Recently, the IBA has published its 2014 Guidelines on Conflicts of Interest in International Arbitration (the 2014 Guidelines). The 2014 Guidelines build upon the 2004 IBA Guidelines on Conflicts of Interest in International Arbitration (the 2004 Guidelines) which during the past 10 years have been widely used by arbitrators, arbitral institutions, parties and counsel in international arbitrations.
This alert highlights in summary some of the changes that appear in 2014 Guidelines.
The 2014 Guidelines are a culmination of the result of the IBA Arbitration Committee’s review of the 2004 Guidelines in the light of issues that have frequently emerged drawn from those involved in the international arbitration arena from a variety of cultures and perspectives of the legal world.
The 2014 Guidelines contain several key revisions which seek to address:
- the effects of so-called ‘advance waivers’;
- the independence and impartiality of arbitral or administrative secretaries;
- third party funding; and
- disclosure matters and ‘issue’ conflicts.
In addition, the 2014 Guidelines seek to clarify areas where previously lingering uncertainty existed, namely, that the Guidelines apply to both commercial and investment arbitration and to both legal and non-legal professionals serving as arbitrators. The 2014 Guidelines also emphasise that the fact of requiring disclosure does not of itself imply the existence of doubt as to the impartiality or independence of the arbitrator.
1. The effects of so-called ‘advance waivers’
The 2014 Guidelines provide very clearly that an ‘advance waiver’ can no longer serve to obstruct any future challenges to the appointment of the arbitrator. Advance waivers are used by arbitrators to require parties to waive their rights to bring challenges against the arbitrator if he or she has a conflict of interest which arises during the course of the arbitration proceedings.
In the light of this change, arbitrators should review all of their previous appointments. This should extend to the activities of the arbitrator’s law firm, if any, because importantly, the 2014 Guidelines provide that an arbitrator is in principle considered to bear the identity of his or her law firm. Interestingly (and some would argue surprisingly), this does not extend to barristers and their chambers. However, parties should not be deterred to make an advance waiver. The 2014 Guidelines, ‘do not otherwise take a position as to the validity and effect of advance declaration or waivers’ which will be considered in context and according to the applicable law
2. The independence and impartiality of arbitral or administrative secretaries
The 2014 Guidelines extend the duty of independence and impartiality (including the duty of disclosure) to arbitral or administrative secretaries and assistants, to that of an arbitrator or the Arbitral Tribunal.
While it is the responsibility of the Arbitration Tribunal to ensure the duty is respected, arbitrators should now carefully contemplate their prospective administrative support staff in relation to their independence and impartiality to the proceedings.
3. Third party funding
The 2004 Guidelines provided that where one of the parties was a legal entity, the managers, directors and members of a supervisory board of that legal entity shall be considered the equivalent of the legal entity party. The 2014 Guidelines extend this beyond a legal entity. The words, ‘or any person (legal or physical) with a direct economic interest in the arbitral award or a duty to indemnify a party for the arbitral award’ have been inserted. In addition, the words ‘shall be considered equivalent’ have been replaced by, ‘may be considered to bear the identity of such party.’Importantly, this means that third-party funders and insurers in relation to the dispute, given they may have such a direct economic interest in the award, are included.
In light of this change, third party funders should now disclose the existence of such funding and their identity because they may be considered to share that identity with the party they are funding. Third party funders should be wary that being considered to bear the identity of the party imposes a much greater likelihood of being directly involved in the proceeding. This is because, firstly, an opposing party may apply for a security for costs order early on in the arbitration, and secondly, an opposing party may request that the Tribunal hand down a costs award that is to be enforced against the third party funder as well as the party to the arbitration. In contrast, parties informed of third party funding may wish to use this information to help decide whether to settle rather arbitrate their dispute.
The 2014 Guidelines seek to promote greater consistency and avoid unnecessary challenges and arbitrator withdrawals and removals. This is reflected under the “Duty of the parties and the Arbitrator” and the revised “Application lists”. The Green List (which lists situations where no duty of disclosure exists) now includes new situations where there is contact between an arbitrator with other arbitrators or counsel, for instance, through teaching in the same faculty or school, serving as an officer or working party of the same professional association or social/charitable organisation, a speaker in one or more of the same conferences or seminars or, perhaps of increasing importance these days, an affiliate through a social media network.
Parties must now inform the Arbitral Tribunal, arbitral institution and the other parties the identity of all members of the counsel team appointed. This must be made at the outset of proceedings. Parties need also to consider the relationship between arbitrators, counsel and other parties. The Orange List (which lists specific situations that may give rise to doubts as to impartiality or independence) now includes the situation where the arbitrator and another arbitrator, or counsel for one of the parties in the arbitration, ‘currently act as co-counsel or have acted together within the past three years as co-counsel.’ It also now includes the situation where ‘enmity exists between an arbitrator and counsel appearing in the same arbitration’. While the latter falls short of specific referencing to the situation where an arbitrator and counsel for one of the parties were or are currently opposing counsel in another arbitration, parties should still consider disclosure in such cases.
5. ‘Issue’ conflicts
An example of an issue conflict is whether the fact of someone acting concurrently as counsel and arbitrator in unrelated cases raising similar legal issues warrants disclosure. This is not a listed situation under the Orange List. However, the Orange List is a non-exhaustive list – this is especially emphasised in the 2014 guidelines. The 2014 Guideline further provides that, even if a situation is not listed in the Orange List, or falls outside the time limits used in the Orange List, the Arbitrator is still under a duty to consider whether a disclosure is required on a case-by-case basis. One such example that was provided was when an arbitrator concurrently acts as counsel in an unrelated case in which similar issues of law are raised.
The key revisions within the 2014 Guidelines represent an attempt to regulate market trends and practice, reduce arbitrator challenges and reinforce the validity and relevance of the Guidelines for future international arbitration practice. Though they do not mark a significant departure from the 2004 Guidelines, they do, for example, broaden the scope of the Guidelines to apply to arbitral and administrative secretaries and law firms. There are also additional obligations imposed on parties in situations that until now were not considered.
Arbitrators, arbitral institutions, parties and counsel will now need to pay more attention to previous appointments of arbitrators and (if applicable) the law firms to which they belong; to the prospective arbitral and administrative secretaries; to any existing inter-party contact and relationships and ultimately to the potential for any perceived imbalance within the tribunal. The identity of all members of counsel and third party funders must be made clear at the outset of proceedings.
Of course, only time will tell what impact the 2014 Guidelines will have on the future practice of international arbitration practice. The IBA Committee is fully aware of the need to continually develop and respond to the practice of international arbitration and that was recognised and contemplated when the 2004 Guidelines were first adopted. It will be interesting to see how (if at all) the 2014 Guidelines are modified in another 10 years’ time.