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Samar Abbas
39 Essex Chambers, London
Samar.Abbas@39essex.com

This article was first published after the hearing in the Supreme Court, but before its judgment

The UK Supreme Court has heard the appeal from Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817, which concerns the extent to which an arbitrator can, without disclosure and without giving rise to an appearance of bias, accept appointments in multiple references concerning the same or overlapping subject matter with only one common party.

As it stands, a consequence of the decision of the Court of Appeal is that arbitrators can accept multiple appointments in arbitrations with overlapping subject matters without any disclosure. This will not necessarily give rise to successful challenges to their impartiality, as something more is required – ‘something’, in the words of the Court of Appeal, ‘of substance’.

It is hoped that, regardless of whether the appeal itself succeeds, the Supreme Court will provide guidance on the test for apparent bias. Given the generally anti-interventionist approach of UK courts to arbitration decisions, it would not be surprising if the Supreme Court were to dismiss the appeal – this is particularly so given that the appeal rests on unique facts. Nonetheless, the reasoning of the Court of Appeal was problematic and raised more doubts than it offered clarity.

The Supreme Court’s task will be to provide clarity and guidance regarding the circumstances in which related or overlapping appointments may give rise to justifiable doubts as to the arbitrator’s impartiality and independence, and thereby trigger an obligation to disclose their existence. The decision’s impact cannot be understated for the importance of London as an arbitral seat.

Background

Given the interest in this case, the facts of Halliburton Company v Chubb Bermuda Insurance Ltd have been well-rehearsed in many articles on the topic. Accordingly, the factual and appellate background to the case are only considered briefly here.

The appellant, Halliburton, provided cementing and well monitoring services to BP in the Gulf of Mexico. The appellant entered into a liability policy with the respondent, Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd). Transocean Ltd also provided services to BP. Those services overlapped with those provided by the appellant. Transocean Ltd was also insured with the respondent.

In 2010, the Deepwater Horizon oil spill occurred. The explosion and fire on an oil rig in the Gulf of Mexico resulted in thousands of civil claims being brought against BP, Halliburton and Transocean. BP in turn claimed against Halliburton and Transocean.

A trial was held in the United States. The judgment apportioned blame between the parties and Halliburton concluded a settlement to agree the amount of damages. When Halliburton sought to claim a proportion of this settlement under its insurance policy, the respondent declined to pay the appellant’s claim. As a result, an arbitration was commenced. Both Halliburton and Chubb selected their own arbitrator. However, the parties were unable to agree the chairman of the arbitration. This ultimately resulted in an application to the High Court in which the respondent’s first-choice candidate (‘M’) was selected.

The issue for the Supreme Court arises out of the appellant’s discovery in 2016 that, following M’s appointment and without the appellant’s knowledge, M had accepted appointment as an arbitrator in two other references, both of which arose out of the same Deepwater Horizon incident. These were Transocean’s claim against the respondent and a nomination by another insurer to arbitrate another claim by Transocean arising out of the same incident.

In December 2016, Halliburton applied to the court to remove M as arbitrator on the grounds of perceived bias. That application was refused by the High Court. Halliburton appealed against the decision that there were no grounds for removing M under section 24(1)(a) of the Arbitration Act 1996. The Court of Appeal dismissed Halliburton’s appeal. The decision of the High Court was affirmed, and the appeal dismissed. Halliburton appealed this decision to the Supreme Court.

The Supreme Court hearing

The appeal was heard on 12 and 13 November 2019 by a division of the Supreme Court comprising Lord Reed,[1]Lord Hodge, Lady Black, Lord Lloyd-Jones and Lady Arden. The respective arguments of the parties are outlined below.

The appellant sought to emphasise during the hearing that the Court of Appeal’s approach would inevitably lead to unfairness. The appellant put its case as follows.

A distinct advantage

The appellant opened its case by emphasising that the party who is involved in several referrals will have a distinct advantage because it will know the information that the arbitrator is privy to in both arbitrations and is more likely to know the arbitrator’s position in relation to particular issues arising in the other case. This results in the ‘obvious risk’ that the arbitrator and party will share information.

In respect of the Court of Appeal’s reasoning, the appellant argued that the non-common party is at a clear disadvantage. Further it is not clear what that ‘something more’ might be that the Court of Appeal referred to. The appellant argued that the non-common party would not know what is being said in the other arbitration and further the party, in ignorance, may never find out about the other arbitration at all.

Ex parte communications

The appellant continued by raising the following question: would the court tolerate Chubb’s having private communications about Deepwater Horizon without Halliburton being included, or even knowing about them? The appellant argued that allowing M to continue in this manner would have this effect even though the answer to this question was clearly no (not least because Clause 9 of the terms of reference provided that there would be no ex parte communications).

Legitimate concerns

In respect of ‘legitimate concerns’, the Court of Appeal had recognised that Halliburton had a legitimate concern that such circumstances could give rise to potential unfairness. However, ultimately the court agreed with the views expressed by Leggatt J in Guidant LLC v Swiss Re International SE [2016] EWHC 1201 where, while acknowledging that an appointment in an overlapping reference amounted to a ‘legitimate basis for objecting to the appointment’, Leggatt J had found that this did not, in itself, justify an inference of apparent bias.

In oral argument the appellant argued the ‘legitimate concerns’ simply means that, tested objectively, these concerns are legitimate. In support of its position the appellant argued that their concerns are shared by all the commentators – these are not, therefore, the concerns of an unduly sensitive party.

Trust me, I’m an arbitrator

The appellant further argued, with reference to the views of leading commentators, that there were widely held concerns that the Court of Appeal had effectively ruled that the parties should simply trust the arbitrator to comply with his statutory duties, pointing to para. 86 of the Court of Appeal’s judgments. Further, the Court of Appeal had relied on M’s reputation as an arbitrator, as at para. 98 of its judgment.

The appellant cited a paper of Professor McKendrick’s in which he had highlighted that trust must be earned and retained. This, the appellant argued, was undermined by the Court of Appeal’s judgment. The appellant submitted that English law does not require a party to trust an arbitrator where that trust has been broken. Historically, it has never been enough to say, ‘trust me, I’m the arbitrator’. This is not enough to answer a case of apparent bias.

English law should apply the same test regardless of the reputation, here or abroad, of the arbitrator. The appellant argued that it would be invidious for parties to put forward evidence of an arbitrator’s reputation. Furthermore, to regard eminent English arbitrators as immune from unconscious bias would be wrong.

The weight of opinion

At multiple points during the appellant’s submissions the ‘weight of opinion’ behind them and a ‘near-consensus view in the world of arbitration’ was emphasised. This, the appellant argued, was relevant to assessing the view of the fair-minded observer.

As to those ‘dissenting views’, the appellant argued that these came from ‘niche parts of arbitral practice’. These were special contexts in which these practitioners operate and are different from general commercial arbitration.

All or nothing

The appellant said that the respondent’s characterisation of its argument was that one can never have multiple, overlapping referrals. The appellant emphasised that this was a mischaracterisation of their argument. The appellant’s formulation was as follows: ‘acceptance of such referrals will ordinarily give rise to an appearance of bias, but not always’. The appellant continued ‘it depends on the facts’.

The reason for this is that, at least initially a benefit is conferred on the party that is the nominating party. The non-common party may agree, but it should at least have the opportunity to register its objections. The parties and the arbitrator can then consider the risk and how that risk can be mitigated. For instance, the parties might implement a system of transparency through disclosure of information. Further, an arbitrator will have showed a proper concern for the interest of the non-common party.

On this point, it is of note that the appellant raised the example of Grain and Feed Trade Association(GAFTA) rules on string arbitrations where there are buyers and sellers in a line. The appellant highlighted that, in its submissions it had referred to the London Maritime Arbitrators Association (LMAA) provisions which permit consolidation of claims and the rules on the sharing of documents and information in related arbitrations. The appellant highlighted that none of these powers are available under the Arbitration Act except by consent.

The second point is that the appellant argued that there are no circumstances in which that disclosure should not be made. The disclosure must always be made, and it is never appropriate to fail to make such a disclosure where there is overlap. Here the non-disclosure was disqualifying because it should have been obvious to M that a disclosure should have been made. He would have done so had he had regard to the appellant’s interests. The fact he did not do so, with no explanation, would mean that a fair-minded observer would not tolerate this failure to disclose. In this case the failure to disclose compounded the unfairness. The respondent’s approach of ‘wait and see’ was therefore a fiction – M never turned his mind to the problem at all.

The case is marked by notable interventions from interested arbitral institutions. Several of those institutions expressed the concern any decision should not conflate repeat appointments with apparent bias – this would result in real problems for arbitration in different sectors. Intervenor submissions from the London Court of International Arbitration

(LCIA) and the International Chamber of Commerce (ICC) also supported more robust disclosure in English law and they referred to an ‘international pro-disclosure consensus’.

The respondent’s submissions reflected those made in the Court of Appeal. The respondent emphasised that the power to remove an arbitrator under section 24(1)(a) of the Arbitration Act recognises the necessary balance – that in specialist fields parties may appoint arbitrators with specific expertise. Further, it is common in insurance and maritime disputes for arbitrators to sit in multiple arbitrations. Parties may consequently have different expectations of disclosure.

Areas for discussion

The issue with the Court of Appeal’s judgment is that the law itself is relatively uncontroversial. It is the Court of Appeal’s trusting application of those principles which gives rise to doubt and concern amongst the arbitration community.

The Court of Appeal’s judgment is confusing and contradictory on the question of whether the non-disclosure itself did not meet the threshold for apparent bias. The Court of Appeal stated that an additional factor was needed, referring to ‘something more’. The judgment of the Court of Appeal does not elaborate on this point; this is really the central point that the Supreme Court must address. The difficulty for the Supreme Court is giving clarity on what this something of substance is, while balancing that with the need to not be overly prescriptive. That guidance must balance preventing bias with the reality that arbitrators are selected because of their expertise.

The Court of Appeal rightly highlighted that facts and circumstances known to the arbitrator which would or might give rise to justifiable doubts about his impartiality should be disclosed, as at [55]-[71] of its judgment. This is another point where the reasoning of the Court of Appeal becomes particularly unhelpful. The court emphasised that if a disclosure that ought to have been made had not been made, that would mean that the arbitrator would not have displayed the ‘badge of impartiality’. In this case M ought to have made disclosure to Halliburton at the time of his appointments. This was both as a matter of good practice in international commercial arbitration and as a matter of law. Nonetheless. the court concluded that the fair-minded and informed observer would not conclude that there was a real possibility that he was biased. This was because the omission was accidental, rather than deliberate, and that there was a very limited degree of overlap between the proceedings. There was therefore no substance to Halliburton’s challenge. In particular, the reliance of the Court of Appeal on it being an accidental omission as compared to a deliberate one is questionable. A deliberate omission would clearly reflect bias. However, an accidental one can be equally detrimental. An unconscious bias almost by definition is accidental and yet can cause no less concern to a party.

An additional question is how the fair-minded observer test should be influenced and, in this context, what the fair-minded observer should be assumed to know. How much should this test take account of the international arbitration context in which this question is asked? Should these expectations, for instance, differ to those in ordinary litigation?

The Court of Appeal dismissed the issue of financial benefit resulting to arbitrators from multiple appointments. Some commentators have questioned whether this could form the basis of an unconscious incentive, whereby arbitrators avoid unsettling the parties who frequently appoint them. This may be an issue which the Supreme Court sidesteps or recognises.

The appellant, in the course of oral argument, referenced string cases. This is a key problem posed by the appellant’s case. How will the Supreme Court address the balance where there is a limited pool of arbitrators operating in specialist sectors where sector-specific knowledge is required. In particular, do these cases fall to be treated differently? Are new rules needed?

 

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