This blog post was originally published on the Practical Law Arbitration Blog and is reproduced with the permission of Thomson Reuters.
In Halliburton Company v Chubb Bermuda Insurance Ltd, the UK Supreme Court dismissed Halliburton’s appeal concerning its application to remove an arbitrator for apparent bias on the facts. However, it also emphasised the importance of arbitrator impartiality in London-seated arbitrations. The judgment addresses the circumstances in which an arbitrator may appear to be biased and the scope of an arbitrator’s duty of disclosure in this context.
Background to appeal
Following the explosion of an oil rig in the Gulf of Mexico, legal claims were brought against the parties involved, including against Halliburton, which had provided services in relation to the rig.
Halliburton was insured by Chubb under a Bermuda Form liability insurance policy. Halliburton settled its legal claims and sought to recover these payments from Chubb under the insurance policy. When Chubb refused to pay out, Halliburton commenced arbitration proceedings in London.
Under the arbitration clause, the parties appointed one arbitrator each but, as they could not agree on the third, as chairman, the High Court appointed him.
The appointed arbitrator (R), then accepted appointments in two further references arising out of the same incident. In one of these, he was appointed by the rig owner (also insured with Chubb) to hear its claim against Chubb. Notably, R did not disclose these later appointments to Halliburton.
When Halliburton found out, it applied to the High Court under section 24(1)(a) of the Arbitration Act 1996 Act (AA 1996) to have R removed for lack of impartiality or apparent bias on the ground “that circumstances exist that give rise to justifiable doubts as to his impartiality”.
The High Court and the Court of Appeal refused Halliburton’s application and Halliburton appealed to the Supreme Court.
The principal issues raised in the appeal were:
- Whether and to what extent an arbitrator’s acceptance of appointments in multiple references concerning the same or overlapping subject matter (in this case, liability insurance claims arising out of the oil rig incident) with only one common party (in this case, Chubb), could give rise to the appearance of bias?
- Whether and to what extent an arbitrator can accept such appointments without disclosing them?
Answer to issue 1
The test for whether an arbitrator is impartial or biased under section 24(1)(a) of AA 1996 is the same objective test as exists at common law: “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”.
However, in the arbitration context, this test must be applied taking into account the differences between the judicial and arbitral determination of disputes, including: the private and consensual nature of arbitration; the limited nature of appeals; and arbitrators’ divergent views arising out of their differing expertise, jurisdictions and legal traditions.
There may be circumstances in which an arbitrator’s acceptance of appointments in multiple arbitral references involving a common party and overlapping subject matter would give rise to apparent bias. This will depend on the facts of the case, the arbitration clause in question, and the relevant arbitral customs and practices. This is because, in different subject matter fields of arbitration, parties have different expectations as to the degree of an arbitrator’s independence and differing views of the benefits of an arbitrator being involved in multiple related arbitrations. For example, in ICC arbitrations, interrelated arbitrations are uncommon, meaning that any such instances may more readily give rise to apparent bias, whereas in GAFTA and LMAA arbitrations, multiple appointments are common.
In making an assessment of bias, the court must consider the facts and circumstances known at the date of the court hearing of a party’s application to remove the arbitrator under section 24(1)(a) of AA 1996.
Answer to issue 2
An arbitrator in London-seated arbitrations has a legal duty of disclosure (the Supreme Court approved the Court of Appeal’s development of English law). An arbitrator must disclose known facts or circumstances which would or might reasonably cause the objective observer to conclude that there was a real possibility that the arbitrator was biased.
This duty does not override an arbitrator’s duties of confidentiality, and any disclosure will require the parties’ express consent unless this can be inferred from the customs and practices in the relevant field of arbitration.
If an arbitrator has accepted appointments in multiple arbitral references concerning the same or overlapping subject matter with only one common party, this is a matter which may have to be disclosed. This is because the common party to two overlapping arbitrations might obtain an advantage in the first arbitration by having access to information about an arbitrator’s responses to evidence or arguments advanced in the second arbitration. If the arbitrator fails to disclose the overlapping references, the party who is not common to the arbitral references is denied an opportunity to address the undisclosed matters.
However, whether an arbitrator needs to make disclosure depends on the customs and practices in the relevant field of arbitration. For example, while in GAFTA and LMAA arbitrations, there is an established practice by which parties are taken to have accepted that an arbitrator may take on multiple appointments without the need for disclosure, this practice does not exist in Bermuda Form arbitrations.
Lord Hodge held that
“[…] in cases where disclosure is called for, the acceptance of those appointments and the failure by the arbitrator to disclose the appointments, taken in combination might well give rise to the appearance of bias”.
In assessing whether an arbitrator has failed in its disclosure duty, the court must consider the facts and circumstances as at the time the duty arose, that is, at the time the arbitrator accepted an appointment in a potentially overlapping arbitration (and so long as the duty subsists).
Application to the facts
If Halliburton had been aware of R’s appointment in the second reference, it might have had concerns about the fairness of its arbitration due to the inequality of knowledge and opportunities to communicate with R. Therefore, at the time of R’s appointment to the second arbitral reference, “the existence of potentially overlapping arbitrations with only one common party was a circumstance which might reasonably give rise to the real possibility of bias” (emphasis added). Accordingly, R was under a legal duty at that time to disclose to Halliburton his appointment in the subsequent Chubb arbitration (and that it arose out of the same incident). His failure to do so was a breach of his legal duty.
However, at the time that the High Court heard Halliburton’s application to remove R, it could not be said, on the facts, that an objective observer would infer from R’s failure to disclose that there was a real possibility of bias. This was because:
- It was an oversight at a time when it was not clear whether English law imposed a legal duty of disclosure.
- The subsequent arbitrations had commenced several months after the Halliburton arbitration which would normally be expected to be heard first.
- R explained that the subsequent references were likely to be determined by preliminary issue so Chubb would not benefit from being a common party to these arbitrations and, if they were not so resolved, R had offered to resign from them.
- R had not received any secret financial benefit.
- It could not be inferred from R’s conduct, that he bore any unconscious ill will as a result of Halliburton’s challenge.
The Supreme Court’s judgment makes clear that, while the test for arbitrator impartiality in London-seated arbitrations is objective, the English courts must also consider the particular characteristics of arbitral dispute resolution when considering allegations of apparent bias.
It is also now clear that, in some cases, an arbitrator’s acceptance of appointments in multiple references with the overlapping subject matter and one common party might give rise to a real possibility of apparent bias. Whether it does so will be fact-specific and depend on the arbitration clause and the relevant arbitral customs and practices.
The judgment reaffirms the Court of Appeal’s finding that an arbitrator has a legal duty of disclosure in London-seated arbitrations. This is likely to promote greater transparency and is consistent with best practices (for example, under the IBA Guidelines). It is also likely to promote arbitrator impartiality since an arbitrator’s non-disclosure will now carry more weight as a factor the English courts must consider when assessing whether there are justifiable doubts as to an arbitrator’s impartiality, justifying their removal. It remains to be seen whether elevating disclosure to a legal obligation will increase challenges to arbitral appointments and awards, and potentially give rise to personal claims against arbitrators, although Lord Hodge doubted this outcome.
The fact that the Supreme Court has resisted a “one size fits all” approach upholds party autonomy and reflects differing arbitral practices. However, as foreshadowed by Lord Hodge, we may now see arbitral institutions expressly clarifying the duty of disclosure in their rules and guidance, rather than relying on proof of a general custom and practice. Additionally, in ad hoc arbitrations, we may expect that arbitrators’ terms of engagement will now include a waiver of confidentiality to enable them to disclose their appointment in subsequent arbitrations, to the extent necessary to comply with the legal duty of disclosure.
The Supreme Court also recognised the importance of English law upholding arbitrators’ duties of fairness and impartiality so as to maintain London’s reputation as an arbitral seat. Lord Hodge stated that a legal duty of disclosure “underpins the integrity of English-seated arbitrations”. He also considered that, notwithstanding the differing perspectives on the role of the party-appointed arbitrator in the wider field of arbitration, “a party-appointed arbitrator in English law is expected to come up to precisely the same high standards of fairness and impartiality as the person chairing the tribunal”.