When is an arbitrator's independence and impartiality compromised?

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

An arbitrator is under a continuing duty to disclose circumstances that may affect their independence and impartiality. It is of fundamental importance that an arbitrator is both independent and impartial and most of the major arbitral rules impose this requirement.

The recent decision of the Madrid Superior Court of Justice in Iberpistas and Bankia vs. Desarrollo de Concesiones Viarias Uno and Sacyr provided guidance on an arbitrator's duty to disclose such circumstances.

This case concerned an application to set aside an award on the grounds that the chairman of the arbitration tribunal failed to disclose circumstances that could affect his independence and impartiality. The chairman was an external director of a company, which was part of a group of companies that was a third party to the arbitration. This group of companies regularly contracted with a subsidiary of a group of companies to which one of the defendants belonged, but which was not itself a party to the arbitration.

The court applied the International Bar Association (IBA) Guidelines on Conflicts of Interest and held that the chairman had not breached its duty of disclosure suggesting that he, acting with due diligence, could not have known the relationship between the two companies. The court also pointed out that a failure to disclose does not necessarily mean the award will be set aside. In order for a failure to disclose to entail an award to be set aside, the undisclosed circumstances must have affected the arbitrator's independence and impartiality.

Although there are no standard rules governing this issue, the 2014 IBA guidelines are a useful reference point when assessing impartiality and independence. In determining whether circumstances have arisen that could question the arbitrator's impartiality or independence, the “fair minded and informed observer” test applies. Importantly, the IBA guidelines are not legally binding but are often used by parties, arbitrators and the courts.

The fact the rules are not legally binding was reflected in a recent decision by the English Commercial Court (W Ltd v M SDN BHD [2016] EWHC 422 (Comm)). In this case, it was suggested that the IBA guidelines should be considered with caution, as it was noted by Knowles J, that there were some weaknesses within the drafting. This case concerned apparent (as opposed to actual) bias. Part of Knowles' concern revolved around the drafting of one of the IBA guidelines' “Non-Waivable Red List” circumstances, which mirrored the facts of this case. The effect of the IBA guidelines in this case would have been to assume that the apparent bias existed without any further investigation into whether the arbitrator's impartiality or independence was in fact affected. This is a good example of the IBA guidelines deviating from English law (the “fair minded and informed observer” test was overlooked) and shows why the courts will sometimes feel it is appropriate to ignore them.

This article was prepared by Nabarro trainee Rebecca Taverner.