On 11 September 2019, the Stockholm Chamber of Commerce (SCC) adopted a policy encouraging the disclosure of the identity of “any third party with a significant interest in the outcome” of an SCC arbitration. This new policy is effective. Such disclosure will likely initially be contained within the parties’ first written submissions, although parties are also encouraged to disclose where any third party acquires a significant interest in the outcome of the dispute during the course of the arbitration.
The SCC’s published policy document states that arbitrators should “take the information disclosed into account in making any disclosure or statement of independence and impartiality pursuant to Article 18 of the SCC Rules.” Article 18 requires arbitrators to disclose “any circumstances that may give rise to justifiable doubts as to the arbitrator’s impartiality or independence.” It is apparent therefore, both from the wording of Article 18 and the policy itself, that the policy’s rationale derives from a desire to prevent any actual or perceived conflicts of interest between an arbitrator’s role and his or her private interests.
By encouraging parties to an arbitration to disclose the identity of third parties that might have a significant interest in the outcome of the arbitration at the earliest stage possible in proceedings, the SCC appears to be attempting to reduce the likelihood of arbitrators being challenged once the arbitration has commenced. It is clear that parties to any arbitration should always conduct due diligence when nominating arbitrators to ensure independence and impartiality, irrespective of which arbitration institution is used. However, the new policy adopted by the SCC can be seen as an attempt to facilitate such diligence and may prove to be attractive.
Disclosable third party interests
The SCC policy document helpfully provides an indicative, non-exhaustive list of potential third parties that may have a significant interest in the outcome of a dispute. This list includes:
- Parties’ ultimate beneficial owners.
- Third parties that have obligations to pay an award under an indemnification agreement or similar.
- Third parties that are entitled to receive the proceeds of an award under a funding agreement or similar.
- Parties’ ultimate parent or other group companies.
It is important to note that this policy encourages the parties to make such disclosures; it does not require them to do so. However, for the reasons noted above, this policy is likely to assist parties to conduct diligence on potential arbitrators, to ensure their independence and impartiality. It is, therefore, likely to be in the parties’ interests that such disclosures are made where applicable.
Other arbitration institutions: third party funding
As a general rule, most arbitration institutions do not require parties to disclose third party interests. However, in relation to third party funding arrangements, which are becoming increasingly common, there seems to be some movement towards compulsory disclosure in both commercial and investor-state arbitration.
The 2018 ICCA-Queen Mary Task Force Principles on Third-Party Funding made a series of recommendations in relation to third party funding. In particular, Principle A.1 recommends that parties should:
“… on their own initiative, disclose the existence of a third-party funding arrangement and the identity of the funder… either as part of a first appearance or submission, or as soon as practicable after funding is provided or an arrangement to provide funding for the arbitration is entered into.”
Principle A.2 also gives the tribunal the authority to request that such information be disclosed.
Article 21 of the new draft ICSID Convention Arbitration Rules requires the parties to disclose the existence and source of any third party funding. This is framed as an ongoing obligation throughout the proceeding. Parties are not, however, required to disclose the actual agreement itself.
In the ICSID case Muhammet Çap and Sehil Inşaat Endustri Ve Ticaret Ltd. STI. v Turkmenistan, the tribunal ordered the claimants to disclose the status of their funding as well as details of any funding agreement, in an attempt to avoid conflicts of interest.
It is not surprising that there are increasing calls for the disclosure of third party funding arrangements. Both claimants and the tribunals have a clear interest to ensure that any award remains valid; therefore, it is imperative to avoid any actual or perceived conflicts of interest arising. However, it remains to be seen how many arbitration institutions will incorporate such disclosure into their respective rules, or issue policy statements like the SCC.
The conversation around the disclosure of third party interests is still evolving and there are many unanswered questions as to how other institutions might choose to deal with such disclosures. Would disclosure be compulsory or encouraged? Would disclosure be limited to the existence of third party funding and the identity of the funder? What about the terms of such funding? We expect to see increasing interest and discussion in this space.