Independence and impartiality

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Independence and impartiality

  1. 1. 6. Answer ALL FOUR parts of this question:(a) What does it mean to say that an arbitrator is "independent" and "impartial"?(a) Arbitration rules and laws usually do not provide a clear definition of these terms, except theSwedish arbitration law, section 8, containing a list of instances where the required “impartiality”is deemed to be lacking. Certain guidelines as to “independence” and “impartiality” can also befound in Codes of Ethics and in the rules on the nationality of the sole arbitrator or the chairman.However, there is some general understanding of the concepts of impartiality and independence.Impartiality requires that an arbitrator neither favours one party nor is predisposed as tothe question in dispute.Impartiality must be distinguished from neutrality as it is used in the AAA Code of Ethics, asthis provides that in some types of arbitration party-appointed arbitrators do not have to beneutral - if the proximity between a party and an arbitrator doesn’t influence the outcome of theproceedings, the lack of neutrality should not impair the impartiality. Neither should the merefact of having identical nationalities, of itself, affect the arbitrators impartiality (Article 11Model Law). However, it is common practice in most arbitration rules that a sole arbitrator or achairman should be of a different nationality than either party (ICSID Convention requires thatthe majority of the arbitrators must be of a different nationality than the parties), although this isbased more on the implied agreed qualifications of the arbitrator than on the basis of hisperceived lack of impartiality.Cases of partiality are rare (Re The Owners of the Steamship “Catalina” and The Owners of theMotor Vessel “Norma” [1938]). In arbitration involving states more general political commentsmay become an issue (The Iran-United States Claims Tribunal – one of the arbitrators was calledfor resignation, since he allegedly accused Iran “of condemning (sic) execution”). A clearpredisposition in relation to a dispute exists where the arbitrator has already expressed anopinion on the concrete legal question or has even acted as counsel for a party in the matter(except earlier publications dealing generally with legal topics). Given the subjective characterof this concept, the standard to be met is generally not actual impartiality but the appearance of it.The interviewing of arbitrators before appointment does not impair the impartiality, providedthat the case is not discussed in detail and the arbitrator does not give a party advice on how toproceed on the case.If the chairman is appointed by the two party appointed arbitratorsimpartiality is not impaired by ex parte contacts with the appointing party to receive views onthe acceptability of potential nominees (Rule 5.2 IBA Rules of Ethics). However, impartialitycan be violated if a party appointed arbitrator considers himself as the partys representative inthe tribunal.A dissenting or concurring opinion rendered in a previous/preliminary award, by itself does notlead to impartiality. However, if arbitrators go further than negotiation and try to exert pressureon any of the parties, they lack the necessary impartiality (ICT Pty Ltd v Sea Containers Ltd,(2002)).Examples of breach of impartiality:- presiding arbitrator spent 2 nights with lawyer representing the successful party (MissionInsurance case);- if the same arbitrator is appointed for related matters, preconceived opinion may prevent thearbitrator’s impartiality in the case of the party that wasn’t party to the previous proceedings (nogeneral test to be applied to determine impartiality in such cases).Independence requires that there should be no such actual or past dependant relationshipbetween the parties and the arbitrators which may or at least appear to affect thearbitrators freedom of judgment.In legal systems where either impartiality or independence is the relevant criterion theinterpretation adopted incorporates most elements of both concepts.
  2. 2. Normally a stricter standard of independence is applied at the time of appointment of thearbitrators (leads more towards exclusion) than at the time of challenge procedures (may entailthe retrial of considerable parts of the proceedings), given the disruptive effect challenge has onan arbitration.Examples of breech of independence:- an arbitrator havingan interest in the outcome of a case (e.g., no one should be a judge in hisown cause - Locabail (UK) Ltd v Bayfields Properties [2000]);- major shareholders or directors of a party being its arbitrators – however, independence issuedoesn’t arise in case of minor shareholders);- a person having an important and actual relationship with either party, e.g. partys usual lawyer(depends on the time and the extent of the relationship – e.g., longstanding and continuingrelationship with the arbitrators law firm).In Locabail (UK) Ltd v Bayfields Properties [2000] CA UK, it was held that particular facts ofthe case need to be considered in order to determine whether there was a “real danger of bias” todisqualify the judge.In Laker Airways case, English court held that the fact that an arbitrator was from the samechambers as counsel for one of the parties did not undermine his impartiality or independence,however, this case is specific to its facts and not final on this issue. In Liverpool Roman CatholicArchdiocesean Trust v Goldberg [2002], the court looked at whether there was a relationshipbetween the proposed expert and the party calling him which would reasonably be understood tomake it favourable to that party – held that barrister expert wasn’t independent, because thebarrister was appointed as an expert on behalf of his friend, another barrister from his chambers.This test should be extended to the independence and impartiality of an arbitrator from the samechambers or law firm of one of the parties or its counsel.- Arbitrators from law firms having an alliance with a firm representing one of the parties(Mustang Enterprises, Inc v Plug-In Storage Systems, Inc), or arbitrators having a closerelationship to the lawyers of one side.- Prior appointments by one party should not be sufficient to cast doubts on the independence ofan arbitrator unless there is a pattern of regular appointments. If in doubt, the arbitrator shoulddisclose to the parties his past connections with one of the parties.- arbitrators attending events organised or sponsored by law firms do not affect the independence.- one of the parties is a state or a state entity and a person working for the government isappointed. In general, employees are considered to lack the necessary independence, but thisdoesn’t cover certain types of public officials and civil servants (e.g., judges, law professors,directors of state-controlled enterprises). In case of developing countries, it should be taken intoaccount that apart from the functionaries there may be few juristswho could serve as arbitrators.What is the significance of arbitrator independence and impartiality?It is a fundamental and universally accepted principle of international arbitration that arbitratorshave to be impartial and independent of the parties and must remain so during the proceedings.Arbitrators usually have a duty to disclose all relevant facts, including party appointed arbitrators(however, in domestic arbitrations they can represent their partys interest). Both requirementsare established in most arbitration laws and rules and form part of the codes of ethics forarbitrators of the IBAand the AAA. Some rules clearly spell out that obligation (Article 5(2)LCIA Rules – arbitrators shall remain impartial and independent of the parties), others make lackof independence or impartiality a ground for challenge (Article 10(1) UNCITRAL Rules). Fewlaws and rules, however, refer to only one of these requirements – it can be either because onlyone requirement is imposed (the reference to impartiality only in section 24 English ArbitrationAct), or for other reasons – e.g., the omission of “impartiality” in Article 7(1) ICC Rules. Bothprinciples should be distinguished though in practice they are often used interchangeably.Arbitration rules and laws usually do not provide a clear definition of these terms, except the
  3. 3. Swedish arbitration law, section 8, containing a list of instances where the required “impartiality”is deemed to be lacking. Certain guidelines as to “independence” and “impartiality” can also befound in Codes of Ethics and in the rules on the nationality of the sole arbitrator or the chairman.However, there are stilldivergent views as to the actual content of these concepts. Courts havecome to different conclusions as to whether arbitrators are subjected to the same requirements of“independence” and “impartiality” as judges - the US Supreme Court held in CommonwealthCoatings v Continental Casualty (1968) that arbitrators should be submitted to stricterrequirements than courts, since there is no appeal against their awards, the English Court ofAppeal held in AT&T v Saudi Cable that the same requirements apply to both.However, both concepts cannot be interpreted in exactly the same way as for state judges, evenwhere the arbitration law declares that an arbitrator can be challenged on the same grounds as ajudge, because arbitrators are different from judges in many respects, especially by the fact thatarbitrators are appointed and paid for by the parties.b) Dutch and Indonesian companies are engaged in an arbitration under theUNCITRAL Ruleswith its seat in London. The arbitration relates to theinterpretation of an agreement licensingthe use by the Indonesian company ofintellectual property owned by the Dutch company. Thecontract is governed by Dutch law. The Dutch claimant appointed an English barrister as itsarbitrator. The Indonesian respondent appointed a retired Indonesian judge as its arbitrator.The two party appointed arbitrators appointed a Dutch law professor as the chairman of thearbitral tribunal. During the course of the arbitration, the Dutch claimant learns that thechairman has written several articles in legal journals in which he expresses the view thatintellectual property rights are too robust and that they should not be too strictly enforced.Can the Dutch claimant seek to remove and replace the chairman and, if so, on what grounds?Lack of independence or impartiality constitutes a ground for challenge, as per Article 10(1) ofUNCITRAL Rules. As per article 13(1), a party that intends to challenge an arbitrator shall sendnotice of its challenge within 15 days after it found out about the circumstances giving rise tojustifiable doubts as to the arbitrator’s impartiality or independence.It is common practice in most arbitration rules that a sole arbitrator or a chairman should be of adifferent nationality than either party, while the chairman of the tribunal in question is of thesame nationality as one of the parties (UNCITRAL has no such provision). However, the merefact of having identical nationalities, of itself, should not affect the arbitrators impartiality,therefore, does not constitute sufficient grounds for successful challenge of the chairman’sappointment in our case.The appointment of the chairman could be challenged as a result of circumstances that give riseto justifiable doubt as to such arbitrator’s independence. However, from the facts of the casedescribed above it seems unlikely that such challenge will be successful. Such challenge can bebased on the following circumstances, provided that they were only discovered by the Dutchclaimant after the appointment of the chairman (the following list is based on the possible factsof the case and only includes circumstances which may be likely in this case, but are not sure toexist): 1. if the chairman turns out to have a longstanding and continuing relationship with one of the parties, or withits lawyers 2. if there is a pattern of regular appointmentsof this chairman with one of the parties 3. the chairmanhas a personal relationship or is a member of the same organization or club as senior officers of one of the parties (this does not always allow a successful challenge of an arbitrator); 4. As per article 11 of UNCITRAL Rules, an arbitrator, from the time of his or her appointment and throughout the arbitral proceedings, shall without delay disclose any
  4. 4. such circumstances to the parties and the other arbitrators unless they have already been informed by him or her of these circumstances.So non-disclosure of the relevant facts may be grounds for challenge of the appointment of the chairman, provided that UK law allows a successful challenge of an arbitrator if there is “reasonable suspicion” or a threat of “an appearance” of lack of independence. If UK laws allow to do that, the award may be set aside due to failure to disclose all facts which might create the appearance of bias (like in US case Commonwealth Coatings Corp v Continental Casualty Co);Also, the appointment of the chairman could be challenged as a result of circumstances that giverise to justifiable doubt as to such arbitrator’s impartialityif the same arbitrator (chairman) isappointed for related matters. Preconceived opinion of the chairman may prevent his impartialityin the case (however, there is no general rule to resolve such cases).Earlier publications on legal issues generally cannot in themselves be considered to be a breachof impartiality (IBA Guidelines on Conflicts of Interest list them as categorically acceptableconnections of an arbitrator), so such publications are unlikely to be considered as satisfyinggrounds for challenging the appointment of the chairman.(c) After the evidentiary hearing has taken place in the arbitration, but before the arbitratorshave rendered an award, the Dutch claimant reads in The Financial Times that the Indonesianjudge has been appointed a non-executive director of a bank that is a significant creditor of theIndonesian respondent.Can the Dutch claimant seek to remove and replace the Indonesian arbitrator, and, if so, onwhat grounds?As per article 13(1), a party that intends to challenge an arbitrator shall send notice of itschallenge within 15 days after it found out about the circumstances giving rise to justifiabledoubts as to the arbitrator’s impartiality or independence. Therefore, even after evidentiaryhearings taking place a party can still challenge the arbitrator.Since the arbitrator appointed by the Indonesian respondentbecame adirector of a companywhich is in a continuing and longstanding relations with this party (significant creditor), then itcould be argued that there are grounds to challenge appointment of such arbitratoras a result ofcircumstances that give rise to justifiable doubt as to such arbitrator’s independence. However,given the circumstances, the non-executive director, being a member of the board, does not formpart of the executive management team, is not an employee of the company or affiliated with itin any other way.Apart from this, it is not clear whether the creditor of the Indonesianrespondent, whose non-executive director is the Indonesian arbitrator,is interested in the subjectmatter of the dispute under consideration (interpretation of an agreement licensing the use by theIndonesian company of intellectual property owned by the Dutch company), and thereforewhether there could be suspicions of bias of such creditor’s non-executive director as to theoutcome of the case.However, it is contended that it is not necessary for a party challenging an arbitrator todemonstrate that the individual lacks independence or impartiality; it is instead sufficient toshow that there is enough “doubt” or “suspicion” as to an arbitrators impartiality to justifyremoving the arbitrator (IBA Guidelines, General Standard 2). Still, it is important to considerwhat risk of unacceptable partiality exists.There are different views as to the interpretation ofreasonable doubts, one of them is expressed in the IBA Guidelines on Conflicts: the doubts mustbe in the mind of a “reasonable and informed third party”, which essentially means that anobjective standard for assessing doubts regarding independence and impartiality should beapplied.It can be assumed that a “reasonable and informed third party” would probably have doubts as tothe impartiality and independence of the freshly appointed non-executive director of a majorcreditor of one of the parties, in the event that the outcome of the dispute between the Indonesianparty and the Dutch party could result, e.g. in substantial damages payable by the Indonesian
  5. 5. party, and consequently lead to default of such Indonesian party under the contract with theIndonesian creditor. Therefore, it can be concluded that the Dutch party can try to remove theIndonesian arbitrator on the grounds of the circumstances that give rise to justifiable doubt as tosuch arbitrator’s independence.Another possible grounds for removal of the Indonesian party appointed arbitrator may be as perpoint (4), reply to question 6(b) above, in the event that the Indonesian arbitrator fails to discloseinformation about his appointment as non-executive director to the parties without delay, as perarticle 11(1) of the UNCITRAL Rules.(d) In what circumstances and on what basis can a party to an international arbitration seekcompensation from an arbitrator who has resigned or been removed due to a conflict ofinterest?Non-disclosure of relevant facts by an arbitrator may result in an action for damages against thearbitrator, i.e., may allow a party to an international arbitration to seek compensation from anarbitrator. E.g., in Austrian ObersterGerichtshof, 28 April 1998, H GmbH v Hon, RPS (2/1999)Austrian Supreme Court held that the immunity granted to an arbitrator for his judicial task doesnot extend to a violation of the disclosure obligation for which an arbitrator may be liable forbreach of a contractual duty. In Raoul Duval v V(1996) (Tribunal de Grande Instance Paris, 12May 1993, confirmed by the Courdappel Paris (1995) and the Cour de cassation (1997)), non-disclosure by an arbitrator of the fact that he would start working for one of the parties after thearbitration led to an action for liability against the arbitrator.

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