Constitution of the Tribunal

The arbitrator is the sine qua non of the arbitral process.
The process cannot rise above the quality of the arbitrator.^[2]

Introduction

It is unquestionable that the ability to select an arbitrator is one of the foundations of international arbitration.^[3] The selection process is the first procedural step in any arbitration. The parties go to great lengths to research and try to predict whether the person they are choosing as their party-appointed arbitrator will in fact be receptive to their position. A great many strategic decisions are made by counsel at this procedural stage. Indeed, given its potential importance to the outcome of a dispute, the selection of the arbitrator or arbitrators is something counsel could evaluate when first assessing whether to bring a claim. This chapter examines the constitution of tribunals in investor–state dispute settlement (ISDS). First, the key factors counsel may wish to consider when nominating an arbitrator are addressed. Second, the chapter analyses how to break a deadlock in appointing a presiding arbitrator. Third, the duties of arbitrators in international arbitration are examined. Fourth, the chapter considers challenges to an arbitrator, including a discussion on recent case law. Finally, the chapter concludes with a discussion of the procedures to replace an arbitrator.

Factors to consider when nominating an arbitrator

When researching potential arbitrators, the first step should always be to consult the arbitration clause^[4] for any specifications. Should none be present, which, with some exceptions, is usually the case in ISDS,^[5] one must investigate the type of dispute at hand to decide on the factors to consider.

The 2013 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules and the International Centre for Settlement of Investment Disputes (ICSID) Arbitration Rules have detailed guidelines and procedures on how to nominate a party-appointed arbitrator.^[6] However, sometimes the applicable treaty would override or modify the applicable rules. For instance, the United States–Peru Trade Promotion Agreement states that ‘[t]he arbitration rules applicable . . . and in effect on the date the claim or claims were submitted to arbitration . . . shall govern the arbitration except to the extent modified by this Agreement’.^[7] One such modification is that, with its notice of arbitration, the claimant shall provide the name of its party-appointed arbitrator.^[8]

Usually, the parties assemble a list of prospective party-appointed arbitrators and they may communicate with them to help narrow down the list. It is important to consider whether the arbitrator has the desired knowledge of the procedure, the applicable law and the subject matter of the dispute. Another subject that counsel often takes into account is how often the arbitrator has been appointed by a state or by an investor. Considerations such as these should help the parties get a better idea of who to appoint.

With respect to ‘pre-appointment communications’, previous versions of the ICSID and UNCITRAL Draft Code of Conduct for Adjudicators in International Investment Disputes stated that the discussion must be limited to the prospective co-arbitrator’s experience, availability, expertise and the absence of any conflict of interest.^[9] In turn, Article 7 of version three of the Draft restricted the language stating that there shall be no ex parte communication with a prospective arbitrator except ‘(a) to determine a Candidate’s expertise, experience, ability, availability, and the existence of any potential conflicts of interest; (b) to determine the expertise, experience, ability, availability, and the existence of any potential conflicts of interest of a Candidate for Presiding Adjudicator, if both disputing parties so agree; (c) as otherwise permitted by the applicable rules or treaty or agreed by the disputing parties’.^[10] The Draft further proposes that the permitted communications under Article 7.1 ‘shall not address any issues pertaining to [the merits of the case, including] jurisdictional, procedural, or substantive issues that the Candidate or Adjudicator reasonably anticipates could arise in the IID’.^[11]

A further point for consideration might be the language in which the arbitration will be held. It is certainly possible to appoint any given arbitrator to a case that is to be in a language foreign to that of the arbitrator. However, there is a certain cost associated with translating entire proceedings. Due to transparency, in investor–state cases, it is not unusual to conduct hearings in two or more languages and for the tribunal to be fluent only in one of those languages.

Virtual hearings have certainly made internationally located arbitrators more accessible, but depending on how the arbitration will be conducted, location of the arbitrator might be another considerable factor. Furthermore, counsel might be located in different time zones; as such, restricting the arbitrator selection to time zones acceptable to all parties might be a reasonable approach. For example, in an arbitration where counsel is in Paris and one of the arbitrators is in New York, it would become difficult to schedule a virtual hearing before noon in Paris. And, where counsel is located in New York and one of the arbitrators is located in Singapore, the time allocated for hearings may be substantially reduced.

Most of the information available to parties to make an educated selection of an arbitrator is drawn from, but not limited to, CVs, information available online, publications and speeches held. However, when wishing to know more about the procedural or soft skills of an arbitrator, parties often rely on word of mouth.^[12] As such, some commentators consider that the process of selecting an arbitrator remains ‘a painfully inexact process’.^[13]

In addition, there is no question that there is a transparency and diversity hurdle to overcome in international arbitration. Therefore, initiatives such as Arbitrator Intelligence, ArbitralWomen, the Equal Representation in Arbitration Pledge and REAL (Racial Equality for Arbitration Lawyers), among others, coupled with data contained on online platforms such as the GAR ART, ISLG, Jus Mundi and the IAReporter, are crucial to increasing transparency and diversity in international arbitration.

How to break a deadlock in appointing a presiding arbitrator

Between 2018 and 2019, the number of ICSID-presiding arbitrator deadlocks ranged between 20 per cent and 35 per cent.^[14] Generally, most, if not all, institutional rules provide for review of the parties’ individual arbitrator nominations or joint proposals by the arbitral institution for adequacy, including an evaluation of impartiality and experience.^[15] Nevertheless, as a matter of party autonomy, the vast majority of institutions pay substantial deference to the parties’ joint selection of an individual as presiding or sole arbitrator.

In a typical procedure in international arbitration, each party usually selects an arbitrator, known as a ‘party-appointed’ or ‘wing’ arbitrator, with the ‘presiding arbitrator’ or ‘chair’ often being appointed by the two wing arbitrators, the opposing parties, an arbitral institution or third party. ‘It is, however, a right of the parties to almost any arbitration to jointly nominate their preferred candidate for presiding arbitrator. Where a minimum level of co-operation remains, parties should make good use of this opportunity’^[16] to avoid a deadlock in appointing a presiding arbitrator.

Pursuant to the 2013 UNCITRAL Arbitration Rules, ‘[a]rticle 11 allows the court or other competent authority designated in Article 6 to intervene to ensure that deadlocks in the appointment procedure will not prevent the arbitration from going forward. The court or competent authority may also intervene when a deadlock occurs in an appointment procedure agreed to by the parties (a party fails to act as required under such procedure, the parties or the arbitrators are unable to reach an agreement expected of them under such procedure, or a third party fails to perform a function entrusted to it under such procedure).’^[17]

The Australian courts have created something similar. In Tulip Bay Pty Ltd v. Structural Monitoring Systems Ltd,^[18] the Supreme Court of Western Australia was able to exercise its power to appoint arbitrators under the Commercial Arbitration Act 2012 (WA), where the parties were unable to agree on a single arbitrator.^[19] There, each party was to appoint a single arbitrator, who could then jointly appoint a third arbitrator. If the two arbitrators were unable to select a third, the president of the Australian Institute of Arbitration would be requested to make the appointment. The Court evaluated the reasons that led to the deadlock in appointing the presiding arbitrator, and ultimately found that the bases were unfounded. Accordingly, the Court exercised its powers under Section 11(4)(a) of the Commercial Arbitration Act 2012 (WA) and appointed an arbitrator on behalf of the party refusing to make the appointment.

In some instances, the applicable treaty may state that the presiding arbitrator has to be appointed by agreement of the disputing parties.^[20] As such, the party-appointed arbitrators can invite the parties to inform them of any agreement that the parties may reach. The parties can agree to submit a list of candidates for presiding arbitrator to each other. In turn, each party would rank or comment on any of the candidates included on the opposing party’s list. After intense research on both ends, the parties can inform the institutional administrator that they have agreed on the chairperson. The parties can further request that the administrator be the one to reach out to the selected presiding arbitrator to notify and appoint them as president of the tribunal.^[21]

Parties unable to agree on the selection of a presiding arbitrator could seek the assistance of the wing arbitrators and develop creative solutions to avoid a deadlock in the appointment of the presiding arbitrator.

For example, the parties could agree that the presiding arbitrator shall be appointed by the co-arbitrators, instead of the appointing authority. The co-arbitrators could provide the parties with detailed instructions to be followed, which might include submissions of lists of a maximum of five candidates who the parties believe meet the requirements to be presiding arbitrators. The lists should not be binding but considered by the co-arbitrators when nominating the chairperson. The co-arbitrators may also have full discretion to consider any candidate even if not included in the parties’ lists of proposed arbitrators. A shortened list of candidate, created by the co-arbitrators, would then be shared with the parties.

The parties would be given a deadline to submit a final rank list of their preferred candidates, and would then convey their preferences via email to both co-arbitrators, not copying the opposing party. The co-arbitrators would consider both parties’ preferences but retain discretion to make an appointment, based on their own order of preference. The co-arbitrators would then proceed to contact the candidates in accordance with their preferred order, to determine their availability, interest and absence of conflicts, after which they could proceed to make the nomination of the chairperson by mutual agreement.^[22]

The duties of the arbitrators

It is generally accepted that arbitrators have a number of obligations and duties with respect to the parties to an arbitration and to the arbitral proceeding per se. The most common duties include the obligation to be impartial and independent, to conduct the arbitration in accordance with the arbitration agreement, to make appropriate disclosures, and to comply with their ethical obligation in keeping information confidential. These duties, and their compliance thereto, protect the integrity of the arbitral proceeding and instil confidence in its users.

The International Bar Association (IBA) Rules of Ethics for International Arbitrators provide that ‘[i]nternational arbitrators should be impartial, independent, competent, diligent and discreet’ and that ‘[a]rbitrators shall proceed diligently and efficiently to provide the parties with a just and effective resolution of their disputes, and shall be and shall remain free from bias’.^[23]

Under the ICSID Arbitration Rules, an arbitrator who has accepted the appointment (1) shall keep all information confidential that comes to their knowledge as a result of their participation in the arbitral proceedings, (2) shall keep confidential the contents of any award made by the tribunal, (3) shall judge fairly, and (4) shall make appropriate disclosures.^[24] In addition, arbitrators under the ICSID Arbitration Rules must render a reasoned award and in writing.^[25]

Similarly, under the 2013 UNCITRAL Arbitration Rules, the potential appointed arbitrator shall disclose any circumstances that could give rise to doubts as to their impartiality or independence, and their duty to disclose is continuous throughout the arbitral proceedings.^[26] Under these Rules, the arbitral tribunal is also required to conduct the proceedings without delay and in a fair and efficient manner,^[27] and to render an award in writing, stating the reasons upon which the award is based, unless the parties agreed otherwise.^[28]

Version three of the ICSID and UNCITRAL Draft Code of Conduct for Adjudicators in International Investment Disputes makes clear that the obligation of an arbitrator to be impartial and independent ‘encompasses the obligation not to: (a) [be influenced by self-interest, fear of criticism, outside pressure, political considerations, or public clamour;] (b) be influenced by loyalty to a Treaty Party to the applicable treaty, or by loyalty to a disputing party, a non-disputing party, or a non-disputing Treaty Party in the international investment dispute (IID); (c) take instruction from any organization, government or individual regarding the matters addressed in the IID; (d) allow any past or present financial, business, professional or personal relationship to influence their conduct or judgement; (e) use their position to advance any personal or private interest; or (f) assume an obligation or accept a benefit that could interfere with the performance of their duties’.^[29]

It is a fundamental expectation of the parties that the individuals adjudicating their dispute be independent and impartial. Although often used interchangeably in practice, the standard of independence and impartiality are indeed distinct standards. ‘[I]ndependence is concerned with questions arising out of the relationship between an arbitrator and one of the parties, whether financial or otherwise. This is considered to be an objective test, mainly because it has nothing to do with an arbitrator’s state of mind.’^[30] This standard requires that ‘there should be no actual or past dependent relationship between the parties that may, or at least appear, to affect the arbitrator’s freedom of judgment’.^[31] Impartiality, on the other hand, goes to a person’s state of mind.^[32] It implies an ‘absence of external control’ and ‘bias and predisposition towards a party’.^[33] ICSID tribunals have identified independence and impartiality as the two ‘key qualifications of arbitrators’.^[34]

The IBA Guidelines on Conflicts of Interest in International Arbitration are frequently applied when assessing the impartiality and independence of arbitrators. The Guidelines consist of a traffic light colour-coded list that provides non-exhaustive examples of potential conflicts that may arise. Conflicts on the ‘green’ list should not lead to disqualification under the objective test already discussed and need not necessarily be disclosed. Conflicts on the ‘orange’ list should be disclosed and, depending on the facts of a given case, may or may not give rise to doubts as to the arbitrator’s impartiality or independence. Circumstances that appear on the ‘red’ list indicate conflicts of interest and require strict disclosure requirements and express waivers by the parties, or, alternatively, these situations result in a potential arbitrator’s inability to accept an appointment.^[35]

Another important duty of an arbitrator, connected to the arbitrator’s independence and impartiality, is the duty to disclose. The arbitrator should disclose any relationship that could give rise to justifiable doubts.

For the most part, institutions provide guidelines and templates to facilitate the conflicts check and the arbitrator’s declaration, which enables the arbitrator to disclose any past and present relationships that may give rise to justifiable doubts regarding their independence and impartiality. Indeed, the IBA Guidelines on Conflicts of Interest in International Arbitration state ‘that the fact of requiring disclosure – or of an arbitrator making a disclosure – does not imply the existence of doubts as to the impartiality or independence of the arbitrator’.^[36]

Rule 6 of the ICSID Arbitration Rules states, in relevant part, that appointed arbitrators must submit a statement declaring ‘(a) [their] past and present professional, business and other relationships (if any) with the parties and (b) any other circumstance that might cause [the arbitrator’s] reliability for independent judgment to be questioned by a party’.^[37] They are also required to acknowledge a continuous obligation to promptly disclose any such relationship or circumstance that may arise during the arbitral proceedings.^[38]

As such, it is highly recommended to err on the side of caution and make complete disclosures to maintain the integrity of the arbitration proceedings and the award. In Eiser Infrastructure Ltd et al v. Kingdom of Spain, the tribunal issued an arbitral award against Spain and in favour of the claimant investors of over US$140 million in damages, coupled with interest.^[39] The award was based on an Energy Charter Treaty dispute and rested on a finding that Spain wrongfully revoked the renewable energy investors’ subsidies and financial inducements under Spain’s legislation enacted in 2007. Subsequently, Spain petitioned for the annulment of the award based upon an allegation that the claimants’ party-appointed arbitrator had a conflict of interest because of a failure to disclose a business relationship with the claimants’ damages expert. An ICSID committee was established for purposes of deciding the annulment petition. This committee unanimously decided to annul the award due to ‘a manifest appearance of bias’.^[40] The committee ordered the claimants to pay the fees and expenses of the members of the committee; the charges for the use of the ICSID facilities; and the fees and expenses incurred by Spain in pursuing its annulment application.^[41]

Usually, after an arbitrator makes a disclosure and the parties do not object immediately or within the time limit established to do so, the party is deemed to have waived any challenge in connection with the disclosure.

Apart from these duties and obligations, arbitrators are prohibited from delegating ‘their decision-making function to an Assistant or to any other person’.^[42] Furthermore, the arbitrator needs to dispose of all relevant issues. Courts have held that the parties also have a similar obligation to raise issues as they arise.^[43]

In US domestic arbitration, unless requested otherwise by the parties, an arbitrator may issue an award that ‘merely declares a winner and a loser’.^[44] However, even when not required, a reasoned award is preferred for enforcement purposes.^[45] This is not the case in international arbitration, where institutions require awards to be reasoned.^[46] In some cases, the institution provides the arbitrator with a checklist and request to review the award before submitting it to the parties.^[47]

These duties and obligations are critical, as a mere appearance of one party not having had a fair proceeding could lead to the award being challenged.^[48]

Challenges to arbitrators

The IBA Guidelines on Conflicts of Interest in International Arbitration apply to arbitrators, and thus prove to be a practical starting point for understanding challenges to arbitrators regarding conflicts of interest. The Guidelines are organised in two parts: one addressing general standards concerning impartiality, independence and disclosure; and another illustrating the practical application of the general standards. The Guidelines reiterate the international arbitration community’s effort to avoid unsubstantiated challenges, levied by opposing parties as delay tactics or to interfere with a party’s appointed arbitrator.

The 2013 UNCITRAL Arbitration Rules address challenges to arbitrators in Articles 11 to 13.^[49] Article 12(1) provides that ‘[a]ny arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence’.^[50] Article 12(2) elaborates that ‘[a] party may challenge the arbitrator appointed by it only for reasons of which it becomes aware after the appointment has been made’.^[51] Article 12(3) explains that ‘[i]n the event that an arbitrator fails to act or in the event of the de jure or de facto impossibility of his or her performing his or her functions, the procedure in respect of the challenge of an arbitrator as provided in Article 13 shall apply’.^[52]

The addition of ‘justifiable’ in the 2013 UNCITRAL Arbitration Rules qualifies the type of doubt required to sustain a challenge. Similarly, per the IBA Guidelines, a challenge and subsequent disqualification of an arbitrator should only be successful if an objective test is met.^[53] In other words, a doubt is justifiable ‘if a reasonable third person, having knowledge of the relevant facts and circumstances, would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case’.^[54]

In Halliburton Company v. Chubb Bermuda Insurance Ltd, the Supreme Court of the United Kingdom addressed an arbitrator’s duty to disclose in an ad hoc arbitration seated in London and governed by New York law. There, the Court had to determine whether an arbitrator’s failure to disclose appointments across multiple arbitrations with overlapping subject matter and one common party gave rise to justifiable doubts as to the arbitrator’s impartiality to warrant removal. In short, the Supreme Court found that, to determine whether there is an appearance of bias such that removal of an arbitrator is required, English law will apply the objective test of whether an informed, fair-minded observer would conclude that there is a real possibility of bias. Consequently, the Court dismissed the challenge based upon a finding that the relevant question in the removal proceeding was whether at the date of the hearing for removal, a fair-minded and informed observer would have concluded that there was a real possibility of unconscious bias on behalf of the challenged arbitrator. Further, the Court explained that such an observer would not have made that conclusion because the challenged arbitrator had already provided an explanation for the arbitrator’s failure to disclose the appointment in question, at the time of removal, and this explanation was not challenged.^[55]

Article 57 of the ICSID Convention provides two core grounds for arbitrator disqualification: (1) the arbitrator manifestly lacks the qualities required by Article 14(1) of the ICSID Convention;^[56] or (2) the arbitrator is ineligible for appointment under Articles 37 to 40 of the ICSID Convention.^[57] Article 14(1) establishes the requirement of independence and impartiality, the lack of which forms the basis for an arbitrator challenge or disqualification.

In Suez et al v. Argentina, the tribunal clarified that ‘[i]mplicit in Article 57 and its requirement for a challenger to allege a fact indicating a manifest lack of the qualities required of an arbitrator by Article 14, is the requirement that such lack be proven by objective evidence and that the mere belief by the challenge of the contest arbitrator’s lack of independence or impartiality is not sufficient to disqualify the contested arbitrator’.^[58]

Commentators have explained that challenges to arbitrators in international arbitration have risen in past years. In part, this is due to an increase in selecting arbitration as a preferred mechanism of dispute resolution.^[59] Sometimes parties use challenges to delay the proceedings. As such, arbitrators or committees deciding on challenges to arbitrators, and parties opposing them, should be keen in determining whether elements or facts exist that could reveal the true purpose of the challenge. Regardless of whether the challenge is unmeritorious, ‘the right to challenge an arbitrator is one of the most effective mechanisms to protect the integrity of the arbitration process . . .’.^[60]

Replacement of arbitrators

The replacement of an arbitrator may be necessary for a myriad of reasons, including death, a successful challenge and the resignation of a duly appointed arbitrator. The latter was the case for an arbitrator, appointed to an ICSID tribunal, only to then be challenged over appointments received in other arbitrations against the same nation-state of Bangladesh. In that case, Bangladesh proffered that the appointments of the arbitrator signalled that he could not be neutral and unbiased as some of the arbitrator’s earlier decisions in other arbitrations meant that this arbitrator may have prejudged important aspects of the case. The resignation tendered by the arbitrator to avoid delaying the proceedings was accepted by the co-arbitrators.^[61]

ICSID Arbitration Rule 7 provides that ‘[a]t any time before the Tribunal is constituted, each party may replace any arbitrator appointed by it and the parties may by common consent agree to replace any arbitrator. The procedure of such replacement shall be in accordance with Rules 1, 5 and 6.’^[62]

Moreover, the replacement or removal of an arbitrator during an ongoing arbitration proceeding will raise the question as to whether any part of the arbitral process has to be repeated, partially or wholly.^[63] For example, Article 15 of the 2013 UNCITRAL Arbitration Rules provides that ‘[i]f an arbitrator is replaced, the proceedings shall resume at the stage where the arbitrator who was replaced ceased to perform his or her functions, unless the arbitral tribunal decides otherwise’.^[64]

On the other hand, Article 14(1) and (2) of the Permanent Court of Arbitration (PCA) Arbitration Rules, which is essentially the same as Article 14 of the UNCITRAL Arbitration Rules, provides that ‘in any event where an arbitrator has to be replaced during the course of the arbitral proceedings, a substitute arbitrator shall be appointed or chosen pursuant to the procedure provided for in articles 8 to 11 that was applicable to the appointment or choice of the arbitrator being replaced. This procedure shall apply even if during the process of appointing the arbitrator to be replaced, a party had failed to exercise its right to appoint or to participate in the appointment. If, at the request of a party, the appointing authority determines that, in view of the exceptional circumstances of the case, it would be justified for a party to be deprived of its right to appoint a substitute arbitrator, the appointing authority may . . . appoint the substitute arbitrator.’^[65]

Parties faced with the replacement of an arbitrator should perform the same careful arbitrator research as they did at the beginning of the arbitral process.

Notes