Two cases on the apparent bias of arbitrators caught my eye recently. Both cases concerned the apparent bias of a sole arbitrator based on an alleged conflict of interest.
In Cofely v Bingham, the claimant applied to the court to remove an arbitrator during the course of an arbitration, under section 24 of the Arbitration Act 1996, which Michelle Rousell discussed in her blog post. This case was closely followed by W Ltd v M SDN BHD in which the claimant sought to challenge two awards for serious irregularity under section 68(2) of the Arbitration Act 1996. These cases have a wider application because they give guidance as to how the English courts will treat conflicts of interest of an arbitrator, and by analogy, of an adjudicator.
In W v M the claimant relied on the IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) to support its position. Specifically, it argued that the conflict of interest fell squarely within paragraph 1.4 of the Non-Waivable Red List of the IBA Guidelines, which identifies situations where the arbitrator should always decline the appointment (Non-Waivable Red List). The situation identified by paragraph 1.4 is when:
“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.”
Cofely v Bingham was a domestic arbitration, not an international one, but nevertheless the claimant cited the IBA Guidelines.
W Ltd v M SDN BHD
The judge applied the English law test for apparent bias set out in Porter v Magill, whether:
“…a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”
He went on to consider the IBA Guidelines.
The judge agreed with the claimant that the circumstances of the case fell squarely within paragraph 1.4 of the Non-Waivable Red List. However, he thought that this type of case should be considered in light of its specific facts and should not be included in the Non-Waivable Red List. He identified two interconnected “weaknesses” in the IBA Guidelines:
- They treat compendiously (a) the arbitrator and his or her firm, and (b) a party and any affiliate of the party, in the context of providing regular advice from which significant financial income is derived.
- This treatment results in an assumption of bias rather than allowing parties or arbitrators to consider whether the particular facts could realistically have any effect on impartiality or independence (including where the facts are not known to the arbitrator).
The judge concluded that, as a matter of English law, a fair minded and informed observer would not conclude that there was any real possibility of bias. He dismissed the challenge.
Cofely Ltd v Anthony Bingham
In this case, it transpired that the arbitrator, Mr Bingham, had obtained 18% of his appointments and 25% of his income over the last three years from cases involving the claimant in the underlying arbitration (Knowles) as either the referring party or acting for the referring party.
Cofely referred to the Orange List in the IBA Guidelines, which states that the arbitrator has a duty to disclose a situation where he or she has been appointed within the past three years on two or more occasions by one of the parties or an affiliate of one of the parties.
The judge found that Cofely had established the grounds necessary to remove the arbitrator under section 24. In doing so, he also considered the specific facts giving rise to the challenge. One of these was that it was obvious from Mr Bingham’s witness statement that he did not recognise the relevance of the relationship or the need for any disclosure. This is very different from the circumstances in W v M where the arbitrator did not know that his firm regularly advised an affiliate of one of the parties.
I agree with both decisions. Allegations of apparent bias can only be considered properly in light of the specific facts. The conflict situations currently listed in the IBA Guidelines are a useful starting point for parties and arbitrators (and adjudicators) when they consider possible conflicts of interest. However, the Non-Waivable Red List does not allow parties or arbitrators to consider the particular facts. For example, it doesn’t take into account the growing size of law firms, which is part of today’s reality. Most large firms now have offices in a number of locations around the world and some are so large that partners from international offices (who sit as arbitrators) may never have met each other.
The effect of paragraph 1.4 of the IBA Guidelines is that an arbitrator may be automatically “conflicted” in circumstances where a colleague, based in an office half way across the world, advises an affiliate of one of the parties to the arbitration and the firm earns significant remuneration from the work. This is a draconian position. The arbitrator should disclose the circumstances but the parties should be given the opportunity to decide whether they are happy to proceed with the appointment of the arbitrator, regardless of his or her firm’s connection to an affiliate of one of the parties.
This is particularly relevant in the context of construction disputes, where the pool of construction arbitrators is already small. A strict application of the Non-Waivable Red List would reduce that already small pool even further.
We should be comforted by the Commercial Court’s decisions in both of these cases. They confirm that the courts will be guided by, but will not blindly follow, the IBA Guidelines and will instead apply the English law test for bias. International arbitration practitioners will continue to apply the IBA Guidelines, but they should remember that these are just guidelines (as their name suggests) and, as such, should be used as guidance rather than gospel.