New Delhi: The legal dispute between Tata Power Company Limited and Kleros Capital Partners over a US$490.32 million arbitration award has opened a larger debate over how much professional information arbitrators should disclose when their relationships with parties, lawyers or third-party funders could create doubts about independence or impartiality.
The ruling raises a governance issue for international arbitration over whether an arbitrator’s disclosure duty should be confined to relationships that meet the legal threshold for apparent bias or extend to relationships that a reasonable party might consider relevant when assessing independence, according to legal counsel Tushad Cooper. He said international arbitration is a relatively close-knit professional ecosystem. The difficult question, according to him, is determining where the line lies between an ordinary professional connection and a relationship significant enough to warrant disclosure. “As litigation funding becomes increasingly institutionalised, the boundaries between party, funder, counsel and arbitrator are becoming important from a governance and transparency perspective,” he said. Such relationships may be entirely legitimate, but greater transparency could allow parties to make informed assessments of potential conflicts before they become grounds for a challenge, he said. Cooper said international arbitration institutions and courts may have to consider what level of transparency should be expected from arbitrators in a system where professional networks can span multiple proceedings and third-party financiers can have substantial economic interests in outcomes. Those relationships may be legitimate, but transparency can help parties assess potential conflicts before they become grounds for challenging an award, according to the council.
Third-party litigation funding is becoming more common in international arbitration. This has increased scrutiny of the information arbitrators may need to disclose. In these cases, external financiers can have a financial interest in the outcome of a dispute without formally being parties to the arbitration. Experienced arbitrators inevitably develop professional relationships across different cases, institutions and law firms. The Tata Power-Kleros proceedings illustrate that difficulty. Professional networks in international arbitration can extend across multiple proceedings, law firms and institutions, while third-party financiers can have economic interests in several disputes at the same time. A funder’s economic interest can extend across several cases, while arbitrators and counsel may participate in matters involving the same funding institution, law firms or professional networks.
