International Arbitration : Research based report on perceived conflicts of interest

Transcription

1 ABA Section of Litigation Insurance Coverage Litigation Committee CLE Seminar, March 3-5, 2011: International Arbitration : Research based report on perceived conflicts of interest International Arbitration : Research based report on perceived conflicts of interest Jonathan Sacher Berwin Leighton Paisner LLP London INTRODUCTION This report gathers together and analyses the results of a survey conducted by Berwin Leighton Paisner on the difficult issue of perceived conflicts of interest involving arbitrators and advocates coming from the same set of barristers chambers. The desirability in international arbitration of having an impartial and independent arbitrator is widely recognised across different legal cultures. It is reflected both in domestic arbitration laws and in international and institutional rules (see, for example, section 33 of the English Arbitration Act, section 8 of the Swedish Arbitration Act 1999, Article 5.2 of the LCIA Rules, Article 7 of the ICC Rules and Article 12 of the UNCITRAL Model Law on International Commercial Arbitration). The precise wording may vary but the general principle is an almost universal one: each party to an arbitration is entitled to expect that it can have full confidence in an arbitrator to be impartial and to give both sides a fair hearing. We have canvassed the opinions of a great many of our colleagues within the foreign law firms with whom we have a close working relationship on the difficult questions raised by the practice of having arbitrators and advocates from the same set of barristers chambers. In doing so, we were mindful that the views of those who do not practise within and/or may not be familiar with the English legal system should be taken into account. Of equal importance are the views of the clients that we, and our international colleagues, represent. Berwin Leighton Paisner 01

2 THE ISSUE Subject to stipulated safeguards, most systems of law will permit and/or recognise the right of a party to challenge an arbitrator in the event of actual (and very often, perceived) bias. One obvious example of such a situation is where an arbitrator is thought to be favouring one party over another by reason of some connection with the favoured party or its legal adviser. To avoid such a situation arising, pre-appointment disclosure of any relevant pre-existing relationship is a requirement of most arbitration rules (see for example, Rule 9 of the SIAC Rules and Article 25 of the CIETAC Rules). One feature of legal practice which stems from the English model is the historic distinction that exists between solicitors (lawyers who practise in partnership with other lawyers across a wide range of transactional and disputerelated business - law firms ) and barristers (a much smaller group who are self-employed sole practitioners who traditionally provide advocacy services/specialist advice on request from solicitors, foreign lawyers and other professionals on a case by case basis). Barristers often organise themselves into groups ( sets of chambers ) for the purpose of sharing expenses such as rent, secretarial and clerking services etc. but one barrister does not have any financial interest in the work undertaken by another barrister in the same chambers. This distinction raises an interesting issue in relation to the perceived impartiality of an arbitral tribunal that includes a barrister practising as an arbitrator in circumstances where one of the parties to the dispute has instructed, or wishes to instruct, another barrister from the same set of chambers as its advocate before that tribunal. If a lawyer from an English law firm were representing a party in a dispute that is referred to arbitration, it is clear that another lawyer from the same firm would not be able to accept an appointment as arbitrator because he/she would have a financial interest in the fees paid by the retaining party and/or be perceived as having a bias in favour of that party. The same conclusion would be reached if a lawyer in an English law firm were appointed as arbitrator in a dispute and a colleague in the same firm were subsequently requested to take on the representation of one of the parties. The position in relation to barristers from the same set of chambers has historically been regarded as being very different. As a matter of English law, the general rule is that in the absence of a personal connection between the two barristers, a barrister may quite properly accept an appointment as arbitrator even though a barrister from the same set of chambers is representing one of the parties to the dispute. The leading English decision on this issue confirmed the relevant test to be whether circumstances exist that give rise to justifiable doubts as to an arbitrator s impartiality Laker Airways, Inc. v. FLS Aerospace Ltd. [2000] 1 W.L.R The fact that a barrister arbitrator was a member of the same set of chambers as a barrister advocate representing one of the parties was not of itself considered sufficient to constitute a conflict of interest or to justify doubts as to the arbitrator s impartiality. This position is not confined to English law: the French Court of Appeal in Kuwait Foreign Trading Contract & Investment Co v Icora Estero SpA heard expert evidence as to the independent nature of a barrister s practice. It found that there was no objective basis upon which to question the independence of the chairman of a tribunal merely because he belonged to the same set of chambers as counsel for one of the parties. This decision (together with an earlier decision of the LCIA Court of Arbitration) provided some assurance that the position taken by the English Courts was not wholly at odds with how the issue would be viewed from an international perspective by lawyers not familiar with the peculiarities of the English legal profession. A recent decision of an ICSID tribunal in Hrvatska Elektroprivreda v The Republic of Slovenia has thrown this decision into doubt. In that case, at a late stage in the proceedings, the Republic of Slovenia instructed, as advocate, an English barrister from the same set of chambers as the chairman of the tribunal. This led the Claimant company to challenge the Republic of Slovenia s right to use that barrister as advocate on the basis that it had justifiable concerns about impartiality arising from the fact that the chairman and the Respondent s counsel were from the same chambers. Berwin Leighton Paisner 02

3 The tribunal found in favour of the Claimant, concluding that: The justifiability of an apprehension of partiality depends on all relevant circumstances. Here, those circumstances include the fact that the London chambers system is wholly foreign to the Claimant. A lack of knowledge about how barristers chambers operate can be exacerbated by the increasingly prevalent practice of chambers marketing and promoting themselves as a single unit. A statement in the Background Information to the IBA Guidelines on Conflicts of Interest in International Arbitration notes that: While the peculiar nature of the constitution of barristers chambers is well recognised and generally accepted in England by the legal profession and by the courts, it is acknowledged by the working group that, to many who are not familiar with the workings of the English bar, particularly in light of the content of the promotional material which many chambers now disseminate, there is an understandable perception that barristers chambers should be treated in the same way as law firms. KEY FINDINGS The survey attracted a broad response from firms with established arbitration practices and from firms whose partners had experience of sitting as arbitrators. Over half of firms responding had handled arbitrations in which an English barrister had either sat on the arbitral tribunal or appeared as advocate for one side. A significant majority of lawyers responding considered it to be inappropriate for there to be a barrister on the tribunal from the same set of barristers chambers as the advocate for one of the parties. The overwhelming majority of lawyers (78%) believed their clients would regard such an arrangement in a negative light. The geographical origin of clients made little difference to this view, although clients from jurisdictions familiar with the English model of the split profession were likely to be less concerned. Clients would be more relaxed about the risk of conflict if assured that there were strict information barriers in place between arbitrator and advocate. The lack of a financial interest in each other s fees was felt also to make clients more comfortable. Clients were also likely to be more comfortable if the barrister sitting as arbitrator and the barrister appearing as advocate were not well known to each other. The lawyers responding felt that their clients would be more concerned if roles were reversed and the barrister appearing as advocate regularly sat in a judicial or arbitral capacity with the other barrister appearing before him or her. Clients would also be more likely to be troubled about the risk of conflict if the barrister sitting as arbitrator and the barrister appearing as advocate had previously worked together on a contentious matter. Clients would be far more likely to react adversely where they saw sets of chambers marketing themselves as a single entity, even though the barristers themselves were not sharing profits. An overwhelming majority (84%) of lawyers responding felt that disclosure should be made by a nominated arbitrator if he or she was aware that a fellow barrister from the same chambers had already been instructed as advocate. A smaller majority felt that a party to an arbitration should disclose any intention to instruct counsel from the same chambers as a member of the tribunal. Views were however fairly divided on the question of whether nondisclosure should result in that party losing the right to be represented by that barrister in the case. Berwin Leighton Paisner 03

4 Almost all firms responding indicated that their domestic law would uphold a challenge to an arbitrator on the grounds of a lack of independence or impartiality. A sizeable majority (65%) felt that a challenge to an arbitrator on the grounds that he or she came from the same set of barristers chambers as one of the advocates in the case was likely to succeed under the relevant domestic law. THE QUESTIONS ASKED The fundamental issue addressed by the survey is the extent to which there is concern on the part of lawyers and clients about the risk of a conflict of interest when counsel for the opposing party in an international arbitration comes from the same set of barristers chambers as one or more members of the arbitral tribunal. Lawyers familiar with the structure of the legal profession in England (and indeed in other jurisdictions where a split profession operates), may well have a different perspective from fellow practitioners in jurisdictions where there is no distinction between legal advisor and advocate. Our first aim was to ascertain the extent to which our professional colleagues, considered this issue to be a matter of concern. Ultimately, of course, it is the perception of our clients that matters and we wished also to test whether our colleagues in the responding firms considered that their clients would share these views or would be likely to take a more relaxed or more concerned view of the possibility of conflict. So far as clients were concerned, we were also interested in assessing whether there were likely to be any geographic differences of opinion or whether the attitude of clients would be broadly the same across the world. We then sought to test the sensitivity of the views expressed. Would certain factors make our fellow practitioners or their clients more or less concerned about the risk of a conflict of interest? Would, for example, the existence of information barriers and other safeguards to prevent access to documentation delivered to the arbitrator make them and their clients more comfortable with the situation? Would the fact that the barrister serving as arbitrator and the barrister serving as counsel had no financial stake in each other s work make opposing counsel and clients more comfortable with the situation? Would people be more or less concerned about the possibility of conflict if the barrister acting as party advocate sat in a judicial capacity in some other court or tribunal in which the barrister acting as advocate regularly appeared? Would there be concern if the two barristers had previously worked together on the same side in another piece of litigation or arbitration? What would the attitude be if the chambers from which the two barristers came actively marketed itself as a single unit even though its members did not share fees? We then sought to test issues of disclosure. One of the issues that appears to have weighed heavily on the Tribunal in the Republic of Slovenia case was the fact that the solicitors acting for the Republic of Slovenia did not disclose until a late stage in the proceedings that they had instructed, as advocate, a barrister from the same chambers as the chairman of the tribunal. Should the existence of such instructions, or an intention to instruct a barrister from the same chambers, be disclosed to the opposing party? If such disclosure was not made, should the party not making the disclosure lose the right to be represented by the barrister in question in the event of an objection being raised? Finally, we were interested in understanding the operation of the domestic arbitration laws in the jurisdictions from which the respondents to our survey were drawn. Would those domestic laws provide a basis upon which to challenge an arbitrator generally for lack of independence or impartiality? If so, would the fact that the nominee arbitrator practised in the same set of chambers as one party s counsel provide the basis for such a challenge to succeed? THE RESULTS A broad response We were keen to get as broad a response as possible from arbitration practitioners in the foreign law firms with whom we have a close working relationship. We received 69 responses to our survey. 87% of respondents came from firms with an established international arbitration practice. (Graph 1) Berwin Leighton Paisner 04

5 Strong arbitration focus Of those firms with an arbitration practice, there was a broad range of experience. More than a quarter of respondent firms had handled 11 or more arbitrations in the past 12 months. One fifth had handled between five and ten cases and over half of the firms responding had experience of up to five arbitrations a year. (Graph 2) Three quarters of responding firms had partners who sat as arbitrators, in addition to lawyers who acted as counsel. This ensured that the survey had the benefit of a dual perspective. (Graph 3) Berwin Leighton Paisner 05

6 Direct experience of the problem It was important to understand the extent to which the respondents to the survey had been engaged in arbitrations which actually involved an arbitral tribunal including a barrister from England (or from another jurisdiction with a split profession) or in which they had instructed a barrister to conduct the advocacy on behalf of their client. Over half of the respondents to the survey had been involved in an arbitration where the tribunal included a barrister from England or from a jurisdiction following the English model and a very significant proportion (over 35%) had themselves instructed a barrister to represent their client in an arbitration in the last five years. (Graph 4) Berwin Leighton Paisner 06

7 Concern amongst lawyers A key part of the survey was to ascertain whether our colleagues in the responding firms were positive or negative about a situation in which an arbitral tribunal included an arbitrator practising in the same set of chambers as counsel appointed by the party with whom their client was in dispute. A very small proportion were positive on the issue. A quarter of those responding did not regard the matter either positively or negatively. However a significant majority of over 65% viewed the prospect of a situation in which a member of the tribunal and opposing counsel came from the same set of chambers in a very negative or fairly negative light. (Graph 5) Highly negative reaction from clients Interestingly, and perhaps unsurprisingly, the relaxed attitude shown by almost a quarter of firms responding when assessing the issue from their perspective as counsel disappeared when they put themselves in the shoes of their clients. The number of firms who thought that their clients would react very negatively climbed sharply. In all, some 78% of respondents believed that their clients would have either a very negative or a fairly negative reaction to finding out that one of the arbitrators come from the same chambers as the opposing advocate. (Graph 6) Berwin Leighton Paisner 07

8 No doubt this discrepancy is easily explained by the greater familiarity on the part of lawyers with the historic structure of the legal profession in England (and other jurisdictions where a similar division is practised) as well as the greater understanding which practitioners have of the integrity and ethical obligations upon all lawyers. The problem of client perception, however, is very real. Little geographic variation We were interested in assessing whether there was any pattern in the geographic origin of those clients who were likely to react negatively toward a situation in which an arbitral tribunal included an arbitrator practising in the same set of chambers as counsel appointed by the opposing party. Perhaps, unsurprisingly, Australasia, with its familiarity with the split profession, was the region in which it was felt that clients would be least concerned. A significant number of respondents felt that the issue would be something which would trouble clients no matter which geographical region they came from. North America, in which the concept of conflict of interest is highly developed, was the region in which respondents felt the matter would be of most concern. (Graph 7) Berwin Leighton Paisner 08

9 Comfort in information barriers We wished to test the extent to which colleagues felt that certain specific circumstances would make their clients more or less comfortable when faced with the prospect of counsel and arbitrator from the same set of chambers. One of the concerns is whether there are adequate information barriers and safeguards in place to ensure that opposing counsel is not able to access documentation made available to the arbitrator. One fifth of those responding felt that it would make no difference to their clients views. However, 30% believed it would make the situation slightly more acceptable to their clients whilst a full 50% thought that it would make matters much more acceptable. (Graph 8) Berwin Leighton Paisner 09

10 in financial independence Under the traditional English model, of course, every barrister is a sole practitioner, and, whilst chambers expenses are shared, profits are not. We asked whether it would make the situation more acceptable if neither barrister had any financial stake in the work undertaken by the other. A similar number of respondents felt that it would make no difference, whilst 80% continued to take the view that t would make the situation more acceptable. (Graph 9) and in a lack of personal relationships It was clearly felt that it would be preferable if the two barristers were not well known to each other. The number of respondents who felt that this would make no difference declined whilst those who felt that it would make the situation much more acceptable or slightly more acceptable rose. Barristers chambers have, over the past decade or so, grown significantly in size and inevitably the degree of social contact will have lessened. Nevertheless, the Bar Berwin Leighton Paisner 10

11 in England and elsewhere is still a close community and the extent to which a barrister sitting as arbitrator and a barrister acting as counsel know each other will be very hard to assess. (Graph 10) Concern about role reversal We then asked what our colleagues thought would be the reaction of their clients when the barrister acting as party advocate in the abitration sits in a judicial capacity in some other court or tribunal and the barrister acting as arbitrator often appears as counsel before him or her. This caused far more concern. Although a very small number of respondents felt that it would make the situation more acceptable (perhaps on the grounds that there would be some sort of equality of seniority), 60% felt that it would render the situation less acceptable to their clients. 30% felt that it would make no difference either way. (Graph 11).about previous work together Berwin Leighton Paisner 11

12 Where barristers came from the same set of Chambers it is very possible that they may have worked together in the past, perhaps as leading and junior advocates on a case. This is not a unique situation of course and many solicitors in England will have worked alongside barristers who subsequently appear as arbitrators in cases for which they are responsible. However, 80% of law firms responding felt that where the barrister appointed as arbitrator and the barrister acting as advocate had previously worked together on the same side in a piece of litigation or arbitration, it would make the situation less acceptable to their clients. (Graph 12) and a problem with marketing chamber as a single entity One of the questions which interested us was whether the fact that a set of barristers chambers marketed itself as a single entity would be perceived negatively even though, as noted above, its members would not share profits. This sort of marketing is increasingly common and, whilst perfectly understandable, may lead to the perception that chambers are more of a complete economic unit than might actually be the case. 70% of firms responding indicated that their clients would find it slightly less acceptable or far less acceptable. The consequence of such marketing is no doubt to cause clients to equate those chambers who present themselves in such a manner with conventional law firms, with the attendant restrictions and problems that conflicts normally present. (Graph 13) Berwin Leighton Paisner 12

13 Desirability of disclosure As noted above, one of the issues in the Republic of Slovenia case, was the late stage at which both the tribunal and the opposing party became aware of Slovenia s intention to instruct counsel from the same set of chambers as the chairman of the tribunal. In other cases, it may be that the information is known at a much earlier stage. If a barrister nominated as arbitrator becomes aware that one of the parties in the arbitration was represented by a barrister from his or her own set of chambers, should the person nominated as arbitrator disclose this fact prior to taking up the appointment? Whilst a very few felt it was not necessary to disclose, the overwhelming majority of respondents were in favour of disclosure with 84% considering the disclosure should definitely be made. (Graph 14) Such an approach would, of course, allow any concerns to be raised or a challenge to be made at the outset of proceedings before significant costs have been incurred on either side. The corollary to this question was whether a party to an arbitration should be required to disclose that they have instructed, or intend to instruct, as advocate, a barrister from the same chambers as a nominated or appointed arbitrator. Again, had such an approach been adopted in the Republic of Slovenia case, the concerns could have been dealt with at a much earlier stage and without the risk that, if the tribunal felt that it were inappropriate for counsel from the same set of chambers to continue to appear, the affected party would struggle to make alternative arrangements. The views expressed in response to this question were still overwhelmingly in favour of disclosure although the number of people who felt that disclosure should definitely be made was significantly reduced from those who felt that disclosure should definitely be made by a potential arbitrator. (Graph 15) Berwin Leighton Paisner 13

14 Ambivalence as to the consequences of non-disclosure Despite the strength of these views, opinion was more broadly divided on the question of whether a party failing to disclose that they have instructed or intend to instruct an advocate from the same chambers as the nominated arbitrator should lose the right to be represented by that barrister in proceedings before the tribunal in the event of an objection being raised by the other party - as happened in the Republic of Slovenia case. A majority (56.5%) felt that the non-disclosing party should either definitely or probably lose the right to be represented by that barrister in the proceedings. However a very significant minority (40.6%) felt that the right should not be lost. (Graph 16) Berwin Leighton Paisner 14

15 Strong likelihood of a challenge Finally, we were interested in understanding the extent to which a challenge could be made to an arbitrator on the grounds of independence or impartiality in the jurisdictions from which our responding firms were drawn. We also wanted to understand whether, under the domestic law of those jurisdictions, a challenge based on the fact that the nominee arbitrator practised in the same set of chambers as the advocate for one party would be likely to succeed. Unsurprisingly, almost all of the firms responding confirmed that their countries domestic arbitration law would permit the appointment of an arbitrator to be challenged if he or she were considered to be lacking in independence or impartiality. (Graph 17) On the question of whether a challenge, in the circumstances mentioned, would be likely to succeed as a matter of domestic arbitration law, almost 11% of those responding advised that such a challenge would be certain to succeed. A further 53.8% consider that such a challenge would be very likely or fairly likely to succeed. A little over 30% felt that a challenge was unlikely to succeed, although most of this group considered that a challenge was fairly unlikely to succeed rather than being very unlikely or certain not to succeed, suggesting that there is a degree of uncertainty around the issue. (Graph 18) Berwin Leighton Paisner 15

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