Draft code of conduct for arbitrators in international treaty arbitration cases: Will the final outcome meet its ultimate objective?

The United Nations Commission on International Trade Law (UNCITRAL) Working Group III recently completed a draft code of conduct for arbitrators in investor-state disputes in its 55^th session held in New York.

The draft code, however, has not been made public as yet. In all probability, the final version will be in the public domain during the next session of the UNCITRAL Working Group III.

Many readers would already have an idea that the process of investor-state dispute settlement (ISDS) reform is currently taking place within the Working Group III (WG III) of UNCITRAL and aims at articulating ethical obligations for arbitrators. Criticisms related to ethics in ISDS include concerns related to the lack of diversity among arbitrators, the increasing possibility of personal and professional conflicts, the concern that actors can simultaneously wear multiple hats (so-called “double hatting”), as well as, more generally, the lack of common ethical standards applicable to all participants in arbitral proceedings irrespective of their diverse legal cultures.

For the uninitiated, ISDS is a system whereby investors that provide foreign direct investment into a country can sue that country if practices that are discriminatory to said foreign direct investment are introduced. State delegates have requested UNCITRAL to explore numerous topics for potential reform.

The reform process includes proposals for both intrepid structural changes, such as the creation of permanent multilateral courts for investment disputes or of an appeal mechanism, and for minor, moderate changes that would address only precise concerns.

Indeed, it is very bizarre that there is no code of conduct for arbitrators till date, given the complexities involved in ISDS disputes. Although there is no specific code of conduct in investment arbitration, there are a number of codes of ethics that regulate various aspects of commercial arbitration. Therefore, it was the need of the hour to develop a code of conduct which can govern international arbitration.

During the years 2015 and 2016, the UNCITRAL Commission started considering proposals for prospective work on a code of conduct for arbitrators in investment arbitration. In 2017, the Commission considered more specifically future work on ethics in international arbitration. Delegates at WG III expressed general concurrence on the significance of a code of conduct for ISDS tribunal members, especially as a measure to augment confidence in the independence and impartiality of ISDS adjudicators.

Key provisions of the draft code

The code was initially drafted by the UNCITRAL Secretariat and International Centre for Settlement of Investment Disputes (ICSID) in 2019 and has since undergone many revisions. The first version of the code was published on May 1, 2020.  Both ICSID and UNCITRAL received wide-ranging inputs on the draft through consultation with state delegates and other concerned stakeholders.  Subsequently, a second version of the code was published on April 19, 2021, a third version was published on September 22, 2021, and a fourth version on July 25, 2022. The fifth version of the draft was also eventually released in November 2022.

The draft code addresses many key ethical and contested issues identified by WG III delegates and more generally by ISDS’s critics, and provides policymakers with numerous choices on how to best regulate adjudicators’ behaviour through a code of conduct. The draft code consists of 12 articles and applies to all kinds of adjudicators, including arbitrators, ad hoc, annulment or appeal committee members and judges in permanent bodies or appeal mechanisms. This drafting ensures that the code can be used in future disputes, even if there are systemic changes during the reform process.

Coming to the articles of the code, there are three or four notable provisions which are more of obligatory behavior and ethical practices for arbitrators. The draft code of conduct for arbitrators reinforces independence and impartiality, broadens the disclosure requirement and regulates the practice of so-called double-hatting. Double-hatting is the practice of arbitrators also acting as counsel or experts in other ISDS cases. The practice is widespread but has long been criticised as undermining ISDS by fostering the perception that arbitrators lack neutrality. On the other hand, defenders of the practice say experience as counsel makes a better arbitrator and that excessive regulation will discourage younger arbitrators from accepting appointments.

Coming to independence and impartiality, it is supposed to be a uninterrupted duty for arbitrators. Independence refers to the absence of any external control, in particular, the absence of relations with a party that might influence an adjudicator’s decision. Impartiality means the absence of bias or predisposition of an adjudicator towards a disputing party or issues raised in the proceedings.  In practice, the duty of independence and impartiality is embodied in the duty of adjudicators to avoid conflicts of interest. The standard of appearance of a lack of independence or impartiality is an objective one, based on a reasonable evaluation of the evidence by a third party and is akin to the notion of justifiable doubts.

Another notable provision included in the draft code is that of duty of disclosure, which exists all the time. A prospective arbitrator should disclose all circumstances that may affect his or her independence and impartiality and continue to do so once she or he is appointed. The disclosure obligations are very pivotal to the code as they assist in identifying conflicts of interest and compliance with other obligations in the code, mainly, the possible lack of independence and impartiality. The disclosure standard is quite broad and can cover any circumstance that might give rise to reasonable doubt as to the independence or impartiality of an arbitrator or nominee. The circumstances to be disclosed are not limited in time, meaning that a circumstance which arose more than five years before the candidate was contacted about the appointment would need to be disclosed if it is likely to give rise to justifiable doubts.

Confidentiality, integrity and competence are few other important provisions that have been included in the draft code. It has been reported in Global Arbitration Review that the latest draft codes are the result of “some hard-fought compromises” – some which impose “new and burdensome obligations which will purport to change the way arbitrators in investment disputes operate”.

It has been proposed that an arbitrator and a candidate has to comply with the code and a candidate shall not accept an appointment and an arbitrator shall resign or recuse him/herself from the arbitration proceeding if he or she is not able to comply with the code.

Model BIT of India and guidelines for arbitrators

It is important to point out here that the Model BIT of India has already included certain guidelines for arbitrators under Article 19. According to the provision, all arbitrators have to be independent and impartial during the entire arbitration proceedings. Also, upon nomination, the arbitrator has to disclose his conflict of interest to the parties.

Conclusion

In recent years, growing criticism of ISDS has prompted calls for reform of the existing framework from states, international organizations and civil society groups. There is a growing concern with regard to the supposed lack of independence, impartiality and neutrality of adjudicators. The code is likely to assuage the perception of lack of independence, impartiality and neutrality of judges in some way. The effort of UNCITRAL and ICSID of bringing a code of conduct for arbitrators, as part of the ongoing efforts to reform the investor-state dispute resolution framework, is admirable and may have far-reaching repercussions in international arbitration in the coming future.

Jyoti Singh is an advocate based in New Delhi and has worked with the Ministry of External Affairs and Department of Economic Affairs as a legal consultant.