Navigating Arbitrator Appointments in disputes caught in geopolitical crossfire

The international arbitration landscape has been significantly reshaped in recent years, particularly in the wake of the ongoing war in Ukraine. The surge in commercial and investor-state Russia-related disputes shows no sign of slowing down, a trend which is set to continue as geopolitical tensions deepen.

One of the traditional “selling points” of international arbitration for global parties has been the ability to select an arbitrator. However, in arbitration cases linked to Russia, geopolitical tensions have heightened scrutiny of arbitrators’ backgrounds. When arbitral institutions, parties and co-arbitrators are selecting suitable arbitrators, issues of nationality and arbitrators’ personal and professional views are assuming greater significance and may lead to arbitrator scrutiny, and potential challenges, at any stage of the proceedings – from arbitrator selection to award enforcement.  In this Part 5 we look at recent arbitrator challenges in Russia-related disputes and their implications for parties, arbitrators and arbitral institutions.

Heightened Scrutiny of Arbitrators in Russia-Related Disputes

In arbitration cases linked to Russia, arbitrators are often faced with a significant ethical dilemma:

1. should they express their professional and personal views in order to voice support for fundamental legal principles and maintain their pride and dignity; or
2. should they remain silent in order to avoid losing potential appointments or jeopardising the conduct of ongoing arbitrations and the potential enforceability of arbitral awards?

This dilemma has become increasingly prominent because arbitrators are now more frequently challenged on the basis of perceived bias, often tied to their nationality or public stance on the war:

1. Russian Supreme Court decision accepting nationality-based bias arguments. Russia’s designation of several countries as “unfriendly” (for a list of such countries and further information: see Part 1) has significantly impacted the perception of the neutrality of arbitration proceedings in the eyes of Russian courts. In a decision dated 26 July 2024 (Case No. А45-19015/2023), the Russian Supreme Court refused to enforce a foreign (English) arbitral award because it violated Russian public policy. A key ground for this decision was that all the arbitrators were nationals of countries designated as “unfriendly” by Russia, which created a reasonable presumption of bias. The court reasoned that none of these arbitrators could be seen as impartial in a dispute involving a Russian party. This presumption places the burden on the party seeking enforcement to disprove the alleged bias, a difficult task given the geopolitical background.
2. Successful multiple challenge in PCA inter-state arbitration. In a Permanent Court of Arbitration (“PCA”) inter-state dispute between Russia and Ukraine, two unchallenged arbitrators of a five-member tribunal decided to accept Russia’s challenge of the other two arbitrators based on their political positions concerning the war in Ukraine. Accordingly, in March 2024, two arbitrators were removed from the tribunal after Russia argued that their support for the Institute of International Law’s March 2022 Declaration, criticising Russian military activities (“IDI Declaration”), rendered them incapable of being impartial when deciding cases involving Russian parties. The tribunal accepted Russia’s objections, setting a precedent for how arbitrator challenges based on political affiliations may be treated going forward.
3. Unsuccessful challenge in ICSID case against Ukraine. A case before the International Centre for Settlement of Investment Disputes (“ICSID”) (ICSID Case No. ARB/24/1) illustrates the varying outcomes of similar challenges. It is understood from GAR that, in this dispute involving Ukraine, a US arbitrator faced a similar challenge based on his vote for the IDI Declaration, but the Chairman of ICSID’s Administrative Council rejected the challenge on 15 July 2024 on the basis that there was insufficient information presented to conclude that the US arbitrator would not be independent or impartial.

These developments show that arbitrators are at risk of losing their mandate simply for holding certain views or being a national of a particular country.  Likewise, certain awards face enforceability risks due to the stance taken by the Russian courts.

Implications

In arbitration, parties and arbitrators are expected to be vigilant and proactive in identifying and addressing any potential issues impacting independence and impartiality. Since February 2024, there are more disclosure considerations for arbitrators and parties in cases where the parties have agreed to use the IBA Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”).

Adding to this: (i) the varying positions adopted by tribunals and arbitral institutions/bodies in relation to challenges based on political views and alleged bias, and (ii) the nationality-based bias presumption applied by Russian courts, it is clear that parties are having to navigate an increasingly complex and unpredictable legal landscape.

By way of high-level summary, this could have the following implications for parties, arbitral institutions and arbitrators:

• It is likely to influence future enforcement actions in the Russian courts as well as arbitrator challenges within those courts.
• As to proceedings outside of Russia, parties could use nationality and/or perceived political opinion/affiliation as a basis for challenge and a rise in challenges may occur as a result. Some of these challenges may amount to guerrilla tactics designed to disrupt or stall proceedings, stifle them all together, or to overturn unfavourable decisions. 
• It may impact the choice of arbitral seat and the way in which parties draft their arbitration clauses.
• When arbitral institutions, co-arbitrators and parties are selecting arbitrator candidates they may be influenced by these developments and it could lead to a narrowing of the available pool of suitable arbitrators for geopolitically sensitive disputes.
• Arbitrators may be increasingly transparent in their disclosures, especially if they anticipate that their nationality and/or political views will be under close scrutiny. The 2024 IBA Guidelines also expand the circumstances in which arbitrators have a duty to make disclosures, for example where they have publicly advocated a position on the case (including on social media and in public papers and speeches). However, it remains to be seen how the 2024 IBA Guidelines will be applied in practice, particularly in jurisdictions where the courts are more inclined to view the issue of arbitrators’ impartiality through a geopolitical lens.

Concluding Comment

The trend of heighted arbitrator scrutiny and challenges based on nationality and arbitrators’ geopolitical views is likely to continue – along with the projected growth of Russia-related disputes – creating complexity and legal uncertainty for some time.

Parties entering into, or already involved in, arbitration proceedings will need to work with their legal advisers to:

1. Consider the risks arising from this complex and evolving landscape, including ways they may need to protect their arbitration agreements (such as through use of anti-suit injunctions, discussed in our prior Legal Update); and
2. Devise a tailor-made enforcement strategy to suit their particular needs.

Mayer Brown’s diverse and multi-office international arbitration team is well-equipped to navigate these complex matters and provide strategic advice to ensure the best outcome in contentious matters. For more information or advice, please contact any of the authors, or your usual Mayer Brown contact.