Saturday 9 December 2023

Pre-appointment Disclosure - a debatable amendment to the UK's Arbitration Act 1996

On 6 September 2023, the Law Commission for England and Wales published its Review of the Arbitration Act 1996: Final report and Bill. The Commission notes "the consensus that the Act works well, and that root and branch reform is not needed or wanted", but nonetheless proposes amendments. One would insert a new section 23A on "Impartiality: Duty of Disclosure". This amendment tries to address the position of potential arbitrators, creating a legal duty of disclosure on them before they have been appointed as arbitrators. This approach seems problematic as a matter of principle and questionable in its proposed implementation.

Background

Section 33(1) of the United Kingdom's Arbitration Act 1996 provides that an arbitrator "shall... act fairly and impartially as between the parties." In Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, the UK Supreme Court held that this implied a duty on the arbitrator to disclose to the parties any circumstances that might reasonably give rise to a conclusion by an objective observer that there was a real possibility of bias on the arbitrator's part in relation to the dispute (per Lord Hodge, para. 153). A party to an arbitration may apply to the court for the removal of an arbitrator where "circumstances exist that give rise to justifiable doubts as to his impartiality" (s. 24(1)). According to Halliburton, this is an objective test (paras 52-55).

The new section 23A

The Law Commission's new section would read as follows:

23A Impartiality: duty of disclosure

(1) An individual who has been approached in connection with their possible appointment as an arbitrator must, as soon as reasonably practical, disclose to the person exercising the power of appointment any relevant circumstances of which the individual is, or becomes, aware.

(2) An arbitrator must, as soon as reasonably practical, disclose to the parties to the arbitral proceedings any relevant circumstances of which the arbitrator is, or becomes, aware.

(3) For the purposes of this section— 
(a) “relevant circumstances”, in relation to an individual, are circumstances that might reasonably give rise to justifiable doubts as to the individual’s impartiality in relation to the proceedings, or potential proceedings, concerned, and
(b) an individual is to be treated as being aware of circumstances of which the individual ought reasonably to be aware.

This would be a "mandatory provision" within s. 4(1) of the 1996 Act. It would "have effect notwithstanding any agreement to the contrary". Parties would hence be unable effectively to modify the requirement, whether of their own volition or at the request of any potential arbitrator.

The new s. 23A(1) takes its inspiration from Article 12(1) of the UNCITRAL Model Law on International Commercial Arbitration, which provides:

(1) when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.

However, the Model Law does not in terms impose any "duty" on the potential arbitrator.

The Arbitration (Scotland) Act 2010, which is based on the Model Law, addresses the same issue in Schedule 1, rule 8:

8 (1) This rule applies to—

(a) arbitrators, and

(b) individuals who have been asked to be an arbitrator but who have not yet been appointed.

(2) An individual to whom this rule applies must, without delay disclose—

(a) to the parties, and

(b) in the case of an individual not yet appointed as an arbitrator, to any arbitral appointments referee, other third party or court considering whether to appoint the individual as an arbitrator,

any circumstances known to the individual (or which become known to the individual before the arbitration ends) which might reasonably be considered relevant when considering whether the individual is impartial and independent. [Emphases added.]

Scope of persons bound

The Scottish Act says that the candidate arbitrator "must" (i.e., shall) make the relevant disclosure. It is not clear whether this "must" is anything more than directory. In this context one might recall Lady Arden's concurring opinion in Halliburton, in which she said in relation to the "duty of disclosure" of an arbitrator:

"There is scope for debate as to whether it is a duty at all in the strict sense. The duty [to disclose related arbitral appointments] only arises if the arbitrator wants to take a further appointment in a different arbitration." (para. 161)

It will be noted that whereas the Scottish Act refers to "individuals who have been asked to be an arbitrator", the Law Commission's amendment imposes its "duty" on any "individual who has been approached in connection with their possible appointment as an arbitrator".

The idea is hence that when someone is contacted with a view to possible appointment as an arbitrator, that person comes under a legal duty to disclose potentially sensitive details about his prior dealings and, if he is a partner, for example, those of his law firm. The enquirer is under no obligation to appoint the potential arbitrator from whom it has received the requested disclosure. In contrast with the Scottish Act, the enquirer does not even have to have asked the candidate arbitrator to accept the appointment.

Modification of the duty?

The candidate arbitrator will seek in vain to negotiate the scope of his disclosure, by reason of the status of the new section as "mandatory" under s. 4 of the 1996 Act. Section 23A will "have effect notwithstanding any agreement to the contrary". The parties to the arbitration agreement cannot effectively limit the required disclosure by the candidate arbitrator, even though Lord Hodge said in Halliburton that under the present Act the parties could do so (paras 136-7), no doubt because the duty of disclosure of disclosure of an appointed arbitrator arises simply as an offshoot of the general obligation of fairness under s. 33 of the 1996 Act. This might affect partners in large, international firms for whom the task of checking firm conflicts is burdensome or emergency arbitrators who do not have time to carry out a full conflicts check.

Functional relevance

Is the s. 23A duty a legal duty "in the strict sense"? The general duties of arbitrators in English-seated arbitrations post-appointment, whether deriving from contract or status, can be enforced against them by injunction (see, e.g., Compagnie EuropĂ©ene de Cereals SA v Tradax Export SA [1986] 2 Lloyd's Rep. 301; Cole v Silvermills Estates and Land Ltd [2012] S.C. 1), even if s. 29 gives them immunity from liability for acts done in good faith; and, subject to that immunity, by claims for damages. Some jurisdictions provide less protection against suit than England (see: Born, Gary B., International Commercial Arbitration, Ed. 3, Kluwer Law International, §13.05[A]).  

Although it is difficult to imagine a disappointed party suing a candidate arbitrator for failing to disclose a conflict, it is not impossible.  If an arbitration were delayed for several months by reason of the late disclosure of a conflict by a candidate arbitrator who never in fact was appointed, a trouble-making party might bring a claim.  But the difficulty of identifying a case in which a legal duty "in the strict sense" would have to be enforced encourages doubt as to whether such a duty is actually useful.

If the pre-appointment obligation introduced by s. 23A is not to be enforceable as a strict duty, it is hard to see how it would be enforced. Notably, non-compliance with the s. 23A duty has not been added as a ground for removal of an arbitrator under the 1996 Act.

This brings us back to the supposed function of the new provision. In order to remove an arbitrator for bias it is still necessary to show "that circumstances exist that give rise to justifiable doubts as to his impartiality" (s. 24(1)(a), 1996 Act). To set aside an award on grounds of serious irregularity, it is still necessary to show "failure by the tribunal to comply with section 33 (general duty of tribunal)" (s. 68(2)(a), 1996 Act). Aside from the marginal point that the mere failure to disclose relevant information may in itself support an allegation of partiality, the new section provides no functional link between the hypothetical duty of a potential arbitrator under s. 23A and the objective of preserving the impartiality of the arbitrator once appointed. So the creation of the duty would seem essentially irrelevant. If the objective is to obtain conflict information prior to appointment, why can parties not just ask for it? And add a warranty to the arbitrator's contract, if it concerns them, in the event the party proceeds to appointment?

If one insists on an explicit and effective connection between non-disclosure and the actual terms of the 1996 Act, it could be achieved without creating a duty. One could simply include a presumption that an arbitrator's failure to disclose a relevant fact on being requested to serve or during his appointment will give rise to a presumption that "circumstances exist that give rise to justifiable doubts as to his impartiality" (s. 24) and that there has been "failure by the tribunal to comply with section 33 (general duty of tribunal)" (s. 68). Such a solution was adopted in s. 12(e) of the Revised Uniform Arbitration Act of the United States National Conference of Commissioners on Uniform State Laws (2000), which provides:

An arbitrator appointed as a neutral arbitrator who does not disclose a known, direct, and material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party is presumed to act with evident partiality under Section 23(a)(2) [court's power to vacate award].

However, as will be evident from the above, this does not seem to me to be a very pressing reform.

Incidentally...

As Lady Arden observed in Halliburton, "the conclusion that as a matter of the law of England and Wales an arbitrator is to be treated as aware of a conflict of interest of which he is not actually aware would on the face of it take English and Wales beyond Scots law, which appears to require actual awareness" (para. 162). Despite citing this observation, the Law Commission comes down in favour of the test of constructive knowledge, driving a wedge between English and Scottish law. Given that the issue is the preservation of impartiality, one might wonder how an arbitrator could be influenced by facts about which he is ignorant... But that is a debate for another day.

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