Getting too close to an arbitrator should start sounding warning bells for construction firms, after a well-known arbitrator was removed from a multi-million pound dispute.  The case centred on an arbitrator who had worked regularly with the same firm, frequently finding in its favour.

Energy solutions specialist, Cofely, was appointed to develop and operate energy services for the Olympic Park and Westfield Shopping Centre. After a number of disputes with the developers it appointed Knowles, a firm of claims consultants, to advise on a success fee basis.  When Cofely became concerned about Knowles’ performance it entered direct negotiations with the developers and settled all the claims.

Knowles heard about the settlement and alleged that Cofely had breached its success fee agreement, claiming £3.5m in lost fees.  Knowles took their claim to arbitration and approached the Chartered Institute of Arbitrators, which appointed Mr Tony Bingham as arbitrator, despite opposition from Cofely.  Mr Bingham signed an Institute form to confirm his impartiality.

After the arbitration had started, Cofely became aware of the case of Eurocom Ltd v Siemens where it was alleged that Knowles had fraudulently misrepresented itself when seeking Mr Bingham’s appointment.  As a result, Cofely wrote to Knowles to find out more about their prior involvement with Mr Bingham.  It transpired that he had been involved in numerous arbitrations where Knowles had been a party, most of which were found in favour of Knowles.  In fact almost 25{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} of Mr Bingham’s income came from cases involving Knowles.  The dispute ended in the Technology and Construction Court where the judge ordered the removal of Mr Bingham from the arbitration on the grounds of apparent bias.

People are usually more comfortable working with people they know, rather than strangers,” said James Burgoyne – Director, Claims & Technical, Brunel Professional Risks.  “But this can be dangerous if an arbitrator or adjudicator appears too close to one of the parties.  Construction firms should take great care in the selection of arbitrators and adjudicators to avoid subsequent accusations of bias and attempts to challenge a positive decision in the firm’s favour. Firms should also be conscious that professional indemnity policies often contain exclusions relating to adjudicators who are not independent of the parties.

Reports about the case have been published by and by law firms DWF and Eversheds.