UK Supreme Court judgment in Halliburton v Chubb clarifies English law on arbitrator apparent bias

The UK Supreme Court has handed down its judgment in Halliburton Company (Appellant) v Chubb Bermuda Insurance Ltd [2020] UKSC 48, which is the most significant decision on English arbitration law in nearly a decade.

The Halliburton judgment is now the leading English law case on arbitrator conflicts. Importantly, the decision has clarified how apparent bias will be assessed by the English courts, refining the test in the context of arbitration. While the arbitrator challenge was not successful in this case, the judgment has re-emphasised the importance of arbitrator impartiality in English-seated arbitration.      

The case was notable for a significant number of arbitral institutions and organisations being given permission by the Court to intervene, with submissions made by the LCIA, ICC, CIArb, LMAA and GAFTA.

Background 

Claims arising out of the Deepwater Horizon incident were made against Halliburton, which had provided offshore services in relation to the project. Halliburton then sought to claim in turn under its excess liability insurance policy with Chubb. Chubb rejected the claim and in January 2015 Halliburton commenced arbitration against Chubb. The claim was brought under the Bermuda Form policy in question, which was governed by New York law and provided for London-seated ad hoc arbitration.

The parties were unable to agree on the selection of the presiding arbitrator and the English High Court appointed Kenneth Rokison QC in June 2015. Mr Rokison had been proposed by Chubb, but Halliburton had opposed his appointment on the grounds that Mr Rokison was an English lawyer, whereas the policy was governed by New York law.

Before he was appointed in June 2015, Mr Rokison disclosed that he had previously been an arbitrator in arbitrations involving Chubb, including some appointments on behalf of Chubb. The judgment does not set out the number of appointments involved, or the timescales. He also disclosed that he was acting as arbitrator in relation to two current references involving Chubb.

After Mr Rokison took up his appointment in the arbitration between Halliburton and Chubb, he accepted two appointments in additional arbitrations relating to the Deepwater Horizon incident: (a) in December 2015, he was appointed by Chubb in an arbitration relating to a claim under the same excess liability cover, which Chubb had sold to another insured party, Transocean; and (b) in August 2016, he was appointed by Transocean, in an arbitration relating to a claim Transocean was bringing against a different insurer that related to the same layer of insurance. Mr Rokison did not disclose the December 2015 and August 2016 appointments to Halliburton, but Halliburton became aware of them in November 2016.

Halliburton then asked Mr Rokison to resign, but he stated that he did not feel he could do so, as he had been appointed by the court. Mr Rokison noted that the issues under consideration were neither the same nor similar. He stated that he had been independent and impartial throughout and that this would continue to be the case. Halliburton then made an application to the English court for his removal under s24 of the Arbitration Act 1996. The application was unsuccessful and Halliburton then appealed to the Court of Appeal, which also rejected the challenge. Halliburton appealed to the Supreme Court.

The Supreme Court appeal

The two main issues before the Supreme Court were:

  • whether and to what extent an arbitrator is entitled to accept appointments in multiple arbitrations relating to the same or overlapping matters and where there is only one common party, without this resulting in an appearance of bias; and
  • whether and to what extent the arbitrator could accept multiple appointments in this way without providing disclosure.

Halliburton took the position that there was apparent unconscious bias on the part of Mr Rokison. Halliburton’s case was based on the suggestion that the situation “gave Chubb the unfair advantage of being a common party to two related arbitrations with a joint arbitrator while Halliburton was ignorant of the proceedings” in the later arbitrations and “thus unaware whether and to what extent he would be influenced in reference 1 by the arguments and evidence in reference 2”. Halliburton contended that Chubb would be able to communicate with the arbitrator, for example via submissions and evidence submitted in the later proceedings, on questions that might be relevant to the arbitration between Halliburton and Chubb. Haliburton took the position that apparent bias was also made out by Mr Rokison’s failure to disclose his later appointments to Halliburton. There was also a suggestion that Mr Rokison “did not pay proper regard to Halliburton’s interest in the fairness of the procedure”.

Supreme Court decision

The Supreme Court emphasised the importance of impartiality in arbitration, highlighting that impartiality had always been a “cardinal duty” for arbitrators. Given that there was no allegation that the arbitrator was actually biased, the court was only concerned with whether there was an appearance of bias. It was well established that the correct legal test was “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.

The Supreme Court considered how the hypothetical observer is taken to be “informed”. This meant, quoting an earlier case, that “before she takes a balanced approach to any information she is given, she will take the trouble to inform herself on all matters that are relevant…She is fair-minded, so she will appreciate that the context forms an important part of the material which she must consider before passing judgment.” When the apparent bias test is applied to arbitrators, the distinctive features of arbitration must therefore be taken into account. This includes a consideration of the private nature of arbitration, and the very limited rights of appeal. The Supreme Court also referred to the appointment process for arbitrators, noting the potential for party nomination and that there may be a “financial interest in obtaining further appointments as arbitrator”. It also observed that arbitrators may be non-lawyers with only limited experience of arbitration and may be from a variety of jurisdictions and legal traditions, with a range of views on arbitrator ethics.

The Supreme Court emphasised that, due to the private nature of arbitration, where an arbitrator is appointed in relation to multiple overlapping references the non-common party cannot discover what evidence or submissions have been put before the tribunal, or the arbitrator’s response. The Court also had regard to the range of understandings in relation to the role and duties of party-appointed arbitrators, recognising that some parties may expect party-nominated arbitrators to be pre-disposed towards their nominating parties, while the chair has a particular role to play in ensuring the tribunal acts fairly. While taking these differing perspectives into account, the duty of impartiality applied in the same way to every member of the tribunal and “the party-appointed arbitrator in English law is expected to come up to precisely the same high standards of fairness and impartiality as the person chairing the tribunal”.

While the professional reputation and experience of an individual arbitrator was a relevant consideration in assessing whether there was apparent bias, the Court noted this was likely to be a factor accorded only limited weight.

Duty of disclosure

The Supreme Court confirmed that an arbitrator is under a duty to disclose facts and circumstances which would or might reasonably give rise to the appearance of bias. The Supreme Court held that compliance with this duty should be assessed with regard to the circumstances at the time the disclosure fell to be made.

The Court noted that the LCIA, ICC and CIArb, as organisations having “an interest in the integrity and reputation of English-seated arbitration”, had all argued in favour of the recognition of a legal duty of disclosure. The Court stated that this legal duty furthered transparency in arbitration and was in alignment with the best practice set out in the IBA Guidelines and the approach taken by arbitration institutions such as the LCIA and ICC. The Court said that the IBA Guidelines “assist the court in identifying what is an unacceptable conflict of interest and what matters may require disclosure” but emphasised that they are non-binding.

The Supreme Court stated that an arbitrator may have to disclose acceptance of appointments in multiple overlapping references with only one common party, depending upon the customs and practice of the type of arbitration in question. The judgment explores in some detail the need to consider the duty of confidentiality in determining what information about potential conflicts may be disclosed.

The Court also explored the relationship between the duty to disclose and the duty of impartiality and concluded that failure to disclose will be one factor which the fair-minded and informed observer will take into account in considering whether there was a real possibility of bias. However, the Court held that questions of disclosure and apparent bias fell to be assessed at different times. Whereas the question of whether there was a failure to disclose was analysed as at the time the alleged duty of disclosure arose, the question of whether the relevant circumstances in any case amount to apparent bias must be assessed at the time of the hearing of the challenge to the arbitrator.

The Supreme Court held that failure to disclose overlapping references is capable of demonstrating “a lack of regard to the interests of the non-common party” and may in certain circumstances therefore constitute apparent bias.

Rejection of challenge

The Court held that, in the context of the Bermuda Form arbitration between Halliburton and Chubb, the Arbitrator was required to disclose the multiple appointments in question. This was because there was no established custom or practice in Bermuda Form arbitration of allowing an arbitrator to take on multiple and overlapping appointments without disclosure. Mr Rokison was therefore under a legal duty to disclose his appointment in the subsequent overlapping proceedings because, at the time of appointment in those arbitrations, those appointments might reasonably give rise to the real possibility of bias.

However, the Supreme Court concluded that the fair-minded and informed observer would not determine that there was a real possibility of bias. This was because:

  1. At the time the disclosure fell to be made there had been uncertainty under English law about the existence and scope of an arbitrator’s duty of disclosure;
  2. The time sequence of the arbitrations may have been an explanation for the non-disclosure to Halliburton;
  3. Mr Rokison had explained that both the subsequent overlapping arbitrations would be resolved by way of preliminary issue, which meant there would in fact be no overlapping evidence or submissions. Mr Rokison had offered to resign from the subsequent arbitrations if that was not the case and it was therefore unlikely that Chubb would benefit as a result of the overlapping arbitrations;
  4. Mr Rokison had not received any secret financial benefit; and
  5. Mr Rokison’s response to the challenge had been “courteous, temperate and fair…and there is no evidence that he bore any animus towards Halliburton as a result”.

Comment

This judgment has emphasised the importance of arbitrator impartiality and has both clarified and refined the law on apparent bias in the context of arbitration. The case is of real significance for the wider international arbitration community, and should allay potential concerns as to London’s status as a leading seat of arbitration.

The decision is the latest case to demonstrate the robust approach of the English courts to arbitrator challenges, in line with the courts’ non-interventionist and pro-arbitration stance. In this case the Supreme Court noted that challenges of this kind have “rarely succeeded” and also noted that the objective observer at the heart of the apparent bias test will be “alive to the possibility of opportunistic or tactical challenges”.

For more information, please contact Craig Tevendale, Head of International Arbitration London, Chris Parker, Partner, Vanessa Naish, Professional Support Consultant, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Head of International Arbitration London
+44 20 7466 2445
Chris Parker
Chris Parker
Partner
+44 20 7466 2767
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

English High Court rejects application to remove the arbitrator named in the arbitration agreement on the grounds of apparent bias

The English High Court recently heard an application under s24(1)(a) of the 1996 Arbitration Act (the “Act”) to remove the arbitrator agreed in the arbitration agreement, on the grounds of apparent bias. The challenge was based on the fact that the arbitrator in question had, until recently, been an employee of one of the parties to the arbitration.

The Court was alive to the importance of honouring freedom of contract when the arbitrator had been identified and agreed in the arbitration agreement itself. On the facts of the case, there was no evidence of apparent bias and the application was accordingly refused.

Background

The disputes in question revolved around a family business in the transportation of oil and other commodities, with companies incorporated in both London (the “London Company”) and Nigeria.

In 2009, J, who was solely responsible for the Nigerian company’s trade, threatened to leave the family business. In an attempt to rescue the business and regulate the affairs of the family members, the family members and the companies controlled by them entered into an agreement expressed to be governed by English law (the “Agreement”). The Agreement contains a dispute resolution clause naming a “Mr Y as arbitrator and in the event of his unavailability Mr F”.

Mr F worked as the family accountant from about 1985 and was a full-time employee for the London company until 2002. Between 2002 and 2010, he worked part-time for the family. In 2010, Mr F returned to full-time employment for the London Company and reported directly to J only.

The family relationship became strained again and in September 2019, J commenced arbitration to resolve disputes relating to the interpretation of various provisions of the Agreement and stated in the notice of arbitration that “Mr [F] is the only other person entitled to sit as arbitrator”. Mr Y had died in 2015.

In November 2019, Mr F resigned from his employment with the London Company. He observed that the “family feud between the directors is getting nastier by the day and the employees…have been subjected to constant bullying, fabricated lies and allegations by some directors, for some time now… I, no longer wish to be dragged into this family dispute and with great regret, hereby submit my resignation with immediate effect.

Some of the family members objected to the appointment of Mr F as arbitrator, arguing that Mr F was conflicted and accordingly unable to act fairly and impartially. They pointed out that Mr F had reported only to J, and that Mr F would potentially be a witness in the dispute. They alleged that Mr F’s resignation might be a sham, or might lead to a claim for constructive dismissal against one of the parties. It was also alleged that Mr F’s refusal to provide some of the family members with information in relation to the company accounts before the commencement of the arbitration demonstrated bias. There were additionally said to have been secret conversations between Mr F and J. An application was made under s24 of the Act to remove Mr F.

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Will Halliburton be the final word on apparent bias?

Following the Supreme Court hearing in the Halliburton v Chubb case, Craig Tevendale of Herbert Smith Freehills in London considers the significance of the Supreme Court’s forthcoming judgment and whether the case will end the recent controversy on apparent bias.

In a decision that whipped up a storm in the international arbitration community, the Court of Appeal decided in 2018 that there had been no apparent bias where an arbitrator failed to disclose to one of the parties his appointment in multiple proceedings with different parties which arose out of the same incident.

This month’s Supreme Court hearing of Halliburton’s appeal against that decision was, without doubt, the most significant English court hearing in arbitration since the case of Jivraj v Hashwani on arbitrator status in 2011. The Halliburton judgment, anticipated to be delivered in the next four to six weeks, should give clarity on legal issues which are critical to the reputation of London arbitration.

It is important to emphasise that the Supreme Court is expected to provide guidance on the test for apparent bias, regardless of whether the appeal itself succeeds. Halliburton may well lose the appeal on the facts, given the English courts’ pro-arbitration and anti-intervention approach. If the court decides against Halliburton it is likely to be based on the specific facts relating to the overlapping references in question, the nature of the insurance arbitration market, and the Bermuda Form context. However, even if the appeal fails, it is expected to be defeated on different reasoning than the problematic approach in the Court of Appeal judgment.

The Halliburton case deals with a number of important legal issues on which the arbitration community needs clarity, including whether multiple overlapping appointments are in themselves an issue. The Court of Appeal’s lack of concern in relation to repeat and overlapping appointments is questionable, given that repeat-appointing parties are likely to know an arbitrator’s position in relation to particular issues from other cases.

This information will not be available to users new to arbitration, and therefore risks an inequality of arms. Where there are overlapping proceedings the common party may also hold a tactical advantage over other parties, by having the ability to test submissions in a way that flushes out the arbitrator’s position on particular points. The common party will potentially also have access to evidence unavailable to the other party and may influence the arbitrator’s decision making with submissions not seen by the other party. Even where an arbitrator makes every effort to confine his or her deliberations to material only from the relevant reference, this “compartmentalisation” may not prove entirely effective. It is expected that the Supreme Court judgment will address these problematic issues, and how they impact on the test for apparent bias, in more depth.

A further controversial gap in the Court of Appeal decision was the lack of guidance on why the non-disclosure itself did not meet the threshold for apparent bias. The Court of Appeal stated that an additional factor was needed, referred to as “something more”, but the judgment does not elaborate further. This is surprising. While it has been suggested that the duty of confidentiality placed upon an arbitrator prevents appointments being disclosed, it is widely accepted in the arbitration community that the duty of confidentiality does not trump the duty of arbitrator disclosure. It is expected that the Supreme Court will make it clear that overlapping appointments should be disclosed, and it is expected that the significance of non-disclosure will be addressed more clearly.

While it is well established that the perspective of the “fair-minded and informed” observer is the starting point from which to decide allegations of apparent bias, it is much less clear what that observer should be assumed to know. There is a compelling argument that the observer should be assumed to have knowledge of the international arbitration context, and that informed expectations should therefore differ from those in litigation. This is another area which was not explored in any detail in the Court of Appeal judgment, and where the Supreme Court’s judgment should clarify the position.

The Court of Appeal dismissed the issue of financial benefit resulting to arbitrators from multiple appointments. However, it is important to take this into account when considering the effect of repeat appointing. In the arbitration world (and indeed in previous judgments), it has long been recognised that there could be an (even if unconscious) incentive for arbitrators to avoid antagonising parties who frequently appoint them. It would be helpful if the Supreme Court judgment recognised this.

The case is notable for the multiple interventions from interested institutions. The LCIA and ICC have rightly emphasised the importance of ensuring that the English test for apparent bias is aligned with international norms. For their part, the LMAA and GAFTA have expressed concern that any decision which conflates repeat appointments with apparent bias may cause real problems for arbitration in their sectors. Specialist trade arbitrations, which frequently see strings of cases and for which there may be a limited pool of arbitrators with the requisite sector knowledge, may indeed fall to be treated differently. It is likely that the Supreme Court judgment will recognise this nuance, and that sector-focused arbitration communities may continue in accordance with their current practice.

Interestingly, while the arbitrators in the Halliburton case have been accorded confidentiality in these proceedings, at the hearing the Supreme Court expressed some scepticism on this and asked for submissions as to whether anonymity should be sustained. It is hard to justify the continued anonymity of the arbitrators in question, particularly in circumstances where the Court of Appeal referred to the eminent reputation of the arbitrator ‘M’ as a factor militating against apparent bias.

As to where this leaves us, while the arbitration community has called for clarity on apparent bias, the differing positions adopted by the interveners underlines that there is no consensus on how to address the issue of “frequent flyers”. Regardless of the ultimate decision on the facts in this particular case, it is to be hoped that certainty and clarity are delivered by the Supreme Court judgment – and that arbitrators, counsel and parties are better equipped to navigate the difficult territory of apparent bias.

A version of this article first appeared in the Global Arbitration Review.  

For further information, please contact Craig Tevendale, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

The English Court of Appeal substitutes one anti-suit injunction for another (more limited one)

The English Court of Appeal is the latest court to weigh in on this long-running dispute spanning multiple jurisdictions between Messrs Emmott and Wilson, relating to an agreement to establish a “quasi-partnership”. Following an appeal brought by Mr Emmott against the High Court’s decision (which we reported here), the question for the Court of Appeal was whether to uphold the anti-suit injunction granted by the High Court preventing Michael Wilson & Partners, Limited (“MWP”) from pursuing proceedings in the Australian courts in light of the London-seated arbitration agreement between them.

The Court of Appeal allowed the appeal in part, issuing a substitute injunction against MWP advancing only the claims which the court deemed to be vexatious and oppressive in undermining the arbitration agreement and process.  This judgment helpfully clarifies the circumstances in which the English Court will issue an anti-suit injunction in order to safeguard the integrity of an English-seated arbitral process, and confirms that the court will not permit arbitral proceedings or awards to be undermined by parties against whom adverse findings have been made. However, it also demonstrates that the question of whether proceedings fall within the scope of an arbitration agreement can be a complex and controversial one.

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