H v L and Others

Hearing date: 12 January 2017

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

By a Claim Form issued on 21 December 2016 and amended pursuant to an order of Fraser J of 23 December 2016, the Claimant ("H") seeks an order pursuant to Section 24(1)(a) of the Arbitration Act 1996 ("the Act") that the Second Defendant, M, be removed as an arbitrator, and the appointment of a new arbitrator to replace him. Shortly after the conclusion of the hearing I announced my decision that the application would be dismissed. These are my reasons.

Section 24 of the Act provides:

"24. Power of court to remove arbitrator

(1) A party to arbitral proceedings may … apply to the court to remove an arbitrator on any of the following grounds –

(a) that circumstances exist that give rise to justifiable doubts as to his impartiality; …."

Mr Kitchener QC appearing for H made clear that no allegation of actual bias or lack of impartiality was made against M. The application was founded on a submission that his conduct had given rise to an appearance of bias.

The Arbitration

As a result of an incident claims were brought in the United States of America against H, R and Q (by whom I mean to include affiliate companies within those groups). Judgment on liability was handed down in 2014 allocating blame between H, Q and R. After the liability hearing but before judgment, H negotiated a settlement of the claims against it for a very substantial sum. The settlement was announced two days before the liability judgment. Following the judgment, R settled for a lesser sum and also paid civil penalties to the United States.

H had liability insurance arranged in layers. The First Defendant ("L") is a Bermudan insurance company, which wrote the top layer. The policy was on the Bermuda Form and governed by New York law subject to specific modifications identified in the policy. It contained the arbitration clause in standard Bermuda Form terms which provided that:

(1) arbitration was to take place in London under the provisions of the Arbitration Act 1996;

(2) the tribunal was to consist of three arbitrators, one appointed by each party and the third by the two arbitrators so chosen; in the event of disagreement between the arbitrators as to the choice of the third, the appointment was to be made by the High Court;

(3) the award was to be delivered within 90 days of the conclusion of the hearing;

(4) there was to be no right of appeal from the award.

L declined to pay H's claim which was for the full extent of the layer. The principal grounds of defence of the claim are that H's settlement of the claims made against it was not a reasonable settlement, and that L had (reasonably) not consented to the settlement.

H commenced arbitration by the appointment of the Third Defendant, N, on 27 January 2015. The Fourth Defendant, P, was appointed on behalf of L.

There was no agreement on the identity of the third arbitrator, as a result of which an application was made to the High Court for appointment of a third arbitrator exercising its powers under section 18 of the Act. Following a contested hearing, in which a number of candidates were put forward on both sides, Flaux J appointed M as the third arbitrator by an order of 12 June 2015. M was L's preferred candidate.

M is a well-known and highly respected international arbitrator. He has extensive experience of insurance and reinsurance law, both English and New York law. He has extensive experience of both domestic and international arbitrations governed by the Act and of arbitral procedural law, practices and procedures. He has sat as a member of an arbitration tribunal in over thirty references concerning the Bermuda Form over many years. He enjoys a reputation as an international arbitrator of the highest quality and integrity.

Prior to expressing his willingness to be appointed, M disclosed that he had previously acted as arbitrator in a number of arbitrations in which L was a party, including appointments on behalf of L, and that he was currently appointed as arbitrator in two pending references in which L was involved. These did not impinge on his ability to act impartially in the subject reference, or form any impediment to his appointment as third arbitrator, and were not regarded by H or the Court as doing so. H was opposed to the appointment of M, but not on these grounds. Rather it adopted a general stance that it was uncomfortable with any retired English Judge or English QC being appointed because of a concern, apparently, that they would interpret the policy through English eyes and be incapable of applying the modified New York law governing the policy. These concerns were rejected by Flaux J, from whom there was no appeal. They were not maintained before me; indeed the potential replacements for M with whom H expressed itself to be content included Sir Stephen Tomlinson, whose availability at relatively short notice resulted from his recent retirement from the Court of Appeal.

Upon M's appointment by the Court, the tribunal was "deemed fixed" in the words of the arbitration clause. Pursuant to section 18(4) of the Act the appointment of M was thereupon to take effect as if made with the agreement of L and H.

The grounds for the application

The grounds for the application arise out of the discovery by H in November 2016 that subsequent to his appointment in the current reference, M had accepted appointment as an arbitrator in two other references. Each involved a claim by R against its excess liability insurers writing cover for R's liabilities arising out of the incident. One involved a claim by R against L. The other involved a claim by R against another insurer on the same layer. M's acceptance of those appointments came about in the following circumstances:

(1) In December 2015 M accepted appointment by L through Clyde and Co, who are also L's solicitors in the current reference, in relation to the R v. L claim. Prior to doing so he reminded the partner at Clyde & Co of his appointment in the current H v L reference and invited him to disclose it to R. However neither he nor Clyde & Co disclosed the proposed appointment to H prior to it being made, or thereafter.

(2) M was not initially a member of the tribunal in the other R reference against the other insurer.

(3) Prior to his involvement in the other insurer reference, on 25 July 2016 an order was made in both R arbitrations for the determination of a preliminary issue. That was very shortly after close of pleadings in those references. That was a consent order. The preliminary issue was potentially dispositive of the claims if decided in favour of the insurers; it involved construction of the policy terms on undisputed facts turning on the exhaustion of underlying layers by reference to the fines and penalties paid by R.

(4) In August 2016 the chairman of the tribunal in the R reference against the other insurer was forced to resign through ill health and was replaced by M by the agreement of the parties. H was not informed of the appointment before M accepted it, or thereafter.

In November 2016 the preliminary issue was heard in both R arbitrations. The award is awaited.

The full hearing of the issues in the current reference was scheduled to commence on Tuesday 24 January 2017 with an estimate of 12 days.

H relies on three elements of M's conduct as giving rise to an appearance of bias:

(1) his acceptance of the appointments in the R arbitrations;

(2) his failure to disclose those appointments to H;

(3) his response to the challenge to his impartiality.

The Law

The relevant principles are as follows:

(1) Section 33 of the Act requires the tribunal to act fairly and impartially between the parties.

(2) The question whether circumstances exist which give rise to justifiable doubts as to an arbitrator's impartiality is to be determined by applying the common law test for apparent bias: Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451 at [17], A v B [2011] 2 Lloyd's Rep 591 at [22], Sierra Fishing Co v Farran [2015] EWHC 140 at [51].

(3) The test is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased: Porter v Magill [2002] AC 357 per Lord Hope at [103].

(4) The fair-minded observer is gender neutral, is not unduly sensitive or suspicious, reserves judgment on every point until he or she has fully understood both sides of the argument, is not complacent and is aware that judges and other tribunals have their weaknesses. The "informed" observer is informed on all matters which are relevant to put the matter into its overall social, political or geographical context. These include the local legal framework, including the law and practice governing the arbitral process and the practices of those involved as parties, lawyers and arbitrators. See Helow v Secretary of State for the Home Department [2008] 1 WLR 2416 at [1]–[3]; A v B at [28] to [29].

(5) The test is an objective one. The fair-minded observer is not...