Conflicts of Interest: Disclosure Dilemma for Arbitrators

Article 12 (1) of the UNICITRAL Model law requires an arbitrator to disclose without delay any circumstances that are likely to give rise to justifiable doubts as to his/her impartiality or independence. This is an obligation that continues till the end of the entire arbitral proceedings. The practical difficulties arbitrators face in this connection are that they are not sure of what to disclose or what not to disclose. They are also concerned about over-disclosing since parties would challenge arbitrators’ appointments for wrong reasons with a motive to delay the proceedings. Further, arbitral institutions tend to be highly sensitive to even the slightest doubt and will not appoint them as arbitrators (Moses, 2012).

In Commonwealth Corp. V. Casualty Co. decided by the U.S. Supreme Court, one of the judges opined that an arbitrator’s appointment could be challenged if he failed to disclose to the parties about his past or present dealings with one of the parties that might create an impression of possible bias. Instead of this “appearance” test, courts adopted another judge’s concurring opinion that it does not lead to automatic disqualification of arbitrators if parties to the arbitration are informed of any business relationship beforehand (Commonwealth Corp. V. Casualty Co., 393 U.S. 145). If the relationship is trivial, there is no bias even if the parties are not informed of the facts. The above case actually involved the third arbitrator’s past business dealings with the defendant which the petitioner objected to as a possible cause of bias on the part of the third arbitrator. Although the District Court and the Court of Appeals refused to set aside the award, the Supreme Court held that the arbitrator should have disclosed the business connection with the defendant under section 10 of the United States Arbitration Act that enables vacation of award obtained by undue means or tainted by evidence of partiality (Poser, 2012).

In Rustal Trading Ltd v Gill & Duffus which is a U.K. case, the applicant raised doubts about an arbitrator who had been involved in a commercial dispute with one of the applicant’s consultants (Rustal Trading Ltd v Gill & Duffus [2000]). The application under section 68 of the Arbitration Act to set aside the award was dismissed. The reasoning was that the real danger of bias did not exist as laid down in R v Gough and Locabail v Bayfield through the application of common law principles. Arbitrators appointed by trade association as in the above case of Rustal Trading, are likely to have had past business dealings with one of the parties to the dispute but that would not affect his ability to be impartial. In another case AT & T Corporation v. Saudi Cable Company, the applicant challenged the appointment of arbitrator by the ICC on the ground that he could not act independently as had been a non-executive director in a competing telecommunications company (AT & T Corporation v. Saudi Cable Company [2000]). The court rejected his contention since ICC’s rule under Article 2(13) States that ICC’s decision on any such challenge is final. And the court further observed that the arbitral body’s definition of independence should be respected. While different tests are applied in the context of arbitration, the appearance bias test is the determining factor. However, a prudent arbitrator will still disclose any connection with the parties (Bargate, 2004).

International Bar Association’s (IBA) guidelines issued in 2004 to admit that arbitrators are often faced with the dilemma of what facts should be disclosed and what need not be disclosed. The guidelines on impartiality set forth the standards and list specific situations which do and do not require arbitrators to disclose business dealings. These standards do not however replace statutory provisions. Accordingly, “the general standards regarding impartiality, independence, and disclosure state the general principle as an arbitrator should be impartial and independent of the parties to the dispute both at the time of accepting appointment as well as during the pendency of the entire arbitral proceedings till the time the final award is given or proceedings are otherwise terminated” (Anonymous, n.d.).

An explanatory note says that this obligation does not continue after the termination of proceedings but if the dispute is remanded to the same arbitrator, he should make a fresh disclosure. The standard for conflict of interest says that an arbitrator should decline an appointment or if the proceedings have already commenced, he should discontinue if he entertains doubts about his ability to be impartial or independent. The same principle is applicable if, in the view of a third person having knowledge of relevant factors, the arbitrator’s appointment would give rise to justifiable doubts about the arbitrator’s impartiality or independence unless the parties have accepted the arbitrator’s appointment under standard 4 which deals with the parties’ waiver. That is, if within 30 days of the arbitrator’s disclosure or after the party learns of the facts of conflicts of interest, the party does not expressly object to the arbitrator’s appointment, it would be deemed that the party has waived his objection to a potential COI. There are as many as seven such standards and the IBA has issued application lists of potential situations after analysing the past case law and hence the lists are not exhaustive. The red list has two parts, one dealing with non-waivable situations, and another with waivable situations. The non-waivable list includes the overriding principle that no person can be his own judge. Such disclosure will not avoid misunderstanding. Hence, situations are waivable only if parties are aware and have expressly stated their willingness to the arbitrator’s appointment in spite of the serious COI. The orange list includes situations in which parties are deemed to have waived after a certain period of time after being informed of the COI. The green list contains situations where there can be no COI if objectively viewed and hence arbitrators need not disclose situations under the green list (IBA, 2004).

In view of the above, the following would be an ideal COI provision to avoid potential disputes in this connection.

An arbitrator shall at the time of his appointment or during the course of arbitral proceedings disclose his past or present dealing with any of the parties to the dispute that would raise reasonable doubts about his impartiality or independence and if the party does not raise any objection to the disclosure within 30 days the arbitrator may continue to act as an arbitrator to the specific dispute except in situations specifically prohibited by law. This bar against conflict of interest shall continue until the passing of award or termination of proceedings otherwise. If for any reason, the dispute is remanded to the same arbitrator, he shall make a fresh disclosure as above if any-. Further, if the party to the dispute learns of any such conflict of interest an arbitrator has with the other party, the former shall lodge his objection within seven days of his knowledge.

References

Anonymous. (n.d.). Regional Trade Agreements. World Trade Organization. 2014.

Bargate, Q. (2004). Arbitrators and Impartality. Web.

IBA. (2004). IBA Guidelines on Conflicts of Interest in International Arbitartion.

Moses, L. M. (2012). The Principles and Practice of International Commercial Arbitration (2 ed.). Cambridge: Cambridge University Press,.

Poser, N. S. (2012). Broker-Dealer Law and Regulation Fourth Edition through 2012 Supp (2 vols). U.S.A.: Aspen Publishers Online.