Global Gas and Refinery Limited V. SPDC - Is Lagos Pro or Anti-arbitration?

…Lagos High Court says when challenged, an arbitrator should just resign

The ruling recently by the Lagos State High Court setting aside an award in the case of Global Gas and Refinery Limited and Shell Petroleum Development Company gives cause for concern to the arbitral community both within Nigeria and abroad.

In the case, the Court held that the presiding arbitrator’s non-disclosure amounted to misconduct, which entitled the court to set aside the arbitral award even though the challenge had earlier been submitted to the ICC which had dismissed the challenge. The court was of the view that “The main issue in the case centered on the bias of the President of the arbitration panel.”

The brief facts of the case as can be discerned from the ruling delivered is that the claimant commenced ICC arbitral proceedings against the respondent alleging breach of a gas sales and purchase agreement. During the proceedings the claimant challenged the appointment of the presiding arbitrator on the grounds that he had failed to disclose information which led to doubts as to his independence and his impartiality. The ICC Court of Arbitration reviewed the challenge and dismissed it. The arbitration continued and concluded with an award by the majority of the tribunal dismissing the claimant’s claims. The claimant then proceeded to the Lagos High Court seeking orders setting aside the final award dated 30th May 2017, refusing recognition and enforcement of the final award plus other consequential orders. The grounds for the application included a ground based on misconduct of the majority of the arbitral tribunal and one of the issues raised for determination was “whether there are proven instances of misconduct by the majority of the arbitral tribunal in the final award dated 30th May 2017”.

The trial judge in her ruling indicated that “one of the grounds to which they are seeking the court’s intervention to set aside the arbitral award is the reason of nondisclosure by the arbitral tribunal who had a relationship with the parties which he failed to disclose at the ICC… Counsel argued that at the time of the arbitration the president of the tribunal had a relationship with the respondent which he failed to disclose both to the parties and the ICC … he gave an expert opinion as a barrister in a litigation matter involving the respondent as a party… The ruling indicates that the tribunal chair had provided expert advice on a dispute between the respondent and Bodo Community in Gokana Ogoni River State. [The Respondent says the chair provided an expert opinion to its parent company abroad and not to it.] The Claimant also alleged that the tribunal chair and the other member of the tribunal that constituted the majority in the arbitral tribunal were both members of the Board of Governors of an arbitral institution of which the Respondent counsel was the chair and that this body was formed during the pendency of the arbitration, with no notice or disclosure being made to any of the parties. The claimant indicated that based on their membership of this arbitral institution, it had challenged the appointment of these parties at the ICC, but the ICC did not uphold the challenge, rather it dismissed the complaint.

In essence the claimant asserts that the undisclosed relationship with the Respondent [ or its parent company as asserted by the Respondent] by providing an expert report in an unrelated matter, together with the undisclosed membership by the presiding arbitrator, one co-arbitrator and counsel for the Respondent of an arbitral institution amounts to misconduct.

In the decision the Court took the view that once an arbitrator has been challenged his or her obligation is to resign the appointment and not resist the challenge. The court held that “when an objection is raised on the basis of bias, it casts doubts on the process itself, notwithstanding whether the panel was constituted or not by ICC. This being so, the President of the arbitrator [sic] must exercise a duty of care towards all the cases that are before them [sic]. Therefore, it does not lie in the Arbitrators to raise a defense or put the process in ridicule. What is expected was to have simply recluse [sic] himself, even when the system absolved him. This is the standard and nothing more is required….consequently it beats me hollow why the learned gentlemen, even though allowed to proceed to lead the panel ought to have graciously throw [sic] in the towel. That is the practice that all arbitrator / judges worldwide should adopt. As I have said earlier in this ruling no justification is allowed to flow from the mouth of the arbitrator in form of a defense….”

With all due respect, this position is not correct. The worldwide practice is set out in the IBA Guidelines on Conflicts of Interest in International Arbitration. It is the ’gold standard’ for determining what an arbitrator needs to disclose. The IBA Guidelines seek to ensure that in the event of a challenge, there is a “guide” to determine if there has been a conflict of interest capable of affecting the independence and impartiality of the arbitrator.

In determining whether nondisclosure constitutes a breach of an arbitrator’s conflict of interest obligations, as recently as 2018 in Halliburton Company v Chubb Bermuda Insurance Ltd &

Ors [2018] EWCA Civ 817 (19 April 2018) the English Court of Appeal stated the test at paragraph 73 of the judgment as follows: “First, the court needs to consider whether disclosure ought to have been made in accordance with the principles we have just enunciated. Secondly, the court needs to consider the significance of that non-disclosure in the context of the application with which the court is dealing. In the case of an application for removal of the arbitrator in question, the court will consider on the basis of all the factual information available when that application is heard (including the fact that there has been non-disclosure), whether the fair-minded and informed observer would conclude that there was a real possibility that the arbitrator was biased.”

Apart from this not having any legal basis in legal jurisprudence, the ‘if challenged, then resign’ posture advocated by our courts also results in a very practical consideration. Any party that wishes to delay arbitration proceedings can merely challenge an arbitrator by alleging the absence of independence and impartiality; if this decision is to be followed, the failure of the arbitrator to immediately withdraw will result in any consequent award being set aside. This surely cannot be the intention of the challenge procedure.

Furthermore the Learned trial judge also took the view that the challenged arbitrator had an obligation to disclose these particular facts. However this position is not supported by reference to the IBA Guidelines. Surprisingly, there is no reference to the Guidelines in the decision, and as such one is unable to determine whether any reference was made to them, or any reliance placed on them in reaching this decision. The Guidelines provide examples of relationships and categorises them into Red, Orange and Green Lists. A review of Part II: Practical Application of the General Standards of the IBA Guidelines discloses that the non-disclosure of the membership of the Board of Governors of the arbitral institution by the majority members of the arbitral tribunal and the respondent counsel is a Green List item “The arbitrator has a relationship with another arbitrator, or with the counsel for one of the parties, through membership in the same professional association, or social or charitable organisation, or through a social media network.” This does not disclose a conflict of interest. The expert opinion given by the presiding arbitrator to the parent company of the Respondent in respect of another matter, would at worst be an Orange List item, depending on when the services were rendered. – “The arbitrator has, within the past three years, served as counsel for one of the parties, or an affiliate of one of the parties, or has previously advised or been consulted by the party, or an affiliate of the party, making the appointment in an unrelated matter, but the arbitrator and the party, or the affiliate of the party, have no ongoing relationship.” Even if this fact should have been disclosed as an Orange List item, the nondisclosure without more cannot be evidence of bias. The facts not disclosed must give rise to justifiable doubt as to independence and /or impartiality. As stated by the English Court of Appeal in the Halliburton case at paragraph 76 of the judgment, “Non-disclosure of a fact or circumstance which should have been disclosed, but does not in fact, on examination, give rise to justifiable doubts as to the arbitrator’s impartiality, cannot, however, in and of itself justify an inference of apparent bias. Something more is required …”

Even where the arbitrator has failed to disclose a disclosable fact, it is submitted that setting aside the award should not be the automatic result of the failure to disclose. Many parties are negatively impacted when an award is set aside: the parties to the dispute who have expended time and money on putting their case before the arbitrators, the other (and innocent) co-arbitrators who have also expended their time, knowledge and energy in providing a resolution to the dispute, in administered arbitrations, the arbitral institution may have reputational issues resulting from the termination of the case it had administered, and ultimately the potential decrease in the confidence of users that the system of arbitration will conclude with the resolution of disputes.

In a scenario such as this, where the request is to set aside an award in an administered arbitral proceedings, perhaps the court should give significant weight to the fact that the institution agreed upon by the parties to administer the arbitration and which includes the determination of any conflict challenges court had reviewed the challenge and dismissed it. The court is supposed to support the arbitration process, not hinder it. For as long as this decision stands unchallenged, Lagos cannot claim to be pro-arbitration. The ball is in our court [pun intended!]