Given the green light: The IBA modernises Guidelines on Conflicts of Interest

Updates to the General Standards

General Standard 2 – Determining conflicts of interest
General Standard 2 is important because it addresses the circumstances in which an arbitrator should decline an appointment or, if already appointed, resign. Under General Principle 2, if: (i) an arbitrator has doubts as to his or her own independence; or (ii) facts or circumstances exist which, from a reasonable third person’s point of view, would give rise to justifiable doubts as to the arbitrator’s independence (because they lead to a conclusion that the arbitrator may be influenced by factors other than the merits of the case), an arbitrator should decline or resign the appointment.

The explanatory guidance in the 2024 IBA Guidelines now clarifies the effect of ‘justifiable doubts’, as applied using the objective test set out in Article 12(2) of the UNCITRAL Model Law on International Commercial Arbitration. If there are justifiable doubts, and the circumstances are described in the Non-Waivable Red List in Part II of the IBA Guidelines, the arbitrator should decline the appointment or resign. However, if the circumstances are described in the Waivable Red List instead, the arbitrator may instead make a disclosure under General Standard 3 so that the parties have the opportunity to decide whether to waive the potential conflict.

General Standard 3 – Disclosure by the arbitrator
General Standard 3 addresses the arbitrator’s duty to disclose to the parties, co-arbitrators and arbitral institution facts or circumstances which “may, in the eyes of the parties, give rise to doubts” before accepting the appointment or upon learning of the facts or circumstances. Disclosure is therefore an ongoing duty. If the arbitrator considers there are no such facts or circumstances, or the facts and circumstances comprise a situation described in the Green List (as found in Part II of the IBA Guidelines), there is no need to make a disclosure. However, any doubt should be resolved in favour of disclosure.

Arbitrator disclosures (or the absence of them) are a live and contentious topic. Recent years have seen several prominent and occasionally successful challenges to arbitrators (and, of course, many more unsuccessful ones), not only during arbitration proceedings themselves but also at the challenge and enforcement stages based on allegations of bias. It is a subject that is likely to continue to demand attention in the wake of certain high-profile challenges and as arbitrators increasingly err of the side of caution when making disclosures.

The 2024 IBA Guidelines now make clear that, when determining whether to make a disclosure, arbitrators should take into account all of the facts and circumstances known to them. An arbitrator should therefore consider all facts and circumstances of which he or she is aware that may, from the parties’ perspective, give rise to justifiable doubts as to his or her independence. That means, in effect, that an arbitrator must make a subjective assessment of what facts and circumstances he or she thinks a party might subjectively think casts doubt over his or her impartiality, assessed objectively. Viewed through that lens, compliance is not always straightforward.

In addition, the 2024 IBA Guidelines now state within General Principle 3 (rather than the accompanying guidance) that, if rules of professional conduct prevent disclosure of facts or circumstances which the arbitrator should disclose, the arbitrator should decline the appointment or resign if appointed.

The 2024 IBA Guidelines also clarify that, if an arbitrator does not disclose relevant facts or circumstances, a conflict of interest does not necessarily exist and disqualification may not automatically ensue. The explanation for this in the accompanying guidance is that the question of whether a conflict of interest exists is assessed objectively, and is not dependent on an arbitrator’s disclosure or lack thereof.

This potentially marks a point of departure from the English law position, under which failure to disclose relevant circumstances appropriately may be sufficient to give rise to justifiable doubts and constitute grounds for removal under Section 24 of the Arbitration Act 1996. Moreover, if the Arbitration Act 1996 is amended to codify arbitrators’ general duties of disclosure (as proposed), it is likely to require arbitrators to disclose any relevant circumstances of which the arbitrator is, or ought reasonably to be, aware that might reasonably give rise to justifiable doubts as to his or her impartiality. That would represent a more onerous test than provided for under the IBA Guidelines because an arbitrator must not only consider all facts and circumstances of which he or she is in fact aware, but also those of which he or she ought to be aware, indicating that arbitrators need to have conducted reasonably diligent enquires into the existence of relevant circumstances before accepting appointments and thereafter.

General Standard 4 – Waiver by the parties
General Standard 4 provides that parties are deemed to waive a potential conflict of interest if they do not raise an express objection within 30 days of an arbitrator’s disclosure or upon learning of facts or circumstances that might constitute a conflict of interest. That applies to all circumstances except those described in the Non-Waivable Red List which are, as the name suggests, not capable of waiver.

In addition, parties are now deemed to have learned of facts and circumstances that reasonable enquiry would have yielded if conducted at the outset of or during proceedings. By creating this concept of constructive knowledge, the 2024 IBA Guidelines impose a duty on the arbitrating parties to investigate potential conflicts of interest early in the arbitration process and thereafter. Arguably, therefore, the 2024 IBA Guidelines place some of the onus back onto the parties. If relevant facts and circumstances are readily ascertainable and not on the Non-Waivable Red List, parties may be deemed to have waived a right to object after 30 days from the date on which reasonable enquiries would have yielded them.

That is likely to offer some degree of protection to arbitrators who fail to make disclosures, particularly of facts and circumstances that are in the public domain. However, as with General Standard 4, there are difficulties reconciling that position with how conflicts and arbitrator disclosures are addressed under national law. If the arbitration is seated in London, an arbitrator could fail to disclose a fact or circumstance and defeat a party’s objection on that basis that it would have learned of the fact or circumstance if it had conducted reasonable enquiries, meaning its consent is deemed, but have to resign in any event to account for the absence of disclosure.

General Standard 6 – Relationship
To assist with determining potential conflicts of interests, General Standard 6 identifies the effects of relationships with other entities upon the perceived identity of the arbitrator or the arbitrating parties.

Following the revisions, an arbitrator is now considered to bear the identity of the arbitrator’s law firm or employer, acknowledging that arbitrators may be employees of organisations other than law firms. More fundamentally, to reflect ‘evolution in the structure of international legal practices and the differing ways in which law firms cooperate and/or share profits, General Standard 6 now clarifies that entity or natural person with “controlling influence’ over a party may be considered to bear its identity.

Here, the 2024 IBA Guidelines particularly envisage third-party funders and insurers as relevant parties with a controlling influence over parties, or the conduct of proceedings (including selection of arbitration), as well as parent companies, individual shareholders, states and state entities.

General Standard 7 – Duty of the Parties and the Arbitrator
General Standard 7 now requires parties to inform the arbitrator(s), other parties and the institution at the earliest possible opportunity of any relationship between the arbitrator and any person or entity over which a party has a controlling influence, or any other person or entity that it believes an arbitrator should take into consideration when making disclosures.

The amendments to General Standard 7 therefore represent an expansion of its scope, not only to be consistent with General Standard 6’s “controlling influence” test but also to encompass any other parties that may be, directly or indirectly, involved or otherwise interested in the arbitration.

Moreover, under General Standard 7, parties are required to perform reasonable enquiries before notifying of the existence of relationships, and to provide all relevant information available, explaining the relationship between the arbitration and any persons or entities that the party believes an arbitrator should take into consideration. In addition, the explanatory notes provide that parties must identify all counsel advising on, as well as appearing in the arbitration, and that that duty extends to all members of that party’s counsel team from the outset of the proceedings.

Updates to the Practical Application of the General Standards

Part II of the IBA Guidelines lists specific situations that demonstrate the application of the General Standards, and designates these to Green, Orange, Waivable Red, and Non-Waivable Red Lists according to the likely presence of a conflict of interest. These lists are non-exhaustive and detail the types of situations that can give rise to justifiable doubts as to the arbitrator’s impartiality and independence.

The most notable updates were made to the Waivable Red List and the Orange List, and are set out below:

Waivable Red List
Items on this list represent scenarios where a conflict of interest does exist, and the arbitrator is required to make a disclosure, but the conflict can be waived by the arbitrating parties.

The Waivable Red List now clarifies that, where an arbitrator advises one of the parties but does not derive significant financial income from the engagement, they may make a disclosure against this, and the arbitrating parties could in principle waive the conflict of interest.

Orange List
Situations listed on the Orange List may give rise to doubts about the impartiality and independence of the arbitrator, depending on the facts of the case, and must be disclosed. Under the 2024 IBA Guidelines revision, the following circumstances will now also have to be disclosed:

• The appointment of an arbitrator by one of the parties or an affiliate to assist in mock-trials or hearing preparations on two or more occasions within the past three years (3.1.4).
• The appointment of an arbitrator as a current or former expert for a party or affiliate in unrelated matters within the past three years (3.1.6).
• Two arbitrators having the same employer – reflecting the amendments to General Standard 6 (3.2.1).
• The appointment of an arbitrator as an expert on more than three occasions within the past three years by the same counsel or the same law firm (3.2.9).
• The appointment of an arbitrator to assist in mock-trials or hearing preparations on more than three occasions within the past three years by the same counsel or the same law firm (3.2.10).
• An arbitrator and counsel for one of the parties currently serving together as arbitrators in another arbitration (3.2.12).
• An arbitrator and their fellow arbitrator(s) currently serving together as arbitrators in another arbitration (3.2.13).
• An arbitrator instructing an expert appearing in the arbitration proceedings for another matter where the arbitrator acts as counsel (3.3.6).
• An arbitrator publicly advocating a position on the case on social media or on online professional networking platforms (3.4.2).
• An arbitrator holding a decision-making position in an administering institution and participating in decisions relating to the arbitration (3.4.3).

Comments

Overall, while the changes may appear modest, the 2024 IBA Guidelines incorporate welcome changes that reflect the modern arbitrating landscape. The IBA has made clear efforts to widen the Guidelines’ application to include consideration of employers of arbitrators, third-party funders and insurers, and various law firm structures in determining the existence of a conflict of interest.

Arbitrating parties should be particularly conscious of their new potential obligations to:

1. conduct reasonable inquiries into the possibility of a conflict of interest with the arbitrators, absent which their consent may be deemed notwithstanding the absence of disclosure (GS 4(a)); and
2. inform the arbitrators, other parties and institution of any person or entity which it believes an arbitrator should take into account when making disclosures (GS 7(a)(ii)).

Thank you to Mahika Gogi, Trainee Solicitor, for contributing towards this article.