February 3, 2017

Conflict of Interest - H v L & Ors (High Court)

Judge rejects argument that arbitrator was biased

Clyde & Co (Michael Payton, Rosehana Amin and Shan Luo) for defendant

The claimant applied for an order to remove an arbitrator on the basis that his conduct had given rise to an appearance of bias. Two grounds were raised to support the application:

(1) After his appointment, the arbitrator had accepted two other references in which the defendant is involved. It was argued that these appointments involved the arbitrator receiving a secret benefit from the defendant (in the form of remuneration) and also that the arbitrator would learn information which might be relevant to the arbitration involving the claimant, because, it was claimed, there was a substantial overlap in the issues involved. Both arguments were rejected by Popplewell J.

He held that a fair-minded observer would expect an arbitrator with the extensive experience and high reputation of the arbitrator in this case, to be entirely unaffected by who appoints him, since the duty of impartiality "involves arbitrators owing no allegiance to the party appointing them". The defendant had also not undertaken to pay the arbitrator's fees in the other arbitrations.

Furthermore, whatever the degree of overlap in the subject matter of the arbitrations, "It is a regular feature of international arbitration in London that the same underlying subject matter gives rise to more than one claim and more than one arbitration without identity of parties. This is common in insurance and reinsurance claims where there has been a large casualty and is a consequence of the spread of risk which insurance and reinsurance provides…In such cases it is common for those with relevant expertise as arbitrators to sit in different arbitrations arising out of the same factual circumstances or subject matter". That is a desirable position because the parties should be free to appoint their chosen arbitrator, and there is a "limited pool of talent" to choose from. Also, the principle of speedy finality is served if the arbitrators are already familiar with the background to, and uncontroversial aspects of the subject matter of, the dispute.

Although there was little risk of an overlap in this particular case, the position would have been the same "even if the issues which had to be decided in the references were identical or substantially overlapping": "Just as an arbitrator … can be expected to bring an open mind and objective judgment to bear when redetermining the same question on the same evidence between the same parties, it is all the more so where the evidence is different and heard in a reference between different parties".

(2) The claimant had also argued that the arbitrator should have disclosed his other appointments. That argument was rejected on the basis that the acceptance of those appointments had not given rise to any justifiable concerns about the arbitrator's independence: "There may be exceptional cases where the approach which the arbitrator adopts in deciding not to give the relevant disclosure generates free-standing concerns as to his impartiality by reason of things said or done in reaching that decision. However this is not such a case." In any event, even if disclosure should have been made, the arbitrator had explained that it had not occurred to him that he was obliged to do so. The honesty of that statement was not challenged. An honest mistaken belief (which was not the case here in any event) would not cause a fair-minded observer to conclude that a real possibility of apparent bias had arisen.

The judge concluded that the claimant could not rely on the IBA Guidelines on Conflicts of Interest in International Arbitration, since they do not represent the English law of apparent bias. He also ruled out an argument that the arbitration could not now continue because the claimant had unsuccessfully challenged the arbitrator: "The argument is in effect that the possible offence taken by an arbitrator at an unmeritorious attempt to remove him should itself raise justifiable doubts as to his future conduct of the reference, with the paradoxical result that the more obnoxious the challenge the stronger this ground will be. It is self-evidently misguided".

COMMENT: Generally, the courts adopt a pragmatic approach where there is likely to be only a narrow field of suitable arbitrators to choose from. This decision confirms that that pragmatism extends to the situation where the same arbitrator may be hearing multiple arbitrations involving similar facts and issues. It also reiterates that the IBA Guidelines do not form part of English law (a point recently confirmed by Knowles J in W Ltd v M SDN BHD.