In a blog post of a few months ago, I questioned the international character of international commercial arbitration in light of the distinctive features of arbitration that emerged, at the national level, from our interviews. Indeed, the term "international commercial arbitration", in legal jargon, indicates a form of arbitration described in the most used teaching handbooks. Such form of arbitration, however, is characterized not only by the international character of the dispute, but also by a number of procedural aspects, principles and interpretative practices that are, in fact, specific of a minority of arbitration proceedings heard by a relatively small and exclusive group of practitioners, and mostly run in the main commercial arbitration hubs - especially Paris, London, Stockholm, Milan, Geneva, and New York. Together with this minority of high-profile cases, the realm of arbitration is widely populated by a large majority of international and domestic proceedings in which national legal and interpretative principles, local professional networks, and the knowledge of local practices play a key role. The existence and relevance of these aspects of commercial arbitration, however, seem to be known mostly to the initiated, whereas domestic and international jurisdictions seem to test arbitration issues solely against a “global” model actually applicable, though, to a handful of cases.
The recent ruling by the European Court of Human Rights [ECtHR] in Beg v. Italy seems to confirm this questionable approach. In the judgment, which puts an end to a proceeding that began as early as 1996, the ECtHR found a violation of Article 6 (1) of the European Convention on Human Rights [ECHR] on the right to a fair trial based on the alleged lack of independence of one of the arbitrators. The case concerned an arbitration on a dispute relating to an agreement for the production of hydroelectric energy in Albania between the applicant company and Enelpower, a spin-off company of ENEL which, at the time, was Italy’s state electricity company. The applicant complained about the lack of impartiality of the arbitral tribunal since one of its members – then and now one of the most famous Italian legal academics - had previously been a director of ENEL, and acted as counsel for ENEL itself in another proceeding at the time of their appointment in the arbitration panel. Moreover, the applicant lamented the fact that the judicial remedies provided for by the Italian legal system – namely, the challenge of the award in court - had not had any effect with regard to the protection of their right to a fair trial. Italy, on the other hand, argued that fair trial had not been violated by the decisions rendered by its courts to uphold the arbitral award: according to the state, Beg, being a company operating in the same industrial sector as Enelpower, could not have been unaware of the professional activity of the arbitrator in question and its ties with ENEL; having not contested the lack of an explicit communication of the possible conflict of interest, Beg had thus tacitly renounced to their right that their dispute be resolved by an independent and impartial tribunal, and their challenge on the day of the issuing of the award was merely an unsuccessful Hail Mary. In its judgment, however, the ECtHR noted that, due to the close links of the aforementioned arbitrator with ENEL and, therefore, of their direct ties with Enelpower, the impartiality of the arbitral tribunal was compromised; since Beg had challenged the arbitrator, the denial of annulment of the award by the Italian courts violated Article 6 of the ECHR.
Whether the challenged arbitrator in Beg v. Enelpower was in fact independent from the party that appointed them is a question that may only be answered by them; whether Beg had actually not been aware of their ties with Enelpower until the day of the award is also a matter for speculation. If good faith is to be presumed, one may assume that both Beg only came to know of the relationship between the arbitrator and the respondent on the day of the award, and that the arbitrator did not act on their pre-existing relationship with Enelpower. What is more interesting, however, is the question of what does “independent and impartial” mean in the context of arbitration - and whether it is really arguable that there is one internationally accepted concept of “independence and impartiality” at the international level. International law is a universal set of treaties and customs, reservations and declarations to it are, ultimately, a select group of exceptions to generally applicable rules. When it comes to international commercial arbitration, international law - specifically the New York Convention of 1958 - is limited to regulating the circumstances in the presence of which the recognition and enforcement of foreign arbitration awards are to be refused; as regards all the pre-litigation, procedural and award-making stages, they are left to the autonomy of the parties, to the procedural rules chosen by them, and to rules of civil procedure of the leges arbitri. Each legal culture, therefore, carries its own concept of international commercial arbitration - or, more correctly, their own approach to the salient aspects of international commercial arbitration, making it a national version of arbitration aimed at resolving transnational commercial disputes. Consequently, the approach of the ECtHR towards the Italian courts may well be questioned. The judgments of the Tribunal of Rome, the Rome Court of Appeal and the Italian Court of Cassation are expressions of the Italian iteration of commercial arbitration. As openly stated by the majority of our interviewees, the Italian arbitral community is one in which the network of personal and professional relationships between arbitrators and lawyers plays a fundamental role, and the separation between the two roles in the arbitration community is not as marked as, for instance, in the Anglo-Saxon and Swiss arbitral communities. In fact, this could be applied, mutatis mutandis, to a number of other industry sectors – not just the legal one. Because of the importance of these social networks, one can easily understand how the Italian courts reasonably believed that a company operating in a certain industry sector was aware of the assignments carried out for another company by a professional known, because of their academic, professional and political activity, across the whole country. Their lack of impartiality could not be presumed, because a relatively small legal community like the Italian one makes it problematic to ground one’s impartiality on the lack of personal ties with the parties; and their lack of independence, whilst being a ground for challenge under the applicable rules of procedure as well as Italian law, does not operate ex officio. The challenge, however, is to be presented by the interested party subject to terms starting from the moment of knowledge of the potential conflict of interest – a moment that can never be too certain, as seen in Beg v. Enelpower. In any case, the Court of Cassation reiterated, on the basis of the Italian code of civil procedure and the principles of the lex arbitri, that the lack of a challenge against this arbitrator constituted an implicit acceptance of the appointment. It is therefore evident that the Italian legal system does not consider impartiality and independence as absolute requirements of the arbitrators, but merely as requirements for the protection of the parties. The parties have the right to accept an arbitrator who is not completely independent or impartial, should they wish so; if they do not, however, they are under an obligation to challenge them immediately.
Redfern and Hunter’s widely adopted textbook emphasizes that ‘it is a fundamental principle in international arbitration that every arbitrator must be and must remain independent and impartial from the parties and from the dispute.’ Although this principle is not generally challenged by scholars or practitioners of international commercial arbitration, the actual content of the notions of independence and impartiality is not univocal, and different interpretations of the two terms can be suggested. The question is not merely semantic, nor is it devoid of consequences: as it is well known, the lack of impartiality or independence can lead to the annulment of the award by the judges of the place of enforcement, and subjective interpretations of the two concepts could compromise due process and procedural fairness. At the same time, it is a reality of arbitration that some professionals view their role as dependent, to varying degrees, on the interest of the party who appointed them. This is not, in fact, a peculiarity of Italy: interviewees from southern Europe and Egypt confirm that, to various extents, it is not uncommon for arbitrators to “keep an eye” on the party that appointed them. This does not mean that arbitrators would be partial to the appointing parties, but merely that they might want to make sure that the party that appointed them is granted the opportunity to present their case as they see fit, or that, in a 50/50 situation, they may be inclined to decide in their favour. Arbitration, in other words, is seen not as adjudication in a private setting with a party-appointed judge, but rather as a private dispute settlement mechanism where networks can also be built and enhanced. Therefore, one may provocatively question whether arbitrators should actually be impartial and independent: since arbitration rules are rather evasive about the actual meaning of these terms, there seems to be some margin for arbitrators' discretion as to how to interpret two of the fundamental requirements of their role.
The concepts of impartiality and independence that seem to be enshrined in the Italian legal system and the Italian model of commercial arbitration (in light of the conduct of a very experienced arbitrator and the assessment of such conduct by the highest court in the country) are not inconsistent with Article 6 of the ECHR, according to which ‘everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.’ What is to be meant by “independent and impartial”, as evidenced by the interviews conducted in different European states, is left to the appreciation and the practice of the legal communities of each individual state. The ECtHR, however, disregarded the actual practice of commercial arbitration in Europe, and simply applied the textbook principles of international commercial arbitration – ignoring the fact that such textbook principles are, in fact, applied only in certain hubs, by certain arbitrators, and in cases the value of which is countless time higher than the average arbitral case in any jurisdiction. In other words, the ECtHR proposes – and, in fact, imposes – a unilateral interpretation of the concept of fair trial as applied to arbitration, even though such unilateral approach is not what parties, arbitrators, lawyers, and domestic courts across Europe adopt.
Cross-posted from The Social and Psychological Underpinnings of Commercial Arbitration in Europe