WESTERN AUSTRALIA SUPREME COURT REAFFIRMS ‘REAL DANGER OF BIAS’ TEST FOR CHALLENGES TO ARBITRATORS

The Supreme Court of Western Australia has confirmed that the appropriate test for determining whether there were any ‘justifiable doubts’ as to the independence or impartiality of an arbitrator, under the Commercial Arbitration Act 2012 (WA) (CAA)[1] is whether there is a ‘real danger of bias’. In making its decision, the Court largely applied and upheld Ball J’s decision in Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724 (Hancock) (which we previously outlined here). This is a welcome decision that reaffirms a high threshold in challenging the appointment of an arbitrator in Australia, providing greater commercial certainty as to the operation of negotiated arbitration clauses.

TAKEAWAYS

• There is a continuing obligation on an arbitrator to disclose any circumstances that might give rise to ‘justifiable doubts’ as to their independence or impartiality;
• Any challenges to an arbitrator’s appointment should be made in light of these disclosures or any other current discernable facts (as opposed to an evaluation of matters that might arise in the future); and
• The test for determining whether there are justifiable doubts as to the independence or impartiality of an arbitrator is objective and imposes a high bar of proving, on a balance of probabilities, that there is a ‘real danger of bias’ on any challenger.

CONTEXT

Grieve (T/As BG Grieve Builder) v Gould [2022] WASC 413 (Grieve v Gould) concerned a challenge by the plaintiffs to the appointment of an arbitrator on the basis that he had recently provided an expert report to a 3^rd-party client of the defendant’s legal representatives in unrelated proceedings. The defendant opposed this challenge on the basis that no evidence was provided as to why this provision of professional services would cast justifiable doubts as to the arbitrator’s impartiality, noting that the relatively small construction industry in Western Australia would necessitate some degree of overlap in the provision of services on various matters.

DECISION

The Court dismissed the challenge brought by the plaintiffs, agreeing with the defendant that the practical realities of business would cause overlaps in the private sector. As such, the Court drew a distinction between a ‘professional relationship’ (as alleged to exist here by the plaintiffs) and a ‘personal relationship’ which was the basis of the authorities referred to by plaintiffs in giving rise to an apprehension of bias. Ultimately, the Court found that the “higher threshold for showing apparent bias in [the arbitrator] is manifestly not established”.

In reaching his conclusion, Justice Martin set out useful principles regarding:

1. the difference between the standard under the CCA (and more broadly the International Arbitration Act 1974 (Cth) (IAA) which adopts the same wording), and the UNCITRAL Model Law on International Commercial Arbitration (Model Law); and
2. the correct test to be applied in determining whether there are 'justifiable doubts' as to the independence or impartiality of an arbitrator under the CAA.

Difference between CAA and the Model Law

Section 12 of the CAA provides the process for challenging the appointment of an arbitrator. While mirroring the Model Law in substance (in that it reflects the requirement for there to be ‘justifiable doubts’ as to the independence or impartiality of the nominated arbitrator), the CAA additionally sets out the test for what constitutes ‘justifiable doubts’ in that context. Relevantly, section 12 of the CAA provides that must be ‘a real danger of bias’ in order to establish the existence of justifiable doubts as to an arbitrator’s independence or impartiality.

Test for justifiable doubts

Martin J accepted and applied Ball J’s observations in Hancock as setting out the appropriate test, with two qualifications. To summarise those observations, the real danger of bias test (as set out by Lord Goff in R v Gough [1993] AC 646) requires the court to first “ascertain the relevant circumstances from the available evidence” and then determine whether: “there was a real danger of bias on the part of the relevant member of the tribunal in question, in the sense that he might unfairly regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration by him.”[2] His Honour accepted Ball J’s view that the test under the CAA replaced the old common law test of ‘apprehended bias’ and consequently imposes a higher threshold.[3] A more detailed analysis of Ball J’s decision in Hancock is available here.

The two qualifications noted by Martin J in this decision were that:

1. while Ball J articulated the test as requiring ‘a real danger of actual bias’, the test does not necessarily preclude a challenge on the basis of apparent or ostensible bias; and
2. the ‘real danger of bias’ test may nonetheless be met by a reference to showing a subjectively declared attitude or manifested propensity by the arbitrator.

Ultimately, the decision in Grieve v Gould consolidates the legal position that there is a high bar for challenging an arbitrator’s appointment in Australia.

For more information, please contact Elizabeth Macknay, Partner, Leon Chung, Partner, Guillermo Garcia-Perrote, Executive Counsel, Ella Wisniewski, Senior Associate, Timothy Goyder, Senior Associate, Inigo Kwan-Parsons, Solicitor, and Ganeshmoorthy Chandrasekaran, Solicitor. or your usual Herbert Smith Freehills contact.

[1] And thus, the corresponding Commercial Arbitration Acts in force in other Australian states and territories.

[2]  [1993] AC 646, at [670]; [2022] NSWSC 724, at [21].

[3] [2022] NSWSC 724, at [15]