Late Conflict Disclosure Can Sink an Arbitration Award

In arbitration, conflicts of interest matter, and so does the timing of disclosure. If an arbitrator has a relationship that could raise questions about independence, disclosing it after the arbitration is underway may not be enough to fix the problem.

Arbitration providers generally have their own rules for addressing conflicts of interest. For example, the American Arbitration Association (AAA) rules require arbitrators to disclose “any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence.” That includes “any past or present relationship with the parties or their representatives.”

Brazilian law imposes a similar disclosure obligation. But a recent decision from Brazil’s Superior Court of Justice (STJ) shows that when a disclosure is made can be just as important as what is disclosed.

The STJ upheld the annulment of an arbitration award after the arbitrator failed to fully disclose his professional ties with a lawyer representing one of the parties. The court emphasized that disclosures must be complete and timely because the parties need that information to decide whether to accept or challenge an arbitrator.

While it’s relatively rare for courts to overturn arbitration awards, it does occasionally happen. A recent review of 154 Brazilian appellate decisions challenging arbitral awards found that courts fully or partially vacated the award in about one out of every five cases.

Arbitration is supposed to provide finality, and in most cases it does. But that finality depends in part on the integrity of the process. A conflict disclosed too late can undermine both.