One of the premises of arbitration is that it’s a consensual process, within which the parties are free to appoint an arbitrator of their choosing, so long as that arbitrator is impartial and independent.
Careful scrutiny is given to whether there are any potential conflicts that may affect the arbitrator’s impartiality. The leading Supreme Court case of Halliburton Co v Chubb Bermuda Ltd [2020] UKSC 48 provides the objective test for deciding whether or not a conflict exists. The test is whether a “fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”
In this article we look at two decisions that considered apparent bias of an arbitrator. One is a Canadian decision in which the court held that the arbitrator’s business connections to one of the parties was not sufficient to establish apparent bias.
The other is a decision from the English Commercial Court in which it was held that an arbitrator’s professional connections were not disclosed in time and did give rise to an arguable case of apparent bias.
Canadian decision: Business connections do not necessarily demonstrate apparent bias
In Ballantry Construction Management Inc. v GR (CAN) Investment Co. Ltd 2024 ONSC 2129 the Respondent’s reasons for challenging the arbitrator’s independence were that:
- The arbitrator was a shareholder and director of Firm Capital Mortgage Investment Corporation at the time of the hearing of the arbitration.
- Firm Capital Mortgage Investment Corporation owned Firm Capital Mortgage Fund Inc.
- Firm Capital Mortgage Fund Inc was a joint lender to the Respondent in respect of a loan made for the purpose of developing properties which were the subject of the arbitration.
The Respondent claimed it was unaware of the relationship until after the first award on liability had been issued.
The Canadian Court accepted that a business relationship can create a reasonable apprehension of bias. However, the fact alone of the business relationship is not enough. There must be a more concrete basis for the concern beyond the alleged relationship.
The facts of the loan itself did not give rise to any cause for concern. The dealings with the Respondent about management and repayment of the loan were managed by the other joint lender. There was no evidence of any relationship between Firm Capital Mortgage Investment Corporation and the Respondent while the loan was outstanding that would have influenced the arbitrator. In any event, the loan was repaid before the arbitration hearing.
Not every financial, business, professional, or personal relationship raises a ground for challenge. In this instance, the relationship was too remote. Each case is fact specific and the important factor is that the arbitrator should not be influenced by those relationships. He / she has a duty to disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality.
This was one of the pressing factors at play in the UK Commercial Court decision.
UK Commercial Court decision: apparent bias due to professional connections
In Aiteo Estern E & P Company Limited v Shell Western Supply and Trading Limited & Ors [2024] EWHC 1993 (Comm) the English Commercial Court found that there was apparent bias on the part of one of the members of a three-member Tribunal.
Dame Elizabeth Gloster DBE (Dame Gloster) was appointed by Shell, who were represented by Freshfields. Dame Gloster disclosed two prior appointments by clients represented by Freshfields in unrelated matters in the preceding two years, but these initial disclosures were incomplete. Between 2018-2023 she had received a total of 8 arbitral nominations and / or appointments and expert instructions, in which Freshfields were acting, and these additional appointments were not disclosed in a timely manner. By the time all disclosures were made on 9 December 2023, the Tribunal had rendered all four Awards.
Aiteo accused Dame Gloster of apparent bias due to the professional connections between herself and Freshfields. Aiteo applied to the Commercial Court under section 68 Arbitration Act 1996 to set aside the awards on the grounds of apparent bias being a serious irregularity which caused them injustice.
Aiteo relied upon the cumulative combination of repeat appointments, and repeat expert instructions, with material failures of disclosure, to demonstrate a real possibility of bias. In some cases the disclosures were given years after the fact, and so there was no opportunity to make a challenge or seek confirmations as to the arbitrator’s future intentions.
The Court applied the rule in Halliburton v Chubb and considered that a fair-minded and informed observer would have considered that there was a real possibility of unconscious bias due to the arbitral appointments and advisory / expert engagements of Dame Gloster by Freshfields.
Further, in this matter there was an unusual feature that Aiteo had successfully challenged the impartiality of Dame Gloster to the ICC Court and the ICC Court had removed her. The decision of the ICC Court was a significant factor in support of Aiteo’s case.
The Court said that if there had been timely disclosure of the entire picture, as it developed, then it may be that the “fair-minded observer” would consider that Dame Gloster was “on the right side of the line”, bearing in mind that the individuals at Freshfields involved in the advisory/ expert engagements were different to those involved in the current arbitration in question.
Comment
It is unusual for an arbitrator to be removed on the basis of apparent bias, and the UK Commercial Court decision is a rare example of a successful challenge.
The reason it is rare to find apparent bias is partly because solicitors tend to appoint specific arbitrators who are experts in certain areas, or are particularly prestigious and well-known. Repeat instructions are often a sign of an arbitrator’s competence, rather than any suggestion of favouritism.
However, this stresses the importance of timely, complete, and accurate disclosures to avoid accusations of bias. As it was said in Aiteo v Shell: “Where an arbitrator makes disclosure, that will often indicate an awareness of the possibility of unconscious bias. A person who recognises that possibility thereby demonstrates a degree of self-awareness which may itself serve to prevent any unconscious bias actually impacting on that person’s decisions.”
Full disclosure of previous appointments helps the arbitrator make an impartial decision on the matter at hand.
As we know, the new Arbitration Bill (which is working its way through Parliament) will codify the arbitrators’ duty of disclosure, and provide further clarity.
Currently, helpful guidance is set out in the IBA Guidelines on Conflicts of Interest 2024, which we discussed in our article.
