily fee at the commencement of the hearings. But what is the point? Clearly, a party has the right to know, but the timing is wrong. If there is a perceived need to inquire about the fees, the time to ask is when the parties contact an arbitrator for appointment, not after confirmation of the appointment.

The current level of compensation charged by arbitrators is somewhere at the $175 per hour level. With that general knowledge available, why is there a need to raise the issue at all?

I have no problem with stating upon request how much I charge or how I calculate my overall fees/expenses, but I see no point in volunteering this information. I hope that my appointments have a more solid basis than the fact that I may charge $10 more or less per hour than a fellow arbitrator.

Considering that arbitrators are often asked to decide complex cases with substantial amounts at stake, it should not really be necessary to remind arbitrators of their responsibilities with respect to the calculation and allocation of fees. Charging what the market will bear is not a good idea, and neither is the "me too" approach. It happens, but fortunately quite rarely.

It has now become customary for arbitrators to calculate their fees individually and state them separately. The award usually refers to an appendix for the details, i.e., the amounts, the allocation and how payment is to be made. Because of the identification of the individual charges, arbitrators must be able and willing to justify their fees when asked.

Proper records in support of time and expenses will not only make it easier to explain charges, but hopefully will also be persuasive with respect to their justification.

Arbitrators must be able and willing to justify their fees when asked. Proper records in support of time and expenses will not only make it easier to explain charges, but hopefully will also be persuasive with respect to their justification.

Delays in payment of fees are not unusual or unexpected, but non-payment is a different story.

Not getting paid for a job is not a pleasant experience for an arbitrator, or for anyone else. Before sharpening the battle axe, it is appropriate to consider the other side. What is the reaction of a party or counsel when an award comes out with what may be perceived as high and unreasonable arbitrators' fees. Should they pay first and argue later, argue first and pay later, not argue or not pay?

It has been suggested that when a party wants to appeal an award, the arbitrators should not be paid, as the fees may not have been earned and payment may constitute an admission of liability. Whereas there may be some hidden logic in this approach, it cannot seriously be argued that, in the extreme, "I will only pay when I am happy with the result." If the arbitrators have properly discharged their duties, there is no reason to hold up payment of fees pending the appeals process.

What should happen in a case decided by a majority and under appeal? Assuming that the court would vacate the majority opinion, thus validating the dissent, should only the dissenter get paid? If the problem is the dissatisfaction of a party with the result of the arbitration, that is certainly not sufficient reason to delay or avoid payment of the arbitrators' fees. A doctor gets paid even if the patient dies.

What happens to the fees if indeed there was a reason to vacate an award, but the misconduct was limited to one member of the panel? Would the two arbitrators get paid or would they collectively suffer for the alleged sins of their fellow arbitrator? I would expect that a court, when vacating an award, would conclude that the complete panel improperly discharged its duties and, therefore, should not get paid. Is it fair? From the standpoint of the innocent arbitrators, probably not. But what can be done, if anything? Probably the best solution is to be alert and collectively avoid taking any steps which, in a review process, may be faulted.

When I recently discussed the general topic of arbitrators' fees with one of New York's leading arbitrators, who is also a user of the system, he suggested that arbitrators should go back to earlier custom and state their fees in the body of the award and not as it is done now in the unpublished appendix. I agree it would be a step towards accountability and peer review.

These issues should be of concern to the users and providers of arbitration. In conclusion, it is difficult to do better than paraphrase Bruce Harris once more. "Arbitration is a good thing- we must be careful to nurture it and to ensure that it is not killed by others or by ourselves." Aesop couldn't have put it better.