Challenge to Arbitrator for Apparent Bias – What happens if the final award is rendered before the court determines challenge?

The recent Singapore High Court decision of PT Central Investindo v Franciscus Wongso and others and another matter, [2014] SGHC 190 involved a rare challenge to an arbitrator for apparent bias. The case also addressed a novel legal issue: what would happen when a party seeks to disqualify and remove a sole arbitrator, but that sole arbitrator then renders her/his final award before the courts determine the removal application?

Background Facts

Franciscus Wongso and Chan Shih Mei were the claimants to an SIAC arbitration against PT Central Investindo (“PTCI”) and Soekotjo Gunawan. The claim concerned certain success fees arising out of an Arranger Agreement. The arbitrator was appointed on 23 July 2009 and the substantive hearing took place from 12 April 2011 to 14 April 2011 (both dates inclusive). However, on 30 November 2012, the sole arbitrator wrote to the parties to apologise for the delay in rendering his award, and given the lapse of time, then invited the parties to update him on whether the claimants to the arbitration wished to adduce any further evidence in support of their claim on the fees and for counsel to address him on the appropriate and applicable interest rates.

PTCI protested against what it viewed as the claimants to the arbitration attempting to reopen matters after the hearing had closed on 14 April 2011. The arbitrator clarified that he was simply requesting for an update on matters in the interim and pointedly noted that the issue of further evidence on the fees had arisen because of PTCI’s default in complying with the Tribunal’s directions on document production.

Between January 2013 and 1 April 2013, the parties exchange further submissions on events that had transpired in the interim including Indonesian court proceedings between the parties that had been resolved in favour of the claimants to the arbitration. The claimants to the arbitration sought for PTCI to pay their costs arising out of the failed Indonesian court proceedings.

However, on 1 April 2013, after PCTI had filed its supplemental submissions on the same day, the claimants to the arbitration wrote to the Tribunal to give notices of a “fresh” claim to the arbitration. Counsel for the claimants to the arbitration requested that the Tribunal order PTCI to confirm whether it had done certain acts which the claimants alleged were a “fundamental breach” of the Arranger Agreement.

On the same day, the arbitrator wrote to PTCI’s counsel asking PTCI to “confirm or clarify” by 3 April 2013 the claimants’ factual assertions on the abovementioned acts and to respond to the allegation that such acts would constitute a fundamental breach of the Arranger Agreement.

When PTCI did not respond by the original deadline, the Tribunal then wrote to PTCI’s counsel’s assistant to extend the deadline to 8 April 2013 with a caution that failure to do so might invite the Tribunal to draw an adverse inference against PTCI. In that same email of 5 April 2013, the Tribunal also wrote to the claimants’ counsel to address him on his powers to hear the so-called “fresh” claim.

The 1st and 5th April 2013 emails from the Tribunal (the “April Directions”) formed the heart of PTCI’s challenge to the arbitrator. On 12 April 2013, PTCI’s counsel wrote to the Tribunal to invite him to withdraw as arbitrator. On 15 April 2013, PTCI filed a formal Notice of Challenge with the SIAC on 15 April 2013. The claimants to the arbitration then decided to withdraw their “fresh” claim but reserved their rights to raise the issue in a separate arbitration.

PTCI’s application was dismissed by the SIAC on 9 May 2013. On 6 June 2013, PTCI then filed an application in the Singapore courts against the SIAC’s dismissal of its challenge. However, before the hearing of PTCI’s application for removal was fully heard, the tribunal rendered his final award on 4 October 2013. PTCI then filed a further application to set aside the award.

No justifiable doubts as to Arbitrator’s impartiality

Having set out and reviewed the correspondence and exchanges between parties’ counsel and the Tribunal following the 1 April 2013 notice of a “fresh” claim, the High Court held that they did not qualify as grounds for challenge falling within Article 12(2) of the Model Law. Article 12(2) provides that,

“Article 12. Grounds for challenge

(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.”

The High Court considered that the correspondence and exchanges “fell far short of trigger [Article] 12(2)’s operation…[and were] even further removed from demonstrating justifiable doubts as to the Arbitrator’s impartiality” (see paragraph [13]).

The test in Article 12(2) of the Model Law was an objective one and the court must find circumstances that exist which give rise to justifiable doubts. In this respect, unjustified or unreasonable doubt is not sufficient. However, once the court has found justifiable doubts, the applicant need not prove actual bias (see paragraph [14]).

The Singapore courts consider there to be three types of bias,

“15 Bias can manifest in three forms: actual bias, imputed bias or apparent bias. Actual bias will obviously disqualify a person from sitting in judgment. The second form of bias is imputed bias which arises where a judge or arbitrator may be said to be acting in his own cause (nemo judex in sua causa) and this happens if he has, for instance, a pecuniary or proprietary interest in the case. In such a case, disqualification is certain without the need to investigate whether there is likelihood or even suspicion of bias. The third form of bias is apparent bias. The allegation against the Arbitrator was that he had been affected by apparent bias.

The test to be applied for determining apparent bias is the “reasonable suspicion test” i.e. whether “a reasonable and fair-minded person with knowledge of all the relevant facts would entertain a reasonable suspicion that the circumstances leading to the April [D]irections and the April [D]irections themselves might result in the arbitral proceedings against PTCI being affected by apparent bias if the Arbitrator was not removed” (see paragraph [18]).

Utility argument dismissed

As a preliminary point, the claimants to the arbitration argued that “there was no utility in continuing with the challenge because the Arbitrator had become functus officio upon issuance of his final and binding award” (see paragraph [47]). Given that the final award had been rendered, PTCI should challenge the award on one of the limited grounds of the Model Law (which is incorporated by the Singapore International Arbitration Act (Cap. 143A) (the “IAA”)).

The High Court considered that the court’s determination of challenge application still had “legal, procedural and practical utility” for the following reasons.

  • the hearing of the challenge can continue as the intention is to disqualify for past breach and to, prospectively, ensure impartiality in the making of the award that was rendered pending the conclusion of [the challenge application]” (see paragraph [50]).
  • A decision was likely to have an effect on any subsequent setting aside application brought under s 24(b) of IAA and Art 34(2)(a)(ii), Art 34(2)(a)(iv) and Art 34(2)(b)(ii). The High Court noted that “the requirement of impartiality or independence constitutes one of the two pillars of natural justice and any breach thereof may lead to a setting aside of the award under s 24(b) of the IAA” (see paragraph [51]).
  • The lack of impartiality and independence in an arbitral process may also give rise to public policy concerns, a violation of which is a ground to setting aside an award under Article 34(2)(b)(ii) of the Model Law. Furthermore, the High Court held that “an arbitrator’s impartiality and independence is mandatory under the Model Law and this is implicit in Art 12(2) of the Model Law… Hence, any finding made as to an arbitrator’s impartiality or independence would have a bearing on a setting aside application brought under Art 34(2)(a)(iv) of the Model Law with respect to the point that the arbitration was not conducted “in accordance with the Law” or “not in accordance with the agreement of the parties”.” (Paragraph [52])
  • The Singapore court’s decision on the challenge is not appealable whether the challenge is allowed or dismissed. In the event that the challenge is dismissed, a setting aside application that is based on the same grounds raised in the challenge will, at the very least, give rise to objections like issue estoppel and abuse of process (Paragraph [53]). Conversely, if the application were successful, then the applicant seeking to set aside the award merely needs to “furnish proof of the court order to support his setting aside application” (see paragraph [56]).
  • The fact that the tribunal is functus officio is only with respect to the concluded arbitration – the arbitration agreement is not terminated. If the “fresh” claim were raised in separate proceedings, and if the challenge to the arbitrator were upheld, then the arbitrator would effectively be barred from sitting in future arbitrations between the parties. The High Court noted that it was not inconceivable that a court might remit an issue to the tribunal for reconsideration. If the challenge were dismissed then the issue would fall to be determined by that same arbitrator (see paragraph [58]).

The High Court therefore stressed at paragraph [59] that the stage at which the arbitration was at should not influence the court’s determination of whether “circumstances exist that give rise to justifiable doubts as to [the arbitrator’s] impartiality or independence”.

No apparent bias detected

PTCI made a number of allegations and the High Court was invited to determine the challenge on their cumulative effect (see paragraph [61]):

“(a) There had been a delay in rendering the award up to the time the Arbitrator issued the 1 April direction.

(b) The Arbitrator had initially given a short timeline of two weeks to PTCI for it to file a response to the CSS filed by the first two defendants on 29 January 2013. It was only after PTCI drew the Arbitrator’s attention to the fact that the first two defendants took two months to file the CSS that the Arbitrator extended a similar timeline to them.

(c) The Arbitrator had given an unreasonable timeline of one day to PTCI to respond to the “fresh” claim that the first two defendants sought to admit on 1 April 2013. The direction was issued without giving PTCI a reasonable opportunity to be heard and formed part of the core of PTCI’s challenge.

(d) The Arbitrator had threatened to draw adverse inferences on the facts asserted by the first two defendants in the “fresh” claim by way of the 5 April direction.”

The High Court rejected those allegations as capable of sustaining a challenge. Any undue delay in rendering an award fell within Article 14 of the Model Law (termination of appointment for failure to conduct proceedings properly or with reasonable dispatch) rather than a removal under Article 13 (read with Article 12(2)). Furthermore, the undue delay affected both parties and not just PTCI.

In any event, these matters “related to and fell within the realm of the case management powers of the tribunal and as such [were] within the discretion of the Arbitrator to make” (see paragraph [69]). In this respect, the High Court noted that PTCI was “unable to show that the April [D]irections had not been case management issues” and that the directions “were fair and objective…and did not manifest any objective lack of impartiality in the conduct of the arbitral proceedings” (see paragraph [70] and [71]).

The High Court further held the following:

  1. On the issue of the “fresh” claim and the 1 April direction to PTCI to “confirm or clarify” the same, this direction was “precisely intended to allow for PTCI to respond” contrary to PTCI’s complaint that they had not been given a reasonabe opportunity to respond (see paragraph [73]).
  2. An arbitrator was entitled to draw adverse inferences, this was part of an arbitrator’s case management powers when the arbitrator’s case management directions were ignored by a party (see paragraph [76]).
  3. The timelines given by the arbitrator were reasonable and would appear reasonable to “an informed individual who takes into account all relevant facts before arriving at a conclusion” (see paragraph [80]).

No Breach of Natural Justice – complaints those of errors of law and/or fact

PTCI had also sought to set aside the award for breach of natural justice by alleging apparent bias on the part of the Tribunal. In addition to the arguments above, PTCI sought to argue that the award showed that the Tribunal had “conducted the Arbitration with a closed mind and in a biased manner” (see paragraph [91]). Hence, the Tribunal had ignored PTCI’s evidence and accordingly the award “was wholly at odds with the established evidence” (see paragraph [92]).

The High Court considered PTCI’s argument “baseless” (see paragraph [93]). On the learned judge’s review of the award, she considered that the award had set out the documentary evidence as well as the Tribunal’s treatment and evaluation of PTCI’s evidence and arguments – on that basis, the Tribunal had simply made a finding which happened to be adverse to PTCI (see paragraph [93] to [95]). Furthermore, the breaches of natural justice complained of were in actuality complaints of errors of fact and/or law purportedly made by the Tribunal. However, it was “trite law that under the IAA, an error of law or erroneous finding of fact made in an arbitral award is not capable of establishing a ground for the award to be set aside”, see paragraph [101].

The Singapore High Court stressed that an adverse award could not in and of itself show bias on the part of the Tribunal:

“95 I agreed with [counsel for the claimants to the arbitration] that an adverse award, in and of itself, could not show bias unless there was some evidence of improper conduct. The reality was that the issue of when the Preliminary Agreement had been concluded was decided in a way not to the satisfaction of PTCI. That could not be evidence of bias. It bears repeating that the substantive merits or the arbitral award are outside the remit of this court.

PTCI also complained about the adverse costs order made against it and that it had to bear the costs of the entire arbitration notwithstanding that the claimants to the arbitration had failed to establish jurisdiction against the second respondent to the arbitration. However, the Singapore High Court pointed to the fact that the sole arbitrator had addressed his mind to the issue and set out an explanation for the same in the final award (see paragraph [97]).

Finally, the Singapore High Court found that PTCI’s attempt to raise the Tribunal’s issuance of a power of attorney to effect registration of the final award with the Indonesia courts as an example of apparent bias was “a desperate point made in an unmeritorious attempt to find fault with the Arbitrator” (see paragraph [99]).

Effect of Disqualification on Rendered Final Award

Another interesting point of law arose that out of this case was whether disqualification of the arbitrator by removal would have the consequential effect of annulling or setting aside the final award which had been rendered (see paragraph [105]).

Strictly, this issue did not arise for determination because the application for removal failed. Nevertheless, the High Court having reviewed the travaux preparatoires to the Model Law considered that the removal of an arbitrator for apparent bias or partiality as a ground for setting aside an award is subsumed under Article 34(2) of the Model Law (see paragraph [128] and [134]).

In arriving at this view, the High Court rejected two other possible alternative arguments.

“(a) The first is that the removal of an arbitrator would necessarily render the award to be of no effect, and therefore it was unnecessary to expressly provide for it as a ground to set aside the award under Art 34.

(b) The second is that the drafters did not quite anticipate the present scenario where an award would be rendered before the court’s decision on the challenge. Given the fifteen-day and thirty-day timelines contained in Art 13(2) and Art 13(3) respectively, challenges against the arbitrator would in all likelihood be during the early stages of arbitral proceedings, and that there is a lacuna in the Model Law as result of the failure to contemplate the occurrence of a situation such as that in the present case.”

The first argument was rejected on the basis of minimal curial intervention pursuant to Article 5 of the Model Law. The High Court considered that “[w]ith [Article] 13(3) being silent on the issue of setting aside an award following a successful removal of the challenged arbitrator, and having regard to the terms of Art 5, it would appear that the supervising court has no consequential powers to annul the award and that a separate application to set aside the award based on Art 34 grounds must be filed.

In this respect, the High Court stressed that the effect of the Singapore Court of Appeal cases of Astro v Lippo and L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd[2013] 1 SLR 125 was to confine the powers of the court over an arbitration and its award to the IAA and that the Singapore courts had no general, residue or supervisory powers outside of the IAA. A detailed discussion of the case of L W Infrastructure can be found here.

The High Court rejected the second argument that there was a lacuna in the Model Law.. The travaux preparatoires showed that the drafters did contemplate a situation where a challenge to an arbitrator took so long that a decision was only rendered after the final award had itself been rendered (see paragraph [122]).

Separately, the High Court also addressed the mismatch in terms of the standard of proof required to to remove an arbitrator for apparent bias as compared to the grounds for setting aside an award under Article 34(2) of the Model Law (see Gary Born, International Commercial Arbitration vol 2 at pp 1823–1824 and vol 3 at p 3279, quoted at paragraph [137] and [138]). The High Court considered that in principle, the setting aside application on the basis of a removal of an arbitrator would be subject to the more stringent requirements of Article 34(2). However, in practice and evidentially there need not be a dichotomy between the two. This was because,

“136 …The proof that the applicant has to furnish is the court order to remove the arbitrator. The setting aside application can be said to depend on the removal order, and the opposing party will not be allowed to go behind the decision which is non-appealable.

145 …the requirement of prejudice may not be a problem in application. For instance, within the framework of Art 34(2)(a)(iv), a party applying to set aside for procedural irregularity need not establish that the procedural irregularity had materially affected the award. As stated, a court order to remove the arbitrator is a serious matter. It signifies that the breach of procedure was not technical or immaterial. From this perspective, an inference of bias can be drawn from the court order and hence the existence of prejudice in relation to any award made”.

Conclusion

This decision reaffirms the Singapore courts’ pro-arbitration and pro-enforcement approach. The Singapore courts have repeatedly stressed that errors of fact and/or law are not grounds to set aside an arbitration award. Parties have also struggled to set aside awards for breaches of public policy in Singapore. It is not surprising that disgruntled parties to an arbitration seek to set aside adverse arbitration awards by trying to argue that there has been a breach of natural justice.

However, PT Central Investindo as well as the recent cases of TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd[2013] SGHC 186 (“TMM”), and BLB and another v BLC and others[2013] SGHC 196 (“BLB”) show that the Singapore courts are cautious of parties’ use of natural justice to “dress up and massage their unhappiness with the substantive outcome into an established ground for challenging an award” (see TMM at [2]). For a more detailed examination of BLB and TMM, see “Setting Aside Arbitral Awards in Singapore: A Problem in the Standard of Review?

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for DNDR at the KLRCA.
This entry was posted in Arbitration, Indonesia, Singapore and tagged , , , , , . Bookmark the permalink.

3 Responses to Challenge to Arbitrator for Apparent Bias – What happens if the final award is rendered before the court determines challenge?

  1. Pingback: Singapore High Court rejects attempt to set aside an award for breach of an alleged agreed arbitral procedure | Singapore International Arbitration Blog

  2. Pingback: SLW Commentary – Arbitration in 2014: Looking Ahead to 2015 | Singapore International Arbitration Blog

  3. Pingback: Singapore Law Gazette – Arbitration in 2014: Looking Ahead to 2015 | Singapore International Arbitration Blog

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