UNCITRAL Working Group III finalises Draft Code of Conduct for Arbitrators in International Investment Disputes

Following its 45th session held on 27-31 March 2023, the UNCITRAL Working Group III (WG III) agreed final versions of the Draft Code of Conduct for Arbitrators (the Draft Code) and of the Draft Code for Judges in International Investment Disputes (IID). An advance copy of the Draft Code of Conduct for Arbitrators was recently made available, together with an accompanying Draft Commentary. 

What was initially one single “Code of Conduct for Adjudicators”, including both Arbitrators and Judges, was eventually divided into two different texts: one applicable to Arbitrators and the other to Judges. The highly anticipated codes aim to unify rules on current hot topics such as “double hatting” and disclosure obligations.  

The final versions are the result of multiple rounds of discussions, drafts and comments from different stakeholders including States, scholars and law firms (including Freshfields). We outline below a selection of key takeaways from the Draft Code, which UNCITRAL is expected to adopt at its 56th annual session, to be held between 3-21 July in Vienna.

Application of the Code

Many sets of rules, including international instruments and even domestic laws, already contain rules of conduct for Arbitrators. A provision dealing with the interplay between the Code of Conduct for Arbitrators and other sets of applicable rules, notably those referred to in the instrument of consent to arbitration, was therefore a necessary feature of the Code. 

The Draft Code retains the prevalence of the instrument of consent over the Code of Conduct for Arbitrators itself. Indeed, Article 2.2 provides that “[i]f the instrument of consent contains provisions on the conduct of an Arbitrator a Candidate or a former Arbitrator, the Code shall complement such provisions. In the event of any incompatibility between the Code and such provisions, the latter shall prevail to the extent of the incompatibility”. 

The word “inconsistency” (which was used in previous versions of the Draft Code) was replaced by the word “incompatibility”. This subtle change is intended to strengthen the fact that only situations of clear conflict are covered – cases of implied conflict or inconsistency by omission would arguably not be covered. Paragraph 16 of the Draft Commentary (which is yet to be confirmed by the Commission) clarifies each scenario: (1) where the instrument of consent is (1) silent, (2) stricter than the Code or (3) more lenient. It further defines “incompatibility” as instances where “the obligations contained in those provisions not merely differ but also are inconsistent and irreconcilable with those of the Code, insofar as an Arbitrator, a Candidate or a former Arbitrator would not be able to comply with those provisions and the articles of the Code at the same time” (para 17).

Independence and Impartiality

Article 3 of the Draft Code enshrines the general duty of Arbitrators to be independent and impartial. At its 44th session, WG III agreed that a general reference to the IBA Guidelines would be included in the Commentary to Article 3.1 to provide context and guidance on the meaning of these notions. A reference thereto was included in the Draft Commentary (para 20) but is yet to be confirmed by the Commission.

In connection with the limit on multiple roles (see below), Article 3.2(c) specifies that the duty of independence and impartiality includes the obligation for an Arbitrator not to be influenced by any past, present or prospective financial, business, professional, or personal relationship.

Notably, Article 3 does not expressly refer to the nationality of the Arbitrator as an issue in the context of independence and impartiality. This is one of the areas where we suggested further consideration given the solutions retained by other international instruments (see, e.g., Articles 39 and 52(3) of the ICSID Convention). Indeed, in investment arbitration, as opposed to commercial arbitration, consent is based on the parties’ nationalities, which is why the Arbitrator’s nationality may arguably be more easily perceived as a source of bias. However, and out of step with these other instruments, the Draft Commentary states that “the mere fact of bearing similarities with another person, such as having graduated from the same school, having the same nationality or having served in the same law firm, would not in itself establish that an Arbitrator is influenced by loyalty” (para 23), following the WG III’s recommendation. 

Limit on multiple roles

The Draft Code is the first international instrument to expressly prohibit the practice by which Arbitrators concurrently serve as counsel or expert in other cases, known as “double hatting”. 

Notwithstanding the lack of instrument on this issue to date, Arbitrators have been sanctioned for this practice before. For example, an ICSID ad hoc committee in the Eiser v Spain case annulled a €128m award made against Spain under the Energy Charter Treaty in June 2021, following the failure by the claimant’s nominated Arbitrator to disclose his professional relationship (gained through his role as Arbitrator and counsel in other arbitrations) with the claimant’s damages expert.

Article 4 of the Draft Code seeks to prevent an Arbitrator from acting as a legal representative or an expert witness in concurrent proceedings involving either the same measure(s) (Article 4.1(a)), the same or related party (parties) (Article 4.1(b)) or the same provision(s) of the same instrument of consent (Article 4.1(c)). 

The question is: for how long should an Arbitrator be prevented from acting in said multiple roles? After much debate, Article 4.2 of the Draft Code retained two different “cooling-off” periods, depending on the level of concern raised by the scenarios listed in Article 4.1(a), (b) and (c):

• For a period of three years, a former Arbitrator shall not act as a legal representative or an expert witness in any other IID or related proceeding involving the same measure(s) (Article 4.1(a)) or the same or related party (parties) (Article 4.1(b)). 
• For a period of one year, a former Arbitrator shall not act as a legal representative or an expert witness in any other IID or related proceeding involving the same provision(s) of the same instrument of consent (Article 4.1(c)).

However, parties may always agree to deviate from the cooling-off periods.

Diligence, integrity and competence

The Draft Code imposes a duty of diligence on Arbitrators (Article 5). This essentially encompasses a duty to conduct the proceedings expeditiously and to devote sufficient time to the IID proceeding. Article 6 further imposes a duty of integrity and competence, namely a duty to conduct the proceedings with continued rectitude. This includes Article 6(c) covering an Arbitrator’s prohibition to delegate decision-making functions. These obligations are welcome, but it remains to be seen how a breach of those obligations would be sanctioned in practice.

Confidentiality 

The Draft Code provides for a duty of confidentiality under Article 8. 

To note, Article 8.4 of Version Four of the Draft Code provided that “An Arbitrator may comment on a decision only if it is publicly available, unless the IID is pending, or the decision is subject to a post-award remedy or review.” In reaction to this paragraph, we had suggested including a duty of discretion in relation to comments by Adjudicators on decisions even when they are public. Indeed, the fact that a decision is public does not mean that an Arbitrator should be able to reveal all the details of the decision-making process.

In a similar vein, the Draft Commentary now clarifies that the right to comment on a publicly available decision does not allow an Arbitrator to disclose deliberations and that any comment should not be of the nature that would lead to questioning of the integrity of the proceeding or the decision (para 62), following the WG III’s recommendation.

Disclosure obligations

The standard of disclosure to which an Arbitrator is subject varies across the different applicable rules and jurisdictions around the world. The key question is whether an Arbitrator should have to disclose circumstances that give rise to doubts as to their independence and impartiality in the eyes of a reasonable person (the objective approach) or in the eyes of the disputing parties (the subjective approach)? 

The debate between these two approaches, objective versus subjective, was the focus of extensive comments to the codes from stakeholders. Version Five of the Draft Code still did not resolve this issue (the mention “[, including in the eyes of the disputing parties,]” in Article 11 was kept in brackets). WG III eventually decided to remove the text in brackets, thereby retaining only the objective approach (which appears in Article 11.1). This is despite comments from practitioners in favour of a combined (objective and subjective) approach as the best and most practical solution to ensure consistency and transparency in arbitration. 

In line with our team’s comments on Version Four of the Draft Code, Article 11.2, which contains an enumeration of circumstances to be disclosed, is now preceded by the mention “Regardless of whether required under paragraph 1”. The agreed text now makes clear that an Arbitrator must make disclosures required by paragraph 2 (list of circumstances to be disclosed) even if they do not fall within the terms of paragraph 1 (general definition of circumstances likely to give rise to justifiable doubts as to the Arbitrator’s independence or impartiality.). 

Another area that saw changes relates to the scope of disclosure of information relating to financial or personal interest in other IID proceedings. In line with comments made by our team, WG III decided that the duty of disclosure should be extended to all proceedings involving the same measure(s), IID or not (rather than limited to IID proceedings as was the case in Version Four of the Draft Code). 

Finally, the Draft Commentary provides that: “a Candidate should inform the disputing parties of any publications and presentations that he or she made as well as any activities of his or her law firm or organization, which are likely to give rise to justifiable doubts about his or her independence and impartiality”, following the WG III’s recommendation.

Third-party funders

Several provisions of the Draft Code refer to third-party funders (TPFs). These are recent additions only added in Version Five of the Draft Code.

Amongst the recent provisions, the Draft Commentary to Article 3.2 – on Independence and Impartiality – now expressly includes TPFs as an example of “any other person” by whom the Arbitrator should not be influenced. Further, in line with one of the recommendations put forward by our team, the Draft Commentary to Article 7 – on ex parte communication – expressly prohibits communication between a Candidate or an Arbitrator and TPFs (para 11). 

One issue that was resolved during the WG III’s 45th session is that any financial or personal interest that a Candidate or an Arbitrator has in a person or entity with a direct or indirect interest in the outcome, including a TPF, should be disclosed under Article 11.2(iv). This is in line with the solution adopted by the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration, Explanation to General Standard 6(b), which assimilates a TPF to a party, therefore triggering an Arbitrator’s duty to disclose ties with TPFs.

Assistants 

Since its Version 5, the Draft Code contains a dedicated article to “Assistants” (defined as “a person who is working under the direction and control of an Arbitrator to assist with case-specific tasks”, Article 1(f) of the Draft Code). Article 10 of the Draft Code and its Draft Commentary (paras 71-76) provide that the Arbitrator must consult with the parties before engaging an Assistant and that the Assistant should not exercise any decision-making function. This is a welcome addition given arbitrators’ increased tendency to resort to assistants in international arbitration.

In line with one of the proposals made by our team, the Draft Code goes beyond a mere obligation to “consult” the parties by requiring the parties to “agree” with the choice, role, scope of duties and fees and expenses of an Assistant. The Draft Commentary further provides that an Assistant should be able to prepare a preliminary draft of decisions or awards and that the Arbitrator should ensure that the Assistant complies with the Code (which had been previously removed from Version Five of the Draft Code).

Compliance with the Code

Articles 12.1 and 12.2 of the Draft Code – on “Compliance with the Code” – provide that Arbitrators and Candidates should comply with the Code and that they should not accept an appointment or that they should resign or recuse themselves if they are not able to comply with the provisions of the Code.

However, Article 12 does not deal with the consequences of non-compliance with the Code. Indeed paragraph 3 states that: “Any challenge or disqualification of an Arbitrator or any other sanction or remedy is governed by the instrument of consent or the applicable rules.” 

The Draft Commentary to Article 12.3 explains that while the process and the standard of challenge, disqualification, sanctions, and remedies would be governed by the instrument of consent or the applicable rules, “ [a]ny breach of the Code could be taken into account in that process”. It further adds that “Article 12 takes into account the possible development of additional means to implement the Code and to ensure compliance through an instrument which may modify the instrument of consent or the applicable rules”, following the WG III’s recommendation.

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Freshfields will continue to monitor the evolution of this important new international instrument.