Evolving legal standards to combat disqualification of arbitrators

The independence and impartiality of arbitrators are fundamental pillars of arbitration. However, conflicts of interest – whether perceived or real – can have an adverse impact on the process. Recently, most major arbitral institutions have implemented updated rules requiring that arbitrators disclose any facts that may affect their impartiality so that both the parties and the arbitral institution can make an early determination on a potential conflict. 

These rules were prompted by an increase in the number of challenges to arbitral awards based upon claims brought by the non-prevailing party that the failure by an arbitrator to make a fulsome disclosure of a relationship or connection had allegedly impacted the arbitrator’s ability to render an impartial award.

The International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration, which serve as an industry standard for arbitrators to identify what types of relationships and circumstances require disclosure (albeit non-binding), has categorised these disclosures into three colour coded categories: red, orange, and green.

With respect to situations on the Red List, a conflict of interest is understood to exist. The Red List consists of two parts: the Non-Waivable Red List and the Waivable Red List, situations that are serious but not as severe, and thus are considered waivable. 

Situations on the Orange List may, depending on the facts of a given case, give rise to a doubt, and must therefore be disclosed, but are deemed waived absent a timely objection.

Finally, the situations on the Green List are understood not to create a conflict or appearance thereof, and therefore do not need to be disclosed by the arbitrator.

The Amended IBA Guidelines place an additional requirement on the parties to the process to personally identify the nature of the relationship between themselves and the individual or entity they want the arbitrators to review, and, if necessary, make a disclosure. These guidelines also expand the scope of professional relationships that could require disclosure by adding language to include any legal entity or natural person over whom a particular party has a controlling influence.

The International Chamber of Commerce has also introduced mechanisms to expedite challenges to arbitrators in cases where disclosures are insufficient or misleading, and the London Court of International Arbitration has expanded its provisions on disclosure, requiring arbitrators to disclose not only existing conflicts but also any relationships with the parties, their representatives, or even other arbitrators.

All of the foregoing suggests that with the continuing rise of arbitration as a means to resolve disputes, in order to ensure the integrity of any resulting awards, and to ensure faith in the system, there is an overarching trend toward stricter and ongoing disclosures.

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Leslie A. Berkoff is a Partner at Moritt Hock & Hamroff LLP and Chair of its Dispute Resolution Practice Group. She concentrates her practice in the areas of Dispute Resolution serving as a mediator and arbitrator, as well as, Corporate Restructuring work working in both arenas nationally and internationally.