Ethical Obligations

Introduction

Arbitration is a dispute settlement mechanism that is naturally based on the process of cooperation of parties with each other and with an arbitral tribunal. Cooperation without observance of ethical norms cannot lead to fair and equitable outcomes. Put simply, observance of ethics is the ‘responsibility of everyone in the process and it is central to managing effective proceedings and ensuring enforceable awards’.[2]

In this regard, it is fair to say that there is an obvious risk that arbitration may ‘no longer be useful for the worldwide business community’[3] if it fails to maintain its position as a trusted dispute settlement mechanism for which observance of ethical rules and norms is essential. However, the question that arises is what the term ‘ethics’ exactly means in the context of arbitration, in particular investment treaty arbitration, where it is common to have actors (i.e., parties, lawyers, experts, witnesses, arbitrators) coming from different jurisdictions and legal systems.

Dilemma of ethical duties of counsel

The question of ethics in law and, in particular, in the legal profession has always had a central place. Bar associations and respective regulatory authorities of practically all jurisdictions oblige lawyers to act with integrity and honesty.[4] A high degree of ethical standards by lawyers is necessary to maintain trust in the legal profession at large.

The above may be even more important and relevant when speaking of ethical behaviour in international investment arbitration for two main reasons. First, ensuring ethical conduct during the dispute resolution process between a foreign investor and a state would help to maintain trust not only in the legal profession, but in the investor–state dispute settlement mechanism itself, which is at times subjected to certain criticism and call for reform (although usually for other reasons).[5] Second, investment arbitration in its classic form is a creature of public international law that always involves at least one sovereign and almost always involves issues of an administrative nature (i.e., acta iure imperii), which warrants serious and objective examination that would otherwise not be possible in an unethical setting (e.g., where the tribunal is knowingly provided with false statements or evidence, or both). A decision of an arbitral tribunal in an investor–state dispute that is tainted by unethical conduct of legal counsel could at the very least cast doubts on the enforceability of such a decision, and in the worst case scenario on the reliability of the investor–state dispute settlement mechanism at large.

This topic, however, is not without difficulties and uncertainties. The main issue is how to identify the applicable ethical standards for legal counsel in international arbitration, especially investment treaty arbitration. Generally, the ethical conduct of legal counsel in investment arbitration is guided by (1) the national rules of the jurisdictions where the respective counsel is based and (2) international standards elaborated by various institutions.

As to (1), it is argued that unlike national court proceedings, where lawyers usually act under certain rules and standards adopted by the relevant authorities at the seat of the court, international arbitration is detached from ‘procedural frameworks’ of domestic legal systems.[6] It is also argued that the level and extent of such ‘detachment’ is not particularly clear.[7] It would probably be fair to say that the extent of ‘detachment’ from the national legal framework of attorneys’ conduct would vary from jurisdiction to jurisdiction, if detached at all.[8] For example, the lawyers’ ethical duties towards their clients under national laws or rules would probably not be affected by the mere fact that they are engaged for the purposes of international arbitration. Advice and substantial work in such matters, except for advocacy in some cases, is usually carried out from the lawyers’ respective seats, and their engagement would often be subjected to regulation ‘at the seat’ of their offices. The uncertainty arises when speaking of ethical standards applicable to procedural issues and duties that the counsel owes towards the adjudicators. Here the ‘devil is in the detail’, as the more overarching duties, such as a duty not to mislead the arbitral tribunal, should, in our opinion, be treated as binding as a matter of course for any lawyer practising law.[9] The most problematic issues that are in this regard often noted by various authors are disclosure obligations, witness communications and confidentiality.[10] The issues are indeed problematic because, as mentioned above, the dispute settlement mechanism is so international (counsel and arbitrators usually come from different jurisdictions and legal systems) that the meaning and scope of ‘ethics’ in this context may be fundamentally different. In fact, so different that what is allowed in one jurisdiction may be considered to be a crime in another.[11]

In relation to (2), the various professional associations and arbitration institutions have tried to address the issue of ethics through adopting guidelines and rules. For example, the International Bar Association (IBA) adopted the Guidelines on Party Representation in International Arbitration in 2013 (the IBA Guidelines).[12] Although the IBA Guidelines do go into specific details that are indeed relevant for the purposes of international arbitration (e.g., addressing the communication of counsel with the arbitral tribunal),[13] they explicitly state that they ‘are not intended to displace otherwise applicable mandatory laws [and] rules’.[14] The Guidelines also state that they are not to ‘vest arbitral tribunals with powers otherwise reserved to bars or other professional bodies’. These Guidelines are contractual in nature, and their application (either in their entirety or partially) depends upon the agreement of the parties.[15] In other words, one can say that there is an option for parties to subject their lawyers to the IBA Guidelines if they wish to do so.

Certain guidelines directed at legal representatives’ conduct in international arbitration and rules have also been adopted by some arbitration institutions.[16] However, the nature of these guidelines is similar to that of the IBA Guidelines in the sense that they are contractual in nature and it is for the parties to decide whether they are applicable.

Moreover, practice shows that arbitration practitioners can also be found in breach of ethical standards by certain professional organisations such as the Chartered Institute of Arbitrators (CIArb). In its decision of 20 July 2015, the Disciplinary Tribunal of the CIArb found that one of the fellows of the institute committed misconduct of the CIArb by-laws, by, inter alia, misleading another law firm on the amount of incurred expenses and costs. The fellow was expelled from the organisation and ordered to pay a fine of £25,000.[17] The problem, of course, is that not all arbitration practitioners are members (or fellows) of these organisations.

‘Ethics’ and good faith in investment arbitration

Legal representatives and arbitrators owe a duty towards ‘the international business community at large’ to maintain arbitration as a safe and legitimate dispute settlement mechanism.[18] As stated above, the question of ethics directly correlates with questions of legitimacy of arbitration as a dispute settlement mechanism. The fact that international arbitration remains popular shows that although the theoretical question of identification of applicable ethical norms is not straightforward, there is nevertheless general trust in the system. In the context of investment treaty arbitration, this is proven by the fact that the general number of disputes referred to investor–state tribunals has grown considerably in recent years.[19]

A possible reason for the maintained trust despite the difficulty identified above is that arbitral tribunals, with rare exceptions, are attentive to the general principle of good faith. This was referred to as ‘a supreme principle, which governs legal relations in all of their aspects and content’ by the tribunal in the International Centre for Settlement of Investment Disputes (ICSID) case of Inceysa v. El Salvador.[20] The scope of the good faith principle, as provided by Black’s Law Dictionary, is particularly broad, as it is defined in the following terms:

A state of mind consisting in (1) honesty in belief or purpose, (2) faithfulness to one’s duty or obligation, (3) observance of reasonable commercial standards of fair dealing in a given trade or business, or (4) absence of intent to defraud or to seek unconscionable advantage. – Also termed bona fides.[21]

Similar or even broader definitions of the principle of good faith have been provided by other authors as well.[22] It is codified, inter alia, in the Vienna Convention on the Law of Treaties[23] and has been often referred to in state-to-state disputes by the International Court of Justice,[24] as well as by tribunals in investor–state disputes.[25]

As illustrated, the principle’s scope is quite generous, and although there may be questions as to its usefulness in terms of very specific matters (such as, for example, attorney–client privilege), it can serve well as a basis for demanding parties and their legal representatives to act in a generally ethical way. In other words, on the basis of the principle of good faith, parties and their representatives should be expected to adhere to certain minimal standards of ethical behaviour, such as ensuring that they do not intentionally submit false statements or evidence to the tribunal. Investment tribunals can react strongly when it becomes clear that a party is being intentionally untruthful and unethical towards them.

In the case of Sanum Investments v. Laos People’s Democratic Republic, the arbitral tribunal found that the claimants were ‘likely attempting to obstruct justice’ by paying a witness not to testify.[26] The tribunal further found it plausible that the claimants were ‘attempting to mislead the Treaty Tribunal’.[27] These findings reflect the ethical expectations that the arbitral tribunal had towards the parties and their legal representatives.

In another investor–state dispute between Spentex Netherlands, BV and the Republic of Uzbekistan, the ICSID tribunal was reportedly[28] dissatisfied with the lack of cooperation and disclosure from the respondent’s side. It was reported that the Uzbek state argued that the claimants bribed Uzbek public officials; however, the state refused to disclose information on the domestic investigation of the allegedly corrupt officials and measures taken against them (if any).[29] The tribunal is said to have refused protection of the claimant’s investment because of corruption, while at the same time penalising the state in its costs decision[30] noting, inter alia, its unwillingness to cooperate and investigate the alleged corruption.[31] Obviously, the question of proper disclosure is not always under the control of legal representatives and is often dependent on the conduct of their clients. However, the findings and subsequent decisions made by the Spentex tribunal are once again indicative of certain ethical expectations that it had towards the parties.

In the case of Cementownia v. Turkey, the arbitral tribunal dismissed the claimant’s case because it found that it had been based on falsified documentation. Although the act complained of took place before the arbitration, the arbitral tribunal still seems to have taken issue with the fact that the true position was not volunteered to it in the first place. The tribunal stated:

Parties to an arbitration proceeding must conduct themselves in good faith. This duty, as the Methanex tribunal found, is owed to both the other disputing party and to the Tribunal.[32]

Occasionally, a party volunteers information relating to its fraudulent or corrupt conduct. In World Duty Free v. Kenya, the claimant openly disclosed to the tribunal the facts of what was then found to be corruption. The claimant stated that ‘in order to be able to do business with the Government of Kenya, [the Claimant] was required in March 1989 to make a “personal donation” to . . . then President of the Republic of Kenya’ in the amount of US$2 million.[33] On the basis of this volunteered information, the arbitral tribunal found that the claimant’s case could not be pleaded in arbitration proceedings under the principle of ex turpi causa non oritur actio.[34]

Despite the general principle of good faith, ethical and truthful behaviour is also required by the principle of cooperation in international arbitration, which is, inter alia, enshrined in the ICSID Arbitration Rules.[35] A tool in arbitral tribunals’ arsenal that is directed at remedying a situation in which one of the parties is not cooperating in good faith (i.e., ethically) is the possibility of drawing ‘adverse inferences’.[36] This right is said to be exercisable by arbitral tribunals where parties unreasonably and unjustifiably withhold relevant information.[37] Investment tribunals do not shy away from utilising this tool in investor–state cases.[38]

Evidently, be it the situation of ‘ethical vacuum’ as found by Catherine Rogers[39] or the ethical mess likened to a ‘teenager’s bedroom’ by Gary Born,[40] investment treaty tribunals do seem to have ethical expectations of the parties and their legal representatives, which they regularly enforce in investor–state arbitration proceedings. However, it is fair to say there is no consistency in approaches to the ethical obligations of counsel in investment arbitration. One of the possible solutions could be the establishment of a multilateral investment court, which could theoretically become a single source for regulation of conduct of parties, parties’ legal representatives and arbitrators.[41]

Conclusion

The necessity of addressing the issue of regulating the proper conduct of legal representatives in international arbitration is widely acknowledged and is not regarded as a minor problem.[42] While attention is usually directed at procedural and decision-making matters when speaking of ethical conduct, adherence to good faith standards is important ‘during all stages of the arbitral process’.[43] The issue should be one of the most important subjects of discussion not only in academic circles and in publications such as this, but also indeed by states and relevant regulation authorities at appropriate forums (e.g., the United Nations Conference on Trade and Development).

Notes

[1] Patricia Nacimiento is a partner and Adilbek Tussupov is a foreign lawyer at Herbert Smith Freehills LLP.

[2] Lockhart, D, ‘Ethical Obligations in Arbitration’ (AIDC Newsletter, 2014), available at https://disputescentre.com.au/wp-content/uploads/2015/02/Ethical-obligations-in-arbitration.pdf (accessed 8 August 2021).

[3] Clouet, L M, 'Arbitrating under the table: the effect of allegations of corruption in relation to the jurisdiction of the arbitral tribunal and the enforcement of foreign arbitral awards' (NYU Academic Paper, 2018), available at https://nyu.academia.edu/LuisMar%C3%ADaClouet (accessed 8 August 2021).

[4] See, e.g., 'Principles of the Solicitors Regulation Authority', available at www.sra.org.uk/solicitors/standards-regulations/principles/; 'Rules of Professional Practice of the Rechtsanwälte and Rechtsanwältinnen of the Federal Republic of Germany', available at www.brak.de/w/files/02_fuer_anwaelte/berufsrecht/bora_engl_stand_1_11_2011.pdf; 'Code of Conduct of the Chamber of the Legal Consultants of the City of Nur-Sultan, Kazakhstan', available at https://zangerpalata.kz/Docs/Kodex.pdf.

[5] For more details on criticism of the investor–state dispute settlement mechanism, see Touzet, J and de Vaublanc, M V, ‘The Investor-State Dispute Settlement System: The Road to Overcoming Criticism’, Kluwer Arbitration Blog (6 August 2018), available at http://arbitrationblog.kluwerarbitration.com/2018/08/06/the-investor-state-dispute-settlement-system-the-road-to-overcoming-criticism/ (accessed 8 August 2021).

[6] Rogers, C A, Ethics in International Arbitration (Oxford University Press, 2014), Paragraph 3.10.

[7] ibid.

[8] e.g., on 30 May 2018, the Solicitors Regulation Authority adopted the Overseas and Cross-border Practice Rules, which may also be applicable to solicitors of England and Wales when representing clients in international arbitration proceedings.

[9] For example, the Code of the Council of Bars and Law Societies of Europe provides that any ‘lawyer shall never knowingly give false or misleading information to the court’. See Charter of Core Principles of the European Legal Profession and Code of Conduct for European Lawyers, Article 4.4.

[10] See, e.g., Cremades, B M, 'Overcoming the Clash of Legal Cultures: The Role of Interactive Arbitration' (1998), 14(2) Arb. Int’l.; Hammond, S A, ‘Spoliation in International Arbitration: Is it time to reconsider the “Dirty Wars” of the International Arbitral Process?’ (2009), 3(1) Disp. Resol. Int’l. 1; Rau, A S and Sherman, E F, ‘Tradition and Innovation in International Arbitration Procedure’ (2009), 30(3) Tex. Int’l. L. J. 89.

[11] See Rogers, C A, Ethics in International Arbitration (Oxford University Press, 2014), Paragraph 3.20 with reference to the Paris Court of Appeals, File No. 06/06272, Judgment of 28 March 2007: ‘In 2007, an American-licensed attorney who was a French national employed with a major US law firm was criminally convicted and ordered to pay a EUR 10,000 fine in France for interviewing a witness in France for the purposes of obtaining information for a court proceeding in the Unites States in violation of French law.’

[13] IBA Guidelines 7–8.

[14] IBA Guidelines, Preamble.

[15] Pierre Bienvenu and Michael Kotrly argue that the applicability of the IBA Guidelines can also be possible upon the tribunal’s own decision. See, Bienvenu, P and Kotrly, M (2013), ‘Examining IBA Guidelines on Party Representation in International Arbitration’, available at www.nortonrosefulbright.com/de-de/wissen/publications/bb5df928/examining-iba-guidelines-on-party-representation-in-international-arbitration.

[16] See, e.g., 'General Guidelines for the Parties’ Legal Representatives, Annex to the 2020 Arbitration Rules of the London Court of International Arbitration', available at www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx#Annex; '2017 Guidelines On Party-Representative Ethics of the Singapore Institute of Arbitrators', available at www.siarb.org.sg/images/SIARB_Party-Rep-Ethics_Guidelines_Aprl18.pdf.

[17] In the matter of the Chartered Institute of Arbitrators’ Disciplinary Tribunal between the Chartered Institute of Arbitrators and Andriy Astapov, Decision, 20 July 2015, available at https://ciarb.org/media/1408/tribunal-final-decision-andriy-astapov-july-2015.pdf.

[18] Beale, K D and Esposito, P, ‘Emergent International Attitudes Towards Bribery, Corruption and Money Laundering’ (2009), 75(3) Int’l. J. of Arb., Med. and Disp. Mgmt. 360, 361. See also, Clouet, L M, 'Arbitrating under the table: the effect of allegations of corruption in relation to the jurisdiction of the arbitral tribunal and the enforcement of foreign arbitral awards' (NYU Academic Paper, 2018), available at https://nyu.academia.edu/LuisMar%C3%ADaClouet.

[19] See the 'Statistics of the United Nations Conference on Trade and Development' available at https://unctad.org/system/files/official-document/diaepcbinf2020d6.pdf.

[20] Inceysa v. El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, Paragraph 230.

[21] Black’s Law Dictionary, 10th edition (Thomson Reuters, 2014), 808.

[22] See, e.g., Sipiorski, E, Good Faith in International Investment Arbitration (Oxford University Press, 2019); see also, generally, Schreuer, C (21 January 2010), ‘Legal Opinion’ in the case of Anatolie Stati, Gabriel Stati, Ascom Group, S.A. and Terra Raf Trans Traiding (‘Stati Parties’) v. Republic of Kazakhstan (‘Kazakhstan’), available at www.italaw.com/sites/default/files/case-documents/italaw11739.pdf.

[23] Article 26 of the Vienna Convention on the Law of Treaties dated 1969.

[24] See, e.g., Case Concerning Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), 2008 ICJ 177, 229, Paragraph 145; Nuclear Tests (Australia/New Zealand v. France), 1974 ICJ Paragraph 46 (judgment of 20 December 1974).

[25] See, e.g., Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Final Award, 23 April 2012; Nordzucker v. Poland, UNCITRAL, Second Partial Award (Merits), 28 January 2009, Paragraphs 92–94; Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013, Paragraphs 828–863; Genin, Eastern Credit Ltd. Inc. and AS Baltoil v. Republic of Estonia, Award, 25 June 2001, Paragraph 367; Técnicas Medioambientales Tecmed S. A. v. The United Mexican States, Award, 29 May 2003, Paragraph 123; Waste Management, Inc. v. United Mexican States, Award, 30 April 2004, Paragraph 138; Saluka Investments BV (The Netherlands) v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, Paragraph 307; Siemens v. Argentina, Award, 6 February 2007, Paragraph 308; Frontier Petroleum v. Czech Republic, UNCITRAL, Final Award, 12 November 2010, Paragraph 300.

[26] Sanum Investments Limited v. The Lao People’s Democratic Republic, PCA Case No. 2013-13, Award, 6 August 2019, Paragraph 176.

[27] ibid.

[28] The arbitral award in Spentex Netherlands, B.V. v. Republic of Uzbekistan (ICSID Case No. ARB/13/26, Award, 27 December 2016) is not publicly available. The authors rely on the publication by Katherine Betz that includes references to the text of the award. See, Betz, K, Proving Bribery, Fraud and Money Laundering in International Arbitration (University of Basel, Cambridge University Press, 2017).

[29] Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Paragraph 941 as referenced in Betz, K, Proving Bribery, Fraud and Money Laundering in International Arbitration (University of Basel, Cambridge University Press, 2017), p. 134.

[30] It is reported that the tribunal’s majority consisting of Professor August Reinisch and Stanimir Alexandrov, stressing the respondent’s own responsibility for corrupt practices in Uzbekistan, offered a choice of two options: (1) either Uzbekistan donates US$8 million to one of the United Nations’ anti-corruption funds within 90 days, in addition to covering its own legal fees and 50 per cent of the costs of the proceedings; or (2) Uzbekistan pays 75 per cent of more than US$17 million of the claimant’s legal fees and 100 per cent of the costs of the proceedings in addition to its own legal fees. See, Djanic, V, ‘In newly unearthed Uzbekistan ruling, exorbitant fees promised to consultants on eve of tender process are viewed by tribunal as evidence of corruption, leading to dismissal of all claims under Dutch BIT’, Investment Arbitration Reporter (22 June 2017), available at www.iareporter.com/articles/in-newly-unearthed-uzbekistan-ruling-exorbitant-fees-promised-to-consultants-on-eve-of-tender-process-are-viewed-by-tribunal-as-evidence-of-corruption-leading-to-dismissal-of-all-claims-under-dutch/.

[31] See footnote 29.

[32] Cementownia ‘Nowa Huta’ S.A. v. Republic of Turkey, Award, 17 September 2009, Paragraph 153.

[33] World Duty Free Company Limited v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006, Paragraph 66.

[34] id., Paragraph 179.

[35] Article 34(3) of the ICSID Arbitration Rules: ‘The parties shall cooperate with the Tribunal in the production of the evidence and in the other measures provided for in paragraph (2).’

[36] Tsatsos, A, ‘Burden of Proof in Investment Treaty Arbitration: Shifting?’, Humboldt Forum Recht 2009, p. 94, with reference to Sharp, J, ‘Drawing Adverse Inferences from the Non-Production of Evidence’ (2006), 22(4) J. of Int’l.Arb., 549.

[37] Mehren, R, ‘Rules of arbitral bodies considered from a practical point of view’ (1992), 9(3) J. of Int’l. Arb. , 110.

[38] For example, Europe Cement Investment & Trade S.A. v. The Republic of Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009; Methanex Corporation v. United States of America, NAFTA, Final Award, 3 August 2005; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008; Feldman v. Mexico, NAFTA, Award, 16 December 2002.

[39] Rogers, C, ‘Fit and Function in Legal Ethics: Developing a Code of Conduct for International Arbitration’ (2002), 23(2) Mich. Int’l L.J. 341, 342.

[40] Queen Mary Institute for Regulation and Ethics Conference ‘The Arguments For and Against Further Regulation of Arbitration Counsel’, 11 September 2014. Presentations are available at www.qmul.ac.uk/law/events/items/the-future-of-ethics-in-international-arbitration-the-arguments-for-and-against-further-regulation-of-arbitration-counsel.html; www.ibanet.org/MediaHandler?id=6F0C57D7-E7A0-43AF-B76E-714D9FE74D7F.

[41] For further details on the discussion of the establishment of a multilateral investment court, see Bungenberg, M and Reinisch, A, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court – Options Regarding the Institutionalization of Investor-State Dispute Settlement, Second Edition (Springer Open, 2019), available at https://link.springer.com/book/10.1007/978-3-662-59732-3.

[42] Brower, C and Schill, S, ‘Regulating counsel conduct before international arbitral tribunals’, in Bekker, P, Dolzer, R and Waibel, M (eds), Making Transnational Law Work in the Global Economy: Essays in Honour of Detlev Vagts (Cambridge University Press, 2010), 488–509; Cairns, D, ‘Advocacy and the Function of Lawyers in Intenrational Arbitration’, in Fernández-Ballesteros, M A and Arias, D (eds), Liber amicorum Bernardo Cremades (La Ley, 2010), 291.

[43] Lockhart, D, ‘Ethical Obligations in Arbitration’ (AIDC Newsletter, 2014), available at https://disputescentre.com.au/wp-content/uploads/2015/02/Ethical-obligations-in-arbitration.pdf.

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