by Joshua Banks & Dr Sam Luttrell, Clifford Chance, Perth
In a recent decision,[1] the Supreme Court of Western Australia dismissed an application to remove an arbitrator pursuant to s 13(4) of the Commercial Arbitration Act 2012 (WA) (CAA) (the Application). This decision confirms that the legislation left no room for the ‘reasonable apprehension of bias’ test under the CAA. The same test was considered earlier in 2022 by Ball J in Hancock in the NSW Supreme Court.[2] In the matter at hand, Martin J applied the observations of Ball J in Hancock– despite being technically obiter[3] – with two small, but important qualifications.
Martin J’s dismissal of this Application confirms that the elevated standard of the ‘real danger of bias’ test is working as the legislative draftspersons intended, preventing parties in arbitrations from challenging arbitrator appointments where the risk of a lack of arbitrator independence or impartiality is non-existent. The adoption of the ‘real danger of bias’ test in Australia, and confirmation that the test works as intended, re-enforces Australia as an attractive seat for arbitration, including as a seat for international arbitration (in which context the same test applies under Australian law).
1. Background to the decision
The Application arose out of an existing ad hoc arbitration under the Construction Contracts Act 2004 (WA). Since the parties commenced arbitral proceedings in 2017, a total of four different arbitrators had been appointed (each as sole arbitrators) by the Master Builders Association of Western Australia.[4] The first three persons appointed as sole arbitrators were unable to act for various reasons. It was the appointment of the fourth arbitrator, Mr Machell, that was the subject of the challenge Application. Mr Machell was independently appointed by the Master Builders Association of Western Australia.
Following his appointment, Mr Machell confirmed that he had “no knowledge or relationship with the parties” and had “no conflict of interest in act as arbitrator in the dispute“.[5] Shortly thereafter, a member of the defendant’s solicitors (Vogt Graham) confirmed to the solicitor for the plaintiff (Mr Mazza) that the defendant had no objection to the appointment of Mr Machell.[6] Approximately three weeks later, it came to the attention of Mr Mazza that Mr Machell had been previously engaged as an independent expert for another client of Vogt Graham in separate and unrelated ongoing District Court Proceedings.[7] Following this development, the plaintiff (Grieve) sought to challenge Mr Machell’s appointment, pursuant to s 13(2) of the CAA (Challenge). Exercising his power under the CAA to rule upon the challenge, Mr Machell dismissed the challenge.[8]
2. The grounds for the challenge application before the court
Following Mr Machell’s dismissal of the challenge, the plaintiff (Grieve) brought the Application in the Supreme Court. The grounds for challenge in s 12 of the CAA are set out below:
12. Grounds for challenge (cf. Model Law Art 12)
(1) When a person is approached in connection with the person’s possible appointment as an arbitrator, the person must disclose any circumstances likely to give rise to justifiable doubts as to the person’s impartiality or independence.
[…]
(3) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence, or if the arbitrator does not possess qualifications agreed to by the parties.
[…]
(5) For the purposes of subsection (1), there are justifiable doubts as to the impartiality or independence of a person approached in connection with a possible appointment as arbitrator only if there is a real danger of bias on the part of the person in conducting the arbitration.
(6) For the purposes of subsection (3), there are justifiable doubts as to the impartiality or independence of an arbitrator only if there is a real danger of bias on the part of the arbitrator in conducting the arbitration. (emphasis added)
The Grieve alleged in the Application that a problematic ‘relationship’ existed in light of an “ongoing professional relationship” and a “previous, current and expected professional relationship” between Mr Machell and Vogt Graham – in the context of Mr Machell providing an independent expert opinion for a separate client Vogt Graham in the District Court Proceedings.[9] Further, the Grieve alleged that Mr Machell will be involved in unilateral communications with Vogt Graham, and communications behind the back of Grieve.[10]
Arising from this challenge and the submissions made in the Application, Martin J had two main issues to determine:[11]
- (i) What is the relevant test to be applied by s 12(3) of the CAA? and
- (ii) Upon application of the relevant test, are there by reference to s 12(6) of the CAA, any ‘justifiable doubts’ as to the independence or impartiality of Mr Machell?
3. The decision to dismiss the challenge application
a. The ‘real danger of bias’ test is the relevant test to be applied by s 12(3) of the CAA
Sections 12 and 13 of the CCA have been recently subject to judicial consideration in Hancock,[12] which was also the subject of an unsuccessful appeal.[13] Martin J cited Ball J’s observations in Hancock concerning the higher threshold provided for in the ‘real danger of bias’ test, as opposed to previous common law test of ‘reasonable apprehension of bias’.[14] The change from the previous common law test to the ‘real danger of bias’ test (also known as the Gough test) arose from successful submissions to change the test during the Commonwealth’s overhaul of the International Arbitration Act 1974 in 2010.[15] The ‘real danger of bias’ test was added to CAA as a ‘Model Law plus provision’, with the intention of reducing limiting the use spurious challenges to arbitrators as a ‘guerilla tactic’ in arbitrations seated in Australia.
Martin J applied the observations of Ball J in Hancock – despite being technically obiter,[16] with two small, but important qualifications.
First, Martin J qualified that where Ball J in Hancock stated that “the test stated by s 12 requires a real danger of actual bias“[17] (emphasis added), Martin J did not read this to mean that there can no longer be a challenge made for apparent or ostensible bias.[18] This is correct – the ‘real danger of bias’ test is not intended to preclude challenges for apparent bias (apparent bias being almost always the challenge to an arbitrator). Rather, Martin J discerned that Ball J was articulating that the ‘danger‘ must be “towards some problem with the arbitrator that is tangible from an independence or impartiality perspective – such as for instance, a declared prejudgment, or by a close prior relationship that is inconsistent with proper independence“.[19] This clarification is important as it provides insight into the elevated risk and seriousness that comprises the test of ‘real danger’. Martin J’s clarification also removes any uncertainty regarding whether the ‘real danger of bias’ test limits challenges to actual bias (it does not).
Martin J’s second qualification was that, although s 12(5) and 12(6) of the CAA were drafted to endorse and adopt the Gough test, it is the words of the legislation to which final recourse must be had.[20] As such, whether or not the ‘real danger of bias’ test is met, depends on the underlying facts. Martin J opined that this test may be met where it is shown an arbitrator had a “subjectively declared attitude or manifested propensity” which would indicate prejudgment of issues.[21]
Martin J determined that the correct test to be applied to assess whether there were ‘justifiable doubts’ as to the independence or impartiality of the arbitration was the ‘real danger of bias’ test, and not the ‘reasonable apprehension of bias’ test. That is, “justifiable doubts” will only be established if “there is a real danger of bias” in conducting the arbitration.[22]
Martin J confirmed that the ‘real danger of bias’ test appears to endorse a higher threshold for challenge, as compared to the previous common law test of ‘reasonable apprehension of bias’, as was clearly set out in Hancock at [15].
b. There were no ‘justifiable doubts’ as to the independence or impartiality of the appointed arbitrator
In applying the s 12(6) ‘real danger of bias’ test, Martin J confirmed that the only relevant circumstances for consideration, are the circumstances as they exist at the time of the enquiry.[23] As for the circumstances to be taken into account, Martin J cited Ball J in Hancock at [36], where Ball J expressed:
“what might occur in the future is not relevant to the question whether there are grounds for challenge now. Whether there are grounds for challenge now must be judged by references to the circumstances as they currently exists.”
Ball J in Hancock at [19] opined that the ‘real danger of bias’ test “is stated as a purely objective one. The question is whether objectively the required condition is met, not whether it is met from the perspective of a reasonable lay person“. Martin J disagreed with the applicant’s submission that the ‘real danger of bias’ test should be viewed form the ‘reasonable bystander’ or ‘reasonable man’.[24] It is clear that Martin J proceeded on the basis of applying the ‘real danger of bias’ test from an objective perspective (this being the vantage point from which all arbitrator challenges must be assessed under common law).
In evaluating the circumstances as they presently existed in the Application, Martin J observed that Mr Machell had provided an expert opinion, but had not been notified he was required to give evidence in the District Court Proceedings. Those proceedings concerned unrelated issues and parties to the arbitration.[25] Martin J found that the indirect and ad hoc connection of providing an expert opinion to the solicitors acting for a wholly unrelated client, cannot be said to constitute a ‘relationship’.[26] Further, the applicant failed to: (i) satisfactorily articulate a relevant connection that bears upon the independence or impartiality of Mr Machell; and (ii) prove, on the balance of probabilities, that Mr Machell’s engagement as an expert might cause him to conduct the arbitral proceedings, in a manner that is not in accordance with its legal or factual merits.[27] Martin J opined that, engagement as a past expert in unrelated proceedings, “does not, on its own, give rise to justifiable doubts over impartiality or independence“.[28]
Martin J found that there was no real danger of bias in Mr Machell conducting the arbitration, and there were no justifiable doubts over his impartiality or independence.
By way of obiter, Martin J commented that “[i]t was not suggested for instance that Mr Machell had been engaged on a retainer of some kind – to exclusively provide expert evidence to Vogt Graham’s clients in building disputes” .[29] This comment gives some indication of what the Court may consider constitute a ‘real danger of bias’ in future proceedings.
Finally, the applicant also sought to assert that Mr Machell failed to disclose the alleged ‘relationship’ under s 12(1) of the CAA. Martin J found that, as there was no real danger of bias in Mr Machell conducting the unrelated arbitration as a privately appointed arbitrator, there was no relevant matter for Mr Machell to disclose under s 12(1) of the CAA.
4. Comment
The Grieve decision applies the observations of Ball J in Hancock in the Western Australian Supreme Court, and provides two important qualifications, as set out above. The decision confirms that the relevant test to be applied for s 12(3) of the CAA is whether “there is a real danger of bias” in conducting the arbitration, and this is to be assessed based on circumstances known at the time, from an objective perspective. As noted above, Martin J’s decision also clarifies that the ‘real danger of bias’ test is not intended to preclude challenges to arbitrators based on the appearance of bias, the appearance of bias (rather than actual bias) being almost always the basis on which challenges to arbitrators are brought.
The dismissal of this Application confirms that the elevated test of ‘real danger of bias’ is performing as intended by the drafters of the legislation. In both domestic and international arbitration, procedural applications, including arbitrator challenges, are used as a common ‘guerilla tactic’ to either delay proceedings or increase costs of proceedings. With the elevated test for arbitrator bias challenges in place, Australia is more attractive as a nominated seat for arbitration.
__________________________________________
[1] Bernard George Grieve and Christine Rae Grieve and Dissoudre Pty Ltd (ACN: 009 380 410) T/As BG Grieve Builder v Brian Robert Gould [2022] WASC 413 (Grieve) – delivered 5 December 2022.
[2] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724.
[3] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724.
[4] Grieve , [5].
[5] Grieve, [8].
[6] Grieve, [10].
[7] Grieve, [11].
[8] Grieve, [16].
[9] Grieve, [35].
[10] Grieve, [49].
[11] Grieve, [54].
[12] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724.
[13] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSCA 152.
[14] Grieve, [25]-[26].
[15] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724, [16].
[16] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724.
[17] Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724, [19].
[18] Grieve, [56].
[19] Grieve, [56].
[20] Grieve, [57].
[21] Grieve, [57].
[22] Grieve, [59].
[23] Grieve, [67].
[24] Grieve, [66].
[25] Grieve, [68].
[26] Grieve, [68].
[27] Grieve, [69].
[28] Grieve, [70].
[29] Grieve, [70].