Some extracts from 'Froitzheim, Die Ablehnung von Schiedsrichtern, 2016'
translated from German to English

190

In order to constitute doubts for a reasonable third person, a fact must relate to the arbitrator. This appears to be self-evident at first sight. However, it may be the case that a party successfully challenges numerous arbitrators appointed by the other party. This party may be very suspicious of a new party appointed arbitrator from the outset and construe every small error as grounds for challenge. They could argue that based on the history of the arbitration, their threshold of “reasonable” doubt has been lowered and therefore successfully challenge an arbitrator. As understandable as this argument and the distrust is, it cannot be a valid argument. Every arbitrator must be considered independently from his predecessors, if there happen to be any and from everything that happened prior to his appointment. He had no influence on those prior dealings and an objective third person would not associate the arbitrator with those circumstances. If this were not the case, a once, twice or three-times successful party in challenging an arbitrator would have a kind of “wildcard”. The party could utilise every mistake by the current arbitrator in conjunction with the history of the arbitration prior to an arbitrator’s appointment for further successful challenges. There would then be yet another successful challenge on record, which in turn would justify grounds for challenge of the next arbitrator, even where only small errors were made.

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Therefore, the rule must be that an arbitrator cannot be challenged for anything that happened prior to his appointment, with no connection to him.485 This is in line with a decision rendered by the SCC. In that case, the SCC accidentally failed to send a message to one of the parties informing them that an arbitrator would be appointed. The party could, therefore, not participate in the selection of the arbitrator. Based on this and the refusal of the (then by the SCC) appointed arbitrator to assess the mistake, the party challenged said arbitrator. The SCC rejected the challenge.486 The SCC appears to have accepted that a mistake had been made, but that this mistake had nothing to do with the arbitrator and he could therefore not be successfully challenged.

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In summary, the right to challenge an arbitrator is related only to an arbitrator himself and not the whole arbitral proceeding. Therefore, a party cannot frustrate the entire arbitration under the guise of arbitrator challenges.

193

If he can prove the absence of any knowledge of those circumstances, one might think that this automatically eliminates the legitimacy of such doubts.487 The lack of knowledge does indeed indicate an absence of actual bias. However, a challenge of an arbitrator only requires reasonable doubts as to his impartiality. Such doubts can still arise, where an arbitrator has no knowledge of those circumstances.488 This is supported by the fact that the arbitrator has a duty of reasonable inquiry .489 If this duty is violated, this can be viewed as an indication of bias. Mere negligence or other grounds do not excuse the arbitrator.490 Moreover, while an arbitrator may not have actual knowledge, he may presume such facts.491 The arbitrator thereby turns a blind eye to the facts, he would otherwise have to disclose. Such behaviour itself is sufficient to infer bias. Finally, it is hard to impossible to prove, whether or not an arbitrator had actual knowledge. In most cases only circumstantial evidence, indicating that the arbitrator should have known the facts, will be available.

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On the other hand, it may be the case that the arbitrator had absolutely no opportunity to gain knowledge of the facts that lead to a conflict of interest. For example, where a conflict of interest exists with a lawyer, but the arbitrator could not recognise that this lawyer is instructed in relation to this matter by a party to the arbitration.492 Some argue that a lack of knowledge thereof, automatically eliminates it as a valid ground for challenge.493 Therefore, a party who is aware of such circumstances is not under a duty to disclose, in accordance with General Standard 7 (a) IBA Guidelines on Conflict of Interest.494 There is precisely no conflict of interest without the knowledge by the arbitrator. This notion, however, must to be rejected. If knowledge by the arbitrator were required, it would be an open invitation to abuse the right to challenge an arbitrator. A party would only have to instigate circumstances, which would give rise to doubts as to the arbitrator’s impartiality if they were known to the arbitrator but are unknown to him for now. For example, by instructing certain counsel, of whom the arbitrator is not informed. If the instruction amounts to a conflict of interest ([…]) then the grounds for challenge must already arise at this point in time. Following the above rejected view, that the grounds for  challenge would only exist after those facts are made known to the arbitrator, the party could control if and when the ground for challenge should come into existence by informing the arbitrator of those facts. It could then successfully challenge the arbitrator. As the grounds for challenge only arise with knowledge by the arbitrator, the time limits for any form of waiver or preclusion would also only commence at that time. There would be no ground of challenge beforehand and the time limits cannot start prior to the existence of said grounds. The only way to correct this outcome would be in accordance with the principle of good faith.

195

To avoid these issues, it is necessary that a valid ground for challenge arises without knowledge by the arbitrator. It would then not be advantageous to a party to keep such facts secret. The grounds for challenge exist irrespective of the arbitrator’s knowledge. A party who has such knowledge and fails to disclose it, carries the risk that those grounds of challenge are precluded. A party is thereby prevented from creating grounds for a successful challenge at will and determining the commencement of the time limits.

196

Thus, it is not a requirement that the arbitrator is aware of the facts which could cast reasonable doubts on his impartiality.

230

A more controversial discussion exists in relation to law firm attribution . The international consensus, however, which is reflected in the judgements by the majority of state courts, arbitral tribunals and arbitral institutions is clear: law firm attribution exists. Every partner of a law firm is equated with the other partners and with the law firm as a whole.550 Therefore, an arbitrator can be challenged, if the law firm of the arbitrator is closely linked to a party of the arbitration.

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The first and most important reason for the discussion about law firm attribution is its frequent occurrence in practice. An arbitrator can also work as legal counsel. This is universally accepted551 and only different at the Court of Arbitration for Sport552.

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Only in those instances where it is possible for an arbitrator to also work as counsel, problems regarding the arbitrator’s law firm can arise. Of course, such problems seldom arise in small law firms. However, there is a trend towards large and international law firms.553 This is the second reason for this debate. Without the international links of law firms there would be fewer points of contacts with potential parties to arbitrations. The third and last reason does not relate to the practical significance of this attribution, but rather to the nature of the debate itself. Members of large law firms who are often personally affected by the attribution also act as authors or members of research groups. Within this capacity they directly take part in this debate. Contributions from lawyers of large law firms554 or results of research groups, whose members are predominantly lawyers, reject law firm attribution or qualify it. The best example for this, is the General Standard 6 (a) IBA Guidelines 2004. The IBA Working Group, of whose 19 members at least 13 were members of law firms with more than 275 lawyers,555 appear to have tried to discount or at least limit the subject of conflict of interest for large law firms. The evolution of the General Standard 6 (a) is very interesting. The original wording excluded grounds for challenge arising by law firm attribution in the form of a directory provision.556 Only after objections were raised by DIS, ICC Germany and arbitration practitioners was the wording moderated.557 However, the fear that the IBA Working Group wanted to codify privileges for large law firms within the Guidelines remains.558 

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Many of the arguments put forward against law firm attribution are related to the size of a law firm. It is argued that where a party has dealings with the law firm of an arbitrator, but this is limited to the offices in a different country, the geographical distance itself negates the existence of a valid ground for challenge.562 Further, it is apparently relevant whether an arbitrator has himself been  (directly or indirectly) involved in the dealings between his law firm and a party.563 Moreover, it is considered to be crucial, whether or not the arbitrator received any information about a party from a colleague.  By implementing  “Chinese walls”, isolating the arbitrator within the law firm, he could not receive information and therefore could not be challenged.564 Some also differentiate between cases in which the arbitrator’s law firm acted for a party in relation to the arbitration at hand or solely in unrelated matters.565 Only a differentiating approach would give appropriate consideration to the reality of the increasing number of big law firms, whose members are the specialists in the legal fields.566 Further, a connection between the arbitrator through his law firm and a party only exists, if the law firm is instructed by the party on a regular basis or is otherwise intensively engaged with the party567 Also to be considered, it is also argued, is that large and successful companies are very often in contact with the leading law firms in the specialist legal areas. If law firm attribution were recognised the legal specialists of those law firms would be regularly challengeable as arbitrators.568 This would in turn lead to a kind of “reverse discrimination”, since the economic success of a party would lead to disadvantages when it comes to the appointment of arbitrators. Moreover, the equality of arms could be threatened, where a party cannot appoint a specialist from large law firms due to law firm attribution, while the opposing party (possibly a smaller company) could appoint an arbitrator from a large law firm.569

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The opposing opinion is the traditional opinion, according to which, a partner of a law firm is always equated with his whole law firm.570 This traditional view is supported by a number of arguments which justify such an approach. These are examined below.

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The fundamental starting point is the common financial interest of the partners of a law firm.571 Irrespective of the specific allocation and split of the revenue internally, a law firm is always comprised  of a bundle of interests.572 Internal policies regarding the allocation of revenue are generally irrelevant. An objective third person has no insight in these practices and can only speculate.573 All partners want their law firm to generate revenue.574 Should an arbitrator render an award which is disadvantageous for a client of a partner of his law firm, it is likely that the client will not instruct the law firm again.575

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Additionally, in many jurisdictions, the client enters into a legal relationship with a law firm as a whole.576 Hence, even from a purely legal perspective the relationship is not contained between the retained partner and the client. The clients generally expect loyalty and solidarity from all partners of the law firm they retain.577 Clients also expect loyalty from an arbitrator who, from a legal point of view may not be personally retained, but his law firm is or was dealing with the subject matter of the arbitration on their behalf.578 If those expectations are not met it is very likely that the party will instruct a different law firm in the future. It must be assumed that a member of a law firm does not want another partner to lose clients.579 Without this common interest the lawyers would not have chosen to join law firms, but practiced independently.

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This client loyalty is in fact accorded such significance, that law firm attribution is applied and constitute grounds for challenge of an arbitrator in cases where an opponent of the law firm’s client is a party to an arbitration.580

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Furthermore, a law firm always pursues a unified strategic goal, which is also expressed through the regulations governing the acquisition of mandates.581 Hence, this is another a direct connection between partners, without requiring personal knowledge of each other.

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Moreover, the division of labour within law firms should not lead to the evasion of grounds for challenge, which would be present in the case of a single lawyer.582 The lawyers enjoy the advantages of a division of labour in such a law firm,583 they must also accept the disadvantages that arise from it. Additionally, the size of a law firm cannot have the consequence of allowing partners of large law firms to disregard conflicts of interest, which would undoubtedly be significant in a small firm. Big and small law firm must be treated equally.584

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Also, the argument that a firm must have a particularly close relationship with a party to trigger law firm attribution does not prevail. It is based on the view, rejected here, that an arbitrator must only meet a significantly lower standard of impartiality than state judges.585 This is precisely not the case,586 which is why this argument must fail.

242

Furthermore, it is not apparent that the selection of an arbitrator who is not a member of a large law firm is a disadvantage. Although lawyers from larger law firms tend to have particular specialties, it cannot be said that such expertise are found exclusively in these law firms.587 There are, for example, also professors and individual lawyers who act as arbitrators and have a very good reputation. The conceivable situation, where a party maintains relations with all relevant large law firms and, therefore, cannot appoint their members as arbitrators is not discriminatory towards the party. The equality of arms is also not endangered. If a party cannot appoint a partner of a firm as arbitrator due to particular contacts with that law firm, the other party cannot appoint that arbitrator or other partners from that firm either. An arbitrator is not only challengeable if he is biased positively towards the nominating party. An arbitrator may also be challenged if he is appointed by one party but is biased in favour of the other party. Thus, it is ensured that arbitrators who cannot be appointed by one party also cannot be appointed by the other.

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The previous arguments are also applicable to large, international law firm. Geographical distance alone cannot be a valid counterargument because of the modern possibilities of communication.588 Nor can it make any difference, whether the individual offices are legally independent and are their own legal entities e.g. with a country supplement in addition to the name of the law firm.589 The clients, most of them global corporations themselves, expect loyalty from all the offices of a major law firm.590 Even the objection that the arbitrator has never met or spoken with the relevant colleagues is unconvincing.591 Despite the fact that they have never met, they nevertheless share a common interest in the financial success of the firm as a whole. Both pursue a common strategic goal. Both enjoy advantages such as the good reputation and the opportunity of the division of labour provided by the law firm as a whole. Both must then bear the corresponding disadvantages.592 They are free to no longer utilise the good reputation of a law firm and to work as an individual lawyer. Then they will no longer have a problem with law firm attribution. This does indeed occur. Many arbitrators from major law firms are setting up their own specialized ADR-boutiques, due to the challenges based on law firm atribution.593 If they stay in a law firm, they must prevent such conflicts of interest. This is technologically possible as all major and larger law firms have high-performance computer-based conflict check systems. This allows every member of a law firm to check whether such conflicts exist, in a relatively short period of time.594

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Even the concept of a "Chinese wall" completely misses the mark. It is precisely not a question whether the arbitrator could receive information from a colleague. It is much more about the membership of a law firm itself and the associated bundling of interests of (possibly unacquainted) lawyers. Consequently, despite the internal isolation of an arbitrator within his firm, a ground for challenge was answered in the affirmative.595 The fact that the firm is or was only active in a single, unrelated proceeding cannot refute the financial interest of the arbitrator.596

245

The ICC defines financial interest very broadly for the purpose of confirming arbitrators. For instance, it refused to confirm an arbitrator whose law firm had previously represented a party. The law firm had in fact lost this mandate before the arbitration commenced, when a partner left the firm and took the current party as a client with him. The arbitrator had not been involved in the work for the party.597 The ICC appears to have based its decision on either, the firm’s financial interest in recovering the client or an assumption that the arbitrator had in fact discussed the case with his colleague at the time and was thus prejudiced. Unfortunately, the precise grounds for refusing to confirm the arbitrator cannot be determined, due to the lack of reasoning provided by the ICC. More convincing is a challenge decision by the LCIA, which dealt with a similar case of a partner leaving a law firm. In that case, the arbitrator had previously (4 years beforehand) been a member of the law firm, which now represented a party to the arbitration. The arbitrator has not been in contact with the party since leaving the firm. In addition to the time passed, it should be noted that the arbitrator in question no longer had any interest in the law firm retaining the party as a regular client. A financial interest or a sense of loyalty towards the former law firm was apparently not assumed. Consequently, the LCIA rightly rejected a challenge of the arbitrator.598

247

Since law firm attribution is primarily based on a lawyer's financial interest in the success of the firm and the loyalty between clients and the firm as a whole, law firm attribution can only be based on professional facts.601 The regular instruction of a law firm by a party must for example, be treated as the regular instruction of the arbitrator himself. On the other hand, a personal enmity or friendship between a party and the partner of the arbitrator’s law firm is not a professional fact that could have an effect on the arbitrator by law firm attribution.602 This enmity is a personal fact that does not affect financial success or loyalty to a client. Such a fact could only constitute a ground for refusal if one had to assume that the arbitrator shared the hostility of his colleague out of a deep friendship with him. However, such a deep friendship cannot be assumed per se between law firm partners and therefore this falls outside law firm attribution.

248

It is undisputed that law firm attribution applies to the partners of a law firm. Since the primary reason for law firm attribution is the joint financial interest of the partners of a law firm, this attribution cannot apply where such a common financial interest is not given. Law firm attribution also applies, where an arbitrator does not join the firm until after the party in question has contacted a law firm.603 From the moment of admission, he shares the same financial interest in the law firm's success. He also enters into the relationship of loyalty with the clients.

249

However, grounds for refusal no longer exist, where an arbitrator left the law firm long ago (such as the 3-year period in the IBA Guidelines) and has not had any business dealings with the previous clients since.604

271

Law firm attribution is still common practice of the arbitral tribunals, institutions646 and state courts647. The literature in this field predominantly accepts the existence of law firm attribution.648 Even some critics affirm its existence, where a partner of the arbitrator’s law firm acts as a party representative in the same arbitration.649 Where this attribution applies, the professional activities and contacts of the law firm are treated as those of the arbitrator himself.

376

It is reported that in practice, members of major law firms in particular, adopt a certain passage in their acceptance of the arbitrator office, with the aim of limiting their duty of disclosure. This passage often makes it clear that the candidate is a member of an international or at least large national law firm. Additionally, that the law firm would not be prevented from accepting mandates from the parties or affiliated companies, by his acceptance of the arbitrator office. That the arbitrator has no influence on this. The disclosure of such future mandates of the firm is either expressly excluded or it is at least indirectly implied that no such disclosure will be made later.828 The users of this "carte blanche clause"829 appear to be under the impression that such general and diffuse references to possible future grounds for challenge suffice to discharge their disclosure obligation and that they can exclude future disclosure unilaterally by such an announcement.

377

This however, is a double fallacy. The reference to possible future grounds for challenge is not itself objectionable. It may be an indication to the parties that such disclosure may be forthcoming in the future. It does not, however, fulfil the arbitrator’s duty of disclosure. In particular, it cannot extend the waiver-effect of disclosure to future facts. Only when the disclosable fact exists or is certain to occur, can the arbitrator disclose it. Statements about possible future facts can never satisfy the purposes of the arbitrator’s duty to disclose. The parties are not informed of possible grounds for challenge and their extent. The arbitrator fails to create a trustworthy environment when he intends to divest himself from his ongoing duty to disclose by such a passage. In the end, it is an attempt to deny the parties a possible right to challenge from the outset. As, at the time of the disclosure, with merely a reference to possible grounds for challenge in the future, a party cannot successfully challenge an arbitrator. There are precisely no grounds for challenge (yet). If such grounds were to arise later, however, the time limit for challenging the arbitrator can only begin at the time of the new disclosure. If the time limit began with the first disclosure containing only a vague reference to possible future grounds for challenge, a party to the arbitration would be precluded from asserting their rights where the deadline has already expired, but possibly before the right to challenge has even arisen. The party would then at no time have had the opportunity to challenge the arbitrator. Consequently, according to the practices of the ICC, such statements are not deemed to have any effect for the purposes of disclosure.830 This is also the approach taken by the LCIA.831 Similarly, the new IBA Guidelines 2014 in GSt 3 (b) and GSt 4 (b) make it clear that such a statement does not discharge the arbitrator of his continuing obligation of disclosure. However, the working group in GSt 4 (b) explicitly leaves the question open, whether such pre-emptive disclosure is in fact valid and what effect it has.

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In addition, an arbitrator cannot unilaterally limit his duty of disclosure. Only the parties to the arbitration can do so. Such an agreement from the parties may be requested by the arbitrator. He cannot, however, unilaterally impose such an agreement like a standard term. By virtue of such behavior, the arbitrator demonstrates the fact that he considers certain generally binding rules of arbitration to be non-binding upon himself. He also shows that he wants to deny the parties a possible future right to challenge him from the outset. It is therefore questionable, whether the decision of this arbitrator will still be based on due process, as he aims to exclude the application of mandatory procedural rules to himself. This raises objective doubts as to his impartiality. He is therefore challengeable, according to this author’s view.

379

It is however, possible that the parties themselves, also at the request of the arbitrator, waive their right to further disclosure and thus also forgo waivable832 grounds for challenge. However, this would be an explicit waiver by all parties.833 The arbitrator can indeed encourage such a waiver. He may not, however, unilaterally impose such a requirement and thus introduce it into the procedure independent of the will of the parties involved.