In a rare decision under s24 of the Arbitration Act 1996, the English court has recently taken the unusual step of removing an arbitrator due to concerns about his impartiality and conduct. While the view of the English court generally has been that the removal of an arbitrator is an extreme measure and is only likely to occur in the rarest of cases, in Sierra Fishing & Ors v Ali Zbeeb & Ors the court considered both that (i) significant instructions to the arbitrator's law firm (in which the arbitrator had a financial interest), which were connected to one of the parties to the arbitration, and (ii) certain aspects of the arbitrator's conduct of the arbitration (in particular the content and tone of his communications after the dispute as to impartiality arose) gave rise to justifiable doubts as to the arbitrator's ability to act impartially.
The judgment also offers useful guidance on the restriction under s73 of the Arbitration Act on parties' opportunities to make objections on the basis of procedural irregularities, lack of jurisdiction and improper conduct of the proceedings once they have taken part in the arbitration proceedings without raising such an objection.
Sierra Fishing, a Sierra Leonean company involved in the supply of seafood, together with two other related parties (the claimants) entered into a written contract with the first defendant (Dr Farran, who was the chairman of a Lebanese bank) and the second defendant (Mr Assad) for a deposit to be advanced in order to allow Sierra Fishing to purchase two fishing vessels (the loan agreement). The loan agreement contained an arbitration clause compelling the parties to submit their disputes to arbitration, either in Sierra Leone or London, as decided by the parties.
In August 2012 Dr Farran and Mr Assad served a request for arbitration on the claimants, notifying them of their intention to commence arbitration in London and of the appointment of Mr Ali Zbeeb (the third defendant) as their arbitrator. Mr Zbeeb subsequently became the sole arbitrator. Over approximately the next two years, the arbitration was put on hold by agreement between the parties a number of times while they continued settlement negotiations.
Following a notification by the first and second defendants that they wished to continue with the proceedings and the service of a statement of claim (also referencing a later agreement between the parties containing a London seated arbitration clause, the execution agreement), a hearing was held on 26 June 2014 at which the claimants objected to Mr Zbeeb acting as arbitrator. Their application was rejected by Mr Zbeeb, as were further objections raised in following correspondence. Mr Zbeeb argued that he had been validly appointed and that even if this were not the case, the claimants had lost any right to object to his appointment as they had "taken part" in the arbitration.
In September 2014, the claimants issued an application to remove Mr Zbeeb as an arbitrator under s24(1) of the Arbitration Act 1996, which allows the court, on the application of a party, to remove an arbitrator on the grounds that "circumstances exist that give rise to justifiable doubts as to his impartiality". Section 24 follows the common law test for apparent bias, namely whether "the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased".
The court granted the claimants' application to remove the arbitrator.
First, the court decided that there were grounds for justifiable doubts as to the arbitrator's impartiality. There were four aspects of the evidence asserted as giving rise to apparent bias, which were considered by the judge.
- Legal and business connection between Dr Farran and the arbitrator: This included that the arbitrator had been engaged as legal counsel by Dr Farran's bank at a time when he was chairman of it and that the arbitrator's father (and the co-partner in his law firm) had acted and continued to act as legal counsel to both Dr Farran and the bank and was a member of its top executive management.
The judge considered that there was at least a real possibility that the law firm in which the arbitrator has a financial interest had been instructed to act for Dr Farran personally, and for the bank of which he was a chairman, in relation to substantial commercial matters from which the law firm derived a significant income, and that these connections would give rise to justifiable doubts as to the arbitrator's impartiality in a dispute to which Dr Farran was a party.
In reaching his decision, the judge derived assistance from the IBA Guidelines on Conflicts of Interest 2014, which are widely recognised as reflecting good practice in this area. The judge considered that these circumstances fell within the non-waivable red list (circumstances giving rise to justifiable doubts as to impartiality and independence that cannot be waived by the parties), the waivable red list (where such circumstances exist but are waivable by the parties) and the orange list (where there may be facts giving rise to justifiable doubts such that the arbitrator has a duty to disclose them to the parties) in the IBA Guidelines.
- Arbitrator's involvement in the negotiation and drafting of two of the relevant agreements: These agreements included the execution agreement, which had conferred jurisdiction on to the arbitrator. This conduct was found to fall within the waivable red list.
- Connection between the arbitrator and the lawyers for the first and second defendants: The judge did not consider that there was evidence to support this allegation.
- The arbitrator's conduct of the arbitration: The judge considered that two aspects of the arbitrator's conduct justified doubts as to his impartiality: (i) his refusal to postpone publishing his award pending the outcome of the claimants' challenge; and (ii) the content and tone of his communications with the parties once the dispute as to impartiality had arisen. Mr Justice Popplewell described the arbitrator's conduct as giving the appearance of "having descended into the arena and taken up the battle on behalf of Dr Farran and Mr Assad" and said that his communications with the court in connection with the application were "clearly on the wrong side of [the] line".
The judge then considered whether the claimants had lost their right to object to the arbitrator pursuant to s73 of the Arbitration Act 1996, on the basis that they took part or continued to take part in the arbitration, without raising the objection forthwith, at a time when they knew or could with reasonable diligence have discovered the existence of the relevant circumstances. On the facts, the judge decided that the claimants had not taken part in the proceedings at the relevant time without raising the objections, including during the long periods for which the proceedings had been effectively frozen. The claimants were therefore permitted to bring their application.
The connections between one of the defendants and the arbitrator, and the conduct of the arbitrator, was particularly extreme in this case. However, it is a timely illustration of the importance of paying careful attention to the IBA Guidelines both when appointing arbitrators and in reminding them of their own duties of disclosure. It is also a reminder that any challenge to an arbitrator must be made promptly on becoming aware of any relevant circumstances and before taking any active part in an arbitration.