There is a general perception that unmeritorious challenges to arbitrators are on the rise. Is this really the case, how can they be identified and what can be done about them? Christian Albanesi, our Head of Latin American Arbitration, offers some thoughts.
Are challenges to arbitrators on the rise?
Recent statistics from the main international arbitration centres show:
In ICC arbitrations, there were 61 challenges in 2012, 66 in 2013, 60 in 2014 and 28 in 2015. If we consider the number of arbitrators confirmed each year, we see that whilst 4.68% of arbitrators were challenged in 2012, in 2015 the percentage was only 2.13%.
In LCIA arbitrations, there were 4 challenges in 2014, which represent less than 1% of the arbitrators appointed that year, and 6 challenges in 2015, which represent 1.3% of the arbitrators.
It is in investment arbitration, particularly in ICSID cases, where we see the biggest increase in proposals for disqualification, increasing from 2 proposals in 2012 (representing 1.4% of the arbitrators appointed), to 8 proposals in 2014 (5.1% of the arbitrators), and 9 in 2015 (4.86% of the arbitrators).
Although there are no statistics available on the percentage of unmeritorious challenges, the overall number of challenges in the past few years remains rather limited.
How to identify abusive or dilatory challenges
It is important to stress that not all unmeritorious challenges are abusive. Indeed, a challenge that may appear unmeritorious on its face could nevertheless be based on genuine concerns from a lawyer who is not familiar with the commonly accepted practices and principles of international arbitration.
That said, there are a number of elements that may raise suspicions as to the underlying purpose of a challenge.
1. Repeated challenges
Repeated challenges against an arbitrator are a typical example of dilatory tactic, given the disruptive effect such conduct may have on the arbitration. During my time at the ICC, I recall that there was a case with 23 challenges, 13 against the president and 10 against the co-arbitrator appointed by the other party.
2. Timing of the challenge
Challenges submitted a few days before a hearing, forcing it to be adjourned, or after the arbitral tribunal has conducted its deliberations, may raise questions as to the true purpose of the challenge. There are even cases of challenges filed against arbitrators after a final award has been rendered.
3. Contents of the challenge
The contents of the challenge could also evidence an underlying dilatory or abusive purpose, for example, in cases of overtly aggressive challenges that seek to unsettle the arbitrator, thereby compromising his/her impartiality.
Undoubtedly, abusive or dilatory challenges must be denied and sanctioned but this needs to be borne in mind alongside the fact that the right to challenge an arbitrator is a fundamental tool for protecting the integrity of the arbitration process and for instilling confidence in its users.
In light of that, how can (1) arbitrators, (2) arbitral institutions, (3) lawyers, and (4) national courts discourage abusive challenges or, at least, minimise their effects, without unduly restraining the right to challenge itself?
At the outset of the arbitration, arbitrators should make appropriate disclosures to help build confidence in the system.
As part of general case management, arbitrators should remind the parties that their conduct throughout the case will be taken into account by the arbitral tribunal when deciding on costs (as suggested, for example, by the ICC Commission Report on Controlling Time and Costs in Arbitration) and, ultimately, costs awards can also take into account the conduct of the parties (see, for example, article 38(5) of the ICC Rules). Other tribunal led measures could include the reservation of their right to exclude lawyers that may appear in the case in the future if their appearance could create a conflict with an arbitrator (provided that such an extreme measure is necessary to preserve the integrity of the arbitral process).
Once a challenge is filed, arbitrators should consider whether to suspend the proceedings while the challenge is resolved.
2. Arbitral Institutions
Rules with clear and short time limits: The ICSID Rules state that proposals for disqualification must be filed “promptly”, which is open ended and has not always encouraged speedy behaviour. Commercial arbitration rules are generally more specific; the ICC Rules provide for a relatively short time limit of 30 days, and the UNCITRAL Rules provide for an even shorter period of 15 days.
Rules imposing on the parties the obligation to conduct the case in an expeditious and cost-effective manner, allowing the arbitral tribunal to take such conduct into account when deciding on costs, as provided, for example, by articles 22(1) and 38(5) of the ICC Rules.
Put in place internal processes for deciding challenges more efficiently: To take one example, in ICC arbitrations, the ICC Court has begun to decide certain challenges in committee sessions of three members, which take place on a weekly basis.
More transparency in decisions: For example, the ICC recent decision to communicate the reasons for its decisions on challenges, and of the fact that it has been rejected on admissibility grounds (rather than on the merits) where that is the case.
The LCIA Rules provide that legal representatives should not engage in activities intended unfairly to obstruct the arbitration, including “repeated challenges to an arbitrator’s appointment (…) known to be unfounded by that legal representative”, or initiating unilateral contacts with an arbitrator. The LCIA Rules allows arbitrators to sanction any such conduct.
There have also been discussions as to whether there is a duty on the parties to investigate the existence of potential conflicts of interest within a reasonable period of time after the appointment of the arbitrator, or whether, as the French Cour de cassation stated in the Columbus decision of 16 December 2015 (Cour de Cassation, Civ. 1, 16 December 2015, N°D14-26.279), the parties should be discharged of any such duties.
4. National courts
Finally, national courts can also play an important role in fighting abusive challenges. For example, in the United States, one of the grounds for vacating an award is the existence of evident partiality of an arbitrator. There are several national court decisions in the United States which have ordered parties who have based set aside actions on that rule to pay costs when, in the courts’ view, that party’s allegation was unjustified.