24th Annual IBA Arbitration Day, 2023 - Session 3: Disclosure

Lucas Mejias 
TozziniFreire, São Paulo

The third session of the 24th Annual IBA Arbitration Day addressed the duty of disclosure and the matter of self-regulation versus statutory regulation.
 
The moderator of the panel was José Emilio Nunes Pinto, who gently undertook the position due to a personal issue that prevented João Bosco Lee (original moderator) from attending the conference.

José Emilio started by stressing the utmost importance of the disclosure obligations especially in the present day.
 
In principle, the duty of disclosure appears to be a day-to-day matter – a topic that should not cause polemics among practitioners and should be easily handled. What happened was: after failing in several setting-aside lawsuits based on arguments of national law, parties started to bring allegations of failure to disclose to national courts.  The trend now is for the losing party to raise arbitrator challenges for the first time after it receives the arbitral award.   

According to José Emilio, in Brazil, this trend has led to different initiatives. First, a bill was submitted to the National Congress of Brazil to amend the Brazilian Arbitration Act of 1996. The bill provides that no arbitrator can simultaneously sit in more than ten ongoing cases. The bill does not give weight to the phase in which an ongoing arbitration may be (some may be ending and others at the very beginning).
 
The 'pressure forces' behind this initiative claim that the 'arbitration community' in Brazil is very small and arbitrators are part of a 'club', so the door should be open to new professionals. José Emilio submitted, however, that there was no relationship between reducing the number of cases heard by the same arbitrator and reducing the risk of conflicts.

José Emilio explained that the arbitration community played a very important role in fighting this draft bill, which was eventually abandoned. But very recently, the initiative has been revived under a different label and is 'even worse'. An action was recently filed before the Supreme Court of Brazil, which could require arbitrators to 'disclose everything'. In summary, the action claims that section 14, § 1º, of the Brazilian Arbitration Act of 1996 should be read as if any and all relationships between arbitrators and parties/counsel should be disclosed.  

The Brazilian arbitration community started to act against this new lawsuit – filing submissions addressing the negative effects of this initiative and seeking to meet in chambers with the reporting justice in charge of the case. It also hopes for the support of the international community.  

José Emilio submitted that repeated changes in the law bring legal uncertainty and move the practice of arbitration away from the ideals of the original Brazilian Arbitration Law of 1996. This may damage the reputation of Brazil as a favourable seat of arbitration, prejudicing its investment climate. Arbitration clauses are, according to José Emilio, fundamental for the financial and economic balance of agreements.

Claudia Salomon, President of the ICC International Court of Arbitration, reminded the audience that the ICC was celebrating its 100th birthday with a declaration that reflected on the past and future of dispute resolution and prevention. She pleaded for independence and neutrality of arbitration, stating that freedom from influence and political pressure was a key objective for international arbitration.

Claudia approached the matter of disclosure by asking who in the audience felt they were 100 per cent sure of what they needed to disclose at the time of making a disclosure. Almost no-one in the audience was sure. 

According to Claudia, arbitrators and practitioners are conscious that they are under a general obligation to disclose. They are, however, still uncertain as to what specifically has to be disclosed. If there is still a distinction between what arbitrators think they need to disclose and the expectations of the parties, then we have a big problem.

Claudia explained that ICC guidelines impose a continuing duty of disclosure on arbitrators throughout the life of the arbitration (and not a duty frozen in time). Arbitrators should also be treated as the face of a law firm, company, or affiliate to which they are linked. The amounts involved in the matter to be disclosed are irrelevant and there is no magic rule on repeat appointments, but this is certainly a matter to be considered.
 
She wondered if the ICC should treat the duty of disclosure differently if a state was involved in the case or depending on the nationality of the party or of the arbitrator. She also wondered if the ICC should provide more specific guidelines on the specific information that should be disclosed (eg, specific relationships).

Louis Flannery KC addressed the duty of disclosure from an English perspective. He focused his speech on an interesting story about repeat appointments to arbitrations involving similar matters and failure to disclose. According to Louis, repeat appointments by the same party/representative in matters involving similar issues and facts must certainly be disclosed.

He also criticised the provisions of the English Arbitration Act of 1996 on when the duty to disclose becomes mandatory and to what extent it should be observed.

Cecilia Carrara shared with the audience the main discussions around the duty of disclosure in Italy. She described a recent initiative to amend the Italian Arbitration Law, which was inspired by a case involving an Italian State-owned company which repeatedly uses arbitration to resolve its disputes.
 
Cecilia explained that, in one of the cases involving that State-owned company, an arbitrator failed to disclose repeat appointments by the same State-owned company in other matters for several years. The issue arose after the award was deposited but before its approval. The matter ended in the courts which initially refused the claims. Appeals were later granted and the award was set aside.
 
Cecilia also explained that many arbitration proceedings in Italy are ad hoc and they lack transparency as to the method of appointment of arbitrators when the courts are invited to make those appointments in the absence of the parties’ agreement.

The proposed amendments under the new draft bill focus on transparency, rotation between arbitrations (ie, avoiding repeat appointments) and efficiency. The proposed amendments also require the publication of arbitrator appointments.  

Finally, when addressing disclosure, the new draft bill demands written disclosure, establishing a continuing obligation throughout the entire proceedings. The disclosure must be made 'under the penalty of nullity' and a challenge due to lack of disclosure can be made at any time and by any party. The scope of the disclosure obligation is very broad.
            
Finally, Michael Martinez, Head of Litigation and Arbitration at Marriott International, provided the perspective of arbitration users on the duly of disclosure. Michael explained that Marriott is a party to many contracts because most of its hotels are franchises or managed (rather than owned) by Marriott. He added that agreements involving only American parties normally provide for litigation before the American courts, while international agreements normally provide for arbitration.  

Michael submitted that full disclosure should always be required, as a matter of assuring independence and impartiality. When assessing whether a candidate is suitable to serve as arbitrator, he always wants to know as much as possible about the candidate.
 
Michael advised against the repeat appointment of arbitrators, given the risks involved. He also considered appointments an opportunity to bring diverse arbitrators to the table. Finally, Michael claims that the goal should be always to avoid challenges, as a matter of effectiveness and cost control. Otherwise, the case tends 'to go forever'.