Justifiable doubts – questioning the repeat appointment of arbitrators

15 Sep 2017

It is critical to the integrity of the commercial arbitration process that the arbitrator is both impartial and seen to be impartial. One factor that can affect the perceived impartiality of an arbitrator is the repeated appointment of that arbitrator by the same party.

The recent English High Court case of Arthur Aldcroft v International Cotton Association Limited [2017] EWHC 642 (Comm) has raised a number of interesting issues in relation to the repeat appointments of arbitrators and the steps that are being taken by institutions to protect against any perception of bias. In that case, the Court held that a rule restricting the number of appointments that an arbitrator can accept from the same party was valid.

Background facts

The International Cotton Association (ICA) is the operating association of buyers and sellers of cotton. It is comprised of both companies and individuals and governs trade through its ICA by-laws, which provide that disputes are to be determined by arbitration pursuant to the ICA rules of arbitration / code of conduct.

Mr Aldcroft, a long serving arbitrator in the cotton industry and past president of the ICA, made an application to the English High Court for a declaration that a rule change to the ICA arbitrators' code of conduct is void and unenforceable as an unreasonable restraint of trade.

The relevant amended rule is the so-called '3 and 8 rule', which provides that:

  • An arbitrator may accept no more than 3 appointments for the same or related party per year; and
  • An arbitrator may have no more than 8 active cases open at any one time.

Mr Aldcroft would at any one time be acting as arbitrator in up to 50% of all ICA arbitrations and would accept as many as 25 ICA appointments per year. In making his application Mr Aldcroft argued that the '3 and 8 rule', besides being a restraint of trade, undermined party autonomy in appointing arbitrators by limiting a party's ability to decide who they may appoint as arbitrator.

The ICA argued that the purpose of the '3 and 8 rule' was to 'avoid the perception of bias, impartiality or justifiable doubts' in relation to the appointment of arbitrators and in particular, the perception that arbitrators who accept repeat appointments may have a lack of impartiality.

There was no suggestion that Mr Aldcroft had acted improperly or inappropriately in accepting multiple appointments from the same party.

Key issues

The issue of impartiality of arbitrators is of utmost importance to public confidence in the arbitration process. This is evident from Article 12(2) of the UNCITRAL Model Law, which states:

'An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence',

The Court stated that associations and institutions are entitled to be proactive in the steps that they take to prevent any perception of bias and hence promote arbitration as a dispute resolution mechanism.

In this case it was held that the necessary reduction in a party's autonomy in the choice of its arbitrator was reasonable and proportionate to the perceptions of bias issue that it sought to address.

Impact on arbitration in Australia

Similarly in Australia, the public perception of impartiality of arbitrators is of paramount importance. Article 12(2) of the Model Law is reflected in section 18A of the International Arbitration Act 1974 (Cth), which states:

'For the purposes of Article 12(2) of the Model Law, there are justifiable doubts as to the impartiality or independence of an arbitrator only if there is a real danger of bias on the part of the arbitrator in conducting the arbitration.'

The UK case of Aldcroft provides a useful reminder to the Australian arbitration community that:

  1. Arbitration institutions are proactive in seeking ways to make arbitration more efficient and more reliable.
  2. The UK Courts have supported the promotion of arbitration through the reduced risk of a perception of bias, even in circumstances where a party's autonomy to choose its own arbitrator may be fettered.
  3. We will wait to see whether Australian arbitral institutions such as ACICA will follow the ICA and others with its own version of the '3 and 8 rule' and if they do so, we expect that it is likely that the Australian Courts would adopt a similar approach to protecting the public confidence in the arbitration process as we have seen in the UK. 

For further information please contact smithe [at] kempstrang [dot] com [dot] au (Elliott Smith), Executive Counsel.

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