Procedural fairness when a respondent fails to participate: the English High Court decision in Interprods -v- De La Rue

Tom Cummins, Senior Associate, London

Speedread

The High Court in London has rejected a challenge to an award brought on the basis of the respondent's non-participation in a telephone and evidential hearing. The judgment reflects the arbitration-friendly approach of the English courts.

Background

The English Arbitration Act 1996 (the Act) prescribes limited grounds upon which an award made in England can be challenged. Under s.68 of the Act, serious irregularity in proceedings may found a challenge. A serious irregularity must cause substantial injustice, and includes failure by the tribunal to "act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent".

Facts

De La Rue International Limited (De La Rue), a leading banknote supplier, had an agency relationship in Nigeria with a local company, Interprods Limited (Interprods).

At a meeting, in March 2011, it was alleged by De La Rue that Interprods stated that the commission paid by De La Rue would be used to bribe Nigerian officials. In response, De La Rue terminated its agency relationship, and commenced an LCIA (London Court of International Arbitration) arbitration seeking a declaration that the relationship was at an end and no further commission was due.

In July 2013, a sole arbitrator concluded that Interprods' representative had stated that Interprods' commission was needed for bribes, that De La Rue had been entitled to terminate the agency relationship, and that no further commission was payable.

Interprods challenged the award before the English High Court. It argued that the arbitrator had lacked jurisdiction to consider the allegations of intended bribery, and that serious irregularities had occurred in the arbitrator's conduct of the dispute.

The jurisdiction issue was dealt with shortly by the Court, which upheld the arbitrator's jurisdiction on the facts, and endorsed the English law approach to broad interpretation of the scope of arbitration agreements. The issue of serious irregularity received more detailed investigation.

Interprods' challenge

Interprods alleged three irregularities:

• apparent bias existed as a result of the arbitrator's appointment in other cases;
• the arbitrator had improperly conducted a telephone hearing without Interprods' representatives; and
• the arbitrator had improperly conducted an evidential hearing without the participation of Interprods' representatives.

Apparent bias

As to apparent bias, this arose because the arbitrator had, after appointment in the present arbitration, accepted appointment in two cases where one of the parties was represented by counsel to De La Rue.

As is common in England, the Court did not refer to the IBA (International Bar Association) Guidelines on Conflicts of Interest in International Arbitration for guidance, preferring to ask whether "the fair-minded and informed observer, having considered the relevant facts, would conclude that there is a real possibility that the tribunal was biased" - the test developed by the English courts. Observing that the arbitrator had been appointed in each of the three cases by the LCIA, and not by De La Rue's counsel, the Court rejected the challenge.

Telephone hearing

In July 2012, De La Rue proposed that two preliminary issues be determined: (i) whether Interprods' representative had admitted bribery, or an intention to bribe; and (ii) what the consequences of such admission were for De La Rue's obligation to pay commission.

Interprods opposed the determination of preliminary issues, but the arbitrator assented to De La Rue's proposal. A hearing was fixed. Interprods changed counsel and sought an adjournment. New dates were fixed, then further new dates. Then Interprods' counsel informed the arbitrator that he had not been paid, and could not prepare evidence and submissions. A further adjournment was sought. De La Rue agreed to this, observing that it was "of the utmost importance that [Interprods] is properly legally represented".

The arbitrator proposed a telephone conference in February 2013 to discuss fixing the evidential hearing. Interprods complained that its management was away from Nigeria and could not respond until March 2013. When the arbitrator replied that modern communications were such that participation in a telephonic hearing should not be beyond Interprods' representatives, Interprods complained in strong terms, speaking of an "unjust coalition" of claimant and arbitrator.

The arbitrator proceeded with the telephone hearing, and provided Interprods with a choice of dates in May 2013. Interprods complained to the LCIA, which rejected the challenge.

The Court concluded that the arbitrator's approach was "robust but fair". The issue to be considered at the telephone conference was "simple" and justice did not require the arbitrator's conduct to be corrected.

Evidential hearing

The evidential hearing went ahead in May 2013. Interprods was not represented. When De La Rue's witnesses were sworn, the arbitrator requested that, in the absence of cross-examination, there be oral exploration of their testimony. This happened and, after just under two and a half hours, the hearing closed.

Interprods advanced three criticisms:

• the arbitrator failed to put significant questions to De La Rue's witnesses, or to test their evidence by reference to the statement of Interprods' witness;
• the arbitrator uncritically accepted the evidence of De La Rue's witnesses; and
• the arbitrator made no reference to the statement of Interprods' witness, and did not explain why he rejected it.

The Court concluded that:

• An arbitrator does not always have to put points to the attending party's witnesses in the absence of the other party. The arbitrator's role is context-dependent. Here, the arbitrator asked counsel to lead his witnesses through their testimony. A discrepancy in the evidence, which was not identified by the arbitrator, would have been unlikely to have affected the outcome.
• The arbitrator had not uncritically accepted De La Rue's evidence. In his award, he had given his reasons for regarding the evidence as credible.
• The arbitrator had noted the position of Interprods' witness in the factual section of his award. The witness had not been examined, and his statement was undated and unsigned. The arbitrator was not obliged to consider the statement further.

The challenge was rejected.

Comment

The judgment reflects the arbitration-friendly approach of the English courts.

Challenges to awards on the basis of serious irregularity rarely succeed in the absence of stark impropriety. The arbitrator's communications referred to in the judgment - "matter has dragged far too long", "Interprods' serial change of lawyers", "it is not too much to ask the parties to instruct someone to participate in a conference to address this simple question" - illustrate the difficult circumstances which he faced. The judge observed that Interprods' failure to explain its absence from the evidential hearing "strongly suggests that Interprods chose not to attend", suggesting that the arbitrator had little choice but to proceed as he did.

The balance between procedural expedition and due process is often a difficult one. Getting it wrong risks imperilling an award. De La Rue were plainly alive to this when they cited the "utmost importance" of Interprods being properly represented.

A criticism of arbitration is that arbitrators are often too receptive to the demands of recalcitrant parties in order to ensure that fairness is observed. The judgment is welcome endorsement of robust, but fair, case management. The efforts of arbitrator and claimant to ensure as fair a procedure as possible contributed to the Court's rejection of Interprods' challenge.

A version of this article was first published in Global Arbitration Review and is published here with their permission.

Please click on the links below for the other articles in the April 2014 Arbflash:

• The impact of corruption on the ability to arbitrate
• The Indian Supreme Court decision in World Sport Group: fraud allegations referred to arbitration
• Joining a non-signatory to an arbitration: Singapore High Court judgment in The Titan Unity (No.2)
• Spanish court confirms validity of asymmetric dispute resolution clauses
• Intervention by the courts: the Chief Justice of the Supreme Court of Western Australia quashes an award for lack of procedural fairness
• International news
• New JCAA Rules