UK SUPREME COURT RULES ON ARBITRATOR DISCLOSURE AND APPARENT BIAS

In its much-anticipated judgment in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, the U.K. Supreme Court has ruled on the approach under English law to arbitrators’ duties of disclosure and impartiality. The U.K. Supreme Court considered whether an arbitrator’s failure to disclose appointments in multiple arbitrations with overlapping subject-matters and with only one common party would give rise to justifiable doubts of his impartiality.

The judgment is of particular relevance to situations that can give rise to multiple arbitrations, such as infrastructure and construction projects and transactions involving a suite of related contracts with different parties. It underscores the importance of undertaking a rigorous and diligent arbitrator selection process and the risk, if this is not observed, of subsequent difficulties for the smooth running of the arbitration and subsequent challenges to the arbitrator appointment.

The judgment confirms that arbitrators are subject to a legal duty of disclosure under English law with regards to any facts or circumstances which might give rise to a real possibility of bias. It also clarifies the applicable tests when considering the need for such disclosure and an arbitrator’s compliance with their broader duty of impartiality. In the instant case, the Court declined to remove the arbitrator despite finding that he had breached his duty of disclosure. This is consistent with the English courts’ conservative approach to intervening in ongoing arbitral proceedings. However, the scope of the English law duty of disclosure remains uncertain in practice, and the judgment may raise doubts on the extent to which this duty can be enforced by parties to the arbitration.

Background

In the aftermath of the 2010 explosion at the Deepwater Horizon oil rig in the Gulf of Mexico, both Halliburton and Transocean Holdings LLC (“Transocean”) reached settlements with the plaintiffs in civil claims for damages in the United States. Halliburton and Transocean sought to claim under their respective insurance policies with Chubb, but Chubb refused the claims. The policies provided for any disputes to be settled by way of ad hoc arbitration in London.

Halliburton initiated arbitration against Chubb in January 2015 (the “First Arbitration” or the “Halliburton Arbitration”). In the absence of agreement on the choice on the presiding arbitrator, the English High Court appointed Kenneth Rokison QC.

Following his appointment in the Halliburton Arbitration, Mr. Rokison accepted a further appointment in an arbitration between Chubb and Transocean, which also related to the Deepwater Horizon incident (the “Second Arbitration” or the “Transocean Arbitration”). In the Second (Transocean) Arbitration, Mr. Rokison disclosed to Transocean his role in the First (Halliburton) Arbitration at the time of his appointment. However, he omitted to disclose to Halliburton his appointment by Chubb in the Second (Transocean) Arbitration.

Mr. Rokison subsequently accepted an appointment in a claim made by Transocean against a different insurer in another arbitration arising out of the Deepwater Horizon incident (the “Third Arbitration”). Mr. Rokison’s disclosure in that arbitration did not form the focus of the appeal.

The Claim

Halliburton applied to the English High Court to remove Mr. Rokison as presiding arbitrator in the First (Halliburton) Arbitration under Section 24(1)(a) of the Arbitration Act 1996, on the basis that his appointment in the Second Arbitration, and lack of disclosure, gave rise to justifiable doubts as to his impartiality. In the High Court, Popplewell J rejected Halliburton’s application. Halliburton appealed Popplewell J’s decision to the Court of Appeal, which also dismissed the appeal.

UK Supreme Court Decision

On appeal, the U.K. Supreme Court upheld the lower courts’ decisions not to remove Mr. Rokison. While finding that Mr. Rokison had breached his duty of disclosure, the U.K. Supreme Court held that, on the facts, there was no apparent bias and there were therefore no grounds for removing him as chairperson in the First Arbitration.

In his leading judgment, with whom Lord Reed, Lady Black and Lord Lloyd-Jones agreed, Lord Hodge reviewed and clarified the law regarding apparent bias and disclosure, addressing in particular the practice of accepting appointments in multiple overlapping references.

With regards to apparent bias, Lord Hodge held that:

• It is a core principle of English law that all arbitrators are bound by a duty of impartiality, and that parties may apply to the courts under Section 24 of the Arbitration Act to remove an arbitrator “where circumstances exist that give rise to justifiable doubts as to his impartiality.”
• The well-established objective test for determining apparent bias asks whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility of bias. This test is different to the test adopted by many institutional arbitration rules, which favor a subjective test “in the eyes of the parties.”
• The objective test applies equally to party-appointed arbitrators and to those appointed by an arbitral institution, court or through agreement of the other arbitrators.
• Whether there is a real possibility of bias is to be judged by reference to the facts and circumstances known at the time of the hearing to remove the arbitrator, and not at the date of the arbitrator’s acceptance of the second appointment.
• In applying the test, the factors specific to arbitration should be considered, such as the confidentiality of arbitration, the more limited scope for review and appeal of arbitral decisions and the direct financial interest of arbitrators in their appointment.

With regards to the duty to disclose, Lord Hodge held that:

• Unless otherwise agreed, arbitrators are bound by a legal duty to disclose any facts or circumstances that would or might lead the fair-minded and informed observer to conclude that there was a real possibility that the arbitrator was biased.
• The duty of disclosure is broad. An arbitrator should disclose information that would or might give rise to a finding of bias.
• Whether an arbitrator has breached the duty to disclose is to be assessed by reference to the facts and circumstances as at and from the date when the duty arose.
• In certain cases, accepting appointments in multiple arbitrations regarding the same or overlapping subject matter with only one common party might give rise to a real possibility of bias. However, whether that was so, and whether such appointments were therefore disclosable, would depend on the facts of the particular case, the custom and practice of the relevant field and the rules of any designated arbitral institution. In a series of interventions, some arbitral institutions, such as GAFTA and LMAA, indicated that multiple referrals were common in their disputes, particularly in fields such as maritime, sports and commodities, and would not normally give rise to a duty of disclosure. By contrast, others, such as the ICC and LCIA, submitted that such referrals could give rise to reasonable doubts as to the arbitrator’s impartiality.
• Breach of the disclosure duty is an important, though not determinative, factor when assessing whether the arbitrator has breached the duty of impartiality.

Where multiple appointments did give rise to a duty of disclosure, the arbitrator would need to disclose details such as the existence of the overlapping arbitration and the identity of the common party.

Lord Hodge noted that the need to make such disclosure does not override an arbitrator’s duty of confidentiality under English law. However, though party consent is required for disclosure of details about other proceedings, in such circumstances a common party’s consent could ordinarily be inferred from their decision to appoint the same arbitrator to multiple overlapping proceedings.

Outcome

Applying these principles to the appeal, Lord Hodge held that Mr. Rokison had been under a legal obligation to disclose his appointment in the Second (Transocean) Arbitration to Halliburton because at the time of that appointment the existence of potentially overlapping arbitrations with only one common party was a circumstance that might reasonably give rise to a possibility of bias. His failure to do so constituted a breach of duty. Lord Hodge considered that the disclosure ought to have included the identity of the common party that was seeking Mr. Rokison’s appointment in the Second Arbitration, whether such appointment was a party appointment or nomination for appointment by a court or third party, and a statement of fact that the Second Arbitration arose out of the same incident.

However, having regard to all the circumstances of the case, Lord Hodge concluded that the fair-minded and informed observer at the date of the removal hearing would not infer a real possibility of unconscious bias. In reaching this conclusion, Lord Hodge highlighted several key considerations:

• There had been a lack of clarity at the time on whether disclosure was legally required under English law, as evidenced by the High Court judgment in the case.
• Given the timings of the referrals, any undue advantage from the overlap was much more likely to accrue in respect of the Second Arbitration, rather than the First Arbitration.
• The Second Arbitration was ultimately determined on the basis of an unrelated preliminary issue, so the actual overlap in evidence and legal submissions between the arbitrations, and likelihood of Chubb gaining an unfair advantage, was small to non-existent.
• Mr. Rokison had not received any secret financial benefit merely by reason of his appointments.
• There was no basis on which to infer unconscious bias as a result of subconscious ill-will—Mr. Rokison had responded to Halliburton’s challenge in the First Arbitration in a courteous, temperate and fair manner.

Halliburton’s appeal was therefore dismissed.

Comment

The decision provides a valuable restatement of the English law principles regarding apparent bias in the context of arbitral proceedings. It also confirms that arbitrators are subject to the same legal duty of disclosure as English judges. Parties may take some comfort from the Court’s emphasis on impartiality and confirmation of an explicit duty of disclosure under English law.

However, it is arguable that the objective test for determining apparent bias and the Court’s conclusion that apparent bias should be assessed at the time of the removal hearing, rather than at the time of the second appointment, fails to focus on the impact of the failure to disclose on the parties, and fails to give the duty of disclosure sufficient teeth. The lack of any bright-line rules on the scope of an arbitrator’s duty of disclosure in practice may also make it difficult for parties to identify and pursue breaches of such duty with a sufficient degree of certainty as to the outcome. This is brought into sharp relief when compared with the IBA Guidelines on Conflicts of Interest in International Arbitration, which provide that an arbitrator must disclose any appointments in other arbitrations on related issues involving one of the parties.

This may also cause concerns for arbitrators, as they will not only be expected to determine what can and should properly be disclosed, but may also be expected to reach different conclusions in that regard depending on the particularities of the disputes before them. Such concern may be compounded by Lord Hodge’s suggestion that a breach of an arbitrator’s duty to disclose which is not sufficiently serious to result in an arbitrator’s removal may nonetheless result in an order for the arbitrator to meet some or all of the costs of the unsuccessful challenge and/or their own defense.

This is the second recent U.K. Supreme Court appeal by the Chubb insurance group concerning important points of English arbitration—the first being OOO Insurance Company “Chubb” v Enka Insaat ve Sanayi A.S [2020] UKSC 38. As explained in our perspective, UK Supreme Court Clarifies Key Issues for English Seated Arbitrations, the judgment gave important guidance on the determination of the proper law of an arbitration agreement and clarified the role of the English Court in granting anti-suit relief in relation to arbitrations in England.