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Ethical traps facing arbitrators who also litigate

While arbitrators have a variety of academic and practical backgrounds, many are litigation lawyers. And some wear two hats; carrying on civil litigation and arbitration practices simultaneously. At times, arbitrators act as counsel in wholly unrelated actions for one of the parties to an arbitration while arbitrating. Given the statutory duties that apply with respect to fairness, impartiality and lack of bias, the two fundamental issues they face are compliance with those duties where there are any conflicts of interest and the effect of those conflicts on the legitimacy of arbitration.        

Part of the litigator/arbitrator’s dilemma regarding compliance is the lack of specific standards of conduct in our arbitration statutes. For example, Canada and all 10 provinces adopted a United Nations Convention dealing with arbitration known as UNCITRAL in 1986. However, its procedural code does not contain any specific conflict of interest guidelines. Ontario’s International Commercial Arbitration Act, enacted in 2017, merely provides for compulsory disclosure in circumstances likely to give rise to “justifiable doubts as to an arbitrator’s impartiality or independence.” Once again, it contains no statutory guidelines. And Canada’s provincial arbitration statutes such as the Ontario Arbitration Act similarly require arbitrators to disclose conflicts as early as possible if the circumstances “may give rise to a reasonable apprehension of bias” without providing any guidance.  

The absence of defined, enforceable standards force arbitrators to use their own judgment. In attempting to determine whether any conflicts of interest exist and whether they need to be disclosed, arbitrators are free to consult guidelines published by various arbitral organizations such as Canada’s ADR Institute or the London, England-based International Bar Association Guidelines on Conflicts of Interest  in International Arbitration.

Not surprisingly, the devil lies in the details, and these guidelines vary in depth from the very generic to the very specific. Fortunately, the IBA guidelines provide a helpful but non-exhaustive list of conflicts ranging from blatant red-list conflicts, which may not be waived under any circumstances such as acting for a party to an arbitration in which the arbitrator has a significant financial or personal interest. The more troublesome category for arbitrators who litigate consists of waivable, red-list conflicts, which must be disclosed but can be waived. For example, an arbitrator may act as such even if he represents one of the parties or if his law firm has a significant commercial relationship with one of the parties. Any arbitrator who casts a narrow research net may not realize that they could be conflicted and be caught up in a court challenge virtually at any time from their appointment to the date that the arbitration is completed.

To complicate matters, Canadian conflict of interest jurisprudence tends to focus on conflict strictly from a litigator’s perspective. For example, in 2013, the Supreme Court of Canada in Canadian National Railway Co. v. McKercher LLP, dealt with an alleged conflict of interest between McKercher, the defendant’s law firm and the plaintiff, the  Canadian National Railway Company, arising out of the decision of the law firm to cease representing the latter so as to be able to act for various plaintiffs in a class action brought against CN. The court held that a bright line existed in such a case, which applied only where the immediate legal interests of the former client were directly adverse regarding the matters on which the lawyer was now acting. In addition, the only protected interests were the client’s legal interests, not its commercial or strategic interests.                      

However fair this decision may be on its facts, it may have the unintended effect of complicating arbitrators’ decisions on the scope of disclosure of possible conflicts of interest when they also act as lawyers for a party in a completely unrelated action. The fundamental problem for a litigator/arbitrator is this: Even if the subject matter of a particular lawsuit with respect to which the arbitrator acts as counsel has absolutely no connection with the subject matter of an arbitration in which that party is a disputant, pure subject matter is not the only issue with which an arbitrator must contend. During the course of a lawsuit, the litigator/arbitrator will unavoidably develop a working relationship with his client that produces a positive or negative leaning. The relationship may develop into a friendship. On the other hand, if the client is difficult to manage, the relationship may be strained, made bearable only by a healthy retainer.      

Leaving any positive or negative feelings aside — much less the size of his retainer — even if the arbitrator were to disclose this as a waivable red-list conflict and obtain a waiver from the disputants in the arbitration, would they really be able to decide the arbitration fairly, neutrally and impartially? If issues of credibility were to arise during arbitration, might the arbitrator subconsciously resolve them based on their own personal feelings giving his client the benefit of the doubt?      

For those arbitrators who also litigate, the combination of waivable red-list conflicts like these together with the narrow definition of direct conflict of interest set out in Canadian National Railway Co. v. McKercher LLP could make it difficult for them to successfully wear both of these hats at the same time. And if that were to happen, might arbitrators who also litigate for one of the parties unintentionally compromise arbitration as a legitimate means of alternative dispute resolution?