ASM Shipping v. TTMI (s.68 Appn)

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Note: the decision of the judge in this case not to give leave to appeal has been the subject of a judgment in the Court of Appeal. The Court held that, in the absence of any realistic argument that the judge's decision itself contravened the European Convention on Human Rights 1950 Art.6 (which guarantees a fair hearing before an impartial tribunal), it lacked jurisdiction to grant permission to appeal. To access the note on the Court of Appeal judgment, click here

Michael Beloff QC and Jessica Mance (instructed by Messrs Zaiwalla and Co) for the Claimant Owners
Simon Croall (instructed by Messrs Waterson Hicks) for the Defendant Charterers
Charterparty: Arbitration: Arbitration Act 1996: possibility of bias: section 68: serious irregularity/SUBSTANTIAL INJUSTICE: SERIOUS allegations IN PREVIOUS CASE against witness REGARDING DISCLOSURE: ARBITRATOR’S KNOWLEDGE OF AND INVOLVEMENT IN PREVIOUS CASE: section 24: removal of arbitrator;: WHETHER CLAIMANT HAD WAIVED ITS RIGHT TO OBJECT UNDER S.73 
In this case, Owners appealed an interim award under s.68 of the Arbitration Act 1996, alleging a risk of bias on the part of the third Arbitrator, Mr X, an English QC. Mr X had briefly acted as Counsel in a peripheral part of a different arbitration between entirely different parties but there were two common factors: (i) he had been instructed in that dispute by the same Solicitors, WH & Co, as were representing Charterers in the present case and (ii) Mr M, a shipbroker, was a key witness for WH’s clients’ opponents in both arbitrations. Owners alleged that (i) serious allegations against M, including criminal acts, had been made by WH & Co in the previous arbitration and (ii) X had been party to those allegations; X denied any knowledge of (i) and denied (ii). Nevertheless, Owners argued that there was a ‘real risk of bias’ on X’s part and that the Partial Award should be set aside. The judge agreed with Owners on the issue of ‘bias’ but held that the Owners’ challenge failed by virtue of s.73 of the Act, for failure to raise the objection without delay

DMC Category Rating; Developed (but see Comment below)

This case note has been prepared by Hew Dundas, International Arbitrator, Mediator and Expert Determiner, who is a Contributor to this website

ASM (Owners) and TTMI (Charterers) were engaged in a London arbitration, arising out of a charterparty, where Mr X QC was 3 Arbitrator. ASM was represented by Z & Co (Solicitors), TTMI by WH & Co (Solicitors); Owners’ principal witness was Mr M, a shipbroker. In a wholly separate (but relatively recent) arbitration (the "Other Arbitration") between entirely unrelated parties, M had been a key witness for one of the parties and WH had represented the other side and, for a short time and in respect of one preliminary issue only (which was settled), X had been instructed as Counsel by WH. In these other proceedings, so Owners alleged, M had been the target of an attack by WH, who had alleged impropriety in the Discovery M had given and had personally accused M of producing fraudulent and fabricated documents – that is, WH had alleged criminal acts by M. M alleged further that all these allegations had come to naught and that he had been completely exonerated.

On Day 1 of the Hearing in the present arbitration, just before he commenced giving evidence, M claimed to recognise X. Owners requested X to recuse himself (stand down) on grounds of his prior involvement with WH and M, and the consequent risk of bias. The judgment makes no reference to any substantiation of M’s assertions concerning the Other Arbitration but does quote (apparently in full) a statement by X to the parties made on Day 2, after he had considered his papers from the Other Arbitration overnight. Amongst other things, X stated of the previous proceedings: "[t]he application raised no allegations of impropriety, let alone criminal conduct, on the part of [M] that I am aware of. … I have never met him before this hearing or had any contact with him as far as I am aware. … I do not recall making or WH or their clients making any allegation of [M’s] producing fraudulent and fabricated documents and threatening forensic investigation and there is no reference to this in the preparatory note of oral submissions which I prepared for the hearing, but again I have no basis for thinking that any such allegation, even if made, was ever substantiated. …. As far as I am concerned nothing relating to that case gives rise to any doubt in my mind as to the propriety of [M’s] conduct. …. I also observe that Z’s fax … suggests some similarity of tactics on the part of WH in making allegations about impropriety in connection with disclosure. It is a feature of a very large number of cases these days that such allegations are made, they are not the trademark of any one firm." X went on to state that he had acted for WH’s clients in 10 cases out of the 400 in which he had appeared in the previous 10 years; furthermore, while he had met WH personnel socially, he had also sat near Mr Z at an LMAA Dinner but Mr Z had not objected to X on that ground.

Following X’s detailed statement, Owners continued to insist that he recuse himself but he refused to do so. The arbitration continued under Owners’ protest and they subsequently took up the Interim Award which was not in their favour; they therefore appealed under s.68.

The Issues
The primary issue was whether X should stand down as arbitrator. The essence of the attack on X was that he must have been aware of the allegations by WH against M in the Other Arbitration and therefore that X could not conduct, or have conducted, the present arbitration without bias. To summarise, X had had a brief and peripheral involvement in the Other Arbitration in respect of which M, so he alleged, had been the target of an attack by WH. X had no recollection of meeting M and had not conducted any part of any hearing or other proceeding involving M. These are not circumstances even contemplated by the IBA Green List, let alone the Orange or Red Lists. [This is a reference to a publication of the International Bar Association, approved by its Council on 22 May 2004, entitled "IBA Guidelines on Conflicts of Interest in International Arbitration"] It should be noted that the present case was a s.68 [of the Arbitration Act 1996]appeal against an Award (that is, on grounds of ‘serious irregularity’), not an application under s.24 of that Act to remove X as arbitrator (see comment below).

There were two additional minor issues, (i) one week before the arbitration Hearing, Owners’ QC had suffered a family bereavement, so Owners applied for an adjournment which was refused; had this refusal been due to bias? (ii) whether Owners had, by not protesting X immediately M recognised him, lost their right to object pursuant to s.731 of the Act.

English law (following Strasbourg jurisprudence) requires that the determiner of bias be a fair-minded, informed observer ("FMIO"). The test was formulated by Lord Hope in Porter v Magill [2002] AC 357 at §§102-103: "The question is whether the [FMIO], having considered the facts, would conclude that there was a real possibility that the Tribunal was biased."

It should be noted that "Trade Arbitrations", whether maritime (LMAA), commodity (GAFTA/FOSFA/LME/RSA) or other, are a major feature of London arbitration and substantial proportions of the world’s shipping and commodities trading activities are on contract forms mandating the appropriate trade arbitration in London. Such arbitral bodies require from their members extensive experience IN the trade and, in some cases, that they be active traders themselves. In Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyd's Law Reports 14, the commercial character of one of Rustal's consultants was being impugned. One of the arbitrators had, two years before, been involved in a trade arbitration against him. In rejecting a challenge to the arbitrator, Moore-Bick J stated that it could "fairly be assumed that one of the reasons why the parties have agreed to trade arbitration is that they wish to have their dispute decided by people who are themselves active traders and so have direct knowledge of how the trade works. However, if the arbitrators themselves are to be active traders there is every likelihood that at least one member of the tribunal will at some time have had commercial dealings with one or both parties to the dispute. That is something which the parties must be taken to have had in mind." Or, in colloquial terms "it goes with the territory".

Further, under s.68, the test of "serious irregularity" requires both a procedural failure (for example, bias) and that substantial injustice be done to the applicant. The jurisprudence has repeatedly shown that these are two separate tests. In Groundshire v VHE [2001] 1 BLR 395 400, HH Judge Bowsher QC had stated in considering further the meaning of substantial injustice: "The [1996] Act does not require the court to speculate what would have been the result if the principles of fairness had been applied, but the Act requires that the court is only to interfere if the court considers, not speculates, that the irregularity or unfairness has caused or will cause substantial injustice to the applicant." This decision is consistent with other English jurisprudence.

However, the judge concluded:  "In my view, given the facts and conclusions I have stated, X QC should not continue to act in this matter..."

Other Issues
The judgment deals with two other issues which are non-controversial:
i) The refusal of the adjournment – was this due to bias? No - given all the circumstances, the judge agreed with the refusal ("the right decision in the circumstances") even though he considered that an adjournment, with costs consequences, might have been possible. 
(ii) M claimed to recognise X in the middle of Day 1 just before he went ‘on the stand’ (to give evidence) but Owners took no action at that moment (but did so after X’s statement given on Day 2) – had Owners thereby waived their right to object to X ? "No," said the judge.  
However, they had lost their right to object by continuing to take part in the arbitration (albeit under notice of objection) and taking up the Award. The judge stated (at §49): "Owners were faced with a straight choice: come to the court and complain and seek [X’s] removal as a decision maker or let the matter drop. They could not get themselves into a position whereby if the award was in their favour, they would drop their objection but make it in the event that the award went against them. A 'heads we win and tails you lose' position is not permissible in law as [s.73] makes clear. The threat of objection cannot be held over the head of the tribunal until they make their decision and could be seen as an attempt to put unfair and undue pressure upon them."

This judgment takes the analysis of bias into wholly new territory, amongst other things, wholly unknown to the IBA Lists; however, as will be shown, the decision is seriously flawed and, if not reversed on appeal (no appeal is expected) will have to be "distinguished on its facts" in future cases.

There are a number of issues arising from the judgment to which I take exception: including

  1. Owners’ application was stated by the judge to be a challenge to an Award under s.68; nowhere does the judge decide upon this challenge and he nowhere exercises any of his powers under s.68(3). s.68 gives the judge no power to order the removal of an arbitrator (that is given in s.24 but there is no mention in the judgment of s.24 except in §48 where the judge criticises Owners for not making a s.24 application). It follows that the judge’s conclusion is without any statutory basis.
  2. The judge considered that if the FMIO had detected a real possibility of bias, then that would be a "serious irregularity" which had caused substantial injustice to the applicant since, in his view, there could be no more serious or substantial injustice than having a tribunal which was not inherently impartial, determine parties' rights. With respect, this both ignores the clear language of the statute and is contradicted by all other cases of s.68 applications to which I have access.
  3. The judge appears to have accepted M’s allegations without substantiation, dismissing X’s clear counter-statements concerning the Other Arbitration made after consulting his papers. In effect M and his perceptions have been substituted for the FMIO.
  4. The judge relies on X having been instructed by WH in the Other Arbitration but places minimal weight (if any) on the fact that that involvement was brief and peripheral only; there is an "I" in FMIO which has been ignored.
  5. The judge relies on the fact that M apparently reacted with concern to the sight of X at the Hearing whereas M had been aware for some time that he was "up against" WH who had (or so M alleged, apparently without substantiation) given him a tough time in the Other Arbitration. X’s statement was clear that he had no recollection of seeing M before and this is entirely consistent with X’s very limited role in the Other Arbitration, which had not included any Hearing at which M might have given evidence.
  6. The judge also relies on the fact that Charterer’s skeleton argument had included a heavy attack on Owners in respect of breaches of disclosure orders, an attack which had also been made by the same solicitors (WH) in the Other Arbitration. The judge stated (§41(6)) "… the uncomfortable feeling which [M] had that X would or might have detected a 'pattern' of misbehaviour in relation to disclosure based upon his knowledge acquired as a barrister in the [Other Arbitration] was genuine." With the greatest respect, this does not follow: first, WH would not have been doing its job if it had not taken a robust line in these matters; second, WH’s assault in its skeleton was targeted at Owners, not against M who was, to repeat, merely a witness, not a party; third, none of this has anything to do with X, if anything it was between M and WH.
  7. Following (6), the judge’s conclusion that the FMIO "would share the feeling of discomfort expressed by [M] and [conclude] that there was a real possibility that the tribunal was biased" is, in my considered opinion, contradicted by the facts.
  8. The decision is wholly incompatible with that in Rustal which has stood the test of time and has never, to my knowledge, been criticised or dissented from,

This judgment has been claimed (by Owners’ Solicitors) as being both historic and important, In my opinion, it is demonstrably neither except, in the latter case, if it has unfortunate consequences). Is the judgment wrong? In my opinion, yes. If it is indeed correct, it could follow that no one, whether judge or arbitrator, who has ever had any adverse involvement with a witness or party in any capacity, can sit in judgment on a case involving that person, albeit they may not be a party in the matter. This is not IBA Green List territory but a Persil whiteness far beyond any objective consideration of issues of bias!!

s.73 of the Arbitration Act 1996 reads: 
If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection –

  1. that the tribunal lacks substantive jurisdiction ,
  2. that the proceedings have been improperly conducted,
  3. that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or that there has been any other irregularity affecting the tribunal or the proceedings,

he may not raise that objection later, before the tribunal or the court, unless he shows that at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.

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