Missed Connections: The Need for Arbitrator Diligence

Not always plain sailing

In 2017, a British arbitrator was handed a prison sentence in Malaysia for providing a false statement of independence before his appointment as sole arbitrator in proceedings which started several years prior. Prosecutors accused him of having failed to disclose a previous position as a consultant to one of the parties. The arbitrator was also accused of soliciting a payment to rule in said party’s favour, however this allegation appears to have gone unpursued. While the arbitrator narrowly escaped serving time in prison – apparently owing to his age and poor health – he still had to pay a fine.

Of course, this is an extreme case. But the parties’ general freedom to appoint an arbitrator of their choice can sometimes present too much of a temptation, especially when coupled with the strict confidentiality of the arbitral process and outcome. While in most cases parties act in good faith, prior affiliation with an arbitrator may create a risk of actual bias and the appearance of potential bias, undermining the efficacy of the process.

Too close for comfort?

Arbitrators are duty bound to disclose facts or circumstances which might lead to actual or potential conflicts of interest or the appearance of bias (see, for example, the decision of the English Supreme Court in Halliburton v Chubb [2020] UKSC 48). Failure to do so may provide grounds to challenge their appointment and, potentially, lead to their disqualification from the arbitral panel – and even the annulment of an award in certain jurisdictions.

In the ongoing ICSID arbitration Optima Ventures LLC, Optima 7171 LLC and Optima 55 Public Square LLC v. United States of America, the United States’ appointed arbitrator was recently disqualified after it transpired that he had accepted an appointment as a member of the US Homeland Security Advisory Council several months after his selection as an arbitrator (and failed to disclose this appointment, in breach of ICSID Arbitration Rule 6(2)). The ICSID found that as he was “serving on a tribunal in an arbitration while simultaneously acting as an advisor to one of the disputing parties, albeit in different matters, the arbitrator inevitably risks creating an appearance that he lacks impartiality and independence”. This meant that concerns over him remaining impartial were “well-founded”.

Another example is Knowles Ltd v. Cofely Ltd, in which the respondent in the arbitral proceedings successfully challenged the arbitrator’s appointment on the grounds of apparent bias (but, notably, not actual bias). It became evident that 18% of the arbitrator’s appointments and 25% of his income derived from cases involving the claimant (and that, in said proceedings, he more often found in favour of the claimant or the party linked to it). The arbitrator had failed to disclose this prior relationship. Further, the arbitrator’s behaviour at other points in the proceedings (as well as in another arbitration) gave the appearance of bias towards the claimant.

One should of course assume that the vast majority of arbitrators will behave with integrity, and that omitting to mention a prior relationship inferring a potential conflict of interest could be an honest mistake. Nonetheless, there remains the possibility of bad actors seeking to influence arbitral proceedings via a connected party, and attempting to conceal said connection. A party might notice a suggestion of an undeclared relationship in evidence disclosed in the proceedings, or they may only be following a hunch – but in high-stakes international arbitration, to ensure a fair hearing, it can be good practice to ensure that arbitrators nominated by the other side are not influenced by prior undisclosed relationships in their decision making.

Following the trail

So where might these potential conflicts of interests lie, and how could an investigator find them? Some connections might be easier to identify than others. Perhaps parties in the proceedings and their arbitrators have relationships with the same lawyers, accountants or other professional advisors, or even a particular third-party funder, for example, where they act as an advisor to a funder in assessing investment opportunities. Although it concerned one of the party’s counsel rather than an arbitrator, the latter was seen in Theodore D. Einarsson and others v. Canada, an ICSID arbitration in which the counsel for Canada was disqualified after it transpired that she had in the past worked at the claimants’ prospective funder. Her previous position there meant there was a “real risk” of her having had access to confidential information about the claim. This relationship would probably have been easy to find, in online biographies, press releases and, potentially, sector-specific media coverage.

In other cases, it might be more challenging to find a latent connection. For example, an association may be historic, indirect, and, potentially, not reported anywhere in English. In Big Sky Energy Corporation v. Republic of Kazakhstan, an ICSID arbitration, Kazakhstan’s appointed arbitrator was disqualified after it emerged that he had a professional relationship with two Kazakh judges who were on the panel which delivered the judgment which in turn sparked the arbitration. How might an investigator have found this? Details of the arbitrator’s relationship with Kazakhstan would have been easy to find in online sources, however particular elements of this relationship (e.g. him receiving a medal from the country’s president) did not comprise sufficient grounds for his disqualification. Identifying his relationship with the two Kazakh judges would likely have required a deeper, more involved investigation, including reviewing Kazakh court filings (which might be difficult to access, and published only in Russian and / or Kazakh).

Whether to follow a lead or simply for peace of mind, if a party to arbitration wants to safeguard the proceedings from bias (conscious or otherwise), it can be worth scrutinising an arbitrator’s relationship with their counterparty to look for undisclosed connections. The investigator’s net should thus be cast wide to look for direct and indirect, past and historic, and explicit and implicit associations. These might exist via shared business ventures (though less likely), operating in similar sectors or sharing clients. The relationship could even be more personal, such as a family friendship.

To be comprehensive, an investigator should turn to a range of sources, including the “deep web” and to documents only accessible in person. A first port of call might be company filings, including in jurisdictions where corporate information is harder to access, such as many Middle Eastern countries or secrecy jurisdictions (see our article on secrecy jurisdictions here). Legal filings often name the parties’ counsel, and specialist publications can contain details of arbitral proceedings unavailable elsewhere. Further, social media can be a treasure trove of information, perhaps showing that a party has holidayed with their appointed arbitrator, or that their children are school friends. Investigators with regional and linguistic expertise will have a granular knowledge of locally available records, to help identify potentially critical leads and links.

Of course, it is important not to interpret every party / arbitrator relationship as giving rise to actual or potential bias, and some prior relationships could well be regarded as acceptable as long as they are duly disclosed. Nonetheless, the stakes in international arbitration can be too high to take chances. That hunch of yours might just be worth following.