The IBA Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”) were developed to respond to a need for more uniformity in the standards applied in arbitration issues. In particular, the Guidelines provide guidance on when arbitrators should disclose issues which may cast doubt upon their impartiality and/or independence. However, the IBA Guidelines will only lead to uniformity if they are implemented universally and, as the cases explored in this article show, the application of the IBA Guidelines has not, as yet, been as wide spread as the International Bar Association may have hoped for.
Commentators cite England as an example of a country in which the application of the Guidelines could be problematic given that, in England, a test for determining whether or not bias exists has already been “crystallised1” and it is this test which should be used by the courts to determine any issues arising in relation to independence and/or impartiality. Indeed, there are only two reported cases under English Law which have made reference to the IBA Guidelines and in both of these cases the submissions (which were made in reliance upon the IBA Guidelines) were not accepted by the judges.
The English courts have a well-established body of case law in relation to the issue of apparent bias and under present law they are bound by the ratio in Porter v Magill2. Porter v Magill established that the correct test is whether all of the circumstances of the case, as ascertained by the court, would lead a “fair minded and informed observer” to conclude that there was a “real possibility” of bias. This test has been used by the English courts for over a decade and, as it comes from a decision of the House of Lords, it will remain binding upon the lower courts until it is overturned by a decision of the new Supreme Court3. It is perhaps unsurprising that the IBA Guidelines have not played a central role in English decisions. However, it would be unfair to say that the English courts have disregarded the Guidelines completely: they have considered them but simply decided not to rely on them in the decision-making process.
The approach of the UK Courts to impartiality and the IBA Guidelines
Until earlier this year, ASM Shipping Ltd v TMMI Ltd of England4 was the only English case to refer to the IBA Guidelines. In that case, the arbitrator had previously been instructed by the Respondent as leading counsel in an arbitration between different parties but with the same principal witness. In the earlier case, the party for whom the arbitrator had been acting as counsel had made serious allegations against the witness. The appellant argued that this would have affected the arbitrator’s ability to act impartially and applied for the arbitral award made by him to be set aside as a result.
In assessing the case, both parties agreed that the test for apparent bias would be that stated in Porter v Magill, i.e. what a fair minded and informed observer would conclude having considered the facts. Morison J. concluded that, in his view, “the independent observer would share the feeling of discomfort expressed by [the principal witness] and would have concluded that there was a real possibility that the tribunal was biased” as a result of the arbitrator having previously acted as counsel against the appellant’s main witness5. Thus the test in Porter v Magill was satisfied.
Morison J. then went on to explain why he had rejected the respondent’s argument that there could not have been a conflict of interest because the facts alleged did not fall within the IBA Guidelines’ Red List. He confirmed that the issue in question was not “whether what happened fell within the Red List or not”, rather it was whether the test in Porter v Magill was satisfied. He then highlighted that the IBA Guidelines were indeed only guidelines, which ought to be “applied with robust common sense and without pedantic and unduly formulaic interpretation”.
This approach was confirmed last year in the case of A & Ors v B and X6. In this case, the appellant was applying to have the arbitrator removed and his award set aside because shortly before completing and issuing the award, the arbitrator had disclosed that he had been instructed as counsel for the respondent’s solicitors in an ongoing matter. This matter was wholly unconnected with the arbitration. The application was ultimately refused on the basis that the fair-minded and informed observer would not consider that there was a real possibility of bias merely because an arbitrator had acted as counsel for one of the parties in the past.
In making his decision, Flaux J., also referred to the test for impartiality set out in Porter v Magill and, just as in ASM Shipping, he was quick to dismiss submissions which were made in reliance on the IBA Guidelines as opposed to established English case law. Indeed, Flaux J. pointed out that the Introduction to the Guidelines “makes it clear that the Guidelines are not intended to override national law”. Accordingly, he explained that if there was no apparent or unconscious bias once the common law test for bias had been applied, nothing written in the Guidelines could alter that conclusion7. Accordingly, it seems that the Guidelines will only be used in the English court if what they say happens to compliment, as opposed to contradict, the precedent cases.
Other approaches to the IBA Guidelines
In contrast to the English courts, the courts of other jurisdictions, as well as the International Centre for Settlement of Investment Disputes (“ICSID”), provide examples of cases in which strong reliance has been placed on the guidance provided in the IBA Guidelines.
In the 2009 ICSID decision, Perenco Ecuador Ltd v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador,8 a challenge to an arbitration award was upheld on the basis of Standards 1 and 2 of the IBA Guidelines alone9. However, the parties had expressly agreed that any challenge to arbitrators would be resolved according to the Guidelines. It was, therefore, entirely appropriate for the tribunal to base its decision of the provisions set out therein.
Further support for the IBA Guidelines comes from another decision of the ICSID, Alpha Projecktholding GmbH v Ukraine10. Indeed, such close regard was paid to the IBA Guidelines in that case, that critics have said that the case established the Guidelines as “an international law standard for disclosure by arbitrators”.
The case involved an application for the disqualification of an arbitrator on the grounds that he had studied at Harvard Law School at the same time as counsel for the respondent and the pair had remained friends. It was ultimately decided that this fact did not cast doubt over the impartiality and independence of the arbitrator to the extent that he should be disqualified. In making its decision, the Tribunal referred to the IBA Guidelines and noted that attending university with counsel for one of the parties in an arbitration was not listed on the IBA Red or Orange list and was not, therefore, something which ought to have been disclosed by the arbitrator.
The Tribunal explained that it had placed reliance on the Guidelines on the basis that the Guidelines applied the UNCITRAL justifiable doubts test which was the same as the test set out in the ICSID’s own Arbitration Rules. This begs the question as to whether or not the ICSID would have been as willing to apply the Guidelines if the tests and theories set out therein were contradictory to the provisions of the ICSID Arbitration Rules. Indeed, in other ICSID cases, such as Participaciones Inversiones Portuarias SARL v Gabonese Republic11, ICSID had not been persuaded by the Guidelines and its approach was more similar to that of the English courts.
In the Gabonese Republic case, the applicant challenged the appointment of an arbitrator on the basis that he had been the president of the Tribunal in an earlier case in which an award had been made against him. In its submissions, the applicant argued that this was something which fell within the Orange List of the IBA Guidelines and it would therefore be justifiable to disqualify the arbitrator as a result. The Tribunal was unconvinced by this argument and in handing down its judgment reminded the parties that “the IBA Guidelines are of indicative value only, even though they may sometimes provide useful indications”.
The same view was taken in Tidewater Inc & Ors v Venezuela12. In this case, the claimant applied to have the arbitrator disqualified on the grounds that she had failed to disclose that she had been appointed by the respondent on a number of occasions in the past. The application was ultimately unsuccessful as the judge held that a failure to disclose previous appointments was not in itself sufficiently serious to warrant the disqualification of an arbitrator, especially as this non-disclosure was based on an honest exercise of judgment. Interestingly, the arbitrator argued that her appointments by Venezuela were in the public domain and that the claimant should, therefore, have been aware of them, regardless of whether or not specific reference had been made to them during the disclosure process. The tribunal did not find favour in this argument and stated that the arbitrator was the person best-placed to provide information about her past appointments and should, therefore, have disclosed all of her appointments, regardless of the fact that they were in the public domain. To have concluded otherwise would put to great a burden on the parties to investigate arbitrators.
Comments such as these seem to suggest that there is a heavier burden on the arbitrator than the parties in the disclosure process. However, the fact remains that the non-disclosure was not sufficient to merit disqualification which has lead critics to argue that, despite the ICSID’s comments, parties should, in practice, continue to carry out their own due diligence into the previous appointments of arbitrators. This is wise, given that in the Ukraine case the ICSID took an entirely different approach and stated that the parties should be assumed to have carried out at least basic internet research into the opposing parties, their counsel and the arbitrators at and early stage in proceedings.
It would be unfair to suggest that the ICSID will always apply the IBA Guidelines. This is manifestly not the case: the ICSID will use the Guidelines as an indicative tool but will not give them undue authority where there are established legal provisions in place.
A similar approach has also been taken in other national courts. Indeed, in a recent case heard in the Court of Appeal of Madrid (case number 506/2011), the Court was unwilling to pay too close regard to the IBA Guidelines where the national law was sufficiently clear in relation to the concept of impartiality and independence.
In that case, the Court annulled an award rendered under the Spanish Court of Arbitration on the grounds that the arbitrator was not independent and impartial. Both parties alluded to the IBA Guidelines in their submissions. Commenting on the relevance of the Guidelines to the case, the Court noted that the Guidelines could be of use but that Spain’s own legal system, the doctrines of its Constitutional Court and its own national Arbitration rules were so clear on the topic of independence and impartiality that they had adequate means to determine the issues in question without having to refer to the IBA Guidelines. The criteria set out in the Guidelines did not, therefore, influence the Court’s final decision.
More striking than the Court’s disregard of the IBA Guidelines is perhaps the uncompromising approach which it took to the arbitrator’s lack of disclosure. The challenge centred upon the fact that the managing partner of the law firm acting for one of the parties had once acted as an intern for the arbitrator over 30 years earlier. The arbitrator had subsequently dedicated a book to the managing partner and had developed friendships with a number of employees from the same law firm. None of these facts were disclosed until the arbitrator was specifically questioned about them, something which the Court considered cast doubt over his independence and impartiality. Indeed, the Court held that “the mere existence of reasons that can cast doubts on the impartiality of the arbitrator should be enough for him to resign” and found the fact that he had not disclosed . This is a much stricter approach than has been taken by other courts in relation to disclosure and certainly suggests that the responsibility for disclosure lies firmly with the arbitrator as opposed to the parties.
The reason that this decision is so striking is that, in the same year, the Court of Appeal of Madrid suggested that it is the parties, and not the arbitrator, who should take responsibility if there is a lack of transparency in the disclosure process (case number 338/2011).
Lessons to be learned
Commentators have said that, in spite of the introduction of the IBA Guidelines, there “is still much discussion over what constitutes full disclosure” and indeed these very different decisions illustrate that this is most definitely the case. The divergent approaches which are being taken by courts all over the world evidence the fact that decisions are being made on a case by case basis. Indeed, it is not even clear whether a heavier burden will be placed on the parties or the arbitrators. The lesson to be taken from this is surely that all parties in arbitrations should ensure that they protect their own position as much as possible; the parties should carry out a high level of due diligence and arbitrators should ensure that they make full and frank disclosure.
In relation to the relevance of the IBA Guidelines, it is clear that courts recognise that the Guidelines are of useful indicative value. However, it is equally clear that the Guidelines will not play a part in the decision-making process unless the relevant national legislation or Arbitral Rules are unclear or the parties to a dispute have expressly agreed to be bound by them. This seems like the correct approach to take; indeed, as Flaux J explained, it is stated in the Guidelines themselves that they were never intended to override national law.