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  • Writer's pictureRicardo Cuesta

Arbitration Review: Impartiality and Soft Law

Updated: Nov 6, 2023



With this post I am starting a new section of this blog devoted to review Court decisions and published or available awards that are relevant and worth to be known by the arbitral community.


I am starting with a decision of the Madrid High Court (Tribunal Superior de Justicia) of 19 September 2023 which can be found here. The Court decided a challenge against an award issued under the Rules of the Spanish Corte Española de Arbitraje (CEA) seeking its annulment.


There were two grounds for seeking an annulment: the arbitrator’s lack of impartiality and violation of due process for accepting an expert report supposedly in violation of a Procedural Order.


In this comment I will only focus on the lack of impartiality challenge.


The Facts.


Twelve Spanish Companies where members of a Joint Venture to develop a project in a foreign country. When the project was almost concluded the members did not agree on which of them should bear certain expenses incurred during the execution of the project. The companies were divided into two groups with opposing views.


One of the group of companies started arbitration in 2019 against the other group under the CEA Rules which Court appointed a sole arbitrator.


A) The first challenge.


Seven days after the arbitrator had been appointed one of the claimants challenged his appointment alleging lack of impartiality due to ‘manifest enmity’ between the arbitrator and the law firm representing the claimant.


The grounds for this lack of impartiality were:


  • The arbitrator was fired eight years ago from the law firm which represents the claimant after nine years working there due to ‘lack of confidence’ and ‘inadequate management of his cases’.


  • The law firm rejected the arbitrator’s application to join its Alumni Program.


  • The arbitrator did not disclose these facts in his statement of independence and impartiality.


  • The CEA Court dismissed the challenge and confirmed the appointment.


B) The second challenge.


In 2021, after the arbitrator issued a Procedural Order on the admission of evidence, another claimant challenged again the arbitrator. The grounds to find lack of impartiality now was that the arbitrator used improper language in the Procedural Order in which the arbitrator -according to the appellant- impliedly blamed certain claimants for constantly trying to restrict the defendant’s evidentiary activity.


The CEA Court dismissed again this challenge.


The Set aside process.


The award was issued on 30 November 2022 and some corrections were made on 22 December 2022. The arbitrator found in favor of the defendants and the claimant parties filed an annulment request in the Madrid High Court which is the competent Court.


The annulment request was based on lack of impartiality of the arbitrator in violation of Article 17(1) of the Spanish Arbitration Act (2003) which mandates that (i) an arbitrator must be and continuous being independent and impartial along the duration of the proceedings and cannot have a personal, business or professional relationship with the parties, and (ii) an arbitrator has to disclose all circumstances that may give rise to justifiable doubts on his impartiality and independence.


The challenge of the award was based on two of the limited grounds of Article 41(1) … (d) the appointment of the arbitrators has been made in violation of the Arbitration Act, and .. (f) the award is contrary to public order.


In the request for annulment the appellants added two new facts in support of the arbitrator’s lack of impartiality:


  • The arbitrator admitted two witnesses proposed by one of the defendants after the Procedural Order had been issued and in violation of said Order.


  • Before the issuance of the award the arbitrator requested the CEA Court to increase his fees due to the complexity of the case. The arbitrator made the parties know about this request and the parties witnessed the tense arguments with the Court who finally accepted an increase and the arbitrator ended up rejecting it. This made the parties doubt about the impartiality of the arbitrator.

The High Court’s deciding criteria


The High Court applied the following criteria to make its decision:


  • The High Court reminded that confidence in arbitrators is the cornerstone of arbitration and cited several precedents in support of this principle.


  • The High Court ‘weighs in’ the IBA guidelines on Conflicts of Interest in International Arbitration and the Club Español de Arbitraje Recommendations on Independence and Impartiality of Arbitrators in making its decision. The Court acknowledges that previous court decisions have made a restrictive interpretation of this ground for annulment limiting it to the relationship between the arbitrator and the parties. Although it makes it clear that soft law cannot prevail neither over national law nor over the arbitration rules the parties may have submitted to, the Court gives weigh to it to recognize that it is commonly accepted in arbitration that the impartiality of an arbitrator may be compromised by a bad relationship with the parties’ counsels.


In reaching this conclusion the Court considers: (i) that the arbitrator’s status regarding independence and impartiality is not similar to that of judges and, (ii) the flexibility of arbitration and the importance or party autonomy where a great number of arbitrators usually also act as counsels. These two factors explain, in the Court’s opinion, that a bad relationship between an arbitrator and any of the parties’ counsels may compromise his impartiality.


  • An arbitrator has to disclose any circumstance that may give rise to justifiable doubts about his independence and, according to the IBA Guidelines, the arbitrator is under the obligation to make reasonable enquiries to identify any conflict of interest. This is a duty of the arbitrator, not of the parties.


  • Not every violation of the duty of disclosure gives rise to the annulment of the award. What was not disclosed by the arbitrator must be of sufficient importance as to give rise to reasonable doubts about his impartiality or independence.


  • The existence of lack of impartiality must be determined on a case-by-case basis.


  • There exists a presumption of impartiality of arbitrators similar to that of judges.


  • Enmity must be real and serious not mere dislike or tension in social interaction. Animosity must be of such an intensity that it amounts to hostile prejudice.


  • Disagreements must have their origin in extra-procedural relationships. The conduct of the arbitrator, even if his decisions are contrary to the interests of one of the parties, is not grounds for enmity.


The High Court’s Decision


Applying the abovementioned criteria the High Court rejected the arbitrator’s challenge on the grounds of lack of impartiality because the evidence showed, following the CEA Court’s decisions that:



  • The arbitrator left the law firm in good terms with the founding partners and with his colleagues.


  • There exists a natural and cordial relationship between the arbitrator and the law firm and its lawyers as evidenced by the arbitrator’s -now a professor- invitations to law firm’s members to participate in academic activities, the arbitrator’s recommendation of students to join his previous law firm and affectionate messages interchanged with lawyers in the law firm.


  • The inadmissibility of the arbitrator to the Alumni Program does not suggest enmity considering the respectful way in which he addressed the law firm asking information about the status of his application.


  • The Court even states that the degree of closeness and affection of those messages could have made the other parties feel uncomfortable.


  • Due to the lack of evidence for the challenge the High Court blames the appellant’s conduct as bordering on recklessness.


  • As for the wording used by the arbitrator in the Procedural Order the High Court reminds that sometimes the arbitrator has the duty to highlight the improper conduct of the parties -though the High Court is not saying that this happened in the present case- and this may justify the using of some strong language that expresses with sufficient clarity and severity the reality of that behavior.


  • The High Court highlights that there is no reference in the appellant’s arguments to the decisions of the CEA Court. According to the High Court the CEA Court, after careful consideration of all the evidence, rejected the challenges giving proper reasons and stating that there was not a breach of the arbitrator’s duty to disclose. The language used must be analyzed with reference to the context and circumstances which neither the appellant nor the CEA Court did.


Comments


The Madrid High Court follows the highest standards used by Courts in other countries to decide about the impartiality of an arbitrator. The High Court says that confidence in the arbitrators is the cornerstone of arbitrations. This is important because the parties relay on the independence of the arbitrators to decide on their disputes instead of referring it to national courts.


The Spanish Arbitration Act (2003) follows the standard set up in the UNCITAL Model Law (Article 12(2)) that allows a challenge of an arbitrator if there are circumstances that may give rise to justifiable doubts as to their independent or impartiality.


The Madrid High Court confirms this rule and by stating that there is a presumption of impartiality of the arbitrators it also confirms that the burden of proof of lack of impartiality is on the party who is making the challenge.


Impartiality or the lack of it is usually evidenced by the circumstances disclosed or not by the arbitrator. But if the arbitrator failed to disclose something this does not imply the existence of an automatic lack of impartiality. As the High Court says, the non-disclosed circumstances must be of sufficient importance as to give rise to reasonable doubts about his impartiality or independence.


Another important ruling in this Decision is that there are not universally standardized rules that, if duly applied, automatically will evidence a lack of impartiality as this is something that has to be measured on a case-by-case basis an analyzing all the circumstances and context.

In case of impartiality based on enmity, two requirements must be complied with to form the basis of a successful challenge: (i) enmity must be real and serious equating to hostile prejudice, and not mere dislike or tension in social interaction, and (ii) enmity must has been originated in previous relationships between the arbitrator and the party and not as a consequence of disagreement with the arbitrator’s conduct throughout the proceedings.


But perhaps one of the most important rulings of the High Court is the recognition of soft law as the basis to extend the circumstance that may give rise to impartiality of an arbitrator, not only with regards to the relationship between the arbitrator and the parties, but also between the arbitrator and the parties’ counsels.


Article 17 Spanish Arbitration Act states that an arbitrator must be and remain being independent and impartial throughout the proceedings. This is impliedly referred to the relationship between the arbitrator and the parties as Article 17 prohibits any personal, professional or business relationship with the parties.


The High Court criticizes the strict interpretation maintained by previous jurisprudence and it recognizes that, as revealed by soft law, lack of impartiality can appear because of the relationship between the arbitrator and the parties’ counsel.


The case decided by the High Court is about this because the alleged impartiality appeared, not in the relationship of the arbitrators with one of the parties, but in the relationship with one party’s counsels.


As the Arbitration Act does not recognize this situation, the High Court turns to the rules contained in soft law to acknowledge that, as the IBA Rules and the Club Español del Arbitraje Rules state, lack of independence can be also shown in the relationship between the arbitrator and a party’s counsel.


This reveals the increasing importance of soft law. Even when those rules are not binding, parties and arbitration players rely more and more on them as a means to provide guidance on the conduct of arbitration. And national Courts also appreciate its importance in making decisions on impartiality.


The High Court makes it very clear that soft law cannot prevail neither over national laws nor over the arbitration rules the parties may have submitted to. The High Court only turns to soft law to help it to recognize certain circumstances in the arbitration field that are not included in the law and that may help the Court to identify other potential situation that may give raise to lack of impartiality on a case-by-case basis.


This decision confirms that the Spanish Courts are at the same level of other foreign Courts recognizing the importance of arbitration and making Spain a reliable place to conduct arbitrations.

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