English Court Rejects ‘Warm And Friendly' Bias Claim Against Arbitrator In Costs Dispute

On January 30, 2019, Sir William Blair of the High Court of England and Wales (sitting in Commercial Court) handed down judgment in the case of Koshigi v Donna Union Foundation1. The decision was over costs for two discontinued claims alleging serious irregularities with an arbitration. The main irregularity was an allegation of bias: that an arbitrator sitting on the arbitration tribunal was biased as a result of a previous professional connection with counsel for one of the parties and that the arbitrator continued 'warm and friendly' relations with the solicitor. The High Court rejected the allegation of bias, and confirmed that not all social or professional connections between an arbitrator and counsel will result in a finding of bias.

Background

The parties to the arbitration were involved in a shareholders' dispute. One of the claimants in the arbitration, Donna Union Foundation ("DUF"), is a minority shareholder in the other claimant, Ulmart Holdings Limited ("UHL"), a Maltese company. At arbitration, DUF sought—and ultimately received—an order, pursuant to the Maltese Companies Act, for the Koshigi Limited and Svoboda Corporation (collectively, the "KS Shareholders") to buy out DUF's shares in UHL, because of the KS Shareholders' allegedly oppressive and prejudicial conduct towards DUF.

Arbitration was held at the LCIA (London Court of International Arbitration) (the "Tribunal"). The LCIA Court selected the three arbitrators, including the Tribunal Chair. The Tribunal decided that the KS Shareholders must purchase DUF's shares in UHL (the "First Award"), then at a separate hearing, decided upon a price (the "Second Award").

While these proceedings were ongoing, the KS Shareholders raised the issue of bias on the part of the Tribunal Chair. The issue arose when the KS Shareholders became aware (from an internet search) that the Tribunal Chair was also the chair of an international arbitration centre for which DUF's solicitor was a board advisor. It was then revealed that the Tribunal Chair had also worked with DUF's solicitor at an international law firm between 2005 and 2008, and that the two maintain a "warm and friendly relationship".

Counsel for the KS Shareholders raised the issue of bias towards the end of the first hearing in October, 2017. When asked, the Tribunal Chair explained these issues to the parties. Then, shortly after the First Award was issued, counsel for the KS Shareholders wrote to the Tribunal to give notice...