Overview
On April 28, 2023, the Secretariats of the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL) published the final draft of the Code of Conduct for Arbitrators in International Investment Disputes (the Code of Conduct). The draft concludes nearly six years of heated debates concerning two primary issues: disclosure obligations for arbitrators sitting on investment treaty tribunals; and “double-hatting,” (i.e., where a lawyer sits as arbitrator while at the same time acting as counsel in other investment treaty matters).
The ICSID and UNCITRAL Secretariats developed the Code of Conduct jointly, with substantive efforts led by Working Group III—UNCITRAL’s task force mandated to consider possible reforms to investor-State dispute settlement (ISDS). A separate Code of Conduct for Judges in International Investment Dispute Resolution was also published for judges who would sit on the prospective Multilateral Investment Court proposed by the European Commission.
On March 27-31, 2023, Working Group III finalized its revisions to the Code of Conduct during its forty-fifth session at the United Nations Headquarters in New York City, with representatives of more than ninety-five State delegations and fifty international organizations in attendance. The primary objective of the Code of Conduct is to provide principles and provisions that clarify the duties of international arbitrators—including impartiality, independence, and the conduct of proceedings with integrity, fairness, efficiency, and civility.
The final drafts of both the Code of Conduct for Arbitrators and the Code of Conduct for Judges will now be presented to UNCITRAL for formal adoption during its fifty-sixth annual session in Vienna on July 3-21, 2023.
The Code of Conduct
The Code of Conduct consists of 12 articles with accompanying commentary to explain the rationale and context for each provision. Broadly, it can be split in three parts.
First, Articles 1-3 provide an introductory section to define essential terms, address the applicability of the Code of Conduct, and offer an overview of arbitrator obligations.
Second, Articles 4-11 expand on those obligations by setting out the Code of Conduct’s substantive provisions—including the duties of integrity, fairness, competence, diligence, civility, efficiency, and the obligation to respect confidentiality. These ethical duties broadly conform to existing standards in ISDS proceedings, including as set out in other codes of conduct such as those of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Certain other duties in the Code of Conduct have proven more controversial, and involved more negotiation and compromise on the part of the drafters—in particular disclosure obligations and double-hatting. In this note, we focus on those issues.
Third, the Code of Conduct addresses the issue of enforcement in its Article 12, leaving any challenge, disqualification, sanction or other remedies to be governed by the instrument of consent or the applicable rules to the ISDS proceedings.
Disclosure Obligations
The Code of Conduct imposes in Article 11 (Disclosure Obligations) an obligation on arbitrators to disclose “[a]ny financial, business, professional or close personal relationship in the past five years” with any of the disputing parties, legal representatives, other arbitrators, expert witnesses, and third-party funders. Article 11 further requires arbitrators to “disclose any circumstances likely to give rise to justifiable doubts as to [their] independence and impartiality,” with the Commentary emphasizing that such disclosure obligation is not limited in time.
Where the Code of Conduct innovates is by extending arbitrators’ obligations of independence, impartiality, and disclosure to other persons or entities to whom loyalty may be owed—and in particular, third-party funders. Article 3 (Independence and Impartiality) prohibits arbitrators from “be[ing] influenced by loyalty to any disputing party or any other person or entity.” The Commentary to the Code of Conduct clarifies that the phrase includes, among others: (i) non-disputing parties who have been given permission to file written submissions in the proceeding; (ii) a non-disputing State or a regional economic integration organization that is a party to the underlying investment treaty; (iii) another member of the arbitral tribunal or the ICSID ad hoc Committee; (iv) third-party funders; (v) expert witnesses; and (vi) legal representatives of the disputing parties.
Thus, while third-party funding itself is not at issue, the new rules entrench current trends in favor of full disclosure of such arrangements, to avoid conflicts of interest. This in effect codifies the need for arbitrators to verify any funding arrangements for matters in which they sit, to identify and address any potential relationship between themselves and such third-party funders.
Enhanced Disclosure, But No Prohibition on Double-Hatting
The Code of Conduct is also original in its attempt to regulate double-hatting— the practice of arbitrators also acting as counsel or experts in other ISDS cases—a widespread phenomenon in practice, but one that has long been criticized as undermining ISDS by fostering the perception that arbitrators lack neutrality.
Discussions on how to regulate double-hatting led to noted tensions during Working Group III’s biannual sessions between prohibitionist delegations and disclosure advocates. According to session reports, certain delegations were concerned that a prohibition on arbitrators playing multiple roles “could limit the pool and diversity of qualified individuals to appoint as arbitrators, legal representatives and expert witnesses,” and that “any new regulation in this area should not undermine party autonomy in the selection of their own legal representatives or expert witnesses.” On the other hand, delegates also wanted to underline “the need to signal the significance of the concerns about the practice of double-hatting and to enhance the credibility of the work being undertaken by the Working Group on ISDS reform.”
The Code of Conduct in Article 4 (Limit on Multiple Roles) stops short of prohibiting double-hatting. It instead provides that, unless the disputing parties agree otherwise, arbitrators in one case cannot serve as a legal representative or an expert witness in another proceeding involving the same measures, the same or related parties, or the same provisions of the same instrument of consent.
The cooling-off period—i.e., the duration of the above restriction—has been set to three years for disputes involving the same measure or the same party, and one year for disputes involving the same provision of the same instrument of consent.
In practice, this amounts to a fairly limited, if not entirely symbolic set of restrictions. The limitation related to measures will be most relevant in the case of multiple arbitrators affecting a particular sector (to take a recent example, the multiple arbitrations arising out of reform of Spain’s photovoltaic tariffs system). However, we have not seen any example of a lawyer in practice playing both roles in the Spanish cases. The constraint on double-hatting under the same instrument of consent might have a mild impact vis-à-vis activity under frequently-used bilateral investment treaties such as the Energy Charter Treaty (ECT). Again, however, the multiplicity of investment treaties suggests the restriction will be of limited import. And no prohibition will apply to an arbitrator who concurrently acts as counsel in cases involving either different parties or different measures.
Implications for Parties in Investor-State Arbitrations
If the Code of Conduct for Arbitrators is formally adopted by UNCITRAL during its annual session on July 3-21, 2023, parties to investor-State arbitrations will have the option to incorporate it in their proceedings. The Code of Conduct would then complement—but not supersede—any provisions on arbitrator conduct included in the applicable bilateral investment treaty or instrument of consent. Regardless, given the drafters’ need to compromise on difficult issues, the final text of the Code leaves room for elastic interpretation and flexible application of the rules.
