Introduction
In the fourth instalment of our series, focusing on reforms to the Arbitration Act 1996 (the Act) proposed by the Law Commission, we explore (i) the decision to exclude a statutory duty of independence, (ii) the proposal to amend the Act to establish a statutory duty of disclosure and (iii) the suggested clarifications regarding the scope of arbitrators’ immunity in cases of resignation and removal.
As acknowledged by the Law Commission, connections between arbitrators and other stakeholders are often inevitable, given the limited number of people with expertise in certain sectors and the encounters that naturally occur over time as those professionals develop their experience. This is particularly the case in certain fields such as maritime, commodity, insurance or sports arbitration. Nonetheless, one of the cornerstones of arbitration remains the trust that parties place in their arbitral tribunal. This trust is grounded in the fundamental requirement that arbitrators must be impartial and, in most cases, independent. Balancing these potentially conflicting elements is a delicate task and challenges can emerge at various stages of the arbitral process, from appointment to enforcement.
The Law Commission’s proposed reform has a clear objective: to underscore the importance of impartiality as a linchpin of the arbitral process. This entails two crucial components: first, ensuring that arbitrators disclose relevant facts and circumstances which might raise doubt as to their impartiality; and second, providing robust immunity to arbitrators, allowing them to fulfill their duties without fear or favor.
No statutory duty of independence
Different jurisdictions and institutional rules refer to either a duty of “independence” or “impartiality” for arbitrators, or both, although they arguably represent distinct concepts: “Independence” refers to an absence of link or connection, whereas “impartiality” refers to neutrality as between the arbitrating parties or a lack of bias by the arbitrators. In practice, however, these distinctions are frequently blurred, and the two concepts are intertwined.
Since 1996, when the Act came into effect, English law has focused on a duty of “impartiality,” as outlined in section 33 of the Act. This duty extends to encompass the appearance of bias, with the relevant standard being that of a fair-minded and informed observer who has regard to the particular characteristics of international arbitration. The Law Commission proposes that this focus on impartiality is retained rather than introducing a separate statutory duty of independence.
Comment: This consensus is to be welcomed, and aligns with our own feedback provided to the Law Commission. Acknowledging the aforementioned challenges of achieving complete independence in arbitration and emphasizing the importance of transparency in disclosing relevant connections, it is also consistent with practices in other jurisdictions and arbitral rules. What matters is that arbitrators are open about said connections and parties are reassured that their arbitral tribunal is impartial.
Codification of the duty of disclosure
Currently, under English law, following the Supreme Court decision in Halliburton v. Chubb [2020] UKSC 48, arbitrators are bound by a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality, as part of their aforementioned duty of impartiality under section 33 of the Act.
The Law Commission proposes to recognize this important duty in a standalone manner, codifying it in the Act. The Law Commission considers that this would be in line with international best practice and that a concise statutory rule would be more accessible than the current case law. Although previously addressed in case law under English common law, this codification would confirm that:
- The duty is mandatory in nature and cannot be dispensed with;
- The disclosure is continuous and must take place “as soon as reasonably practical”;
- By virtue of being a standalone duty, it now also applies to pre-appointment discussions;1 and
- The required state of knowledge concerning relevant circumstances to be disclosed not only covers the arbitrator’s actual awareness but also extends to circumstances of which an arbitrator ought reasonably to be aware.
Comment: These proposals, although providing welcome clarity and enhancing transparency in the arbitration process, are somewhat limited in their impact. They do not, for example, stipulate the scope of the new duty (including the degree of inquiry required, or even if inquiry is required), nor do they stipulate the consequences of non-disclosure. Although this has been done deliberately in order to retain a degree of flexibility under English law, guidance on this point would have been welcome. This is especially true because at the time of writing the guidance we have from the courts, courtesy of the Court of Appeal and Supreme Court in Halliburton v. Chubb, is limited to appointments in multiple references concerning the same or an overlapping subject matter, with only one common party.
In the meantime, guidance may potentially be sought from other jurisdictions with similar duties of disclosure to those found under English law, and which have had greater time to develop relevant case law. For example, French law has recently grappled with a number of situations where such issues are engaged, including a case where an arbitrator failed to disclose a potential connection with a company affiliated with one of the parties due to an issue with the firm’s conflicts check system.2
Furthermore, guidance may also be drawn from soft law rules, including the IBA Guidelines on Conflicts of Interest in International Arbitration, which the Supreme Court described in Halliburton v. Chubb as setting out “good arbitral practice which is recognised internationally.” It bears noting, however, that the guidelines do not override national law or the arbitral rules chosen by the parties. Furthermore, there are several proposed amendments to the guidelines currently under review that could substantially alter the guidelines’ content.
Strengthening arbitrator immunity around resignation and applications for removal
Under English law, arbitrators are already afforded wide immunity in the exercise of their duties (for understandable reasons, chiefly to promote the effectiveness of the arbitral process and to further encourage impartiality). However, the Law Commission has sought to clarify and strengthen such immunity in two circumstances, namely resignation and removal.
Resignation – As the Act stands, an arbitrator who resigns is not immune from liability for breach of contract, and in order to shield themselves, they must make an application to the courts, with relief only being granted if the resignation is deemed reasonable. The Law Commission has proposed strengthening the scope of immunity in cases of resignation by stipulating that an arbitrator who resigns shall not be liable unless the resignation is shown to be unreasonable, with the burden of showing unreasonableness falling on a complainant.
Comment: This proposal is to be welcomed and will ensure that arbitrators feel comfortable enough to resign in appropriate circumstances without fear of incurring personal liability. Shifting the burden of demonstrating unreasonableness to the complainant may, at the very least, reduce frivolous lawsuits and, in the best case scenario, promote the development of case law in this field.
Removal – As English law currently stands,3 arbitrators can potentially find themselves liable for the costs associated with an application for their removal. As in the case of resignation, the Law Commission has proposed strengthening the scope of immunity in cases of removal, stipulating that there shall be no such liability unless the arbitrator is shown to have acted in bad faith.
Comment: This proposal is to be welcomed and will ensure that costs related to removal applications may only be attributed to an arbitrator in limited circumstances, namely where an arbitrator is acting in bad faith. This also has the advantage of being consistent with the overarching arbitrator immunity outlined in section 29 of the Act (which provides that an arbitrator is not liable for anything done or omitted in the discharge of their function as arbitrator unless the act or omission is shown to have been in bad faith).
- This is also confirmed by the proposed clause 2 of the draft Bill, which refers to “possible appointment.”
- Paris Court of Appeal, International Commercial Chamber, Division 5, Chamber 16, 11 January 2022, Case No. 19/19201. French law has also established that parties have a duty of curiosity to discover information which is publicly available, even if it is behind a paywall [Paris Court of Appeal, 26 January 2021, Vidatel, Case No. 19/10666].
- Wicketts v. Brine Builders (8 June 2001) (HHJ Seymour) (unreported) (TCC); Cofely Ltd v. Bingham [2016] EWHC 540 (Comm); C Ltd v. D [2020] EWHC 1283 (Comm), [2020] Costs LR 955; Halliburton Co v. Chubb Bermuda Insurance Ltd [2020] UKSC 48, [2021] AC 1083 at [111] by Lord Hodge.
In-depth 2023-235
