Too close for comfort: arbitrator removed for apparent bias

When it comes to the appointment of arbitrators or adjudicators, parties and their lawyers often have views on the candidate, usually based on past experience.  As two recent cases have highlighted, the courts may intervene where the basis of relationships or attempts to influence appointments raise serious doubts about the propriety or impartiality of the dispute resolution process.

In the recent case of Cofely v Bingham and another [2016] EWHC 240 (Comm), the arbitrator was removed following concerns about his impartiality and a risk of “apparent bias”. This follows the decision in Eurocom Ltd v Siemens PLC [2014] EWHC 3710 [2015], in which the adjudicator was found to lack jurisdiction as a result of concerns about the legitimacy of his appointment.

Cofely v Bingham: what was the dispute about?

Cofely had appointed Knowles as a claims consultant in a dispute with a third party. A dispute subsequently arose between Cofely and Knowles regarding the level of fees that Knowles claimed to be entitled to. The dispute was subject to an arbitration clause and the arbitrator was to be appointed by the Chartered Institute of Arbitrators (CIArb).

In Knowles’ application to the CIArb, it stated that it was preferable that the arbitrator had both quantity surveying and delay analysis experience and the appointment of Mr Bingham was sought. Cofely objected to the appointment on the basis that such specific experience was not necessary, and instead recommended the appointment of a barrister. In the event, Mr Bingham was appointed.

What concerns were raised?

While the dispute was proceeding, Ramsey J gave his decision in Eurocom, finding that the adjudicator lacked jurisdiction on the basis of “strong prima facie evidence” of misrepresentation by the referring party.

Following the Eurocom judgment, Cofely wrote to both Knowles and Mr Bingham requesting information in relation to Knowles’ dealings with Mr Bingham. Cofely asked a number of questions, most notably confirmation of the number of times Mr Bingham had acted as adjudicator/arbitrator where Knowles was acting for, or was, the referring party/claimant in the last 3 years, and the proportion of Mr Bingham’s income as a barrister/adjudicator/arbitrator which these referrals accounted for. Mr Bingham did not answer those questions directly, but instead called the parties to a hearing.

At the hearing Mr Bingham engaged in what Hamblen J later characterised as “effectively cross examining Cofely’s counsel and doing so aggressively and in a hostile manner”, questioning him as to why Cofely had asked the questions it had raised, rather than answering the queries themselves. Highlights from the hearing transcript can be found in Hamblen J’s judgment.

Following that hearing, Cofely made an application to the court, under section 24(1)(a) of the Arbitration Act 1996 (the Act), to remove Mr Bingham, on the grounds that “circumstances exist that give rise to justifiable doubts as to his impartiality”.

What is the test for having an arbitrator removed for apparent bias?

As Hamblen J noted, the common law test for an arbitrator to be removed under section 24 of the Act is whether: “the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.” Lord Bingham (no relation) explained this test, in Davidson v Scottish Ministers [2004] UKHL 34, as follows:

“…what disqualifies the judge is the presence of some factor which could prevent the bringing of an objective judgment to bear, which could distort the judge’s judgment.”

The fact that an arbitrator is regularly appointed or nominated by the same party/legal representative may be relevant to the issue of apparent bias, particularly if it raises questions of material financial dependence. It is this point that goes to the heart of Hamblen J’s decision. It was found that over the previous three years, 18% of Mr Bingham’s appointments and 25% of his income as arbitrator/adjudicator derived from cases involving Knowles acting for, or being, the referring party or claimant.

The nature of a prior relationship in itself, though, may not be enough to establish apparent bias. In this case, the judge found that the concerns raised by the relationship between Knowles and Mr Bingham were heightened by the course of conduct through the proceedings. There was “a lack of objectivity and an increased risk of unconscious bias”. It was the cumulative effect of these factors that, Hamblen J found, raised a real possibility of apparent bias.

What does this mean for parties to a dispute?

As ever, a degree of common sense needs to be applied when seeking an appointment for an arbitrator or adjudicator. Of course, the Eurocom and Cofely cases are both fact specific, but they highlight that the courts are willing to order the removal of arbitrators / adjudicators, or refuse to enforce their decisions, where apparent (or actual) bias can be demonstrated.

The selection of an individual with the right experience and skillset is important in any dispute. But one should exercise a degree of caution when seeking a specific nomination or expressing preferences that would narrow significantly the pool of potential candidates. It is important, at all times, to ensure that the parties act openly, disclose any prior interests or relationships that could have any bearing and cooperate with any queries that may arise.

On the other side of the fence, whilst speculative or groundless queries or suggestions of bias are not likely to be well received, parties should not be afraid to seek answers where there are any suggestions of relationships or conduct which might lead you to question the arbitrator or adjudicator’s impartiality. In the cases discussed above, both Siemens and Cofely were ultimately rewarded for their persistence once their suspicions had been aroused.

Transparency and the avoidance of doubts about impartiality is a topical issue for arbitral bodies. In Cofely, the Court was referred to guidance from CIArb and the International Bar Association, which in each case required disclosure of relationships which might be perceived as giving rise to doubts as to an arbitrator’s impartiality. Since then, the ICC International Court of Arbitration has adopted its own guidance note for the disclosure of conflicts by arbitrators. The ICC states that the “the Note forms part of our overarching strategy to enhance the transparency and predictability of the arbitration process in response to users’ needs”.

With increased scrutiny of this issue at all levels, parties on both sides of a dispute should be alive to what they might need to do, defensively or offensively, to protect their position.