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01 Dec 2020

Arbitrator bias – One size doesn’t fit all

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HALLIBURTON V CHUBB SUPREME COURT DECISION

More than a year after the hearing, the Supreme Court has handed down its decision in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48. The Court considered the appointment of an arbitrator in multiple related arbitrations and the impact of such appointment upon the perceived impartiality of the arbitrator in question. The Court reached the same conclusion as the two lower courts, namely that nothing in this case gave rise to justifiable doubts as to the arbitrator’s impartiality, although its reasoning differed in some respects. 

In the process, the Supreme Court has clarified a number of key points:

  • Appointment of an arbitrator in multiple related arbitrations will sometimes, but not always, give rise to an appearance of bias;
  • Whether such multiple appointments give rise to an appearance of bias in a particular case will depend on the circumstances. Those circumstances include whether such multiple appointments are customary in the relevant field of arbitration;
  • In principle, an arbitrator is legally obliged to disclose to all participating parties their involvement in such multiple related arbitrations, provided the arbitrator obtains the consent of those parties to do so;
  • Such consent may be express but may also be implied in accordance with the custom of the relevant field of arbitration.

The decision surely guarantees much debate in future as to what is “customary” within any given field of arbitration. Likewise, it surely consolidates the current situation in practice, where parties must account for different rules in different arbitral fora. Appointees within one institution or trade will apply one approach, while others will apply another. Given that the issue in consideration here, the perception of impartiality, is one of principle, it is remarkable that the Court has seen fit to apply a very flexible, pragmatic, approach. One size does not fit all.

Facts

The disputes arose out of the Deepwater Horizon oil rig explosion in April 2010. Transocean owned the rig, BP leased it from Transocean and Halliburton provided monitoring services during the temporary abandonment of the well. In September 2014, the Federal Court of the Eastern District of Louisiana held that BP was 67%, Transocean 30% and Halliburton 3% to blame. Halliburton and Transocean both settled the claims against them and sought indemnity from their liability insurers, Chubb. Chubb declined to pay on the basis that it was not a reasonable settlement, or that Chubb reasonably had not consented to the settlement.

The policies were on the Bermuda form and governed by New York law. Disputes were to be settled by arbitration in London before a tribunal of three arbitrators, with no right of appeal. Halliburton commenced arbitration against Chubb by appointing Professor Park (Reference 1).  Chubb appointed Mr Cole. The High Court appointed Mr Kenneth Rokison QC (a candidate put forward by Chubb) in June 2015. Mr Rokison disclosed that he had acted as arbitrator in a number of arbitrations in which Chubb was involved, including some where he was appointed on behalf of Chubb, and that two of these were pending. 

Transocean also brought proceedings against Chubb in December 2015 (Reference 2). Chubb appointed Mr Rokison. In August 2016, Mr Rokison was also appointed by Transocean in a claim against a different insurer on the same layer of insurance (Reference 3). Mr Rokison did not disclose to Halliburton his appointments in References 2 and 3.    

When Halliburton learnt of Mr Rokison’s appointments in References 2 and 3, they asked for an explanation. Clearly unsatisfied with the explanations given by Mr Rokison, Halliburton applied to remove Mr Rokison as arbitrator, under s. 24(1)(a) Arbitration Act 1996, alleging that circumstances existed which gave rise to justifiable doubts as to Mr Rokison’s impartiality.   

Popplewell J dismissed the application in February 2017, and the Court of Appeal dismissed Halliburton’s appeal in April 2018. In between those two decisions, References 2 and 3 came to an end in March 2017, after a trial of preliminary issues on the construction of the policies was decided in favour of the insurers. In December 2017, the Partial Final Award in Reference 1 was issued in favour of Chubb. 

The Supreme Court decision

It was agreed that the relevant test was whether a fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased. This is an objective test. In particular, the Court had to consider:

(1) When can an arbitrator accept appointments in multiple references concerning the same or overlapping subject matter with only one common party, without giving rise to an appearance of bias?

(2)  What disclosure should the arbitrator make, if any?

The Supreme Court’s conclusion was that in Bermuda form arbitrations, multiple references in related proceedings did need to be disclosed. Mr Rokison had not disclosed the relevant facts, but for various reasons, a fair-minded and informed observer would not have concluded that there was a real possibility that the tribunal was biased. 

We discuss below how the Court reached that conclusion.

Duty of impartiality in arbitration

The duty of impartiality of the tribunal is enshrined in the Arbitration Act 1996, s. 33 and applies to all arbitrators under English law, whether appointed by the parties or as chairperson. This contrasts with some jurisdictions which require different levels of independence of the party-appointed arbitrators, as compared with the neutral chairperson. An objective observer could not take account of the fact that some of the parties came from other jurisdictions, but they could bear in mind that there is a debate within the arbitration community as to whether such distinctions as between appointees exist. This debate and other characteristics of international arbitration provide relevant context for the observer’s decision as to whether there is indeed apparent bias. 

Duty to disclose

An arbitrator has a legal duty to disclose relevant circumstances. It is an implied duty arising out of the obligation under s. 33 to act fairly and impartially. It is not simply a matter of good arbitral practice. Such a duty is necessary to ensure fairness; transparency allows the non-common parties to make an informed decision and use available remedies if they have concerns. It also allows an arbitrator to avoid the appearance of bias in relation to matters which could arguably give rise to a real possibility of bias. The duty must be assessed at the time when the arbitrator acquires the information potentially requiring disclosure, disregarding any facts and information which come to light after that time. 

In relation to multiple appointments, the Court said that English law requires that such appointments be disclosed in the absence of contrary agreement. They recognised that in some types of arbitration, multiple appointments are frequent and not a cause for concern. Such custom and practice may negative the need for disclosure. 

Although acknowledging that such custom and practice existed, Lord Hodge suggested that the relevant institutions might like to include an express statement or guidance in their rules to put the matter beyond doubt and avoid debates as to the existence or extent of such custom and practice.  

The Supreme Court agreed with the Court of Appeal that disclosure was only required in respect of information which was known to the arbitrator. However, they highlighted that it was good practice under the IBA guidelines to make reasonable enquiries, but declined to conclude that this was what English law also required.

The disclosure should be of facts which “would or might” reasonably give rise to a real possibility of bias. This could include matters which would give rise to doubts if left unexplained, but also matters which are more trivial, but by themselves or in combination with other circumstances (including non-disclosure) could give rise to such doubts. It is sufficient that the matters are such that they are relevant and material to an assessment of the arbitrator’s impartiality and could reasonably lead to an adverse conclusion. 

With Bermuda form arbitrations, there was no evidence of a practice that multiple appointments need not be disclosed. Mr Rokison therefore had a legal duty to disclose his appointment in References 2 and 3 to Halliburton because his appointment in potentially overlapping arbitrations with only one common party was a circumstance which might reasonably give rise to a real possibility of bias. He breached the legal duty by failing to disclose the appointment. 

Duty of privacy and confidentiality

The privacy and confidentiality of arbitration has been described as a fundamental characteristic of the agreement to arbitrate.  Any obligation to disclose information about one arbitration outside of that arbitration is, in normal circumstances, a breach of that confidentiality. However, disclosure is permitted in limited circumstances, including with consent of the parties, with a court order, or in the interests of justice.

In this appeal, the relevant question was one of consent. The Court had asked all parties for submissions after the hearing about practice in relation to disclosure without obtaining express permission of the parties to the arbitration being disclosed. Again, there was a range of different practice across the arbitral bodies. In commencing arbitration according to a particular set of rules, the parties can be taken implicitly to have consented to disclosure according to those practices. 

The Court concluded that, as is common practice in England, the duty of privacy and confidentiality did not prevent high level disclosure of the existence of current, past or proposed appointments involving a common party, including whether the arbitrator had been appointed by a party or as neutral chairperson. Express consent is not required; the common party’s consent can be inferred from the action in nominating the arbitrator, but the arbitrator cannot disclose the names of the non-common parties. If the arbitrator is required to disclose more information to persuade a party as to their impartiality, he or she must obtain express consent.     

The above applies to Bermuda form arbitrations, but the extent to which it applies to other arbitrations depends on the circumstances, and custom and practice in their field. 

Whether a failure to disclose demonstrates a lack of impartiality. 

The Supreme Court decided that a failure to disclose can, in itself, demonstrate a lack of impartiality. The inequality of knowledge between the parties raises a question of fairness of the proceedings and deprives the non-common parties of the opportunity to address any potential issues. The failure to disclose may demonstrate a lack of regard for the interests of the non-common parties, and potentially apparent bias.     

Real possibility of bias?

The fair-minded and informed observer will take into account the particular arbitration agreement and also the factual matrix.  This would include differing perceptions as to the role of the party-appointed arbitrator, views on the benefits of having an arbitrator appointed in multiple related arbitrations and whether there is an obligation to disclose multiple appointments. Depending on the circumstances, an arbitrator accepting appointments in multiple related references can give rise to an appearance of bias. Where disclosure is required, taking multiple appointments and failing to disclose this fact can give rise to the appearance of bias. 

Unlike the duty of disclosure, the possibility of bias is assessed at the time of the hearing to remove the arbitrator. This is clear from s. 24 which says that the arbitrator can be removed on grounds that circumstances exist that give rise to justifiable doubts as to his impartiality. This allows the fair-minded and informed observer to take account of facts which have arisen after the appointment. At the hearing, therefore, it may turn out that the disclosed facts did not give rise to the possibility of apparent bias.   

In reaching its conclusion that the fair-minded and informed observer would not have considered that circumstances existed which gave rise to justifiable doubts about Mr Rokison’s impartiality, the Court took account of the following points:

  1. Mr Rokison gave an explanation of the failure to disclose and all parties accepted that the oversight was accidental. His response was courteous and fair, and in no way suggested that he bore Halliburton any ill will.
  2. Given the time order of the references, Reference 2 would normally have been heard after Reference 1, which may explain why Mr Rokison told Transocean about Reference 1 but not Halliburton about Reference 2.
  3. References 2 and 3 were to be resolved by preliminary issue so there would be no overlap in evidence with Reference 1. If References 2 and 3 did not end after the preliminary issues hearing, Mr Rokison had offered to resign. There was therefore no likelihood of Chubb gaining an advantage from the overlapping references.
  4. At the relevant time it was not clear as a matter of English law whether disclosure was needed.
  5. There was no secret financial benefit gained by Mr Rokison (if valid, that argument would disqualify every party-appointed arbitrator).

Discussion

  • The fact that this decision provides, on one level, a clear framework within which arbitrators and practitioners must work is to be welcomed.
  • The same must be said of the Court’s attempt to accommodate the wide spectrum of views and practice within the arbitration community. The Court did not provide one set of detailed rules which apply to all arbitrations. They have come up with a formulation which allows the courts/arbitrators to take account of the differences in approach found across the arbitration community.
  • The Court has worked hard to recognise that “arbitration” under English law is a community of different parts. After all, in some respects this dispute represented a clash between those parts. On the one hand, there are those who see an arbitrator appointed by a party as that party’s advocate, always aiming to ensure that their appointor is well represented. Let’s call them the “Partisans”. On the other hand, we have those who have trust and faith in all arbitrators, regardless of appointor, as being capable of and committed to fair and impartial adjudication. Let’s call them the “Believers”. For the Partisans, the very idea of undisclosed appointment in multiple common arbitrations stinks to high heaven; giving the one-sided, partial, arbitrator an opportunity to score an extra point for “their” appointing party. For the Believers, the fuss made by the Partisans is incomprehensible. For them, if you don’t believe arbitrators can be impartial, then why choose arbitration in the first place? And if arbitrators are impartial, then why not have them involved in all related disputes, for reasons of speed, efficiency and consistency? Multiple appointments make sense.
  • The latest decision of the Supreme Court does nothing to decide this particular argument. Maybe it doesn’t need to. Or does it? The “solution” found in the current decision provides a framework which requires parties to consider what is the custom and practice in a particular field of arbitration. That is not always going to be easy to establish. And finding clear lines in borderline cases is going to be impossible. As such, the latest decision of the Court leaves many guessing. Certainly, their decision means different rules will apply, and different outcomes will arise, depending on your forum. That seems odd given that we are dealing with such a matter of principle here; the duty of impartiality. Surely, that should be the same even if you are arbitrating on the Moon?
  • The truth is that the two opposing views, of the Partisans and the Believers, are wholly irreconcilable. Faced with that dichotomy, the Supreme Court had little choice but to create a flexible approach, rather than cause significant issues for one branch of the arbitration community.However, putting in place a system which allows one approach in one type of arbitration and another in a different one, is inherently problematic. At some point English law should choose which approach to adopt. Maybe it is time for the arbitration community to take the initiative and find some common ground.We do need one rule for all.
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Joanne Champkins

Joanne Champkins
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