In late 2014 the International Bar Association (IBA) Council approved a revised version of its 2004 Guidelines on Conflicts of Interest. The IBA considered it timely to revisit the Guidelines after nearly a decade, during which time there had been considerable industry experience in working with the Guidelines and a number of decided cases.
As was the case when the Guidelines were originally prepared, a committee comprised of leading arbitrators and arbitration practitioners were involved in the drafting of the 2014 revised version. Input was sought by the committee from a wider group of stakeholders including both practitioners and arbitral institutions. The Guidelines are intended to reflect a balancing of civil and common law traditions and to be applicable to both commercial and investment treaty arbitrations.
The changes to the 2004 Guidelines effected by the 2014 revisions are best seen as evolutionary rather than revolutionary. They do however seek to reflect some of the issues with conflicts of interest that have been encountered in practice over the past decade, most notably around the increasing involvement of third party funders and the increasing numbers of arbitrators and counsel who are either partners in very large law firms or barristers in specialised chambers focused on international arbitration expertise. The other practice issue that the revised Guidelines seeks to address is the increasing prevalence of challenges to arbitrator appointments. It does this through some modifications to the Application Lists (discussed below), with a view to introducing greater certainty around the appointment of arbitrators.
Third Party Funding
It is often the case that a legal entity involved in an international arbitration has a third party funder standing behind it. General Standard 6(b) of the revised Guidelines now requires the fact of third party funding (but not the terms of that funding) to be disclosed to both the tribunal and to the other parties.
The 2004 Guidelines had recognised that managers, directors and members might need to be considered to be the equivalent of the legal entity behind which they sit. The 2014 amendments now expressly recognise the respective roles of funders and insurers by also referring to any person having “a direct economic interest in the arbitral award” or having a “duty to indemnify a party for the arbitral award”.
It will be interesting to see if this change results in an increased direct involvement of these third parties in the arbitration itself. As has been the experience across many jurisdictions in the litigation sphere, issues might be expected to surface around interim measures being sought (for example, security for costs) with respect to third parties or requests made of the tribunal in respect of enforceable costs orders against funders in particular. Just as some courts are starting to show a greater willingness to order indemnity costs against third party funders, it can be expected that applications of this kind may become more common in international arbitration proceedings.
Another thing to watch for is whether increased transparency around the involvement of third party funders will lead to a higher proportion of international arbitration matters settling. It may be thought that the presence of a third party funder is an indication that the funder regards the entity which it is funding to have reasonable prospects of success, which may in turn alter the risk assessment around proceeding to an award made by the other party or parties.
Conflicts and Big Law
It is increasingly the case that arbitrators will also be practising as a partner of one of the many large international law firms which do international arbitration work. This adds further complexity to the question of whether a proposed appointee to an arbitral tribunal is free of conflict and therefore able to accept the appointment. General Standard 6(a) has been amended to make it clear that where a proposed arbitrator is a partner of a law firm then that individual must carry the identity of that law firm for the purposes of conflict searching. This change seeks to avoid appointments where a prospective arbitrator may have no conflict in his or her personal capacity but the law firm may be aligned with a party to the arbitration or otherwise conflicted.
The explanatory notes to General Standard 6 draw a distinction between barristers’ chambers and law firms for the purposes of dealing with conflicts. The notes do however provide that “disclosure may be warranted in view of relationships among barristers, parties or counsel”. This is, in part, recognition of the growth of large specialist sets of barristers chambers from which both counsel and arbitrators in the same arbitration may increasingly be drawn.
General Standard 7(b) has been amended to require that the tribunal and other parties be informed at the outset of the identity of all counsel appointed by the parties. Each party is in turn required to inform the other parties of any known relationship between counsel and the arbitrator or arbitrators.
Such information will include details as to whether counsel and the arbitrator are from the same set of barristers chambers, have appeared together as co-counsel (and in what circumstances) or have been opposing counsel in another unrelated arbitration.
The Application Lists at Part 2 of the General Standards have been revised and updated to take account of the experience of the past decade and to provide guidance as to the treatment of common practical disclosure issues which may arise. The Green List (no duty of disclosure) now expressly recognises the likelihood of leading practitioners and counsel coming into contact through conference engagements, teaching roles or serving together on professional associations or as members of working parties.
The Orange List (specific situations which may give rise to doubts as to impartiality or independence) has been expanded. Two revisions of particular interest can be found at 3.3.7 and 3.3.8. The former contemplates the situation where “enmity exists” between an arbitrator and counsel appearing in the arbitration. Presumably this would need to be an “enmity” known to third parties (if not visible) and it underscores the personal dynamics that may emerge in the arbitration sphere between leading practitioners, also recognising the need to avoid challenges to arbitral awards as the result of that.
Provision 3.3.8 is directed to the increasingly common instance of serial appointments of the same arbitrator by the same counsel or law firms. More than three appointments within a three year period is the level at which disclosure must now be made.
Whilst the Orange List is expressly stated in the 2014 Guidelines to be non-exhaustive, it is both interesting and helpful to see additional specific circumstances added to the list.