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Independence and Impartiality in International Arbitration – an assessment.
Naser Alam
National Commissioner, International Chamber of Commerce Bangladesh
1. INTRODUCTION
The impartiality and/or independence of an arbitrator are essential features of this quasi-judicial process. But as arbitrators are often closely involved in the market that appoints them, apart from the scrutiny of their judge – like role, issues of them being partial, biased, pre-disposed and being interested in the outcome of the arbitration arise. The long-standing norms that no one should be a judge in his own cause and that justice should be seen to be done apply equally to international arbitration. This paper attempts to address some of the issues those underlie the concepts of impartiality and/or independence and in doing so would specifically seek to answer the questions posed.
PART I
2. WHY DOES INTERNATIONAL ARBITRATION SEEK TO HAVE ARBITRATORS WHO ARE IMPARTIAL AND/OR INDEPENDENT?
2.1 Reasons of ethics and public policy
Every action at law has a moral dimension.[1] Be it morality, ethics, code of conduct or ordre public, the sense of being able to get justice or the sense of being able to do justice has been the prime focus of all modern forms of legal systems. Questions of fairness, impartiality and independence have grave implications and “It matters how judges decides cases.”, said Ronald Dworkin. He continued that ‘if the judgment is unfair, then the community has inflicted a moral injury on one of its members.’[2]
International arbitration is no exception to these ethical norms. The consensual process of arbitration giving the parties autonomy to choose the arbitrator does not allow them to dictate the process of fairness or to avoid arbitration being subject to the underlying norms of justice of any national or international law. Party autonomy is not absolute. It has been commented that:
“In the field of international commercial arbitration, party autonomy is restricted by ordre public: both at the challenge stage and at the enforcement stage, it is provided that an award can be set aside or, respectively, its enforcement refused, if the award is in conflict with the public policy principles of the court in question’s lex fori.”[3]
In other words, if the parties were allowed to negotiate on the issues of bias and independence, the judicial nature of the process would be tainted with unjustness and could result in a social stigma. It is more or less commonplace now that if an award is binding[4] it is capable of enforcement as if it is a decision of a court of law. The implication of this enforcement process underlies that a state would not create legal nightmare by allowing awards to be enforced in favour of the winning party, where the award has been tainted with bias or partiality. If it were to happen, it would literally mean enforcement of legal right derived through moral wrong. Moreover, public policy requires arbitrators to be not only be impartial but also not to have connection with the parties or the dispute, which might give the appearance of their being biased.[5]
Further, the ethical connotation for seeking to have an impartial and/or independent arbitrator has been highlighted in the following statement:
“ ….the perceived legitimacy of the international arbitral process cannot be greater than the degree of confidence that litigants have in ethical standards of arbitrators.”[6]
2.2 Parties’ objectives
In international arbitration, the parties desire to get their dispute settled by an effective, less costly, fair and binding process. These purposes could be frustrated if the arbitrator acts in a biased and partisan way, as the eventual award may be subject to challenge and it is, therefore, imperative that the arbitrator’s impartiality and independence be disclosed, “if for no other reason than to preserve the integrity of the future award”.[7] An award rendered by a tribunal, which was biased and not independent, would usually be refused enforcement or be set aside on ground of public policy.[8] Thus, the parties would seek to have arbitrator who is impartial and/or independent from the outset and throughout so that substantial cost is not wasted if he were to be replaced.[9]
2.3. International acceptance
Reliance on arbitration as an institution by the international business community is characterized by three principal advantages, e.g., quickness, inexpensiveness and finality. An international arbitration award is more international than a decision of many national courts. It is viewed as a “medium disempowering national laws to be displaced by alternative legal regimes.”[10] This international characterization of arbitration as a separate legal regime presupposes that international arbitration institutions try to meet the expectations of the international business community for independent and neutral tribunals. Otherwise, party’s confidence on the arbitration system would be seriously dented.
2.4 Requirements under a body of international arbitration instruments
Given the ethical considerations and the objectives of international arbitration as an international quasi- judicial process, to preserve its sanctity in the international domain, a matrix of rules have been established and these rules now govern the conduct of arbitrators in different institutional and ad hoc settings.[11] In coherence with these rules of arbitrations and code of conduct of arbitrators, national laws of major international arbitration avenues set down laws and legal principles which make it imperative that in international arbitration, an arbitrator is impartial and/or independent.
PART II
3. IS THERE ANY DIFFERENCE BETWEEN THESE TWO CONCEPTS?
3.1 Impartiality
Impartiality has not been defined clearly but the opposite term ‘partiality’ has been used to signify the meaning of impartiality to include bias of an arbitrator either in favor of one of the parties or in relation to the issues in dispute.[12] Other commentators also used terms like “bias and prejudice”[13] and went on to say that it refers to ‘a state of mind’. No definition has been attempted by the UNCITRAL Arbitration Rules neither by the UNCITRAL Model Law. Instead, they provide that an arbitrator should be impartial and if there are ‘justifiable doubts’ as to their impartiality, they may be removed. The IBA’s Ethics for International Arbitrators notes that,
“Partiality arises where an arbitrator favors one of the parties or where he is prejudiced in relation to the subject-matter of the dispute.”[14]
Thus, impartiality could be stated to involve circumstances in relation to an arbitrator and a party to the proceeding, which will import concepts of bias and will, therefore, likely to impair the fairness of the process of arbitration. Bias could either be actual or imputed bias. While actual bias is difficult to prove, proof of imputed bias relies on the concept of the existence of justifiable doubt.
Under the UNCITRAL Arbitration Rules,[15] UNCITRAL Model Law,[16] LCIA Rules[17] existence of ‘justifiable doubt’ would suffice. Under English law, justifiable doubt would be proved if ‘a real danger of bias’,[18] is shown; under US law, ‘evident partiality’[19] needs to be proved. In any case, the test is an objective one and not a subjective one, i.e., would a reasonably well-informed person believe that the perceived apprehension, the doubt, is justifiable? Subjective impression of one of the parties cannot suffice.
The interpretation of justifiable doubt has been influenced by many factors including the need for expert men in arbitration, the role of party-appointed arbitrator, commercial reality and the like. It is, therefore, vital in determining impartiality to consider the nature of relationship the arbitrator has or had with a party.
Leaving aside the doubts, in the following instances a challenge on impartiality of an arbitrator have been made:
- Barristers from the same chamber[20] (would not necessarily establish bias)
- Arbitrator’s comment that ‘Portuguese people were liars’[21] (arbitrator removed)
- Arbitrator being a former official/adviser of the government (different outcome in two different arbitrations)[22]
- Arbitrator acted as consultant previously for a party to the arbitration (fatal if not disclosed in advance)[23]
- Allegation of past partial behavior of the arbitrator (depends on the nature and gravity of behavior)[24]
- Sharing of a hotel room between the chairman of a panel and claimant’s lawyer (may have serious consequences for any award)[25]
- Conferring with a party by the party-appointed arbitrator (not necessarily fatal)[26]
3.2 Independence
An arbitrator is also required to be independent apart from being impartial, except that the ICC Rules of Arbitration require them to be independent only.[27] Independence is measured in terms of the degree of the relationship between an arbitrator and one of the parties, whether financial or otherwise. Independence is determined by applying both objective and subjective tests, but more of subjective in nature.[28]
A clearer example of the nature of independence required has been established by the ICC, which requires each arbitrator to declare whether there exists any past or present relationship, direct or indirect, with any of the parties or any of their counsel, whether financial, professional, social or other kind and whether the nature of such relationship is such that disclosure is called for considering the arbitrator’s independence in the eyes of the parties.[29]
Thus, if an arbitrator has any personal financial interest in the outcome of the arbitration, he is not independent of the party who will benefit from the outcome. An important UK case suggests that the potential benefit has to be direct and significant.[30] More problematic are issues where an arbitrator is appointed from a large law firm, which also advises the client. In such cases the arbitrator may not have been directly involved with the client, but other colleagues in the firm would be and this may raise concerns of financial conflict of interest. Further, family ties or close ongoing commercial ties would tend to suggest dependence of the arbitrator with a party.
3.3 Any difference between impartiality and independence?
The above discussion highlights the conceptual difference between impartiality and independence. Independence involves the relationship between the arbitrator and the parties, whereas, impartiality has more ethical nuance. However, different grounds for a challenge under various Rules of arbitration or arbitration law[31] do not mean that in practice, establishment of the other could ignore any one of the requirements. These concepts are interdependent in many respects, but not interchangeable.[32] For example, an arbitrator’s independence does not necessarily mean that he may be impartial. Again, lack of independence would trigger, in reality, a justifiable doubt as to impartiality. Nevertheless, the contrary may not happen. Here lies the difference between the practical applications of these two concepts. Otherwise, independence is woven into the concept of impartiality.[33]
Moreover, even though ICC mentions the requirement of independent only, but they are still required to act ‘fairly and impartially’.[34] Thus, the conceptual difference is blurred in reality. Similarly, the argument that the difference lies in the timing at which the two concepts are applied[35] does not hold much ground, as the duty of an arbitrator to remain independent is a continuing one.
PART III
4. HOW DOES PARTY-APPOINTED ARBITRATOR FIT THE REQUIREMENT OF IMPARTIALITY AND/OR INDEPENDENCE?
The issue of impartiality and/or independence of party-appointed arbitrators have been the subject of a long debate. Most of the debate arose from the American jurisprudence on impartiality of the party-appointed arbitrators.[36]
The crux of the debate is that in many instances, party-appointed arbitrators are known to the parties, their fees is derived from the party, they may have been briefed by the parties as to the issues and evidence in arbitration and issues arising out of ex parte communication and then it boils down to the question of whether they are ‘negotiating advocate(s), endeavoring to do the best he can for his client’[37]. It has been stated that,
“ Party-appointed arbitrators ….occupy an uncomfortable and ambiguous position – not quite ‘advocates’, perhaps, but not exactly ‘judges’ either.”[38]
This doubt also involves the query as to the need for a three-member panel with one party having a right to nominate an arbitrator. It is true that the role of a party appointed arbitrator is seen as a balance of power of the parties in the tribunal, but in some types of arbitration, their engagement with their “party” suggests that they are working for the party appointing them. This brings their role as an independent and impartial judge of the dispute into scrutiny. Sometimes, in deliberations, they may press hard for the cause of their appointer to influence the award. In Tracomin,[39] it has been noted that such an arbitrator may act as a channel of communication between the party and the tribunal, or even that the arbitrator may advise the parties on some issues in the proceedings. It is common in some “idiosyncratic types”[40] of arbitrations involving commodity trades, but not other arbitrations.
Moreover, the debate opens up the issue as to the standard required of an arbitrator generally. An examination of the major institutional and the ad hoc arbitration rules reveals that the UNCITRAL Rules, ICC Rules and the LCIA Rules make no separate provisions regarding the standard of impartiality and/or independence required of a party appointed arbitrator.[41] Accordingly, it has been noted in the context of ICC that the requirement of independence is a reaffirmation of the European concept that a party-appointed arbitrator should not act as the nominating party’s agent or representative, thus embracing a requirement of impartiality.[42] Similar standard has been adopted by the IBA’s Ethics for International Arbitrators.[43] In England and France, the standard has not been lowered regarding a party-appointed arbitrator.
On the other hand, under the AAA Code of Ethics, the non-neutral party appointed arbitrator is not expected to observe the same standard of conduct as the neutral third arbitrator and that the party appointed arbitrator may be predisposed to the nominating party and the disclosure obligation is not that stringent.[44] However, this difference in the standard has been expressed to be of purely domestic in nature and “is not applied in international commercial arbitration.”[45] But this view is subject to be revisited in the light of the US Court of Appeal (11th Circuit) decision in Sunkist Soft Drinks v. Sunkist Growers,[46] where the party-appointed arbitrator conferred with the party, its counsel and witnesses and therefore, helped the party to prepare its case. The Court of Appeal held that predisposition by a party-appointed arbitrator is not in itself sufficient to vacate him or any award, unless he does not act in good faith and with integrity and fairness.
This case exemplifies what Martin Hunter and Jan Paulsson calls drawing a line between positive bias and general sympathy towards the appointing party.[47] While the later would be commonplace in modern arbitration, but if the former is reached, the arbitrator could either be disqualified or removed or the award be vacated, depending on the ‘degree’[48] of the affinity. This line has not yet been decisively drawn in international arbitrations.
3. Conclusion:
Finally, if impartiality and/or independence were not sought and an arbitrator were allowed to be the partial advocate for a party, then in the words of Murray L. Smith,
“If what the parties want is a compromise result based on negotiations in deliberations, then why not just agree to a negotiation? There can be little justification for the expense of two extra arbitrators to duplicate the function of counsel.”[49]
BIBLIOGRAPHY
1. Primary Sources
1.1 Legislations and Rules of Arbitration
Federal Arbitration Act, 9 U.S.C. (1985)
The Arbitration Act, 1996 (England & Wales)
* AAA International Arbitration Rules
* ICC Rules of Arbitration
* LCIA Arbitration Rules
* UNCITRAL Arbitration Rules
* UNCITRAL Model Law on International Commercial Arbitration
* Available in Redfern, A. and M. Hunter, Law and Practice of International Commercial Arbitration (3rd ed.) (London, UK: Sweet & Maxwell, 1999).
1.2 Legal Decisions
AT&T Corporation and Lucent Technologies, Inc. v. Saudi Cable Company [2000] 1 All ER (D) 657.
Commonwealth Coatings Corp. v. Continental Casualty Co. (1968) 393 US 145.
Laker Airways Inc. v. FLS Aerospace LTD. [2000] 1WLR 113.
R v. Gough, [1993] AC 646.
Re The Owners of the Steamship “Catalina” and Others and The Owners of the Motor Vessel “Norma” (1938) 61 Ll.L.Rep. 360.
Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc. (1993) 10 F. 3d 753 (11th Cir.).
Tracomin SA v. Gibbs Nathaniel (Canada) LTD and another [1985] 1 Lloyd’s Rep 586.
W. Naumann v. Edward Nathan &Co. LTD. 37 Lloyd’s L.L.R. 249 (1930).
2. Secondary Sources
2.1 Books
Craig, Park, Paulsson, International Chamber of Commerce Arbitration, (2nd ed.) (Paris: Oceana & ICC Publications, 1990)
Dore, I. I., The UNCITRAL Framework for Arbitration in Contemporary Perspective (London/Dordrecht/Boston: Graham & Trotman/Martinus Nijhoff, 1993)
Dworkin, R., Law’s Empire (Oxford: Hart Publishing, 1998)
Moss, G.C., International Commercial Arbitration, Party Autonomy and Mandatory Rules 300 (Oslo, Norway: Tano-Aschehoug, 1999).
Murray, J., A. Rau and E. Sherman, Process of Dispute Resolution: The Role of Lawyers (2nd ed.) (Westbury, N.Y: Foundation Press, 1996).
Redfern, A. and M. Hunter, Law and Practice of International Commercial Arbitration (3rd ed.) (London, UK: Sweet & Maxwell, 1999).
Sutton, D., J. Kendall and J. Gill (eds.), Russell on Arbitration (21st ed.) (London: Sweet & Maxwell, 1997)
2.2 Articles
Alan S. R., On integrity in Private Judging, 14 Arbitration International, 115 (1998).
Bond, R.S., The Selection of ICC Arbitrators and the Requirement of Independence, 4 Arbitration International, 300 (1988).
Calvo, A. M., The Challenge of the ICC Arbitrators, Theory and Practice, 15 Journal of International Arbitration, 63 (1998).
Eastwood, G., A Real Danger of Confusion? The English Law Relating to Bias in Arbitrators, 17 Arbitration International, 287 (2001).
Harding K.R.K., Arbitration – The Role Of Ethics And Its Nature, Arbitration, (1998)
Hunter, M. and I. Paulsson, A Code of Ethics for Arbitrators in International Commercial Arbitration, 13 Arbitration 153 (1985).
Murray, L. Smith, Impartiality of the Party – Appointed Arbitrator, 6 Arbitration International, 320 (1990).
Nariman, F.S., Standards of Behaviour of Arbitrators, 4 Arbitration International, 311 (1988)
Paulsson, J., Ethics, Elitism, Eligibility, 14 Journal of International Arbitration, 13 (1997).
Shalakany, A.A., Arbitration and the Third Word: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int’l L.J. 419 (2000).
Van den Berg, A., Justifiable Doubts as to the Arbitrator’s Impartiality or Independence, 10 LJIL 509 (1997).
[1] “There is inevitably a moral dimension to an action at law, and so a standing risk of distinct form of public injustice.”, Dworkin, R., Law’s Empire 1 (Oxford: Hart Publishing, 1998).
[2] Ibid.
[3] Moss, G.C., International Commercial Arbitration, Party Autonomy and Mandatory Rules 300 (Oslo, Norway: Tano-Aschehoug, 1999). Under French law, lack of impartiality is also recognized as a breach of international public policy and any award tainted with impartiality would lead to the denial of recognition and enforcement of the award, see generally Lagarde, P., Public Policy, in International Encyclopedia of Comparative Law para. 3-60, Vol III, Private International Law, Chap 11 (Tübingen, 1994).
[4] See UNCITRAL Model Law, Art. 35; Arbitration Act 1996 (England & Wales), section 58.
[5] See 5 Am Jur 2d, Arbitration and Award §99. Further in Commonwealth Coatings Corp. v. Continental Casualty Co. (1968) 393 US 145, Justice Black concluded with these remarks, “ We cannot believe that it was the purpose of the Congress to authorize litigants to submit their cases and controversies to arbitration boards that might reasonably be thought biased against one litigant and favorable to another.”
[6] Paulsson, J., Ethics, Elitism, Eligibility, 14 Journal of International Arbitration, 13 (1997).
[7] Ibid, at p.17.
[8] See the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, Art. 5, 21 UST 2517, 330 UNTS 98. See also Article 1504 of the French Code of Civil Procedure.
[9] Sutton, D., J. Kendall and J. Gill (eds.), Russell on Arbitration 121 (21st ed.) (London: Sweet & Maxwell, 1997)
[10] Shalakany, A.A., Arbitration and the Third Word: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int’l L.J. 419 at p. 427(2000)
[11] See e.g., Article 12 of UNCITRAL Model Law, Article 10 of UNCITRAL Rules of Arbitration, Article 11 of Rules of Arbitration of International Chamber of Commerce, Article 10 & 11 of LCIA Rules of Arbitration, Article 8 AAA Rules of Arbitration, and Article 4 of International Bar Association Ethics for International Arbitrators.
[12] Redfern, A. and M. Hunter, Law and Practice of International Commercial Arbitration 212 (3rd ed.), (London, UK: Sweet & Maxwell, 1999).
[13] Eastwood, G., A Real Danger of Confusion? The English Law Relating to Bias in Arbitrators, 17 Arbitration International, 287 at p. 294 (2001).
[14] Cf. Article 3 of IBA’s Ethics for International Arbitrators.
[15] Article 10(1).
[16] Article 12(2).
[17] Article 5.3
[18] See R v. Gough, [1993] AC 646, applied in Laker Airways Inc. v. FLS Aerospace LTD. [2000] 1WLR 113
[19] Section 10 of the U.S. Arbitration Act, 9 U.S.C. (1985). See also Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968)
[20] Laker Airways Inc. v. FLS Aerospace LTD. [2000] 1WLR 113
[21] Re The Owners of the Steamship “Catalina” and Others and The Owners of the Motor Vessel “Norma” (1938) 61 Ll.L.Rep. 360
[22] See e.g., the Buraimi Oasis arbitration, which collapsed as one of the arbitrators acted previously as an official of the Government of Saudi Arabia and was directly in charge over matters in arbitration. Whereas, in an arbitration between the Government of Nicaragua and a US food company, one of the arbitrator previously acted as an advisor to the US government on the issues involved in the arbitration, but the challenge to the appointing authority did not succeed. For this see, Van den Berg, A., Justifiable Doubts as to the Arbitrator’s Impartiality or Independence, 10 LJIL 509 (1997).
[23] Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968)
[24] Tracomin SA v. Gibbs Nathaniel (Canada) LTD and another [1985] 1 Lloyd’s Rep 586.
[25] See Murray, J., A. Rau and E. Sherman, Process of Dispute Resolution: The Role of Lawyers 705 (2nd ed.) (Westbury, N.Y.: Foundation Press, 1996).
[26] Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc. (1993) 10 F. 3d 753 (11th Cir.)
[27] Article 11 of the ICC Rules of Arbitration. But note that circumstances giving rise to independence may engage the justifiable doubts as to impartiality.
[28] Calvo, A. M., The Challenge of the ICC Arbitrators, Theory and Practice, 15 Journal of International Arbitration, 63 at p.64 (1998).
[29] Article 2.7 of ICC Rules of Arbitration.
[30] AT&T Corporation and Lucent Technologies, Inc. v. Saudi Cable Company 1 All ER (D)657; For an American case see Cross Properties, Inc. v. Gimbel Bros., Inc. (1962) 15 App Div 2d 913.
[31] See e.g., ‘independence’ under ICC, ‘impartiality’ under the English Arbitration Act, 1996 and ‘independence or impartiality’ under UNCITRAL Model Law & UNCITRAL, LCIA, AAA Arbitration Rules.
[32] Supra n. 12 at p. 214.
[33] See the Departmental Advisory Committee (DAC) Report on the Arbitration Bill, Section 104 (1996).
[34] Article 15(2), ICC Rules of Arbitration.
[35] Supra n. 13.
[36] See e.g., the AAA Code of Ethics for Arbitrators in Commercial Disputes, Canon VII in 10 Y.B. Comm. Arb. 131 (1985).
[37] Lord Justice Scrutton (as he was then) in W. Naumann v. Edward Nathan &Co. LTD. 37 Lloyd’s L.L.R. 249 (1930).
[38] Alan S. R., On integrity in Private Judging, 14 Arbitration International, 115, at p. 123 (1998).
[39] Supra n. 24.
[40] Murray, L. Smith, Impartiality of the Party – Appointed Arbitrator, 6 Arbitration International, 320 at p. 322 (1990).
[41] Ibid, pp. 331-334.
[42] Craig, Park, Paulsson, International Chamber of Commerce Arbitration para 2.04, pp 209-212.
(2nd ed.) (Paris: Oceana & ICC Publications, 1990).
[43] For a full text, see supra n. 12, Appendix L, pp. 638-641.
[44] See Canon VII of the AAA Code of Ethics for Arbitrators in Commercial Disputes; also supra n. 38 at p. 334.
[45] Supra n. 12 at p 211; also see supra n. 13 at p. 324.
[46] 10 F. 3d 753, 11th Cir. 1993.
[47] Hunter, M. and I. Paulsson, A Code of Ethics for Arbitrators in International Commercial Arbitration, 13 Arbitration 153 (1985).
[48] Supra n. 40 at p. 341.
[49] Ibid at p. 342.
