The Disclosed Relationship
You are the sole arbitrator in a construction dispute worth approximately 4.2 million. Before accepting appointment you signed a statement of independence disclosing that, eight years earlier, you had acted as counsel for the respondent's parent company in an unrelated financing transaction, and that you currently sit as co-arbitrator with the respondent's nominated counsel in two unrelated matters. You did not disclose that your spouse holds a modest shareholding, worth about 9,000, in the respondent's parent company, because you considered it immaterial. Six weeks into the proceedings, after the first procedural hearing and the exchange of pleadings, the claimant's counsel discovers the shareholding through a public register search and applies to the institution to remove you, alleging apparent bias. The respondent opposes removal, noting that you disclosed more serious matters and that the shareholding is trivial.
1. Assess the disclosure obligation you were under. Was the omission a breach, and does the size of the shareholding matter?
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The obligation is to disclose any facts or circumstances that may give rise to justifiable doubts as to independence or impartiality, judged from the perspective of a reasonable informed third party at the time of disclosure, not from the arbitrator's own view of materiality. The test is objective, and the arbitrator's belief that a matter is trivial is not the standard.
A direct financial interest held by the arbitrator's spouse in a party's parent company falls squarely within the category of circumstances that a reasonable party would want to know. The size of the holding is relevant to weight, not to the existence of the duty. A 9,000 holding is small in absolute terms, but it is still a financial link between the arbitrator's household and the respondent group, and its significance is magnified because the parent company stands behind the respondent's ability to pay any award.
The omission was therefore a breach of the disclosure duty, even though the two disclosed matters were, on any view, more serious. Disclosure is cumulative, not comparative: disclosing the graver matters does not license silence about a lesser one. The arbitrator should have disclosed the shareholding and let the parties decide what to do with it.
2. Apply the apparent-bias test to the facts. Would a reasonable informed third party conclude that justifiable doubts exist?
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The test is whether a reasonable, fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the arbitrator was biased. The observer is assumed to know the disclosed facts, the nature of the dispute and the institutional context.
Weighing in favour of doubts: the undisclosed shareholding is a direct financial connection to the respondent's corporate group; it was discovered by the claimant rather than volunteered; and the arbitrator's own assessment of materiality was wrong. Non-disclosure of a financial interest is treated more seriously than the interest itself, because it deprives the parties of the chance to evaluate it.
Weighing against: the sum is modest, the holding is indirect through a spouse, the parent is not the respondent, and the arbitrator disclosed two matters that are, on their face, more troubling, which suggests good faith rather than concealment.
On balance, the fair-minded observer would probably find that justifiable doubts exist, but the conclusion is not free from doubt. The decisive factor is the combination: a financial link plus a failure to disclose it plus the pre-existing professional relationships. The observer looks at the whole picture, and the whole picture is unfavourable.
3. The institution asks for your response. What do you say, and what outcome should you propose in the interests of the proceedings?
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The response should be candid and should not defend the indefensible. The arbitrator should acknowledge the omission, explain that it was an error of judgement rather than concealment, supply the full facts of the shareholding (identity of holder, size, acquisition date, and whether any dealing occurred during the arbitration), and confirm that no other family financial interests touch the parties.
On outcome, the arbitrator should not insist on remaining. Even if the institution were to reject the challenge, the award would carry a permanent challenge risk, and the claimant's confidence in the process would be compromised for the rest of the case. The proportionate proposal is to offer to resign, on terms that protect the parties: the arbitrator waives fees for work that must be repeated, and cooperates fully with the successor tribunal, including a handover note and availability for a short conference.
The arbitrator should also propose that the institution record the resignation as made in the interests of the proceedings rather than as an admission of bias, so that neither party can later use it as a finding against the other. That protects the record without obscuring the underlying error. The lesson to state plainly is that borderline financial links should be disclosed, not weighed by the arbitrator alone.