England and Wales High Court partially relies on IBA Guidelines on Conflicts of Interest to grant removal application

Sierra Fishing Company & Others v. Farran & Others – [2015] EWHC 140 (Comm)

In a judgment issued on 30 January 2015, the England and Wales High Court of Justice accepted an application to remove an arbitrator by partially relying on the IBA Guidelines on Conflicts of Interests.

The facts of the case at issue were as follows:

On 4 May 2012, the Finance Bank SAL, a Lebanese bank (“the Bank”), its chairman and affiliates (altogether “the Claimants”), entered into a Loan Agreement amounting to USD 3.8 million with the Sierra Fishing Company (“SFC”), a company incorporated in Sierra Leone. In this agreement, SFC was represented by its managing director, while his own brother personally guaranteed the loan (altogether “the Respondents”).

The Loan Agreement provided for an ad hoc arbitration clause in the following terms:

The three parties agreed that in case any dispute arises in the execution of this agreement they will refer to arbitration in SIERRA LEONE or LONDON (UK), as decided by [Dr. Faran and Mr. Assad]”, i.e., the Claimants.

As the repayments of the Loan Agreement were still outstanding by 9 August 2012, the Claimants filed a request for arbitration against the Respondents. The Claimants appointed Mr. Ali Zbeeb as arbitrator, and invited the opposing party to do the same. In addition, they chose London as the seat of the arbitration.

Between 24 August 2012 and October 2013, the parties successfully reached three successive settlements on the issue of the repayment of the Loan Agreement and thus agreed to suspend the arbitral tribunal several times.

However, on 9 October 2013, date at which they reactivated the arbitration proceedings, the Respondents were still incapable of performing any of the three settlements, and failed to appoint a second arbitrator. Thus, Mr. Ali Zbeeb became sole arbitrator by default in application of Section 15(3) of the 1996 Arbitration Act, pursuant to which a failure by one of the parties to appoint an arbitrator results in the procedure being conducted by a sole arbitrator.

On 26 August 2014, the Respondents applied before the High Court of Justice to have the Arbitrator removed on the ground that justifiable doubts existed under Section 24 of the 1996 Arbitration Act as to his impartiality.

Pursuant to Section 24(1) of the 1996 Arbitration Act:

A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on any of the following grounds:

that circumstances exist that give rise to justifiable doubts as to his impartiality; […]”

The Respondent contended that the Arbitrator should be removed for the following reasons:

  • The existence of an undisclosed business connection between the Arbitrator and the Claimants;
  • The Arbitrator’s involvement in the drafting and the negotiation of two out of the three settlement agreements concluded between the parties;
  • The Arbitrator’s connections with the Claimants’ Counsel;
  • The Arbitrator’s biased conduct during the proceedings.

The Arbitrator and the Claimants objected that:

  • The Arbitrator had no duty to disclose the alleged facts;
  • The connection between the Arbitrator and the Claimants was not substantial;
  • The Respondents were aware of the Arbitrator’s involvement in the settlements’ drafting and even instructed him to that effect;
  • No connection whatsoever existed between the Arbitrator and the Claimants’ Counsel;
  • The Respondents took part and continued to take part in the arbitral process, and thus lost their right to object under Section 73 of the 1996 Arbitration Act.

The Court found that:

  • The Arbitrator had breached his duty of disclosure provided by the General Principle 3 of the IBA Guidelines, pursuant to which an arbitrator shall disclose all facts or circumstances: “that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence”;
  • The Arbitrator had acted as legal counsel for the Bank between 2005 and 2006;
  • The Arbitrator’s co-partner and own father entertained “a close internal role at the bank, where he is member of the top executive management”;
  • The Arbitrator’s father and co-partner acted “and continues to act” as legal counsel for the Bank and its chairman;
  • The Arbitrator’s involvement in the drafting two of the three settlement agreements at the outset of the proceedings; and
  • The Arbitrator’s biased attitude in the conduct of the proceedings gave: “the appearance of having descended into the arena and taken up the battle on behalf of Dr. Farran and Mr. Assad” [the Claimants].

Therefore, the High Court of Justice removed the Arbitrator, deciding that: “He has become too personally involved […] to determine the merits of the dispute”.

Additionally, the Court ruled that 3 out of the 4 sets of circumstances raised by the Respondent were individually sufficient “to give rise to justifiable doubts about Mr. Ali Zbeeb’s impartiality”.

It is interesting to note that the Court relied on both common law and the 2014 International Bar Association’s Guidelines on Conflicts of Interests (the “IBA Guidelines”) to rule the dispute, and came to the conclusion that the situations raised by the Respondents, either fell under the Waivable Red List, or at least into the Orange List of the Guidelines. The Waivable Red List, regroups circumstances that can be waived by an express acceptance of the situation by the parties. The Orange List regroups circumstances which can be waived by inactivity following the disclosure acceptance.

This decision is not very surprising considering the importance and the number of circumstances raised by the Respondents. One of the key points of the ruling is that documents “suggested a significant income” arose out of the undisclosed business connection between the Arbitrator’s law firm and the Bank. The undisclosed connection was therefore substantial.

In French case law (commented here), these types of undisclosed connections between an arbitrator and a party are appreciated in a pragmatic way, by an assessment in concreto of the connection’s impact.

This disclosure issue is at the heart of many decisions and challenges and may be a threat to the efficiency of arbitration. The absence of disclosure is likely to nourish a future challenge against the award, and as the Court suggests, in cases where such connection exists: “an arbitrator would be well advised to make disclosure”.

Nevertheless, this ruling shows the relevance of IBA Guidelines in the determination of situations implying conflicts of interests or apparent bias. It seems clear that these soft law provisions are now deeply rooted in the mind of the England and Wales Judges.

The decision is available here.

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