Challenging Arbitrators and LCIA Challenge Decisions

It is essential that all arbitrators
are and remain, independent and impartial throughout the arbitration. Almost
all institutional rules contain a provision requiring arbitrators to be
impartial and independent. Examples include Article 14 of the ICC Rules where “lack of impartiality or independence” is a ground for challenging the arbitrators and Article 10 of the LCIA Rules and
Article 12 of the UNCITRAL Arbitration Rules where “justifiable doubts as to the arbitrator's impartiality
or independence” is foreseen as a valid ground for challenge. Other grounds for challenge include
arbitrators acting contrary to the arbitration agreement and the arbitrator’s
qualifications.

However, there are no criteria set
as to the standard required in order to uphold an application challenging the
arbitrator’s independence and impartiality. The LCIA and UNCITRAL Rules make
reference to “justifiable doubts” which is not defined. IBA Guidelines on
Conflicts of Interest in International Arbitration serve as a guide, and is
generally taken into account when an arbitrator is challenged. Nevertheless,
neither arbitrators, nor the authority (i.e Secretariats of arbitral
institutions) determining the result of the challenge are bound by the IBA
Guidelines.

Under institutional arbitration
proceedings, such challenges are submitted to the relevant Secretariat and once
a decision is made, this is notified to the parties and the arbitrator(s). In
cases conducted under the ICC Rules (the new rules which entered into force on
1 March 2017), parties may ask the ICC Court to provide reasons for its
decision. However, these decisions are only available to the parties.

LCIA Publishes
Challenge Decisions

Last month, the LCIA has made online
digests of 32 challenge decisions covering the period from 2010 to 2017. The
LCIA has stated that they will update the website and add new decisions. The
aim of the publication is to shed light on the challenge procedure, and the
reasons to uphold or reject challenges. This is in line with LCIA’s ongoing
commitment to transparency in arbitration. Furthermore, it is hoped that such
decisions are used as a significant tool for research.

The first page of the decisions LCIA
has published includes a table which gives information about the subject of the
challenge, the division or court member who has decided the challenge, and a
summary of the decision. This is followed by background information of the case
and excerpts from the original decision. All decisions are anonymized.

Over 1,600 cases were registered
with the LCIA between the above-mentioned period. As stated by the LCIA and
upon reviewing the decisions, it is clear that challenges are rare and succeed
even rarer considering that less than 2% of these cases were challenged and a mere
one-fifth of them were successful.

LCIA Challenge Procedure

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According to Article 10.1 of the
LCIA Rules, an arbitrator’s appointment may be revoked in three instances: (i) the arbitrator recuses him/herself, (ii) the arbitrator falls seriously ill,
refuses, or becomes unable or unfit to act; or (iii) circumstances exist that give rise to justifiable doubts as
to that arbitrator’s impartiality or independence.

The LCIA Court may determine that an
arbitrator is unfit to act under Article 10.1 if that arbitrator: (i) acts in deliberate violation of the
Arbitration Agreement; (ii) does not
act fairly or impartially as between the parties; or (iii) does not conduct or participate in the arbitration with
reasonable efficiency, diligence and industry (Article 10.2 of the LCIA Rules).

The LCIA Court may revoke an
appointment upon its own initiative, or when either all other members of the
Arbitral Tribunal, or one of the parties, make a written request to the Court.

The Rules provide for a 14-day time limit. This time limit starts following
the formation of the Arbitral Tribunal, or when the requesting party becomes
aware of any of the above-mentioned grounds. The challenged arbitrator and the
other party are given an opportunity to comment on the challenge. Where the
parties do not agree on the challenge, or the challenged arbitrator does not
resign, the Court decides the challenge.

Main Grounds for Challenge

The main ground for challenge
relates to the arbitrator’s independence and impartiality. In most cases, the
requesting party makes reference to a procedural decision that was contrary to
its interest. Such procedural decisions are used as evidence of bias. Another
ground the parties have relied on is alleged conflict of interest.

Notes from Decisions Where the
Challenge is Upheld

Not surprisingly, in one of its
decisions, the LCIA Court has concluded that arbitration practitioners who act
as both arbitrator and counsel should be aware of potential conflicts[1].

It is generally accepted that the
mere fact that an arbitrator who has acted as counsel against one of the
parties in a previous case does not give rise to a justifiable doubt as to that
arbitrator’s independence or impartiality. This has been acknowledged by the
LCIA Court. However, in the previous case where the arbitrator was acting as
counsel against one of the parties, he/she had alleged that party’s fraud,
albeit the issue remained undecided. The Court concluded that since there was
such an allegation, there was a real possibility or danger that, the arbitrator
would consciously or unconsciously be influenced by the evidence submitted in
the present case when determining the issue involving that party[2].

Arbitration practitioners need to be
careful when they publicly make comments regarding companies. In one of the
cases, the arbitrator had publicly made negative comments about the parent
company of one of the parties in such a way that justifiable doubts arose as to
his/her impartiality. The test was an objective one where “a fair-minded and
informed observer would conclude that there is a real possibility that the
arbitrator is biased vis-à-vis that party.”[3]
The requirement of objective factors was reiterated in another case[4].

The issue as to the role of tribunal
secretaries is a delicate one which has caused few awards to be challenged. The
LCIA has revised its Notes for Arbitrators and added notes regarding the
tribunal’s mandate and the tasks tribunal secretaries may perform. In one of
the decisions, tribunals were cautioned about the tribunal secretary’s
involvement, particularly, their contribution to the decision-making process.
In the same case, importance of confidentiality was reiterated, as breach of
confidentiality could be a ground to revoke an arbitrator if it qualified as a breach
of the arbitration agreement. However, it was stated that the breach should be
deliberate for it to be a ground for removal of the arbitrator under the Rules[5].

Notes from Decisions Where the
Challenge is Rejected

The arbitrator’s disclosure
obligation is still an issue which is debated. There are different views as to
the scope of the disclosure and the consequences of non-disclosure. In one
case, one of the grounds for the challenge related to an arbitrator not
disclosing the fact that he/she was a member to an organization to which one of
the parties’ former lead counsel and a lawyer who acted against the same party,
were members as well. The LCIA Court concluded there were no appropriate
grounds for the arbitrator to have disclosed such circumstances, and that since
there were no specific allegations of conflict, this would not qualify as a valid
ground, and rejected the challenge.[6] In
another case, an arbitrator who was a barrister rejected to disclose
information regarding other barristers in his/her chambers. In that case, the
Court concluded that arbitrators were not obliged to disclose the activities of
other barristers in their chambers and non-disclosure would not be considered
as a valid ground for challenge and rejected the challenge.

In one of the cases, a challenge was
rejected by the Court where the arbitrator had represented one of the parties
over 17 years ago, and had conducted proper investigation and disclosed such
circumstances to both the parties and the LCIA Court. The Court concluded that
such circumstances did not give rise to a justifiable doubt as to the arbitrator’s
impartiality of independence[7].

Conclusion

In sum, these decisions illustrate
how the LCIA decides on challenges. The well-reasoned decisions provide good
examples for all participants, as well as some form of certainty as one may be
better placed to analyze the merits of their own challenges.

(First published on the website of Erdem&Erdem Law Offive in March 2018: http://www.erdem-erdem.av.tr/publications/newsletter/challenging-arbitrators-and-lcia-challenge-decisions/) 

[1]
LCIA, No. 101689 and 101691,
22 June 2012.

[2]
LCIA, No. 122053, 31 July
2012.

[3]
LCIA, No. UN152998, 22 June
2015.

[4]
LCIA, No. 142862, 2 June 2015.

[5]
LCIA, No. 142683 (First
challenge), 4 August 2016.

[6]LCIA, No. 153149, 12 April 2017.

[7] LCIA, No. 173566, 21 July 2017.