ARBITRATOR INTEGRITY: THE TRANSIENT AND THE PERMANENT*
“Everything is in flux.”
“Righteousness endures forever.”
The somewhat excessive words attributed to Heracleitus find some application in the current search for ethical standards applicable to arbitrators sitting in international disputes. New patterns of misbehavior create new types of ethical challenges. Few criteria for evaluating arbitrator independence and impartiality will likely stay foolproof for long, given how ingenious fools often prove themselves to be.
Heracleitus notwithstanding, however, change does not occupy the entirety of human experience. Although tomorrow cannot be built on an assumption of yesterday’s permanence, one must build on something. Yesterday’s lessons remain better starting points than most. Thus the aspirational model of righteousness continues to manifest a stubborn stability, much as the Psalmist predicted.
No less than in other areas of the law, elaboration of standards for arbitrator ethics implicates a tension between the transient and the permanent.1 Conflict-of-interest principles will remain useful only if implemented with sensitivity to new trouble spots.
Traditional ethical models serve as starting points for evaluating the fitness of those to whom business managers, investors, and nations entrust their treasure and their welfare. Any model, however, must be flexible enough to address novel professional temptations. In particular, vigilance commends itself when lawyers take on various professional roles, making arguments as advocates in one case about propositions that remain open in other cases where they sit as arbitrators. The constant movement in arbitrators’ lives and activities requires regular adjustment in both formulation and application of contours for acceptable and unacceptable arbitrator behavior.2
No one with a dog in the fight should judge the competition.3 Nor should anyone serve as a referee in a game after having decided which team will win. At least as an aspirational model, legal claims should be decided on their merits, rather than according to a predisposition or interest in the outcome. Consequently, few tasks present the vital urgency of establishing standards for evaluating the independence and impartiality of arbitrators.4
Notwithstanding the elusiveness of perfect objectivity, a reasonable measure of arbitrator integrity remains both desirable and attainable.5 Although few people are free of predispositions in an absolute sense, some will prove relatively more detached than others with respect to any given dispute. A relative measure of distance from troubling connections to litigants, along with a willingness to listen carefully to both sides of a dispute, constitute essential elements of basic due process.6
In a cross-border context, the prohibition on bias justifies itself by reference to the very same goal underlying the decision to arbitrate: promoting a level playing field. A commitment to subject future disputes to arbitration usually aims to enhance a relative measure of adjudicatory neutrality, at least when compared with the prospect of the other side’s hometown courts. Indeed, the notion that promises are meant to be kept depends in large measure on private arbitration for continuing vigor. Even if speed and economy prove illusory, arbitration can still serve to enhance the perception as well as the reality of procedural fairness, thus promoting respect for the parties’ shared ex ante expectations at the time of the contract or investment.
In a world of stubbornly heterogeneous legal cultures, each with its own divergent view of proper conduct, elaborating one common ethical plumb line for international arbitration poses special challenges.7 In contrast to national legal communities, which tend to adopt relatively formalized paths for appointing judges, the fragmented framework of international arbitration relies on more fluid processes for selecting decision-makers and vetting their integrity. For instance, direct party-nomination of arbitrators coexists with arbitrator selection by institutional appointing authorities;8 national court decisions on arbitrator impartiality intersect with analogous rules and decisions of arbitral institutions; and guidelines issued by professional associations are interpreted by scholars and practitioners from disparate procedural traditions.
This hodgepodge of influences serves as a backdrop for both honest and spurious challenges to arbitrators. Some objections will be advanced in good faith, based on genuine concerns about an arbitrator’s exercise of independent judgments. In other instances, however, requests to remove arbitrators or to vacate awards represent no more than attempts to derail proceedings or to reverse unwanted decisions.
Cynics sometimes suggest that litigants want fairness much less than they want victory. The two goals need not be incompatible. In many contexts they intersect. What limited empirical research does exist seems to indicate that parties to arbitration place “fair and just results” high in their pantheon of virtues, regardless of whether, in the heat of battle, they focus more on victory.9
Common sense and general experience reinforce this conclusion. In appointing arbitrators, it would be rare indeed for counsel to seek candidates known to be dull or dishonest, admitting their client’s case to be so weak that success can come only through trickery or bribes. Rather, fair-mindedness and intelligence remain the most sought after qualities in arbitrators.
Seeking to bring arbitration into disrepute, an evil gremlin might contemplate two starkly different routes. One route would tolerate appointment of pernicious arbitrators, biased and unable to judge independently. An alternate route to shipwreck, also reducing confidence in the integrity of the arbitral process, would establish unrealistic ethical standards that render the arbitrator’s position precarious and susceptible to destabilization by litigants engaged in dilatory tactics or seeking to annul unfavorable awards.10
To reduce the risk of having cases decided by either pernicious or precarious arbitrators, those who establish and apply ethical guidelines walk a tightrope between the rival poles of (i) keeping arbitrators free from taint, and (ii) avoiding maneuvers that interrupt proceedings unduly. From the command post of bland generalities, the job of evaluating independence or impartiality may seem simple. In light of specific challenges, however, the task becomes one of nuance and complexity, often implicating subtle wrinkles to the comportment of otherwise honorable and experienced individuals.
The quest for balance in ethical standards entails a spectrum of situations in which mere perceptions of bias may be given weight equal to real bias. To promote the litigants’ trust in the arbitral process, an arbitrator might sometimes step down just to alleviate one side’s discomfort. Not always, however. In some instances it would be wrong to permit proceedings to be disrupted by unreasonable fears, whether real or feigned.
If arbitrators must be completely sanitized from all possible external influences on their decisions, only the most naïve or incompetent would be available. Consequently, notions such as “proximity” and “intensity” will be invoked to evaluate allegedly disqualifying links or prejudgment. As we shall see, the search for balance in ethical standards compels a constant re-evaluation of the type of relationships and predispositions likely to trouble international arbitration.
Arbitrator conflicts of interest usually fall into one of two categories: lack of independence or lack of impartiality. In common usage, independence refers to the absence of improper connections,11 while impartiality addresses matters related to prejudgment.12 The common assumption is that an arbitrator in international disputes must be both impartial and independent.13
Lack of independence derives from what might be called problematic relationships between the arbitrator and one party or its lawyer. Often these result from financial dealings (such as business transactions and investments), ties of a sentimental quality (including friendships and family), or links of group identification (for example shared nationality and professional or social affiliations). Individuals should decline appointment if they have doubts about their ability to be impartial or independent, or if facts exist such as to raise reasonable concerns on either score.
Even if no special relationship or financial link exists with either side, a second category of concerns will arise if an arbitrator appears to have prejudged some matter. An arbitrator might be independent but still be a bigot, with low opinions about people of a particular race, nationality or religion. This second category (often called “actual bias”) was illustrated by the English decision arising from a maritime accident off the coast of France, between a Portuguese and a Norwegian vessel, submitted to arbitration in London by the two respective shipowners.14 During hearings, counsel for one side mentioned a case involving Italians. To which, the arbitrator responded as follows:
Italians are all liars in these cases and will say anything to suit their book. The same thing applies to the Portuguese. But the other side here are Norwegians and in my experience the Norwegians generally are a truthful people. In this case I entirely accept the evidence of the master of the [the Norwegian vessel].
In connection with the application to remove the offending arbitrator, it was argued that a formal award not having yet been rendered, there was no evidence that an ultimate decision against the Portuguese would in fact rest on the biased perspective. Rejecting what might be called an argument too clever by half, the court confirmed that justice must not only be done, but must be seen to be done. The arbitrator was removed.
More subtle examples of prejudgment might include a procedural order that presumes contested facts on which evidence has not been heard. In other instances, an arbitrator might have written an article or delivered a speech taking a firm position on otherwise open questions that remain central and controversial in the dispute. No magic attaches to this conceptual framework. Independence and impartiality serve merely as intellectual hooks on which to hang analysis with respect to two basic principles expected of arbitrators.15 No arbitrator should have links with either side that provide an economic or emotional stake in the outcome of the case. And no arbitrator should decide a controverted matter prior to hearing evidence and argument.
A third notion, sometimes called “neutrality,” generally encompasses both independence and impartiality. This term takes on a special connotation for domestic arbitration within the United States, which traditionally distinguished between “neutral” and “nonneutral” arbitrators.16
One useful formulation of the type of independence required of arbitrators might be found in the notion of “relative reversibility” as between the two sides.17 Under this approach, an arbitrator would be independent as between an Israeli seller and an Egyptian buyer if his predisposition toward one side or the other would not change on reversal of the parties’ nationalities. In that particular context, a French or Swiss arbitrator might be characterized as more neutral than an Israeli or an Egyptian. This does not mean that an Israeli or an Egyptian arbitrator would lack integrity. Rather, a perception might exist that it would be asking too much of either one to judge the dispute.
Of course, an arbitrator may deviate from duty through avenues other than prejudgment and inappropriate relationships. The contours of integrity touch on matters as diverse as delegation of tasks,18 participation in settlement negotiations,19 and inappropriate interviews with party representatives.20 Nevertheless, independence and impartiality constitute the core of arbitrator integrity, and continue to be emphasized at professional symposia21 and in the literature.22
One intriguing question relates to the extent that either independence or impartiality may be waived by fully informed litigants. In some circles the answer seems to be a conditional “yes” at least with respect to independence, even if not necessarily so for impartiality. The International Bar Association Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) contain a “Red List” of prohibited relationships that bifurcates into waivable and nonwaivable relationships. The former include, inter alia, an arbitrator who acts for a litigant in the case, or is a member of the same firm as counsel to one side. The latter encompass an arbitrator’s service as director in a corporation that is party to the case or as adviser to his or her appointing party.23
Independence thus seems to lend itself to waiver up to the point where the litigant actually becomes judge of its own cause. At that moment the decision-making process may no longer bear the attributes permitting its enforcement as an “award” under relevant statutes and treaties. Although a mother might well referee games among her children, deciding a quarrel between her son and his schoolmate would be a different matter. Likewise, it would be impermissible for an arbitrator to own a majority interest in one of the parties, no matter how much he or she might try to be fair.
A recent case tested the extent to which arbitrator integrity can be waived in an international context.24 A dispute arose over distribution of a Biblical citrus fruit called the esrog (or etrog), used in connection with the Jewish Harvest festival of Succoth.25 An American distributor refused to pay the balance due for imported fruit, complaining that the Israeli grower had circumvented the exclusive distributorship by selling to third parties. The controversy was submitted to arbitration before an Israeli clergyman who found in favor of the grower.
The award was presented for enforcement in the United States under the New York Convention.26 The distributor resisted confirmation, arguing that the arbitrator was not independent, due to services rendered to the grower by certifying the orchard’s kosher status, which was essential to maintaining the fruit’s marketability.
The court rejected the challenge, finding that the distributor knew of the arrangement and thus waived a right to complain. The assumption seems to have been that the right to a fair hearing could be waived, or at the least that objections must be raised in a timely fashion. From a practical perspective this seems reasonable. Otherwise, a litigant might simply hope for a successful outcome, raising the conflict only if things do not end with a happy result.
How far this result can be pushed remains open to question. The case concerned lack of independence, not positive prejudgment. Although interrelated, independence and impartiality are not the same thing. Prejudgment would seem to impede the very heart of the arbitral process, which presumes a quasi-judicial function of deciding legal claims after weighing evidence and argument. The lack of independence may create an imperfect arbitration, but prejudgment renders the process a sham formality, an unnecessary social cost. Although the New York Convention contains no definition of arbitration, prejudgment seems entirely foreign to the process whose recognition the treaty contemplates.
Nothing prevents enforcement of an arbitrator’s decision simply as a matter of contract. However, actors in cross-border commerce seek something more than just a contractual framework for arbitration. The New York Convention and its antecedents (the Geneva Convention and Geneva Protocol of 1927 and 1923, respectively) grew from dissatisfaction with contract law alone as a remedy for failure to respect arbitration commitments. The commercial community sought to facilitate enforcement of arbitrators’ decisions as awards, not simple contracts.27
The legal matrix for such enforcement presumes a minimum level of impartiality in the arbitrator’s respect for the parties’ right to be heard.28 Likewise, for investor-state arbitration the ICSID Convention requires arbitrators to be persons “who may be relied upon to exercise independent judgment” and permits challenge of an award for “departure from a fundamental rule of procedure.”29 Although litigants might waive impartiality as a matter of contract, in so doing they may well remove their dispute from the legal framework applicable to the creature we call arbitration.
Not all agree, however, with such a balance between freedom of contract and arbitral integrity. One of the most thoughtful scholarly commentators argues that ethical questions should resolve themselves into issues of contract interpretation.30 Even if this perspective might prevail in certain jurisdictions, it does not necessarily commend itself as the better view as a policy matter. One remembers words attributed to Talleyrand to the effect that the excessive becomes meaningless: Tout ce qui est excessif devient insignifiant.
Most analysis starts with relatively clear models on which most reasonable people agree, and then proceeds from black and white to shades of gray. An arbitrator who says French people exaggerate should not judge a case with a respondent from Paris. And an arbitrator should not become romantically entangled with a lawyer representing one side in the case.31 Equally settled is the proposition that an arbitrator will not be disqualified merely because once, during a midmorning coffee break at a professional lecture, he chatted with a lawyer appearing before him in a case.
Nuances appear at some point between extremes. The somewhat ambiguous notion of friendship might encompass business associates who occasionally share a meal, as well as confidants who exchange regular calls and visits. In some cases, the shared cup of coffee can become a deeper relationship that results in arbitrator disqualification.
Variations on a theme
Although some behavior patterns provide per se evidence of impropriety, other types of conduct take on radically different ethical overtones depending on the circumstances. For example, arbitrators concerned about committing time for distant hearings might build into their terms of appointment provisions to cover days reserved but ultimately not used due to the parties’ decision to cancel without adequate notice. In some instances, a retainer might be requested to cover such an eventuality. If properly disclosed to all parties and requested prior to accepting the time commitment, such an arrangement might not pose any problem.32 However, a retainer paid by only one party, and not revealed to the other side, might well be seen as a bribe, and understandably so.33
More subtle factors can also color perceptions and evaluations on conflicts of interest. Was a gap in the curriculum vitae intentional or inadvertent?34 Was the arbitrator’s previous consulting work for one of the parties significant?35 Does a former law firm affiliation create a perception of continuing links? The appreciation of a conflict might vary depending on whether it is expressed in a positive or a negative fashion. Is an “independent” arbitrator the same as one who is “not biased” toward either side?
Often it will be important whether a lawyer serving as an arbitrator practices in partnership with a firm whose other members represent affiliates of the litigants. On occasion, however, an arbitrator may be tainted even without the status of employee or partner. One Paris Court of Appeal judgment addressed a situation in which a lawyer with the Paris office of a large multinational law firm had failed, apparently by simple inadvertence, to disclose all links between his firm and one of the parties.36 Although neither a partner nor associate (but simply “of counsel”) to the law firm, the lawyer was found to be constitutionally connected (structurellement lié) with the Paris office to an extent requiring attribution of the firm’s conflicts.37
A general standard of independence usually takes meaning only as applied to specific cases, some of which resist facile analysis. Should an arbitrator be disqualified if he or she sits on the board of a financial institution that manages pension funds holding shares of affiliates of one of the parties? If so, does it matter how large the institution, or how sizeable the ownership of interest might be in proportion to the entire portfolio?
If it seems obvious that an arbitrator should not sit when he or she represents one of the parties, does the same rule apply when his firm represented an affiliate in an unconnected matter five years ago? What about one year ago? Or ten? If it seems obvious that an arbitrator should not be having a romance with a lawyer for one of the parties, the same conclusion will not necessarily be self-evident with respect to a witness with whom a good friendship existed during university days. In determining when a professional acquaintance becomes a disqualifying relationship, the devil will be very much in the detail of how regularly the two might dine together.
Should national origin matter? Should it matter that an arbitrator is an American of Korean ancestry presiding in a dispute between a Korean claimant and a Japanese respondent?38 And what about religion? In a domestic commercial arbitration, one would not normally expect an arbitrator to be challenged for being Muslim or Hindu. Would the same calm insouciance toward religious affiliation obtain with respect to arbitration of a border dispute between Pakistan and India?
Likewise, the very existence of professional expertise can present an ethical conundrum. If a scholar has expressed a firm opinion on a narrow and controverted point on which the case hangs, she may not inspire confidence in the party that received the rough side of the academic analysis. However, learned professionals do (and should) write treatises sharing their knowledge. A professor of contract law at an American law school would not normally be disqualified for having written about “offer and acceptance.” It would be a shame to exclude from service those who really know something, leaving arbitration only to the ignorant.
To promote confidence in the international arbitral process, party input into the selection of arbitrators has long been common practice. Even limited interview of candidates by counsel has been allowed, at least with safeguards to avoid discussion of the merits of the case.39 Rightly or wrongly, litigants often perceive a benefit in direct selection of a tribunal, rather than leaving the choice entirely to an institution. By vetting a proposed arbitrator, the party may feel more comfortable that the case will be decided by someone who is skilled, fair and perhaps even smart.
Those unfamiliar with international arbitration sometimes express surprise at the degree of party involvement in the selection process, suggesting that it may inject a corrupting influence on the independence of arbitrators. Yet the justification for a heightened party participation will be evident after a moment of mature reflection on the difference between national and international proceedings.
In a relatively homogeneous and integrated juridical environment, the individuals selected as judges (or at an earlier stage, the principal candidates for judgeships) will be well known to the other members of the legal profession (as in England and the United States), or will have been selected by nationally administered examination, as in countries following the French model.40 They will likely know each other, directly or indirectly, through university, court appearances, or professional associations. Shifting from selection of judges to choice of arbitrators, within a single-country framework, a national institution may well inspire some measure of analogous confidence as an appointing authority, as, for example, the American Arbitration Association generally commands in the United States.
By contrast, if an American company has a dispute with the Chinese government, the two sides may not be equally comfortable with any single appointing authority framework. The party from the United States may like the American Arbitration Association, while the Chinese may favor the China International Economic and Trade Arbitration Commission (CIETAC). Even venerable institutions of longstanding, such as the International Chamber of Commerce (ICC) or the London Court of International Arbitration (LCIA), may be suspect to some observers as dominated by interests and traditions of industrialized nations.41
In such circumstances, the job of constructing a mutually acceptable arbitral tribunal would normally be facilitated by allowing each side to appoint an arbitrator, and having the two party-nominated arbitrators choose the third member of the tribunal. Such party participation democratizes the process, serving to foster trust that at least one person on the tribunal (the party’s nominee) will monitor the procedural integrity of the arbitration.42
Party participation in the constitution of a tribunal means that each side will want to be sure that its nominee (and the presiding arbitrator if possible) will be free of doctrinal predispositions that would adversely affect its case. A company whose assets have just been expropriated will not be keen on a tribunal dominated by a professor who has written a book supporting uncompensated nationalization. Likewise, the host state will not want someone who has taken the position that national welfare must take a back seat to profit maximization for the foreign investor.
In practice, the process of evaluating ideological conflicts may shift from avoiding the “wrong” arbitrator to jockeying for the “best” arbitrator. Even if a litigant knows that an arbitrator cannot be in its pocket, the litigant may, understandably, still hope to appoint someone who falls into its corner doctrinally.43 Thus rejection of the left-wing professor as tribunal chairman may become an effort to nominate a strong capitalist, with traditional views on “prompt, adequate and effective” compensation.44 The risk in such excessive wrangling, of course, is that the selection process becomes unworkable, a bit like what happens when a schoolchild tries to sharpen a pencil to an excessively fine point.
The game can become even more complex with respect to procedural matters. For instance, a party hoping to avoid extensive document production may prefer a French professor over an American litigator, given that American style “discovery” (including requests to produce extensive documentation that may be adverse to one’s own arguments) has traditionally been foreign to the Continental legal system.45
Party input into the arbitrator selection process need not impinge on arbitrator integrity. Current arbitration rules and canons of ethics point to a consensus that now presumes independence and impartiality as the norm for all arbitrators (not just the chair) on a three-member tribunal, notwithstanding an assumption that each side will nominate an arbitrator. This does not mean, however, that tension never exists between the value of independence and the parties’ desire for an advocate on the tribunal. In the United States, it was the case until recently that party-appointed arbitrators were presumed not to be neutral.46 Moreover, skepticism about the merits of neutrality for party-appointed arbitrators has made a revival in some scholarly writing,47 as well as in the emerging protocols for arbitration pursuant to income tax treaties.48
Ambivalence about arbitrator independence and impartiality seems to have been particularly marked in public international arbitration. More than a century ago, the U.S. Secretary of State lamented that arbitrators in state-to-state disputes tended to see themselves as diplomats rather than as judicial decision-makers looking to the law and the facts. In a speech given in April 1907, Secretary of State Elihu Root opined as follows:
It has seemed to me that the great obstacle to the universal adoption of arbitration is not the unwillingness of civilized nations to submit their disputes to the decision of an impartial tribunal; it is rather an apprehension that the tribunal selected will not be impartial.49
Similar sentiments were included the following month in his instructions to the American delegates to the Second Hague Conference that revised the status for the Permanent Court of Arbitration.50
Among the new categories for possible conflicts that continue to suggest themselves, increasing concern has been expressed with respect to “issue conflict” and its sibling, “role confusion.” Each represents a special form of prejudgment.
On occasion, an arbitrator must address, in the context of an arbitration, the very same issue presented to him or his law firm as advocate in another case, or to himself as scholar in academic writings. It is not difficult to see why such situations might compromise the integrity of the arbitral process.
The arbitrator might be tempted, even subconsciously, to add a sentence to an award that could later be cited in another case. Such an arrière pensée might lead to disparaging or approving some legal authority or argument regularly presented in similar disputes,51