Double Hatting Under New Scrutiny

A small group of highly influential “power brokers” regularly combine multiple roles in investment arbitration but the controversial practice – known as “double hatting” – is not widespread within the field, researchers at the University of Oslo have found.

Review of the newly published article by Malcolm Langford, Daniel Behn, and Runar Hilleren Lie by Lacey Yong at Global Arbitration Review, republished by PluriCourts with permission from Global Arbitration Review. 

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According to an article entitled “The Revolving Door in International Arbitration” by Malcolm Langford, Daniel Behn and Runar Hilleren Lie, double hatting is practised consistently by a small but “highly visible and powerful core” of actors in the investment arbitration community.

While double hatting commonly refers to the practice of simultaneously combining the roles of arbitrator and counsel in different cases, the article defines the term more broadly to include those who also juggle roles as expert witness or tribunal secretary.

On this basis, the study names five individuals who have most frequently double-hatted in investment treaty cases over a long period: Emmanuel Gaillard of Shearman & Sterling in Paris; Jan Paulsson of Three Crowns; Judge James Crawford of the International Court of Justice; Kaj Hobér of 3 Verulam Buildings in London; and former US trade negotiator Daniel Price.

Of those five, the article identifies the first four as “power brokers” within the investment arbitration community.

The article, which describes itself as the first “empirical analysis” of the investment arbitration community, draws on the PluriCourts Investment Treaty Arbitration Database – a project by the University of Oslo that contains data on 1,039 known investment arbitrations, including ICSID annulment proceedings and ICSID cases based on contracts or a state’s domestic laws on investment.

The aim of the article is to identify and map out the relationships of 3,910 individuals to determine the extent to which double hatting occurs in investment arbitrations.

Double hatting has come under increasing scrutiny following the rise of investment treaty arbitration in the 2000s. Critics of the practice argue that it undermines the legitimacy of investor-state arbitration as it can lead to conflicts of interest; lack of transparency in the appointment of arbitrators; excessive collegiality, and high fees and costs, among other issues.

The article says these criticisms reflect an overall concern that the investor-state arbitration community is closed and engaged in “self-dealing.” It cites UK-French arbitrator Philippe Sands QC, who has said that international arbitration will never be able to shield itself from “questions of perceived bias” where arbitrators are allowed to serve as counsel and vice versa.

To determine who is engaging at double hatting and to what extent, the article begins its assessment by identifying the individuals most frequently seen acting in the roles of counsel, arbitrator, expert witness and tribunal secretary in investment treaty arbitration.

The article identifies 25 top arbitrators in the world based on number of appointments. The top five are “well-known grand old men and two ‘formidable’ women,” mostly from Western states: France’s Brigitte Stern; Switzerland’s Gabrielle Kaufmann-Kohler; Canada’s Yves Fortier QC; US arbitrator Charles N Brower, and Chile’s Francisco Orrego Vicuña.

The article then applies “social network analysis,” a theory and methodology that focuses on the importance of relationships. It says the top 25 arbitrators form an “inner core” of power, which is surrounded by a secondary ring of arbitrators. Individuals such as Kaufmann-Kohler, Fortier and Stern wield the most influence within the core based on their relationships and the significance of those ties.

The article also examines the main actors playing the role of legal counsel in investment treaty arbitration. Of the 2,699 lawyers that represent claimants and respondents, only 1% (the top 25) have participated in more than 13 cases. This elite group is dominated by practitioners from Western law firms, and includes several top arbitrators, including Gaillard, Paulsson and Crawford.

Of the actors in the investment arbitration community, those who wear multiple hats tend to be the “power brokers” of the community, the article says. Power is measured in terms of the number of cases and connections, as well as the symbolic influence attached to a particular position in arbitration.

Based on this assessment, actors such as Gaillard, Paulsson, Crawford and Stephen Schwebel who have simultaneously combined multiple roles dominate the list of power brokers.

To assess how widely double hatting occurs, the study uses an algorithm to determine an “all-time” score and an annual score for each individual. Those who wear one hat as an arbitrator, counsel, expert witness or tribunal secretary in a given year are assigned zero points, while individuals who serve in a minimum of two roles in at least two investment arbitrations receive two points.

In addition to the top five double hatters already mentioned, the index includes 20 other individuals such as William W Park of the US and Florentino Feliciano of the Philippines (who died in 2015), as well as younger practitioners who “may be” transitioning to full-time arbitrator roles, including Eduardo Silva Romero of Dechert in Paris and Zachary Douglas QC of Matrix Chambers in London.

The double-hatting index (top 25)

Index devloped by Malcolm Langford, Daniel Behn, and Runar Hilleren Lie 

Arbitrators that have made clear statements against double hatting, such as Sands and US arbitrator Michael Reisman, scored low on the index.

The study goes on to address whether double hatting has increased over time. It notes that there has not been a significant rise in double hatting for the top 25 individuals since 2005, while individuals outside of the top 25 showed a sharp increase in double hatting in 2014 followed by a fall.

It is therefore too early to determine whether double hatting has changed, the article concludes, though the data indicates that only a select group frequently engage in double hatting.

The article observes that individuals who have ceased to double hat over the past few years do not appear to have done so on the basis of ethical or conflict issues. Some have largely ceased taking on new cases as either arbitrator or counsel as they reach retirement age, while others have acquired a sufficiently large caseload as arbitrator to preclude the time or “economic necessity” to act as counsel simultaneously.

Others have been precluded from taking on counsel work as a result of their appointment to the International Court of Justice, such as Crawford and Sir Christopher Greenwood QC.

Addressing the possibility of reform, the article suggests that the major critiques of investment arbitration based on double hatting would “evaporate” if some 10 to 15 individuals agreed to forego the practice. While it would be preferable for the most frequent double hatters to “self-regulate”, the article notes that the practice can also be combatted by introducing a ban on double hatting in new investment agreements (such a ban is found in the new EU-Canada trade agreement, CETA) or through changes to the rules of arbitral institutions.

The article has been published in the summer 2017 issue of Journal of International Economic Law.

Tags: Investment By Lacey Yong
Published June 8, 2017 10:19 AM - Last modified June 8, 2017 2:21 PM