This article has been written by Mehek Wadhwani and Rishi Raj, Second year students at MNLU Aurangabad
The international arbitration community is not oblivious to the concept and ramifications of ‘double hatting’ and this issue has been under deliberation for over a decade. It is recurrently observed that the international investment arbitration is marked by a ‘revolving door’, which essentially means that an individual may sequentially or even simultaneously act as an arbitrator, legal counsel, tribunal secretary, or an expert witness.
‘Double Hatting’ or ‘dual hatting’ refers to the latter scenario wherein the arbitrators in one arbitration, simultaneously act as counsels in another arbitration.In this regard, it has been stated that the roles of an arbitrator and legal counsel are incompatible. Before analysing the approach taken by the leading arbitral institutions to combat this practice, it is essential to note how this practice creates ‘issue conflicts’ and raises questions regarding the transparency of the proceedings, the impartiality of the award, the inherent bias, and the lack of diversity. This criticism can be levied under three headings.
Double Hatting and the resulting Issue Conflict
First is the ‘Issue conflict’ which is often considered as a sibling of the practice of ‘double hatting’. It is described as the existence of an actual or apparent bias of the individual, in his capacity as an arbitrator, which generally stems from his prior view on an issue that is detrimental to the outcome of the case. This raises the question of his ability to keep an open mind during the adjudication in light of his relationship[i] to the basic questions in the dispute. There are several facets to address how conflict can arise due to the expressed views of the arbitrator, especially when he was playing the role of a legal counsel, or was in some other capacity in a case where he addressed the same question that forms the basis of the current dispute before him.
Taking the example of investment arbitrations, where similar legal issues are raised in several cases while interpreting the Bilateral investment treaties between States, and often the reasoning behind the awards is similar. Due to the restricted pool of experienced investment arbitrators, there are often situations of ‘dual hatting’ and the arbitrator, who is simultaneously acting as legal counselin another case is motivated to pass an award with the reasoning that would support his contentions in the case where he acts as the legal counsel. There is no dearth of instances wherein the legal counsel has cited the reasoning that he previously wrote as an arbitrator.
Issue Conflict and Double hatting raise a question of bias
The second and the most significant issue outlined herein is the question of bias and impartiality due to this practice, in light of the conflict of interest. Understandably this criticism is in continuation of the previous concerns of ‘issue conflict.’ The basic point to deliberate here would be how the perceived or apparent bias is caused and the impact of the same. As a result of double hatting, the arbitrator is motivated to be biased while hearing a dispute where the legal counsel arguing before him is either adjudicating his case at present or may do so in the future.
The prospect of mutual benefit may smear their judgment and raise doubts about the impartiality of the arbitrator while passing the award. The most significant impact of such perceived or apparent bias is on the enforcement of the award which can be challenged in case ‘justifiable’ doubt regarding its impartiality arises. The award can also be annulled and the enforcement denied owing to violations of the due process that is caused when the arbitrator acts with bias. The annulment of the ICSID award in Eiser v. Spainis an apt example of how double-hatting makes the awards vulnerable and if the requirements of disclosure as provided under the regulations are not followed, the same may be annulled. The economic repercussions of such annulment build a strong case against double hatting and in favour of the regulations imposed in their regard.
Impact of Double hatting on diversity in international arbitration
The next criticism would be the impact of this practice on diversity or a balanced representation. The stereotypical pool of “pale, male, and stale” arbitrators is said to exist due to the ability to assume multiple roles at once and this allows a group of individuals to monopolize the practice, have unparallel influence, thereby thwarting diversity. In consonance with the above discussion on the bias, it must be noted that when such a ‘close-knit’ pool of arbitrators exists, wherein one of them may appear as a legal counsel, the chances of bias increases. Conversely, those who argue in favour may point out that a blanket ban on this practice of dual hatting may stifle the diversity by making it difficult for new entrants with financial constraints to sustain. While agreeing with the latter opinion, it is necessary to point that similar concerns against a complete prohibition were raised after the Draft Code was released earlier last year.
Institutions and their rules to combat double hatting
Moving forward it is incumbent to discuss the proposed reforms in the Investor-State Dispute Settlement (ISDS) regime in light of the ‘Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement’ which was made available to the public last year. A bare perusal of Article 6 of the Code addresses the issue of ‘limit on multiple roles’ and one can easily take note of the two proposed routes to deal with dual hatting. The first suggesting a blanket prohibition on multiple roles of the Adjudicator and the second route proposing the disclosure by the adjudicators. While the former might present itself straightforward alternative to the latter, it poses problems such as dwindling the pool of available arbitrators and would further the monopolization of this field by a few renowned arbitrators and thereby taking a step backward from the goal of a more inclusive and diverse group of arbitrators. A viable option proposed instead of blanket or temporary bans is the imposition of concurrent bans which only includes a prohibition from assuming multiple roles in the simultaneous proceeding or parallel proceedings and thereby combats the problem of double hatting without bringing in the demerits of blanket prohibition.
IBA Guidelines apply to both International Commercial arbitrations and International Investment arbitration. The guidelines work as a roadmap for the potential arbitratorsto avoid “dependency and partiality”. It provides that the arbitrator shall remain impartial and independent[ii]and suggests the minimum assessment of arbitrator’s “Independency and impartiality” is “Justifiable grounds”[iii], which is required for an informed third person to conclude that there was a probability that the arbitrator was influenced by the factors other than merits of the case in reaching his decision. Yet, it does not create any legal obligation on the arbitrators that can be sanctioned because the IBA guidelines are mere “guidelines”.
The process of arbitration only provides autonomy to parties to appoint arbitrators of their own choice but does not allow them to control the process of arbitration, the one which is free from dependency and partiality of arbitrators.ICC Arbitration rules provide that in every aspect of an arbitration dispute, the arbitrator must act impartially and independently. Further, Issue conflicts are not properly addressed in International arbitration which invites the potential of the close mind and lack of disclosure obligation on the arbitrator.
Some possible solutions to curb the practice of Double hatting include a separation between the bench and the bar, increasing disclosure requirements, increasing measures of transparency that reduce incentivesto double-hatting, and self-regulation by those practitionersthat seem to be involved in this practice. Another arrangement may be for experts to choose different roles in various specializations to ensure the presence of autonomy and unprejudiced nature of arbitrator. These measures may ease concerns about double hatting for parties of arbitration, but will probably force the arbitrators to one hat.
[i]Transnational Dispute Management, Partiality and Issue Conflicts, (Vol. 5, Issue 4).
[ii] IBA Guidelines on Conflict of Interest 2014, Art. 1.
[iii] IBA Guidelines on Conflict of Interest 2014, Art. 2(c).