Advance Waivers: An intriguing concept …

… But: Do they impact ongoing disclosure obligations or insulate arbitrators against subsequent challenges?
By Gustav Flecke-Giammarco

Beitrag als PDF (Download)

Introduction to the problem

Declarations by arbitrators in relation to future conflicts of interest may lead to a host of problems. They concern the neutrality of the arbitrator and pose a controversial question that goes to the very heart of the arbitration process: To which extent, if at all, may independence of arbitrators and disclosure obligations be waived? Arbitrators, parties, arbitral institutions and state courts wrestle with the same dilemma at different stages: Is it appropriate, or legally tenable, for an arbitrator to obtain a “blanket approval” from the parties with respect to his or her law firm’s future activity prior to accepting to serve as arbitrator in a given case? The International Bar Association Guidelines on Conflicts of Interest in International Arbitration as revised on 23 October 2014 (IBA Guidelines) have picked up on this relatively new phenomenon by adopting a cautious stance towards advance waivers in General Standard (3)(b) which stipulates:

“An advance declaration or waiver in relation to possible conflicts of interest arising from facts and circumstances that may arise in the future does not discharge the arbitrator’s ongoing duty of disclosure under General Standard (3)(a).”

Also on an institutional level, based on the author’s previous experience at the Secretariat of the ICC Interna­tional Court of Arbitration (Court), such requests for advance clearance that the acceptance of the arbitrator’s mission shall not prevent other lawyers of the same law firm from acting for or adverse to the parties to the arbitration or their affiliates, as long as such mandate is unrelated to the arbitration, have been on the rise. In an ICC arbitration, the prospective arbitrator may seek to obtain the parties’ consent to waive their right to file a challenge pursuant to Art 14(1) ICC Rules of Arbitration (ICC Rules) on the basis of future conflicts of interest or limit the subsequent disclosure obligations imposed by Art 11(3) ICC Rules.

In recent years, this practice emerged in particular among arbitrators who work at large law firms (N. Voser/A. Petti, The Revised Guidelines on Conflicts of Interest in International Arbitration, ASA Bulletin, 2015, Vol. 1, p. 17). Also, the Court has seen an increasing use of advance waivers by law firm partners (S. Perry, IBA to approve revised guidelines on conflicts of interest, Global Arbitration Review, 21 October 2014).

This article will analyse and compare the recent approaches adopted by the IBA Guidelines and the Court towards this novelty. It is, however, clear that it will ultimately be for the parties to decide whether they wish to accept that other lawyers from the same law firm act in unrelated matters involving such parties or their affiliates.

Solution adopted by the IBA Guidelines

While the IBA Guidelines are not binding, they are intended as an expression of best practices. They have successfully created uniform standards addressing arbitrator independence and impartiality. The IBA Arbitration Committee initiated the review process regarding the IBA Guidelines in 2012. The IBA Conflicts of Interest Subcommittee reviewed the 2004 IBA Guidelines and collected the views of counsel, arbitrators and arbitral institutions. It also conducted an in-depth study of case law on conflicts of interest of arbitrators that has developed over the past ten years. At the last annual IBA Conference in Tokyo, the IBA Council approved the revised version of the IBA Guidelines which set an international standard regarding the effects of advance waivers.

In this respect, Explanation to General Standard (3)(b) states: “The IBA Arbitration Committee has considered the increasing use by prospective arbitrators of declarations in respect of facts or circumstances that may arise in the future, and the possible conflicts of interest that may result, sometimes referred to as ‘advance waivers’. Such declarations do not discharge the arbitrator’s ongoing duty of disclosure under General Standard 3(a). The Guidelines, however, do not otherwise take a position as to the validity and effect of advance declarations or waivers, because the validity and effect of any advance declaration or waiver must be assessed in view of the specific text of the advance declaration or waiver, the particular circumstances at hand and the applicable law.”

In drafting General Standard 3(b) and Explanation to General Standard 3(b), which must be read in conjunction, the IBA Subcommittee had to balance out several perceived advantages and disadvantages of advance waiv­ers. For some, they are justified based on the parties’ consent and largely enhance the chances that some of the world’s favorite arbitrators are able to accept sitting on a case. For others, this course of action may lead to the appearance that law firms are prioritizing their own (commercial) interest over those of the parties.

As a matter of fact, the increasing size of law firms operating in today’s global economy renders it difficult for arbitrators to be apprised of all potential conflicts of interest. Furthermore, arbitrators will wish to avoid sit­uations which may force their law firm to decline future instructions for or adverse to one of the parties or their affiliates. Some arbitrators therefore try to circumvent such difficulties by making reservations that they “cannot exclude that lawyers of their firm will act in the future for or against one of the parties,” accepting to serve only if both parties agree to the “condition” that the arbitrator cannot hinder his colleagues “from acting for or against any of the parties,” or trying to exclude the duty “to make any additional disclosure.” They thereby try to introduce safeguards against potential challenges in case a significant conflict of interest should arise. Otherwise, the arbitrator concerned might possibly need to resign from an ongoing case due to economic leverage or time pressure exerted by a partner of the same law firm who wishes to take on a new mandate, e.g. an unrelated high-scale M&A transaction involving one of the parties’ affiliates.

The IBA Guidelines entail a prudent and commendable approach towards these declarations by clarifying in Gen­eral Standard 3(b) that arbitrators’ subsequent disclosure obligations are not affected. They have consciously left the difficult question whether an advance waiver would hold up in a national court and in fact exclude the arbitrator’s ongoing disclosure obligation unanswered. The validity and effect of any such declaration is to be assessed in view of its specific text, the particular circumstances of the case and the applicable law. Wheth­er advance waivers might indeed become a successful practice tool is another tale to tell, as many legal systems do not permit parties to waive non-existing rights in advance. From a German perspective, the admissibility of an agreement to exclude the right or limit the grounds to challenge an arbitrator beforehand in deviation from § 1036 ZPO seems doubtful (P. Nacimiento/A. Abt/M. Stein, Arbitration in Germany, 2015, p. 180).

Solution adopted by the ICC Court

The supervised nature of ICC arbitration puts the members of the Secretariat in a privileged position to observe the state of affairs and new trends in the field of international arbitration. One of these trends, encountered well before the promulgation of the new IBA Guidelines, was the increasingly frequent use of advance waivers.

In 2014 alone, the Court appointed or confirmed a pleth­ora of 1,327 arbitrators from 79 different countries (2014 ICC Dispute Resolution Statistics, ICC Dispute Resolution Bulletin, 2015/No. 1). This arbitrator confirmation process foreseen by Art 13 ICC Rules is perceived by many as key to the effective administration and conduct of proceedings. It is one of the Court’s hallmark features and part of its duty to “assist the parties in securing a dil­igent, qualified and independent Arbitral Tribunal” (J. Fry/S. Greenberg, The Arbitral Tribunal: Applications of Articles 7 – 12 of the ICC Rules in Recent Cases, ICC Court Bulletin, Vol 20/2, 2009, p. 13).

All arbitrators acting in ICC arbitrations must “be and remain impartial and independent of the parties involved in the arbitration” (Art 11(1) ICC Rules). Every prospective arbitrator is invited to disclose any “facts or circumstances which might be of such a nature to call into question the arbitrator’s independence in the eyes of the parties” before being confirmed or appointed by the Court (Art 11(2) ICC Rules). The arbitrator must further immediately inform of any change in circumstance that may arise dur­ing the arbitration (Art 11(3) ICC Rules).

Not surprisingly, it may be argued that the arbitrator confirmation process cannot be waived by the parties and forms the basis of the ICC’s offer to administer the arbitration. In 2010, the Court decided that a case in which the arbitration agreement provided that “the appointment of the arbitrators by the parties is not subject to confirmation by the Court of Arbitration of the ICC” cannot proceed (Tribunal de Grande Instance de Paris, 22 January 2010, Revue de l’Arbitrage, 2010, No. 3, p. 576). Other key features such as scrutiny of awards and fixing of the costs of the arbitration by the Court are equally considered to be mandatory (R. Smit, Mandatory ICC Arbitration Rules, Liber Amicorum in honour of Robert Briner, 2005, pp. 858, 865 and 867). A similar argument could be made with respect to advance waivers whose specific text is at odds with fundamental pillars of ICC arbitration.

It remains the Court’s prerogative to decide whether to confirm or appoint a nominee in light of a potential disclosure and the parties’ comments thereon. The briefing presented to the Court includes information as to wheth­er the factual pattern at stake is contemplated by the IBA Guidelines and, if so, under which category of the IBA Guidelines it may fall. However, the IBA Guidelines are first and foremost concerned with setting a standard for disclosures and are to no extent binding for the Court’s assessment.

Attempts to waive issues of independence that may ­arise in the future “have not been amenable” to the Court (J. Fry/S. Greenberg/F. Mazza, The Secretariat’s Guide to ICC Arbitration, 2012, p. 129). Thus, the Secretariat’s current practice with respect to advance waivers is to inform parties and prospective arbitrators in writing that “the Court will not be bound by the arbitrator’s statement relating to future conflicts of interest and that any such potential conflicts must be disclosed in accordance with Article 11(3).” The Court has consequently also considered subsequent challenges against arbitrators who have obtained advance waivers.

This practice was already introduced in 2010 and basically leaves it to the parties to decide whether they wish to object to the confirmation of an arbitrator who has made such declaration. The solution adopted by the Court is in line with General Standard 3(b) of the IBA Guidelines and does not exempt arbitrators from subsequent disclosure obligations. With respect to the general acceptance of advance waivers in the context of ICC arbitrations, another important distinction must be drawn:

When an arbitrator is proposed by an ICC National Committee pursuant to Art 13(3) ICC Rules, the Court actively endorses such proposal by appointing the candidate. Arbitrators seeking to request advance waivers from the parties will normally not be considered for appointment by the Court. This appears to be justified in light of the vast pool of arbitrators the ICC may choose from.

When an arbitrator is nominated for confirmation by parties or co-arbitrators, the current practice is less restrictive and arbitrators who have made such declaration will generally be confirmed pursuant to Art 13(1) or (2) ICC Rules provided that no party has objected to their confirmation on this basis.

Conclusion

The IBA Guidelines acknowledge the concept of advance waivers without expressing a position on their enforceability. They do, however, clarify that arbitrators are not exempt from subsequent disclosure obligations. This appears to be a sensible compromise in view of their aim to establish uniform international standards. The validity of such reservations must be assessed on a case by case basis taking into account the applicable law.

In ICC practice, arbitrators have expressed reservations either purporting to obtain a waiver from the parties for future challenges based on new assignments accepted by their law firms or to limit the scope of their subsequent disclosure obligations. The Court currently responds by making clear that it does not consider itself to be bound by advance waivers. It is also clear that the Court’s power to decide on subsequent challenges is not restricted.

Considering that the ongoing duty of disclosure seems to be carved in stone, the intricate question whether the parties may indeed validly waive their right to bring a challenge based on facts and circumstances that may arise in the future remains to be settled. Conventional wisdom would seem to dictate that parties may not

give informed consent with respect to facts that had not arisen at the time of the arbitrator’s confirmation or appointment or waive mandatory procedural guarantees.

Editor’s note: Prior to his current position, the author was active as a Counsel at the ICC International Court of Arbitration, Paris.

g.flecke@heuking.de

 

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