Commercial Court removes arbitrator over 'justifiable doubts' about his impartiality

Out-Law News | 13 Feb 2015 | 5:38 pm | 4 min. read

An arbitrator who failed to disclose his "social and commercial relationships" with one of the parties to a commercial dispute has been removed from the post by a UK court.

In response to an application from the other party in the case, the Commercial Court found that there were "justifiable doubts" about Ali Zbeeb's impartiality, as set out in section 24 of the 1996 Arbitration Act. These doubts were reinforced by Zbeeb's failure to comply with his duty to disclose the connections, and the fact that those connections fell within the 'red list' in the International Bar Association (IBA) guidelines on conflicts of interest.

"These kinds of applications to remove arbitrators are thankfully infrequent: most arbitrators know better than to accept appointments where they are compromised and are alert to the need to disclose potential conflicts of interest," said arbitration law expert Richard Twomey of Pinsent Masons, the law firm behind Out-Law.com. "The IBA guidelines on conflict of interest in international arbitrations have done a lot to improve the situation in this regard."

"The fact that this arbitrator still accepted the appointment and failed to disclose his connections is frankly staggering. Sadly, it demonstrates that not all arbitrators can be relied upon to meet the standards expected of them. If there is any solace for the applicant party, it is that at least the English courts can be relied upon to enforce standards of conduct and performance in international arbitration," he said.

The Arbitration Act is the main piece of legislation governing arbitration in the UK. Section 24 of the Act allows a court to remove an arbitrator on the application of one of the parties if "circumstances exist that give rise to justifiable doubts as to his impartiality". Under section 73 of the same Act, a party loses the right to apply for removal of the arbitrator if it has "taken part in the arbitration proceedings without raising an objection" unless it "did not know and could not with reasonable diligence have discovered" the reason behind its application.

Zbeeb was a Lebanese lawyer who, it was alleged, was the son of the lawyer of one of the parties and had a financial interest in his father's law firm. He was also apparently involved in drafting some of the agreements that were in dispute on behalf of that party, a Lebanese bank. The challenging party, a seafood supply company incorporated in Sierra Leone and its shareholders, also objected to various aspects of Zbeeb's conduct during the reference to arbitration. Zbeeb and the other party objected on all grounds, as well as arguing that the challengers had "taken part" in the proceedings as set out in section 73 of the Arbitration Act.

Mr Justice Popplewell, the Commercial Court judge, said that the test for "impartiality" under section 24 was an objective one, based on "whether the fair-minded and informed observer, having considered the facts, would consider that there was a real possibility that the tribunal was biased". In this case, the judge said that he had "little hesitation" in concluding that Zbeeb's connections would give rise to these doubts.

"The fair minded observer would take the view that this gave rise to a real possibility that Mr Ali Zbeeb would be predisposed to favour Dr Farran in the dispute in order to foster and maintain the business relationship with himself, his firm and his father, to the financial benefit of all three," the judge said. "Such possibility is not significantly diminished if, as Mr Ali Zbeeb's evidence suggests, the financial benefit would accrue to his father rather than to the firm."

The fact that the IBA's guidelines on conflicts of interest in international arbitration included the existence of a "significant commercial relationship" with one of the parties or where the arbitrator "or his or her firm" gained "a significant financial income" from providing advice to the appointing party on its 'red list' was of relevance here, the judge said. Although this was not always a barrier to an arbitrator's appointment, waiver of one of these circumstances required "express acceptance of the arbitrator acting by a party who has actual knowledge of the situation", he said.

"The state of the evidence in this case would leave the fair-minded observer concluding that there was a real possibility that the relationship between Mr Ali Zbeeb and Dr Farran fell within these criteria," he said.

"The doubts are reinforced by Mr Ali Zbeeb's statement at the hearing … that it was not for him to do due diligence on behalf of the claimants in relation to any connections he had with Dr Farran. On the contrary, it was his duty to make voluntary disclosure to the parties of connections which were known to him which might justify doubts as to his impartiality, a duty recognised in [the IBA guidelines]. Such disclosure is required of an arbitrator whatever 'due diligence homework' steps may be available to the parties to discover their existence for themselves," he said.

Zbeeb's involvement in the settlement negotiations, along with his refusal to postpone the publishing of his award until the Commercial Court ruled on his removal and the "content and tone" of his communications with the parties, also raised doubts about his impartiality, the judge said.

As each of these circumstances was "sufficient on its own" to bring about Zbeeb's removal on the grounds of impartiality, the judge went on to consider whether the challengers had lost their right to apply under section 73 on each ground separately. In each case, he ruled that they had not "taken part in the arbitration" as defined by section 73.

"A party does not take part in an arbitration for the purposes of section 73 unless and until he invokes the jurisdiction of the tribunal in respect of the merits of the dispute or invokes the jurisdiction of the tribunal to determine its own jurisdiction over the merits of the dispute," the judge said. "However, once a party has taken part in proceedings, he may 'continue to take part' by silence or inactivity in the face of a right to object which subsequently becomes available to him."

In this case, the challengers had never invoked the arbitrator's jurisdiction, the judge said. In particular, their requests to put the arbitration on hold until the impartiality question was settled were not the same as 'silence or inactivity in the face of a right to object', he said.