The English High Court recently heard an application under s24(1)(a) of the 1996 Arbitration Act (the “Act”) to remove the arbitrator agreed in the arbitration agreement, on the grounds of apparent bias. The challenge was based on the fact that the arbitrator in question had, until recently, been an employee of one of the parties to the arbitration.

The Court was alive to the importance of honouring freedom of contract when the arbitrator had been identified and agreed in the arbitration agreement itself. On the facts of the case, there was no evidence of apparent bias and the application was accordingly refused.

Background

The disputes in question revolved around a family business in the transportation of oil and other commodities, with companies incorporated in both London (the “London Company”) and Nigeria.

In 2009, J, who was solely responsible for the Nigerian company’s trade, threatened to leave the family business. In an attempt to rescue the business and regulate the affairs of the family members, the family members and the companies controlled by them entered into an agreement expressed to be governed by English law (the “Agreement”). The Agreement contains a dispute resolution clause naming a “Mr Y as arbitrator and in the event of his unavailability Mr F”.

Mr F worked as the family accountant from about 1985 and was a full-time employee for the London company until 2002. Between 2002 and 2010, he worked part-time for the family. In 2010, Mr F returned to full-time employment for the London Company and reported directly to J only.

The family relationship became strained again and in September 2019, J commenced arbitration to resolve disputes relating to the interpretation of various provisions of the Agreement and stated in the notice of arbitration that “Mr [F] is the only other person entitled to sit as arbitrator”. Mr Y had died in 2015.

In November 2019, Mr F resigned from his employment with the London Company. He observed that the “family feud between the directors is getting nastier by the day and the employees…have been subjected to constant bullying, fabricated lies and allegations by some directors, for some time now… I, no longer wish to be dragged into this family dispute and with great regret, hereby submit my resignation with immediate effect.

Some of the family members objected to the appointment of Mr F as arbitrator, arguing that Mr F was conflicted and accordingly unable to act fairly and impartially. They pointed out that Mr F had reported only to J, and that Mr F would potentially be a witness in the dispute. They alleged that Mr F’s resignation might be a sham, or might lead to a claim for constructive dismissal against one of the parties. It was also alleged that Mr F’s refusal to provide some of the family members with information in relation to the company accounts before the commencement of the arbitration demonstrated bias. There were additionally said to have been secret conversations between Mr F and J. An application was made under s24 of the Act to remove Mr F.

Applicable legal principles

The Court reiterated the well-established test for apparent bias, that the court must ascertain all the relevant circumstances and “must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased”. The Court observed that there were different approaches to the application of the apparent bias test between cases where the parties agreed to nominate an identified arbitrator (Category 1) and those where an arbitrator was not nominated by agreement (Category 2). Historically, Category 1 appointments of a construction project’s engineer as arbitrator for construction disputes were common, although this is now much rarer. In Category 1 cases, like the current case, it is insufficient to raise “general observations or allegations concerning appearances” when apparent bias is alleged. Parties are assumed to have been aware of such situations when they chose to nominate the person to act as arbitrator.

The Court noted that the fact that an arbitrator might be called as a witness is not itself automatically a reason to remove the arbitrator in Category 1 cases.  However, an arbitrator in Category 1 cases will be disqualified where there is “a bona fide dispute involving substantial sums and a probable conflict of evidence on matters as to which the arbitrator himself will in the normal course be the principal witness on one side”.

The mere fact that the arbitrator had involvement in the dealings giving rise to a dispute would not disqualify him or her acting as arbitrator.

Court’s decision

In this case the apparent bias test was not met, for the following reasons. In a Category 1 case, there is no rule that an arbitrator who gives evidence must be removed, and there was no suggestion that any evidence Mr F might give would be on an important point, or in his own cause. Mr F’s intimate knowledge of the parties’ conduct and financial matters would be something the parties must have known (and desired) in identifying him as arbitrator in 2009, and therefore could not be a matter of complaint.

Mr F had not in fact refused the request for financial information, but had simply referred it to J. The Court found Mr F’s handling of this request transparent and well-tempered. There might be a dispute in due course as to whether J should have provided such information, but such an issue would be resolved by interpreting the terms of the Agreement.

Mr F’s letter of resignation referred to disputes between the directors generally and did not make assertions against any individuals. It did not indicate any bias against any particular family members.

The allegation that Mr F’s contract of employment was relevant was rejected, as the terms of Mr F’s employment had nothing obvious to do with the family dispute. No claim for constructive dismissal had been made by Mr F and there was nothing to support the allegation that the resignation had been a sham to enhance Mr F’s chances of acting as arbitrator.

There was no evidence of the alleged secret conversations between Mr F and J.

The Court acknowledged that in the event that Mr F were in future to act in a way that demonstrated actual bias, a further application for his removal could be made pursuant to s24 of the Act. However, as things stood, there were no grounds for reaching a conclusion that there was a real danger that Mr F would be biased, or that there was doubt as to his impartiality.

Comment

The test for apparent bias in English law has recently received a lot of attention, in the wake of the high-profile case of Halliburton Company v Chubb Bermuda Insurance Ltd. This case was appealed to the Supreme Court and the forthcoming judgment is expected to clarify the law in this area.

This case is somewhat unusual, both on the facts and because most modern arbitration clauses do not specify the appointment of a particular arbitrator. However, this case is a useful reminder that when the arbitration clause pins down the identity of the arbitrator, the key principle of freedom of contract is engaged. A party who is subsequently dissatisfied with the arbitrator in question will need to demonstrate that factors not known at the time of the contract suggest the arbitrator is not suitable for his position, which is a heavier burden on the applicant.

More generally, the case is a useful reminder about the high hurdle facing parties attempting to remove arbitrators on the grounds of apparent bias and the robust approach of the English courts to challenges of this kind.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, Peter Chen, Associate, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 3418

Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

Peter Chen
Peter Chen
Associate
+44 20 7466 3868