Must arbitrators be impartial?

IT may seem a cheek even to ask if arbitrators must be impartial, as surely the answer is obvious? After all, English arbitration has long had a reputation for being fair, impartial and transparent. The high standing of English law and those administering it, including arbitrators, has made London the centre of international arbitration, including maritime arbitration. However, to sustain this reputation, it is necessary for arbitrators, as well as judges, to be vigilant and ensure they remain free from bias and prejudice of all hues.

But how far does this go? The courts are increasingly sensitive to the need for justice to be seen to be done and to treat parties who come before it on an equal footing. The Woolf civil procedure reforms have created a system which is more open, accessible and business-friendly than ever before. In effect, this has narrowed the distinction between arbitration and litigation. Furthermore, the recent publication of the Equal Treatment Bench Book (ETBB), which contains detailed guidelines for judges, indicates that the courts are increasingly aware of the problems which may arise when dealing with parties of varying ethnic and cultural backgrounds.

The ETBB emphasises that treating everyone in the same way is not the same as treating everyone fairly. "Everyone," the guide reminds us, "has prejudices - recognise and guard against your own". There is no reason why this sensible advice should not apply to arbitrators as well as judges.

"Cultural awareness ... and sensitivity are indispensable essential characteristics of all who are engaged in international arbitration," says Shilston in the Journal of the Chartered Institute of Arbitrators (Volume 64, No 2). Arbitrators have undoubtedly had more experience than many judges in handling disputes between parties of different ethnic and cultural backgrounds. The commercial court is a possible exception, where up to seventy per cent of litigants are from overseas.

However, arbitrators cannot assume that this background of experience means that they are inevitably free from prejudice. Redfern & Hunter, in Law and Practice of International Commercial Arbitration, 1991, report that many developing nations are distrustful of arbitration precisely because there is a fear that "arbitral institutions ...... will have an in-built cultural and social bias against them".

"There is a need for a common sense approach which recognises the unique position of arbitrators who are often drawn from the same world as the matters upon which they are required to adjudicate".

Part of being fair is keeping an open mind. The recent Privy Council decision in West Indies Alliance Insurance Co Limited v Jamaica Flour Mills (an unreported 1999 decision) illustrates the importance of an impartial and logical assessment of evidence. In that case, a trial judge dismissed the evidence of the parties' experts in trenchant terms and instead appeared to assess the credibility of witnesses on wholly individualistic and unreasonable grounds. The judge was overturned in the Jamaican Court of Appeal and by the Privy Council, the latter apparently approving a statement made in the Jamaican Court of Appeal that such a case "cried out" for review by an appellate tribunal.

Both parties must also have a chance to assess the opposing side's evidence and to deal with any points that may be raised. Bingham J commented in Zermalt Holdings SA v Nu-Life Upholstery Repairs (Official Reports 1985) to EGLR 14, "It is not right the decision should be based on specific matters which the parties have never had a chance to deal with."

The Pinochet case

What has really thrown the need for complete impartiality, and the need for justice to be seen to be done, into sharp relief is the decision in Re Pinochet (1999) 1 All E.R.577. In that case, the distinguished Judge Lord Hoffman, who is connected with the group Amnesty International, did not declare his connection before the House of Lords heard the Pinochet case, which led to the decision being set aside.

The clear lesson to be drawn from Re Pinochet is that any potential links that a judge or arbitrator has with either of the parties, or indeed any other party, which may suggest that the judge or arbitrator is not impartial, should be disclosed.

In Locabail (UK) Limited v Bayfield & Others (CA 17.11.99, unreported), a very powerful Court of Appeal, comprising the Lord Chief Justice, the Master of the Rolls and the Vice Chancellor, recently reviewed old authorities on bias and reaffirmed the test laid down by Lord Goff in R v Gough (1993) 2 WLR 883, which is that a judicial officer should disqualify him or herself if there is a "real danger" of bias. As Lord Goff said, "I prefer to state the test in terms of real danger rather than real likelihood, to ensure that the court is thinking in terms of possibility rather than probability of bias."

In the arbitration context, Shepherd in Arbitration and ADR, Vol 4 No 1, has said that the test is "not whether the prospective arbitrator considers the interest gives rise to a conflict, but whether such interest could give rise to concerns in the mind of any party".

Trade arbitrations

There is a crucial distinction between many forms of arbitration, in particular trade arbitrations under LMAA, GAFTA, FOSFA and RSA rules for example, and court proceedings. In the trade arbitration context, the parties actually want hands-on expertise and familiarity with the subject matter in dispute. This key difference is, to some extent, recognised in leading arbitral rules. For example, some rules, such as UNICTRAL, LCIA, AAA, require both independence and impartiality, while others, such as the Arbitration Act 1996, require only impartiality.

Interestingly, the International Chamber of Commerce (ICC) rules differ from those of a number of other organisations by requiring the test of independence - although this has been broadly interpreted as including a test of impartiality. The London Maritime Arbitrators Association (LMAA) rules specify that arbitrators are "at all times under a duty to act fairly and impartially between the parties".

An impartial arbitrator can be defined as one who is neither in favour of, nor against, one party, for whatever reason, "while an independent arbitrator is one who has no close relationship, financial, professional or personal, with a party or its counsel" (Redfern & Hunter).

The Departmental Advisory Committee, chaired by Lord Justice Saville, rejected the inclusion of an independence test in the 1996 Arbitration Act, stating that "in consensual arbitrations" it was neither "justified nor desirable". This appears to lead to a conundrum. On the one hand, there is a trend towards judicial detachment, whereas on the other hand, it is the very skill of arbitrators, versed in the world of business, and often with particular experience of the relevant trades, which makes arbitration so attractive but which at the same time prevents them from being as detached from the parties or the issues as would be ideal.

The American Arbitration Association rules require that potential arbitrators disclose "any circumstances likely to affect impartiality, including any bias.... or any past or present relationship with the parties or their representatives". The rules of the London Court of International Arbitration require that "all arbitrators shall be and remain at all times independent and impartial". The Departmental Advisory Committee commented in its report that lack of independence, unless it gives rise to justifiable doubts about the impartiality of the arbitrator, is of no significance. In other words, lack of independence is considered relevant to a determination of impartiality and "it is a disqualifying factor only when it is sufficiently substantial as actually to constitute partiality" (Arbitration International, Vol 14 No 4).

There is a need for a common-sense approach which recognises the unique position of arbitrators who are often drawn from the same world as the matters upon which they are required to adjudicate. Indeed, they may only have been appointed because of their specialist knowledge. In such a situation it is unnecessary, not to mention unrealistic, to expect the same level of independence as expected of the judiciary. This has been recognised by the English courts, which have been resistant to attempts by parties to use challenges to arbitrators' impartiality for tactical objectives - in part reflecting the consensual nature of arbitration procedures.

One of the most recent case in the UK in this area is Laker Airways Inc v FLS Aerospace Limited (1999) to Lloyds Rep 45,. It was held that the test for removal of a barrister under the Arbitration Act 1996, Section 24, was objective. Under Section 24, the question is whether "circumstances exist that give rise to justifiable doubts about impartiality". Mr Justice Rix commented that unjustified or unreasonable doubts are not sufficient as "it not enough honestly to say that one has lost confidence in the arbitrator's impartiality".

Three further recent cases also deserve a mention. The first is Rustal Trading Ltd v Gill & Duffus SA 1999 QBD (unreported) in which Moore-Bick J considered an application arising out of an arbitration under the rules of the Refined Sugar Association. The applicant alleged that the impartiality of one of the arbitrators was suspect because of previous involvement in a commercial dispute with one of the applicant's consultants. Rustal's application to have the award set aside under Section 68 of the Arbitration Act on the grounds of serious irregularity was dismissed.

It was confirmed that the court's power to remove an arbitrator reflected the common law principles set out in R v Gough - i.e., the real danger of bias test, now approved also in Locabail -v- Bayfield. The judge held that the court should "make its judgment on the basis of the circumstances as it found them to exist and was not concerned with whether the arbitrator did or did not in fact allow his mind to be affected by them".

In the case of arbitrators appointed by trade associations, the judge held that such arbitrators were likely to have had commercial dealings with one or both parties to the dispute - but that this "had never been regarded as sufficient of itself to raise a doubt about his ability to act impartially, even if those dealings had on occasion given rise to disputes".

The second case is AT & T Corporation v Saudi Cable (unreported). The applicant in that case challenged an arbitrator's independence under Article 18 of the ICC rules on the ground he was a non-executive director of a competing telecommunications company. The challenge was rejected by the ICC, whose rules (Article 2(13)) provide that the ICC's decision on the merits of any such challenge are final. Longmore J held that the courts should respect an arbitral body's definitions of independence and the method by which a challenge to that independence would be decided.

The third case is Locabail v Bayfield. The hearing was for five applications for leave to appeal which were amalgamated because of common questions of bias. In their judgement, the Lord Chief Justice, Master of the Rolls and Vice-Chancellor affirmed the recent authority in Re Pinochet, in particular emphasising that "all legal arbiters are bound to apply the law, as they understand it, to the facts of individual cases as they find them. They must do so without fear or favour, affection or ill-will, that is, without partiality or prejudice."

It therefore appears that different tests will, and indeed must, be applied in the context of arbitration. However, the common thread running through the tests is that the appearance of bias is the determining factor. A prudent arbitrator will still disclose any connection, however distant, he may have with the parties, or any charitable or similar foundation, which may support an issue in dispute.

A prudent arbitrator will also pay close heed to the principles outlined in the ETBB. In the majority of cases - and, in particular, in a maritime and trade arbitration context - most arbitrators are already well ahead of the game, but complacency is not an option.