Arbitrators’ duty to disclose: the Portuguese case in light of the new trends and guidelines in international arbitration
Duty of disclosure in international arbitration
Arbitrators' duty to disclose is a well-known, essential and widespread mechanism in international arbitration. It seeks to ensure the principles of impartiality and independence of arbitrators, which, in turn, are fundamental pillars of any proceeding with due process.
Even prior to the appointment of arbitrators (and including in situations in which disclosure would not necessarily prevent acceptance of the appointment) until conclusion of the proceedings, it is the arbitrator's duty to disclose all circumstances that could be considered to constitute a conflict of interest. The conflict could relate to any party (or any related legal or natural person), another arbitrator, the parties' legal counsel or even experts. The relevance of the conflict of interest as a potential obstacle to accepting the appointment (or forcing a resignation in connection with an appointment already taken) will obviously depend on the type of relationship involved and, in some cases, is left to the parties' discretion; there are cases in which the party may decide to proceed with the appointment despite the potential conflict of interest.
The importance of the duty to disclose required of any arbitrator is also broadly included in an array of instruments that are relevant in international arbitration: the IBA Guidelines on Conflicts of Interest in International Arbitration ('IBA Guidelines', addressed in the following section), [1] the UNCITRAL Code of Conduct for Arbitrators, [2] and in both domestic law [3] and the rules of the most important arbitral institutions. [4]
This article focuses on the specifics of the Portuguese case and, bearing in mind the existing instruments in international arbitration (paying special attention to the IBA Guidelines), assesses the impact of these instruments on the evolution of how the duty of disclosure of arbitrators has been interpreted and applied domestically.
In particular, the IBA Guidelines on Conflicts of Interest in International Arbitration
The IBA Guidelines include a set of general standards on impartiality, independence and disclosure duties applicable to all potential and current arbitrators. [5] The use of the IBA Guidelines has 'gained broad acceptance and [they] are used often by the international arbitration community' [6] and are relied upon (i) '[b]y counsel, when appointing or challenging an arbitrator, or when challenging an award', (ii) '[b]y arbitrators, when deciding whether to accept an appointment or make a disclosure', and (iii) '[b]y Decision-makers (arbitral institutions, tribunals or courts) when deciding a challenge to an arbitrator'. [7] In fact, the IBA Guidelines 'have become a go-to guide for arbitrators, counsel, and arbitral institutions in identifying conflicts of interest and assessing the need for disclosure'. [8]
The initial version of the IBA Guidelines was prepared and adopted in 2004, subsequently revised in 2014, and subject to a further – and very recent – revision ultimately adopted on 25 May 2024.
One relevant aspect that was amended in the most recent revision concerns the relationship between the duty of disclosure and the parties' obligation – both before and throughout the arbitration proceedings – to also conduct a reasonable enquiry into potential conflicts of interest. [9] The duty to investigate represents the flip side of the coin of the duty to disclose and seeks to deal with the issue of a party finding out, at some point in the arbitration, that the arbitrator had a potential conflict of interest, but not revealing that circumstance until later in order to then decide, at the time of the award, whether to file for annulment. [10] It is reasonable to expect that the interpretation of 'reasonable enquiry' will raise many questions that will need to be addressed in the future; however, it seems clear that, for now, all facts that are public or accessible through a public or online research on someone's profile background would be included, but without imposing a duty to conduct thorough and continuous research via the internet, social media, or other sources.
The Portuguese case: relevant rules and recent case law
The Portuguese judicial system is generally highly favorable to arbitration. The arbitrator's duty of disclosure is naturally included in the Portuguese Law on Voluntary Arbitration, [11] which is, as one would expect, the first legal source that courts look to when assessing these matters and – as already mentioned – it closely follows the UNCITRAL model law.
Apart from the Portuguese Law on Voluntary Arbitration, Portuguese courts also rely on, and take into account, several soft-law instruments when deciding on such matters, particularly: (i) the IBA Guidelines on Conflicts of Interest; (ii) the Arbitration Rules of the Portuguese Chamber of Commerce, [12] which govern many domestic arbitration cases seated in Portugal (and also international arbitration cases seated in Portugal and subject to Portuguese jurisdiction); (iii) and, since 2020, the Code of Ethics of the Portuguese Arbitration Association, [13] which implements several best practices for arbitrators, counsel, and anyone else intervening in the arbitral proceedings.
The IBA Guidelines, in particular, play an important role, both in local arbitration practice and in courts. The IBA 2016 Report notes that 'the Guidelines appear to have acquired widespread acceptance' and 'Portugal's most active arbitration centre (the Centro de Arbitragem Comercial da Câmara de Comércio e Indústria Portuguesa) makes a formal reference to the Guidelines in its criteria for the appointment of arbitrators'. [14]
Arbitrators' duty of disclosure was an important topic among Portugal's arbitral community a few years ago, stemming from a law enacted in 2011 that imposed mandatory arbitration in connection with any disputes arising from IP rights [15] related to reference medicine products and generic medicine products. The practical result of the 2011 law was that any pharmaceutical company that owned a patent was required to initiate arbitration proceedings to resolve any potential dispute against the generic medicine company that was entering the market with its generic medicine, (e.g. the patent had not yet expired). This led to a significant increase in arbitration proceedings in Portugal, which, at that time, had a relatively small arbitration community – with even fewer potential arbitrators –, or at least in contrast to the large surge in arbitrations to which the law led. Therefore, for a little more than half a decade, many of the limited number of arbitrators were repeatedly appointed to resolve these disputes, leading in some cases to questions about their independence and impartiality.
One of the most well-known cases [16] at the time was related to a case in which the generic company (the respondent in that case) did not appoint its arbitrator, with the Lisbon Court of Appeals having in turn appointed the arbitrator, but the generic medicine company rejected his appointment based on reasonable doubts about his impartiality. The Lisbon Court of Appeal found the arbitral tribunal had jurisdiction to resolve the dispute. The claimant-appointed arbitrator and the court-appointed arbitrator appointed a third arbitrator to preside over the arbitral tribunal and the arbitral tribunal rejected the challenge of the arbitrator.
The generic medicine company then asked the arbitrators several questions related to their involvement in similar arbitrations (e.g. number of appointments, the identities of the claimants). The president of the arbitral tribunal did not respond to the questions asked, and recused himself from the arbitration. The court-appointed arbitrator disclosed that he had previously been appointed to around a dozen arbitrations related to these IP matters. However, it was already known at the time that he had been appointed in approximately 50 arbitrations related to matters in connection with Law No 62/2011 by the same law firm. The arbitrator appointed by the reference medicine company (the claimant) failed to respond. Although it became known that he previously worked in the pharmaceutical industry, which he had failed to disclose. Given the information that became known about the court-appointed arbitrator and the arbitrator appointed by the claimant, the generic medicine company rejected both arbitrators and the dispute was referred to the Lisbon Court of Appeal.
The Lisbon Court of Appeal concluded [17] that the arbitrators should have disclosed the information requested by the respondent. Moreover, it stated that the fact that the individual had been appointed around 50 times by the same law firm such similar arbitrations was a strong indication that: (i) a relationship of loyalty had been created between the arbitrator and the party/law firm; (ii) the arbitrator was a professional in such arbitrations; and that (iii) those appointments represented a significant portion of his income. The court emphasized that the arbitrators should have revealed the facts listed in the orange list of the IBA Guidelines, namely the number of appointments by the same party or law firm that represents a specific party. Thus, it confirmed that failure to disclose such information raises well-founded doubts about an arbitrator's independence and impartiality.
In a more recent case handed down on 9 February 2023, [18] the Lisbon Court of Appeal ordered the annulment of an award for failure to comply with the duty of disclosure. The case concerned an arbitrator's failure to disclose that the law firm in which he was a partner had a key client that formed part of the same group of companies as one of the parties to the arbitration. The law firm had also advised the key client on a highly significant M&A transaction during the course of the arbitration proceedings, which had even been disclosed in the Legal 500. The Lisbon Court of Appeal concluded that this circumstance was more serious than other circumstances that had been disclosed by all the arbitrators (including the arbitrator in question) during the course of the arbitration and thus declared the award null pursuant to article 46(3)(a)(iv) of the Portuguese Law on Voluntary Arbitration. [19] In other words, the breach of the arbitrator's duty to disclose, coupled with the severity of the undisclosed circumstances, served as the basis of the award's annulment. [20]
Arbitrator's duty to disclose in international arbitrations seated in Portugal: what lies ahead
As a pro-arbitration country and, naturally, interested in attracting international arbitration, Portugal will most likely continue to follow the approach it has already been taking, with courts continuing to pay attention to the most relevant cases on arbitrators' duty of disclosure (and the independence and impartiality of arbitrators) and giving importance to the most internationally recognized soft law on the matter (such as the IBA Guidelines), apart from resorting to domestic rules.
The Portuguese arbitral community is fully aware that, only with truly independent and impartial arbitrators, is it possible to conduct serious arbitration proceedings that comply with the basic principles of due process – a key element for attracting international arbitrations. How quickly courts of appeal decide these matters is also a relevant factor, with Portuguese courts tending to issue decisions on these matters without delay.
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[1] The IBA Guidelines are available at < https://www.ibanet.org/document?id=Guidelines-on-Conflicts-of-Interest-in-International-Arbitration-2024> accessed 18 December 2024.
[2] The UNCITRAL Code of Conduct for Arbitrators in International Investment Dispute Resolution establishes various rules on independence and impartiality (Art 3) and integrity and competence (Art 5) applicable to candidates to a position as arbitrator, arbitrators, or even former arbitrators. The Code of Conduct also establishes disclosure obligations (Art 11), under which '[a] Candidate and an Arbitrator shall disclose any circumstances likely to give rise to justifiable doubts as to his or her independence or impartiality'. The Code of Conduct is available at < https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/uncitral_code_of_conduct_for_arbitrators_advance_copy_publ.pdf > accessed 19 December 2024.
[3] The UNCITRAL Model Law on International Commercial Arbitration (1985, and amended in 2006), provides that '[w]hen a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him' (Art 12(1)). The Model Law is available at < https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf> accessed 19 December 2024. Thus, all jurisdictions in which domestic arbitration law is inspired by, and relies on, the Model Law have similar provisions, as in the case in Portugal (see Art 13 of the Portuguese Law on Voluntary Arbitration – Law No 63/2011 of 14 December).
[4] See e.g. the ICC Arbitration Rules (2021), which establish that '[t]he prospective arbitrator shall disclose in writing to the Secretariat any facts or circumstances which might be of such a nature as to call into question the arbitrator's independence in the eyes of the parties, as well as any circumstances that could give rise to reasonable doubts as to the arbitrator's impartiality' and '[a]n arbitrator shall immediately disclose in writing to the Secretariat and to the parties any facts or circumstances of a similar nature to those referred to in Article 11(2)' (Art 11(2) and 11(3)). The ICC Arbitration Rules are available at < https://iccwbo.org/wp-content/uploads/sites/3/2020/12/icc-2021-arbitration-rules-2014-mediation-rules-english-version.pdf> accessed 20 December 2020. See also the LCIA Arbitration Rules (2020), which state that '[e]ach arbitrator shall assume a continuing duty, until the arbitration is finally concluded, forthwith to disclose in writing any circumstances becoming known to that arbitrator after the date of his or her written declaration (under Article 5.4) which are likely to give rise in the mind of any party to any justifiable doubts as to his or her impartiality or independence' (Art 5.5). The LCIA Arbitration Rules are available at < https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx> accessed 20 December 2020.
[5] As mentioned in the explanation to General Standard 1, the obligation of impartiality and independence 'does not extend to the time period during which the award may be challenged before any relevant courts or bodies. Thus, the arbitrator's obligation in this regard ends when the Arbitral Tribunal has rendered the final award'.
[6] The IBA Arbitration Guidelines and Rules Subcommittee, 'Report on the Reception of the IBA Arbitration Soft Law Products' (16 September 2016) p 29, para 101 ('IBA Report'). The IBA Report is available at < https://dernegocios.uexternado.edu.co/wp-content/uploads/sites/2/2016/09/IBAsoftlawArbproducts-ArbGuidelinesandRulesSubcommittee-2.pdf> accessed 19 December 2024.
[7] The IBA Report, p 31, para 111.
[8] Chiara Capalti and Giorgia Bizzarri, 'The Revised IBA Guidelines on Conflicts of Interest: A Call to Action for Parties and Counsel?', in Kluwer Arbitration Blog (7 May 2024) < https://arbitrationblog.kluwerarbitration.com/2024/05/07/the-revised-iba-guidelines-on-conflicts-of-interest-a-call-to-action-for-parties-and-counsel/ > accessed 20 December 2024.
[9] See General Standard 4 of the IBA Guidelines, in particular the newly included paragraph stating: '[a] party shall be deemed to have learned of any facts or circumstances under 4(a)(ii) that a reasonable enquiry would have yielded if conducted at the outset or during the proceedings'.
[10] The IBA Guidelines also clarify that '[a] later challenge based on the fact that an arbitrator did not disclose such facts or circumstances should not result automatically in non-appointment, later disqualification, or a successful challenge to any award. As provided in General Standard 3(g), nondisclosure cannot by itself make an arbitrator partial or lacking independence: only the facts or circumstances that the arbitrator failed to disclose can do so'.
[11] Law No 63/2011 of 14 December, available at < https://diariodarepublica.pt/dr/detalhe/lei/63-2011-145578 > accessed 20 January 2025.
[12] The Arbitration Rules of the Portuguese Chamber of Commerce are available at < https://www.centrodearbitragem.pt/xms/files/Regulamento_de_Arbitragem_2021.pdf> accessed 10 January 2025.
[13] Code of Ethics available at < https://www.arbitragem.pt/xms/files/PROJETOS_APA/ebook_codigos-apa_21jan2021.pdf > accessed 10 January 2025.
[14] The IBA Report, p 36, para 120.
[15] Law No 62/2011 of 12 December establishing a framework for the resolution of disputes arising from industrial property rights involving reference and generic medicines (Law No 62/2011).
[16] The award from the Lisbon Court of Appeal was handed down on 11 February 2020 in proceedings 1577/18.0YRLSB-1 and is available at < https://www.dgsi.pt/jtrl.nsf/33182fc732316039802565fa00497eec/ce1938a36ea7e3188025851c0041dbcf?OpenDocument> accessed 10 January 2025.
[17] Idem.
[18] The final award was handed down in proceedings 3215/22.7YRLSB-2 and is available here, accessed 20 December 2024.
[19] The article establishes that 'an arbitral award can only by annulled by the state court with jurisdiction if [...] the composition of the arbitral tribunal or the arbitral proceedings violated the parties' agreement, unless the agreement itself was contrary to a non-derogable provision of this law or, in the absence of an agreement by the parties, that they were not in accordance with this law and, in all cases, that the non-conformity had a decisive influence on the resolution of the dispute'.
[20] The Court of Appeal also concluded that it was up to the opposing party to allege and prove that the party seeking the annulment of the award had been aware – for a longer period of time – of the fact or circumstance on which the annulment of the arbitration award was based that would prevent it from invoking that fact or circumstance as grounds for annulment.
