Conflicts of interest in international arbitration: updates to the IBA Guidelines

Conflicts of interest in arbitrator appointments are a key concern for arbitrators and parties alike.

For the businesses and people who become party to a dispute, it is important to ensure that the individuals who will review and ultimately decide their case are free from any conflicts. This is particularly so given that arbitrators are typically not bound by previous decisions and, while successful challenges of awards are not common, bias on the part of the arbitrator may provide a basis on which a party may seek to bring a challenge.

For the arbitrators' part, they want to be confident that they have complied with their legal duties and are conflict-free.

The IBA Guidelines on Conflicts of Interest in International Arbitration are used by parties, arbitrators and courts worldwide when ascertaining what constitutes a conflict of interest and the associated duties of arbitrators and parties.

Below, we outline the IBA's key proposed changes and their impact on parties and arbitrators.

Arbitrator duty to refuse appointment or resign (General Standard 2)

The Guidelines have always advised arbitrators to decline appointment or, where proceedings have started, to resign where there are any facts which, from either a subjective or objective perspective, would give rise to justifiable doubts as to the arbitrator's impartiality or independence.

The objective perspective is that of a reasonable third person with knowledge of the relevant facts. The IBA now proposes stipulating that arbitrators "must" resign in the case of objective justifiable doubts, unless the parties waive the relevant conflict / potential conflict. To assist parties and arbitrators, the IBA proposes adding further explanation of the objective standard.

Osborne Clarke comment: Where objective justifiable doubts exist, parties and arbitrators may welcome the increased certainty. However, such a strict rule may not always be appropriate. For example, where they exist but are unlikely to give rise to actual bias on the part of the arbitrator, it may not be necessary, or desirable, for the arbitrator to resign.

For instance, where the arbitrator is a partner in a law firm that provides services to an affiliate company of one of the parties, but the arbitrator neither participates in the running or decision-making of the firm nor has provided any services to the affiliate company themselves, there may be no objective apparent bias. These were the facts in W Ltd v M SDN BHD [2016]. The court found that there was no real possibility of bias. Accordingly, in such circumstances, an arbitrator resigning could lead to delay and expense that could, for some parties, outweigh the benefit of doing so.

Disclosure by arbitrators (General Standard 3)

The IBA proposes a new Guideline recommending arbitrators to decline appointment or resign where they are required to make a disclosure but are prevented from doing so by professional secrecy rules or other professional rules.

Osborne Clarke comment: The new Guideline would provide helpful guidance to arbitrators and parties in cases where professional rules impede a disclosure that would otherwise have been made. Importantly, the IBA maintains the position that an arbitrator's failure to disclose something that may, from the parties' perspective, call into question the arbitrator's impartiality, will not necessarily mean that a conflict of interest exists or that a disqualification should ensue. This allows for flexibility. However, national courts could take a different view. Under section 24 of the English Arbitration Act 1996, the courts have the power to remove an arbitrator where there are circumstances that give rise to justifiable doubts as to impartiality. In Halliburton v Chubb, which is discussed more fully in "International Arbitration in England: Perspectives in Times of Change", the Supreme Court confirmed that a lack of disclosure of such circumstances could amount to apparent bias.

The Orange and Green Lists

Many users of arbitration will be familiar with the Guidelines from reference to the Red, Orange and Green Lists. These Lists provide practical examples of facts that may or may not be likely to give rise to doubts as to an arbitrator’s impartiality or independence.

• 'Red situations' are divided depending on their severity. Some are 'Non-Waivable', others are 'Waivable' but only if done so expressly.
• 'Orange situations' can be waived and parties may be deemed to have done so if no timely objection is made following an arbitrator's disclosure.
• 'Green situations' are understood not to create a conflict of interest or appearance thereof.

The IBA proposes various additions to the Orange List. These cover, inter alia, where two or more arbitrators (or an arbitrator and counsel for a party) currently sit as co-arbitrators in separate, unrelated proceedings, an arbitrator having assisted in a recent mock trial or hearing preparations and an arbitrator having recently acted as expert for a party.

The IBA also clarifies that an arbitrator publicly advocating a position on the case (an 'Orange situation') includes comments made on social media or a professional networking platform.

On the Green List, the IBA proposes including cases where an arbitrator has heard testimony from an expert in the case in separate proceedings.

Osborne Clarke comment: In many cases falling under the proposed 'Orange' additions, there may be no conflict. However, some cases will be unclear and disclosure of the facts would assist the parties and may help protect the arbitrators from later allegations of undisclosed conflict. While many of the proposed changes reflect what is already being done in practice, the changes provide clarity and modernise the Guidelines, for example, in a world of social media.

Parties' duty to enquire (General Standard 4)

The key change here is that a party will be deemed to have learned of any facts or circumstances that could constitute a potential conflict of interest where such facts/circumstances could have been discovered upon "reasonable enquiry". This is relevant to ascertaining whether a party has waived a conflict.

Osborne Clarke comment: This change introduces the concept of 'constructive knowledge' of a party. It would increase the burden on parties to make reasonable enquiries into potential areas of conflict, both at the outset and on an ongoing basis during proceedings.

Relationships (General Standards 6 and 7)

General Standards 6 and 7 consider the relationships that may be relevant to determining whether a disclosure is required or a conflict of interest exists. They apply to both arbitrators and parties.

The key proposed additions are:

• Express confirmation that any legal entity or natural person over which a party has a "controlling influence" may be considered to bear the identity of the party.
• An expansion of the parties' disclosure obligations. Specifically, they will be required to disclose (to the tribunal, other parties and any appointing authority), any relationship between an arbitrator and "any other person or entity [the party] believes an arbitrator should take into consideration when making disclosures".
• Confirmation that relationships with regional or local authorities or autonomous agencies must be considered on a case-by-case basis.

Osborne Clarke comment: The proposed updates reflect the ways in which businesses, individuals, states and others interact and expand the types of relationships that arbitrators and parties should consider when making disclosures.

Osborne Clarke comment

Whilst the Guidelines are soft law not binding without party agreement, they are widely adopted internationally and are considered to promote best practice.

The next stage is for the IBA Council to decide whether to adopt the changes. We expect the decision to be made this month.

See the 2014 Guidelines here and the proposed 2024 Guidelines here.

This article has been co-authored by Solicitor Apprentice Jai Balaghan.