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The English Court of Appeal once reasoned, “Impartiality is the watchword of all tribunals, including arbitrators.”[i] This is indeed true. Arbitrators’ independence and impartiality, both in connection with the parties and the dispute itself,[ii] are fundamental to the arbitral process.
These fundamental principles derive from a variety of sources, such as applicable national laws, institutional rules and arbitration agreements. Even the New York Convention indirectly addresses arbitrators’ obligation of independence and impartiality. Article V (1) (b) of the New York Convention provides for the non-recognition of awards where a party was denied the opportunity to be heard, which may stem from the conduct of a biased arbitral tribunal. Article V (2) (b) also provides for non-recognition of awards that violate public policy of the judicial enforcement forum, which may include local public policies against biased arbitrators.[iii]
The United Kingdom (UK) Supreme Court readdressed this issue in its latest decision and decided upon the test to be applied to apparent bias for arbitrators.
Introduction
The English Court of Appeal once reasoned, “Impartiality is the watchword of all tribunals, including arbitrators.”[1] This is indeed true. Arbitrators’ independence and impartiality, both in connection with the parties and the dispute itself,[2] are fundamental to the arbitral process. These fundamental principles derive from a variety of sources, such as applicable national laws, institutional rules and arbitration agreements. Even the New York Convention indirectly addresses arbitrators’ obligation of independence and impartiality. Article V (1) (b) of the New York Convention provides for the non-recognition of awards where a party was denied the opportunity to be heard, which may stem from the conduct of a biased arbitral tribunal. Article V (2) (b) also provides for non-recognition of awards that violate public policy of the judicial enforcement forum, which may include local public policies against biased arbitrators.[3]
The United Kingdom (UK) Supreme Court readdressed this issue in its latest decision and decided upon the test to be applied to apparent bias for arbitrators.
Factual Background of the Dispute
In 2010, Deepwater Horizon drilling rig in the Gulf of Mexico was damaged due to a massive explosion and fire. The rig was owned by Transocean, who held a Bermuda Form excess liability insurance policy with Chubb Bermuda Insurance Ltd (“Chub”). Halliburton Company (“Halliburton”), which also held a Bermuda Form insurance policy, provided cementing and well-monitoring services to the drilling rig. Several claims were brought against Halliburton and Transocean due to the damage caused by the explosion at the rig.
The claims that were brought against these two companies were eventually settled. Halliburton and Transocean asked Chubb for compensation under their excess liability insurance policies. However, Chubb refused to pay, arguing that the claims were not reasonably settled. Ultimately, the parties found themselves engaged in multiple arbitrations arising out of the same incident.
The first arbitration was between Halliburton and Chubb. The Bermuda Form excess liability insurance policy between Halliburton and the predecessor of Chubb was governed by New York law and provided for ad hoc arbitration seated in London. The parties agreed on an arbitral tribunal composed of three arbitrators. The chairman of the tribunal was to have been selected by the English High Court, should the party-appointed arbitrators fail to do so. In June, 2015, the English High Court appointed an arbitrator (referred to as “A”), as chairman. Even though A was previously proposed by Chubb during the selection of arbitrators, and denied by Halliburton at the time, Halliburton did not appeal against the decision of the English High Court.
The second arbitration was held between Transocean and Chubb to settle the insurance policy related dispute arising out of the Deepwater Horizon incident. In December, 2015, Chubb nominated A as its party-appointed arbitrator. Even though A disclosed to Transocean his prior appointment as chairman in the first arbitration, he failed to disclose to Halliburton his subsequent appointment by Chubb in the second arbitration.
In August, 2016, A accepted another appointment in a third arbitration between Transocean and another insurer, but did not disclose this appointment to Halliburton, either.
On 10 November 2016, before the evidentiary hearing, Halliburton discovered A’s subsequent appointments in the two other arbitrations relating to the Deepwater Horizon incident. On 21 December 2016, Halliburton asked the English court to remove and replace the chair under section 24 of English Arbitration Act 1996 (“Arbitration Act”), due to the existence of circumstances giving rise to justifiable doubts as to the chair’s impartiality. On 3 February 2017, the court dismissed the challenge, but granted permission to appeal. In April, 2018, the Court of Appeal dismissed Halliburton’s appeal on the grounds that mere non-disclosure was not sufficient to give rise to an inference of apparent bias. Halliburton appealed to the Supreme Court.
On November 27, 2020, the UK Supreme Court handed down its judgment in Halliburton Company v Chubb Bermuda Insurance Ltd.[4] and unanimously dismissed the appeal.
Supreme Court’s Judgment
The Supreme Court was asked to address the following questions: (i) whether there is a freestanding legal duty of disclosure on arbitrators under English law, and (ii) whether overlapping references give rise to an appearance of bias.
Concerning the first question, the Supreme Court held that the Court of Appeal had been correct to hold that arbitrators have a legal duty to make disclosure of facts and circumstances that would, or might reasonably, give rise to the appearance of bias. The Supreme Court provided that this legal duty is a part of the statutory duties of an arbitrator to act fairly and impartially under section 33 of the Arbitration Act. According to the Supreme Court, this inference is also consistent with the best practice set out in the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration, as well as institutional arbitrations, including the International Chamber of Commerce and the London Court of International Arbitration.
The Supreme Court, however, noted that this duty must be balanced against the duty of confidentiality of the arbitrator by having express or inferred consent of the parties. This can be inferred from the arbitration rules, or from custom and practice.
The Supreme Court found that A was under a legal duty to disclose to Halliburton his appointment in the subsequent arbitrations because at the time of A’s appointment in the second arbitration, the existence of potentially overlapping arbitrations with one common party might reasonably give rise to the real possibility of bias. Considering the fact that in the Bermuda Form arbitration, there was no established custom or practice for arbitrators to take on multiple appointments without disclosure and, therefore, A’s failure to disclose his subsequent appointments was a breach of his legal duty of disclosure.[5]
As for the second question, the Supreme Court held that “where an arbitrator accepts appointment in multiple references concerning the same or overlapping subject matter with only one common party, this may, depending on the relevant custom and practice, give rise to an appearance of bias.” The Supreme Court provided that in addressing an allegation of apparent bias in an English-seated arbitration, the English courts will apply the common law test for bias, which is an objective one, namely, “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 emphasized that this common law test must be considered, together with the particular characteristics of the international arbitration, including its private nature, the limited rights of appeal, and the way in which arbitrators are appointed and remunerated.[6]
Upon reviewing the facts and the characteristic nature of the international arbitration, the Supreme Court concluded that the fair-minded and informed observer would not infer real possibility of bias on the part of A on the following grounds: (i) the English case law did not have clarity as to whether there was a legal duty of disclosure and whether disclosure was needed; (ii) the time sequence of the arbitrations rendered A’s oversight genuine, meaning, since the reference in the second arbitration came six months after the reference in the first arbitration, it was more likely that Transocean would have cause for concern of bias, rather than Halliburton; (iii) A proposed to resign from the proceedings if the subsequent arbitrations were not resolved following determination of a preliminary issue, which meant that the evidence or the legal submissions in the overlapping arbitrations would not, in fact, coincide with one another; (iv) there were no questions of A having received any secret financial benefit; and (v) there was no basis of an “unconscious bias in the form of subconscious ill-will in response to the robustness of the challenge.”
In brief, the Supreme Court decided that A breached his duty to disclose because there was in fact a real possibility that the tribunal was biased. That being said, the Supreme Court did not attach any consequences to this violation because of the common law test they applied for apparent bias of the arbitrators.
Remarks and Conclusion
The Halliburton decision has drawn a lot of criticism for applying an objective test for apparent bias rather than a subjective one. Given the fact that the institutional rules mostly refer to a subjective standard of possible bias from the eyes of the parties, the standard is considered beyond the scope of the common practices of international arbitration. It has also been criticized by not being particularly clear on the scope of disclosure and relied heavily on custom and practice, which leaves a significant uncertainty for arbitrators, especially when institutional rules defer from custom and practice. Some also criticize the ruling because it lacks the necessary clarity on the statutory description of what an arbitrator is expected to be under the Arbitration Act. Lastly, negative comments have been made concerning the outcome of the case, criticising the fact that the Supreme Court found a violation without assessing any consequences.
Despite all of the heat it received, the Halliburton decision will remain a landmark decision on the duty of disclosure and apparent bias in English law. It is of significant importance because it is the first time the UK Supreme Court recognized the level of the duty of disclosure, while making it clear that this duty does not supersede the duty of confidentiality under English law.
(Authored by Ayca Bengü Köksal and first published by Erdem&Erdem on January 2021)
[1] Amec Civil Eng’g Ltd. v. Secretary of State for Transp., 2005, English Court of Appeal.
[2] EGILSDOTTIR, Sigridur Maria: Defining an Appropriate Threshold for Apparent Bias in International Arbitration: A Comparative Study, Reykjavik University, June 2019, p. 19.
[3] EGILSDOTTIR, p. 20; BORN, Gary: Chapter 12: Selection, Challenge and Replacement of Arbitrators in International Arbitration, International Commercial Arbitration (Third Edition), p. 1761- 2104.
[4] For Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, please refer to https://www.supremecourt.uk/cases/docs/uksc-2018-0100-judgment.pdf.
[5] STACEY, James/ HOLLAND, Samantha: Halliburton v Chubb- Supreme Court Clarifies English Rules on Apparent Bias of Arbitrators, Slaughter and May, December 2020 (https://my.slaughterandmay.com/insights/client-publications/halliburton-v-chubb-supreme-court-clarifies-english-rules-on-apparent-bias-of-arbitrators/).
[6] ROSS, Alisan: UK Supreme Court dismisses appeal over apparent bias, Global Arbitration Review, November 2020 (https://globalarbitrationreview.com/uk-supreme-court-dismisses-appeal-over-apparent-bias).