IBA guidelines on conflicts of interest in arbitration mark 20-year milestone

The general principle remains unchanged, with some revisions to the Explanation to General Standard 1. The 2024 Guidelines:

• Reaffirm that the arbitrator’s obligation to maintain independence does not extend beyond rendering of the final award to the time period during which an award may be challenged before the courts or relevant "bodies" (i.e., arbitration institutions).
• Remove the example in the 2014 Guidelines whereby an arbitrator shall be impartial and independent where the final award is referred back to the original Arbitral Tribunal under the relevant applicable law or institutional rules.
• Provide that where a dispute is referred back to the same Arbitral Tribunal, a fresh round of disclosure and review of conflicts "will" (as opposed to "may" in the 2014 Guidelines) be necessary.

The fundamental test remains unchanged. However, the Explanation to General Standard 2:

• Clarifies that where an objective conflict of interest exists following application of the reasonable third person test, the arbitrator must decline an appointment or refuse to continue to act, unless that conflict is waived pursuant to General Standard 4.
• Provides additional context to assist in deciding whether "justifiable doubt" exists.  Where the circumstances give rise to a justifiable doubt of a fact or circumstance on the Non-Waivable Red List, an arbitrator should decline appointment. Where justifiable doubt exists for circumstances described on the Waivable Red List, an arbitrator may make a disclosure in accordance with General Standard 3.

The 2024 Guidelines:

• Clarify that when an arbitrator is determining whether facts or circumstances should be disclosed, they must take into account the facts and circumstances known to the arbitrator. The test is therefore subjective, as opposed to the objective test in General Standard 2 for determining whether a conflict actually exists. The general subjective test does not require disclosure in the circumstances set out in the Green List.
• Reaffirm that disclosure should occur prior to the arbitrator accepting the appointment, or as soon as the arbitrator learns of the circumstances that may give rise to doubts as to the arbitrator’s impartiality or independence. The stage of the arbitration should make no difference to the assessment.
• Make clear that disclosure cannot imply doubts sufficient to disqualify an arbitrator and does not create a presumption of disqualification. Any challenge must ultimately turn on the application of the objective test in General Standard 2.
• Elaborate that an arbitrator’s failure to disclose certain facts and circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrator's impartiality, does not necessarily mean a conflict of interest exists, or that a disqualification should ensue. Again, this is an issue to be determined by application of the objective test in General Standard 2. 

The 2024 Guidelines:

• Introduce a new provision whereby:
  • "A party shall be deemed to have learned of any facts or circumstances under 4(a)(ii) that a reasonable enquiry would have yielded if conducted at the outset or during the proceedings."

Failure to make reasonable enquiries as to an arbitrator’s potential conflicts at an early stage in proceedings could mean that parties are barred from raising an objection to these circumstances later.

• Clarify that the parties’ waiver of a potential conflict of interest remains effective where the arbitrator is involved in the parties’ settlement process in the course of the arbitration proceedings. This means that parties cannot use the arbitrator’s involvement in the settlement process as a means of disqualifying the arbitrator, as the parties’ informed consent to such settlement process prior to its beginning is regarded as an effective waiver of a potential conflict of interest. Such waiver remains effective even if the settlement process fails. Previously, the 2014 Guidelines had a narrower scope with reference to an arbitrator acting as a mediator and where mediation fails.     

The 2024 Guidelines:

• Maintain that, for the purpose of ascertaining conflicts, arbitrators are considered to bear the identity of their law firm. The 2024 Guidelines also expand this standard to include the arbitrator’s "employer". Notwithstanding this expansion, the 2024 Guidelines provide that the activities of an arbitrator’s law firm or employer, their relationship, organisational structure and mode of practice should be considered in each individual case as to whether a potential conflict of interest exists or whether disclosure should be made.
• Clarify that, as examples within the Explanation to General Standard 6, legal structures where different law firms cooperate and/or share profits may provide a basis whereby an arbitrator is deemed to bear the identity of other law firms. Similarly, disclosure may be required in the context of barristers’ chambers in view of the relationships between and among barristers, parties, and/or legal counsel. These revisions show that the 2024 Guidelines have had regard to the increasingly complex and diverse organisational models for legal professionals, and their impact on assessing potential conflict of interest.
• Elaborate on the position with regard to third-party funding in the newly worded Explanation to General Standard 6:
  • "Third party funders and insurers may have a direct economic interest in the prosecution or defence of the case in dispute, a controlling influence on a party to the arbitration, or influence over the conduct of proceedings, including the selection of arbitrators. These distinctions may be relevant when considering whether such entities should be considered to bear the identity of a party".  

The above adds to existing provisions whereby any legal or natural person (1) having a controlling interest over another party, (2) having a direct economic interest in another party, or (3) indemnifying another party for the award, may be regarded as bearing the same identity as the relevant party.

• Add to the Explanation to General Standard 6 that the touchstone of "controlling influence" is relevant to assessing relationships between parent and subsidiary companies.
• Recognise that “controlling influence” or “direct economic interest” are not necessarily appropriate for state entities and state-owned enterprises because the relationships between such entities vary widely (with respect to which, a "catch-all rule is not considered appropriate"). It follows, according to the Explanation to General Standard 6, that:
  • "… whenever a State or a State entity, subdivision, or instrumentality is party to the arbitration, even when the status of such entity is disputed, the arbitrator should consider disclosing relationships with entities such as regional or local authorities, autonomous agencies, or State-owned entities, irrespective of whether they are part of the organisation of the State or have a private status, and vice-versa."

The 2024 Guidelines:

• Add that a party must also inform of the relationship between the arbitrator and persons or entities over which the party has a controlling influence, in line with the amendments to General Standard 6.
• Further add to the list of relationships "any other person or entity it believes an arbitrator should take into consideration when making disclosures in accordance with General Standard 3."  
• Elaborate that when parties provide the list of persons or entities which they believe an arbitrator should take into consideration when making disclosures, the parties must also explain the relationship of these persons and entities to the dispute.
• Explain that parties must identify, at the earliest opportunity, legal counsel that are both advising on or appearing in the arbitration (whereas the 2014 Guidelines only required identification of legal counsel appearing). 

Only cosmetic changes are made to the Non-Waivable and Waivable Red Lists in the 2024 Guidelines. 

The Orange List introduces the following new categories or changes in the 2024 Guidelines:

• The arbitrator has, within the past three years, been appointed to assist in mock trials or hearing preparations on two or more occasions by one of the parties, or an affiliate of one of the parties in unrelated matters.
• The arbitrator currently serves, or has acted within the past three years, as an expert for one of the parties, or an affiliate of one of the parties in an unrelated matter.
• The arbitrator’s law firm regularly renders services to one of the parties, or an affiliate of the parties, without creating a significant commercial relationship for the firm and without the involvement of the arbitrator, and such services do not concern the current dispute. This situation is extended to cover not just law firms but employers also.
• The arbitrator and another arbitrator are lawyers in the same firm. This is extended to include not just law firms, but arbitrators working for the same employer.
• The arbitrator has, within the past three years, been appointed as an expert on more than three occasions by the same legal counsel, or the same law firm.
• The arbitrator has, within the past three years, been appointed to assist in mock trials or hearing preparations on more than three occasions by the same legal counsel, or the same law firm.
• An arbitrator and legal counsel for one of the parties currently serve together as arbitrators in another arbitration.
• An arbitrator and their fellow arbitrator(s) currently serve together as arbitrators in another arbitration.
• The arbitrator has been associated (in a professional capacity) with not just a party or affiliate of one of the parties, but also an expert appointed by the parties.
• The arbitrator is instructing an expert appearing in the arbitration proceedings for another matter where the arbitrator acts as legal counsel.
• The arbitrator has publicly advocated a position on the case, whether in a published paper or speech or otherwise. This circumstance is extended to expressly cover advocating a position on "social media or on-line professional networking platforms".
• The arbitrator holds an executive or other decision-making position with the administering institution or appointing authority with respect to the dispute. This circumstance is confined to only apply in circumstances where the arbitrator has participated in decisions with respect to the arbitration at hand.  

The Green List introduces a single new circumstance in the 2024 Guidelines:

The arbitrator, when acting as arbitrator in another matter, heard testimony from an expert appearing in the current proceedings.