Norbrook Laboratories Ltd v Tank & Anor

In an arbitration conducted under institutional short-procedure rules, a termination notice must unequivocally identify the date on which the procedure ends. A costs sanction following termination requires the arbitrator to identify the relevant criteria, decide whether to exercise the discretion, and assess reasonable compensation.

An arbitrator’s unilateral contact with parties or witnesses is generally impermissible where it risks undisclosed evidence or submissions. Any power to investigate facts must be exercised consistently with fairness and transparency. Failure to record and disclose what potential witnesses said may create a real possibility of bias and substantial injustice, justifying removal of the arbitrator and setting aside an award.

Norbrook and Moulson were parties to an arbitration concerning a methanol recovery plant. The arbitration was conducted under the Institution of Chemical Engineers’ Short Procedure Rules. Norbrook applied under sections 24 and 68 of the Arbitration Act 1996 for removal of the arbitrator and to set aside two decisions requiring payment of Moulson’s costs after Norbrook terminated the short procedure.

The applications raised issues concerning the validity and effect of notices under Rules 16.2 and 16.3, the arbitrator’s handling of costs and evidence, unilateral communications with the parties and potential witnesses, apparent bias, and serious irregularity.

1. Rule 16.2 notice. The letter of 22 September 2004 was not an effective termination notice. It was conditional on the outcome of mediation, did not identify with certainty when the procedure would terminate, and could equally be read as proposing a modified short procedure. The letter of 1 June 2005 was an unequivocal notice, effective when received on 2 June 2005.
2. Rule 16.3 costs. Once a valid notice was given, the arbitrator had to decide whether to exercise the discretion to award costs, identify the relevant criteria, ascertain the costs incurred up to the notice, and assess reasonable compensation. The arbitrator failed to give reasons for awarding the whole sum claimed. That omission was an irregularity potentially relevant to an appeal under section 69, but it did not itself amount to serious irregularity under section 68 or justify removal under section 24.
3. Unilateral communications. Unilateral telephone communications with parties are generally to be deprecated. The arbitrator’s later call to Norbrook’s managing director dealt with the substance of the case, bypassed solicitors, and was contrary to the procedural fairness required by the Rules. It caused no substantial injustice because its content was promptly disclosed and did not affect the decision.
4. Contact with witnesses and apparent bias. Rule 7.4(e) permitted the arbitrator to investigate facts, but that power was subject to fairness under Rule 1.1 and section 33 of the Arbitration Act 1996. Where an arbitrator contacts a potential witness privately, each party must have an opportunity to question the witness or, at minimum, receive an accurate record of what was said. The arbitrator’s failure to record and disclose his conversations with three potential witnesses exposed him to information which might consciously or unconsciously influence his decision.
5. Applying the fair-minded and informed observer test, there was a real possibility that the tribunal was biased. Substantial injustice was inferred. The arbitrator was removed under section 24, and the Second Decision was set aside under section 68. No other alleged irregularity independently justified that result.

This was a first-instance application in the High Court (Commercial Court). The judgment determined applications under sections 24 and 68 of the Arbitration Act 1996 arising from the arbitration.