Apparent Bias in Arbitration and Adjudication: the wider implications of Cofely v Bingham & Knowles

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Apparent Bias in Arbitration and Adjudication: the wider implications of Cofely v Bingham & Knowles

June, 2016
Vince Moran QC

Introduction

In this case, the Claimant (“Cofely”) obtained an order that the First Defendant (“the Arbitrator”) be removed from an ongoing arbitration between Cofely and the Second Defendant (“Knowles”) pursuant to section 24(1)(a) of the Arbitration Act 1996 (“the Act”), on the grounds that circumstances existed which gave rise to justifiable doubts as to his impartiality.

Although concerned with an arbitration, this decision has wide ranging and serious implications for domestic construction adjudications.

Background

Knowles had acted as claims consultants for Cofely in relation to a concession agreement for energy services to the Olympic Park and Westfield Shopping Centre developments and in an adjudication of time and money disputes arising out of this venture. In due course a dispute also arose between Cofely and Knowles about the adequacy of the advice and services provided by Knowles and the fees alleged by Knowles to be due from Cofely. 

Knowles commenced arbitration proceedings against Cofely to recover its alleged fees, applying to the Chartered Institute of Arbitrators (CIArb) for the appointment of an arbitrator and specifically requesting the Arbitrator - whose appointment was subsequently confirmed by the CIArb, despite Cofely’s objection to it at the time.

Following a Partial Award to Knowles of £1 million and in the light of the decision in Eurocom Ltd v Siemens Plc, Cofely’s solicitors sought information from Knowles and the Arbitrator regarding the Arbitrator’s prior record of appointments as adjudicator and arbitrator by Knowles/its clients.

In Eurocom, Ramsey J. held in an adjudication enforcement case that there was a “very strong prima facie case” that Knowles had manipulated the process for the appointment of RICS adjudicators, which had resulted in the appointment of the Arbitrator as an adjudicator in that case.

After Knowles provided some of the requested information to Cofely, but before the Arbitrator had provided any, a hearing was called by the Arbitrator on an issue that had not been raised by either party, namely ‘whether the tribunal was properly constituted’.

At the hearing, leading counsel for Cofely sought to obtain answers to the outstanding request for information from the Arbitrator and, in particular, details of the proportion of his income derived from Knowles related appointments in the previous 3 years.

The Arbitrator did not provide the requested financial information prior to or at the hearing; but did so subsequently, albeit only in response to a request from Knowles.

The law

Section 24(1)(a) of the Act enables the court to remove an arbitrator if “circumstances exist that give rise to justifiable doubts as to his impartiality..”.               

The test applied under section 24 is whether there is a real possibility of bias (see Laker Airways v FLS Aerospace [199] 2 Lloyds Rep 45, per Rix J at 48; A v B Sierra Fishing Co & Others v Farran & Others [2015] EWHC 140 (Comm), [2015] Lloyds Law Reports per Popplewell J at paragraph 51).

More particularly, it is whether “the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased” (see Porter v Magill [2002] AC 357 per Lord Hope at paragraph 103; Helow v Secretary of State for the Home Department [2008] UKHL 62, [2008] 1 WLR 2416, per Lord Hope at paragraphs 1-3).

Such a fair minded and informed observer, although not a lawyer, is assumed for these purposes to be in possession of all the facts which bear on the question and expected to be aware of the way in which the legal profession operates in practice (see Rustell v Gill & Dufus [2001] 1 Lloyd’s Law Reports 14; Taylor v Lawrence [2002] EWCA Civ 90, [2003] QB 528; A v B [2011] 2 Lloyds Rep 591 per Flaux J at paragraphs 21-29).

The fact that an arbitrator is regularly appointed or nominated by the same party/legal representative may be relevant to the issue of apparent bias (see A v B paragraph 62; Arbitration International, Volume 27, Issue 3, page 442).

The Arbitrator’s explanations as to his knowledge or appreciation of the relevant circumstances are also a factor which the fair minded observer would need to consider when reaching a view as to apparent bias (see In re Medicaments and Related Classes of Goods (No 2) [2001] 1 WLR 700; Woods Hardwick Ltd v Chiltern Air Conditioning Ltd [2001] BLR 23; Paice v Harding [2015] EWHC 661, [2015] BLR 345, per Coulson J at paragraphs 46-51).

If there is a real ground for doubt this should be resolved in favour of recusal (see Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451 (CA) at 25).

It should be noted that the same principles as summarised above apply in the context of challenging the enforcement of adjudication decisions on the basis of a breach of natural justice due to apparent bias of the tribunal (see Fileturn Ltd v Royal Garden Hotel [2010] TCC 1736, [2010] BLR 512).

Guidelines

There are many institutional guidelines that emphasise the need to disclose all interests that may have a bearing on apparent bias.

Rule 3 of the CIArb Code of Professional and Ethical Conduct for Members (October 2000) (at page 10 of Exhibit PAT2) states:

"Both before and throughout the dispute resolution process, a member shall disclose all interests, relationships and matters likely to affect the member's independence or impartiality or which might reasonably be perceived as likely to do so.”

The IBA Guidelines on Conflicts of Interest in International Arbitration (at pages 11-40 of Exhibit PAT2) also provide relevant guidance applicable to domestic arbitration at General Standard 2 – Conflicts of Interest (page 19); General Standard 3 – Disclosure by the Arbitrator (pages 20-21); ‘Orange list’ definition (page 32); Orange list 3.1.3 (page 36); and Orange list 3.1.5 (page 37).

The recently amended ICC “Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration” (22 February 2016) also emphasise the need to consider whether “The prospective arbitrator or arbitrator has in the past been appointed as arbitrator by one of the parties or one of its affiliates, or by counsel to one of the parties or the counsel’s law firm” (see new and amended paragraphs 17-24).

The RICS adjudicator appointment process also requires potential adjudicators to disclose any relevant involvement or potential grounds for a conflict of interest with the parties; but the guidance is less clear and wide ranging than set out above in the context of arbitration.

Thus, the current RICS Guidance Note (for surveyors acting as adjudicators in the construction industry) discusses the need to disclose all matters that may indicate conflicts of interest and bias, but without distinguishing between these concepts and even suggests that disclosure of matters that may give rise to the appearance of bias may only be “recommended”.

The Guidance Note only expressly refers to the need to disclose any “significant involvement” with the parties, but does not consider what is or may be considered ‘significant’ and does not refer to the need to disclose any relationship with party representatives.

Rather oddly the RICS guidance suggests that disclosure by the prospective adjudicator to it of grounds for a possible conflict of interest may not prevent his appointment under the RICS DRS. This is an aspect of the guidance that can be expected to be tightened up in light of Cofely.

However, it is suggested that, both in arbitration and adjudication proceedings, the disclosure obligation should be followed where there is any doubt as to the relevance of the information and the manner in which an arbitrator discharges this obligation can be relevant to the issue of apparent bias.

The decision

The Court held that five of Cofely’s seven grounds provided evidence of apparent bias for the purposes of s.24(1)(a). Over the last three years, 18 per cent of the Arbitrator’s arbitral and adjudication appointments and 25 per cent of his income was derived from cases involving Knowles, either as a party (3 occasions) or as party representative (22).

Importantly, the Chartered Institute of Arbitrators' "acceptance of nomination" form required disclosure of "any involvement, however remote" with either party over the last five years. It was found that acting as arbitrator or adjudicator in previous cases involving one of the parties was "involvement" for the purposes of the Code of Practice – and that it was immaterial that the appointments might have been made by an appointing body rather than by the party itself.

The latter was an important finding and has particular resonance in the field of adjudication, where most appointments are made via an institutional body.  The Court did not consider it relevant that most were from third party appointment processes: “On this logic even if all his income derived from cases involving Knowles there would still be no cause for concern”.

The Arbitrator’s case that this provided a fire wall against any inference of apparent bias was roundly rejected by the Court – especially in the context of the evidence that Knowles was involved in conduct to inappropriately influence the appointment process.

The evidence suggested that Knowles  influenced appointments positively or negatively as a matter of general practice by putting forward the name of its chosen representative or a list of potential appointees whom it considered inappropriate, or by identifying required characteristics that would only be shared by a small pool of people – such as in this case “QS and barrister”. It was found to be particularly significant that it had an appointment "blacklist" whereby arbitrators could fall out of favour depending on their conduct.

The Court also held that it had been reasonable for Cofely to enquire into the nature of the relationship between the Arbitrator and Knowles and that it had done so courteously and appropriately; but that the Arbitrator had responded evasively. In avoiding addressing these requests and “effectively cross-examining Cofely’s counsel … aggressively and in a hostile manner” the Arbitrator was “descending into the arena in an inappropriate manner”.

In effect, the Arbitrator had sought to pre-empt the information-gathering process by pressurising Cofely into accepting that there was no issue to be explored. This conduct demonstrated a lack of objectivity and an increased risk of bias by reason of unconscious bias toward favouring Knowles.

In the world of adjudication, of course, where sometimes (incorrectly on this point it seems to me) it is suggested a ‘rough and ready’ process is to be expected the very same standard should be observed – it can never be acceptable for a tribunal to descend into the arena and be seen to be taking sides or possibly taking sides.

As to Eurocom, the key points were that:

  • Until becoming aware of this decision, Cofely were unaware of any reason to question the potential degree, nature and significance of the Arbitrator’s relationship with Knowles;
  • In this decision it was held there was a “very strong prima facie case” that fraudulent misrepresentations had been made by Knowles to assist in getting the Arbitrator appointed as the (adjudicator) tribunal in previous disputes involving Knowles as claimant or representative of a claimant;
  • Evidence in the case suggested, crucially, that this was a general practice of Knowles (and in particular Mr Giles who is the individual acting on behalf of Knowles in the current dispute) – see paragraph 40 of the decision.
  • The objective observer would therefore discern a risk that the Arbitrator may be influenced by the risk of going on the Knowles “black-list” if he fell out of favour with them.

As to the Arbitrator’s reaction to being questioned about his relationship with Knowles, it was highlighted that at the hearing the Arbitrator still did not recognise the relevance of the relationship information or the need for any disclosure and that his lack of awareness itself “demonstrated a lack of objectivity and an increased risk of unconscious bias”.

Implications of the decision

The most important message from the decision is that tribunals (including adjudicators) will have to be much more careful as to (i) how they are perceived as a result of prior dealings with any of the parties involved in the dispute, (ii) what information they disclose to the parties and (iii) how they behave when pressed to provide information that may have a bearing on their actual or apparent independence.

The Courts can also be expected to take a more onerous approach to these matters (from the adjudicator’s perspective) in enforcement cases.

Although cases like Cofely are obviously very fact specific, it is suggested that there are issues of more general concern and interest to adjudication as well as arbitration arising out of the decision:

  • The relevance to the issue of apparent bias of a tribunal’s prior history of referrals from or involving one or other of the parties.
  • The irrelevance of the fact that some or all appointments may be through appointing bodies (rather than direct appointments).
  • The irrelevance of the distinction between a party itself acting as a claimant/referring party in prior referrals and merely acting as a legal representative of the claimant.
  • The possible threshold for when previous involvement becomes disclosable: although no general guidance was provided in Cofely, the existing authorities now suggest that as little as 5% of income over previous 3 years might trigger a disclosure obligation and that 10% or more generally will.
  • The importance of any wider disclosure obligation that may be assumed during the appointment process itself (under relevant institutional rules or a case specific declaration).
  • The importance of how the tribunal reacts to and deals with reasonable enquiries made of its existing or historic involvement or relationship with one of the parties or its legal representative.
  • The appropriateness of the (apparently common) practice of seeking to influence (both positively and negatively) the appointment process.
  • The danger that robust tribunal conduct that might to date have seemed (just about) acceptable in the context of adjudication, will now be taken to undermine the apparent fairness of the adjudication process.
  • The need for a tribunal to veer on the side of caution in providing early disclosure of all matters, however remote, which could have a bearing on the issue of apparent bias.
  • The possible need for appointing bodies to review their procedures – especially where a referring party names a preferred tribunal or a name is objected to by the defendant.
  • The possible need for appointing bodies to keep their panels under review – both as to individual adjudicator’s suitability, but also the frequency of their appointment by or in cases involving particular parties.
  • The need for the RICS DRS Guidance Note, in particular, to be tightened up in line with the principles discussed above.
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