Independence and Impartiality of Arbitrators

Arbitration has long been recognized as a well-established alternative to court proceedings, especially, in international business matters. As an alternative judicial mechanism, arbitration is governed by the prevailing principle of “due process” to ensure a certain level of justice and the fair and equal treatment of the parties.[1] One of the best examples to illustrate this principle concerns the selection and appointment of arbitrators by the parties.[2] Although the parties are free to individually agree on the appointment process, it is generally accepted that the appointed persons must be independent and impartial.[3]Independence generally refers to private, professional or business-related relationships of the arbitrator to the parties or counsels involved in the arbitration.[4] The requirement of impartiality concerns the subjective stance of an arbitrator towards the parties, their counsels or the dispute in question.[5]

The IBA Guidelines[6] specifically target relevant factors for the determination and disclosure of potential conflicts of interest. In detail, they provide for an extensive catalogue of typical situations of bias and indicate whether an arbitrator should disclose such situations or not. However, the IBA Guidelines are also be subject to certain limitations. Since arbitrators are regularly confronted with the difficult task to identify and disclose potential conflicts of interests, this article shall highlight examples of certain legal and practical challenges.

Legal limitations

First, it can be noted that the IBA Guidelines may have a limited scope of application depending on the applicable (international) legal framework. The principle of independence and impartiality can be considered as a fixed component of most national jurisdictions, institutional arbitration rules as well as other international frameworks on alternative dispute resolution.[7]One of the most significant international policies is the UNCITRAL Model Law on International Commercial Arbitration (Model Law).[8]The Model Law generally follows the IBA Guidelines and imposes the obligation of arbitrators to disclose any situations “likely to give rise to justifiable doubts” as to their impartiality or independence.[9]A further important legal framework in the area of state investment arbitration is provided by the ICSID Convention on the settlement between states and nationals of other states (ICSID Convention).[10] The ICSID Convention significantly deviates from the “justifiable doubts” standard. Persons designated to serve on panels shall be “persons of high moral character and recognized competence in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment”. Provided that an arbitration is held under the ICSID or a similarly deviating framework, arbitrators should, therefore, consider that the IBA Guidelines will typically provide only limited assistance for determining potential disclosure obligations.[11]

Another example of a potential legal limitation concerns potential confidentiality obligations of the arbitrator. In detail, a disclosure would be impossible when such arbitrator is bound by confidentiality obligations in relation to circumstances stated by the IBA Guidelines. These situations would particularly concern the disclosure of privileged and confidential attorney-client relationships by the arbitrator.[12] To solve this conflict, the American Bar Association noted, for instance, that “at the outset of the disclosure process, arbitrators must consider confidentiality issues ― that is, arbitrators have potentially conflicting obligations of confidentiality and disclosure”.[13] The IBA Guidelines, on the other hand, do not specifically address this issue but generally provide for the precedence of disclosure in the case of any doubts on the disclosure requirement.[14] A conflict between the confidentiality obligation and the requirement to disclose certain situations (even, if in doubt whether a disclosure is actually required) could, therefore, ultimately result in the arbitrator being forced to deny the appointment or withdraw from the position as arbitrator.

Practical Limitations

The IBA Guidelines are also subject to certain practical limitations. A major practical issue refers to the non-binding (soft-law) character of the IBA Guidelines and the question of the required depth and intensity of concerned relationships. In the case W Limited vs. M SDN BHD,[15]for instance, the UK High Court of Justice ruled on the challenge of an arbitrator based on regular legal services rendered by the law firm of the arbitrator to an affiliate of one of the parties in question. The arbitrator was not involved in the legal representation and did not disclose the situation to the parties. Although the court admitted that the situation is clearly covered by item 1.4 of the non-waivable red list of the IBA Guidelines, the court held that the concerned situation does not raise any doubts on the independence of the arbitrator. Therefore, situations provided by the IBA Guidelines must not necessarily lead to the disqualification of an arbitrator. Each case needs to be assessed on a case-by-case basis,[16]which makes it difficult to near impossible for a concerned arbitrator to securely assess whether there is an obligation to disclose or not.

Conclusion

Summarized, it can be concluded that the IBA Guidelines provide for a very useful tool to identify potential conflicts of interest and determine whether a disclosure by the concerned arbitrator is required. However, the application of the IBA Guidelines is also dependent on certain legal and practical limits, which must be considered by arbitrators and practitioners in connection with the appointment of qualified arbitrators.

[1] Alan Redfern, Martin Hunter, Nigel Blackaby and Constantine Partasides, Law and Practice of International Commercial Arbitration(4th edn, Sweet & Maxwell 2004)6-06.

[2] See Georgios Dimitropoulos, ‘Constructing the Independence of International Investment Arbitrators: Past, Present and Future’ (2016) iCourts Working Paper Series No 51 < https://ssrn.com/abstract=2765353 > accessed 5 April 2018.

[3] See James Ng, ‘When the Arbitrator Creates the Conflict: Understanding Arbitrator Ethics through the IBA Guidelines on Conflict of Interest and Published Challenges’ (2016) 2/1 McGill Journal of Dispute Resolution 23, 24 < https://ssrn.com/abstract=2811192 > accessed 5 April 2018.

[4] See Bruno Manzanares Bastida, ‘The Independence and Impartiality of Arbitrators in International Commercial Arbitration from a Theoretical and Practical Perspective’ (2007) 6 Revist@ e-mercatoria 1, 3 < https://ssrn.com/abstract=1491528 > accessed 5 April 2018.

[5] Ibid4.

[6] IBA Guidelines on Conflicts of Interest in International Arbitration (adopted by resolution of the IBA Council on Thursday 23 October 2014) (IBA Guidelines).

[7] See Leela Kumar, ‘The Independence and Impartiality of Arbitrators in International Commercial Arbitration’ (2014) Chapter 4 < https://ssrn.com/abstract=2428632 > accessed 5 April 2018.

[8] UN Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration 1985 (UN Doc A/40/17) with amendments adopted in 2006 (Model Law) < https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf> accessed 5 April 2018.

[9] Model Law, art 12 (1).

[10] Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 575 UNTS 159 < https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%20Convention%20English.pdf > accessed 5 April 2018 (ISCID Convention); ICSID Rules of Procedure for Arbitration Proceedings < https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%20Convention%20English.pdf > accessed 5 April 2018(ICSID Rules)

[11] See Nathalie Bernasconi-Osterwalder, Lise Johnson and Fiona Marshall, ‘Arbitrator Independence and Impartiality: Examining the Dual Role of arbitrator and counsel’ (2011) International Institute for Sustainable Development (IISD) 12 < http://www.iisd.org/pdf/2011/dci_2010_arbitrator_independence.pdf > accessed 5 April 2018.

[12] See IBA Guidelines, part II (2.3.1), (2.3.2), (2.3.6) and 2.3.7, part II (3.1) and (3.2).

[13] ABA, ‘Disclosures for Arbitrators in Domestic Commercial Disputes: A Checklist’ (April 2009) 10 < https://www.americanbar.org/content/dam/aba/migrated/dispute/docs/DisclosureChecklist.authcheckdam.pdf > accessed 5 April 2018.

[14] Any doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure (IBA Guidelines, part I (3) (d).

[15] W Limited v M SDN BHD(Case No CL-2015-000344).[16] Also, the IBA Guidelines generally limit the role of the arbitrators’ law firm in relation to a potential disclosure requirement to be reasonably considered on a case-by-case basis (Bernasconi-Osterwalder et al (n 27) 31; IBA Guidelines, part I (6) (a).