[This guest post is authored by Chaitanya M. Hegde, a 2nd-year student at Gujarat National Law University (GNLU), Gandhinagar. His key interest lies in ADR, constitutional law, and business law.]
[We would also like to thank our guest editor, Ms Nikita Panse, for reviewing the post and providing her insights. Ms Panse is an Advocate at the Bombay High Court. She is also a candidate for an LL.M in international arbitration (2020-21) from Sciences Po, Paris.]
ICSID and UNCITRAL’s Draft Code of Conduct for Adjudicators: A Ray of Hope to Deal with Double Hatting in Investment Arbitration?
It is widely known that international investment arbitration and, in many cases domestic arbitration, is marked by a revolving door phenomenon. Legal counsel, practitioners, arbitrators, expert witness, tribunal secretaries often don each other’s roles consecutively and also simultaneously. An individual can represent another individual in his capacity as a counsel in a large international institution and, at the same time, act as an arbitrator in another dispute. This practice is termed as ‘double hatting’.
Double hatting has been highly criticized for its potential for arbitrators, who might be acting unconsciously or in knowing disregard of their obligations ethically, to resolve disputes that facilitate either the interests of their clients or their own interests in alluring or keeping clients.
In contradistinction with commercial arbitration, investment arbitration is more reliant on public international law than on municipal laws. Adjudication of investment arbitration can have a serious impact on public policy of sovereign states and interest of its citizens. In the same vein, it can also affect the interests of the claimant and many other stakeholders. It is therefore imperative that arbitrators in investment arbitrations perform their duties in a fair and independent manner.
When an empirical study was conducted by Malcolm Langford, Daniel Behn and Runar Hilleren Lie (the Study), it was found that 47 percent of the cases studied involved at least one arbitrator simultaneously acting as a legal counsel. The same result also showed that a small, but highly visible and powerful core of actors in the investment arbitration platform generally indulge in it.
Philippe Sand has been one of the leading critics of double hatting. He argues that:
“it is viable to recognize the difficulty that may arise if a lawyer spends a morning drafting an arbitral award that addresses a contentious legal issue, and then in the afternoon as counsel in a different case drafts a pleading making arguments on the same legal issue. Can that lawyer, while acting as arbitrator, cut herself off entirely from her simultaneous role as counsel? The issue is not whether she thinks it can be done, but whether a reasonable observer would so conclude. Speaking for myself, I find it difficult to imagine that I could do so without, in some way, potentially being seen to run the risk of allowing myself to be influenced, however subconsciously.”
Clearly, therefore, there is an urgent need to curb – or at least regulate – double hatting in investment arbitration. This would also ensure diversity among arbitrators.
While the International Bar Association Guidelines on conflict of interest in International Arbitration (IBA Guidelines) do not provide explicit rules governing the acts of double hatting, it does provide rules where reasonable doubts arise as to the arbitrator’s impartiality or independence.
In situations where an arbitrator is also acting as a counsel, there is a possibility that bias or conflict of interest might arise to a certain degree where a third person would have reasonable doubts as to the arbitrator’s independence or impartiality. But due to the nature of the IBA guidelines being mere “guidelines”, obligations that can be sanctioned against the arbitrators cannot be created.
The Draft Code
Given the growing concerns on double-hatting, among other things, the UNCITRAL working group III, after working exhaustively on this for some years, requested the secretariats of both UNCITRAL and ICSID to prepare a draft code of conduct for adjudicators.
The Draft Code of Conduct for Adjudicators in Investor State Dispute Settlement (Draft Code) set out important guidelines and provide policy makers with a wide range of choices to regulate the actions of adjudicators. To deal with double hatting, Article 6 of the Draft Code reads as follows:
“Adjudicators shall [refrain from acting]/[disclose that they act] as counsel, expert witness, judge, agent or in any other relevant role at the same time as they are [within X years of] acting on matters that involve the same parties, [the same facts] [and/ or] [the same treaty].”
This draft code is the first in-depth code of conduct exclusively applicable to ISDS mechanisms.
The Draft Code streamlines the applicability of Article 6 to situations where the individuals have acted on matters that involve the same parties. It also contemplates the extension of this provision to matters involving similar facts and/or the same treaty.
Depending on how it is eventually crystallised and/or implemented, Article 6 may lead to wide range of interpretation which provides policy makers order to regulate double hatting. It provides that there can be a strict ban on double hatting. This would be easy to implement since participation is prohibited at the outset for individuals who fall within the prohibited category. There would be no further assessment on actual or other conflicts of interest.
But a complete blanket ban has its shortcomings. For instance, if a young individual who has just started practicing as a counsel is nominated as an adjudicator, he or she won’t be able to financially sustain by leaving his/her counsel work upon receiving his nomination since there is a blanket ban. Also, many arbitrators only receive one ISDS case in their career and compelling them to relinquish their other sources of income to receive a position of adjudicator would be a hurdle. Further, it would also lead to very few options for clients to choose from, as many would have already been either counsels, secretaries, etc.
Further, there is a scope to limit double hatting by implementing a time-based limitation. For instance, limitation based on having played similar roles within a certain time period, such as within the past 2 years. This can be a comparatively liberal way of regulating double hatting than an outright ban. In addition to this, disclosure of conflict of interest is another provision which can be included.
In order to regulate double hatting, it would be important to define or at least clarify the roles which cannot be played simultaneously. This is because, as discussed above, the ISDS mechanism involves several other important roles which, if performed simultaneously, may affect an individual’s independence or imparity in acting as an adjudicator. The Draft Code only contains an illustrative list in this regard.
It is notable that the primary mode of implementing the code would be through voluntary compliance. Accordingly, Article 12 provides that all candidates and adjudicators are required to comply provisions of the code. Separately, the Draft Code recommends the creation of a standing body or an advisory mechanism, which will help ensure and regulate enforcement. Pertinently, even where the code is applicable, all other applicable rules and procedure – which were already present in the arbitral institution – will continue to be applicable.
The Draft Code provides regulation ranging from the most stringent sense to the most liberal one. As noted in the Study, a very few people actually practice double hatting. So complete eradication of double-hatting might not be a good option, as it would be burdensome on those who are not part of the aforesaid few.
And this could lead to a smaller number of new adjudicators entering the field. A reasonable regulation for a state to implement would be one where arbitrators act transparently, and where a cap is provided on the number of cases that an arbitrator undertakes. Another reasonable regulation could include a restriction from undertaking similar cases within a particular time frame of having argued/participated/adjudicated another similar case.
With the Draft Code, UNCITRAL and ICSID have tried to reduce the burden on policy makers for further discussion and deliberation over this issue and aid them in coming to an amicable conclusion on dealing with the same. Great care should be taken while implementing these policies to ensure that they don’t become a barrier for new and diverse arbitrators in entering the field of ISDS.
Editor’s note: For further discussion on this issue, please do check out the webinar on ‘ Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement: Low-Hanging Fruit or Unreachable Goal?’ from the Max Planck Institute (Luxembourg) for Procedural Law. Link below: