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Difficulties in challenging arbitrator appointments: impartiality, conflicts and apparent bias

16.10.2018 Energy & infrastructure

Anna Macdonald

Anna Macdonald Partner

With strategic challenges to a party’s proposed arbitrator becoming more common, the Court of Appeal has recently considered apparent bias and conflicts of interest in arbitrator appointments in the case of Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817.

Following the Deepwater Horizon incident, Halliburton made a claim on its liability insurance with Chubb. Chubb refused to pay and, as a result, Halliburton commenced arbitration and appointed its arbitrator. Chubb then appointed its arbitrator and, as there was no agreement between the parties as to the third arbitrator, the court appointed M under section 18 of the Arbitration Act 1996.

M was Chubb’s favoured candidate and had previously acted as arbitrator in a number of arbitrations in which Chubb was a party, including appointments on behalf of Chubb. He was also appointed as arbitrator in two pending arbitrations in which Chubb was involved. M had disclosed this to the parties prior to indicating his willingness to accept the appointment.

Subsequent to his appointment in the Halliburton v Chubb reference (“reference 1”), M then accepted an appointment by Chubb in an arbitration where Transocean was pursuing Chubb under its liability insurance in respect of claims arising out of the same incident (“reference 2”). M disclosed his involvement in reference 1 to Transocean, but failed to disclose his subsequent appointment to Halliburton. Thereafter, M also accepted an appointment in a third reference which involved Transocean and a claim it was making against an alternative insurer on the same layer of insurance (“reference 3”). M did not disclose this appointment to Halliburton either.

Halliburton subsequently discovered M’s appointments in references 2 and 3, and wrote to M outlining its concerns regarding M’s impartiality and asked for clarifications and explanations. M responded, explaining why he did not at the time disclose those appointments to Halliburton and declined to resign from reference 1. After a further round of exchanges between Halliburton and M, during which he explained why he would not resign, Halliburton then brought a claim under section 24 of the Arbitration Act 1996, which gives the court the power to remove an arbitrator on the grounds that, amongst other things, “circumstances exist that give rise to justifiable doubts as to his impartiality”. The first instance judge dismissed this claim, and the case was appealed.  

The Court of Appeal held that inside information and knowledge, where an arbitrator sits in more than one arbitration arising out of the same facts, could be a legitimate concern in overlapping arbitrations involving a common arbitrator but only one common party. However this, in itself, did not justify an inference of apparent bias. Arbitrators were assumed to be trustworthy and to understand that they should approach every case with an open mind and decide it based solely on the evidence and materials in front of them in the reference in question; this is equally so where there was a common party. In order to infer apparent bias from such a situation, something more was required, and that had to be "something of substance”.

In relation to the question of disclosure of circumstances that may give rise to justifiable doubts as to an arbitrator’s impartiality, the Court of Appeal confirmed that, under the common law, disclosure should be given where facts or circumstances exist that would or might provide the basis for a reasonable apprehension of lack of impartiality.

In this case, the Court of Appeal accepted that Halliburton had a legitimate concern in relation to M’s appointments, and confirmed that as a matter of good practice in international commercial arbitration, and as a matter of law, disclosure of his appointments in references 2 and 3 should have been made by M to Halliburton at the time he accepted these appointments. The Court observed that M’s own instincts were correct when he recognised that it would have been “prudent” to make such disclosure.

However, when considering the effect of this non-disclosure on the application to remove M as arbitrator, it concluded that the fact of the non-disclosure, taken with other relevant factors (accidental versus deliberate non-disclosure, the limited degree of overlap between the cases and that M dealt with Halliburton’s criticisms appropriately once they were raised), would not lead a fair-minded and informed observer to conclude that there was, in fact, a real possibility that M was biased.

Ultimately, this case highlights the difficulty in challenging an arbitrator on the basis of impartiality. The courts view arbitrators in a similar way to judges, in that they both have a duty to act independently and impartially. It is worth noting that arbitrators are often chosen for their high level of expertise and knowledge in a particular area, and that this can comprise a limited pool of suitable arbitrators. The court is, therefore, unwilling to constrain this pool unnecessarily by removing arbitrators in circumstances where it is not warranted. 

Article authors:

Anna Macdonald