In a rare successful application under s.68 of the Arbitration Act, the Commercial Court recently set aside an arbitral award for apparent bias on the part of an arbitrator. In this article, we look at the decision - in particular, the importance of disclosure by arbitrators.

s68 of the Arbitration Act 1996 (the Act) provides a mechanism for an arbitral party to challenge an award on the basis of serious irregularity. For an application to succeed there must be (i) a serious irregularity that (ii) causes substantial injustice. In the recent case of Aiteo E&P Company Ltd v Shell Western Supply and Trading Ltd & Ors, Jacobs J considered the merits of a s68 application brought by Aiteo E&P Company Ltd (Aiteo). Aiteo sought to set aside four arbitral awards by reason of apparent bias by one member of a three-person Tribunal.

The judgment provides a detailed application of the fair-minded observer test that should be applied when considering an allegation of apparent bias, as established by the UK Supreme Court in Halliburton Co. v Chubb Bermuda Insurance Ltd (Halliburton) - namely, would the fair-minded observer, having considered the facts, consider there was a real possibility that the tribunal was biased? The judgment also explores the importance of arbitrator disclosure.

For more detail on the earlier Halliburton decision, see our article on 'apparent bias in arbitration - avoiding and challenging it'.

The facts

Aiteo and the defendants were parties to two ICC arbitrations that had been consolidated by the Tribunal. Four partial awards had been rendered, which Aiteo sought to challenge pursuant to s68 of the Act. Aiteo's application was predicated on an allegation of apparent bias on the part of the defendants' nominated member of the three-person Tribunal, the Rt. Hon Dame Elizabeth Gloster DBE (DEG).

Aiteo's allegation of bias was based on the existence of multiple professional connections that had belatedly come to light between DEG and the defendants' solicitors, combined with DEG's failure to provide timely disclosure of some of those professional connections. DEG and the solicitors had a total of eight professional connections, consisting of two arbitral appointments plus further expert instructions. Although she disclosed two of the connections in her ICC Arbitrator Statement when the tribunal was formed, the full picture of all the connections emerged only after all four awards had been rendered and only after DEG had been specifically questioned by Aiteo's solicitors.

Aiteo also applied for an extension of time to make its s68 application pursuant to s80(5) of the Act. The defendants resisted this and stated that Aiteo had lost its right to make its challenge by continuing to take part in the arbitration after it had been aware of the relevant facts, pursuant to s73(1) of the Act.

Prior to Aiteo's application to the English courts, it had made a successful application to the ICC Court to challenge and remove DEG from the tribunal for a lack of independence on substantially the same grounds. Aiteo therefore contended that the decision of the ICC Court created a res judicata whose effect was to preclude the defendants from successfully making any argument on the issue of apparent bias in the English courts.

Ultimately, Jacobs J held that the four awards did in fact give rise to serious irregularity within the meaning of s68 of the Act. He also found that one of the four awards gave rise to substantial injustice and ordered that it should be remitted for reconsideration. While subject to serious irregularity, the other three awards did not cause Aiteo to suffer substantial injustice due to the specific facts in each case.

The judgment of Jacobs J provides a detailed analysis of the English law principles relevant to the existence of apparent bias, the presence of substantial injustice within the meaning of s68 of the Act, as well as the importance of timely arbitrator disclosure.

Key outcomes regarding bias and disclosure

The key takeaways from the judgment of Jacobs J can be summarised as follows:

  1. Applying Halliburton's fair-minded observer test, it was held that there was a real possibility of unconscious bias on the facts. It was held that the cumulative effect of the defendants' solicitors' repeat appointments of and repeat expert instructions to DEG, as well as material failures of disclosure on her part, would lead the observer to conclude that there was a real possibility of bias. DEG's failure to disclose a number of her expert appointments was material in this respect.
  2. Any possible doubt as to the presence of bias would be resolved by the presence of the earlier decision of the ICC Court with respect to DEG's impartiality. However, the ICC Court's ruling did not amount to a res judicata.
  3. Where serious irregularity is found for the purposes of s68 of the Act, that does not necessarily amount to substantial injustice. The facts must be considered on a case-by-case basis. However, Jacobs J did state that where there is apparent bias, substantial injustice will normally be inferred, subject to the specific facts.
  4. Aiteo had not lost its right to challenge the partial awards pursuant to s73(1) of the Act. Aiteo was not aware of all of the facts that formed its allegation of apparent bias. The later disclosures were described as the "tipping point", prior to which Aiteo did not consider a challenge would be successful.

The importance of disclosure

This case provides useful guidance on how the English courts will apply Halliburton's fair-minded observer test relating to apparent bias - particularly when there have been repeated appointments or instructions from a party or firm, combined with a failure to disclose on the part of the arbitrator. Arbitration practitioners should note the emphasis the courts have placed on the importance of disclosure of interests, even where a tribunal is exceedingly experienced.

To discuss any of the points raised in this article further, please contact Gordon Bell or Dominic Sinnott.