An arbitrator who is impartial but not wholly independent may be qualified, while an independent arbitrator who is not impartial must be disqualified. In selecting a party appointed arbitrator in international arbitration, the inalienable & predominant standard should be impartiality.
Introduction
The integrity of arbitration largely hinges on the impartiality of the arbitrators involved. However, it’s common to encounter party-appointed arbitrators who act more like advocates for their appointing party rather than as neutral decision-makers. This reality underscores the importance of trust in the arbitration process—trust that arbitrators will adhere to ethical standards and remain free from undue influence to ensure a fair outcome.
The International Bar Association (“IBA”) has established guidelines on conflicts of interest in international arbitration, with the most recent revisions in 2024 (“2024 Guidelines”) to address these issues. While these guidelines aim to enhance transparency and fairness, they still fail to provide a definitive standard for impartiality, especially given international arbitration’s complex and varied nature.
This blog is divided into three key subheadings. Firstly, it examines a recent Russian Supreme Court judgement highlighting the misuse of ‘public policy’ to refuse enforcement and the risks posed by the absence of a universal standard for determining impartiality, focusing solely on impartiality. Secondly, it analyses the updated 2024 Guidelines, highlighting their limitations. Finally, it underscores the importance of understanding ‘impartiality’, explores how different jurisdictions apply various tests to assess impartiality, and emphasises the need for universally objective criteria.
The Russian Supreme Court Judgement & Its Implications
In recent years, Russian courts have not adopted a ‘pro-arbitration’ stance regarding the enforcement of awards, even though Russia is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“New York Convention”). Although the Convention provides a framework for enforcing awards, the Russian courts frequently invoke Article 36 of Russian Federation Law on International Commercial Arbitration 1993 to refuse recognition and enforcement of awards based on procedural ‘public policy.’
Russia, unlike Australia and the United Arab Emirates, has not provided a statutory definition for ‘public policy,’ leaving its interpretation mainly to the discretion of the courts. This lack of clarity introduces significant ambiguity in the enforcement of arbitration awards. Furthermore, the close relationship between the Russian judicial system and the Kremlin is well-documented, allowing political objectives to influence judicial outcomes. This connection can lead to the selective enforcement of public policy defences, particularly in cases where geopolitical tensions are at play.
Since Russia annexed Crimea in 2014 and the subsequent sanctions imposed by Western nations, Russia has increasingly relied on a broad interpretation of public policy defences to resist the enforcement of arbitral awards. This trend poses risks to the future of international arbitration. An award is only beneficial to the award-creditor if it is enforced and executed, and the vagueness of public policy can serve as a tool for misuse, as demonstrated in the recent Russian Supreme Court case of C. Thywissen v. Novosibirskkhleboprodukt.
On 26th July 2024, in the case of C. Thywissen v. Novosibirskkhleboprodukt, the Russian Supreme Court refused to enforce an award due to the nationalities of the arbitrators. The dispute concerned a supply contract between JSC “Novosibirskhleboprodukt” (“Nhp”), a Russian entity, and C. Thywissen GmbH, a German company. The arbitration was seated in London under the Federation of Oils, Seeds, and Fats Associations (“FOSFA”).
When Nhp failed to deliver flaxseed, Thywissen initiated arbitration. The tribunal, comprising arbitrators from Ukraine, the UK, and Denmark, ruled in favour of Thywissen. However, the Russian Supreme Court refused to enforce the award, stating that “the lack of impartiality and objectivity…by such a panel of arbitrators is presumed unless there is evidence to the contrary.” (Page No. 9, paragraphs 4,5) This presumption was based solely on the nationalities of the arbitrators, as they hailed from countries deemed “unfriendly” to Russia. The court’s reasoning illustrates a broad interpretation of public policy and impartiality, where nationality alone was sufficient to consider the arbitrator impartial. This approach diverges from the inconsistent and vague norms across jurisdictions, where impartiality is usually assessed based on an arbitrator’s conduct and relationships despite the absence of a universal standard.
The 2024 IBA Guidelines and their Shortcomings
As the Russian case demonstrates, domestic approaches to evaluating arbitrator impartiality can be influenced by various factors, including geo-political considerations. However, internationally accepted standards guide best practices that arbitrators and parties can adopt to mitigate such risks.
The IBA Guidelines on Conflicts of Interest in International Arbitration, first introduced in 2004, have long been considered a forerunner in establishing international standards. The 2024 Guidelines are the result of the most recent review, and these revisions focus on heightened disclosure requirements and a revised grading system to classify different degrees of conflicts of interest and prescribe appropriate mitigation measures.
The grading system is based on objective tests (‘reasonable third person’ standard) and subjective assessment (‘in the eyes of the parties’ tests), both popularly adopted worldwide to identify potential conflicts of interest. Though not exhaustive, the system categorises conflicts based on severity: the ‘non-waivable Red List’ includes severe conflicts that cannot be waived, while the ‘waivable Red List’ includes serious conflicts that can be waived by unanimous consent. The ‘Orange List’ mandates disclosures for potential partiality concerns, and the ‘Green List’ covers low-risk scenarios with minimal bias risk.
Although the 2024 Guidelines introduce more comprehensive disclosure requirements, they still fall short in key areas. For instance, the guidelines limit the period of disclosure and evaluation of impartiality to the duration of the arbitral proceedings until the final award is delivered, only requiring fresh disclosures if the dispute is referred back to the tribunal, which limits ongoing transparency, falling short of the introducing the continuous disclosure model, successfully adopted by institutions like SIAC.
Furthermore, the guidelines broaden disclosure requirements to include not only the arbitrator’s law firm but also other employers, which is increasingly relevant as more in-house counsels become arbitrators. The 2024 Guidelines also expand the scope of disclosures to cover relationships between arbitrators and natural persons with direct or indirect control over the parties, a practice long adopted by SIAC. However, the viability of such disclosures hinges on the accuracy of information provided by parties, who must disclose relationships with the arbitrator after conducting ‘relevant enquiries’ (under Guideline 7). While this requirement has a logical basis, i.e. the expectation that a party would be better equipped to identify relations of an arbitrator with entities or key individuals involved in its corporate structure, the expanded obligation to include relationships with controlling individuals substantially increases the burden of such enquiries and disclosures on the parties.
The UNCITRAL Code of Conduct for Arbitrators in International Investment Disputes also evaluates relationships with natural persons, which requires that an arbitrator should not be influenced by ‘loyalty to any party or person or entity.’ (Article 3). However, while such guidelines strive to ensure impartiality through comprehensive disclosure requirements, they still lack a clear standard for determining and defining what constitutes impartiality. The absence of such a definition appears deliberate, likely because imposing a rigid definition may not be practical or effective in varying arbitration contexts. Nevertheless, lacking a set standard can be viewed as a shortcoming, as it leaves room for ambiguity.
The Need for a Universal Standard for Impartiality
In international arbitration, ensuring arbitrator impartiality is essential for maintaining fairness and credibility. Independence and Impartiality, though related, are not the same. Independence is the absence of personal, social, or financial ties between the arbitrator and the parties, while impartiality is more nuanced, addressing the arbitrator’s state of mind to determine whether they can remain unbiased. An impartial but not entirely independent arbitrator might still render a fair decision, whereas a partial arbitrator, even if independent, cannot.
Current standards, including the revised 2024 Guidelines, do not even provide a standard to determine impartiality. The 2024 Guidelines offer broad, qualitative standards, categorising conflicts by severity and applying the subjective “reasonable third person” test, which can lead to inconsistent interpretations. A more effective approach would be to replace these qualitative lists with a single, objective standard that clearly defines impartiality.
A universal standard could draw on best practices from different legal systems and arbitration institutions. For instance, the ICSID and UNCITRAL Codes of Conduct emphasise rigorous disclosure requirements and address issues like double-hatting, where an individual acts as an arbitrator and counsel in related cases. These codes require arbitrators to disclose any relationships that might affect their impartiality, promoting transparency and trust in the arbitration process.
Different jurisdictions employ varying tests to evaluate impartiality. For example, the LCIA and SIAC apply the “justifiable doubts” test, while ICSID requires proof of a “manifest lack of qualities” for disqualification. In the case of Halliburton Co. v. Chubb Bermuda Insurance Ltd., the UK used the “apparent bias” test, which focuses on the possibility or appearance of bias. Singapore and Canada have adopted similar “reasonable suspicion” tests in cases like CFJ v. CFL and Dufferin v. Morrison Hershfield. In India, the Supreme Court recognised these standards in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. but highlighted the need for higher thresholds to prevent frivolous challenges. Meanwhile, in DIT v. Port Autonome de Douala, the Paris Court of Appeal considered not just the existence but the intensity of relationships when assessing impartiality.
Despite these advancements, no jurisdiction has established a universally accepted standard for impartiality. This gap could be addressed by creating a universal framework with clear, objective criteria, such as specific conflict of interest thresholds and mandatory comprehensive disclosures. Standardised disclosure forms and continuous obligations would enhance transparency throughout the arbitration process. The Paris Court of Appeal’s focus on the intensity of relationships rather than their mere existence can be a valuable addition, especially in cases requiring expert arbitrators.
Implementing these changes would help avoid subjective interpretations like the Russian Supreme Court’s decision, where nationality alone was sufficient to question impartiality. A universal standard would also clarify key questions, such as whether an arbitrator from an “unfriendly” country can fairly adjudicate a case or whether additional evidence should be required to rebut presumed partiality before an arbitrator begins their work.
Conclusion
The arbitrator’s impartiality is a fundamental principle for credible arbitration. While the 2024 Guidelines represent progress, a comprehensive, objective standard to determine impartiality is still absent and requires urgent attention. The Russian Supreme Court’s judgement underscores how the absence of a universal standard for impartiality can lead to subjective factors like nationality to influence decisions, all under the guise of public policy. This case and different approaches to determining impartiality across jurisdictions underscore the pressing need for a global standard that can rise above domestic biases and geopolitical pressures.
The Paris Court of Appeal’s emphasis on the ‘intensity of relationships,’ rather than their mere existence, offers a valuable perspective. To truly safeguard arbitration as a trusted method of dispute resolution, universally objective criteria are essential. This includes comprehensive disclosure requirements, clear thresholds for conflicts of interest, and a focus on the depth of relationships. Without a global commitment to establishing objective impartiality standards, international arbitration risks losing its credibility as a neutral forum for dispute resolution.
This blog is written by Hrishikesh Goswami and Aryan Soni, 4th Year Law Students at GNLU, Gandhinagar