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No unconscious bias where arbitrator instructed by party's solicitors in unrelated litigation (Commercial Court)
Practical Law UK Legal Update Case Report 4-508-2338 (Approx. 6 pages)
No unconscious bias where arbitrator instructed by party's solicitors in unrelated litigation (Commercial Court)
by PLC Arbitration
| Published on 21 Sep 2011 • England, Wales |
In A and others v B and another [2011] EWHC 2345 (Comm), the Commercial Court considered an application to remove an arbitrator on the ground that there were justifiable doubts as to his impartiality, under section 24 of the Arbitration Act 1996, and to set aside an arbitration award on the ground of serious irregularity, under section 68.
Speedread
The Commercial Court has dismissed an application to remove an arbitrator and set aside an award where the arbitrator was instructed by the solicitors to one of the parties in unrelated litigation. The "fair-minded and informed observer" would not conclude that there was a real possibility of apparent or unconscious bias on the part of the arbitrator in this case. There was, therefore, no serious irregularity to justify setting aside the award.
After being appointed as arbitrator in a dispute between A and B, X was instructed by B's solicitors to act for another client in unrelated litigation. X did not disclose this until a year later, when he was writing his award in the arbitration. His award was in favour of B and A applied to the court to remove X as arbitrator, under section 24 of the Arbitration Act 1996, and to set aside the award for serious irregularity, under section 68.
In dismissing the applications, Flaux J concluded that the mere fact that the arbitrator acted as counsel for one of the firms acting in the arbitration (whether in the past or in parallel with the arbitration), did not mean that there was a real possibility of apparent bias. The court had to consider the facts as they appeared at the hearing, not at the time of the disclosure or non-disclosure. Applying that test, there was no real possibility of apparent or unconscious bias, on the material before the court.
The decision is a reminder that the court must judge whether there was a real possibility of apparent bias at the time the application is heard, and on the basis of the material available to the court. Therefore, hypothetical examples of what may happen in the light of a particular relationship will not meet the test unless there is evidence that they actually occurred. (A and others v B and another [2011] EWHC 2345 (Comm).)
Background
A party may apply to the English court to remove an arbitrator on the ground (among others) that circumstances exist that give rise to justifiable doubts as to his impartiality (section 24(1)(a), Arbitration Act 1996 (AA 1996)). The relevant test for an application under section 24(1)(a) is whether the fair-minded and informed observer, having considered the facts, would consider that there was a real possibility that the tribunal was biased. This is an objective test, which was approved by the House of Lords in Porter v Magill [2002] 2 AC 537, modifying the common law test in R v Gough [1993] UKHL 1. It was confirmed by the Court of Appeal in Locabail (UK) Ltd v Bayfield Properties Ltd and another [1999] EWCA Civ 3004, and AT&T Corporation and another v Saudi Cable Company [2000] EWCA Civ 154 confirms that the test applies to arbitrators as well as judges.
In this context, the "fair-minded and informed observer" has the following qualities:
- They always reserve judgement on every point until they have seen and fully understood both sides of the argument.
- Before taking a balanced approach to any information they are given, they will inform themselves on all matters that are relevant.
In addition, the fair-minded and informed observer is not to be regarded as a lawyer, but is expected to be aware of the way in which the legal profession in this country operates in practice (Taylor and another v Lawrence and another [2002] EWCA Civ 90).
A party may also be able to challenge an award, on the ground that the tribunal did not comply with its duty under section 33 of the AA 1996 and this has caused or will cause substantial injustice to the applicant (section 68, AA 1996). Section 33(1)(a) imposes a duty on the tribunal to act fairly and impartially as between the parties. The test for setting aside an award on the ground of lack of impartiality is the same under section 68 as under section 24.
For detailed discussion, see Practice notes, Challenges to arbitrators and Challenging the award under section 68 of the English Arbitration Act 1996: serious irregularity.
Facts
The claimants (A) and the first defendant (B) entered into a share sale and purchase agreement. A dispute arose and in March 2009, B commenced arbitration under the rules of the London Court of International Arbitration (LCIA). The then solicitors to A, SJ Berwin, and B's solicitors, Dewey & LeBoeuf, agreed to appoint a QC (X) as the sole arbitrator. X signed a statement of independence, as required by the LCIA Arbitration Rules, confirming that he was impartial and independent of the parties.
X had previously received instructions as counsel from both SJ Berwin and Dewey & LeBoeuf. In particular, in 2004, he had been instructed by Dewey & LeBoeuf to act for clients in Commercial Court litigation (Y litigation) that was unrelated to the parties or the dispute in this arbitration (and the partner conducting the Y litigation was different to that acting for B in the arbitration). The Y litigation settled in early 2008 and was stayed under a Tomlin order.
The arbitration was conducted throughout 2009 and 2010, culminating in a hearing in September 2010. White & Case replaced SJ Berwin acting for A in August 2010. X reserved his award and, at the end of November, told the LCIA that he expected to complete the award by the middle to the end of December.
In late 2009, the Y litigation was resurrected when the settlement failed and it was listed for trial at the end of November 2010. X was instructed by Dewey & LeBoeuf to advise the clients, which he did.
In early December 2010, X informed the parties of his involvement in the Y litigation. He indicated that his involvement in the trial had reminded him that the firm of solicitors that was instructing him was also acting for one of the parties in the arbitration in which he was an arbitrator. He stated that this was not a matter that affected his independence or impartiality, but he preferred to inform the parties of the position.
On 20 December 2010, the LCIA sent X's award, which was in favour of B, to the parties. The following day, A applied to the LCIA Court of Arbitration to remove X as arbitrator, on the ground that circumstances existed that gave rise to justifiable doubts as to X's impartiality or independence, under Article 10(3) of the LCIA Rules. The LCIA Court rejected the challenge. A then applied to the Commercial Court to remove X as arbitrator, under section 24 of the AA 1996, and to challenge the award for serious irregularity, under section 68(2)(a).
A argued that:
- The fair-minded and informed observer would conclude that there was a real possibility of "unconscious bias" in this case.
- Even if the fair-minded and informed observer would not conclude that there was a real possibility of "unconscious bias", the failure by X to disclose his involvement in the Y litigation for over a year was, in itself, a serious irregularity within the meaning of section 68. Specifically, X had breached the obligation in Article 5(3) of the LCIA Rules to disclose any circumstances "likely" to give rise to justified doubts as to the arbitrator's impartiality or independence (as opposed to circumstances that actually gave rise to justifiable doubts within Article 10(3)).
Among other things, A relied on paragraph 2.3.2 of the IBA Guidelines on Conflicts of Interest in International Arbitration, which placed the situation where the arbitrator currently represented the lawyer or law firm acting as counsel for one of the parties in the guidelines' "waivable red list" (where the arbitrator may only accept the appointment if the parties provide fully informed, express consent).
Decision
Flaux J dismissed the applications to remove X as arbitrator and to set aside the award.
Alleged "unconscious bias"
Flaux J considered that the fair-minded and informed observer would conclude that there was no real possibility of apparent or unconscious bias on the facts of this case as they were now known on the basis of the material before the court.
Flaux J did not consider that the fair-minded and informed observer, who is presumed to know how the legal profession in the country works, would consider that there was a real possibility of apparent bias, merely because the arbitrator acted as counsel for one of the firms acting in the arbitration (whether in the past or in parallel with the arbitration).
Flaux J rejected the argument that X might have particular confidence in Dewey & LeBoeuf in matters arising in the arbitration because he was acting for them.
A's arguments that X may have had to rule on the conduct of Dewey & LeBoeuf or may have inadvertently disclosed something in connection with the arbitration to the team handling the Y litigation did not arise on the basis of the material now available.
This conclusion was not altered by the fact that X did not disclose his involvement in the Y litigation until late in the day; his failure to do so was clearly inadvertent. The fair-minded and informed observer would not consider that the delay could have any bearing on whether there was apparent or unconscious bias.
Flaux J also dismissed A's reliance on the IBA Guidelines. Paragraph 6 of the introduction to the guidelines made clear that they were not intended to override national law. If there was no apparent or unconscious bias applying the English common law test, the guidelines could not alter that conclusion. Furthermore, A's reliance on paragraph 2.3.2 in the guidelines' "waivable red list" was misconceived. On its true construction, the judge considered that paragraph 2.3.2 covered the situation where the law firm involved in the arbitration was the actual client of the arbitrator in another case in which he was acting as counsel. That was not the case here.
Non-disclosure
Flaux J held that, if the case for apparent or unconscious bias was not made out, there were no grounds for setting aside the award. He rejected A's argument based on the wording of Article 5(3) of the LCIA Rules. Article 5(3) merely obliged arbitrators to disclose matters that amounted to apparent bias, that is, where there was a "real possibility". Although arbitrators may make wider disclosure out of caution, they were not obliged to do so. Therefore, the failure to do so did not constitute a serious irregularity for the purposes of section 68 of the AA 1996.
Even if the arbitrator was obliged to make disclosure at an earlier stage, his failure to do so did not constitute a serious irregularity for these purposes, not least because the authorities on section 68 made it clear that "a high threshold must be satisfied" for an award to be set aside under section 68 (Lesotho Highlands Development Authority v Impregilo SpA and others [2005] UKHL 43). A's case of non-disclosure (which was, in fact, a case of late disclosure) of something that did not amount to apparent bias was "a very long way indeed" from satisfying the high threshold of serious irregularity under section 68.
Comment
The decision is a reminder that the court must judge whether there was a real possibility of apparent bias on the basis of the material available to the court at the time of the application, for the purposes of section 24(1)(a). Therefore, hypothetical examples of what may happen in the light of a particular relationship will not meet the test, unless there is evidence that they actually occurred.
The case also neatly demonstrates that, if an application to remove an arbitrator on grounds of partiality fails, the chances of the court finding that the same factual circumstances constitute a serious irregularity to justify setting aside an award are remote.