C Ltd v D & X

Factual and Procedural Background

This judgment concerns an application by the Claimant ("C") under section 24 of the Arbitration Act 1996 to remove the Second Defendant ("X") as arbitrator in an LCIA arbitration between C and the First Defendant ("D"). The application was based on allegations that X had misrepresented their arbitration experience in their CV and responded defensively when questioned about it. During the proceedings, X resigned, rendering the removal order unnecessary. However, C continued to pursue the claim for costs, as D and X contested the challenge before the LCIA Court and in the section 24 application itself.

C and D are companies with philanthropic aims. C develops software, including a mobile app and database to assist refugees, while D is a non-profit federation focused on protecting displaced children. They entered into a licence agreement in August 2017, under which C licensed a platform to D to modify the app for child users. Following a grant secured with C's help, D sought to terminate the agreement in July 2018, which C contended was unjustified. Attempts at mediation failed, leading C to commence arbitration seeking unpaid fees, damages, and a declaration of intellectual property ownership.

The LCIA appointed X as sole arbitrator in November 2019 on an expedited basis. X had 35 years of experience as counsel, solicitor, and mediator but no prior appointment as arbitrator in LCIA arbitrations. X’s CV described extensive arbitration-related experience, including as counsel and arbitrator, though it was common ground that X had not previously sat as an arbitrator in LCIA proceedings.

C challenged X’s impartiality and conduct following X’s dismissal of C’s interim measures request and other procedural decisions, alleging apparent bias and lack of experience. Two challenges were filed with the LCIA Court, both rejected by the former Vice-President of the LCIA Court, Professor Uff QC. C then issued the section 24 application in the Commercial Court to remove X and sought costs against D and X.

X and D contested the application. X appointed solicitors and filed evidence denying the allegations, explaining the CV and appointment circumstances, and asserting competence. Negotiations for X’s resignation occurred alongside offers to settle costs. C also reported X to the Solicitors Regulatory Authority ("SRA") in January 2020, which was a significant factor in X’s decision to resign in March 2020. Following X’s resignation, C requested an order that X pay the costs of the application.

Legal Issues Presented

1. Whether the Claimant ("C") is the successful party entitled to costs following the resignation of the arbitrator ("X") during a section 24 application to remove X.
2. Whether the section 24 application to remove X had merit on the grounds of justifiable doubts as to impartiality or failure to properly conduct proceedings under the Arbitration Act 1996.
3. Whether costs should be awarded against the arbitrator ("X") and/or the First Defendant ("D") in respect of the section 24 application and related proceedings.
4. The appropriate exercise of the court’s discretion in awarding costs when proceedings are resolved without a trial and in the context of arbitration challenges.

Arguments of the Parties

Claimant's Arguments

• X deliberately misrepresented arbitration experience in their CV, which induced the LCIA to appoint X.
• X responded defensively and referred back to the allegedly false CV when questioned about arbitration experience.
• By X’s resignation, C achieved the relief sought and should be regarded as the successful party entitled to costs.
• D contested the application and the LCIA Court challenges, thus is an unsuccessful defendant liable for costs.
• The SRA referral was a professional obligation and not a tactical ploy; it was no barrier to continuing the arbitration or the section 24 hearing.
• C rejected settlement offers that would have resolved the dispute at lower cost.
• C sought that X pay costs due to conduct in the arbitration and opposition to the application.

First Defendant's Arguments

• X’s CV and conduct demonstrated sufficient experience and competence; lack of prior arbitrator appointments did not affect impartiality or proper conduct.
• Professor Uff’s decision properly addressed and rejected the challenges against X.
• D contested the section 24 application and sought costs against C due to C’s aggressive and unreasonable conduct prolonging the proceedings.
• D made reasonable settlement offers to resolve the dispute with each party bearing its own costs, which C unreasonably rejected.
• D’s legal representatives acted pro bono and seek a Protective Costs Budget Order (PCBO) for costs incurred post-offer rejection.

Second Defendant's (Arbitrator X's) Arguments

• X denied allegations of bias, incompetence, or misrepresentation.
• X’s CV accurately reflected extensive experience as counsel, solicitor, and mediator, though not as arbitrator prior to this appointment.
• The LCIA was aware of X’s lack of prior arbitrator appointments and appointed X due to mediation expertise relevant to the dispute.
• X opposed the section 24 application and engaged legal representation.
• X resigned only after the SRA referral, which made continuing untenable due to potential perceived bias and the burden of investigation.
• X offered to resign on terms retaining fees to date and without seeking costs.
• X invited no order as to costs or an order that C pay costs if the application was found to have no merit.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed whether the Claimant ("C") was the successful party entitled to costs. The court concluded that X's resignation was prompted by the SRA referral and not by the merits of the section 24 application. Since X had resisted the application and it was not clear that C would have succeeded had the matter gone to a hearing, C could not be regarded as the successful party against either X or D. D did not participate in X’s resignation and thus did not concede the claim.

In assessing the merits of the section 24 application, the court found it unlikely that C would have succeeded. The court accepted X's evidence that the LCIA was aware that X had no prior arbitrator appointments and that X’s CV was not misleading in a manner that would raise justifiable doubts as to impartiality or constitute a failure to properly conduct proceedings causing substantial injustice.

The court rejected C’s contention that X’s 1 May 2019 response was misleading or defensive in a way that would affect impartiality. The court applied the objective test for bias from Porter v. Magill and related authorities, concluding that no fair-minded observer would perceive a real possibility of bias based on the evidence.

The court considered settlement offers and noted that C had unreasonably rejected reasonable proposals to resolve the matter with each party bearing its own costs. The court found that the costs incurred after October 2019 were largely due to C’s insistence on pursuing a costs order.

Regarding costs orders against arbitrators, the court acknowledged the principle that arbitrators are generally protected from liability absent bad faith. Costs orders against arbitrators are rare and typically reserved for exceptional cases involving misconduct. The present case did not meet that threshold.

Balancing the factors, including the philanthropic nature of the parties and the pro bono representation of defendants, the court concluded it was appropriate to order C to pay only the costs of X’s junior counsel, who was not acting pro bono, and to make no further costs orders.

Holding and Implications

The court’s final decision was to DISMISS the Claimant’s application for costs against the First Defendant and the Second Defendant (arbitrator), and to order that the Claimant pay the costs of the junior counsel for the Second Defendant in respect of the section 24 application. There was no order as to the remainder of the costs.

The direct effect of this decision is that the Claimant bears the majority of its own costs and some costs of the arbitrator’s junior counsel, reflecting the court’s view that the Claimant was not the successful party and that the section 24 application was unlikely to succeed. No new precedent was established; the court applied established principles regarding costs discretion, arbitrator immunity, and the high threshold for removal of arbitrators. The judgment underscores the importance of objective assessment of success and merit in costs applications following arbitration challenges and highlights the rarity of costs orders against arbitrators absent bad faith or misconduct.