top of page

Apparent Bias of Arbitrator: An overview vis-a-vis CFJ v. CFL judgment

*Ishika Chauhan **Yash Bhatnagar


Introduction


On 31 January 2023, the Singapore International Commercial Court (Court) delivered a vital judgment about the issue of apparent bias of an arbitrator in a Singapore seated arbitral proceeding where it dismissed the application to set aside the award along with the application to remove the Presiding Arbitrator on the grounds of apparent bias.


The Court observed that parties who agree to arbitrate their dispute do not have a right to a "correct" decision but only a right to a decision within the ambit of their agreement to arbitrate and a decision that is arrived at following a fair process.


The dispute arose between CFJ ("the Seller") and another v CFL ("the Purchaser") regarding the sale of shares in a member of one to members of the other. After the pronouncement of the partial award, the Seller filed a Notice of Challenge to the Singapore International Arbitration Centre ("SIAC") seeking the removal of the President from the arbitral Tribunal because there were justifiable doubts over his independence or impartiality.


This article explores the landmark judgment while analyzing the problems that arise in a dispute due to the apparent bias of an arbitrator, backing it by the obiter of the judgement and existing precedents over the contention.


Brief Facts Of The Case


On 23 July 2012, the Purchaser acquired a 49% stake in one of the Seller's subsidiaries through a Share Purchase Agreement ("the SPA") to which the Seller and the Purchaser were parties. Subsequently, the Purchaser alleged that the Seller had, among other things, deceived it into investing in the Subsidiary by making several representations.


The SPA was governed by English law and contained an arbitration agreement that stipulated Singapore as the seat of the arbitration. The Purchaser invoked arbitration against the Seller primarily for the tort of deceit about misrepresentations, along with two other claims about a breach of contractual warranties and a contractual claim for indemnification.


Over the course of two years, three partial awards were issued by the Tribunal. After the second partial award issuance on 29 January 2020, the Seller challenged the President's appointment.


Argument On Behalf Of The Seller


The Seller presented a two-fold argument on the issue of independence and impartiality of the President-

  1. The Seller vehemently argued that the Panel to which the President was appointed has a direct link to the Purchaser. It tried to establish the connection by making the following submissions-

(a) Firstly, the Seller tried to draw a link between the Purchaser and the Ruritanian Government by mentioning that the State owns the Purchaser. Thus, there exists a close and patent relationship between the two.


(b) Secondly, the Seller draws a connection between the Ruritanian Government, the Ruritanian Court, and the Panel. It contends that there is no actual "separation of power" between the executive and judiciary in the Ruritanian Constitution. Since the Ruritanian Court founded the Panel, it became a part of the Government.


(c) Lastly, the Seller draws an association between the President and the Government. It claims that by accepting the offer to be a part of the Panel, the President was directly engaged with the owner of the Purchaser, i.e., the Government.

  1. The President's non-disclosure of his appointment to the Panel promptly raises doubts. The President disclosed this information to the parties almost after two years.

Argument On Behalf Of The Purchaser

  1. The Purchaser presented expert evidence from an expert on Ruritanian law in response to Seller's argument regarding President's direct link with the Purchaser via Government. The expert expressed that Ruritania's judiciary exercised its power independently of the Ruritanian Government, and the law per Ruritania's constitution protected its adjudicatory independence.

  2. The Purchaser also contended that the Third Partial Award dismisses doubts over the President's impartiality since several findings in the Second and the Third Partial Award were favorable to the Seller.

Reasoning Of The Court


The test to determine apparent bias


While referring to the case of BOI v BOJ [2018] 2 SLR 1156, the Court expounded that the test is to check whether there exist facts and circumstances that give rise to reasonable suspicion or apprehension of bias in the fair-minded and informed observer. This includes:


(a) Classification of facts and circumstances that are significant for checking the existence of bias.


(b) Understanding whether the fair-minded and informed observer would reasonably entertain an apprehension of bias from those facts and circumstances.


The Court elaborated that the fair-minded and informed individual is not personally concerned with the matter's outcome other than the general public's interest in the fair and proper dispensation of justice.


Burden of proof


The Court also opined that the burden of proof lies on the party questioning the arbitrator's independence and impartiality to show that the fair-minded and informed observer would harbor justifiable doubts about the objectivity of the person in authority.


Hence, it would be a reasonable inference that it is on the Seller to prove those above, and it seeks to do by alleging that the Purchaser and the Panel are connected through Government and, by extension, the appointment of the President to the Panel.


To assess the alleged case of apparent bias, regard must be given to the facts and circumstances that would have been known to the fair-minded and informed observer. Such facts and circumstances would be based on the evidence the parties have placed before the Court and assert to be relevant to this question.


However, the Court held that the Seller's case flounders on establishing a link between the judiciary and the Government since it failed to produce any evidence to support the same.


Who is a fair-minded and informed observer?


Court explained that a fair-minded and informed observer is not supposed to have "detailed knowledge of the law"; the observer cannot be taken to have "specialized knowledge," but a knowledgeable observer would "take the trouble to inform himself or herself on all relevant facts that are capable of being known by members of the public generally."


In this regard, the Court summarised that the knowledge of Ruritania's judiciary operating independently from other branches of Government is not specialized. Thus, a fair-minded and informed observer could draw a logical distinction between the Ruritanian Court and the Government.


A fair-minded and informed observer would undertake a comprehensive investigation, and unlike the Seller, they would not draw the second connection.


The test of disclosure


Regarding the argument of disclosure made by the Seller, the Court observed that an arbitrator does not have to disclose every appointment to the parties.

The Court referred to the case of Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48 for to discuss the test of the disclosure; an arbitrator only needs to disclose appointments and matters "which would cause the [reasonable observer] to conclude that there was a possibility of a lack of impartiality."


In conclusion, there is no reasonable suspicion of bias; it would follow that the question of disclosure does not arise, and thus, the President's non-disclosure does not raise doubts.


Assessing the circumstances as they exist


To assess the application of the arbitrator's removal, a reference should be made to the existing circumstances at the time of the hearing, considering that the purpose of such an application is to stop an arbitrator from getting involved in further proceedings.


The Court agreed with the argument made by the Purchaser while referring to Halliburton for the proposition that the Court must "assess the circumstances as they exist on the date of the hearing for removal of the arbitrator."


Analysis


The issue of the apparent bias of an arbitrator is essential in international arbitration, as it can impact the legitimacy and fairness of the arbitral process. The principle of impartiality and independence of arbitrators is one of the fundamental pillars of international arbitration, and a lack of either of these qualities can raise concerns of bias.


While talking about breach of Natural Justice in the current case, The SICC distinguished between instances when a tribunal ignores points presented by the parties and a tribunal's comprehension of the matter or the law, or the tribunal opting not to deal with an issue it felt superfluous, in rejecting the Seller's allegations for breach of natural justice.


A breach of natural justice, according to the SICC, must be "obvious and nearly unavoidable," yet there wouldn't be one of the tribunal had just misunderstood a key topic or proposition.


International jurisprudence has recognized that the standard for determining whether there is an appearance of bias is objective. In other words, the test is whether a reasonable and informed third party, knowing all relevant facts and circumstances, would conclude that there is a real possibility that the arbitrator is biased towards a particular party. This principle is further evolved through the obiter of CFJ v. CFL Judgment. The case hence gives rise to the fact of appointment of an informed and fair-minded observer and sets up a precedent of effective two-stage check on the arbitration proceeding, which will eventually make the process more equitable. In the past, Russian courts have set aside awards on the basis of non-disclosure. by an arbitrator as well. This decree read with the CFJ Judgement is well enough to contextualize a robust mechanism for the free and fair arbitration proceeding.


The leading case on this issue is the ICSID annulment decision in the case of Hrvatska Elektropriveda v. Slovenia. In this case, the ad hoc committee held that the test for apparent bias is whether "an informed and reasonable third party would conclude, on a balanced assessment of the facts, that there exists a real possibility that the arbitrator was biased."


International arbitration rules such as the International Chamber of Commerce (ICC) Rules and the UNCITRAL Model Law on International Commercial Arbitration provide guidelines on the issue of apparent bias. For example, the ICC Rules state that an arbitrator shall be impartial and independent throughout the arbitration. If doubts arise regarding an arbitrator's impartiality or independence, the parties may challenge the arbitrator.


If a challenge is made, the arbitral Tribunal will decide. If the challenged arbitrator does not withdraw, the other party may request the competent Court or authority to decide on the challenge.


Overall, the issue of the apparent bias of an arbitrator is crucial in international arbitration, and international jurisprudence has developed standards and guidelines to ensure the legitimacy and fairness of the arbitral process.


Court's Holding and Conclusion


At the outset, the Court rejected the Seller's claims entirely. It held that there exists no case of apparent bias of the President, therefore, dismissed the application of the Seller. The principle of impartiality and independence of arbitrators is fundamental to the legitimacy and fairness of the arbitral process. International jurisprudence has recognized that the standard for determining whether there is an appearance of bias is an objective one, and that the test is whether a reasonable and informed third party, having knowledge of all relevant facts and circumstances, would conclude that there is a real possibility that the arbitrator is biased. The case (CFJ v CFL), in point, strengthens the norms and solidifies the 2nd principle of Natural Justice in the field of Arbitration and Conciliation as well; Nemo Judex in causa sua.

 

*Ishika Chauhan is an undergraduate law student from Dr. Ram Manohar Lohiya National Law University, India. They hold interests in various fields of law including intellectual property, dispute resolution, and insolvency Laws.


**Yash Bhatnagar is an undergraduate law student from Dr. Ram Manohar Lohiya National Law University, India. They hold interests in various fields of law including Corporate Governance, Intellectual Property, Cyber Security, Data Protection, and Human rights.

532 views0 comments
bottom of page