An arbitral process is only as strong as the integrity of the individuals who lead it. As Nepal seeks to expand its horizons in trade, commerce, and international investment, the reliability of its dispute resolution mechanisms is a primary concern for fostering investor confidence. Central to this integrity is the principle of neutrality—the requirement that arbitrators remain independent and impartial. However, while international standards have evolved into a sophisticated "Traffic Light System" through the International Bar Association (IBA), Nepal’s statutory framework remains constrained by an outdated evidentiary threshold that risks undermining the very fairness it seeks to protect.
The Foundational Watchword of Tribunals
Independence and impartiality are not merely modern ethical trends; they are fundamental to the adjudicatory function itself. Gary Born, in his seminal work International Commercial Arbitration (2021), argues that these represent "core obligations" binding upon any arbitrator in all circumstances. He emphasizes that impartiality is the foundational watchword of all tribunals, including arbitrators. This standard traces back to ancient Greece, where the term for arbitrator—Koinos—was synonymous with being a “third party, impartial, and common to both sides.” In the modern context, under the 1958 New York Convention, a lack of impartiality constitutes grounds for rejecting an award, ensuring that the integrity of the process overrides even the general deference to party autonomy.
Defining Independence and Impartiality
To understand the gap in Nepal’s framework, we must distinguish between the two pillars of neutrality. Carlos Lopez, in Independence and Impartiality of Arbitrators (2020), provides a vital distinction: independence is an objective element involving the assessment of factual links, while impartiality is a subjective notion assessed in terms of intellectual predispositions. Independence focuses on the arbitrator’s position, determining if a situation of “non-dependence” exists between the arbitrator and a party, such as avoiding financial or professional relationships. Impartiality, conversely, refers to an intellectual attitude, ensuring that an arbitrator is not predisposed in favor of or biased against a particular party. Lopez stresses that impartiality relates to a ‘state of mind,’ where bias is triggered if a reasonable third party perceives that preconceived opinions will override a decision based strictly on the merits.
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The Subjectivity of Disclosure
In practice, these requirements are upheld through a strict duty of disclosure. Arbitrators must disclose all facts that may give rise to justifiable doubts about their impartiality, yet the identification of potential conflicts can differ widely depending on an individual's background. A well-known industry anecdote illustrates this risk: in one proceeding, an American co-arbitrator provided three pages of disclosures regarding minor social encounters with a party's counsel, while a European arbitrator in the same case declined to disclose that he spent his summer vacations with the counsel of the party that appointed him. Without a uniform standard like the IBA Traffic Light System, disclosure remains a subjective inquiry. In the tight-knit legal circles of Kathmandu, where classmates and colleagues often find themselves on opposite sides of a dispute, this subjectivity remains legally tenuous. To preserve the reputation of arbitration as "private justice," the process must move from personal discretion to objective transparency.
Bridging the Statutory Bottleneck
Nepal’s Arbitration Act (1999) was a partial adaptation of the 1985 UNCITRAL Model Law, yet it contains a significant evidentiary gap. The primary hurdle lies in Section 11(2)(a), which allows for the removal of an arbitrator only if they are "clearly seen to have shown a bias." This phrasing effectively mandates proof of actual bias—an insurmountable evidentiary hurdle that requires proving an arbitrator’s internal state of mind. In contrast, the 2024 IBA Guidelines utilize the "Justifiable Doubts" test. Under this international standard, doubts are justifiable “if a reasonable third person, having knowledge of the facts, would conclude there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case.” While bodies like the Nepal Council of Arbitration (NEPCA) have attempted to bridge this gap through their 2021 Code of Ethics, the parent Act remains a statutory bottleneck that fails to disqualify apparent bias by demanding incontrovertible proof of actual bias.
Clarity Through the Traffic Light System
The 2024 IBA Guidelines introduced a sophisticated Traffic Light System that offers the granular clarity currently missing in Nepal’s domestic framework. By categorizing potential conflicts into Red, Orange, and Green lists, the system provides a structured approach to disclosure. The Red List identifies serious conflicts, distinguishing between non-waivable interests, such as a direct financial stake, and waivable ones where disclosure is mandatory. The Orange List is particularly essential for the Nepalese context, as it mandates the disclosure of situations such as "repeat appointments" where an arbitrator has served twice or more for the same party within three years. Conversely, the Green List serves as a vital safe harbor for trivial situations, such as social media connections. In a compact legal ecosystem like Nepal’s, the absence of such a list often invites tactical challenges designed simply to delay proceedings over inconsequential ties.
Judicial Precedent
A turning point in Nepal’s ethical framework arrived with the case of Coastal-Pappu JV v. Ministry of Energy (2076). An arbitrator was challenged because he had previously served as counsel for a "sister concern" of one of the parties. The High Court Patan ruled that the requirement for an arbitrator's neutrality is mandatory. By looking past the specific Joint Venture name to the underlying partners, the Court effectively addressed the attribution of conflict, reinforcing that an arbitrator must not only be impartial but must appear to be impartial to ensure the integrity of the process.
Roadmap for Reform
To align Nepal’s arbitral proceedings with international standards, the government and legal bodies must act on four fronts. First, the Arbitration Act must be amended to supersede the restrictive "clearly seen to have shown a bias" threshold with the internationally recognized "justifiable doubts" standard. Second, institutional bodies like NEPCA and the Dispute Resolution Centre (DRC) should fully institutionalize the 2024 IBA Traffic Light System as a supplementary guide for all proceedings. Third, standardized disclosure questionnaires should be mandated to specifically target Orange List scenarios, such as past relationships and repeat appointments. Finally, specialized judicial training is required for High Court and Supreme Court judges to ensure judicial review of arbitrators' challenges is based on modern ethics rather than a rigid interpretation of the 1999 Act.
Ultimately, in the world of international commerce, impartiality is the currency of trust. Investors do not fear losing a case on its merits; they fear losing because the deck was improperly constituted before the first hearing began. By adopting the IBA Traffic Light System, Nepal can move away from subjective discretion toward objective transparency. It is time to ensure that the arbitrator’s role is not just to adjudicate a dispute and proclaim a victor, but to ensure the game was played on a level field from the very first whistle. Only then can Nepal bridge the evidentiary gap in its jurisprudence and realize its potential as a trusted hub for international dispute resolution.
The author is a student of BA LLB at Kathmandu School of Law.
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