The Ethics Conundrum in International Commercial Arbitration

By: Spencer McDuff

“International arbitration dwells in an ethical no-man’s land; where ethical regulation should be, there is only an abyss.”[1]

Ironically enough, the present ethical “abyss” in which international commercial arbitration lingers in, is in fact a product of what makes the process of arbitration so appealing to international commercial parties in the first place. The inherent flexibility associated with International Commercial Arbitration was designed to provide parties with an alternative means of dispute resolution that would avoid the uncertainties of local practices associated with litigation in national courts. The appeal of engaging in international arbitration to avoid national court uncertainties is sustained in great part by the fact that traditionally, arbitration provides a relatively efficient (in terms of time and money) means of obtaining a binding decision from a theoretically unbiased expert in the relevant field.

Additionally, a number of other aspects that help make international arbitration an attractive means of dispute resolution include: the confidentiality of the arbitral process, party freedom in arbitrator selection and design of the arbitration itself, and the relative general enforceability of arbitral awards and arbitral agreements in foreign jurisdictions.[2]

While these and other benefits of international arbitration add to its popularity as a dispute settlement mechanism, there is now the realization that these benefits cannot be achieved without some cost. A cost that has until fairly recently, gone unnoticed. For it is within this substitution of the rigid resolution process in national courts for the more flexible international arbitration option, that the problem and cost of international arbitration is materializing. With the aim of avoiding uncertainty in a national court proceeding, parties that alternatively elect international arbitration as a means of dispute resolution turn around only to find themselves in a battle that is now, for the most part, without ethics regulation.

Today, one great cost of international arbitration exists in the form of mounting ethical concerns pertaining to the conduct of those involved in international arbitration (most notably the arbitrators) and the affect those ethical concerns are having on the legitimacy and fairness of the international arbitral process. Ethical concerns are now of great importance in international arbitration because of the rapidly increasing number of international arbitrators and arbitral proceedings taking place among international commercial parties.[3]

In an attempt to take advantage of the other apparent benefits of international arbitration mentioned, one is faced with another trade-off. While seeking to gain the freedom associated with party determination of the arbitral process, arbitrator selection and confidentiality, one must consider the ethical situation posed in the international arena relevant to these advantages. For example, while parties are free to choose their arbitrators, there is often times no “supranational authority to oversee attorney [and arbitrator] conduct” in the international setting.[4] Also, “local bar associations rarely, if ever, extend their” domestic ethical codes to the international scene.[5] To compound the problem, “arbitral tribunals have no legitimate power to sanction attorneys,” or often times, party appointed arbitrators.[6]

One effect of an absent supranational ethics authority or standard, means that those involved in international arbitration might “rely primarily on their own personal, nationally derived assumptions about what constitutes proper conduct” in an arbitration proceeding.[7] These assumptions derived at a national level “often clash with the rules that apply to participants from other jurisdictions or with prevailing practices in international arbitration proceedings.”[8] With this interplay between and against different domestic ethics standards and the lack of a supranational authority, arbitral participants are “potentially subject to different rules that affect the conduct of arbitral proceedings, [which can result in] an unfair playing field at multiple levels” within the arbitral process.[9]

It is “against this backdrop, [that] a number of leading arbitrators and practitioners have described the current situation as a potential crisis that can threaten the legitimacy of international arbitration and [which] is in need of immediate redress.”[10]

“International arbitration does not have the majestic buildings, the black robes, bailiffs and marshals that promote a sense of legitimacy and ensure compliance with national court decisions.”[11] There is no written supranational code or standard of ethics for international arbitrators to follow or be subject to like there are in many national bar associations. Instead, international arbitration has, in the past, been left to the ethical convictions of its participants by way of self-regulation.

However, self-regulation as a means to curtail ethical dilemmas in International Arbitration is becoming increasingly less effective because of “the international communities’ inability to think beyond its present situation, to future generations and future developments in an ever-more globalized legal world.”[12]

Unfortunately, for as long as there is this lack of common understanding among international arbitrators from different cultures as to what it means to be ethical and a decrease in the ability of the international arbitration community to self-regulate, international arbitration is destined to remain in the “abyss” of the “ethical no-man’s land.”[13]

Spencer McDuff is a 3L at the Pennsylvania State University-The Dickinson School of Law, an LLM student at the Radboud School of Law, and a Resident Student Blogger for the Journal of Law and International Affairs.

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[1] Catherine A. Rogers, Fit and Function in Legal Ethics: Developing a Code of Conduct for International Arbitration, 23 Mich. J. Int’l L. 341 (2001-2002). Available at: http://www.transnational-dispute-management.com/article.asp?key=1651

[2] Id.

[3] Cárdenas, Emilio; Rivkin, David W., A Growing Challenge for Ethics in International Arbitration, Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner, 191 (2005).

[4] Id. Rogers at notes 261-264.

[5] Ivo G. Caytas, Transnational Legal Practice: Conflicts in Professional Responsibility. New York: Commonwelth Press (1992).

[6] Catherine A. Rogers, Context and Institutional Structure in Attorney Regulation: Constructing and Enforcement Regime for International Arbitration, 39 Stan. J. Int’l L. (2003).

[7] Catherine A. Rogers, Ethics in International Arbitration, 3 (2012).

[8] Id.

[9] Id.

[10] Charles N. Brower & Stephan W. Schill, Regulating Council Conduct Before International Arbitral Tribunals in Making Transnational Law Work in a Global Economy: Essays in Honor of Detleve Vagts, (2010); Id at 4.

[11] Michael Richard Dimino, Sr., Counter-Majoritarian Power and Judges’ Political Speech, 58 Fla. L. Rev. 53, 63 (2006).

[12] Id.

[13] Rogers, supra note 1 at 342.