Keep Calm And Carry On Arbitrating: The Latest On Apparent Bias In Arbitration

One never tires of considering the impartiality and independence of arbitrators. Thankfully, cases where arbitrators show flagrant or actual bias are few and far between: the brown envelope is seldom offered, and rarely accepted. However, challenges to arbitrators alleging 'apparent' lack of impartiality or bias are by no means uncommon. In short, apparent bias means that there are circumstances which would cause a reasonable observer to have doubts as to the independence of the arbitrator. This is an objective test: the arbitrator may well be able to put the matter entirely out of his or her mind, and be perfectly capable of rendering an unimpeachable, fair and impartial award. But where it looks as if that might not have been the case, 'apparent bias' still requires the arbitrator to step down, or else be disqualified or risk having the award he or she has rendered challenged successfully. A particular, recurring issue relating to apparent bias relates to 'professional relationships': this might be a relationship between the arbitrator personally and a particular client, or a relationship between the arbitrator's law firm and a relevant party. Both these situations have recently been the subject of judgments by the English Courts in challenges to arbitral awards or applications to remove an arbitrator.

The Commercial Court disagrees with the IBA Guidelines

There has been an interesting recent development. In W Ltd v M SDN BHD [2016] EWHC 422, the Commercial Court considered the International Bar Association's Guidelines on Conflicts of Interest in International Arbitration, ultimately concluding that they were (as they stand) not a reliable guide. The IBA Guidelines, though they clearly do not have the force of law, are often referred to in international arbitration proceedings. They include a 'traffic light' system of classifying certain situations as 'red, yellow and green', with some 'red' situations amounting to a non-waivable conflict. Many practitioners would expect an arbitrator who finds himself or herself in such a 'red' situation to resign. The authors of the IBA Guidelines take the view that serious 'red' conflicts of interest are not something the parties should be allowed to simply let go. This is because the arbitrator's position, and hence the award, would be fundamentally undermined or open to questions. As they put it, acceptance does not cure the default when it comes to non-waivable conflicts.

The IBA Guidelines were amended and updated in 2014. An international working group comprising eminent practitioners (a total of 27 members from 19 countries) took just under two years to produce the latest version. In the introduction, the authors note that:

"These Guidelines are not legal provisions and do not override any applicable national law or arbitral rules chosen by the parties. However, it is hoped that, as was the case for the 2004 Guidelines ... the revised Guidelines will find broad acceptance within the international arbitration community, and that they will assist parties, practitioners, arbitrators, institutions and courts in dealing with these important questions of impartiality and independence. The IBA Arbitration Committee trusts that the Guidelines will be applied with robust common sense and without unduly formalistic interpretation."

General standards and principles are, accordingly, proposed. As regards apparent bias, the IBA puts the matter in these terms:

"(b) The same principle applies if facts or circumstances exist, or have arisen since the appointment, which, from the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, would give rise to justifiable doubts as to the arbitrator's impartiality or independence, unless the parties have accepted the arbitrator in accordance with the requirements set out in General Standard 4.

(c) Doubts are justifiable if a reasonable third person, having knowledge of the relevant facts and circumstances, would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision.

(d) Justifiable doubts necessarily exist as to the arbitrator's impartiality or independence in any of the situations described in the Non-Waivable Red List."

It can be seen that as far as the IBA is concerned, a 'red' conflict always amounts to the 'appearance of bias'. The particular conflict that the Commercial Court had to consider appears in paragraph 1.4 of the Non-Waivable Red List:

"1.4 The arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom."

Before turning to the facts, it is worth noting that paragraph 1.4 is widely expressed. Pursuant to it, apparent bias exists where the arbitrator's firm (not the arbitrator) advises an affiliate of a party to the arbitration (but not the party itself), and this generates 'significant' income.

The arbitrator's law firm carries out significant work for an affiliate of party

In W v M , the arbitrator was a senior Canadian QC, who gave evidence that he had spent the last six years or so almost exclusively sitting as an arbitrator. He was, however, still a partner in a Calgary law firm. The arbitrator explained to the Commercial Court that he was semi-retired from the firm and really only a partner in name. He took no part in partnership business. He described himself as a sole practitioner who used the secretarial and administrative support services of the firm. He had also been given his very own department for the purposes of remuneration: he was the sole member of the firm's international dispute resolution group.

The situation that was said to amount to a conflict of interest came about as a result of an arbitration that was commenced in April 2012. The dispute related to a construction project in Iraq. The respondent in the arbitration was a subsidiary of company "P". On 18 May 2012, the arbitrator made a declaration of independence. In June 2012, a public announcement was made that "P" would acquire another company...