Swiss Supreme Court Redefines Parties’ Duty to Investigate Arbitrators’ Impartiality and Independence

Swiss Supreme Court Redefines Parties’ Duty to Investigate Arbitrators’ Impartiality and Independence

I.   Background of the Critical Decision for Arbitrator Impartiality and Independence

The Swiss Federal Supreme Court’s recent decision underscores a pivotal issue in international arbitration: the parties’ duty to investigate the impartiality and independence of arbitrators. The case centered on a challenge to an arbitral award on the grounds that one arbitrator had previously represented the opposing party in unrelated proceedings in England.

The challenge was brought under Article 190a(1)(c) of the Swiss Private International Law Act (“PILA”), which allows the setting aside of an arbitral award where a party can demonstrate a breach of an arbitrator’s impartiality and independence .

II.   The Dispute and Key Allegations

• The Parties: B Limited (claimant) and D GmbH (respondent).
• The Underlying Dispute: The arbitration arose from two agreements entered into on 20 August 2010, under which D GmbH assumed payment obligations to a third-party company. Payments were suspended on 22 February 2013, prompting B Limited to initiate arbitration proceedings under the Swiss Rules of International Arbitration.
• The Challenge: D GmbH challenged the award on the basis that Simon Rainey, the arbitrator it had appointed, had previously represented B Limited before the High Court in England. D GmbH argued that this relationship undermined the arbitrator’s impartiality/independence and should result in the award to be set aside.

III. The Swiss Federal Supreme Court’s Findings

The Federal Supreme Court rejected the challenge, delivering key clarifications on the extent of a party’s duty to investigate an arbitrator’s impartiality and independence.

1. Duty to Conduct Reasonable Investigations: The Court emphasized that parties are under a duty to conduct reasonable investigations into arbitrators’ backgrounds. This includes basic due diligence, such as publicly available information or internet searches. The Court highlighted that this duty is integral to ensuring transparency and avoiding belated objections.
2. Timeliness of Objections: Parties must raise any concerns regarding an arbitrator’s impartiality immediately upon discovering potential conflicts of interest. Failure to do so constitutes a waiver of the right to challenge the arbitrator or the award.
3. Good Faith and Procedural Fairness: The Court underscored that D GmbH’s failure to object earlier—despite having access to relevant information—was incompatible with the principle of good faith. Since the objection was raised only after an unfavorable award, it was deemed procedurally inappropriate.

IV.   Practical Implications and IBA Guidelines

The Court made reference to the IBA Guidelines on Conflicts of Interest in International Arbitration, reaffirming their role as a valuable tool for identifying and addressing conflicts of interest. This decision highlights the following practical takeaways for arbitration participants:

• Proactive Investigations: Parties must diligently investigate arbitrators’ backgrounds at the outset of proceedings.
• Immediate Action Required: Any concerns over an arbitrator’s independence or impartiality must be raised promptly to preserve the right to challenge.
• Strategic Risks of Delay: Raising objections belatedly, particularly after an adverse outcome, risks dismissal on grounds of waiver or bad faith.

V.   Conclusion

The Swiss Federal Supreme Court’s decision serves as a stark reminder of the parties’ duty to investigate arbitrators’ impartiality/independence and to act without delay when concerns arise. This ruling not only reinforces the importance of due diligence in international arbitration but also solidifies the principle that procedural fairness cannot be compromised for tactical advantage.

Parties involved in arbitration proceedings should take heed of this decision to mitigate risks of procedural objections and safeguard their rights.

This article has been coauthored by Ergin Mizrahi, LL.M. (Senior Partner, Head of Disputes) and Alara Ünal Orak (Senior Associate).