Young ISDS Club – ICSID and UNCITRAL Draft Code of Conduct for Adjudicators in ISDS disputes

By Suksham Chauhan, International Arbitration Trainee, Quinn Emanuel Urquhart & Sullivan, Paris  

Young ISDS Club for the second time provided a great platform for a very engaging and interesting discussion on 8 June 2020. The Young ISDS Club remained steadfast to its core value of open discussion. It was a most candid discussion where participants and speakers took strong stances and critically analysed the Draft Code without any inhibitions.

1. Introduction

Ketevan Betaneli (Freshfields), who moderated the session, commenced the webinar by introducing the topic: “ICSID and UNCITRAL Draft Code of Conduct for Adjudicators in ISDS”. She gave a brief overview of the Draft Code of Conduct for Adjudicators (the “Draft Code”).

She noted that the Draft Code was jointly prepared by the Secretariats of ICSID and UNCITRAL and that it deals with duties and responsibilities and independence and impartiality, as well as with conflicts of interest and confidentiality relating to adjudicators. At the outset, she stated that the definition of “Adjudicators” is comprehensive and includes arbitrators, members of international ad hoc, annulment or appeal committees, and judges of a permanent mechanism for the settlement of investor-State disputes.

Thereafter, she introduced the speakers : Margaret Ryan (Shearman & Sterling); Tim Rauschning (Luther); and Nandakumar Srivatsa (Dentons). She remined the participants that the discussions in the webinar remain confidential and no participant or speaker should be quoted unless they had so agreed. She also pointed out that all the speakers and participants would be speaking in their personal capacity and the views expressed did not reflect those of their respective law firms or clients.

In line with the spirit of Young ISDS Club discussions rules – no statement or comment is attributed to any participants or speakers in this report.

2. The First Speaker – Conflicts of Interest: disclosure obligations (Article 5)

At the outset, the first speaker pointed out that Article 5 of the Draft Code is one of the most widely discussed provisions for its extensive and detailed disclosure obligations for adjudicators and candidates.

Discussion then moved onto the second sentence of Article 5 (1) of the Draft Code which states that adjudicators and candidates shall disclose any interest, relationship, or matter that could reasonably be considered to affect their independence or impartiality. The second sentence adopts an objective standard based on the perspective of what a reasonable third person would consider affecting an arbitrator’s independence and impartiality. The current ICSID Rules and the IBA Guidelines on Conflict of Interest in International Arbitration (IBA Guidelines), on the other hand, are based on a subjective test, and require the disclosure of circumstances that might cause the parties to question the arbitrator’s independence and impartiality.

Policy of enhanced disclosure

Thereafter, the first speaker stated that on a bare reading of Article 5 (2) of Draft Code, it is clear that the policy is to enhance disclosures. This is abundantly clear from the Draft Code’s commentary which states that “the policy reason underlying the disclosure requirement is to permit a full assessment by all parties and to avoid possible problematic situations during the proceedings”. The question which arises is whether this formalistic approach to disclosure will have unintended consequences, and might lead to more arbitrator challenges overall resulting in higher cost and delay and eliminating honest candidates. On the other hand, the approach could lead to consistent practice among arbitrators.

Further, the Draft Code under Article 5 (2) (a) proposes that adjudicators and candidates be required to disclose any relationships that have existed within the previous five years. The commentary states that the existence of relationships earlier than five years previous is presumed to be too remote to create a conflict. A relationship that existed before the five-year threshold but could reasonably affect the adjudicators’ independence or impartiality would still be subject to a duty of disclosure in accordance with Article 5(1). It is interesting to note that the amendment to the ICSID Rules also adopts the five -year period. In this context, the question arises whether the five-year period strikes the right balance? Or is it overly burdensome, given the list of items that need to be disclosed under 5(2)(a)?

Disclosure of Third-party interest

The first speaker then discussed Article 5(2)(a)(iv) which obligates the adjudicator or candidate to disclose any significant relationship with any third-party funder within the past five years. It was pointed out that the provision raises various questions. An arbitrator can only know whether it has a relationship with a third-party funder if the identity of the third-party funder is known. This may be possible under the proposed amendments to the ICSID Rules which incorporates an affirmative duty for the parties to disclose the existence of third-party funding when filing the Request for Arbitration. However, the problem arises where the applicable rules don’t require disclosure of third-party funder. In view thereof, how is a prospective arbitrator to know whether they have a relationship with a third-party funder involved in the arbitration?

The Draft Code does not seek to regulate repeated appointments but instead proposes extensive disclosure of “all ISDS [and other [international] arbitration cases]” where the arbitrator has been or is involved in one of various capacities i.e., as counsel, arbitrator, annulment, committee member, expert, [conciliator or mediator]. There is no five-year time limit and it suggests that all ISDS and International cases (both commercial and investment cases) will have to be disclosed. This requirement is wider than under the proposed amendments to the ICSID Rules.

Issue conflict

Similarly, Article 5(2)(d) requires disclosure of all publications and [relevant speeches] without any time limit. Questions arise on necessity and practicability of this requirement, which diverges from the approach of the IBA Guidelines which include previous expressed legal opinions in the list of green items that do not need to be disclosed.

General questions for discussion

The first speaker concluded by stating that various other issues may arise from the interaction between the Draft Code and other rules on disclosure that might govern the arbitration. E.g. the current proposal for amendments of the ICSID Rules has less extensive disclosure obligations as compared to the Draft Code. Similarly, specific investment treaties at issue might have rules on disclosure that differ from the code.

Article 12 addresses the enforcement of the code and contemplates various options for enforcement. However, the Draft Code does not address how the disclosure obligation has to be implemented. Whether the disclosure procedure should be under the control of a central mechanism or should instead rest with the arbitrator (self-policing)? Who might play the role of enforcing the disclosure obligation?

3. The Second Speaker – Article 6 – Limiting of roles

At the outset, the second speaker stated that Article 6 of the Draft Code addresses the concern that an adjudicator who is involved in other ISDS or other international proceedings in different roles would lack sufficient independence and impartiality because of the multiple roles played. Article 6 of the Draft Code essentially aims at limiting additional roles and it is a hotly debated article which is evident from the various square brackets in the Draft Code. Four elements may be considered under Article 6 of the Draft code:

(i) The consequences arising from Article 6 – whether it should prohibit multiple roles or merely seek disclosure of multiple roles;

(ii) The scope of Article 6 – whether it should extend only to counsel and arbitrators or also to witness, experts or any other relevant role;

(iii) Time period – whether it should be limited to concurrent service as arbitrator in one case and counsel (or any other role) in another case or also extend to previous and subsequent service as counsel; and

(iv) The factors to be considered when regulating multiple roles – (a) same parties involved; (b) same facts involved; and/or (c) same treaties involved.

Thereafter, the second speaker stated that, as a code of conduct, the draft does not necessarily only reflect perceived existing rules relating to conflict of interest but may also reflect much broader rules desired for policy considerations. In view thereof, the second speaker first provided an overview of (arbitral) jurisprudence and guidelines addressing conflict of interest due to arbitrators wearing multiple “hats”. Thereafter, various issues from a policy perspective were addressed i.e., issues that may be regulated and the potential consequences of regulating these issues.

Overview of jurisprudence and guidelines regarding multiple roles

The second speaker focused on the most frequent combination of roles, namely that of arbitrators also acting as counsels, and distinguished the following constellations: (i) same parties involved; (ii) same facts involved; or (iii) same treaty involved.

(i) It was explained that, under the IBA Guidelines, serving as an arbitrator concurrently with representing or advising one of the parties in another case is considered a red list item, i.e. one which raises justifiable doubts as to the arbitrator’s impartiality and independence. Additionally, past service as counsel for one of the parties within the last three years is considered an orange list item, i.e. one which should be disclosed.

(ii) Where arbitrators concurrently serve as counsel in cases involving the same or similar facts, in a number of challenge decisions the person concerned has been given a choice to withdraw either as a counsel or as an arbitrator. Accordingly, this jurisprudence takes no issue with past service, including counsel work just terminated. Once a person has terminated their role as counsel, a conflict of interest no longer exists. As an illustration of what kind of issues some courts and tribunals consider as similar or having something in common with another case, the second speaker referred to the example of The Republic of Ghana vs Telekom Malaysia Berhad, where the District Court of The Hague decided that Prof. Gaillard’s role as counsel in the annulment proceedings in RFCC v Morocco was incompatible with Prof. Gaillard’s position as arbitrator in the Telekom Malaysia arbitration because in the latter Ghana relied on the RFCC Award. The District court therefore asked Professor Gaillard to step down from the counsel position which he eventually did.

(iii) As regards cases where the same treaty is involved, the decision in the ECT arbitration KS Invest vs Spain was referred to, where Kaj Hobér was challenged as arbitrator because he was concurrently acting as a counsel for North Stream 2 in an ECT arbitration against the European Union. Spain argued that there would be a conflict of interest as similar legal problems under the same treaty (the ECT) will be discussed. The Chairman of the ICISD Administrative Counsel ruled on the challenge and held that there is no conflict of interest as the disputes concern different parties, different sub-sectors of the energy industry, and different measures.

In conclusion, the second speaker summarised the above jurisprudence and guidelines as follows: Service as arbitrator in one arbitration and as counsel for one of the parties in another is considered incompatible if such service is concurrent, while prior counsel work within the last three years has to be disclosed. In relation to the same facts, concurrent service of arbitrators and counsel is considered to be incompatible. Prior counsel work does not appear to be incompatible. As regards cases involving the same treaty, there is still only limited jurisprudence

Policy Considerations

It was pointed out that if one wanted to further restrict multiple roles for policy reasons, likely the most relevant areas would be rules relating to counsel work before and after acting as arbitrator and whether to limit “double hatting” restrictions to having multiple roles in disputes under the same treaty. In this context, reference was made to the approach adopted by the EU in different multilateral treaties (e.g. CETA, EU-Singapore, and EU-Vietnam). Under these treaties, the provisions dealing with multiple roles are very broad: Concurrent service is prohibit under “any international agreement”. After acting as arbitrator, the person may inter alia not act for one of the parties in arbitrations under the same treaty. The 2019 Dutch Model BIT not only prohibits concurrent counsel work but also prior counsel work in any ISDS disputes in the five years prior to acting as arbitrator. Conversely, the US-Mexico-Canada agreement (USMCA) is less strict as it only prohibits concurrent counsel work in cases under the USMCA.

Questions for discussion

As questions for discussion, the following were proposed, inter alia: What is the reason behind prohibiting arbitrators from subsequently acting as counsel, in particular in cases under the same treaty or with regard to the same facts? Do the participants share the analysis of tribunals that an arbitrator is not influenced by positions argued as counsel on a similar issue? And, of course, what would be the consequence of far-reaching limitations on multiple roles?

4. The Third Speaker – Article 8 – Arbitrator’s availability

The Third Speaker considered a few seminal questions that arose in the context of Article 8 of the Draft Code.

Genesis and drafting history of Article 8 of the Draft code

In considering the genesis and drafting history of Article 8, the third speaker stated that it was manifestly clear from ICSID’s Working Papers II and III on the amendments to the ICSID Arbitration Rules, that member States and the public desired that arbitrators be made to adhere to a code of conduct in relation to their availability. At its 38th Session, the UNCITRAL through its Working Group III considered the possibility of a code of conduct for arbitrators and deliberated on whether such a code should contain any provisions governing the availability of arbitrators. This was a part of the genesis of Article 8 of the Draft Code.

Then the discussion moved on to the drafting history of Article 8. It was pointed out that Article 8 was based on the model declaration annexed to the UNCITRAL Rules on Arbitration, which requires arbitrators to devote the time necessary to conduct the arbitrations in which they sit. The UNCITRAL Rules, however, do not provide any mechanism for enforcing the declaration. UNCITRAL’s Working Group III did not address this issue during the 38th Session and simply noted that arbitrators should not accept appointments if they cannot carry out their duties promptly.

ICSID had a more comprehensive discussion on the question, as is evident from paragraph 307 of the Working Paper I, which reads as follows: “…This requirement has been added in light of the comments expressing concern about delays in proceedings occasioned by extended periods of arbitrator unavailability, and by some arbitrators accepting appointments despite insufficient availability. The requirement is intended to provide the parties with specific information regarding the availability of the arbitrators in their dispute. The addition of this requirement does not convey any change in the applicable standards for the challenge of an arbitrator.”

In view thereof, it is clear that the intention of the declaration under Draft Arbitration Rule 19(3)(b) of ICSID Working Paper IV was to provide the parties with specific information regarding the availability of arbitrators. However, the scope of Article 8 (2) of the Draft Code is much wider, i.e. it does not merely provide information to the parties concerning the availability of arbitrators, but attempts to limit the number of appointments that an arbitrator can accept.

Availability of an arbitrator

The current declaration (under Rule 6.2 of 2006 ICSID Arbitration Rules ) does not require arbitrators to make any commitment as to their availability. However, the declaration under Draft Arbitration Rule 19(3)(b) of ICSID Working Paper IV requires arbitrators to commit their time and availability to the effective and efficient performance of their duties.

Further, ICSID’s Working Paper II reveals that States raised concerns about arbitrators’ availability and one State proposed that there should be a cap on the number of appointments accepted by arbitrators. This suggestion was originally brushed aside by ICSID, which stated that the proposal had already been dealt with in its Working Paper III. Curiously, however, the proposal was implemented in Article 8.2 of the Draft Code, which incorporates a provision capping the number of appointments accepted by an arbitrator.

Thereafter, the third speaker pointed out that the reason for discussing the Draft Code is ICSID’s suggestion to annex the Draft Code, once it has been finalised and adopted, to the arbitrators’ declaration under Draft Arbitration Rule 19(3)(b) . This essentially means that any arbitrator appointed under the ICSID rules will be bound by all of the provisions incorporated in the Draft Code. Therefore, the questions for discussion include whether (i) an arbitrator can be restrained from accepting more than a certain number of appointments, (ii) any efforts can be made to enforce such a policy and (iii) self-restraint on the part of arbitrators is the only plausible approach to the question.

Further, it was pointed out that the rule on incapacity under the ICSID Arbitration Rules has been amended to include an arbitrator’s disqualification on account of his or her failure to perform the required duties. In this regard, it has been suggested that where arbitrators are found not to have sufficient time for tribunal proceedings or hearings, the parties may seek to disqualify the arbitrator in question on the ground that he or she did not perform the required duties. Thus, the rule allowing for the disqualification of an arbitrator owing to his or her failure to perform the required duties is arguably one of the greatest checks against arbitrators’ lack of availability.

The third speaker concluded by pointing to the example of Vacuum Salt, where Judge Jennings advised ICSID that he would accept his appointment (as President) only if he were allowed to remain absent from the Tribunal’s oral proceedings. Further to this arrangement, Judge Jennings was not present at the Tribunal’s first session. He was absent from the Tribunal’s second session too. He ultimately did participate in the deliberations allowing issuance of the award. There was however no suggestion form either party that Judge Jennings had failed to perform the duties required of him as president of the Tribunal.

5. Discussions

Thereafter, Ketevan opened the floor for discussion to the participants. In addition to the questions raised by the speakers, this section incorporates the questions, queries, and issues raised throughout the discussion. Some of the issues raise pertinent legal questions – it would be nice to have the views of the readers on these issues.

1. Overall the feeling was that the Draft Code is a weak document. In addition to the lack of effective substantive provisions, the Draft Code is poorly drafted creating confusion and contradictory statements.

2. Some participants considered that the distinction in Article 6 with respect to the same parties, the same facts, and the same treaties does not answer the problem of double hatting. There were suggestions that the code should have taken a stronger stand regarding double hatting, i.e. either to retain the possibility of multiple roles or do away with multiple roles completely. In this regard, as drafted, the participants questioned the benefit of restrictions on double-hatting and raised concerns with regard to failing to promote diversity and the disadvantage it might have on un-represented groups, or young practitioners, for whom the current article might further reduce the chances of being appointed.

3. Article 5(2)(d) of the Draft Code requires disclosure of any relevant publications or public speeches. It was echoed that this provision is vague, as drafted, as it uses ambiguous terms (e.g. relevant public speeches) that can be interpreted broadly, while serving little purpose for meaningful disclosure, which is likely to aid unmerited arbitrator challenges.

4. Some participants were of the view that issue conflict vis-à-vis prior publication is not a critical point as it is in the green list under the IBA Guidelines. The critical issue which needs consideration is whether there is an issue conflict in relation to a legal position taken by adjudicators in prior cases. The debate of issue conflict vis-à-vis the legal positions taken by adjudicators in prior cases is not dealt with in the commentary on the Draft Code. It was considered unclear whether the Draft Code thereby wanted to leave the debate of issue conflict arising from the legal positions taken by adjudicators in prior cases wide open or confirms the understanding that prior legal positions taken in a case do not pose an issue conflict.

5. Third-party funders – what would be the consequences if an arbitrator were not to disclose the relationship with the third party which has an indirect interest in the dispute? Will mere non-disclosure of a relation with the third party funder amount to lack of independence and impartiality? Some participants were of the view that mere violation of the disclosure obligation in relation to the third party funder without any additional violation is not sufficient for a successful challenge.

The discussion went beyond the scheduled time and Ketevan stepped-in to close an engrossing discussion, which gives reason to continue the discussion with the participants on another occasion, hopefully soon.

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