“Independence and Impartiality of an Arbitrator” – What is the Standard? How far has it been harmonised? How to challenge?
Abstract: The independence and impartiality of an arbitrator is undoubtedly one of cornerstones of an arbitration proceeding. However, what is the standard expected of an arbitrator? Is it as high as a Judge in a judicial proceeding or is it below that standard? This article examines the laws and rules relating to the independence and impartiality of an arbitrator, the different academic commentaries on the same and critically evaluates the legal debate in this regard.
Independence and Impartiality of an adjudicator are fundamental criteria of the natural justice in any dispute resolution system, be it judicial or alternative. International Commercial Arbitration certainly is no different. Given that an arbitrator is in control of the procedure and further determines the issues in dispute, the arbitrator nominated plays an extremely significant role in the resolution of the concerned dispute. Given this consensual process of arbitration, the partisanship of a party-selected arbitrator has been a topic of great concern and debate.
While often cited synonymously, independence and impartiality are rather two similar but distinct doctrines. Independence concerns any existing relationship between the arbitrator and a party, be it pecuniary or otherwise; and as judged through an objective test.  By contract, impartiality is more concerned with the actual or apparent bias of the arbitrators, either towards a party or the matter in dispute. Since state of mind of an arbitrator is concerned, impartiality is subjective.
Some notable examples of challenges against an arbitrator for not being independent or impartial are: barristers of the same law chambers, a comment made by the arbitrator that all Portuguese people were liars, the party selected arbitrator acted as the consultant of the party previously, the arbitrator acted impartially in the past, the party appointee conferred with the party etc.
The general rule in this regard is laid down in the Art.12(2) UNCITRAL Model Law, whereby, a party can challenge an arbitrator in case of a justifiable doubt as to his independence and impartiality. Innumerable national laws have further adopted the aforesaid provision e.g. Section 24(1)(a) Arbitration Act 1996 in UK empowers the court to remove an arbitrator, on similar grounds, upon the application of a party.
Numerous justifications can be put forth to illustrate the significance of the general rule. From a moral perspective, every legal action has a moral dimension to it; as such, if a particular resolution to a dispute is unfair, it is taken to have inflicted a moral injury on a party. Additionally, arbitration is a process of trust and confidence, i.e. the party selected arbitrators are entrusted with the dispute by the parties; consequently, it is of utmost significance that an arbitrator complies with the moral integrity expected of a judge.
Nevertheless, arguments have been put forth asking whether the standard of independence and impartiality applicable to a Judge or a rather lower standard applies to an Arbitrator. There have been several views, one has to examine the factors that a party considers before selecting arbitration as their preferred ADR system.
One such school of thought argues that the prime reason for preferring Arbitration as a dispute resolution process is that the parties want the person resolving the dispute to have some special knowledge of the dispute. Additionally, given the massive change in the corporate governance and commercial practices, recently there is a growing trend towards an independent legal analysis, which would take into account the modern commercial objectives. Therefore, it is argued that an arbitrator should enjoy a rather relaxed ethical standard compared to a judge.
By contract, it has been argued that an arbitrator is more vulnerable to external pressures within the commercial world; as such the ethics of an arbitrator should be regulated more thoroughly than the judges.
There exists a third school of thought which advocates for a same standard for both the judges and the arbitrators. This view is preferred by most of the legal systems e.g. the English legal system employs an objective test to determine any “real possibility” of bias of a tribunal. It is submitted that since a judge and an arbitrator are of equal significance as far as resolving dispute is concerned, the third view is preferred.
Therefore to prevent any incident of biasness, the international rules of arbitration generally requires an arbitrator to disclose any facts or circumstance at the earliest instance, which can induce a reasonable person to be biased towards a party or be considered as a ground for disqualification If no objections are made by the parties upon the disclosure, it is deemed that the parties have consented the arbitrator to proceed and no further objections will be successful. Nevertheless, it is to be noted that a disclosure will not exempt the arbitrator from being impartial. Additionally, if a later circumstance indicate biasness, the arbitrator must disclose it immediately. One point should be noted however that this general requirement of disclosure has not been made standardised in all the codes, perhaps for the sake of differing from each other.
In fact, the standard for arbitration itself has differed from jurisdiction to jurisdiction, for instance, despite adopting the wording of “justifiable bias” from the Model Law, in UK to determine biasness “the real danger of bias” test is applied
One of the most significant attempts to harmonise the legal standard has been attempted by the International Bar Association (IBA) in its Guidelines of Conflict of Interest in International Commercial Arbitration, 2004. The Guidelines primarily aimed at establishing a set of principles which would address concrete universal situations which may give rise to biasness, and hence, establishing a guidelines which will be applied equally irrespective of different cultures and standards. It is divided into two different parts. The first sets down 7 general standards regarding independence, impartiality and disclosure; while, the second contains so called practical applications of the aforementioned standards. The latter part further divides into three non-exhaustive list of circumstances, namely Red, Orange and Green list.
The Red List further divides itself into non-waivable red and the waivable red list, whereby, the former list encodes situations where the arbitrator has to cease to act even if the parties consent. The circumstance in these list are influenced by the general rule of natural justice that no one can be judge in their own cause. The latter list contains examples of circumstances which potentially disqualify the arbitrator, but can be waived.
Secondly, the Orange list contains numerous circumstances which may raise doubts as to the independence and impartiality of the arbitrators, therefore, the arbitrator has a duty to disclose in these situations and the parties will be deemed to have waived the potential conflict unless they challenge within the required time.
Finally, the green list is the safe zone for an arbitrator, i.e. these situations objectively do not give rise to a conflict of interest.
While the guidelines were met with considerable success and praise, it does have a few significant drawbacks. The most important being, the IBA guidelines are not binding. As the name suggests, it is a mere guidelines to aid the arbitrator, the parties and the courts. Therefore, unless the parties agree, the 2004 guidelines might not even fall under the ambit of an arbitration at all.
Moreover, it is pertinent to mention that lists as aforesaid have given rise to a considerable amount of debates. Despite being the handiest element of the guidelines, it has also been regarded as troubling. Certainly the benefit of the lists is that it neatly categorises various circumstances based on their significance and gives ample guidance to the parties on how they can deal with these circumstances and cure them. However in doing so, the lists have opened the floodgates for challenges it provided the parties with the grounds on which they are able to challenge.
Furthermore, the guidelines omitted to distinguish the standard between judges, sole-arbitrators, party-appointed arbitrators, tribunal chairpersons etc. despite the fact that different standards are applied in some jurisdictions. For instance, in Germany a stricter standard is applied for the Chair of a tribunal, compared to the party appointees.
In addition, the general principle in Arbitration is that conflicts of a law firm are attributed to the firm-owner arbitrator, however, the 2004 Guidelines are insufficient to deal with such law firms as it is administratively unworkable to keep a track of all the employees working home and abroad in a multinational law firm.
It has further been stressed that a waiver should not be assumed. For example, in the UK, a waiver upon parties failure to timely object is not inferred, whereas, US does not have a clear rule on the matter. However the 2004 guidelines have effectively countered this situation by drawing a line between the waivable and non-waivable circumstances in the Red list as stated above. Moreover, the 2004 guidelines in general have provided a more flexible set of rules compared to its predecessor the 1987 IBA Rules of Ethics for International Arbitrators, which is apparent on the total form and wording of both the guidelines.
At this point, it is pertinent to analyse the procedure for challenging an arbitrator due lack of independence and impartiality on his part. On the event of a discovery of conflict of interest upon disclosure by the arbitrator or at a later state, the party can challenge the appointment of such arbitrator or seek for his removal respectively. In the case of an institutional arbitration, generally the arbitration rules of the respective institution elaborates on the ground and procedure for challenging an arbitrator.
For instance, the LCIA Rules, following the UNCITRAL model law, lays down that an arbitrator can be challenged on the basis of, amongst other things, justifiable doubts as to his independence and impartiality. Furthermore the Rules stressed that in order to give effect to such a challenge, a written notice must be sent to the LCIA court, the arbitration tribunal and all the parties involved with 15 days of the discovery of any questionable circumstances. A party is generally advised to act promptly upon the discovery of such a conflict of interest in order to avoid the risk of a waiver being deemed.
If such a challenge is not successful, then in some jurisdictions the party can take the matter to the court. If, however, the particular jurisdiction does not allow review of a rejected challenge to an arbitrator; the challenging party may have to wait for the final award to enable itself to a review of the decision.
By contract, in ad-hoc arbitration where parties do not adopt the UNCITRAL rules and do not have a well-structured agreement dealing with challenging arbitrators, the local law will be used to determine if a party has the right to challenge a potentially biased arbitrator before the final award.
To conclude, it can undoubtedly be stated that the independent and impartiality of the adjudicator certainly binds the entire justice system together, hence, the failure to ensure this particular element will result in a total breakdown. Same is the case for arbitration, as, despite being an ADR method, parties refer their disputes to it with a view to a fair and binding resolution. Therefore, upon comprehending the significance of the independence and impartiality of an arbitrator, the IBA attempted to harmonise he standard all over the globe through the 2004 Guidelines, which, so far has been of utmost assistance. However whether it has been entirely successful or not is still a matter of great debate.
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