In February 2024 the High Court in London handed down a decision to remove an arbitrator in a film industry dispute, which, in addition to illustrating the importance of insurance in the production sector, illuminated a paradoxical issue in commercial arbitration: if the parties appoint a subject-matter expert to decide their dispute, does the arbitrator risk being removed for bias if, on the basis of his experience, he expresses a conclusion about the evidence before it has been tested at a hearing?
The case, H1 and H2 v W, D and F [2024] EWHC 382 (Comm), concerned liability under film production insurance. The insurer contended that the arbitrator, an industry professional without legal training, had given grounds for “justifiable doubts as to his impartiality” and sought an order to remove him under section 24 of the English Arbitration Act 1996. Mr. Justice Calver granted the order.
The Dispute
The claimants were producing a television series in Sweden and had obtained insurance to protect them in case a specified actor suffered an injury that delayed production. The actor duly incurred a serious injury during a stunt and the producers claimed under the policy.
The
insurance policy incorporated an arbitration agreement, under which any dispute
was to be resolved by “an experienced practitioner in film or television
programme production”. The parties being
unable to agree on an arbitrator, the British Film Institute was asked to do
so. The BFI selected one “W”, an
experienced industry professional and not a lawyer.
In subsequent terms of reference, the parties agreed to waive “any objection to the appointment of the Arbitrator on the grounds of potential conflict of interest and/or lack of independence or impartiality in respect of any matters known to them at the date of the agreement.”
The
insurer pleaded, in essence, that they had excluded liability for any
“hazardous activity” and that it was also a condition of the policy that the producers,
their agents and their employees should use all reasonable care to avoid
accidents. The producers contended that
they had relied on an independent stunt coordinator who had approved the stunt
and that any hazard arose from unauthorized changes to the stunt made during
shooting by third parties, for which the producers could not be held
responsible. It was said that there was “a
central issue in the arbitration” as to industry practice in Sweden: was the
stunt coordinator responsible for safety on the set or was it the
responsibility of the producers?
Both sides proposed to call expert witnesses on this issue.
The evidence of bias
“I know all three [of the insured’s experts] very well, … what [the witness] said is what I will believe.. I absolutely believe what he says... if that’s what he said I would accept that… I know the professionals. I can say now what I think”.
At a procedural hearing, the arbitrator said that he knew the claimant’s experts, that one in particular was “one of the top Norwegian producers” and that he would accept what he said about the issue of on-set responsibility in Sweden, even though it differed from W’s own views as to industry practice. He did not know the insurer’s witnesses, arguably depreciating their authority. He indicated that he did not think the experts needed cross-examination. In response, the insurer’s counsel submitted that W should listen the evidence before reaching a conclusion and W said that he would, albeit he had formed a view.
The judge held that these comments gave rise to justifiable doubt as to W’s impartiality, on the basis that he appeared to have prejudged the allegedly central issue. He revoked W’s appointment.
According to the judge, “the parties might expect the arbitrator to use his special knowledge of the film industry to understand the evidence that is given at the arbitration and any usages of the trade. But they would not expect him to use his special knowledge to pre-determine that he would prefer the evidence of an industry insider whom he knew (both personally and by reputation) over one whom he did not know” [para. 83]. The judge treated the arbitrator’s strong view about the witnesses as evidence of bias.
But what is “bias”?
According to England’s highest court, to be affected by bias is to be “motivated by a desire unfairly to favour one side or to disfavour the other.” (R v Gough (Robert) [1993] UKHL 1, at 4, per Lord Goff.) Lower courts have said, more vaguely: “Bias can come in many forms. It may consist of irrational prejudice or it may arise from particular circumstances which, for logical reasons, predispose a judge towards a particular view of the evidence or issues before him” (Director General of Fair Trading v Proprietary Association of Great Britain [2000] EWCA Civ 350, at para. 37). However, what unites all instances of bias is the influence on the tribunal of a collateral factor irrelevant to the proper disposal of the proceedings.
If the parties select a subject-matter expert as arbitrator, let alone where they expressly waive any objection of partiality based on his existing knowledge, they accept that this knowledge can be put to use by him. The authorities are clear that an arbitrator, at least if an industry professional rather than a lawyer, is entitled to use his personal knowledge (for England, see: Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 All E.R. 186; for the US: Sapp v. Barenfeld, 34 Cal. 2d 515, 212 P.2d 233 (1949)).
When an adjudicator expresses a preference about the evidence, that is not in itself any indication of a lack of impartiality with regard to a party. “The mere fact that the case of one party is regarded with disfavour is manifestly not enough to raise a danger of bias. It is necessary to concentrate on the assertion that there is a danger that this regarding with disfavour was the result of some unfairness” (Porter v Magill [2000] 2 W.L.R. 1420 (C.A.), at 1457). W clearly wanted to get to the truth of the matter, having asked the parties to make 12 individuals available to answer questions. However, the parties provided witness statements for only two. He actually disagreed with the expert witness as to industry practice, but was willing to accept his evidence.
The problem in this case was one of due process, not bias. The limitation on the arbitrator is not that he may not use his existing knowledge, but that he must ensure that it is deployed with procedural fairness. In particular, he must enable the parties to challenge his personal view in case it is not already being contended for by one of the parties (Fox v. Wellfair Ltd [1981] 2 Lloyd's Rep. 515). “It has to be emphasized, however, that the duty to act fairly is quite distinct from the autonomous power of the arbitrators to make findings of fact.” (Bulfracht (Cyprus) Ltd. v Boneset Shipping Company Ltd. "MV Pamphilos" [2002] EWHC 2292, at page 10, per Colman J.)
What happened here? The arbitrator shocked the insurer’s counsel by indicating that he would accept the evidence of the producers’ witness irrespective of any cross-examination or submissions. This was because he preferred that witness as a witness. This was evidence of W’s incompetence, as a layman, in the conduct of an arbitration, not of bias in favour of the producers. It was precisely his function to form a view about the persuasiveness of the parties’ witnesses. There was no reason to suppose he would have said anything different about him if the “top Norwegian producer” had been called by the insurer, rather than the producers.
Had W not accepted the admonishment of the insurer’s counsel that he should allow the process to unroll in the normal way and in fact disallowed or ignored cross-examination, he could have been accused of failing “properly to conduct the proceedings”, a distinct ground of challenge under section 24(1)(d) of the 1996 Act. However, it remained to be seen whether, educated by the lawyers appearing before him, he did in fact take account of cross-examination and the advocates’ arguments when the hearing took place. W’s expressed preference for the producers’ expert was certainly potential misconduct, but it was a category error to treat it as evidence of bias.
Substantial injustice
Did it matter? Arguably, yes: to remove an arbitrator for improper conduct of the proceedings under section 24(1)(d), the applicant has to show that “that substantial injustice has been or will be caused to the applicant”. This depends on what would have happened at the end of the arbitration:
“The test for substantial injustice focuses on the issue of whether the arbitrator has come by inappropriate means to one conclusion whereas had appropriate means been adopted, he might realistically have reached a conclusion favourable to the applicant. It does not require the court to try the issue so as to determine, based on the outcome, whether substantial injustice had been caused” (London Underground v Citylink [2007] EWHC 1749 (TCC) at para. 47, per Ramsay J. (in the context of a challenge to an award under section 68).
One possibility is that W would have ignored cross-examination and submissions and kept to his fixed opinion. If so, that would have been a failure to conduct the proceedings properly which would probably have affected the outcome. W would still have been removed. However, taught by the advocates as to how an arbitration is supposed to proceed, he might have listened in good faith to the evidence and applied an open mind. We shall never know.
This would have played out differently in the United States. Although institutional rules, such as rule R19(c) of the Commercial Arbitration Rules of the American Arbitration Association, may empower an arbitral institution to remove an arbitrator for bias, the courts will not interfere during the course of the arbitration to remove an arbitrator for lack of impartiality. The parties have to wait for the award and then apply to vacate it on grounds of “evident partiality" (Federal Arbitration Act, 9 U.S.C.A. § 10(a)).
This “narrow standard of review acts as a bulwark against legal ingenuity. Lawyers can easily find one thing or another in almost any proceeding to which they wish to take exception. There are benefits to such legal creativity in many contexts but not in the one before us. Allowing procedural challenges to every award would force parties into court to argue their dispute a second time, incurring the litigation costs and delays they intended to avoid by agreeing to arbitration in the first place.” (UBS Fin. Servs., Inc. v. Padussis, 842 F.3d 336, 339 (4th Cir. 2016), per Wilkinson J).
England is less concerned, it seems, about delay created by legal ingenuity.
Conclusion
Lay arbitrators are a valuable option for parties litigating in a specialised industry; and it is easier to teach a layman about the basic rules of arbitration than to turn a lawyer into an industry expert. Evidence of a lack of impartiality removes the arbitrator whether there is a substantial risk of injustice or not, so it is important to be clear about the difference between holding a relevant view about the evidence and holding an irrelevant view affecting a party.
Finally, one wonders what W thinks about this. Under section 23(5) of the 1996 Act, the arbitrator is entitled to be heard on the application to remove him, but, understandably, W does not seem to have taken the opportunity. Although the judge decided to anonymise the judgment, everyone in the case must have known who the “biased” arbitrator was and so too, no doubt, people connected with the production. As a senior member of the industry, W accepted an invitation by the national film agency to use his experience in the resolution of a dispute, albeit for a fee. Will he ever accept, or recommend a professional colleague to accept, a similar invitation?
It could surely have been avoided. Someone – perhaps the Chartered Institute of Arbitrators – could produce a short leaflet explaining to lay arbitrators how the process is supposed to unroll. The basic principles of arbitration are hardly complex.
However, full marks to the BFI for supporting arbitration in the film industry. It is to be hoped that this experience does not put them off a sequel.
As a footnote, it is puzzling that everyone agreed that the practice in Sweden was central to the case. The insurance policy was governed by English law and clearly placed responsibility on the producers for negligently-caused accidents, whether the accident was caused by an agent (e.g., a freelance stunt coordinator) or an employee. One therefore might wonder how central to the arbitration industry practice in Sweden could be. But those involved in the case no doubt had their reasons…
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