Kanchan Adik and Will Densham look at how conflict of interest can invalidate appointments made by the RICS and how parties should proceed in the face of suspected conflict
On 7 November 2014, Ramsey J in Eurocom Ltd v Siemens plc [2014] EWHC 3710 (TCC) refused an application to enforce the terms of an adjudicator’s decision which purported to give Eurocom a £1.6m award in its favour. The issue before the court was whether the appointment of the adjudicator was invalid because of the information provided to the RICS by Eurocom’s representative in the application for the appointment of an adjudicator. The court decided that the adjudicator should not have been appointed, which rendered the entire adjudication a complete waste of time (see Legal notes, EG, 17 January 2015, p61).
The surprising facts
In the application form, the RICS asked whether there were any adjudicators who would have a conflict of interest if appointed. Eurocom’s representative set out a list of candidates that should not be appointed. In justifying the list of candidates provided in the subsequent hearing to enforce the decision, the representative for Eurocom candidly admitted that he thought the box in the application form was largely used to state, based on past experience, the people who he would not like as an appointee. It was in effect a pre-emptive rejection list.
The court took the view that Eurocom’s representative had recklessly or deliberately made representations which operated to invalidate the process of appointment, making the appointment a nullity. This resulted in the decision that the adjudicator had no jurisdiction to make the relevant decision and so his award was invalid.
Since the case, the RICS has amended its application form so that, under the heading “conflicts of interest”, there is a reference to the Eurocom decision with a warning that a surveyor must be careful not to make any misrepresentation in filling out the form, as otherwise it may invalidate the appointment process and make a subsequent decision invalid and unenforceable.
The case has caused a bit of a stir. It has also raised wider issues over what would constitute a conflict both inside and outside the appointment process.
Conflicts of interest
We have seen a number of queries from clients as to how to proceed where there appears to be a conflict of interest. Taking the rent review world as an example, more and more negotiations are ending up in arbitration. This is likely to be a result of the sheer numbers of reviews that are being progressed in today’s buoyant market.
The rent review community is a specialist one and it only has a small pool of arbitrators with the experience required. This increases the chance of conflicts arising. For example, an arbitrator may be acting as a valuer in an arbitration of a similar property nearby or in respect of another floor in another arbitration within a multi-let building.
If an appointment is made without regard to representations made as to genuine conflicts, section 24(1) of the Arbitration Act 1996 provides parties with the right to apply for the removal of the arbitrator on the basis that circumstances exist that give rise to justifiable doubts as to his impartiality.
The test for an application under section 24(1) is from the House of Lords decision in Porter v Magill [2001] UKHL 67 – namely, would a fair-minded and informed observer, having considered the facts, consider that there was a real possibility that the tribunal was biased.
Once it has been established that there is an apparent potential conflict, it is important to consider the impact of challenging the arbitrator. For example, what if the court decides there is no conflict? As a matter of human nature, the arbitrator is unlikely to look upon the challenger’s case as favourably. Other issues to consider include the cost and delay caused by such an application as well as the likelihood of finding another arbitrator with the relevant skillset, independence and impartiality.
Move swiftly
Once a conflict is identified, it is important to act quickly to preserve rights. A party will lose its right to object if it continues to participate in the proceedings. A party could also lose its right to object not just if it had actual knowledge of the grounds to object but if it ought to have discovered the grounds with reasonable diligence (see the decision in Thyssen Canada Ltd v Mariana Maritime SA [2005] EWHC 219 (Comm)).
If both parties agree that the arbitrator should resign, he must step down. So, it is worth considering an early challenge and communicating with the opponent so that an agreement can be discussed. Although it might be thought that an opponent will always say no, as the appointee is by definition better for one party if he is worse for the other, when faced with the threat of costs and a convincing argument on bias, they may well agree for him to step down.
What next?
Eurocom may encourage parties, after publication of an unfavourable award, to look behind the appointment and consider bringing a jurisdictional challenge where they have been unsuccessful. It certainly gives another avenue of challenge to consider, given others are notoriously hard to succeed.
Conflicts of interest continue to be a very real problem with the dearth of third parties in various niche areas within the real estate market. It is inevitable that they will continue to arise but surveyors approached to act as third parties must think carefully about whether they can still proceed and take the appointment or face the risk of the professional embarrassment of being ordered by the court to step down.
Kanchan Adik is an associate and Will Densham is the head of the real estate litigation team in London at Eversheds LLP
