This case is clearly a high profile and helpful restatement of the fair observer test and a useful example of the application of that test on some interesting facts. Mr Bingham fell foul of one of the foundational rules of arbitration. Alongside the interest of justice requirement, the reasons why conflict disclosures are critical in arbitrations is to prevent any ground arising in which a losing party may challenge the arbitral award. This is a cornerstone of the arbitration process.
IBA Guidelines – Flawed?
In W Limited v M SDN BHD (2016) EWHC 422 (Comm), W brought a challenge to an arbitral award under section 68 of the Arbitration Act 1996 alleging serious irregularity arising out of the apparent bias of the arbitrator, an Alberta-based QC, who was appointed to resolve a dispute in relation to a project in Iraq. The challenge centred around the fact that the Canadian law firm from which the arbitrator conducted his practice as arbitrator had, unbeknownst to the arbitrator, regularly represented an affiliate of M.
Like Hamblen J in Cofely, Knowles J applied the fair observer test from Porter v Magill when assessing whether, on the facts, there was any apparent bias. So far, so uneventful. Why this case is interesting, however, is because it applied that test with nuance and also poured judicial criticism on one part of the 2014 edition of the International Bar Association’s (IBA) Guidelines on Conflicts of Interest in International Arbitration.
The main thrust of W’s argument was that the arbitrator was in breach of paragraph 1.4 of the non-waiverable red list in the IBA guidelines as his law firm regularly advised an affiliate of W. Paragraph 1.4 of the IBA guidelines states as non-waiverable a situation where: “[t]he arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom.” The judge held that it was “hard to understand” why this situation should be included in the non-waiverable list as it pertains to a “situation where the advice is to an affiliate and the arbitrator is not involved in the advice.” Knowles J stated that this type of situation is “classically appropriate for a case-specific judgment.” Knowles J thought that parties should be able to use their discretion in assessing the potential conflict scenario in circumstances where an arbitrator is aware of this relationship and has disclosed it to the parties. Knowles J asked “why should the parties not, at least on occasion, be able to accept the situation by waiver?”
On this basis, Knowles J refused to follow the IBA guidelines. Whilst the IBA guidelines have become widely accepted, W Limited v M SDN BHD is a reminder that they do not, of course, supersede local law or the rules chosen for the arbitration (unless written into the arbitration agreement as binding). Applying the fair observer test, Knowles J concluded that despite the arbitrator’s firm having previously acted for an affiliate of W (contrary to paragraph 1.4 of the nonwaiverable red list in the IBA guidelines) there was no apparent bias. This was because:
i. The arbitrator had not personally acted for that client.
ii. He effectively operated as a sole practitioner just using the firm for administrative support for his work as an arbitrator.
iii. The arbitrator had made other disclosures of potential conflicts of interest and “would have made a disclosure here if he has been alerted to the situation.”
Knowles J therefore held that no fair minded and informed observer would conclude that the arbitrator was biased or lack any independence or impartiality. As such, whilst W Limited v M SDN BHD highlights the distinguished contribution of the IBA guidelines in the field of international arbitration, it also provides important judicial