English court removes arbitrator for lack of impartiality
Pursuant to Section 24(1)(a) of the Arbitration Act 1996 (the 'Act'), a party to arbitral proceedings may apply to the English High Court to remove an arbitrator on the grounds that circumstances exist that give rise to 'justifiable doubts as to the arbitrator's impartiality'. In Sierra Fishing Company & Ors v Farran & Ors the English High Court granted the Claimants' application for removal of an arbitrator pursuant to Section 24(1)(a). Much of the judgment is unsurprising given the facts of the case, but the commentary on the arbitrator's conduct and the analysis of when a party might lose its right to object to an arbitrator's appointment by participating in the arbitration are worthy of mention.
The Claimants entered into a loan agreement (the 'Loan Agreement') with the Defendants whereby the Defendants advanced US$3.8 million to enable the Claimants to buy two fishing vessels, and the Claimants agreed to repay the sum in accordance with an agreed schedule of repayments. When no repayments were made, the Defendants commenced ad hoc arbitration proceedings in London, appointing Mr Zbeeb as their arbitrator.
The parties then entered into several further agreements (the 'Subsequent Agreements') and agreed to stay the arbitration subject to compliance with those agreements. When the Subsequent Agreements were not fulfilled, the Defendants 'revived' the arbitration proceedings with Mr Zbeeb as sole arbitrator. The Claimants challenged Mr Zbeeb's impartiality in the arbitration, but their challenge was rejected by Mr Zbeeb. They then applied to the High Court to remove Mr Zbeeb under Section 24(1)(a) of the Act.
In the High Court Proceedings, Mr Zbeeb alleged that the Claimants had lost their right to object to his appointment, pursuant to Section 73 of the Act, because they had taken part in the arbitration without raising objection.
Section 24 – removal of an arbitrator for lack of impartiality
The Court confirmed that under Section 24 the test was whether 'the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased'. It found that this test was met with respect to Mr Zbeeb for the following reasons:
1. There was a legal / business connection between Mr Zbeeb and the Defendants: Mr Zbeeb had been legal counsel for the Defendants in 2005/2006 and his father continued to act as their legal counsel. His father was also a member of the Defendants' executive management. The Court found there was a real possibility, in the eyes of a fair minded observer, that Mr Zbeeb would favour the Defendants in order to 'foster and maintain the business relationship'.
2. Mr Zbeeb had assisted in negotiating the Subsequent Agreements, pursuant to which the dispute now arose, including the arbitration clause. The Court held there was a real possibility that Mr Zbeeb would decide jurisdictional issues in favour of the Defendants because he had advised them on the relevant clauses.
3. Aspects of Mr Zbeeb's conduct gave rise to doubts as to his impartiality, namely:
a. His refusal to postpone publishing his award pending the outcome of the Claimants' challenge under Section 24; and
b. The 'content and tone' of Mr Zbeeb's communications with the parties, and with the Court.
The Court held that some of Mr Zbeeb's correspondence with the parties, and notably with the Court in the context of the Claimants' application, had been 'argumentative in style' and had advanced points against the Claimants which had not been put forward by the Defendants. They contained 'vehement argument' and disparaged the Claimants' application under Section 24 in 'intemperate language'. The Court concluded that Mr Zbeeb had become too personally involved in the issue of his own impartiality to guarantee the necessary objectivity required to determine the merits of the dispute.
Section 27 – loss of the right to object
The Court then considered whether the Claimants had lost their right to object to Mr Zbeeb's appointment under Section 73 – because they had taken part in the arbitration without objection, at a time when they knew of the circumstances giving them grounds for objection. The Defendants submitted that the Claimants had 'taken part' in the arbitration by:
- Agreeing to stay the proceedings during various settlement negotiations;
- Agreeing, in the Subsequent Agreements, to the revival of the arbitration proceedings if the Subsequent Agreements were not complied with;
- Failing to object following revival of the arbitration proceedings at various times; and
- Requesting that various hearings be postponed and re-scheduled.
The Court held that none of this activity or inactivity amounted to 'taking part' in the proceedings within the meaning of Section 73. Mere silence and inactivity, it said, were incapable of amounting to 'taking part' and positive actions will not constitute 'taking part' unless the objecting party 'invokes the jurisdiction' of the tribunal, thereby recognising its legitimacy.
In any event, the Court held that because Mr Zbeeb's conduct in the context of the Section 24 application was itself a sufficient ground for objection, and because those 'circumstances' were continuing, there could be no question of the Claimants having lost their right to object on grounds of his conduct.
The existence of a commercial relationship between the arbitrator and one of the parties is an uncontroversial ground for challenge, as is the arbitrator's involvement in the subject-matter of the dispute. By contrast, challenges to an arbitrator's appointment on the basis of his conduct are much more debatable and the Court's commentary on this is quite interesting. Although each case will turn on its own facts, it appears that arbitrators who are argumentative and use intemperate language may risk being found to be impartial, particularly if they are seen to take offence at their own impartiality being called into question by one of the parties.
The Court's reasoning in respect of Section 73 is equally helpful to parties who find themselves in a situation where they do not accept the validity of arbitration proceedings or a tribunal but nonetheless wish to protect their position by engaging in the logistics of an arbitration, by attending hearings for example. Parties must, however, remember to make any objection promptly as soon as grounds for doing so are discovered.