February 2021: International Arbitration Update

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Halliburton v Chubb: UK Supreme Court Provides Guidance on an Arbitrator’s Duties of Impartiality, Disclosure, and Confidentiality

This month’s International Arbitration Update considers the landmark UK Supreme Court decision of Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48.

The decision is important because it provides guidance on the disclosures that parties should expect from an arbitrator when circumstances exist which might give rise to justifiable doubts as to his or her impartiality.  In providing this guidance, the Supreme Court discussed the interaction between an arbitrator’s duties of impartiality, disclosure, and confidentiality, which are not easily reconciled.

Synopsis

The arbitration at the heart of the matter arose from the April 2010 Deepwater Horizon rig incident.  The rig was owned and operated by Transocean Holdings LLC (Transocean), while Halliburton provided cementing and well-monitoring services.  Both Transocean and Halliburton purchased liability insurance from Chubb on the “Bermuda Form” policy.

The incident resulted in extensive litigation against Transocean, Halliburton, and others.  Halliburton subsequently agreed to a settlement in the billions of US dollars and made a claim on its liability insurance policy with Chubb, which refused to pay because it disagreed with the reasonableness of the settlement amount (among other contentions).

The Bermuda Form provided for dispute resolution by arbitration seated in London with a tribunal of three arbitrators.  Halliburton and Chubb each appointed an arbitrator, and Mr. Kenneth Rokison QC was appointed as the chairperson of the tribunal by the UK High Court when the party-appointed arbitrators failed to agree on a candidate.

Following his appointment, Mr. Rokison accepted appointments in two subsequent arbitrations arising from the Deepwater Horizon incident.  In the first appointment, occurring approximately six months after Mr. Rokison was appointed chairperson in the Halliburton and Chubb dispute, Chubb appointed Mr. Rokison in an excess liability claim made by Transocean.  In the second appointment, occurring approximately one year after he was appointed chairperson in the Halliburton and Chubb dispute, Mr. Rokison accepted an appointment as a substitute arbitrator in a claim made by Transocean against a different insurer.  It was generally accepted that the first appointment was of more concern than the second because of the common party (Chubb).

Halliburton learned of Mr. Rokison’s further appointments and sought to remove him as chairperson pursuant to section 24(1)(a) of the Arbitration Act 1996 (UK).  Section 24(1)(a) empowers the court to remove an arbitrator where there are circumstances giving rise to justifiable doubts as to his or her impartiality (i.e. apparent bias).  A substantively similar ground for removal exists in Article 12(2) of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (as amended in 2006), which meant that the dispute (and its resolution) was relevant for all Model Law countries (including, Australia, China, Germany, Hong Kong, Japan, and Singapore).

The circumstances alleged by Halliburton to give rise to justifiable doubts as to Mr. Rokison’s impartiality were his acceptance of the overlapping appointments and the failure to disclose such appointments.

Discussion

Halliburton’s main contention in the Supreme Court was that the non-disclosure of overlapping arbitrations indicated a lack of regard for the interests of the non-common party, and therefore constituted apparent bias.  Specifically, Mr. Rokison’s non-disclosure gave Chubb the unfair advantage of being a common party to two related arbitrations with a joint arbitrator while Halliburton was ignorant of the proceedings.  The principal way in which the unfairness would arise is if Mr. Rokison was influenced in his decision making in the Halliburton and Chubb arbitration by the arguments and evidence presented in the other arbitrations.  As a consequence, Halliburton contended that Mr. Rokison was in breach of his duty of impartiality and should therefore be removed as chairperson.

The Supreme Court considered whether there existed an appearance of bias in Mr. Rokison’s conduct by application of the well-established test of “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased” (Porter v Magill [2001] UKHL 67 at [103], cited at ¶ 52 of the decision).  

Most parties consider an arbitrator accepting a subsequent appointment from their opponent as a matter of concern, particularly when the issues in the two disputes are similar, and would expect the arbitrator to disclose that potential appointment before accepting it.  Overlapping appointments are not, however, uncommon in certain specialized industries.  For example, the Grain and Feed Trade Association (GAFTA) and the London Maritime Arbitrators Association (LMAA), who intervened in the dispute, informed the Supreme Court that overlapping appointments are common in their fields.  Similarly, the Supreme Court acknowledged that in insurance and reinsurance fields, there is a practice of a common arbitrator being appointed to oversee multiple arbitrations involving claims arising from the same incident (¶ 128 of the decision).

The general principle that can be taken from the decision is that there is no strict prohibition on arbitrators accepting overlapping appointments, even those involving a common party.  The practice is not inherently problematic so long as the arbitrator can approach each arbitration objectively and with an open mind.  Each case is fact-specific as to whether a fair-minded and informed observer would conclude the possibility of bias, and that will in large turn on the “custom and practice in arbitration in the relevant field” (¶ 127-¶ 131 of the decision).

Importantly, the Supreme Court’s position is harmonious with the position in the IBA Guidelines on Conflicts of Interest in International Arbitration.  These guidelines are frequently referenced by arbitrators and parties alike when considering the duties of impartiality and disclosure.  The guidelines state that if the arbitrator currently serves (or has served within the past three years) as arbitrator in another arbitration on a related issue involving one of the parties, this is a situation that may give rise to justifiable doubts as to the arbitrator’s impartiality and therefore requires disclosure (¶ 3.1.5 and also ¶ 3.1.3 and footnote 5 of the guidelines, which are cited at ¶ 133 of the decision).  Therefore, the guidelines can continue to be referenced on this issue.

As to the duty of disclosure and the disclosure of overlapping appointments, the Supreme Court was unequivocal: unless the parties to the arbitration otherwise agree, arbitrators have a legal duty to make disclosure of facts and circumstances which would or might reasonably give rise to the appearance of bias (¶ 135-¶ 136 of the decision).  This is an ongoing duty and arises when the arbitrator acquires the requisite knowledge of such facts and circumstances (¶ 119-¶ 120 of the decision).

The Supreme Court also addressed the content of the required disclosure, which may clash with the duty of confidentiality.  That duty, at least in English law, is not absolute (¶ 83-¶ 102 of the decision).  Notwithstanding that qualification, most parties expect that their arbitration will be a private affair.  That expectation may be undone by an arbitrator’s disclosure of an overlapping appointment.  For example, if Mr. Rokison disclosed the existence of the arbitration between Chubb and Transocean to Halliburton, Transocean’s expectation of privacy would be dashed.  

In considering the boundaries of the duty of confidentiality vis-à-vis the duty of disclosure, and the practices in the arbitration community, the Supreme Court held that at least in Bermuda Form arbitrations, an arbitrator may disclose: (1) the identity of the common party who was seeking to appoint that arbitrator; (2) whether the proposed appointment in the second arbitration by the common party was to be a party-appointment or otherwise; and (3) a statement of the fact that the second arbitration arose out of the similar facts (¶ 104 and ¶ 146 of the decision).

The Supreme Court declined to extend this conclusion to non-Bermuda Form arbitrations, but found it unsurprising that disclosures along the lines of points 1 to 3 above were common practice in arbitration community (¶ 105 of the decision).  Support can therefore be drawn from the decision for the proposition that arbitrators should make such disclosures in all commercial arbitrations unless the parties have agreed otherwise.

Conclusion

Halliburton’s application to remove Mr. Rokison was ultimately unsuccessful.  While the Supreme Court found that Mr. Rokison was under a duty to disclose his subsequent appointments to Halliburton, for fact-specific reasons (the timing of the assessment of apparent bias), the Supreme Court found that a fair-minded and informed observer would not conclude that there was a real possibility of bias (¶ 146-¶ 150 of the decision).  

As noted above, the decision is of relevance to all Model Law countries because of the substantially similar test for apparent bias.  In this regard, when faced with a situation of an arbitrator considering an overlapping appointment with a common party, the appointment should be disclosed to the non-common party.  This is because the failure to disclose may well lead a fair-minded observer to conclude the possibility of bias.  Following disclosure, the non-common party can then decide what it wishes to do with that information, and the arbitrator has in effect fortified himself or herself against a bias challenge on the grounds of non-disclosure.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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