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AT&T Corporation and another v. Saudi Cable Company.
(England and Wales) High Court of Justice (Queen's Bench Division,
Commercial Court), Longmore J., 13th October 1999.
ICC arbitration - three person
tribunal - person agreed by the parties as chairman failed to disclose
non-executive directorship and shareholding in competitor of one of
the parties - whether misconduct - whether breach of ICC Rules -
whether ICC determination of challenge to arbitrator final - whether
grounds for removal and setting aside of awards made by tribunal under
ss. 1 and 23 of the Arbitration Act 1950 - tests for actual and
unconscious bias considered.
Facts:
The Applicant was one of seven international telecommunications
companies who, in 1992, were invited by the Saudi Arabian Ministry of
Post Telephone and Telegraph to submit bids for the Saudi Kingdom's
sixth telecommunications expansion project ("the Project").
The Project was valued at about US$4.6billion and one of its
requirements was that cable should be acquired from the Respondent. In
1993 the Applicant and Respondent concluded a Pre-Bid Agreement (the
"PBA") which provided that, upon award of any cable related
contract to the Applicant, the parties would meet promptly and
negotiate in good faith mutually satisfactory agreements. The PBA
provided for ICC arbitration in London. The law of the PBA was found
by the arbitrators subsequently appointed to be the law of New York
State. The law of the arbitration agreement, the curial law, was the
law of England and Wales.
The Applicant secured the Project but there was considerable
criticism of the way it did so, one of the other bidders, Nortel,
being particularly aggrieved.
Once the contract was secured the Applicant and Respondent began
negotiating pursuant to the PBA but these negotiations came to
nothing. The Applicant terminated the PBA in December 1994 and it
commenced arbitration seeking a declaration that it had done so
correctly. The Respondent contended that the PBA had not been
correctly terminated and sought an order that the Applicant comply
with the PBA and negotiate in good faith (an obligation recognised
under the law of New York)..
Each party nominated an arbitrator in accordance with the ICC Rules
but disagreed about the third arbitrator, the chairman. One name that
commanded some assent was Mr L Yves Fortier QC, who practised in
Montreal, Canada. Mr Fortier was a non-executive director of Nortel
but, because of a secretarial error, this was not mentioned in the
copy of his CV sent to the parties' representatives. The parties
agreed to Mr Fortier as chairman of the arbitral tribunal. He, along
with the other arbitrators, then signed a printed form from the ICC
stating that he was independent of the parties and that he knew of no
facts or circumstances, past or present, that need be disclosed
because they might be of such a nature as to call into question his
independence in the eyes of the parties.
The first hearing of the tribunal took place in January 1996 and
there were further hearings thereafter. The tribunal had published two
awards when, in November 1998, the Applicant discovered that Mr
Fortier was a director of Nortel and, as it later emerged, had a small
shareholding in that company. The second award declared that the
Applicant had failed to negotiate in good faith with the Respondent.
Following correspondence from the Applicant, Mr Fortier offered to
resign his directorship of Nortel but this was not acceptable to the
Applicant and it filed a challenge to Mr Fortier with the ICC. That
challenge was rejected by the ICC without reasons in February 1999,
article 2.13 of the ICC Rules stating that the ICC's decision on,
inter alia, challenges to or replacement of arbitrators was final. By
this time the tribunal had made a third award assessing the damages
payable by the Applicant. The Applicant commenced proceedings to
revoke Mr Fortier's authority to arbitrate and to set aside the awards
to which he was a party. The Applicant did not allege actual bias
against it by Mr Fortier but contended that his failure to disclose
his non-executive directorship of Nortel was a breach of his
obligations under the ICC Rules and of the common law of England and
Wales. It submitted that this amounted to misconduct, which required
the awards to be set aside and Mr Fortier's appointment revoked
pursuant to ss. 1 and 23 of the Arbitration Act 1950. The Applicant
also contended that Mr Fourier, as a non-executive director in a
competitor of a party to the arbitration, was effectively a judge in
his own case and was thus disqualified. Alternatively, that there was
a reasonable or objectively reasonable apprehension of bias by the
Applicant and that this, rather than the test in R v. Gough
[1993] AC 646, was the test that should apply in deciding whether the
awards should be set aside and Mr Fortier's authority revoked.
Held:
The applications would be dismissed.
While the ICC would, of course, interpret its own rules in the way
that seemed to it correct and should not be subject to interference in
relation to its own rules by the court applying the curial law, no
English court could contemplate enforcing an award affected by bias.
Questions of bias were free-standing questions and were not to be
determined by reference to the ICC Rules. In consequence, this case
fell to be decided under the Arbitration Act 1950. It was, however, of
some significance that the Arbitration Act 1996 deliberately refrained
from using, in s. 24, any requirement of independence. This confirmed
the court's view that it should respect the finality provisions in any
rules of an arbitral body (such as the ICC) that chose to introduce a
concept of independence and a method by which any challenge to which
an arbitrator's independence could be determined.
As for the alleged breach of the ICC Rules, it was not the case
that any failure to disclose in breach of those Rules, if established,
was misconduct that must inevitably result in the awards being set
aside and Mr Fortier's authority revoked. The issue was whether Mr
Fortier was or must, in law, be presumed to have been biased. If not,
then it would be contrary to good sense to send the parties back to
the drawing board.
At common law, there was an automatic disqualification for any
judge who had a direct pecuniary interest (such as owning shares) in
one of the parties or who was otherwise so closely connected with a
party that he could truly be said to be judge in his own cause. But,
if an allegation of apparent or, to use the preferred word,
unconscious bias was made, it was for the court to determine whether
there was a real danger of bias in the sense that the judge might have
unfairly regarded with favour or disfavour the case of a party under
consideration by him or, in other words, might be predisposed or
prejudiced against one party's case for reasons unconnected with the
merits of the issues. These propositions were settled by R v. Gough
[1993] AC 646, 670; R v. Inner West London Counsel, Ex parte
Dallagio [1994] 4 All ER 139, 151; and R v. Bow Street
Metropolitan Stipendiary Magistrate, ex parte Pinochet (No 2)
[1999] 2 WLR 272, 281-2.
Mr Fortier's non-executive directorship in Nortel did not make him
a judge in his own case. The Applicant submitted that Nortel, the
company of which Mr Fortier was a director, stood to gain, albeit
indirectly, if the Respondent succeeded in the arbitration, not merely
because of an extremely substantial financial award being made against
the Applicant but because of the damage to its reputation in markets
where Nortel and it were in competition. This was too indirect to make
Mr Fortier a judge in his own cause. A possible but entirely
intangible benefit to a rival company of which Mr Fortier happened to
be a non-executive director was quite different from the case of a
judge or arbitrator who had a close connection to an actual party.
As for the test for unconscious bias, the Applicant's submission
that this was more stringent for arbitrators than for judges would be
rejected. In R v. Gough it was expressly stated that the same
test should apply in all cases, including arbitrators. The test was
whether the court was satisfied on the evidence that there was a real
danger of unconscious bias in the sense of Mr Fortier being
pre-disposed or prejudiced against the Applicant's case for reasons
unconnected with its merits.
There was no such danger. Mr Fortier's position as a non-executive
director of Nortel was more of an incidental than a vital part of his
professional life. He was independent of management and did not sit on
the Executive Committee of Nortel's Board. As a member of the bar and
an international arbitrator he had neither time nor inclination to
involve himself in the day to day commercial decisions of Nortel. As
for his shareholding of 474 common shares in Nortel, this was
sufficiently small to be of no consequence. If, however, he had held
any shares in either party he would, under the law of England and
Wales as it presently stood, have been automatically disqualified.
One of the main reasons why parties to arbitral proceedings
selected, as arbitrators, experienced lawyers was that such lawyers
were trained from their earliest days to decide cases on the evidence
before them and the submissions made to them and to put aside all
extraneous matters. It was axiomatic to any experienced lawyer that he
must and would decide cases without fear or favour, affection or ill
will. Another reason for selecting arbitration, rather than the
courts, was that the parties might actually prefer men of the world to
what some might perceive as the cloistered calm of judicial life. It
could not be in the least surprising that an experienced arbitrator
would have some interest in business affairs. He might be all the
better equipped to arbitrate if he had.
For the Applicant: Sir Sydney Kentridge QC and Mr T Landau
(instructed by Messrs Clifford Chance).
For the Respondent: Mr G Pollock QC and Mr D Scorney (instructed by
Messrs Freshfields).
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