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Following extensive negotiations that started in 2017, the United Nations Commission on International Trade Law (UNCITRAL) released its Code of Conduct for Arbitrators in International Investment Dispute Resolution (“the Code”), a set of standards and disclosure requirements for arbitrators in investment arbitration disputes, in February 2024.
To build confidence in Investor-State Dispute Settlement (ISDS), the Code tackles concerns about arbitrators’ independence, impartiality and potential conflicts of interests, which have led to increased challenges to arbitrators in recent years.
While the Code does not introduce groundbreaking changes, it consolidates best practices into a single code of conduct applicable across various treaties and arbitral rules. However, its effectiveness may be undermined by limited means of implementation and enforcement.
Background – The ISDS Reform
In 2017, UNCITRAL’s Working Group III (WGIII) was charged with the comprehensive task of working on reform of the ISDS system, aiming for completion in 2026. After initially identifying the main concerns with the ISDS system, it started working on several avenues of reform. It has now finalised the Code, together with an accompanying Code of Conduct for Judges in International Investment Disputes, as well as the UNCITRAL Model Provisions on Mediation and the Guidelines on Investment Mediation.
Aims of the Code : A Uniform Set of Ethical Standards for Arbitrators
Party-appointed arbitrators can be perceived as lacking impartiality and independence. The Code emerged from such concerns which, in the ISDS context, can be exacerbated by a relatively small pool of arbitrators with appropriate expertise.
To address these concerns, the Code aims to reinforce and codify existing rules, such as the IBA guidelines on Conflicts of Interest in International Arbitration, by providing greater guidance and supplementing them when necessary. The IBA guidelines, which are themselves complementary to other codes of conduct, remain a key reference to assess conflicts of interest and are intended to provide "useful guidance" for interpretation of the Code.
The Code’s purpose is not to supersede existing rules but to “serve as a unique and universal standard” for arbitrator conduct. While there seems to be a general consensus on fundamental standards on arbitrator conduct, in practice, compliance with such standards may be assessed quite differently depending on the applicable texts.
Key Provisions of the Code
Article 4 of the Code prohibits arbitrators from serving in multiple roles simultaneously. They cannot act concurrently as a legal representative or an expert witness in any other proceeding involving the same measure(s); the same or related parties; or the same provisions of the same instrument of consent.
It also sets cooling-off periods subsequent to the arbitration proceedings. For a period of three years, a former arbitrator may not act as legal representative or expert witness in any other proceedings involving the same measure(s) or the same or related parti(es); and for a period of one year, a former arbitrator may not act as legal representative or expert witness in any other proceedings involving the same provision(s) of the same instrument of consent. This is more stringent than the IBA Guidelines, which do not include any direct provisions limiting multiple roles.
The Code formalises the requirement for arbitrators to avoid direct or indirect conflicts of interest and provides for an objective standard for disqualification based on “justifiable doubts” as to the arbitrator’s independence and impartiality, reflecting a transnational consensus.
Disclosure obligations have already been satisfactorily addressed by the IBA Guidelines which provide for an extensive and continuing duty of disclosure by arbitrators of issues potentially affecting their independence. However, while the Code uses an objective standard (“any circumstances likely to give rise to justifiable doubts”), the IBA Guidelines provide for a subjective “in the eyes of the parties” test. Article 11 of the Code also includes a mandatory list of information that must be disclosed in any event, such as:
-any financial, business, professional or close personal relationship in the past five years with a disputing party, its legal representative, other arbitrators, expert witnesses, or third-party funder in the proceedings; or
-any financial or personal interest in the outcome of the proceedings or other proceedings involving the same measure(s) or involving a disputing party.
Other provisions of the Code reflect best practices for arbitrators’ conduct during an arbitration. They must perform their duties diligently, with integrity, competence and skills and preserve the confidentiality of the proceedings. Ex parte communications, fees and expenses of the arbitrators and the role of assistants to the tribunal are also regulated.
Enforcement Issues
The practical relevance of the Code is hampered by two difficulties.
First, its implementation is restricted, as, to date, the Code is only applicable upon agreement of the disputing parties, i.e. on a case-by-case basis or when included in the instrument of consent. Such reference must be inserted in the new generation of instruments or by amending the existing instruments, which is unlikely to happen in practice.
This problem could be counterbalanced if the Code were accompanied by proper means of sanctions, thus encouraging the parties to apply it to their disputes.
Second, the Code lacks a standing basis for enforcement. WGIII has always intended the Code to be a binding set of rules and envisaged an independent basis for sanctions “sufficiently strict to have a deterrent effect” (see Draft Code of Conduct: Means of implementation and enforcement , 2 September 2021 at paragraph 29). Yet, the Code merely provides that "an Arbitrator and a Candidate shall comply with the Code" without providing any sanctions for non-compliance. In the absence of such, there is a risk that it will become just another source in a multitude of existing guidelines.
In summary, although a universal and uniform framework regulating arbitrators’ conduct is useful, its impact may be limited due to limited implementation prospects and the absence of punitive measures. UNCITRAL WGIII is currently discussing an independent standing mechanism to implement its ISDS reform elements; although when that emerges remains to be seen.
Tara Braulotte would like to thank Alix Breuil for her assistance in the preparation of this article.
25 March 2024
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