13 Sep 2018
According survey results set forth in the September 2016 Report on the reception of the IBA Arbitration Soft Law Products:
In England and Wales, roughly half of the arbitrations involving arbitrator conflicts of interest referred to the Conflicts of Interest Guidelines. The most referenced articles were Articles 1, 2-4 and 5-7. Where the respondents acted as counsel in arbitrations involving arbitrator conflicts of interest, they consulted the Conflicts of Interest in 90 per cent of cases, and they consulted the guidelines to decide whether or not to take on an appointment in 61 per cent of cases.[1]
Since the Report came out, there have been a number of English court decisions addressing the issue of repeat appointments of arbitrators with reference to the Orange List in the Guidelines on Conflicts of Interest in International Arbitration (the “Guidelines”). The Orange List is a non-exhaustive list of situations that may give rise to justifiable doubts as to an arbitrator’s impartiality or independence. Scenarios falling within the Orange List are those that require disclosure such that parties are deemed to have accepted the arbitrator if, after disclosure of a potential conflict, no timely objection is made.
Orange List 3.1.3 references a situation in which “[t]he arbitrator has, within the past three years, been appointed as arbitrator on two or more occasions by one of the parties, or an affiliate of one of the parties.” A related footnote, however, recognizes that in certain industries, it is the custom and practice for parties to frequently appoint the same arbitrator in different cases and no disclosure of repeat appointments is required where all parties are familiar with the custom and practice. [2]
Orange List 3.1.5 references a situation where, “[t]he arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties, or an affiliate of one of the parties.”
As such, under the Orange List, where there is a repeat appointment of an arbitrator by a party, the need for disclosure may be implicated.. This article highlights four recent English decisions that make reference to the Orange List and provide arbitrators and counsel with insight into how English courts utilize the Guidelines in such situations.
In Cofely Ltd v. Anthony Bingham and Knowles, the parties were embroiled in a contract dispute. Through the Charted Institute of Arbitrators, Bingham was appointed as sole arbitrator. The claimant Cofely applied to remove Bingham as an arbitrator on the grounds that there were circumstances giving rise to justifiable doubts as to his impartiality.[3] Specifically, after becoming aware of another High Court decision involving Knowles and Bingham, Cofely subsequently learned of Bingham’s repeated appointments by Knowles—Bingham had acted as an arbitrator or adjudicator for twenty-five cases involving Knowles (either as a party or as a representative of a party). Cofely sought removal of Bingham pursuant to section 24(1)(a) of the Arbitration Act 1996 on the grounds that circumstances existed that gave rise to justifiable doubts as to his impartiality. Among other things, Cofely relied on subsections 3.1.3 and 3.1.5 of the Orange List to show that there was an apparent bias.
The High Court noted that while only three of the twenty-five cases involved Knowles as a party, this was sufficient to trigger disclosure pursuant to the Orange List. Eighteen percent of Bingham’s arbitrator appointments and twenty-five percent of his income as an arbitrator over three years derived from cases involving Knowles. As such, the court found that Cofely established the requisite grounds for apparent bias and ordered Bingham to be removed.
The following year, in H v. L, M, N, P, the court considered a challenge to an arbitrator stemming from the arbitrator’s repeat appointments by a party.[4] In the underlying arbitration, H sought coverage from its insurance company, L, under a Bermuda form insurance policy with respect to a U.S. judgment against H and two other companies, R and Q. After the insurance company’s denial of insurance coverage, H commenced arbitration, and after the parties failed to agree on a third arbitrator, the High Court appointed M.
H sought the removal of M after discovering that M accepted appointments in two other arbitrations in which R sought insurance coverage arising out of the incident involving the U.S. judgment. In one of those two arbitrations M was appointed by the insurance company through Clyde & Co, who also served as L’s solicitors in the H v. L arbitration. H relied on the Guidelines to argue that pursuant to the Orange List, M should have disclosed his intention to accept the appointments. M took the position that while it did not occur to him that he was under any obligation to disclose under the Guidelines, he in hindsight should have. Nevertheless, M did not see a conflict in his appointments and attempted to assure H that he would remain independent and impartial.
The High Court agreed with M, finding that the Guidelines did not represent English law of apparent bias, and that under English law none of the grounds advanced by H gave rise to any justifiable doubts as to M’s impartiality.
Both Cofely v. Bingham and H v. L were again mentioned in the case of Aldcroft v. International Cotton Association Ltd.[5] The International Cotton Association (the “ICA”) serves as an association of companies and individuals involved in the market for the trade of raw cotton, with approximately 80-85% of international trade in raw cotton carried out in accordance with the ICA By-laws and Rules. The claimant, Aldcroft was a full-time arbitrator in ICA disputes, who brought suit against the ICA after the introduction of the so-called “3 and 8” rule to the Code of Conduct.
The ICA adopted that rule in response to perceptions that the arbitration process had a pro-merchant bias, particularly where merchants repeatedly selected the same arbitrator, as well as reduce delays in resolving arbitrations stemming from a small number of arbitrators being appointed to a large number of arbitrations at the same time. As such, in 2014, the ICA revised their Arbitrators Code of Conduct to provide:
‘In order to avoid the perception of bias, impartiality or justifiable doubts, an arbitrator may only accept up to and including 3 appointments for a party or related party to act as arbitrator from a claimant/appellant or respondent, per calendar year. An arbitrator should not be able to have more than 8 active first tier cases open at any one time’.
Aldcroft’s suit against the ICA argued that these new rules constituted a restraint on trade.
In reaching a decision against Aldcroft, the court examined the issue of repeat appointments in arbitration. Looking to the Guidelines, the court acknowledged paragraphs 3.1.3 and 3.1.5 of the Orange List – two provisions which function similarly to the ICA’s 3 and 8 rule. The court further recognized that the opposite outcomes in Cofely v. Bingham and H v. L reinforced the lack of a clear resolution for conflicts stemming from repeat appointments. The court therefore dismissed Aldcroft’s claims because they deemed the 3 and 8 rule as a reasonable mechanism that promoted the legitimate objectives of the ICA.
Recently, the Court of Appeal revisited H v. L and addressed the issue of repeat appointments. In Halliburton Company v. Chubb Bermuda Insurance Ltd, [M], [N], [P], the Court of Appeal ultimately affirmed the lower court ruling that there were no grounds that gave rise to any justifiable doubts as to M’s impartiality. [6] Although the lower court was dismissive of the Guidelines’ relevance to the matter, the Court of Appeal entertained the application of the Guidelines. The Court of Appeal noted that, “the present case may be said to fall within the IBA Guideline Orange List 3.1.5., which calls for disclosure where an arbitrator serves in an arbitration on a related issue involving one of the parties.” Here, M had accepted several appointments by Chubb (L) or cases involving Chubb. The Court of Appeal stated that while the best practice in international commercial arbitration would have required the disclosure of the other appointments, M’s non-disclosure was an “innocent oversight.” Taking all of the facts together, the court found “a fair-minded and informed observer…would not conclude that there was a real possibility that M was biased.”
Conclusion
The recent English decisions highlights above provide guidance as to how English courts approaching accusations of conflicts of interest may address such issues with reference to the Guidelines’ Orange list. For arbitrators and counsel, the decisions suggest that it would be wisest to err on the side of disclosure of the facts constituting a potential conflict to head off the possibility of successful future challenges.
If you enjoyed this article, the next installment of the CIArb Journal is a special edition with a focus on Ethics and Guidelines. The Research and Policy team is still welcoming submissions for the issue which is due for release in early 2019. If you are interested or would like further information, please contact Mercy McBrayer: mmcbrayer@ciarb.org
[1] Report on the reception of the IBA Arbitration Soft Law Products, at 38-39 (September 2016).
[2] Conflict of Interest Guidelines, n. 5.
[3] [2016] EWHC 240 (Comm).
[4] [2017] EWHC 137 (Comm).
[5] [2017] EWHC 642 (Comm).
[6] [2018] EWCA Civ 817.