The subject of arbitrators’ independence arises frequently, both in domestic and international arbitrations. Nevertheless, it remains an area where considerable uncertainty persists in borderline cases.

In the context of insurance and reinsurance arbitrations, the issue can be particularly vexed because, relative to other sectors, there is a small pool of willing individuals with the requisite experience. Moreover, the arbitration clauses used by the industry, particularly in reinsurance, often impose stringent qualification requirements, such as having a certain number of years experience in the industry and/or presently holding a “senior position” in it. Furthermore, experienced legal advisors will usually have their own requirements or wishes in respect of a potential arbitrator’s experience, professional background or languages spoken.

Now the decision of Knowles J. in W Limited v M SDN BHD1 last month has sparked fresh controversy in this area. In particular, the decision criticises the widely accepted International Bar Association Guidelines.

The case concerned an appeal of an award in an LCIA arbitration award, in which a Canadian QC had been appointed as sole arbitrator. Unbeknownst to the arbitrator, the law firm in which he was a partner provided substantial legal services to a company that was owned by the same parent company as the defendant in the arbitration.

The judge held that there was “no doubt that the present case falls within the description given in Paragraph 1.4 of the 2014 IBA guidelines.” This states that a non-waivable conflict of interest exists where“the arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom”. The judge held, however, that it was equally clear that the present case would not have fallen with Paragraph 1.4 of the IBA guidelines before they were amended, in 2014, to add the words “or his or her firm” before the words “regularly advises”.

Whilst important, the IBA Guidelines do not have the force of law and, as such, the judge applied the common law test, concluding that: “On considering the facts the fair minded and informed observer would not... conclude that there was a real possibility that the tribunal was biased, or lacked independence or impartiality. I reach that view without hesitation.” Accordingly, the defendant’s appeal of the arbitration award was not allowed. The judge’s finding that the arbitrator was unaware of his firm’s relationship to the defendant and that he would have disclosed it, had he known, was an important consideration in reaching this conclusion, as was the fact that the arbitrator rarely provided legal advice, his practise being limited mainly to sitting as an arbitrator.

This decision is a reminder of the importance of ensuring that potential arbitrators should carry out conflict checks carefully and disclose any matters that may cast doubt on their independence. It may also herald a revision to Paragraph 1.4 of the 2014 IBA guidelines, which it is suggested ought to permit the appointment an arbitrator whose firm provides services to an “affiliated party”, if, in the relevant circumstances, there were no reasonable apprehension that the relationship would cause the tribunal to be biased or lacking in independence or impartiality.