Out-Law News | 07 Mar 2016 | 4:28 pm | 3 min. read
The party challenging the arbitrator's award, which was a company incorporated in the British Virgin Islands, had attempted to rely on the 2014 International Bar Association (IBA) guidelines on conflicts of interest, which state that a conflict arises where the arbitrator "or his or her firm derives significant financial income" from providing regular advice to "the party, or an affiliate of the party". However, High Court judge Mr Justice Knowles said that no "fair minded and informed observer" could conclude that there was bias in this case.
The judge said that although the IBA guidelines made "a distinguished contribution in the field of international arbitration", the case in dispute suggested that they contained some "weaknesses".
"I reach that view without hesitation," he said.
"The situation is classically appropriate for a case-specific judgment. And if the arbitrator had been aware [of the circumstances giving rise to an accusation of bias] and had made disclosure, why should the parties not, at least on occasion, be able to accept the situation by waiver? ... The present case illustrates to me that the 2014 IBA Guidelines in the respects under examination may, where the facts fit Paragraph 1.4, cause a party to be led to focus more on assumptions derived from that fact, and to focus less on a case-specific judgment," he said.
Richard Dickman, an expert in complex commercial disputes at Pinsent Masons, the law firm behind Out-Law.com, said that the decision would come as a "relief" to parties and practitioners, given that "the consequences of even an appearance of bias can be severe".
"The reality is that the arbitration world is a small one, and there may be a connection of some kind between parties and arbitrators," he said. "Whether such a connection gives risk to actual or apparent bias requires a careful analysis of the facts. The irregularity in this case was said to be one which had caused or would cause substantial injustice to the applicant. However, it is hard not to see the claim of apparent bias as merely a pretext for challenging an unfavourable award rather than a serious concern about injustice."
"In robustly applying the common law test, the court had no hesitation in rejecting the application, on the basis of the arbitrator's own evidence that he had not been aware of the facts which might have given rise to an appearance of bias. The court concluded that a fair minded and informed observer would have concluded that there was no possibility that the tribunal was biased. This will come as a relief to parties and practitioners in the arbitration field, who expect finality and certainty from the arbitration process they have chosen, with interference by the court only in the rarest of cases," he said.
The arbitrator in this case was a Canadian lawyer who was a longstanding partner of Burnet Duckworth & Palmer LLP, but who described himself as "essentially a sole practitioner" working "almost exclusively as an international arbitrator". He was not aware that, after the arbitration began but before the award was handed down, a client of his firm had been acquired by the parent company of one of the parties in this case.
The circumstances of this case did not meet the test under English law for apparent bias, which is based on the conclusions of the 'fair minded and informed observer'. However, the challenging party based its challenge on the 'Non-Waivable Red List' grounds set out in the IBA guidelines.
Mr Justice Knowles said that he would have been entitled to simply ignore the IBA guidelines rather than address them in detail, since they were "not a statement of English law" and explicitly stated that they did not override applicable national law or arbitral rules agreed by the parties. However, he chose not to do so as the case in dispute was "international, and parties often choose English law in an international context".
"I therefore prefer to consider the 2014 IBA guidelines as I have done, and explain why I do not, with respect, think they can yet be correct," the judge said.
Complex commercial disputes expert Richard Dickman said that the IBA "may need to revisit the guidelines in light of the judgment".
"By treating any connection between an arbitrator or his firm, and a party or any of its affiliates, as tantamount to a conflict of interest, the guidelines remove any possibility of a judgement as to whether, on the facts, the arbitrator's impartiality has or might have been impaired," he said.
"This is all the more difficult to justify when other scenarios in the guidelines - for example, the arbitrator having given legal advice to a party - may or may not be a conflict of interest depending on the circumstances," he said.