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Looking to the Future on Arbitrator Impartiality and Disclosure in England

Client Updates

What does it mean for an arbitrator to be impartial, and when should an arbitrator disclose matters that may cause his or her impartiality to be doubted? In last week’s judgment in Halliburton v Chubb, the Supreme Court provided a significant clarification of these pivotal questions in the context of arbitrators who accept appointments in multiple international arbitrations with overlapping subject-matter.[1] The Supreme Court has affirmed that the Arbitration Act 1996 (the “Act”) sets high standards of impartiality and disclosure for arbitrators, and that these standards represent an important part of what parties expect from a London-seated international arbitration.

While the Supreme Court ultimately dismissed Halliburton’s challenge to the arbitrator in question, Mr Kenneth Rokison QC (holding that there was no appearance of bias, at least by the time of the challenge hearing), it affirmed that by accepting appointments in multiple international arbitrations with overlapping subject-matter, an arbitrator may create justifiable doubts” about his or her impartiality. The decision also clearly establishes for the first time an independent duty on arbitrators under English law to make disclosure of matters that “would or might” create such justifiable doubts. The Supreme Court recognises, however, that the assessment of both the impartiality and disclosure standards must reflect the context, custom and practice in particular subject-matter fields of arbitration.

The Supreme Court’s decision is likely to be the start to a line of English jurisprudence addressing the requirements of arbitrator impartiality and disclosure. The Court’s analysis, limited on the facts to the question of arbitrator appointments in overlapping arbitrations, nevertheless provides an important springboard for the development of English law on other species of arbitrator conflicts (such as personal or financial relationships between an arbitrator and counsel, ex parte communications by an arbitrator with one party, or repeat appointments of an arbitrator by one party). The majority judgment of Lord Hodge, together with the further helpful points offered by Lady Arden in her separate concurring judgment, synthesize the rich body of scholarship, case law and submissions presented by the disputing parties and a number of intervening parties, including the ICC and the LCIA. Some of the key general principles clarified by the Supreme Court include:

  1. that arbitrators in English-seated arbitrations must generally meet the same standard of impartiality as English judges;
  2. that the facts to be considered in assessing the alleged lack of impartiality or appearance of bias are the facts known as of the time of the challenge hearing; and
  3. that there is no difference in the required standard of impartiality between a party-appointed arbitrator and a chairperson or umpire.

While the Court’s judgment is worth a full reading, this update summarises its key aspects and offers some initial reflections.

Factual background

The Halliburton v Chubb case arose from a number of arbitrations that had their genesis in the Deepwater Horizon drilling rig incident in the Gulf of Mexico in 2010 (the “Incident”). Halliburton Company (“Halliburton”) provided services on the well being drilled by the rig. Halliburton and the rig owner, Transocean Holdings LLC (“Transocean”) both purchased “top layer” liability insurance on the “Bermuda Form” from Chubb Bermuda Insurance Ltd (“Chubb”). The policies were governed by New York law, and contained arbitration clauses providing for ad hoc arbitration before a panel of three arbitrators in London.

The Incident resulted in numerous legal claims by the United States government, and corporate and personal claimants, against Halliburton, Transocean and others. In 2014, Halliburton announced that it had settled certain private claims against it for approximately USD 1.1 billion. Transocean also announced that it had settled certain claims for USD 212 million. When Halliburton made a claim under its liability insurance, Chubb refused to pay, arguing, inter alia, that Halliburton’s settlement was not reasonable and that Chubb had acted reasonably in not consenting to the settlement. Chubb contested Transocean’s claim on substantially the same grounds.

The Halliburton-Chubb arbitration, Mr Rokison’s appointment and overlapping arbitrations

Halliburton invoked the arbitration clause in its policy with Chubb (defined by the Supreme Court as “reference 1”). After the party-appointed arbitrators failed to agree on a third arbitrator as chairperson, the High Court appointed Mr Rokison in June 2015. Before accepting appointment, Mr Rokison disclosed that he had previously served as arbitrator in several arbitrations in which Chubb was a party, including having previously been appointed by Chubb. The High Court did not regard this as an issue (Chubb had, in fact, opposed the appointment of any English arbitrators in the arbitration on the basis that the insurance policy was governed by New York law).

Subsequently, Mr Rokison was appointed by Chubb in an arbitration brought by Transocean against Chubb in December 2015 (“reference 2”), and again in August 2016, as a substitute arbitrator on the parties’ joint nomination in another arbitration brought by Transocean against another, unnamed insurer under the same layer of insurance (“reference 3”). While Mr Rokison disclosed his appointment in reference 1 to Transocean (and Transocean did not object), he did not disclose to Halliburton his appointment in references 2 or 3.

In late 2016, Halliburton discovered Mr Rokison’s appointment in references 2 and 3 and wrote to him asking for an explanation of his failure to disclose these appointments. Mr Rokison replied that he had not disclosed these appointments because it had not occurred to him that he was under any obligation to do so, although he appreciated, with the benefit of hindsight, that it would have been prudent to do so. Mr Rokison further explained that while all three references arose out of the Incident, the roles that Halliburton and Transocean had played had been very different, that his involvement in the two Transocean arbitrations had been confined to two, two-day hearings on the construction of the insurance policy, and that the determination of these preliminary issues of construction might well bring references 2 and 3 to an end.

High Court application and arbitral developments

Halliburton called for Mr Rokison to resign in reference 1. Mr Rokison agreed to do so, provided Chubb agreed. Chubb, however, would not agree to Mr Rokison’s resignation, which it argued would cause wasted costs and delay. Halliburton accordingly applied to the High Court to have Mr Rokison removed as arbitrator under s 24(1)(a) of the Act, which provides for the removal of an arbitrator where there exist “justifiable doubts” concerning that arbitrator’s impartiality. Halliburton based its removal application on both: (a) Mr Rokison’s acceptance of appointment in overlapping arbitrations; and (b) his failure to disclose his appointment in references 2 and 3 to Halliburton.

In March 2017, the tribunals in references 2 and 3 issued awards on the preliminary issues in favour of Chubb and the other insurer. These awards brought both arbitrations to an end, without either tribunal having to consider any questions as to the reasonableness of Transocean’s settlement.

On 5 December 2017, the tribunal in reference 1 issued a final partial award on the merits, ruling in Chubb’s favour. The award was signed by all three arbitrators, although Professor William W. Park, the arbitrator appointed by Halliburton, qualified his signature of the award, stating that he had signed the award to confirm his participation but that he was unable to join in the award as a result of his “profound disquiet about the arbitration’s fairness” (i.e., Mr Rokison’s ongoing involvement).

Decisions of the High Court and Court of Appeal

Halliburton’s challenge to Mr Rokison was dismissed by both the High Court and the Court of Appeal.[2] Both courts declined to accept the argument that the standard for removal under s 24(1)(a) was satisfied by the acceptance per se of appointments in multiple cases concerning the same or overlapping subject-matter – “something more” was required.[3]

However, the courts disagreed over whether there existed an independent duty of disclosure under English law, the violation of which might independently justify the removal of an arbitrator. Popplewell J in the High Court considered that the disclosure of possible conflicts was a matter of best practice, but that Mr Rokison’s failure to do so did not give rise to a real possibility of apparent bias against Halliburton. The Court of Appeal disagreed, holding that arbitrators are under an independent obligation to disclose facts or circumstances which “would or might give rise to justifiable doubts as to [their] impartiality”.[4] The Court of Appeal thus found that Mr Rokison ought to have made disclosure to Halliburton of his appointments in references 2 and 3, but agreed with the High Court’s overall conclusion that a fair-minded and informed observer would not have concluded that there was a real possibility that Mr Rokison was biased.[5]

The Supreme Court decision

The Supreme Court upheld the lower-court judgments and dismissed Halliburton’s appeal. The Court affirmed that an arbitrator’s acceptance of appointments in multiple arbitrations with overlapping subject-matter would not automatically give rise to an appearance of bias, rejecting any such “bright line” test. However, an appearance of bias could arise in a particular case. This would depend, inter alia, on the subject-matter of the dispute and the market in which the arbitrating parties operate (including the custom and practice in the relevant subject-matter field of arbitration – e.g. insurance arbitration, maritime arbitration, sports arbitration, etc.).[6]

On the facts of the case, the Court suggested (without finally resolving the point) that at the time of Mr Rokison’s acceptance of appointments in references 2 and 3 and his concurrent non-disclosure of this fact to Halliburton, an appearance of bias “may” have existed in the mind of the reasonable observer justifying removal under s 24(1)(a).[7] However, the Court held, the asserted bias had to be assessed at the time of the removal hearing (because s 24(1)(a) refers to circumstances that “exist” giving rise to “justifiable doubts”).[8] On this basis, there were several reasons why Halliburton’s challenge had insufficient force by the time its removal application was heard, including: (a) the lack of clarity under existing English law as to whether an independent duty of disclosure existed and whether disclosure was required; (b) the time sequence of the three arbitrations, which might explain why Mr Rokison had not identified the need to tell Halliburton about his appointment in references 2 and 3 (i.e., that absent the preliminary determinations in references 2 and 3, reference 1 would have “gone first”); and (c) Mr Rokison’s disclosure that it was likely that references 2 and 3 would be resolved by the preliminary issues (as proved to be the case) and that there would accordingly be no overlap in evidence or legal submissions between the arbitrations.[9]

An arguably underdeveloped aspect of the Court’s analysis which may have, together with Mr Rokison’s post-challenge conduct, determined the outcome seems to be what it means for matters to “overlap”. Reasonable minds might differ with the Court’s apparent conclusion that overlap is a matter of specific common legal issues, or specific evidence led (with the result that there was little or no possible overlap found in the case). [10] On a broader view of “overlap”, and given (i) the affirmation of high impartiality standards by the Court (ii) the finding of a breached disclosure duty and (iii) the Court’s suggestion that the recusal standard may prima facie have been met, the result on the facts could be seen as somewhat surprising.

General legal principles clarified or developed

The Supreme Court’s judgment also discussed general principles relating to impartiality and disclosure in international arbitration at some length. This discussion is likely to provide helpful guidance to parties and counsel in future cases. Some of the key points are summarised below.

The impartiality standard in arbitration under the Arbitration Act 1996 – commonality and contrast between judges and arbitrators

The Supreme Court confirmed that when it comes to the assessment of “justifiable doubts” under s 24(1)(a) of the Act, “the objective test of the fair-minded and informed observer applies equally to judges and all arbitrators”.[11] This is rooted in s 33 of the Act (a mandatory provision), which requires arbitrators to act “fairly and impartially as between the parties”.[12] The Court also connected this standard with the importance that parties to international arbitration place on neutrality and impartiality when choosing London as their seat of arbitration.[13]

At the same time, however, the Court acknowledged that it is important to bear in mind the differences between judicial and arbitral determination of disputes. The Court indicated that there may be a greater risk of decision-maker partiality in international arbitration for a number of reasons, including the privacy of arbitrations, the lack of appeals, the relative insecurity of tenure of arbitrators and the fact that arbitrators come from a variety of backgrounds and legal and ethical traditions. This suggests that there may be a higher standard of disclosure, at least in some cases, for arbitrators.[14]

The time to assess impartiality under s 24(1)(a) of the Arbitration Act

As noted above, the Supreme Court confirmed that the time to assess arbitrator impartiality is the time of a challenge hearing, based on the use of the word “exist” in s 24(1)(a) of the Act. Lady Arden observed that this requirement indicates the legislature’s desire to ensure that removal of an arbitrator, with all its attendant consequences, occurs only where the non-disclosure has been material, and to encourage experienced arbitrators to offer their services.[15]

The impartiality of party-appointed arbitrators

The Supreme Court also unequivocally rejected the suggestion (apparently accepted, for instance, by at least one Circuit Court in the United States) that a party-appointed arbitrator may have a lower duty of impartiality than the chairperson or umpire. In English-seated arbitrations, the Court held, a party-appointed arbitrator “is expected to come up to precisely the same high standards of fairness and impartiality as the person chairing the tribunal”.[16] Halliburton had sought to distinguish the position of Professor Park (who had also been appointed in multiple arbitrations in insurance claims arising out of the Incident) from that of Mr Rokison on the basis that Professor Park’s status as a party-appointed arbitrator was a significant distinction.[17] The Supreme Court rejected this distinction and held that it did not provide a basis for a party-appointed arbitrator to avoid his or her duty of disclosure under English law.[18]

Duty of disclosure confirmed under English law

The Supreme Court confirmed the Court of Appeal’s view that there is an independent legal duty on arbitrators to make disclosure of potential conflicts of interest, which is encompassed within their statutory duties under section 33 of the Act and which underpins the integrity of all English-seated arbitrations.[19] The Court rejected the suggestion that such an independent duty might be a pointless one, observing that a breach of the duty: (a) might represent a factor demonstrating an appearance of bias in a marginal case (i.e., where the alleged conflict itself is insufficient to give rise to an appearance of bias); or (b) might sound in costs on a challenge, or create contract remedies under the terms of an arbitrator’s appointment.[20]

However, the precise circumstances in which the duty will be engaged remain unclear.[21] The Court held only that, unless the parties to an arbitration agree otherwise (including by making an implied agreement clear from custom or context), the fact that an arbitrator is appointed in respect of a dispute concerning the same or overlapping subject-matter with only one common party is a matter which “may” have to be disclosed, depending upon the customs and practice in the relevant field.[22] 

In considering whether there has been a breach of the duty to disclose, the court must have regard to the circumstances prevailing at the time when the arbitrator acquired the requisite knowledge of the relevant circumstances, and disregard matters of which the arbitrator could not have known at that time.[23] Moreover, the duty of disclosure is a continuing duty and changing circumstances may thus aggravate or mitigate an arbitrator’s failure to disclose.[24]

A duty to investigate potential conflicts?

The Supreme Court suggested, without deciding, that the duty of disclosure formulated by the Court of Appeal – which was based on matters “known to the arbitrator” – might also need to include a duty on an arbitrator to investigate certain matters in particular circumstances (for example, to investigate possible financial interests). The Court did not expressly rule on the LCIA’s submission that English law reflected the principle set out in the IBA Guidelines on Conflicts of Interest in International Arbitration that an arbitrator is under a duty to make reasonable enquiries as to whether there are facts or circumstances which could create an appearance of bias.[25] Lady Arden suggested that the test under s 177(5) of the Companies Act 2006, by which company directors are deemed to be aware of matters “of which [they] ought reasonably to be aware”, might represent useful guidance to arbitrators in this area.[26]

Disclosure duty vs. confidentiality and privacy obligations

The Supreme Court also considered the extent to which obligations of confidentiality and privacy owed by arbitrators (which it held are implicit in the Act) might restrain their ability to make disclosure.[27] While the Court confirmed that the duty of disclosure does not override these obligations, it considered that in most cases, a clash of obligations could be avoided. Lord Hodge observed that the law can and should recognise the realities of accepted commercial and arbitral practice, which are that high-level disclosure is inoffensive to privacy and confidentiality obligations. This position was reinforced by the clear public interest in upholding the integrity of arbitration as a system of alternative dispute resolution.[28] If there is an irreconcilable conflict, however, then an arbitrator must resign from at least one arbitration. While the Court’s ruling was limited to disclosure in the context of “Bermuda Form” arbitrations, Lady Arden indicated that she saw a wider application of this principle (for example, to ad hoc arbitrations generally), and that high-level disclosure of the kind identified by Lord Hodge should not in general require an exception to confidentiality principles.[29]

Commentary

What are the key points to take away from Halliburton v Chubb? While clarifying the impartiality standard and confirming that an independent duty of disclosure exists under English law, the judgment also emphasises that the application of the impartiality and disclosure tests is heavily fact dependent and contextual. The nature of the parties, their dispute, the industry and any applicable institutional rules, among another matters, will all be relevant factors.

Nevertheless, a number of important practical implications can be taken from the Supreme Court’s judgment. While the Court was careful to emphasise that its conclusions were limited to the conduct of “Bermuda Form” arbitrations, the general principles articulated by the Court are likely to have an equally significant impact on arbitrator conduct in English-seated arbitrations under ad hoc and institutional arbitration rules (as evidenced by the intervention of the ICC and LCIA in the proceedings).

First, the wisdom that “prevention is better than cure” applies strongly to questions of impartiality and disclosure. Arbitrators should err on the side of caution and make “high-level” disclosure of potential conflicts whenever possible. While the Supreme Court took the view that the outcome in Halliburton v Chubb should not increase the number of future challenges to arbitrators, that assumption will be tested in the coming years. In light of the Court’s observations on a possible duty to investigate potential conflicts, it may also be prudent for arbitrators to consider whether there are any potential grounds for conflict of which they “ought reasonably to be aware” and to investigate accordingly. This may be a particular challenge for arbitrators working in large law firms, in light of the applicable imputation of conflicts rules.

Second, the Court’s application of the “hearing date rule” and its contextual approach, together with Lady Arden’s observations that the courts are required by the legislature to “hold the balance between the parties” and should only allow what she characterized as material non-disclosure to result in disqualification,[30] suggest that successful challenges under s 24(1)(a) are likely to remain rare. Whether the right balance has been struck in this respect is a matter that time will again make clear. It seems that the question of what constitutes an “overlap” is an issue relating to the standard which may also benefit from further attention in future cases involving a similar conflict issue, although the question will always partly be fact-specific.

Third, while confidentiality and privacy issues may arise in the context of the duty to disclose, Halliburton v Chubb suggests that a workable solution should be acceptable in many or even most cases. Nonetheless, arbitrators will need to consider the relevant customs, context and circumstances in their field of arbitration, as well as the applicable arbitration rules, in considering whether they need to obtain the express consent of third parties to make disclosure of any potential conflicts.

Fourth, the Supreme Court’s affirmation that the same high standards of impartiality apply to party-appointed arbitrators as to chairpersons and umpires is unsurprising, but an important exclamation mark on the well-established principle of arbitrator independence. 

Finally, Halliburton v Chubb suggests that there is significantly more territory to be charted by the courts in terms of: (a) the applicability of the general impartiality and disclosure principles to other species of arbitrator conflicts; and (b) the specific matters expressly left open by the Court’s judgment, including the scope of the duty of disclosure and the scope of the obligation on arbitrators to investigate potential conflicts. The decision nonetheless represents welcome progress towards clarity under English law in respect of this important area of international arbitration.

Disclaimer

Please note that this client update does not constitute legal advice, nor can it be used as evidence of the commencement, existence or continuation of any lawyer–client relationship. It is provided for informational purposes only.


[1]              Halliburton Company v Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd) [2020] UKSC 48 [SC Judgment].

[2]              [2017] EWHC 137 (Comm), [2017] 1 WLR 2280 (Popplewell J) [HC Judgment] and [2018] EWCA Civ 817, [2018] 1 WLR 3361 (Sir Geoffrey Vos C, Simon and Hamblen LJJ) [CA Judgment]. 

[3]              CA Judgment at [76].

[4]              CA Judgment at [71].

[5]              CA Judgment at [94]–[100].

[6]              SC Judgment at [127]–[131] and see summary at [152]. The Court recognised that in certain subject matter fields of arbitration there are different expectations as to the degree of independence of an arbitrator and as to the benefits to be gained by having an arbitrator who is involved in multiple related arbitrations”: SC Judgment at [127].

[7]              SC Judgment at [143] and [147].

[8]              See SC Judgment at [121].

[9]              SC Judgment at [149].

[10]           The broader factual subject matter (ie the Incident) was indisputably the same. The relatively narrow approach taken by the court also sits somewhat uncomfortably with the Court’s discussion of the justifiable doubts an applicant might have about the common party having a separate channel of communication with the arbitrator: see at [130] and [142]

[11]            SC Judgment at [55].

[12]            SC Judgment at [49].

[13]            SC Judgment at [63].

[14]            SC Judgment at [56]–[61].

[15]            SC Judgment at [165].

[16]            SC Judgment at [63].

[17]            SC Judgment at [27], [65].

[18]            SC Judgment at [144]

[19]            SC Judgment at [76]–[81].

[20]            SC Judgment at [111] and [168].

[21]            SC Judgment at [108]–[115].

[22]            SC Judgment at [136].

[23]            SC Judgment at [120].

[24]            SC Judgment at [120].

[25]            SC Judgment at [107].

[26]            SC Judgment at [162].

[27]            SC Judgment at [83].

[28]            SC Judgment at [101]–[103].

[29]            SC Judgment at [171]–[188].

[30]            SC Judgment at [165].

 

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