Preserving fairness in arbitration: The challenge of reviewing procedural decisions for apparent bias

In P v D [2024] HKCFI 1132, the Hong Kong Court of First Instance dismissed an application under section 26 of the Arbitration Ordinance Cap 609 (the Ordinance) to remove two impugned arbitrators from a UNCITRAL arbitration, following allegations of alleged bias arising from a variety of procedural decisions, behaviour and comments made by the arbitrators.

Background

P and D were companies incorporated under the laws of Taiwan and Hong Kong respectively, which had submitted a contractual payment dispute to HKIAC for arbitration. The case concerned the plaintiff's application for an order removing two current arbitrators on the grounds of bias.

The application to court followed an earlier unsuccessful challenge against the tribunal under the applicable rules of arbitration which, although eventually dismissed by HKIAC, prompted the third arbitrator to resign from his appointment to avoid further dispute.

The application against the remaining two arbitrators

The challenging party then applied for an order removing the presiding arbitrator (who had been appointed by the HKIAC) and the other party's appointee, who were described by the court as "arbitrators of standing and experience".

The grounds advanced in the Notice of Challenge encompassed a variety of procedural decisions as well as certain comments and behaviour from the tribunal members, which were alleged to constitute apparent bias:

• The tribunal had refused to hold a hearing in respect of an evidential application in breach of Article 17(3) of the UNICTRAL Rules and did not keep an open mind in its handling of procedural matters;
• The tribunal made decisions on matters which were not contested between the parties and went beyond the contentions of the parties;
• P had been treated unequally, for example, concerning the granting of extensions of time and sanctions;
• The tribunal demonstrated apparent bias by using unjust and argumentative language; and
• The tribunal attacked P's lawyers by insinuation in its concluding marks.

The additional grounds of challenge and the court's jurisdiction to hear them

The challenging party also sought to rely on two additional grounds which had not been put before the tribunal as part of the earlier challenge. Deputy Judge Wong dealt with whether he could consider these additional grounds as a preliminary point.

After considering the language of  Section 26(1) of the Ordinance, which governs the process of bringing an challenge to an arbitrator before the court, the judge noted under that section the role of the court is to "decide afresh" a challenge that has already been "previously determined" as agreed by the parties or under Article 13(3) of the UNCITRAL Model Law.

To that extent, to admit new arguments by the parties would mean the court was not hearing a "previously determined" challenge, but rather a different matter altogether. Furthermore, to hold otherwise would be to render the time limits meaningless, and potentially open arbitrators to stale complaints under the rules. The general principle in this area is: "a party who knowingly refrains from challenging an arbitrator on … his alleged lack of independence or impartiality within the time limit provided by the applicable arbitration rules is deemed to have waived the right to raise such circumstances in a challenge to arbitrators before the Hong Kong Courts".

The other grounds

When considering the other grounds and overarching claims of apparent bias, the court used the established test of the "objective fair-minded and informed observer", and whether they, having considered the relevant facts, would conclude there was a real possibility of bias.

Oral hearing

P's challenged the tribunal's failure to hold an oral hearing on the basis that the tribunal had misinterpreted Article 17(3) of the UNCITRAL Rules. P contested that the proper interpretation of this provisions is that the tribunal has no discretion to refuse an oral hearing when so requested by a party.

Wong DJ noted he was not required to reach a conclusive verdict on the correctness of either P or the tribunal's interpretation of the rule. Instead, he found that there were "respectable arguments" in favour of the interpretation adopted by the arbitrators, and therefore concluded that the fair-minded and informed observer would not perceive the tribunal's refusal to hold the hearing as biased.

Decisions made by the tribunal beyond the matters disputed by the parties

Wong DJ noted that the disputed decisions were not decisions on the merits but procedural decisions. To that end, the judge viewed the tribunal's decisions (including the matter of which submissions they relied upon to reach them) as a legitimate exercise of the tribunal's case management powers.

Unequal treatment

P took issue with a number of decisions taken by the tribunal, which it alleged constituted unequal treatment. This included allowing extended time limits for D to produce documents without costs sanctions (having found this did not impact on the progress of the arbitral proceedings), but dismissing evidential applications by P on the grounds they would cause delay and making P bear the costs consequences thereof. Wong DJ found that these decisions were a legitimate exercise by the tribunal of their discretion. It was not suggestive of bias that such decisions were made repeatedly "against" a particular party.

"Unjust and argumentative language"

Wong DJ first noted the tribunal's defence, that although such language had been used to criticise P's conduct, the comments were based on P's behaviour, such as P's delay in submitting applications, and submitting documents of unapproved scope.

Relying on certain attributes of the fair-minded observer, the judge concluded there was no real possibility of bias: "(1) the bystander would be taken to know commonplace things, such as the fact that adjudicators sometimes say, or do, things that they might later wish they had not, without necessarily disqualifying themselves from continuing to exercise their powers and (2) acting reasonably, the fictitious bystander would not reach a hasty conclusion based on the appearance evoked by an isolated episode of temper or remarks to the parties or their representatives, which was taken out of context".

Attack by insinuation

Wong DJ found that the fair-minded and informed observer is not "unduly sensitive or suspicious", and therefore would agree with the tribunal's request made (roughly translated, to "adhere to professionalism") which was aimed at both parties in the hope that the parties could try to reach an agreement on the procedural matters. It was not an attack on P's lawyers by insinuation.

Takeaways

The court's words on additional arguments are a strong reminder that it is essential to bring forward all challenges to an arbitration or tribunal in a timely manner as agreed upon by the parties or under general law. Waiting to introduce new arguments can lead to their inclusion being barred.

This case also highlights the importance of the objective fair-minded observer test and clarifies its application. It recognises the level of understanding attributed to such an observer, emphasising that arbitrators may express regrettable words and actions in heated moments. The test also cautions against hasty judgments and advises parties to carefully evaluate their evidence from a neutral perspective when raising bias challenges.

Authored by Bethan Savage and Nigel Sharman.