One of the fundamental principles upon which arbitration rests is the entitlement of each party to have a fair hearing by an impartial arbitral tribunal. Indeed, this is a principle upheld by article 6 (right to a fair trial) of the European Convention on Human Rights. And this is also recognised by section 24(1)(a) of the Arbitration Act 1996 (‘the act’) which allows a party to make an application to the court to remove an arbitrator in circumstances which give rise to doubts as to his impartiality.

These were the grounds upon which the claimants in the recent High Court case of A v B and X [2011] EWHC 2345 brought an application to remove the arbitrator in the matter and to challenge the arbitral award for serious irregularity under section 68(1) of the act.

The background dispute related to a share sale and purchase agreement. The first defendant commenced arbitration pursuant to the rules of the London Court of International Arbitration (LCIA) alleging breach of the agreement. Upon the suggestion of the claimants, the parties agreed to appoint X as sole arbitrator. Although X had previously received instructions from both the claimants’ and defendant’s solicitors, X had in particular previously been instructed by the first defendant’s solicitors in respect of a dispute in 2004 (‘the Y litigation’).

Although that litigation did not have any connection with the dispute between parties in the arbitration it was central to the arguments as to the impact it may have had on X’s impartiality in the arbitration.

The Y litigation involved X advising the first defendant’s solicitors’ client, assisting junior counsel in the production of proceedings and preparing for the trial. The Y litigation then settled and the proceedings were stayed. This stay remained in place at the time X was appointed under the arbitration. However, while dealing with matters in the arbitration, the settlement in the Y litigation broke down and the stay was lifted in order for the matter to proceed to trial. Despite now being in a position in which he was appointed by the first defendant’s solicitors in the Y litigation and the arbitration, X failed to disclose this to the parties to the arbitration. Before issuing his award in the arbitration (which was in favour of the first defendant), X wrote to the parties and informed them that he was currently acting as counsel for the first defendant in the Y litigation. He sought to reassure the parties that the Y litigation was dealt with by another partner at the first defendant’s solicitors firm.

After the award had been issued, the claimants’ solicitors immediately applied to the LCIA to have X removed as sole arbitrator on the grounds that there existed grounds to doubt his impartiality. However, this challenge was denied by the LCIA following a detailed consideration of the arguments from both parties. The claimant then proceeded to make an application to the High Court under section 24 (1) (a) of the act. The matter came before Flaux J.

Flaux J set out the common law test for apparent bias which was formulated by Lord Goff in R v Gough [1993] AC 646 at 670 but which was adjusted slightly by Lord Hope in Porter v Magill [2002] 2 AC 357 at 103. Lord Hope stated: ‘I respectfully suggest that your lordships should now approve the modest adjustment of the test in R v Gough set out in that paragraph. It expresses in clear and simple language a test which is in harmony with the objective test which the Strasbourg court applies when it is considering whether the circumstances give rise to a reasonable apprehension of bias.

'It removes any possible conflict with the test which is now applied in most Commonwealth countries and in Scotland. I would however delete from it the reference to "a real danger". Those words no longer serve a useful purpose here, and they are not used in the jurisprudence of the Strasbourg court. The question 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.’ Flaux J then extracted three key legal principles from the above test.

First, the test is an objective one and not dependent on the characteristics of the parties (for example, their nationality). The issue is whether the impartial objective observer, irrespective of nationality, would conclude from those facts that there was a real possibility that the arbitrator was biased. Second, the test assumes that the impartial observer is ‘fair minded’ and ‘informed’ - he is in possession of all the facts which bear on the question whether there was a real possibility that the arbitrator was biased.

The third principle from the common law test is that, although the fair-minded and informed observer is not to be regarded as a lawyer, he is expected to be aware of the way in which the legal profession in this country operates in practice. This was clear from Lord Woolf’s judgment in Taylor v Lawrence [2002] EWCA Civ 90 in which his lordship held: ‘The fact that the observer has to be "fair minded and informed" is important. The informed observer can be expected to be aware of the legal traditions and culture of this jurisdiction. Those legal traditions and that culture have played an important role in ensuring the high standards of integrity on the part of both the judiciary and the profession which happily still exist in this jurisdiction. Our experience over centuries is that this integrity is enhanced, not damaged, by the close relations that exist between the judiciary and the legal profession.’

The ‘contact’ between the judiciary and solicitors did not mean, Lord Woolf explained, that there was a possibility of bias. Rather, such contact promoted an atmosphere which is ‘totally inimical to the existence of bias’.

‘Unconscious’ bias

The claimants proceeded with two distinct arguments. First, the fair-minded and informed observer would conclude that there was a real possibility of what the claimant described as ‘unconscious’ bias. This bias would occur, inter alia, because X would have a natural predisposition in favour of the defendant’s solicitor’s client; X would want to continue to be instructed by the defendant’s solicitors on future matters and the desire not to disappoint his instructing solicitors. The claimants’ second argument was that even if the fair-minded and informed observer did not conclude that there was a real possibility of unconscious bias, the failure of X to disclose his involvement in the Y litigation was itself a serious irregularity within the meaning of section 68 of the act which justified setting aside the award.

Flaux J did not hesitate in dismissing the claimants’ arguments. The fair-minded and informed observer would conclude, Flaux J held, that there was no real possibility of apparent or unconscious bias on the facts of this case as they are now known to the court on the material before the court. He stated: ‘I do not consider that the fair-minded and informed observer, who is presumed to know how the legal profession in this country works, would consider that, merely because the arbitrator acted as counsel for one of the firms of solicitors acting in the arbitration, whether in the past or simultaneously with the arbitration, there was a real possibility of apparent bias.’

Common law test

If there was evidence of an actual predisposition towards the defendant’s solicitors then clearly there would be bias on behalf of the arbitrator and the common law test would be satisfied. However, by merely being instructed by the same firm in two different matters the arbitrator should not necessarily be presumed to be biased towards the instructing solicitors. As to X’s failure to disclose his involvement in the Y litigation earlier on in the arbitral proceedings, Flaux J concluded that this did not give rise to bias.

He had the following observation on the point of disclosure and bias: ‘…the test as to when it is appropriate to disclose potential conflicts or other matters of embarrassment is lower than the test of apparent bias. In other words, it may be appropriate in a borderline case to disclose at an early stage, because, if there is an objection, then even if there is no apparent bias, the judge or arbitrator may still want to consider whether to withdraw.’

A v B and X reinforces the principle that the mere fact that an arbitrator is instructed by the same firm on two separate matters will not automatically mean that there is a possibility of bias. The test for bias, as Flaux J makes clear, is higher than that of conflict of interest and clear and credible evidence will be required in order to meet the common law test of bias under section 24(1)(a) of the act.

Masood Ahmed is a senior lecturer in law, Birmingham City University