UK Supreme Court judgment in Halliburton v Chubb clarifies English law on arbitrator apparent bias

The UK Supreme Court has handed down its judgment in Halliburton Company (Appellant) v Chubb Bermuda Insurance Ltd [2020] UKSC 48, which is the most significant decision on English arbitration law in nearly a decade.

The Halliburton judgment is now the leading English law case on arbitrator conflicts. Importantly, the decision has clarified how apparent bias will be assessed by the English courts, refining the test in the context of arbitration. While the arbitrator challenge was not successful in this case, the judgment has re-emphasised the importance of arbitrator impartiality in English-seated arbitration.      

The case was notable for a significant number of arbitral institutions and organisations being given permission by the Court to intervene, with submissions made by the LCIA, ICC, CIArb, LMAA and GAFTA.

Background 

Claims arising out of the Deepwater Horizon incident were made against Halliburton, which had provided offshore services in relation to the project. Halliburton then sought to claim in turn under its excess liability insurance policy with Chubb. Chubb rejected the claim and in January 2015 Halliburton commenced arbitration against Chubb. The claim was brought under the Bermuda Form policy in question, which was governed by New York law and provided for London-seated ad hoc arbitration.

The parties were unable to agree on the selection of the presiding arbitrator and the English High Court appointed Kenneth Rokison QC in June 2015. Mr Rokison had been proposed by Chubb, but Halliburton had opposed his appointment on the grounds that Mr Rokison was an English lawyer, whereas the policy was governed by New York law.

Before he was appointed in June 2015, Mr Rokison disclosed that he had previously been an arbitrator in arbitrations involving Chubb, including some appointments on behalf of Chubb. The judgment does not set out the number of appointments involved, or the timescales. He also disclosed that he was acting as arbitrator in relation to two current references involving Chubb.

After Mr Rokison took up his appointment in the arbitration between Halliburton and Chubb, he accepted two appointments in additional arbitrations relating to the Deepwater Horizon incident: (a) in December 2015, he was appointed by Chubb in an arbitration relating to a claim under the same excess liability cover, which Chubb had sold to another insured party, Transocean; and (b) in August 2016, he was appointed by Transocean, in an arbitration relating to a claim Transocean was bringing against a different insurer that related to the same layer of insurance. Mr Rokison did not disclose the December 2015 and August 2016 appointments to Halliburton, but Halliburton became aware of them in November 2016.

Halliburton then asked Mr Rokison to resign, but he stated that he did not feel he could do so, as he had been appointed by the court. Mr Rokison noted that the issues under consideration were neither the same nor similar. He stated that he had been independent and impartial throughout and that this would continue to be the case. Halliburton then made an application to the English court for his removal under s24 of the Arbitration Act 1996. The application was unsuccessful and Halliburton then appealed to the Court of Appeal, which also rejected the challenge. Halliburton appealed to the Supreme Court.

The Supreme Court appeal

The two main issues before the Supreme Court were:

  • whether and to what extent an arbitrator is entitled to accept appointments in multiple arbitrations relating to the same or overlapping matters and where there is only one common party, without this resulting in an appearance of bias; and
  • whether and to what extent the arbitrator could accept multiple appointments in this way without providing disclosure.

Halliburton took the position that there was apparent unconscious bias on the part of Mr Rokison. Halliburton’s case was based on the suggestion that the situation “gave Chubb the unfair advantage of being a common party to two related arbitrations with a joint arbitrator while Halliburton was ignorant of the proceedings” in the later arbitrations and “thus unaware whether and to what extent he would be influenced in reference 1 by the arguments and evidence in reference 2”. Halliburton contended that Chubb would be able to communicate with the arbitrator, for example via submissions and evidence submitted in the later proceedings, on questions that might be relevant to the arbitration between Halliburton and Chubb. Haliburton took the position that apparent bias was also made out by Mr Rokison’s failure to disclose his later appointments to Halliburton. There was also a suggestion that Mr Rokison “did not pay proper regard to Halliburton’s interest in the fairness of the procedure”.

Supreme Court decision

The Supreme Court emphasised the importance of impartiality in arbitration, highlighting that impartiality had always been a “cardinal duty” for arbitrators. Given that there was no allegation that the arbitrator was actually biased, the court was only concerned with whether there was an appearance of bias. It was well established that the correct legal test was “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.

The Supreme Court considered how the hypothetical observer is taken to be “informed”. This meant, quoting an earlier case, that “before she takes a balanced approach to any information she is given, she will take the trouble to inform herself on all matters that are relevant…She is fair-minded, so she will appreciate that the context forms an important part of the material which she must consider before passing judgment.” When the apparent bias test is applied to arbitrators, the distinctive features of arbitration must therefore be taken into account. This includes a consideration of the private nature of arbitration, and the very limited rights of appeal. The Supreme Court also referred to the appointment process for arbitrators, noting the potential for party nomination and that there may be a “financial interest in obtaining further appointments as arbitrator”. It also observed that arbitrators may be non-lawyers with only limited experience of arbitration and may be from a variety of jurisdictions and legal traditions, with a range of views on arbitrator ethics.

The Supreme Court emphasised that, due to the private nature of arbitration, where an arbitrator is appointed in relation to multiple overlapping references the non-common party cannot discover what evidence or submissions have been put before the tribunal, or the arbitrator’s response. The Court also had regard to the range of understandings in relation to the role and duties of party-appointed arbitrators, recognising that some parties may expect party-nominated arbitrators to be pre-disposed towards their nominating parties, while the chair has a particular role to play in ensuring the tribunal acts fairly. While taking these differing perspectives into account, the duty of impartiality applied in the same way to every member of the tribunal and “the party-appointed arbitrator in English law is expected to come up to precisely the same high standards of fairness and impartiality as the person chairing the tribunal”.

While the professional reputation and experience of an individual arbitrator was a relevant consideration in assessing whether there was apparent bias, the Court noted this was likely to be a factor accorded only limited weight.

Duty of disclosure

The Supreme Court confirmed that an arbitrator is under a duty to disclose facts and circumstances which would or might reasonably give rise to the appearance of bias. The Supreme Court held that compliance with this duty should be assessed with regard to the circumstances at the time the disclosure fell to be made.

The Court noted that the LCIA, ICC and CIArb, as organisations having “an interest in the integrity and reputation of English-seated arbitration”, had all argued in favour of the recognition of a legal duty of disclosure. The Court stated that this legal duty furthered transparency in arbitration and was in alignment with the best practice set out in the IBA Guidelines and the approach taken by arbitration institutions such as the LCIA and ICC. The Court said that the IBA Guidelines “assist the court in identifying what is an unacceptable conflict of interest and what matters may require disclosure” but emphasised that they are non-binding.

The Supreme Court stated that an arbitrator may have to disclose acceptance of appointments in multiple overlapping references with only one common party, depending upon the customs and practice of the type of arbitration in question. The judgment explores in some detail the need to consider the duty of confidentiality in determining what information about potential conflicts may be disclosed.

The Court also explored the relationship between the duty to disclose and the duty of impartiality and concluded that failure to disclose will be one factor which the fair-minded and informed observer will take into account in considering whether there was a real possibility of bias. However, the Court held that questions of disclosure and apparent bias fell to be assessed at different times. Whereas the question of whether there was a failure to disclose was analysed as at the time the alleged duty of disclosure arose, the question of whether the relevant circumstances in any case amount to apparent bias must be assessed at the time of the hearing of the challenge to the arbitrator.

The Supreme Court held that failure to disclose overlapping references is capable of demonstrating “a lack of regard to the interests of the non-common party” and may in certain circumstances therefore constitute apparent bias.

Rejection of challenge

The Court held that, in the context of the Bermuda Form arbitration between Halliburton and Chubb, the Arbitrator was required to disclose the multiple appointments in question. This was because there was no established custom or practice in Bermuda Form arbitration of allowing an arbitrator to take on multiple and overlapping appointments without disclosure. Mr Rokison was therefore under a legal duty to disclose his appointment in the subsequent overlapping proceedings because, at the time of appointment in those arbitrations, those appointments might reasonably give rise to the real possibility of bias.

However, the Supreme Court concluded that the fair-minded and informed observer would not determine that there was a real possibility of bias. This was because:

  1. At the time the disclosure fell to be made there had been uncertainty under English law about the existence and scope of an arbitrator’s duty of disclosure;
  2. The time sequence of the arbitrations may have been an explanation for the non-disclosure to Halliburton;
  3. Mr Rokison had explained that both the subsequent overlapping arbitrations would be resolved by way of preliminary issue, which meant there would in fact be no overlapping evidence or submissions. Mr Rokison had offered to resign from the subsequent arbitrations if that was not the case and it was therefore unlikely that Chubb would benefit as a result of the overlapping arbitrations;
  4. Mr Rokison had not received any secret financial benefit; and
  5. Mr Rokison’s response to the challenge had been “courteous, temperate and fair…and there is no evidence that he bore any animus towards Halliburton as a result”.

Comment

This judgment has emphasised the importance of arbitrator impartiality and has both clarified and refined the law on apparent bias in the context of arbitration. The case is of real significance for the wider international arbitration community, and should allay potential concerns as to London’s status as a leading seat of arbitration.

The decision is the latest case to demonstrate the robust approach of the English courts to arbitrator challenges, in line with the courts’ non-interventionist and pro-arbitration stance. In this case the Supreme Court noted that challenges of this kind have “rarely succeeded” and also noted that the objective observer at the heart of the apparent bias test will be “alive to the possibility of opportunistic or tactical challenges”.

For more information, please contact Craig Tevendale, Head of International Arbitration London, Chris Parker, Partner, Vanessa Naish, Professional Support Consultant, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale

Craig Tevendale
Head of International Arbitration London
+44 20 7466 2445

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Vanessa Naish

Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

Rebecca Warder

Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

HERBERT SMITH FREEHILLS – SMU ASIAN ARBITRATION LECTURE

This year marks the tenth edition of the Herbert Smith Freehills – SMU Asian Arbitration Lecture Series.

We are delighted that Ms Loretta Malintoppi from 39 Essex Chambers will deliver the lecture on Thursday 22 October, on the topic “Don’t Shoot the Sheriff: The Threat of Legal Claims Against Arbitrators and Arbitral Institutions”.

The Herbert Smith Freehills-SMU Asian Arbitration Lecture Series was established in 2010 through funding from Herbert Smith Freehills, and promotes collaborative forms of dispute resolution and access to justice. It also aims to promote Singapore as a leading centre for dispute resolution in Asia, particularly in arbitration and mediation. Each year, a distinguished jurist delivers the lecture, which is also published in a leading global arbitration journal.

Continue reading

PRC court clarifies enforcement of Mainland award made by foreign institution

On 6 August 2020, Guangzhou Intermediate People’s Court made a civil ruling that an arbitral award made in Guangzhou by the ICC should be regarded as a Chinese arbitral award with a foreign element. It follows that the award should be enforced under Article 273 of the PRC Civil Procedure Law, rather than under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

(2015) Sui Zhong Min Chu Si Zi No. 62 or (2015)穗中法民四初字第62号

Background

This case concerned a supply contract between Brentwood Industries (US) as the seller, Guangzhou Faanlong Machinery Engineering Co Ltd (PRC) as the buyer, and Guangzhou Zhengqi Trading Co Ltd (PRC) as the agent of the buyer. Article 16 of the contract provided that “any dispute arising from or in connection with this contract shall be settled through friendly negotiation. If no settlement can be reached through negotiation, it shall be submitted to ICC for arbitration in the place where the project is located in accordance with international convention and practice” (emphasis added). Article 17 provided that “the applicable law of this contract is PRC law”. In this case, the project was located in Guangzhou, Mainland China.

On 16 December 2010, Brentwood brought a claim against Faanlong and others (Respondents) in the Court. The Court declined to hear the case, as there was an arbitration agreement between the parties. On 9 May 2011, Brentwood applied to the Court to invalidate the arbitration clause. Brentwood was not successful. Subsequent to the Court’s ruling confirming the validity of the arbitration clause, on 31 August 2012, Brentwood commenced ICC arbitration against the Respondents. The arbitration was administered by the ICC through its Secretariat Asia Office based in Hong Kong. On 17 March 2014, the sole arbitrator made a final award in favour of Brentwood. On 13 April 2015, Brentwood applied to the Court for recognition and enforcement of the award.

The Court’s ruling on enforcement

Brentwood argued that judicial practice in Mainland China is that the nationality of the arbitral award is determined by the place where the arbitration institution is located. Accordingly, as the award was made by the ICC, which is headquartered in Paris, it should be recognised and enforced in Mainland China in accordance with the New York Convention. Alternatively, if the Court considered that the award was made by the ICC Secretariat Asia Office based in Hong Kong, the award is a Hong Kong arbitral award and should be recognised and enforced in accordance with the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region (Mainland and Hong Kong Mutual Arrangement).

The Respondents argued that (1) the award was not “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought “ (Article 1 of the New York Convention), and thus should not be recognised and enforced under the New York Convention; (2) ICC was not an arbitration institution stipulated in the PRC Arbitration Law and it was not legal for it to administer arbitration in Mainland China; and (3) the validity of the arbitration clause and the enforceability of the arbitral award were two separate legal issues under different rules. The fact that the arbitration clause was held valid did not necessarily suggest that the award made pursuant to it was enforceable.

The Court ruled that the award, made in Guangzhou by the ICC, should be regarded as a foreign-related arbitral award made in Mainland China. Enforcement of the award should be brought under Article 273 of the PRC Civil Procedure Law. It rejected Brentwood’s arguments for recognition and enforcement under the New York Convention or the Mainland and Hong Kong Mutual Arrangement and directed Brentwood to re-apply for enforcement under the PRC Civil Procedure Law.

Comment

It is a long-standing question whether foreign arbitration institutions can administer arbitration seated in Mainland China under the current PRC Arbitration Law regime. The traditional view was no, because “arbitration commission” in the PRC Arbitration Law meant Chinese arbitration institutions only. However, with the increase in commercial dealings between Chinese and foreign parties, the strict interpretation of the law no longer sits well with the demands of commercial parties. China’s Supreme People’s Court has recently, in several cases and judicial interpretations, confirmed the validity of clauses providing for arbitrations administered by foreign institutions seated in Mainland China. This latest decision made by the Guangzhou Court took a further step,  supporting that the arbitral award made in arbitration seated in Mainland China and administered by a foreign arbitration institution can be enforced under PRC Civil Procedure Law. However, as Mainland China is not a case law jurisdiction, this latest decision by Guangzhou Court, even though it should have been vetted by the Supreme People’s Court via the internal reporting system, is not a binding authority in Mainland China.

Viewed in light of the fact that foreign arbitral institutions are now permitted to operate in Beijing and extended free trade zones in Shanghai (see here), we are hopeful that there will be a final clarification in the near future on the question of whether foreign arbitral institutions can administer arbitration seated in Mainland China. Legal practitioners in Mainland China have been calling for an amendment to the existing PRC Arbitration Law to address this issue. If that happens, it would be a significant step towards China further opening up its legal services market to foreign players. Having said that, before that final missing piece of the puzzle is complete, we would recommend that parties avoid agreeing to an arbitration clause that provides for arbitration seated in Mainland China to be administered by a foreign arbitral institution.

If you have questions or would like discuss any aspect of this post, please contact Helen Tang, Stella Hu or Briana Young of Herbert Smith Freehills, Weina Ye of Kewei Law Firm, or your usual Herbert Smith Freehills contact.

Helen Tang

Helen Tang
Partner, Shanghai
+86 21 2322 2160

Weina Ye

Weina Ye
International Partner, Kewei
+86 21 2322 2132

Stella Hu

Stella Hu
Of Counsel, Beijing
+86 10 65355017

Briana Young

Briana Young
Professional Support Consultant, Hong Kong
+852 2101 4214

 

 

NOW OR NEVER: MALAYSIA CONFIRMS FAILURE TO OBJECT WAIVES RIGHT TO CHALLENGE

In Sunway Creative Stones Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd and Anor [2020] MLJU 658, the Malaysian High Court refused to set aside an arbitral award because the applicant had not challenged the arbitrator’s jurisdiction and conduct when the issues arose during the arbitral proceedings. The Court emphasised that such lack of protest can be deemed a waiver of a party’s right to set aside an arbitral award on the same grounds at a later date.

This decision serves as a helpful reminder that, notwithstanding regional arbitration trends, parties to Malaysia-seated arbitrations should actively ventilate their dissent as and when they believe the arbitral tribunal is thought to have misconducted itself, even if they understand that the tribunal’s mandate has lapsed.

Background

Yeoh Tiong Lay Sdn Bhd (YTL) was appointed as the main contractor for earthworks, piling works, and main building works for condominiums in Kuala Lumpur. YTL thereafter entered into a sub-contract with Sunway Creative Stones Sdn Bhd (SCS) on an amended PAM 1998 Agreement and Conditions of Building Sub-Contract (Private Edition) for the supply, delivery, and installation of stonework (Sub-Contract).

YTL terminated its engagement as main contractor over alleged non-payment of interim certificates, which, in turn, determined SCS’s employment under the Sub-Contract. SCS commenced an arbitration against YTL under the PAM Arbitration Rules 2003 seeking declaratory and pecuniary reliefs including interest and costs. The dispute was heard before a sole arbitrator (Arbitrator) with the participation of both parties. Following the arbitration hearing, parties exchanged post-hearing submissions, with the last submission being served on 1 June 2015.

Article 21.3 of the PAM Arbitration Rules 2003 – central to YTL’s challenge – required that:

the Arbitrator shall deliver his award as soon as practical but not later than three (3) months from his receipt of the last closing statement from the parties. Such time frame for delivery of the award may be extended by notification to the parties.” [emphasis added]

The Arbitrator neither issued the award by this three-month deadline nor notify both parties of any extensions to this timeline. Instead, the award was delivered on March 2019 – almost 3.5 years late – in which the Arbitrator found in SCS’s favour (Award).

Saliently, SCS’s solicitors reminded the Arbitrator on four occasions between February 2016 and December 2018 on the need to deliver his Award in a timely manner. These reminders were copied to YTL’s solicitors. YTL, however, did not send any such reminders nor raise concerns with the Arbitrator’s non-compliance with the deadline.

Following YTL’s non-payment of sums under the Award, SCS sought recognition and enforcement of the Award against YTL. In response, YTL applied to the Malaysian High Court to set aside the Award under Section 37 of the Arbitration Act 2005 (AA 2005), which largely mirrors Article 34 of the UNCITRAL Model Law.

YTL’s three main grounds for setting aside were:

  1. Procedural Ground: The Arbitrator failed to comply with the agreed arbitral procedure when he delivered the Award beyond three months of his receipt of the last closing submissions. This rendered the Award liable to be set aside under Section 37(1)(a)(vi) AA 2005.
  2. Jurisdiction Ground: The Arbitrator lacked jurisdiction to issue the Award when he did. YTL contended that the Arbitrator’s mandate lapsed on 1 September 2015, upon the expiry of the time limit to deliver the Award. Thus, there was no longer any subsisting arbitration when the Arbitrator delivered the Award on March 2019, which meant that the Award was issued without jurisdiction. It was therefore, void and to be annulled under Section 37(1)(a)(iv) and (v) AA 2005.
  3. Public Policy Ground: The Arbitrator’s delay in delivering the Award was a breach of natural justice, and should be set aside on the grounds of public policy pursuant to Section 37(2) AA 2005.

SCS opposed all three setting aside grounds on the basis of YTL’s failure to raise these complaints in the arbitration. The Court dismissed YTL’s setting aside application on each grounds and upheld the Award.

Procedural and jurisdiction grounds

The Procedural Ground failed as YTL did not protest the Arbitrator’s delay in issuing the Award when it arose. By its silence, YTL was understood to have waived its right to rely on this procedural defect as a ground for challenge. The Court viewed this consistent with the waiver principle under Article 20 of the PAM Arbitration Rules 2003 and Section 7(b) AA 2005, which require a challenging party to promptly raise procedural objections or lose the right to subsequently rely on them.

As regards the Jurisdiction Ground, the Court found that the waiver doctrine extended to jurisdictional challenges and that established Malaysian case law supported this view. Section 18(5) AA 2005, worded similarly to Article 16(2) of the UNCITRAL Model Law, required a party to challenge any excess of jurisdiction as soon as the alleged infraction arises during the arbitral proceedings. Analysing this, the Court held that if a party fails altogether to invoke the right to challenge an arbitrator’s jurisdiction whilst arbitration proceedings are ongoing, that party cannot thereafter apply to set aside the award on jurisdictional grounds under Section 37(1)(a)(iv) and (v) AA 2005.

The Court found further support in the shift in arbitral jurisprudence in Malaysia since the enactment of AA 2005.  It was previously the position under the Arbitration Act 1952 (repealed), as reflected in Bauer (M) Sdn Bhd v Daewoo Corp [1999] 4 MLJ 545, that a failure to raise a jurisdictional objection did not prevent an objecting party from later challenging the award on the same jurisdictional grounds in setting aside or enforcement proceedings. This, however, was inconsistent with the intention of Article 16 of the UNCITRAL Model Law and, in turn, Section 18 AA 2005. The Court sought to give effect to this new legislative intention.

Accordingly, YTL should have raised a plea to the Arbitrator that he lacked jurisdiction to deliver his Award soon after 1 September 2015, ie upon the expiry of the time limit to deliver the Award. Having failed to do so, YTL lost the right to rely on the same jurisdictional defect in setting aside proceedings.

Public policy ground

In the Court’s view, the late Award did not amount to a breach of natural justice satisfying the high threshold for public policy challenges under Section 37(2) AA 2005. The Court emphasised YTL’s failure to avail itself of the opportunity to remedy the Arbitrator’s misconduct before the Award was published, including an application to terminate the Arbitrator’s appointment pursuant to Section 16 AA 2005. Following its failure, YTL could not now argue that a fundamental notion of substantive or procedural justice was violated as a result of the delayed publication of the Award.

In the circumstances, the Arbitrator’s conduct was not “some matter which concerns the public good and public interest“, and did not demonstrate a “strong case has been made out that the arbitral award conflicts with the public policy of Malaysia“. Thus, the Award was not liable to be set aside on the ground of public policy.

Comment

The Malaysian High Court’s decision in Sunway Creative Stones emphasises that parties to Malaysian-seated arbitrations are expected to raise jurisdictional and procedural objections without undue delay. Failure to do so may amount to a waiver of the objecting party’s right to raise such defects at the setting aside stage.

The Malaysian position appears to stand in contrast with the Singaporean approach to jurisdictional objections. In Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited [2019] SGCA 33, the Singapore Court of Appeal found that a non-participating respondent was entitled to stand by while the claimant proceeded with the arbitration without losing his right to challenge the jurisdiction of the tribunal in setting aside proceedings before the supervisory court. This was despite that the non-participating respondent declined to participate in arbitral proceedings on the belief that the arbitration had been wrongly started or continued due to a lack of jurisdiction. A salient finding of the Singapore Court of Appeal was that the law does not compel a respondent against whom arbitration proceedings have been started to take part in those proceedings and defend his position. Although it is a risky course of action to pursue, it lies within the respondent’s prerogative to do so where it has a valid objection.

Although it concerns a jurisdiction objection at a different stage of the arbitration, Rakna Arakshaka Lanka Ltd demonstrates the differing levels of judicial tolerance between the Malaysian and Singapore courts towards party delays or refusals to ventilate jurisdictional challenges. Notably, the Rakna Arakshaka Lanka Ltd line of cases was not put before the Malaysian High Court in Sunway Creative Stones. It may be a point of interest for many to see how the Malaysian courts will treat this regional jurisprudential difference in future cases. However, for now, the Sunway Creative Stones decision serves as a reminder that arbitrating parties should not delay in raising jurisdictional and procedural complaints.

An English version of the decision can be accessed here.

 

For further information, please contact Peter Godwin, Lim Tse Wei, or your usual Herbert Smith Freehills contact.

Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.

Peter Godwin

Peter Godwin
Disputes & Managing Partner
+60 3-2777 5104

Tse Wei Lim

Tse Wei Lim
Associate (Malaysia)
+60 3-2777 5135

 

Hong Kong arbitration internship 2021 – applications now open

 

English High Court rejects application to remove the arbitrator named in the arbitration agreement on the grounds of apparent bias

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.

Continue reading

Malaysian High Court considers the legal test for obtaining subpoenas in aid of arbitration

In Coneff Corporation Sdn Bhd v Vivocom Enterprise (Originating Summons No. WA-24C(ARB)-26-06/2019) the Malaysian High Court for the first time considered the test for an application to subpoena a witness to produce documents for the purpose of an arbitration and give evidence in arbitration proceedings.

Background

The plaintiff (“Coneff”) appointed the defendant (“Vivocom”) to construct and complete a mixed commercial and residential development project in Kuala Lumpur. Disputes arose concerning the adequacy of piling works done by Vivocom’s piling sub-contractor, the latter having appointed Geonamics (M) Sdn Bhd (“Geonamics”), to conduct Pile Driving Analyser (“PDA”) tests to ascertain the integrity of a number of the constructed bored piles.

As a result of expert opinion obtained in the course of the arbitration which cast doubt on the integrity of the PDA test results, Coneff obtained a High Court subpoena against an employee of Geonomics (“Applicant”) to produce the PDA raw data to Coneff, and to give evidence in the arbitration.  On an application by the Applicant, the High Court set aside the subpoena to give evidence in the arbitration, but upheld the subpoena to produce documents. Given that the decision is currently under appeal, the High Court produced written grounds for its decision, being the first written judgment addressing the principles relating to the exercise of a Malaysian court’s power to assist in the taking of evidence for arbitration proceedings under the Arbitration Act 2005.

Continue reading

HONG KONG: CFI REFUSES TO SET ASIDE EX PARTE ORDER ALLOWING SERVICE OUT ON BASIS OF DEFENDANT’S SUBMISSION TO JURISDICTION

In the recent case of Balram Chainrai v Kushnir Family (Holdings) [2019] HKCFI 2866, the Hong Kong Court of First Instance (CFI) refused to set aside an ex parte order allowing service out of the jurisdiction on the basis that the defendant had submitted to the jurisdiction.

Background to the dispute

See our previous discussion of this matter here and here. In the most recent developments, the Third Defendant, Mr Israel Sorin Shohat, in proceedings commenced by the Plaintiff, Mr Balram Chainrai, sought to appeal in the CFI an earlier decision of Master Eliza Chang in which it was held that the Third Defendant had submitted to the jurisdiction of the Hong Kong courts in relation to a matter related to an Israeli arbitral award issued in 2013 and had therefore waived his right to challenge jurisdiction.

Issues before the court

The Third Defendant made three principal arguments on appeal to the CFI:

  1. The Third Defendant had not submitted to the jurisdiction of the Hong Kong courts;
  2. The Plaintiff’s ex parte application obtaining permission to serve a writ of summons on the Third Defendant out of the jurisdiction in November 2015 (Ex Parte Order) should be set aside on the basis, amongst other things, that (1) there was no serious issue to be tried against the Third Defendant, (2) there was no good arguable case against the Third Defendant, and (3) Hong Kong was not the most appropriate forum on the basis that all events took place in Israel and all but one of the parties was from Israel; and
  3. Even if there has been a submission to the jurisdiction that submission is limited in nature and amounts only to an acceptance of jurisdiction and not acceptance of the exercise by the court of that jurisdiction. Consequently it is appropriate now to stay these proceedings on the grounds of forum non conveniens.

Decision

The CFI dealt first with the question of whether the Third Defendant had submitted to the jurisdiction of the Hong Kong courts. Master Eliza Chang had previously determined that the Third Defendant had submitted to the jurisdiction on the basis of two key events:

  1. His application under Order 3, Rule 5 of the Rules of the High Court dated 11 February 2016, requiring the Plaintiff to file and serve a Statement of Claim within 7 days or otherwise have their claim dismissed (Application for the Unless Order).
  2. His commencement of strike-out proceedings on 3 May 2016 (Application for Strike-Out).

In making its determination, the court cited the decisions in ABN Amro Bank NV v Fortgang [2008] 2 HKLRD 349 and Global Multimedia International Ltd v ARA Media Services & Others [2007] 1 All ER (Comm) 1160, and asked itself whether “the only possible explanation for the conduct relied on is an intention on the part of the defendant to have the case tried” in Hong Kong.

With regard to the Application for the Unless Order, the court took the view that the Third Defendant should be entitled to ask for further details of the claim against him, even if this meant using the procedures of the court. Understanding the nature of the claim was said to be important to various aspects of the test under RHC Order 11 Rule 1(1), and hence consistent with deciding whether to seek to set aside the Ex Parte Order. The court therefore disagreed with the conclusion of the Master, and held that the Application for the Unless Order was insufficient to show submission to the jurisdiction of the Hong Kong courts. Although it would have been advisable for the Third Defendant to reserve his rights when making the application, this was not held to be decisive.

With regard to the Application for Strike-Out, the court agreed with the Third Defendant that such an application did not necessarily amount to a submission to the jurisdiction. However, the issue was said to be very fact-dependent. Although there was no submission where the application was made on the basis of defects apparent in the Plaintiff’s original writ, the court noted that the application in this case had gone much further and asked the court to consider the merits of the case. This, the court said, demonstrated that the Third Defendant had accepted that the court had jurisdiction to do so. Although the Third Defendant had argued that the application had been made subject to a reservation of rights, the court noted that this express reservation was not made until two weeks after the Application for Strike-Out was made and was insufficient.

In these circumstances, the court held that the Third Defendant had submitted to the jurisdiction of the Hong Kong courts and dismissed his appeal.

The court’s conclusion on the issue of submission to jurisdiction made it unnecessary to address the other arguments. Nevertheless, the CFI outlined its views on each issue:

  1. With regard to the Third Defendant’s attempt to set aside the Ex Parte Order, the court indicated that it was in favour of the Third Defendant. It observed that although there was a serious issue to be tried between the Plaintiff and the Third Defendant, there was no good arguable case against the Third Defendant that falls under the Necessary or Proper Party Gateway of RHC Order 11, rule 1(1)(c). The court further noted that the extensive connections to Israel meant that Hong Kong was clearly not the natural forum.
  2. With regard to the Third Defendant’s argument that its submission was partial and only prevented him from challenging the existence of jurisdiction but not its exercise, the court acknowledged that in theory it was able to stay the proceedings on the grounds of forum non conveniens under RHC Order 12 rule 8, however it refused to do so. It stated that on the facts the nature of the submission to the jurisdiction was absolute, and so it was not open to the court to grant a stay. Although the court retained an inherent jurisdiction where circumstances arose subsequent to the time limits in that provision, that jurisdiction could not be exercised where the defendant had effectively debarred himself through submitting to the jurisdiction.

Comment

The case serves as a cautionary tale for any party wishing to challenge the jurisdiction of the Hong Kong courts and a useful reminder that a party wishing to do so should expressly and clearly reserve this right from the outset of the proceedings. The risks of not following this advice is a finding from the Hong Kong courts that the party has submitted to the jurisdiction which in turn will lead to delays in the resolution of the dispute and wasted costs.

It is important to note that this case does not serve to tarnish Hong Kong’s reputation as an arbitration-friendly jurisdiction. The fact that a prior arbitral award had been issued was unrelated to the CFI’s consideration of whether the Third Defendant had submitted to the jurisdiction.

 

May Tai

May Tai
Managing Partner, Greater China
+852 2101 4031

Simon Chapman

Simon Chapman
Partner, Hong Kong
+852 2101 4217

Kathryn Sanger

Kathryn Sanger
Partner, Hong Kong
+852 2101 4029

Madhu Krishnan

Madhu Krishnan
Registered Foreign Lawyer (England & Wales), Hong Kong
+852 2101 4207

Briana Young

Briana Young
Foreign Legal Consultant (England & Wales)/Profesional Support Lawyer, Hong Kong
+852 2101 4214

HONG KONG COURT GRANTS INTERIM ANTI-SUIT INJUNCTION IN FAVOUR OF ARBITRATION TO RESTRAIN COURT PROCEEDINGS INVOLVING THIRD PARTY

In GM1 and GM2 v KC [2019] HKCFI 2793, the Hong Kong Court of First Instance granted an interim anti-suit injunction restraining mainland Chinese court proceedings involving a third party, and clarified the jurisdiction basis for doing so.

The decision reflects the long-standing pro-arbitration approach of the Hong Kong courts and confirms that arbitration clauses are not to be interpreted narrowly, but may cover claims against the non-contracting affiliates or associates of a contracting party. The decision also reiterates that in considering an application for an anti-suit injunction, the question for the Court remains whether or not its jurisdiction is invoked, and the fact that the foreign Court would assume jurisdiction and refuse to stay the foreign proceedings is not relevant.

Background

GM1 and KC entered into a guarantee (Guarantee) which contained an arbitration clause in favour of arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre.

KC later commenced legal proceedings in the Court of Suzhou (Mainland Proceedings) against GM1 and GM2, the latter being an affiliate of GM1 who was not a party to the Guarantee. In parallel, there were pending arbitration proceedings between GM1 and KC pursuant to the Guarantee, and related arbitration proceedings between GM1 and a wholly-owned subsidiary of KC.

GM1 and GM2 sought an anti-suit injunction from the Hong Kong Court to restrain KC from pursuing the Mainland Proceedings and commencing further proceedings in breach of the arbitration agreement, and an “interim-interim” injunction in the same terms pending the substantive hearing of the injunction application.

Decision on interim-interim injunction

The Court did not determine the substantive interim injunction application, only the “interim-interim” injunction.

In the present application, the questions before the Hong Kong Court were:

  1. whether the Court had power to grant an interim anti-suit injunction in favour of an arbitration in Hong Kong under section 45 of the Arbitration Ordinance (AO);
  2. whether the proper course would be to leave it to the Mainland Court to recognise and enforce the arbitration agreement (including determining the validity of the arbitration clause); and
  3. whether the Court can grant an anti-suit injunction in relation to proceedings commenced against a third party such as GM2.

On the first issue, the Court confirmed that it has power under AO section 45 to grant an interim anti-suit injunction. The objects of the AO are to facilitate fair and speedy resolution of disputes by arbitration without unnecessary expense and enforce arbitration agreements. Specifically, the Court has power under AO section 45 to grant interim measures which, pursuant to AO section 35, include an order to “maintain or restore the status quo pending determination of the dispute“. An anti-suit injunction is to enforce the positive promise of a party to arbitrate disputes and the negative right not to be vexed by foreign proceedings, and is therefore in line with AO section 35 to maintain such status quo pending determination of the dispute. The Court therefore had the power to grant an anti-suit injunction under AO section 45.

On the second issue, the Court held that the following grounds were not grounds to refuse the anti-suit injunction / not stay the Mainland Proceedings:

  1. that the Mainland Court may insist on its own jurisdiction and would not have granted a stay of the proceedings;
  2. that it may not be possible for KC to discontinue or withdraw from the Mainland Proceedings after its case had been accepted by the Mainland Court; and
  3. that the existence and validity of the arbitration clause was disputed.

As a matter of principle, the arbitral tribunal can decide on its own competence and jurisdiction, and, as the supervisory court, the Hong Kong Court has jurisdiction to review the findings of the tribunal on its own jurisdiction. The Court further noted that, if GM1 and GM2 later sought enforcement of the award in the Mainland, it would be open to the Mainland Court to review at that point in time the validity of the arbitration agreement and resist enforcement on that basis.

On the third issue, the Court held that anti-suit relief may be granted against a third party if the arbitration agreement can be construed to cover claims not only against the contracting party, but also against the non-contracting affiliates or associates of the contracting party. This is based on the principle in Giorgio Armani SpA v Elan Clothes Co Ltd [2019] HKCFI 530 that rational businessmen would have wanted the disputes with affiliates of the contract to be decided in the same forum in the same manner of dispute resolution. The Court did not decide decisively on the third issue, but it was satisfied that there was a serious question to be tried in the adjourned substantive hearing for the interim injunction application as to whether KC’s claims against GM2 in the Mainland Proceedings should be dealt with by the same arbitral tribunal based on the specific circumstances in relation to the existence, validity and binding effect of the Guarantee and its arbitration agreement.

For these reasons, the Court concluded that it was within the jurisdiction of the Court, and that it was just and fair to grant the interim injunction pending the conclusion of the substantive hearing of the injunction application.

Comment

This decision demonstrates the Court is prepared and equipped to grant an anti-suit injunction to restrain a party from pursuing non-arbitral proceedings even against a third party, to the extent that such proceedings are covered by the arbitration agreement. The fact that the foreign Court may insist on its jurisdiction and refuse to stay the foreign proceedings is no bar to the Hong Kong Court granting an anti-suit jurisdiction.

This case also serves as a helpful reminder that parties should carefully consider the implications of parallel proceedings and seek legal advice for each particular case if necessary.

May Tai

May Tai
Managing Partner, Greater China
+852 2101 4031

Kathryn Sanger

Kathryn Sanger
Partner, Hong Kong
+852 2101 4029

Simon Chapman

Simon Chapman
Partner, Hong Kong
+852 2101 4217

 

Will Halliburton be the final word on apparent bias?

Following the Supreme Court hearing in the Halliburton v Chubb case, Craig Tevendale of Herbert Smith Freehills in London considers the significance of the Supreme Court’s forthcoming judgment and whether the case will end the recent controversy on apparent bias.

In a decision that whipped up a storm in the international arbitration community, the Court of Appeal decided in 2018 that there had been no apparent bias where an arbitrator failed to disclose to one of the parties his appointment in multiple proceedings with different parties which arose out of the same incident.

This month’s Supreme Court hearing of Halliburton’s appeal against that decision was, without doubt, the most significant English court hearing in arbitration since the case of Jivraj v Hashwani on arbitrator status in 2011. The Halliburton judgment, anticipated to be delivered in the next four to six weeks, should give clarity on legal issues which are critical to the reputation of London arbitration.

It is important to emphasise that the Supreme Court is expected to provide guidance on the test for apparent bias, regardless of whether the appeal itself succeeds. Halliburton may well lose the appeal on the facts, given the English courts’ pro-arbitration and anti-intervention approach. If the court decides against Halliburton it is likely to be based on the specific facts relating to the overlapping references in question, the nature of the insurance arbitration market, and the Bermuda Form context. However, even if the appeal fails, it is expected to be defeated on different reasoning than the problematic approach in the Court of Appeal judgment.

The Halliburton case deals with a number of important legal issues on which the arbitration community needs clarity, including whether multiple overlapping appointments are in themselves an issue. The Court of Appeal’s lack of concern in relation to repeat and overlapping appointments is questionable, given that repeat-appointing parties are likely to know an arbitrator’s position in relation to particular issues from other cases.

This information will not be available to users new to arbitration, and therefore risks an inequality of arms. Where there are overlapping proceedings the common party may also hold a tactical advantage over other parties, by having the ability to test submissions in a way that flushes out the arbitrator’s position on particular points. The common party will potentially also have access to evidence unavailable to the other party and may influence the arbitrator’s decision making with submissions not seen by the other party. Even where an arbitrator makes every effort to confine his or her deliberations to material only from the relevant reference, this “compartmentalisation” may not prove entirely effective. It is expected that the Supreme Court judgment will address these problematic issues, and how they impact on the test for apparent bias, in more depth.

A further controversial gap in the Court of Appeal decision was the lack of guidance on why the non-disclosure itself did not meet the threshold for apparent bias. The Court of Appeal stated that an additional factor was needed, referred to as “something more”, but the judgment does not elaborate further. This is surprising. While it has been suggested that the duty of confidentiality placed upon an arbitrator prevents appointments being disclosed, it is widely accepted in the arbitration community that the duty of confidentiality does not trump the duty of arbitrator disclosure. It is expected that the Supreme Court will make it clear that overlapping appointments should be disclosed, and it is expected that the significance of non-disclosure will be addressed more clearly.

While it is well established that the perspective of the “fair-minded and informed” observer is the starting point from which to decide allegations of apparent bias, it is much less clear what that observer should be assumed to know. There is a compelling argument that the observer should be assumed to have knowledge of the international arbitration context, and that informed expectations should therefore differ from those in litigation. This is another area which was not explored in any detail in the Court of Appeal judgment, and where the Supreme Court’s judgment should clarify the position.

The Court of Appeal dismissed the issue of financial benefit resulting to arbitrators from multiple appointments. However, it is important to take this into account when considering the effect of repeat appointing. In the arbitration world (and indeed in previous judgments), it has long been recognised that there could be an (even if unconscious) incentive for arbitrators to avoid antagonising parties who frequently appoint them. It would be helpful if the Supreme Court judgment recognised this.

The case is notable for the multiple interventions from interested institutions. The LCIA and ICC have rightly emphasised the importance of ensuring that the English test for apparent bias is aligned with international norms. For their part, the LMAA and GAFTA have expressed concern that any decision which conflates repeat appointments with apparent bias may cause real problems for arbitration in their sectors. Specialist trade arbitrations, which frequently see strings of cases and for which there may be a limited pool of arbitrators with the requisite sector knowledge, may indeed fall to be treated differently. It is likely that the Supreme Court judgment will recognise this nuance, and that sector-focused arbitration communities may continue in accordance with their current practice.

Interestingly, while the arbitrators in the Halliburton case have been accorded confidentiality in these proceedings, at the hearing the Supreme Court expressed some scepticism on this and asked for submissions as to whether anonymity should be sustained. It is hard to justify the continued anonymity of the arbitrators in question, particularly in circumstances where the Court of Appeal referred to the eminent reputation of the arbitrator ‘M’ as a factor militating against apparent bias.

As to where this leaves us, while the arbitration community has called for clarity on apparent bias, the differing positions adopted by the interveners underlines that there is no consensus on how to address the issue of “frequent flyers”. Regardless of the ultimate decision on the facts in this particular case, it is to be hoped that certainty and clarity are delivered by the Supreme Court judgment – and that arbitrators, counsel and parties are better equipped to navigate the difficult territory of apparent bias.

A version of this article first appeared in the Global Arbitration Review.  

For further information, please contact Craig Tevendale, or your usual Herbert Smith Freehills contact.

Craig Tevendale

Craig Tevendale
Partner
+44 20 7466 2445