Disqualification of Arbitrators

LL.M (International Trade Law)

What are the tests applied by the English Courts for the disqualification of arbitrators for lack of independence and impartiality? Compare with other legal systems and assess whether these are in harmony with the IBA rule on conflict of interest.

Introduction

Arbitration is a mode of dispute resolution and has steadily been increasing its popularity in international transactions. This process is expensive but parties are generally anxious to have their disputes arbitrated by an independent and impartial arbitrator. In spite of various attempts of creating a uniform standard of rules for independence and impartiality, by the bodies like UNCITRALand International Bar Association (IBA), there is no unanimity on this point among different jurisdictions. This essay shall look at the tests in three different jurisdictions, they are the United Kingdom, the United States of America and India and their actual application by the courts. This essay commences by looking at the issue whether the two concepts of independence and impartiality can be used interchangeably, or if both needs to be used together. The other part critically examines the arguments for and against holding arbitrators to the same standard of impartiality as judges since they have a bearing on the actual test applied by the court.

Impartial is defined by reference to the objectively of the decision maker and there shall be absence of bias and the arbitrator shall have a wider duty to act fairly. Independence is an existing function that can be catalogued and verified.

Relation Between Independence And Impartiality

The term ‘impartiality’ and independence’ are synonymously used to indicate the absence of bias on the arbitrators. However, there is a difference which is to be found between them, impartiality is nothing but a state of mind and involves a subjective appraisal, while independence is verifiable objectively. Though they are different, they are considered to be two sides of the same coin. The English approach has more logical foundation. This approach shall take into consideration one of the objects behind arbitrating disputes, like the desire to have people experienced in the field adjudicate on the dispute. Therefore it shall not be a wise move to rule out all previous association between the arbitrator and the parties without reference to their triviality. If this sort of associations gives rise to ‘justifiable doubts’ as to impartiality would it become a disqualifying factor. This line of reasoning is submitted as the most acceptable one as the concept of independence can be easily subsumed with the idea of impartiality. In similar time we can see that the challenges on the grounds of remotest of association between the arbitrator and one of the parties can be avoided.

The ICC approach is influenced by the practical considerations. Here independence can be objectively established as opposed to impartiality, which is an abstract idea and may be impossible to establish. This reasoning shall make way to problematic consequences. Therefore, the ICC rules require the arbitrator to remain independent of the parties.

Comparing The Standard Of Impartialty And Independece For Judges And Arbitrators

From certain time there has been an argument over whether the standard applicable to judges should be applied to arbitrators as well. The answer to this argument one has to take into the account the factors that impel parties to choose arbitration as a mode of dispute resolution. One has to know that, people choose to arbitrate disputes so that they may be decided by people having experience and knowledge about the subject matter. Therefore, there has to be trade off between expertise and impartiality sine arbitrators, unlike the judges are not apart from but of the marketplace.

This view was criticised, it was pointed out that in earlier times parties were not so particular about legal analysis and were giving more importance to the fair compromises and special knowledge. But now a day’s trend is changing in favour of a neutral adjudicative process which shall assure an independent legal analysis, simultaneously taking into considerations the commercial goals. In international arbitration, neutrality has two dimensions namely (a) neutrality of decision making process. (b) Neutrality of a forum so that no party shall have home advantage. The object of this is that the arbitration should be decided in independent and impartial manner.

The impartiality present in the arbitrators needs to be protected more than the judges as they are more vulnerable to external pressures from the commercial world to which they belong. All there is not derived from deciding cases. Their decision is not subject appellate review, there may be practical difficulties and the parties may use it as a delay tactic. If the arbitral award is wrong account of bias on the part of arbitrator then it can be set aside.

Tests For Independece And Impartiality

The test which is present for determining bias has been quoted by Lord Hewart in R V Sussex Justice Ex p McCarthy” justice should not only be done but should manifestly and undoubtedly be seen to be done”. Earlier to the decision of House of Lords in R V Gough there was no judicial consensus over the test to be applied in cases of apparent bias. In R V Gough, Lord Goff made two main tests that had commonly been applied by the English Courts. The first test was whether there was a real danger of bias and second was whether a reasonable person might reasonably suspect bias.

Lord Goff endorsed the first of these tests in the court by examining an allegation of bias; in this the court should ascertain the circumstances, information which is not available to an observer and then find out if there is real danger of bias. In Laker Airways Inc V FLS Aerospace Ltd, the real danger test was applied to the arbitrators, in this case both the arbitrators appointed by the appellant and respondent came from the same barrister’s office. The Court was not satisfied with test of bias. According to the English Arbitration Act the court merely required the arbitrator to be impartial and not necessarily independent and gives rise to doubts if there is lack of independence present. Therefore the court thought the arbitrators may share certain resources like staff, library and submitted that the tests were not applied correctly.

In the case Locabail (UK) Ltd V Bayfield Properties Ltd , Lord Bingham made a statement that the court should adopt an approach which is based on an approach which is based on broad common sense, without having too much of special knowledge and should be reasonably well informed member of the public. In Laker Airways case we could see that the court was wrong by giving much importance to the special knowledge. Based on the broad common sense in AT and T Corp V Saudi Cable Co, the arbitrator was a non executive director of a competitor of AT And T Corp, with a small shareholding. Lord May LJ reached to a conclusion that the indirect interest of the arbitrator was not likely to discharge of his responsibilities but he felt that non executive director of the arbitrator would give rise to the question independence to one of the party.

The next method of the test is the question whether there was bias which was to be judged by the court, not based on its own impressions, but from the view of a reasonable man. According to Lord Goff in such cases the court should represent the reasonable man, in formulating tests.

The next test requires the fair minded person that is the reasonable man to be a well informed person. In this test it does not clarify whether the information to be imputed to the hypothetical observer shall be available to an ordinary man or whether more technical or nuanced knowledge can also be imputed. In this test it should be seen from a point of an ordinary or layman perspective, the test is very similar to Gough. Even this test is based on broad common sense approach.

Fairminded And Informed Observer Tests By Courts

The main reason behind the court on the perspective of fair-minded and informed observer, instead of a reasonable man is that if a court adopts attest which shall reflect the reaction of the reasonable man of the public to irregularity in question, due too this there shall be chances of maintaining public confidence would be higher in administration. In the case Taylor V Lawrence, one of the parties solicitors services had been availed by the judge, just before the pronouncing the judgement. It was found out later that the solicitors had not been paid for their services. Lord Woolfe in examining the challenge to the judges on the ground of apparent bias he stated that an informed observer would be aware of legal traditions and culture prevalent in England. The ordinary contacts which are present between the judiciary and the profession would not lead an informed observer to apprehend a real possibility of bias. Due to this the judge may instruct a lawyer under his private capacity, this sort of relationship shall not give rise to a suspicion that the judge is unfaithful to the judicial oath. In Taylor V Williansons case we can see that an observer shall know the technical and procedural rules. In this case the judgement was passed without hearing the closing arguments of both party and this shall become a challenge for apparent bias. The judge in this case agreed to change his judgement and appellate court had full faith on the judge.

The Indian Approach

The Indian government has got a separate act toward the Arbitration and that is the Indian Arbitration and Conciliation Act of 1996. In this Act section 12(3)(a) speaks about justifiable doubts that gives rise to the arbitrator for his independence and impartiality. The Indian courts have followed the English Courts in many matters and similarly here to take the same approach that is the ‘real danger test’. In landmark case Parthasarthi V State of Andhra Pradesh the court held that there should be circumstances from which the reasonable man would think it probably or likely, that the inquiring officer would be prejudiced. But in Ranjith Thakur V Union of India, the court held that test was whether a reasonable person, in possession of relevant information, in possession of relevant information may become bias. In some other case the judges applied the reasonable apprehension test.

The present Act which is present does not contemplate the removal of an arbitrator by the court. Under the Act section 5 has an authority where an appointed arbitrator could be revoked with the leave of the court. In Bharat Coking Coal V L K Ahuja and Co , here the dispute was arising out of construction contract; the authority had appointed an ex-officer as the arbitrator. Under his capacity he was dealing all the matters of the contract and he also corresponded with the contract in capacity. This gave rise to bias. The Supreme Court of India held that the continuance of this arbitrator shall not be fair to the parties. In Kumaon Mandal Vikas Nigam case the Supreme Court held that the bias of every individual case should be decided on the cases own facts and circumstances and held that when there shall be a real danger of bias then the administrative action of the cases should be set aside, but if there shall be any little apprehension of bias, the court can consider all the void circumstances before arriving at a conclusion. This case test was very similar to the English Gough case. In England Lord Goff had rejected the real apprehension bias test and was following the real danger test in terms of bias. Whereas the Indian courts followed when there was apprehension of a bias, the court shall consider the accompanying circumstances to check if there is any real possibility of bias present. Later on the English Courts modified the Gough test from Magill, the Supreme Court of India has not got an opportunity to do the same, but some of the High Courts in India have positively welcomed the observer and fair-minded test. There are some High Courts which still follow the earlier tests.

We should wait and watch what tests will be applied by the Supreme Courts in the future.

The United States Of America Approach

The United States of America has got a separate act toward the arbitration and it’s the Federal Arbitration Act. Here, in this Act section 10 tells us that an arbitral award can be vacated by a court if there is any partiality present on the part of the arbitrator. In the case Commonwealth Coating Corp V Continental Casualty is the only case the Supreme Court of United States and the judgement of this has controversial interpretations. Black J who delivered the main judgement and White J the other, the judgement made by White J was contradicting to Black J. here, both the judges’ concept were different regarding the role of an arbitrator. Due to this they differ over the test shall be applied to the judges. According to White J, decision courts have to attain equal or give importance. The facts of this case was one of the parties was a frequent customer of the arbitrator and this information was not disclosed at the time of arbitration. Due to this Black J stated that any court or tribunal which can hear cases must not be biased and also avoid the appearance of bias. However the court found that there was no actual bias present.

The Second Circuit Court of the United States expressed its whether the appearance of bias satisfies the requirements of evident partiality in the case Morelite Constructions Corp V New York DC Carpenter Benefits Funds . In this case Kaufman J, agreed to White J that there was impartiality and expertise and that evident partiality required more than appearance of bias. He also involved in examining whether a reasonable person would consider the arbitrator to be partial to one of the parties.

In Merit Insurance Co V Leather Insurance Co case the trade off theory was stopped by Judge Posener. He made an interpretation of ‘evident partiality’ shall require a proof of actual bias. Proving actual bias was difficult, so he made a reduction in the test that is taking into consideration. The exceptions of the parties regarding impartiality and the relation present between the arbitrator and one of the parties is professional, personal, social or financial as the relation may lead to doubts on his impartiality . The Seventh Circuit Court in a recent judgement held that evident partiality was represented from Merit Insurance Co decision

In ANR Coal CO V Cogentrix of North Carolina, the Fourth Circuit Court held certain factors for determining evident partiality and they are (a) the personal interest present in the arbitrator in the proceeding ( b) any relation present between the party and the arbitrator. (c) The relationship time and arbitration proceedings.

If these tests are compared to the English law, it shall not be clear that under American law a reasonable man can apprehend a real possibility of bias. Thus the tests present in the US may be situated anywhere for actual bias and mere appearance of bias.

The Iba Guidelines On Conflicts Of Intersts In International Arbitration

The project which has been set up by the IBA Guidelines on Conflicts of Interests is clearly very useful and this rule was published on 22 May 2004 and was approved by the Council of IBA. The main purpose of this was to find out the test for impartiality and independence, laying down guidance like how it should be worked and applied. The IBA has got a working group of 19 experienced practioners from different jurisdictions, which help in preparing the documents. The greatest strength of the IBA can be said as its capacity to have such a diverse group along with their consultation process. There have been four lists divided by the IBA and they are namely

1. The Non Waivable Red List: this list tells us that no person can be a judge in his or her own case or if there is any identity between party and the arbitrator.
2. The Waivable Red List: in this list, it consists of instances which indicate apparent bias and the parties may be disqualified. For example if the arbitrator has given any legal or expert advise to the party.
3. The Orange List: this list sets out situation which would be a conflict and it must be disclosed. For example, if the arbitrator and the Counsel are from the same chambers, if the arbitrator holds one or more position in an arbitration institution with an appointing authority in the dispute.
4. The Green List: it shall set out the situations where the Guidelines consider do not raise either conflict of interest or duty of disclosure. But they include whether the arbitrator has a relationship with another arbitrator or with the counsel of one parties through any social organisation or the same profession, whether the arbitrator has previously expressed any opinion in an unrelated forum regarding an issue arising in arbitration

The Purpose

The main purpose of the IBA Guidelines on Conflicts of Interests in International Arbitration is that it shall have detailed guidance to the arbitrators as to what information has to be disclosed, it also serves to add detail laws and arbitration rules. The other important purpose is that it shall reduce the growing problems of conflicts of interests and it also has a duty to reduce the number of challenges to the arbitrators. The main objectives of this can be said as to bring unity in International practice.

General Principles Regarding Impartialty, Independece And Conflicts Of Interests

The Working Group is been guided by the fundamental principle in international arbitration. According to these principles every arbitrator who is appointed shall have the duty to be independent and impartial towards the arbitration proceedings till the final award has been awarded or the proceedings has otherwise finally terminated. The arbitrator shall also have the duty to disclose information before the arbitration starts. Later on after the award, if the dispute is referred back to the same arbitrator, then he shall disclose necessary facts which are essential.

Conflicts Of Intersts

The Working Group has laid down fundamental principles for international arbitration, in this we can see that an arbitrator shall decline to accept an appointed if the arbitration has already begun or he may even refuse to continue as an arbitrator if he or she has any doubts about impartiality and independence.

The next principle is the test for disqualification which should be an objective one. In this if any third person having knowledge of relevant facts shall give rise to justifiable doubts to the arbitrator’s impartiality and independence until the parties would have accepted the arbitrator according to the requirement of General Standard 4.

The Working Group believes that the General Standard shall provide the standard rule for justifiable doubts on the independence and impartiality of the arbitrator. The Working Group has also set up principles that no one can be a judge in his or her own case and there shall also not be any identity between the arbitrator and the party and this should also be followed to persons who are legal representatives of a legal entity that is a party in arbitrator.

The IBA Guidelines on Conflicts of Interests cannot be used in England. Though the IBA Guidelines practically use the same tests as present under the English Arbitration Act that is nothing but justifiable doubts regarding arbitrator’s impartiality or independence but the meaning present under justifiable doubts does not remain the same. These Guidelines may be suitable for usage in the United States as we can see there is confusion over evident partiality.

Conclusion

Thus in this essay we can see the various tests which are present and these tests may be objective, yet they are applied in a subjective manner. In the modern day the importance of international arbitration has increased. To keep the importance going and carrying on impartiality and independence of the arbitrators play a vital role. Therefore to maintain this we can see the various tests applied by the English Courts on bias in various cases and the Indian Courts approach is much similar to the English Courts. The IBA Guidelines has set up principles for the unity in International Arbitration, and these guidelines will be helpful in the country like United States, where we can see confusion over “evident partiality”.

Bibliography

1. LAW OF PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION BY REDFERN, 4TH EDITION
2. INTERNATIONAL COMMERCIAL ARBITRATION BY BORN, 2ND EDITION
3. AN ARTICLE BY SHIVANI SINGHAL ON INDEPENDENCE AND IMPARTIALTY OF ARBITRATORS, PUBLISHED IN 2008, IV YEAR, B.A., LL.B. (HONS.), NATIONAL LAW SCHOOL OF INDIA UNIVERSITY, BANGALORE
4. KULWER LAW, INTERNATIONAL COMMERCIAL ARBITRATION BY GARY B. BORN, VOLUME II
5. REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION, FIFTH EDITION, STUDENT VERSION