Vernon Sewell Partner
Supreme Court clarifies scope of arbitrator’s duty to disclose appointment in multiple overlapping references
Halliburton Company v. Chubb Bermuda Insurance Ltd  UKSC 48
The Supreme Court has unanimously dismissed an appeal from the lower courts’ refusal to remove an arbitrator on the ground of apparent bias. The Supreme Court has held that although the arbitrator came under a legal duty to disclose his subsequent appointments involving a common party and overlapping subject matter, his failure to do so did not amount to a finding of apparent bias.
The background facts
Halliburton Company (“Halliburton”) provided well-monitoring and cementing services to BP in relation to the temporary abandonment of an oil well in the Gulf of Mexico. Transocean Ltd (“Transocean”) had been engaged by BP to provide crew and drilling teams.
In 2010, the well experienced a blow out during the abandonment process causing an explosion and fire on the Deepwater Horizon oil rig. Numerous civil claims were brought against BP, Halliburton, and Transocean, and following a trial on liability in the US, judgment was handed down apportioning liability between the parties. However, Halliburton settled certain claims brought against it before the judgment and subsequently made a claim under their liability insurance policy held with Chubb Bermuda Insurance Ltd (“Chubb”). Chubb declined to pay Halliburton’s claim under the policy contending, inter alia, that the settlement of the claims by Halliburton was not a reasonable settlement and that Chubb had acted reasonably in not consenting to the settlement. Following the judgment, Transocean brought a similar claim against Chubb, and Chubb likewise refused cover.
Halliburton commenced arbitration against Chubb under the Bermuda Form, and both parties appointed their own arbitrator. However, they could not agree upon a Chairman, and an application was therefore made to the Court which resulted in Chubb’s first-choice candidate, Mr Kenneth Rokison QC (“R”), being appointed.
In November 2016, Halliburton discovered that, subsequent to R’s appointment, and without Halliburton’s knowledge, R had accepted two further appointments arising out of the same Deepwater Horizon incident. The first being a claim by Transocean against Chubb as the latter’s nominee, and the second between Transocean and another insurer.
In December 2016, Halliburton applied to the Court, seeking the removal of R for apparent bias under s. 24 of the Arbitration Act 1996 (the “Act”). Both the High Court and Court of Appeal dismissed the application. Halliburton appealed to the Supreme Court.
The Supreme Court decision
The Supreme Court unanimously dismissed the appeal. In the leading judgment given by Lord Hodge, the principal issues were formulated as being:
“i) 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 ii) whether and to what extent the arbitrator may do so without disclosure.”
The Court set out an arbitrator’s statutory duties of fairness and impartiality under ss.1 and 33 of the Act. Those duties apply equally as between party-appointed or independently appointed arbitrators. When considering an allegation of apparent bias under s.24, the common law test applies, namely whether a fair-minded and informed observer, having considered all the facts, would objectively conclude that there was a real possibility of bias. That test, the Court held, is undertaken at the time the application to remove the arbitrator is heard.
The Court further stated that, rather than just being a matter of good practice, an arbitrator had a legal duty to disclose facts or circumstances, including the involvement in multiple overlapping references, where these would or might lead a fair-minded and informed observer to reasonably conclude that there was a real possibility of bias. This was necessary in order to comply with the arbitrator’s duties of fairness and impartiality. Additionally, a failure to disclose such facts could, but would not necessarily, lead to a conclusion of apparent bias.
The Supreme Court also substantially endorsed the Court of Appeal’s development of the English law of arbitration and concluded that, in the absence of a contractual obligation to do so under agreed arbitral rules, an arbitrator would nonetheless fall under a common law duty to disclose matters which might reasonably give rise to justifiable concerns as to their impartiality. As a matter of timing, in assessing whether an arbitrator has failed in their duty to make disclosure, Lord Hodge held that the test is prospective in so far as “[a] 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”.
The Court, therefore, held that where an arbitrator accepts multiple appointments involving a common party and overlapping subject matter, this may give rise to the appearance of apparent bias, although the question would depend on the facts and circumstances of the case, and the customs and practices in the relevant field of arbitration.
The Court concluded that in the context of the Bermuda Form, an arbitrator’s appointment in multiple references might give rise to justifiable concerns as to the arbitrator’s impartiality such that they would fall under a duty of disclosure, unless the parties agreed otherwise. On this basis, R should, as a matter of law, have disclosed his further appointment between Chubb and Transocean.
However, on the facts of this case, the failure to disclose did not amount to a finding of apparent bias, because by the time the first instance hearing to remove R took place, it could not be said that a fair-minded and informed observer would infer a real possibility of bias despite R’s non-disclosure. This was on the basis that:
1) At the time, there was a lack of clarity as to whether a legal duty of disclosure had arisen;
2) Several months had passed after the Halliburton reference had commenced before the Transocean references were started;
3) There was no likelihood of Chubb gaining an advantage from overlapping references given that R had explained to Halliburton that it was
likely that the subsequent references would be concluded by the determination of a preliminary issue (which in the end they were), and that,
if not, he would consider resigning from the Transocean references;
4) There was simply no question of R obtaining some form of secret financial benefit; and
5) There was no evidence of being able to infer any form of sub-conscious ill-will on R’s part.
The maritime context
A number of arbitral institutions and organisations intervened. The ICC submitted that interrelated arbitrations are uncommon in ICC arbitrations, and so such circumstances may more readily give rise to an appearance of bias. Indeed, the ICC, LCIA and CIArb favoured a legal duty of disclosure in such situations.
In contrast, the LMAA and GAFTA submitted that such multiple appointments were more common under their procedures given their fields of operation, and the frequency of charterparty chains or strings of sale contracts with overlapping subject matter often arising from the same incident. Tribunals under their terms have the power to order concurrent hearings, and multiple appointments may be an accepted feature of such references without normally giving rise to the appearance of bias.
Duty of disclosure vs confidentiality
The Supreme Court accepted these submissions and held that arbitrators involved in multiple appointments under LMAA or GAFTA terms will not generally fall under a duty of disclosure. It may, therefore, be inferred that where parties to a chain of charterparties do not expressly agree LMAA terms but subsequently appoint LMAA arbitrators with the effect that the rules automatically apply, the same outcome would likely be true. In the circumstances where a duty to disclose does arise, the Court made clear that the duty of disclosure does not override the duty of confidentiality. Thus, where information needs to be disclosed, this can only be done with the consent of the relevant parties to whom such confidentiality is owed. Alternatively, such consent may be inferred from the arbitration agreement itself, or given the context of the relevant customs and practices in the relevant field of arbitration. An example of such inferred consent may be where the parties have agreed to arbitrate according to specific institutional rules, which themselves oblige a certain level of disclosure to be given. Lord Hodge stated that the duty of confidentiality is not absolute, but that the boundaries are a developing area of law.
This judgment provides clarification with respect to the legal duty of disclosure under English arbitration law, whilst also preserving the possibility in appropriate circumstances for arbitrators to accept multiple appointments with a common party and overlapping subject matter, especially in the maritime and commodities sector under LMAA or GAFTA rules, without generally incurring an associated duty of disclosure.
The Court suggested, however, that there may be merit in making express reference to the absence of a duty to disclose in the relevant arbitral rules agreed by the parties, in order that the parties are not reliant upon proof of custom or practice in their respective field of arbitration.
Finally, and by way of caution, in the absence of such custom or practice or other express agreement concluded by the parties, arbitrators may be well advised to consider their disclosure obligations carefully in order to ensure compliance with their general duty of fairness and impartiality.
This article was co-authored by Joshua Thomson, Associate.