REUTERS | Clodagh Kilcoyne

A rare insight into practice of arbitral institutions: LCIA’s published decisions on arbitrator challenges

On 12 February 2018, the London Court of International Arbitration (LCIA) Secretariat made available anonymised excerpts from 32 arbitrator challenge decisions on its website. Together with the previous collection of summaries of 28 challenge decisions published in 2011 for the period 1996-2010, this release provides useful insight into the practice of the LCIA Court between 2010 and 2017.

Most challenges are brought by respondents/against sole arbitrators

Of the 32 challenges brought:

  • Only 20% of challenge applications were successful (seven out of 32).
  • 24 applications were submitted by the respondent in the case; claimants sought to challenge the arbitrators in the remaining eight cases.
  • In 17 instances, the challenges targeted a sole arbitrator; four of the challenges were directed at the full three-member tribunal; eight targeted one co-arbitrator; one was directed at both co-arbitrators; and two were directed at the chairman of a three-member tribunal.
  • 25 decisions were rendered under the LCIA Arbitration Rules 1998, five under the LCIA Arbitration Rules 2014, and two under the UNCITRAL Rules 1976 (in cases where the LCIA Court was selected as the appointing authority or as the institution administering the arbitration).

If any trends were to be drawn from this sample of decisions, most challenges tend to be brought by dissatisfied respondents against a sole arbitrator. This is perhaps unsurprising, given that any perception of bias or lack of independence would have very significant repercussions for the parties in cases involving a single decision-maker, without the checks and balances inherent in a three member tribunal.

Under the LCIA Court’s loupe: grounds for challenge

Most decisions in the sample were made under the LCIA Rules 1998, which provide for four main grounds for challenge against an arbitrator:

  • Where there are circumstances that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.
  • Deliberate violation of the arbitration agreement (including the LCIA Rules themselves).
  • Failure to act fairly and impartially as between the parties.
  • Failure to conduct or participate in the proceedings with reasonable diligence.

The LCIA Rules 2014 largely replicate the 1998 Rules, subject to the addition of the words “with reasonable efficiency, diligence and industry” in the fourth ground above. While the latter wording could potentially slightly expand the scope for challenge, thus far there has been no discernible shift in approach (at least, judging from a small sample of five challenge decisions rendered under the 2014 Rules).

Justifiable doubts as to the arbitrator’s independence or impartiality: an objective test

By far the most commonly invoked ground for challenge is the existence of circumstances that give rise to justifiable doubts as to the impartiality or independence of an arbitrator.

The newly published decisions of the LCIA Court remind that the applicable test is an objective one and requires a real possibility of bias (as opposed to actual bias). The question is whether the reasonable and objective observer would have justifiable doubts that any decision to be taken by the challenged arbitrator may be influenced by factors beyond the merits of the case.

The test applied by the LCIA Court appears to be broadly in line with the approach applied by the English courts when considering challenges under section 24(1)(a) of the English Arbitration Act 1996 (AA 1996) (“circumstances exist that give rise to justifiable doubts as to his impartiality”). See Porter v Magill; Laker Airways Inc v FLS Aerospace Ltd and another; Locabail (UK) Ltd v Bayfield Properties Ltd and another; and Cofely Ltd v Bingham.

When considering challenge applications, the LCIA Court looked at the overall record and refrained from second-guessing arbitrator decisions. The assessment is largely fact dependent and was performed on a case by case basis, taking into account the specific circumstances in each case.

Applying the objective test set forth above, the LCIA Court found that “justifiable doubts” arise, for example, where:

  • An arbitrator has prejudged an issue by expressing a firm and definitive opinion on it at an early stage of the proceedings.
  • An arbitrator has divulged that he or she was sitting as an arbitrator in an ongoing case, a fact that had not been publicly reported, and made comments on the facts in dispute in the arbitration in such a way that an informed fair-minded observer would conclude that those facts either were not in dispute, or the arbitrator viewed them as not being in dispute.
  • An arbitrator has publicly made negative comments about the parent company of one of the parties.
  • An arbitrator assumed the dual role of arbitrator and counsel and gave the appearance of questioning one of the parties’ counsel’s integrity, such that a fair-minded observer would conclude that there is a risk of bias.
  • There was an ongoing commercial relationship between a party and the arbitrator’s law firm (that is, an overseas office of the arbitrator’s law firm was instructed by a party in the arbitration in an unrelated matter).
  • The fact that an arbitrator acted as counsel against one of the parties in a previous arbitration does not, in itself, give rise to justifiable doubt as to that arbitrator’s independence and impartiality. However, where an arbitrator has previously satisfied themselves that there is evidence of a party’s fraud, there is a real possibility or real danger that such arbitrator would be influenced by that evidence, consciously or unconsciously, when adjudicating on a further dispute involving the same party.

Conversely, the LCIA Court found that there was no basis for challenge where:

  • The same arbitrator was appointed in more than one arbitration, where one party was a party to all of the arbitrations but the other party participated in some but not all arbitrations.
  • An arbitrator recalled having represented a party and having had a working relationship with a party’s counsel over 17 years ago, and has duly investigated and disclosed the relevant circumstances for the consideration of the parties and the LCIA Court.
  • An arbitrator had knowledge of previous cases involving the same parties but there were no additional circumstances which met the justifiable doubts test.
  • An arbitrator was involved in an arbitration on a related issue involving an affiliate of one of the parties in the last three years but no written submissions were filed by the parties and issues were only tangential to the present case.
  • A party alleged that an arbitrator’s knowledge of certain laws/legal system or, on the contrary, lack of such knowledge gave rise to justifiable doubts or otherwise prejudged the outcome of the arbitrator’s decision(s).
  • An arbitrator was a barrister who was also instructed (for an unconnected client in unconnected court proceedings) by the firm of solicitors representing one of the parties in the arbitration, where different lawyers of the firm were involved in the arbitration and in the court proceedings.
  • An arbitrator was a member of barristers’ chambers and had not disclosed the activities of other barristers in the same chambers.
  • An arbitrator was a member of professional bodies or societies where counsel for one of the parties was also a member (absent any specific allegation of conflict) or where an arbitrator participated in conferences or educational events without disclosing them to the parties in the arbitration.
  • More generally, where the challenges were based on the tribunal’s procedural decisions in favour of one or the other party (for example, setting hearing dates or denying deadline extensions). The LCIA Court reminded that, absent evidence of bias in the tribunal’s motivations and reasons behind the decisions, the tribunal had the widest discretion under the LCIA Rules to make decisions regarding matters of evidence and procedure.

Deliberate violation of the arbitration agreement, fairness and efficient conduct of the proceedings

A smaller number of challenges were brought on the basis that the tribunal has deliberately violated the arbitration agreement, or failed to conduct the proceedings fairly or with reasonable diligence.

Here as well, the LCIA Court found that the tribunal had the discretion to make decisions on procedural matters and take measures to ensure the integrity of arbitral proceedings. The mere fact that a decision on these issues was made against one party does not automatically mean that the arbitrator acted unfairly. For example, the LCIA Court rejected challenges where:

  • A sole arbitrator decided not to accept a party’s untimely request to postpone a call dedicated to hearing scheduling, after that party asked to reschedule the hearing for a second time and asked for the call itself.
  • An arbitrator has given both sides an opportunity to present their cases, considered the cases of both sides, and come to a decision.
  • The tribunal appropriately delegated tasks to a tribunal secretary, in accordance with the LCIA Notes on the use of tribunal secretaries, and where there was no evidence that tribunal delegated decision-making powers to the secretary.
  • An arbitrator breached confidentiality by making certain disclosures, but that breach was not deliberate and therefore fell short of the requirement in the LCIA Rules for removal of the arbitrator.

Conclusions

The new sample of challenge decisions shows that challenges are rarely brought and are even more rarely successful (in only 0.4% of all LCIA cases). This new collection is a welcome effort by the LCIA to ensure greater transparency. It also provides useful guidance to parties, counsel and arbitrators.

In particular, the users of arbitration should be mindful of the applicable tests for challenge, as well as of the nature and purpose of the challenge procedure. It is not meant as an alternative mechanism for the scrutiny or review of a tribunal’s procedural rulings, or to serve to attack procedural decisions of a tribunal by a dissatisfied party (absent evidence that objectively gives rise to justifiable doubts). It also does not allow the LCIA Court to review an award once it has been issued.

Allen & Overy Valeriya Kirsey

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