REUTERS | Russell Cheyne

A firmer view on conflicts of interest (Part 2)

There are two obvious differences between the Brazilian and English disclosure regimes. First, we have no codified duty to disclose in England. We only have grounds upon which a party can challenge the arbitrator, which much be read in the context of the justifiable doubts test from section 24(1)(a) of the English Arbitration Act 1996 (AA 1996). Secondly, when Lord Saville was drafting the AA 1996, which succeeded the English Arbitration Act 1950, he purposely excluded the word “independence”, which appears in article 12 of the Model Law and article 14(1) of the Brazilian Arbitration Act 1996 (Brazilian Act).

In English law, the justifiable doubts test is an objective test, further to the decision of the Supreme Court’s (SC) predecessor, the House of Lords, in Porter v Magill. That requires the court to view the test through the prism of a “fair-minded and informed observer”. As the SC have observed, this is distinct from the test found in most institutional rules and indeed the IBA Guidelines, which impose a subjective test.

Analysis

I have a problem with these appeals, on the specific issue of impartiality. Prior to the SC judgment in Halliburton v Chubb, I would have said that, purely on the question of impartiality, neither M nor X (on the mere fact of the multiple appointments in the absence of disclosure) were under a lawful duty to disclose. I struggle to see the issue as to justifiable doubts as to their impartiality. Or even independence, if it were applicable under English law. These cases, are to my mind, cases in which the duty to act fairly arises. As Lady Arden put it, they raise matters of equality of arms and asymmetry of information.

The dictionary meaning of impartiality is neutrality and not supporting one party over another. This is how Lord Grabiner put his case, and this is how Lord Hodge explained his judgment. It may be that in other jurisdictions arbitrators, especially party-appointed arbitrators, are not required to act neutrally, although, as observed by Lord Hodge, this “appears to be increasingly widely accepted as the legal norm internationally”. I would add to that definition, in the context of arbitration, the word “illegitimate”. In other words, not supporting one party over another based on illegitimate reasons not related to the merits of the case. I cannot reconcile that with what was complained of in he grounds of either case. Partiality, in my understanding, requires the arbitrator to do or not do something, and not for it to be an unintended effect of the second appointment.

The English law, illustrated in the judgment in Porter v Magill, does not require actual partiality, but the perception of partiality, held by the fair-minded and informed observer. Beyond objectivity, it also requires an informed point of view. Surely that requires that observer to understand the world of arbitrators. Lord Grabiner’s arguments did not, in my understanding, amount to allegations that M was at risk of deciding the case or had formed an opinion he was supporting Chubb over Halliburton based on illegitimate reasons not related to the merits of the case. Yet, that is the ground of appeal upon which the appeal was based. The SC and the São Paulo Appeals Court (TJSP) found that M and X failed to disclose the multiple appointments. The former holding that the failure, in light of further information that became available, did not give rise to justifiable doubts as to M’s impartiality. The latter held that nothing else was needed for justifiable doubts as to X’s impartiality to arise.

I still struggle with the impartiality argument. As I am drawing comparisons with Brazil, indulge me in a football metaphor. Halliburton’s proposition is akin to saying that a football referee that referees the same team twice gives rise to justifiable doubts as to his impartiality. I do not buy it. That is different to the team’s own coach refereeing in the second match. The relationship of counsel is different to that of arbitrator. Counsel are under a duty to act in the best interest of their client. This duty is incompatible with a duty to act impartially, and therefore is more likely to be perceived as leading to bias or partiality. I see the Abengoa case more like the latter.

Parenthetically, the Austrian Supreme Court recently set aside an award holding that, an arbitrator who was acting as co-counsel with counsel for two of the respondents in another unrelated arbitration, could raise justifiable doubts as to an arbitrator’s independence and impartiality (Docket 18 ONc 1/19w). In my view, this is decision is also distinct from Halliburton and Fazon.

Where unfairness is concerned, neither section 24(1)(a) of AA 1996, nor article 12 of the Model Law, nor article 14(1) of the Brazilian Act require any disclosure beyond impartiality, and where the Model Law and Brazilian Act apply, independence. The SC have now plugged that gap, by confirming the duty developed by the CoA, and relating it to section 24(d)(1)(i) of AA 1996 and an implied term of the contract between the arbitrators and parties. It appears to have also determined that the relationship between arbitrators, institutions and parties is contractual and not jurisdictional under English law, for which I am not aware of any binding decisions.

The SC recognised that arbitrator’s core duties go beyond impartiality. This is codified in section 33 of AA 1996, extending to fairness and equal treatment. Similar duties are found in article 18 of the Model Law and article 21(2) of the Brazilian Act. Yet, there is no codified obligation to disclose any facts giving rise to justifiable doubts specifically about fairness. These words appear separately and distinctly in the various instruments, and therefore, they lead to a reasonable conclusion that they are separate and distinct duties of arbitrators. The SC’s judgment goes beyond that of the TJSP in that it not only imposes a positive duty for disclosure in the absence of any contrary agreement of the parties, but extends it beyond impartiality.

Although I stated that I did not think a lawful duty to disclose arose for the reasons I have stated, there was no other practical solution, but disclosure. That is why the SC judgment is so pragmatic, developing the common law in identifying a positive duty to disclose and holding that the duty is an implied contractual duty to disclose matters affecting any mandatory obligation found in section 33 of AA 1996.

As the SC held in Halliburton:

“[t]here is a public interest in upholding the integrity of arbitration as a system of alternative dispute resolution by ensuring that there is proper disclosure of an arbitrator’s involvement in related arbitrations in a field of arbitration in which repeated appointments occur but in which there is no common understanding”.

The SC judgment in Halliburton v Chubb has confirmed England & Wales as a robust, commercial, pragmatic and arbitration friendly curial jurisdiction which supports the needs of arbitration practitioners and users alike.

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