The publication of the 2012 Rules comes at a time when CIETAC’s influence is perhaps greater than it has ever been. Whilst many alternatives exist, CIETAC maintains a dominant position in China, where PRC law restricts offshore arbitration in certain circumstances. Furthermore, even where offshore arbitration is available, there is an increasing trend amongst PRC parties to seek to negotiate CIETAC clauses (with a Mainland seat) in their international contracts. As explained further below, the new rules will allow CIETAC to increase its influence still further, providing for the administration of proceedings outside of Mainland China for the first time, and purporting to allow CIETAC to administer proceedings brought under the rules of other arbitral institutions.

Some of the major amendments include:

1. Arbitral tribunals empowered to grant interim measures in certain circumstances

Under the PRC Arbitration Law and the PRC Civil Procedure Law, the power to grant conservatory measures – including orders for the preservation of property or the protection of evidence – is reserved to the competent Chinese court. The current position under the CIETAC Rules, therefore, which is reflected in Article 21.1 of the 2012 Rules, is that, wherever a party applies for conservatory measures pursuant to the laws of the PRC, “the secretariat of CIETAC shall forward the party’s application to the competent court designated by that party in accordance with the law“.

Under Article 21.2 of the 2012 Rules, however, an arbitral tribunal may also now order “any interim measure it deems necessary or proper in accordance with the applicable law“. This provision will apply, for example, in any CIETAC arbitration seated outside of Mainland China where the law of the seat permits arbitral tribunals to grant interim measures (such as in Hong Kong, where CIETAC has already announced plans to establish a new sub-commission later this year). It is also possible that Article 21.2 will apply to arbitrations in the Mainland wherever the type of interim relief sought falls outside of the exclusive jurisdiction of the Chinese Courts. It remains to be seen, however, whether Article 21.2 will be invoked in Mainland arbitration proceedings and, if so, whether any interim measures granted by an Arbitral Tribunal can be enforced in practice.

2. Expert witnesses required to give oral evidence if called to do so by the Arbitral Tribunal

One feature of CIETAC arbitration which has attracted plaudits and criticism in equal measure is the limited use of witness evidence in some cases. Both the existing and new CIETAC Rules afford a broad discretion to the Arbitral Tribunal to conduct the proceedings “in any way that it deems appropriate“. Article 42.3 of the 2012 Rules, however, now stipulates that expert witnesses must participate in any oral hearing and “give explanations” on their written reports if called to do so by the Tribunal. There is no similar provision for factual witnesses, but the new rules may nevertheless be of assistance in cases where the examination of experts would otherwise be limited.

3. New rules on consolidation

Currently, the CIETAC Rules make no provision for the consolidation of parallel proceedings dealing with related issues (whether between the same parties, or, for example, multiple parties under a suite of related contracts). The 2012 Rules now provide a mechanism for parallel proceedings to be consolidated into a single arbitration.

To some extent, the new CIETAC Rules mirror the provisions of the recently revised ICC Rules, which also contain detailed provisions on consolidation. Under both sets of rules, for example, consolidation will only be possible with the consent of all parties (Article 17.1 of the 2012 Rules and Article 10 of the ICC Rules). Equally, under both sets of rules, the decision as to whether to consolidate the proceedings will be taken by the institution rather than the Arbitral Tribunal. Unlike the ICC Rules, however, which provide clear guidance on the criteria which must be satisfied before any application for consolidation will be granted (Article 10, ICC Rules), the 2012 Rules provide a broad discretion to the CIETAC to take into account “any factors it considers relevant” in making the decision (Article 17.2). This may include: (i) whether all of the claims are made under the same arbitration agreement; (ii) whether the arbitrations are between the same parties; and (iii) whether one or more arbitrators have been nominated or appointed in the arbitrations (although this list is non-exhaustive). The introduction of consolidation provisions is to be welcomed: it can prove particularly useful in complex disputes involving multiple parties or multiple contracts. Users of CIETAC arbitration will therefore watch with interest to see how the institution exercises its discretion under the new Rules moving forward.

4. New rules for determining the seat of arbitration

Under the current Rules, where parties have not agreed on the seat of arbitration, it is deemed to be the city where CIETAC (or any of its sub-commissions) is located, namely a place inside Mainland China. The 2012 Rules now allow CIETAC to decide that the seat shall be a city other than the location of CIETAC (or any of its sub-commissions), which could be a city outside Mainland China (Article 7.2).

This is a significant change, at least on paper, given that the seat determines both the law governing the arbitration procedure and the courts which will retain supervisory jurisdiction over the arbitration. It remains to be seen, however, how often CIETAC will exercise its new discretion in favour of a seat outside of Mainland China.

It is worth noting, however, that arbitration outside of Mainland China is only permitted for “foreign-related” disputes. Whether a dispute is “foreign-related” is therefore a key question. The Supreme People’s Court has published two judicial interpretations which indicate that disputes with one or more of the following three elements will be considered as “foreign-related” (and it should be noted that Hong Kong is deemed a “foreign” jurisdiction for these purposes): (i) at least one of the parties is “foreign“; (ii) the subject matter of the contract is or will be wholly or partly outside Mainland China; and (iii) there are other legally relevant facts “as to occurrence, modification or termination of civil rights and obligations” which occurred outside Mainland China.

5. Broader provisions on the language of the arbitration

Under the current Rules, in the absence of party agreement on the language of the arbitration, the arbitration must be conducted in Chinese. The 2012 Rules allow CIETAC to determine that the language of arbitration shall be “any other language… having regard to the circumstances of the case” (Article 71.1). This is a welcome development, particularly for disputes where all of the relevant documents (including the underlying contract) may have been written in a language other than Chinese. As with the other changes to the rules, however, only time will tell how often this discretion is invoked in practice.

6. Default provision for administration by CIETAC Beijing

Unlike many other arbitral institutions, CIETAC proceedings are administered by different “sub-commissions“, located in various cities in Mainland China (and which will soon include a sub-commission in Hong Kong). Parties are advised to stipulate in their arbitration agreement which particular sub-commission they wish to administer their dispute. Previously, where the clause did not include any such designation, the party commencing proceedings was entitled to express a particular preference. The other party, however, had the right to object, which would occasionally cause delay as parties would often prefer for the dispute to be administered by different entities. The 2012 Rules, therefore, provide that if a CIETAC arbitration clause does not specify a particular sub- commission, CIETAC Beijing will administer the arbitration (Article 2.6). The new provision is welcome, and serves as a useful reminder that it is important to state the relevant CIETAC entity expressly and in full when drafting a CIETAC clause (and in this regard it is important to refer to the relevant sub-commission explicitly; a simple reference to “CIETAC arbitration in Shanghai” may not be enough and, under the 2012 Rules, may lead to the dispute being administered by CIETAC Beijing).

7. Use of other arbitration rules in CIETAC administered arbitrations

One potentially controversial development in the 2012 Rules concerns Article 4.3, which provides that: “where the parties agree to refer their dispute to CIETAC for arbitration but have agreed on … the application of other arbitration rules” CIETAC “shall perform the relevant administrative duties“. In other words, CIETAC will not only administer ad hoc arbitrations under, for example, the UNICTRAL Rules, but will also administer proceedings commenced under the rules of other arbitral institutions. This potentially brings CIETAC into conflict with, for example, the ICC, which has recently amended its rules to make clear that only the ICC Court is authorised to administer ICC arbitration proceedings (Article 1(2) ICC Rules). It is best practice, in any event, to avoid arbitration clauses which seek to allow one arbitral institution to administer proceedings brought under the rules of another institution. This may not only lead to uncertainty in the conduct of the proceedings, but can also expose the award to challenge (as evidenced by the case of Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24, where SIAC purported to administer a dispute brought under the ICC Rules).

8. Changes to the appointment of arbitrators in multi-party disputes

CIETAC has also amended its rules regarding the appointment of arbitrators in multi-party cases. Under the new Rules, where there are multiple claimants and/or multiple respondents in any proceedings, and the multiple claimants and/or respondents are unable to jointly nominate an arbitrator, CIETAC will appoint all members of the tribunal and designate the presiding arbitrator (Article 27.3). Previously, CIETAC would only appoint the arbitrator for the party in default. The objective of the new rule – which also reflects current practice at the ICC and SIAC (amongst others) – is to minimise the risk of a challenge to the arbitral award on the grounds of unfair treatment (as occurred in the well-known decision of the French Cour de Cassation in Siemens AG/BKMI Industrienlagen GmBH v Dutco Construction Company).

9. New provisions regarding mediation in CIETAC arbitrations

Article 45.8 of the 2012 Rules allows CIETAC to “assist” with the settlement of disputes through the process of mediation part-way through arbitral proceedings, if requested to do so by the parties. It is not yet clear how this rule will operate in practice, however, as the new Rules do not provide any indication of who will be responsible for the mediation (i.e. whether this is to be conducted by the administrative staff of CIETAC or whether professional mediators will be engaged by CIETAC on the parties’ behalf).

It is common practice in China for arbitral tribunals to facilitate the settlement of disputes by way of mediation or conciliation. Under both the new and existing CIETAC Rules, arbitral tribunals have a wide discretion to conduct so-called ‘arb-med’ procedures in any manner they consider appropriate. Arb-med can be effective in helping parties to settle complex disputes at a relatively early stage, saving considerable time and costs as a consequence. Although many common law practitioners remain sceptical of such processes, they can work well in particular cases, albeit that an evaluative rather than facilitative mediation may be more appropriate depending on the circumstances of the dispute.

10. New criteria for the selection of arbitrators by the CIETAC Chairman

Article 28 of the 2012 Rules describes the criteria which the Chairman of CIETAC may take into consideration when appointing arbitrators in the absence of party agreement. In addition to the law of the contract and the place and language of the arbitration (and any other factors considered to be relevant), the Chairman will also be able to take into account the “nationalities of the parties“. The 2012 Rules do not, however, require that the presiding or sole arbitrator be of a different nationality to the parties. If this is desirable, therefore, parties should make express provision for this in their arbitration agreements.

11. Increased threshold for CIETAC’s summary procedure

Under the existing CIETAC Rules, parties may apply for a “summary procedure” (effectively a form of fast-track arbitration) if the amount in dispute falls below a certain threshold (currently RMB 500,000). Cases heard under the summary procedure will be determined by a sole arbitrator unless otherwise agreed by parties and the time limit for rendering an award is 3 months from the constitution of the tribunal, as opposed to 6 months under the standard procedure.

Under the 2012 Rules, the relevant threshold for the summary procedure has been increased to RMB 2 million. Furthermore, if the amount in dispute later exceeds the threshold because of, for example, amendments to claims or counterclaims, the summary procedure will continue to apply unless otherwise agreed by the parties. This marks a departure from the existing Rules, where cases exceeding the RMB 500,000 threshold would automatically be transferred to the standard procedure unless otherwise agreed.

Conclusion

The changes introduced with the 2012 Rules seek to address the growing complexity of contemporary arbitration proceedings, affording parties greater autonomy and flexibility in some respects such as more freedom for parties to agree on the seat and language of arbitration, whilst also codifying and clarifying several important aspects of CIETAC’s existing practice. The new Rules reflect CIETAC’s ambition and its desire to compete with other major international arbitration institutions, all of which have witnessed a significant increase in China-related business over recent years.

Only time will tell how the new provisions will be applied in practice. Whilst many of the changes are welcome, it remains important to draft CIETAC arbitration clauses carefully. Amongst other things, it is important to make express provision for the language of the arbitration and the CIETAC sub-commission which will administer the proceedings (preferably Beijing or Shanghai, which have more experienced case administrators). In cases involving non-Chinese parties, it is also helpful to provide expressly that the sole arbitrator or chairman be of a nationality different from the parties and that the parties be permitted to appoint arbitrators from outside of the CIETAC panel.

With thanks for invaluable contributions to May Tai, Jessica Fei and Weina Ye (Herbert Smith, Beijing), Simon Chapman (Herbert Smith, Hong Kong) and Tracy Wu (Herbert Smith, Shanghai)

Conducted by QMUL’s School of International Arbitration and sponsored by White & Case LLP, the 2012 survey aims to examine whether a “harmonised international arbitration procedure is emerging, by canvassing the views of experienced arbitration practitioners from all over the world,” comments Professor Loukas Mistelis, Director of the School of International Arbitration at QMUL.

Entitled “Current and Best Practices in the Arbitral Process,” the survey is the fourth carried out by QMUL since 2006, and seeks to conduct a major investigation into arbitration practices and trends worldwide. Corporate attitudes towards arbitration, recognition and enforcement of foreign awards, and corporate choices in arbitration in key and emerging markets were past survey themes.

There are two significant differences between this survey and those done before. First, this survey concerns the arbitral process itself, rather than corporate user attitudes towards arbitration. Second, this survey reaches out to arbitration counsel and to arbitrators, in addition to inside counsel. This should provide a much broader universe of respondents, along with greater empirical evidence for what actually occurs in arbitration and what works and what does not.

The following topics will be explored in the 2012 survey:

• Arbitrator selection: The preferred methods of selecting arbitrators, experiences in interviewing potential arbitrators and expectations regarding the conduct of such interviews.
• Organising arbitral proceedings: How procedural meetings are convened, the use of the IBA Rules on the Taking of Evidence in International Arbitration, experiences and expectations regarding the role of the tribunal secretary, methods for expediting arbitration proceedings and the use of fast-track arbitration.
• Interim measures and court assistance: The frequency of interim measures applications to tribunals and courts (including security for costs applications), the level of compliance with tribunal-ordered interim measures and the power of arbitrators to order interim measures ex parte.
• Document disclosure: The frequency of document disclosure requests, the standard that applies/should apply for disclosing documents in international arbitration and how to best manage the disclosure process.
• Fact and expert witnesses: The effectiveness of fact witness statements, experiences and views on mock cross-examination of witnesses and witness conferencing, types of expert witnesses most frequently used and the preferred method of appointing expert witnesses.
• Pleadings and hearings: The number and order of delivery of written submissions, methods of expediting pleadings and hearings, duration and mode of hearings and the effectiveness of oral closing submissions and post-hearing briefs.
• Arbitral awards and costs: The frequency of partial, interim and dissenting awards, expectations regarding the length of time to issue an award and experiences and preferences regarding costs allocation.

The questionnaire for this year’s survey can be accessed at www.arbitrationonline.org/survey. Corporate counsel, private practitioners and arbitrators are encouraged to participate.

Those who wish to contribute have until the end of May to complete their responses. Questionnaire responses may be followed by individual interviews for those willing to participate. The report is expected to be launched in September 2012.

By Paul Friedland and John Templeman
White & Case, LLP

The events leading to the Second Circuit’s judgment began in August 1999 when Scandinavian Reinsurance (SR) and St. Paul Fire and Marine Insurance (St Paul) entered into a stop-loss retrocessional agreement, a specialised type of reinsurance contract. Several years later, St Paul sought indemnification from SR under the agreement. In September 2007, upon SR refusing to make payment, St Paul initiated arbitration proceedings pursuant to the dispute resolution clause in the agreement.

The dispute resolution clause required that disputes be submitted to a panel of three arbitrators. The arbitrators had to be disinterested active or former executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s, London. SR appointed Jonathan Rosen and St Paul appointed Peter Gentile as arbitrators, and Paul Dassenko was selected to serve as umpire. Although not required by the agreement, all three arbitrators were certified by the AIDA Reinsurance Arbitration Society (ARIAS).

In keeping with pre-arbitration procedure and the ARIAS ethical guidelines for certified arbitrators, all three arbitrators made initial disclosures to the parties. These disclosures concerned past and present employment, their relationships with the parties or their law firms, participation as witnesses or arbitrators in other proceedings involving the same parties, their affiliates, their law firms or the same arbitrators. Dassenko as umpire provided written responses to a nine-page disclosure questionnaire prepared jointly by the parties. Rosen and Gentile made their disclosures orally at a February 2008 organisational meeting. Following these oral disclosures, Dassenko acknowledged that the arbitrators each had an ongoing responsibility to make further disclosures as necessary.

In June 2008, some three months after the February 2008 organisational meeting and while the St Paul arbitration proceedings were on foot, another reinsurance arbitration was commenced by Platinum Underwriters Bermuda (Platinum) against PMA Capital Insurance and several of its affiliates. Sometime between June and September 2008, both Gentile and Dassenko were selected to serve on the panel in the Platinum arbitration (by Platinum and as umpire, respectively).

The Platinum arbitration progressed more quickly than the St Paul arbitration: the organisational meeting was held in late September 2008; three one-day evidentiary hearings took place between March and May 2009; and on 22 May 2009 – about four weeks before the start of the St Paul arbitration evidentiary hearing – the Platinum panel issued its award.

Meanwhile, the St Paul arbitration continued to proceed and during this time, each of the arbitrators made various additional disclosures. Despite these additional disclosures, Dassenko and Gentile never disclosed to the parties their involvement in the Platinum arbitration. The final evidentiary hearing in the St Paul arbitration was held in June 2009. In August 2009, the St Paul panel issued their award, finding in favour of St Paul on all issues.

According to SR, it was not until two months after the St Paul award had been issued that it learned of Dassenko and Gentile’s participation in the Platinum arbitration. Accordingly, in November 2009, SR petitioned the US District Court for the Southern District of New York to vacate the award on the grounds of evident partiality pursuant to section 10(a)(2) of the FAA. SR argued that the partiality of Dassenko and Gentile was evident as a result of their failure to disclose their participation in the Platinum arbitration which SR said involved ‘a common witness, similar disputed issues and contract terms, and the company that succeeded to the business of St Paul.’

St Paul opposed SR’s petition and cross-petitioned the District Court to confirm the arbitration under section 9 of the FAA. St Paul accepted that Dassenko and Gentile did not disclose to the parties their involvement in the Platinum arbitration, however St Paul argued that such non-disclosure did not constitute or indicate bias.

The District Court granted SR’s petition, finding that the arbitrators’ non-disclosure of the Platinum arbitration amounted to evident partiality. The District Court reasoned that, in addition to the commonality of arbitrators, the two arbitrations ‘overlapped in time, shared similar issues, involved related parties, [and] included [a common witness].’ The District Court found that Dassenko and Gentile’s participation in both proceedings amounted to a ‘material conflict of interest’ which had to be disclosed. Because such conflict was not disclosed, the Circuit’s test for evident partiality had therefore been met. St Paul appealed.

In reviewing district court judgments, the Second Circuit Court of Appeals reviews questions of law de novo. Thus, the Second Circuit was not constrained by the District Court’s decision with respect to the issue of evident partiality.

The Second Circuit focussed its analysis on the distinction between non-disclosed information which merely should have been disclosed, and non-disclosed information regarding a relationship or interest which strongly suggests that an arbitrator is biased in favour of one of the parties. The Second Circuit stated that, ‘at its core, [the evident partiality standard] is directed to the question of bias.’ The FAA, it said, allows for vacatur of arbitral awards in circumstances where it is evident that the arbitrator was indeed partial to one of the parties. Therefore, if a non-disclosure does not indicate bias, then an award cannot be vacated for evident partiality on the basis of that non-disclosure.

In considering the circumstances surrounding the award in the St Paul arbitration, the Second Circuit was not convinced that Dassenko and Gentile’s participation in the Platinum arbitration was sufficient to indicate ‘bias in these proceedings so as to constitute a nontrivial conflict of interest.’ The Second Circuit considered such participation in the Platinum arbitration to be ‘overlapping arbitral service,’ not a ‘material relationship with a party.’ The Second Circuit was also not persuaded that the similarities between the two arbitrations were indicative of bias.

The Second Circuit emphasised that in order to determine whether a relationship is material, a court must focus on the ‘question of how strongly that relationship tends to indicate the possibility of bias in favour of or against one party, and not on how closely that relationship appears to relate to the facts of the arbitration.’ While the Second Circuit accepted that the arbitrators’ participation in the concurrent arbitrations and the similarities between the proceedings might indicate a relationship relevant to the St Paul arbitration, it was insufficient to establish a material conflict of interest if the relationship did not also indicate that the arbitrator might have a predisposition in favour of one or more of the parties. On this basis, the Second Circuit did not consider there to be evident partiality and therefore found that the District Court erred in vacating the award. The Second Circuit reversed the District Court’s judgment and remanded the case with instructions to grant St Paul’s cross-petition to confirm the award.

Although the FAA vacatur procedure as discussed in Scandinavian Re does not affect foreign-seated New York Convention awards simply seeking enforcement in New York, it directly affects New York-seated New York Convention awards. The Scandinavian Re judgment comes at a time when many eyes in the arbitration world are focussed on New York: the International Court of Arbitration has recently announced that it will open an office in New York City, and the New York State Bar Association Task Force on New York Law in International Matters has declared in its Final Report that it seeks to continue to promote the use of New York Law in international agreements and New York as a forum for international dispute resolution, namely international arbitration. Parties and practitioners seeking to conduct arbitrations in New York should be heartened by the Second Circuit’s general reluctance to review arbitral awards and the heavy burden the Second Circuit places on parties seeking to vacate an award.

Additionally, it bears mentioning that the underlying arbitration dealt with complex reinsurance issues for which the pool of competent arbitrators was quite small. The Second Circuit acknowledged this issue in footnote 20 of the judgment, saying that overlapping service of arbitrators does not necessarily equate to bias nor is it unusual. The Second Circuit did not have to go any further in this regard to reach its decision. However, future courts interpreting the evident partiality standard may well take the opportunity to distinguish disclosure/bias standards between general arbitrators and those arbitrators who practice in more specialised areas. Parties arbitrating disputes arising out of specialised areas should keep these complexities in mind when considering and vetting potential arbitrators.

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.

For details of how to subscribe to KluwerArbitration, please contact sales@kluwerlaw.com or telephone (+ 31) 172 641562.

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