Arbitration – Courts vs Guidelines
The International Bar Association published its updated Guidelines on Conflicts of Interest in International Arbitration in 2014 (“IBA Guidelines”).
The International Bar Association published its updated Guidelines on Conflicts of Interest in International Arbitration in 2014 ("IBA Guidelines"). The IBA Guidelines are widely referred to by arbitrators and litigation & dispute resolution practitioners in relation to instances of apparent (or actual) arbitrator bias/partiality.
It is tempting to consider that the IBA Guidelines provide a "one size fits all" approach to such issues regardless of jurisdiction that international courts will always have regard to and, by extension, follow.
The recent English law case of W Ltd v M Sdn Bhd  EWHC 422 (Comm) is a timely reminder that whilst the IBA Guidelines provide practitioners with indicative instruction when challenging the appointment and/or impartiality of an arbitrator, domestic courts will usually have a greater regard to national jurisprudence rather than international guidance.
The IBA Guidelines are comprised of two sections. The first section sets out 7 general principles regarding impartiality, independence and the disclosure by arbitrators of circumstances which may give rise to justifiable doubts as to their independence and impartiality. The second section sets out guidance on the practical application of those general principles, and is arranged in a "traffic light" system of conflict of interest and disclosure, comprising of "Waivable" and "Non-Waivable" Red Lists (circumstances which give rise to justifiable doubts as to the arbitrator's impartiality and independence), the Orange List (situations that, depending on the facts of a given case, may, in the eyes of the parties, give rise to doubts as to the arbitrator's impartiality or independence) and the Green List (situations where no appearance and no actual conflict of interest exists from an objective point of view).
W Ltd v M Sdn Bhd  EWHC 422 (Comm)
In this case, following the issuance by the sole arbitrator of two arbitral awards (the "Awards"), W Ltd made an application to the court to challenge the Awards under section 68 of the Arbitration Act 1996, on the grounds of apparent bias based on alleged conflict of interest.
W Ltd also relied upon the IBA Guidelines in support of its challenge.
Paragraph 1.4 of the Non-Waivable Red List states that an objective conflict of interests exists where 'the arbitrator or his or her firm regularly advises [a] party, or an affiliate of [a] party, and the arbitrator or his or her firm derives significant financial income therefrom'.
The arbitrator was a partner in a Canadian law firm, although he had for a number of years operated independently, effectively as a sole practitioner, using the firm for administrative assistance for his work as an arbitrator.
On consenting to his appointment, the arbitrator made a statement of independence and several (nonmaterial) disclosures.
At the time of his appointment as arbitrator, a company ("Q") was a client of the law firm. Q was later acquired by another company, ("P"), the parent company of M Snd Bhd. The law firm continued to provide legal services to, and earned substantial remuneration from, Q.
Despite conflict checks being run by the law firm in the process of P's acquisition of Q, the arbitrator was not made aware of the acquisition. He stated that, had he been made aware of the conflict, he would have made a disclosure to the parties, and regretted that he had been unable to do so.
In its judgment, the Court stated that it was satisfied that, under English common law, the 'fair minded observer' would not conclude that this was a situation in which there was a real possibility that the arbitrator was biased, or lacked independence or impartiality.
While recognising the distinguished contribution that the IBA Guidelines make, the Court questioned why the situation described by paragraph 1.4 of the Non-Waivable Red List could not be one in which it might be appropriate, following a disclosure by an arbitrator, for the parties to decide for themselves whether or not to waive the conflict of interest.
The Court considered the tension between the IBA Guidelines and the test for bias under English law, and concluded that that aspect of the IBA Guidelines could not yet be correct, and that W Ltd's application must therefore fail on its merits.
The Court therefore found that that no apparent or actual bias existed, despite the fact that the conflict of interest in this case was a situation falling within the Non-Waivable Red List of the IBA Guidelines.
Whilst this case was heard under English law its application has international significance. Many common law countries, in particular, have enshrined in their respective statutes articles relating to judicial or arbitral bias that need to be compared with the indicative advice provided by the IBA Guidelines before any application objecting to an arbitrator's appointment and/or decision is made.
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