Analysis of Costa Rican Domestic High Court Case-Law on Conflicts of Interest in Arbitration Procedures in the Light of the IBA Guidelines on Conflicts of Interest.
Carlos D. Angulo is a practicing attorney admitted to the Costa Rican Bar. He obtained his J.D. or "Licence en Droit" from the Université de Genève, in Geneva, Switzerland. He holds two graduate certificates in transnational law (Université de Genève, Duke School of Law), and a LL.M. in European and International Economic Law (Université de Lausanne). Carlos is a certified arbitrator of the Centro Latinoamericano de Arbitraje Empresarial and the Universidad para la Cooperación Internacional. Academic appointments include professor of Globalization in Economic Relations (Masters Program on Regional Integration, UNED) and professor of International Public Law (Law Faculty, Universidad de Costa Rica). His international experience includes an internship with the United Nations Organization and a trainee internship at well-famed Swiss firm Schellenberg Wittmer. Carlos D. Angulo is currently an associate with BLP Abogados, in Costa Rica.
Judicial courts and arbitration panels are often perceived as belonging to two distinct worlds. Comparisons between the two as opposed means of hetero compositive dispute resolution stack up in legal literature, appearing seldom to be anything else but marketing material for private justice rather than a studious insight into these two venues. The truth is, that as much as these mechanisms are exclusive one from the other, i.e. they demand a choice by the disputing parties on the forum to solve their disputes, there are nevertheless points of convergence between the two. One such case is the nullity challenge of an arbitral award present in most modern jurisdictions, where an unsatisfied party may file a claim before a high-court to discuss the legality of the arbitration procedure on restrictive and previously defined grounds usually established in the domestic arbitration laws or civil procedure codes of the seat of arbitration. Certainly, when called to determine such nullity, the court is forced into the "unknown", or at least probably unfamiliar, world of arbitration. It is not unusual that Justices will show a certain malaise when facing these claims and in most cases they will be tempted to have recourse to more comfortable concepts and rules applicable in their own common environment, the judicial system, while unattending to the particularities of the arbitral procedure. This paper focuses on one clear example of this inadequate application by Courts of rules not designed for arbitration dispute resolution.
We propose to look at the little case-law available from the First Chamber of the Supreme Court of Justice of Costa Rica –the body entrusted with deciding nullity claims against arbitration panel's awards- with respect the matter of biais and conflicts of interests to confront their decisions to the IBA Guidelines on Conflicts of Interest. But first, an approach to independency and impartiality as common denominators in both the judicial and arbitral instances becomes necessary, to later examine the rules on challenges for conflicts of interest contained in the Statutes on the one hand, and the system put forward in the Guidelines on the other. Only then a commentary of selected case-law may bring us to generally conclude on the need to have different standards –moreover internationally validated standards- applied by courts when examining nullity claims brought against arbitration awards, instead of judicial sentences.
I. Impartiality and Independency in Arbitration
The practice of arbitration has shown that it has become frequent for litigators to include in their arsenal of procedural mechanisms the opposition, challenge or statement of objection against the appointment of a certain arbitrator, and typically that appointed by the adversary party. These mechanisms are called recusatory incidents for arbitrators, in our civil-law environment, meaning those actions in the ongoing arbitration procedure which call for interlocutory resolution. These challenges1 are regulated in the arbitration rules to which the parties have expressly submitted, or, in the absence of such remission, to the applicable law on the procedural aspects of the arbitration, which in turn is dependent on the chosen seat of arbitration. The filing of such challenge should pursue a legitimate goal: to make sure that the arbitral body, who will decide the dispute with res iudicata binding force and effect, be truly impartial and independent.
In Costa Rica, as in many other civil-law systems of French tradition, the arbitral process is anchored in the Constitution as a valid form of patrimonial conflict resolution, alternative to ordinary justice, and which awards are granted the same binding force as judiciary decisions. Indeed, the award rendered by the arbitrator or panel –whether based in law or in equity- are recognized the value of a sentence dictated in a jurisdictional procedure by a judge, i.e. they both have and enjoy res iudicata status.2
The role of the arbitrator is similar to a judge's: the parties will present their case with arguments and evidence of alleged facts, and it is on that basis that the dispute will be resolved. However, this resolution will not be issued by a State judge, but from private individuals, freely elected by the parties, with the aim of reducing the number of formal interferences.3 In this sense, arbitrators and judges share the "iuditium", or the power to dictate and solve with binding character.4
Because of its alternative nature, arbitration as the means to solve conflicts must be expressly and voluntarily agreed by the parties. It is them who freely decide to recourse to arbitration, usually by so stating in an arbitration (compromisory) clause incorporated in their written agreement, and thus giving birth to a new bilateral agreement.5 It is then possible to assert that arbitration is voluntary in nature and free-will inception, with regards the parties submitting to it, whereas its results are binding and of an obligatory nature. Hence the need for deciding arbitrators who must be both impartial and independent to guarantee a due process of law, and a fair and unbiaised decision.
This is so, because voluntary adoption of arbitration, while it certainly entails to displace the jurisdiction of ordinary courts, does not for that reason imply that the constitutional right to a "judex naturalis" is set off. Quite the opposite: the principle to a natural or legal judge, works as a necessary instrument in the judiciary to guarantee impartiality and against state abuse.6 Following and approach sketched by Julio Maier, the concept of a natural judge, as a general principle of law, includes three fundamental premises: Independency of the Justice, to avoid external influences to the consideration of the case; Impartiality vis-à-vis the case and the parties, and, finally, the natural judge stricto sensu which prevents manipulation to appoint a determined tribunal to consider the case, so that the members would be elected according to the circumstances, on an ad-hoc basis.7 While the last premise is false in the logic of arbitration, where the parties do chose and appoint the arbitrators to solve a given dispute, the first two –independence and impartiality must be present, as a sine qua non pre-condition to dictate the award.8 Furthermore, the magnitude and importance of these two principles is such that the legal figures of impediment –excuse and recusatory challenge- have been established in the law for both judicial and arbitral procedures.9
II. Civil Procedure Rules and IBA Guidelines on Conflicts of Interest
We have stated that independency and impartiality are two guarantees to be met by and expected from judicial agents administering justice. Their resolutions must conform to the legal norms, including the constitutional guarantees of justice, equality and the right of defense. Certainly, these two principles apply to arbitrators who are called to "say justice", and justice must be blind. The question however is whether the same parameters used to gauge a judge independence and impartiality are applicable in the exact way to arbitrators, or if the fundamental differences between the two mechanisms bear the consequence of distinct approaches needed to the same problem; how, then, to determine when there is a conflict of interests? The most singular distinction feature of arbitration, relevant to the subject matter of conflict of interests, when compared to courts is the very fact that arbitrators are appointed by the parties in the dispute. While the exact appointment mechanisms may vary, the most well-known and often used is the three arbitrator panel, with each party designating one arbitrator and both appointed arbitrators designating the third, which will usually preside the panel.
Challenges against the other party's appointed arbitrator have become common practice in arbitration among litigators, as we have rightfully pointed out in the previous section. In some cases, their use is legitimate and expresses a genuine concern or doubt about the independency of the arbitrator, or his capacity to impartially decide a case. But it is also true that this is more and more often the exception, while tactical or strategic challenges – procedure wise- which aim is to slow down, delay or hinder the process, have multiplied over the last couple of decades. The final pretended goal, in such cases, is to cause the arbitration to fail, mainly because the challenging party has no interest in it taking place at all. Therefore, they would seek to bring it to an early end, at a premature formal stage, even before it materially initiates: in other words, the objective is to abort the arbitration.
Should the attacked arbitrator (i.e. he or she against who the challenge is directed) not be forced to resign or be removed, at least he would have been questioned and, to a great extent, discredited. This has frequently lead to situations which fall off the purely legal framework to penetrate into the human psyches. The arbitrator whose independence or impartiality has been questioned may, for that reason, develop certain bitterness towards the challenging party, which ironically may affect the arbitrator's impartiality for the forthcoming stages of the process. Likewise, the arbitrators reaction might be the total opposite and thus, he or she will self-censor his or her decisions which may be adverse to the challenging party, as a means to reaffirm his/her impartiality. These possible outlined effects will greatly depend on the appointed arbitrator's own character and temperament, almost impossible to predict.
In order to prevent these type of situations, or to try to minimize the opposition and questioning of an appointed arbitrator and its "side effects", there must be a set of standards that allow, objectively and certainly, to determine those situations that truly give rise to legitimate doubts as to the independence or impartiality of an arbitrator. Otherwise said, it is necessary to have an inventory of circumstances where one is, or could be, before a conflict of interests.
The causes of impediment all share the common ratio: they establish situations that compromise –to a greater or lesser degree- the objectivity or impartiality of a judge (lato sensu).10 In Costa Rica, like in other Latin American countries, the same legal provisions contained in the Civil Procedure Code apply to both state courts and arbitration tribunals.11 At the judiciary, the subject is linked to the question of competency: a judge is no longer competent if declared "unable" due to impediment.12 The impediment will automatically relieve the judge from his authority to judge the matter at hand. Given the importance of impartiality as the imperative principle that must prevail in any doing by an "administrator of justice" –judge or arbitrator-, the sanction for a resolution (ruling or award) dictated by an impeded court or a panel integrated by at least one arbitrator with an impediment cause is purely and simply its nullity13.
In general terms, the causes-situations listed in the Civil Procedure Code14 may be synthesized as situations in which the arbitrator or his/her family members hold a direct interest; or when the arbitrator or his family members have acted as counsel to any of the parties, or as tutors, curators, trustees, powers of attorney or administrators, or be creditor or debtor, or a dependent of any of the parties to the dispute. Some of the listed cause have a time limitation attached to them (e.g. "during the last two years"). One cause refers to having issued and sustained an opinion contrary to the one argued by the challenging party in a similar trial or arbitration, or having given advise or expressed a favorable opinion on the case to the other party. As part of the procedure, the challenged arbitrator or judge must disclose in the following 24 hours from the filing of the challenge if he acknowledges the alleged facts as being true and if so, the automatic separation will follow.
At the international level, practitioners of the International Bar Association issued the IBA Guidelines on Conflicts of Interest with the intention to compile the generally presented situations giving rise to challenges on the basis of conflicts of interest. Their goal is to avoid the increasing amount of unnecessary nullity claims and challenges, seldom well-grounded, to the appointment of arbitrators in international arbitration of disputes.15 The International Arbitration Section of the IBA thus identified those situations that could present such conflicts of interest to arbitrators, and clarified when disclosure of such situations was required, according to the case's characteristics. Although practice and compared law had developed good knowledge of which situations did present an evident conflict situation, there was still missing a set of guidelines which would be generally accepted and which would have graded ex ante the type of situations that could occur. This enabled the prevailing uncertainty in this field to be used as a dilatory card by the parties especially at the appointment of the "party-arbitrator". 16. With the IBA guidelines in place, the certainty and uniformity on the conflicts of interest situations that would trigger the impeachment of an arbitrator to carry out his mandate –or at the least be disclosed to the parties- was certainly achieved. The chosen way to do this was through the introduction of the street light red, orange and green colors assigned to the three different lists of situations, with the red list being the absolute, un-savable conflict situation (non waivable). This guidelines are therefore pragmatic guides that can be used, and should be used, by arbitrators, litigators and courts, when having to decide on the validity of a certain award on the basis of a challenge to the panel.
III. Court case-law
The First Chamber of the Supreme Court is the judicial body in charge of deciding on nullity claims against arbitral awards. The extremely limitative causes for which the Court may declare an award null and void however include the lack of competence and breach of due process. They both refer to the matter of independence and impartiality and hence these may be argued to bring down an award.
With respect to article 19 of the Rules of Arbitration of the Costa Rican Chamber of Commerce, for example, which establish as a cause to have been a partner or office companion of the arbitrator in the last 12 months, the First Chamber did consider in ruling 358-F-02: "the cause for removal, established on the basis of preexisting relationships among the parties taking part in a dispute and the arbitrator, does not extend to the counsel of the party and the arbitrator. Under this reading, and in right interpretation, Mr. (...) was not an office companion of his but rather of the State, as an ideal person, and this condition cannot extend or be included in the commented cause." The Chamber here shows a very strict and litteral construction of the cause of impediment as drafted in the Civil Procedure Code, almost as if conducting a test to apply a criminal sanction, but does not ask itself whether or not there might be a conflict of interest which would undermine the impartiality in the process. In our opinion, had the same situation be assessed under the IBA Guidelines, the solution would have been different, and much more in line with the constitutional principles protecting the interests of a true and objective justice. Yet another example of this is the analysis done by the same court where the argument and grounds for the challenges was that two members of the panel where also members of the same firm as the counsel for one of the parties. Again, the interpretation by the Court was simple to say that this relationship was not contemplated in the law as a motive to impede or remove and therefore did not violate the principle of impartial judge and due process. Moreover, the Court added that "even when the court had issued this precedent, the mere condition as university professors that two lawyers can share in a same house of study is not a reason to necessarily generate doubts on the impartiality of such professionals. These relationships are far from the friendship and companionship relationships of which article 53 of the Civil Procedure Code speaks." It is possible, in our opinion, to see an element reminding us of the orange list, where a case-by-case analysis must be conducted.17
It is certain that there is a worldwide trend reflected in Costa Rican legislation towards and in favor of more guarantees for impartiality and independency of arbitrators. Disclosure, neutrality and objectivity are primarily ethical questions, but of legal relevance to determine an award. This is all the more true when examining the possibility of nullity of the award when such standards of impartiality and independence are not met. And this is precisely where courts interact with arbitration, where both worlds coincide, and where judges need to understand the specific nature of arbitration to decide in law whether those standards where breached. There is an urgent need for courts to recur to other and different standards to judge on impartiality and independence of arbitrators, than the ones they use and are familiar with when deciding on these matters for state judges, and it is our opinion that the IBA Guidelines are a perfect starting point and reference for courts as well, especially because a small country like Costa Rica favors the appearance of conflicts of interest in commercial arbitration.
1 For purposes of this paper we shall use the more generic and usual term "challenge".
2 Constitutional Chamber of the Supreme Court of Justice of Costa Rica, Voto 10352-00.
3 CAIVANO, Roque J., Negociación, Conciliación y Arbitraje, Lima, APENAC- Asociación Peruana de Negociación, Arbitraje y Conciliación, first edition, 1998, pg 232.
4 FELDSTEIN, Sara y LEONARDO DE HERBÓN, Hebe. El Arbitraje, Buenos Aires, Abeledo Perrot, first edition, pg 13.
5 "The compromisory clause, freely adopted by the parties, implies an anticipated waiver to using the procedural means of ordinary jurisdiction, which impairs the common judges to know about that which the parties, motu proprio, have reserved for the arbitral venue." (Constitutional Chamber of the Supreme Court of Justice of Costa Rica, Voto 10352-00).
6 The principle has been commonly used and studied in criminal or punitive law, and is part of the guarantees of due process of law. Art. 8.1 of the American Charter of Human Rights, has been interpreted to include the right to be heard with due guarantees, in a reasonable term, by a competent, independent and impartial tribunal established by law before the conflict has arisen. V.g. see Voto 1442-95 of the Constitutional Chamber of the Costa Rican Supreme Court of Justice.
7 MAIER, Julio, Derecho Procesal Penal. Fundamentos, t. I, 2da. Edición, 2da. Reimpresión, Editores del Puerto, Buenos Aires, 2000.
8 Spanish professor Jesús González Perez has described the right to a natural judge as one of the constitutional guarantees of Due Process and adds that the presence of the right to an impartial judge results in one of the conditions that must be met before dictating the sentence.
9 In Costa Rica, these are contained in Art. 49-84 of the Civil Procedure Code, and Art. 31-38 of the Alternative Resolution of Conflicts Act.
10 First Chamber of the Supreme Court of Justice of Costa Rica, Voto 358-F-02.
11 In Costa Rica, the causes applying to an arbitrator for his separation of the process are limited and defined in the Civil Procedure Code, by reference made in the Alternative Resolution of Conflicts Act.
12 V. Art. 163 of the Judicial Branch Organic Act of Costa Rica, and Art. 37 Civil Procedure Code.
13 Art. 50 of the Civil Procedure Code of Costa Rica.
14 Art. 53 of the Civil Procedure Code of Costa Rica.
15 Bjorn Gehle states that "Challenges (tactical Challenges (tactical or genuine) to arbitrators are increasing, but the standards for deciding on impartiality and independence are nuclear" (How to be impartial and independent: the new IBA Guidelines for arbitrators).
16 IBA Press release, "The Focus is on Conflicts of Interest and Disclosure", Nov. 2003.
17 Sala Primera Corte Suprema de Justicia, Voto 358-F – 02.
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