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When the kings depart: costs and the removal of an arbitrator

Few practitioners in the arbitration field will not have heard of the judgment in Cofely Limited v Bingham and another. As noted in a number of places, Hamblen J (as he then was) in the Commercial Court gave a judgment in favour of removal of the defendant as arbitrator under section 24(1)(a) of the Arbitration Act 1996 (AA 1996) for apparent bias, unless the defendant resigned first.

The case raised issues concerning what amounts to apparent bias, a point on which Hamblen J was noticeably careful. In any event, while the judgment may help in identifying the relevant approach and weighing of factors before the court will remove an arbitrator, everyone knows the story cannot have finished there. So the arbitrator leaves: what happens next?

In fact, that issue also went before Hamblen J and was decided in an unreported judgment given on 17 February 2016. Both the claimant, which had applied to remove the arbitrator, and the second defendant, which had been the other party in the arbitration proceedings, sought their costs from the arbitrator. The claimant did so on the basis that the application, to which the arbitrator had been a defendant, had succeeded and that costs should follow in the usual way. The second defendant did so on the basis that it was the arbitrator’s conduct which had been found at fault: on that basis, so it was argued, the second defendant should receive its costs since it had stated that its position on the court application was “neutral”. The arbitrator drew attention to section 29, AA 1996, which provides that:

“An arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith”.

It was suggested that this immunity either extended to the costs of the application for removal, or at least should militate against an award of costs. There was little authority on the issue. In Pirtek v Deanswood, it was apparently assumed by the party seeking removal of an arbitrator that section 29 prohibited an order for costs being made against him. In Wicketts & Sterndale v Brine Builder and Siederer, a costs order was made in circumstances where no reference was made to section 29.

Hamblen J took the view that, once the claimant’s application notice made clear the grounds relied upon for seeking removal, the other parties could and should have acceded to the application and, in not doing so, both defendants had not been “neutral” but had acted unreasonably. Moreover, he considered that section 29 has no application to court proceedings involving an arbitrator, at least where the arbitrator has been found to have acted unreasonably in relation to the proceedings. However, while the arbitrator was liable with the other defendant for the claimant’s costs, he was not held liable for those of the other defendant, given that it had in reality not been neutral but had actively chosen not to agree to removal.

One other issue concerned the arbitrator’s entitlement to his fees. Hamblen J ordered that the arbitrator was entitled to his fees and expenses between 4 February 2013 when a partial award was handed down (which was not itself the subject of any challenge) and 11 March 2015, the date on which the claimant first wrote to the arbitrator asking questions which went to the issue of apparent bias.

The lessons

Arbitrators may be tempted to conclude that the lesson of Cofely v Bingham is that they should follow Disraeli’s maxim: “Never explain, never complain.” In theory, an arbitrator might merely adduce evidence of fact in such a way as not to be held to have taken part in the court proceedings. However, the fact that, under CPR Part 62.6(1) an arbitrator is, as a matter of procedure, a defendant to an application for removal, does not make for an easy starting point for such an endeavour. This is because it already creates the impression that anything the arbitrator may say is intended to be said by way of defence. If so, why should the arbitrator not be liable for the applicant’s costs following a successful application? Perhaps it is no surprise  that the Chartered Institute of Arbitrators’ Practice Guideline 8 warns arbitrators that section 29 of the AA 1996 might not protect them.

Adjudicators should also pay heed. Where their jurisdiction comes under section 108(4)of the Housing Grants, Construction and Regeneration Act 1996, immunity is conferred in the same language as that used in section 29 of the AA 1996. Logically, an application to remove an adjudicator should be treated in the same way as one to remove an arbitrator, although the CPR do not contain provisions explicitly rendering an adjudicator a defendant to such an application. This, of course, does not happen very often; parties tend to reserve their challenge for the enforcement stage, and the adjudicator is not a party to those proceedings. However, the cases firmly underline that little good is done by adjudicators seeking to give evidence to explain their conduct (see Woods Hardwick Ltd v Chiltern Air-Conditioning Ltd and Systech International Ltd v PC Harrington Contractors Ltd). The decision on costs in Cofely v Bingham lends weight to the point.

As far as recoverability of fees are concerned, the Court of Appeal decision in Systech International Ltd v PC Harrington Contractors Ltd indicated that, at least in the absence of a term of engagement covering payment of their fees and expenses in the event of a decision not being delivered or proving to be unenforceable, the Scheme for Construction Contracts does not provide for the recovery of fees in relation to an unenforceable decision. Apparent (or actual) bias would amount to “default” or “misconduct” in respect of which paragraph 11(2) of the Scheme specifically excludes any entitlement. It seems that, if the fee has been paid, it would therefore in principle be recoverable (a point considered in the Scottish case of Stork Technical Services (RBG) Ltd v Ross’s Executor, although it was not decided). If fees had already been paid to an arbitrator since the period he began to act in breach in natural justice, the same logic would apply to those fees.

Finally, there was also one issue which was left outstanding in Cofely v Bingham. What was the status of the partial award? This was left to be considered by the new tribunal under section 27(4) of the AA 1996 but it should be noted that, in Emirates Trading Agency LLC v Sociedade de Fomento Industrial Private Ltd, it was held that section 27 does not enable a reconstituted tribunal to review or change a decision which has been reached by the tribunal on an issue, and which is final and binding.

39 Essex Chambers John Denis-Smith

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