Summary: The basic rule underpinning most arbitration laws is that an arbitrator must be impartial and independent of the parties.
In many instances, the relationship between the arbitrator and the parties or counsel gives rise to potential problems regarding independence. These issues have been dealt with extensively in material such as the IBA Guidelines on Conflicts of Interest in International Arbitration.
A different issue is that of partiality or bias in the conduct of the arbitration itself. This has been dealt with to a certain extent in the IBA Guidelines on Party Representation in International Arbitration (2013), although, as the title indicates, the focus is on the conduct of parties.
This article examines issues relating to allegations of bias in the conduct of the arbitration and the effect on the resulting awards.
Summary: The lifeblood of international arbitration is the treatment accorded by national courts to the arbitration agreement and the award. Recently, there have been a series of cases from the courts and in particular the Supreme Court of the UK, the US and France on the scope, nature and effect of agreements to arbitrate and enforcement of annulled awards. These cases show divergences in approach in major centres of arbitration that should not be overlooked when negotiating arbitration agreements or conducting arbitration.
The expansion of investment arbitration has resulted in concern that unmeritorious claims be dealt with in a prompt, effective fashion. This is reflected for example in the 2006 amendment to the ICSID Rules. Arbitral institutions cannot generally exclude unmeritorious claims. They must be dealt with by Tribunals themselves. Tribunals have the possibility of dealing with these issues at the outset by bifurcation. Although the results of the 2006 ICSID amendments are disappointing, the recent cases show a tendency to deal critically with the effect of fraud on jurisdiction in investment arbitration. However, the main sanction for unmeritorious claims is an award of costs. Based on empirical analysis, the current trend is that costs follow the event in investment arbitration as it has in international commercial arbitration. This raises an issue as to whether and in what conditions security for costs should be ordered.
Under the arbitration laws of Model Law countries, England, the United States and Switzerland, there is the possibility of remand of a matter to the tribunal after the rendering of the final award. The circumstances vary, but they are often related to damages and jurisdiction. Some arbitration rules, such as the UNCITRAL and Swiss Arbitration Rules provide for additional awards within a limited period, which is an underused but potentially effective way of avoiding issues raised in remands. Other arbitration rules are lacking this type of provision. Few if any international arbitration rules deal with consequences of remands. As a result, the arbitral institutions and tribunals are left to work out on an ad hoc basis what should happen with respect to remands, which is a gap in the rules.
An arbitral award should be drafted to meet the requirements of the law of the place of arbitration and those of the New York Convention. Article V of the Convention provides the grounds for refusing enforcement of arbitration. Those ground focus on jurisdiction, procedure and public policy. The basic principle is that the jurisdictional and procedural reasoning of an arbitral tribunal is subject to detailed review. Article V does not focus on the substantive reasoning regarding the merits, as one of the basic purposes was to avoid re-litigation of arbitral matters before the enforcing courts. As regards the substantive reasoning, under the New York Convention, there must be a public policy issue. The case law referred to supra, appears to show an evolution on annulment proceedings that corresponds to the approach of the New York Convention. Although statistics are not readily available, review of the cases shows that most applications to annul awards are unsuccessful. In fact, there appears to be little doubt that that has been the pattern for some time. Nevertheless, applications to annul awards are brought regularly, if not systematically….. For parties with a real basis for the annulment of an international arbitral award, the message is clear. The party should focus on jurisdictional or procedural issues if they are available. If these issues are not available, the party should seek to identify public policy grounds to make out a case that the court should not allow the award to stand. The decisions referred to above show similar terms being used by the various courts to express the idea that the arbitral tribunals have the right to be wrong on the merits, which is the price to be paid on occasion for one-stop adjudication.
Much has been written about expanding international arbitration and the role of the various actors in that process. Perhaps none of the actors has been as important as the state courts in seeking to find ways to give effectiveness to the principle that private dispute resolution should be effective. There is little that is more offensive than an arbitration award that has been annulled on less than significant grounds. The parties have usually committed substantial time and resources to the arbitration. Usually, the tribunal will have considered matters carefully and sought to reach the right decision. The dispute should be on the point of being resolved to the advantage of one party or another. For one party to then use states courts of the country of which it is a national to undo a defeat is particularly undesirable. Parties agree on international arbitration to avoid what they view as the vagaries of national legal systems. However, for state courts at the place of enforcement to ignore fatal defects in an arbitral award is equally objectionable. The middle ground that the state courts in these cases have been seeking is to review annulled awards to determine whether there were serious grounds for annulment. One of the basic documents that will be submitted in the enforcement proceedings by the party resisting enforcement is the judgment annulling the award. If that judgment is in accordance with standards that one would expect in international arbitration, then one would expect that it would be given considerable weight. If, on the other hand, the judgment annulling the award is from a court that did not have jurisdiction or if it is based on grounds that appear weak on their face, then it will be of little assistance and is entitled to less deference than the award itself. That in itself may lead to recognition of an “international standard” for annulment of awards.
The requirement in Article 1502(3) of the New Code of Civil Procedure, that arbitrators fulfill their mission, has been a matter of some concern for international arbitrators in the past. The elimination of contradiction in reasoning as one of the grounds for such review has effected a basic change in the extent to which the French courts will review arbitration awards. However, having reduced scrutiny of the contents, it is appropriate to focus on ensuring that the tribunal provides not only a final award but, to the extent possible, an outline of the issues that the parties and the tribunal agreed should be dealt with in the award. The terms of reference can provide assistance in this regard, especially if they are updated. As regards issues of infra petita, the terms of reference, and any update, provide the parties with an opportunity to set out the issues to be decided. If the parties decline to do so, they presumably waive their right to object. As regard ultra petita, it is difficult for a party to object to a tribunal deciding an issue mentioned in the list of issues in the terms of reference, if in fact the party has signed the terms of reference. With an update to the terms of reference, although not signed by the parties, the waiver principle under Article 33 of the ICC Rules should be applicable. Finally, with regard to the reasoning in the award, the French courts have indicated clearly that they do not wish to review the merits or the quality of the reasoning. French courts simply wish to ensure that the tribunal provides reasons for its decisions regarding the issues in dispute. Once again, the terms of reference as updated should be an outline for the court as to what the tribunal was supposed to decide and what it did decide. The French courts have sought to limit themselves to ensuring that the framework for the arbitration has been respected within the limits of public policy and the Paris Court of Appeal appears to be limiting annulment of awards on the grounds of infra petita. Therefore, it is even more important for arbitral tribunals to ensure that they demonstrate in the key documents that will be part of any judicial proceedings, that the arbitral tribunal understood and respected this framework throughout the arbitral process and adapted the arbitration to the issues in dispute.
In international arbitration, parties often voice the concern that they have lost control of ‘their arbitration’. Frequently, this occurs when the parties disagree with the decision on the merits or when they have been surprised by the course of the procedure. They are irritated by the fact that this procedure may not be what they are used to in their country of origin. Some of this irritation is inevitable. Other elements can and should be reduced by addressing the parties’ procedural expectations in choosing the applicable arbitration rules and at an early stage of the proceedings when the parties do have control over the proceedings. Parties have opted for arbitration in preference to litigation in national courts in part because of the flexibility as compared to the dichotomy of national systems. By focusing on exactly what rules they are agreeing to, parties can ensure that they maintain basic control over the ground rules. After such rules have been chosen – and the dispute has arisen – the parties can best influence if not control the proceedings by focusing on the stage of proceedings and the possibilities at each stage. Clients are practical. They tend to understand that arbitration like any form of dispute resolution results in a gradual shifting of control away from the parties and to the tribunal for what is after all the adjudication of a dispute.
Parties choose international arbitration in part because they know that they will have a role in selecting the arbitrators. In that selection process, there is frequently a delphic preoccupation as to the merits, despite the general acceptance that arbitrators are not entitled to be biased. As a result, one perceives an irritation with interviews on the part of potential arbitrators. However, both tend to obscure more practical points that should be addressed at this second stage of the arbitral proceedings. First, the parties have a right to influence the arbitral proceedings, and the most fundamental way of doing so is by choosing the co-arbitrator and agreeing to-or failing to agree to-a chairman. This is not nefarious, it is the dispute resolution system bargained for by the parties. Secondly, clients prefer to win rather than lose. However, in many cases when they criticize an arbitration, clients do so based on observations regarding the procedure. But in many cases, in selecting the co arbitrator, they will not have thought through the type of procedure that they would like to see, They wait until the third stage, when the arbitral tribunal has virtually total control, to realize that the procedure will not correspond to their expectations. Thirdly, experienced international arbitrators still have national training and, perhaps, bias. They have been internationalized to a great extent, but, when dealing with issues at hearings and deliberations, this early training does show itself. That does not mean that they are biased towards the national system, but it does mean that it is still a relevant factor in choosing arbitrators. Fourthly, international arbitration is changing as it adapts to meet new requirements. Indeed, many companies do not choose international arbitration because they are convinced that it is excellent, they choose international arbitration because it is perceived as being more neutral and flexible than national courts in an international context. In choosing the arbitrators, one seeks to ensure that the process itself continues to adapt to international needs so that it corresponds more closely to the needs of the users. Finally, the success of international arbitration depends on a careful choice of the arbitrators within the legal strictures described in the IBA Rules and national case law. Those strictures must be observed because they are fundamental to the supportive approach given by most national courts to international arbitration. However, within those limits, more can be done to make sure that international arbitration corresponds to the parties’ legitimate expectations and to ensure a meaningful exercise of the basic right to appoint the coarbitrator and to agree on a chairman.
As international arbitration evolves it is subject to several basic challenges. One of the foremost is to provide an adequate forum for dispute resolution while remaining cost-effective. To be adequate, tribunals should have access to evidence held by third parties, as is provided for in limited fashion in the FAA, the English Arbitration Act 1996 and the 1999 IBA Rules of Evidence. To return to the examples from the recent cases, the following principles emerge:
(1) in a construction arbitration, it appears that a sub subcontractor would obtain a copy of a contract between the subcontractor and the main contractor at the time of the evidentiary hearings (Vibroflotation);
(2) in a construction arbitration, a contractor was not entitled to obtain substantial documentation from the institute that would use the facility when such documents were apparently available from other sources and compliance with the request would have been unduly burdensome (Comsat)
(3) In a shipping arbitration, a charterer was entitled to inspect the ship to determine the cause of a failure to meet the requirements of the charter, although there is no confirmation that the arbitrator held the evidence to be admissible (MV ‘Allegra);
(4) in a shipping arbitration, the charterer with a dispute with the owner was not entitled to obtain a broad range of documents from the P & I Club. That was considered an abuse of process (The ‘Lorenzo Halcoussi’);
(5) in an arbitration between insurance syndicates, one syndicate was entitled to obtain a copy of a specific document (a cover note) and the attendance of a broker on a specific date but not throughout the arbitration (Wakefield v. Outhwaite);
(6) in a rent review arbitration, one party was entitled to obtain copies of proofs of evidence given by the other party’s expert in other matters relating to property in the same area of London, but not in relation to other properties (London & Leeds).
In terms of the three basic issues mentioned in Part I supra: first, it is clear that both English and American law provide assistance in obtaining specific third party evidence where such evidence is relevant, is not otherwise available and can be obtained without unduly burdening the third party. French law does not provide such support for witness testimony at all or for other evidence directly. Secondly, under English law, and in some circumstances US law, the fact that the seat of the arbitration is elsewhere will not preclude such assistance. Thirdly, it should be up to the arbitral tribunal to define and provide the procedure for the third party evidence. The IBA Rules of Evidence provide useful criteria and could provide the basis for a procedure for obtaining such evidence to render obtaining third party evidence more effective in international arbitration. That would in turn limit one of the perceived disadvantages of arbitration. “