Double Hatting and the new Draft Code of Conduct for Adjudicators: Putting the debate to rest and redefining adjudicator impartiality in Investment Arbitration.

– Anirudh Vats*

Abstract

On 1 May 2020, ICSID and UNCITRAL released the new Draft Code of Conduct for Adjudicators, a comprehensive new draft that seeks to regulate the much-discussed problem of Double Hatting. Double Hatting refers to the practice of one individual simultaneously acting as arbitrator and legal counsel in two separate disputes. This new draft is still largely unstudied and a thorough analysis is needed of its recommendations. The draft recognizes the threat to the impartiality of adjudicators that double hatting poses and the dangers it poses in the Investment Arbitration field. This article first summarizes the primary concerns double hatting raises and the debate surrounding the issue. It then proceeds to summarize the basic tenets of the draft’s guidelines and recommendations and finally culminates into a constructive analysis of prospective solutions, remedies, and possible regulations.

I. Double Hatting in International Arbitration

Phillipe Sands’ speech denouncing the practice of double hatting at the European Society of International Law triggered a long-dormant debate about the practice of double hatting in investment arbitration. Double hatting refers to the practice of professionals simultaneously acting as an arbitrator in one dispute and a legal counsel in another. This controversial practice has raised concerns of impartiality, bias and has opened up a dangerous ‘revolving door’, which has put the investment arbitration world in a state of introspection.

The fundamental concerns against this practice are twofold.

(i) Impartiality and Perceived or Actual Bias

Primarily, it raises grave concerns of impartiality and bias, be it perceived or actual. The UNCITRAL Rules prescribe that arbitrators can be challenged if ‘justifiable doubts’ arise as to their impartiality. The ICJ has ruled categorically that the role of an adjudicator and a practitioner of law is per se incompatible. Regardless of these provisions, legal counsels who have argued a certain side of an issue, simultaneously write awards on the same issues as arbitrators, going to the extent of counsels citing their own previous awards in their arguments. This practice opens up immense possibility of ‘issue conflicts’, which are rampant in the investment arbitration world, and a grave impediment to swift and effective resolution of conflict.

(ii) The Revolving Door

The secondary concern is that of a ‘revolving door’ opening up a pandora’s box of corruption, sycophancy, and bias. Arbitrators who are hearing counsels who may adjudicate their own matters in the future or even in an ongoing case have every reason to be biased towards them, as it is mutually beneficial for both of the stakeholders here. Moreover, the power dynamics of the investment arbitration world are skewed as a few individuals have unprecedented influence and adjudicate a large number of disputes. When these immensely influential figures appear as legal counsels, it is plain naïve to assert that the decision will be without bias or partiality.

These concerns are compounded by the extensive empirical study undertaken by Malcolm Langford and Daniel Behn, which revealed that arbitrators in 47% of investment arbitration cases act as legal counsels elsewhere and 11% of legal counsels double – hat in other disputes. These unprecedented numbers have revealed the extent to which double hatting is plaguing investment arbitration, and the need for immediate and concerted effort to remedy this plague is instrumental.

II. The Draft in the context of Double Hatting

In this context, the newly released Draft Code of Conduct for Adjudicators (‘draft’) by ICSID and UNCITRAL, is a much-awaited development and needs a thorough analysis as to how far it goes in remedying the malady of double hatting. This draft, instead of laying down rules regarding double hatting, endeavours to initiate a nuanced discussion on the topic, open for further deliberation, amendment, and additions.

A fundamental question that the draft deals with is defining the limits and scope of double hatting. It contemplates whether to restrict it to investment disputes or all international counsel work. The problem of double hatting affects investment arbitration especially as it is inherently more public than private, unlike general arbitral practice. It deals with BITs, investment treaties and involves sovereign states as parties. Organizations like ICSID have provisions where public institutions appoint arbitrators. Moreover, the last few years have formalized the investment dispute world in a manner much like traditional courts, with precedent having increasing value and the juridical nature of these disputes gaining prominence. These growing similarities to conventional courts place added responsibility and importance on the adjudicator’s role, and thus a stronger obligation to ensure impartiality.

This nature of international investment arbitration is in contrast to general arbitral practice, where the expertise and wisdom of adjudicators hold precedence over notions of neutrality and elimination of bias. Disputes are usually one-off, have a high degree of specialization, and are distinctive, unlike investment arbitration which often involves similar issues and disputes. Thus, double hatting does pose a unique threat to investment arbitration, and there is a rational nexus in limiting the scope of double hatting to it for the time being.

1.     The Limits of the Debate

Article 6 of the draft specifically addresses multiple roles of adjudicators. It points out two extremes within the limits of which regulation of double hatting must be achieved.

One extreme is not placing any actual restrictions and only implementing a duty to disclose a simultaneous role in two disputes. This, however, does not solve the issue of potential issue conflicts. In fact, it might exacerbate that issue as parties would be more aware of the potential biases of adjudicators. Moreover, the revolving door remains wide open. Therefore, a reduction in cases of double hatting must come in a regulatory way rather than leaving it to the parties to contest issue conflicts, which also affects efficiency of proceedings.

The other extreme is a blanket ban on double hatting altogether. This again is not a practicable solution as there are many counsels transitioning or in the process of becoming fulltime arbitrators and must be accommodated, although a reasonable time period for this transition must also be laid down. Another issue which arises from a blanket ban is the fact that adjudication in investment arbitration is a highly specialized field, with only a select few individuals adjudicating a wide variety of cases. The catch is, that counsel work is often much more lucrative than adjudication and if forced to choose, many of these highly qualified, eminent adjudicators might choose to be legal counsels instead, and investment arbitration as a whole would suffer as the quality of adjudications and awards could go down considerably.

The Draft also takes into cognizance that double hatting is not limited to the roles of counsel and adjudicator. Any dispute also has agents, advisers, and also judges from other international courts and organizations. Inter-organizational double hatting is also a grave concern, and much harder to regulate. It would require a universal code of conduct to regulate double hatting across organizations, tribunals, and courts, which requires extensive deliberations beyond this draft, that is, if it is possible at all.

Therefore, what is needed is to identify a point on the spectrum between the two extremes elucidated above, which would be a combination of a quantifiable restriction as well as a subjective case by case restriction. The quantifiable restriction would not only be restrictions on simultaneous role-playing but also a possible temporal restriction of a period of 2 years within which the inconsistent roles cannot be held. The subjective restriction would involve a comprehensive appraisal of the similarity of facts, common parties, same legal issues and common treaties in contention to determine whether justifiable doubts do indeed arise as to the impartiality of the adjudicator.

2.     An Alternate Remedy

Another interesting find from the empirical study referred above is that the practice of double hatting is dominated by the most influential, powerful, and recognized professionals working in the field. An overwhelming percentage of double hatters happen to be these influential figures. This is an immensely revealing find, as it shows that the problem is concentrated, rather than evenly spread. This in turn implies that there is a degree of choice and agency which can remedy this problem to a great degree.

Since the debate about the nature and implications of double hatting have mostly been put to rest by this draft (in that they are mostly negative), it does place an incumbent duty on these select few adjudicators to start limiting the practice. Therefore, there is an element of this issue, which is parallel and independent from regulation through rules, and it lies in the voluntary disengagement from this practice, which can easily remedy this issue to a great degree efficiently and without the hassle of potential issue conflicts and delays.

III. Putting the debate in perspective

Therefore, the primary achievement of this draft is that it puts to rest the debate on whether double hatting is indeed detrimental to investment arbitration at all. Apologists have long argued that arbitration is distinct from traditional courts, and completely based on the discretion of the parties. But as investment arbitration has evolved, the adjudicators calling the shots at the top have effectively made an international investment judiciary, and the field has an uncanny resemblance to traditional courts. This distinctive nature of investment arbitration must be seen as separate from commercial or general arbitral practice, which deals with very specific, highly differentiated issues rather than a general consolidated set of issues which are often overlapping.

In conclusion, this draft is a huge first step forward in the right direction, initiating a long-overdue nuanced debate about regulation of double hatting. The draft is incredibly cognizant of the various facets of double hatting, even expanding on the idea and defining the limits in which the debate lies.

The way forward is definitely a formalization of these rules, which would require extensive debate, deliberation and it would be greatly helped if voluntary disengagement becomes the norm among top adjudicators. The draft takes a giant leap in updating the regulatory framework of investment arbitrations to match its actual nature and state in practice. More than anything else, the investment arbitration world has finally moved past its state of denial and halted in the face of an inevitable incoming existential crisis.


* Anirudh is a third year student at Rajiv Gandhi National University of Law, Patiala. He can be reached at vatsanirudh91@gmail.com.


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