Clyde & Co (David Leckie, Tom Roberts, Rona MacRae) for claimant

In a judgment dated 2 March 2016, dismissing an appeal under section 68(2) of the Arbitration Act, an English High Court judge has ruled that the 2014 IBA Guidelines on conflict of interest have “weaknesses” and are not “correct”.   The decision has already caused controversy in international arbitration circles. 

Knowles J ruled that there was no apparent bias in circumstances where the sole arbitrator appointed by the LCIA, Mr David Haigh QC, was a partner in the Canadian law firm Burnet, Duckworth & Palmer LLP (BDP) which, during the course of the arbitration in question, provided “substantial”  legal services to an affiliated company of the Defendant and derived “substantial remuneration” from the instructions.  Mr Haigh QC stated that he had no knowledge of this clear conflict of interest during the course of the arbitration, despite the “substantial publicity” surrounding the Burnett, Duckworth and Palmer instruction and the involvement of 2 senior BDP partners, including the Managing Partner of the firm, on the Board and/or as shareholders of the Canadian company which was acquired by the affiliate of the Defendant.

The conflict of interest was only discovered shortly after the Final Award and, according to Mr Haigh, his firm had failed to identify and bring to his attention the conflict during searches carried out prior to his appointment by the LCIA and on an ongoing basis during the course of the arbitration.

It was accepted by Knowles J that the conflict fell squarely within paragraph 1.4 of the IBA Non-Waivable Red List which applies to situations 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".  This necessarily raises justifiable doubts as to the arbitrator's impartiality or independence and is “non-waivable”. However the judge concluded that the IBA rules are flawed and in any event do not bind the Court and are not a statement of English law.  Applying the English common law test of apparent bias, the judge ruled that a fair minded and informed observer would not conclude that there was a real possibility that the arbitrator was biased.

COMMENT: This decision is in sharp contrast to the recent decision (Cour de Cassation, Civ. 1, 16 December 2015, N°D14-26.279) of the French Cour de Cassation (Supreme Court) which ruled that the sole arbitrator's failure to disclose his firm's role in a transaction involving the parent company of one of the parties to the arbitration was "such as to reasonably cause a doubt regarding the independence and impartiality of the arbitrator". The court held that the arbitral tribunal was improperly constituted and therefore that the partial award was unenforceable. 

Conflicts of interest in arbitration represents one of the most controversial and pressing topics in modern arbitration practice, both in England and internationally. The IBA Guidelines represent the most widely accepted toolkit available when seeking to navigate this difficult issue.  Although the judgment recognises the importance of the IBA Guidelines, Knowles J casts into doubt the application and scope of the IBA Guidelines under English law.  In a field where calls for increased transparency are becoming louder, it remains to be seen what the ramifications of this judgment will be. One thing is certain: the Court of Appeal will not be resolving the issue in this case, as permission to appeal was refused by Knowles J on the basis that, although he accepts that the application of the IBA Guidelines is an important issue, it is, he considers, one for the IBA to resolve and is not a matter for the Court of Appeal.