REUTERS | Michael Dalde

The end of the blanket application of the IBA Guidelines on Conflicts of Interest? A wake up call for arbitration practitioners

For arbitration practitioners around the globe, the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) have become an important tool for ascertaining a potential conflict for an arbitrator. In response to the QMUL 2015 Survey some 71% of arbitrators and practitioners confirmed that they had seen the IBA Guidelines used in practice.

Yet the recent English court case of W Limited v M SDN BHD may challenge the way in the IBA Guidelines are used. In that case the claimant challenged two awards under section 68(2) of the English Arbitration Act 1996, basing its challenge on the apparent bias of the arbitrator based on an alleged conflict of interest. The claimant referred to the IBA Guidelines to substantiate its position.

Of particular focus in W Limited was the way in which the situations contained in the “Non-Waivable Red List” are treated. General Standard 2(d) in Part I states, without qualification, that justifiable doubts “necessarily exist” as to the arbitrator’s impartiality or independence “in any of the situations described in the Non-Waivable Red List”. Paragraph 2 of Part II then states that “acceptance of [a Non-Waivable Red List situation] cannot cure the conflict”. In short, if an arbitrator or counsel were to apply the IBA Guidelines strictly, in any scenario identified as within the Non-Waivable Red List the potential arbitrator should refuse appointment.

In W Limited the sole arbitrator, Mr David Haigh QC was a partner in a law firm, but, at the time of his appointment, worked almost exclusively as an arbitrator with little or no involvement in the running or decision making of the firm. He made a statement of independence in 2012 following a conflict check at his firm. It later transpired that Mr Haigh QC’s firm provided substantial legal services to a company, Q, which had become an affiliate of the defendant during 2012.

The firm’s conflict check system did not bring this to Mr Haigh QC’s attention. He confirmed that, had he been aware of this, he would have wished to make a disclosure to the parties.

In challenging the awards, the claimant relied upon paragraph 1.4 of the Non-Waivable Red List of the IBA Guidelines, alleging that, because Mr Haigh QC’s firm advised an affiliate of the defendant and derived significant financial income from that advice, there were justifiable doubts as to Mr Haigh QC’s independence and impartiality and that a case of apparent bias was made out.

The court found that Mr Haigh QC was effectively a sole practitioner using the secretarial facilities of his firm, and that he was committed to transparency and would have made a disclosure had he been alerted to the situation. The firm did not advise the defendant or its parent company, and there was no suggestion that Mr Haigh QC did any work for Q. Therefore, applying the “apparent bias” test in Porter v Magill, the court concluded “without hesitation” that a fair minded and informed observer would not have concluded that there was a real possibility that the tribunal was biased or lacked independence and impartiality.

Having drawn that conclusion, the English court took the unusual step of continuing to consider the IBA Guidelines. The court commended the “distinguished contribution” made by the IBA Guidelines and their objective to assist in assessing impartiality and independence. However, the court did not think their application could lead to the correct outcome in this case.

The weaknesses in the IBA Guidelines identified by the court related to the lack of “case-specific judgment” that could be brought to bear on any situation included within the Non-Waivable Red list: to determine whether a conflict (apparent or real) existed required some consideration of the facts. The court found that, where advice is being given to an affiliate of a party and the arbitrator is not involved in that advice, there was no justification for the situation automatically falling in the Non-Waivable Red List. Further, if a disclosure of such a situation were made, there was no reason why it should not be open to the parties to accept that situation by waiver.

The court did not accept that a real possibility of bias existed in this case simply “because that is what we are told through Paragraph 1.4” of the IBA Guidelines. Although the facts fitted within Paragraph 1.4, it did not mean that an assumption of bias was made out and thus there was a conflict of interest. Whilst the court accepted that this was indeed what the IBA Guidelines appeared to intend under General Standard 2(d) and Paragraph 2 of Part II, this was not an appropriate assessment of the severity of the facts in this particular case. The court also considered that some of the situations allocated to the “Waivable Red List” “would seem potentially more serious than the circumstances of the present case; again suggesting that the circumstances of the present case do not sit well within a “Non-Waivable Red List”.

Comment

For those involved in London-seated arbitrations, the case reinforces the existing position that, whilst potentially informative to the court, the IBA Guidelines do not form part of English law. It remains open to counsel to argue that even if a situation falls within a particular category of the IBA Guidelines, it does not mean that a case of actual or apparent bias is automatically made out.

Of course the case has wider ramifications. The IBA Guidelines are frequently applied by arbitrators and counsel. Where they are applied, they may be used without much analysis, criticism or challenge. Prepared by a group of esteemed practitioners and amended and updated to reflect potential conflict situations identified since the last version, these IBA Guidelines have widely gained status as something more than simply guidance; if a situation falls within the IBA Guidelines, few arbitrators would seek to continue an appointment even if they consider that no actual conflict exists in reality. Few practitioners would seek to nominate a candidate for appointment if he or she falls within the Waivable Red List or, in many instances, even the Orange List.

Importantly, when looking at disclosures falling within the Waivable Red or even Orange category made by an arbitrator nominated by opposing counsel, practitioners may not carry out a case-specific analysis of the facts in all cases to ascertain whether there is really a risk of bias. Many would apply the same logic as the claimant in this case in deciding that a real possibility of bias existed simply “because that is what we are told” by the IBA Guidelines.

The converse may also be true: despite the fact that the IBA Guidelines are intended to be “applied without unduly formalistic application”, arbitrators and counsel may take comfort if a situation does not fall within the Red or Orange lists.

So is this perhaps a wake-up call for practitioners? The court rightly questioned the blunt application of the IBA Guidelines and the decision suggests the arbitration community may place too much reliance on the IBA Guidelines, giving too little consideration to the circumstances of a particular case and the law of the seat when assessing conflicts. The practical reality appears to be that the latter considerations are raised when opportune in the context of challenges to arbitrators and to awards, as opposed to being deliberated at the time of appointment of an arbitrator.

In challenging this pattern of behaviour, perhaps we all need to be braver in seeking to appoint the best arbitrator for the particular case, even if that arbitrator might fall within a category of the IBA Guidelines. In such an international field as arbitration, soft law codes, rules and guidance such as the IBA Guidelines, will always play an important role in bringing together different jurisdictional approaches. However, they do not (and do not proclaim to), provide a substitute for careful analysis of whether there is a potential conflict under the relevant law. Case-specific judgment is paramount and counsel cannot rely on a tick-box exercise.

Herbert Smith Freehills Vanessa Naish Hannah Ambrose

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