England and Wales Court of Appeal: 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 an appearance of bias, ‘fair-minded and informed observer’ criterion applied

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Introduction

In Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817, the Court of Appeal of England was faced with the issue of when should an arbitrator make disclosure of circumstances which may give rise to justifiable doubts as to his impartiality and what are the consequences of failing to make disclosure of circumstances which should have been disclosed. The Court of Appeal, after analyzing the legal literature on these issues, held that under English Law, disclosure should be given of facts and circumstances known to the arbitrator which, in the language of Section 24 of the English Arbitration Act, 1996 (the Act), would or might give rise to justifiable doubts as to his impartiality. Under English law this means facts or 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 arbitrator was biased. Further, it was concluded that non-disclosure of a fact or circumstance which should have been disclosed, but does not in fact, on examination, give rise to justifiable doubts as to the arbitrator’s impartiality, cannot, however, in and of itself justify an inference of apparent bias.

Factual Matrix

An explosion occurred in the Deepwater Horizon oil rig in the Gulf of Mexico followed by fire. Transocean Holdings LLC (Transocean) was the owner of the rig and the rig was leased out to BP Exploration and Production Inc (BP) who have hired Transocean to provide crew and drilling teams. Halliburton Company (Halliburton) provided cementing and well-monitoring services to BP in relation to the temporary abandonment of the well.

Both Transocean and Halliburton purchased liability insurance on the Bermuda form from the Chubb Bermuda Insurance Ltd (Chubb). The material policy terms of both the insurance were same. Halliburton’s insurance policy provided coverage of US$100 million excess US$500 million. It was governed by New York law but provided for arbitration in London by a tribunal consisting of three arbitrators, one appointed by each party and the third by the two arbitrators so chosen; in the event of disagreement between the arbitrators as to the choice of the third, the appointment was to be made by the High Court.

Following the explosion in the rig, numerous claims were made against BP, Halliburton and Transocean by the US Government and corporate and individual claimants. The US Government claims were for civil penalties under various federal statutes. The private claims for damages were pursued through a Plaintiffs’ Steering Committee (PSC). Many of the claims were consolidated into a single ‘Multi District Litigation’.

Following a liability trial in the Federal Court for the Eastern District of Louisiana, judgment was given holding the apportionment of blame to be BP 67%; Transocean 30% and Halliburton 3%. Shortly before judgment, Halliburton concluded a settlement of the PSC claims against it. Following the judgment, Transocean settled the PSC claims and paid civil penalties to the US Government.

Halliburton made a claim on its liability insurance against Chubb. However, Chubb refused to pay Halliburton’s claim, contending amongst other things that Halliburton’s settlement of the claims was not a reasonable settlement, and/or that Chubb had reasonably not consented to the settlement.

Halliburton commenced arbitration by appointing A (hypothetical name), as its arbitrator. Chubb appointed B (hypothetical name) as its arbitrator. The identity of the third arbitrator could not be agreed and so an application was made to the High Court for appointment of a third arbitrator. Following a contested hearing, in which a number of candidates were put forward on both sides, the High Court appointed C (hypothetical name), as the third arbitrator. C was Chubb’s preferred candidate. Halliburton’s main objection to Chubb’s candidates, including C, was that they were English lawyers and this was a policy governed by New York law.

Prior to expressing his willingness to be appointed, C disclosed that he had previously acted as arbitrator in a number of arbitrations in which Chubb was a party, including appointments on behalf of Chubb, and that he was currently appointed as arbitrator in two pending references in which Chubb was involved. Thereafter Halliburton and Chubb served their Statement of Claim and Statement of Defence respectively.

Later on C accepted appointment by Chubb through a law firm, who were also Chubb’s solicitors during the appointment of A by Halliburton, in relation to an excess liability claim arising out of the explosion made by Transocean under its liability insurance policy with Chubb. The same manager was responsible for monitoring the claims made by both Transocean and Halliburton on behalf of Chubb and took the decision to refuse the claim in each case. Prior to his acceptance of this appointment, C disclosed to Transocean his appointment previously and in the other Chubb arbitrations which had been disclosed to Halliburton. Transocean raised no objection. C did not, however, disclose to Halliburton his proposed appointment by Transocean. Halliburton learned of C’s appointments on previous occasions and Halliburton wrote to C referring to the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (the IBA Guidelines) concerning the continuing duty of disclosure of potential conflicts of interest, and asking for clarifications and explanations.

C responded that he had not made disclosure to Halliburton at the time of those appointments because it did not occur to him at the time that he was under any obligation under the IBA Guidelines to do so, an explanation which is accepted as truthful by both parties. Halliburton responded repeating its concerns about C’s impartiality and suggesting that he resign, to which Chubb was not prepared to agree. Consequently, Halliburton issued a Claim Form seeking an order pursuant to Section 24(1)(a) the Act that C be removed as an arbitrator on the grounds of “…justifiable doubts as to his impartiality”. The application was dismissed by the Commercial Court on the grounds that there was no appearance of bias against Halliburton on C’s part and that if the circumstances do not otherwise establish an appearance of bias, they need not be disclosed. This order was appealed by Halliburton.

English Law on Arbitrator’s duty of impartiality

Under English law an arbitrator’s duties are governed by the Act. The Act imposes a duty of impartiality. The general principles set out in Section 1 of the Act include that the object of arbitration is to obtain the fair resolution of disputes “by an impartial tribunal”.

The duty of impartiality is reflected in Section 24 of the Act which provides that the court has power to remove an arbitrator on the grounds:

“(1)(a) that circumstances exist that give rise to justifiable doubts as to his impartiality …”

It is also reflected in Section 33 of the Act which imposes a duty on arbitrators to “act fairly and impartially as between the parties”.

Conclusion

  • Mere fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not of itself give rise to an appearance of bias.

When should an arbitrator make disclosure of circumstances which may give rise to justifiable doubts as to his or her impartiality?

  • The test is an objective one, to be judged by reference to what the fair-minded and informed observer would or might conclude. The test for apparent bias is the same and the practical advantages of early disclosure are just as important. More certain standards of an objective observer apply to the issue of disclosure under English law.
  • Disclosure is only required of facts or circumstances known to the arbitrator. You can only disclose what you know and there is no duty of inquiry.

What are the consequences of failing to make disclosure of circumstances which should have been disclosed?

  • If a disclosure that ought to have been made has not been made, that will mean that the arbitrator will not have displayed the “badge of impartiality” which he should have done.
  • Non-disclosure is therefore a factor to be taken into account in considering the issue of apparent bias. An inappropriate response to the suggestion that there should be or should have been disclosure may further colour the thinking of the observer and may fortify or even lead to an overall conclusion of apparent bias.

The Court of Appeal concluded that C ought as a matter of good practice and, in the circumstances of the case, as a matter of law to have made disclosure to Halliburton at the time of his previous appointments. The non-disclosed circumstance does not in itself justify an inference of apparent bias. Disclosure ought to have been made, but the omission was accidental rather than deliberate. The very limited degree of overlap means that this is not a case where overlapping issues should give rise to any significant concerns. The fair-minded and informed observer would not consider that mere oversight in such circumstances would give rise to justifiable doubts as to impartiality. Therefore, in nutshell the Court of Appeal held that the fair-minded and informed observer, having considered the facts, would not conclude that there was a real possibility that C was biased.

 

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