As the International Bar Association (IBA) revamps its Guidelines on Conflicts of Interest in International Arbitration, Paula Hodges QC – head of global arbitration at Herbert Smith Freehills and a member of the committee that oversaw the recent review – discusses some key changes.
The problem of conflicts of interest is familiar to many litigators, particularly those in international law firms. Launching a case against an organisation that also happens to be a client of another department within the firm can be hugely problematic, with potential conflicts impacting both internal and external client relations.
International arbitration adds further complexity. Unlike judges, arbitrators often hold positions within a law firm or chambers, giving scope for potential conflicts or relations with both parties and counsel in the case. Unlike litigation, when the conflicts are more of an issue between lawyers and client, a perceived conflict for an arbitrator is ammunition for the other side. Indeed, cases can be delayed or even abandoned, wasting time and money, should conflicts not be properly addressed.
Transparency is key and, to this end, the IBA recently reviewed and updated its guidelines.
The IBA Council first published its guidelines in 2004 and ten years on, published a further update in October, 2014 to address the changing dynamics in modern practice. Views from 150 arbitral practitioners and 19 arbitral institutions were sought for the latest revision.
“The IBA conflict rules have been a successful tool for both arbitrators and lawyers in terms of identifying potential conflicts and for a number of courts, which have referenced the rules when determining challenge applications,” says Hodges. “Even so, there was some fine-tuning needed in order to address a few key points and make some improvements to the existing rules.”
Hodges cites third-party funding as a prime example. Third party funding has been around for a few years but increased following Lord Justice Jackson’s Review of Civil Litigation Costs in 2010, which brought the concept to the wider market. Since then, a swathe of third party funders and insurers has entered the disputes market, financing litigation and arbitration.
“Previously there was no direct mention in the rules of the need for the disclosure of funders or insurers, but if these entities have an economic interest in the outcome of a case then their identity needs to be known,” Hodges. “They could have been involved in other cases involving the arbitrators or parties.”
Under the 2014 revisions, General Standard 6(b) was altered so that third party funders are obliged to disclose their identity and the identity of the party they are funding, although not the funding arrangements.
Hodges believes that one of the other important changes in the guidelines dealt with the use of “advance waivers”. Arbitrators at some law firms draft advance waivers with a view to parties agreeing not to object should a conflict arise in the future in relation to the arbitrator's law firm. The mechanism is used to prevent 11th hour challenges to cases.
“Conflicts are an on-going issue and should be addressed on a case-by-case basis so it was important to update the guidelines to state that advance waivers do not discharge the arbitrator’s ongoing duty of disclosure under General Standard (3)(a),” she stresses. The result is that an arbitrator is not able to fall back on an advance waiver to as means to avoid challenges on a future appointments, but undertake instead to constantly review their activities and those of their firm.
Other changes include the notion that arbitrators who practice in a firm “bear the identity” of that firm, which aims to clarify the responsibilities of arbitrators sitting while an employee or a partner at a firm. This provision only applies to arbitrators and law firms, however, and not barristers and sets. Barristers however, are no strangers to perceived conflicts of interest: the uniquely British problem of barrister arbitrators hearing cases presented by counsel from their own sets of Chambers is also dealt with in the Guidelines, which states that while, “no general standard is proffered for barristers’ chambers, disclosure may be warranted in view of the relationships among barristers, parties or counsel.” Such relationships feature on the Orange List, obliging the arbitrator to make full disclosure.
Other changes include a more rigorous approach to non-legally qualified persons sitting as arbitrators, disclosing the identity of retained counsel, the impartiality of Tribunal Secretaries and arbitrators who have acted as co-counsel. Full details can be found on the IBA website.
One downside to greater specificity in respect of guidelines relating to conflicts, is concomitant possibility of tactical challenges where guidelines are silent.
“Personally, I have not had a great deal of experience of frivolous challenges intended to interrupt an arbitration, but colleagues have told me they are seeing an increase in such challenges,” Hodges summarises. “As such, one possible downside of the new guidelines is that it gives parties more scope to claim a conflict. Even so, I think it becomes clear pretty quickly when a conflict challenge is genuine or merely a delay tactic.”
This post was written by Antony Collins who is a freelance journalist. He can be contacted at firstname.lastname@example.org