The Norwegian Supreme Court clarifies the impartiality test for arbitrators under the Norwegian Arbitration Act

Key takeaways

As the NAA is based on the UNCITRAL Model Law and the decision is partly based on the IBA Guidelines, the ruling from the Supreme Court provides important clarifications from both a Norwegian and an international perspective:

• The ruling clarifies that an arbitrator’s connection to a law firm handling an unrelated, modestly sized engagement for one of the parties does not, in itself, indicate partiality. Instead, the Court will look to the nature, scope, and materiality of the law firm’s engagement. This holistic approach mirrors the approach of major arbitration jurisdictions.
• The Supreme Court’s statement that breach of the disclosure obligation may affect the impartiality test in borderline cases underscores the need for arbitrators to be transparent. A failure to disclose any parallel client relationship could jeopardise arbitral proceedings if it is deemed material to the matter at hand.
• Consequently, parties arbitrating in Norway can be confident that the system upholds robust fairness principles while maintaining the flexibility that is vital in commercial disputes.

Factual background

The dispute revolved around an arbitral award that held that two shareholders in a Norwegian company had breached a shareholders’ agreement. The award was unanimously delivered by a panel of three arbitrators, comprising a Supreme Court Justice as presiding arbitrator, a professor at the University of Oslo, and a partner at one of the largest law firms in Norway. The latter was appointed by the District Court pursuant to the NAA Section 13 (4). Prior to the appointment, the partner conducted internal checks, revealing that his law firm had an ongoing engagement for one of the parties concerning an environmental law issue. Since the attorney was not personally involved in the engagement, the issues were unrelated to the arbitration, and the engagement generated a limited fee, he considered himself qualified to serve. This information was not conveyed to the parties before the arbitrator’s appointment, nor was it disclosed by the party who maintained a client relationship with the law firm.

After the arbitral award was issued, the two shareholders filed an action to set aside the award in the Norwegian courts. None of the alleged grounds for invalidity succeeded in the District Court or the Court of Appeal. By the time the case reached the Supreme Court, the only remaining ground of challenge was the arbitrator’s alleged impartiality.

The NAA backdrop

The NAA is based on the UNCITRAL Model Law. Pursuant to the NAA Section 43 (1)(d), an arbitral award may only be set aside as invalid if “the arbitral tribunal was incorrectly composed”. This requirement is met if one of the arbitrators was disqualified from serving. According to the NAA Section 13 (1), the requirement for arbitrators is a duty to be “impartial and independent of the parties”. Furthermore, Section 14 (2) provides that an objection to an arbitrator’s impartiality may only be raised “if there are circumstances that give rise to justifiable doubts about the arbitrator’s impartiality or independence”.

The Supreme Court decision

The Supreme Court initially noted that the threshold for disqualification under the NAA Section 14 (2) largely follows the same principles as those found in the Norwegian Courts of Justice Act [Nw.: domstol­loven]. Deviations may however occur where justified by the particular features of arbitration or by the goal of achieving a unified international practice. The Supreme Court emphasised that there is a societal interest in ensuring the arbitral process appears trustworthy, even if the importance of public confidence is not as prominent as in the state courts.

Drawing guidance from Norwegian case law and the IBA Guidelines, the Supreme Court held that the impartiality test depends on a broad assessment in which the character, scope, and duration of the client relationship play a key role. If the matter was handled by other attorneys at the firm, the size and structure of the firm, as well as the attorney’s role at the firm, may be relevant. Accordingly, the arbitrator will be identified with the law firm where he or she is otherwise employed, although there may be grounds to depart from this principle if the engagement is more modest in scope.

According to the Supreme Court, the starting point must be that if the attorney’s law firm handles a matter of non-trivial scope for one of the parties during the arbitration, the attorney is disqualified from serving as an arbitrator. This applies even if the client relationship is managed by other attorneys in the same firm. The arbitrator’s handling of the duty of disclosure is also a consideration. Under the NAA Section 14 (1), this duty is described as an obligation to disclose any circumstance that could create justifiable doubts about the candidate’s impartiality or indepen­dence. In cases where the District Court appoints the arbitrator under the NAA Section 13 (4), the Supreme Court found that the obligation is satisfied if the candidate provides the District Court with information about the relevant issue. The Supreme Court stated, however, that it is primarily in borderline cases that any breach of the duty of disclosure may have an independent impact on the outcome of the impartiality test.

Based on these considerations, the Supreme Court concluded that the client relationship fell substantially short of triggering disqualification. First, the Supreme Court noted the relatively low overall fees (NOK 1.9 million including VAT over six years), which must be regarded as insignificant for the law firm, given its turnover exceeding NOK 1 billion in the year the arbitrator was appointed.  Second, the arbitrator had no personal involvement in the assignment, which was handled by a separate attorney in a different department. Third, the firm was of substantial size (more than 240 lawyers). Consequently, both the nature and scope of the engagement weighed against disqualification.

Although the Supreme Court found that the arbitrator did not disclose the relationship to the District Court, this was not considered to be decisive for the impartiality test in view of the other circumstances of the case.