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The IBA Guidelines on Conflicts of Interest: evolution not revolution

In 2004, in response to an increasing number of challenges based on conflicts of interest on the part of arbitrators, the International Bar Association published Guidelines on Conflicts Interest which were subsequently updated in 2014 (IBA Guidelines). More than a decade after their first publication, the widespread acceptance of the IBA Guidelines by the international arbitration community, has resulted in its quasi-law status.

However, this confidence should not result in the unfettered use of the IBA Guidelines as a replacement for careful analysis of the merits of any potential challenge. Whilst Knowles J’s judgment in W Ltd v M SDN BHD [2016] EWHC 422 (Comm) has reminded practitioners that the IBA Guidelines are not binding on the English courts and are only guidelines, there is a potential for diverging practices among national courts and it remains to be seen whether an international consensus will develop in the future.

The IBA Guidelines

In its initial form, the purpose of the IBA Guidelines was to provide guidance to practitioners in assessing the arguments for potential challenges, which were (and still are) difficult to successfully sustain. Paragraph 6 of the Introduction states:

“These Guidelines are not legal provisions and do not override any applicable national law or arbitral rules chosen by the parties… The IBA Arbitration Committee trusts that the Guidelines will be applied with robust common sense and without unduly formalistic interpretation.”

Complicating the issue further was that national laws apply different tests to determine the requirements of independence and any challenge will have to take account of the position under the law of the seat. To that end, the ‘Background Information on the IBA Guidelines’ provides a brief summary of the differing approaches adopted in national jurisdictions on impartiality and the lack of independence including the English common law position as set out in Porter v Magill (“whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”) as well as tests requiring circumstances that may “diminish confidence in the arbitrator’s impartiality” in Sweden and “evident partiality” in the US.

However, whilst noting the different positions under national statute, the IBA Guidelines contained general standards designed to ensure the impartiality and independence of arbitrations in international arbitration proceedings.

Potential for different approaches

The Red List provides a good illustration of how different national practices can present issues for the emergence of homogenized standards. To recap, the Red List is comprised of: (i) the Non-Waivable Red List, which sets out the most obvious conflicts and which cannot be cured by the parties’ waiver; and (ii) the Waivable Red List, which sets out situations which give rise to justifiable doubts as to an arbitrator’s independence and impartiality (but which can be waived by parties, albeit only expressly).

The Red List received recent attention in the English High Court case of W Ltd v M SDN BHD. In that case, the judge identified two inter-related weaknesses in the drafting of paragraph 1.4 of the Non-Waivable Red List. In particular, he suggested it was problematic to treat “compendiously (a) the arbitrator and his or her firm and (b) a party and any affiliate of the party, in the context of the provision of regular advice from which significant financial income is derived.” Additionally, he questioned “this treatment occurring without reference to the question whether the particular facts could realistically have any effect on impartiality or independence (including where the facts were not known to the arbitrator).”

Interestingly, the Background Information (see above) reveals that the original proposal for the IBA Rules had been not to equate an arbitrator’s activities with those of his/her law firm. That proposal apparently met with severe criticism from a number of institutions and individuals because it was perceived to be an attempt by large law firms to protect their market share. In particular: “[s]ome stated that large law firms should not be able to gain double advantage by offering worldwide service under one brand name and then claiming that their partners who served as arbitrators acted only as individual lawyers.” In the final draft, “General Standard 6” was revised to state that the activities of an arbitrator’s law firm should be reasonably considered in each individual case, which, as a general proposition and without considering the particular examples set out in the Red List itself, appears not to differ significantly from the tenor of Knowles J’s reasoning.

Nevertheless, the decision in W Ltd also poses potential problems for practitioners as it differs from the approach taken by the French Cour de Cessation (Supreme Court) in a recent 2015 decision (Cour de Cassation, Civ. 1, 16 December 2015, N°D14-26.279). In this case, the court 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. Therefore, although Knowles J’s judgment solidifies the position under English law, practitioners will need to be mindful that other national courts may take a different approach. It remains to be seen which approach (if any) will receive common acceptance in the arbitration community and/or further jurisdictions.

Kirkland & Ellis Dominic Corsini-Meek Dhevine Chandrapala

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