Conflicts of interest and the duty to disclose in arbitration: Common Law Perspective
Two of the most fundamental principles in arbitration include the independence and impartiality of arbitrators. These two principles are essential parts of any arbitrator's decision-making function and are the cornerstone of procedural fairness. It is therefore important to understand how and when a conflict of interest could arise that may impact the independence and impartiality of an arbitrator.
The focus of this article is to provide a quick guide to conflicts of interest with respect to arbitrators, their duty to disclose potential conflicts of interest and the consequences of a failure to disclose a conflict.
Independence, impartiality and the test for bias
The principle of independence refers to the relationship between the parties and the arbitrator where the arbitrator is required to have no actual or past relationship with the parties that may affect his or her freedom of judgement. The principle of impartiality is connected to the concept of bias, which requires an arbitrator to have no bias for or against any one of the parties or in relation to the issues in dispute.These principles are enshrined in various local laws and arbitration rules across many jurisdictions.
Many of the challenges we encounter relating to an arbitrator's appointment are founded on the 'appearance' of bias rather than actual bias. The test to ascertain apparent bias is well established under English common law and was confirmed by the House of Lords in Porter v Magill as being whether "a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased".
Duty to disclose apparent bias
Closely related to the overarching obligations of independence and impartiality is the duty to disclose any conflicts of interest that may give rise to, or the perception of, justifiable doubts as to the arbitrator's independence or impartiality. This duty is generally imposed either in the local laws and rules governing the arbitration (i.e., through the relevant legislation or arbitral rules) or contractually (i.e., in the arbitration agreement or terms of appointment). For example, both the LCIA Arbitration Rules and ICC Arbitration Rules provide that an arbitrator has a continuing duty to disclose any facts or circumstances known to the arbitrator that would likely give rise to justifiable doubts as to his or her independence or impartiality.
The case of Halliburton Company v Chubb Bermuda Insurance Ltd provides guidance on the duty to disclose in the context of multiple appointments. The Supreme Court (SC) considered two main issues in this case. First was whether an arbitrator can accept multiple appointments in multiple references concerning the same overlapping issues with only one common party across all the arbitrations, without giving rise to the appearance of bias. In answering this question, the SC stated that while this situation may give rise to the appearance of bias, arbitrators can accept multiple appointments, depending on the relevant customs and practices applicable to that field of arbitration. The second issue considered by the SC was whether an arbitrator can accept these multiple appointments without having to disclose such appointments to the parties. The SC examined the customs and practice of the type of arbitration before it and concluded that an arbitrator has a duty to disclose such multiple appointments. Furthermore, the SC reaffirmed that an arbitrator's duty to disclose facts and circumstances that may give rise to apparent bias is a legal duty under English common law, derived from the Arbitration Act of 1996.
Tools to assess independence and impartiality
In assessing an arbitrator's independence and impartiality obligations, it is common to consider and rely on multiple tools to determine whether there is a potential or perceived conflict of interest.
First, one should consult binding tools applicable to the arbitration, such as the arbitration agreement, the applicable laws and the relevant arbitral rules selected by the parties to govern the proceedings. For example, as mentioned above, under English common law, the Arbitration Act of 1996 sets out the arbitral tribunal's duty to "act fairly and impartially " and deals with the appearance of bias. Similarly, the rules of various arbitral institutions also impose a duty on arbitrators to be independent and impartial.
It is important to note however, that these 'soft law' tools are not binding on parties, unless the parties specifically agree otherwise. The English High Court in W v M SDN BHD dealt with the binding nature of these 'soft law' tools, in particular the IBA Guidelines and made a point of highlighting that, while the IBA Guidelines are highly regarded in the industry, they nevertheless "… do not bind the court, but they can be of assistance" and went as far as critiquing the guidelines by stating that "… there are weaknesses in the 2014 IBA Guidelines".
Consequences of a failure to disclose
Failure by an arbitrator to disclose does not automatically mean that a conflict of interest exits, or that an arbitrator should therefore be disqualified from accepting the appointment. The fundamental question for consideration is: what are the consequences for a failure to disclose, where disclosure means a conflict of interest or a real possibility of bias? The simplest way of assessing this is by reference to the different stages in arbitration when disclosure should have been made. For instance, during the appointment stage, any disclosure of a conflict of interest that meets the test of apparent bias should disqualify the appointment of that arbitrator. During the arbitral proceedings, an arbitrator's failure to disclose a conflict of interest is grounds for the removal of the arbitrator. After the issuance of the arbitral award, any discovered failure to disclose a conflict of interest can be grounds for the annulment of the arbitral award.