Aiteo Eastern E & P Company Limited -v- Shell Western Supply and Trading Limited & Ors [2024] EWHC 1993 (Comm)
The English Commercial Court has recently handed down a judgment in which it considered an arbitrator's duty of disclosure and apparent bias in light of the UK Supreme Court's significant judgment in Halliburton Company -v- Chubb Bermuda Insurance Ltd [2020] UKSC 48 ("Halliburton") which brought much-needed clarity to these issues.
The Court found that there was apparent bias on the part of one of the members of a three-member Tribunal and ordered the affected award to be remitted for reconsideration.
The background facts
This was an application by Aiteo Eastern E & P Company Limited (Aiteo) under s.68 of the Arbitration Act 1996 (AA 1996) to set aside four partial awards (Awards) rendered by a three-member arbitration tribunal (Tribunal). The Awards comprised of: (i) the Offshore Jurisdiction Award; (ii) the Offshore Jurisdiction Award on Costs; (iii) the Consolidation Award; and (iv) the Onshore Jurisdiction Award.
The two Offshore Jurisdiction Awards and the Consolidation Award were rendered by the Tribunal in ICC arbitration proceedings commenced by Shell Western Supply and Trading Limited (Shell) against Aiteo pursuant to the arbitration agreement in an Offshore Facility Agreement between Aiteo and Shell (Offshore Arbitration). The Onshore Jurisdiction Award was rendered by the same Tribunal, following the issue of the Consolidation Award, in separate consolidated ICC arbitration proceedings commenced by various Onshore Lenders against Aiteo pursuant to the arbitration agreement in an Onshore Facility Agreement between Aiteo and the Onshore Lenders (Onshore Arbitration).
The Tribunal consisted of highly distinguished arbitrators, namely: former Court of Appeal judge the Rt. Hon Dame Eizabeth Gloster DBE (DEG), appointed by Shell; former President of the UK Supreme Court the Rt. Hon. Lord Neuberger, appointed by Aiteo; and former Chief Justice of the Hong Kong Court of Final Appeal Geoffrey Ma Tao-li BM KC SC as presiding arbitrator.
Following the nomination by Shell (who was represented by Freshfields) of DEG in the Arbitrations, DEG disclosed in her ICC Arbitrator Statement on 23 December 2020 two prior appointments by clients represented by Freshfields in unrelated arbitrations in the preceding two years. It eventually came to light that DEG did not make timely disclosure of a number of matters, or had not disclosed certain matters, involving DEG and Freshfields which Aiteo relied on in support of its argument of apparent bias on the part of DEG:
- DEG gave expert evidence to another client of Freshfields in an unrelated matter in June-July 2020. Whilst this was disclosed to Freshfields and the Lenders, DEG's clerk inadvertently omitted to make this disclosure in her ICC Arbitrator Statement, for which DEG accepted responsibility. This disclosure only came to light on 10 November 2023.
- In June 2021, in an unrelated arbitration, Freshfields replaced legal counsel previously representing the party who appointed DEG. This disclosure was made on 9 December 2023.
- From February to March 2022, DEG was instructed by Freshfields to provide an expert declaration in foreign law proceedings. This disclosure was made on 9 December 2023.
- In or around April 2022, DEG had been appointed by the ICC as presiding arbitrator in an unrelated ICC arbitration in which Freshfields were acting for one of the parties. This disclosure was made on 29 April 2022.
- In October 2023, DEG had been instructed by Freshfields to provide an expert opinion on English law in potential foreign insolvency proceedings. This disclosure was only made several weeks after the instruction had been completed, on 10 November 2023.
In the meantime, on 17 November 2022, following unsuccessful applications by Aiteo to set aside the Offshore Jurisdiction Award and Consolidation Award under s.67 of the AA 1996, the Court upheld the jurisdiction of the Tribunal in the Offshore Arbitration. Further, by the time all the matters in the preceding paragraph fully came to light on 9 December 2023, the Tribunal had already rendered all four Awards.
On 12 December 2023, Aiteo lodged a challenge with to remove DEG pursuant to Article 14(1) of the ICC Rules on the basis that there were justifiable doubts as to her independence and impartiality. On 17 January 2024, the ICC issued its unreasoned decision (as neither party requested reasons in advance) upholding Aiteo's challenge on its merits and DEG was removed and replaced by another arbitrator (the ICC Court's Decision).
Following the ICC Court's Decision, Aiteo promptly applied under s.68 of the AA 1996 to set aside the Awards on the grounds that there was apparent bias on the part of DEG, based on professional connections between DEG and Freshfields and the various instances of untimely disclosures, which gave rise to serious irregularity affecting the arbitration proceedings within the meaning of s.68(2)(a) of the AA 1996. Aiteo also applied for an extension of time under s.80(5) of the AA 1996 to bring its challenge under s.68.
S.68 AA 1996
S.68 provides for an arbitral award to be challenged in Court on grounds of serious irregularity affecting the tribunal, the proceedings or the award.
S.68(2) defines serious irregularity as "an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant". The kind of serious irregularity relied on by Aiteo was that under s68(2)(a), namely, "failure by the tribunal to comply with section 33 (general duty of tribunal)".
S.68(3) provides that if serious irregularity is established, the Court may remit, set aside, or declare the aware to be of no effect, in whole or in part.
The Commercial Court decision
The Court considered that the principles relating to apparent bias set out by the UK Supreme Court in Halliburton in the context of an application under s.24 AA 1996 to remove an arbitrator were equally applicable to a s.68 application to set aside an award.
Accordingly, in the context of a s.68 challenge, the applicable test in relation to apparent bias is whether the fair-minded and informed observer, having considered the facts, would consider that there was a real possibility that the tribunal was biased.
The Court held that a fair-minded and informed observer would have considered that there was a real possibility of unconscious bias having regard to the cumulative picture and the combination of arbitral appointments and advisory/expert engagements of DEG by Freshfields. The Court observed in particular that the nature of the advisory/expert engagement of DEG by Freshfields was, or was akin to, a relationship of co-counsel advising a client. These engagements should therefore have been disclosed promptly. The cumulative picture in the case revealed to the observer that there was a significant number of appointment and engagements of DEG by Freshfields in a relatively short span of time.
Importantly, whilst the Court held that the ICC Court's Decision (which was administrative and procedural in nature) did not give rise to res judicata, the ICC Court's Decision was nevertheless a highly relevant factor to be taken into account by the observer given the ICC Court's experience in dealing with arbitrator challenges. In that regard, the Court thought that the observer could take comfort in the ICC Court's Decision to uphold Aiteo's challenge to DEG, thus resolving any possible doubts of the observer. The fact that the ICC Court's Decision was not a reasoned decision was irrelevant, not least because neither of the parties requested for a reasoned decision in advanced.
The Court also rejected the Lenders' argument that Aiteo had lost the right to challenge the Awards pursuant to s.73(1) of the AA 1996 by continuing to take part in the arbitration as Aiteo was only made aware of the "full picture" in late 2023. Aiteo was not precluded from relying on the facts made known to it earlier at a time when it only had "part of the picture" and which would have been insufficient to ground a successful s.68 challenge.
The Court went on to consider various authorities on whether the finding of apparent bias which gives rise to serious irregularity also necessarily gives rise to a finding of substantial injustice pursuant to s.68(2). The Court held that based on recent authorities and the wording of s.68(2) itself, the element of substantial injustice must be addressed and proved separately, though in a case of apparent bias this will normally be inferred, even if the apparent bias was on the part of only one member of a tribunal (as was the case here), unless there are circumstances which rebut the inference.
In the present case, save for the Onshore Jurisdiction Award, the Court found that the unusual circumstances giving rise to the Awards were such that the inference was rebutted, and no substantial injustice was caused to Aiteo notwithstanding the finding of apparent bias. However, the Court ordered the Onshore Jurisdiction Award to be remitted for reconsideration as there was nothing on the facts to rebut the inference of substantial injustice in this instance.
Finally, the Court also granted Aiteo's application to extend time under s.80(5), applying the Kalmneft factors (as identified in AOOT Kalmneft -v- Glencore International AG [2002] 1 All ER 76). The Court considered the apparent bias on the part of one member of the Tribunal as being a very significant factor in favour of granting the time extension, having regard to the importance of upholding the impartiality principle enshrined in s.1 of the AA 1996. The Court also found that Aiteo had acted reasonably and promptly after becoming aware of the full facts informing the apparent bias.
Comment
Whilst the UK Supreme Court in Halliburton observed that arbitrator challenges have "rarely succeeded", the Court's decision is a rare example of a successful challenge. It demonstrates the Court's willingness to uphold the fundamental right for parties to have their disputes arbitrated by an impartial tribunal.
The Court's decision is also of particular importance to arbitrators and arbitration practitioners. It provides a stark illustration of the potential pitfalls of repeated arbitrator appoints/expert engagements by the same law firm and arbitrators failing to make timely disclosure.
Furthermore, arbitration practitioners would do well to consider whether it would be appropriate to disclose any recent historical professional connections with their appointed arbitrator at the time of nomination.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.