LCIA Challenge Decisions 2012-2017

Key Take-Aways 

With this set of decisions, the total number of decisions published has increased to 84. For the first time, the LCIA has provided the full texts of the decisions with only limited redactions that were required to ensure confidentiality. This allows for direct review of the submissions made by parties during the challenge process and offers clarity on the LCIA Court’s reasoning in arbitrator challenges. The decisions also illustrate how challenges are resolved with reference to standards such as the IBA Guidelines on Conflict of Interest and the UK Supreme Court’s landmark ruling in the Halliburton v Chubb ^[2] case on apparent bias. 

The decisions reiterate that challenges remain rare and successful challenges are even more exceptional. Between 2017 and 2022, a total of 39 challenges were brought before the LCIA (32 applications submitted under the LCIA Rules and 7 under UNCITRAL Rules), with a very low success rate of only two being upheld. Additionally, in six cases, a formal decision was not required due to arbitrator resignations or the withdrawal of the challenge or underlying claims.

A review of these numbers shows that the success rate of the challenges stands at 3%; and only 0.05% of the total cases (1,864) resulted in successful challenges. The nature of challenges varies but most commonly they are based on dissatisfaction with procedural decisions. The LCIA Court decisions reaffirm that challenges based on procedural decisions are unlikely to succeed. These decisions emphasize that tribunals are vested with broad discretion to manage proceedings (also in line with Article 14.2 of the LCIA Rules, which grant tribunals wide discretion) and that, party dissatisfaction with how this discretion is exercised does not, in itself, give rise to justifiable doubts as to an arbitrator’s impartiality or independence. Unless there is compelling evidence of bias or misconduct, the LCIA Court is reluctant to intervene. 

Another common ground for challenge relates to alleged connections due to the arbitrator and one of the parties having a direct or indirect connection, which allegedly could undermine the arbitrator’s independence and impartiality. 

It is also important to note that the LCIA encourages including decisions related to cost allocation, and the LCIA Court has mostly dealt with this matter. 

Notes from Decisions Where the Challenge is Upheld

As stated above, there are only two decisions where the challenge was upheld. 

The first successful challenge was made pursuant to Articles 12 and 13 of the UNCITRAL Arbitration Rules 2020, against an arbitrator appointed by the respondent^[3]. The seat of the arbitration was Rio de Janeiro, Brazil, and the law governing the contract was Brazilian law. 

The challenge was based on circumstances that raised justifiable doubts as to the arbitrator’s independence and impartiality. These included the arbitrator’s prior 20-year employment with the respondent, pending lawsuit against the respondent, collaboration on three ongoing academic projects with one of the respondent’s counsel, participation in events allegedly organized by the respondent, and a failure to disclose some of these connections.

All circumstances taken into consideration (including the longstanding employment and the ongoing lawsuit between them), the LCIA Court upheld the challenge. This decision highlights the LCIA Court’s readiness to sustain challenges in situations where a significant prior relationship may compromise the arbitrator’s impartiality. It is also worth noting that such an appointment would likely not have been allowed under the LCIA Rules. 

The second decision that was upheld by the LCIA Court was made pursuant to Article 10.3 of the LCIA Rules 2014, where the respondents challenged both the presiding arbitrator and one of the arbitrators (both selected by the LCIA Court)^[4] . The seat of the arbitration was London, England, and the law governing the contract was English law. 

The challenge against the presiding arbitrator was based on ties to (i) the country of a party’s controlling shareholder; (ii) a law firm alleged to have advised on relevant contracts and involved in wrongdoing; and (iii) the co-arbitrator, who was also challenged.

 The challenge to the other arbitrator related to that arbitrator’s ties to: (i) the Law Firm; and (ii) the presiding arbitrator. 

The LCIA Court upheld the challenge on the basis of the presiding arbitrators’ ties to the Law Firm taken into account the following circumstances: he/she previously worked as a consultant for the Law Firm for approximately 8 years, the two firms having a history of co-hosting p events, he/she engaged with lawyers from the Law Firm in some cases, and there were secondments and permanent moves of lawyers between the firms, his/her LinkedIn profile reflects close affiliation with the Law Firm and a similar statement appears on an arbitration website, he/she participated in a regional legal alliance in which the Law Firm was a founding member, he/she been active in professional organizations and committees that facilitated ongoing interaction with lawyers from the Law Firm, the Law Firm referred a case to him/her 15 years ago and he/she previously shared office space with the Law Firm and maintains personal friendships with individuals at the firm.

These overlapping connections served as the basis for the challenge, reinforcing the importance of transparency and perceived impartiality in arbitrator appointments.

The other arbitrator’s links with the Law Firm were also sufficient to uphold the challenge. 

The decision also sets out that these conclusions remain valid irrespective of the standard applied in evaluating “justifiable doubts.” Whether one adopts the subjective approach—focusing on the perspective of any party, as reflected in Article 5.5 of the LCIA Rules and General Standard 3(a) of the IBA Guidelines—or the objective test under English law, which considers the view of a fair-minded and informed observer, the outcome is the same.

Notes from Decisions Where the Challenge is Rejected

In related cases it is common for parties to appoint the same arbitrators. However, this one its own, is not a sufficient ground for a challenge and the LCIA Court rejects such challenges^[5] . 

In Decision 5, the claimant challenged the arbitrator appointed by the respondent under Articles 10.1(iii) and 10.3 of the LCIA Rules 2014. The seat of the arbitration was London, England and the law governing the contract was English law. 

The LCIA Court held that the mere fact that the arbitrator had issued a final award in a prior case involving overlapping subject matters was not enough on its own to establish apparent or actual bias. The LCIA Court further notes that a respected and experienced arbitrator, as in this case, is expected to approach each new case independently with an open mind and ensure a fair process. It further emphasizes that as long as procedural fairness is maintained, repeated appointment is not sufficient for disqualification.

The decision also clarifies that irrespective of how Section 2.1.2 of the Waivable Red List and Section 3.1.5 of the Orange List in the IBA Conflicts Guidelines are interpreted, the IBA Guidelines do not take precedence over English law or the LCIA Rules agreed upon by the parties.

In Decision 21, the LCIA Court notes that when parties agree to appoint the same tribunal in related arbitrations, they accept that the tribunal may reach findings in the first case that could be unfavorable to one party. As such, a party cannot later challenge the tribunal’s impartiality on that basis. Moreover, the tribunal’s need to reference prior proceedings for evidentiary or procedural purposes does not, in itself, compromise impartiality.

Another noteworthy decision of the LCIA Court relates to a challenge made by a respondent against one of the arbitrators (nominated by the parties from a list provided by the LCIA) pursuant to Article 10.3 of the LCIA Rules 2014. The seat of the arbitration was New York, United States of America and the law governing the contract was New York law. 

The challenge was raised as the arbitrator had a connection with the quantum expert engaged by the claimant. This expert was also acting as an expert under the direction of the arbitrator's own law firm in an unrelated arbitration where the arbitrator was the lead counsel. Given the current circumstances (the arbitrator did not choose or engage the expert in the unrelated arbitration, had not substantially worked with the expert, and the subject matters were different), the LCIA Court rejected the challenge but cautioned that if their working relationship intensified during the arbitration, the outcome may be different. 

Conclusion

These decisions are highly valuable for users, counsel and arbitrators, they enhance transparency and provide guidance and important benchmarks to all parties on standards of conduct in future procedures. The LCIA provides valuable insight into the LCIA Court’s reasoning and the evolving standards governing arbitrator challenges.