Dispute Resolution Group Newsletter - December 2011

We are pleased to present our fourth quarter case review of 2011 which contains summaries of selected cases which will impact on the way in which parties conduct litigation and their business dealings.

In this review we consider recently decided cases on a wide range of issues including applications for freezing injunctions, alleged negligent mis-selling by a bank, privilege and service out of the jurisdiction.

We also cover an application to remove an arbitrator who was instructed by one side's solicitors in another case and a case on whether bank employees' names could be redacted during a disclosure exercise.

Arbitration

A & Ors v B & Anor [2011] EWHC 2345 (Comm)

Application to remove an arbitrator who is instructed by one party's solicitors in another case

In 2009, the claimant's solicitors suggested a QC to act as a sole arbitrator (in a LCIA arbitration between the claimant and the defendant) and his appointment was agreed by the defendant's solicitors. Almost two years later, the arbitrator informed the claimant that he was acting for the defendant's solicitors in an entirely separate (ongoing) case (which did not involve the defendant) in the Commercial Court (having first been instructed in that matter in 2004). The claimant then applied under section 24 of the Arbitration Act 1996 for the removal of the arbitrator on the ground that there were "justifiable doubts as to his impartiality" (and to challenge a partial award for serious irregularity under section 68 of the Act). Flaux J highlighted three aspects of the common law "apparent bias" test:

The test is objective and does not depend on the characteristics (eg nationality) of the parties. It did not matter th t a foreign national might consider it odd that a member of the English Bar can be instructed in one case by firm of solicitors whilst acting as an arbitrator in another case where the same firm of solicitors acts for one of the parties When deciding whether an impartial observer would have concluded that there was a real possibility of bias, that impartial observer must be "fair-minded" and "informed" - i.e. in possession of all the facts which bear on the question Although the impartial observer is not to be regarded as a lawyer, he is expected to be aware of the way in which the legal profession in this country operates in practice Flaux J accepted that where the arbitrator has an "actual predisposition" towards a particular firm of solicitors because "he is actually considering his relationship with the firm and wishing to foster that relationship", that would amount to actual bias. A difficult "halfway house" might arise where a barrister arbitrator receives a very substantial proportion (say 60%) of his instructions as counsel from one of the firms acting in the arbitration: "It may well be, not just that that is a matter which would have to be disclosed by the arbitrator at the outset, but that (at least where there was no waiver by the parties) there might be a real possibility of apparent bias". However, that was not the case here. The Commercial Court case was only the second set of instructions which the QC had received from the defendant's solicitors.

Nor was there any ground for saying that the arbitrator had "particular confidence" in the defendant's solicitors. As an analogy: "It is a fact that judges of the Commercial Court ...build up a picture of the strengths and weaknesses of particular firms of solicitors... Accordingly they will have more confidence in some firms... than in others. No-one could sensibly suggest that a judge should have to recuse him or herself in such situations. Were that so, there would be no judges sitting". Nor was Flaux J persuaded that the IBA Guidelines should alter his conclusion that there was no unconscious bias here.

The judge also rejected the argument that the failure by the QC to disclose his involvement in the Commercial Court litigation for over a year was in itself a serious irregularity within the meaning of section 68 of the Arbitration Act which justified setting the award aside. Article 5.3 of the LCIA Rules provides that the arbitrator "must sign a declaration to the effect that there are no circumstances known to him likely to give rise to any justified doubts as to his impartiality or independence". In this case, there was no "real possibility" of apparent bias and hence the arbitrator did not need to make any disclosure. Even if disclosure should have been made, the fact that disclosure was late was not a serious irregularity within the meaning of section 68, because there was no apparent bias here. Furthermore, "at best [the claimant]...lost the opportunity to have another impartial arbitrator instead, which by no stretch of the imagination is a substantial injustice".

COMMENT: This is an interesting decision because there is often a narrow field of potential candidates when an arbitration clause requires, say, a QC with specialism in a particular field of law, to act as an arbitrator. It is therefore relatively commonplace for such QCs to have been instructed by the same set firm of solicitors (for one or more of the parties) in other litigation or arbitration matters. This decision will give such arbitrators some comfort that they can act without fear that they will be found to be partial (especially since a party who is simply unhappy with a partial or final award from the arbitrator might otherwise be tempted to argue impartiality). However, it should be noted that each case will be fact-specific and the dividing line between a QC who has an "actual predisposition" towards a certain firm of solicitors, and one who does not, may be difficult to define in practice.

Banking

Shah & Anor v HSBC Private Bank [2011] EWCA Civ 1154

Whether bank employees' names could be redacted as part of disclosure exercise

The claimants sought damages for the defendant bank's delay in executing certain transactions. It is the defendant's case that it suspected money laundering and it was therefore obliged, instead, to make a number of authorised disclosures to the Serious Organised Crime Agency ("SOCA"). The main issue in the case was therefore whether the bank could prove that, at the relevant time, it had a genuine suspicion that the claimants were involved in money laundering.

The bank disclosed its internal reports and its reports to SOCA. However, save for the identification of the employee who was in charge of their money laundering reporting office, it redacted the names of all other employees involved in the reporting process. The claimants sought an order permitting those redactions. Coulson J held that the bank's obligation to make standard disclosure required it to reveal the names of the individual employees but that on the ground of public interest immunity it could maintain the employees' anonymity. The Court of Appeal has now held as follows:

1. The judge had not quite asked the right question when he considered whether the names of the employees were relevant. Whilst it is convenient to use the word "relevant" that does not appear in the rule relating to standard disclosure. Instead, the question was: "is this material either material which adversely affects the bank's case or material which supports the claimants' case?"

2. The the claimants were not putting forward a "case" (they were instead asking the bank to prove its suspicions) the issue was whether the redacted information adversely affects the bank's case.

3. In answering that test, the Peruvian Guano test (ie that the material may lead to a train of inquiry which may adversely affect the bank's case) is inapplicable

   Pill LJ added that he thought the test is whether the party "suffers no litigious disadvantage by not seeing [the document] and will gain no litigious advantage by seeing it." (see Taylor v Anderton [1995]). Lewison LJ did not agree with that though, preferring to look at the express words of the CPR rule instead. Munby LJ agreed that it was generally dangerous to have regard to pre-CPR cases but, in this case, it was appropriate to look at Taylor v Anderton, although now, advantage and disadvantage had to be assessed not by reference to the Peruvian Guano test but by reference to the requirements of the CPR.

4. The Court of Appeal concluded that, in this case, disclosure of the individuals' names was a "fishing expedition" and, though disclosure might have been appropriate under the Peruvian Guano test, it did not meet the more stringent requirements of standard disclosure under the CPR.

   Injunctions

   Parbulk II v PT Humpuss [2011] EWHC 3143 (Comm)

   Whether court has jurisdiction to grant worldwide freezing order against foreign third party

   The claimant sought (and obtained) a worldwide freezing order against a third party (the case of TSB v Chabra [1992] provides that such an order can be made...