On 23 October 2014, the IBA Council passed a resolution adopting the anticipated revision to its “IBA Guidelines on Conflicts of Interests in International Arbitration” (2014 Guidelines), which have been widely used and referred to by practitioners and arbitrators in the decade since their adoption in 2004 (Original Guidelines). A copy of the 2014 Guidelines can be found by clicking here.
The 2014 Guidelines, published on 28 November, do not mark a substantial departure from the Original Guidelines, and instead make refined changes to reflect and inform current debates on issues in modern arbitral practice, and “the increased complexity in the analysis of disclosure and conflict of interest issues“. In clarifying the standards expected of arbitrators and parties, it is the aim of the 2014 Guidelines “that arbitration proceedings are not hindered by ill-founded challenges against arbitrators” or that “the legitimacy of the process [is] not affected by uncertainty and lack of uniformity“.
The 2014 Guidelines were drafted by the IBA Conflicts of Interest Subcommittee (IBA Subcommittee), which was made up of 27 leading arbitrators and arbitration practitioners, including Global Head of Herbert Smith Freehills International Arbitration Practice, Paula Hodges QC. The IBA Subcommittee consulted 150 arbitral practitioners by an online survey, as well as 19 arbitral institutions, and sought to reflect “diverse legal cultures and a range of perspectives, including counsel, arbitrators and arbitration users“.
Paula Hodges QC, Global Head of Herbert Smith Freehills’ International Arbitration Practice, says of the 2014 Guidelines that: “we hope that these new Guidelines will prove useful in providing more clarity and a level playing field to parties and arbitrators, striking the right balance between impartiality and due process on the one hand and unmeritorious challenges on the other”.
Christian Leathley, International Arbitration Partner in Herbert Smith Freehills’ London office, who is a member of the IBA Arbitration Committee, comments: “this is the product of a lot of work and in-depth consideration of the issues facing the sub-committee. It also drew on the practical experience of many arbitrators which helps ensure this is an instructive guide for all arbitration practitioners”.
Some of the key revisions are summarised as follows:
1. Third Party Funders must disclose their identity, and share the “identity” of the party they are funding
General Standard 6(b) has been amended so that a “legal or physical person having a controlling influence on the legal entity or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration may be considered to bear the identity of the legal identity“.
The Explanation to this amendment clarified that “third party funders and insurers in relation to the dispute may have a direct economic interest in the award, and as such, may be considered to be the equivalent of that party“.
This revision means that parties who have third party funding arrangements are now expected to disclose the existence of such funding to the Tribunal and other parties. The 2014 Guidelines do not, however, require the parties to disclose the terms of its funding arrangements. Previously, parties were under no obligation to disclose the fact that they were receiving third party funding. This development will now grant parties an insight into their respective abilities to finance the arbitration, and as such could change parties’ assessments as to how they conduct the arbitration and their willingness to pursue or defend their cases to an award. The disclosure of third party funding may increase the prospect of respondents wishing to settle future arbitrations, as it is a sign that a third party funder considers the claim to have a reasonable prospect of success.
As the third party funder now “bears the identity” of the party, this may inadvertently increase the likelihood of opposing parties either applying for a security for costs order early in the arbitration, or requesting that the Tribunal hands down a costs award that is to be enforced against the third party funder as well as the party to the arbitration. It is conceivable that parties may argue that the third party funder can also be considered a party to the arbitration, or at the very least, within the jurisdiction of the Tribunal. In light of the recent trend of judgments ordering security for costs against third party funders (see Gavan Griffith QC’s assenting opinion in the ICSID arbitration of RSM Production Corporation v St Lucia), or that indemnity costs are payable by third party funders (see the English High Court’s 23 October 2014 decision in Excalibur Ventures LLC v Texas Keystone Inc and other  EWHC 3436 (Comm)), this revised standard may open the door for similar applications in international commercial arbitration.
2. Arbitrators who are members of law firms, must also “bear the identity” of his or her law firm – this does not extend to barristers and their chambers
The 2014 Guidelines, in General Standard 6(a) requires an arbitrator, if he/she is a member of a law firm, to “bear the identity” of that law firm, thereby introducing the ability of parties to consider potential conflicts of interest between the law firm the arbitrator is a member of (though the arbitrator him/herself may not necessarily be conflicted), and the arbitrator’s duties in the arbitration. This revision reflects the modern reality that many partners in arbitration practices in international law firms also accept individual appointments as arbitrators, while having a collective responsibility to that firm’s clients (who engage the firm and not the individual partner). The IBA Subcommittee explains in the Guidelines that the revision is an attempt to incorporate considerations as to the work undertaken by that law firm, though such activities should not automatically constitute a conflict of interest, (given the ‘Chinese Walls’ that are commonly put in place in such scenarios).
The IBA Guidelines explain that this revision does not extend to barristers and their chambers, although such disclosure “may be warranted in view of the relationships among barristers, parties or counsel“.
3. “Advance waivers” by Arbitrators do not discharge an ongoing duty of disclosure
The 2014 Guidelines have made reference to the use of “advance waivers”. This is a request by an arbitrator that parties waive their rights to bring challenges against the arbitrator if he or she, or his or her law firm, has a conflict of interest in the future. This is a practice that has been adopted by some arbitrators in order to avoid last minute challenges when the parties have spent considerable time and money on advancing proceedings towards a hearing. The IBA Guidelines do not expressly state whether such waivers should either be widely accepted in practice, or enforceable, but instead state that such advance waivers “do not discharge the arbitrator’s ongoing duty of disclosure under General Standard (3)(a)“. This revision ensures that an arbitrator cannot rely on an “advance waiver” as means to prevent any future challenges to his appointment. As the arbitrator’s “identity” also includes that of their law firm, this revision will also place an on-going duty on the arbitrator to review the activities of their own law firm.
4. 2014 Guidelines apply to non-lawyers sitting as arbitrators
The IBA Subcommittee has clarified that the 2014 Guidelines also apply to non-legally qualified persons sitting as arbitrators. This clarification ensures that users are aware that the 2014 Guidelines can also be referred to in specialist arbitrations where an arbitrator comes from a non-legal profession, such as engineering or finance (for example, in an arbitration conducted under the P.R.I.M.E. Finance Arbitration Rules). Whilst this was the case under the 2004 Guidelines, it was not well known. The same applies for the application of the Guidelines to investment arbitrations as well as purely commercial arbitrations.
5. Disclosure of identity of parties’ counsel, including if the counsel is member of the same chambers as the arbitrator
Under the revision to General Standard 7(b), it is now the responsibility of the parties to inform the Arbitral Tribunal, the arbitral institution, and the other parties, of the identity of the counsel it has appointed. Each party also needs to inform its counter-party/ies whether there is a relationship between the counsel it has appointed and an arbitrator. This obligation extends to all members of the counsel team the party has appointed. It includes the situation where the counsel and arbitrator are members of the same chambers. This scenario was covered previously (under Article 3.3.2 of the Orange list). However, the reference in the General Standards clarifies that the parties have responsibilities in relation to their counsel in this regard.
The obligation on the party to make this disclosure at the outset of proceedings attempts to avoid a situation where late disclosure of the relationship gives rise to a challenge by the other party to the impartiality of the arbitrator.
6. Duty of impartiality and independence extends to Tribunal Secretaries
In a recognition of the increasing appointment of Tribunal Secretaries by Arbitral Tribunals, the 2014 Guidelines, at General Standard 5(b), extend the duty of independence and impartiality (including the duty of disclosure) to Tribunal Secretaries. It is the responsibility of Arbitral Tribunals that their Secretaries uphold those duties. This will certainly impose upon arbitrators the need to carefully scrutinise their prospective secretaries.
7. Arbitrator to consider making disclosure in situations falling outside of the time limits used in the Orange List
The IBA Guidelines have stated that, even if a situation is not listed in the Orange List, or falls outside the time limits used in the Orange List, the Arbitrator is still under a duty to consider, on a case-by-case basis, whether a disclosure is required. The 2014 Guidelines use the example of repeat appointments of that arbitrator by the same party or counsel, albeit outside of the three year period already stipulated in the Orange List, and state that it is necessary to consider making a disclosure to avoid creating a “perceived imbalance” in the Tribunal. This changes the previous position whereby situations outside the time limits stated in the Orange List were to be considered as falling within the Green list, such that no disclosure would be required.
8. Arbitrator and another arbitrator or counsel currently act or have acted together as co-counsel within the last three years
The Orange List has been revised to include (at 3.3.8) a new situation for which the arbitrator will need to make a disclosure: if the arbitrator and another arbitrator on the Tribunal, or the arbitrator and counsel for one of the parties, have acted together as co-counsel within the past three years. It does not go as far as to specifically refer to the scenario where an arbitrator and counsel for one of the parties were or are currently opposing counsel in an arbitration, although it now includes (at 3.3.7) the scenario where “enmity exists between an arbitrator and counsel appearing in the same arbitration”.
In summary, these changes represent a considered attempt to correct anomalies that have arisen over the last ten years and to respond to market trends and practice. They include additional obligations on arbitrators in scenarios not previously contemplated, whilst at the same time clarifying that an obligation to disclose does not implay a lack of impartiality: the standard for disclosure and the standard for challenge remain different. They also broaden the remit of the Guidelines by incorporating more duties on parties and new duties on Tribunal Secretaries, all with a view to reducing arbitrator challenges.The IBA Committee intends to continually monitor the use of the Guidelines in order to improve them further.
For further information, please contact Paula Hodges QC, Global head of arbitration, Christian Leathley, Partner, Joanne Greenaway, Professional Support Lawyer, James MacKinnon, Associate, or your usual Herbert Smith Freehills contact.