Standards for Arbitration Institutions
The topic that I will address today is the legitimacy of arbitral institutions, the market in which they operate, and the role they need to fulfil to ensure the integrity of arbitration as a global system of justice.
And as a starting point for this discussion, we should consider the recent history of international arbitration and the mutations that we are witnessing in our practice.
There has been a lot of emphasis in recent times on the golden age versus the backlash, and whether winter is coming in arbitration.
As much as there may be some merits in this Game of Thrones discussion, I would suggest that it does not really help to understand the profound systemic changes that arbitration is now living and how they will affect the role of arbitral institutions in the future.
Let me quote what Stephan Schill said in a presentation he made at the Miami ICCA Congress in 2014: “the discourse on legitimacy within international arbitration is too focused on the function of arbitration as a mechanism to settle individual disputes, disregarding the increasing importance of international arbitration as an institution of transnational governance”.
Schill, I submit, is right. He is right is saying that international arbitration is no longer a mere dispute resolution technique, which only displays its effects between the individual litigants and exclusively rests on party autonomy. Arbitration has become the predominant, if not in certain industries the exclusive way, of resolving international disputes.
Because the boundaries of arbitrability have expanded, there are more and more domains of human activities in which it is allowed to arbitrate.
Only to cite a recent example, the Supreme Court of Canada will soon have to decide whether disputes between Uber and its drivers can, as decided by the lower judge, be arbitrated. In many fields of industry, as Lord Thomas emphasized in his 2016 lecture, awards have become the main, if not the exclusive source of jurisprudence.
The lex maritima, the lex sportiva, but also construction law, in particular when the FIDIC books apply, as well as the lex petrolea or space law as far as the operation of satellites is concerned, are in a very large measure the product of arbitral jurisprudence.
International commercial arbitration has also, since long, spilled over the boundaries of private disputes, with an increasing number of cases involving States and State owned entities, thereby affecting the public interest in pretty much the same way as an investment arbitration.
Corruption claims, allegations of human rights violations, or claims related to carbon emissions and environmental breaches, are increasingly frequent in arbitration, as recently shown by an ICC report on arbitration and climate change.
In the field of investment protection, in spite of the widespread criticism against the current system, arbitration remains the universally accepted forum.
There is certainly a trend toward a much more diverse and multifaceted offer, with multilateral courts, FTAs and new generation of BITs coexisting with older treaties. But on the global basis, there will be no return to diplomatic protection or to the Calvo Clause, and arbitration will certainly not disappear.
Stephan Schill says that arbitration has become an institution of transnational governance. I would perhaps nuance that, and say that it has become a transnational system of justice.
It is an autonomous and largely self-regulated system of justice, with its own soft law of procedure, its values, its institutions and its community of practitioners and academics. As such, it plays a fundamental role not only in the regulation of the global economy, but in the very functioning of the society as a whole. This is why questions of transparency, ethics and diversity have become so important for the legitimacy of international arbitration as a global system of justice. It is a global adjudication system of which arbitral institutions are the backbone.
That is why without robust, ethical and experienced arbitral institutions, there can be no trust in arbitration.
Institutions have supervisory authority over the arbitration.
They play an important rule-making role, thus contributing to the creation of the transnational soft law applying to arbitral procedure.
They have a fundamental responsibility in establishing the standards that they expect arbitrators to abide with in their conflicts disclosures.
They also are the only bodies able to enforce in a meaningful way ethical rules for arbitrators and counsel.
In sum, arbitral institutions provide a regulatory framework that allows arbitration to be seen as a structured, predictable and transparent system of justice.
But only robust and legitimate arbitral institutions can enforce these rules and give transparency and predictability to the system, in a way that is such as to establish a sufficient level of trust on the part of States and the general public.
When we look at the recent history of arbitration in the past two or three decades, what we first see is a clear shift from ad hoc to institutional arbitration. Global arbitral institutions have emerged. Thirty years ago, the ICC was the only arbitral institution having a truly international dimension. This is now no longer the case.
The former London Court of Arbitration was rebranded as the London International Court of Arbitration in 1981.
HKIAC was created in 1985, followed by SIAC in 1991, and both have become powerful regional, if not global, players.
The ICDR was established in 1996.
UNCITRAL arbitration has also to a certain extent institutionalized itself, in particular with the new 2010 Rules, with the increasing role of the PCA as appointing authority.
What we are seeing now, however, is also a trend to the regionalization of international arbitration.
While twenty years ago, arbitration would naturally be perceived as global, because it rested on a uniform procedural model and common values, there is now a certain surge of regionalism, as expressed for example by the interest raised by the Prague Rules, in reaction to a perception – completely wrong in my view – that the IBA Rules are too anglo-saxon.
There is also an increased desire on the part of users, in many parts of the world, to see institutions being closer to their market by having local offices, which explains in large part why the ICC Court has opened four new offices around the world in the past 3 years. In that context, we are seeing a sharp increase in the creation of new local arbitral institutions around the world, with new institutions emerging every year, some of the most recent ones being in Vietnam, in Thailand and Myanmar.
Some of these local chambers have embarked in more or less ambitious programs of internationalization, such as CAM-CCBC in Brazil or the Kuala Lumpur Regional Arbitration Chamber, which changed its name to become the Asia International Arbitration Centre.
Others have decided to merge, as the three Spanish institutions (the Corte Espanola de Arbitraje, the Camara Arbitral de Madrid and CIMA) did in December 2017. But others have split, such as CIETAC in 1988 or BANI in Indonesia.
In addition to this moving net of local institutions, there is also a wide range of specialist institutions, such as ICSID for investment arbitration, WIPO for IP disputes, the Court of Arbitration for Sports in Lausanne (CAS), the LMAA for shipping or the Insurance and Reinsurance Arbitration Society of London, as well as many long-existing commodity institutions, such as GAFTA, the Federation of Oils, Seeds and Fats Associations or the Refined Sugar Association in London.
The interesting pattern of that institutional landscape is that many of these new local arbitral chambers are more often than not created with no sound business case, and no real prospect to really attract cases in a foreseeable future: essentially, they are perceived as a plus to attract arbitrations in the country.
To a large extent, the emergence of local centres is also the product of government policies.
One interesting example of that tendency is the decision of the Government of India, in December 2016, to create the Srikrishna, a government committee having the mandate to institutionalize arbitration, notably by grading arbitral institutions, by promoting a national arbitration centre, by creating an arbitration bar and by accrediting arbitrators. Another one is of course the role of the Government of Singapore in encouraging the creation of SIAC.
These policies are positive, for they contribute to the dissemination of the arbitral culture and the strengthening of raising arbitral jurisdictions. They can sometimes also have distortive effects, however, when governments try to impose the use of their domestic institutions.
The intent then is no longer to promote international arbitration, but to move cases away from international institutions to a more domestic context. For example, Romania has passed, at the beginning of last year, a decree imposing the Arbitral Chamber of Bucarest in arbitrations arising from public procurement contracts.
Here in Turkey, a Decree was made last year, providing that public procurement disputes may only be arbitrated under the rules of ISTAC, but I understand – although the text is unclear – that there is an exception allowing to elect an international institution for international public procurement contracts involving international financing.
As described by Ziya Acinki at GAR Live Istanbul 2018, ISTAC “has benefited from the support of the Turkish government, which is actively promoting it as a place to arbitrate disputes involving foreign investors”.
And the situation has been described in Tom Jone’s report to the conference as follows: “In June last year , President Erdogan issued a communiqué recommending that state-owned companies and local governments bodies adopt the ISTAC clause. Then in January , the government passed an act which provides that is an investor prefers arbitration to resolve disputes regarding public procurement contracts then ISTAC arbitration is mandatory”.
Recently, the Indian State of Maharashtra adopted a ruling according to which disputes arising from public contracts must above a certain value be resolved by the Mumbai Centre for International Arbitration.
Some years ago, it was the Indonesian Oil and Gas regulator, MIGAS, doing that to the benefit of BANI.
And you may have heard that the Chinese Government is now announcing, through CCPIT, the launch of a dedicated institution for arbitrations arising from Belt & Road contracts, and there is a real concern as to whether investors will be left with a real choice to arbitrate their disputes.
These attempts to nationalize arbitration by imposing local centres for the resolution of international disputes are dangerous.
First, they run contrary to the principle of party autonomy.
Second, they will necessarily have distortive effects in the long run by creating protected markets and insulating domestic institutions from competition.
And, third, they will not serve the purpose of attracting investments, for investors will always have legitimate concerns as to the neutrality of these government-sponsored centres when the State or State owned entities are involved.
Overall, these legislative initiatives will harm the countries promoting them as arbitration places. Let me give you an interesting example of the reason why investors should be concerned about these initiatives.
The ICC, as you know, administers a large number of cases involving SOEs.
In certain countries, these cases represent a very significant share of our caseload, with in some jurisdictions tens of pending cases involving very significant amounts in dispute. One question that may arise in certain jurisdictions is that of the conflicts of interests generated by the fact that some SOEs may repeatedly appoint the same arbitrators, who are also, sometimes, former State officers. As a result, we have challenges and objections, and these objections and challenges are upheld when they have to, which is not infrequent.
Now, two weeks ago, I received an official letter by a large SOE which is a significant ICC user in the given jurisdiction.
That entity essentially complained of the fact that the Court had refused, in several occasions, to confirm the arbitrators that it had appointed in repeated occasions, in circumstances that were such as to affect their independence and impartiality in the eyes of the other party.
And the letter threatens to sue the ICC, and to no longer include ICC clauses in their contracts if we do not change our decisional practice.
Now, of course we will not do so.
The practice of the Court is to ensure that all arbitrators, including those appointed by a State or a State owned entity, are and remain independent and impartial in the eyes of the parties.
But the legitimate question is: how would a local arbitral chamber, highly dependent on a limited number of public users, react to such a letter? That is certainly a question that should be seriously considered by any investor entering in a significant public contract when choosing the arbitral institution.
Beyond that question, when we look at the arbitration’s global institutional landscape, what we see is a strikingly diverse and uneven net of institutions, evolving in an increasingly competitive and completely unregulated market. When we consider the importance of the public role that arbitral institutions fulfil in our societies, is it not surprising that there are no controls or regulations to maintain their quality, standards and legitimacy?
In most countries, any person can establish an arbitration institution, with no public controls whatsoever. Clearly, there is a risk there.
Arbitral institutions can be corrupt, or be the vehicle for fraudulent operations.
Let me quote here what Jan Paulsson wrote in his article on Moral Hazard in International Arbitration:
“Only a few arbitral institutions can make credible claims to legitimacy. Many arbitration institutions are empty edifices waiting for someone to bother to dismantle them. Others cannot get away from features of cronyism which were their raison d’être in the first place. When such defects are uncovered, it also becomes more difficult for well-established and punctilious institutions to seek credence. So, how do we enhance and protect the legitimacy of decent arbitral institutions?”
That is a very legitimate question. Let me give you some examples, which are all in the public domain.
In 2015, the president of the Arbitral Chamber of the Romanian Chamber of Commerce was criminally convicted for taking bribes in exchange of appointments that would favour one of the parties, which resulted in the resignation of the entire Board of the institution.
More recently, an Egyptian sham arbitral institution mounted a fake arbitration and issued an 18 Bn USD award against Chevron, which resulted in criminal proceedings in Egypt and the criminal conviction of the purported arbitrators, in addition to US decisions refusing to enforce the sham award, in the context of which the ICC filed an amicus curiae brief.
In Russia, hundreds of so-called pocket institutions have been created, often by powerful oligarchs in order to adjudicate their own disputes. This has resulted in the adoption of a statute, in 2015, submitting all institutions wanting to operate in Russia, including foreign ones, to the condition of obtaining a license.
The entire Latin American continent is still hit by the Odebrecht alleged corruption cases, which has resulted in several countries, such as Peru in 2017 and Brazil in 2015, adopting statutes aiming essentially at prohibiting or restricting the use by institutions of rosters or closed lists of arbitrators.
These attempts to regulate the activity of international arbitral institutions at the national level are however dangerous and undesirable.
Restricting the number of institutions able to offer their services, or exercising control on their activities, risks to politicize the arbitration system and to affect its neutrality.
The challenges posed by the existence of an uneven and completely unregulated net of institutions should be addressed by self regulation, soft rules and by a proper level of cross-institutional cooperation.
In March of this year, the Club Espanol de Arbitraje – the Spanish Club of Arbitration - has published a draft code of ethics for arbitral institutions. It is an interesting initiative.
Of course, no one should underestimate the difficulties of adopting rules of conduct that arbitral institutions would endorse.
The difficulty arises, first of all, from the great diversity of institutional structures, some institutions being the emanation of a chamber of commerce and others not, some being more international than others, and some being created by statute while others are private bodies.
It also derives from the fact that institutions compete one against the other and are therefore naturally reluctant to submit to common rules.
However, the idea of general guidelines that arbitral institutions could commit to deserves to be considered.
These general principles, that any decent international arbitration should endorse, include the independence of their officers from the host chamber or institution, the separation of their decision-making process, both for the definition of the institution’s policies, the revision of its rules and the administration of cases, the transparency of the institution’s procedures, as well as robust internal rules on diversity and conflicts of interests.
This means, first of all, that the chamber of commerce hosting an arbitral institution should not be able to exercise influence on the selection and recruitment of the individuals who will be in charge of arbitration matters. This can be achieved by entrusting selection committees, composed of independent practitioners of undisputable standing and reputation, with the task of selecting the institution’s top officers, such as the president of the Court or the Secretary General.
Likewise, the institution should be able to independently select the members of its court, if any, as well as the members of its governing bodies.
It is also important to ensure that the institution can independently define its internal policies, that there is an independent process for any amendments to the rules, and of course that any decision regarding the administration of cases be taken in complete independence.
All institutions should also adopt robust internal rules to avoid conflicts of interests in their case management process, by excusing from their decisions any individual having a present or past interest in the case, and also to ensure gender and regional diversity within their bodies.
Transparency should be the second fundamental governing principle that should apply to any arbitral institution. There are several aspects to that.
The membership of all governing bodies and nominating committees of the institution should be public. If the institution has a list of arbitrators or a roster, that list or roster should be publicly available, be opened to new entrants, and the process for admission into the list should also be transparent and objective.
But transparency should go much beyond that.
First, although not all institutions have adopted that practice, the provision of reasons for challenges and other important decisions made by the institution should become a generally accepted standard.
Second, institutions should publish the composition of its tribunals, with the identity of counsel.
Such a measure of transparency does not compromise the parties’ legitimate expectations to confidentiality, and it ensures both that institutions are made accountable of their appointments, and that parties are made aware of the potential existence of repeated appointments by the same law firm.
Finally, institutions should systematically publish their awards.
At the difference of investment awards, most commercial awards are not published. Many institutions do publish extracts of awards or redacted awards, but these publications are done on a piecemeal basis, and they only cover a very limited portion of the thousands of commercial awards that are made every year.
This situation has a number of undesired effects.
First, it affects the legitimacy of the system by feeding the image of arbitration as a closed doors justice rendered by unaccountable insiders.
Second, it does not allow parties to know how prospective arbitrators have fulfilled their mandate in other cases.
Third, it prevents arbitral awards from contributing meaningfully to the formation of the rule of law, in areas where most cases are no longer referred to Courts.
And it affects the quality of arbitral jurisprudence, by making it less predictable because arbitrators are unable to rely on consistent lines of precedents. As illustrated by the Lord Chief Justice of England and Wales in his 2016 lecture, the general assumption of confidentiality in international arbitration will pose a growing systemic risk to the integrity and legitimacy of international arbitration as a global system of justice.
The ICC has recently announced that it would publish all its awards on an opt-out basis.
And there are more and more voices, such as Bernard Rix, Constantine Partasides, Sundaresh Menon, Juan Fernandez Armesto, and many others, advocating a Copernican revolution that would bring arbitration from a culture of secrecy into the light of transparency.
These good governance rules are however not enough. There is also the need for more cross-institutional cooperation and peer review. IFCAI, the International Federation of Commercial Arbitral Institutions, was created in 1985.
It could do more to promote cross institutional cooperation in important areas of practice. In a lecture last year in Atlanta, I identified three possible areas of cooperation between institutions:
- The first would be a protocol between institutions whereby institutions would commit not to administer cases under the rules of another institution. This has happened in the past, under pathological clauses providing that the arbitration will be administered by a given institution under the rules of another. This gives rise to tremendous problems and difficulties, and this is why the ICC has introduced, in its 2012 Rules, a provision according to which the ICC Court is the only body allowed to administer arbitrations under the ICC Rules. Beyond that commitment, a procedure could be established according to which, when an institution is referred a case with a pathological arbitration agreement, the institutions would consult and agree, in consultation with the parties, the centre to which the² case has to be referred to.
- Second, there could a protocol under which institutions would agree to exchange, confidentially, feedback on arbitrators, both positive and negative, including instances of ethical breaches.This would greatly help, in particular the least experienced institutions, to improve their selection of arbitrators.
- The third is the building of a common institutional platform for the publication of awards, which I just discussed.
Beyond all this, why would a body such as IFCAI not join forces with ICCA to establish an accreditation procedure for arbitral institutions that would be based on internationally accepted standards of independence, good governance and transparency?
There is certainly a long way to go before we can reach a consensus on what these standards should be, but the world is moving faster than we do, and such an effort would greatly contribute to establish the legitimacy of international arbitration as a global system of justice in the twenty years to come.
Based on Keynote address by Alexis Mourre,
President of the International Court of Arbitration, International Chamber of Commerce (ICC), at GAR Live Istanbul 20 June 2019