Tom French | Penny Bond | Charlie Clifton
- The Supreme Court of Western Australia has confirmed the appropriate test for determining whether there are any ‘justifiable doubts as to the impartiality or independence’ of an arbitrator under the Commercial Arbitration Act 2012 (WA) (CAA) is whether there is a ‘real danger of bias’.
- The real bias test provides that there must be a real danger of bias to challenge an arbitrator’s independence, making these types of challenges more difficult in Western Australia.
- The court will consider the nature of the relationship and the practical realities of business in the private sector when determining if there is a real danger of bias.
- There is a continuing obligation on an arbitrator to disclose any circumstances likely to give rise to justifiable doubts as to their impartiality or independence
The case concerned an application made by the plaintiff (builder) seeking orders that the arbitrator be removed in arbitral proceedings between the builder and the defendant (builder’s client).
The builder and client entered into a building contract which had been a subject of several disputes between the parties, including these arbitral proceedings under the Commercial Arbitration Act 2012 (WA) (CAA).
Under the contract, an arbitrator had been nominated and had agreed to act as the arbitrator. The builder’s solicitor, subsequently became aware that the arbitrator had been engaged as an expert for another client of the client’s solicitor in ongoing District Court proceedings.
This gave rise to the issue of whether there were justifiable doubts over the impartiality or independence of the arbitrator and the challenged the arbitrator’s appointment, which was dismissed by the arbitrator.
The builder then filed a motion in the Supreme Court challenging the arbitrator’s appointment.
The builder’s application
Initially, the builder challenged the arbitrator’s appointment based on the ‘reasonable apprehension of bias’ test. The builder then challenged the appointment based on the ‘real danger of bias’ test, submitting that:
- The ‘reasonable apprehension of bias’ test applied equally to arbitrators and judges.
- There was an apprehension of bias established in light of an ongoing and expected future professional relationship between the arbitrator and the client’s solicitor.
- The arbitrator’s impartiality was compromised by his ‘historic and ongoing relationship’ with the client’s solicitor and any income generated as a consequence of that relationship.
- The danger of bias was magnified by the client’s solicitor and the arbitrator failing to disclose the extent of their ‘relationship’
In response, the client submitted that:
- The practical reality of the building industry in Western Australia is that there is a limited number of arbitrators who are available to act in this kind of building dispute.
- The arbitrator is paid by a client of the client’s solicitor, rather than the client’s solicitor, so there is no relevant monetary connection.
- The arbitrator was independently appointed by the Master Builders Association and the client’s solicitor had no input into his appointment.
The court dismissed the builder’s application to have the arbitrator removed from proceedings.
In reaching its decision, the courtreiterated that the correct test is the stricter ‘real danger of bias’ set out in s 12(6) of the CAA, and not the ‘real apprehension of bias’ test that is used at common law and applies to judicial officers. The ‘real danger of bias’ test endorses a higher threshold for challenging an arbitrator on the basis of their impartiality or independence.
In making this decision, Martin J largely applied and upheld Ball J’s decision in Hancock v Hancock Prospecting Pty Ltd  NSWSC 724.
The threshold is higher because of the private nature of the arbitral process. Arbitrators are largely appointed from the private sector and privately remunerated by the parties, and so the threshold is higher for arbitrators than for independent judicial officers who usually operate in open court.
Martin J explained that the connection between the client’s solicitor and the arbitrator did not give rise to justifiable doubts over impartiality or independence. An arbitrator providing his expert opinion to the client’s solicitor’s client on an unrelated matter was vastly different to a barrister meeting with a trial judge in a personal capacity.
The only relevant circumstances were ‘circumstances as they currently exist’ and that potential future communications between the arbitrator and the client’s solicitor were outside the circumstances for evaluation.
The practical realities of business in the private sector were also considered. There are only a limited number of specialists in the local building industry qualified and available to be engaged as experts and arbitrators in proceedings arising out of building disputes. Therefore, it is likely that overlaps must occur from time to time.
The court concluded that there were no justifiable doubts over the arbitrator’s impartiality or independence.