Conflicts of interest: guidance note overview

Conflicts of interest: guidance note overview

Conflicts of interest guidance note

31 July 2012
Graham Chase on an approach to assessing conflicts of interest

This guidance note (published in January 2012) is the first published by RICS on the sensitive subject matter of conflicts of interest.
It is primarily aimed at those involved in alternative dispute resolution (ADR) but is likely to have a much wider application, and
will be a useful reference for chartered surveyors and their clients on a worldwide basis.
Property dispute resolvers are usually required to have significant expertise in determining the issues placed before them.
Consequently, involvement with the marketplace, including property companies, pension funds, tenants, agents and other individuals
who are active, is inevitable. The question is when does an involvement become a conflict of interest and impact on the dispute
resolver’s impartiality, or give rise to the perception of bias?
The guidance note defines the often misunderstood difference between independence and impartiality, and introduces a traffic light
system to assist dispute resolvers and others involved in ADR in establishing whether a conflict of interest exists or may arise.
Relevant involvements

It is required that dispute resolvers disclose all relevant involvements prior to appointments either by a third party or directly by the
parties. They are also under a duty to report any relevant involvements that arise after an appointment.
Following an appointment, the parties are also under a duty to raise any issues that they feel give rise to a conflict of interest. On
receipt of such notification, the dispute resolver must take the following action:
1. Obtain full details of the objections in writing.
2. Notify the other party in writing and invite their comments.
Following this action, the dispute resolver may deem it necessary to undertake further inquiries, as well as establish if the alleged
conflict had been known about at an earlier date, which may result in the right to object having been waived through the passage of
time.
The guidance note also makes it clear that simply because a party raises an objection, does not mean that a conflict of interest exists.
However, if the dispute resolver decides that a conflict does exist, they must not accept the appointment, or if already appointed,
must resign in an orderly fashion so as to allow for a reappointment by the parties or the appointing body.
Importantly, the guidance note makes it clear that deliberate attempts to manipulate the appointment process or seek to undermine
the appointment of a dispute resolver without good cause at any stage of the process will not be tolerated. Blanket lists submitted to
the appointing body attempting to exclude dispute resolvers without supporting reasons will be ignored accordingly.
Traffic light system

The traffic light system in the guidance note has been taken from the International Bar Association profile but adopted appropriately
to reflect the specific circumstances of the UK property market. It includes a list of examples to assist in the assessment of what may
and may not be a conflict of interest, where there are shades of grey and what actions should be taken.
The red list is in two parts and consists of an unwaivable and waivable list. An unwaivable red list includes situations arising from
the overriding principle that no person can be a judge in his or her own cause. In theory, parties may agree to waive unwaivable
conflicts but extreme caution should be exercised by all concerned, particularly public companies, charities and government offices.
The waivable red list encompasses situations that are serious but not as severe, but should be considered waivable only if and when
the parties expressly state their willingness to have such a person act as a dispute resolver for that particular case.
The orange list sets out specific involvements which, depending on the facts of a given case in the eyes of the parties, may give rise
to justifiable doubt as to the dispute resolver’s impartiality but where this is not the only overriding fact to consider. The dispute
resolver has a duty to disclose such situations and the parties are deemed to have accepted the position after disclosure if no
objection was made. The green list contains specific involvements but where no appearance of, and no actual, conflict of interest
exists from the relevant objective point of view. A dispute resolver is not normally required to disclose such involvements.
A thin line

The borderline between these categories can be narrow and it will usually depend on the individual circumstances in each case and
have regard to any particular market sector in which they fall and the specific requirements of the dispute resolution clause.
Consequently, it is the responsibility and duty of both sides to a dispute to provide as much information as is relevant and necessary
in assessing the potential for a conflict of interest. With many investors now running in-house management and agency teams, with a
separate legal structure, that manage other properties on behalf of a third-party landlord or retailer, clarity is crucial in the assessment
of the involvement and whether or not a conflict of interest arises.
Information is crucial

Delays in the appointment service at RICS and other bodies are often caused because insufficient information is provided. In some
cases the system is being misused by applicants and respondents, through ignorance or sometimes for tactical reasons.
A dispute resolver should make reasonable inquiries to investigate any potential conflict of interest as well as any factors or
circumstances that may cause his or her impartiality to be questioned. The investigations to be undertaken may need to be detailed
but, as stated above, will often depend on the amount of information provided. It is not possible for dispute resolvers to guess the
status of a particular party, or to spend time having to make unreasonable investigations where a party submitting information could
have provided the detail that would have allowed for a quick and well-informed decision.
Case law and other authorities show that most of the alleged conflict problems arise (particularly in arbitration) because of a failure
to disclose something that may have appeared to the potential dispute resolver appointee to be trivial. Once an undisclosed
involvement is discovered, the failure to disclose may itself be regarded as further evidence of the bias arising from the involvement
about which the complaint is made.
Once a dispute resolver has been appointed, in the interests of best practice the appointee may consider it appropriate to again
disclose involvement to the parties. However, the appointee should not allow the parties to use this information in an attempt to
persuade him or her to resign over a matter that has already been considered by the appointing body. By this stage, assuming he or
she has been furnished with all the facts, the appointing body should have been satisfied that the appointee is suitable. Only the
parties by agreement, the appointee dispute resolver or the courts can decide otherwise. Nevertheless, such a procedure can be useful
as a final check to ensure that nothing has been overlooked that could be put right at an early stage, hence avoiding a more
unsatisfactory and expensive problem arising later in the timetable of the dispute resolution process.
A new approach

The guidance note identifies a new approach to assessing conflicts of interest through the traffic light system. It also emphasises that
all parties to a dispute have a duty in securing the right outcome and ensuring that claims of impartiality and bias are avoided. The
involvement of a dispute resolver in itself is not necessarily a conflict of interest but simply may provide the appointed individual
with the ability to apply their expertise to resolve the dispute which has been placed before them and which the parties themselves
ultimately require. The guidance note sets out this framework and helps steer a course through the requirements of expertise and
ability alongside the need for impartiality.