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Crossing The Line: Successful Bias Challenge Removes Arbitrator

Posted on Mar 03, 2015 by  | Tags: international arbitration, apparent bias, justifiable doubts, impartiality, removal of arbitrator, arbitration act 1996, conflicts of interest, bias challenge, English Commercial Court  | 0 Comments

By Neil Morrison, Associate, Dispute Resolution

Introduction

Arbitration is a dispute resolution procedure where parties agree that an independent third party (“the arbitrator”) will decide their dispute. The ideal situation is that an arbitrator is appointed in whom both parties have confidence. Unfortunately this is a rare event and usually an appointment body such as RICSScottish Arbitration Centre or CIArb is appointed to choose the arbitrator where parties are unable to agree.

Nemo judex in causa sua

The above Latin phrase means “nobody is to be judge in his own cause”. This is a founding principle of arbitration. The chosen arbitrator should have no connection with either party. If there is a connection then the arbitrator could face a bias challenge and potential removal by the Court. To try and avoid this situation, the arbitrator should at the outset of the arbitration disclose any connection with the parties that might raise a justifiable doubt as to his or her impartiality.

Recent Bias Challenge Case

A recent bias challenge was decided in the Commercial Court of England & Wales. The case of Sierra Fishing Company & Others v Hasan Said Farran & Others [2015] EWHC 140 (Comm) is interesting because there have been relatively few reported applications for removal of an arbitrator.

Factual Background

The case concerned a disputed loan agreement between Dr Farran and Mr Assad (“the Defendants”) and Sierra Fishing Company (“SFC”), and Mr Said Mohamed (on his own behalf and his late father’s estate) (“the Claimants”).

The loan agreement contained an arbitration clause and when no repayments were made to the Defendants they served a request for arbitration on the Claimants seeking repayment and nominated a Lebanese lawyer, Mr Ali Zbeeb, (“the Arbitrator”) as arbitrator by the Defendants.

Subsequently the Arbitrator advised parties that he had commenced the arbitration as a sole arbitrator despite protests from the Claimants that he had no jurisdiction and was biased because he had close connections with the Defendants. The Arbitrator threatened to issue his Award (decision) which prompted the application of removal from the Claimants.

The Test for Apparent Bias

The power to remove an arbitrator in England & Wales is to be found in s.24 of the Arbitration Act 1996 (“the Act”). An application can be made in circumstances that give rise to justifiable doubts to the arbitrator’s impartiality (if they satisfy the apparent bias test below).

The Scottish equivalent to s.24 can be found in rule 12(a) of the Scottish Arbitration Rules in Schedule 1 of the Arbitration (Scotland) Act 2010.

The apparent bias test is as follows:

Whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.

It is important to note that the test is the real possibility of bias; no proof of actual bias is required.

Three Reasons for Removal

The Claimants successfully argued that 3 issues gave rise to the possibility of apparent bias:

1. Arbitrator’s legal & business connections

The main contention was that the Arbitrator’s law firm had acted for the Defendants in relation to significant commercial matters

The Court decided that a fair minded observer would conclude that there was a real possibility the Arbitrator would be bias in order to foster and maintain his law firm’s relationship with the Defendants.

2. The Arbitrator’s involvement in drafting the parties’ agreements

The Defendants were relying on the agreements drafted by the Arbitrator in their claim for shares from the Claimants so there was a real possibility that the Arbitrator would find in favour of the Defendants since he had responsibility for drafting the agreements.

3. The Arbitrator’s conduct of the application for removal

Firstly, the Arbitrator refused to postpone his award despite being requested by both parties to do so.

Secondly, the Arbitrator’s tone and content of communications with the parties once challenged gave the appearance that the Arbitrator had ‘descended into the arena and taken up the battle on behalf of Dr Farran and Mr Assad [the Defendants]’.

In light of the above conduct, the Court concluded there was a real possibility that the Arbitrator was bias as the conduct appeared to show a loss of objectivity.

Conclusion

The case is a useful guide to the kind of circumstances that may give result in a successful removal of an arbitrator by the Court. It also highlights that the English Courts will enforce standards of conduct in international arbitration.

It is also a cautionary tale for arbitrators that their reaction to a bias challenge may be their undoing if it appears that they have taken sides. Finally the case is a timely reminder of the need for arbitrators to voluntarily disclose any circumstances that might later be seized upon by a party to bring a bias challenge. If in doubt, the IBA Guidelines on Conflicts of Interest may be of assistance.

Contact Us

If you have any queries arising from this article, please contact our Dispute Resolution team on 0131 226 8200.

DISCLAIMER: While every effort has been made to ensure the accuracy of this blog post, it is not intended to provide legal advice as individual situations will differ. No recipients of content in this blog post should act or refrain from acting on the basis of the blog post without seeking the appropriate legal advice on the particular facts and circumstances at issue from a qualified solicitor in their jurisdiction. The blog post is for general information only and is not legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. No solicitor-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a solicitor qualified to practise in your jurisdiction.  Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200.

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