Relief under s.68(3) of the Arbitration Act 1996 – whether to remit or set aside arbitral award

By Victoria Russell, Fenwick Elliott

Secretary of State for the Home Department v Raytheon Systems Ltd [2015] EWHC 311 (TCC) (17 February 2015)

The Secretary of State for the Home Department (“Y”) engaged Raytheon Systems Ltd (“Z”) to design, develop substantial technology systems. The value of the Contract was a nine figure sum.

The Contract was purportedly terminated in July 2010 by Y. Issues arose with regard to the responsibility for such termination and Y instituted arbitration proceedings. A panel of three arbitrators (“the Tribunal”) was constituted.

A lengthy Partial Final Award was issued on 4 August 2014. In broad terms the Tribunal held that Y had unlawfully terminated the Contract, that Y had repudiated the Contract and that Z had accepted the repudiation. The Tribunal awarded damages to Z which included £126,013,801 for a claim known as claim A4 – Transfer of Assets. Other sums awarded amounted to £59,581,658 plus interest.

By proceedings issued in 2014, pursuant to s.68(2)(d) of the Arbitration Act 1996 (“the 1996 Act”) Y sought to have the Partial Final Award set aside and declared to be of no effect. Y claimed that there had been “serious irregularity” on the part of the Tribunal in failing to deal with all the issues that were put to it, in particular important parts of Y’s case on liability and quantum in relation to Claim A4.

In a judgment delivered in December 2014, Mr Justice Akenhead held that there had been serious irregularity on the part of the Tribunal. He held over the question of relief to a separate hearing.

With regard to relief, Y argued that the Partial Award should be set aside. Z argued that it should be remitted to the Tribunal.

Whilst remission is the default option, given the circumstances the Judge decided that it would be inappropriate to remit in this case. The Partial Award should be set aside in total and the matter resolved by a different tribunal.

An order to set aside an arbitral award is rare, as the Judge pointed out in the course of his judgment. This was a substantial international arbitration, with large legal teams and 42 hearing days taking place over six months. To re-run such an arbitration would be a significant undertaking.

The Judge made clear that what the Court needs to do in deciding whether to remit or set aside is to “consider all the circumstances and background facts relating to the dispute, the award, the arbitrators and the overall desirability of remission and setting aside, as well as the ramifications, both in terms of costs, time and justice, of doing either”. In essence, this is a “pragmatic consideration of all the circumstances and relevant facts to determine what it is best to do but it necessarily covers the interests of justice as between the parties”.

Here, the Judge considered the irregularity to be very serious; that there could be problems with justice being seen to be done if the matter was remitted to the Tribunal; that there should not be any significant re-drawing of the issues in the arbitration should it be re-heard; that much of the factual and expert evidence could be re-deployed and possibly rationalised; and, that in any event if the matter was remitted to the Tribunal by the time the arbitrators heard the matter they were unlikely to have a significant recall of the evidence. Accordingly, the Judge decided that this was a case suitable for being set aside and then re-heard.

Cofely Ltd v Anthony Bingham & Knowles Ltd [2016] EWHC 240 (Comm) (17 February 2016)

In this case, heard in the Commercial Court, Cofely sought an order that the First Defendant, Tony Bingham, be removed as arbitrator from an on going arbitration between Cofely and Knowles, pursuant to section 24(1)(a) Arbitration Act 1996, on the grounds that circumstances existed which gave rise to justifiable doubts as to Mr Bingham’s impartiality. Those doubts about his impartiality were alleged to involve apparent bias, not actual bias. The defendants disputed the existence of such circumstances and questioned whether Cofely had lost the right to raise the objection under section 73 of the Act.

Cofely had appointed Knowles in 2010 to advise upon and then progress its claims against Stratford City Developments Ltd and the Olympic Delivery Authority. Cofely became concerned about the escalating costs and discussed new terms of remuneration with Knowles, which culminated in the conclusion of a successful fee agreement.

Cofely’s dispute with its employers subsequently settled. Knowles alleged that, in settling their claims without Knowles’ involvement, Cofely had acted in breach of various provisions of the success fee agreement, and claimed at least £3.5M as fees.

There was an arbitration agreement in the success fee agreement and in January 2013, Knowles gave notice of arbitration to Cofely and applied to the Chartered Institute of Arbitrators for the appointment of an arbitrator. They stated in their application that it was preferable that the arbitrator had both quantity surveying and delay analysis experience and the appointment of Mr Bingham was sought. He was subsequently appointed as arbitrator.

In February 2015, Cofely wrote to Knowles, requesting information in relation to its dealings with Mr Bingham in the light of the decision of Mr Justice Ramsey in Eurocom Ltd v Siemens Plc [2014] EWHC 3710 (TCC), in which judgment had been delivered on 7 November 2014. The Eurocom case concerned a summary judgment application made by Eurocom again Siemens in respect of an adjudication decision by Mr Bingham. The application failed on the grounds that Siemens had real prospects of successfully defending the claim on the basis that Mr Bingham had no jurisdiction because of the representations made by Knowles in applying for the appointment of an adjudicator on Eurocom’s behalf. In their application, Knowles had requested that one of three nominees be appointed, one of whom was Mr Bingham. They stated that numerous other named candidates had conflicts of interest and were therefore unable to act. Mr Justice Ramsey held that there was a “very strong prima facie case that [Knowles] deliberately or recklessly answered the question as to whether were conflicts of interest so as to exclude adjudicators who [they] did not want to be appointed”.

Cofely explained that they had concerns arising out of the Eurocom case and Mr Bingham’s conduct of the arbitration to that time and asked various questions seeking further information concerning the nature and extent of the professional relationship between Knowles and Mr Bingham. Knowles answered five of the questions and Cofely’s solicitors then asked more. They also wrote to Mr Bingham, requesting related information. In one email, Mr Bingham stated that in the last 3 years, he had been appointed as adjudicator/arbitrator a total of 137 times. It transpired that, of this total, 25 were Knowles related appointments.

Mr Bingham called a hearing, which took place on 17 April 2015. Mr Bingham subsequently issued his “Arbitrator’s Ruling” as to whether the tribunal was “properly constituted”, concluding that it was, and that he had no conflict of interest.

Cofely stressed in the court proceedings that neither of the parties had actually requested a ruling on either of these issues and that Mr Bingham appeared to adopt Knowles’ figures and other information without undertaking his own independent investigation.

Questions were then put to Mr Bingham to obtain specific total figures as to his income over the past 3 years, and the amount of fees he had earned from appointments involving Knowles. This request was put by Knowles, not Cofely. Mr Bingham provided the information sought.

In his judgment, the judge set out extracts from the transcript of the hearing of 17 April to reflect the tone of the hearing.

The Judge said:

“74. The fact that an arbitrator is regularly appointed or nominated by the same party/legal representative may be relevant to the issue of apparent bias, particularly if it raises questions of material financial dependence…

75. The Tribunal’s explanations as to his/her knowledge or appreciation of the relevant circumstances are also a factor which the fair minded observer may need to consider when reaching a view as to apparent bias… In this regard Cofely relies in particular on Paice v Harding… per Coulson J at [46] – [51] in which it was held that the explanations given by the Adjudicator made apparent bias more rather than less likely having regard in particular to the “aggressive” and “unapologetic” terms in which they were expressed which suggested that he had concluded that something had gone wrong and that “attack was the best form of defence”.

Cofely submitted that an “objective and fair minded observer” would note that:

“1. Mr Bingham was clearly someone Knowles was keen to see appointed (even at the expense of making fraudulent misrepresentations to manipulate the appointment process);

2.   Knowles was also very keen to exclude (for inappropriate reasons) many other potential adjudicators from acting;

3.   Knowles indicated that this was its usual approach when seeking appointments via appointing bodies such as the RICS.

4.   One possible explanation for this approach was that Knowles (and its clients) were treated favourably by Mr Bingham on prior occasions and that it expected that he would do so again in the future. A possible reason for this was that Mr Bingham was predisposed to favour Knowles or its clients (perhaps by virtue of his familiarity with Knowles or the regularity in which he was appointed in relation to claims involving them as a party or client representative);

5.   Mr Bingham would have been aware from copies of the appointment forms that Knowles were in the habit of both (1) nominating individuals that it liked and (2) excluding those that it did not…”

Cofely also contended that by the way in which Mr Bingham had responded to the questions they posed, a fair minded observer would have increased their concern regarding the possibility that he was biased. They described him as having a “defensive approach” and a “hostile stance”, with an “aggressive and dismissive demeanour”.

Of the 25 times in the past three years in which Mr Bingham had acted as arbitrator or adjudicator in cases involving Knowles as a party or the representative of a party, 22 of the appointments related to cases where Knowles acted for the claimant/referring party. Knowles itself was the claimant/referring party in three cases. Given that he had been appointed as arbitrator or adjudicator 137 times in the last three years, 18% of Mr Bingham’s appointments involved Knowles.

According to Knowles, of those 25 appointments, they had specifically requested that Mr Bingham be appointed in two, they had suggested a list of three names, including Mr Bingham, in three, Mr Bingham was already the tribunal in a case arising out of the same contract in one and in the other nineteen, he was nominated by the relevant nominating body. Knowles however admitted that it had requested in all 25 of the cases that the candidate be both a “QS and barrister” and in most cases “a QS and practising barrister”, thereby significantly reducing the pool of possible candidates and increasing the likelihood of Mr Bingham being appointed. Of the 109 possible candidates in the case of the RICS, only five are both practising barristers and quantity surveyors. In 18 of those 25 cases, Mr Bingham found in favour of Knowles or Knowles’ client (72%) and 25% of his total income as an adjudicator/arbitrator in the past 3 years had come from the 25 appointments involving Knowles.

Knowles made the point that “the world of construction professionals is relatively small and it is inevitable that Mr Bingham will have had exposure to Knowles and vice versa” and emphasised that he had never acted as counsel for, or advised, Knowles.

Mr Bingham’s position was one of neutrality but he did make the point that none of the appointments identified over the last 3 years had involved Knowles appointing him directly, whereas Cofely had sought his appointment by specific reference to his name in the past.

The Judge decided as follows:

“98. The following findings are made viewing the facts as a fair minded and informed observer having regards to the guidance provided by the authorities referred to above and the evidence and submissions of Mr Bingham and Knowles.

103. I do…consider that Grounds (1) - (5) raise concerns of apparent bias.

104. The starting point is the relationship between Mr Bingham and Knowles as now disclosed by the evidence. This is set out in detail in paragraph 91 above, but of most significance is that it shows that over the last 3 years 18% of Mr Bingham’s appointments and 25% of his income as arbitrator/adjudicator derives from cases involving Knowles.

105. Mr Bingham’s attitude to this, as made clear at the hearing and as maintained in his statement, is that this is irrelevant as all these appointments were made by an appointment body rather than Knowles directly. On this logic even if all his income derived from cases involving Knowles there would still be no cause for concern.

106. It is to be noted, moreover, that the CIArb acceptance of nomination form calls for disclosure of “any involvement, however remote”, with either party over the last five years. Acting as arbitrator/adjudicator in cases in which Knowles is a party or a representative of a party is a form of involvement.

107. Further, the evidence shows that even though Knowles does not appoint an arbitrator/adjudicator directly, it is able to influence and does influence such appointments, both positively and negatively. It does so positively by putting forward the name of its chosen appointee either on his/her own or with others. It also does so more indirectly by identifying required characteristics that will only be shared by a small pool of people. It does so negatively by putting forward a list of those potential appointees that it does not wish to be appointed and who are said to be inappropriate. These practices would be apparent from the appointment forms which, as was common ground, would have been forwarded to Mr Bingham. Their significance is highlighted by the Eurcom case which provides a striking example of Knowles steering the appointment process towards its desired appointees, and doing so as a matter of general practice.

108. The existence of Knowles appointment “blacklist” is itself a matter of significance. It means that the arbitrator/adjudicator’s conduct of the reference may lead to him/her falling out of favour and being placed on that list and thereby effectively excluded from further appointments involving Knowles. That is going to be important for anyone whose appointments and income are dependant on Knowles related cases to a material extent, as is the case for Mr Bingham.

109. It is right to observe that only 3 of the 25 cases (including the present case) involved Knowles as a party. However, that would be sufficient to trigger disclosure… In any event, it is self-evident that, in many cases in which Knowles acts as claims consultant for the referring party, it is likely to have a significant say both in who should be put forward as arbitrator/adjudicator, either expressly or impliedly by reference to narrow qualification requirements, and also in who should be sought to be excluded…

111. Whilst it was reasonable for Mr Bingham to call for a meeting to seek to address the concerns raised by Cofely, the meeting instead became a means by which Mr Bingham would arrive at a “ruling” on apparent bias. Neither party, however, was seeking such a “ruling”, nor was it an appropriate matter for him to be making a “ruling” upon. As was made clear, all Cofely was seeking was further information in order to decide what position to adopt in relation to the concerns it had raised… Mr Bingham gave the impression that he was seeking to pre-empt that process by pressuring Cofely into acknowledging that there was no issue to be explored.

112. Of further concern is the manner in which this was done at the hearing. Excerpts of the transcript have been set out above. They illustrate how Mr Bingham was effectively cross-examining Cofely’s counsel and doing so aggressively and in a hostile manner. …

114. In addition the statement (by Mr Bingham) does suggest that Mr Bingham regarded and regards Cofely’s request for information as “assertive, challenging, perhaps even bullying behaviour”. This is consistent with his own assertive response at the time. However, the reality is that in general Cofely’s enquiries were reasonably made and expressed, particularly insofar as they sought a general statement as to the proportion of appointments and income derived from Knowles’ related cases over the last 3 years. Mr Bingham appears, however, to have considered Cofely’s enquiries to amount to an unwarranted attack on him and in turn to have seen attack as the best form of defence – this involved descending into the arena.

115. For all these reasons I consider that there is force in Grounds (1) – (5) relied upon by Cofely and that considered cumulatively they do raise the real possibility of apparent bias.

116. Where there is actual or apparent bias there is also substantial injustice and there is no need for this to be additionally proved…

118. For the reasons outlined above I find that Cofely have established the requisite grounds for removal of Mr Bingham as arbitrator under section 24(1)(a) of the Act”.

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