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Codes of Ethics Applicable to Arbitrations in Africa

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is The African ADR Practitioner of the Year 2022, The African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

There has been progress towards strengthening ethics in arbitration as envisaged by several codes and institutional rules on ethics. The International Bar Association (IBA) has formulated guidelines on conflicts of interest in international arbitration. The guidelines apply to international commercial arbitration and international investment arbitration and are designed to assist parties, practitioners, arbitrators, institutions and courts in dealing with the fundamental ethical concerns of impartiality and independence.

Among the fundamental principles encapsulated in the guidelines is impartiality and independence. According to the guidelines, every arbitrator shall be impartial and independent of the parties at the time of accepting an appointment to serve and shall remain so until the final award has been rendered or the proceedings have otherwise finally terminated. The guidelines further seek to address the ethical concern of conflict of interest. They require an arbitrator to decline to accept an appointment or, if the arbitration has already been commenced, refuse to continue to act as an arbitrator, if he or she has any doubt as to his or her ability to be impartial or independent. According to the guidelines, the rules on conflict of interest are aimed at fostering confidence in the arbitral process.

The IBA guidelines also envisage the ethical duty of disclosure. They require an arbitrator to disclose any facts or circumstances that may, in the eyes of the parties, give rise to doubts as to his or her impartiality or independence prior to accepting appointment or a soon as the arbitrator becomes aware of such facts or circumstances. The IBA guidelines also govern parties to an arbitration and require them to disclose any relationship, direct or indirect, with the arbitrator. Disclosure of such relationships is aimed at reducing the risk of an unmeritorious challenge of an arbitrator’s impartiality or independence based on information learned after the appointment.

The IBA guidelines are important in strengthening ethics in arbitration by providing specific guidance to arbitrators, parties, institutions and courts as to which situations do or do not constitute conflicts of interest, or should or should not be disclosed. The IBA guidelines represent an attempt to formulate a code of ethics in arbitration at the international level. The guidelines have gained wide acceptance within the international arbitration community.

At the Institutional level, the Chartered Institute of Arbitrators Code of Professional and Ethical Conduct for Members sets out professional and moral principles to govern the conduct of members of the Chartered Institute of Arbitrators while discharging their mandate. The Code requires members to maintain integrity and fairness while managing disputes and withdraw from acting if they can longer fulfill this obligation.

The Code further requires members to disclose all interests, relationships and matters likely to affect their independence and impartiality before and throughout the arbitration process. It also requires members to be competent and only accept appointments to manage disputes only when they are appropriately qualified or experienced. In addition, the Code requires arbitrators to ensure that parties are adequately informed of all the procedural aspects of the arbitration process. It further requires members to maintain trust and confidence of the dispute resolution process. The Code is therefore an important source of professional conduct, ethics, integrity and etiquette for members of the Chartered Institute of Arbitrators. It governs ethical issues in arbitration including integrity, fairness, conflict of interest, competence, trust and confidence.

The London Court of International Arbitration (LCIA) has also made progress towards strengthening ethics in arbitration vide its arbitration rules which contain general guidelines for the parties’ legal representatives. This has been described as the first attempt to set out an ethical framework for regulating the conduct of counsel in international arbitration at an institutional level. The guidelines define the standards of ethical conduct expected of counsel appearing before the LCIA or its tribunal.

The guidelines prohibit legal representatives from engaging in certain conduct including activities intended unfairly to obstruct the arbitration or to jeopardise the finality of any award, knowingly making any false statement to the arbitral tribunal or the LCIA Court, knowingly procuring or assisting in the preparation of or relying upon any false evidence, knowingly concealing or assisting in the concealment of any document (or any part thereof) which is ordered to be produced by the arbitral tribunal, and deliberately initiating or attempting to initiate any unilateral contact with a member of the arbitration tribunal in relation to the arbitration proceedings.

These guidelines are binding upon the parties’ legal representatives pursuant to article 18.5 of the LCIA rules. They are aimed at promoting good and ethical conduct for parties’ legal representatives appearing before the LCIA. Further, arbitral institutions in Africa have made progress towards strengthening ethics in arbitration by formulating rules and guidelines to govern ethical conduct in arbitration proceedings.

The Nairobi Centre for International Arbitration (NCIA) has developed a code of conduct for arbitrators. The Code requires an arbitrator, when approached with an appointment, to conduct reasonable enquiries with regard to potential conflict of interest that may arise from his or her appointment for that particular matter that may affect impartiality and independence. It requires an arbitrator to accept appointment only where certain requirements have been met. This is where an arbitrator is fully satisfied that he is independent of the parties at the time of the appointment, and is able to remain so until final award has been rendered, able to discharge his duties without bias, has adequate knowledge of the language of the proceedings, has adequate experience and ability for the case at hand, and is able to give to the proceedings the time and attention which parties are reasonably entitled to expect.

The Code also requires arbitrators to conduct proceedings with integrity and fairness61. Arbitrators are also required to disclose any interest or relationship that affects impartiality or creates an unfavorable appearance of partiality or bias. The Code is also aimed at fostering appropriateness in communication between the tribunal and parties. It forbids an arbitrator from discussing the case with any party in the absence of the other party.

The Code also safeguards the ethical requirements of honesty, trust and confidentiality and requires arbitrators to keep confidential all matters relating to the proceedings. Further, it requires arbitrators to make their decisions in a just, independent and deliberate manner. The Code also aims at strengthening ethics in terms of fees charged by arbitrators and requires them to adopt and adhere to the NCIA Schedule of Fees. The NCIA Code of Conduct for Arbitrators is therefore vital in strengthening ethics in arbitration. It requires arbitrators to observe fundamental standards of ethical conduct.

The Arbitration Foundation of Southern Africa has also designed a Code of Conduct that stipulates ethical principles and standards to govern arbitrators. The Code requires an arbitrator to always discharge his or her duties in such manner as to ensure a fair administration of justice between the parties. Further, it requires an arbitrator to only accept appointment where the arbitrator is satisfied that he or she can act impartially and independently in that matter and disclose any matter that impair the ability to act independently and impartially.

The Code also stipulates the ethical duty of an arbitrator to act diligently and efficiently, and always with due courtesy to the parties and their witnesses. Further, it enshrines the duty of confidentiality and requires the arbitrator to ensure that the proceedings remain confidential unless the parties agree otherwise. The Code also envisages the ethical duty of an arbitrator to ensure efficient management of disputes and requires an arbitrator to devote sufficient time and proper attention to the matter and employ procedures which avoid unnecessary cost or delay and which promote the efficient management of disputes.

The Kigali International Arbitration Centre vide its arbitration rules also aims at strengthening ethical practice in arbitration. The rules require an arbitrator to be and remain at all times independent and impartial and not act as the advocate of the parties. The rules further require the Centre, in confirming or appointing arbitrators, to have due regard to any qualifications required of an arbitrator by the agreement of the parties and to such consideration as are likely to secure an impartial and independent arbitrator. They also require the Centre to consider whether the arbitrator has sufficient availability and ability to determine the case in a prompt and efficient manner appropriate to the nature of arbitration.

Before appointment or confirmation, a prospective arbitrator is required to sign a statement of acceptance, availability, impartiality and independence. The arbitrator is also required to disclose to the Centre any facts or circumstances that may give rise to justifiable doubts as to his or her impartiality. Where these ethical requirements have not been met, the rules allow parties to challenge the appointment of an arbitrator if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence or if the arbitrator does not possess any requisite qualification on which the parties have agreed.

*This is an extract from the Book: Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2022 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

References

Arbitration Foundation of Southern Africa., ‘Code of Conduct.’ Available at https://arbitration.co.za/domestic-arbitration/code-of-conduct/ (Accessed on 12/10/2023).

Chartered Institute of Arbitrators., ‘Code of Professional and Ethical Conduct for Members.’ Available at https://www.ciarb.org/media/4231/ciarb-code-of-professional-andethical-conduct-for-members.pdf (Accessed on 11/10/2023).

Constitution of Kenya, 2010, Article 159 (2) (c), Government Printer, Nairobi.

Dattilo. V., ‘Ethics in International Arbitration: A Critical Examination of the LCIA General Guidelines for the Parties’ Legal Representatives.’ Available at https://digitalcommons.law.uga.edu/cgi/viewcontent.cgi?article=2369&context=gjicl (Accessed on 11/10/2023).

Harding. K., ‘Arbitration – The Role of Ethics and its Nature.’ Available at https://kluwerlawonline.com/journalarticle/Arbitration:+The+International+Journal+of+Arbitration,+ Mediation+and+Dispute+Management/64.3/AMDM1998013 (Accessed on 11/10/2023).

International Bar Association., ‘IBA Guidelines on Conflicts of Interest in International Arbitration.’ Available at https://www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d-d33dafee8918 (Accessed on 12/10/2023).

Kigali International Arbitration Centre., ‘Arbitration Rules, 2012.’ Available at https://kiac.org.rw/wp-content/uploads/2023/06/KIAC-arbitration-rules.pdf (Accessed on 12/10/2023).

London Court of International Arbitration., ‘LCIA Arbitration Rules 2020.’ Available at https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx (Accessed on 11/10/2023).

Meadow. C., ‘Ethics in ADR: The Many “Cs” of Professional Responsibility and Dispute Resolution’ 28 Fordham Urb. L.J. 979-990 (2001).

Meadow. C., ‘Ethics Issues in Arbitration and Related Dispute Resolution Processes: What’s Happening and What’s Not.’ University of Miami Law Review, Volume 56, N0. 4 (2002).

Moses, ‘The Principles and Practice of International Commercial Arbitration’ 2nd Edition, 2017, Cambridge University Press.

Muigua. K & Kariuki. F., ‘ADR, Access to Justice and Development in Kenya.’ Available at http://kmco.co.ke/wp-content/uploads/2018/08/ADR-access-to-justice-anddevelopment-inKenyaSTRATHMORE-CONFERENCE-PRESENTATION.pdf (Accessed on 11/10/2023).

Muigua. K., ‘Alternative Dispute Resolution and Access to Justice in Kenya.’ Glenwood Publishers Limited, 2015.

Muigua. K., ‘Promoting International Commercial Arbitration in Africa.’ Available at http://kmco.co.ke/wp-content/uploads/2018/08/PROMOTING-INTERNATIONALCOMMERCIAL ARBITRATION-IN-AFRICA.pdf (Accessed on 11/10/2023).

Muigua. K., ‘Promoting Professional Conduct, Ethics, Integrity & Etiquette in ADR.’ Available at http://kmco.co.ke/wp-content/uploads/2022/05/PromotingProfessionalConduct-Ethics-Integrity-Etiquette-in-ADR.pdf (Accessed on 11/10/2023).

Muigua. K., ‘Resolving Conflicts through Mediation in Kenya.’ Glenwood Publishers Limited, 2nd Edition, 2017.

Muigua. K., ‘Settling Disputes through Arbitration in Kenya.’ Glenwood Publishers, 4th Edition, 2022.

Nairobi Centre for International Arbitration., ‘Code of Conduct for Arbitrators, 2021.’ Available at https://ncia.or.ke/wp-content/uploads/2021/07/3.-NCIACODE-OF-CONDUCT-FOR-ARBITRATORS-2021.pdf (Accessed on 12/10/2023).

Nairobi Centre for International Arbitration., ‘Confidentiality in Arbitration: Evaluating Legal and Ethical Dilemmas.’ Available at https://ncia.or.ke/wpcontent/uploads/2022/10/Confidentiality-in-Arbitration-Evaluating-Legal-andEthical-Dilemmas-1.pdf (Accessed on 12/10/2023).

Rajoo. D., ‘Importance of Arbitrators’ Ethics and Integrity in Ensuring Quality Arbitrations.’ Contemporary Asia Arbitration Journal, Vol. 6, No. 2, pp 329-347 (2013).

Ripley-Evans. J., & De Sousa. M., ‘2022 SOA Arbitration in Africa Survey Reveals a Thriving Market for Arbitration on the Continent.’ Available at https://hsfnotes.com/africa/2022/11/25/2022-soas-arbitration-in-africa-survey-reveals-athriving-market-for-arbitration-on-the-continent/ (Accessed on 11/10/2023).

Rogers. C., ‘The Ethics of International Arbitrators.’ Available at https://www.international-arbitration-attorney.com/wp-content/uploads/InternationalArbitration-Doctrine-49international_arbitration.pdf (Accessed on 11/10/2023).

United Nations Commission on International Trade Law., ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards.’ (New York, 1958).

United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI.

World Intellectual Property Organization., ‘What is Arbitration’ Available at https://www.wipo.int/amc/en/arbitration/what-is-arb.html (Accessed on 11/10/2023).’

News & Analysis

The Nexus between Environmental Social and Governance (ESG) and Arbitration

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

Arbitration is form of Alternative Dispute Resolution (ADR) mechanisms. ADR refers to a set of mechanisms that are applied in management of disputes without resort to adversarial litigation. It has been described as a private and consensual process where parties to a dispute agree to present their grievances to a third party for resolution. It is argued that ESG principles have become a model for sustainable business development through which a corporations’ goal for solving environmental, social and governance problems is achieved. Consequently, ESG considerations have an increasing impact in international business as evidenced by the incorporation of sustainability clauses in investment contracts. In such contracts, investors are required to adhere to the concept of sustainable development as envisaged under the contracts and failure to do so may result in ESG related disputes.

In the wake of the climate change debate, there have been calls for responsible business practice towards climate change mitigation through measures such as reduction of carbon emissions. The Paris Agreement on Climate Change has raised the awareness of the need for global efforts to combat climate change and the role of responsible and ethical corporate behavior towards achieving this goal. Further, corporations are increasingly required to safeguard human rights as envisaged by ‘S’ pillar of ESG.

However, some corporations have been accused of violating these ESG concerns as a result of their business practices. Some corporations have been accused of failing to promote climate change mitigation through reduction of carbon emissions and transitioning to cleaner energy production. Further, some corporations have been accused of violating fundamental human rights such as the right to a clean and healthy environment especially in the investment sphere in Africa. These instances have resulted in an increasing number of ESG-related disputes. The growth of ESG concerns has seen corporations being increasingly required to embrace ESG principles in their business practices. Consequently, ESG clauses are being adopted in commercial and investment contracts.

In case of violation of such clauses, ESG related disputes are bound to occur. It has been asserted that adoption of ESG related practices into pre-existing social and governance models adopted by corporations would be disruptive. The inclusion of ESG clauses in commercial contracts not only points to the importance of ESG concerns to companies but it also serves as potential source of disputes where such considerations are not complied with. ESG issues are not only reshaping corporate behavior across the globe but can also be a potential battleground in international disputes25. This creates the need for an effective mechanism of management of such disputes in order to enhance ESG principles in the quest for Sustainable Development.

Arbitration has for a long time been the most viable mechanism for management of international commercial and investment disputes. It offers a neutral forum for the management of disputes and addresses some of the concerns that parties may have in relation to the other parties’ legal system. In international commercial and investment arbitration, parties are reluctant to submit to the jurisdiction of the other party due to the likelihood of favoritism by the host judicial system. Further, arbitration has the potential of facilitating expeditious management of disputes.

In international commercial and investment arbitration, there is need to manage disputes expeditiously in order to preserve the commercial interests of parties. The viability of arbitration in management of international commercial disputes is further enhanced by the availability of a legal framework for the recognition and enforcement of foreign arbitral awards. The New York Convention provides the legal framework for the recognition and enforcement of foreign arbitral awards across different jurisdictions. Consequently, the adoption of ESG elements in international commercial and investment agreements has resulted in the use of arbitration to manage disputes arising from such agreements.

ESG concerns have become prominent in investor-state arbitration with arbitral tribunals having to determine issues relating to climate change, corruption and human rights. It has been asserted that the growth of ESG will redefine the practice of arbitration as it seeks to adapt to the new concerns created by ESG. However, the flexibility of arbitration and its ability to adapt to emerging concerns means that it is well positioned to manage ESG disputes. However, there is need for reform in order to enhance the role of arbitration in managing ESG disputes.

*This article is an abridged version of the Article The Place of Environmental, Social and Governance (ESG) in Arbitration (Available for download at Kariuki Muigua & Co. Advocates Website, follow the link) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

Hamilton. J & Coulet-Diaz. M., ‘Arbitration & the ESG Era’ available at https://www.whitecase.com/news/media/arbitration-esg-era (accessed on 28/09/2022).

International Arbitration in 2022., ‘The Rising Significance of ESG and the Role of International Arbitration’ available at https://www.freshfields.com/en-gb/our-thinking/campaigns/internationalarbitration-in-2022/the-rising-significance-of-esg-and-the-role-of-international-arbitration/ (accessed on 28/09/2022)

Mazhorina. M.V., ‘ESG Principles in International Business and Sustainable Contracts’ available at https://aprp.msal.ru/jour/article/view/3223?locale=en_US (accessed on 28/09/2022).

Moses. L.M, ‘The Principles and Practice of International Commercial Arbitration’ 2 nd Edition, 2017, Cambridge University Press 28 Ibid 29Muigua. K., ‘Promoting International Commercial Arbitration in Africa’ available at http://kmco.co.ke/wp-content/uploads/2018/08/PROMOTING-INTERNATIONAL-COMMERCIALARBITRATION-IN-AFRICA.pdf

Muigua. K., ‘International Investment Law and Policy in Africa: Human Rights, Environmental Damage and Sustainable Development’ available at http://kmco.co.ke/wpcontent/uploads/2018/11/International-Investment-Law-and-Policy-in-Africa-AILA-Conference-Paper5-11-2018.pdf (accessed on 28/09/2022)

Muigua. K., ‘Realising Environmental, Social and Governance Tenets for Sustainable Development’ available at http://kmco.co.ke/wp-content/uploads/2022/07/Realising-Environmental-Social-andGovernance-Tenets-of-Sustainable-Development-Kariuki-Muigua-July-2022.pdf (accessed on 28/09/2022)

Muigua. K., ‘Settling Disputes Through Arbitration in Kenya’ Glenwood Publishers Limited, 4th Edition, 2022

Ross. A., ‘We need talk about ESG’ available at https://globalarbitrationreview.com/we-need-talkabout-esg (accessed on 28/09/2022)

The ALP Review., ‘The Importance of ESG and its effect on International Arbitration’ available at https://www.alp.company/sites/default/files/ALP%20Review%20- %20The%20Importance%20of%20ESG %20and%20its%20effect%20on%20International%20Arbitration.pdf (accessed on 28/09/2022).

United Nations Conference on International Commercial Arbitration, ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ United Nations, 1958

Von Wobeser., ‘The Role of Arbitration in ESG Disputes’ available at https://www.vonwobeser.com/index.php/publication?p_id=1650 (accessed on 28/09/2022)

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News & Analysis

Enhancing the Role of Arbitration in Management of ESG Disputes

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

Arbitration represents a viable mechanism for management of ESG disputes. The following are proposals for interventions towards embracing arbitration in management of ESG disputes for Sustainable Development towards enhancing the use of arbitration in ESG disputes:

Enhancing Knowledge in ESG Concerns

Statistics show that many ESG related disputes are being managed through arbitration. According to the International Chamber of Commerce, engineering, construction and energy disputes represent the highest number of cases handled representing 38% of all cases registered so far. Such disputes entail ESG components such as renewable energy projects, environmental protection and human rights concerns. This demonstrates that ESG and arbitration are inextricably linked. Arbitration practitioners thus need to equip themselves with knowledge in ESG related matters in order to be better placed to manage ESG related disputes.

Promoting Sustainable Development

Sustainable Development has been defined as development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. This concept entails a combination of elements including environmental protection, economic development and social issues. The importance of Sustainable Development has seen the adoption of the Sustainable Development Goals as the global blueprint of development. Most of the Sustainable Development Goals entail aspects of ESG such as clean water and sanitation, affordable and clean energy, industry, innovation and infrastructure and climate action. Arbitration practitioners should therefore promote the principles of sustainable development when managing ESG related disputes. This could entail requiring investors to comply with the host country environmental laws and ESG standards in mining, energy and construction disputes which have an ESG bearing.

Upholding Human Rights

The ‘S’ pillar in ESG seeks to promote responsible and ethical corporate behavior through aspects such as respect for human rights. However, corporate behavior especially in the investment sphere in Africa has resulted in gross violation of human rights. Some corporations which have invested in oil exploration have been accused of human right abuses, environmental degradation and unsustainable peace due to their business culture. In Kenya, a multinational corporation that has invested in the agricultural sector has been accused of human right abuses such as killings, rape, and other forms of sexual and gender-based violence allegedly committed by its guards, bad labour practices and land injustices against the neighbouring communities. Some of these disputes have ended up in arbitration where tribunals are called upon to adjudicate on human rights issues. Arbitrators should thus seek to uphold human rights in such disputes by rendering awards that are in line with human rights standards. By promoting human rights, arbitrators will be embracing the ‘S’ pillar that is fundamental in the ESG debate.

Promoting Good Governance

The Governance pillar in ESG seeks to achieve good financial and accounting standards as well as legal and regulatory compliance, such as transparency, corporate structures and ethics in corporate conduct. It also seeks to align Governance with the Sustainable Development Goals where governance issues include industry, innovation and infrastructure (Goal 9); peace, justice and strong institutions (Goal 16); and partnerships with public and private institutions (Goal 17). Good governance can be promoted through arbitration by rendering awards that adhere to good governance practices such as transparency, accountability, reporting and disclosure.

Seeking Expert Assistance in Complex ESG Matters

Arbitration has a significant role in promoting ESG tenets in areas such as climate change. Arbitrators play a significant role in shaping and adapting international law to respond to the climate crisis. However, in some instances, arbitration has been slow to act to act in response to the climate crisis. Some climate change concerns such as determining adherence to climate change commitments through low carbon transition requires arbitrators to be fully informed and engaged in such concepts. This may require expert analysis and guidance from persons with requisite knowledge in environmental matters. Arbitrators should therefore seek expert assistance in such issues in order to be fully informed and render awards that promote ESG principles.

Conclusion

The relationship between Environmental, Social and Governance (ESG) and arbitration continues to grow. Adoption of ESG by corporations as a means of promoting responsible and ethical business practices and the wide use of arbitration in management of international commercial and investment disputes points to increased use of arbitration in management of ESG related disputes. In managing such disputes, arbitrators should promote ESG considerations whilst balancing the needs and interests of parties involved in issues such as climate change. Arbitration represents a viable mechanism for managing ESG disputes while simultaneously promoting Sustainable Development. There is need to enhance the viability of arbitration in management of ESG related disputes.

*This article is an abridged version of the Article The Place of Environmental, Social and Governance (ESG) in Arbitration by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

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Way Forward in Managing Risk and Liability of ESG Litigation

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

In order for companies to manage the risk and liability associated with ESG litigation, it is imperative for them to strengthen their ESG reporting and disclosure requirements. It has been observed that recent ESG trends have driven the requirement by businesses to report on ESG aspects such as human rights and environmental standards as evidenced by emerging legal frameworks requiring companies to report on human rights and environmental issues, emerging mandatory human rights due diligence legislation, and increased legal enforcement and litigation risks.

As a result, it is important for companies to treat public disclosures in relation to ESG matters seriously and consider taking independent auditing and verification steps, particularly for annual ESG-related reports and/or other material ESG disclosures. Such an approach can help companies effectively manage and reduce the risk of ESG related litigation.

In addition, it has been argued that there is need for companies to embrace best practices in order to mitigate the risks of ESG litigation and also address such litigation when it arises. For example, it has been suggested that companies should conduct risk assessments in order to determine the likelihood of ESG related suits and deal with such concerns immediately; undertake public engagement to order to ensure openness and transparency in ESG matters; build knowledge on ESG issues in order to be well equipped to handle ESG claims when they arise; and strengthen their management systems and internal practices in order to enhance compliance with ESG standards.

It has been observed that ESG litigation is associated with several risks to companies including regulatory and enforcement risk, reputational risk, damage to brand, potential disruption by activists and financial risks such as loss of access to capital and financial losses as a result of damages, fines and other forms of monetary compensation. It is also imperative to strengthen access to justice in ESG matters. It has been pointed out that in order for litigants to be given the right of access to courts in ESG matters, whether individually, collectively, or as a third party or amicus curiae, the criteria pertaining to standing, which differ from jurisdiction to jurisdiction, must be followed.

It is also necessary to widen and strengthen the jurisdiction of courts on ESG issues such as climate change. Further, it has been pointed out that there is need to embrace techniques such as litigation funding in order to provide the financial stability and support needed to pursue legal action without compromising on the quality of representation or legal strategy in ESG matters. It has been argued that litigation funding can be an effective strategy for needy claimants to pursue claims against a company that they may ordinarily not be able to afford, enabling them to ultimately to hold companies to account for ESG failures.

Finally, it is imperative for companies to think creatively and strategically in order to effectively resolve ESG claims. It has been pointed out that ESG claims may significantly differ from other types of litigation companies have previously faced, hence the need for creative solutions towards these claims. For example, in ESG claims, there is need to bear in mind both the litigation aspects of a dispute, and broader ESG concerns including those around reputation and access to capital. As a result, it has been suggested that there is need for companies to be alive to the potential for resolving ESG claims outside the court room, and what mitigation strategies could be deployed to avoid litigation.

Alternative Dispute Resolution (ADR) mechanisms are ideal in managing ESG disputes by fostering privacy, cost effective and expeditious management of disputes while also allowing parties to select experts to hear and determine contentious ESG matters. In addition, it has correctly been observed that businesses would normally prefer to have their disputes managed in a private manner in order to prevent ruining their image in public and also in an expeditious and cost-effective manner in order to protect business interests.

It has also been pointed out that the use of ADR mechanisms such as mediation in managing ESG related disputes is a practical demonstration of a sustainability-oriented business culture since mediation can offer a quick, flexible, consensual and win-win solution based on the mutually accepted interests of the parties. ADR mechanisms can therefore be an effective tool to enable companies manage the risks associated with ESG litigation.

*This is an extract from the Article: Fostering Environmental, Social and Governance (ESG) Litigation for Sustainability, Available at: https://kmco.co.ke/wp-content/uploads/2024/02/Fostering-Environmental-Social-and-Governance-ESG-Litigation-for-Sustainability.pdf (Accessed 2nd March 2024) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

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