To Reason or Not to Reason: Should Arbitral Institutions Justify Their Refusals to Appoint Arbitrators? – Lithuanian Perspective

It is commonly agreed that arbitration is only as good as the arbitrators. When nominating an arbitrator, a party counts on their expertise, reputation, or views expressed in doctrine. Therefore, a party might be caught off guard when, after a thorough shortlisting of numerous candidates, the arbitral institution rejects its ultimate nomination, forcing it to undergo the entire process anew. What may especially frustrate is the arbitral institution’s reluctance to justify its decision. As a result, the party remains merely second-guessing the criteria the arbitral institution takes into account while exercising its discretion.   

The Arbitration Rules of the most renowned arbitral institution in Lithuania, the Vilnius Court of Commercial Arbitration (the “VCCA”), are no exception in this regard. According to Article 19(7) of the VCCA Arbitration Rules, “[t]he Chair of the VCCA shall make a final decision, which is not subject to appeal, regarding the challenge of the arbitrator, by adopting an order which does not require justification.” But does the same logic apply to the appointment objections? Under Article 18(3), the VCCA Chair may, in exceptional cases, refuse to sign an agreement with the arbitrator nominated by the party. As stipulated in Article 17(3), such a decision “shall be final and not subject to appeal.” However, nothing in this provision suggests that the VCCA Chair is not obligated to justify their decisions to refuse to sign an agreement with an arbitrator, just as they do with their decisions on challenges. Does the difference between the wording under Article 19(7) and Article 17(3) mean that a party is still entitled to the reasons underlying the VCCA’s refusal to confirm a chosen candidate as an arbitrator? This dilemma has been put before the Lithuanian Court of Appeal in Kesko Senukai Lithuania v. Baltic Retail Properties (Case No e2A-200-881/2025), whose position is analyzed below.  

Background of the Case

As aforesaid, there are two stages in which an arbitrator might be dismissed under the VCCA Arbitration Rules. The first one is the appointment, during which the arbitral institution considers whether to confirm a party-nominated arbitrator. The second stage is the challenge procedure, where the arbitral institution examines a party’s objections with regard to the impartiality and qualifications of an arbitrator.

As it stands today, there is no express requirement for the VCCA to justify its administrative decisions on arbitrators’ challenges. To compare, the ICC and LCIA reason their decisions on challenges; however, this is not the case with the decisions to refuse the appointment of a party’s nominee as an arbitrator, which can be issued without reasoning by these two institutions.

Kesko Senukai Lithuania v. Baltic Retail Properties revolved around the lack of reasoning of the VCCA’s decision to reject signing an agreement with a party-appointed arbitrator. In the annulment proceedings before the Lithuanian Court of Appeal, the claimant argued that the objections to the appointment of the arbitrator, raised by the opposing party (and which presumably served as a ground for refusal of the appointment), fell within the scope of the Green List under the IBA Guidelines on Conflicts of Interest and did not constitute an exceptional case in the sense of Article 18(3) of the VCCA Arbitration Rules.

Surprisingly, the Lithuanian Court of Appeal found the absence of justification permissible, relying on Article 19(7) of the VCCA Arbitration Rules that only regulates challenges. The Court of Appeal implied it as a provision encompassing both means to remove an arbitrator: through a decision to refuse signing an arbitration agreement by the institution and the challenge raised by an opposing party (see paras 34-35 of the CoA Decision).

Why Should the VCCA Reason Their Decisions on Arbitrator Appointment?

This decision issued by the Court of Appeal demonstrates that the distinction between appointment objections and challenges might be confusing even for national courts, let alone for litigants.

What adds a layer of complexity in the context of the VCCA Arbitration Rules is the ambiguity of the term “exceptional cases,” as appeared in their Article 18(3). It contrasts with the precise grounds for challenging an arbitrator under Article 19(1) of the VCCA Arbitration Rules, that are: (i) doubts about the arbitrator’s independence, or (ii) the arbitrator’s lack of qualification agreed upon by the parties. In light of this, another question arises whether circumstances, indicated in Article 19(1), may constitute exceptional cases as well.

All in all, the scope of exceptional cases is not precisely limited. Hence, a party has a legitimate interest in understanding the exact reason and procedure behind refuting its choice of an arbitrator. In contrast, given Article 19 of the VCCA Arbitration Rules, although challenge decisions do not require reasoning, parties may have a clearer understanding of the rationale behind them.

In comparison to challenges, the issue of reasoning behind administrative decisions to confirm appointments did not receive much attention. Instead, the international arbitration community has been advocating for reasoning and even publishing of the challenge decisions. As Gary Born points out, this increases predictability and consistency of such decisions, guides parties in responding to them, and reduces the number of spurious challenges. For a while, the LCIA was the only institution that reasoned and published online its decisions with respect to arbitrator challenges. Since 2018, these practices have also been introduced within the SCC Arbitration Institute. It remains out of question that the confidentiality principle is not compromised through publishing because the identities of the parties or arbitrators are not revealed in the text.

Looking Ahead: How Could the VCCA Arbitration Rules Be Reformed?

In a broader context, the procedural outcomes of non-appointment and challenge are alike: the party’s choice of an arbitrator is rejected by an arbitral institution. Subsequently, the considerations of consistency and predictability of challenge decisions apply by the same token to refusals to confirm an arbitrator. This is especially acute in the context of VCCA arbitration, as the term “exceptional cases” lacks precision. Instead, the practice of reasoning administrative decisions would avoid the situation that occurred in Kafka’s “The Trial” novel, where the main character lacked any understanding of the exact content of the accusation brought against him.

In the authors’ opinion, the VCCA Arbitration Rules should require both reasoning and publication of administrative decisions on both appointment refusals and challenges. Such amendments would align the VCCA Arbitration Rules with emerging international practice, calling for greater predictability in the procedural stages of arbitration. Moreover, grounds for refusal of appointment should be strictly circumscribed and precisely listed therein. The rationale for “exceptional cases” could be, for example, the avoidance of fraudulent-looking arbitration, where the parties appoint arbitrators whose identity is clearly associated with their nominators (like an entity’s directors, members of its supervisory board, employees, etc.). Therefore, the circumstances outlined in the Non-Waivable Red List of the IBA Guidelines may serve as an inspiration for the development of the VCCA Arbitration Rules.

Such changes should introduce the role of the VCCA Chair as the initial “filter” in matters of arbitrators’ independence. In the meantime, the parties must still remain the core players in the constitution of the arbitral tribunal, raising their concerns regarding arbitrator impartiality and qualifications by using the challenge mechanism.