A revised and updated version of the International Bar Association Rules for the Taking of Evidence in International Arbitration (“Revised Rules”) is moving rapidly toward formal adoption by the IBA. The draft was published for comment several weeks ago and the comment period ended June 1.

This is the first of perhaps several commentaries on particular aspects of the Revised Rules. 

An important new feature of the Revised Rules concerns the contents of the written reports of party-appointed experts. Under the Revised Rules, the Expert Report must contain “a statement of his or her independence from the Parties, their legal advisers and the Arbitral Tribunal.” Further, if the Expert Report has been translated, it shall contain “a statement as to the language in which it was originally prepared, and the language in which the Party-Appointed Expert anticipates giving testimony at the Evidentiary Hearing.”

The phrasing here concerning independence seems carefully calculated to encourage but not require that the party-appointed Expert should actually be “independent” in the same sense that an arbitrator must be. It also appears intended to encourage but not require fairly extensive disclosure by the Expert of his or her prior business or personal relationships with the parties, their counsel, and members of the Arbitral Tribunal.

It remains up to the parties and their counsel who select their experts to bear whatever credibility risks might be associated with a conclusory or qualified statement of independence, or with a less than fulsome disclosure of past relationships with the appointing party and its counsel. 

The new requirement on translation may help to expose the role of counsel in the preparation of the Expert Report, especially where, as is often the case in investor-State arbitrations, English-speaking investor counsel may have to rely heavily on experts in legal and economic aspects of a State whose official language is not English and whose professional ranks are not generally bi-lingual. 

These new aspects of the rule on Expert Reports highlight for arbitrators some options to streamline proceedings. For example, a Tribunal might inform the parties that it elects not to allow Document Requests for documents concerning the Expert’s relationships with the appointing party and its counsel. In conjunction with taking that position, the tribunal might announce that it will place considerable weight on the Expert’s declaration of independence when it comes time to decide whether the conclusions drawn by the Expert are entirely objective. Cross-examination for bias will tend to be more limited if document production on this subject is off limits.

But the Tribunal can make clear to the parties, at the preliminary hearing or terms of reference stage, that with this limitation on effective cross-examination for expert bias comes a corresponding duty of full disclosure, the absence of which may lead to adverse inferences about the Expert’s objectivity.

It may be that large law firms will continue to use as experts large economics consulting firms to whom they have turned for help on many prior occasions. Compliance by such firms with the new statement of independence requirement is likely to reveal in many cases that the consulting firm has had prior engagements for opposing counsel as well. Such firms thrive because their opinions are respected for objectivity notwithstanding that they may have worked in the past for the same law firm in its representation of other clients.

Thus it remains to be seen whether a new standard of independence for party-appointed experts will emerge, by which the expert is expected to have the same degree of independence as an arbitrator. But the required statements concerning independence and translation, if heeded by the parties and used effectively by the tribunal, can prevent the issue of possible expert bias from becoming a time-consuming sideshow in an already difficult case.

It is important here to take note of the path not taken in these relatively modest steps concerning the independence of party-appointed experts. In September 2007, the Chartered Instutute of Arbitrators (“CIArb”) had issued a “Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration,” prepared by its Practices and Standards Committee.

The CIArb Protocol urged what some might argue to be a laudable but unrealistic model for party-engaged expertise: that the role of the party-appointed expert should be to assist the Tribunal, by objective analysis, rather than to advocate the position of the party that appointed her. In line with that mission, the CIArb Protocol requires that the Expert Report include a Declaration, in the specific language of Article 8 of the Protocol, and most notably:

“(a) I understand that my duty in giving evidence in this arbitration is to assist the arbitral tribunal decide the issues in respect of which expert evidence is adduced. I have complied with, and will continue to comply with, that duty.

(b) I confirm that this is my own, impartial, objective, unbiased opinion which has not been influenced by the pressures of the dispute resolution process or by any party to the arbitration.”

It merits note that in mandating such a declaration, the CIArb Protocol went further in regulating the expert’s conduct than did the 2005 UK Civil Justice Council’s Protocol for the Instruction of Experts to Give Evidence in Civil Claims (“CJC Protocol”). Article 4 of the CJC Protocol (maintained in the October 2009 updating) declares that experts have a “duty to help the court” that “overrides any obligation to the person instructing or paying them.” And the same Article exhorts experts to “provide opinions which are independent, regardless of the pressures of litigation.” But the CJC Protocol did not propose specific declarations concerning independence as required or even recommended contents of the expert’s written report.

Here I cannot resist a “war story” that is instructive. Some 20 years ago, as counsel to a US company in an ICC arbitration against its Italian supplier, there was a serious question whether the choice of law clause called for, in the circumstances, application of Italian law or the law of New York. I submitted expert opinions on each potentially applicable body of law. The New York law expert, a retired judge of the state’s highest court, recived and edited drafts of his opinion that had been prepared by counsel. The Italian law expert, a professor in Milan, refused to even meet with me to discuss the case, on the basis that he did not wish for his objectivity to be impaired by the advocacy I would presumably introduce into our discussions. This message was conveyed on the day I arrived in Milan for our scheduled meeting. Instead, I enjoyed a sunny late winter day on the ski slopes in Courmayeur. The professor’s opinion was a model of clarity and elegance — in its original Italian and in translation — and it significantly advanced my client’s case.

One can imagine that lawyers with common law training and experience within the IBA Rules working group expressed concern about the constraints on counsel-expert interaction that could arise from imposing such a declaration requirement on party-appointed experts. The IBA Rule strikes a balance by injecting independence as a laudable objective for party-appointed experts, but without legislating independence criteria that would require advocates from different legal cultures to conform their conduct to a uniform transnational standard.

It is essential to the integrity of the arbitral process that arbitrators make complete disclosure, at every stage of the proceedings, of relationships that might reasonably call into question their impartiality or independence in the eyes of the parties. A related principle, less discussed and less articulated in rules and law, is that a party that becomes aware, during the proceedings, of a possibly compromising relationship that an arbitrator has not disclosed, should determine promptly whether the relationship is one that should prevent the arbitrator from continuing to serve, and should raise the issue promptly or be foreclosed from doing so later on.

A recent decision from the US Second Circuit Court of Appeals addresses the disconcerting problem of the party that remains silent, until the award is issued, about a potential conflict of interest of one of the arbitrators that is known to that party but has not been disclosed by the arbitrator.  In this case, the potential for a conflict of interest had been known from the time the underlying contract had been signed, because that contract had made the person eventually named as arbitrator eligible to be appointed to certify the quality of the adverse party’s products. The Court held that a challenge to the award based on the arbitrator’s alleged partiality must fail, where the complaining party had knowledge of the potential conflict of interest at the time the arbitrator was chosen, and thus had sufficient information to investigate the arbitrator’s relationship with the adverse party before or during the arbitration. (Schwartzman v Harlap, 2010 U.S. App. LEXIS 10057 (2d Cir. May 18, 2010)).

The obligations of counsel in the Schwartzman case were relatively clear, because the potential conflict was known from the time of the contract. But when counsel becomes aware, mid-arbitration, of a possibly compromising relationship of the arbitrator, and the existence of a conflict or even a duty of the arbitrator to disclose is not clear absent further investigation, there will rarely be clear ethical and legal rules to guide the decision. If the significance of the relationship cannot be assessed without more investigation, in many legal systems the right to challenge the arbitrator’s impartiality cannot be deemed waived where waiver requires a fully-informed decision. But if the party knows or has reason to know that the information is not necessarily known to the arbitrator — such as an attorney-client relationship in a distant overseas office of her firm — then unless rules or laws require action or penalize inaction by counsel, there will be a natural temptation to have the best of both worlds for the client by awaiting the arbitrator’s award and then making a challenge if it is not satisfactory.  

Courts and arbitral institutions should develop rules that advance a simple and uncontroversial goal: to have the least amount of repetition of proceedings resulting from arbitrators’ voluntary or required resignations or succesful challenges to awards. That goal is best served by penalizing a party for its failure to explore fully a potential conflict of interest at the time the circumstances came to its attention. In theory, this could result in preventing succesful challenges to awards that may indeed have been influenced by a predisposition of the arbitrator toward the winning side. But in a system that values efficiency and transparency, the party who becomes aware of the potential for this outcome and uses it as a form of hedging deserve little sympathy and it seems entirely just to prevent the party from challenging the award and partiality grounds.