Arbitral decision-making and ethical regulation of arbitration: Have we gone too far?

By Dr. Stavros Brekoulakis (Professor in International Arbitration and Commercial Law, School of International Arbitration, Queen Mary University of London)

As international arbitration becomes increasingly more popular, certain aspects of private decision-making come under scrutiny, often under intense criticism. Although criticism against investment and commercial arbitration arises in different fashion and volume, critical voices coming from both the public domain and academia raise legitimate questions, such as: who are these individuals that act as arbitrators and have the power to decide issues with important implications on national public policy and sovereignty? How do arbitrators decide?

Some years ago, The New York Times notoriously described investment arbitration proceedings under the North American Free Trade Agreement (NAFTA) in the following terms:

Their meetings are secret. Their members are generally unknown. The decisions they reach need not be fully disclosed. Yet the way a small number of international tribunals handles disputes between investors and foreign governments has led to national laws being revoked, justice systems questioned and environmental regulations challenged (New York Times, 11 March 2001)

Many have suggested that arbitral decision-making is biased, apparently favouring investors and multinationals against states and weaker parties such as consumers and employees. Some countries have cited apparent bias of international arbitration as a reason to withdraw from the 1965 ICSID Convention (Bolivia in 2008, Ecuador in 2009 and Venezuela in 2012).

More recently, the 2013 UNCTAD Report on Recent Developments in Investor-State Dispute Settlement stated ‘the continuing trend of investors challenging generally applicable public policies, contradictory decisions issued by tribunals, an increasing number of dissenting opinions, concerns about arbitrators’ potential conflicts of interest all illustrate the problems inherent in the system of international arbitration (PDF 2.6 MB).

Thus, arbitral decision-making and the question of whether arbitration is a biased adjudicatory system has become one of the most critical subjects of discussion currently. It seems that this fierce criticism, some say backlash, has thrown arbitration into an existential crisis, which arbitration has sought to overcome by resorting to more “ethical regulation” of counsel and arbitrators. In that respect, t is not by coincidence that the latest hot topic in arbitration is “ethics”, which features into a number of conferences, including the 2013 IBA conference; the ICCA Miami 2014 also looks into “Legitimacy” of international arbitration, which is “ethics” by other name.

As a result of this ethical (over)regulation, there is currently a plethora of arbitration laws, institutional rules and especially institutional codes of ethics that set out rules and guidelines regulating the conduct of individual arbitrators in minute detail. The IBA Guidelines on Conflicts of Interest for example advice that when ‘close personal friendship exists between an arbitrator and counsel of one party, as demonstrated by the fact that the arbitrator and the counsel regularly spend considerable time together unrelated to professional work commitments or the activities of professional associations or social organizations’ the arbitrator should disclose the relationship. Similar codes of ethics have been promulgated by many other professional or institutional organizations such as the American Arbitration Association and the Chartered Institute of Arbitrators. All of these ethical codes share the same lofty (some would say Kantian) objective, namely to set forth ‘accepted standards of ethical conduct for the guidance of arbitrators and parties in commercial disputes, in the hope of contributing to the maintenance of high standards and continued confidence in the process of arbitration’. While working to revise the 2004 Guidelines on Conflicts of Interest in International Arbitration Forum, the IBA have just issued, for the first time, Guidelines on Party Representation in International Arbitration regulating counsel conduct on a wide range of issues, including how counsel should communicate with the tribunal or how counsel should make submissions. Recently, arbitration practitioners have been looking into the ‘challenges’ that information technology and electronic social media bring to arbitrators nowadays. Amusingly, some commentators have been calling for even more prescriptive guidelines setting out how arbitrators should be dealing with social networks such as Facebook or LinkedIn, suggesting that arbitrators should ‘avoid’ the use of social media’ altogether or ‘limit their friends to truly social contacts’.

Meanwhile, national courts have also been focusing on the ethics of individual arbitrators, trying to refine the appropriate standards of bias. In England, for example, courts have adopted slightly different standards of bias, such as ‘reasonable appearance of bias’ (see ASM Shipping Ltd of India v TTMI Ltd of England, [2005] EWHC 2238) or ‘reasonable suspicion’ of bias (see R v Mulvihill [1990] 1 All E.R. 436) or a ‘real danger’ or ‘real possibility’ of bias (AT&T Corp. v Saudi Cable Co. [2000] 2 Lloyd’s Rep 127).  Similarly, in the US different Circuits apply different standards of bias, due to the fact that the Supreme Court in Commonwealth Coatings Corp. v Continental Casualty Co  failed to develop a single standard of impartiality. The Second Circuit for example requires ‘evident partiality’ by arbitrators (see Scandinavian Reinsurance v Saint Paul Fire & Marine Ins., 668 F.3d 60 (2d Cir. 2012)), whereas the Ninth Circuit applies a lower threshold amounting to ‘an impression of possible bias’ (New Regency Productions v Nippon Herald Films, 501 F.3d 1101, 1108 (9th Cir. 2007).)

But despite the increasing regulation concerning the conduct of counsel and arbitrators and the case law setting stricter standards of appearance of bias, the criticism against the integrity of arbitration has not appeased. In fact, it has become louder recently.

That leaves all of us who practice, research, teach and study arbitration with interesting questions to consider: why has arbitration regulation on ethics failed? Is it because we need an even more comprehensive code of ethics (see the ICC Annual Arbitrators’ forum)? Or is it because we need less regulation, and more radical thinking of how to re-design international arbitration? To that effect, Jan Paulsson has famously suggested that the party-appointed system in arbitration should be abolished, in favour of a system where all members of an arbitral tribunal will be appointed by arbitral institutions. Toby Landau has suggested to increase the number of arbitrators sitting in a case from one or three to five. Other scholars have proposed that the model of multilateral selection of the investment treaty tribunals should be replaced by a new international investment court with tenured judges, who will be subject to the supervision of national courts or an appellate body.

There is no obvious consensus on how to answer to the above questions (and any thoughts from the readers would be most welcome here), but one thing seems clear: thirty years after its constant meteoric rise, arbitration has now entered into a self-reflecting, existential phase, and it will be interesting to see how arbitration will emerge out of it.

 

(You can find a more detailed analysis of these issues in Stavros Brekoulakis, Systemic Bias and the Institution of International Arbitration: a New Approach to Arbitral Decision-Making, Journal of International Dispute Settlement (2013) 4 (2) pp. 1-33, see here)