An Arbitrator’s Failure to Disclose Conflicts: Practical Advice Before Starting & After Completing An Arbitration
Every well-recognised set of international arbitration rules in use today contains a provision requiring arbitrators to file a certificate of independence. The purpose of the certificate is to confirm the arbitrator’s impartiality and to elicit information that might provide grounds for challenging the arbitrator’s appointment. For example, the ICC Arbitration Rules, which are widely used in international commercial contracts, require the arbitrator to disclose to the ICC Secretariat and to the parties “any facts or circumstances which might be of such a nature as to call into question the arbitrator’s independence in the eyes of the parties.” Most rules also require the arbitrator to promptly disclose new facts or circumstances that arise during the proceedings.
If the arbitrator makes no disclosures, and simply signs the certificate of independence, what then? The parties typically proceed with the arbitration without giving the issue of independence further thought. It can be a costly mistake. This article discusses some practical considerations, pitfalls and best practices to consider before commencing arbitration, and again after the final arbitral award is issued.
How Do Arbitrators Decide Whether They Have Something To Disclose?
Experts on arbitrator ethics generally agree that that the arbitrator should apply a low threshold for deciding whether to disclose relationships – professional, social or personal – with the parties, their counsel, fellow arbitrators, and even witnesses. The ICC Rules provide that “Any doubt should be resolved in favor of disclosure.”
A few well-respected organisations, such as the International Bar Association (IBA) and the American Arbitration Association (AAA), have issued disclosure guidelines. The IBA’s Guidelines on Conflicts of Interest in International Arbitrationconsists of colour-coded examples. The Red List enumerates situations giving rise to justifiable doubts as to the arbitrator’ impartiality, some that are “non-waivable” and others that may be waived, but all must be disclosed. An Orange List includes matters that may, depending on the facts, give rise to justifiable doubts; arbitrators are advised to disclose them, and they may be waived. And the Green List incorporates a variety of circumstances that the arbitrator need not disclose because they do not give rise to an appearance of conflict of interest.
The IBA Guidelines are not legally binding, or even universally accepted. And they do not cover every conceivable conflict of interest. But they do present sensible and fair guidance, and in most cases they are easy to apply. Nevertheless, transactional lawyers rarely include a reference to such guidelines in the disputes clauses of commercial contracts. The tendency is to keep it simple, including only the bare essentials: arbitration rules, number of arbitrators, location, language, and governing law. By agreeing to such guidelines in the arbitration clause, however, the arbitrator and the parties are more likely to start the dispute resolution process with a common understanding as to what should be disclosed and how such information should be interpreted. In some cases, the parties may agree shortly before the arbitration has commenced to be bound by these Guidelines.
Is It Wise To Rely On The Arbitrator To Decide What To Disclose?
There are good reasons for arbitrating parties and their counsel to be proactive in identifying conflicts before the arbitration gets underway. If an undisclosed conflict surfaces only after the arbitral award is issued, it could give the losing party legal grounds for asking a court to vacate the award or to reject the prevailing party’s efforts to enforce the award.
The “New York Convention” on the Recognition and Enforcement of Foreign Arbitral Awards, which has been ratified by 75 percent of all nations, specifies the grounds on which courts may invalidate or refuse to recognise the arbitral award in an international commercial dispute. Several of them may be relevant to the issue of an arbitrator’s undisclosed conflict of interest.
First, a party who was “unable to present its case” before an impartial arbitrator may invoke Art. V § (1)(b) of the Convention. This is akin to a claim that the losing party was deprived of its “due process” rights. Courts in the United States have interpreted this concept to mean that an arbitrator must provide a fundamentally fair hearing, one that meets the minimal requirements of fairness—adequate notice, a hearing on the evidence, and an impartial decision by the arbitrator.
Second, under Convention Art. V § (1)(d), an arbitrator who withholds information that should have been disclosed, according to the agreed arbitration rules, risks a judicial determination that the composition of the arbitral tribunal, or the arbitral procedure followed in the proceeding, was not in accordance with the agreement of the parties. In other words, the arbitrator could be found to have violated the arbitration rules selected by the parties.
Third, Art. V § (2)(b) of the Convention permits the court to deny recognition or enforcement of the award if enforcement would be contrary to public policy. In the United States, as in many countries, there is an explicit public policy requiring arbitrator impartiality.
To limit the risk that the time and expense of arbitrating an international commercial dispute will be wasted on an unenforceable final award, there are a number of options available to the parties. Even before the arbitrator is appointed, the parties can provide the arbitrator with the names of all corporate affiliates, the lawyers who will appear for the parties, and the experts and fact witnesses who are likely to testify, as well as other circumstances drawn from the IBA’s Red and Orange Lists. If the stakes are high enough, parties might consider employing the services of a reputable international investigations firm to search out conflicts before the arbitrator’s appointment is confirmed. The losing party, at the close of the arbitration, might be inclined to employ an investigator to search for evidence of a conflict that should have been disclosed but was not. By that time, of course, the time and expense of the arbitration already have been incurred, but the importance of the information may be much greater.
A different sort of concern that also can lead to disqualification of a proposed arbitrator, or an unenforceable arbitral award, is an “issue conflict.” An arbitrator who also is a practicing lawyer may have paying clients with an interest in an issue that the arbitrator will be required to resolve in the parties’ arbitration. In such a case, the lawyer’s duty to zealously represent a client’s interests, and the arbitrator’s duty to decide impartially, are directly at odds. A Dutch court confronted with this very situation at an early stage of the arbitration held – based on the issue conflict – that the individual concerned either must resign as arbitrator or withdraw as counsel. In that case, the issue conflict might not have been identified without the help of an investigator. The affected party might have lost the arbitration oblivious to the conflict and without the opportunity to challenge the arbitrator and seek his removal in accordance with the applicable arbitration rules.
Arbitrator conflicts are best handled at the outset of a dispute. Effective risk management in this area may require meaningful due diligence investigations, appropriate interviews of proposed arbitrators and, above all, awareness by arbitrating parties and their counsel of the conflicts guidelines and their practical application.
Mark Bravin co-leads Winston & Strawn’s InternationalArbitrationPractice and teaches Investor-State Dispute Resolution at Georgetown Law. He has represented governments and private parties in international disputes for over 30 years.
In 2012, Mr. Bravin obtained a U.S. judgment for McKesson Corporation against Iran for expropriation of a dairy McKesson founded in 1959.
In December 2011, he assisted Romania to defeat a Greek investor’s claim of expropriation of his food processing company, and win reimbursement of attorneys’ fees.
He successfully represented U.S. corporations at the Iran-US Claims Tribunal in The Hague in arbitrations with Iran involving a wide range of contracts and investments.
Mark Bravin can be contacted via email at MBravin@winston.com.