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24 May 2018
In General Construction Company Ltd ν Silver Leaf Developments Ltd,(1) the applicants applied to the Limassol District Court for the dismissal and replacement of an arbitrator. They argued that the relationship between the arbitrator and the respondents' main witness in the arbitration proceedings and his brother would lead a reasonable person to find that there was a real likelihood of bias. As a result, the applicants argued that the relationship between the parties constituted misconduct in arbitration proceedings.
The applicants discovered that the arbitrator was the majority shareholder of a Greek company whose other shareholder was the brother of the respondents' main witness. The Greek company was in turn connected with a Cypriot company involved in the same line of business, of which the main witness and his brother were directors, with the latter also being the sole shareholder. Further, among other things, the Greek company's website listed the Cypriot company's registered address as its place of business in Cyprus.
The respondents raised several arguments against the application and denied the business links and common economic interests between the two companies, stating that the indirect connection between the companies and the main witness's brother did not fall within the definition of misconduct or fulfil the criteria for removing an arbitrator. Further, the respondents argued that neither the arbitrator nor the main witness would receive any benefit or have any interest in the outcome of this specific arbitration. Likewise, any dispute between the arbitrator and the other arbitrator appointed in the proceedings would be resolved by a third arbitrator, which would safeguard the arbitration's impartiality.
The court proceeded to examine the arguments advanced by both parties and drew on the Supreme Court's analysis in Galatis v Savvides(2) and Bank of Cyprus v Dynacon Ltd.(3) In these cases, it was explained that arbitrators must comply with the rules of natural justice and that, given that the function of arbitrators is quasi-judicial, they must behave in such a way as to guarantee their impartiality.
The court subsequently referred to relevant passages from Halsbury's Laws of England, in which 'misconduct' is defined as "such a mishandling of the arbitration as it likely to amount to some substantial miscarriage of justice". Most cases depend as much on the terms of the reference and on the surrounding circumstances as upon the conduct of the arbitrator or umpire, and it is therefore difficult to provide an exhaustive definition of the term.
The court also approved the extract from Mustill & Boyd, Commercial Arbitration (2nd edition, 2001), according to which:
"Bias may arise either from a relationship between the arbitrator and one of the parties, or a relationship between the arbitrator and the subject matter of the dispute.
It is not, however, necessary to go as far as establishing actual bias, for the Court will in appropriate cases intervene if facts are proved which will lead a reasonable person, not knowing the arbitrator's true state of mind, to think it likely that there was bias. Typical of such cases are those where the person nominated has a formal and continues business relationship with one of the parties."
Applying the above principles, the judge accepted the applicants' submissions and reasoned that circumstances of bias may extend to situations similar to the present, whereby the arbitrator has a professional relationship and common business interests with the main witness of one of the parties and not with the parties themselves.
The court determined that the evidence presented to it concerning the names, business operations, offices and communications of the two companies was identical to the extent that they were inextricably connected and had the same financial interests. This fact, coupled with the nexus of relationships between the arbitrator and the other individuals, justifiably allowed the applicants to believe that the arbitrator could not act impartially in the arbitration.
Further, the court also condemned the fact that the specific nexus of relationships was never disclosed to the applicants by the arbitrator or the respondents and was instead discovered by the applicants. It was also irrelevant that neither the arbitrator nor the main witness had any interest in the specific arbitration procedure. The court reasoned that it was sufficient for the purposes of misconduct to act in a way which caused the applicants to lose the trust and confidence that they had placed in the arbitrator and thus ordered his dismissal.
Despite the court observing that the modern tendency of the courts has been to restrict court interference with arbitration procedures, this case concerned the paramount issue of an arbitrator's impartiality.
The courts will carefully scrutinise any allegation of bias and both parties and arbitrators should disclose any connection that they may have with each other.
For further information on this topic please contact Constantinos Pashiardis at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (email@example.com). The George Z Georgiou & Associates website can be accessed at www.gzg.com.cy.
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