The Importance Of Arbitrator Impartiality And Lack Of Conflicts Of Interest

Fox Rothschild LLP
Contact

Fox Rothschild LLP

Arbitration awards may be vacated or annulled based on arbitrator conflicts of interest and even just an appearance of impropriety. Read how different arbitrations deal with disqualification motions.

The Importance of Impartiality and Lack of Conflicts

Arbitrator’s impartiality and independence is the bedrock of international arbitration. Recent arbitration awards have been vacated or annulled due to arbitrator conflicts of interest or even mere appearances of impropriety. Parties may waive such conflicts, however, if the parties do not raise the conflicts in a timely and appropriate manner.

Recent proceedings demonstrate the importance of this issue.

On June 11, 2020, an annulment committee appointed in an ICSID case annulled a $128 million award against Spain in an Energy Charter Treaty case and ordered the claimants to pay all fees and costs in the case. The ruling was based on the arbitrator failing to disclose his 15-year relationship with claimant’s damage expert involving eight cases by the arbitrator’s law firm, including several where the expert was currently engaged. In addition, the arbitrator had presided over cases where the expert had previously testified. Because this information was not adequately disclosed, Spain did not have a chance to object at any time, including at the time the Tribunal was formed.

On December 16, 2015, France’s highest court annulled an arbitration award due to an arbitrator’s connection to the prevailing party. The Court of Cassation held that the partial award must be set aside because the arbitrator was a partner in a Canadian law firm that had a continuing relationship with the prevailing party.

Disqualification of Arbitrators-Know Your Audience

Finesse is required in the disqualification process, particularly when asserted later in the proceedings. Each arbitral forum has a different procedure and criteria for disqualification, and knowing the internal rules may make the difference between winning and losing the motion. One key difference is the degree to which information regarding disqualification will be shared with the Tribunal itself and whether the Tribunal has a voice in the decision.

Disqualification before the International Centre for Dispute Resolution (ICDR)

The ICDR follows the same disqualification procedure as its domestic affiliate, the American Arbitration Association. A party must send a challenge to the Administrator within 15 days of becoming aware of the circumstances supporting the challenge. Under Article 14 of ICDR Arbitration Rules, the Administrator notifies the opposing party of the challenge and grants a time to respond. The Tribunal is also notified of the challenge, but is no told which party filed the challenge. The Administrator may request information from the arbitrator who is being challenged. If the opposing party accepts the challenge, then the arbitrator must withdraw, or the arbitrator may withdraw unilaterally without admission that the challenge was correct. In the absence of agreement, the Administrator in his or her sole discretion will decide the challenge.

Disqualification Before the International Court of Commerce (ICC)

Under Article 14 of the ICC Rules, a party’s challenge must be filed in writing with the Secretariat within 30 days after the party becomes aware of a conflict, and the challenge must specify the facts and circumstances on which the challenge is based. The ICC itself “shall decide on the admissibility and, at the same time, if necessary, on the merits of a challenge after the Secretariat has afforded an opportunity for the arbitrator concerned, the other party or parties and any other members of the arbitral tribunal to comment in writing within a suitable period of time.” Unlike in the ICDR, the ICC Tribunal and the affected arbitrator, as well as all parties, shall be heard before a decision is issued.

Disqualification Before the ICSID Convention Arbitration

For treaty cases, challenges are filed with the ICSID Secretary-General or the Tribunal under Article 57 of the ICSID Convention. Once received, the challenge is forwarded to the Chairperson of the ICSID Administrative Counsel if the challenge is to a sole arbitrator or a majority of the Tribunal. A schedule is set for the challenged arbitrator to respond and for the other parties to comment. A decision on the challenge is usually made by the other members of the Tribunal (Article 58). Where a sole arbitrator or a majority of the Tribunal is challenged, the decision is made by the Chairperson of the Administrative Council.

Standards Governing Disqualification

In the ICDR, four factors are weighed in disqualification motions: whether the conflict is (a) direct, (b) continuing, (c) substantial, and (d) whether the challenge timely. Other arbitral fora apply similar rules and consider the disqualification criteria used by the seat of arbitration. That makes sense, because, if the award is challenged in court, the disqualification motion will be reviewed by the court as well.

Conclusion

Disqualification motions advance the integrity of the Tribunal, but must be brought timely and with good cause. Even if denied during the actual arbitration, the motion may be reconsidered at the annulment stage. Each arbitration forum has its own rules for disqualification motions, and these rules should be strictly followed.

[View source.]

Written by:

Fox Rothschild LLP
Contact
more
less

Fox Rothschild LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.