The Risk of Perception of Bias

Issues relating to perceptions of bias or to a lack of, or justifiable doubts as to, impartiality in the arbitral process cut across all industry sectors and should be of paramount importance to all stakeholders interested in the promotion of arbitration as a dispute resolution process.

The importance of these issues is underlined by their prominence in the UNCITRAL Model Law on International Commercial Arbitration 1985 and English Arbitration Act 1996, respectively:

Article 12(2) of the Model Law: “An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence”.

Section 24(1)(a) the Arbitration Act: “A party to arbitral proceedings may…apply to the court to remove an arbitrator [where]…circumstances exist that give rise to justifiable doubts as to his impartiality”.

The introduction of the 3 and 8 rule by the ICA was not the first initiative the ICA had undertaken to address previously encountered perceptions that ICA arbitration tended to be pro-merchant, and to improve its dispute resolution process in general. In particular, whereas previously any ICA member might be appointed as arbitrator, the ICA now required all prospective arbitrators to pass basic arbitration examinations. Further, whereas all appointments had previously been party made, the ICA moved to three-arbitrator panels with the ICA appointing the chair of the tribunal in order to provide a degree of randomness and oversight.

In Aldcroft, relevant to the issue of risk of perception of bias, evidence was put before the Court that one particular ICA merchant had appointed Mr Aldcroft almost exclusively as its arbitrator since 2004 and appointed him on 22 separate occasions between November 2010 and August 2014. When an adverse party to the most recent of these references had requested Mr Aldcroft to provide details of his previous appointments by the other party, Mr Aldcroft had refused to provide these.

Whilst both the ICA and the Court were quick to point out that no impropriety on Mr Aldcroft’s part was alleged, the Court did criticise Mr Aldcroft for his naivety in failing to recognise the legitimate risk that a perception of bias might arise as a result of repeated appointments of an arbitrator by the same or related parties.

Another of the arguments raised by Mr Aldcroft was that no correlation had been empirically established by the ICA between repeated appointments and perceptions of bias. The Court, however, was unpersuaded, noting the practical difficulties of achieving such analysis and pointing out that associations seeking to promote arbitration are entitled to take pro-active anticipatory steps in any event, rather than merely being reactive.

Party Autonomy

The Court also heard as to other various strategies considered or implemented by the ICA at one time or another to promote confidence in the arbitral process, and to expedite the determination of references. These included: all institutional appointments; the appointment of arbitrators by rotation; disclosure of appointments; the provision of a ‘pool of chairmen’ and stopping the practice of ICA arbitrators having ‘clients’ for whom they would ‘act’ in the event of disputes.

Whilst measures such as these may address concerns as to perceived bias borne out of repeat appointments, it can be argued that the disadvantage of such measures is to undermine party autonomy in choice of arbitrator. In the context of arbitration, party autonomy is, of course, a fundamental principle, as per section 1(b) of the Arbitration Act 1996, which states that:

“the parties should be free to agree how their disputes are resolved, subject only to safeguards as are necessary in the public interest”.

In Aldcroft, evidence of ICA merchants with regular use of the ICA’s arbitral process was put before the Court, which stated unequivocally that those merchants regarded party autonomy in choice of arbitrator as a fundamental principle of ICA arbitration and that they were unlikely to support initiatives which fettered that autonomy.

Whilst the court noted that the 3 rule acted as a fetter on party autonomy regarding choice of arbitrator, the Court concluded that such fetter was reasonable and proportionate in seeking to address the legitimate aims of the ICA in addressing perceptions of bias.

The Court also endorsed the ICA’s approach in considering how other similar commodities organisations addressed issues of perception of bias as a means of establishing best practice. In particular, it was noted that GAFTA operated an unofficial rule to limit the number of appointments by the same party in any calendar year to five.

The IBA Guidelines

The Court also considered the International Bar Association Guidelines on Conflicts of Interest in International Arbitration 2014 (which supersede the previous Rules of Ethics for International Arbitrators 1987).

The guidelines have gained wide acceptance within the arbitration community and arbitrators, counsel and parties frequently refer to and/or adopt these rules for the determination of potential conflicts in international arbitration.

The introduction to the guidelines identifies the very tension between transparency and party autonomy discussed above when Mr Aldcroft had faced calls to disclose details of previous appointments by a party:

“There is a tension between…the parties’ right to disclosure of circumstances that may call into question an arbitrator’s impartiality…and…the need to avoid unnecessary challenges against arbitrators in order to protect the parties’ ability to select arbitrators of their choosing”.

Paragraph 3.1.3 of the ‘Orange List’ (a non-exhaustive list of specific situations that may give rise to doubts as to an arbitrator’s impartiality and which an arbitrator therefore has a duty to disclose) sets out the following scenario:

“The 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.”

Notwithstanding Mr Aldcroft’s evident propriety and confidence in his abilities as an arbitrator, it is not difficult to see why he was criticised by the Court for his naivety:

“the candour and fairness of Mr Aldcroft’s oral evidence was impressive… There is, however one aspect of Mr Aldcroft’s evidence which merits mention. Perhaps because of his long experience as an ICA arbitrator, and his understandable confidence in his own experience and standard, he found it difficult to see how the fact of repeat appointments might give rise to a legitimate perception of a risk of lack of impartiality by an arbitrator”.

All of that said, support for Mr Aldcroft’s position (i.e., that he did not believe a party was entitled to enquire as to his appointment history) can be found in the guidelines themselves. Footnote 5 to guideline 3.1.3 states:

“It may be the practice in certain types of arbitration, such as maritime, sports or commodities arbitration, to draw arbitrators from a smaller or specialised pool of individuals. If in such fields it is the custom and practice for parties to frequently appoint the same arbitrator in different cases, no disclosure of this fact is required, where all parties should be familiar with such custom and practice”.

There is little doubt that ICA arbitrations would be captured by footnote 5, not only for being commodities arbitrations, but more importantly owing to the ICA having one of the smallest pool of arbitrators of any of the various associations. By way of example, GAFTA’s pool has over 72 arbitrators.

The circumstances of Aldcroft appear to sit uncomfortably within the framework of the guidelines. Pursuant to guideline 3.1.3, Mr Aldcroft should have disclosed that he had been repeatedly appointed by that same party in the course of the previous three years. However, Mr Aldcroft’s failure to disclose the same appears to be expressly sanctioned by footnote 5 to that guideline, on the basis that he was appointed from a small or specialised pool and the parties ought to have been familiar with arbitrators from that pool being repeatedly appointed.

While arbitrators in such pools are likely to be appointed by parties more often than is contemplated by guideline 3.1.3, it is open to discussion whether footnote 5 goes too far in entirely absolving arbitrators of their obligation to disclose repeat appointments.

Whilst increased transparency would doubtless result in increased challenges to appointment, this may be preferable to enforcement challenges being brought at a later date. Further, the more challenges which are brought and determined by relevant tribunals and courts, the more likely it is that stakeholders will be able to predict with certainty how a prospective challenge will fall to be decided, taking into account the nature and custom of the industry concerned, the size of the industry pool and the knowledge of the parties.

In Aldcroft, the Court confirmed that there was no evidence before the Court of any party to an ICA arbitration raising the issue of repeat appointments before introduction of the 3 and 8 rule, nor of any attempt to resist enforcement on the basis that the successful party had repeatedly appointed the same arbitrator. However, the Court went on to state that it was not possible to conclude from these facts that repeat appointments presented no actual or potential risk to the integrity of the ICA process. Astutely, the Court pointed out that, given the practice of arbitrators not disclosing the fact or extent of repeat appointments, it was possible that the lack of challenge by ICA members may have resulted from ignorance rather than a lack of legitimate concern.

Given the ICA’s focus both on perception of bias and delay, it is interesting to note the difference in phraseology employed by the ICA in relation to the different limbs of the 3 and 8 rule. Whilst the 3 rule states that an arbitrator “may only accept up to and including three appointments”, the wording of the 8 rule is softer, stating: “an arbitrator should not be able to have more than 8 active first tier cases open at any one time”.

While nothing appears to have been made of the more relaxed wording of the 8 rule, this perhaps does allow a modicum of flexibility for arbitrators to take on more than 8 active first tier cases where there is good reason, for example, when dealing with ‘string’ arbitrations. This was indicated by the ICA before the Court, the ICA stating that where an order was made for consolidated or concurrent hearings, these would be treated as a single reference for the purpose of the 3 and 8 rule. It might also be inferred that while the ICA certainly wished to address the risk of delay, it was the issue of perceived bias which it aimed to deal with more firmly.

Final Points

Whilst party autonomy in choice of arbitrator might be a founding principle of the arbitral process, it is right that fetters on that autonomy exist where these are reasonable, proportionate and contribute to the legitimate aims of associations promoting arbitration.

In addition to contributing to the promotion of arbitration by reducing the risk of any perception of bias, reforms regarding a party’s choice of arbitrator may avoid difficulties in the enforcement of arbitral awards. Such risks are likely to be particularly prevalent where an arbitrator is appointed by the same party to such an extent that he or she risks being identified with that appointing party.

An ancillary concern, but one contributing to the issue of repeat appointments, is also the trend for parties (perhaps on recommendations of their advisors) to appoint the same arbitrators over and over again. This is usually not borne out of some sort of particular relationship with the arbitrator, but usually out of a reluctance to ‘try somebody new’ when monies and principles are at stake. Initiatives to promote lesser known arbitrators with the capacity to take on appointments by their respective industry arbitral bodies should be encouraged.

Reference

Lloyd’s Law Reports [2017] Vol. 1, pages 635–660

1. As pointed out by the High Court, the draftsman of the clause really meant to refer to a lack of impartiality and justifiable doubts as to impartiality.

Client Alert 2017-190