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IBA published updated Guidelines on Conflicts of Interest in International Arbitration | Hengeler Mueller News
Dispute Resolution

IBA published updated Guidelines on Conflicts of Interest in International Arbitration

The IBA Arbitration Committee published a new version of the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration. You can access the full text of the revised guidelines at IBA Guidelines on Conflicts of Interest in International Arbitration (ibanet.org). The new version provides a specification and further development of the well-established guidelines.

No change in the structure and logic of the guidelines

The new version does not affect the basic structure of the guidelines. As before, the guidelines are divided into two parts. In the first part, the guidelines define seven objective standards as a benchmark for the decision whether an arbitrator must decline an appointment or resign from acting as arbitrator due to a conflict of interest. In the second part, the guidelines provide practical examples for the application of the general standards. The examples are categorised by their potential for conflict in a traffic light system consisting of a red (reasonable doubt as to the impartiality of an arbitrator), orange (possible doubt as to the impartiality of an arbitrator in individual cases) and green (generally no doubt as to the impartiality of an arbitrator) list.

Within the red list, the guidelines further distinguish between the "Waivable Red List" and the "Non-Waivable Red List". The "Non-Waivable Red List" includes cases in which an arbitrator would be his own judge due to a self-interest in the outcome of the proceedings. In such a case, the arbitrator must decline an appointment, or resign as arbitrator respectively, irrespective of a waiver by the parties.

The revised guidelines also include clarifications as to the actions arbitrators should take if they recognise a potential conflict. Generally, an arbitrator must decline an appointment or refuse to continue to act as arbitrator if there are doubts as to his impartiality or independence (second standard, lit. (a)). To this end, the explanations to the second standard (lit. (b)) now emphasize the objective standard applicable to the evaluation of the relevant circumstances. An arbitrator must decline the appointment or refuse to continue to act if an objective third party would have reasonable doubts about the impartiality and independence of the arbitrator based on the known circumstances and the parties did not waive the conflict after disclosure.

Against this background, the revised explanations to the second standard (lit. (c)) also outline the possible actions of the arbitrator who identifies relevant circumstances. In case of serious circumstances in line with the "Non-Waivable Red List" the arbitrator must decline an appointment or refuse to continue to act as arbitrator. Below the threshold of the "Non-Waivable Red List", an arbitrator may limit himself to disclosing the relevant circumstances to the parties if he considers himself to be impartial and independent. Consistently, the third standard (lit. e)) now clarifies that an arbitrator who is prevented from a disclosure due to confidentiality obligations must also decline an appointment or refuse to continue to act as arbitrator.

The revised third standard (lit. (g)) further explicitly confirms that an arbitrator's failure to disclose certain circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrator's impartiality or independence, does not necessarily indicate that a conflict of interest exists. In this respect, it has already been established legal practice that parties cannot challenge an arbitrator on the grounds of nondisclosure alone. Regardless of a failure to disclose, the existence of a conflict of interest must be objectively proven. While the amendment is thus in line with current practice, the amendment is to be welcomed as it promotes clarity of the guidelines.

Relevant relationships are broadened in the revised sixth standard

The revised sixth standard broadens the relationships between arbitrators, parties, and other participants in the proceedings relevant for the assessment of a potential conflict of interest. The revised version of the guidelines no longer only equates the actions of an arbitrator's law firm to the arbitrator's own actions. Rather, the guidelines now establish the more general term of an arbitrator's employer. This is taking into account, on the one hand, that arbitrators may hold various roles within law firms, including employed positions (associates, counsel, non-equity partners). On the other hand, the standard also covers employers of non-attorney arbitrators (such as in-house counsels and industry experts).

The revised guidelines further broaden the sixth standard by equating entities over which a party has a controlling influence with the party itself. Following this amendment, group companies will likely play a more significant role in the future assessment of potential conflicts than they did in the past. Already in the previous version the guidelines had addressed the opposite scenario, in which an entity possesses a controlling influence over a party. This may also include third-party funders. In this respect, the revised explanations to the sixth standard differentiate depending on the influence the third-party funder has on the party. A third-party funder can be considered a party if the third-party funder exerts influence on the conduct of the proceedings beyond the mere economic interest in the outcome, for example by influencing the selection of arbitrators. In such a case a party may be under a duty to disclose the modalities of the funding. It remains to be seen whether in the future third-party funders will evaluate more cautiously whether to fund an arbitration in light of such disclosure requirements.

Relevant additions to the practical examples

The amendments in the second part of the guidelines relate almost exclusively to the "orange list", in other words the list of circumstances that may give rise to doubts about the impartiality of an arbitrator on a case-by-case basis.

Among other things, the orange list now includes practically relevant relationships between two arbitrators and between party representatives and arbitrators. In particular, the guidelines now specifically encompass circumstances in which two arbitrators, or a party representative and an arbitrator jointly act as arbitrators in another ongoing arbitration.

The updated guidelines also specifically address the role of experts in arbitration hearings. In this regard, doubts as to the impartiality of an arbitrator may arise from the fact that an arbitrator has been appointed as an expert by a party representative or their legal counsel at least three times in the preceding three years. Furthermore, the orange list now includes the case that an arbitrator instructs, in another matter where the arbitrator acts as counsel, an expert who is appearing in both arbitration proceedings. Therefore, to avoid a potential disagreement over the impartiality of an arbitrator at a late stage of the proceedings, parties should select an expert as early in the proceedings as practicable and notify the arbitral tribunal of this decision.

Conclusion

The revision of the guidelines, in particular of the sixth standard and the "orange list", responds to the increasing complexity in international arbitration when assessing a potential conflict of interest. To address this increasing complexity, the revised guidelines rightfully emphasize the goal of an objective assessment of the arbitrator and his activities in relation to all parties involved in the arbitration proceeding. To thoroughly assess potential conflicts of interest, the parties and arbitrators are thus increasingly reliant on a transparent cooperation. The arbitrator and the parties must carefully oblige with their respective duties of inquiry, information, and disclosure. To this end, the revised guidelines provide the parties with advanced standards and relevant clarifications.

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