The International Journal of Public and Private Arbitration
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- Introduction
- Regional Overviews
- Country Overviews
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The European & Middle Eastern Arbitration Review 2008
Section 3: Regional Overviews
The level of disruption will vary in every case, but it can be substantial. Even if a challenge is made early and ultimately unsuccessful, it will delay the conduct of the arbitration as well as leading to additional costs being incurred. The ICC’s recent Report on Techniques for Controlling Time and Costs in Arbitration cites objections to the appointment of an arbitrator as a factor tending to give rise to delay and advises parties to “give careful thought” as to whether an appointment might give rise to an objection.1 The Report does not advise how to avoid objections later in the arbitral process, presumably because such objections normally arise from the conduct of the arbitration and are beyond the control of the appointing party. Late objections or challenges are particularly troublesome and often require numerous additional hearings before they can be resolved. For instance, a recent challenge alleging apparent bias against two members of a three-man tribunal in an ongoing LCIA arbitration2 led to the appointment of a separate three-man division of the LCIA3 to determine the application. When the application was rejected after several rounds of written submissions and an oral hearing, the party alleging bias launched a fresh application to the English Commercial Court under section 24 of the Arbitration Act 1996 (which is still pending).
Pre-appointment disclosure of information
In order to reduce the risk of a challenge during the course of an arbitration,
it is customary for a proposed arbitrator to disclose, before accepting an appointment,
any information that might be considered relevant to his or her suitability
to preside over the case. If, following such disclosure, one of the parties
feels it would be inappropriate for the individual concerned to accept the appointment,
that party has an opportunity to object and should do so promptly so that the
matter can be resolved at an early stage. Most arbitration institutions include
in their procedural rules a regime for disclosure of information by prospective
arbitrators prior to appointment, together with time limits for any objections
filed as a result of such disclosure.
Article 5.3 of the LCIA Rules, for instance, states:
Before appointment by the LCIA Court, each arbitrator shall furnish to the Registrar
a written resume of his past and present professional positions; …and
he shall sign a declaration to the effect that there are no circumstances known
to him likely to give rise to any justified doubts as to his impartiality or
independence, other than any circumstances disclosed by him in the declaration.
Each arbitrator shall thereby also assume a continuing duty forthwith to disclose
any such circumstances to the LCIA Court, to any other members of the Arbitral
Tribunal and to all the parties if such circumstances should arise after the
date of such declaration and before the arbitration is concluded.
Article 10.4 of the LCIA Rules requires the parties to challenge any appointment
within 15 days of the formation of the tribunal or (if later) after becoming
aware of any circumstances raising a ground for challenge.
There is a similar scheme set out in the ICC Rules, articles 7(2) and 7(3):
7(2) Before appointment or confirmation, a prospective arbitrator shall sign
a statement of independence and disclose in writing to the Secretariat any facts
or circumstances which might be of such a nature as to call into question the
arbitrator’s independence in the eyes of the parties. The Secretariat
shall provide such information to the parties in writing and fix a time limit
for any comments from them.
7(3) An arbitrator shall immediately disclose in writing to the Secretariat
and to the parties any facts or circumstances of a similar nature which may
arise during the arbitration.
Article 11 of the ICC Rules provides that any challenge to the appointment
of an arbitrator must be submitted within 30 days from the date when the party
making the challenge received notice of the appointment or was informed of the
facts and circumstances giving rise to the challenge.
Such rules are intended to minimise the risk of a late challenge to an arbitrator
by ‘flushing out’ grounds for objection at an early stage. The rules
themselves contain no detailed guidance for prospective arbitrators (or the
parties to arbitration) as to what information should be disclosed, or what
kinds of relationship or connection might give rise to legitimate doubts about
an arbitrator’s suitability. However, guidance on these issues may be
found in the IBA Guidelines on Conflicts of Interest in International Arbitration
(the IBA Guidelines).4 The stated aim of the IBA Guidelines is to “help
parties, practitioners, arbitrators, institutions and the courts in their decision-making
process” when dealing with issues of impartiality, independence and disclosure
of information. Although the IBA Guidelines may be overridden by any applicable
rules of national law or the arbitral rules agreed by the parties, they have
achieved a measure of acceptance and are a useful aide for arbitrators faced
with issues of pre-appointment disclosure.
Nevertheless, despite the availability of resources such as the IBA Guidelines,
and the growing sensitivity on the part of prospective arbitrators to issues
of potential conflict or perceived bias, there does not appear to be any reduction
in the number of challenges. If anything, the frequency of challenges in European
arbitrations seems to be increasing. Parties (or their legal advisers) have
become highly adept at identifying a perceived flaw in the arbitral process
or an extraneous factor affecting the partiality of an arbitrator, and are increasingly
willing to make a formal objection when the opportunity arises. Two recent cases
summarised below are illustrative.
Eureko v Poland
One of the most high profile challenges of the last 12 months arose from an
investment treaty dispute between the Republic of Poland and the Dutch insurance
company Eureko BV. This was an ad hoc arbitration seated in Brussels, in which
the claimant alleged that the decision to nationalise a leading national insurance
company by the Polish government contravened the provisions of the Netherlands-Poland
bilateral investment treaty. The tribunal appointed to determine the dispute
was typically heavyweight for this kind of dispute: Yves Fortier (president),
Judge Stephen Schwebel and Professor Jerzy Rajski. The tribunal published its
Partial Award on Liability dated 19 August 2005 in which, by majority opinion
(Rajski dissenting), it held in favour of Eureko that Poland had breached various
provisions of the investment protection treaty.
In October 2005, Poland served a notice of recusal upon Judge Schwebel, arguing
that his close relationship with the US law firm Sidley Austin gave rise to
justifiable and legitimate doubts about his impartiality and independence, and
requesting that he recuse himself from the case. Sidley Austin were representing
the US-based multinational Cargill Corporation against Poland in another investment
treaty case, and American Lawyer magazine had published an article suggesting
(erroneously) that Judge Schwebel was acting as one of Cargill’s legal
advisers in that other case. Although Judge Schwebel had worked alongside Sidley
Austin in several cases, and although his own legal practice used the same office
building in Washington, DC, he denied acting for Cargill in the ongoing arbitration
against Poland referred to by American Lawyer.
In December 2006, the Belgian court held that there was no evidence to contradict
Judge Schwebel’s denial of any involvement in the Cargill case, and the
fact that he shared the same building with Sidley Austin and had worked with
the firm on other unrelated cases was insufficient to raise legitimate doubts
about his impartiality. The application to replace him was duly dismissed.
However, the Belgian court’s decision does not appear to be the end of
this story. In January 2007, Poland filed an appeal in Belgium against the court’s
ruling, claiming that the court had ignored further evidence of Judge Schwebel’s
close links with the US firm. According to press reports on the case,5 Poland
is seeking to rely upon Judge Schwebel’s role in another investment treaty
dispute between Vivendi and Argentina, where he is acting as co-counsel for
the claimant (once again alongside Sidley Austin). One of the authorities relied
upon by Vivendi in that case was the Partial Award rendered by the majority
(Schwebel and Fortier) in the Eureko case. Poland argues in its appeal in the
Eureko case that this in itself demonstrates a clear conflict of interest sufficient
to raise justifiable doubts as to Judge Schwebel’s impartiality in the
arbitration.6
The recent appeal raises questions about the extent to which it remains possible
for the same individual to play the role of arbitrator and counsel in separate
disputes, particularly where the legal issues are similar. It is a particular
problem for arbitrators and lawyers acting in investment treaty disputes, where
the pool of reputable arbitrators is more limited than for general commercial
disputes, and where substantially the same or similar issues of interpretation
of standard treaty provisions will invariably arise again and again in different
cases. In yet a further twist, it has also been reported that Argentina has
voiced objections to Vivendi’s reliance upon the Eureko case as an authority
in its written submissions as a result of Judge Schwebel’s role on the
Eureko tribunal.
ASM Shipping
The complications arising from an arbitrator acting as counsel in separate
proceedings are also illustrated in ASM Shipping v TTMI. This case has already
achieved a degree of notoriety due to an earlier challenge to an award under
section 68 of the Arbitration Act 1996 on the grounds of serious irregularity.7
The irregularity in question was the apparent bias of one of the members of
the tribunal. Briefly, the arbitrator in question (Duncan Matthews QC) was a
member of a three-man tribunal at the hearing of a preliminary issue. One of
the claimant’s principal witnesses at that hearing, a Mr Moustakas, had
previously been involved in a separate arbitration where Mr Matthews had been
acting as advocate. During that earlier case, allegations of dishonesty had
been levelled at Mr Moustakas by the clients and solicitors instructing Mr Matthews.
After Mr Moustakas had completed his evidence in the preliminary issue hearing,
Mr Matthews disclosed his involvement in the previous case (which was already
known to the claimant) and the claimant objected to him continuing to sit as
arbitrator. Mr Matthews refused to recuse himself, and although the issue of
his continuing to sit was the subject of further correspondence, no application
was made to remove him. On 23 December 2004, nearly two months after the preliminary
issue hearing, an award was rendered by the tribunal that was largely favourable
to the respondent. Only then did the claimant apply to the court, not to remove
Mr Matthews from the tribunal, but to challenge the validity of the award under
section 68. Morison J held that the claimant had lost the right to challenge
the award on the grounds of apparent bias because it had failed to make an application
promptly and had taken up the award. However, in his judgment Morison J also
held that “Mr Matthews QC should not continue to act in this matter”
and should recuse himself, which Mr Matthews duly did a short time after the
judgment was handed down.
This judgment of Morison J was an interesting (and controversial) decision.
In particular, it concluded that the arbitrator’s prior involvement in
a dispute that had also involved one of the witnesses in the present dispute
(not one of the parties themselves) was sufficient to satisfy the test for apparent
bias. The judge also held that Mr Matthews should recuse himself in circumstances
where no specific application had been made to remove him under section 24 of
the Arbitration Act 1996.
Perhaps unsurprisingly, that was not the end of the controversy. Shortly after
Morison J’s judgment was handed down, the claimant asked whether, in the
circumstances, it was appropriate for the other two members of the tribunal
to remain in place. This issue ultimately gave rise to the most recent challenge
to the two remaining arbitrators (Bruce Harris and A G Scott) under section
24 of the Arbitration Act 1996 on the grounds that “circumstances exist
that give rise to justifiable doubt about [their] impartiality”. Judgment
on this application was delivered on 28 June 2007 by Andrew Smith J.8
The main argument in support of the challenge was that when one member of a
tribunal is found to have been tainted by actual or apparent bias, it automatically
follows that the whole tribunal and each member of it is similarly tainted.
The authorities cited in support of this wide-ranging proposition included R
v Sussex JJ ex parte McCarthy,9 R v Bow Street Metropolitan Stipendiary Magistrate
ex parte Pinochet Ugarte10 and Re Medicaments.11 Smith J declined to accept
that there was a general rule applicable in every case where one member of a
tribunal had been removed. He noted, for instance, that it was common practice
when a juror had to be discharged for the judge to consider whether there was
a risk of ‘contamination’ of other jurors and, if there was no reason
to think that there was, then to continue the trial with the remaining jurors.
The Sussex Justices and Pinochet cases were distinguished on the basis that
the tribunals in those cases had already reached a decision, and in such circumstances
it was unsurprising that those who had committed themselves to a decision should
not form part of the tribunal conducting a rehearing. The enquiry as to the
existence of apparent bias in relation to the remaining members of a tribunal
would therefore depend upon the particular facts of each case.
Accepting for the sake of argument that Mr Moustakas would be an important witness
for the claimant in the remainder of the arbitration, Smith J held that any
objection to the two remaining arbitrators could only be made on the basis that
there was a risk that they would be other than impartial because they had been
influenced by discussions with Mr Matthews concerning that witness. On the evidence
available to him, the judge dismissed this proposition as “fanciful”.
Mr Matthews had stated during the hearing that he could recall nothing relating
to the previous case in which he had acted as counsel. Consequently the judge
could not accept that a fair-minded and informed observer would conclude that
there was any real possibility that there had been discussions between Mr Matthews
and the other arbitrators that might improperly influence their assessment of
Mr Moustakas’s evidence. The owners’ challenge under section 24
was therefore dismissed (most of the grounds for the challenge were also held
to be outside the time limit under section 73 of the 1996 Act).
Problems for the future
Although the most recent challenge in ASM Shipping was unsuccessful, the fact
that this type of argument was raised at all is indicative of the recent trend
to pursue objections even if the grounds appear novel or speculative. What then
might the future hold? Assuming that parties continue to take an aggressive
approach to issues of bias and conflict of interest, we will no doubt continue
to see challenges based upon an arbitrator’s conduct or participation
in different cases. This is likely to remain a theme in European arbitration
for as long as lawyers continue to accept appointments to sit on tribunals while
practising as advocates. In addition to ‘subject matter’ conflict,
there will be increased sensitivity to ‘issue conflict’, where the
appearance of bias results from an arbitrator advancing a particular point of
view, either in separate proceedings when acting as counsel, or in a textbook,
journal or speech, on an issue of law relevant to the case in which he sits
on a tribunal.
For practitioners in England, there may even be renewed attempts to challenge
the system whereby barristers occupy the same set of chambers and work independently,
but accept appointments as arbitrator or counsel in cases where other members
of chambers are involved. The leading authority on whether a conflict arises
in this type of situation is still Laker Airways v FLS,12 which firmly rejected
the argument that a conflict of interest could arise. Might this decision (Rix
J at first instance) be revisited and overturned? Some of the leading commercial
sets of barristers’ chambers are increasingly marketing themselves as
a ‘brand’ in a similar way to solicitor law firms; legal directories
frequently refer to the reputation of a set of chambers as a whole, or the ability
of a set to conduct certain types of specialist work. Some of the features that
previously distinguished barristers’ chambers from law firms have also
been eroded over recent years, and there has been an increase in mobility between
the two professions. What are foreign parties to a London arbitration therefore
going to think when they come to London and see one or more members of a tribunal,
as well as counsel acting for the opposing party, drawn from the same chambers?
Even if the English Court does not revisit Laker Airways, this does not preclude
this kind of argument being raised in European arbitrations seated outside England.13
One suspects that objections to arbitrator appointments and applications to
remove arbitrators are going to continue to be a feature of European arbitrations
for the foreseeable future, and that there will be plenty of scope for ingenious
legal advisers to test the parameters of what does or does not give rise to
a perception of bias. Arbitrators, for their part, will need to be increasingly
sensitive to any set of circumstances that might be construed as evidence of
partiality or conflict, and avoid saying or doing anything, in any context,
that might suggest they are other than fair-minded in relation to the cases
over which they preside.
Notes
1 Paragraph 14 (‘Avoiding Objections’).
2 The authors’ firm, O’Melveny & Myers LLP,
is acting for one of the parties in this case, the details of which remain confidential.
3 The division was constituted pursuant to article 10.4 of
the LCIA Arbitration Rules and article D(2) of the LCIA Constitution.
4 The IBA Guidelines should be read in conjunction with the
Background Information on their drafting history, which is intended to assist
in their understanding and interpretation.
5 Investment Treaty News, 17 January 2007.
6 On 29 October 2007 the Brussels Court of Appeal rejected
Poland’s appeal, enabling the arbitration to proceed to the assessment
of damages.
7 ASM Shipping Ltd v TTMI Ltd [2005] All ER (D) 271 (Nov).
8 ASM Shipping Ltd v Harris & Others [2007] EWHC 1513 (Comm).
9 R v Sussex JJ ex parte McCarthy [1924] 1 KB 256.
10 R v Bow Street Metropolitan Stipendiary Magistrate ex parte
Pinochet Ugarte (No. 2) [2000] 1 AC 119.
11 Re Medicaments and Related Classes of Goods (No 2) [2001]
1 WLR 700.
12 Laker Airways v FLS Aerospace [1999] 2 Lloyds Rep 45. This
decision was recently confirmed by the Court of Appeal in Smith v Kvaerner Cementation
Foundations Ltd [2006] 3 All ER 593, in which the court stated that the mere
fact that counsel for the other party and the Recorder were from the same chambers
“creates no risk of bias nor, to those with experience of our system,
any appearance of bias”. See also Nye Saunders and Partners v Bristow
(1987) 37 BLR 92, Taylor v Lawrence [2003] QB 528 and Birmingham City Council
v Yardley [2004] EWCA Civ 1756.
13 For instance, Michael Hwang SC has written about the ICC
International Court of Arbitration dealing with a recent challenge based on
an English arbitrator QC and counsel QC being members of the same set of chambers:
Transnational Dispute Management, vol 2, issue 1 (January 2005). The arbitration
was seated outside England in a Model Law jurisdiction. The ICA dismissed the
challenge in that case, but, as is customary, did not provide reasons.
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