By Ricardo Dalmaso Marques, Fernanda Marques Dal Mas, Marilia Machado Muchiuti
(A) revision process of the IBA Guidelines on Conflicts of Interest in International Arbitration
- On October 23, 2014, the International Bar Association (“IBA”) Council approved the most recent version of its Guidelines on Conflicts of Interest in International Arbitration (“Guidelines”), which are a set of non-binding guidelines that have gained much attention and recognition in the international arbitration community over the 10 years of their existence.
- The Guidelines main purpose is to ensure the impartiality and independence of arbitrators and other professionals involved in commercial and investment arbitration, whether they are lawyers or not. Appointment of arbitrators, possible grounds for their challenge and disclosure of relevant information are some of the issues that the Guidelines have tackled to strengthen legal certainty for the benefit of counsel and, of course, the parties.
- With this goal in mind, the 2014 IBA Guidelines have attempted to draw on the recent worldwide experience under their former version, which has been the subject of several studies carried out by the IBA’s Arbitration Committee since 2012. Although the Guidelines remain essentially intact in terms of purpose and approach (“If it ain’t broke, don’t fix it”), the most recent version introduces new directives and further clarifications as to the proper application and interpretation of the existing provisions. Some of the most relevant revisions are addressed below.
(B) extended period on the duties of impartiality, independence and disclosure of arbitrators – GS (1)
- General Standard(1) establishes that the duties of impartiality, independence and disclosure of arbitrators must remain unaffected throughout the whole arbitral proceedings. The 2014 revision clarifies that these duties must be observed until correction or interpretation of the final award by the arbitrators; they do not extend to the period during which the award may be challenged before the courts.
(C) Advance Declarations or Advance Waivers by the parties – GS (3)
- General Standard(3) was also modified to provide that disclosure by an arbitrator must take place regardless of an “advance declaration” or “advance waiver” by the parties. Although the Guidelines remain silent as to the validity and effectiveness of such declarations and waivers – an issue that must be analyzed under each specific applicable law – they expressly state that arbitrators are not released from their ongoing duty of disclosure.
(D) independence and impartiality of arbitral or administrative secretaries and assistants – General Standard (5)
- The new Guidelines also broaden the scope of their application, as General Standard (5) now expressly extends the duties of independence, impartiality and disclosure to administrative secretaries and arbitrators’ assistants. General Standard (5) further states that the Arbitral Tribunal is responsible for ensuring that all those professionals involved in the proceeding abide by such duties at all times.
- The importance of this newly added provision became even more blatant recently, when Russia resorted to the Dutch courts in an attempt to set aside the US$ 50 billion award rendered in Yukos Universal Limited (Isle of Man) v. The Russian Federation (UNCITRAL,PCA Case No. AA 227), arguing, among other grounds, that the assistant to the arbitral tribunal, Martin Valasek, acted beyond his role, performing as the “fourth arbitrator” in the case. (See “Was the tribunal’s assistant the fourth Yukos arbitrator?”, Global Arbitration Review (GAR), Alison Ross, January 27, 2015 – see it here).
(E) Partners and associates of law firms acting as arbitrators – GS (6)
- The changes implemented in General Standard(6) are of special relevance to law firms. Although this standard states that arbitrators must identify the law firm they work at, the 2014 Guidelines recommend that a potential conflict of interest be examined vis-à-vis several relevant aspects of the case, such as the actual relationship between the arbitrator and the law firm, or the level, nature and scope of his or her activities there.
- This revision balances, on the one hand, the parties interest in appointing experienced law firm partners as arbitrators and, on the other hand, strict observance of the duties of independence, impartiality and disclosure by those arbitrators.
(F) Third-party funders and insurers – GS (6)
- Under General Standard6(b), legal and natural persons with a direct economic interest in the outcome of the arbitration are equated to the parties for the purposes of a conflict of interest check. This is the case, for instance, with third-party funders and insurers.
(G) parties’ duty to disclose situations that may give rise to a potential conflict of interest – GS (7)
- General Standard(7) expressly indicates that the parties – and not only arbitrators – have the duty to disclose any relevant relationship existing among parties, arbitrators, lawyers and interested third parties. Thus, the parties are recommended to inform the other parties, the arbitrators and the arbitral institution of any known potential conflict of interest with one or more arbitrators.
- General Standard(7) explanatory note clarifies that both the parties and the arbitrators have an ongoing duty to investigate and check relevant information that is reasonably accessible to them with the purpose of identifying potential conflicts of interest. These are parallel and cooperative obligations upon the parties and arbitrators, not a burden imposed merely on the arbitrators.
(H) The red, orange and green lists
- Part II of the Guidelines addresses the practical application of general principles by establishing descriptive lists intended to determine the arbitrators’ duties in concrete situations. Although the lists are non-exhaustive, they harmonize the specificities of each situation with the general principles, as well as to avoid challenges or disqualifications of arbitrators for futile and frivolous reasons.
- In this respect, in response to the IBA Committee’s experience over the past 10 years, the hypotheses newly included in the Lists are particularly in line, for instance, with law firm growth and the increased interest of group of companies in international arbitration. Just to illustrate, the following hypotheses were added to the Non-Waivable Red List: (i) “the arbitrator is a legal representative or employee of an entity that is a party in the arbitration” (item 1.1); and (ii) “the arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom” (item 1.4).
(I ) Final comments: contributions of the IBA Guidelines
- As stated in their preamble, the IBA Arbitration Committee has sought to keep the Guidelines’ abreast of the relevant changes experienced in the arbitration community in the past 10 years – such as the relevant growth of law firms and groups of companies – with special attention to the increasing number of worldwide challenges of arbitrators in the past years.
- Of course, the Guidelines’ main purpose must always be (i) to safeguard arbitral awards against frivolous challenges based on non-existent violations of the duties of impartiality, independence and disclosure (without ever affecting the legitimate right to reasoned challenges, when necessary); and (ii) to promote fair conditions for lawyers and parties involved in international arbitration.
- The 2014 IBA Guidelines have thus contributed to the achievement of three important and pressing goals in international arbitration: (i) to avoid futile and frivolous challenges; (ii) to harmonize the standards and criteria for disclosure, objections and challenges applicable worldwide; and (iii) to preserve the appointment of practitioners who cannot comply with duties and obligations inherent to the arbitrators’ or secretaries’ function.
São Paulo, Brazil,