ENGLISH COURT OF APPEAL CONSIDERS DISCLOSURE OF ARBITRAL APPOINTMENTS IN RELATED OR OVERLAPPING REFERENCES

In Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817, the English Court of Appeal was asked to consider:

1. whether it is possible for an arbitrator to accept multiple appointments with overlapping reference and one common party, without giving rise to doubts over impartiality?
2. at what point should an arbitrator disclose these further appointments – if at all?

The Court of Appeal dismissed the appeal, stating that, on the facts of the case, there was no real possibility that the arbitrator was biased when viewed from the perspective of a "fair minded and informed observer".  Nevertheless, the Court held that, in accordance with English law and best practice in international arbitration, disclosure should have been made.

Background  

On 20 April 2010, there was an explosion at the Deepwater Horizon oil rig, which was owned by Transocean Holdings LLC. BP Exploration and Production Inc. (BP) was the lessee of the rig and Halliburton Company (Halliburton) provided cementing and other services for BP. Prior to the explosion, both Transocean and Halliburton had purchased excess liability insurance from Chubb Bermuda Insurance.

Halliburton failed in its attempt to claim under the insurance policy, and as a result, decided to commence arbitration against Chubb. The two parties could not agree on the choice for the third arbitrator, so the High Court appointed 'M' (Reference 1).

Prior to his appointment in June 2015, M disclosed that (i) he had previously acted as arbitrator in cases where Chubb was a party and (ii) he was currently appointed as arbitrator in two references, both of which involved Chubb.

In December 2015, M accepted an appointment by Chubb in a case involving Transocean (Reference 2). In August 2016, M accepted an appointment as substitute arbitrator in another case with Transocean, this time against a different insurance company (Reference 3). Neither Reference 2 nor Reference 3 was disclosed to Halliburton.

Halliburton applied to the court to have M removed as the arbitrator in Reference 1, under section 24(1)(a) of the Arbitration Act 1996, which provides that an arbitrator can be removed when "circumstances exist that give rise to justifiable doubts as to his impartiality".

The application was dismissed on the basis that there was nothing in the acceptance of References 2 and 3 that gave rise to an appearance of bias or impartiality. M maintained that he remained independent and impartial in all the cases. M explained that, although the References all arose out of the Deepwater Horizon explosion, they did not raise the same, "or even similar", issues. He stated that he had not disclosed the two appointments by Transocean, because it did not occur to him at the time that the IBA Guidelines on Conflict of Interest in International Arbitration obliged him to do so. Both sides accepted this explanation as truthful. However M accepted, "with the benefit of hindsight, that it would have been prudent" for him to have done so.

Popplewell J dismissed the claim in the lower court, and Halliburton appealed.

The appeal

The crux of Halliburton's appeal was its contention that the judge at first instance failed to have proper regard to the unfairness that may arise when an arbitrator accepts appointments in overlapping references with only one common party. Halliburton expressed concern over the potential for the common party in the references to be put in an advantageous position by tailoring its submissions to best suit the approach of the arbitrator, or sharing relevant information with the arbitrator, without the knowledge of the other party. In a situation where one party has information about facts and arguments known to the arbitrator and directly relevant to the case, the fair minded observer would conclude that that constitutes an unfair advantage.

Disclosure

The judgment in Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451 indicated that it is "generally desirable" to disclose any matter that can give rise to a 'real' danger of bias.  In Guidant LLC v Swiss Re International SE  [2016] EWHC 1201, the judge acknowledged that fears over inside knowledge were a legitimate concern, while at the same time recognising that a common arbitrator does not, in itself, justify an inference of apparent bias; "[s]omething more is required."

The Court of Appeal also referred to Almazeedi v Michael Penner [2018] UKPC 3, where there is clear support for disclosure, in circumstances where the non-disclosure of certain facts may give rise to doubts about a judge (or arbitrator)'s impartiality. The authorities referred to in the judgment concurred that there are practical advantages to disclosure and that the test is an objective one; the decision is to be made according to what the fair-minded and informed observer "would or might" conclude. In borderline cases, disclosure should be made. In cases where an arbitrator has failed to disclose circumstances that could result in doubts about his impartiality, the Court of Appeal stated that the arbitrator had not displayed the "badge of impartiality".

The Court noted that certain arbitral rules and guidelines impose a stricter test of disclosure than English law. The IBA Guidelines, for example, require disclosure of facts or circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrator's impartiality or independence (emphasis added). By contrast, the Court confirmed that English law still applies the "more certain standards" of an objective observer when considering whether disclosure should be made. Moreover, arbitrators are required to disclose only circumstances known to them at the time.

The Court confirmed the position under English law as follows: "disclosure should be given of facts and circumstances known to the arbitrator which…would or might give rise to justifiably doubts as to his impartiality".

Apparent bias

The Court of Appeal dismissed the argument that accepting multiple appointments with only one common party would, in itself, justify an inference of apparent bias. The Court understood that, from Halliburton's perspective, legitimate concerns arose from M's conduct, however "something more" would be required to justify doubts as to M's impartiality in the eyes of an objective observer. Arbitrators are assumed to be trustworthy enough to approach each case with an open mind, and to make decisions purely on the facts before them. Moreover, the facts showed that the non-disclosure was accidental, even if, as a matter of best practice, disclosure should have been made.

Judgment

The Court dismissed the appeal. The overlapping issues within the multiple appointments did not of itself give rise to any significant concerns, and if the objective test was applied, a fair-minded and informed individual would not conclude that an accidental failure to disclose would give rise to justifiable doubts as to M's impartiality. The Court held that, as a matter of good practice in international arbitration and as a matter of English law, M should have disclosed the further reference to the Appellant. However, the Court agreed with the judge at first instance that the fair-minded and informed observer, having considered all the facts, would not conclude there was a real possibility that M was biased.

Comment

The decision in Halliburton v Chubb has clarified that arbitrators can accept more than one appointment with overlapping subject matters, without necessarily giving rise to doubts about their impartiality. The judgment further confirms that English law will apply the "objective observer" test when determining doubts as to an arbitrator's impartiality, despite arbitral rules and guidelines applying a more subjective test. What emerges clearly is that each case will be determined on its facts, and that there is strong judicial support for disclosure where there is any doubt in the arbitrator's mind about potential appearance of bias. This is unsurprising, and reflects arbitral best practice internationally.