MALAYSIA: HIGH COURT APPLIES HALLIBURTON V CHUBB ON ARBITRATOR APPARENT BIAS AND THE DUTY OF DISCLOSURE

In Low Koh Hwa @ Low Kok Hwa (practising as sole Chartered Architect at Low & Associates) v Persatuan Kanak-Kanak Spastik Selangor & Wilayah Persekutuan and another case (Originating Summons Nos. BA-24C(ARB)-4-05/2020 and BA-24C-87-09/2020), the High Court allowed an application to set aside an award on the basis that (i) arbitrator apparent bias resulted in the award being in conflict with the public policy of Malaysia, and (ii) a breach of the rules of natural justice occurred during the arbitral proceedings or in connection with the making of the award (section 37(1)(b)(ii) and (2)(b)(i) of Malaysia’s Arbitration Act 2005 (the Malaysian Act)). In doing so, it provided valuable insight into how the principles on arbitrator bias and an arbitrator’s duty of disclosure as recently restated by the UK Supreme Court in Halliburton Co v Chubb Bermuda Insurance Ltd [2020] UKSC 48 (Halliburton) (discussed in our blog post here) are applied in Malaysia.

Background

The dispute between Mr. Low Kok Hwa (Low) and Persatuan Kanak-Kanak Spastik Selangor & Wilayah Persekutuan (the Association) arose in relation to architectural consultancy services provided by Low for the redevelopment of the Association’s building in Selangor. Low claimed that he had completed his consultancy services but was not paid in full by the Association. Low’s claim was referred to arbitration before a sole arbitrator (Arbitrator), in which the Association was represented by its Honorary Director and counsel.

An arbitrator’s duty of disclosure and the grounds for challenging the appointment of an arbitrator on the basis of apparent bias is set out in section 14 of the Malaysian Act, which provides the following:

(1) Any person who is approached in connection with that person’s possible appointment as an arbitrator shall disclose any circumstances likely to give rise to justifiable doubts as to that person’s impartiality or independence.

(2) An arbitrator shall, without delay, from the time of appointment and throughout the arbitral proceedings, disclose any circumstances referred to in subsection (1) to the parties unless the parties have already been informed of such circumstances by the arbitrator.

(3) An arbitrator may be challenged only if –

(a) the circumstances give rise to justifiable doubts as to that arbitrator’s impartiality or independence …

(4) A party may challenge an arbitrator appointed by that party, or in whose appointment that party has participated, only for reasons which that party becomes aware of after the appointment has been made.

On the first day of the hearing, Low (then unrepresented) was informed by the Arbitrator that the Arbitrator “know[s]” the Honorary Director. The transcript of the hearing reads as follows:

“Arbitrator: [Honorary Director], you can take your seat. Low, like I told you, I know [the Honorary Director]; I know [the Honorary Director], but it is not [the Association]. So it is inevitable that in this field, we know counsels [sic], we know about each other …”

Low did not challenge the Arbitrator’s appointment. 18 months after the hearing, the Arbitrator delivered his award, dismissing a majority of Low’s claims (Award). Low then applied to the High Court to set aside the Award under section 37 of the Malaysian Act on the basis that the Award was in conflict with Malaysian public policy in circumstances where Low contended that the Arbitrator had failed to provide sufficient disclosure of his relationship with the Honorary Director, amongst other grounds (including that the Award contained decisions on matters beyond the scope of the terms of the parties’ submission to arbitration). The main issues before the High Court were:

1. the extent of an arbitrator’s duty of disclosure under the Malaysian Act;
2. whether there was apparent bias by the Arbitrator in favour of the Association as a result of his relationship with the Honorary Director;
3. whether Low had lost the right to set aside the Award on the basis of his failure to challenge the Arbitrator during the arbitral proceedings; and
4. whether the circumstances warranted the court setting aside the Award.

Decision

(i) Duty of disclosure

The High Court confirmed that an arbitrator is under a continuing duty under Malaysian law to make full and timeous disclosure of facts and circumstances which are likely to give rise to justifiable doubts as to the arbitrator’s impartiality or independence. This requires an arbitrator to “disclose to the [p]arties all the relevant details which would enable a “fair-minded and informed observer” to decide objectively on whether there are justifiable doubts on the Arbitrator’s impartiality and/or independence … without delay”. The judge also adopted Halliburton in deciding that an arbitrator’s failure to make disclosure is relevant to assessing whether there are justifiable doubts as to the arbitrator’s impartiality.

The judge held that the factual circumstances warranted prior disclosure by the Arbitrator. Upon receipt of the Parties’ witness statements (including the Honorary Director’s statement), he failed to provide timeous disclosure of his relationship. There were two pivotal occasions where such disclosure should have been made:

1. Before the hearing – Low had provided the Arbitrator evidence in support of his claims, including letters from the Association which were signed by the Honorary Director. The judge concluded that the Arbitrator had actual knowledge prior to the hearing that the Honorary Director would be the Association’s sole witness in the arbitration. Yet, there was no evidence of disclosure at this stage.
2. On the day of the hearing – the Honorary Director was present when Loh gave his testimony. It was only after Loh had completed his testimony that the Arbitrator made his disclosure.

The Arbitrator also failed to provide any meaningful disclosure of his relationship  with the Honorary Director. The Arbitrator had merely informed the Parties that he ‘knew’ the Honorary Director. The court held that the Arbitrator should have provided relevant details to enable a fair-minded and informed observer to decide objectively on whether there were justifiable doubts on the Arbitrator’s impartiality and independence. These details included (i) how the Arbitrator knew the Honorary Director; (ii) what was the nature of the relationship, e.g. a family relationship, professional relationship or mere acquaintance; and (iii) the duration and proximity of the Arbitrator’s relationship with the Honorary Director.

(ii) The test for arbitrator apparent bias

The High Court considered that the applicable test for arbitrator apparent bias in Malaysia is the re-stated ‘real possibility of apparent bias’ test approved by Lord Hodge in Halliburton, i.e. “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”.

The court was satisfied that the Arbitrator’s relationship with the Honorary Director would lead a fair-minded and informed observer, having considered the facts, to hold an objective perception that there was a real possibility that the Arbitrator was biased towards the Association in the arbitration, and there existed a reasonable suspicion that the Arbitrator was partial towards the Association. The court arrived at this conclusion on the basis of (i) the Honorary Director’s role as a material witness to the dispute; (ii) the delay in the Arbitrator’s disclosure (there was no evidence of the Arbitrator’s purported earlier disclosure to Low); (iii) the lack of particulars in the Arbitrator’s disclosure; and (iv) a decision in the Award which addressed matters beyond the scope of the terms of the parties’ submission to arbitration, the outcome of which was unfavourable to Low).

(iv) No loss of right to set aside the Award

The Association argued that Low was estopped from setting aside the Award on the basis of the Arbitrator’s failure to provide full and timeous disclosure when Low failed to challenge the Arbitrator after his initial disclosure within the statutory time limit provided under the Malaysian Act. Section 15(1) of the Malaysian Act provides that any party who intends to challenge an arbitrator must submit a written statement to the tribunal of the reasons for challenging that arbitrator within 15 days after becoming aware of circumstances that give rise to justifiable doubts as to that arbitrator’s impartiality or independence.

The judge rejected this argument, stating that estoppel cannot be pleaded against an applicant’s failure within the arbitral proceedings to timeously object to an arbitrator’s failure to give full and timeous disclosure because the duty of disclosure is statutorily imposed by section 14(1) and (2) of the Malaysian Act. There was – according to the judge – no “good reason to limit any finding of [a] real danger of bias … only up to the stage of pre-delivery of [the Award]”.

(v) Impact on the Award

Having considered the above, the judge was satisfied that the Arbitrator’s failure to make full and timeous disclosure (i) was “material to the outcome of the [a]rbitration”, (ii) had “a real impact on the Award”, and (iii) were “significant and had affected the Award”. The judge also considered that the Arbitrator “would have reached a different decision if not for the [failure to make full and timeous disclosure]”. As a result, the High Court considered it appropriate to exercise its discretion to set aside the entire Award.

Comment

The main issues decided by the UK Supreme Court in Halliburton were (i) whether and to what extent an arbitrator is entitled to accept appointments in multiple arbitrations relating to the same or overlapping matters and where there is only one common party, without this resulting in an appearance of bias; and (ii) whether and to what extent an arbitrator could accept multiple appointments in this way without providing disclosure. Halliburton also confirmed the existence of a legal duty of disclosure in the context of arbitration under English law. The significance of the case to the wider international arbitration community is evident in its application to interpreting analogous provisions in the UNCITRAL Model Law on International Commercial Arbitration, which is adopted in various jurisdictions, including Malaysia.

Although this case did not concern multiple appointment issues similar to those decided in Halliburton, the decision is significant given that it is the first judgment in Malaysia to apply the re-stated principles of arbitrator bias set out in Halliburton for the purposes of determining the extent of an arbitrator’s duty of disclosure under Malaysian law and the threshold for setting aside an award for apparent bias.

The High Court acknowledged the difficulty in demonstrating apparent bias to the satisfaction of a Malaysian court and the highly fact-specific approach that will be taken. The decision is nevertheless helpful in providing clarity over an arbitrator’s legal duty of disclosure in Malaysian law in light of the Supreme Court’s judgment in Halliburton, and provides helpful guidance as to how Malaysian courts will assess any allegations of arbitrator apparent bias.

For further information, please contact Peter Godwin, Partner, Daniel Chua, Associate or your usual Herbert Smith Freehills contact.

Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.