## Facts

- Hyundai Heavy Industries Co. Ltd. contracted to build a drilling rig for K/S Norjarl A/S under an agreement containing a standard three-member arbitration clause.
- The arbitration clause did not address arbitrators’ remuneration, and the arbitrators accepted appointment without discussing fees.
- Hyundai appointed Cedric Barclay as its arbitrator; Norjarl appointed Stewart Boyd QC; those two appointed David Steel QC as chair. After Barclay died, Hyundai appointed John Estes as replacement.
- Because the parties sought to reserve an extended hearing block far in the future, Steel and Boyd indicated they would reserve the time only if paid an advance, nonrefundable “commitment fee,” payable even if the arbitration settled or did not proceed.
- Hyundai refused to accept the commitment-fee arrangement. Norjarl indicated willingness to negotiate the fee directly with the arbitrators, which Hyundai opposed.
- The commitment-fee proposal was ultimately withdrawn, and the arbitration was capable of proceeding on ordinary fee terms.
- Hyundai applied to the Commercial Court to remove Steel and Boyd for “misconduct,” relying on (i) the commitment-fee proposal and (ii) the prospect of fee negotiations occurring with only one party.

## Issues

1. Whether proposing or insisting on a nonrefundable advance “commitment fee,” not disclosed at appointment and not agreed by both parties, constitutes arbitrator misconduct supporting removal.
2. Whether fee discussions conducted with only one party can amount to misconduct or create a reasonable apprehension of bias justifying removal.
3. If misconduct exists, whether the court should exercise its discretion to remove the arbitrators.

## Decision

- The court held that an arbitrator who insists on a fee arrangement not disclosed at the outset and not consented to by all parties commits misconduct.
- The court treated the proposed nonrefundable commitment fee as an improper attempt to introduce a new remuneration term after appointment.
- The court recognized the impropriety and risk in negotiating remuneration with only one party, as it may affect perceptions of impartiality.
- Despite these concerns, the court declined to remove Steel and Boyd, emphasizing that the fee proposal had been withdrawn and that removal is discretionary.

## Legal Principles

- By accepting appointment, an arbitrator enters a tripartite arrangement with both parties requiring impartial performance; the parties are obliged to pay reasonable fees and expenses for work done.
- Arbitrators must disclose at or before acceptance any special fee term on which they intend to insist; a fee term cannot be imposed without the consent of all parties.
- Insisting midstream on an undisclosed or unilateral fee term—especially a nonrefundable advance payment unrelated to work performed—constitutes “misconduct” in the arbitral-removal sense.
- Separate remuneration negotiations with one party are generally improper because they can create an appearance of partiality; fee arrangements should be transparent and structured to preserve equal treatment.
- Even where misconduct is found, removal is not automatic; the court has discretion and will consider the seriousness of the conduct, any risk to future impartiality, and the parties’ subsequent stance toward the tribunal continuing.

## Conclusion

The Commercial Court held that arbitrators may not insist, after appointment, on undisclosed and nonconsensual remuneration terms such as a nonrefundable commitment fee, and that unilateral fee dealings with one party are improper; however, the court exercised its discretion to refuse removal where the proposal was withdrawn and the circumstances did not justify displacing the tribunal.


K/S Norjarl A/S v. Hyundai Heavy Indus. Co. Ltd., [1991] 1 Lloyd’s Rep. 260 (Q.B. 1990)