Now that the dust has settled on the highly anticipated judgment of the Supreme Court in Halliburton v. Chubb & Others, CJC London Associate Kaan Polat considers the implications for the arbitrators’ duty of disclosure in the context of multiple appointments in arbitrations arising from the same factual circumstances with only one common party.
The issues in the case were of such significance for international commercial arbitration that the Court received representations from the likes of the ICC’s International Court of Arbitration, the LCIA, LMAA, CIArb and GAFTA.
- The factual background
The facts of this case arose from the 2010 Deepwater Horizon disaster. The Appellant, Halliburton, provided cementing and well-monitoring services to BP in relation to the plugging of the well. The Respondent, Chubb, was Halliburton’s liability insurer under a Bermuda Form liability policy.
The blow-out of the well caused extensive damage and loss of life and resulted in a large number of claims against Halliburton. A Plaintiff’s Steering Committee pursued the private claims for damages, which Halliburton ultimately settled by paying approximately US$1.1 billion. Halliburton then claimed against Chubb under the insurance policy, but Chubb refused to pay, contending among other things that Halliburton’s settlement was not a reasonable settlement and that Chubb had acted reasonably in not consenting to it.
The policy was governed by the law of New York and provided for arbitration in London by a tribunal of three arbitrators, one appointed by each party and the third by the two arbitrators so chosen. If the arbitrators disagreed as to the choice of the third, the appointment was to be made by the High Court in London.
Halliburton commenced arbitration against Chubb on 27 January 2015 (Reference 1), but the parties’ respective arbitrators could not agree the third. An application was made to the High Court, and following a contested hearing, Flaux J appointed Chubb’s preferred arbitrator, Mr Kenneth Rokison QC on 12 June 2015.
In December 2015 (Reference 2) and August 2016 (Reference 3), Mr Rokison accepted appointments by Chubb in two further arbitrations arising from the same facts. Transocean, the owner of the oil rig, had made a claim under its liability insurance policy, which Chubb refused to pay. Pertinent to the central issue of disclosure in this case was that, whilst Mr Rokison did disclose to Transocean his prior appointment by Chubb in Reference 1 (Transocean did not object), he omitted to disclose his proposed appointment in References 2 and 3 to Halliburton.
Halliburton later discovered Mr Rokison’s appointments in the other references and applied to the Court to have him removed from Reference 1 pursuant to Section 24.The application was founded on a submission that his conduct had given rise to an appearance of bias. The common law test for apparent bias is “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased”.
- Decisions of the lower courts
Popplewell J considered three issues, namely (1) Mr Rokison’s acceptance of the appointments in Reference 2 & 3, (2) his failure to disclose those appointments to Halliburton and (3) his response to the challenge to his impartiality.
The judge rejected the application. In relation to issue 1, he observed that under English law arbitrators were under a duty to act independently and impartially and owed no allegiance to the party which appointed them. He rejected the contention that the multiple appointments would be unfair on the non-common parties due to the asymmetry of information. It was a regular feature in London arbitration for arbitrators to sit in different arbitrations arising from the same factual circumstances. This was because an arbitrator was required to decide the case by reference to the materials available to the parties to the particular reference. He concluded that the informed and fair-minded observer would not therefore regard Mr Rokison as unable to act impartially simply because of his involvement in References 2 and 3.
Of more general importance, the judge also rejected a submission that the chairman of a tribunal had an enhanced duty to appear unbiased as ultimate guarantor of fairness and impartiality. All arbitrators, whether party appointed or otherwise, had to maintain the same high standards of impartiality.
In relation to issue 2 (failure to disclose), he held that since the circumstances did not give rise to any justifiable concerns about Mr Rokison’s impartiality, there was nothing to disclose to the parties. As to issue 3 (response to challenge), he found that the arbitrator had dealt with the challenge to his impartiality in a fair and courteous way, which demonstrated his even-handedness.
Court of Appeal
The first issue the court considered was “whether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to the appearance of bias”. The court recognised that multiple appointments in such related arbitrations could cause the party involved in only one of them to be concerned. It however held that this does not in and of itself give rise to an appearance of bias. “Something more is required”, and that must be “something of substance”.
Although the court held that such appointments may be accepted without giving rise to an appearance of bias, it cautioned that this was not in and of itself determinative of whether the arbitrator should disclose them, which brought the court to the second issue in the appeal. Namely, when should an arbitrator make disclosure of circumstances which may give rise to justifiable doubts as to his or her impartiality?
The court first pointed out that, unlike many institutional rules governing arbitration, the Arbitration Act sets out no requirements in relation to disclosure. The Supreme Court’s judgment later comments that this was done intentionally by the drafters to allow the law on the arbitrator’s duty of disclosure to develop organically through case law.
Citing several decisions in support, the Court of Appeal highlighted the advantages of giving disclosure at the outset and observed that in borderline cases disclosure should be given. The court therefore concluded that “disclosure should be given of 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”. Applying this conclusion to the facts of the case, the court disagreed with Popplewell J and held that Mr Rokison was under a legal duty to disclose to Halliburton his appointments in References 2 and 3. The fact that best practice in international commercial arbitration would have required disclosure of the other appointments taken together with Mr Rokison’s disclosure of the appointments to Transocean but not Halliburton and the degree of overlap between the arbitrations all amounted to that “something more of substance”.
As to the consequences of Mr Rokisons’s failure to disclose the appointments despite being under a legal duty to do so, the court nonetheless agreed with the judge’s overall finding that an informed observer would not conclude that there was a real possibility that Mr Rokison was biased. There were therefore no grounds for removing him from the tribunal. Halliburton appealed.
- Decision of the Supreme Court
After summarising the decisions of the lower courts, Lord Hodge, delivering the leading judgment, considered the submissions of the arbitral institutions. A clear divergence of views emerged from the interventions with regards to both the appearance of bias arising from multiple overlapping appointments and the arbitrators’ duty to disclose them. The LCIA, ICC and CIArb’s view was that the test set out by the Court of Appeal was not strict enough compared with international norms. They disagreed that “something more is required” and that such appointments – or the failure to disclose them – depending on the facts of the case can in and of themselves give rise to reasonable doubts as to the arbitrator’s impartiality. GAFTA and the LMAA, on the other hand, explained that multiple appointments are not only common but often desirable in their fields of activity where chains of contracts can cause multiple disputes all arising from the same facts.
The Court then turned to the applicable principles and provided some helpful guidance.
The duty of impartiality – the objective test of the fair-minded observer remains unchanged and applies to arbitrators and judges alike. However, Lord Hodge emphasised the importance of bearing in mind the differences between judicial and arbitral determinations in applying the test to arbitrators. Before passing judgment, the informed observer should have regard to the contractual and factual matrix, including custom and practice in the subject matter field of arbitration.
The Court disagreed with the Court of Appeal’s decision that “something more” was required to establish apparent bias. Depending on custom and practice and the facts of the case, mere acceptance of appointments in multiple references is capable of giving rise to an appearance of bias.
The duty of disclosure – whilst the test of the fair-minded observer is an objective one, this is not the case under various arbitral codes and rules. The International Bar Association Guidelines state that the duty of disclosure is triggered if there are doubts as to the arbitrators’ impartiality in the eyes of the parties. In other words, the test is subjective. The LCIA and ICC Rules adopt a similar approach. The Court, however, cautioned that it does not construe those rules as requiring disclosure where the doubts are unreasonable or unjustified.
Turning to the question of whether there is a legal duty of disclosure in English law, the Court agreed with the Court of Appeal in holding that there is such a duty, and it is not merely arbitral good practice. Such duty is rooted in the arbitrator’s statutory duty, under the Arbitration Act, to act fairly and impartially.
As to what must be disclosed, although Lord Hodge agreed with the Court of Appeal’s formulation of the duty of disclosure, he expressed a reservation with regards to the Court limiting the duty to matters “known to the arbitrator”. He did not rule out the possibility of the arbitrator being under a duty to make reasonable enquiries to comply with the duty. This will depend on the facts.
Another aspect of the Court of Appeal’s formulation which his Lordship agreed with and found central to the dispute concerned the words “would or might”; the latter word being a novel addition. If some matter "would" give rise to justifiable doubts as to an arbitrator’s impartiality, the disclosure of that matter would not, generally, remove the difficulty. The correct course for the arbitrator would usually be not to take up (or to withdraw from) the reference. Disclosure of matters which “might” give rise to such doubts, on the other hand, will address the need for disclosure in borderline cases. The Court examined academic commentary, the UNCITRAL Model law and the arbitration laws of other jurisdictions, concluding that it would be consistent with the “international comparators” to develop the common law duty on this basis.
In summary, the duty of disclosure will arise where matters are such that they are relevant and material to the informed observer’s assessment and could reasonably lead to an adverse conclusion.
Whether a failure to disclose can demonstrate a lack of partiality – where an arbitrator has accepted an appointment in multiple arbitrations in circumstances which might reasonably give rise to justifiable doubts as to his or her impartiality, or is aware of other matters which might reasonably give rise to those doubts (e.g. where multiple appointments are not a common feature of that particular field of arbitration), a failure in his or her duty to disclose those matters to the non- common party deprives that party of the opportunity to address and perhaps resolve the matters which should have been disclosed. The failure to disclose may demonstrate a lack of regard to the interests of the non-common party and may in certain circumstances amount to apparent bias.
The time of assessment of the need for disclosure – since the Court of Appeal held that disclosure is required of circumstances that “might” lead to a conclusion of apparent bias, the question of what is to be disclosed is to be considered prospectively. Lord Hodge agreed and stated that the question whether there should have been disclosure should not be answered retrospectively by reference to matters known to the fair-minded and informed observer only at a later date.
The time of assessment of the possibility of bias – Section 24(1)(a) of the AA 1996 empowers the court to remove an arbitrator on the ground that circumstances exist that give rise to justifiable doubts as to their impartiality. The use of the present tense (“exist”) directs the court to assess the circumstances as they exist at the date the application to remove the arbitrator is heard.
Application to the facts / Rejection of the challenge
Applying these principles to the facts of the case, the Court held that Mr Rokison was under a legal duty to disclose his appointment in Reference 2 to Halliburton because at the time of that appointment the existence of potentially overlapping arbitrations with only one common party was a circumstance which might reasonably give rise to the real possibility of bias. As previously discussed, whether there needs to be such a disclosure depends on the distinctive customs and practices of the arbitration in question. Unlike in GAFTA and LMAA arbitrations, it had not been shown that there is an established custom or practice in Bermuda Form arbitrations whereby an arbitrator may take on such multiple appointments without disclosure. Mr Rokison had therefore breached his duty.
The above brought the Court to consider whether a fair-minded and informed observer at the date of the hearing for removal in January 2017 would have concluded that there was a real possibility of unconscious bias on Mr Rokison’s part. The Court held that he or she would not have so concluded for the following reasons: (i) there was a lack of clarity in English case law as to whether there was a legal duty of disclosure; (ii) the time sequence of the three arbitrations may explain why Mr Rokison saw the need to disclose his appointment in Reference 1 in the later Reference 2 but not the other way around; (iii) Mr Rokison explained that the other two arbitrations would likely be resolved by a preliminary issue so there would be no overlap in evidence or legal submissions, offering to resign from his appointments in the other arbitrations if the preliminary issue did not have such an effect; (iv) there is no question of his having received any secret financial benefit, and (v) his courteous, temperate and fair response to the robust (described as grossly offensive in part by Popplewell J) challenge has no bearing of subconscious ill-will. The application was therefore rejected.
The submissions by the various arbitral institutions reveal interesting differences in their approach to arbitrators’ appointment in arbitrations arising from the same or overlapping subject matter with only one common party. Readers with a shipping or commodity trade background will be accustomed to such multiple appointments and may indeed find them desirable to reduce legal costs and/or to avoid the risk of inconsistent decisions.
London remains the leading arbitration seat in the world, and the Supreme Court’s judgment, emphasising throughout the importance of context, will help it remain as such. It avoided laying a universal, standardised rule by striking a balance and accommodated within English arbitration law both the purely objective test of the fair-minded and well-informed observer and the perception-based approach of other industry-specific arbitration rules.
It remains to be seen whether some arbitrators will be showing more concern for their duty to make disclosure of relevant information due to the field they practice in. With the test for assessing the obligation – and the consequences of getting it wrong – now being so clearly spelt out, not doing so would be an error. Out of caution arbitrators should proceed on the understanding that disclosure is required unless the information truly is trivial, and the arbitration is one where there is an accepted practice of multiple appointments. Last but not least, the Court’s refusal to rule out that arbitrators may be under a duty to make reasonable enquiries as to whether there are circumstances which may give rise to doubts as to his or her impartiality ought to be food for thought.
 2018 International Arbitration Survey: The Evolution of International Arbitration