PAPER DELIVERED AT CIArb Diploma Course Sydney

21 April 2015

THE ARBITRATOR’S INDEPENDENCE, IMPARTIALITY

AND ANY CHALLENGES FOR LACK THEREOF1

Introduction

1. This paper proposes to deal with questions arising under Australian law relating

to an arbitrator’s independence, impartiality, the procedure by which the lack of

independence or impartiality of the arbitrator can be challenged, and other

related concepts. The particular focus of the paper will be on the situation as it

applies under the International Arbitration Act 1974 (Cth) (IAA) as amended by

the International Arbitration Amendment Act 2010. Reference will be made in

some circumstances to practice in various other jurisdictions particularly having

regard to the fact that the IAA gives force of law in Australia to the UNCITRAL

Model Law on International Commercial Arbitration (Model Law)2.

Statutory context in which questions of independence and impartiality of an arbitrator arises 2. Under the IAA/Model Law the concept of independence and impartiality arises

in a number of different contexts. Chapter III of the Model Law deals with the

composition of the arbitral tribunal including the right of the parties to

determine the number of arbitrators3. In addition, under Article 11(2) the

parties are free to agree upon a procedure for appointing an arbitrator or

arbitrators, subject to the provisions of Article 10(4) and (5), or failing such

agreement, as is set out in Article 11(3). Article 11(4) deals with the situation

where the appointment procedure agreed on by the parties fails, in which event

1 F M Douglas QC, BA LLB (Qld) LLB (Cantab), New Chambers, Sydney 2 As adopted by the United Nations Commission on International Trade Law (UNCITRAL) on 21 June 1985 with

amendments as adopted by that Commission in 2006 3 Article 10

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the Court has a power to appoint an arbitrator, and in that regard, under

Article 11(5):

shall have due regard to any qualifications required of the arbitrator by the agreement of the parties and to such considerations as are likely to secure the appointment of an independent and impartial arbitrator...

3. Article 12, which sets out the grounds for challenge, is in the following terms:

Article 12 Grounds for challenge

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.

(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

4. However, s18A IAA qualifies the effect of Article 12. Section 18A is in the

following terms:

(1) For the purposes of Article 12(1) of the Model Law, there are justifiable doubts as to the impartiality or independence of a person approached in connection with a possible appointment as arbitrator only if there is a real danger of bias on the part of that person in conducting the arbitration.

(2) For the purposes of Article 12(2) of the Model Law, there are justifiable doubts as to the impartiality or independence of an arbitrator only if there is a real danger of bias on the part of the arbitrator in conducting the arbitration.

5. Therefore, in an international arbitration under the IAA, questions of

impartiality or independence give rise to the question of what is the meaning of

the term “real danger of bias”.4

6. Under the Model Law, the parties are free to agree upon a procedure for

challenging an arbitrator5. Article 13(2) provides that failing such agreement, a

4 The same issue arises in relation to domestic arbitration proceedings in Australia, which are governed by the Commercial

Arbitration Acts of the various States and Territories (the CAAs). All the CAAs (other than in the Australian Capital Territory) are based on the Model Law. Section 12 of the Acts is in broadly identical terms to Article 12 Model Law and s18A of the IAA.

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party intending to challenge an arbitrator must, within 15 days after becoming

aware of the constitution of the arbitral tribunal or after becoming aware of any

circumstance referred to in Article 13(2)6, send a written statement of the

reasons for the challenge to the arbitral tribunal. Article 13(2) goes on to

provide that unless the challenged arbitrator withdraws from office or the other

party agrees to the challenge, the arbitral tribunal must decide on the challenge.

7. This means that the challenged arbitrator will be involved in deciding the

challenge against him or her. If it is a sole arbitrator it will be his or her

decision. If it is a tribunal of three, the challenged arbitrator is not excluded

from the decision.7

8. However, the tribunal may not have the last word on the challenge. Under

Article 13(3) of the Model Law, if a challenge under any procedure agreed on

by the parties or under the procedure set out in Article 13(2) is not successful,

the challenging party may request the Court, within 30 days after having

received notice of the decision rejecting the challenge, to decide on the

challenge. The Court in this context means the Supreme Court of the State or

Territory in which the place of arbitration is located, or the Federal Court of

Australia8.

9. Lastly, a decision of the Court under Article 13(3) is not subject to appeal, and

while a request to the Court to make such a decision is pending, the arbitral

tribunal, including the challenged arbitrator may continue the arbitral

proceedings and make an award9.

Particular rules of particular arbitral bodies

10. A number of rules of particular arbitral bodies contain provisions dealing with

the procedure for challenging an arbitrator. For example, the Institute of

Arbitrators and Mediators Australia (IAMA) has introduced arbitration rules,

which operate on and from 2 May 2014 (2014 IAMA Rules) which are

5 Model Law Article 13(1) 6 Which deals with circumstances in which a party may challenge an arbitrator appointed by that party (see above).. 7 So much is clear from the 1984 Report of the UNCITRAL Working Group, UN Doc A/CN.9/246 (6 March 1984) at [38]. 8 Article 6 Model Law; s18(3) IAA. 9 Model Law Article 13(3).

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designed to operate under Australia’s domestic and international commercial

arbitration landscapes. Those rules enable a party to challenge an arbitrator if

there is a “real danger of bias” on the part of the arbitrator10. The procedure for

challenging an arbitrator is for a party to send notice of its intention to challenge

an arbitrator within 15 days of being notified of the appointment of the

arbitrator or within 15 days of becoming aware of a real danger of bias on the

part of that arbitrator11. Article 13(3) states that if the other party does not agree

to the challenge within seven days and the challenged arbitrator does not resign

within seven days, the arbitral tribunal shall make the decision on the challenge

within a further 14 days12.

11. Likewise, the rules of the Australian Centre for International Commercial

Arbitration (ACICA) contain detailed provisions in relation to the appointment

of arbitrators in multiparty disputes, information about arbitrators, challenges to

arbitrators and the procedure for the challenge of arbitrators in section II of its

Rules. Rule 13.1 in particular provides for disclosure of circumstances “likely

to give rise to justifiable doubts as to [the arbitrator’s] impartiality or

independence”, and rule 13.2 provides that “[a]ny arbitrator may be challenged

if circumstances exist that give rise to justifiable doubts as to the arbitrator’s

impartiality or independence”. There is no reference to the “real danger of

bias” test referred to in s18A IAA. By incorporating the ACICA Rules the

parties would be agreeing on a procedure for challenging an arbitrator, as

envisaged by Article 13(1) Model Law, but an interesting issue arises as to

whether or not ACICA Rule 13.2 should be construed so as to reflect the real

danger of bias test. Section 18A applies to Article 12 Model Law, which is in

mandatory terms and does not provide for the parties agreeing otherwise. It is

suggested that an Australian court deciding a challenge to an arbitrator where

the parties have adopted the ACICA Rules would be likely to apply the “real

danger of bias” test13.

10 Article 12 11 Article 13(1) 12 See further Monichino et al Arbitration on its way back, Vol 33 The Arbitrator & Mediator 2014 p35 13 The International Bar Association (IBA) has also developed a set of guidelines on Conflicts of Interests in International

Arbitration (IBA Guidelines) which are relevant and will be discussed later

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(a) One way in which the procedure for challenge of an arbitrator under the

ACICA Rules differs from that under the IAMA Rules is as to who

decides the challenge in circumstances where it is not agreed by the other

parties or accepted by the challenged arbitrator. Under the ACICA Rule

14.4 the challenge is decided not by the arbitral tribunal but by ACICA

itself. This reflects the usual position under most institutional arbitration

rules: the institution decides the challenge. Exceptions to this, apart from

IAMA, include the Rules of Arbitration of the Vietnam International

Arbitration Centre, and the ICSID Arbitration Rules. Both of these rules

provide for a challenge to an arbitrator to be decided by the remaining

unchallenged arbitrators (if any), and if they cannot decide (or if there are

none – eg where there is a sole arbitrator), the decision is made by the

arbitral institution.14

12. The SIAC Rules15 deal with the qualifications of and challenges to arbitrators in

Rules 10 to 13. Under Rule 10.1 an arbitrator “shall be and remain at all times

independent and impartial, and shall not act as an advocate for any party”.

Rule 10.4 requires an arbitrator to “disclose to the parties and to the Registrar

any circumstance that may give rise to justifiable doubts as to his impartiality

or independence as soon as reasonably practicable and in any event before

appointment by the President”. A similar obligation exists during the

arbitration pursuant to Rule 10.5. The basis of challenge is set out in Rule 11.1

and consists of circumstances “that give rise to justifiable doubts as to the

arbitrator’s impartiality or independence”. Pursuant to Rule 11.2 a party may

challenge the arbitrator nominated by him only for reasons of which he becomes

aware after the appointment has been made. There are similar provisions in

relation to the giving of notice of challenge under Rule 12, to those, which exist

under the IAMA Rules and the ACICA Rules. Under the SIAC Rules, if the

arbitrator does not step aside, or the parties do not consent, the Court of

Arbitration of SIAC shall decide the challenge16. That decision is stated to be

“final and not subject to an appeal”17. It should be noted, however, that if the

14 See VIAC Rule 15.3 and ICSID Rule 9(4). 15 Arbitration rules of Singapore International Arbitration Centre (SIAC Rules), 5th Ed 1 April 2013 16 Rule 13.1 17 Rule 13.5

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seat of the arbitration is in Australia and the parties have agreed that the SIAC

Rules apply, then the decision of the Court of Arbitration of SIAC on a

challenge to an arbitrator will not necessarily be final. This is because under

Article 13(1) of the Model Law the parties’ agreement on a procedure for

challenging an arbitrator is subject to Article 13(3), which allows a party to

request the Court (as in an Australian Court) to decide on the challenge, as

noted above.

13. Another popular arbitral body is the International Chamber of Commerce,

which has published Rules of Arbitration, the current Rules being in force as

from 1 January 2012 (the ICC Rules). The relevant provisions relating to the

appointment of, challenge to, and replacement of arbitrators are Articles 13, 14

and 15.

14. Those Rules place more emphasis upon questions of nationality, residence and

other relationships, than the other rules to which reference has been made. The

reference to impartiality or independence is contained in Article 13(2) which

requires that the statement submitted by the proposed arbitrators contain no

qualification regarding impartiality or independence, or that a qualified

statement regarding impartiality or independence has not given rise to

objections. It is the responsibility of the Secretary-General to confirm as co-

arbitrators, sole arbitrators and presidents of arbitral tribunals persons

nominated by the parties or pursuant to their particular agreements. On the

other hand, where the Court (the International Court of Arbitration (ICA),

which is the independent arbitral body of the ICC) is to appoint an arbitrator, it

shall make the appointment upon the proposal of the National Committee or

Group of the ICC that it considers to be appropriate. One other aspect of the

ICC Rules, is that in the case of appointments by the ICA, it is provided that the

sole arbitrator or the president of the arbitral tribunal shall be of a nationality

other than those of the parties, but that in suitable circumstances and provided

that none of the parties objects within the time limit fixed by the Court, the sole

arbitrator or the president of the arbitral tribunal may be chosen from a country

of which any of the parties is a national18.

18 Article 13(5)

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15. The emphasis in the ICC Rules upon the appointment of nationals other than

those of the parties reflects the international nature of the ICC, and the fact that

it is not unusual for there to be doubts about the independence of arbitrators

who have the same nationality as one of the parties. Whether those doubts are

justifiable or not, it is a matter which gives rise to concern on the part of parties

to international arbitration and what the ICC Rules do is to try and alleviate

such concerns. In other circumstances, particularly in the case of a three

member tribunal, it is not unusual for parties to choose nationals of their own

state, and for the presiding member or chairperson to be chosen from a state

other than one associated with either of the parties19. However, this is not

invariable practice.

Significance of disclosure

16. It will be noted that the Model Law and all of these arbitral rules place

considerable importance upon disclosure of any matters that could give rise to

justifiable doubt as to the impartiality or independence of an arbitrator20.

Disclosure is obviously highly significant and justifies the emphasis, which is

placed upon it by the various rules. Should an arbitrator not disclose a possible

lack of independence or impartiality with respect to a party, he or she deprives

the other party of its right to object in a timely fashion, and raises the possibility

that facts may become known during the course of the arbitration, which could

abort the hearing, or lead to the need for the appointment of a replacement

arbitrator. This is obviously highly undesirable and thus justifies the need for

appropriate disclosures at the time of appointment, and subsequently.

Procedure for challenging an arbitrator upon failure or impossibility to act

17. The procedure for challenging an arbitrator upon failure or impossibility to act

is dealt with in s14 of the 2010 Acts and the Model Law Article 14.

19 This is to a certain extent reflected in Article 11(5) of the Model Law 20 See op cit Model Law Article 12

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18. Under the old uniform legislation of which the Commercial Arbitration Act

1984 (NSW) (the 1984 Act) is an example, there is no exact equivalent to ss12

and 13 of the 2010 Act. Challenges under that legislation were made under s44,

which required a Court to be satisfied that there had been misconduct on the

part of an arbitrator, or that an arbitrator had misconducted the proceedings,

undue influence had been exercised in relation to an arbitrator or an arbitrator or

umpire was incompetent or unsuitable to deal with the particular dispute. In

those circumstances, the Court, on the application of a party to the arbitration

agreement could remove the arbitrator.

19. Section 45 also provided that a party was not prevented from alleging that an

arbitrator appointed by that party was not impartial, suitable or competent21.

20. An example of the application of s44 of the 1984 Act is the decision of the

Court of Appeal of the Supreme Court of Victoria in Gascor v Ellicott22. I shall

refer to this decision later in this paper. The case was brought as one of

apprehended bias, but necessarily had to be fitted into the categories of

“misconduct” or “unsuitable to deal with”, within the meaning of s44 of the

1984 Act. The current provisions provide a much more satisfactory legislative

framework within which to determine these somewhat delicate questions23.I

suggest omitting this section (paras 18-21) given it relates to former domestic

arbitration law, and deal with it to the extent necessary in later discussion of

Gascor

Real danger of bias

21. As mentioned above, for the purposes of s18A of the IAA there are justifiable

doubts as to the impartiality or independence of an arbitrator only if there is “a

real danger of bias” on the part of the arbitrator. This is quite a high

threshold24, although it is yet to be tested in our highest courts in this context.

21 And see Merkin, Arbitration Law [11.5] as to the history of such provisions 22 [1997] 1 VR 332 23 And see R v Webb and Hay (1994) 81 CLR 41 at 71 24 Although one should note that references to thresholds should not be made in this context (and see Laurie’s case op cit 214

[74] per Gummow J

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22. The explanatory memorandum to the International Arbitration Amendment Bill

2010 (Cth) refers to this test as being the test adopted in 1993 of the House of

Lords in R v Gough25. There is no doubt that this test was adopted because bias

challenges were an increasingly common procedural tactic in high value

international arbitration, and it was seen as a positive step in order to prevent

inappropriate challenges26.

23. Gough’s case was a case involving a jury where the juror was the next door

neighbour of the defendant’s brother, but the juror was unaware of the

connection until after trial, there being a question whether there was a real

danger of bias, and whether that was an irregularity affecting the trial. The

derivation of the “real danger of bias” test can be seen in the following passage

from the speech of Lord Goff of Chieveley where he said:

I wish to add that in cases concerned with allegations of bias on the part of an arbitrator, the test adopted, derived from Ex parte Topping [1983] 1 WLR 119, has been whether the circumstances were such that a reasonable man would think that there was a real likelihood that the arbitrator would not fairly determine the issue on the basis of the evidence and arguments adduced before him: see Ardahalian v Unifert International SA (The Elissar) [1984] 2 Lloyd’s Rep 84, and Bremer Handelsgesellschaft mbH v Ets Soules et Cie [1985] 1 Lloyd’s Rep 160; [1985] 2 Lloyd’s Rep 1999. Such a test is, subject to the introduction of the reasonable man, consistent with the conclusion which I have reached, provided that the expression ‘real likelihood’ is understood in the sense I have described, i.e. as meaning that there is a real possibility or, as I would prefer to put it, a real danger of bias. It would appear to have been so understood by Mustill J in the Bremer case [1985] 1 Lloyd’s Rep 160, 164, where he referred to ‘an evident risk’ of bias. In conclusion, I wish to express my understanding of the law as follows. I think it possible, and desirable, that the same test should be applicable in all cases of apparent bias, whether concerned with justices or members of other inferior tribunals, or with jurors, or with arbitrators. … Furthermore, I think it unnecessary in formulating the appropriate list, to require that the Court should look at the matter through the eyes of a reasonable man, because the Court in cases such as these personifies the reasonable man. Accordingly, having ascertained the relevant circumstances, the court should ask itself whether, having regard to those circumstances, there was a real danger of bias on the part of the relevant member of the tribunal in question, in the sense that he might unfairly

25 [1993] AC 646 26 See, in particular, S Luttrell, Bias challenges in commercial arbitration: the need for a “real danger” test (Kluwer Law

International, 2009)

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regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration by him; …(Emphasis added.)

24. In relation to the real danger of bias test, and its reception into Australian law, at

least in relation to the disqualification of judges, the recent decision of British

American Tobacco v Laurie27 is instructive, insofar as Gough’s case is

concerned. French CJ said the following:

In 1993 the reasonable person whose apprehension was the test of the appearance of bias was retired from duty by the House of Lords in R v Gough in favour of a real danger of bias test to be administered by the Court. That new approach was not accepted by this Court28. The reasonable person was recalled by the Court of Appeal in 2001 by way of a modest adjustment to the real danger of bias test. The question for the Court under the revised test was whether the circumstances ‘would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased’; the revised test was approved by the House of Lords in Porter v McGill [2002] 2 AC 35729. (Emphasis added.)

25. The Chief Justice then went on to say:

In 2000, the test in Australia was stated by this Court in Ebner30, it requires two steps. The first is ‘the identification of what it is said might lead a judge … to decide a case other than on its legal and factual merits’. The second is ‘an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits’. In Ebner the constructed observer was the ‘fair-minded lay observer’ concerned only with a reasonable apprehension of bias. Tests are generally applicable to cases of asserted apprehended bias, including cases in which the judge is said to have a pecuniary interest in the outcome of the case which he or she is hearing. This Court rejected the proposition that automatic disqualification applies to such classes of case31. (Emphasis added.)

26. The attempted harmonisation sought to be brought about by Lord Hope of

Craighead in Porter’s case was based on his view that if one intrudes a “fair-

minded and informed observer” into the analysis of the real danger of bias test,

there would be harmonisation with the test now applied in most Commonwealth

countries and in Scotland32. However, as the lucid analysis of Deane J in Webb

v R33 makes clear, the application of the real danger test in R v Gough “is

27 (2011) 242 CLR 283, the Chief Justice was in dissent but not on this point 28 Referring to Webb v R (1994) 181 CLR 41; [1994] HCA 30 29 Op cit p201 [36] 30 (2000) 205 CLR 337 31 Op cit p302 [37] 32 Op cit [102], [103] 33 Webb & Hay v R (1994) 81 CLR 41

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directed to the court’s assessment of the possibilities in the context of the

objective facts disclosed by the material in evidence. … the ultimate question

which a court is required to address in an application of that test is whether

there was a real danger, in the sense of possibility, of actual bias”34. He went

on to say:

One advantage of the test of reasonable apprehension on the part of a fair-minded and informed observer is that it makes plain that an appellate court is not making an adverse finding on the question whether it is possible or likely that the particular judge or juror was in fact affected by disqualifying bias. In contrast, the real danger test is focused upon that very question35.

27. A similar tension exists in relation to challenges to arbitrators in ICSID

arbitrations36. The dispute has arisen in the context of the interpretation of

Article 14(1) of the ICSID Convention which requires arbitrators to be “persons

of high moral character and recognised competence in the fields of law,

commerce, industry or finance, and may be relied upon to exercise independent

judgment”. Article 57 of the ICSID Convention provides, in part:

A party may propose to a commission or tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14.

28. The question is, what is the meaning of “manifest” in that description of the lack

of the qualities required by an arbitrator?

29. In that context, some tribunals have asked whether an arbitrator who has been

challenged, manifestly lacks independence; in the same way that one might ask

whether an arbitrator manifestly lacks high moral character or competence.

Other tribunals have asked whether the challenged arbitrator can be “relied

upon to exercise independent judgment”37. Professor Crawford has suggested

the former interpretation has the same vice as that identified by Deane J in

Webb’s case. It effectively requires putting the arbitrator’s qualifications and

independence on trial in order to establish whether there is such a manifest lack

34 Op cit p71.8 35 Op cit pp71-72 36 Crawford: Arbitrations under the Convention on the Settlement of Investment Disputes between States and Nationals of

Other States, 575 UNTS 159 (18th Mar 1965) (ICSID Convention) PCA Peace Palace Centenary Seminar 11 October 2013 37 See the discussion in Crawford, Challenges to Arbitrators in ICSID Arbitrations PCA Peace Palace Centenary Seminar, 11

October 2013

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of the qualities required, rather than approaching the matter on the basis of

apparent lack of those qualities.

30. Examples of the former approach are to be found in the decision of the Vivendi

tribunal of 200138. “Manifest” was interpreted in that case as excluding

“reliance on speculative assumptions or arguments”. Subsequent to that,

Professor Crawford observed there has been a shift towards a higher threshold

for disqualification in the first Suez decision39. The distinction, which was

drawn in that decision, was in or to the effect that a reasonable doubt as to

impartiality or independence of the arbitrator was not enough. Instead, obvious

evidence was required. Since then, there has been a degree of confusion in the

authorities by ICSID tribunals on matters of this nature, which is highlighted in

Crawford’s paper, and goes beyond the scope of this paper.

31. One view, which has been expressed in that context, is that “manifest” is

something, which can be “discerned with little effort and without deeper

analysis”40. Certainly, as pointed out by Crawford, the annulment decision in

Vivendi affirmed the importance of the integrity of an arbitral tribunal, and

commented that from this point of view, the ICSID Convention cannot offer less

protection than other comparable instruments, and that the standard of

“reasonable doubt” having been adopted by the UNCITRAL Rules and the IBA

Guidelines, was the appropriate standard to be applied in evaluating the

soundness of requests for disqualifications41.

32. Whilst the taxonomy is somewhat confusing, it appears to me that in this

context, manifest is regarded as being something akin to actual bias, and

reasonable doubt is a reasonable apprehension on the part of the fair minded and

informed observer.42 The discussion in Crawford’s paper would suggest to me

that the confusion concerning the interpretation of the relevant provisions of the

38 Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA, ICSID Case No ARB/03/19 39 Suez, Sociedad General de Aguas de Barcelona SA and InterAguas Servicios Integrales del Agua SA v Argentina, ICSID

Case No ARB/03/17 40 EDF International SA, SAUR International SA and León Participaciones Argentinas SA v Argentina, ICSID Case No

ARB/03/23, Challenge Decision Regarding Professor Gabrielle Kaufmann-Kohler (25 Jun 2008) 41 Vivendi, ICSID Case No ARB/97/3, Decision on the Challenge to the President of the Committee (3 Oct 2011), Universal

Compression International Holdings SLU v Venezuela, ICSID Case No ARB/10/9, Decision on the Proposal to Disqualify Prof Brigitte Stern and Prof Guido Santiago Tawil, Arbitrators (20 May 2011)

42 This is certainly the approach in the Rompetrol case to which I refer subsequently which expressly refers to the decision of the House of Lords in Porter v Magill op. cit. as authority for the “reasonable doubt “approach, and see the discussion in Crawford op. cit. at p10

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ICSID Convention is one that may inform the debate once it gradually requires

to be determined in a superior Australian Court.

33. The introduction of the real danger of bias test into the IAA, and into the CAAs

(see footnote 7 above), has given rise to a “real risk”, particularly having regard

to some of the explanatory material, that the test in Gough as it originally stood

may constitute the test for arbitrators in this country, in contradistinction to the

principles which apply in relation to other adjudicators generally, including

judges. In light of what was said in Webb’s case by Deane J, this would have to

be regarded as an undesirable development.

34. On the other hand, it may be that it will be interpreted consistently with what

was said by Lord Hope of Craighead in Porter’s case akin to the approach now

adopted in ICSID tribunals, in which event, the introduction of the “fair-minded

and informed observer” is likely to lead to the test being applied being similar

to that which is applied to other adjudicators, in particular judges, in Australian

Courts more generally. In other words it incorporates both actual bias and

reasonable apprehension of bias. The balance of this paper proceeds on that

assumption.

Content of the real danger of bias principle

35. In recent Australian cases concerning judicial disqualification, it has been

emphasised that the content of the general principle depends upon the

circumstances of the particular case and “the ground of disqualification is a

reasonable apprehension that the judicial officer will not decide the case

impartially or without prejudice, rather than that he will decide the case

adversely to one party”43. Likewise, it is established that the reasonable

apprehension of bias must be “firmly established” and that “although it is

important that justice must be seen to be done, it is equally important that

judicial officers discharge their duty to sit and do not, by exceeding too readily

to suggestions of appearance of bias, encourage parties to believe that by

43 Re JRL; Ex parte CJL (1986) 161 CLR 342 at 352; Laurie’s case op cit p313 [70]-[71]

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seeking the disqualification of a judge, they will have their case tried by

someone thought to be more likely to decide the case in their favour”44.

36. There is a variety of ways in which the impartiality of a court may be or may

appear to be compromised. First identified in Webb’s case45, and described in

Ebner46 as providing a convenient frame of reference, albeit not necessarily a

comprehensive taxonomy, they were referred to in Laurie’s case47 by the

current Chief Justice as being interest, conduct, association, and extraneous

information.

Interest

37. Considerable guidance as to the question of interest was given by the High

Court in the decision of Clenae Pty Ltd v ANZ Banking Group Limited48. In that

case, which concerned a foreign currency loan by the Bank to Clenae49, the trial

judge was the executor of his mother’s estate, and during the period of the

hearing he inherited 2,400 shares in the Bank, the highest level of the value of

the shares being $11.45 per share during the relevant period, there being more

than 1,508 million issued ordinary shares of the Bank and more than 130,000

shareholders. The net assets of the Bank were of the order of $8,000 billion,

and it was conceded that it could not be argued that the outcome of the matter

would have affected the judge’s value of the shares in the Bank. The judge was

not a shareholder during the course of the hearing, but as executor of the estate,

distributed the shares to himself in the period between reserving judgment, and

delivering judgment. It was therefore argued that he had a direct interest in the

Bank at the time of judgment, which was the defendant in the proceedings,

before he made his decision, and this was effectively an automatic

disqualification.

44 Laurie’s case op cit [72], and see the plurality decision at pp331-333 [139]-[145]; and French CJ at pp300-302 [32]-[37] 45 Op cit 46 Op cit 47 Op cit p302 [38] 48 (201) 205 CLR 337. This case was decided together with Ebner op cit. 49 The ANZ Bank

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38. The appellants relied upon the line of authority dating back to Dimes v

Proprietors of the Grand Junction Canal50. The discussion of Dimes’ case in

the judgment of the plurality is historically interesting, but too extensive for the

purposes of this paper. But the ultimate conclusion was that the principle in

Dimes was not a basis for a proposition that a judge who owned shares in a

party to the cause is automatically disqualified, and the circumstance that a

judge has an insubstantial, direct, pecuniary or proprietary interest in the

outcome of the litigation will not ordinarily result in disqualification51. There

was a recognition however that if effectively the judge, and in this context the

arbitrator, could be said to be a party to the cause he or she is deciding, that may

constitute a bar to the hearing of the matter independently of problems relating

to apprehension of bias52. As was said in that case:

60. It was said earlier that the fundamental principle to which effect is given by disqualification of a judge is the necessity for an independent and impartial tribunal. Concepts of independence and impartiality overlap, but they are not co-extensive. In order to maintain both the reality and the appearance of independence, as well as impartiality, there must be a prohibition upon a judge sitting in a case to which he or she is a party, and that would include a case where one of the parties on the record is a nominee or alter ego of the judge.53

Conduct

39. So far as conduct is concerned, the recent decision of the High Court in Michael

Wilson & Partners v Nicholls (2011) 244 CLR 427 provides a useful example.

The judgment of the plurality, after noting that Ebner’s case requires firstly the

identification of what is said might lead the judge to decide a case other than on

its legal and factual merits, and secondly, an articulation of a logical connection

between that matter and the feared deviation from the course of deciding the

case on its merits, went on to consider the various arguments raised by the

parties54. The Court went on to observe that an allegation of apprehended bias

50 (1852) 3 HLC 759 [10 ER 301]; and see the authorities referred to at p352 [40]-[42] 51 Op cit pp357-358 [56]-[58] 52 Op cit [59] 53 See also the comments made in relation to cases where the judicial officer was a party to proceedings even though not named

on the record, op cit [61]-[63] 54 Op cit p445 [63]

16

requires an objective assessment of the connection between the facts and

circumstances said to give rise to the apprehension and the asserted conclusion

that the judge might not bring an impartial mind to bear upon the issues that are

to be decided. An allegation of apprehended bias does not direct attention to, or

permit consideration of, whether the judge had in fact prejudged an issue55.

40. The basic complaint in that case was that by reason of the circumstances of

several interlocutory ex parte applications, the judge’s mind was predisposed to

accept the case brought by the plaintiffs.

41. The Court found that the making of the orders on certain ex parte applications,

and the non-disclosure of the material submitted to the Court on those

occasions, and the imposition of a confidentiality regime, arguably for too long

a time, did not found a reasonable apprehension of prejudgment of the issues

that were to be fought at trial. In particular, in none of the applications was the

trial judge required to make, and in none of the applications did he make, any

determination of any issue that was to be decided at trial. All that was required,

and all that was found, was that there was apparently credible evidence of a

sufficient risk or dissipation of assets to warrant the making of the orders that

were made, and this could not found a reasonable apprehension of prejudgment

of the credit of those who gave evidence in support of those applications56.

42. An interesting recent example of a challenge to an arbitrator for conduct arose

in the ICSID case of RSM Production Corporation v Saint Lucia.57 In that case

the nation state of Saint Lucia applied to the tribunal for security for costs to be

paid by RSM, which admitted that it had third party funding for the proceedings

from an unidentified source. By majority, the tribunal awarded security for

costs of US$750,000.

43. One member of the tribunal, Dr Gavan Griffith QC, issued his own “Assenting

Reasons” in favour of the order for security, in which he made forthright

comments about third party funders of bilateral investment treaty claims, calling

them “mercantile adventurers” who, when their business plan involves

advancing money to share the rewards if the investor succeeds in its claim, but 55 Op cit p446 [67] 56 Op cit pp447-448 [68]-[73] 57 ICSID Case No. ARB/12/10

17

absent an order for security for costs, risk no more than their spent costs in the

event of failure, “embrace the gambler’s Nirvana: Heads I win, and Tails I do

not lose”.

44. Dr Griffith also indicated in his Assenting Reasons an arguably radical view on

the availability of security for costs in such proceedings: whilst the usual

position is that security will only be awarded against the investor in exceptional

circumstances, if the investor has third party funding, it should have to give

security for costs unless it can show why it should not.

45. RSM reacted to Dr Griffith’s Assenting Reasons by seeking to have him

disqualified under Article 57 of the ICSID Convention, arguing that his

comments were “radical in tone and negative” and “prejudge the question

whether a funded claimant will comply with a costs award”.

46. The unchallenged arbitrators rejected the challenge, saying that Dr Griffith’s

language was “radical and perhaps extreme in tone, but not to a degree as to

justify disqualification”. They continued: “Dr Griffith may well, with the

expressions used, have stepped close to the edge of what can be considered as

an objective reasoning. However, we believe that he has not actually stepped

over the demarcation line between radical and extreme language on the one

hand and clearly inappropriate and hence inacceptable expressions in the

context of an arbitration on the other hand”.58

47. The unchallenged arbitrators rejected the argument that Dr Griffith’s Assenting

Reasons revealed a “general apprehension” [of bias] against funded claimants.59

48. Other examples of cases where the conduct of a judge, or of an arbitrator has

been such that a reasonable apprehension of bias could be said to have arisen

are considered in the relevant texts60.

58 Decision of 23 October 2014 at [86] 59 Ibid at [87]. 60 Note in particular Xuereb v Viola (1988) 18 NSWLR 453; Tracomin v Gibbs (1985) 1 Lloyd’s Rep 586 and Gas & Fuel

Corporation of Victoria v Woodhall Ltd & Leonard Pipeline Contractors [1978] VR 358

18

Association

49. The next category is that of association where the arbitrator has a direct or

indirect relationship, experience or contact with a person or persons interested

in, or otherwise involved in, the proceedings. This is a difficult category,

because in the field of arbitration, many arbitrators are known to the parties,

their legal representatives, and indeed to the witnesses, because of prior

association in relation to other arbitrations, or indeed, because they sometimes

meet each other socially in various contexts, including arbitration conferences

which are of mutual interest both to practitioners in the field, as well as persons

who act as arbitrators. Of all of the categories, it is probably this category

which gives rise to the greatest difficulties.

50. In this context, the decision of Gascor v Ellicott61 is instructive. That was an

arbitration under the former Commercial Arbitration Act 1984 (Vic) between

the seller and buyer of offshore natural gas, where the seller sought a

determination that they were entitled under the sale agreement to pass on to the

buyer a tax imposed by Commonwealth legislation. The buyer sought to

remove Mr Ellicott, one of the arbitrators, for apprehended bias, on the ground

that he had been guilty of “misconduct” and was “unsuitable to deal with” the

dispute within the meaning of s44 of the former CAA.62

51. There were three complaints of apprehended bias. One was that Mr Ellicott had

cross examined at length, as counsel, expert witnesses who were to be called to

give evidence for the buyer on issues similar to those in the current arbitration

and had criticised them in his written submissions and that similar issues to the

earlier arbitration (the AGL Arbitration) might arise in the present arbitration.

52. Secondly, he had been an arbitrator in another arbitration concerning offshore

natural gas production (the Oil Basins Arbitration), in which the arbitrators had

determined in favour of the sellers (who were not the sellers in the present

arbitration) complex technical issues relating to the costs of production which

61 Op cit 62 Challenges under the former CAAs were made under s44 thereof, which required a Court to be satisfied that there had been

misconduct on the part of an arbitrator, or that an arbitrator had misconducted the proceedings, undue influence had been exercised in relation to an arbitrator or an arbitrator or umpire was incompetent or unsuitable to deal with the particular dispute. In those circumstances, the Court, on the application of a party to the arbitration agreement, could remove the arbitrator.

19

were said by the buyer to be the same as the issues in the present arbitration, and

had accepted the evidence of certain expert witnesses whom he had as counsel

called in the AGL arbitrations and who were expected to be called in the present

arbitration, but had rejected the evidence of other witnesses who were expected

to be called by the buyer in the current arbitration to give evidence on similar

issues.

53. Finally, it was said that the arbitrator was disqualified for failing to disclose

appropriate information concerning his participation in the earlier arbitrations to

the buyer before undertaking the arbitration.

54. Upon an appeal by the buyer where the arbitrator had declined to disqualify

himself, it was found that the circumstances were not such as to establish a

reasonable apprehension of bias.

55. On the other hand, in Fung Sang Trading Ltd v Kai Sun Sea Products and Food

Co Ltd [1991] 2 HKC 256, Kaplan J declined to appoint as an arbitrator a

consultant of a law firm which had previously acted for the plaintiff on other

matters, even though the consultant had never been involved in any of the

matters. In reaching his decision, Kaplan J held:

Although I have not the slightest doubt that (the consultant) would act impartially if appointed, I think it is important that when the Court is appointing on behalf of the defaulting party, it should go out of its way to ensure that no sense of grievance is felt, however unreasonable that attitude might appear to others.63

56. This decision would appear to be consistent with what has been described as a

long-standing rule in international arbitral practice that the interests of an

arbitrator are deemed to be identical to those of his or her law firm and those

conflicts of the firm are attributed to the arbitrator. It has been commented that

this rule is quite inadequate to deal with a large multinational law firm in which

lawyers often cannot realistically keep abreast of the practice of hundreds of

lawyers who practise out of different offices around the globe, but on the other

63 This case is referred to, because the relevant test of independence and impartiality is applicable both to the questions of

appointment and to grounds for challenge.

20

hand, it is difficult to justify carving out an exception for such firms without

running into the risk of abuse64.

57. At least up until recently, the separation between members of the Bar has not

led to such issues. It has been quite common in chambers in London, for

arbitrators and counsel in the same arbitration to come from the same set. The

decision of Laker Airways Inc v FLS Aerospace Ltd65 is instructive in relation to

the situation of barristers. FLS performed maintenance services on Laker

aircraft and a dispute arose which was referred to arbitration. FLS appointed a

barrister as its arbitrator, but at the same time another barrister, who had

recently joined the set of chambers where the arbitrator also practised, was

instructed on behalf of Laker. Laker requested FLS to make a new appointment

but FLS refused. Laker then asked the arbitrator to resign on the ground that the

presence of both barristers in the same chambers might colour the arbitrator’s

view of the arguments, and that a Chinese wall within chambers might be

insufficient to prevent the passing of information or informal discussion in

chambers.

58. The barrister declined to resign at the request of only one party and a

subsequent application to remove the arbitrator under s24 of the Arbitration Act

1996 (UK) was made, but not pursued. The application was therefore dismissed

with costs. However, the Court66 took the opportunity to consider the issue and

found that there was an objective test for the removal of an arbitrator under s24

of the Arbitration Act 1996. There was no allegation of actual bias made

against the arbitrator, and the case proceeded as one of apparent bias. It was

determined that the Court must find that circumstances exist which justify

doubts as to the arbitrator’s impartiality. Applying that test, the Court found

that there was no conflict of interest between barristers in the same chambers

appearing on opposite sides of the same dispute. Despite being members of the

same chambers, they practice individually and were self-employed. Laker had

not shown that there was real risk of breach of confidentiality, or that the

64 See Trakmann, The impartiality and independence of arbitrators reconsidered (2007) Vol 10 International Arbitration Law

Review p999. It is a similar principle to that which applies in determining conflicts of interest in such circumstances (see Prince Jefri Bolkiah v KPMG [1999] 2 AC 222

65 [1999] 2 Lloyd’s Rep 45 66 Rix J

21

arbitrator’s judgment would be coloured by familiarity. The grounds on which

the application was based were therefore unsustainable.

59. Some commentators have sought to suggest that the decision in this case may

derive from the provisions of the Arbitration Act 1996 which arguably does not

consider lack of independence of itself as an independent ground for removal,

however the decision is consistent with cases in which barristers have appeared

as counsel before arbitrators and judges from the same chambers and in which

the English Courts and the Paris Court of Appeal have ruled that there was no

appearance of bias. A special tribunal of the London Court of International

Arbitration has also reached the same conclusion67.

60. More recently in Hrvatska Elektroprivreda v The Republic of Slovenia68, the

arbitrators first raised publicly in an ICSID case the notion that they had an

inherent power to prevent counsel appearing if to do so would undermine the

integrity of the process, and in that case they refused permission for one party’s

counsel to appear, upholding the other side’s objection that counsel was the

member of the same chambers as the tribunal chair (although as door tenant)

and notice of that counsel’s involvement had been given at the last minute.

61. On the other hand, in Rompetrol Group NV v Romania69, another ICSID case,

the tribunal considered Hrvatska, but, on the facts of that case, decided that

there was no need to intervene. It is the view of at least one learned

commentator that these decisions made pursuant to the ICSID Convention, may

have a significant influence on practice and procedure in commercial

arbitration70. On the other hand in his paper discussing more widely the

question of challenges to arbitrators in ICSID arbitration, previously referred to,

Professor Crawford said the following:

In Rompetrol, the Tribunal seemed inclined to limit the potential effect of these comments. It said ‘there should be no room for any idea to gain ground that challenging counsel is a handy alternative to raising a challenge against the tribunal itself, with all the consequences that the latter implies and that ‘if it indeed be correct to attribute to an ICSID

67 Kaplan, Investment arbitration influence on practice and procedure in commercial arbitration http://www.arbitration-

icca.org/media/2/13823587988790/kaplan_adroct2013.pdf. I am reliably informed however that the practice amongst arbitrators at the English Bar is to notify such a circumstance as soon as it arises

68 ICSID Case No ARB/05/24 – under Concerning the Participation of Counsel (6 May 2008) 69 ICSID Case No ARB/06/3 Decision on the Participation of a Counsel (14 Jan 2010) 70 ditto. [?]

22

Tribunal the powers implied by the Hrvatska Tribunal, they would remain powers to be exercised only in extraordinary circumstances which genuinely touch on the integrity of the arbitral process as assessed by the tribunal itself. It suggested Hrvatska was better seen ‘as an ad hoc sanction for the failure to make proper disclosure in good time than as a holding of a more general scope.

Despite this, Rompetrol does not expressly cite the test of ‘obvious or clear lack of impartiality’ as the applicable standard. Instead it cites a House of Lords decision, Porter v Magill, pointing to an assessment on the ground of ‘reasonable doubt’: ‘the test is “whether [a] fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”. It rejected the request to prevent counsel from participating in the proceedings, based on the lack of such a ‘real possibility’ or of anything that ‘might provide a reasonable basis, in terms of Article 14 of the ICSTD Convention and Article 6 of the Rules, for questioning the ability of the Tribunal or any of its members to judge fairly or exercise independent judgment’. So although intent on constraining the seemingly radical decision in Hrvatska, the Rompetrol Tribunal also employed the language of ‘reasonable doubt’.71

62. Lastly, in the interesting recent decision of Sierra Fishing v Feran72, Popplewell

J found that there had been apparent bias in the circumstances of that particular

case where a lawyer, appointed as an arbitrator by a party, was found to have

had a financial interest in favouring the defendants in that he regularly advised

the appointing party and derived significant financial income therefrom. In so

determining, his Lordship recognised the assistance, which he gained from the

IBA Guidelines and the Non-Waivable Red List, to which I refer

subsequently73. The nature of the financial interest was quite significant. The

arbitrator had been employed by a bank of which the first respondent, one of the

appointing parties, was chief executive and for which the arbitrator’s father still

worked, and the arbitrator’s father had previously represented that respondent.

The arbitrator also had a pecuniary interest in his father’s law firm. It is

surprising in those circumstances that the arbitrator did not respond to the

challenge by agreeing to it.

71 Challenges to Arbitrators in ICSID Arbitrations, op cit, p10 of 11. As is apparent from the passage cited, in the context of

ICSID arbitrations, the right to challenge arises under Article 14(1) and Article 57 of the ICSID Convention, which require “a manifest lack of independent judgment”. Issues have arisen in that context as to the meaning of manifest, which are discussed in that paper which suggests that there has been a shift towards a higher threshold for disqualifications in recent decisions to the effect that reasonable doubt is not enough and instead obvious evidence is required; and see pars 25-32 above

72 [2015] EWHC 140 (Comm) 73 The decision is also of interest on the question of whether there was a waiver, and when the party seeking disqualification

can be said to have lost its right to object.

23

63. In all such cases, common sense is an important criterion. In normal practice,

legal practitioners, both barristers and solicitors, regularly appear before

particular judges, and are quite well known to them, both professionally and

socially. This does not affect the impartiality of the decision-making, although

some counsel and solicitors may feel that some judges particularly favour some

particular opponents, or disfavour them or their cases. Nonetheless, these are

not reasons for disqualification, unless possibly it becomes a habit. We are a

long way away from the days when Boswell was briefed to appear in front of

his father Lord Auchinleck in the hope that he would look with favour on his

son’s cases. Alas the reverse was the case, as Boswell and his father constantly

argued74.

Extraneous information

64. The fourth category referred to is that of extraneous information. This includes

where the arbitrator has knowledge of some prejudicial but inadmissible fact or

circumstance giving rise to the apprehension of bias. So far as that category is

concerned, it is obviously important, and it depends upon disclosure by the

arbitrator of that knowledge, if in fact it is not generally known that the

arbitrator has that knowledge. Ultimately, it will be a question for the arbitrator

or a panel or failing that the Court to form the view whether in fact that

knowledge should be a disqualification to be tested against the fair minded lay

person being neither complacent nor unduly sensitive or suspicious to determine

whether the holder of that knowledge ought to embark upon the process of

adjudication. It is an issue, which divided the Court in Laurie’s case to which

reference has been made, and it is fair to say it is often an issue on which minds

could differ. Traditionally, the view has been that judges by their training are

persons who are not readily influenced by extraneous information but arbitrators

are not necessarily in the same position.

74 Apart from this being a notorious fact, I know it because Boswells mother and the mother of my lineal ancestor Sir John

Douglas of Kelhead were half sisters.

24

The IBA Rules and the Red, Orange and Green List

65. With a view to assisting practitioners to obtain guidance in relation to some of

the questions, which arise in this difficult area of the law, the IBA published

Guidelines on Conflicts of Interest in International Arbitration in 2004 in

response to what was perceived as a growing problem of conflicts of interest on

the part of arbitrators, and an increasing number of challenges. The most recent

version of those Guidelines was adopted by resolution of the IBA Council on 23

October 2014 (the IBA Guidelines). The Guidelines do not have the status of

either law or arbitral rules, but they have found general acceptance in the

international arbitration community, and are often referred to in the context of

challenges to an arbitrator’s independence and impartiality.

66. They proceed by setting out a number of General Standards and then provide

specific practical guidance in the form of lists of example of situations, which

do or may give rise to a conflict of interest. The Non-Waivable Red List sets

out the most obvious conflicts, which are where the arbitrator is effectively a

judge in his or her own cause or lacks independence in the strict sense. These

include an identity between the party and the arbitrator, including circumstances

where the arbitrator has a position on the supervisory board of the party or has a

significant financial interest in one of the parties or the outcome of the case or

regularly advises the appointing party or an affiliate of the appointing party and

derives a significant financial income therefrom.

67. Next is the Waivable Red List which goes on to set out situations which do give

rise to justifiable doubts as to the arbitrator’s independence and impartiality but

which can be waived by the parties expressly. Obviously, this depends upon

disclosure, which is a very important obligation on an arbitrator in these

circumstances. These include a relationship between a party or counsel with the

arbitrator to the dispute, the giving of legal advice by the arbitrator to a party or

an affiliate of one of the parties to the dispute, a previous involvement in the

case, a direct or indirect interest in the dispute and close personal or family

relationships with the parties or counsel. However, and importantly, these are

all matters that can be expressly waived, as distinct from the matters in the Non-

Waivable Red List.

25

68. The Orange List sets out matters which ought to be disclosed by the arbitrator

because they are situations, which, in the eyes of the parties, may give, rise to

justifiable doubts, e.g. where the arbitrator has acted against one of the parties in

an unrelated matter. Disclosure of such matters gives the parties the opportunity

to object, should they so wish, although there is no presumption that the

arbitrator will be disqualified on such an objection being taken. Unlike the

Waivable Red Lists where a positive waiver is required, a deemed waiver is

presumed if no objection has been made within 30 days after receipt of

disclosure of the matter on the Orange List.

69. The Green List consists of matters which give rise to no appearance of, nor any

actual conflict of interest from the objective point of view. It includes matters

such as a positional conflict eg the arbitrator having previously expressed a

general view on an issue, which also arises in the arbitration, and the arbitrator’s

law firm, but not the arbitrator, having acted against one of the parties in an

unrelated matter. These are generally situations where there is no apprehended

bias and where disclosure is generally unnecessary. However, it does accord

with practice in some jurisdictions that disclosure should be made even if it does

not give rise to a reasonable apprehension of bias. This is something which was

referred to by the plurality in Clenae concerning the practice of judges to

disclose a shareholding in a litigant, even if it is not a shareholding that would

give rise to grounds for disqualification75.

Considerations relevant to the making of a challenge

70. It is one thing to be able to make a challenge. It is another one to make it.

There are various considerations, which are relevant to this question. It is

unusual to challenge an arbitrator’s independence or impartiality, and even more

unusual for such challenges to be successful. Obviously, it would be

appropriate to do so in circumstances where there is a genuine desire by that

party to ensure that its rights are protected, where there is a concern over the

independence or impartiality of an arbitrator. However, it is most undesirable to

make such a challenge opportunistically, for tactical reasons, or to create delay. 75 Op cit p384 [19]-[23]; p392 [169]

26

Such a challenge, especially if unsuccessful, may have quite a profound impact

upon the credibility of the party making that challenge for the remainder of the

arbitration.

71. In a normal situation, if a bona fide reason is raised why there is a reasonable

apprehension as to the impartiality or independence of an arbitrator, most

sensible persons who have been appointed, or approached with a view to an

appointment, will step down. On the other hand, it is less usual for an arbitrator

to step down, once there is an allegation of conduct in the arbitration itself,

suggestive of a lack of impartiality or independence.

72. One area in which one can readily come across problems of association is when

one requires arbitration by specialists who have a very real familiarity with the

subject matter of the dispute. In circumstances where such specialist knowledge

is required in the arbitrator, this can well increase the risk the arbitrator has his

own firm views on a subject, or has done business or been involved in disputes

with one of the parties or their legal advisers. In Rustal Trading Ltd v Gill &

Duffus SA76 it was said:

… it can fairly be assumed that one of the reasons why the parties have agreed to trade arbitration is that they wish to have their dispute decided by people who are themselves active traders and so have direct knowledge of how the trade works. However, if the arbitrators are themselves to be active traders there is every likelihood that at least one member of the tribunal will at some time have had commercial dealings with one or both of the parties to the dispute … [T]here are many … features of commercial arbitration which find no parallel in the more formal procedures in Courts. … They are known to and accepted by the parties and many people number them among the advantages of arbitration … In the case of a trade tribunal the fact that an arbitrator has previously had commercial dealings with one or both parties has never been regarded as sufficient of itself to raise a doubt about his ability to act impartially.

73. If one is considering the possibility of arbitration by a lawyer, or by a retired

judge, considerations such as those, which arose in Gascor v Ellicott, are

relevant. As can be seen from that case, particularly applying the “real danger

of bias” test, it is unlikely that mere prior involvement in other similar

arbitrations, even on the opposite side, will be sufficient. However, if serious

questions have been raised about credibility, or if findings have been made by

76 [2000] 1 Lloyd’s Rep 14

27

an arbitrator or potential arbitrator about the credibility of the witness to be

called, this would undoubtedly be a basis, one would have thought, for

disqualification, as it usually is in the case of a matter proceeding in court. On

the other hand, simply because an arbitrator or proposed arbitrator has decided

similar matters in a particular way, this would not be a sufficient reason, in most

cases one would have thought, for disqualification of an arbitrator.

74. Article 13(2) of the Model Law contemplates the sending of a written statement

of reasons for the challenge to the arbitral tribunal. Thereafter, unless the

challenged arbitrator withdraws from office or the other party agrees to the

challenge, the arbitral tribunal must decide on the challenge. Subsequent to

that, the Court can decide on the challenge in the circumstances set out in

Article 13(3). When one is considering the possibility of an application to the

arbitrator, one always has to bear in mind that often a potential arbitrator or

arbitrators may not have remembered the precise facts and circumstances, which

have caused concern to the party. Once the statement of reasons has been

delivered, and it has not had the desired effect, it is often very difficult to deal

with such matters orally, and in the presence of the arbitrator. Some arbitrators,

like judges, are likely to take a rather adverse view to the party raising the

challenge, if they have not accepted the statement of reasons. Some, on the

other hand, are more than willing to consider the possibility that they may not

be perceived to be capable of approaching the matter with an unbiased mind.

Such challenges always need to be made very delicately, particularly having

regard to the fact that if unsuccessful, it is the arbitrator in question who will be

deciding the matter. If it is a panel of three, the situation is potentially less

sensitive, particularly if the challenge is strong.

75. One should not seek to challenge the independence and impartiality of an

arbitrator or potential arbitrator for actual bias, unless the facts are pellucidly

clear, otherwise, the challenge will undoubtedly misfire.

76. It may be safely assumed, that any arbitrator approaching the task of

considering his or her own disqualification, or that of a colleague, will be aware

of the reasons for the introduction of the “real danger of bias” test and conduct

himself or herself accordingly. In order to ensure that the credibility of the

party is not damaged, not only in the eyes of the arbitrator being challenged, but

28

in the eyes of those who may be involved in the making of the decision, such

challenges should be made promptly, coherently, and forcefully, if they are to

be made. If the tribunal, whether it be one member or three members, forms the

view that the challenge was an opportunistic one, as I have said at the outset,

this will undoubtedly be something which hangs over the credibility of the party

making the challenge.

Particular considerations for party nominated arbitrators and for presiding members of arbitral tribunals

77. Obviously, previous decisions, and the IBA Guidelines, provide considerable

guidance to arbitrators as to the disclosures, which they should make, and, as to

how they should conduct themselves both in the period prior to appointment,

and subsequent to appointment. It is an unusual situation to be placed in where,

in effect, one of the parties to the arbitral process chooses its own arbitrator.

This is ameliorated by the fact that each party gets to choose its own arbitrator,

and the fact that in the usual case, each of the arbitrators has to agree upon the

appointment of a presiding member, or failing agreement, that appointment is to

be made by the arbitral body or by the Court. This, of course, is in the situation

where there is a three-member panel.

78. Where a single arbitrator is to be appointed, this usually has to be done by way

of agreement between the parties or failing agreement, by the arbitral body, or

by the Court.

79. In any of these circumstances, for the reasons which have been set out above, it

is quite likely that often the arbitrator will be known to the parties or their

representatives both professionally, and in some circumstances, socially.

Unless the nature of the professional relationship is similar to that which arose

in the Sierra Fishing case, this should not create problems. Moreover, unless

the nature of a social relationship arises from a close personal relationship

arising out of circumstances of close friendship or family, this should also not

cause any problems. Potential arbitrators also have to carefully consider

whether any of the persons who might be called to give evidence are persons

who they know well, either professionally or socially, and determine whether

they could bring an impartial and independent mind to the assessment of the

29

credit of that person, if issues of credit are likely to arise. Moreover, during the

hearing of any arbitration, one must be careful not to engage socially with any

of the witnesses or any of the representatives of the parties on an individual

basis, and one should at all times maintain one’s discretion in any such

circumstances of social interaction77.

80. In the English common law system, judges and advocates are well familiar with

the principles, which normally apply when one is appearing before a judge.

Often, in such circumstances, the advocate may have been quite friendly with

the judge during the course of his or her professional career, and indeed at the

time when the advocate is appearing before the judge. Nonetheless, in such

circumstances, up until the time of delivery of any decision, it is mutually

understood that there ought to be no close social interaction between judges and

advocates appearing before them, unless the other parties agree it to. It is not

uncommon in such circumstances for one counsel to ring his opposing counsel

to notify him or her of an impending social occasion at which a judge is

expected to be present, to ensure that attendance at that event will not cause any

particular disquiet. Within the confines of our English/Australian common law

system, these niceties are well understood, and one can rely upon the integrity

of both advocates and judges not to discuss the matters, which are the subject of

any case proceeding before the judge, and to conduct themselves accordingly.

81. In an international arbitral context, the situation is somewhat different. Not all

other nationals are aware of, nor indeed do they trust, the niceties, which apply

under our English/Australian common law system. Especially when large

amounts of money are at stake, it is not hard for nationals of other states to form

a very adverse view of any such social interactions. In such circumstances, it

would be very wise for arbitrators, and presiding members of tribunals to be

aware of such sensitives and to conduct themselves accordingly. This may in

part explain the result in Hravatska78.

82. In the case of presiding members, they must always be aware of the fact that in

the usual case, the other two arbitrators have been appointed by the parties, and 77 An interesting article on the selection criteria of the ICA, see Bond (1991-2) Mw J Int’l & Bus 1, The International

Arbitrator: From the Perspective of the ICC Court of Arbitration 78 Op cit and see Rau Arbitrators Without Powers? Disqualifying Counsel in Arbitral Proceedings at 457. Arbitration

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it would be naïve to suggest that in appointing them, those parties have not at

least made some assessment of what they consider the likely approach of their

appointed arbitrator will be. This is just human nature. On the other hand, the

party appointed arbitrator, one would hope, would have the integrity and

independence not to simply vote for the party appointing him or her. Should

they feel that they might be emotionally inclined to do so, they should not take

up the appointment. In the usual case, most competent arbitrators have no

difficulty in deciding matters impartially and with independence no matter

which party has appointed them. However, the presiding member does have a

very important role to play because by argument and persuasion, and by

ensuring the integrity of the process, that member can often ensure that the

result, which is reached, is that which achieves, and is seen to achieve, fairness

and justice between the parties.

Conclusion

83. There are now well established procedures in place to ensure that challenges to

potential arbitrators, or arbitrators whose conduct during the course of an

arbitration may have caused concern, can be made in an appropriate manner

which gives the parties, and the arbitrator, adequate opportunity to consider

their position, and to conduct themselves accordingly. Notwithstanding that the

test, which is said to apply under the IAA, is that of “real danger of bias”, it is

unlikely that this will be limited to a test of actual bias or lack of independence.

Rather, the trend of authority, both here and internationally, in relation to the

disqualification of judicial officers and arbitrators, is towards the adoption of a

reasonable apprehension of bias test similar to that which applies in our High

Court, in the rules of various arbitral tribunals, and ICSID tribunals. The

principles laid down in Australia, and overseas, are likely to lead to a strict

application of that test, so as not to permit inappropriate challenges, aiming

towards achieving a particular result, or delay. Courts and arbitral tribunals are

conscious of the fact that the process of disqualification can be very disruptive

and will only respond to a challenge in the clearest of cases.

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84. Whilst there will always be cases in this difficult area which will cause

particular problems, the application of common sense to most of the issues

which arise in relation to challenges to arbitrators, usually provides clear

guidance. The IBA Guidelines are also useful in this regard.

F M Douglas QC

New Chambers Sydney