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Lawbite: bias in arbitration – a fair-minded observer’s view

  • United Kingdom
  • Litigation and dispute management
  • Real estate dispute resolution

15-03-2017

H v (1) L (2) M (3) N (4) P EWHC 137 (Comm)

Where an arbitration is proceeding under the 1996 Act, s.24(1)(a) of that Act allows a party to the arbitration to apply to the Court to remove an arbitrator if “..circumstances exist that give rise to justifiable doubts as to his impartiality…”. This is just what the claimant, H, did in this case.

The arbitrator in question was appointed by the High Court in default of the parties being able to identify an agreed arbitrator.

Following his appointment the arbitrator accepted references to act as arbitrator in two other matters in which the defendant, L, was involved and to which H was not a party. It is these references which H sought to rely on in its application. It argued that:

a) the appointments gave the arbitrator a secret benefit from L (i.e. remuneration)

b) the arbitrator would learn information which might be relevant to the arbitration involving H (it was claimed there was substantial overlap between the cases); and

c) the arbitrator should have disclosed his other appointments.

All of these arguments were rejected. The test is whether or not a fair-minded and informed observer would conclude that there was a real possibility that the tribunal was biased (Porter v Magill [2002]). On the facts and given the vast experience and excellent reputation of the arbitrator concerned such an observer would not reach such a conclusion.

In reaching this decision the Court commented that:

a) the application failed to appreciate the arbitrator’s duty of impartiality which "involves arbitrators owing no allegiance to the party appointing them". The other appointments did not confer an immediate benefit on the arbitrator in terms of his fees.

b) it is a common feature of arbitrations that there will be overlap and so it is common for one person to arbitrate one or more. In fact, it is desirable for the arbitrator to have a deep knowledge of the underlying issues, not least because this helps with the speedy resolution of disputes.

c) there is no obligation to disclose circumstances which the informed observer would not regard as raising a real possibility of impartiality. Even where disclosure ought to have been made failure to do so does not give rise to apparent bias of itself.

Key points

The Court considered the question of bias in the context of an international arbitration dispute. However, because of the overarching applicability of the Act, the principles will apply to other arbitrations including, for example, rent review arbitrations where there will be plenty of overlap in evidence in terms of comparables. If a party, most likely a landlord, has previous experience of the approach of a particular arbitrator, this could give that party a significant advantage. In that context, this case can be cited as a reminder that there is no automatic assumption of bias where an arbitrator is acting on two separate arbitrations involving one of the parties.

The test is whether or not a fair-minded and informed observer would conclude that there was a real possibility that the arbitrator was biased.

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