Halliburton v Chubb: The Future of Repeat Appointments

Bryan Cave Leighton Paisner
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The English Supreme Court (Lord Reed, Lord Hodge, Lady Black, Lord Lloyd-Jones, and Lady Arden) has finished hearing two days of submissions in the Halliburton Company v Chubb Bermuda Insurance Limited appeal. 

The core issues are: (i) when should an arbitrator disclose circumstances which may give rise to justifiable doubts as to his impartiality and (ii) what are the consequences of failure to do so.

The case is of significant interest to arbitration practitioners and to the insurance market.  In addition to hearing submissions from leading QCs retained by Halliburton and Chubb, the court also heard oral submissions from the LCIA and the ICC and received written submissions from the Chartered Institute of Arbitrators and GAFTA, which it had permitted to intervene.

The Facts

The case relates to the 2010 Deepwater Horizon disaster in the Gulf of Mexico. A Louisiana court apportioned liability for the disaster at 67% to BP, 30% to Transocean and 3% to Halliburton, as the cementing contractor. Halliburton claimed on its excess liability insurance on the Bermuda Form which it had purchased from Chubb, but Chubb refused to pay, arguing that the billion-dollar settlement deal agreed by Halliburton was unreasonable. Halliburton commenced arbitration against Chubb in London in June 2015 (the Halliburton Arbitration).

The party-appointed arbitrators in the Halliburton Arbitration could not agree on the third and presiding arbitrator, so the High Court appointed M, an English lawyer who was Chubb’s preferred candidate for chairman. Prior to his appointment, M disclosed that he had previously acted in arbitrations to which Chubb was party, and was currently appointed in two such references. Halliburton made no objection to his appointment.

In December 2015 and August 2016, M accepted appointment in two further references relating to Transocean’s liability in the Deepwater Horizon disaster (the Transocean Arbitrations), neither of which involved Halliburton.  In the first reference he was Chubb’s nominated arbitrator.  M disclosed his appointment in the Halliburton Arbitration to Transocean, but did not disclose his appointments in the Transocean Arbitrations to Halliburton.

In November 2016, Halliburton discovered the appointments, and asked M for clarification, referring to the IBA Guidelines on Conflicts of Interest in International Arbitration. M explained his appointment in the Transocean Arbitrations, stating that it had not occurred to him that the IBA Guidelines obliged him to disclose the Transocean appointments to Halliburton. He offered to resign from the Halliburton reference if the parties could agree a replacement. Chubb refused to agree to M’s resignation, so Halliburton applied under section 24(1)(a) of the Arbitration Act 1996 to have M removed as arbitrator.

The first instance decision  

Section 24(1)(a) allows a party to apply to the court for removal of an arbitrator if “circumstances exist that give rise to justifiable doubts as to his impartiality”.

Halliburton argued that M’s acceptance of the Transocean appointments gave rise to justifiable doubts as to his impartiality in three ways:

  • by accepting the appointments, M received a “secret benefit” through the attendant remuneration, and due to overlapping subject matter, was privy to information relevant to the Halliburton Arbitration, to which only Chubb would have access;
  • M’s failure to disclose the appointments to Halliburton; and
  • M’s response to the challenge.

In determining the challenge, the court applied the common law test for apparent bias to determine whether circumstances exist which give rise to justifiable doubts as to an arbitrator’s impartiality Per Locabail (UK) LTd v Bayfield Properties Ltd  [2000] QB 451 [17] and others]. The test is an objective one: would the fair-minded and impartial observer, having considered the facts, conclude that there is a real possibility the tribunal was biased? [Porter v Magill [2002] 2 AC 357]

The court dismissed the challenge on the basis that accepting the Transocean appointments did not give rise to an appearance of bias, as it would have been “second nature” to an arbitrator of M’s standing that his impartiality was unaffected by the identity of the party appointing him. The court dismissed the “secret benefit” argument as, due to the way in which arbitrators are paid, there was no question of M receiving an immediate benefit in fees. Neither did the court consider that M being privy to information from the Transocean arbitrations, to which his co-arbitrators and Halliburton had no access, suggested an appearance of bias.  The court noted that overlapping and multiple references are common in international arbitration, particularly in insurance and commodities disputes, for reasons of efficiency, party autonomy and the need for specialised expertise.  The court took the view that that “arbitrators are well able to put out of their minds material which they may have encountered in another reference” [H V L [2017] 1 WLR 2280 [21]].

Having determined that M’s acceptance of the Transocean references would not lead the fair-minded and impartial observer to conclude that there was a real possibility of bias, the court concluded that M’s failure to disclose the Transocean appointments could not itself give rise to an appearance of bias.

The Court of Appeal decision

The Court of Appeal substantially upheld the first instance decision.

It asked three questions:

  • whether and to what extent an arbitrator may accept appointment in multiple references concerning the same or overlapping subject matter with only one common party, without thereby giving the appearance of bias;
  • when should an arbitrator make disclosure of circumstances which may give rise to justifiable doubts as to his/her impartiality; and
  • what are the consequences of failing to make disclosure of circumstances which should have been disclosed?

The Court of Appeal approved the objective test for apparent bias, and held that multiple appointments concerning the same or overlapping subject matter with only one common party do not of themselves give the appearance of bias. “Something more” is needed.  

It then discussed the test for disclosure. This is an objective test, but it is wider than the test for apparent bias, extending to “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 tribunal was biased” [Halliburton Company v Chubb Bermuda Insurance Ltd, [2018] EWCA Civ 817 [65]]. Therefore, if a circumstance would or might give rise to a possibility of bias, even if it transpires that it does not, disclosure should be given prospectively, considering the circumstances at the time and without the benefit of hindsight.

The Court of Appeal considered that the Transocean appointments may have given rise to justifiable doubts about M’s impartiality, and therefore disclosure should have been made as a matter of good practice and as a matter of law.

As regards the effect of the non-disclosure, the court considered whether the non-disclosure taken together with any other relevant factors would have led the fair-minded and informed observer to conclude that there was a real possibility that M was biased.

The court considered the following factors: (1) the non-disclosed circumstance does not in itself justify an inference of apparent bias; (2) disclosure ought to have been made but the omission was accidental, not deliberate; (3) the limited degree of overlap meant this was not a case where overlapping issues should give rise to significant concerns; (4) the fair-minded and informed observer would not consider that mere oversight in such circumstances would give rise to justifiable doubts as to impartiality; and (5) there was no substance in Halliburton’s criticisms of M's conduct after the non-disclosure was challenged.

On that basis, the Court of Appeal upheld the first instance decision that the fair-minded and informed observer, having considered the facts, would not conclude that there was a real possibility that M was biased.

The Supreme Court Hearing

The central question in the Supreme Court hearing has concerned the circumstances when an arbitrator can accept appointments in multiple references involving overlapping issues with only one common party, without giving rise to justifiable doubts as to their impartiality.

Halliburton submitted that, in order to protect the reputation of London arbitration, English law should apply a “gold standard”.  They argued in favour of a presumption that an arbitrator should never accept appointments in multiple references involving overlapping issues and only one common party without giving disclosure.

Intervenor submissions from the LCIA and ICC (whose arbitration rules require arbitrators to give such “gold standard” disclosure) supported the imposition of more robust disclosure in English law.  They referred to an “international pro-disclosure consensus” and reflected concerns of the international arbitration community that the approach of the English courts to arbitrator impartiality is insufficiently strict.

Chubb submitted that the power to remove an arbitrator under section 24(1)(a) of the Arbitration Act applies if there are justifiable doubts as to impartiality.  It does not refer to independence.  This is deliberate and recognises that in specialist fields, parties may choose to appoint arbitrators with specific expertise – which may have an impact on the links between a party and an arbitrator.  It is common in insurance and maritime disputes for arbitrators to sit in multiple arbitrations and parties may consequently have different expectations of disclosure. This, they argued, runs contrary to the suggestion that there should be a presumption that concurrent appointments in related arbitrations are not allowed without disclosure and that the submission has no support in international jurisprudence.

We now await a decision that is likely to have significant implications for English-seated arbitration.

[View source.]

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