The IBA Guidelines have two parts: Part I General Standards, a list of seven principles to which arbitrators should adhere; and Part II Application Lists (Non-Waivable Red List, Waivable Red List, Orange List and Green List) outlining situations that may occur in practice. The recent case of Sierra Fishing Company & Ors v Farran & Ors  EWHC 140 (Comm) illustrates the willingness of the courts to apply the IBA Guidelines when considering the ethical standard expected of arbitrators.
What has happened?
The case involved an application to the court for the removal of an arbitrator pursuant to section 24(1)(a) of the Arbitration Act 1996, on the grounds that circumstances existed that gave rise to justifiable doubts as to his impartiality. The claimants submitted, amongst other things, that the legal and business connection between the arbitrator and one of the parties to the arbitration gave rise to justifiable doubts as to his ability to act impartially. The claimants submitted that the arbitrator was historically engaged as legal counsel for a bank, at a time when one of the parties was chairman of that bank, and that the arbitrator’s father and co-partner continued to acted as counsel for both the bank and one of the parties.
What are the key points?
The English law test for apparent bias is whether “the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”
When considering whether the circumstances of this particular case were sufficient to meet this test, Mr Justice Popplewell derived assistance from the IBA Guidelines and the illustrations of what the international arbitration community considers to be cases of conflicts of interest or apparent bias.
General Standard 6 of the IBA Guidelines provides that an arbitrator is in principle considered to bear the identity of his or her law firm. However, the fact that the arbitrator’s law firm may have dealings with one of the parties does not automatically give rise to a conflict of interest requiring disclosure, that all depends on the circumstances of each individual case.
Part II of the IBA Guidelines gives practical guidance on the application of the General Standards in particular circumstances by reference to specific situations in decreasing order of seriousness. The Waivable Red List includes the situation where“the arbitrator currently represents or advises one of the parties or an affiliate of one of the parties” and “where the arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.”The Orange List includes a situation where “the arbitrator’s law firm has within the last three years acted for one of the parties or an affiliate of one of the parties.”
Mr Justice Popplewell held that the circumstances in this case would leave the fair-minded observer concluding that there was a real possibility that the arbitrator would be predisposed to favour the party with whom he had the connection. Mr Justice Popplewell also reiterated that it was the duty of the arbitrator to make voluntary disclosure to the parties of connections which were known to him which might justify doubts as to his impartiality, a duty that is recognised in General Principle 3 of the IBA Guidelines. Not only did Mr Justice Popplewell note the arbitrator’s failure to fulfil this duty, he also considered that the erroneous denial of his duty of disclosure revealed an attitude which would reinforce a fair-minded observer’s doubts as to his impartiality.
How will this affect me?
It’s a fundamental principle of arbitration that every arbitrator shall be impartial and independent of the parties in order to protect the right of both parties to a fair hearing. The IBA Guidelines are widely accepted within the international arbitration community and parties frequently consider the IBA Guidelines when assessing the impartiality and independence of arbitrators. This case illustrates that the court will take account of these standards when determining challenges to the impartiality of an arbitrator. The application of the IBA Guidelines by the courts should reassure users and potential users of arbitration that strict ethical standards will be applied to arbitrators.
In this case, there were a number of aspects of the arbitrator’s behaviour, including his conduct of the reference, that gave rise to doubts as to his impartiality. In practice, it may not always be easy to assess whether or not there are grounds to challenge an arbitrator for lack of independence or impartiality and an unsuccessful challenge is likely to adversely affect your subsequent dealings with the challenged arbitrator. Also, there are occasions where a party challenges an arbitrator as a tactical device in order to disrupt or delay the proceedings. The IBA Guidelines play a key role in ensuring consistency in the standards of impartiality and independence required of arbitrators and in deterring tactically motivated challenges.