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In this post, Richard Bamforth and Jessica Foley, who work within the litigation and arbitration group at CMS, comment on the decision handed down by the UK Supreme Court last month in the matter of Halliburton Company v Chubb Bermuda Insurance Ltd (Formerly known as Ace Bermuda Insurance Ltd) [2020] UKSC 48, which concerns when an arbitrator should disclose circumstances which may give rise to justifiable doubts as to her or his impartiality. 

On 27 November 2020, the UK Supreme Court handed down judgment in the landmark case of Halliburton v Chubb [2020] UKSC 48, which has been keenly awaited by the international arbitration community. The judgment has provided important clarification of the nature and scope of an arbitrator’s duty to make disclosures of facts and circumstances that may give rise to doubts about the arbitrator’s independence and impartiality, as well as how this duty interrelates with the duty of privacy and confidentiality, and the circumstances in which an arbitrator’s failure to make a disclosure could give rise to an appearance of bias.

The Supreme Court also reiterated the importance of the duty of impartiality as a core principle of arbitration law, which applies equally to party-appointed and independently-appointed arbitrators, and the need to apply an “objective observer” test in determining whether circumstances exist that create the appearance of bias. The Supreme Court grounded its reasoning in a detailed consideration of certain key differences between international arbitration and litigation, and how certain characteristics of arbitration would be taken into account by the “objective observer” in assessing whether there was a real likelihood of an arbitrator being biased.

The Supreme Court further had regard to the diverging views, practices and legal systems within the arbitration community, noting that the fact that an arbitrator has accepted appointments in multiple arbitrations concerning the same or overlapping subject matter with only one common party is a matter which may have to be disclosed, depending upon the customs and practice in the relevant field.

Applying its detailed discussion of the relevant legal principles to this case, the Supreme Court held that the arbitrator in question had breached his duty of disclosure. However, for different reasons than those given in the lower courts, it further held that an objective observer, looking at the facts and circumstances that would have been known to him or her at the time of the hearing of the application to remove the arbitrator, would not have concluded that there was a real possibility of bias.

The Supreme Court’s detailed judgment provide critical guidance for arbitrators, practitioners, institutions and arbitration users alike.

Background

The case arises out of the 2010 Deepwater Horizon incident in the Gulf of Mexico. The oil rig concerned was owned by Transocean and leased to BP, who contracted with Halliburton Company (“Halliburton”) for the provision of cementing and well-monitoring services. Chubb Bermuda Insurance Ltd (“Chubb”) was the insurer for both Transocean and Halliburton. In summary, following the incident, Halliburton made an insurance claim, which Chubb refused to pay. Upon Halliburton commencing arbitration proceedings and the parties selecting their nominees, the High Court appointed a presiding arbitrator (Mr Kenneth Rokison QC, the “Arbitrator”) in the absence of agreement between the parties. The Arbitrator had been Chubb’s nominee for presiding arbitrator, but that suggestion had been rejected by Halliburton.

The Arbitrator was subsequently appointed as arbitrator in a further two arbitrations: one as Chubb’s appointee in defending proceedings brought by Transocean, and another as substitute arbitrator in a further claim by Transocean against a different insurer. He did not disclose the appointments to Halliburton, as party to the arbitration in question. When Halliburton became aware of the appointments, it raised concerns regarding a failure by the Arbitrator to disclose a potential conflict of interest. Despite the Arbitrator’s clarifications and explanations (in which he acknowledged that it would have been “prudent” to inform Halliburton of the appointments and apologised for not having done so), Halliburton called on the Arbitrator to resign. In circumstances where the Arbitrator had been appointed by the court and Chubb did not agree to the resignation, the Arbitrator confirmed he felt unable to resign. The claimant made an application under s 24 (1) (a) of the Arbitration Act 1996 (the “Act”), which gives powers to the court to remove an arbitrator if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality.

Decisions of the lower courts

The claimant relied on three elements of the Arbitrator’s conduct as giving rise to an appearance of bias:

  1. accepting appointment in related arbitrations;
  2. failing to disclose those appointments; and
  3. his response when his impartiality was challenged.

High Court

At first instance, Mr Justice Popplewell (as was) found in favour of Chubb, concluding that there was nothing in the acceptance by the Arbitrator of the appointments in the two further arbitrations that resulted in the appearance of bias against Halliburton, even though the issues in dispute in both cases were identical or substantially overlapping. In addition, he held that because the circumstances did not give rise to any justifiable concerns about the Arbitrator’s impartiality, there was no duty on him to disclose to the claimant his appointment on an overlapping matter. In addition, even if a disclosure ought to have been made, the failure to do so did not give rise to a real possibility of apparent bias against Halliburton.

Court of Appeal

The Court of Appeal dismissed Halliburton’s appeal, although the Court disagreed with the finding of Mr Justice Popplewell in part in relation to the requirement to make a disclosure.

The Court of Appeal said that at “the heart” of Halliburton’s appeal was the extent to which unfairness may arise if an arbitrator has been appointed in overlapping references with only one common party. The Court of Appeal considered the following factors raised by Halliburton:

  1. the circumstances of the appointment;
  2. the degree of overlap between the arbitrations;
  3. the financial benefit from the further Chubb appointment;
  4. the non-disclosure;
  5. the Arbitrator’s response to Halliburton’s concerns; and
  6. the views of a co-arbitrator, who expressed concerns about procedural fairness.

The Court of Appeal gave short shrift to points 1, 3, 5 and 6, focusing instead on the overlapping appointments and the non-disclosure.

As regards the overlap between the arbitrations, the Court of Appeal agreed with Mr Justice Popplewell that the “mere fact” of appointment in overlapping arbitrations did not, in and of itself, give rise to an appearance of bias. Using the language of Dyson LJ in AMEC Capital Projects Ltd v Whitefriars City Estates Ltd [2004] EWCA Civ 1535, “something more is required”, which must be “something of substance”.

An important feature of the Court of Appeal’s judgment was its clarification regarding the link, or lack thereof, between the acceptance of overlapping appointments and the duty of disclosure: “we do not consider that the fact that such appointments may be accepted is determinative of whether disclosure should be given before accepting such appointments.” The Court of Appeal confirmed that the test to determine when a disclosure is required is an objective one, i.e. what would the fair-minded and informed observer conclude? The Court of Appeal concluded that the position under English law is that arbitrators must disclose “facts or circumstances which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased.”

Applying this test to the facts, the Court held that the relevant facts and circumstances were the Arbitrator’s proposed appointment in related arbitrations, and in particular the arbitration involving Chubb alone as a common party. Whereas Mr Justice Popplewell did not consider that a disclosure was required, the Court of Appeal disagreed, finding that “best practice in international commercial arbitration would have required disclosure of the other appointments” (emphasis added) and that, in the factual circumstances, a disclosure ought to have been made as a matter of law. Referring to the objective test of a fair-minded observer, the Court noted that “the natural expectation” would have been disclosure of further Chubb appointments. The Court noted that in this regard that the Arbitrator himself agreed that it would have been “prudent” to make the disclosure, whilst recognising that it was clearly an innocent oversight on his part in failing to do so.

The Supreme Court judgment – the legal principles

In November 2019, Halliburton renewed its appeal before the Supreme Court, to a panel of five justices. In its judgment of 27 November 2020, the Supreme Court unanimously dismissed the appeal. Lord Hodge gave the leading judgment with whom Lord Reed, Lady Black and Lord Lloyd-Jones agreed. Lady Arden gave a concurring judgment.

The two principal legal issues before the Supreme Court were the same as those before the Court of Appeal, namely:

  1. whether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias; and
  2. whether and to what extent the arbitrator may do so without disclosure.

In order to address these points, the Supreme Court examined (i) the duty of impartiality in the context of arbitration; (ii) whether an arbitrator is under a legal duty to disclose particular matters; (iii) how far the obligation to respect the privacy and confidentiality of an arbitration constrains his or her ability to make disclosure; and (iv) whether a failure to disclose such matters demonstrates a lack of impartiality. The Court also considered the timing for assessing the need to make a disclosure and the timing of assessing possible bias. We summarise the Court’s reasoning under those headings below.

The duty of impartiality

The “objective observer” test

The Supreme Court emphasised that it was not faced with an allegation of actual bias, but rather apparent bias. The Court confirmed the well-established test under English law, as set out by the House of Lords (as was) in Porter v Magill [2001] UKHL 67 that the question is “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility” of bias. Lord Hodge also emphasised a point made by the House of Lords in Helow v Secretary of State for the Home Department and another [2008] UKHL 62, namely that such observer will “appreciate that the context [i.e. the social, political or geographic context] forms an important part of the material which she must consider before passing judgment”. This emphasis on context was a key theme of the judgment.

The characteristics of international arbitration

The Supreme Court observed that the obligation of impartiality is a core principle of arbitration law, and that it (and the objective test outlined above) applies equally to all judges and all arbitrators. However, the Court held that, in applying the test to arbitrators, one must bear in mind the key differences between litigation and arbitration. In summary, these are:

  1. Arbitrations are generally conducted in private and there is very limited public oversight of them. Arbitrators’ duty of privacy and confidentiality militates against discovering the existence of an arbitration, in the absence of a disclosure. This “puts a premium on frank disclosure”.
  2. Arbitrators are not subject to appeals on issues of fact and often not on issues of law.
  3. Arbitrators, unlike judges, are nominated to act, and are remunerated, by the parties. For many arbitrators, their livelihood will depend to a significant degree on acting as arbitrators.
  4. Arbitrators include lawyers and other professionals and experts in a wide range of business activities and trades, some of whom will have extensive experience of arbitration, whilst others may have very limited involvement. They also bring diverging views on ethically acceptable conduct from their different jurisdictions and legal traditions.
  5. As a result of the private nature of most arbitrations, a party which is not common to multiple arbitrations has no means of informing itself of the evidence led, and legal submissions made, to other tribunals.
  6. Within the field of international arbitration, there are differing understandings of the role and obligations of the party-appointed arbitrator. The Court made three observations in particular:
    • First, although it is generally understood that as a matter of English law, all arbitrators (whether party appointed or independently appointed) are obliged to comply with the same high standards of impartiality, some legal systems take the view that a party-appointed arbitrator has a “special role” in relation to his or her appointing party. This places a particular responsibility on the chair of the tribunal. The objective observer would take account of this context and the debate as to the role of a party-appointed arbitrators where that arbitrator is also acting as chair in a related case.
    • Second, the objective observer would take account of the professional reputation and experience of an individual arbitrator, as “an established reputation for integrity and wide experience in arbitration may make any doubts harder to justify”. However, the weight placed on this fact will depend on the circumstances of the arbitration and whether one could expect the parties to be informed about the experience and past performance of arbitrators. This point adds helpful nuance to the relevance of an arbitrator’s reputation and experience. The Court of Appeal had held that the fact the Arbitrator is a “well known and highly respected international arbitrator”, with very extensive experience, is “material to the risk” of his having unconscious bias. This risked creating a sliding scale in terms of the expectations on arbitrators of different calibre and experience, with less experienced arbitrators being held to a higher standard as regards disclosures than their more experienced colleagues. The Supreme Court’s judgment expressly acknowledges that an arbitrator’s experience is a relevant consideration, but ensures that it is not considered in isolation, but rather within the context of the specific arbitration and parties concerned.
    • Finally, the objective observer would be alive to the possibility of parties making opportunistic or tactical challenges of arbitrator, in the hope of having a tribunal that (whilst unbiased) might be more predisposed towards their view.

The legal duty of disclosure

The Supreme Court confirmed that one way in which an arbitrator can avoid the appearance of bias is by making a disclosure of matters that could arguably be said to give rise to a real possibility of bias. The Supreme Court agreed with the Court of Appeal that making a disclosure in such circumstances is a legal duty, rather than merely good arbitral practice. Such duty is rooted in the arbitrator’s statutory duty, in section 33 of the Act, to act fairly and impartially in conducting arbitral proceedings. Such duty gives rise to an implied term in the contract between the arbitrator and the parties that the arbitrator will act fairly and impartially. Without disclosures, parties will be unaware of matters that could give rise to justifiable doubts about an arbitrator’s impartiality. The Court considered that such a legal duty would, as submitted by the arbitral institutions that intervened in the appeal, underpin the integrity of English-seated arbitrations.

The Court also noted that the duty was, as explained above, based on an objective test, whereas the IBA Guidelines on Conflicts of Interest (consistent with the rules of several arbitral institutions) provide that the duty is triggered by the existence of facts and circumstances that may “in the eyes of the parties” give rise to doubts as to the arbitrator’s impartiality or independence.

The content of the disclosure

In terms of what must be disclosed, the Supreme Court echoed the Court of Appeal’s formulation of the duty as extending to such matters “known to the arbitrator”, although it did not rule out the possibility of circumstances occurring in which an arbitrator would be under a duty to make reasonable enquiries in order to comply with the duty. The Supreme Court also considered the Court of Appeal’s formulation of the duty to disclose matters that “would or might” give rise to justifiable doubts as to an arbitrator’s impartiality, noting that an obligation to disclose a matter that “might” give rise to justifiable doubts arises only where the matter might “reasonably give rise” to such doubts. The Court had regard to arbitration commentary, the UNCITRAL Model law and the arbitration laws of other jurisdictions, concluding that it would be consistent with the “international comparators” for the English common law to develop from the basis of this “would or might” language, i.e. it is not necessary to show that the facts or circumstances “would” cause the objective observer to conclude that there was a real possibility the arbitrator was biased; it is sufficient that they “might” so conclude.

In summary, the legal duty to make a disclosure will arise where there exist matters that are relevant and material to the assessment of the arbitrator’s impartiality and that could reasonably lead to an adverse conclusion.

The duty of privacy and confidentiality

Consistent with the private and confidential nature of arbitrations, arbitrators are subject to duties of privacy and confidentiality. An arbitrator may be required to give disclosure of information in one case that is subject to the arbitrator’s duty of privacy and confidentiality that he or she owes to parties in another case. In such circumstances, the Supreme Court held, the disclosure can only be made where the parties to whom the duties are owed have given their consent. However, such consent may be express or inferred from the arbitration agreement, based on the context of the custom and practice in the relevant field. In the present proceedings, the Supreme Court was concerned with a ‘Bermuda Form arbitration’, where it is common practice for parties to appoint arbitrators with experience in interpreting the Bermuda Form policy on repeated occasions, including in arbitration relating to the same occurrence. The Supreme Court held that under English law, such multiple appointments must be disclosed, unless the parties have agreed otherwise.

The Supreme Court had regard to the widespread arbitration practice in English-seated arbitrations that arbitrators can disclose the proposal of appointment in a separate arbitration, and the identity of the common party seeking to make the appointment or nomination, without breaching his or her duty of privacy and confidentiality, and stated that the law “can and should recognise the realities” of such practice. The Court held that in Bermuda Form arbitrations, an arbitrator may make disclosure of the existence of the arbitration and the identity of the common party without obtaining express consent because such consent of the common party can be inferred from its act in seeking to nominate or appoint the arbitrator.

Arbitrators will therefore need to have regard to the particular characteristics and circumstances and custom and practice in their field of arbitration in determining whether they need to seek express consent to make a disclosure in order to avoid breaching their duties of privacy and confidentiality.

Whether a failure to disclose can demonstrate a lack of partiality

The Supreme Court held that where an arbitrator has accepted an appointment in multiple arbitrations in circumstances which might reasonably give rise to justifiable doubts as to his or her impartiality, or is aware of other matters which might reasonably give rise to those doubts, a failure in his or her duty to disclose those matters to the party who is not the common party to the arbitrations deprives that party of the opportunity to address and perhaps resolve the matters which should have been disclosed. The failure to make a disclosure may demonstrate a lack of regard for the interests of the non-common party and may in certain circumstances amount to apparent bias.

The timing for assessing the need to make a disclosure

The Supreme Court agreed with the Court of Appeal that the determination as to whether an arbitrator has failed to perform a duty to disclose can only be made by reference to the circumstances at the time the duty arose, and during the period in which the duty subsisted. It cannot be retrospectively determined by reference to what was known to the objective observer only at a later date.

The timing of assessing possible bias

The Supreme Court had regard to the language of section 24(1)(a) of the Act, which refers to a power to remove an arbitrator where circumstances “exist” (in the present tense) that give rise to justifiable doubts. This requires the courts to assess those circumstances as they exist at the date of the hearing of the application, by an application of the objective observer test, i.e. asking whether at the time of the hearing, the circumstances would have led the objective observer to conclude that there was a real possibility of bias.

The Supreme Court judgment – application to the facts

Whether an arbitrator may accept appointments in multiple arbitrations concerning the same or overlapping subject matter with only one common party, without giving rise to an appearance of bias

The Supreme Court held that the acceptance of multiple appointments could be sufficient of itself to give rise to the appearance of bias, in the light of the inequality of knowledge between the common party and the other party or parties. However, whether it will give rise to the appearance of bias depends on the circumstances of the particular arbitration, including the custom and practice in arbitrations in the relevant field.

Whether and to what extent an arbitrator may accept the multiple appointments without making disclosure to the party who is not the common party

The Supreme Court held that the fact that an arbitrator has accepted appointments in multiple arbitrations concerning the same or overlapping subject matter with only one common party is a matter which may have to be disclosed, depending upon the customs and practice in the relevant field. Interestingly, the Supreme Court also pointed to specific fields, including maritime, sports and commodities where multiple appointments are a part of the process, which is known to and accepted by the participants, such that no duty of disclosure would arise in those circumstances. In this case, the Court held that multiple appointments must be disclosed in the context of Bermuda Form arbitrations, unless the parties agree that such disclosures are not necessary. The need for disclosure is illustrated in particular by the fact that relevant information and the opportunity for communication with the arbitrator was available to Chubb in one of the related arbitrations, but was not available to Halliburton.

Therefore, the related appointment might reasonably cause the objective observer, at the time of the second appointment, to conclude that there was a real possibility of bias. The Arbitrator was therefore under a legal duty to make a disclosure, which disclosure should have included: (i) the identity of the common party; (ii) the whether the proposed appointment was to be a party-appointment or a nomination by a court or third party; and (iii) a statement of the fact that the second arbitration arose out of the same underlying subject matter. The common party’s consent to this disclosure could be inferred.

By failing to make the disclosure, the arbitrator breached his duty of disclosure.

The decision on Halliburton’s application

However, the Supreme Court reiterated that the correct time for considering whether there is a real possibility of apparent bias is at the date of the hearing for removal of the arbitrator. It held that the objective observer would not reach such a conclusion, relying on five key points:

  1. There was a lack of clarity in English law as to whether there was a legal duty of disclosure and whether disclosure was needed.
  2. The time sequence of the three arbitrations may explain why the Arbitrator saw the need to disclose the existence of one arbitration but not the other.
  3. The Arbitrator gave a measured response to Halliburton’s challenge, explaining that the other two arbitrations would likely be resolved by a preliminary issue and so there would be no overlap in evidence or legal submissions, offering to resign from his appointments in the other arbitrations if the preliminary issue did not have such an effect.
  4. There is no question of the Arbitrator having received any secret financial benefit.
  5. There is no basis for inferring unconscious bias in the form of subconscious ill-will.

Therefore, the Supreme Court agreed with both Mr Justice Popplewell and the Court of Appeal (for different reasons) that the objective observer, looking at the fact and circumstances that would have been known to him or her at the time of the hearing, would not conclude that there was a real possibility of bias. Halliburton’s appeal was therefore dismissed.

Comment

The Supreme Court’s judgment provides clarification on the legal principles applicable to disclosures and the duty of impartiality. The Court’s reasoning is grounded in a recognition of the practical realities of international arbitration. First, the Court made clear that the hypothetical “objective observer” would be well-versed in the distinctive characteristics of international arbitration, such as its private and confidential nature, and the fact that there are a differing understandings in the community as to the role and obligations of a party-appointed arbitrator. Considerations such as these would be key part of the factual matrix that an objective observer would take into account.

The Supreme Court’s judgment also acknowledges the reality that one subject matter may comprise a multitude of contractual and other relationships between a number of parties, and so can lead to more than one claim and arbitration. Following the Court of Appeal’s judgment, there remained unsatisfactory uncertainty around when the duty of disclosure would be triggered in such a situation, and when multiple appointments can be accepted without giving rise to the appearance of bias. It was necessary for the Supreme Court to engage with this issue and provide a clear answer, as such a situation is likely to arise again. However, the Supreme Court avoided creating an artificial bright line rule as to whether accepting appointment in multiple arbitrations would give rise to an appearance of bias, or whether an arbitrator would have to make a disclosure in such circumstances. Instead, the Supreme Court highlighted the need to take into account the custom and practice of specialist arbitrators and particular fields of arbitration when answering these questions.