When parties are selecting an arbitrator or when you receive the other side's nomination where a tribunal of three is to be constituted, parties should not simply rely on those arbitrators or the other side to make full and frank disclosures of potential or perceived conflicts of interest. Doing so can scuttle the forward progress of an arbitration if grounds for challenge are later discovered. In short, do your own research.
This sage suggestion has recently been reiterated by the International Bar Association (IBA) in its 2024 update to the Guidelines on Conflicts of Interest in International Arbitration. First published in 2004 and then updated in 2014, the 2024 Guidelines do not represent a radical change in respect of disclosure of potential conflicts of interest, however, of relevance to parties, their in-house legal teams, and their external legal representatives, they do place more onus on parties to investigate potential conflicts of interest rather than leaving it to the arbitrators or other party/parties to make a disclosure.
"Soft law" and "traffic lights"
The Guidelines are an instrument of "soft law" in international arbitration, available to be applied by agreement of the parties and are designed to assist parties, practitioners, and arbitrators in the identification and assessment of conflicts of interest arising in international arbitration. Even when agreed by the parties to apply in an arbitration, they do not take precedent over the lex loci (ie., the law of the seat).
The Guidelines' most well-known feature is its "traffic light" system which the IBA describes as being aimed at assisting arbitrators in making disclosures as well as "aiding parties in assessing whether disclosed information may be such as to create a doubt as to the arbitrator's independence and impartiality". The Guidelines helpfully provide a non-exhaustive list of situations which commonly arise in international arbitration:
- Red: These are the most serious (and obvious) situations of conflicts of interest which are divided into two sub-categories:
- Non-waivable Red: "situations deriving from the overriding principle that no person can be their own judge".
- Waivable Red: "situations that are serious but not as severe".
- Orange: "specific situations that, depending on the facts of a given case, may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence" and therefore the arbitrator has a duty to disclose.
- Green: "specific situations where no appearance and no actual conflict of interest can exist either under the subjective or the objective standard" with the result being that the arbitrator has no duty to disclose (though they may choose to so as to demonstrate transparency).
Changes between 2014 and 2024 editions
The IBA has helpfully published a redline comparison between the 2014 iteration and the 2024 revision which makes clear what has been updated.
Focusing on the changes which place more onus on parties to carry out their own investigations, the following sets out some of the key developments in the 2024 updates which reflect developments and trends in the field of international arbitration over the past decade and the continuation of the utmost importance which the impartiality and independence of arbitrators plays in resolving disputes by way of arbitration.
Carry out reasonable enquiries – don't delay
The 2014 Guidelines provided a 30-day period in which parties should raise an objection against an arbitrator. Under Part I(4) of the 2014 Guidelines, that 30-day window commenced from receipt of any disclosure by the arbitrator or from when "a party otherwise learns of facts or circumstances that could constitute a potential conflict of interest for an arbitrator", failing which the party was deemed to have waived its right to "raise any objection based on such facts or circumstances at a later stage" (unless the facts or circumstances fall within the non-waivable red list or is an undisclosed waivable red list situation).
The 2024 Guidelines maintain the same 30-day period for raising objections. However, the updated Guidelines now expressly include an onus on parties to carry out a reasonable enquiry at the earliest point: "A party shall be deemed to have learned or any of any facts or circumstances under 4(a)(ii) that a reasonable enquiry would have yielded if conducted at the outset or during the proceedings."
The "reasonable enquiry" update is not revolutionary. In fact, it arguably seeks to support what was already seen as good practice at the outset of an arbitration, particularly following the below court decisions arising from both civil law and common law jurisdictions:
- 2019 judgment of the French Supreme Court in Société Saad Buzwair Automotive Co v. Société Audi Volkswagen Middle East Fze LLC, Cour de Cassation, 1st Civil Division, 3 October 2019, No 18–15.
- 2016 judgment of the Paris Court of Appeal in Delta Dragon v BYD, Paris Court of Appeal, 25 May 2021, No. 18/20625.
- the 2023 Swiss Supreme Court's decision in Decision 4A_100/2023.
- ASM Shipping Ltd of India v. TTMI Ltd of England [2005] EWHC 2238.
In each of the above instances, it was held that there is an expectation that that parties will carry out their own investigations as to whether there is a potential conflict which has not been disclosed. In fact, the expectation is so well recognised that it is already reflected in practice notes issued by arbitral institutions (eg. the ACICA Guidance Notice on the Appointment of Arbitrators, published in January 2022).
Challenge procedures exercise caution around different timing requirements
The procedure for raising an actual or perceived conflict of interest by way of challenge to the nomination or appointment of an arbitrator will depend on whether the parties have agreed to adopt the IBA Guidelines and the lex loci.
For international arbitrations seated in Australia, the International Arbitration Act 1974 (Cth) will apply with the uniform Commercial Arbitration Acts applying to domestic arbitrations seated in Australia. Both legislative regimes in Australia give effect to the UNCITRAL Model Law on International Commercial Arbitration. The relevance of this is that there are differences in timing under the Model Law and the IBA Guidelines. For instance, if the parties to an arbitration seated in a Model Law state:
- agree that the IBA Guidelines apply, then there is a 30-day period to bring a challenge.
- if the IBA Guidelines do not apply at the time of appointment, and another challenge procedure has not been agreed, then there is a 15-day period to bring a challenge under article 13(2) of the Model Law.
As to a party's awareness, Article 4 of the Model Law waives the right of a party to challenge an arbitrator if it becomes aware of circumstances that give rise to the challenge and yet that party fails to bring that challenge without undue delay. In assessing whether a party was aware, an arbitral tribunal will likely, subject to the applicable arbitration rules and mandatory laws, look to whether they took the "reasonable enquiries" provided for in the 2024 Guidelines.
Even if reasonable enquiries are undertaken and a situation is identified, the grounds for challenge still have to be strong.
For an Australian-seated international arbitration, there has to be a "real danger of bias" on the part of the arbitrator in conducting the arbitration such that there are justifiable doubts as to the impartiality or independence of an arbitrator (see International Arbitration Act, section 18A).
This threshold was considered in the Federal Court case of Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2016] FCA 1131. Sino Dragon, in seeking to set aside the award, alleged that the connection between the firm which the arbitrator was a partner at (who acted for a subsidiary of Noble Group in separate and unrelated proceedings in China) meant that there was a real danger. The Court dismissed this argument as it was a vague connection – one that fell within the Green List in the IBA Guidelines, and there was no probative evidence to suggest that the arbitrator would prefer Noble Resources over Sino Dragon.