Parties to a civil legal dispute may not wish to go to court or a tribunal for a variety of different reasons e.g. adverse publicity; commercial secrecy; or the negative impact on a company’s share value. Instead, as an effective alternative, they may wish to use the services of a neutral third party to help them resolve the disputes. In these situations, the parties often make the choice of taking responsibility for dispute resolution upon themselves rather than relying upon a court which will impose its own judgement.
In a commercial dispute, the parties may wish to use an arbitration procedure to come to some sort of agreement. Arbitration allows the parties to appoint a neutral person, known as an arbiter in Scotland (arbitrator in England), who will hear both sides of the argument and who will then suggest a solution which hopefully will be broadly acceptable to both sides. The mechanism for appointing an arbiter is simple. The parties may have anticipated a dispute occurring and they have taken steps to address this by inserting an arbitration clause in the contract that they have formed with one another.
An example of such a clause can be found below:
Any dispute or difference arising out of or relating to this contract, its interpretation or the breach thereof, shall be settled by arbitration before an Arbiter selected and appointed by the President or Vice-President for the time being of the Law Society of Scotland from the panel of Arbiters maintained by the Law Society of Scotland and conducted in accordance with the Arbitration Rules of the Law Society of Scotland current at the date of the appointment of the Arbiter; and we consent to registration hereof for preservation and execution.
Alternatively, when a dispute first arises, the parties may agree to use arbitration instead of the courts. Once the parties have chosen arbitration over the courts, they are committed to this procedure and they cannot withdraw unless the arbitration process is seriously flawed (to which I shall return later in this blog).
Arbitration is not permitted, however, in criminal matters or in family law (divorce, separation or custody of children). Arbitration is often preferred in business as it is private (as opposed to public court hearings); it might be faster than using the courts; it may be less expensive than court; and the parties can decide the most appropriate procedures that will be used.
The Advisory, Conciliation and Arbitration Service (ACAS) promotes the extensive use of arbitration to resolve many disputes which have legal consequences (see link below).
Arbitration can even be used when a legal dispute has gone to court or a tribunal. In a simple procedure action in the Sheriff Court, for example, the Sheriff has a duty to make enquiries of the parties in dispute as whether they are willing to consider the option of having the claim referred to an independent expert (an arbiter) whose decision in the matter is final. Usually, the Sheriff will give the litigants this choice when they meet formally for the first time in court. Once the litigants have decided that they wish to have the matter decided by an independent expert, they cannot later choose to ask the Sheriff to become involved in the case.
What if the arbiter (or arbitrator in England) was deemed to be biased in favour of one of the parties in the dispute? I often use this an example where the outcome of the arbitration proceedings could be challenged in court. Whether the bias is actual or where there is a perception of bias, it does not really matter because the parties to the dispute must have complete confidence in the neutrality and objectivity of the arbiter (or panel of arbiters).
The issue of the perception of bias on the part of an arbiter arose in the following case which was dealt with by the English High Court (Queen’s Bench Division):
Cofely Limited v Bingham & Knowles Limited  EWHC 240 (Comm) Cofely objected to the continued involvement of Bingham as an arbitrator in a commercial dispute in the construction industry involving the provision of energy services to the Olympic Park and Westfield Shopping Centre in Stratford, London.
Bingham’s action was raised under Section 24(1)(a) of the Arbitration Act 1996 (which applies in England and Wales) on the grounds that Bingham was perceived by Cofely not to be sufficiently impartial. On the face of it, Bingham was a highly experienced arbitrator and adjudicator (being a qualified barrister of many years standing).
The main thrust of Cofely’s objections to Bingham’s involvement in proceedings was that it had emerged that there appeared to be a sufficiently close working relationship between Bingham and Knowles Limited. It was established that Bingham had received 18% of his arbitral appointments and 25% of his income from disputes involving Knowles Limited. Cofely had wanted to find more information about the exact nature of the relationship between Bingham and Knowles, but when this topic had been raised during arbitration proceedings, the arbitrator refused to provide satisfactory answers to these questions. In fact, Bingham was later accused of conducting himself “aggressively and in a hostile manner” which did nothing to reassure Cofely in respect of its concerns about his objectivity and neutrality – which a truly independent arbitrator should be displaying.
Held: by Mr Justice Hamblen sitting in the English High Court that, if Bingham did not voluntarily resign from further involvement in arbitration proceedings, an Order would be issued by the court removing him from his role. It was found
As Mr Justice Hamblen wisely stated:
“Where there is actual or apparent bias there is also substantial injustice and there is no need for this to be additionally proved …“
It is important to note that this case concerns the perception of bias rather than actual bias on the part of Bingham towards Knowles Ltd. It is essential to appreciate that a party involved in arbitration proceedings (such as Cofely) is absolutely entitled to demand that there should be complete confidence in an arbitrator’s (or arbiter’s) impartiality. Significantly, the judge did find that no bias concerning the making of a Partial Award and the conduct of the arbitration had been fair up until the point at which Cofely had started to make enquiries about the precise nature of Bingham’s relationship with Knowles Ltd.
Or … if we want to paraphrase a well known saying from Shakespeare’s Julius Caesar: an arbiter/arbitrator must be like Caesar’s wife – above suspicion.
A link to the High Court’s judgement in Cofely Limited v Bingham & Knowles Limited  EWHC 240 (Comm) can be found below:
Copyright Seán J Crossan, 14 May 2019