Developments on the independence and impartiality of arbitrators

This third update on the analysis of the novelties of the arbitration reform in Italy deals with another important change to the Italian Code of Civil Procedure ("ICCP"), namely the introduction of the duty of disclosure for arbitrators in order to ensure their independence and impartiality.

Arbitrators are private individuals. They are not part of the judicial system and are usually academics or professionals. Because of the limited number of specialists in the specific field of a given dispute, arbitrators may be subject to potential conflicts of interest between the party that has appointed them, the counterparty, the parties' lawyers and/or the other appointed arbitrators.

Therefore, to overcome potential mistrust and conflict of interest situations, the Italian reform intends to increase scrutiny on the arbitrators' impartiality and independence, as members of an adjudicatory body that must conduct fair proceedings in order to administer justice properly.

In line with such an objective, the Italian arbitration reform has introduced a new duty of disclosure for arbitrators. As soon as they are appointed, arbitrators shall declare: (i) whether there exist any circumstances that may cause them not to be impartial with respect to the proceedings, as well as; (ii) "serious reasons of convenience, such as to affect the arbitrator's independence or impartiality", thus being no longer subject to only specific mandatory circumstances, which may limit the scope of parties' control.

We have listed below the main developments with regard to arbitrators' independence and impartiality with more details.

Duty of disclosure

New article 813 of the ICCP – entitled "acceptance of arbitrators" - provides that: "the acceptance of arbitrators shall be provided in writing, including by signing the arbitration agreement or the minutes of the first meeting, and shall be supplemented, otherwise void, by a declaration stating any relevant circumstances pursuant to Article 815(1), or the non-existence thereof. The arbitrator shall renew the declaration should [such] circumstances arise. In the event of a failure to make a declaration or to indicate any circumstances justifying an objection, the party may request, within ten days of the acceptance or discovery of the circumstances, the disqualification of the arbitrator in the manner and according to the procedures set forth in Article 813-bis".

The central point of the Article 813 of the ICCP reform is the introduction of the duty of disclosure for arbitrators. This is the reflection of the experience of the main arbitration chambers and regulations for administered arbitration¹ into the Italian legal system. On this point, it is worth noting that the arbitration rules of the Chamber of Arbitration of Milan provide that the arbitrators shall submit a declaration of independence which is linked to the parties' right to communicate their written observations or file a justified application to challenge the arbitrator.²

Similarly, pursuant to Article 813 ICCP, the duty of disclosure consists in the obligation for the arbitrators to submit, at the time of the acceptance of the appointment, a declaration containing all the factual circumstances in connection with independence and impartiality, as provided for by Article 815 Code of Civil Procedure. Failure to do so may result in the appointment of the arbitrator being declared void. Arbitrators' impartiality and neutrality is ensured throughout the proceedings. Pursuant to Article 813 ICCP Arbitrators are, indeed, under the obligation to renew their declaration for any circumstances relevant to Article 815 ICCP that may arise throughout the whole course of the proceedings.

In the event that the arbitrator fails to make the declaration or omits to disclose the circumstances relevant to a potential challenge of arbitrator, the party may request the disqualification of the arbitrator within ten days of either the arbitrator's acceptance, or the discovery of the relevant circumstances. Any disqualification shall be declared by the president of the relevant arbitration seat in accordance with the procedures provided for in Article 813-bis ICCP, by issuing a non-appealable order following the hearing of both the parties and the arbitrators.

Serious reasons of convenience as grounds for challenging an arbitrator

The duty of disclosure is closely related to the amendment of Article 815 of the ICCP where the new sub-paragraph 6-bis) provides for the existence of "other serious reasons of convenience, such as to affect the independence and impartiality of the arbitrator" as grounds for challenging an arbitrator.

This development is in line with the provisions in Article 51 ICCP, last paragraph, regarding the abstention of judges. The wording is deliberately broad for the purpose of considering new sub-paragraph 6-bis) as a catch-all provision providing for all those abstract situations in connection with arbitrators' potential conflicts of interests.

On this point, it is arguable that greater attention should have been paid to the interaction between the implementation of such a new ground to challenge an arbitrator and the duty of disclosure. The risk is that the new provision, due to its broad scope, may result in an undefined obligation which the parties may interpret differently. This may hinder, rather than strengthening, the stability of arbitral proceedings.

It is evident that not only the challenge of an arbitrator, but also their disqualification (provided for in Article 813 ICCP) may arise from any of the indefinite hypotheses capable of being in connection with the case of 'serious reasons of convenience'.

Conclusions

For many years, arbitral institutions (as well as the European Court of Human Rights) have increasingly focussed on the respect of arbitrators' duty of independence and impartiality. The Italian reform's effort is part of this context and serves to strengthen the relationship of trust that must be established between the party and the individuals involved in the arbitration proceedings. These individuals have an obligation to ensure the functioning of a dispute resolution process that must be characterised by transparency, independence, impartiality, fairness, timeliness and efficiency. These are essential requirements to obtain greater use of Italian based arbitration proceedings to resolve disputes between Italian or foreign parties.

The choice of a party's arbitrator and the potential appointment of the president of the arbitral tribunal represent a critical and strategic stage of the arbitration proceedings. Such considerations should factor in different elements, such as the jurisdiction where the potential arbitrator is qualified, their specific expertise in the subject matter of the dispute, the law applicable to the dispute, the arbitration seat, and the parties' nationality. Time and a strategy are also required for this phase. At the same time, it is advisable that the lawyers representing the party in the proceedings have consolidated experience in arbitration (and international arbitration).

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