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Contract Arbitrations and Satellite Litigation – High Court Ruling

Arbitration, is, on thew whole, a faster and more cost effective method in which to resolve a dispute, certainly more cost effective than litigation.  

It is however, open to abuse.  Whilst Arbitration decisions are binding on the parties, it is becoming increasingly common in high value arbitration that the ‘losing’ party will appeal against a decision on the basis the arbitrator showed bias.  This is one of the only genuine grounds for disputing an arbitrators decision.

The court’s are wise to this tactic and have little time for such applications unless there is real merit to any such application.

The case below is a prime example of how not to make arbitration cost effective.

Arbitration proceedings are supposed to be a cost-effective and binding means of resolving contract disputes – however, they are all too often productive of satellite litigation. That was certainly so in one case in which the appointment of an arbitrator to a panel of three was so contentious as to require two High Court hearings.

A company had settled litigation in America for a very substantial sum and sought to recover is loss from insurers. The latter, however, refused to pay on the basis that the settlement had been unreasonable and that they had not agreed to it. The insurance policy provided for any disputes arising to be resolved by a panel of three arbitrators in London.

The company and the insurers each appointed one arbitrator but could not agree on the identity of the third. That resulted in a contested hearing which culminated in a judge appointing the insurers’ preferred arbitrator to fill the third chair. However, further proceedings ensued after the company argued that the arbitrator had given an appearance of bias and should therefore be replaced.

It was, amongst other things, submitted that his impartiality was put in doubt after he accepted appointment to two other linked sets of arbitration proceedings. In rejecting those arguments, however, the Court noted that, if there was any degree of overlap between the issues raised in the various proceedings, it was only minor.

The arbitrator was well known and highly respected as an expert in the insurance field and no concerns had been raised as to his integrity. None of the points relied upon by the company gave rise to a real possibility that his impartiality would be doubted by a fair-minded and informed observer.

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MLA 2017 18 Shortlisted 2