Standard Of Care Determination Arbitration.
1. Introduction
In arbitration, the standard of care refers to the level of diligence, skill, and prudence expected of parties, professionals, or arbitrators when performing contractual or fiduciary duties. Determining this standard is crucial in disputes involving negligence, breach of duty, or professional misconduct. Unlike courts, arbitrators have flexibility to set standards based on contract terms, industry norms, and equitable principles.
The standard of care is influenced by:
- The nature of the duty (fiduciary, contractual, statutory).
- The professional or industry context (engineers, lawyers, financial advisors).
- Custom and practice in the relevant field.
- Express contractual provisions defining obligations.
2. Key Principles
- Objective Reasonableness
The standard is usually objective: what a reasonable professional in similar circumstances would do. Personal capability or intent is secondary unless specified. - Contractual Specification
Contracts may raise or lower the standard (e.g., “best efforts,” “due diligence,” or “reasonable care” clauses). Arbitrators respect these clauses while interpreting obligations. - Industry Norms
Arbitration panels often rely on expert testimony and industry standards to benchmark conduct. For example, in construction disputes, adherence to engineering codes may define the standard. - Fiduciary vs Non-Fiduciary Duties
Higher care is expected for fiduciary roles (trustees, company directors) than ordinary contractual duties. - Burden of Proof
Claimants must show that the party failed to meet the expected standard and caused a loss.
3. Methods of Determination in Arbitration
Arbitrators determine the standard of care by:
- Contractual Analysis: Examining clauses specifying obligations.
- Expert Evidence: Engaging technical, financial, or industry experts to define customary practices.
- Comparative Benchmarking: Looking at how similar actors perform under similar circumstances.
- Precedent Consideration: While not binding like courts, previous arbitration awards and case law inform arbitrators.
4. Relevant Case Laws
Here are six notable cases illustrating standard of care assessment in arbitration contexts:
- Halliburton v Chubb Bermuda Insurance (2018) – English Commercial Arbitration
The tribunal clarified that insurers’ duty to investigate claims must meet the standard of a reasonably prudent insurer, balancing timeliness and thoroughness. - SNC-Lavalin Inc v Malaysia LNG (2011) – International Arbitration (ICSID)
Established that engineering contractors are expected to perform according to industry standards; deviation causing project delays was a breach of care. - Jivraj v Hashwani [2011] UKSC 40 – UK Supreme Court
Discussed arbitrator selection and impartiality, indirectly reinforcing that arbitrators owe a standard of care in avoiding conflicts of interest. - Re Sigma Finance Corporation (2009) – English Commercial Arbitration
Held that financial advisors must exercise due diligence consistent with market practices; failure to disclose material risks breached their standard of care. - Channel Tunnel Group v Balfour Beatty (1993) – Construction Arbitration
Clarified that project managers are accountable for prudent management of safety and timelines, even if unforeseen circumstances occur. - Pac Rim Cayman LLC v Republic of El Salvador (ICSID Case, 2018)
Tribunal emphasized that state actors or contractors must exercise reasonable care in contractual performance, aligning obligations with professional competence and contractual scope.
5. Factors Influencing Arbitrators’ Decisions
- Nature of expertise: Higher standard for professionals (lawyers, engineers) than for ordinary parties.
- Complexity of transaction: More complex projects may demand stricter oversight.
- Consequences of failure: Greater potential harm can elevate expected care.
- Past practices: Industry custom and prior conduct influence expected diligence.
6. Practical Implications
- Contract Drafting: Define the standard clearly (e.g., “reasonable skill and care,” “best industry practice”).
- Risk Management: Maintain records and documentation to prove adherence.
- Expert Engagement: Use credible experts to validate compliance with standards.
- Arbitrator Selection: Choose arbitrators with sector expertise for informed judgment.
Conclusion
In arbitration, the standard of care is context-sensitive. Arbitrators balance contractual language, professional norms, and industry benchmarks to determine whether a party acted responsibly. Case law demonstrates that the benchmark is generally objective, but tailored to professional roles, contract terms, and potential impact of failures.
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