Draft code of conduct for arbitrators in international investment disputes (#IID) – improvement at high price
31. 05. 2023
One of the topics on the agenda of the UNCITRAL Commission session scheduled for July 2023 is the approval of the draft Code of Conduct for arbitrators in international investment dispute resolution, which was adopted by UNCITRAL Working Group III in March this year within the broader framework of multilateral IID’s reform.
The draft code (alongside its sibling Draft code of conduct for judges in permanent court for investment, which is not discussed in this text), is a relatively short document spanning over 12 Articles. It deals with issues such as: independence and impartiality, limit on multiple roles (so-called double-hatting), duty of diligence, integrity and competence, ex parte communications, confidentiality, fees or expenses, involvement of assistants, or the disclosure obligations.
First and foremost, it is good that the draft Code has eventually been agreed. It was an immensely difficult and delicate challenge to strike a compromise over such sensitive issues with multiple parties and political interests involved. The Code codifies certain principles which have been extensively applied by arbitrators in #ISDS cases, but which emerged in random manner through customs, self-policing and case law. But the provisions of the Code also vary with regard to their specificity and ease of application.
On the one extreme of this spectrum, Article 4 introduces quite precise limitations on the concurrent seating as an arbitrator, counsel or expert in ISDS proceedings, relating to:
(a) the same measure(s); (b) the same or related party (parties); or (c) the same provision(s) of the same instrument of consent. Under Article 4 of the draft Code, the Arbitrator is embargoed from performing such roles for up to 1 year (in the case of (c)), or up to 3 years (in the case of (a) and (b)). This is a clear rule in terms of the duration of the limitation, even if disputes will likely arise over the meaning of “the same measure” or “related party”. This was the most controversial provision of the Code, which nearly brough the project to a halt.
On the other extreme, Article 3 deals with the obligation to remain impartial and independent is significantly more general and open-ended than the already existing guidelines on the conflict of interests in international arbitration. Specifically, Article 3 of the draft Code, with general phrases such as that the obligation to remain independent and impartial shall “include the obligation not to” “be influenced by any past, present or prospective financial, business, professional or personal relationship” (Article 3.2.c) is nowhere near as precise as e.g. the IBA Rules, which in themselves create a myriad of interpretative problems.
The duty to remain impartial and independent is closely linked with the Arbitrator’s duty to disclose. As shown during one of the sessions of the IBA Arbitration Day in Lisbon in April this year, only a handful of practitioners in a room packed with eminent arbitration lawyers had no doubts regarding the scope of their duty to disclose.
Importantly, in this respect, Article 11 of the draft Code confirms the “disclose if in doubt” principle and imposes an extensive duty on the Arbitrators to include in their disclosure: “Any financial, business, professional or close personal relationship in the past five years with: (i) Any disputing party; (ii) The legal representative(s) of a disputing party in the IID proceeding; (iii) Other Arbitrators and expert witnesses in the IID proceeding; and (iv) Any person or entity identified by a disputing party as being related or as having a direct or indirect interest in the outcome of the IID proceeding, including a third-party funder.”
This will have obvious practical implications for those wishing to pursue professional careers as arbitrators in the ISDS matters, including the introduction of extensive databases along with the details of parties, counsel, expert witnesses, third-party funders, and possibly also other entities, in order to comply with the duty. The breadth of this obligation and its unclear contours will certainly lead to a number of practical questions, such as whether the obligation extends to the relations of the law firm of the Arbitrator, and how the Arbitrators could or should handle such obligations if they changed law firms in the course of 5 years preceding their appointment. The same question will apply e.g. to an Assistant, whom an Arbitrator may appoint, and who is supposed to be subject to the same restrictions under the Code.
The broad and inclusive language of the draft Code in this respect is remarkable, because one of the salient problems in international arbitration these days is the increasing frequency of use of challenges against arbitrators, which is encouraged by the absence of universally accepted, clear standards regarding disclosure and conflict of interests. As a result, what can be expected is a “disclosure paranoia”, while searching for undisclosed professional relations of a Candidate in the span of the last five years will likely become a standard feature of law firms’ due diligence in ISDS matters. This entails further problems of diversity, professionalism, integrity as well as parties autonomy. Together articles 3, 4 and 11 of the Code allowed to strike last-minute compromise.
Another important provision of the draft Code is Article 12, which states in section 2 that “A Candidate shall not accept an appointment and an Arbitrator shall resign or recuse himself or herself from the IID proceeding, if he or she is not able to comply with the Code”. This begs the question whether a failure to comply with any provision of the draft Code can warrant a successful challenge of the Arbitrator. In this respect, Article 12 section 3 of the draft Code reads that “Any challenge or disqualification of an Arbitrator or any other sanction or remedy is governed by the instrument of consent or the applicable rules” which inevitably means that while the draft Code may seek to introduce a uniform standard of conduct, the sanctions for its breach will vary.
Overall, if adopted, the draft Code will address a number of concerns voiced so far by respondent states, and at the same time will impose significant restrictions on the access to the profession of an arbitrator in IID matters. It can also be expected that it will lead to an increased number of challenges against Arbitrators, who will then adopt preventive countermeasures in the terms of reference and/or procedural orders no. 1 to minimize the risk of challenge or incompliance. Finally, following up on Fernando Mantilla-Serrano’s point in his keynote speech in Lisbon – arbitrator candidates subject to the breadth of restrictions under the draft Code will be deterred from voicing their views on salient legal points in the investment treaty law, to the clear detriment of the quality of legal doctrine.