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Arbitrator bias and domestic trade disputes

Many are familiar with the issue of impartiality in the context of international-investment arbitral panels. Less talked about, however, is how these same concerns bear on arbitrators in disputes under the Canadian Free Trade Agreement.

Canada’s provinces and territories are all party to the little-known Canadian Free Trade Agreement. It is the successor to the Agreement on Internal Trade of 1994. The CFTA is a hybrid between an internal free trade agreement and a domestic multi-lateral investment treat, and it includes a dispute-resolution mechanism akin to that which can be found in most international trade and investment arrangements.

In the international context, typically, both sides appoint a single arbitrator to the dispute panel, and then the two appointed arbitrators select a third to join them in adjudicating the case. This is the same process for appointing arbitrators under the CFTA. Theoretically, all three arbitrators are expected to be uniformly neutral and impartial. But it is easy to see how perverse incentives arise both for parties to the dispute as well as the arbitrators themselves, who, in international disputes, are typically paid upwards of $3,983 per day. Parties will opt for arbitrators who are sympathetic to their position. And recent research by Sergio Puig and Anton Strezhnev suggests that arbitrators are influenced by the party that appointed them. Particularly damning is Albert van den Berg’s discovery that there is no known case of a party-appointed arbitrator dissenting against the interests of their appointing party in the field of international investment arbitration.

These same issues arise with similar force in the context of Canada’s domestic free trade and investment pact.

Who are the arbitrators in CFTA disputes? And to what extent should we be concerned about impartiality?

In the course of its lifetime, the CFTA and its predecessor agreement, the Agreement on Internal Trade, have resulted in a total of 14 published dispute-panel and appeal reports. All except one featured three arbitrators (the sole exception was the first-ever dispute in 1998, which involved five arbitrators). Notably, of the three dissents ever written in the course of the 14 published disputes, at least two were written by the arbitrator appointed by the losing side. On the one hand, this might be a product of careful and concerted deliberation and irreconcilable differences of opinion. On the other hand, this fact may be a product of intentional or unintentional bias in favour of the position of the party that appointed the arbitrator.

Perhaps worthy of heightened concern are the linkages between counsel for the parties and the arbitrators. For example, lawyers (though not the same ones) from Borden Ladner Gervais LLP as well as Dentons LLP have featured as both counsel to disputing parties and as arbitrators on dispute panels. This fact alone does not imply any wrongdoing, and some may argue that the link via firm affiliation is too tenuous. However, it does create a problem of optics, and at the very least, it raises the appearance of bias.

In addition to concerns about “double-hatting” firms, observers might be concerned about the homogeneity of arbitrators and its attendant implications for dispute outcomes. Of the 33 arbitrators who have ever sat on a CFTA or AIT dispute panel, an elite group of 11 (nine men and two women) have presided more than once. These 11 individuals represent one-third of all arbitrators, but they have filled more than half of the total arbitrator roles. Moreover, men have occupied an overwhelming 70 per cent of all arbitrator roles. Finally, more than 50 per cent of arbitrator roles have been filled by private-practice lawyers.

Should we be concerned about these findings regarding CFTA dispute adjudicators? At the very least, these numbers are not all that different from their international counterparts — 93 per cent of ICSID arbitrators have been men and more than 60 per cent of ICSID arbitrators are lawyers with a specialty in commercial law. For background, ICSID is the most popular dispute settlement institution for investor-state disputes.

Though the domestic statistics maintain similarities with their international counterparts, this does not mitigate the concerns and potential costs of a non-diverse pool of adjudicators. And the lacking diversity may indeed impact the outcomes in CFTA disputes. In the 2017 book The Political Economy of the Investment Treaty Regime by Jonathan Bonnitcha Lauge Skovgaard Poulsen and Michael Waibel, the authors argued that arbitrators with background in commercial law may be less sympathetic to countervailing public and governmental interests in support of a trade or investment restraint.

CFTA disputes do not occur with great frequency. In its 25 years, only 14 disputes have come before a panel. However, this reality does not lessen the concern for bias or the appearance of bias in CFTA dispute proceedings. In a country where the constitution alone is not strong enough to strike down most interprovincial trade and investment barriers, the CFTA takes on great significance. Relatedly, the national project of greater domestic economic integration is threatened if CFTA dispute rulings come from prejudiced arbitrators.