International Commercial Arbitration – Independence and Impartiality

LMM082 International Commercial Arbitration

Lecture 4C – Independence and Impartiality 

 

Aims of Lecture 4C

 

  • To gain thorough understanding of the duties and responsibilities of arbitrators
  • To enable you to assess and critically evaluate whether in particular cases it might be possible to mount a successful challenge to an arbitrator

 

Impartiality and Independence 

 

This is not a requirement of the New York Convention 1958, so it is based on local laws / applicable arbitral rules.

 

National Laws

Under various national laws an arbitrator’s appointment can be challenged, or they can be removed. Examples are

  • UNCITRAL Model Law Art 12(2)            

“justifiable doubts as to his impartiality or independence”

 

  • England – “justifiable doubts as to his impartiality”

Arbitration Act 1996, s. 24(1)   

“A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on any of the following grounds [including] that circumstances exist that give rise to justifiable doubts as to his impartiality.”

 

  • Switzerland – “an arbitrator may be challenged… if circumstances exist that give rise to justifiable doubts as to his or her independence” – Swiss Federal Statute on Private International Law 1987 Art 180

 

  • China – “Arbitration shall be conducted independently according to law, free from interference of administrative organs, social groups or individuals”– Arbitration Law of the People’s Republic of China 1994, Art 8

This is a different type of independence (from outside pressure) than that discussed in the UNCITRAL etc materials (which deal with personal independence / lack of bias).

 

  • Note – some jurisdictions choose only one requirement e.g., 
  • England – “impartiality” 
  • Switzerland – “independence” 
  • Others require both impartiality and independence

 

  • Of course, party appointed arbitrators are not truly “independent”
  • USA: Del Monte Corp v Sunkist Growers (1993) 10 F.3d 753 (Redfern & Hunter, para 4.75n77): with a commendable degree of honesty said that “… a party-appointed arbitrator is permitted, and should be expected, to be predisposed towards the nominating party.”
  • This did not sit particularly well with arbitrators, who take the more lofty position that even if they are a party appointed arbitrator, they are professionals and are able to maintain their integrity and independence 
  • USA: AAA/American Bar Association Code of Ethics for Arbitrators in Commercial Disputes, probably to meet such feelings of indignation, “reverses” this, and “presumes” that party-appointed arbitrators are “neutral”
  • Why does England only require “impartiality”?
  • England: Department Advisory Committee (DAC) report at 101-102 decided that adding “independence” to the Arbitration Act 1996 was unnecessary because a lack of independence will often raise justifiable doubts about impartiality

 

 

Arbitration rules

  • ICC Rules 2021 – Art 14(1)                                

“A challenge of an arbitrator, whether for an alleged lack of impartiality or independence, or otherwise, shall be made by the submission to the Secretariat of a written statement specifying the facts and circumstances on which the challenge is based.”

 

  • LCIA Rules 2020 –  Art 5.3         

“All arbitrators shall be and remain at all times impartial and independent of the parties; and none shall act in the arbitration as advocate for or representative of any party. No arbitrator shall advise any party on the parties’ dispute or the outcome of the arbitration”.

 

  • UNCITRAL Rules – Art 11 

“When a person is approached in connection with his or her possible appointment as an arbitrator, he or she shall disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence. An arbitrator, from the time of his or her appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties and the other arbitrators unless they have already been informed by him or her of these circumstances”.

 

 

Importance of impartiality and independence 

  • Impartiality is needed to ensure that justice is done (internal)
  • Independence is needed to ensure that justice is seen to be done (external)
  • The first condition is internal 
  • The second condition is external 

 

Principles

  • Relationship between the parties and the arbitrator is based on a contract but the tribunal performs a judicial function 
  • Compliance with the duty if impartiality and independence is ensured by the duty of disclosure, which is a duty to disclose to the parties all conflicts of interest
  • Duty of disclosure is often required by institutional rules, such as UNCITRAL Rules, Art. 11 
  • No such rule in ad hoc arbitrations. In these, parties need to either research arbitrators’ interests, or ask pointed questions
  • Strategically, a partisan arbitrator may be counter-productive, at least in a three member tribunal. Redfern & Hunter, para 4.76
  • The requirement that arbitrators must be independent and impartial is imposed by most national laws and most arbitration rules 
    • Either directly – by clearly stating that arbitrators must comply with their obligation of impartiality and independence – e.g., LCIA – Art. 5.3 or 
    • Indirectly – by allowing the arbitrator to be challenged for lack of either impartiality or independence, e.g., UNCITRAL rules – Art. 12(1) 
    • Or both – positive duty that arbitrators must be independent and impartial, and as forming a valid ground for challenge if they fail in that duty. 

 

 

Policy

There are at least five inter-related policies, which are in tension with each other:

  • The need to a fair and neutral tribunal who will decide the case on the merits. Achieving a fair resolution of the dispute is one of the general principles in the Arbitration Act 1996, s. 1(a). This points to need to uphold high standards when it comes to conflicts of interest. Parties from jurisdictions with corruption problems particularly want unbiased arbitrators
  • Restrictions in the number of suitably qualified arbitrators, particularly at the top end of ICA / ISA. These individuals often have professional engagements as arbitrators, lawyers in arbitrations, and the provision of legal services to a wide range of clients. They are also usually members of firms with many partners, who likewise have many clients. If the conflicts of interest rules are applied too stringently there may be no suitably qualified arbitrators for a dispute
  • Cost. Avoiding unnecessary expense is one of the general principles in the Arbitration Act 1996, s. 1(a). Disqualifying arbitrators for conflicts of interest gets progressively more expensive the further an arbitration proceeds
  • Delay. One of the underlying principles set out in the Arbitration Act 1996, s. 1(a), is that arbitrations should proceed without unnecessary delay. Objections to the panel of arbitrators will obviously delay the start of the real investigation into the dispute. A party wanting to frustrate the arbitration may raise objections for no better reason than to delay the final resolution of the dispute
  • Finality and appeals. National legislation invariably provides for no more than limited appeals from arbitral awards. See for example the Arbitration Act 1996, ss. 67 to 69. An objection to an award after it is made on the ground one of the arbitrators had a conflict of interest may be no more than a tactical device to in effect appeal despite the severe restrictions on challenges to arbitral awards

 

Impartiality 

This is a state of mind – Redfern & Hunter, para 4.78 says it is connected with actual or apparent bias

  • Bias may be a tendency to favour one party
  • Or a tendency to favour one outcome to an issue in the dispute
  • Note – this does not mean that the arbitrator cannot be sympathetic to the culture, business practices and mentality of one party Redfern & Hunter, para 4.76

 

  • Catalina (owners) v Norma (owners) [1938] 61 Ll LRep 360

One of the parties to the arbitration was Portuguese. The arbitrator was overheard saying that Portuguese people are liars.  He was removed for failing to act fairly and impartiality between the parties.

 

  • K/S Norjal A/S v Hyundai Heavy Industries Ltd [1992] 1 QB 863

Three arbitrators accepted appointments. Two were QCs (senior barristers). Later, the QC arbitrators asked for “commitment fees” for setting aside 12 weeks for the hearing, which would be payable even if the dispute settled. C would not agree to pay the commitment fees. Respondent then negotiated commitment fees with the two QCs. The QCs said they would only accept if C also agreed. C refused. Both C and R accepted both QCs were fit and proper persons for the arbitration. C now said the QCs were guilty of misconduct in maintaining their requests for commitment fees.

Held: nothing wrong with commitment fees being agreed before appointment. However, after appointment the arbitrators cannot seek to change their fees unless there has been a sufficient change of circumstances, which was not the case here. C had said, with full knowledge, that there was no actual bias, and that C wished the two QCs to continue provided they withdrew their demand for commitment fees (which they did). The challenges to the arbitrators were therefore dismissed.

 

Is Norjal v Hyundai really a case involving lack of independence, but couched in the language of “impartiality” because English law only recognises impartiality as a basis of challenge?

 

Independence

Arises out of the relationship between the arbitrator and one of the parties (Redfern & Hunter, para 4.77)

 

  • “Independence” has at least 3 different meanings
  • independence from the parties
  • independence of mind / lack of bias = impartiality
  • independence from outside forces / coercion

 

  • Present or past relationship that is likely to affect an arbitrator’s freedom of judgement
  • Need not be financial
  • Believed to be capable of objective proof
  • Not based on the arbitrator’s state of mind
  • In theory, the standard is the same regardless of the stage of the proceedings but in practice it seems that institutions adopt a stricter standard at the time of appointment than during later stages of the proceedings

 

  • Locabail (UK) Ltd v Bayfield Properties [2000] 1 All ER 65, 85

This was a case about bias of a judge in court proceedings. The same approach is taken with arbitrators. The Judge was also a partner in Herbert Smith, a firm of solicitors with at that time 145 partners. Herbert Smith acted for a client, X, who had a financial interest in conflict with one of the parties in the case.

Lord Bingham CJ: “Everything depends on the circumstances. If a serious conflict of interest becomes apparent well before the hearing is due to commence, it seems plain to us that the judge should not sit on the case. … On the other hand, if a conflict does not become apparent until very shortly before the hearing or during the hearing, the position may be different. … Plainly the judge should not sit, no matter what inconvenience to the parties may result, if he doubts his ability to be impartial. But short of that, a number of variable factors will need to be taken into account.” These factors include:

  • nature of the conflict of interest
  • do the parties want the case to proceed rather than adjourn
  • is another judge available
  • how long an adjournment
  • how long / far has the arbitration gone
  • costs that will be wasted
  • how will it look to a reasonable onlooker  

India

A typical situation is:

Vinod v Wakhwari Civil Appeal No 6960 of 2011 (SupCt)

In this case an arbitration award was set aside based on a domestic arbitration because the arbitrator had also acted as counsel for one of the parties on a previous occasion.

 

Compare this with the following case, which is considered below: 

Halliburton Co v Chubb Bermuda Ltd [2020] 3 WLR 1474 (SCt)