With the increase in investment law jurisprudence in recent years, we’ve become accustomed to seeing international judges sit on the same investment arbitration panels as commercial arbitrators with their own private practices. In any given arbitration, international judges serving as arbitrators are subject to the same challenge standards as their commercial arbitration peers. And they are not necessarily more immune to accusations of appointing-party bias than their commercial-world co-arbitrators.

But are there times when an international judge, sitting as an ad hoc arbitrator, should be nonetheless judged by the ethics applicable to international judges? On the wide spectrum of international dispute settlement — from private-to-private commercial arbitrations, to private-state disputes in investment arbitration, to state-to-state arbitrations, and finally, to state-to-state permanent tribunals — is there a point at which an arbitrator’s independence and impartiality standards have more in common with those of an international judge than to those of a commercial arbitrator? And if that tipping point isn’t to be found in hybrid public-private disputes like investor-state arbitrations, where is it to be found?

An arbitrator challenge decision released this month by the Permanent Court of Arbitration in the United Nations Convention on the Law of the Sea (“UNCLOS”) case between Mauritius and the United Kingdom gives one answer: the tipping point occurs with state-to-state arbitrations.

The decision concerns Mauritius’ challenge of the UK-appointed arbitrator, Sir Christopher Greenwood. Sir Greenwood currently sits as a Member of the International Court of Justice. Prior to his election to the Court, he served as a professor and a barrister, in the course of which he represented and advised both the UK and foreign governments. In the challenge decision, the remaining four members of the Tribunal, including Mauritius’ party-appointed arbitrator and three arbitrators appointed by the President of the International Tribunal for the Law of the Sea, addressed whether Judge Greenwood’s relationship to the UK Government should result in his disqualification from the dispute.

Mauritius did not argue that Judge Greenwood had advised the UK on the specific dispute before the tribunal (concerning a UK regulation regarding the Chagos Archipelago). Rather, it asserted that he has a “long-standing” and “close” working relationship with the UK Government. Mauritius was particularly concerned by the Judge’s participation in 2011 as a member of a Board to appoint the post of Legal Advisor to the British Foreign and Commonwealth Office (“FCO”). (The Legal Advisor has overall responsibility for the work of the FCO legal advisors, including their work on the Mauritius v. United Kingdom dispute.)

While Mauritius didn’t allege that Judge Greenwood was actually biased, it asserted that in light of his close relationship with the UK and his recent role in the FCO appointment, his participation on the tribunal permitted the appearance of bias or lack of independence. Mauritius argued, drawing on case law under the UNCITRAL Rules, the LCIA, ICSID, and the IBA Guidelines on Conflicts of Interest in International Arbitration, that an “appearance of bias” standard should apply to Judge Greenwood. According to Mauritius, the “appearance of bias” standard is “applicable to all arbitrations” and “there is no justification in law or policy for a different or lower standard of arbitral ethics in inter-State arbitrations, especially where the tribunal must resolve disputes that involve issues of national importance and great public interest.”

The United Kingdom, in contrast, argued the following:

Under the law and practice of these forums, “close past relationship” has never been a ground for challenging an arbitrator. In fact, according to the United Kingdom, “the law and practice applicable in inter-State arbitrations fully supports the election of judges with a close professional relationship to their own State, as shown by the record of most serving and previous ICJ and ITLOS judges, and the limited basis on which they are disqualified from sitting in particular cases.”

According to the UK, the law and practice of arbitrator challenges in international commercial and investment protection arbitrations are irrelevant. Those disputes involve “repeat arbitral appointments, whether by the same party or by the same law firm; potential for influence where arbitrators may be perceived as worrying about where their next appointment will come; [and] cross-overs, where individuals repeatedly switch between the roles of counsel and arbitrator”—in other words, a situation that the UK sees as different from Judge Greenwood’s appointment and role in the present state-to-state arbitration.

The Tribunal sided with the United Kingdom. In determining the applicable challenge standard for Judge Greenwood, the Tribunal first determined that all members composing an arbitral tribunal under Annex VII of the UNCLOS are required to maintain the highest reputation for “fairness, competence and integrity.” The Tribunal then drew on the law and practice of the International Court of Justice and the International Tribunal for the Law of the Sea. The Tribunal noted in particular the following provisions of the Statute of the International Court of Justice:

Article 16 requires that “no member of the Court may exercise any political or administrative function, or engage in any other occupation of a professional nature.” (The Tribunal noted, however, that Article 16 applies to judges only after their election to the Court, and does not disqualify those who exercised such functions before their election.)

Article 17 provides that (1) “No member of the Court may act as agent, counsel, or advocate in any case,” and that (2) “No Member of the Court may participate in the decision in any case in which he has previously taken part as agent, counsel, or advocate for one of the parties, or as a member of a national or international court, or of a commission of enquiry, or in any other capacity.”

The Tribunal rejected Mauritius’ reliance on the “appearance of bias” standard and the IBA Guidelines. It explained:

The Tribunal recalls that the system of inter-State dispute settlement is based upon the consent of the Parties, and more specifically upon the rules of public international law, the sources of which are set out in Article 38(1) of the Statute of the ICJ. In the Tribunal’s view, Mauritius has not demonstrated that the rules adopted by non-governmental institutions such as the IBA have been expressly adopted by States, nor do they form part of a general practice accepted as law, nor fall within any other of the sources of international law enumerated in Article 38(1) of the Statute of the ICJ.

The Tribunal stressed that Article 287(1) of the UNCLOS permits States the option alternatively to submit their case to ITLOS, the ICJ, or arbitration under Annex VII, and that these three options comprise the States’ consent to dispute settlement under the UNCLOS. The Tribunal considered that that the States parties could not have intended to apply different conditions of independence and impartiality to an Annex VII arbitration than to a dispute adjudicated by the ICJ or ITLOS.

The Tribunal’s decision is unlikely to prove controversial. Nonetheless, it’s worth asking whether the distinctions we tend to draw between arbitrators and judges — including the incentives that may affect their behavior and the ethics that should apply to them — are obsolete in the context of state-to-state disputes.

Certainly, some technical distinctions remain between international judges and appointed ad hoc arbitrators adjudicating state-to-state disputes. Unlike an ad hoc arbitrator, the Members of the ICJ are elected by the UN General Assembly to serve 9-year terms at the Court. They generally sit on all cases, unless they have been recused or unless a smaller Chamber of the Court has been constituted for a specific case. As such, ICJ Members receive their caseload (and their pay) from the Court, rather than from the State parties appearing before them.

The Tribunal in Mauritius v. United Kingdom did not address these distinctions. It’s tempting, nonetheless, to speculate as to why this distinction may not matter. Is it, as the UK suggests, that state-to-state arbitration occurs relatively infrequently, and that arbitrators are therefore less likely to focus their careers and income streams around securing future state-to-state arbitration appointments than other kinds of arbitration? Or is it that the arbitrators appointed to state-to-state disputes are more likely to come from a tiny pool of candidates, most of whom are public international lawyers and judges, who might all be disqualified if more stringent challenge standards were applied? Or is it something even more intangible? Is it that there is inherently a diplomatic culture or sensitivity that pervades inter-State disputes and sets them apart from other forms of arbitration? (See, e.g., the “Notes to the Text” of the PCA Optional Rules for Arbitrating Disputes Between Two States state that they are based on the UNCITRAL Arbitration Rules, with certain modifications, including, inter alia, modifications “to reflect the public international law character of disputes between States, and diplomatic practice appropriate to such disputes.”)

I’m inclined to think it’s a combination of all of the above. I’d welcome readers’ thoughts on the subject.

In 2009, Delaware became an exception to this general rule when it authorized judges from the Court of Chancery — the highest profile court in the United States specializing in business matters — “to arbitrate business disputes” when the parties so agree. 10 Del. Code § 349(a). To be eligible for Court of Chancery arbitration, the dispute must meet the following requirements: (1) the parties must agree or stipulate to arbitrate; (2) at least one party must be a “business entity”; (3) at least one party must be a business entity organized under Delaware law or having its principal place of business in Delaware; (4) no party can be a consumer; and (5) for disputes involving solely money damages, the amount in controversy must be at least $1 million. Id. § 349(a) (incorporating id. § 347(a)). In early 2010, the Court of Chancery promulgated rules governing the process and issued a standing order setting out the applicable fees ($12,000, plus $6000 for each hearing day after the first, divided equally between the parties).

The Delaware judge-arbitrator process has been in the news recently with the announcement (in disclosures under the federal securities laws) of Court of Chancery arbitrations filed by Advanced Analogic Technologies Inc. and Skyworks Solutions, Inc. arising out of a merger agreement. They ultimately settled their dispute, with the merger closing albeit on modified terms. (My understanding is that at least four additional Court of Chancery arbitrations have been filed or are pending.)

But since news of the AATI-Skyworks arbitrations became public, Court of Chancery arbitration has been subjected to numerous criticisms, all of which stem from the confidential nature of the process. See 10 Del. Code § 349(b) (providing that Court of Chancery arbitration “shall be considered confidential”). Commentators have complained that the confidential nature of the process harms investors (by reducing the information available about the dispute), other businesses (by reducing the amount of precedent on Delaware corporate law), and the public as a whole (by reducing the public accountability of the court system). Indeed, on October 25, 2011, the Delaware Coalition for Open Government filed suit in Delaware federal court seeking to enjoin Court of Chancery arbitration on the ground that it unconstitutionally deprives the public of its right of access to trials. Oral argument on dispositive motions in the case is scheduled for February 9, 2012.

In addition to important constitutional issues, Court of Chancery arbitration also raises interesting issues of arbitration law. For example, one possible benefit to parties from using Court of Chancery arbitration is that the resulting awards might be more readily enforceable overseas than Delaware court judgments. According to one commentator: “[F]or parties in disputes with foreign entities, the new statutes and arbitration rules may provide greater comfort that the arbitration award will be enforceable against a foreign entity on its home turf under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.” Lewis H. Lazarus, Court of Chancery Arbitration Likely to Become More Prevalent, Delaware Business Litigation Report (Sept. 28, 2011); see also Simpson Thatcher, Delaware Court of Chancery Arbitration Provides Option for Delaware Parties to Resolve Disputes with Foreign Counterparties 3 (Sept. 14, 2010).

For that benefit to be available, however, Court of Chancery arbitration must constitute “arbitration” within the meaning of the New York Convention. Certainly Delaware law labels the process “arbitration,” and it has many of the trappings of commercial arbitration. It is consensual and confidential. The judge-arbitrator is a specialist (rather than a generalist). And the award is final and binding, and subject only to limited court review. (Indeed, Delaware law provides that the Delaware Supreme Court has the authority to “vacate … an order” issued in a Court of Chancery arbitration, and that it shall exercise that authority “in conformity with the Federal Arbitration Act, and such general principles of law and equity as are not inconsistent with that Act.” 10 Del. Code § 349(c).)

But most if not all of these characteristics also are present when the parties consent to a bench trial in the Delaware Court of Chancery by means of a forum selection clause. That process, too, is consensual, and the decisionmaker is the same. The parties can waive the right to appeal, id § 351, and they likely can obtain some degree of confidentiality by consenting to the entry of a protective order. Of course, the extent of confidentiality in a contracted-for bench trial likely is less than in a Court of Chancery arbitration. Moreover, the award in a Court of Chancery arbitration, like a commercial arbitration award, needs to be enforced (i.e., turned into a court judgment) before creditors’ remedies can be used to collect on it. See id. (providing that the Delaware Supreme Court has the authority to “enforce an order of the Court of Chancery issued in an arbitration proceeding under this section”).

Conversely, Court of Chancery arbitration differs from commercial arbitration in at least one important respect. Unlike commercial arbitration, in which the parties pay the arbitrators (and any arbitration institution) a fee that typically varies with the amount sought, in Court of Chancery arbitration the parties pay only a filing fee to the court. The parties do not pay the judge-arbitrators; instead, the judge-arbitrators continue to be paid their usual salary by the state. (In this respect, Delaware law is like the UK Arbitration Act, under which fees for judge-arbitrators are likewise paid to the court. Tech. & Constr. Court Guide ¶ 18.2.3 (Oct. 2010).

Does the differing source of payment make the New York Convention inapplicable to Court of Chancery arbitration? The limited American case law comes solely from jurisdictions in which judges are not permitted to act as arbitrators. Thus, the Seventh Circuit has held that a process in which a sitting judge acted as an arbitrator was more properly characterized as “an abbreviated judicial procedure rather than an unauthorized arbitral one.” DDI Seamless Cylinder Int’l, Inc. v. General Fire Extinguisher Corp., 14 F.3d 1163, 1165 (7th Cir. 1994) (Posner, J.) (adding that “[f]ederal statutes authorizing arbitration, such as 9 U.S.C. §§ 1 et seq. …, do not appear to authorize or envisage the appointment of judges or magistrate judges as arbitrators”). The California court of appeals similarly has stated:

May a sitting superior court judge conduct a private arbitration subject to confirmation under the California Arbitration Act? The answer clearly is no. Notwithstanding the parties’ characterization, the “arbitration” was nothing more than a bench trial, where the judge acted in his capacity as a judicial officer. There is nothing to be confirmed except this bedrock principle: Public judges must engage in public judging.

Heenan v. Sobati, 117 Cal. Rptr. 2d 532, 533 (Cal. App. 2002); see also Elliott & Ten Eyck P’ship v. City of Long Beach, 67 Cal. Rptr. 2d 140 (Cal. App. 1997). In those cases, however, the applicable law did not authorize the judge to serve as an arbitrator.

By comparison, Delaware law expressly authorizes Court of Chancery judges to serve as arbitrators. If Court of Chancery arbitration survives constitutional challenge, it remains to be seen whether courts will find that awards resulting from the process can be enforced under the New York Convention.

Of the 28 published abstracts, six cases were considered to be sufficiently problematic to satisfy the LCIA challenge standard, involving circumstances that give rise to “justifiable doubts” about an arbitrator’s impartiality or independence. Of these six accepted challenges, three involved improper conduct by the arbitrator, and three involved relationship conflicts.

The “Conduct” Decisions. Two of the three accepted challenges involved ex parte communications. In one, an arbitrator was disqualified for providing the party that appointed him with advance notice of the content of the tribunal’s award before it was issued (LCIA Ref. No. 0252). In the other, an arbitrator was removed after meeting privately with one of the parties, accusing the other party without foundation of breaking into his chambers, and unilaterally instructing that certain passages be deleted from the hearing transcripts (LCIA Ref. No. UN3490).

The third accepted “conduct” challenge is a reminder of the age-old truth that how one responds to adversity is often as important as the underlying event. In LCIA Ref. No. 1303, the Court removed an arbitrator who responded to an otherwise unfounded relationship-based challenge by accusing the party bringing the challenge of dishonesty, malevolence, and viciousness. This escalating rhetoric led the Court to conclude that “the self-evident tension and ill-feeling that had arisen as a result of the challenge had created circumstances that may, of themselves, give rise to justifiable doubts” about impartiality.

By contrast, some of the “conduct” challenges were brought on more spurious grounds, including complaints about procedural decisions resting soundly within the arbitrator’s discretion. For example, one party challenged the Chair’s impartiality for refusing to postpone the final hearing; the LCIA found to the contrary that the Chair had been “remarkably tolerant and patient,” and that “it was more likely that a fair-minded and informed observer would conclude the challenge had been motivated by a desire to delay the proceedings” (LCIA Ref. Nos. 81209 and 81210). Another party alleged impropriety in a series of procedural directions and rulings; after reviewing the file, the LCIA concluded that the “constant” objections by the challenging party “had amounted to an increasingly vexatious attempt to hinder the proceedings and/or evidenced a fundamental lack of understanding of the process,” and the arbitrator’s response to these provocations in no way justified a challenge based on independence or impartiality (LCIA Ref. No. 3431).

The “Relationship” Decisions. Three of the accepted challenges involved relationship issues. Interestingly, only one of these (LCIA Ref. No. 81160) involved the arbitrator’s own relationships. The arbitrator in that case (which involved insurance issues) disclosed that he had acted both for and against the respondent underwriters in prior matters, that he was currently acting against one of the respondents in one case and on behalf of another in a second case, and that by the “very nature of this work” in the closely knit London insurance world, he would “no doubt” continue to act for and against them in future. Respondents’ counsel collectively represented 11% of all the instructions he had received over the past 5 years. The LCIA not surprisingly ordered disqualification, on the grounds that an objective observer could reasonably find a real risk of bias from an arbitrator “who would accept future retainers by a Respondent whilst sitting on an arbitration case” to which that party had appointed him.

Interestingly, the two other accepted challenges arose not from any personal relationships of the arbitrators themselves, but from prior activities of the law firms with which they worked. One of these cases was not a close call: the firm had previously rendered advice with the respect to the very contract underlying the dispute (LCIA Ref. No. 9147). But the other case involved completely unrelated work in the past by other partners, for a company that was simply associated with one of the parties. The LCIA described this scenario as more “borderline,” but concluded that removal of the arbitrator was warranted since he remained affiliated with the law firm. It articulated the principle that “a partner in a law firm had to be identified with his partners, at least insofar as their professional activities were concerned” (LCIA Ref. No. UN96/X15).

The latter decision should be contrasted with LCIA Ref. No. UN3476, where the Court rejected a challenge based on the arbitrator’s own prior work as counsel to the respondent on an unrelated matter, while associated several years previously with a prior law firm. The involvement was brief and largely supervisory, but did include meeting with employees of the respondent. The LCIA found that the past relationship did not give rise to any doubts as to the arbitrator’s impartiality, emphasizing that in the years since leaving his prior law firm, the arbitrator did not continue any ties with the respondent.

The fact that departure from a prior law firm was deemed in this case to have eliminated any concerns, even where the arbitrator himself had previously served as counsel to a party, contrasts curiously with the previously described case where the Court accepted a challenge based simply on past work by the arbitrator’s partners, because the arbitrator nonetheless remained a member of that firm. The IBA Guidelines on Conflicts of Interest in International Arbitration provide in Part I(6) that “the fact that the activities of the arbitrator’s firm involve one of the parties” or another entity in a larger corporate group “shall not automatically constitute a source of [a] conflict,” but the LCIA’s endorsement of the rule that “a partner in a law firm had to be identified with his partners” seems to suggest a more categorical bar. This ruling is a reminder of the obstacles to building and sustaining an active arbitrator practice while remaining affiliated with a larger law firm, and in combination with the LCIA case involving subsequent departure, it serves to reinforce a message that striking out on one’s own ultimately may be the only way to minimize the risk of relationship conflicts. It is precisely this specter of conflicts from far-flung activities of a law firm that recently led Yves Fortier to announce his departure from Norton Rose, following its absorption of his prior firm Ogilvy Renault; others before him have reached the same conclusion. In an age of increasing law firm mergers — resulting in mega-firms with many hundreds of partners with a history of thousands upon thousands of past client relationships — others dedicated to an arbitrator career may be tempted to follow suit.

Of course, the option of “going solo” is less feasible for those earlier in their arbitrator careers, who do not yet have a full plate of appointments. As a matter of economic necessity, the “next generation” of arbitrators will continue to need a period of transition between counsel and arbitrator work. This process also provides necessary training, since wise arbitrators are not simply hatched, or spring fully formed like Athena from Zeus’ head. They accumulate a nuanced appreciation of both law and fact from the experiences they have had before, and one of the most common paths to sophistication has been through active counsel work at larger law firms. The recent LCIA challenge decisions remind us, however, of the limits that ultimately stem from that dual role.

Jean E. Kalicki and Natalia Giraldo-Carrillo
Arnold & Porter LLP

For those who may have missed the previous blog posts,² these proceedings occurred further to an application to set aside a partial arbitral award rendered under the auspices of the International Chamber of Commerce, initiated by a Greek company J&P Avax SA against an Italian company Société Tecnimont SPA. Tecnimont had concluded a subcontract agreement with Avax for the construction of a propylene factory located in Greece. A dispute between the parties arose and Tecnimont instituted ICC proceedings in Paris pursuant to the arbitration clause contained in the subcontract agreement.

At the time of his appointment in 2002, the Chairman was ‘Of counsel’ at a global law firm with an office in Paris. In his declaration of independence, the Chairman disclosed that the Washington DC and Milan offices of his firm had previously worked with the parent company of Tecnimont in a concluded matter in which he had never been involved.

During the proceedings, Avax’s counsel became aware that the Chairman’s law firm was assisting a company that was later acquired by the parent company of Tecnimont. Avax then unsuccessfully challenged the Chairman’s appointment before the ICC Court of Arbitration in September 2007. The ICC dismissed the challenge for undisclosed reasons and Avax continued to participate in the arbitration while reserving its rights. A partial award on liability was rendered in favour of Tecnimont on 10 December 2007, with further information regarding the links between the Chairman’s law firm and Tecnimont’s affiliated companies coming to light thereafter.

Subsequently, Avax filed an application to set aside the award with the Paris Court of Appeal.

On 12 February 2009, the Paris Court of Appeal annulled the award and held that the arbitrator was under a continuing obligation to inform the parties of any matter that could cast reasonable doubts on his/her impartiality and independence. The Paris Court rejected Tecnimont’s argument that Avax’s application to set aside was inadmissible because it had already unsuccessfully challenged the Chairman before the ICC on the same grounds and that such challenge was in any event waived as it was made beyond the time limit of 30 days required by the ICC Rules on challenging arbitrators. The Paris Court of Appeal found that Avax had only been notified of relevant facts and circumstances after it challenged the award and after the partial award was delivered. They left open the questions of whether the ICC Rules bind the court and whether the party had waived its right to challenge the award by failing to adhere to the time limitation imposed by the ICC Rules.

The Cour de cassation³ reversed this decision, holding that almost all of the grounds for challenge were already included in the request for challenge filed with the ICC in September 2007. The Cour de cassation considered that the Paris Court modified the terms of the dispute by relying on facts that came to light after the partial award rather than relying on those submitted by the parties, a breach of Article 4 of the Code of Civil Procedure. Consequently, the Supreme Court remitted the case to the Reims Court of Appeal to decide on the validity of the award.

The Reims Court of Appeal first considered that the setting aside application was admissible because the failure to challenge the Chairman within the ICC time limitation did not prevent Avax from applying for the award to be set aside. The Reims Court of Appeal then annulled the award due to the Chairman’s failure to spontaneously and comprehensively disclose that his law firm had advised Tecnimont and related companies during the time of the proceedings.

This decision confirms: (I) the inapplicability of the ICC Rules at least for challenging arbitrators before French courts once an award is rendered and (II) the French courts’ attitude of broadening the scope of the arbitrator’s duty to update and disclose conflicts of interests.

I. The Inapplicability of the ICC Time Rules for Arbitrator’s Challenge

Article 11 of the ICC (1998) Rules provides that challenge of arbitrators must be brought within 30 days from when the party became aware of facts and circumstances giving rise to the challenge. The reasons for the ICC decisions on arbitrators’ challenges are not provided or published. That rule has not been modified by the recent revision of the ICC Rules, despite discussions on the benefits of publishing decisions concerning challenges of arbitrators.

As the Cour de cassation‘s decision that the Paris Court of Appeal modified the terms of the dispute was of a procedural nature, the Reims Court of Appeal’s view on the admissibility of the application to set aside was much anticipated.

Indeed, some commentators argued that the only motive that could justify the Cour de cassation putting forward this procedural flaw is that its correction would have an impact on the admissibility of Avax’s claim. The Cour de cassation therefore has ruled on a technical issue only to enable a future reversal of the Paris Court of Appeal’s decision. It is probably not by coincidence that the designated court is chaired by Dominique Hascher, former general counsel of the ICC Court of Arbitration and previous judge at the 1st Chamber of the Paris Court of Appeal.

On this occasion, the Reims Court of Appeal was expected to provide some explanations as to the consequences of not filing the application within the time limit set forth in the ICC Rules.

Both the Reims Court of Appeal and the Paris Court of Appeal accepted that some facts were revealed after the ICC decision on Avax’s challenge. Thus, the ratio decidendi of the case stands in its analysis of the consideration given by French courts to the ICC Rules.

The Reims Court of Appeal’s conclusions are straightforward: challenges before the ICC Court and review of an award by a judge are separate proceedings and do not serve the same purpose; the two applications are before different authorities; and the judge that deals with the award is not required to abide by the ICC time limit to challenge arbitrators. The ICC decision is of an administrative nature and does not have res judicata effect. Furthermore, the appellate judges found that the party has not waived its right to challenge the award as the party raised the issue and reserved its rights whenever possible during the arbitration proceeding. This decision means that, once an award is rendered and notwithstanding the ICC’s decision or the failure of the parties to comply with the ICC Rules on challenges during the proceeding, the judge has full liberty to decide whether arbitrators’ independence may be called into doubt provided the party shows that it did question the independence of the arbitrator and therefore did not waive its rights to challenge.

Although many commentators support efforts to ensure impartiality and independence, this case has already been criticised by some commentators for the court’s lack of consideration as to the ICC Rules with respect to time limits for challenges of arbitrators. Some view that ICC Rules should not have been so easily bypassed given that they represent contractual obligations that bind the parties and arbitrators. Another concern is that allowing the challenge to go forward means the party receives an opportunity to re-litigate the same issue before different bodies.

It is true that this case represents a rare disregard of the ICC Rules by the French courts. Nevertheless, it is the first time that the French courts deliberated the parties’ agreement to abide by the ICC Rules with respect to that specific issue. The party could have also challenged the arbitrator by virtue of Article 11 after the new information was disclosed but did not do so. However, the Article 11 time-limit is internal to the ICC procedure for arbitrators’ challenging and cannot be imposed on French courts once the award has been rendered. Moreover the party made clear that it reserved its right to challenge the arbitrator before the court. This does not imply that the Reims Court of Appeal has denied the will of the parties. Rather they deemed that failure to respect the ICC procedural time limit did not prevent recourse before national courts after the award is rendered.

II. The Broad Scope of the Arbitrators’ Disclosure Obligations

The appellate judges concluded that information concerning the links provided by the Chairman had developed throughout the course of the proceedings. The relationship between the Chairman’s law firm and one of parties to the arbitration went beyond the information disclosed in 2002 by the Chairman and was not revealed in due time.

In that respect, the Reims and Paris Courts of Appeal had similar interpretations. However, the Reims judges further elaborated on the meaning of the duty of disclosure. The Court found that arbitrators have a continuous obligation to disclose not only personal circumstances that may call their independence into question, but also factual circumstances involving the law firms to which they belong throughout the proceedings. Notwithstanding the arbitrator’s position in the firm, the obligation to disclose covers other files handled by other branches of the law firm irrespective of the subject matter of the dispute or the amount of fees invoiced for these other files. Thus, a certain degree of objectivity was required from the arbitrator, beyond his/her personal connections. After reviewing each specific link, the Court concluded that the failure to inform the parties of these facts or the incomplete information given to the parties created reasonable doubts as to the independence of the Chairman.

The Reims decision demonstrates the importance of continuous and strict conflicts checks by arbitrators, after their appointment and throughout the proceedings. This ruling is in line with the French case law on the continuation of the duty of disclosure.⁴ Indeed, under the new Article 1456 of the French Code of Civil Procedure, an arbitrator is under the duty to ‘disclose any circumstances that may affect his or her independence or impartiality’ and ‘also shall disclose promptly any such circumstance that may arise after accepting the mandate.’

This decision also confirms a current trend in French case law that broadens arbitrators’ duty of disclosure, e.g. with respect to the number of appointments of an arbitrator by one of the parties as well as to the existence of a business relationship between an arbitrator and a party’s counsel. However, this is the first time an award is annulled on the basis of connections with other offices of the arbitrator’s international law firm, rather than the arbitrator’s personal connections.

Arbitrators involved in proceedings seated in France are under a duty to continuously investigate potential conflicts and ensure that conflicts databases are regularly updated. As companies frequently change ownership and affiliates, clients should also be requested to clarify precisely their corporate structure and line of control and communicate any changes to their lawyers. Some commentators have criticised the lack of cost-efficiency of such refinement of conflict checks and updates system. The Reims Court of Appeal decision adds to the responsibilities of arbitrators but serves to ensure that arbitrators sitting in international arbitration tribunals in France remain independent and impartial throughout the proceedings. This development is crucial to maintain the credibility and quality of international arbitration.

The duty to disclose is also in harmony with the colour coded IBA Guidelines on Conflicts of Interest in International Arbitration, addresses the issue of an arbitrator’s law firm’s involvement with one of the parties. Arbitrators must disclose if their law firms are rendering services to one of the parties or affiliates without creating a significant commercial relationship and without the involvement of the arbitrator. While the rendering of services must be disclosed, it does not per se amount to a conflict of interest under the IBA Guidelines. The individual circumstance would have to be further examined.

The French courts’ approach on this matter does not differ, as the Court of Appeal specified that the facts that the matters dealt with by the law firm were unrelated to the dispute submitted to arbitration and that the amounts billed by the firm with respect to the other files was nominal and did not create an impact. Specifically, the Court stated: ‘Once a client relationship is established, that relationship is not only financial: the independence of an arbitrator is not judged depending on the scale of the fees received by his/her law firm from a party.’

Applying the IBA Guidelines, the arbitrator in the Tecnimont case would have been under the same duty to disclose his law firm’s representations of affiliates of one of the parties. However, the law firm’s representations may or may not lead to an annulment of the award as the facts would still have to be analysed under the IBA Guidelines to determine if they create a justifiable doubt as to the arbitrator’s impartiality and independence. Similarly, the Reims Court of Appeal would not automatically annul the award for failure to disclose all this information but will also analyse each specific link between the law firm and the parties to arrive at its conclusion. As the judges indicated: ‘(…) the review court’s responsibility is to assess the impact of the non-disclosure and to determine whether or not it could have caused a reasonable degree of doubt, in the minds of the parties, as to the alleged lack of impartiality.’

A pourvoi en cassation or recourse has been lodged against the Reims decision with the Cour de cassation and it is uncertain whether the Cour de Cassation will adopt the Reims Court of Appeal’s view of the ICC Rules.

By Laurence Franc-Menget and Vanina Sucharitkul, Herbert Smith LLP

All of this makes Arbitration International’s recent Special Edition on Arbitrator Challenges at the LCIA a very welcome edition. The Special Edition represents the first time that a major arbitral institution has made a digest of arbitrator challenge decisions. As one of only a scant handful of arbitral institutions to issue written reasoned challenge decisions to parties, the LCIA is particularly well-suited to this treatment. While the LCIA Rules do not actually require a written reasoned decision for challenges, and provide only limited instruction on challenge submissions or procedures, it has become a consistent practice within the Court to issue reasoned decisions to the parties.

I had a chance to speak with LCIA President William (Rusty) Park and ask him a few questions about the making of the digests and the implications of making these decisions available publicly.

Q: What prompted the LCIA decide to publish these decisions now?

Park: Back in 2006, the decision was made to proceed with publication. The LCIA was in a unique position because we actually give written decisions on arbitrator challenges. On taking over as President, my sense was that the project needed to be moved up the list of priorities, given the critical importance of specific cases to evaluations of arbitral ethics.

People tend to talk in generalities about impartiality and independence. However, the devil lurks in the details. In each challenge one must walk the tightrope between keeping arbitrators free from taint and avoiding disruptive manoeuvres designed to sabotage proceedings. With complicated facts and subtle standards, finding the right counterpoise can be tricky.

The digests illustrate the highly fact-dependent nature of challenges, which can be quite time-consuming to hear. In one challenge the LCIA received a total of nine binders from the parties, and held a day-long hearing which led to a twenty-page opinion explaining our decision.

Q: Were there any major difficulties or points of resistance in getting these decisions summarized and published?

Park: Although we found no institutional resistance, the project remained difficult because drafting the digests was such a delicate process. If one says too much, confidentiality is jeopardized. Saying too little, however, risks creating texts that are bland and boring reading, which fail to deliver the intended assistance to future arbitral tribunals. Among those who contributed invaluable assistance to the process, special thanks are due to Ruth Teitelbaum and Tom Walsh, key members of the Arbitration International Editorial Board, and Adrian Winstanley, LCIA Director General.

Q: I understand that all of these decisions involved challenges that were seated in England, so the decisions reference the 1996 Arbitration Act and/or the European Convention on Human Rights. But did you notice, nonetheless, any cross-references to the jurisprudence or guidelines of other institutions? And do you anticipate that the publication of these decisions will encourage greater cross-pollination across institutions?

Park: As to sources of authority, the Court looks to the LCIA Rules and the applicable law at the arbitral situs. However, cross-fertilization exists in the appreciation of the context for each case, which remains critical to reaching the right decision. In turn, evaluating any given context depends on an appreciation of the parties’ legitimate expectations and sensitivities with respect to analogous fact patterns in other disputes, which leads to looking at how other institutions have handled similar problems.

One example of cross-fertilization can be found in the Second Circuit’s decision in Aimcor, where the issue was whether to vacate because the chairman had dealings with one of the parties. In applying the Federal Arbitration Act, the appellate opinion noted how the lower court had considered both the AAA/ABA Code of Ethics and the IBA Conflicts Guidelines to provide enlightenment on what litigants expect from arbitrators.

Of course, that doesn’t mean that all guidelines are identical. However, a common core of understanding does exist across institutions. On some matters everyone agrees. But on other questions many shades of gray provide contrasting approaches.

Q: Were there any particularly unusual or tricky issues raised in any challenges that might be new or surprising to the arbitration community? I understand that there was one particularly heated challenge involving the theft of grapes from an arbitrator’s conference room.

Park: The digests should not be taken simply as entertaining war stories. They represent a set of decisions to assist the arbitral community in evaluating permissible conduct in light of various controverted elements.

In one case—No. 1303—it was the arbitrator’s reaction in the face of a challenge that led to his disqualification. The original basis of the challenge, membership in a trade association, became less important than the arbitrator’s angry and inappropriate reaction to the disqualification motion, which led to accusations that Claimant was “malevolent” and “false”. Under the circumstances, such an attitude did create legitimate concerns about impartiality.

In another case—No. 3488—the challenging party thought that a specific procedural order showed the arbitrators’ prejudgment. But in its decision the LCIA found it was not possible to look at simply one order in isolation. Considering all procedural orders together, it was clear that the arbitrators’ tentative view expressed one set of directions did not demonstrate prejudgment.

Q: Do you think the LCIA’s publication will foster a healthy competitiveness among other institutions to make changes in how they memorialize their challenge decisions, and also in their disclosure practices?

Park: Other institutions may not have the same passion for providing guidance on such ethical issues. However, my guess is that the digests will be read with thoughtful interest.

Q: Is it likely that much of the external impact, to the extent that there is one, will come from the arbitrators themselves, considering that many of them sit on LCIA tribunals as well as tribunals governed by different institutional rules?

Park: Possibly. Arbitrators remain a heterogeneous bunch. For example, many British take a more sanguine view than some Americans about the propriety of participation in a single case by arbitrators and counsel from the same set of barristers’ chambers. If each group respects the other, dialogue can be helpful, given that international arbitrations in London implicate the sensibilities of non-British lawyers and parties.

Divergence also exists among different industries. For example, insurance arbitration seems to involve more repeat players than in other areas such as the pharmaceutical or hotel business. For some reason, insurance cases also seem to create a heightened sensitivity about the differences between American and English approaches to reading policy language, which can sometimes lead to long and problematic efforts to find someone acceptable to chair the tribunal. Cultural expectations matter.

The Special Edition of Arbitration International is available online at www.kluwerarbitration.com.

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The first questions to address, perhaps, is why not a female? A fellow colleague of mine, a male, who is active in the international arbitration arena asked me this very question. From a male’s perspective – is there anything that a male arbitrator or even male counsel representing a party could do which the female counterpart could not? Honestly, I cannot think of one thing. Yet, referrals seem – and this is purely based on anecdotal evidence – go more to males than the female counterparts. In fact, after recently attending a conference in Dublin, I overheard one female practitioner saying to another female practitioner, “Women simply do not refer cases to other women.” Are we then the culprits ourselves? It would be rather ironic if the women are contributing to holding women back. I actually can imagine this being the case. There are a few women out there who have worked exhaustingly to build up a reputation landing them in this prestigious male-dominated club and for those of you having appointed female arbitrators or referred cases to a female practitioner, it is likely one of very very few.

This leads back to a former post of mine on this blog, Choosing the Young Buck or the Weathered Veteran, which looked how clients can take the lead in making changes to their bottom line by going outside the standard circle of names. This occurs amongst the female arbitration circle as well. What referrals do go to females, go to the very same core small group of females. It’s a double hit to the rest – females are underrepresented in international arbitration and what does come in may go predominantly to the very same ones. These females presumably have referrals to pass out on occasion – I ask them – do you refer them to females or males? All things being equal of course, would you choose the male? Naturally, these are rhetoric questions and not ones I would expect anyone to have to publicly address, but it would have been interesting to see those statistics.

Clients themselves can help level the playing field for women by also giving equal thought – not just to the young bucks in order to get fresh ideas and truly rein in costs – but also to diversity. Many in-house counsel are women. How many of them are in the position to choose the arbitrator or outside counsel, I do not know as I do not have these statistics, but I wonder whether the “best” candidate is ever female? Women are sufficiently and perhaps even over represented at arbitral institutes. This could imply that the arbitration community is at least comfortable with women administering arbitrations.

There is no easy answer to this concern. Many female attorneys are flocking to conferences, getting on arbitral institute arbitration lists, working hard at firms of all sizes and statures to break into the fold. Therefore, the availability of ambitious, intelligent and experienced female arbitration practitioners exists. It is not a lack of supply and quality candidates that stands in the way. What is then? Is it us, the females ourselves? I certainly do not think there is an active movement against women (and surely not by women themselves) – indeed there are wonderful organizations sprouting up to assist females in networking and growing their careers, including in the arbitration industry. Those key, famous female arbitration practitioners are some of the best mentors to many. I only wonder, when it comes down to providing the actual work and opportunities whether we hesitate to choose a fellow woman. If so, how can we overcome this?

Arbitral institutions have devised a range of different solutions to this problem – from summary arbitral proceedings for interim relief (e.g. NAI) to expedited formation of the arbitral tribunal (e.g. LCIA) – but many have alighted on the use of “emergency arbitrators” to determine applications for interim relief before the arbitral tribunal is constituted (e.g. SCC Rules, SIAC Rules, new ICC Rules). In this blog, we examine some of the practical issues raised by the use of emergency arbitrators, as an increasingly popular tool of (pre-)arbitral procedure.

The first of these is: who to call in an emergency? In order to determine whether a party is entitled to rely on emergency arbitrator procedures, it is necessary to look at how those procedures are incorporated into the applicable arbitral rules and when they are to be invoked.

In contrast to the approach of previous regimes, most modern provisions for emergency arbitrators apply to a dispute automatically, by virtue of the parties selecting the relevant arbitral rules (indeed, the “opt in” nature of the ICC’s 1990 Rules for a Pre-Arbitral Referee Procedure is often cited as a reason for their limited use). Typically, where arbitral rules offer emergency arbitrator procedures, parties must therefore expressly “opt out” of those provisions if they do not wish them to apply. The SCC Rules go one step further, by applying the opt out feature in respect of the emergency arbitrator provisions retroactively (i.e. parties arbitrating under the SCC Rules can use the emergency arbitrator procedures even if their arbitration agreement was concluded before those procedures came into effect, on 1 January 2010). By contrast, and in recognition of the dramatic change introduced by the new provisions, the new ICC Rules contain ‘transitional provisions’ exempting the application of the new Emergency Arbitrator Provisions where the arbitration agreement was concluded before the new Rules come into force (i.e. on 1 January 2012) (Article 29(6)(a) of the new ICC Rules). It is anticipated that this automatic inclusion / opt out formulation will encourage the uptake of emergency arbitrator procedures under the arbitral regimes in which they appear.

A divergence may be seen, however, in the approach of arbitral institutions at the stage at which parties may seek to invoke emergency arbitrator provisions. For example, under the rules of certain institutions, parties are required to submit a Notice of Arbitration before (or concurrently with) a request for emergency relief (e.g. Schedule 1(1) of the SIAC Rules). Others, in contrast, offer even greater flexibility, allowing a party to apply for interim relief before a Request for Arbitration has been filed (e.g. Appendix V, Article 1(6) of the new ICC Rules). However, in those instances, the party seeking interim relief is typically required to submit a Request for Arbitration within a certain time period after their application for relief, failing which the emergency arbitrator proceedings will be terminated.

Another issue of interest is the impact of emergency proceedings on the concurrent jurisdiction of a competent court or the arbitral tribunal. As for court proceedings, emergency arbitrator procedures are not envisaged to represent an exclusive remedy and, in general, the option of (or indeed submission to) those proceedings does not operate as a waiver of judicial authority over the matter. Indeed, certain arbitral rules expressly recognise the preservation of judicial remedies despite the availability of emergency arbitrator procedures (e.g. Article 29(7) of the new ICC Rules; Article 32(5) of the SCC Rules). However, the provisions of mandatory local law may curtail recourse to the courts where parties have an option to seek relief from another source (such as an emergency arbitrator). For example, under the English Arbitration Act (1996), the English courts will grant orders in support of arbitration “if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively” (section 44(5) of the English Arbitration Act). (It is noted, however, that the qualification of “unable…to act effectively” may dilute the restrictive effect of this provision on the English courts’ jurisdiction as a consequence of emergency arbitrator procedures.)

In respect of the arbitral tribunal, jurisdiction is entirely protected. Arbitral rules are clear that orders or awards of emergency arbitrators do not bind the subsequently-constituted arbitral tribunal, and that those tribunals are empowered to reconsider, modify, terminate or annul the order or award (e.g. Article 29(3) of the new ICC Rules; Schedule 1(7) of the SIAC Rules).

There are, however, important limitations on the interim relief emergency arbitrators are able to grant. For example, since the same principles of jurisdiction apply to emergency arbitrators as to the arbitral tribunal, they are not able to grant interim orders over third parties to the (eventual) arbitral proceedings. This rule is expressly recognised in the new ICC Rules, which state that the Emergency Arbitrator Provisions apply only to signatories to the arbitration agreement or their successors (Article 29(5) of the new ICC Rules). (It is noted that this particular provision also precludes the use of ICC emergency arbitrators in investor-state disputes.) In addition, ex parte applications – where the element of surprise is vital to their success – are not suitable for submission to emergency arbitrators (e.g. Mareva or freezing injunctions). This important limitation on the powers of emergency arbitrators partly reflects the centrality to arbitration of the opportunity for each party to present its case, but also the draconian nature of ex parte orders, such that they ought to be reserved solely for the national courts.

As a side note, one concern that has been voiced in relation the powers of emergency arbitrators to grant interim relief in arbitral proceedings is the potential damage their orders may cause if wrongly granted against innocent parties. However, arbitral institutions go some way to addressing this concern by giving emergency arbitrators the power to require the applicant to provide “appropriate security” as a pre-condition for the granting of relief (e.g. Appendix V, Article 6(7) of the new ICC Rules).

Assuming that the basic threshold requirements have been met (e.g. standing, urgency, prima facie entitlement to the relief sought, threat of irreparable loss), and a party is awarded the relief it seeks, the next key issue that arises is enforcement: how may provisional measures ordered by an emergency arbitrator be enforced and what are the sanctions for non-compliance? The form of the relief granted by an emergency arbitrator varies across arbitral institutions: some require provisional measures to be granted as “orders” (e.g. Article 29(2) of the new ICC Rules), whilst others permit interim “awards” to be rendered (e.g. Schedule 1(6) of the SIAC Rules; Article 32(3) of the SCC Rules). However, questions remain regarding the applicability of national arbitration laws to pre-arbitral procedures and the extent to which courts will enforce orders or awards made by emergency arbitrators. Ultimately, this is likely to turn upon whether emergency arbitrators are deemed to be “arbitrators”, for the purposes of arbitration legislation, granting relief in the course of “proceedings”. Unfortunately, there is a paucity of case law with which to illuminate this question. However, a purposive approach – which recognises that the primary purpose of arbitration legislation is to respect the parties’ agreement to arbitrate their disputes – would appear to lend support in favour of the enforcement of emergency arbitrators’ orders and awards.

Separately, claims may lie in breach of contract where parties are required by the governing arbitral rules to give an undertaking to comply with the orders of emergency arbitrators (e.g. Article 29(2) of the new ICC Rules; Schedule 1(9) of the SIAC Rules; Appendix II, Article 9(3) of the SCC Rules). Accordingly, arbitral tribunals are empowered to reflect non-compliance with the orders of emergency arbitrators in the final Award of damages (e.g. Article 29(4) of the new ICC Rules). (Added incentives derive from provisions which allow arbitral tribunals to revisit an emergency arbitrator’s decision about the costs of the emergency proceedings.)

In addition (and of greater practical effect than might, at first, be imagined), orders granted by emergency arbitrators are “morally binding” on the parties. Whilst it may be true that parties are less incentivised to comply with the orders of emergency arbitrators (on the basis that those arbitrators are usually prevented from sitting on the arbitral tribunal, and consequently the risk of adverse inferences from non-compliance may be perceived to be lessened), in practice, arbitral institutions report very high levels of voluntary compliance with those orders.

As the rules of arbitral institutions evolve to reflect modern practice and respond to commercial pressures, there appears to be an increasing convergence in approaches to the provision of pre-arbitral emergency relief. Although there may be certain practical limitations on the operation and enforcement of these provisions, the ultimate aim of emergency arbitrator procedures is the same: to increase party autonomy and reduce the role of the courts in arbitral proceedings, taking arbitration one step further to becoming a one-stop shop for the comprehensive and effective resolution of disputes. The proven track record of parties who have deployed these procedures successfully to date is an encouraging sign of the utility of emergency arbitrators and a likely indicator of future trends. Those institutions whose rules are currently silent on the use of emergency arbitrators are bound to follow suit.

Justin D’Agostino and Ula Cartwright-Finch
Herbert Smith

Although the Tribunal’s finding that it can hear mass claim has garnered the most interest, various aspects of the Decision have sparked debate.  The Tribunal held that the Claimants’ security entitlements in Argentinean bonds are investments for the purposes of Article 25, ICSID Convention and protected under the Argentina-Italy BIT.  Another controversy arises from the fact that the Decision was issued by the majority of the Tribunal without the simultaneous release of the dissenting opinion. The dissenting opinion, which the Decision states is “Forthcoming”, has yet to be released.

On 15 September 2011, the Argentine Republic filed a request for the disqualification of the majority of the Tribunal (Professors Pierre Tercier (President) and Albert Jan van den Berg), alleging that the two arbitrators could not be relied on to exercise independent judgment.   The disqualification request criticizes the two arbitrators in particularly strident language, arguing that the transmission of the Decision: “(a) without the dissenting opinion of the other arbitrator, (b) without his consent, and (c) without even waiting for a draft of said opinion” together with the majority’s rejection of Argentina’s request for provisional measures “is a manifestation of an absolutely inappropriate conduct” (para. 20).

Although the Decision raises a series of interesting issues (for example, see Sarah Ganz‘s post on the Decision’s treatment of the 18-month litigation requirement in the BIT), in this post I focus on the majority’s distinction between jurisdiction and admissibility, a subject of one of my previous posts.  In its Decision, the majority of the Tribunal (the Tribunal) states that it is appropriate and necessary to distinguish issues relating to jurisdiction and admissibility (para. 248) and that the “guiding thought of the Tribunal for distinguishing issues of jurisdiction from issues of admissibility has been the following cornerstone consideration:

 If there was only one Claimant, what would be the requirements for ICSID’s jurisdiction over its claim? If the issue raised relates to such requirements, it is a matter of jurisdiction. If the issue raised relates to another aspect of the proceedings, which would not apply if there was just one Claimant, then it must be considered a matter of admissibility and not of jurisdiction.” (para. 249)

The Tribunal’s analysis thus takes a two-fold approach.  First, it analyzes the mass claims issue within the context of the Parties’ consent to arbitration (a question of jurisdiction) and second, it analyzes the admissibility of mass claims.

The Decision is perhaps the clearest example of an investment treaty tribunal distinguishing between jurisdiction and admissibility.  The Tribunal highlights at para. 247 that:

 (i)            While a lack of jurisdiction stricto sensu means that the claim cannot at all be brought in front of the body called upon, a lack of admissibility means that the claim was neither fit nor mature for judicial treatment;

(ii)            Whereby a decision refusing a case based on a lack of arbitral jurisdiction is usually subject to review by another body, a decision refusing a case based on a lack of admissibility can usually not be subject to review by another body;

(iii)            Whereby a final refusal based on a lack of jurisdiction will prevent the parties from successfully re-submitting the same claim to the same body, a refusal based on admissibility will, in principle, not prevent the claimant from resubmitting its claim, provided it cures the previous flaw causing the inadmissibility.

With respect to consent, the Tribunal rightly held that if, in principle, it had jurisdiction over one claimant, “it is difficult to conceive why and how the Tribunal could loose such jurisdiction where the number of Claimants outgrows a certain threshold.” Further, it highlighted that “the collective nature of the present proceeding derives primarily from the nature of the investment made.”:

The ICSID Convention aims at promoting and protecting investments, without however further defining the concept of investment and leaving this task to the parties through relevant instruments such as BITs … Thus, where the BIT covers investments, such as bonds, which are susceptible of involving in the context of the same investment a high number of investors, and where such investments require a collective relief in order to provide effective protection to such investment, it would be contrary to the purpose of the BIT and to the spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a supplementary express consent to the form of such arbitration. In such cases, consent to ICSID arbitration must be considered to cover the form of arbitration necessary to give efficient protection and remedy to the investors and their investments, including arbitration in the form of collective proceedings.  (para. 490).

In conclusion, the Tribunal, rightly held that “the “mass” aspect of proceedings relates to the modalities and implementation of the ICSID proceedings and not to the question whether Respondent consented to ICSID arbitration. Therefore, it relates to the question of admissibility and not to the question of jurisdiction.” (para. 492).

The Tribunal took a purposive approach to the interpretation of the ICSID Convention’s “silence” as to mass claims, holding that it would be “contrary to the purpose of the BIT and to the spirit of ICSID to interpret this silence as a “qualified silence” categorically prohibiting collective proceedings, just because it was not mentioned in the ICSID Convention” (para. 519).

With respect to the adaptations, the Tribunal identified the need to adopt mechanisms to allow a simplified verification of evidentiary materials with respect to each individual claim (para 531) and the manner of the representation of the claimants (paras. 531-532).  In finding that it had the power to adapt procedures to address the “mass claims” aspect of the case, the Tribunal states that adaptations must consider the principle of due process and a must seek a balance between the procedural rights and interests of each party (para. 519).  In assessing that balance the Tribunal considered: (i) under what conditions is it acceptable to change the method of examination from individual to group treatment; (ii) to what extent are Argentina‘s defense rights affected in comparison to 60,000 separate proceedings; and (iii) is it admissible to deprive Claimants of certain procedural rights (para. 539).

Argentina’s had argued that there are strong policy reasons why ICSID is an inappropriate forum to address issues with respect to sovereign debt restructuring.   The Tribunal flatly rejected this argument, rightly stating that “Policy reasons are for States to take into account when negotiating BITs and consenting to ICSID jurisdiction in general, not for the Tribunal to take into account in order to repair an inappropriately negotiated or drafted BIT.”

It its disqualification request, Argentina suggests that the procedural mechanisms set out in the Decision are an unjustifiable limit on Argentina’s right of defence and further evidence of the Tribunal’s alleged lack of independent and impartial judgment (paras. 25 et seq.).   Although Argentina has characterized the majority’s Decision as “egregious” and various Tribunal statements as “shocking” and “absurd”, this hyperbole should seen for what is—a regrettable attempt to appeal a tribunal decision through the guise of a disqualification request.  The majority of the Tribunal’s approach to mass claims is correct in principle and practical, objective and fair-minded in practice.  International arbitration can be an effective and efficient system of dispute resolution because of its ability to adopt flexible procedures to address myriad claims and issues.  The majority’s Decision reflects this approach and will stand the test of time.

After the general introduction from ASA President Michael E. Schneider, Lara Bander and Mehtap Tari Hirt, two post-graduate students from the Master of Advanced Studies in International Dispute Settlement (MIDS) in Geneva, presented the results of an elaborate questionnaire directed to arbitral institutions all over the world. Twenty-one institutions responded, including the ICC, Swiss Chambers Court of Arbitration and Mediation, LCIA, WIPO, ICSID and SCC. As examples of the results obtained, the speakers reported that the institutions generally check whether there is an arbitration agreement in existence or that some institutions stated that they have no power to refuse to confirm an appointment on the basis of information that they may possess. It was also reportedly very rare for arbitrators to be removed by the institutions and many institutions were said to ask arbitrators for the reasons for delay where this occurred. Some ask for information as to the availability of the arbitrator before appointment, though this is rare. There is generally no control on procedural decisions, and scrutiny is limited to formal comments if any, the ICC being the exception in that it also provides substantive comments.

In addition, there is general agreement among the arbitral institutions that the split in the costs of the arbitration is very similar to that published by the ICC recently, namely: 82% for counsels’ fees and expenses, 16% for the arbitrators’ fees and 2% for the institutions’ fees. There is generally no offer of liability insurance by the institutions and institutions were reluctant to discuss their budget, and origin of funds.

Regarding the origin and gender of arbitrators, Bander and Hirt stated the institutions had conveyed that the first five favourite nationalities for arbitrators are Swiss, French, American, Dutch and German and less than 10% of arbitrators appointed are women.

A panel followed on the organisation of the arbitral institutions with particular reference to independence, funding, operations, and the role at the commencement of the arbitration.

Urs Weber-Stecher (Wenger & Vieli) kicked-off with a list of eight “basic principles to be respected by arbitral institutions in order to meet proper corporate governance requirements and objective standards of fairness”. Independence from any other body, organization or industry group, the efficient assignment of tasks and the possibility of appeal on important decisions were cited as some of the principles. It was also stated that the body electing the members of the arbitration body supervising and administering the arbitration proceedings must have the legitimacy and acceptance of the arbitration community and the typical users of arbitration as well as being a transparent and objective process.

Anne Véronique Schlaepfer (Schellenberg Wittmer) discussed the role of the institution at the commencement of the proceedings. It was noted that the institution has a key role at this stage and if something goes astray, it may be very difficult or even impossible to bring the proceedings back on track. For instance, if the institution refuses to accept a notice of arbitration because it erroneously considers that there is manifestly no agreement to arbitrate under the Swiss Rules, it will be the end of the proceeding. This, according to Schlaepfer, is a jurisdictional and not an administrative decision.

A debate later ensued between Phillipe Pinsolle (Shearman & Sterling) and Simon Greenberg (Deputy General Counsel, International Court of Arbitration, ICC) as to whether the decision by arbitral institution to disallow a case to proceed to arbitration on the basis of a manifest lack of an arbitration agreement was a jurisdictional decision or not. Greenberg stated that while it may technically be a jurisdictional decision, this was not the terminology used by the ICC. Greenberg recalled a case in which the ICC determined that the case should not proceed to arbitration on the basis of article 6(2) of the ICC Rules, a decision which was then challenged and overturned by the courts of New York. The ICC was thereafter required to allow the arbitration to proceed. Pinsolle stated that such recourse would not have been available in jurisdictions such as France and Switzerland. (On the other hand, the arbitral award itself could be challenged if the arbitral tribunal wrongly accepts or declines jurisdiction, irrespective of a prior decision of the ICC under article 6(2), – see Swiss Federal Supreme Court, 4A_376/2008, ASA Bulletin 2009, 745)

The following panel discussed the appointment, confirmation, removal and replacement of arbitrators.

Juliet Blanch (Weil, Gotshal & Manges) raised a series of very interesting questions on the topic of appointment and confirmation. On pre-appointment disclosure, for example, Blanch noted that WIPO, ACICA and the Cairo Regional Centre for International Commercial Arbitration all allege in the responses to the questionnaire prepared by the MIDS students that they verify the information disclosed by the arbitrator. Blanch noted that this raises the question as to whether these institutions would become liable if they were negligent in such verification.

Blanch referred to the issue of having a barrister on the tribunal who was from the same chambers as a barrister acting as counsel. In Blanch’s opinion this raises real concerns given that a chamber now markets its barristers under its banner and a clerk will market the Chambers to potential clients on behalf of all the barristers in them.

In the ensuing debate, Peter Leaver QC (Chairman of Board, LCIA) suggested a solution in order to avoid last-minute potential conflicts of interest where barristers who were in the same chambers as an arbitrator were requested to act as counsel late on in the proceedings. Leaver would write into a procedural order that the parties must within 48 hours of any change in their legal representation advise the tribunal of the same.

Nathalie Voser (Schellenberg Wittmer) gave a presentation on the removal and replacement of arbitrators. First, Voser discussed the decision of the Swiss Supreme Court of 29 October 2010 (DSC 136 III 605) where the Supreme Court found that the same standard of independence and impartiality applied to a party appointed arbitrator and to a chairperson.

The decision of the Supreme Court of 10 June 2010 (4A_458/2009) was also referred to. This CAS case involved football player, Adrian Mutu, and Chelsea Football Club where a first arbitration decision favoured Chelsea confirming a breach of the employment contract by Adrian Mutu. Chelsea then claimed compensation for breach of employment contract in a second arbitration. The chairman of the first arbitration was appointed by Chelsea as an arbitrator in the second arbitration. Substantial damages were awarded to Chelsea. Mutu requested the Swiss Supreme Court to set the decision aside. Mutu argued that the arbitrators appointed by Chelsea in the second arbitration was partial as he had presided over the first arbitration. Voser explained that the Supreme Court, in dismissing the request for annulment did not address the right issues as it limited its analysis to the issue of pre-judgment by the appointed arbitrator. In particular, Voser asked whether the issue to be looked at was not in fact whether arbitrators where in a position of “equality of information”, a position adopted by the ICC Court when confirming arbitrators and/or deciding on challenges. The Supreme Court, Voser said, went very far in confirming the arbitral award and in her opinion it does appear questionable that Chelsea could appoint the former chair of a panel who rendered a decision favorable to Chelsea in the very same dispute.

The third panel of the day looked into supervision and quality control of the arbitration by the arbitral institutions.

Daniel Hochstrasser (Bär & Karrer) addressed the control of the efficient conduct and quality of the proceedings. He touched upon a range of issues.

For example, as to the question of whether institution should refuse to confirm an arbitrator simply because he or she is known to be subject to a heavy workload, Hochstrasser stated that party appointed arbitrators are rarely the reason for delay and even high-profile arbitrators are usually responsive and provide efficient input.

Time limits imposed on the rendering of an award were remarked to be of little effect. Although institutions insist on the establishment of the schedule at the outset of the arbitration, there is no input from the institutions in the procedure chosen by the tribunal/parties. Hochstrasser suggested that it might make sense for institutions to influence the number of written submissions, the bifurcation of proceedings and document production requests, particularly in small cases. Hochstrasser regretted that institutions are rarely involved in discussions with the tribunal on the procedure chosen. It was suggested that should the institution find that extremely long deadlines are being set, it could intervene.

Greenberg then talked about the specific experience of the ICC in the scrutiny of awards. Greenberg explained that the first level of scrutiny is by the ICC counsel assigned to the case, though it can be carried out by ICC deputy counsel if counsel is away. The next level of scrutiny is carried out by management, normally the deputy secretary general or the secretary general. The award thereafter goes to the ICC Court for a further review. At the ICC Court, the discussion centres on the substantive comments rather than the procedural or formal comments by the Secretariat. It is however not always clear whether the comments are formal or substantial. In any event, three things can occur in relation to the substantive comments when these are communicated to the tribunal: i) the tribunal accepts them; ii) the tribunal informs the ICC that it has made a mistake and the ICC then withdraws the comment; iii) the tribunal does not accept the comment. The second and third possibilities rarely occur.

Greenberg expressed his conviction that the scrutiny process improves awards, though there are two main drawbacks: i) there is delay; the scrutiny process at the ICC should take no more than 2-3 weeks, though it has been the case in the past that it has taken up to 4-5 months; and ii) interference with the tribunals’ liberty of decision. Greenberg stated that in order to improve the scrutiny process there could be more training, further feedback from arbitrators and a continual search for ways to improve our efficiency.

The fourth and last panel related to costs and liability.

Wolfgang Peter (Python Peter) spoke on cost control and the striking the balance between cost efficiency for the parties and fair remuneration of the arbitrators.

As a measure of the disproportion between the arbitrator’s fees and the other arbitration costs, Peter mentioned that it is often the case that experts charge higher fees than arbitrators. Peter also mentioned that in a recent ICSID case counsel had charged more than $40 million for the jurisdictional phase and that in recent case in which he was involved where $140 million was in dispute, the parties had charged $21 million in fees.

Remuneration of arbitrators on an ad valorem basis was said to have to particular problems. The first is that Peter believes that arbitrators have a lot more work on each case than in the past because of the way international arbitration has evolved; yet the system has not taken account of this. The second is that there are issues of allocation of fees between arbitrators where one arbitrator may carry out very little of the work yet still be awarded a substantial portion of the overall fees.

However, a time based system was also said to be problematic. In particular, should there also be a cap on the hourly rate charged by an arbitrator? This would disadvantage younger practitioners in Peter’s view.

Currency fluctuation was said to be a particular issue. From 2005 to today, Peter remarked, the US dollar has dropped in value against the value of all the major currencies in the world. For example against the Swiss franc it has dropped 60% and against the Australian dollar it has dropped 50%.

Michael Moser, in the ensuing debate, referred to the situation of arbitrator remuneration at CIETAC, where arbitrator remuneration is extremely slight. As an example, in a claim for $10 million, $100,000 would go to CIETAC out of which $25,000 would remunerate the arbitrators. Moser stated that as a result, the following words from the Bible were apt to describe potential arbitrator’s willingness to act in CIETAC arbitrations: “Many are called, but few are chosen”.

Professor Hans Van Houtte (Iran-United States Claims Tribunal) spoke of the liability of arbitrators and institutions. He started off by pointing out that the threats of liability are part of the charged atmosphere that exists in international arbitration. Indeed, it is the case that annulment of a decision is no longer felt to be a sufficient remedy.

The liability of an arbitrator will depend on the seat of the arbitration, Van Houtte said. In common law systems it is considered that arbitrators have the same liability as judges which is normally on the basis of wilful misconduct or gross negligence.

In civil law systems, the basis of any liability is based on the contract said to exist between arbitrators and the parties and can derive from a failure to abide by the three tasks entrusted to arbitrators namely: to render a decision; to render a good decision; to behave diligently.

Van Houtte referred to the liability of arbitral institutions. Possible areas in which an arbitral institution could be found liable include where the institution has wrongly refused a case on the basis that the claim lacks a valid arbitration clause or where it accepts the case only for the award to be later annulled because the arbitration clause was invalid.

Richard W. Naimark (Senior Vice President, AAA) remarked that in the United States there has been a long history of attempts at holding institutions and arbitrators liable. A doctrine of quasi-judicial immunity which derives from judicial immunity exists.

The articles by the speakers in this conference will be published by ASA in an upcoming Special Series volume.

By Matthias Scherer and Jaime Gallego

Any arbitrator will understand such a move and assume that the parties know best what works for them to achieve a satisfying resolution of their dispute. Amicable negotiations should always be an option. The period for which the proceedings were originally suspended may turn out to be too short, so the parties extend the timeframe, sometimes more than once. But what if the parties keep suspending the proceedings beyond what is considered to be reasonable? Are arbitrators expected to remain available for the parties for the duration of the suspension, no matter how long the suspension lasts? These questions go to the very heart of the arbitrators’ duties after their appointment.

As reflected in the IBA Rules of Ethics for International Arbitrators, it is widely accepted that arbitrators commit themselves, not only to be and remain independent, but also to devote their time and efforts to the case, in order for the arbitration to run efficiently and expeditiously. Furthermore, a fairly uncluttered agenda has become a commonplace requirement in the selection of arbitrators. Parties looking for a suitable arbitrator consider it standard practice to ask candidates questions about their agenda and upcoming commitments.

Remaining independent and available is essential for arbitrators. This implies that arbitrators need to manage their agendas in order to avoid compromising their availability and to refrain from taking on conflicting engagements until the conclusion of the arbitration. Not honoring these principles would constitute a breach of the arbitrator’s contractual and ethical duties.

Also, it is generally expected that arbitrators, after their appointment, remain committed to the case until its conclusion and not withdraw without good reason. This is reflected in some of the most well known arbitrators’ codes of ethics.

For instance, according to the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes, once an arbitrator has accepted an appointment, the arbitrator should not withdraw or abandon the appointment unless compelled to do so by unanticipated circumstances that would render it impossible or impracticable for him or her to continue. The arbitrator may also withdraw if the parties fail or refuse to compensate him or her as agreed.

Similarly, the JAMS Arbitrators Ethics Guidelines establish that an arbitrator should withdraw from the process if she or he has insufficient knowledge of the relevant procedural or substantive issues, if she or he is unable to maintain impartiality, or if she or he suffers a physical or mental disability. Also, an arbitrator should withdraw if there is a conflict of interest that has not been or cannot be waived or if the arbitration is being used to further criminal conduct. In addition, an arbitrator should be aware of the potential need to withdraw from the case if procedural or substantive unfairness appears to have irrevocably undermined the integrity of the arbitration process. In any case, the JAMS guidelines make it clear that, except where an arbitrator is compelled to withdraw or where all parties request withdrawal, an arbitrator should continue to serve.

The duty to continue service absent an overriding ethical reason to the contrary, was confirmed in a 2006 California case, Morgan Phillips, Inc., v. JAMS/Endispute, 40 Cal. App. 4th 795, 802 (Ct. App. 2006). In Morgan Phillips, Inc., an arbitrator and the arbitral institution were sued for damages because the arbitrator withdrew from the case without stating an ethical reason and refused to issue an award. The California Court of Appeals, while considering that an arbitrator’s decision to withdraw based on ethical standards (e.g., because of substantial doubt of the arbitrator’s ability to be fair and impartial, or because of a conflict of interest) is essential to the arbitral function and covered by arbitral immunity, rejected the defense of arbitral immunity when no ethical reason for the withdrawal was stated by the arbitrator. The court reasoned that, under these circumstances,

‘withdrawal (and the resultant refusal to render an award) is not immunized as a decision necessitated by ethical strictures. Rather, it is conduct inconsistent with those strictures and with his quasi-judicial role as an arbitrator. It amounts to a breach of his contractual duty to conduct a binding arbitration.’

Is the arbitrator’s duty not to abandon his or her post without the parties’ consent or without a good cause, similar to what is required from a soldier? If so, can a long or indefinite suspension of the arbitral proceedings constitute good cause for withdrawal?

Considering that there is no arbitral or ethical rule under which the suspension of the arbitral proceedings is a reason for withdrawal, there is no easy answer to this question. Only because Penelope waited 20 years for Odysseus’s return, should we expect arbitrators to wait for the same amount of time?

The key issue here seems to be reasonableness. How long is it reasonable to wait for the parties in the case at hand? Related questions arise concerning ethical duties of arbitrators. For example, are arbitrators ethically required to follow the parties’ negotiations in order to be ready to return to perform their duties? Should arbitrators remain in contact with the parties in order to react promptly and properly to the development of negotiations?

The reverse question should be asked as well: Is there an ethical duty for the parties — and more importantly, for legal counsel — to discharge the arbitrators if the parties decide to pursue settlement negotiations? It would be unfair to expect arbitrators to wait indefinitely for the parties to return and keep themselves available for proceedings that might never restart, while not getting compensated for their time.

There are no correct or wrong answers to the questions raised above. As with many thorny issues, the solution is to be found in the particular circumstances of each individual case, balancing the interests of the parties and the arbitrators.