The Arbitrators Duty of Impartiality and Independence - Dissertation Example

The Arbitrator’s Duty of Impartiality and Independence under English Arbitration Act Introduction The growing integration of international commerce and trade requires legal international bodies’ actions that are seen by all parties involved in dispute as equitable. Partiality to any party will reduce the credibility of these international bodies, and such example can be seen on the establishment of Dispute Settlement Body for the World Trade Organization. The same principle applies to conflicts of private entities such as corporations in settling disputes. The International Council for Commercial Arbitration (ICCA) has been set up to meet the expectations of all global parties that enter into negotiations with other entities outside their country of origin or where territorial boundary of countries was merged. In light of international conflict resolution, this paper will try to discuss the arbitrator’s duty of impartiality and independence under the English arbitration Act and compare with at least another system using resolved cases as basis. Arbitration Arbitration is one of the more popular forms of alternative dispute resolution of which two opposing parties agree to use a third person or more to settle the case in question. Although conducted outside the court, this system is acceptable and legal with the decision called the award1. The third party reviews the dispute and provides a decision that the parties have agreed to be bound. In many countries, the arbitration may either be mandatory or voluntary and it is often used in commercial transactions even between varying nationals or countries. The third party of the arbitration process is called the arbitrator and the arbitrator is independent and impartial23. The International Commercial Congress of Arbitration clarified that arbitration follows the contractualist theory of arbitration that the parties have the right to control the process and maintain that right during the process; and that the parties’ agreement to settle their disputes entails to allow the arbitrator or arbitrators to control the process4. However, in reality, the ICCA stated that it is the State which has sole control of the arbitral process because it provides the power to the parties as well as the arbitrators. The role of the State is apparent in the principle of independence as well as impartiality of the arbitrators together with the principle of immunity bestowed on the arbitrator by the State5. An Arbitrator’s Duty of Impartiality The impartiality of the arbitrator is a traditional expectation of which “business managers, investors, and nations entrust their treasure and their welfare,”6. The ethical principles must be guarded by the arbitrators themselves. There are continuing trends and changes that may affect attitudes and will temp arbitrators such as conflict-of-interest cases but Park endorsed an implementation with “sensitivity to new trouble spots,”7. Such caution of impartiality can be attributed to a lawyer who may serve as an advocate for one case but where there is shift of role to an arbitrator, will remain open about propositions so that regular adjustment becomes necessary on the part of the arbitrator8. The expectation on the arbitrator as impartial was further explored by Bishop and Reed as “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 party-appointed arbitrators in international arbitration, the absolutely inalienable and predominant standard should be impartiality,”9. These conflicts were observed in the cases mentioned in the LCIAM AMINZ Arbitration Seminar involving a partner layer in one locality who served as an arbitrator for an overseas dispute10. Arbitration in England and the United States It was observed that court cases in England and the United States have raised the standards for arbitrators as they were accused of possible bias. They were enabled to refuse as part of their rights although “dangerous policy consequences” were proposed11. But independence and impartiality serve a vital role in international commercial disputes as it was the characteristic that made arbitration the preferred form of dispute resolution. In the US, it was issued in Supreme Court decisions that that arbitrators need to “disclose to the parties any dealings that might create an impression of possible bias,”12 ICC Rules of Conciliation and Arbitration ICC Rules of Conciliation and Arbitration in 1988 also called the ICC Rules allow parties in conflict to nominate their own arbitrator but to be approved by the ICC. A chairman of the arbitration Tribunal was also mandated and subject to the same confirmation. ICC rules under Article 2 concerning the constitution of Arbitral Tribunals13, Articles 2.7, 2.8 and 2.9 states that: "7. Every arbitrator appointed or confirmed by the Court must be and remain independent of the parties involved in the arbitration14. Prior to appointment or confirmation by the Court, a prospective arbitrator discloses in writing to the Secretary General of the Court all details of facts or circumstances of which nature can cause an assumption of possible bias as well as invalidate the arbitrators independence in understanding of the parties. The Secretary General of the Court provide this disclosure to the parties in writing and then provide a time-limit for any dissent or comments from them. The arbitral constitution also mandates the arbitrator to immediately disclose in writing to the Secretary General of the Court and the parties any facts or circumstance of a similar nature that may cause conflict between the arbitrators appointment or confirmation by the Court and notification of the final award15. The parties may, within the fixed period provided by the Secretary General, challenge the independence of an arbitrator. This is done through a written statement and specified whether for alleged lack of independence or any other reason and submitted to the Secretary General of the Court. The written statement should specify the facts and circumstances on which the challenge is based16. For a challenge to be admissible, it must be sent by a party either within 30 days from receipt by that party of the notification of the appointment or confirmation of the arbitrator by the Court; or within 30 days from the date when the party making the challenge was informed of the facts and circumstances on which the challenge is based, if such date is subsequent to the receipt of the aforementioned notification. 9. The court shall decide on the admissibility, and at the same time if need be on the merits, of a challenge after the Secretary General of the Court has afforded an opportunity for the arbitrator concerned, the parties and any other members of the arbitral tribunal to comment in writing within a suitable period of time,"17. In addition, Article 2.13 of the ICC Rules provides that the decision of the ICC with regards to any challenge of an arbitrator shall be final and the reason for its decision shall not be communicated. The term in the Statement of Independence required one box out of two in claiming independence, the arbitrators’ “…choice of which box to check will be determined after you have taken into account, inter alia, whether there exists any past or present relationship, direct or indirect, with any of the parties, their counsel, whether financial, professional or of another kind and whether the nature of any such relationship is such that disclosure is called for pursuant to the criteria set out below. Any doubt should be resolved in favour of disclosure,”18. Fortier’s situation was different from that of Commonwealth Coatings Corp v Continental Casualty Co, 393 US 145 (1968) which was seen as “regrettable”19. The arbitrator chairman who had an engineering construction business has one of the party to the arbitration a regular client. . Case Arising out of Arbitrator’s Impartiality and Independence AT&T Corporation v Saudi Cable Co (2000) AT&T Corporation v Saudi Cable Co (2000) is one of the more recent cases that tested the impartiality and independence of arbitrators. The case was the termination of a Pre-Bid Agreement (PBA) between AT&T Corporation and Saudi Cable Co (SCC). The companies went into dispute when they did not arrive at any mutual agreement after several meetings. It was AT&T which requested for arbitration with the ICC requiring a termination of the PBA in February 3, 1995. Prior to the filing, AT&T also sent a letter to SCC terminating the PBA dated November 10 1994. The SCC replied in March 6, 1995 that the contract was still valid and asked the ICC to order AT&T compliance of the PBA as well as negotiate in good faith20. AT& nominated as their arbitrator German lawyer Maitre Michael Schneider who was practicing in Geneva. On the other hand, SCC nominated Mr. Robert Von Mehren, a partner in a New York law firm and both were confirmed. Both parties went to a lengthy discussion for the choice of a chairman of the Tribunal until such time that a certain Mr L Yves Fortier, a Canadian lawyer was mentioned. Mr. Fortier has been assigned through the negotiation of Mr Beechey of Clifford Chance in London on behalf of AT&T and Mr Hamilton of White and Case in New York on behalf of SCC21. It so happened that Mr. Fortier occupied a position of directorship in one major telecommunications company based in Canada called Nortel. Mr. Fortier also held 474 Nortel shares in accordance with his practice of acquiring a shareholding in any corporation on whose board he sat, in addition to 300 common shares in AT&T. Nortel was considered a competition for AT&T. However, in his faxed curriculum vitae to Mr. Beechy in London, Fortier failed to include among his directorship any link with Nortel. Incidentally, on the same day in 20 March 1995, a CV of Mr. Fortier was sent to Mr VV Veeder QC of Essex Court Chambers in London for an unrelated purpose. The CV contained his directorship with Nortel. The appointment of Fortier was confirmed22. One unfortunate event about the case was the failure of the ICC to send copies of the CV to all parties with a signed Statement of Independence after the appointment, of which an updated CV of Mr. Fortier has already been made available23. AT&T filed legal proceedings based on sections 1 and 23 of the Arbitration Act 1950 requesting for the court to order that AT&T be allowed to revoke and to void the appointment and authority of Mr Fortier as well as set aside the Partial Awards passed down by the ICC Tribunal. The court ruling on the appeal of AT&T with regards to the decisions had the judge adopt the doctrine of bias in R v Gough [1993] AC 646 at 670 per Lord Goff of Chieveley, R v Inner West London Council, ex parte Dallaglio [1994] 4 All ER 139 at 151 per Lord Justice Simon Brown and R v Bow Street Metropolitan Stipendary Magistrates, ex parte Pinochet (No.2) [1999] 2 WLR 272 per Lord Browne-Wilkinson. Longmore J. It quoted the “automatic disqualification” 24of any judge with direct pecuniary interest such as owning shares in any of the parties as well as the adoption of the “unconscious bias” notion. The court upheld the ICC ruling and stated that: “Nothing that he had said or done in the arbitration proceedings had shown any bias of any kind. The judge rejected the submission that, even if there were no ground for complaint in relation to the First Partial Award, Mr Fortier should have excused himself at the later stages when confidential information was ordered to be disclosed. He held that, even if (which the judge did not accept) there was a danger of Mr Fortier disclosing confidential information to the board of Nortel, that was a discrete matter which did not advance the case of unconscious bias in relation to the Second and Third Partial Awards,” 25. The International Bar Association also admitted the difficulty in laying out a rigid guideline in the acceptance and rejection of arbitrators where they are contested26. An Appellate Court stated that there indeed was “a failure to disclose in accordance with the ICC rules on the part of an arbitrator” that holds a misconduct as specified for by the 1950 Act. However, this has been decided as a “procedural mishap” in consideration of all the weight of Mr. Fortier’s relation to Nortel which was very minimal and considered weak27. A Comparable English Case Magill v. Weeks (2001) A case that can be related to the independence and impartiality of decision-making with regards to the AT&T Corporation v Saudi Cable Co (2000) and similar court ruling is the case of Magill v. Weeks [2001] APP.L.R. 12/13 of which Municipal or local government funds had been used in “political corruption”28. The Auditor - Mr John Magill – is the appellant. Magill was appointed by the Audit Commission under section 13 of the Local Government Finance Act 1982 to audit the accounts of Westminster City Council for the years 1987-8 to 1994-5. He found out that three councillors and three officers had, by willful misconduct, jointly and severally caused a loss of approximately £31m to the council. The councilors were Dame Shirley Porter, leader of the council at all material times, Mr David Weeks, deputy leader, and Mr Hartley, chairman of the councils Housing Committee since June 1987 Magill v. Weeks (2001). The appeal questioned whether the Court of Appeal was right to quash the certificate issued against Dame Shirley Porter and Mr. Weeks and, if not, in what sum that certificate should have been issued29. The case arises from the issuance of sale for eight wards, of which evaluation of five “stress: wards by the City Solicitor only found two were among the eight key wards. In addition, the director of housing sent a memorandum to the chairmen in March 17, 1987 stating that: the scale of designation then proposed, namely of all council properties in the eight key wards (490 sales per annum), the council might find it impossible to meet its statutory obligations to a number of homeless households; that it was not possible in professional terms to justify a designation of all properties in the eight key wards given the impact on the homeless and other priority cases; that the "key ward analysis" would have to be provided by the forthcoming consultants study30. The consultant was subsequently met by Mr Jeremy Sullivan QC and Mr. England who were both advised about the legal and proper procedures in selling marginal wards which should be uniformed all over the city and not in particular wards only. Many communications exchanged by all the parties involved indicated that an election was a prime mover for all the housing decisions conducted by Dame Porter and her team. Porter was reelected in 13 May 1987 as leader and Mr Weeks deputy leader of the majority party31. The misconduct was directly related to the “Powers conferred on a local authority may be exercised for the public purpose for which the powers were conferred and not otherwise. A very clear statement of this principle is to be found in Wade and Forsyth, Administrative Law (8th ed, 2000) at pp 356-357” study32. This was confirmed in a ruling of R v Tower Hamlets London Borough Council Ex pv Chetnik Developments Ltd [1988] AC 858 at 872 of which the judge stated that: “Statutory power conferred for public purposes is conferred as it were upon trust, not absolutely - that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended . . .”33. The ruling also cited the case Attorney General ex rel Rea v Belfast Corporation (1855) 4 IR Ch 119 of which the judge stated: “Municipal Corporations would cease to be tangible bodies for any purpose of redress on account of a breach of trust, if the individuals who constituted the executive, and by whom the injury has been committed, cannot be made responsible […]As the trustees of the corporate estate, nominated by the Legislature, and appointed by their fellow-citizens, it is their duty to attend to the interests of the Corporation, conduct themselves honestly and uprightly, and to see that every one acts for the interests of the trust over which he and they are placed. (3) If the councillors misconduct themselves knowingly or recklessly it is regarded by the law as willful misconduct.”34. Clearly, there was an act of bias as well as perceived self or political motivation on the part of Dame Shirley Porter et al, with regards to their decision to influence the distribution and sales of housing to the wards of their choice. The obvious actions include the choice of priority wards which were not only evaluated as less priority but less qualified to receive the housing sale. The exchange of communications as well as directions, formal discussions and consultations about the funding, process and distribution of the housing units were partial to election target and results. Their actions construed misconduct due to the obvious manipulation of the policy, process and distribution. In fact, the local government was deemed to have lost on its financial reserves and in fact, may lead to the lack of funding on the Housing Council to continue operations. Thereby, endangering local governance as well. Against the case of Mr. Fortier where there was minimal, if any advantage at all that he was a non-official director of AT&T’s competing firm Nortel, Magill v. Weeks. His ownership of a few stocks to both Nortel and AT&T added weight to his personality as “involved” or biased to any of the two. In reality, Nortel may be considered a competition of AT&T but Nortel was neither seen a party of the case, but simply a coincidental outsider which happened to be competitor for AT&T. AT&T was pitted against their decision to nullify a pre-bidding agreement with Saudi Cable Co. While there was indeed a procedural error that the ICC committed leading to a decision to uphold the PBA between AT&T and Saudi Cable Co., it was irrelevant to the quashing of the ICC Tribunal’s decision due to the lack of notable bias or partiality on the decision made by the ICC Tribunal. Conclusion: The independence and impartiality of the arbitrators resonates to the independence and impartiality of the tribunal and the arbitration body, or the International Council for Commercial Arbitration. So much like any procedural action or actions, every agency or entity may at times omit important or less important actions that may lead to the reduction of trust, tarnishing of reputation, as well as erosion of perceived independence and impartiality. Independence and impartiality are basic characteristics of tribunals that decide for all with the preconceived notion that everybody is equal, whether rich or poor, moneyed or otherwise, multinational or not. A link of arbitrators or the tribunal that will lead to questionable decisions or awards could weaken the body as well as its integrity and therefore, needs to be safeguarded by its creating bodies, such as nations or states and its governing officials. Arbitration bodies such as the ICCA were not haphazardly formed but have evolved from smaller agencies of equality with the common goal to lessen dispute, if not resolve them, come up with fair resolutions and awards, as well as live up to a reputation that will make them be trusted, respected, and sought out. It is how it could sustain credibility and existence. It is of importance that the State or Country through its legislative body supports the policies and decisions of the ICCA Tribunal where perceived just awards were made. It is also of equal importance that the courts quash and try appeals forwarded to them of questionable integrity and fairness through its procedure as well as decisions or awards. By thwarting perceived bias or partiality, the courts will aid and support the arbitration bodies in sustaining unquestionable integrity as well as continuity of operations. The actions taken by the political leaders mentioned in Magill v Week case were seen as opposite that of arbitrator and tribunal chairman Mr Fortier in the AT&T vs Saudi Cable Co case. While the AT&T case lacked merit to be accused as biased, the case of Magill v Week clearly showed the bias towards achieving edge in election results. Reference: Books: Bishop, D. and L. Reed, ‘Practical Guidelines for Interviewing, Selecting and Challenging Party-Appointed Arbitrators in International Commercial Arbitration’ 14 (1998) 395 Arbitration International Buhring-Uhle, Christian and Kirchhof, Gabriele Scherer 2006, Arbitration and Mediation in International Business, end rev ed. Wolster-Kluwer. Christian Buhring-Uhle and Gabriele Lars Kirchhof. Arbitration and Mediation in International Business, 2nd Edition (2006) International Bar Association (IBA). Working Draft. 2002. Redfern, A. and M. Hunter, Law and Practice of International Commercial Arbitration 4th Edition (2004) Wade and Forsyth, Administrative Law (8th ed, 2000) at pp 356-357” Website: International Council for Commercial Arbitration. Articles. 2011, Accessed from http://www.arbitration-icca.org/articles.html Park, William W. "Arbitrator Integrity: The Transient and the Permanent", in 46 San Diego Law Review, 629 (2009) by Prof. William W. Park (Cohasset, USA) 24/06/2010. Accessed from http://www.arbitration-icca.org/media/0/12773752878120/ww_park_arbitrator_integrity.pdf Yu, Hong-lin and Laurence Shore. Independence, impartiality and immunity of arbitators – US and English Perspectives. Westlaw UK Delivery Summary. 2003. Cases: AT&T Corporation v Saudi Cable Co (2000) Attorney General ex rel Rea v Belfast Corporation (1855) Commonwealth Coatings Corp v Continental Casualty Co , 393 US 145 (1968) at 149. Magill v. Weeks [2001] APP.L.R. 12/13 R v Gough [1993] AC 646 at 670 per Lord Goff of Chieveley, R v Inner West London Council, ex parte Dallaglio [1994] 4 All ER 139 at 151 per Lord Justice Simon Brown R v Bow Street Metropolitan Stipendary Magistrates, ex parte Pinochet (No.2) [1999] 2 WLR 272 at 281-2 per Lord Browne-Wilkinson. Longmore J R v Tower Hamlets London Borough Council Ex pv Chetnik Developments Ltd [1988] AC Read More