Allegations of arbitrator bias fall flat in the recent case of V and N v K

Introduction

In the recent case of V and N v K[1] the High Court confirmed the high threshold required for establishing arbitrator bias and considered the extent of an arbitrator's duty to disclose previous appointments in arbitrations under the London Maritime Arbitrators Association (LMAA) Rules. The judgment provides a useful review of the principles and serves as a reminder for parties to ensure that any challenges to arbitrator independence are properly particularised, considering the relevant practice for arbitrator appointment in the relevant field. 

Background

The dispute arose out of a vessel sale governed by a Memorandum of Agreement (MOA) dated 14 July 2022.  Under the terms of the MOA, V paid a deposit of US$1,965,000, which was held in escrow by the Seller's solicitors.  Such a deposit is custom in MOAs for vessel sales.   V subsequently became subject to US sanctions, and the seller of the vessel (K or the Seller) terminated the MOA. The Seller commenced an arbitration under the LMAA Rules, claiming that it was entitled to terminate the MOA and to the release of the deposit. V and N (together, the Buyers) counterclaimed, stating that V had novated the MOA to N and that N itself was not subject to any sanctions. As a result, the Buyers maintained that the Seller was not entitled to terminate the MOA and counterclaimed for the deposit and damages.

The Seller appointed Mr H as an arbitrator and the Buyers appointed Mr B. Mr B and Mr H jointly nominated Mr S as the presiding arbitrator (together, the Tribunal). During the course of the arbitration, the Buyers wrote to the Tribunal and alleged that the Tribunal was in repudiatory breach of their contractual arrangements with the parties. The alleged repudiatory breach arose, according to the Buyers, by reason that the arbitration was tainted by actual or apparent bias on the basis that the Tribunal allegedly demonstrated bias in its procedural decisions in favour of the Seller. The Buyers ceased to participate in the arbitration and the Tribunal awarded a Partial Final Award in favour of the Seller on 12 August 2024.

The Buyers challenged the Partial Final Award under sections 68(2) and 67 of the Arbitration Act 1996, originally on six grounds of challenge. Ultimately, during the hearing the Buyers withdrew all but one challenge. The remaining challenge alleged apparent bias against Mr H, on the basis of alleged misrepresentation and/or insufficient disclosure of previous arbitral appointments by the Seller's solicitors.

The Court's decision

The Court applied the established test for apparent bias as set out in Porter v Magill[2], which is whether the "fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased". The Court also considered the leading case concerning an arbitrator's duty of impartiality and disclosure, Halliburton Co v Chubb Bermuda Insurance Ltd (Halliburton).[3]

In Halliburton the Supreme Court held that under section 33 of the Arbitration Act 1996, prospective arbitrators have a legal duty to disclose facts or circumstances which would or might lead the fair-minded observer to conclude that there was a real possibility that the arbitrator was biased. However, the fair-minded observer must also consider the relevant custom and practice in the applicable industry.

The Court in Halliburton considered the 'Orange List' in the IBA Guidelines on Conflicts of Interest in International Arbitration. The Orange List provides a non-exhaustive list of specific situations that, depending on the facts of the case, may give rise to doubts as to an arbitrator's impartiality or independence. Such situations include circumstances where an arbitrator has been appointed on two or more occasions within the past three years by one of the parties or its affiliate. The guidance recognises that it may be the practice in certain types of arbitrations, such as maritime, to draw on arbitrators from a smaller pool of individuals. In these circumstances, where all parties are familiar with the custom of multiple appointments, disclosure of previous appointments is not required.

Considering the facts of this case and the guidance in Halliburton v Chubb, the Court held the following.

• Mr H had no duty to disclose the previous arbitral appointments by the Seller's solicitors. These appointments were on unrelated arbitrations over a number of years, and it is an established practice in London maritime arbitrations for parties and their representatives to frequently appoint the same arbitrators on different cases. Indeed, this practice is even referred to in the LMAA Advice on Ethics, which was a significant factor to the Court's consideration. In circumstances where repeat appointments are a recognised custom of arbitration practice and this is known to participants, then no duty of disclosure would arise.

• The Court also rejected the Buyers' attempts to draw a parallel between the circumstances of this case and Aiteo Eastern E&P Ltd v Shell Western Supply (Aiteo), in which the Court upheld a challenge to a partial award under Section 68 of the Arbitration Act 1996 on the grounds of apparent bias.[4] In that case, the Court found that recurring instructions and appointments of an arbitrator by the same firm of solicitors (not all of which had been disclosed) gave rise to apparent bias.However, the Court considered there to be two key distinguishing features in Aiteo that were not present in this case:
  • Firstly, Aiteo concerned an ICC arbitration and the Court's findings were driven by the applicable ICC Rules and guidance.Specifically, Article 11 of the ICC Rules requires prospective arbitrators to disclose 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 Court considered that an undisclosed recent advisory instruction of the arbitrator by the same solicitors during the course of the ICC arbitration constituted such a circumstance within the context of Article 11 and should have been disclosable.

  • Secondly, a successful challenge to the arbitrator was made to the ICC Court, which is the ICC body responsible for deciding on any challenges made against arbitrators. The ICC Court upheld the challenge on its merits, and the Court in Aiteo found that the fair-minded and informed observer would regard this ICC decision when considering whether the arbitrator was biased.

• In any event, even if Mr H did have a duty to disclose his unrelated appointments, the Court did not consider that a fair-minded and informed observer, having considered all the facts, would conclude that there was a real possibility that the arbitrator was biased. The observer would take other factors into account, such as the custom for parties or their representatives to frequently appoint the same arbitrator in the London maritime market. Further, the observer would consider Mr H's appointments by the Seller's solicitors within the context of his wider appointments. Mr H had received 88 appointments as an arbitrator, of which only 14 were appointments by the Seller's solicitors.

In light of the above, the challenges under section 67 and 68 of the Arbitration Act 1996 were dismissed.

Practical takeaways

The judgment confirms that the threshold for apparent arbitrator bias remains high, applying the objective standard of the fair-minded and informed observer. Relevant considerations for the observer will include the previous appointments of the arbitrator and the arbitrator's reputation and experience. The relevant rules, custom or practice of the arbitration will also be a relevant factor. In certain types of arbitration, such as maritime, it is custom for parties to frequently appoint the same arbitrators. As a result, arbitrators are not typically required to disclose such appointments. This is not the case for all arbitrations, and parties should carefully consider the custom in the relevant industry.

In the event that parties challenge arbitrators on grounds of bias, those challenges must be properly particularised and issued without delay.