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There is a very natural human tendency to
claim the game is rigged when one loses.
claim the game is rigged when one loses.
“The
referee was obviously biased against us,” the coach says, explaining the team’s
loss.
referee was obviously biased against us,” the coach says, explaining the team’s
loss.
Donald
Trump kept complaining that the Republican Party primary rules were rigged
against him, even though he was winning.
Trump kept complaining that the Republican Party primary rules were rigged
against him, even though he was winning.
So,
too, in arbitration, when the losing party seeks to overturn an unfavourable
award. This is particularly evident in international arbitration, where there
is no right of appeal. Also, in some domestic arbitration cases, where appeals
are increasingly limited.
too, in arbitration, when the losing party seeks to overturn an unfavourable
award. This is particularly evident in international arbitration, where there
is no right of appeal. Also, in some domestic arbitration cases, where appeals
are increasingly limited.
In
these situations, lack of jurisdiction or arbitrator bias may be the only way
to have an award set aside or block enforcement. But it’s a high-risk strategy
that can backfire on the unhappy loser.
these situations, lack of jurisdiction or arbitrator bias may be the only way
to have an award set aside or block enforcement. But it’s a high-risk strategy
that can backfire on the unhappy loser.
This
was illustrated in a recent Ontario case, which the presiding judge called “a
thinly disguised attempt to avoid the consequences of an adverse decision on
the merits,” and awarded significant costs against the applicant “to deter
losing parties in international commercial arbitrations from launching baseless
ex post facto
challenges to an arbitrator’s impartiality.”
was illustrated in a recent Ontario case, which the presiding judge called “a
thinly disguised attempt to avoid the consequences of an adverse decision on
the merits,” and awarded significant costs against the applicant “to deter
losing parties in international commercial arbitrations from launching baseless
ex post facto
challenges to an arbitrator’s impartiality.”
The
issue in Jacob
Securities Inc. v Typhoon Capital B.V., was whether an arbitrator’s failure
to disclose a potential conflict of interest involving his former law firm gave
rise to justifiable doubts as to his independence or impartiality and a
reasonable apprehension of bias.
issue in Jacob
Securities Inc. v Typhoon Capital B.V., was whether an arbitrator’s failure
to disclose a potential conflict of interest involving his former law firm gave
rise to justifiable doubts as to his independence or impartiality and a
reasonable apprehension of bias.
Thomas
Heintzman, an experienced Toronto litigator and retired partner of McCathy
Tetreault, was appointed sole arbitrator under the arbitration clause in an
Engagement Agreement between Jacob and Typhoon.
Heintzman, an experienced Toronto litigator and retired partner of McCathy
Tetreault, was appointed sole arbitrator under the arbitration clause in an
Engagement Agreement between Jacob and Typhoon.
Jacob,
a Canadian investment bank, had been engaged to raise financing for energy
projects promoted by Typhoon, a Dutch company. The dispute related to Jacob’s
claim for compensation for financing provided by Northland Power Inc. and
Northland Capital Inc. (“Northland”). A Northland executive was a witness in
the arbitration.
a Canadian investment bank, had been engaged to raise financing for energy
projects promoted by Typhoon, a Dutch company. The dispute related to Jacob’s
claim for compensation for financing provided by Northland Power Inc. and
Northland Capital Inc. (“Northland”). A Northland executive was a witness in
the arbitration.
Mr.
Heintzman had confirmed that he was not aware of any conflict relating to the
parties or their principals when he was appointed. The parties also confirmed
they were not aware of any conflict or grounds to object to the appointment.
Heintzman had confirmed that he was not aware of any conflict relating to the
parties or their principals when he was appointed. The parties also confirmed
they were not aware of any conflict or grounds to object to the appointment.
But
after Mr. Heintzman dismissed Jacob’s claim, Jacob retained new lawyers to
challenge the award. Jacob did some research and found that McCarthy’s had
acted for Northland and its underwriters on several transactions while Mr.
Heintzman was still a partner of the firm.
after Mr. Heintzman dismissed Jacob’s claim, Jacob retained new lawyers to
challenge the award. Jacob did some research and found that McCarthy’s had
acted for Northland and its underwriters on several transactions while Mr.
Heintzman was still a partner of the firm.
This
was enough to tempt Jacob to ask the court to throw out the award and order a
new arbitration.
was enough to tempt Jacob to ask the court to throw out the award and order a
new arbitration.
Everyone
agreed that Mr. Heintzman had no actual knowledge of the relationship between
McCarthy’s and Northland when he was appointed or at any point during the
arbitration, but Jacob argued that he should have done a search with his former
firm and disclosed the conflict.
agreed that Mr. Heintzman had no actual knowledge of the relationship between
McCarthy’s and Northland when he was appointed or at any point during the
arbitration, but Jacob argued that he should have done a search with his former
firm and disclosed the conflict.
Justice
Greame Mew reviewed the current law and international guidelines relating to
arbitrator disclosure and decided that it was not reasonable to expect an
arbitrator to go to those lengths to discover potential conflicts. It is
reasonable to expect a current partner of a law firm to do such a conflict
check, but not a former partner, he concluded.
Greame Mew reviewed the current law and international guidelines relating to
arbitrator disclosure and decided that it was not reasonable to expect an
arbitrator to go to those lengths to discover potential conflicts. It is
reasonable to expect a current partner of a law firm to do such a conflict
check, but not a former partner, he concluded.
In
any event, firms owe a duty to their clients not to disclose confidential
information about their clients to third parties, including former partners.
any event, firms owe a duty to their clients not to disclose confidential
information about their clients to third parties, including former partners.
It
is worth noting that the information about McCarthy’s representation was public
and the parties could have found it out, if they had looked. But no one did,
until after the award was issued.
is worth noting that the information about McCarthy’s representation was public
and the parties could have found it out, if they had looked. But no one did,
until after the award was issued.
This
question of arbitrator disclosure keeps surfacing in international arbitration,
because it is an effective way to challenge an award.
question of arbitrator disclosure keeps surfacing in international arbitration,
because it is an effective way to challenge an award.
Justice
Mew referred to the decision of the Paris Court of Appeal in SA Auto Guadeloupe Investissements v
Colombus Acquisitions Inc, RG 13/13459 (cour d’appel de Paris, 14
October 2014), in which the court declined to enforce an award because Canadian
arbitrator Henri Alvarez did not fully disclose a conflict of interest relating
to his law firm, Fasken Martineau. The arbitrator’s declaration stated that
although his firm had previously represented a parent company of the claimant,
it was no longer doing so. Unknown to the arbitrator, however, the firm had
continued to represent the parent company. The court considered this work as an
important engagement for the firm and therefore its nondisclosure undermined
the arbitrator’s independence and impartiality.
Mew referred to the decision of the Paris Court of Appeal in SA Auto Guadeloupe Investissements v
Colombus Acquisitions Inc, RG 13/13459 (cour d’appel de Paris, 14
October 2014), in which the court declined to enforce an award because Canadian
arbitrator Henri Alvarez did not fully disclose a conflict of interest relating
to his law firm, Fasken Martineau. The arbitrator’s declaration stated that
although his firm had previously represented a parent company of the claimant,
it was no longer doing so. Unknown to the arbitrator, however, the firm had
continued to represent the parent company. The court considered this work as an
important engagement for the firm and therefore its nondisclosure undermined
the arbitrator’s independence and impartiality.
That
decision was recently confirmed by the French Cour de Cassation (Civ. 1, 16 December 2015,
N°D14-26.279), under the Code of Civil Procedure which requires
that:
decision was recently confirmed by the French Cour de Cassation (Civ. 1, 16 December 2015,
N°D14-26.279), under the Code of Civil Procedure which requires
that:
“Before accepting a mandate, an
arbitrator shall disclose any circumstance that may affect his or her
independence or impartiality. He or she shall also disclose promptly any such
circumstance that may arise after accepting the mandate“. (Article
1456)
arbitrator shall disclose any circumstance that may affect his or her
independence or impartiality. He or she shall also disclose promptly any such
circumstance that may arise after accepting the mandate“. (Article
1456)
Although
this provision came into effect after the arbitration had commenced, the court
found that it simply reflected the existing strict standard of disclosure under
French law. In particular, there is a continuous obligation to disclose both
personal relationships with participants in the arbitration and factual
circumstances involving the arbitrator’s law firm.
this provision came into effect after the arbitration had commenced, the court
found that it simply reflected the existing strict standard of disclosure under
French law. In particular, there is a continuous obligation to disclose both
personal relationships with participants in the arbitration and factual
circumstances involving the arbitrator’s law firm.
Contrast
this strict interpretation with the decision of the English High Court in a
case involving another Canadian arbitrator, David Haigh. W Limited v. M Sdn Bhd
arose from a London Court of International Arbitration proceeding where,
shortly after Mr. Haigh’s appointment, the parent company of the claimant in
the arbitration acquired a company that was a client of Mr. Haigh’s law firm.
He was not aware of the acquisition or the relationship between the two
companies.
this strict interpretation with the decision of the English High Court in a
case involving another Canadian arbitrator, David Haigh. W Limited v. M Sdn Bhd
arose from a London Court of International Arbitration proceeding where,
shortly after Mr. Haigh’s appointment, the parent company of the claimant in
the arbitration acquired a company that was a client of Mr. Haigh’s law firm.
He was not aware of the acquisition or the relationship between the two
companies.
The
court acknowledged that this situation fell squarely within the “Non-Waivable
Red List” of the International Bar Association’s Guidelines on Conflicts of
Interest in International Arbitration, which refers to situations where “the
arbitrator or his or her firm regularly advises the party, or an affiliate of
the party, and the arbitrator or his or her firm derives significant financial
income therefrom.” However, the court found that the Guidelines are not binding
under English law and that the proper test was whether the failure to disclose
was “such as to reasonably cause a doubt regarding the independence and
impartiality of the arbitrator”.
court acknowledged that this situation fell squarely within the “Non-Waivable
Red List” of the International Bar Association’s Guidelines on Conflicts of
Interest in International Arbitration, which refers to situations where “the
arbitrator or his or her firm regularly advises the party, or an affiliate of
the party, and the arbitrator or his or her firm derives significant financial
income therefrom.” However, the court found that the Guidelines are not binding
under English law and that the proper test was whether the failure to disclose
was “such as to reasonably cause a doubt regarding the independence and
impartiality of the arbitrator”.
It
is interesting that, in finding no such reasonable doubt in this case, the
court relied heavily on an affidavit submitted by Mr. Haigh describing his
relationship with the firm, and the ongoing conflict checks he conducted which
did not disclose the relationship between the firm’s client and the claimant in
the arbitration.
is interesting that, in finding no such reasonable doubt in this case, the
court relied heavily on an affidavit submitted by Mr. Haigh describing his
relationship with the firm, and the ongoing conflict checks he conducted which
did not disclose the relationship between the firm’s client and the claimant in
the arbitration.
The
court also criticized the IBA’s “Non-Waivable Red List”, questioning why the
parties should not have the discretion to waive a potential conflict if it has
been disclosed.
court also criticized the IBA’s “Non-Waivable Red List”, questioning why the
parties should not have the discretion to waive a potential conflict if it has
been disclosed.
I
would add a further comment that the idea of a non-waivable list of prohibited
relationships seems particularly draconian when a situation arises – or is
discovered and disclosed – after the arbitration has begun. Why should the
parties be forced to throw away the time and money they have already spent and
start again with another arbitrator?
would add a further comment that the idea of a non-waivable list of prohibited
relationships seems particularly draconian when a situation arises – or is
discovered and disclosed – after the arbitration has begun. Why should the
parties be forced to throw away the time and money they have already spent and
start again with another arbitrator?
It
is important to remember that in all of these cases there was no direct
relationship between the arbitrator and the client of their current or former
law firm. And there was no personal knowledge of the relationship or the
potential conflict.
is important to remember that in all of these cases there was no direct
relationship between the arbitrator and the client of their current or former
law firm. And there was no personal knowledge of the relationship or the
potential conflict.
Nevertheless,
they reinforce the critical importance of full and timely disclosure of any
relationship that could be viewed as a conflict, especially in international
arbitration.
they reinforce the critical importance of full and timely disclosure of any
relationship that could be viewed as a conflict, especially in international
arbitration.
And,
as it becomes more difficult to challenge domestic arbitration awards on the
merits, it will be interesting to see whether Canadian courts will follow the
strict rules of the French courts or the more pragmatic approach of the English
courts.
as it becomes more difficult to challenge domestic arbitration awards on the
merits, it will be interesting to see whether Canadian courts will follow the
strict rules of the French courts or the more pragmatic approach of the English
courts.
Justice
Mew’s decision in the Jacob
Securities case suggests it may be the latter.
Mew’s decision in the Jacob
Securities case suggests it may be the latter.
Ed’s Note – This article
was originally posted by the Canadian Online Legal Magazine via Slaw.ca
was originally posted by the Canadian Online Legal Magazine via Slaw.ca