REUTERS | Kim Kyung-Hoon

If you aim at the king, don’t miss: the challenge of arbitrator challenges

One of the characteristics that makes arbitration so popular is the ability of the parties to choose their arbitrators, but with that comes the right to challenge the other side’s chosen arbitrator. In some cases, the challenging party may have genuine concerns over the independence and impartiality of the chosen arbitrator. In others, the challenge may be purely tactical, designed to create delay. This blog highlights some of the issues which parties considering an arbitrator challenge should bear in mind.

Basis of challenge

Different arbitral rules and arbitration laws have different standards and requirements for challenging arbitrators. Generally speaking, however, an arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to his or her independence and impartiality. But what does that mean in practice?

Conduct of the arbitrator

At one end of the spectrum, there are some clear instances of egregious conduct by arbitrators which are, in themselves, sufficient to give rise to justifiable doubts as to independence and impartiality. For example, in one LCIA arbitration an arbitrator was disqualified for providing the party that appointed him with advance notice of the content of the tribunal’s award before it was issued. In another successful challenge, the arbitrator was found to have exceeded his discretion by unilaterally instructing the deletion of certain parts of the hearing transcript.

The manner in which an arbitrator deals with a challenge may also give rise to justifiable doubts about their independence and impartiality. For example, in the recent case of Cofely v Bingham and Knowles the court found that the arbitrator’s aggressive response to reasonable enquiries into the nature of his relationship with Knowles, and his hostile cross-examination of Cofely’s counsel, demonstrated a lack of objectivity and an increased risk of unconscious bias.

Relationships between the arbitrator and the parties

Many challenges are based on a relationship, past or present, between the arbitrator and one of the parties (or its advisors). The IBA Guidelines on Conflicts of Interest in International Arbitration seek to give practical examples of relationships that can, depending on the facts of the case, give rise to justifiable doubts as to an arbitrator’s independence and impartiality. However, in spite of the fact that the IBA Guidelines have gained wide acceptance within the international arbitration community, they do not override national law or arbitral rules chosen by the parties.

This is illustrated very clearly in the recent decision of the English Commercial Court in W v M SDN BHD. In this case the arbitrator concerned was a partner in a law firm. At the time of his appointment, the law firm earned substantial remuneration from the provision of services to company A. That company was subsequently acquired by company B. The defendant was already a subsidiary of company B with the result that company A and the defendant became affiliates. The law firm’s conflict check systems did not alert the arbitrator to the relationship between the defendant and company A and therefore he did not disclose it.

The facts of the case fell within paragraph 1.4 of the Non-Waivable Red List (the list of situations where justifiable doubts necessarily exist as to the arbitrator’s impartiality or independence). Nevertheless, the judge concluded that a fair minded and informed observer, having considered the facts, would not conclude that there was any real possibility that the arbitrator was biased or lacked independence or impartiality.

Repeat appointments

On the issue of repeat appointments of an arbitrator by the same party, the LCIA Court and a number of ICSID tribunals (Tidewater Inc. v The Bolivarian Republic of Venezuela; Universal Compression International Holdings, S.L.U. v The Bolivarian Republic of Venezuela; OPIC Karimum Corporation v The Bolivarian Republic of Venezuela) have adopted a neutral position that repeat appointments do not, without more, necessarily compromise an arbitrator’s independence or impartiality. Each case turns on its own facts and an objective evaluation of the economic importance of the appointments to the arbitrator. In the recent case of Cofely v Bingham and Knowles the fact that 18% of the arbitrator’s appointments and 25% of his income as arbitrator/adjudicator over the three years preceding the challenge had derived from cases involving Knowles was one of the factors that led the court to uphold the challenge.

Timing of challenge

The procedure for challenging an arbitrator varies under different arbitral rules and national arbitration legislation and it is essential that the relevant procedure is followed and any time limits are strictly observed. Some institutional rules (such as Article 10 of the LCIA Rules 2014) make clear that a party must mount its challenge within a certain time period of the formation of the tribunal or, if later, upon becoming aware of the relevant facts forming the basis of the challenge, failing which an arbitrator challenge may be time-barred.

Tactical considerations

Parties should reflect carefully before mounting any challenge to an arbitrator’s independence or impartiality. Opportunistic challenges should on the whole be discouraged, not least because arbitral institutions and the courts generally have little hesitation in dismissing speculative, vexatious attempts to cause delay or disruption. Moreover, in the case of an unsuccessful challenge, the arbitrator will remain in post. There is then a real risk that the party’s credibility may be damaged such that, going forward, its substantive case is viewed with a degree of scepticism. It is therefore critical that parties pitch their challenge carefully to avoid situations in which legitimate concerns over a conflict of interest are seen as personal attacks on the arbitrator.

These issues are exacerbated by the lack of transparency as to how different arbitral institutions decide challenges to arbitrators. Historically, the LCIA was one of the few institutions to give reasons for its decisions on challenges. At the end of last year, the ICC announced that it will now provide reasoned decisions on arbitrator challenges, but solely to the parties. The LCIA remains one of the few institutions to publish abstracts of reasoned challenge decisions. Greater transparency on how arbitrator challenges are decided would enhance significantly the predictability and consistency of arbitrator challenges. Not only would this be a useful guide for parties and their advisers when deciding whether or not to make a challenge, it would also play an important part in discouraging spurious challenges designed to delay the arbitral process.

Berwin Leighton Paisner Jue Jun Lu

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