The 2014 IBA Guidelines on Conflicts of Interest in International Arbitration updates the original 2004 text with current practices. We look at five areas: advance waivers, issue conflicts, the duty to enquire, law firm issues and third-party funding.
The 2014 IBA Guidelines on Conflicts of Interest in International Arbitration (published by the International Bar Association), were approved on October 23, 2014. The IBA guidelines reflect the cumulative wisdom of arbitration practitioners, institutions and users over the past decade, and – although not binding – offer important guidance to parties and their lawyers, arbitrators and arbitral institutions on conflicts of interest.
They are often invoked by parties and their counsel as the basis for arguing challenges to arbitrator appointments, as well as by arbitral institutions as the basis for deciding such challenges. Accordingly, arbitration practitioners, arbitrators and users of arbitration should be aware of the key changes.
The review process
The IBA guidelines were reviewed by a diverse group of professionals (user community, counsel, arbitrators, etc.) representing different regions and communities.
They found that the original IBA guidelines struck a proper balance between different stakeholder interests and so set about identifying areas where they could be brought up to date through clarification or better reflect new practices.
By canvassing national practices, arbitral institutions and arbitration practitioners around the world, they identified areas of special interest, including the five picked out here:
- advance waivers
- issue conflicts and double hats
- the duty to enquire
- barristers’ chambers and large firm issues
- third-party funding.
Key changes to the IBA guidelines
The IBA guidelines now clarify that they apply equally to investment arbitration and to international commercial arbitration, as well as to legal and non-legal professionals serving as arbitrators. This removes any suggestion that different standards apply, depending on the type of arbitration or the professional calling of the arbitrator.
Similarly, General Standard 5 confirms that the IBA guidelines apply to tribunal assistants and secretaries, who are held to the same standard of independence and impartiality as arbitrators, irrespective of whether they are required to execute a formal declaration of independence and impartiality.
The five principal changes to the IBA guidelines’ General Standards are discussed below.
1 | Advance waivers
Increasingly, arbitrators are asking that parties waive in advance issues that may arise should other partners of an arbitrator’s firm be instructed to act in unrelated matters involving parties to the arbitration, or one of their affiliates.
Not all legal systems allow a waiver in advance of non-existent (i.e. future) rights. The IBA guidelines do not take a position on the validity and effect of advance waivers, but do clarify that these waivers do not discharge arbitrators from the ongoing duty to disclose, established in General Standard 3.
Regardless of the terms of an advance waiver, the arbitrator seeking the waiver must disclose any facts or circumstances that may, in the eyes of the parties, give rise to doubts as to their independence or impartiality. The revisions made to General Standard 3 reflect the approach generally taken by arbitral institutions to such waivers.
2 | Issue conflicts and double hats
Issue conflicts concern an arbitrator’s relationship with the subject matter of the dispute, e.g. where an arbitrator has previously expressed a legal opinion on an issue that arises in the case of a separate and unrelated arbitration.
‘Double hats’ refers to the practice of practitioners assuming dual roles as counsel and arbitrator.
Both practices raise the potential for bias, or the apprehension of bias, and problems of asymmetrical information between arbitrators.
The IBA guidelines provide general guidance on disclosure in General Standard 3. Part II of the guidelines also highlights the possible need to make disclosures in situations not listed in the Orange List – for example, disclosing the fact that an arbitrator currently acts as counsel in an unrelated case in which similar issues are raised.
3 | Duty of parties/arbitrators to enquire
Under General Standard 7, both the parties to an arbitration and the arbitrators have an ongoing duty to make ‘reasonable enquiries’ to identify conflicts of interest.
In the revised guidelines, these duties have been clarified and, in the case of arbitrators, given additional rigour. There is greater guidance as to what constitutes a ‘reasonable enquiry’ for the purpose of satisfying the duty to enquire. Parties and arbitrators must investigate ‘any relevant information that is reasonably available to them’ to satisfy their respective duties of disclosure, and reasonable enquiries must be carried out irrespective of whether an arbitrator is a member of a large firm or a small, boutique firm.
4 | Barrister and law firm issues
Many arbitrators today come from large global legal practices and – regardless of structure – this increases the likelihood of conflicts.
General Standard 6(a) now clarifies that arbitrators are, in principle, considered to bear the identity of their law firm and that – when considering potential conflicts or disclosure – the activities of the arbitrator’s law firm and the relationship of the arbitrator with the firm should be considered in each individual case. If the activities of an arbitrator’s firm involve one of the parties, this will not necessarily constitute a source of conflict or a reason for disclosure, but it must be considered as a fact or circumstance that could do so.
A new scenario has been added to the waivable Red List where an arbitrator or his or her firm regularly advises the party or an affiliate of the party, and the arbitrator or their firm derives significant financial income therefrom.
The 2004 guidelines provided for disclosure of certain relationships within the past three years (e.g. past involvement as counsel to one of the parties or past appointments by one of the parties or its counsel): this three-year period is still considered adequate and is therefore maintained.
The IBA guidelines recognise that many barristers’ chambers have evolved into specialised chambers marketed similarly to law firms and composed of both arbitration counsel and arbitrators. This – and the experience gained through published arbitration cases1 – means that General Standard 7(b) now imposes a duty on the parties to disclose the identity of their counsel appearing in the arbitration and of any changes to their counsel team. The explanatory note to General Standard 6(a) notes that while barristers’ chambers should not be equated with law firms for the purposes of conflicts, disclosure may be warranted in view of the relationships among barristers, parties or counsel.
General Standard 7(b) also provides that a party’s disclosure of the identity of its counsel must be made ‘at the earliest opportunity’ to avoid late-rising conflicts that may prejudice the opposing party(ies) or jeopardise the proceedings.
5 | Third-party funding
The practice of engaging a third-party funder to an arbitration can constitute a fact or circumstance requiring disclosure. Because of its direct economic interest in the dispute and its possible involvement in the conduct of the case, the third-party funder may have to be considered the equivalent of the party being funded.
The explanatory note to General Standard 6 sets out important definitions on third-party funders and insurers:
‘[T]he terms ‘third-party funder’ and ‘insurer’ refer to any person or entity that is contributing funds, or other material support, to the prosecution or defence of the case and that has a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration.’
General Standard 7(a) now provides that a party shall inform the arbitrator, the tribunal and all other parties (as well as any administering or appointing authority) of any relevant direct or indirect relationship between the arbitrator and ‘the party (or another company of the same group of companies or an individual having a controlling influence on the party in the arbitration), or between the arbitrator and any person or entity with a direct economic interest in the award to be rendered in the arbitration’ (i.e. a third-party funder or insurer).
The IBA guidelines working group adopted the approach ‘if it ain’t broke, don’t fix it’. The original guidelines have generally withstood the test of time and the revisions reflect a gradual evolution in conflicts and disclosure rather than a dramatic departure from established principles, ensuring their usefulness as a tool for practitioners and institutions alike over the next decade.