Abstract
International Commercial Arbitration lacks any universally recognised etiquette and rules relating to the standards to be met for arbitrators to be considered as free of bias. Arbitrators, in general, have an obligation to pertain to certain qualities and disclose facts that would alleviate any suspicion of bias from their part, respect the limits of their authority and disclose facts that would lead to an undermining of the arbitration procedure through challenges and to unnecessary delays. That said, in order for a practice to meet the requirement of being biased or abusive, some contemplation of alternatives is required. However, most often, perceptions of abuse rest also on sectoral as well as on cultural assumptions about the baselines and yardsticks that measure “normal procedure”. This article contemplates the issues and strictures entailed in the notions of impartiality and independence of arbitrators so as to signify the extent of the definition of their potential bias. It also critically measures the way bias of arbitrators is perceived in energy disputes and draws conclusions on the issue of the bias of arbitrators in international commercial arbitration and in investment arbitrations and energy-related disputes in the light of representatively discussed case law, and in doing so also draws conclusions and attempts some critical analysis.
Introduction
International Commercial Arbitration lacks any universally recognised etiquette and rules relating to the standards to be met for arbitrators to be considered as free of bias. Arbitrators, in general, have an obligation to pertain to certain qualities and disclose facts that would alleviate any suspicion of bias from their part, respect the limits of their authority and disclose facts that would lead to an undermining of the arbitration procedure through challenges and to unnecessary delays. That said, in order for a practice to meet the requirement of being biased or abusive, some contemplation of alternatives is required. However, most often, perceptions of abuse rest also on sectoral as well as on cultural assumptions about the baselines and yardsticks that measure “normal procedure”. This article contemplates the issues and strictures entailed in the notions of impartiality and independence of arbitrators so as to signify the extent of the definition of their potential bias. It also critically measures the way bias of arbitrators is perceived in energy disputes and draws conclusions on the issue of the bias of arbitrators in International Commercial Arbitration and in Investment Arbitrations and Energy-related disputes in the light of representatively discussed case law, and in doing so also draws conclusions and attempts some critical analysis.
Bias- Impartiality and Independence as notions found in Arbitration
The right to an impartial and independent judge also exists in arbitration and is crucial to the entire arbitration process. In order for the parties to recognize and accept the result of the Arbitration, even though the result may contradict their side, they should accept that the person who is passing the judgement does so by adhering to the principle of fairness and with an open mindset. “Independence” pertains that the presiding arbitrator to the case shall be free of personal relationship or conflict with the parties. “Impartiality” pertains to the arbitrator’s state of mind and if he does hold any prejudice against the parties or the subject matter at hand. It is the Arbitrators frame of mind which is taken into consideration and therefore, impartiality could be considered as a “subjective” standard.
Under the framework of English Law, once the parties have doubted or established the impartiality of the Arbitrator, the parties have a number of remedies which they can opt. Firstly, under Sec. 68(2)(a) AA 1996 [1], the entire award can be challenged on the basis of irregularity, the duty of the arbitrator to preside a dispute impartially has been prescribed under Sec.33 AA 1996 [2] and this could be a strong ground in proving the award to be irregular. A stricter action shall be taken under Sec.24(1)(a) AA 1996 [3] where the parties can file an application to the Court in order to remove the arbitrator.
The question pertaining to the partiality of an arbitrator or a judge shall be taken from a point of a layman, it should be taken in such a manner that a common man should consider it as a bias.
Among the case law on bias of arbitrators Sierra Fishing Co v. Farran [4], Cofely Ltd v. Bingham [5], and W Ltd v. M SdnBhd [6] have emerged in the recent years and have indeed provided food for thought. The case of W Ltd v. M SdnBhd [7] is particularly important, because Knowles J refused to follow the IBA Guidelines and indeed held that they were wrong in including on the Non-Waivable Red List the situation where the arbitrator’s law firm advises an affiliate of one of the parties. In Cofely Ltd v. Bingham [8], the Court dismissed the arbitrator on the reasons that in the past three years the arbitrator had sourced the 18% of the appointments and 25% of the income from the defendant.
In Sierra Fishing Co v. Farran [9], the Sierra Fishing Co (SFC), a Sierra Leonean company, and its affiliates stipulated a loan agreement with two lenders (Dr. Farran and Mr. Assad) to finance the purchase of two fishing vessels. The loan agreement provided for an arbitration agreement. When repayments ceased, the lenders initiated an arbitration in London and appointed Mr. Zbeeb as their arbitrator in 2012, while SFC and its affiliates did not appoint any arbitrator. Therefore, Mr. Zbeeb acted as a sole arbitrator. In 2012 and 2013, the arbitration proceedings were suspended, and settlement negotiations took place in which Mr. Zbeeb was involved. The settlement agreements were not fully performed, and the lenders recommenced the arbitration, where SFC expressed doubts as to the impartiality of the sole arbitrator. SFC applied to the High Court to have the arbitrator removed on the ground of apparent bias (pursuant to Sec.24 of the Arbitration Act 1996). The Court found that there had been apparent bias and removed the sole arbitrator. In fact, the Court analysed whether there were circumstances giving rise to justifiable doubts on his connection, involvement and behaviour, thereby finding justified doubts as to his impartiality.
Halliburton Company v. Chubb Bermuda Insurance [10]
This case pertains to “Deepwater Horizon disaster” 2010 case in the Gulf of Mexico. The Court of Louisiana allocated the liability at 67% to BP, 30% to Transocean and 3% Halliburton, as the contractor for cement. Halliburton asserted on its additional liability insurance on the Bermuda Form which it had bought from Chubb, however the payment for the same was denied by Chubb, contending that this billion-dollar settlement as reiterated in the decision of Halliburton was unreasonable and arbitrary in its very essence. Halliburton, in the year 2015 had commenced arbitration proceedings against Chubb in London. In furtherance, an appeal made to the UK Supreme Court raises apprehensions to the situations under which an arbitrator may seem to be biased in International arbitration. It as a consequence, advances on raising pertinent questions with regards to the duty of impartiality and its obligations to make disclosure. The Bermuda Form Policies reiterates upon the disputes that are to be resolved through arbitration. As proposed by Mr Chubb, Mr. Rokison was appointed as Umpire; i.e., third arbitrator to the High Court. Consequently, Mr Rokison duly acknowledged his appointed without the knowledge of Halliburton under two separate references arising from the Deepwater Horizon event. At the time, Mr.Rokson’s appointment was known in the later references, thereafter, an application to the Court was made by Halliburton to remove Mr. Rokison as an arbitrator under Sec.24 of the Arbitration Act 1996.
Prima facie the Court had rejected the application stating that the undertaking of the Transocean appointments did not lead to any biases, as it would have been “second nature” to an arbitrator that his impartiality was unaltered by the party appointing him. It was observed by the Court that multiple references and overlapping are common in international arbitration, explicitly in insurance and commodities disagreements, for purposes of effectiveness, efficiency, party autonomy and the requirement for expertise. The Court of Appeal significantly upheld the first instance decision. The Court of Appeal approved the objective test for apparent bias and had held that multiple appointments concerning the similar or overlying subject matter with only one mutual party does not project bias. The Court iterated that the test for disclosure is an “objective test”, but it is broader than the test for apparent bias, expanding to situations wherein considering a “fair-minded” person, having considered the facts, to determine that there was an actual prospect that the tribunal was unfair and partial. Hence the Court of Appeal contemplated that the Transocean appointments led to the doubts about Mr. Rokison being impartial, and therefore as a matter of law and good practice, disclosure should have been made in the aforesaid case. The Court of Appeal upheld the first instance judgement that the fair-minded and informed observer, could not conclude that the arbitrator was impartial.
The appeal ruling was dismissed by the S.C. on the account that on the date of hearing to remove, the fair-minded and informed observer Mr. Rokison would not determine that situation existed that gave rise to justifiable doubts about his impartiality. The ruling made pertains to the rationale that in determining whether an arbitrator has failed in its obligation to make a disclosure, the informed and the fair-minded observer would have consideration to the facts and circumstances as at and from the time the duty arose, however, in analysing if there exists an actual prospect that an arbitrator is partial, the fair-minded and informed observer will have regard to the facts and circumstances known to remove the arbitrator and that as per the circumstances known at the date of the hearing at first instance, it cannot be said that the fair-minded and informed observer would infer from Mr. Rokison’s failure to disclose that there was a real possibility of bias. At the time, it had not been clear that there was a legal obligation of disclosure.
Bias of Arbitrators in the Energy Sector
Bias in arbitration can be, as stated above, actual and apparent and there are certain restrictions imposed upon arbitrators and the notion of the latter has been shaped by English law to pertain to the test of whether ‘the fair-minded and informed observer, having conferred the facts, would conclude that there was a real possibility that the tribunal was biased.’ Moreover, the notion of bias is often related to the independence and impartiality of arbitrators denoting on the one hand, under the notion of independence, i.e., the total lack of relations with a party that might influence an arbitrator’s decision and on the other hand, under the notion of impartiality, i.e., the absence of any bias with regards to the concerned parties.
Challenging of arbitrators on the basis of existing bias is further present in the energy industry considering its particularity, the unique nature of energy contracts and disputes, and the specific knowledge required hence delimiting the number of available expert arbitrators. In arbitrations in the energy sector, the same is conducted under the arbitral rules of the Stockholm Chamber of Commerce. The Stockholm Chamber of Commerce Board has in some cases sustained the challenge, even if arbitrators had disclosed multiple/repeat appointments. This indicates the complexity and difficulty in setting a threshold on when bias will be perceived as apparent and when not. For example, in Stockholm Chamber of Commerce Arbitration 2016/183, the respondent alleged that due to existing counsel relationships there were substantiated justifiable doubts to sustain a challenge of bias which finally the Stockholm Chamber of Commerce Board has found to exist. In Stockholm Chamber of Commerce Arbitration 2015/179 and in Stockholm Chamber of Commerce Arbitration 2015/166, a challenge of an arbitrator was sustained as the new firm of the arbitrator had regular mandates. And in Stockholm Chamber of Commerce Arbitration 2016/051, the challenge arose on the basis that the arbitrator was a partner in a law firm that had a mandate to advise on a clause of the dispute in which the arbitrator was now appointed. The existence and only of such a professional link was enough to raise doubts enough to sustain the challenge.
However, in Jacob Securities Inc v. Typhoon Capital B.V.,[11] the professional relationship i.e., his partnership in a law firm that had previously given some advice to one of the parties was considered as remote and unable to establish bias, following also the test inPorter v. Magill [12] as the arbitrator was also aware of this mandate.
Lessons to Learn
Energy industry-related disputes are highly specific ones requiring an expertise that is not easy to find and makes unavoidable the existence of some prior connections, especially as repeat appointments are unavoidably necessary. A very rigid regime towards arbitrators’ activities could create a field for dissatisfied parties to easily challenge awards and demote the importance of arbitration as a reliable dispute resolution mechanism, hence creating havoc in the commercial world through the emerging as a result uncertainty and unpredictability.
The ICSID Arbitration Rules provides for the necessity of disclosure for the past and professional, business and other relationships (if any) with the parties and in case of any other circumstance that might affect the dependability of an independent judgment of an arbitrator that would be questioned by a party. In this way a standard and a threshold which can lead to more certainty are set as the relevant standard for a challenge of an arbitrator’s appointment is entailed inArticle 57[13] of the ICSID Convention, asking for a manifest lack of independence and impartiality, as per the qualities outlined in Article 14(1). A manifest lack of independence and impartiality calls for an evident, obvious or clear lack of such independence.
Conclusion
The increase of challenges to arbitrators is a consequence of the popularity and growth of arbitration as a way of alternative dispute resolution.
In Sierra Fishing Co v. Farran[13] the Court found that there had been apparent bias in the conduct of the sole arbitrator. In Cofely Ltd v. Bingham[14] the Court articulated the reasons which would be capable of classifying in the mind of a fair-minded observer as a ground for bias. In W Ltd v. M SdnBhd[15] the Court declined to follow the IBA Guidelines 2014 and classified them as solely a soft non-binding aid to the Courts when assessing impartiality and independence. In Halliburton Company v. Chubb Bermuda Insurance [16], the Supreme Court reiterated that to ascertain a bias of an arbitrator, the fair-minded and an informed observer would have the regard only to the circumstances and facts that are identified at the time of the hearing to remove the arbitrator. The above allows us to conclude that the issue of the bias of arbitrators continues to receive a sparse, non-consistent and hence fragmented treatment by the Courts, but Halliburton Company v. Chubb Bermuda Insurance [17] has to an extent sought to resolve this quagmire. Last but not least, in investment/ energy disputes the approach of the case law in relation to cases where the bias of arbitrators was questioned, is fragmented. A better solution seems to be the high threshold set by the ICSID rules, also with reference to Article 57 of the ICSID Convention which necessitates a manifest lack of independence and impartiality. This paves the way for a threshold to be able to protect the parties but at the same time prevent any abuse of the mechanism of bias of arbitrators to be used by parties potentially dissatisfied with arbitral awards.
About the Author
Dr. Kyriaki Noussia is a Senior Lecturer at School of Law, University of Exeter and an Advisor at IJPIEL.
Editorial Team
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Preferred Method of Citation
Dr. Kyriaki Noussia, “Bias of Arbitrators in International Commercial Arbitration and in Investment/Energy Arbitrations” (IJPIEL, add date)
Endnotes
[1] Arbitration Act 1996, Section 68(2)(a)
[2] Arbitration Act 1996, Section 33
[3] Arbitration Act 1996, Section 24 (1)(a)
[4] Sierra Fishing Co v. Farran, (2015) 1 All E.R. (Comm) 560
[5] Cofely Ltd v. Bingham, (2016) 2 All E.R. (Comm) 129
[6] W Ltd v. M SdnBhd, (2017) 1 All E.R. (Comm) 981
[7] Ibid
[8] Ibid
[9] Ibid
[10] Arbitration Act 1996, Section 24
[11] Halliburton Company v. Chubb Bermuda Insurance, (2020) UKSC 48
[12] Jacob Securities Inc v. Typhoon Capital B.V., (2016) ONSC 604 (Can. Ont. S.C.)
[13] Porter v. Magill, (2002) 2 AC 357
[14] International Centre for Settlement of Investment Disputes, Article 57
[15] Ibid
[16] Ibid
[17] Ibid
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