The Arbitrator Selection Process and New Ethical Standards

By Shampnoi, Elizabeth | The CPA Journal, December 2005 | Go to article overview

The Arbitrator Selection Process and New Ethical Standards


Shampnoi, Elizabeth, The CPA Journal


Disputes are an inevitable reality of day-to-day business practice that corporations, individuals, and government agencies face. Unfortunately, such disputes often lead to wasted time and money during the course of a lengthy litigation. Alternative dispute resolution (ADR) techniques, such as mediation and arbitration, have been utilized by the accounting profession for decades, and such methods of resolution continue to gain in popularity. ADR encompasses a range of flexible, economical, private, fast, and impartial processes for handling disputes that accounting professionals face, such as disagreements over fees, performance, partnership dissolutions, and breaches of contract, as well as disputes over sales or purchases, employment, construction, and real estate.

By its nature, the arbitration process allows parties to avoid the delay, expense, and formalities associated with litigation. Arbitration is a forum in which the parties can control the process. They can control the range of issues to be decided, the scope of relief to be awarded, the qualifications of the neutrals, and many of the procedural aspects of the process. Arbitration is generally a less formal proceeding than litigation, and discovery is limited, as compared to the protracted discovery in litigation that tends to be timeconsuming, costly, and often unnecessary. Arbitration is also private and confidential. Another advantage of ADR processes, particularly mediation, is their ability to preserve business relationships.

Options in Arbitrator Selection

One of the primary advantages of arbitration often cited by parties is the ability to choose a decision maker with expertise that mirrors the nature of the dispute. In arbitration, parties can mutually agree upon who will serve as their arbitrator. Because arbitrator selection is pivotal to the quality and outcome of the proceeding, careful consideration should be given to how the arbitrator will be selected, how many are needed, and their specific qualifications.

Arbitrators are recognized for their standing and expertise in their fields, their integrity, and their dispute-resolution skills. By using an experienced arbitrator, the parties can avoid extraneous matters and get to the heart of the issue much sooner, saving both time and money, because there is no need to educate the arbitrator about the field of the dispute.

First, the parties must determine how many arbitrators will be appointed to hear the dispute. A single arbitrator is frequently chosen for small and mid-size cases, while for larger, more complex matters, parties may prefer a panel of three arbitrators. A "less is more" attitude may be advantageous when choosing the number of arbitrators to serve. For example, three arbitrators may lead to a loss of efficiency and economy of the process, depending on the nature of the case. It is often difficult for parties and their counsel to agree on mutually convenient dates, and scheduling may become difficult with three arbitrators.

Furthermore, the use of CPAs, lawyers, and judges with substantial experience in a given field or industry, or the combination of three individuals with diverse backgrounds, may alter how a hearing is conducted and affect how a dispute is considered and analyzed. In larger and more complex cases, three experienced arbitrators with diverse backgrounds may enhance the breadth of the decision-making process.

Once the parties are prepared to select the arbitrators, they should attempt to mutually agree on the appropriate individual for their case. In a highly contentious case, however, this is not always possible. When parties cannot agree, they may opt for the strike and rank method, outlined in R-11 of the American Arbitration Association's (AAA) Commercial Arbitration Rules and Mediation Procedures (available at www.adr.org). This method begins with the parties providing the case manager with the qualifications they are seeking in an arbitrator. …

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