[vc_row][vc_column][vc_custom_heading text="Soft Law Instruments in International Arbitration: Their Use and a Comparative Look Based on the Code of Good Practices of the Spanish Arbitration Club" font_container="tag:h2|text_align:center"][vc_column_text]
Benito Arturo Zelaya Cálix and Fabián J. Villeda Corona1
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“The future clearly lies in the emergence of fundamental best practices”.2
Jan Paulsson
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]I. INTERNATIONAL ARBITRATION AND THESOFT LAW
The remarkable progress made by International Arbitration is no longer unnoticed. In these times, it is the preferred method for resolving international disputes.3 However, the idiosyncrasies of Arbitration, with its specific characteristics and particularities, mean that it combines a myriad of elements that traditionally fall outside the scope of practice of a litigating lawyer in the ordinary, domestic judicial system.
It should not be lost sight of that it is a private method of dispute resolution, in which the parties, by mutual agreement, decide to submit their differences to Arbitration.4 It is precisely that, the agreement of the parties by virtue of the principle of autonomy of the will, which gives life to arbitration, they are the ones who decide on different aspects of the procedure such as: whether it will be administered by an international arbitration institution or whether it will befor this purpose; whether the number of arbitrators comprising the Arbitral Tribunal will be one or three; the venue; the applicable law; the language; etc.5 In short, the parties have considerable discretion regarding various elements of the arbitration process, unlike what happens in ordinary courts.
When it comes to International Arbitration, its nature also requires the consideration of other aspects such as the international standards that interact with it.6 Thus, as Moses explains, in the case of international commercial arbitration, for example, the regulatory framework is composed of a pyramid comprising: (i) the arbitration clause; (ii) the arbitration rules; (iii) national laws; (iv)international arbitration practice; and, (v) international treaties. International arbitration practice is a product of the experience of the arbitration community, consisting of the good practices it has developed and which serve as guidelines or guidelines for arbitration participants and thus harmonize some aspects that are not directly regulated. Some of these guidelines or guidelines have been codified as additional rules or as guides.7 However, it is important to highlight that these guidelines lack
binding character, unless the parties refer directly to its use.
These rules or guidelines are part of thesoft lawor soft law.8 The legal nature ofsoft lawIt is in contrast, as one might assume at first glance, to hard law. The latter, as Garrido Gómez points out, normally contains material and formal obligations with enforcement mechanisms, since it is a legally enforceable instrument. On the other hand,soft lawdoes not have such characteristics, since its creation depends on the will of those who, through consensus, dialogue and study, decide to draw up such instruments.9 To contextualize, in the international sphere, we find treaties as instruments of hard law: by accepting them, States agree to comply with them10 and their non-compliance entails international responsibility of the State.11 On the other hand, theSoft law “proposes and recommends, it does not impose taxes””.12
Some of these instruments are created by independent institutions and experts in the field. Thus, we see that these soft law instruments are increasingly used in international arbitration because they contain proposals and solutions that have filled the gaps in certain procedural aspects of arbitration, providing greater predictability and transparency13 by ensuring that arbitration is a fair, legitimate, and efficient due process.
Several of these instruments have been created by institutions or organizations such as the International Bar Association, the American Bar Association, the American Arbitration Association, the Chartered Institute of Arbitrators, the Spanish Arbitration Club, the Korean Commercial Arbitration Board, or by the gathering of various prestigious practicing professionals in working groups for the creation of these instruments (e.g., the Prague Rules). The merits of these instruments have been widely discussed,14 although their creative process has not been immune to criticism from many.15
Some of these guides, codes of good practices, rules, guidelines that have served as a basis for the
Code of Good Practices of the Spanish Arbitration Club as will be seen below.
II. CODE OF GOOD ARBITRATION PRACTICES OF THE SPANISH ARBITRATION CLUB AND OTHER INSTRUMENTS OFSOFT LAW
The Spanish Arbitration Club had already published a Code of Good Practices in 2005, which was intended solely for arbitration institutions. However, the 2019 Code of Good Practices is a kind of compendium that goes further: it not only updates the 2005 Code but also expands its scope by containing recommendations that involve all participants in the arbitration process, i.e., arbitrators, lawyers, experts, and financiers.16 To draft the Code, various subcommittees were formed with the collaboration of prominent arbitration practitioners who are members of the Club.
Below, each section of the Code will be reviewed, and analogous instruments that were used as background will be reviewed where appropriate.
IIa. First and Second Section: Arbitration Institutions and Arbitration Process
When arbitration is institutional, it is organized and administered by arbitration institutions. They must also ensure due process and the fairness of the awards.17
In preparing these sections, the Subcommittees took into account the doctrine and jurisprudence related to the good governance of arbitration institutions, as well as the regulations of various national, regional and international arbitration institutions and the recommendations included in the Code of
- Thus, the recommendations are aimed at addressing issues related to the governance, structure and mission of arbitral institutions and increasing the legal certainty of arbitration.18
Regarding Arbitration Institutions, the Code proposes some general principles. It begins with the independence of the Institution, which must be governed by its own statutes and under the direction and control of its bodies. Thus, no third party may exert any influence on the decision-making of said bodies. Even when institutions are integrated into another (as in the case of Arbitration and Conciliation Centers attached to Chambers of Commerce and Industry), their functional and organizational independence must be guaranteed in their relationship with the Parent Organization. In this case, the Integrated Institution will organize itself freely, prepare and draft its own budget, and appoint and supervise its directors and employees.19
In addition to those already stated above, the Code, in its section on Internal Operation, suggests the approval of a binding Code of Ethics for the members of the different bodies and for the employees of the Arbitration Institution.
Furthermore, the approval of a Manual to ensure the confidentiality of documents and information submitted to the procedure is recommended. However, the Code suggests opening the archives to researchers conducting studies related to arbitration, whose access will be conditional on the signing of a confidentiality agreement.20
Transparency is an important element included in the Code. In this regard, it suggests that the Arbitral Institution's website publish, among other things: (i) The names of the individuals who sponsor conferences and events organized by the Arbitral Institution, and the amounts paid by said sponsors in recent years; (ii) The arbitrators' fees and honoraria, along with a calculator to facilitate the calculation; (iii) The annual accounts and management reports for the last five financial years; (iv) Detailed statistics on the cases it administers and the appointments of arbitrators, differentiating by age, gender, and origin; (vi) Publish a list of the cases it administers with the most important elements of each case, while maintaining the anonymity of the parties; and (vii) Advocate for the public nature of the awards, anonymizing the names of the parties but retaining the names of the arbitrators and lawyers. This is without prejudice to any opposition from the parties or the existence of relevant reasons justifying confidentiality.21
Undoubtedly, these distinctive elements seek to help allay the general concerns surrounding arbitration today, such as financial transparency and the diversity of arbitrators in terms of gender, age, and geographic origin.
Furthermore, the Code incorporates Model Rules proposed by the CEA for arbitral institutions, in a revised version of the 2005 Code Rules, in line with current trends in domestic and international arbitration. The Model Rules can undoubtedly be a very useful tool for Arbitration and Conciliation Centers to standardize their institutional rules. The Model Rules introduce, for example, a Preliminary Minutes, which are similar to the Mission Statement of the Arbitration Rules of the International Chamber of Commerce,22 an element considered very useful by the arbitration community. Adopting the Model Rules, in their entirety or at least in their most characteristic features, would facilitate the practice of arbitration with even more common rules for its users, thereby increasing legal certainty in arbitration and, furthermore, avoiding the confusion generated by different solutions in similar situations that can be perceived in different rules.
Finally, the use of the standard arbitration agreement introduced by the Code is also recommended. To ensure the enforcement of the award,23 it is recommended that the seat or place of arbitration be located in a country that has ratified the 1958 New York Convention.24
IIb. Section Three: Duties of the Arbitrators
The role that arbitrators play in the effectiveness of arbitration and in fostering trust in the process is fundamental. By choosing an arbitrator, the parties entrust the resolution of their dispute to the arbitrator, presuming that the arbitrator meets all the necessary qualifications to exercise his or her authority in the specific case. Selecting an arbitrator, of course, is no trivial matter, especially in a community that is considered to be rather small.
In addition, there are deontological considerations that are sometimes not regulated, since in general terms, there are no binding rules of professional conduct or ethics applicable specifically to international arbitrators.25 For this reason, some professional associations have tried to pick up the baton and have sponsored the creation of instrumentssoft lawthat deal with these issues. As early as 1977, through a joint committee, the American Bar Association and the American Arbitration Association published a Code of Ethics. The code provided guidelines for arbitrators, focusing on issues of partiality and potential bias. In 2004, they were amended, establishing a presumption of broad neutrality for all arbitrators serving on the Arbitral Tribunal.
On the other hand, in 2004, the International Bar Association published a detailed guide considering the circumstances that would commonly raise doubts regarding the impartiality or independence of an arbitrator. The guide establishes a traffic-light-type alert mechanism, listing, in a non-exhaustive manner, situations that may be considered unacceptable due to the creation of conflicts of interest; unacceptable unless the parties, even knowing of the potential conflict of interest, decide to continue with the formation of the Arbitral Tribunal; and, finally, situations in which no conflict of interest exists. Thus, these lists are red, orange, and green, respectively.26 Although this instrument is not binding unless the parties agree otherwise, it constitutes a guide widely used by both the parties and the arbitrators themselves when evaluating potential conflicts of interest, impartiality, or independence.
The Code of Good Arbitration Practices, for its part, reflects much of the experience of these instruments. It imposes as guiding principles the impartiality and independence of arbitrators27 and the duty to abstain if situations arise that compromise the aforementioned principles.28 It also includes the duty to disclose any circumstance that may give rise to justified doubts about their impartiality and independence.29 The duty of disclosure should be understood as 'a duty to provide information so that the parties, and where appropriate, third parties responsible for appointing arbitrators and deciding on possible challenges, can assess whether there is cause for challenge'.30
The Code, rather than presenting a traffic-light-style checklist, proposes a non-exhaustive list of questions that arbitrators can answer to determine whether there are circumstances that should be disclosed. The questions are designed to assess: (i) ties to the parties; (ii) ties to the dispute; (iii) ties to the parties' counsel; (iv) ties to the other arbitrators; and (v) ties to other persons involved in the arbitration.31
Like the IBA rules, the Code also extends the same duties of arbitrators to secretaries. It also proposes a mechanism for their appointment and remuneration.32
Finally, the Code suggests the principle of confidentiality and proposes a formula whereby arbitrators can publish an anonymized list of the arbitration proceedings in which they have participated, establishing a uniform criterion for a very common practice in the professional profiles of arbitrators.
IIc. Fourth Section: Duties of Lawyers
In international arbitration, the parties are typically represented by lawyers from different countries, so there was considerable uncertainty regarding the rules of ethics and conduct governing the participation of lawyers in the process.
The Code, like the IBA Guidelines on Party Representation in International Arbitration, contains important guidelines intended to regulate the conduct of counsel in arbitration. They prohibit counsel from intentionally submitting false facts to the Tribunal, either in writing or orally. 33 Similarly, both instruments allow counsel to have contact with and assist experts and witnesses in the preparation of their statements and reports. 34
As a novelty in contrast to its IBA counterpart, the Code prohibits resorting to biased practices such as knowingly citing non-existent legal grounds or attempting to distort their true meaning through incomplete citations.35 As in the case of arbitrators, an anonymized formula is established so that Lawyers can publish the cases in which they have participated in their professional profiles.36
Finally, both the Code and the IBA Guidelines establish measures that the Arbitral Tribunal may take in the event of non-compliance with some of the duties by Lawyers.37
IId. Fifth Section: Duties of Experts
Once again, the Code establishes objectivity and independence as principles for expert participation, with the aim of increasing the probative value of the expert report and contributing to greater effectiveness of the process. Beyond the exhaustive regulations contained in, for example, the Regulations on the Administration of Expert Proceedings of the International Chamber of Commerce,38 the Code focuses its efforts on ensuring that expert participation and the use of expert evidence are efficient for the arbitration process.
In this way, it provides, as in the case of arbitrators, a kind of non-exhaustive, but rather indicative, questionnaire that allows the arbitrator to assess any situation that could compromise the quality of his or her expertise due to a lack of objective and independent experience. Thus, the questionnaire is intended to assess: (i) ties with the parties; (ii) ties with the dispute; (iii) ties with the lawyers who appointed him or her; and (iv) ties with other persons involved in the arbitration.39
Unlike the IBA40 rules, the Code establishes the mechanism for payment of fees for
experts. Furthermore, it is prohibited that the fees of experts be subject in any way to the outcome of the arbitration.41
IIe. Section Six: Duties relating to financing
Much has been written regarding the high costs that an international arbitration process can entail. Whether in international commercial arbitration or international investment arbitration, many aspects of the process increase the costs that the parties must incur, which in many cases would prevent them from having access to arbitration. Financing constitutes an advantage for the party wishing to initiate arbitration proceedings. 42 However, it is an issue that has not been immune to criticism,43 and which also lacks a regulatory framework.44
Unlike other similar instruments, which propose regulations directly for financiers,45 the Code only recommends the obligation of the party to disclose and inform the arbitral tribunal if it has received or obtained funds of any kind from a third-party financier and that is linked to the outcome of the arbitration. It also requires disclosure of the identity of the third-party financier.46 This obligation is not time-limited; if the funds are obtained after the claim is filed, the party must inform the arbitrator within a reasonable period of time.47 Furthermore, the arbitrators may request any information they consider relevant.48
III. CONCLUSIONS
Without a doubt, the Code is a breath of fresh air in that it constitutes a single document, a compendium of recommendations covering various aspects of the arbitration process, and it extends guidelines of conduct to the parties involved.
Perhaps some issues remain unresolved because they are the product of more recent experience. Such is the case of the lack of recommendations regarding good practices for conducting arbitration proceedings electronically, which are necessary at a time like this, when States have adopted a wide variety of measures due to the COVID-19 pandemic and many proceedings are suspended. The Seoul Protocol for Videoconferencing in International Arbitration and the International Chamber of Commerce Report on Information Technology in International Arbitration serve as guidelines for addressing these issues. The CEA could emulate and complement them with the indisputable experience of its members. Furthermore, greater use of technology could make the arbitration process more efficient in terms of costs and time.
Finally, the Spanish Arbitration Club's Code of Good Arbitration Practices strengthens the presence and quality of the arbitration community in the Iberian Peninsula and Latin America in light of other soft law instruments.
[1] Benito Arturo Zelaya Cálix, Managing Partner of Lexincorp Central American Law Firm – Honduras. Lawyer from the José Matías Delgado University in El Salvador. He holds a Master's degree in Business Administration from the Central American Technological University (UNITEC) and a PhD candidate in Tax and Commercial Law from the San Carlos University of Guatemala. Founder and President of the Spanish Arbitration Club ChapterHonduras. Contact: bzelaya@lexincorp.com
Fabián J. Villeda Corona, Associate at Lexincorp Central American Law Firm – Honduras. He holds a degree in International Business from the Universidad Tecnológica Centroamericana (UNITEC). He holds a Bachelor's degree in International Law from the Ruprecht-Karls-Universität Heidelberg. He holds a Master's degree in International Law, Investment, and Law.
Trade and Arbitration from the University of Chile and a Diploma in International Human Rights Defense from the University of Zaragoza and the Latin American Center for Human Rights. Member of theSpanish Arbitration Club, Honduras Chapter. Contact: fvilleda@lexincorp.com
[2] Jan Paulsson,The Idea of Arbitration(Oxford University Press 2014), 284.
[3] Gary Born,‘Introduction’, International Commercial Arbitration(Second Ed., Kluwer Law International
2014), 1-5.
[4] Roque J Caivano, 'Arbitration: Introductory Notions' Electronic Journal of Commercial Law 8
<http://www.derecho-comercial.com/Doctrina/Arb-001.pdf>.
[5] Margaret L Moses,The Principles and Practice of International Commercial Arbitration(Primera Ed., Cambridge University Press 2008) 1, 17.
[6] One cannot ignore, for example, the sources of international law contained in Article 38.1 of the Statute of the International Court of Justice: “1. The Court, whose function is to decide in accordance with international law the disputes submitted to it, shall apply: a. international conventions, whether general or particular, which establish rules expressly recognized by the litigating States; b. international custom as evidence of a practice generally accepted as law; c. the general principles of law recognized by civilized nations; judicial decisions and the teachings of the most competent publicists of the different nations, as an auxiliary means for determining the law, without prejudice to the provisions of Article 59. […]”. Even some rules applicable to international commercial arbitration are of public international law origin, such as the Treaties or Conventions that the parties have taken into account. cf. Emmanuel Gaillard and John Savage (eds.),Fouchard, Gaillard, Goldman on International Commercial Arbitration(Primera Ed., Kluwer Law International 1999), 103.
[7] Moses (n 2), 5-9 .
[8] However, there are other Soft Law instruments that have a relationship with Arbitration, such as the Model Law of the United Nations Commission on International Trade Law, which constitutes a legal framework created with the aspiration that countries adopt it in their internal legislation and thus harmonize the legal provisions on Arbitration. See: Gaillard and Savage (n 5) 107-109. On the other hand, the Unidroit Principles on International Commercial Contracts can be used to resolve the merits of an Arbitration case when the parties have agreed on their applicability in the Contract, or have established that it is governed by the general principles of law, lex mercatoria or similar expressions. However, these instruments will not be the subject of analysis in this article.
[9] María Isabel Garrido Gómez,Soft Law as a Source of Extranational Law(First Ed., Dykinson
2017), 55-60.
[10] United Nations, Vienna Convention on the Law of Treaties 1969, Art. 26. vide. Oliver Dörr and
Kirsten Schmalenbach,Vienna Convention on the Law of Treaties: A Commentary(Second Ed., Springer
2018) 467-492.
[11] International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, Arts. 1-2. In the same vein, see: International Court of Justice,Interpretation of the peace treaties concluded with Bulgaria, Hungary and Romania Second phase Advisory Opinion of 18 July 195011
: ([…] and it is clear that the refusal to fulfil a conventional obligation is such as to engage international responsibility).
[12] Garrido Gómez (n 8), 60.
[13] Gary Born, ‘Chapter 1’,International Commercial Arbitration(Second Ed., Kluwer Law International
2014) 199.
[14] For further information see inter alia: David Arias Lozano, 'Soft LawRules in International Arbitration: Positive Effects and Legitimation of the IBA as a Rule-Maker’ (2017) VI Indian Journal of Arbi- tration Law 29-42.; Miluše Hrnc?ir?íková, ‘The Meaning of Soft Law in International Commercial Arbitration’ (2016) 16
International and Comparative Law Review 97-109.; y, Alexis Mourre, ‘Soft Lawas a Condition for the
Development of Trust in International Arbitration' (2016) XIII Brazilian Arbitration Journal 82-98.
[15] Para ampliar vid. inter alia: Michael Schneider, ‘The Essential Guidelines for the Preparation of Guidelines, Directives, Notes, Protocols and Other Methods Intended to Help International Arbitration Practitioners to Avoid the Need for Independent Thinking and to Promote the Transformation of Errors Into “Best Practices” en Yves Derains y Laurent Lévy (eds.),Liber Amicorum in Honor of Serge Lazareff(Pedone 2011); Felix Lüth and Philipp K Wagner, 'Soft Lawin International Arbitration – Some Thoughts on Legitimacy' [2012] Heidelberg Student Law Review 409-422; See also the ideas along the same lines in Gabrielle Kaufmann-Kohler, 'Soft Lawin International Arbitration: Codification and Normativity’ (2010) 1 Journal of International Dispute Settlement 283-299.
[16] Spanish Arbitration Club, Code of Good Arbitration Practices 2019, 6. [17] Ibid., 7.
[18] Ibid., 8-9.
[19] Spanish Arbitration Club, First Section: Arbitration Institutions, Code of Good Practices
Arbitration 2019, Rec. 1.1.1, 1.1.2, 1.1.3 and 1.1.4.
[20] Spanish Arbitration Club First Section: Arbitration Institutions, Code of Good Arbitration Practices
(n 18), Rec. 3.3.39, 3.3.40.
[21] Ibid., Rec. 5.1.60, 5.2.61 and 5.3.62.
[22] Spanish Arbitration Club, Annex A. CEA Model Arbitration Rules. Code of Good Arbitration Practices 2019, Rec. See in contrast: International Chamber of Commerce, Arbitration Rules 2017, 23.1, 23.2, 23.3 and 23.4.
[23] Gary Born, ‘Chapter 2: Legal Framework for International Arbitration Agreements’, International
Commercial Arbitration(Second Ed., Kluwer Law International 2014), 230.
[24] Spanish Arbitration Club, Second Section: Arbitration Process. Code of Good Arbitration Practices.
2019, Rec. 1.65, 2.67 and 2.68.
[25] Gary Born, ‘Chapter 13: Rights and Duties of International Arbitrators’, International Commercial
Arbitration(Second Ed., Kluwer Law International 2014), 1971.
[26] International Bar Association, IBA Guidelines on Conflicts of Interest in International Arbitration 2014, párrafos 2-8 de la Parte II.
[27] Spanish Arbitration Club, Third Section: Duties of the Arbitrators. Code of Good Practices
Arbitration. (2019), Rec. 1.69-1.73. [28] Ibid., Rec. 2.74-2.77.
[29] Ibid., Rec. 3.78. [30] Ibid., Rec. 3.80. [31] Ibid., Rec. 3.84.
[32] Ibid., Rec. 7.96-7.98.
[33] Spanish Arbitration Club, Fourth Section: Duties of Lawyers. Code of Good Arbitration Practices. 2019, Rec. 4.1.115. See International Bar Association, IBA Guidelines on Party Representation in International Arbitration 2013. 9.
[34] Spanish Arbitration Club, Section Four: Duties of Lawyers. Code of Good Arbitration Practice. (n 33), Rec. 4.5.128. See International Bar Association, IBA Guidelines on Party Representation in International Arbitration (n 33), 20.
[35] Spanish Arbitration Club Fourth Section: Duties of Lawyers. Code of Good Practices
Arbitration. (n 33), Rec. 4.2.118. [36] Ibid., Rec. 5.131.
[37] Ibid., Rec. 6.132. See International Bar Association, IBA Guidelines on Party Representation in International Arbitration (n 33), 26.
[38] The ICC Rules on the Administration of Expert Proceedings regulate elements inter alia such as: (i) mechanism for selecting the expert; (ii) the expert's mission; (iii) place and language of the expert examination; (iv) procedural timetable; (v) content of the expert's report, etc.
[39] Spanish Arbitration Club, Fifth Section: Duties of Experts. Code of Good Arbitration Practices.
2019, Rec. 3.145.
[40] These only mention the fees and expenses of the Expert when appointed by the Court.
Arbitral.
[41] Spanish Arbitration Club Fifth Section: Duties of Experts. Code of Good Arbitration Practices. (n 39), Rec. 1.135 and 6.151.
[42] Eric de Brabandere y Julia Lepeltak, ‘Third Party Funding in International Investment Arbitra- tion’ (2012)
<https://ssrn.com/abstract=2078358>, 7.
[43] See interesting general perspective on the subject by Bernardo M Cremades, 'Third Party Funding in
International Arbitration’ <https://www.cremades.com/pics/contenido/ File634523783352588756.pdf>.
[44] vid. Ayodeji Akindeire, ‘Third-Party Funding in International Arbitration: Concept, Issues and the Need for a Regulatory Framework’ <https://ssrn.com/abstract=3516668>.
[45] Such is the case of the 'Code of Conduct for Litigation Funders' of the Association of Litigation Funders of
Inglaterra y Gales y del ‘Code of Practice for Third Party Funding of Arbitration’ de Honk Kong.
[46] Spanish Arbitration Club, Sixth Section: Duties Relating to Financing. Code of Good Practice
Arbitration Practices. 2019. Rec. 1.154. [47] Ibid., Rec. 1.155.
[48] Ibid., Rec. 1,156.
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