Investment treaty forum
London 8 september 2006
Arbitrators' Independence, Impartiality and Duty to Disclose in Investment Arbitration
Loretta Malintoppi
Eversheds, Paris
Over the last few years, the debate regardingconflicts of interest and impartiality of arbitrators in the field of investment arbitration has become quite lively. This,in my view, is due more to the extraordinary growth in investor-State disputes than to a major increase in the number of arbitrators' challenges. I am not aware of statistics specific to investor-State arbitration on this point, but I find it significant that, according to the most recent ICC statistics (which include investment disputes), the 40 challenges which were brought before the ICC Court in 2005 concerned 21 cases. This means that the same party advanced several objections to arbitrators within the same case. In particular, in one arbitration, the same party challenged the entire tribunal three times and the President once, with a separate request. However you read the situation, this is a lot of challenges.
It is also telling that only 2 of the 40 challenge requests submitted to the ICC Court in 2005 have been accepted. One could infer from that that,with arbitration becoming more wide-spread and more practitioners from different legal cultures getting involved in this field, more questionable objections to the appointment or confirmation of arbitrators are being raised. However, at least in the ICC's experience, very few challenge requests are normally upheld by the Court, and in fact the average number has not changed over the last ten years.
The landscape of international arbitration has undoubtedly changed with the proliferation of investment treaty disputes. First of all, these cases involve States and therefore represent quite a different ball game than conflicts between private commercial parties. As a result, investment arbitration has not only become acommon professional ground where Public and Private International Law practitioners meet, it is alsoattracting the attention of the non-specialised press in a way that commercial arbitration never has.This has inevitable consequences also for the individuals that are called to decide these disputes.
Arbitrations with State parties have political and economic implications that go beyond the parties and the legal context of a given dispute and may have an impact on the interests of the international community. Investment arbitrators are one of the main safeguards of the integrity of the system;if an arbitrator does not disclose a conflict of interest which may have validly disqualified him/her from sitting on the panel, this can lead to the annulment of the award, often years after the proceedings were initiated and great expenses were incurred. In the circumstances, it seems fully justified to ask arbitrators to live in glass houses.
It is legitimate to ask whether thereis some specific requirement for arbitrators in the field of investment arbitration, above and beyond what is required in commercial arbitration, when it comes to their impartiality and independence.After all, all arbitrators (whether they serve in investment or commercial arbitrations) have to be independent and impartial and must be perceived as being independent and impartial. In other words, a test of objective impartiality must be met - e.g.whether a "fair-minded observer" would find that there is a real likelihood of bias in the circumstances of a given case (See R v Gough [1993] AC 46 (House of Lords).The question arises whether in investor-State disputes the bar needs to be raised any higher or not.
It is true that investment arbitrators have the additional responsibility of an award which may have over-reaching implications thatgo beyond the case at hand. An investment award is likely to be published and to influence subsequent cases. Although there is no rule of precedent in international law, and no hierarchy of international tribunals, awards in the field of investment arbitration tend to be cited copiously by litigants in investment disputes, particularly when they are rendered within the institutional framework of ICSID or NAFTA. Accordingly, they are relied uponby practitioners and tribunals as forming part of the growing body of investment case law, not unlike the decisions of permanent judicial organs, such as the International Court of Justice. The authoritative force of these awards is all the more enhanced by the fact that investment tribunals are called upon to decide similar legal issues, notably at the jurisdictional phase, the interpretation of similar treaties and the appreciation of frequently similar governmental actions.
The fact that in practice investment arbitration tribunals rely on a kind of jurisprudence constante is a welcome developmentin itself, but it is also one of the factors that have led to a phenomenon which is more particular to investment arbitration: i.e. challenges of arbitrators who have acted as counsel (or as arbitrator) in another dispute of a similar character and have adopted in that context certain positions regarding issues which are common to both disputes. The rationale of these challenges is that the arbitrator in question may not be able - or may not be perceived to be able - to maintain a totally unbiased approach to the same issues in the case where he or she is called to act as an arbitrator.
In commercial arbitration, normally the mere fact that an arbitrator may have represented a party as counsel in a different dispute involving different parties but dealing with related legal issues does not provide sufficient grounds for the non-confirmation or challenge of that individual. Other elements are generally necessary for a challenge to be successful, particularly if the circumstances of the case are such that the principle of equality of treatment between the parties and general principles of due process may be jeopardised.
Ultimately, it boils down to the French notion of indépendence d'esprit: can an individual who has been appointed to decide certain legal issues maintain a neutral stance vis-à-vis the case if that individual is also acting as counsel in a separate arbitration (even if it involves different parties) where the same, or similar, legal issues play a central role? Is that arbitrator capable of ignoring the possible impact of his/her decision in a given case on another case in which he/she acts as advocate on behalf of a party?
This situation is not entirely dissimilar from that of a challenge based on an opinion previously expressed by an arbitrator in an article, a speech or a legal opinion. There may be a duty to disclose this, but it may not be enough to disqualify the arbitrator, unless of course the arbitrator has taken a position on the specific matter in dispute.
An instructive example of this is provided by an arbitration conducted under the UNCITRAL Rules, the Canfor Corp. v. United Statescase. In that case,the claimant, a Canadian softwood lumber producer, argued that certain measures adopted by the U.S. Department of Commerce and the U.S. International Trade Commission imposing anti-dumping and countervailing duties on softwood imported from Canada, violated the NAFTA investment chapter.[1] The arbitrator appointed by the claimant disclosed that - prior to his appointment - he had given a speech to a Canadian government council where he commented on a preliminary determination of the U.S. International Trade Commission that the U.S. softwood lumber industry was threatened with material injury by imports from Canada of softwood lumber. The United States objected to his appointment on the grounds that his comments revealed that his judgment was biased in favour of the claimant and, accordingly, he was not in a position to decide the case independently and impartially. The Secretary-General of ICSID,called upon to decide the challenge, informed the parties and the tribunal that it would uphold the challenge if the arbitrator did not withdraw. The arbitrator resigned and no formal decision was taken.
In practice, deciding what needs to be disclosed is not always an easy task. Little guidance is provided by existing arbitration rules. The new amendments to the ICSID Rules, which have become effective on 10 April 2006[2], have expanded the disclosure requirements under ICSID Arbitration Rule 6(2) and Article 13(2) of the Additional Facility Rules to include "any circumstances likely to give rise to justifiable doubts as to the arbitrator’s reliability for independent judgment". In my view, this new language may widen excessively the obligation to disclose and lead to unnecessary debates on the interpretation of circumstances that might cause the arbitrator'sreliability for independent judgment to be questioned by a party. This may also result in more challenges.
A welcome development is that it was also agreed to amend the ICSID Rules by extending the duty to disclose to the entire duration of the arbitral proceedings.
The IBA issued Guidelines on Conflicts of Interest in June 2004, which have usefully filled an existing vacuum since they are now widely referred to by practitioners and often cited by tribunals. If the Canfor challenge had to be resolved under these Guidelines, the answer would be provided by the Orange List. As it is known, the Orange List is a non-exhaustive enumeration of specific situations which (depending on the facts of a given case) may give rise to justifiable doubts in the eyes of the parties as to the arbitrator’s impartiality or independence and which the arbitrator has a duty to disclose.More specifically, the IBA's Orange Listprovides for disclosure when an arbitrator publicly advocates a specific position "regarding the case that is being arbitrated, whether in a published paper or speech or otherwise".[3]It should also be clear that disclosing potentially objectionable facts does not necessarily lead to a disqualification of the arbitrator. The opposite is more often the case: if an objectionable situation is not disclosed by the arbitrator, this may affect the parties' trust in his/her capacity to maintain an objective and impartial approach to the case.
However useful, the IBA Guidelines nonetheless remain the product of a professional lawyers' association and do not have the status and authority of an official text. But the times do not seem ripe, at least in ICSID quarters, for an institutional code of ethics since the idea of a "code of conduct" for investment arbitrators proposed by the Secretariat in the Fall of 2004 was not implemented.
Other issues still remain to be addressed. For reasons of time, I will focus only on one: who decidesa challenge? Some answers are provided by existing rules. Under Article 58 of the ICSID Convention, the other members of the Tribunal will decide on a challenge and, if they are unable to take the decision or are divided on the matter, or if the proposal to disqualify concerns a sole arbitrator, the President of the World Bank (who is the Chairman of the Administrative Council) will decide. If a decision on a challenge is made by the other members of the same panel, this may have the undesired effect of putting the unchallenged arbitrators in a difficult position, particularly when their decisions, and the motivations contained therein, are published. This may also be perceived by the outside world as protecting the interests of a group of specialists, which is already sometimes perceived as being a "Members only" club with limited access. However, the discussion on this point is largely academic since this practice is based on an article of the ICSID Convention and, as such, it is unlikely to be modified.
Under Article 12(1) of the UNCITRAL Rules, the decision on a challenge is made by the institution chosen as the appointing authority. In the absence of a specific choice provided by the parties, the Secretary-General of the Permanent Court of Arbitration will designate an authority to decide the challenge.
Under the ICC Rules, it is the International Court of Arbitration that considers and decides on the admissibility and, if necessary, the merits of a challenge (and also issues relating to the appointment, confirmation or replacements of arbitrators). However, the ICC Court does not communicate the reasons for its decisions (Art. 7(4)).This is mandatory language: the reasons for the Court's decisions "shall not be communicated". The Arbitration Institute of the Stockholm Chamber of Commerce ("SCC") also does not give reasons for its decisions, selections of which are published from time to time, as is also the case for the ICC Court.[4]
The LCIA has a similar provision, Article 29, with an important difference. Under this article, the LCIA's decisions are administrative in nature and the Court is "not required to give reasons for its decisions". The LCIA has always given written reasons on challenges and provided them to the parties and the arbitrators, but not to the public at large. With its recent announcement that it will publish its decisions on challenges of arbitrators, the LCIA has also made known that nothing in the LCIA Rules prevents the publication of decisions on challenges and that - in any event - confidentiality and transparency are not irreconcilable (LCIA News, Vol. 11, Issue 2, June 2006, p. 2). The LCIA has accordingly decided to publish abstracts of all its decisions, and not just a selection of them.I understand that the decisions published may be "sanitized", in other words, the names of parties, counsel and arbitrators, and presumably the LCIA members who make the judgment call, will be removed. In my view, the initiative of the LCIA will provide practitioners with invaluable insight on how to assess and resolve conflicts of interest rather than encourage more challenges, as some fear.
Identifying the entity that will decide the challenge is an important point which is often overlooked in ad hoc arbitration. As mentioned earlier, under the UNCITRAL Rules, in the absence of a specific stipulation by the parties, the Secretary-General of the Permanent Court of Arbitration will designate an authority to decide the challenge. Nevertheless, not all ad hoc arbitrations have the benefit of pre-arranged procedural rules, such as the UNCITRAL Rules, and it may in any event be preferable for the parties to retain control over such an important decision.
Recently, there have been at least two notable examples of challenges of arbitrators brought before national courts, with consequent delays and procedural complications. This existing uncertainty leads me to conclude that the days of informal ad hoc solutions may be over, and that there may be a genuine need for a comprehensive authoritative solution to the ethical questions concerning the international Bar and Bench. For discussion purposes here, one possibility could be to consider the establishment of a neutral administrative body playing a similar role to that fulfilled by the ICC and LCIA Courts - some kind of "Challenge Facility" for investment arbitrations. It may also be considered that the decisions of this body be motivated and published on a regular basis. A number of questions would need to be answered beforehand: questions relating to the appointment and composition of such a body, its location and the institutional arbitration or rules under which it would operate, etc.
In my view, in the global village of international arbitration, none can be immune from these issues. It is ultimately our responsibility to ensure that the process is transparent and above suspicion. If that fails, it is not just our reputation and interests that are at stake, but those of the fair administration of international justice.
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20 August 2006malintl
[1]Documents relating to this case can be found at For a discussion of this case and the arbitrator's challenge, see B. Legum, "Investor-State Arbitrator Disqualified for Pre-Appointment Statements and Challenged Measures" in Arbitration International, Volume 21, No. 2, pp.241-245.
[2]Under Article 44 of the ICSID Convention, unless agreed by the parties, an ICSID arbitration is conducted in accordance with the Rules in effect on the date on which the parties consented to arbitration.
[3]IBA Guidelines Orange List 3.5.2.
[4]A. Magnusson and H. Larsson, "Recent Practice of the Arbitration Institute of the Stckholm Chamber of Commerce Prima Facie Decisions on Jurisdiction and Challenges of Arbitrators", Stockholm Arbitration Report 2004, p. 2. The latest report published by the ICC appeared in 1995: D. Hascher, "ICC Practice in Relation to the Appointment, Confirmation, Challenge and Replacement of Arbitrators", ICC Bulletin Vol. 6, 2 November 1995.