Which of the following constitutes bias in an arbitrator? a) A non-executive directorship with a rival, b) Shares in one of the parties, c) Strong published opinions. (Answers below.)
Imagine that, as a major contractor, you are half-way through a lengthy international arbitration. The arbitrator has held two interim hearings on legal matters (preliminary issues, lawyers usually call them) which have not gone well for you. Prospects overall are bleak. One evening, while idly browsing the web site of one of your competitors, your attention is caught by a company director’s name. You recognise it as being that of the arbitrator. Then you ponder – is it lawful for the arbitrator in your dispute to be a director of one of your rival companies? Phrases like “natural justice” and “bias” begin to float into your mind. You ring your lawyer.

As Tony Bingham recently noted (12 May), it is now becoming increasingly common for parties to question whether their arbitrators are truly neutral. Curiously, this seems to be especially so where the questioning party has just lost. Recent cases have discussed what can amount to bias.

Directorships and shares

One such case was AT&T Corporation and Lucent Technologies Inc vs Saudi Cable Company. AT&T, the huge telecommunications company, was involved in a dispute with Saudi Cable Company over a project to expand the Saudi telecoms system. The arbitration was proceeding under the Rules of the International Chamber of Commerce. Mr Fortier, a Canadian lawyer, was one of the three arbitrators on the panel – the chairman, in fact, having been appointed by the ICC. When AT&T discovered that he was a director of Nortel, AT&T’s rivals (although not involved in the arbitration), it applied for his removal on the grounds of bias. If the application had succeeded, the interim awards against AT&T would have been set aside.

The Court of Appeal confirmed that the correct question to ask is, is there a real danger that the arbitrator might be biased when he or she comes to make a decision? Of course, in these cases, nobody is suggesting that an arbitrator will deliberately find in favour of one party or another without regard to the merits. The concern is rather that an arbitrator might be unconsciously influenced in a decision. The court dismissed AT&T’s application. It was particularly significant that Fortier's involvement with Nortel was limited. He was only a non-executive director, and in fact offered to resign as soon as AT&T raised the problem.

Any benefit to Nortel, and therefore to Fortier as a director, if AT&T lost the arbitration would be minimal – therefore he was unlikely to be influenced on this ground.

Nobody had suggested that Fortier had acted during the arbitration in anything other than a proper manner.

Cases where the arbitrator is an active director of a rival company (especially a director of the other party to the arbitration) might be treated differently. It is a matter of degree. If, for example, an arbitrator merely holds a nominal number of shares in one of the parties to the arbitration, he should disclose it, but would not necessarily be removed for bias.

Further guidance about bias has been given in four cases heard together by the Court of Appeal under the name Locabail (UK) Limited vs Bayfield Properties Limited. These all involved judges, but the same principles apply to arbitrators.

Conflicts of interest

In one case, the judge was a partner in a large law firm. Unknown to him, his firm was handling other litigation against one of the parties, a Mr Emmanuel.

The judge only discovered this when he came across a press cutting half- way through a four-week trial. He immediately disclosed the point to both sides. Neither side objected.

The trial finished, and five months later he delivered judgment. Emmanuel lost.

At this point, Emmanuel and his lawyers asked the judge for a retrial on the grounds of bias, based on a conflict of interest. Emmanuel’s delay in making the application clearly weakened his case and the court was highly critical of this (moral – do not try to be too clever).

However the court said that even without the delay, the application would not necessarily have been granted.

It was unrealistic to expect a partner in a large firm to be aware of all the cases that his firm was dealing with, and it was unlikely that the outcome of the other litigation could have influenced the judge.

Applying this to construction, an arbitrator who is a QS in one of the large firms might be able to continue to act, even where his firm is also acting in separate litigation (for example as experts) involving one of the parties. The position could be different if the QS was part of a smaller firm where he might have a more intimate knowledge of that other litigation.

Published articles

Perhaps the most interesting of the Locabail cases was one involving a judge, who was also a prolific writer on personal injury law.

He had published a number of articles, expressing strong views about what he saw as the typical delaying tactics used by insurers in personal injury cases.

When he later delivered a judgment against a firm of such insurers in a road traffic case, it appealed on the ground of bias (although the judgment contained no criticism of these particular insurers).

The court found this a very difficult case to decide. It concluded however, that there was a real danger that someone holding such pronounced views might have unconsciously been biased against the insurers. The judgment was overturned.

Following this reasoning, it might be possible for a contractor (say) to remove a construction arbitrator who has previously and consistently expressed strong views about contractors' “claimsmanship”.

Outside interests

Despite the rise in cases on bias, the courts have said that those who decide disputes should not be discouraged from having outside interests. It would certainly be a shame if arbitrators felt that, in order to reduce the risk of being challenged on the grounds of their interests outside work, it was preferable not to have any. Even arbitrators need to unwind.