UNCITRAL publishes final Codes of Conduct for Arbitrators and Judges in International Investment Disputes

UNCITRAL has published the final texts of its Code of Conduct for Arbitrators in International Investment Disputes (Arbitrators’ Code) and Code of Conduct for Judges in International Investment Disputes (Judges’ Code).

The Codes seek to address concerns about the perceived lack of independence and impartiality among international arbitrators and judges by implementing new limitations on the practice known as 'double-hatting'—where an arbitrator or judge simultaneously serves as legal counsel or expert in other cases. Additionally, the Codes include provisions that establish best practices on matters such as conflict of interest disclosures, the regulation of arbitrators' fees and expenses, and the responsibilities and functions of tribunal assistants.

Background

The Codes have been in development for several years. The idea to develop a code of conduct for adjudicators was first proposed by Algeria in 2015 and was taken up by UNCITRAL’s Working Group III, which was established in 2017 with a mandate to develop reforms to the system of Investor-State Dispute Settlement (ISDS).

Working Group III collaborated with the International Centre for the Settlement of Investment Disputes (ICSID) to prepare a draft text. An initial draft was produced in May 2020 and, following a consultation period with State delegates and other stakeholders, underwent several revisions, with the main area of contention being the regulation of 'double-hatting'.

In September 2022, it was announced that two distinct texts would be submitted to UNCITRAL for approval: one for arbitrators and the other for judges, the latter as part of the proposed establishment of a standing mechanism to resolve investment disputes (such as the European Commission’s proposed Multilateral Investment Court).

UNCITRAL and ICSID published advanced drafts of the Codes and commentaries in May 2023. The draft Arbitrators’ Code was formally adopted by UNCITRAL members on 14 July 2023, at its 56^th annual session in Vienna. The draft Judges’ Code was adopted “in principle”, pending further progress on a standing mechanism.

Updated texts and commentaries were published in October 2023 incorporating amendments proposed by UNCITRAL members at the 56^th session. The final texts were approved by the UN General Assembly on 7 December 2023, and published in February 2024.

The Codes add to an existing body of guidance available to arbitrators on issues of independence, impartiality, conflicts of interest and disclosure, including the IBA Guidelines on Conflicts of Interest and the ABA/AAA 2004 Code of Ethics for Arbitrators in Commercial Disputes.

Scope of application

The Arbitrators’ Code is intended to apply to current and former members of an arbitral tribunal hearing an International Investment Dispute (IID), or an ICSID ad hoc annulment committee. It also applies to candidates for those roles who have been contacted for a potential appointment but not yet appointed. IIDs are limited to disputes between an investor and a State or a ‘regional economic integration organization’ (which would appear to include the EU). It only applies by consent of the parties or where specified in the instrument of consent. Parties are free to agree to apply the Arbitrators’ Code to disputes other than IIDs.

The Judges’ Code is intended to apply to members of a standing mechanism for resolving international investment disputes, although no such mechanism yet exists.

Protecting independence and impartiality

Both Codes contain familiar provisions enshrining the adjudicator’s duty of independence and impartiality (Article 3), and set out a non-exhaustive of list of behaviours to avoid that suggest a lack of independence and impartiality (such as being “influenced by loyalty to any disputing party or any other person or entity”).

The Codes also contain a broad obligation on arbitrators and judges (and candidates for those roles) to disclose “any circumstances likely to give rise to justifiable doubts as to his or her independence or impartiality”, together with a “minimum disclosure requirement” to disclose particular matters in all cases (Article 11). This includes any financial, business, professional or “close personal relationship” (such as a close family member or a long-term friendship) in the past five years with the parties, their legal representatives, other arbitrators and experts, or related third-parties parties such as funders.

A noteworthy innovation: restrictions on double-hatting

The principal innovation in the Codes is the restriction on the practice of ‘double-hatting’ in Article 4.

While there is no comprehensive definition of ‘double-hatting’, it is understood in the context of ISDS as the practice where an individual simultaneously or within a short timeframe assumes two distinct roles in different cases. Typically, this involves serving as both an arbitrator and counsel, but it can also encompass other roles, such as acting as an expert witness or mediator in separate ISDS proceedings.

While the second version of the Arbitrators’ Code proposed an absolute prohibition on taking multiple roles, the final version adopts a compromise approach. Article 4 of the Arbitrators’ Code prohibits an arbitrator from acting as a legal representative or an expert:

• concurrently in any other proceedings (not limited to IIDs) involving: (i) the same “measure” (i.e. the same law, regulation or conduct that is alleged to have affected the investor’s rights); (ii) the same or related parties; or (iii) the same provisions of the same instrument of consent;
• for three years after acting as an arbitrator, in any IID or related proceedings (e.g. set-aside or enforcement proceedings in national courts) involving the same measure, or the same or related parties; and
• for one year after acting as an arbitrator, in any IID or related proceedings involving the same provisions of the same instrument of consent.

In each case, the parties are free to agree otherwise. Article 4 also does not limit an arbitrator from performing other adjudicatory functions, such as acting as an arbitrator in another proceeding or serving as a judge.

The Judges’ Code is more restrictive: it prohibits judges from exercising “any political or administrative function”, from engaging in any occupation that is incompatible with their duty of independence and impartiality, or from acting as a legal representative or expert witness in any other legal proceeding while in office (or for three years from the end of his or her term).

Codifying best practices: ex parte communications, confidentiality, fees and assistants

The remaining provisions of the Arbitrators’ Code encapsulate best practices on various aspects of the process. They include express duties to conduct the proceedings diligently (Article 5), competently and with integrity (Article 6), limits on ex parte communications (Article 7), obligations to preserve the confidentiality of the proceedings (Article 8), a requirement that arbitrators’ fees be reasonable (Article 9), and provisions regulating the role of assistants to the tribunal (Article 10).

The Judges’ Code includes similar duties of diligence, integrity, competence and confidentiality, adjusted to reflect the different role and legal framework likely to be applicable to judges of a standing mechanism. The Judges’ Code also prohibits ex parte communications completely (Article 7). It does not include provisions relating to fees or assistants as these are not relevant in the context of a standing mechanism.

Sanctions for non-compliance

The Arbitrators’ Code does not prescribe sanctions for non-compliance. Article 12 does, however, state that an arbitrator should not accept an appointment, or should recuse themselves from the proceedings, if they are unable to comply with the Code.

Article 12 also makes clear that any challenge to or disqualification of the arbitrator will be governed by the instrument of consent or the applicable rules. The Arbitrators’ Code does not therefore provide an independent basis for challenging or disqualifying an arbitrator, although the commentary notes that “any breach of the Code could be taken into account in that process”.

Comment

The Codes are a welcome output of the long-running reform efforts of UNCITRAL’s Working Group III. The fact that the Codes took several years to develop is a testament to the very wide range of views by States and others on the appropriate standards of conduct of arbitrators and judges. By these reforms, UNCITRAL members have tackled some of the key aspects of the process that have historically led to criticism of the ISDS system, as well as seeking to codify established best practices on other issues.

Their principal innovation – the regulation of ‘double-hatting’ in ISDS cases – adopts a compromise approach to address a particularly divisive issue. Article 4 of the Arbitrators’ Code seeks to balance party autonomy with clear time-based restrictions on arbitrators taking multiple roles.

The wider application of the Judges’ Code must await further progress on the establishment of a standing mechanism for resolving investment disputes. However, it will be interesting to see whether and to what extent parties to investment disputes elect to apply the Arbitrators’ Code going forward.

For more information, please contact Hannah Ambrose, Partner, Marco de Sousa, Senior Associate or your usual Herbert Smith Freehills contact.