Revised Code of Ethics for Commercial Arbitrators Explained

Article excerpt

Both the AAA and the ABA House of Delegates Have Approved the Revised Code

The revised Code of Ethics for Arbitrators in Commercial Disputes brings the 1977 Code more in line with modern practice. This article is adapted from the Report to the House of Delegates of the American Bar Association recommending adoption of revisions to the Code.

About a quarter century ago, a small group of arbitrators and practitioners, representatives of the American Bar Association and American Arbitration Association, met over a long weekend, under the leadership of Judge Howard Holtzmann, to draft an important statement defining ethical duties for arbitrators in commercial disputes.1 Their effort became the 1977 AAA-ABA Code of Ethics for Arbitrators in Commercial Disputes (the 1977 Ethics Code). It has proved to be an invaluable ethical framework for arbitrators and others involved in the dispute resolution field.

Many federal and state courts have cited the 1977 Ethics Code with approval as providing the preeminent definition of standards of conduct in the field.2 The 7th Circuit was careful to note, however, that the Code does not have the force of law: "Although we have great respect for the Commercial Arbitration Rules [of the AAA] and the Code of Ethics for Arbitrators, they are not the proper starting point for an inquiry into an award's validity.... The arbitration rules and code do not have the force of law."3

Because the practice of arbitration has developed significantly since 1977, committees of the ABA and representatives of the AAA began to review whether changes in the laws governing arbitration, the increasing globalization of commercial transactions, and changes in the public perception and expectations of arbitration required revisions to the 1977 Ethics Code. The ABA efforts were aided by representatives of the CPR Institute for Dispute Resolution, the College of Commercial Arbitrators, and the National Arbitration Forum.

After several years of study and negotiations, agreement was reached by a joint ABAAAA working group on a proposed revision (the 2004 Revision).4 The Executive Committee of the AAA Board of Directors approved the 2004 Revision at its September 2003 meeting, and it is anticipated that the ABA BB House of Delegates will approve the revisions at the ABA Mid-Year Meeting in February 2004.5 Assuming that occurs, the 2004 Revision will become effective March 1, 2004.

The 2004 Revision preserves the style and format, and much of the language, of the 1977 Ethics Code. It is called a revision, rather than a new document, to signal its continuity with the many unchanged provisions of the 1977 Ethics Code and respect for the degree of judicial acceptance that it has achieved. All provisions of the 2004 Revision are subject to any contrary principles that may be found in governing law or applicable arbitration rules and also to the right of the parties to any arbitration to reach agreement on different rules and standards.

Presumption of Neutrality

The most fundamental and far-reaching change contained in the 2004 Revision is the application of a presumption of neutrality to all arbitrators, including party-appointed arbitrators. By contrast, the 1977 Ethics Code presumed that the party-appointed arbitrators to a three-person panel (tripartite arbitration) would not be neutral.6 This meant that, in practice, they were not only free to act as advocates for the positions of the party that appointed them, they were expected to act that way. Under the 7.977 Ethics Code, party-appointed arbitrators were to be considered "nonneutral unless both parties inform the arbitrators that all three arbitrators are to be neutral or unless the contract, the applicable arbitration rules, or any governing law requires that all three arbitrators be neutral." 7 Thus, absent contrary indications in the parties' agreement, the governing law or arbitral rules, the default rule was that all party-appointed arbitrators were considered nonneutral when no agreement for their neutrality had been made. …