Court removes arbitrator based on justifiable doubts as to his impartiality

A party may apply to the English court to remove an arbitrator on the grounds that circumstances exist that give rise to justifiable doubts as to his impartiality (section 24(1)(a), Arbitration Act 1996 (“the Act”)).

The relevant test for an application under section 24(1)(a) of the Act is as follows:

“Whether the fair-minded and informed observer, having considered the facts, would consider that there was a real possibility that the tribunal was biased.”

Under section 73 of the Act, a party may lose the right to object to an irregularity affecting the tribunal or the proceedings if the objection is not raised promptly.

The facts

In (1) Sierra Fishing Company (2) Said Jamil Said Mohamed (3) The Estate of Jamil Said Mohamed v (1) Hasan Said Farran (2) Ahmed Mehdi Assad (3) Ali Zbeeb [2015] EWHC 140 (Comm), the English court had to consider whether to grant an application to remove an arbitrator under section 24(1)(a) of the Act, and whether the right to object had been lost under section 73 of the Act.

The claimants comprised a seafood supply company incorporated in Sierra Leone and its majority shareholders (“the Claimants”). During 2011 the Claimants entered into a finance arrangement with the first and second respondents. The first respondent, Mr Farran, was the Chairman of Finance Bank SAL (“the Bank”), a Lebanese bank.

During May 2012 the Claimants entered into a further loan agreement with Mr Farran and Mr Assad which provided for arbitration in Sierra Leone or London. When no repayments were made Mr Farran and Mr Assad commenced arbitration and proposed the appointment of the third respondent, Mr Ali Zbeeb, as arbitrator.

Thereafter the parties sought to settle the dispute in connection with which a number of draft settlement agreements were negotiated with the participation of Mr Zbeeb. None of these agreements were ever executed so in April 2013 Mr Farran and Mr Assad served notice of recommencement.

The Claimants initially objected to Mr Zbeeb acting on the basis that he was the appointee of one side only. However, Mr Zbeeb did not resign and continued with the arbitration, conducting procedural meetings in July and December 2013 despite the parties’ absence and requests that these meetings should not go ahead.

The parties did attend a procedural meeting on 26 June 2014 at which the Claimants first raised concerns over Mr Zbeeb’s independence and invited him to step down. The Claimants had learned that Mr Zbeeb’s father had been a legal advisor to Mr Farran and the Bank for many years and that Mr Zbeeb had acted as Legal Counsel to the Bank during 2005—2006. Mr Zbeeb dismissed the Claimants’ concerns. He asserted it was not his responsibility to volunteer details of his connections with the Bank and stated that he would proceed to issue his award notwithstanding the parties’ requests that he should not do so.

On 19 September 2014 the Claimants issued an application to remove Mr Zbeeb as arbitrator under section 24(1)(a) of the Act, contending that there were justifiable doubts as to his impartiality. The application was based on the following grounds:

(1) There was a legal and business connection between Mr Farran and Mr Zbeeb.

(2) Mr Zbeeb was involved in the negotiation and drafting of the agreements.

(3) Mr Zbeeb’s conduct in relation to the Claimants’ challenge to his impartiality gave rise to justifiable doubts as to his impartiality.

The issues

Having considered the facts, the court distilled the issues to be considered down to the following:

(1) Are there circumstances which give rise to justifiable doubts as to Mr Zbeeb’s impartiality?

(2) If so, did the Claimants take part or continue to take part in the arbitration proceedings, without raising the objection forthwith, at a time when they knew or could with reasonable diligence have discovered the existence of such circumstances?

The first issue: Circumstances which gave rise to justifiable doubts as to Mr Zbeeb’s impartiality

The Claimants successfully relied on three aspects of the evidence as giving rise to justifiable doubts about Mr Zbeeb’s impartiality for the purposes of section 24(1)(a) of the Act.

(1) The legal and business connection between Mr Farran and Mr Zbeeb

The connection alleged was first that Mr Zbeeb was engaged by the Bank as legal counsel in 2005/2006 at a time when Mr Farran was chairman of the Bank, and secondly that Mr Zbeeb’s father had acted and continued to act for Mr Farran and was a member of the top executive management at the Bank.

After exploring the nature and extent of these connections, the court held that “these connections would give rise to justifiable doubts as to Mr Ali Zbeeb’s ability to act impartially” and that “the fair minded observer would take the view that this gave rise to a real possibility that Mr Ali Zbeeb would be predisposed to favour Dr Farran in the dispute in order to foster and maintain the business relationship with himself, his firm and his father, to the financial benefit of all three”.

The court was assisted by the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (“the IBA Guidelines”). The IBA Guidelines contain guidance as to which situations do or do not constitute conflicts of interest. The “Red List” consists of two parts, a “Non-Waivable Red List” and a “Waivable Red List”. The Non-Waivable Red List identifies situations where the arbitrator should always decline the appointment. This would include, for example, situations where the arbitrator has a significant financial interest in one of the parties. The “Waivable Red List” sets out situations where the arbitrator may only accept the appointment if the parties provide full consents. This would include, for example, a situation where the arbitrator has previously been instructed by one of the parties.

The court held that Mr Zbeeb’s law firm, having acted for Mr Farran, and for the Bank, fell within one of only four situations identified in the “Non-Waivable Red List” in the IBA Guidelines that give rise to justifiable doubts about the arbitrator’s independence and impartiality and in which an arbitrator should refuse appointment.

(2) Mr Zbeeb’s involvement in the negotiation and drafting of the agreements

Mr Zbeeb had been involved in advising the first and second respondents in relation to the draft agreements and the arbitration clause. The Non-Waivable Red List includes situations where “the arbitrator has given legal advice … on the dispute to a party or an affiliate of one of the parties” and/or “the arbitrator has previous involvement in the case”. Accordingly, Mr Zbeeb ought not to have accepted the appointment or continued to act as arbitrator without first raising the issue with the parties and obtaining acceptance on the part of the Claimants to act as arbitrator in the dispute.

(3) Mr Zbeeb’s conduct of the section 24 application

Mr Zbeeb’s conduct lent further weight to the court’s concerns as to the lack of impartiality on his part. Extraordinarily and despite the requests of both parties, Mr Zbeeb refused to postpone the publishing of his award until after the application was heard. The only reason his decision was not published was because he had demanded payment of his fees before issue. The parties did not pay and so the decision was not published.

The second concern the court had was the content and tone of Mr Zbeeb’s communications with the parties. Mr Zbeeb had made arguments on behalf of the first and second respondents which they had not advanced for themselves, and had called into question the Claimants’ good faith in bringing the section 24 application. The court had little hesitation in deciding that Mr Zbeeb had become too personally involved in the issues of impartiality and his jurisdiction to guarantee the necessary objectivity required to determine the merits of the dispute.

The second issue: Loss of right to object under section 73 of the Act

In essence, section 73 of the Act provides that if a party to arbitral proceedings takes part without promptly making any objection he may not raise that objection later unless he shows that, at the time, he did not know and could not with reasonable diligence have discovered the grounds for objection.

The court found that each of the three aspects of the evidence above was sufficient on its own to give rise to justifiable doubts about Mr Zbeeb’s impartiality. Accordingly, the Claimants’ right to object would only have been lost if the conditions in section 73 of the Act were satisfied separately in respect of each of the three sets of circumstances, which they were not.

The court granted the application for the removal of Mr Zbeeb.

Overview

The English court has made its position clear in relation to the duty of an arbitrator to disclose any facts or circumstances that may cast doubt on their impartiality. Further, this obligation can extend even where the parties could arguably have discovered the facts or circumstances through their own due diligence. Arbitrators should consider and familiarise themselves with the IBA Guidelines and how they may impact on a decision as to whether to accept an appointment or when a challenge is raised as to the appointment. In the event of a challenge to their impartiality, arbitrators should deal with this in a neutral and measured manner so as to demonstrate they are capable of an impartial determination of the merits of the dispute.

In the event that a party wishes to raise an objection it is crucial that it does so promptly, that is, as soon as it discovers grounds for doing so. A party may lose its right to object under section 73 of the Act if it takes part in proceedings when it could have discovered the grounds for the relevant objection “with reasonable diligence”.

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