Worldwide: Nationality Versus Neutrality Conundrum In International Arbitration

I. Introduction

The choice of arbitrator selection is a significant feature of arbitration and the freedom to do so goes at the heart of party autonomy. It is also a settled principle of international arbitration that the arbitrator appointed to decide a dispute ought to be neutral, independent and impartial. However, these three cardinal tenets of fairness suffer from a lack of defined standard in arbitration legislations and institutional rules. A discussion on the relevance of 'nationality' of the arbitrator as a parameter of defining neutrality, necessitates giving due regard to all perspectives. The practice of equating neutrality with nationality could also potentially compromise the essential qualities of qualification, experience and integrity in an arbitrator and thus making nationality the base of neutrality and impartiality could be questionable on several counts in the absence of definitive standards.

The text of major arbitral rules appear to support the notion of nationality being synonymous with neutrality whereas an analysis of academic literature on the subject presents myriad divergent views. The late Professor Pierre Lalive visited this conundrum in his essay 'On the Neutrality of the Arbitrator and of the Place of Arbitration' wherein apart from analysing the erstwhile legal position on neutrality, Lalive makes an interesting observation that the notion of 'neutrality' is much richer than is commonly imagined and that it is closely linked to the international character of arbitration, so much so that it could even be identified with it in many cases. Lalive further notes in the essay that, in itself, nationality is not an important or even legally relevant factor by considering the spirit of the preparatory draft of the UNCITRAL Model Law.¹ Another commentator underscores the symbolic value of neutral nationality of an arbitrator and deems it a crucial factor in the functioning of an efficient arbitral tribunal.²

However, it is also noteworthy that some eminent scholars have expressed their distaste for the notion of neutral nationality by stressing that the citizenship and passport of an arbitrator should be irrelevant in an ideal setup pursuant to the spirit of Model Law.³ In situations where national laws mandate local nationals as arbitrators, nationality requirements could be deemed as parochial interferences with party autonomy of selecting members of the tribunal and could also be seen as retrograde and possibly violative of New York Convention.⁴ Some commentators are also of the view that independence of arbitrators and likewise their neutrality, can be enhanced by their nationality still, several institutional arbitration rules containing it also allow the institution to disregard this principle in certain circumstances.⁵

II. The Neutrality Perception vis-à-vis Nationality

Most arbitration rules treat nationality of an arbitrator synonymous with neutrality, and often refer to it as neutral nationality. The term nationality is widely construed to mean citizenship and for instance, the LCIA Rules in Article 6 elaborates on what nationality means apart from addressing foreseeable questions relating to citizenship.⁶ It is pertinent to note that in case of institutional arbitration rules, limitations on nationality of an arbitrator are effectively the result of agreement by the parties' i.e. party autonomy to select such rules or waive them. Article 6(7)⁷ of UNCITRAL Rules is representative and seeks to remove one significant source of potential bias i.e. same nationality of sole arbitrator or chairman as that of the parties and according to one distinguished commentator, simply 'precatory' in nature.⁸ The ICC Rules in Article 13(5) also reflects a similar perception of neutrality.⁹

Most other institutional rules have adopted a similar approach to the question of neutral nationality.¹⁰ However, Swiss, VIAC, SIAC and CIETAC Rules are examples of a few institutional rules omitting any express nationality requirement concerning sole and presiding arbitrators and this appears to be a conscious choice of drafters.¹¹

It is also fascinating to note that several national arbitration legislations guarantee the freedom to appoint foreign arbitrators following the spirit of the Model Law.¹² A divergent approach is adopted in certain jurisdictions where national arbitration legislation prohibits appointment of foreign arbitrators. Such preclusions not only go against the spirit of the Model Law but also violate party autonomy as they are also fundamentally different from those contained in institutional arbitration rules.¹³ As regards the international limitations on national arbitration legislation prohibiting appointment of foreign arbitrators, it is worth considering that such prohibitions could potentially cloud the enforcement of the arbitral award for being violative of Article II and V (1) (d) of the New York Convention. Similar endorsement of the principle of parties' autonomy to select arbitrator regardless of nationality can also be found in Article III of the European Convention and Article 2 of the Inter-American Convention.

The forgoing deliberation on the perception of neutrality in relation to nationality of an arbitrator would be manifestly incomplete without giving due regard to the judicial authorities on the issue. The Supreme Court of England and Wales reversed the English Court of Appeal's ruling in Jivraj v Hashwani¹⁴ and confirmed the position that arbitrators are not 'employees' of the parties and not subject to employment equality laws. This decision in many ways upholds the principle of party autonomy in selection of arbitrators and serves as a confirmation to the widely accepted practice of neutral nationality in appointment of sole or presiding arbitrator.¹⁵

An instance of judicial response in favour of appointing presiding arbitrator of the same nationality as one of the parties can be seen in the Paris Tribunal of First Instance decision in Transportacion Maritima Mexicana S.A. v. Alsthom, wherein the court considered itself justified in appointing a French chairman where one of the parties was French, although the other party, a Mexican corporation, had asked for the appointment of a "neutral" individual.¹⁶

A somewhat progressive and constructive judicial approach on the issue can be seen in the decisions of the Supreme Court of India. The Apex Court in India while ruling on the applicability and interpretation of Section 11(9) of the Arbitartion legislation¹⁷ held that word "may" in Section 11(9) of the Act is not indicated to be read as "must" or "shall" and therefore the provision is not mandatory in nature.¹⁸

Perhaps the most pertinent case in the recent past to have squarely addressed the issue of neutral nationality of arbitrator is the Indian Supreme Court decision in Reliance Industries Ltd. & Ors. v. Union of India¹⁹ , the dispute emanated from a Production Sharing Agreement between the parties for exploration of oil block KG-D6 (Block) under the New Exploration Licencing Policy, 1999. Justice S.S. Nijjar held that "...The fact that the arbitrator is of a neutral nationality is no guarantee of independence or impartiality. However, the appearance is better and thus it is a practice that is generally followed..."

Furthermore, the court held that it is imperative to ensure that doubts are not cast on neutrality, impartially and independence of the Arbitral Tribunal while reaffirming the courts position as regards the interpretation and application of Section 11(9) of the Arbitration and Conciliation Act, 1996. The Supreme Court placed reliance on writings by several eminent scholars of international arbitration and emphatically held that qualification, experience and integrity should be the primary criteria for appointment of an arbitrator. However, in the operative part, court took cognizance of the sharp difference of opinion between the two co-arbitrators and deemed it appropriate to appoint third arbitrator by appointing a neutral national as the presiding arbitrator.

III. Concluding Remarks

The relevance of nationality of an arbitrator can be examined by reference to several different grounds as enunciated above. It is safe to conclude that party autonomy has been given the highest regard in international arbitration and hence an arbitrator appointment can be challenged for not possessing the nationality qualification as agreed by the parties but making nationality a ground for probable bias could dismantle the international character and ethos of international arbitration and must be discouraged. In fact, jurisdictions explicitly precluding foreign nationals to serve as arbitrator are an antithesis to the very idea of arbitration in the modern world. In the author's view, investment treaty arbitration is the only area, where insistence on neutral nationality of an arbitrator should hold significance and understandably so as the dispute involves a state entity and the process and outcome entail treaty interpretation²⁰ Globalization has without doubt changed the character of international dispute resolution and consequently the legal issues that emerge are also intricately connected. In such an evolving world, it is difficult to find any comprehensible reason to encourage neutral nationality in arbitrator appointments, if that means compromising on quality of the arbitrator and the tribunal. To this end, equating impartiality and independence with nationality is certainly parochial. Therefore, the underlying question in the debate about arbitrator appointment should not really be the nationality of the arbitrator but how to obtain an optimal arbitral tribunal.

Footnotes

1 Pierre Lalive, On the Neutrality of the Arbitrator and of the Place of Arbitration, Swiss Essays on International Arbitration, Lausanne, 1984.

2 Pearson, Nationalité et attaches de l'arbitre, 1970 Rev. arb. 239.

3 Blackaby, Nigel, Constantine Partasides, Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration, 250 (6th ed. 2015); Article 11(1) of the UNCITRAL Model Law provides that, "No person shall be precluded by reason of his nationality from acting as an arbitrator, unless otherwise agreed by the parties."

4 Lee, Practice & Predicament: The Nationality of the International Arbitrator, 1 Fordham Int'l L.J. 603 2007-2008

5 Savage and Gaillard (ed.) Fouchard Gaillard Goldman on International Commercial Arbitration, (1999), ¶ 1037, p. 570.

6 London Court of International Arbitration Rules (Adopted to take effect for Arbitrations Commencing on or after October 2014): Article 6 Nationality of Arbitrators
6.1 Where the parties are of different nationalities, a sole arbitrator or the presiding arbitrator shall not have the same nationality as any party unless the parties who are not of the same nationality as the arbitral candidate all agree in writing otherwise.
6.2 The nationality of a party shall be understood to include those of its controlling shareholders or interests.
6.3 A person who is a citizen of two or more States shall be treated as a national of each State, citizens of the European Union shall be treated as nationals of its different Member States and shall not be treated as having the same nationality, a citizen of a State's overseas territory shall be treated as a national of that territory and not of that State; and a legal person incorporated in a State's overseas territory shall be treated as such and not (by such fact alone) as a national of or a legal person incorporated in that State.

7 UNCITRAL Rules Art. 6(7) "In making the appointment, the appointing authority shall have regard to such considerations as are likely to secure the appointment of an independent and impartial arbitrator and shall take into account as well as the advisability of appointing an arbitrator of a nationality other than that of the parties."

8 Gary B.Born, International Commercial Arbitration, Wolters Kluwer, Second Edn. Volume II, p.1738

9 International Chamber of Commerce Rules (ICC Rules), amended in 2012, Art. 13(5): "The sole Arbitrator or the Chairman of an Arbitral Tribunal shall be of a nationality other than those of the parties."

10 ICDR Rules, Art. 6(4): "At the request of any party, the administrator may appoint nationals of a country other than that of any of the parties"; WIPO Arbitration Rules, Art. 20: "(a) An agreement of the parties concerning the nationality of arbitrators shall be respected. (b) If the parties have not agreed on the nationality of the sole or presiding arbitrator, such arbitrator shall, in the absence of special circumstances such as the need to appoint a person having particular qualifications, be a national of a country other than the countries of the parties."; CIETAC Rules are however, somewhat less prescriptive as Article 28 simply lists the nationalities of the parties' as one of several considerations for the chairman to take into account when appointing arbitrators pursuant to the rules.

11 Bühler, Composition of the Arbitral Tribunal, in T. Zuberbüler et.al. (eds.), Swiss Rules of International Arbitration: Commentary 69 (2005)

12 See, e.g., Indian Arbitration & Conciliation Act, 1996 as amended in 2015, Sec. 11(1); Netherlands Code of Civil Procedure, Art. 1023; Russian Arbitration Law, Art. 11(1); Belgian Judicial Code, Art. 1685(1)

13 See, e.g., Saudi Arabian Arbitration Regulation, 1985, Section 3; Ecuadorian Organic Law on the Judiciary, Art. 127.

14 [2011] UKSC 40.

15 Style and Cleobury, 'Jivraj v Hashwani: Public interest and Party Autonomy' (2012) 27 Arb Intl 563.

16 T.G.I. Paris, ref. 22-5-1987 and 23-6-1987) (1988 Rev. Arb. 699), The Court held as follows: "Although the practice is adopted in a number of arbitration rules, it does not necessarily oblige the President of the Tribunal of First Instance to reject the choice of an arbitrator who is of the same nationality as one of the parties. ... The arbitrator, who is a Judge and not a party's representative, cannot be suspected of bias solely on the basis of his nationality, and the requirement of impartiality which determines the choice of the individual ... is sufficient to guarantee that the hearings will be conducted fairly."

17 Indian Arbitration & Conciliation Act, 1996, as amended in 2015, Section 11(9): In case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by the Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

18 Malaysian Airlines Systems Bhd Vs Stic Travels (P) Ltd, (2001) 1 SCC 509 (SC); MSA Nederland B.V. v. Larsen & Toubro Ltd., (2005) 13 SCC 719.

19 (2014) 11 SCC 576

20 See e.g. 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 575 UNTS 159, Art. 39: The majority of the arbitrators shall be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute; provided, however, that the foregoing provisions of this Article shall not apply if the sole arbitrator or each individual member of the Tribunal has been appointed by agreement of the parties.

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