Conflict Of Interest – Apparent Bias Of Arbitrator – IBA Guidelines

In the case of W Limited v M SDN BHD [2016] EWHC 422, Mr Justice Knowles of the Commercial Court considered an application to have two awards set aside on the grounds of apparent bias. His Judgment, which was handed down on 2 March 2016, is important for international arbitration as it considers not only the common law test for apparent bias but also highlights a number of weaknesses in the 2014 edition of the IBA Guidelines.

The facts

Following an arbitration between M SDN BHD and W Limited, relating to a project in Iraq, W Limited applied to have two awards set aside pursuant to s.68 of the Arbitration Act 1996 on the grounds of apparent bias based on an alleged conflict of interest.

Mr David Haigh QC ("the arbitrator") was the sole arbitrator and had been appointed in May 2012. He is a partner in a medium-sized Canadian law firm although he has worked almost exclusively as an international arbitrator for a number of years with virtually no involvement in the running of the firm. For instance, he had not attended partnership meetings for the previous six or so years.

At the time of the arbitrator's appointment, a company ("Q") was a client of the firm. M SDN BHD was a subsidiary of another company ("P") and, following an announcement in June 2012, P acquired Q meaning that Q (as with M SDN BHD) became a subsidiary of P. This resulted in Q and M SDN BHD becoming affiliates and, following the acquisition, the law firm continued to provide substantial legal services to Q.

The arbitrator carried out conflict checks at the time of his appointment and made various disclosures to the parties but the conflict checks did not identify that Q was a client of the law firm.

It was not until the arbitrator handed down his final award on costs that the potential conflict was raised by W Limited in correspondence with the arbitrator. The arbitrator responded promptly stating that he had no knowledge of his firm's work for Q and had he known, he would have disclosed the potential conflict to the parties.

The parties were agreed that the common law test for apparent bias was as set out in Porter v Magill [2002] AC 357 at 102: i.e. whether "a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased".

However, W Limited argued that, given the facts of the case, the fair-minded and informed observer would conclude that there was a real possibility that the tribunal was biased...