A guest blog by Tomas Vail, arbitration lawyer and arbitrator at Vail Dispute Resolution
The recent Halliburton decision has given rise to a wealth of commentary on a variety of interesting issues. Less explored is how the Supreme Court’s analysis of ‘inside information’ aligns with other opportunities for unconscious bias, such as determinations on the admissibility of illegally obtained evidence.
In civil matters, judges generally admit such evidence and evaluate its relevance (with potential costs implications as a deterrent).
As to the method, in Shagang v HNA, the Supreme Court stated: “Issues of admissibility can be dealt with efficiently by admitting the evidence de bene esse. This means taking the evidence into account on the assumption, without deciding, that the evidence is admissible.
“Unless the evidence turns out to be critical to the decision to be reached, the issue of admissibility may never need to be determined. This is often a convenient approach to adopt, as resolving issues of admissibility can be complex and time consuming.”
Arbitral tribunals equally have wide evidentiary discretion and rarely exclude evidence. Notably, the above approach was adopted in one of the rare cases where illegally obtained evidence was excluded, the 2005 case of Methanex v United States.
Methanex, a Canadian company, initiated a NAFTA investment arbitration against the US, and sought to rely on documents it had obtained from the rubbish of a lobbying organisation. Following objection by the US, the tribunal (with the late VV Veeder as president) admitted the evidence de bene esse and organised in camera sessions, as well as testimony from four new witnesses, on its acquisition.
After careful review, the tribunal excluded the materials, finding they had been obtained unlawfully “by successive and multiple acts of trespass committed by Methanex over five and a half months”. It said the materials were “only of marginal evidential significance… [and] could not have influenced the result of this case”.
The tribunal also stated that, insofar as Methanex was seeking to discredit a factual witness, “it need only be said that, in all the circumstances, no such attempt could ever have succeeded in the manner originally intended by Methanex”.
Whilst Methanex’s evidentiary attempt backfired, arbitrators review evidence to determine admissibility without concern that it might prejudice their views, even if found to be inadmissible.
An arbitrator in the Maximo Mora case before the United States-Spanish Mixed Claims Commission of 1871 made the following distinction: “The arbitrators hear and decide questions of law and fact alike. The arbitrators are competent to decide for themselves as to the amount of credibility to be given to any evidence, and are not in danger of being misled, as juries may be.”
Scholars argue that this confidence is misplaced. Empirical research shows that judges and arbitrators, like laymen, are unable to ignore inadmissible evidence.
One 1994 study (Landsman and Rakos) asked judges and laymen to decide a hypothetical product liability dispute, with some participants learning facts that were inadmissible, and some participants being instructed that those facts were inadmissible.
The inadmissible information had a negative impact on both judge and juror decisions; the instruction that the evidence was inadmissible had no effect on judges or jurors.
A 2005 study (Wistrich, Guthrie, and Rachlinski) equally found that judges were generally unable to disregard inadmissible evidence, except in respect of an inadmissible search or confession. A 2007 study (Guthrie) found that judges who reviewed a privileged document harmful to a claimant’s case ruled for the defendant about twice as often as those who had not seen it.
Drawing on such studies, scholars have analysed similar issues regarding arbitrators. A 2012 survey of arbitrators (Sussman) found that arbitrators usually admit evidence that would not be admissible in court, with results showing that a third of respondents never excluded evidence and 55% excluded evidence only about a quarter of the time.
A 2017 study (Franck) found that both arbitrators and judges make intuitive decisions that they might, or might not, override with deliberation.
As these studies show, unless an arbitral tribunal appoints an independent expert to review potentially inadmissible documents (see article 3(8) of the IBA Rules on the Taking of Evidence), it will likely review materials influencing its views on the dispute irrespective of the admissibility of such materials.
Turning back to Halliburton, the Court of Appeal accepted that inside information may be a legitimate concern, but that, in itself, it does not justify an inference of apparent bias; arbitrators should be trusted to decide a case solely on the evidence adduced in the proceedings in question, and are assumed to understand they should approach every case with an open mind.
Whilst the Supreme Court did not disagree, Lady Arden’s concurring judgment set out that the fact that an arbitrator is to be trusted to decide the case on the evidence is not a complete answer to Halliburton’s objections based on inequality of arms and material asymmetry of information.
In the months ahead, arbitrators will likely be more inclined to disclose, and in the short term parties may seek to bring more challenges on these grounds. However, as indicated by the Supreme Court, there is good reason for scepticism regarding such challenges, not least because they are so rarely successful – and this is likely to remain the case.
Moreover, arbitrators are likely to make higher-quality disclosures as decision-making is better understood and opportunities for unconscious bias, whether regarding inadmissible evidence or inside information, can be better recognised.