This article is written by Palak Nangru, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
The principles of natural justice provide that each person has the right to a fair hearing by independent and impartial judges in judicial and quasi-judicial settings. The independence and impartiality of an arbitrator form the bedrock of any arbitration. When the parties opt for arbitration as the dispute resolution mechanism, they expect that the person who would be appointed as the arbitrator would not be biased towards one of the parties or issues raised. The independence and impartiality of the arbitrators are essential to ensure the legitimacy of arbitration proceedings and the confidence of the parties in the arbitration.
To ensure that the arbitrators act independently in investment arbitration, the arbitral institutions have set a standard that has to be fulfilled by the arbitrators to ensure that they act with due diligence and impartiality. In this blog, we would be looking at how issue conflict is dealt with in ICSID arbitrations.
What is an issue conflict?
It is important to remember that persons appointed as arbitrators are not tenured judges, persons who are academicians, retired judges, lawyers and government officials generally act as arbitrators. These individuals provide their services to the disputing parties for consideration. The function of the arbitrators in investment arbitration does not require exclusivity. Thus, the persons acting as arbitrators in one matter may act as the counsel in a similar matter, this often leads to a conflict of interest and the possibility of bias by such persons. This conflict of interest may arise out of the repeat appointment of arbitrators, issue conflict, and multiple hatting.
While there is no universally accepted definition of issue conflict, it is generally accepted that Issue conflict is an issue that arises out of the arbitrator’s relationship with the disputed matter rather than the parties. The arbitrator’s prior experience/ interaction with the disputed matter may give rise to the doubt that his previous experience may impact his ability to give an independent and impartial judgment. Thus, issue conflict is basically the conflict that may arise due to the arbitrator’s pre-existing interaction with the disputed issue. Issue conflict is mainly concerned with the likelihood of bias of the person being appointed as the arbitrator based on the previous judgments, academic writings, or opinions of the person.
Over the past few years, allegations about issue conflict have been raised in various arbitration proceedings to pursue the disqualification of arbitrators. Thus, the concept of issue conflict requires close examination by tribunal members as well as the parties to arbitration proceedings.
When does an issue conflict arise?
Generally, the following scenarios may give rise to issue conflict:
- If a person concurrently acts as an arbitrator and counsel in different cases in which similar factual or legal issues are raised.
- The person who is appointed as the arbitrator would take up the role of a counsel in a subsequent arbitration proceeding, where similar or the same factual or legal issues have been raised.
- If the arbitrator had previously given an award regarding the issue raised in the arbitration proceedings if he/she had expressed his/her personal opinion or published some academic writing.
Addressing an issue conflict
According to a report on issue conflict released by the American Society of International Law (ASIL) and the International Council for Commercial Arbitration (ICCA) in March 2016, the problem of issue conflict is not directly dealt with by any international rules or guidelines. Various international investment treaties and agreements indirectly dealt with the issue through disclosure requirements by the arbitrator.
The International Bar Association (IBA) Guidelines of Conflicts of Interest in International Arbitration specifically provides for certain circumstances in which an arbitrator can be replaced. For instance, in case the person to be appointed as arbitrator had given his/her expert opinion to one of the parties or in situations where the arbitrator may have been involved in the dispute before being appointed as the arbitrator. However, Guidelines provide that the general opinions given by the arbitrator in some legal journal or public lecture would not result in issue conflict.
Meanwhile, Section 11 of UNCITRAL Arbitration Rules, 2013 imposes certain disclosure requirements on the person before he is appointed as the arbitrator and throughout the arbitral proceedings, once he has been appointed.
ICSID provisions on issue conflict
The International Centre for Settlement of Investment Disputes (ICSID) has also dealt with issue conflict indirectly by imposing certain disclosure requirements and standards for the persons being appointed as arbitrators.
Section 14(1) of the ICSID Convention provides that the appointed arbitrator must be a person of “high moral character” and should be able to render an independent judgment. Additionally, Rule 6 of the ICSID Arbitration Rules imposes a duty on all persons appointed as arbitrators to give their signatures on a declaration form. The arbitrator also has to provide a statement with disclosures regarding their present or historical relationships with the parties and provide any other information that may raise doubts regarding their independence and impartiality. Further, the Rules impose a continuing obligation on the arbitrators to disclose any information regarding their relationship with the parties or any other information that may raise doubts regarding their independence during the arbitration proceedings.
Cases where the appointment of an arbitrator was challenged due to issue conflict
The following cases provide the jurisprudence regarding issue conflict raised based on the arbitrator adjudicating upon similar legal or factual issues
1. Electrabel SA v. The Republic of Hungary
In this matter, the appointment of the arbitrator was challenged by the claimant on the basis that she had been concurrently appointed by the respondent as an arbitrator in a matter arising out of a similar factual matrix. The arbitral tribunal had rejected the challenge on the basis that an arbitrator’s independence cannot be doubted solely on the basis that an arbitrator had to decide upon similar legal or factual issues in concurrent arbitrations.
2. Participaciones Inversiones Portuarias Sàrl v. The Gabonese Republic
In this matter, the claimant had raised doubts regarding the independence and impartiality of an arbitrator on the basis that he had acted as an arbitrator in another arbitration proceeding where the arbitral tribunal had dealt with similar legal and factual issues. The arbitral tribunal had rejected the challenge, they had taken their decision on the basis that the legal issues in question were often raised in international investment arbitrations and they were decided based on the factual matrix of the case.
3. Tidewater v. Venezuela
One of the parties had challenged the appointment of an arbitrator on the basis that the arbitrator was appointed in several other pending arbitrations against the respondent that involved similar legal issues. The party had contended that under such circumstances there would be a risk of prejudgment of the matter by the arbitrator. The arbitral tribunal had rejected the challenge on the basis that multiple appointments would not indicate a lack of independence and impartiality of the arbitrator.
4. Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan
In this matter, the claimant had challenged the appointment of one of the arbitrators on the basis that he was prejudiced regarding the legal issues raised during the proceedings since he had prior knowledge on the issue since he had acted as an arbitrator for a similar case where the respondent was one of the parties. The arbitral tribunal upheld the challenge. The tribunal opined that the arbitrator may not be independent on the basis that the factual matrix of the other arbitration was similar to the arbitration at hand, and these facts were relevant for deciding the legal issue. Further, the Court had applied the third-party test and observed that even a third party may have doubts regarding the impartiality and independence of the arbitrator in such a situation.
Through these decisions, it is demonstrated that issue conflict would not arise in situations where the arbitrator has dealt with similar legal issues in the previous arbitration. Further, issue conflict would not arise in situations simply because the arbitrator is dealing with similar legal issues in consecutive or concurrent arbitrations. It can be observed that issue conflict would only arise in situations where the facts and parties of the arbitrations are related to each other. Issue conflict was raised where the arbitrator had expressed his view regarding the legal issue in academic writings
5. Ubaser v. Argentina
In this case, the claimant had moved to remove the arbitrator on the basis that he had previously expressed his opinion regarding the legal issue in an academic publication. The Tribunal rejected the challenge after observing that the publications by the arbitrator were not against Article 14(1) of the ICSID Convention.
Most of the challenges to the appointment of the arbitrator based on the opinions expressed by the arbitrator in his lectures, academic writings, or remarks are dismissed by the Tribunals. The tribunals were often of the opinion that for there to be an issue conflict based on the opinion or position taken by the arbitrator, if the arbitrator could directly or indirectly be impacted by the outcome of the dispute, or if he/she has a relationship with either of the parties or individuals involved. Issue conflict raised in a situation where the arbitrator may have an indirect relationship with either of the parties
6. Blue Bank International & Trust (Barbados) v. Venezuela
In these arbitration proceedings, the respondent had challenged the appointment of an arbitrator since he was the partner at one of the branches of the law firm that was representing one of the parties in another arbitration dealing with similar legal and factual issues. The arbitral tribunal had conducted a third-party test to assess whether a third party completely independent of the arbitral proceedings would believe that the arbitrator was biased. The tribunal had concluded that in these circumstances a third party would find that there was a lack of impartiality and likelihood of bias by the arbitrator. Thus, the tribunal had upheld the challenge to the appointment of the arbitrator.
The present law regarding issue conflict in ICSID is a little ambiguous and uncertain. Thus, it would be ideal if the ICSID Convention and Rules specifically provide the various disclosures that would have to be made by persons appointed as arbitrators. Further, it would be beneficial there are proper mechanisms in place to ensure the enforcement of the disclosure requirements.
- Report of the ASIL-ICCA Joint Taskforce on Issues of Conflict in Investor-State Arbitration, The ICCA Report No. 3, dated 17 March 2016.
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