Conflict of Interests in International Commercial Arbitration

“Palazzo della Pace”, foto di Sara Vetulli

Since the requirements of independence and impartiality are core obligations of an arbitrator, in 2014 the International Bar Association released the IBA Guidelines as non-binding ethics guidelines for both commercial and investment arbitration in order to increase uniformity in ethical standards. Thus, arbitrators are subject to some level of ethical scrutiny for the sake of ensuring the neutrality of arbitration process.

As a baseline principle, the IBA Guidelines mandate that “[e]very 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.” An arbitrator is required 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”.[1]

Consequently, an arbitrator must be disqualified from service if: “[F]acts or circumstances exist, or have arisen since the appointment, which, from the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, would give rise to justifiable doubts as to the arbitrator’s impartiality or independence, unless the parties have accepted the arbitrator in accordance with the requirements set out in General Standard 4 [waiver by the parties]”.[2]

Moreover, an arbitration is required to disclose to the parties, the arbitration institution or other appoint authority and the co-arbitrators those facts and circumstances that may constitute a lack of impartiality or independence.

The LCIA Rules establishes a similar ethical standard. Indeed, they provide that “an arbitrator must “remain at all times impartial and independent of the parties” and may be challenged “if circumstances exist that give rise to justifiable doubts as to his [or her] impartiality or independence”.[3] Regarding disclosure requirements, before appointment, each arbitrator must sign a declaration of impartiality or independence. 

            In order to make the general standards practical, the IBA Guidelines contain three “Application Lists” providing a non-exhaustive specific guidance on the situations which do or do not constitute conflict of interests. The first list is the Red List, which is divided in two parts: a Non-Waivable Red List and a Waivable Red List. The first involves situations where the arbitrator should not be permitted to participate, even if waived by the parties. The second covers less strict situations where the parties can waive the arbitrator. The Orange List, instead, relates to situations that may give rise to doubts on the arbitrator’s impartiality or independence. Eventually, the Green List involves specific situations where the arbitrator has no duty to disclose.

            The key changes to the General Standards in the 2014 version of the IBA Guidelines examine the rise of advance declarations by arbitrators, third-party funding, the increasing significance of arbitral secretaries and the possibility that one arbitrator operates in the same chamber of a counsel to one of the parties. 

In relation to the advance declarations by arbitrators, the New General Standards 3(b) state the validity of such advance declarations or waivers regarding possible future of conflict of interest. However, this does not discharge the arbitrator from his or her duty of disclosure.

Regarding third-party funders, according to General Standard 6(b), they may now be considered to bear the identity of the party that they are funding. The revised General Standard 7(a) also provides that the parties must now disclose any direct or indirect relationship between the arbitrator and a third-party funder. There is no reported practice on the application of these rules to TPF so far, probably due to the fact that these Guidelines constitute soft law. 

The Guidelines make also clear that “the arbitrator is in principle considered to bear the identity of his or her law firm”.[4] However, in the case W Limited v M SDN BHD[5], this treatment of identity has been considered too compendious, with no reference to the question whether the particular facts could realistically have any effect on impartiality or independence.  In particular, the case at stake involved an arbitrator, Mr Haigh QC, who had not made proper disclosure and as such sought to overturn the awards he had made. Indeed, he was partner in a law firm that had prior dealings with the defendant’s affiliates, but not the defendant itself. Nevertheless, the judge determined that this situations should have not automatically fallen in the Non-Waivable Red List since Mr Haigh QC was rarely involved in any meetings or dealings concerning the law firm in question. Therefore, a case-by-case analysis in relation to the application of the IBA Guidelines was considered necessary.

            In summary, it is evident the framework provided by these Guidelines has become very much a de facto international standard on this area of international arbitration. Indeed, they represent a very helpful tool for practitioners and parties in relation to potential issues of conflicts. Nevertheless, the field of arbitrator ethics still remains a work in progress.

REBECCA BARRESI

 

Bibliography:

IBA Guidelines on Conflict of Interest 2014

http://kluwerarbitrationblog.com/2015/01/29/a-guide-to-the-ibas-revised-guidelines-on-conflicts-of-interest/

James Ng, “When the arbitrator creates the conflict: understanding arbitrator ethics through the IBA Guidelines on conflict of interest and published challenges”, SSRN

 

[1]International Bar Association, IBA Guidelines on Conflicts of Interest in International Arbitration, London: IBA, 2014 [IBA Guidelines], pt I, general standard 2(a)

[2]Ibid, general standard 2(b)—2(c)

[3]London Court of International Arbitration, LCIA Arbitration Rules (2014) [LCIA Rules], art 10.1

[4]IBA Guidelines, pt I, general standard 6(a).

[5] W Ltd v M SDN BHD [2016] EWHC 422