Challenges of Arbitral Awards and Proceedings for Impartiality6 December 2022
While the topic of arbitrator bias has attracted some carefully-trained attention internationally, to the best of our knowledge the subject has not been covered extensively or at all in respect of Bulgarian law or indeed of Bulgaria more generally.
How a given municipal legal system addresses bias in arbitration can be significant beyond bias’ immediate impact. Firstly, anti-bias protections colour the perceptions of commercial partiеs as to the robustness of the forum’s arbitration system. Secondly, they serve as a heuristic for an understanding by (prospective) parties of the fairness and efficiency of the forum more generally.
Bias and perceptions of system fairness and transparency
In common with other eastern European systems, Bulgarian municipal courts are rightly or wrongly seen as insufficiently immunised against bias and corruption. Although indices of corruption perception such as Transparency International’s do not break down with telling granularity the components contributing to the perceptions they report on, and there is not, to our knowledge, another available index of the perception of corrupt dispute resolution specifically, fears of corruption in the resolution of disputes are a common anecdote among market participants in central and eastern Europe and in particular Bulgaria.
Arbitration is well-placed to repair this type of image for eastern European (or indeed other) dispute resolution forums and to incline commercial parties favourably to the forum more generally, provided it itself is demonstrably free of bias.
How significant might such a fillip to arbitration be for any country and specifically for a jurisdiction such as Bulgaria? Bulgaria is not commonly chosen as an arbitral venue by foreign parties with no economic connection to Bulgaria even while it is chosen by business people for incorporation, for example, or while it exports e.g. higher educational services globally. An arbitral environment perceived to be bias-free or low-bias will directly boost such use of the forum.
Being internationally competitive in preventing bias will become more important as the local economy becomes more closely interwoven with the global one and as dispute resolution in respect of Bulgarian-situated assets or involving Bulgarian parties grows in volume and value and professionalises yet further, processes which may already be under way.
Of course, providing an environment of minimal bias to domestic or mixed domestic and foreign disputants is of economic and systemic value in itself for the standard reasons for which an efficient dispute-resolution system is believed to be.
While we use the example of Bulgaria, our analysis and conclusions ought to apply to any jurisdiction, ceteris paribus.
Bias, protections against bias and dispute resolution efficiency
Further, how arbitrator bias is tackled affects the speed of dispute-resolution and amount of bias-related tactical manoeuvring which parties and their representatives factor in. As with any social method or human institution, dispute resolution mechanisms have a cost, which in the case of bias in arbitration is the cost for parties, tribunals and the courts of the forum to correctly identify situations of bias.
What is discussed below
In this note, we analyse how the risk of arbitrator bias is dealt with in Bulgarian law and by Bulgarian arbitral institutions in two instances: (1) in the course of arbitrations governed by (and therefore policed under) Bulgarian law and (2) when enforcing arbitral awards issued elsewhere in Bulgaria.
We start off by reviewing the disclosure duties of arbitrators as to bias and perceived bias, moving on to setting out how arbitrator disclosure compliance may be compelled ex post. We then examine the remedies available to parties concerned with bias.
We use the term bias to cover the full gamut of states of partiality and dependence, unless we specify otherwise.
I. Disclosure by arbitrators
1. The requirements of the International Commercial Arbitration Act and of institutions
The Bulgarian International Commercial Arbitration Act 1988 (Act), which is broadly UNCITRAL model-compatible, imposes in its s 13 a general duty on prospective or current arbitrators to disclose information which may give rise to reasonable “apprehension or suspicion” (“основателни съмнения” in the Bulgarian) about their impartiality, independence or both, whether such information appears before or after appointment.
The two best-regarded Bulgarian arbitration institutions (we briefly introduce these in Appendix 1 below), attempt to structure disclosure by requiring appointees to complete standard form declarations at the time of appointment (we append a sample of these forms in Appendix 2).
Outside of providing for form completion, no means of compelling disclosure is built in by these two institutions. A refusal to execute a declaration on request by the arbitration court (or perhaps on request by a party) might trigger a bias challenge against an arbitrator (on which – see below).
The challenger would still need to adduce evidence to support their challenge, which may be made harder where the advance disclosure itself is incomplete or non-existent.
2. What happens on disclosure?
In the vast majority of cases this results in the appointee’s practically simultaneous recusal from the arbitral tribunal and discharge from further duties to the arbitration. However, such recusal is not mandatory. Unusually, an appointee may proceed to join the tribunal despite disclosing a ground for apprehension of bias, though this is again subject to the challenge rights referred to below.
The standard form declaration contains an undertaking by the arbitrator to self-monitor and to make ongoing disclosure, as needed. This is also required by s 13 of the Act.
Bias risks identified after appointment can result in the arbitrator recusing themselves. However, they do not do so as commonly as pre-existing risks disclosed at appointment.
3. What is the threshold of apprehension or suspicion a (prospective) arbitrator must have?
The realisation required of the arbitrator is of underlying facts which might give rise to a reasonable apprehension or suspicion of bias. Not needed per se is awareness by the arbitrator that they are biassed, though such awareness would satisfy the requirement for disclosure, if present.
II. The right to challenge an arbitrator for bias prior to the issue of the final award
1. A party’s right to challenge
If an arbitrator is slow to recuse themselves given either self-disclosed or party-uncovered bias, s 14 of the Act enables any party to challenge their appointment. The challenger’s suspicion must be based on reasonable grounds.
This right does not extend to an arbitrator appointed by the challenger or in whose appointment the challenger has “participated” (arguably indirect participation is sufficient).
A party is deemed to have participated in the appointment of an arbitrator where it has nominated them. Where the panel consists of arbitrators directly nominated or appointed by the parties as well as a chair appointed by the party-nominated arbitrators, the parties cannot be said to have participated in the selection of the chair or the other side’s appointee, unless they in fact consent to the appointments.
The better view is thus that the required “participation” is more than passive acquiescence.
Where awareness of bias follows appointment or the bias is novel, the party may challenge the appointment even after it participates in or consents to it.
2. Arbitrator Challenge Procedure
Challenges are in the first place brought before the arbitral tribunal itself. With institutional tribunals, the procedure for challenge may be incorporated in the rules of the respective institution (and it is indeed a part of the rules of the two Bulgarian arbitration institutions we describe in Appendix 1).
The parties are also free to devise their own procedure for the challenge, whether ex post or ex ante of the challenge, and commonly do so in ad hoc arbitrations.
Such agreements cannot severely restrict or make the challenge inordinately difficult (similarly, the parties to an arbitration seated in Bulgaria cannot validly agree to exclude bias-related arbitrator challenges, while they are allowed to contract out of them in seats such as Switzerland and Belgium).
In the absence of a specially-agreed procedure, the challenge must by default be made in writing within 15 days of the later of (i) the tribunal appointment or (ii) the ground for challenge becoming known to the challenger, with challenges time-barred beyond this period.
3. Effect of challenge
If the tribunal disagrees with the challenge, the challenger may apply to the Sofia City Court within 7 days of receiving notice of the refusal.
The parties cannot contract out of this appeal route either.
Notably, there is no further right of appeal from the Sofia City Court’s determination on the issue. At the same time, the Sofia City Court is one of the more experienced courts nationally in commercial matters including arbitration.
Pending its outcome, an appeal to the Sofia City Court does not suspend arbitration proceedings that are underway or affect an arbitral award that might be issued in the meanwhile. However, as a rule, Bulgarian institutional tribunals themselves exercise discretion to stay the proceedings whenever there is an apparently credible challenge.
If a challenge is successful, the arbitrator must be replaced. The rules otherwise applicable to appointment to the tribunal apply.
Notably, this recourse exists only during the arbitration proceedings. After the issue of an award, if a party learns of circumstances that might have affected an arbitrator’s impartiality during the proceedings, its recourse is setting aside the award and not by way of applying to challenge the arbitrator’s appointment on grounds of bias.
III. Setting aside and staying awards for bias
1. Stay and setting aside
Once a final arbitral award is issued by the arbitral tribunal, it can be enforced forthwith, even while there may be a pending challenge. The party suspecting bias may apply to set it aside on one of the grounds in s 47 of the Act. Alternatively, it may apply to stay its enforcement. The party requiring an interim remedy must deposit security in the value of the award.
Purely interim orders or awards of the tribunal (e.g. of a procedural nature) are not however capable of being set aside or stayed in our view. The affected party would need to await the issue of a final award on the merits before it applies to have the award set aside wholesale.
2. Nature of remedy
With a set-aside of the arbitral award by the municipal court, the dissatisfied party is no longer challenging the appointment per se, but the uncovered arbitrator bias which is thought to justify a setting aside.
The right to apply for a setting aside or a stay applies to foreign arbitral awards whose enforcement is sought in Bulgaria as much as it does to awards issued in the Bulgarian seat. If so set aside by a Bulgarian court, the award would have no continuing legal effect or enforceability in Bulgaria, but its status in the forum of issue or other states would be a matter for those legal systems.
4. Jurisdiction and procedure
The application to set aside an arbitral award must be made by the party against whom the award has been pronounced by way of application to the Supreme Cassation Court, the most senior Bulgarian court in civil and commercial matters, within 3 months of service on the affected party.
If the award is set aside, the proceedings may be renewed with the original arbitral tribunal or each of the parties may require the appointment of new arbitrators.
The onus is on the applicant to establish that bias in the tribunal’s establishment and/or the arbitration procedure breach the arbitration agreement. A term in the arbitration agreement prohibiting arbitrator bias may generally be read in.
Alternatively, if there is no clause in the arbitration agreement governing the tribunal’s establishment, the applicant may fall back on the proposition that arbitrator bias is a breach of the general Bulgarian law.
5. Sources of legal inimity to bias
A presumption against adjudicator bias may be derived from general legal principle and from a body of case law developed in the context of the Act specifically (see below).
IV. The wider law on adjudicator bias in Bulgaria
1. Municipal case law on arbitrator bias
The corpus of Bulgarian Supreme Cassation Court case law on arbitrator bias to date is modest and as we explain, its development now somewhat stunted. To our knowledge, in the decade to 2020, only 7 judgments on arbitrator bias had been rendered. While Bulgaria lacks a strict precedential system, pursuant to s 280 of the Civil Procedure Code courts in Bulgaria are obliged to comply with the Supreme Cassation Court’s interpretations of the law on pain of their decision being reversed.
The majority of case law on arbitral bias predates 2017. Prior to 2017, the Act contained a further express ground for setting aside arbitral awards, i.e., where the award was contrary to public policy, which consequently was the natural gateway to arbitrator bias challenges. The public policy ground was repealed with an unrelated 2017 amendment of the Act (commonly believed by commentators to have been unwitting).
2. The roundabout incorporation of a public policy test
Following the repeal, the better view may be that the public policy basis continues to apply in Bulgaria in a roundabout way.
Bulgaria is a party to the New York Convention. This applies domestically under Bulgaria’s monist doctrine of public international law. Article V(2)(b) of the Convention enables the competent authority of the country where recognition or enforcement are sought to set aside the award ex officio where it is contrary to that country’s public policy.
It remains open in what circumstances lack of impartiality – and what degree of partiality – are contrary to public policy in the view of Bulgarian courts, and how far any failure of disclosure under s 13 of the Act may weigh in favour of a finding of partiality.
3. Bias rules and the judiciary
While the Act does not provide a list of grounds for the recusal or removal of an arbitrator, the Civil Procedure Code (which generally governs procedure in civil and commercial disputes in state courts) does list available grounds, at s 22(1) in the context of a recusal or removal of a judge. The jurisprudence on judicial partiality and recusal can be applied by analogy to arbitrators.
In the context of the judiciary, grounds for recusal include:
- The adjudicator being in fact party to the proceedings or being a holder of a disputed right or a right related to the disputed right;
- The adjudicator being in a family relationship or domestic partnership with a party;
- The adjudicator having previously been a legal representative of a party to the proceedings;
- The adjudicator having […] been a witness or expert witness in the case;
- Any other circumstances which may raise reasonable doubt as to their impartiality.
V. Types of bias and their Bulgarian treatment
1. The party preference vs outcome preference dichotomy
One approach to the taxonomy of biases in the context of arbitration is to distinguish between the biassed person having a party preference and outcome preference.
When a decision maker is more inclined to decide in favour of one of the parties, then he has party preference. This can be based on the sharing of common identity characteristics between arbitrator and party (nationality/domicile, race, political persuasions) or on the familiarity between them (professional, commercial, social or representative).
Outcome preference is often referred to as ‘Prejudgement’ or ‘Substantive Bias’. It can be based on party preference or legal opinion. Outcome preferences that flow from party preference will include, at their most extreme, situations of corruption where the decision maker’s outcome preference has been procured by payment or favour. The more common form is where the arbitrator goes into the arbitration with a view as to who should win, and why. Outcome preferences based on legal opinion are actionable where a decision maker gives the appearance that they have judged the facts or merits prior to the scheduled hearing.
2. The IBA bias scale
Another classification is contained in the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines), last amended in 2014. The IBA Guidelines seek to risk-stratify situations which in the IBA Arbitration Committee’s opinion warrant a different grade of response – coded Red, Orange and Green.
The Red List covers situations in which a conflict of interests exists and is subdivided into two: non-waivable (which must be disclosed by an arbitrator and they must under all circumstances recuse themselves) and waivable (which must also be disclosed, but an arbitrator could act with the parties’ consent). The Orange List includes situations in which a conflict could exist from the parties’ perspectives. The Green List identifies situations which raise no conflict and hence no disclosure is necessary.
3. Family and similar relations
One category concerns familial or similar kinship ties. Historically, family relationships have been very important to Bulgarian social culture and the perception that these are strong bonds which may cause bias has been accordingly prominent. Unsurprisingly, the IBA Guidelines consider them predominantly as belonging to the waivable Red List, with one exception belonging to the Orange List. Although some of this cultural importance may be waning, it is likely that it would still feel significant to local parties or those familiar with Bulgarian culture.
The extent of familial proximity has therefore been the ground of dispute in arbitration.
In a case in which the arbitrator had served as the best man at the wedding of a party’s legal representative, the Supreme Cassation Court held this a reasonable and therefore sufficient ground for challenge, even though the wedding at which the relationship had arisen had taken place 28 years previously. Notably, the relationship between the historically married couple was ongoing and it is unclear whether the court would have found otherwise had there been an intervening divorce.
A finding that family ties are a source of bias sufficient for a challenge to be successful would appear to extend to relationships of both consanguinity and affinity of a certain degree – but precisely what degree remains to be tested in court.
4. Business relationships
According to the IBA Guidelines, business relations are placed in the waivable Red List and in the Orange List, e.g. where the arbitrator’s law firm currently has a significant commercial relationship with one of the parties, or an affiliate of one of the parties (2.3.6), or where the arbitrator’s law firm is currently rendering services to one of the parties, or an affiliate of one of the parties, without creating a significant commercial relationship for the law firm and without the involvement of the arbitrator (3.2.1), respectively.
Somewhat counterintuitively, according to a Supreme Cassation Court case, the fact that the director of a company which was a party to the dispute was also a member of the board of the arbitral institution where the dispute was being heard did not per se lead to the arbitrators’ lack of impartiality. The rationale was that there was no direct causal relationship between the party’s director’s membership and the impartiality of the arbitrator in the concrete proceedings, in particular in the light that the former’s functions within the institution are of organisational nature and have no bearing on its judicial activity, among other things.
5. Repeat appointments
Repeat appointments belong to the IBA Guidelines’ Orange List, where the arbitrator has, within the past three years, been appointed as arbitrator on two or more occasions by one of the parties, or an affiliate of one of the parties (3.1.3).
Repeat appointments by a party of the same arbitrator in different arbitral proceedings in themselves have not been held in the Bulgarian case law to date to be of themselves evidence of partiality and hence would not constitute as such grounds for a sustainable challenge of an arbitrator.
In a 2020 case in the Sofia City Court, it was held that repeat appointments are not prohibited by law but the Sofia Court nevertheless was careful to carve out a saving that the parties may expressly prohibit or perhaps otherwise problematise repeat appointments in their arbitration agreement. This would mean parties may also agree on a maximal number of previous appointments permitted, though we are yet to see such a clause in our practice.
In view of the above, currently the Act does not expressly provide for the challenge of an arbitral award on the ground of lack of impartiality of an arbitrator – while it does provide for a challenge to the arbitrator while the proceedings are ongoing.
Nevertheless, if a party finds out that an arbitrator was not impartial after the award is rendered and within the 3-month time limit from the party’s being served with it, there appear to still be two routes to challenge the award:
- If compliant with an agreement which breaches the Act’s mandatory requirements (such as the requirement for impartiality and independence permeating the Act’s spirit), the tribunal’s establishment or the arbitration procedure may be considered invalid.
- In the absence of a prior agreement to this end, the tribunal’s establishment or the arbitration procedure may be considered invalid with respect to the Act’s requirement for impartiality and independence.
Practise at the most commonly-used Bulgarian arbitral institutions
The two most commonly used institutional tribunals in Bulgaria are the Arbitration Court at the Bulgarian Chamber of Commerce and Industry (BCCI) and the Arbitration Court at the Bulgarian Industrial Association (BIA).
The internal rules of both require arbitrators to execute a declaration of absence of conflict upon their acceptance of their appointment and at any later time if circumstances occur that concern their impartiality and independence. Under the BCCI rules, an arbitrator must list all of their potential conflicts of interest, if any, whereas under the BIA rules they are presented with a binary choice: to declare that they have no conflicts of interest or to be unable to truthfully declare so.
The BCCI rules thus provide for more transparency, potentially allowing the parties to make better informed decisions as to whether to challenge an arbitrator. On the other hand, while under the rules at the BCCI, an arbitrator may continue to serve on the court despite declaring grounds that may cause reasonable doubt in their impartiality, an arbitrator at the BIA is obliged to step down if they cannot declare the absence of such circumstances.
In practice however, even though a BCCI declaration of absence of conflict which contains information on potential conflicts of interest does not automatically lead to an arbitrator’s removal, the practical norm is for arbitrators to remove themselves anyway in order to avoid potential complications later in the proceedings such as providing the affected party with a reason to challenge the award.
“Case no ……/………
Declaration for Impartiality and Independence of Arbiters
I, the undersigned …………….,
- Agree to be an arbiter in the above proceedings and to receive remuneration for my work in accordance with the Tariff for the Remunerations of Arbiters with the AC at the BCCI, with whose text I am acquainted.
- Declare that I am not in any direct or indirect relationship with the parties to the proceedings, respectively with their statutory representatives (familial, professional, financial, etc) as well as that I will be impartial and independent in the review of the dispute.
- If, in the course of the arbitration proceedings, I become aware of facts and circumstances that may raise reasonable doubts for my impartiality and independence, I undertake to disclose them forthwith in writing to the parties to the proceedings.
- I shall strictly comply with the prohibitions under art. 7(1) of the Rules of the Court of Arbitration at the BCCI, the Ethical Rules of Conduct for Arbitrators at the Court of Arbitration at the BCCI, and shall keep the commercial and other secrets of the parties, including the deliberations of the decision-making body with respect to the parties as well as third parties.
Particular explanations: ……………………….. (if any, they can be filled out in a separate sheet).