Global Vantage: UKSC delivers landmark judgment on arbitrator bias in the context of international arbitrations

December 2020
Antony Smith and James Hughes

On 27 November 2020, the UKSC handed down its much anticipated judgment in Halliburton Company v Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd) [2020] UKSC 48. The decision provides important guidance for arbitrators on the duty of impartiality and their disclosure obligations in the context of international arbitrations.

Background

The appellants, Halliburton, provided cementing and well-monitoring services to BP Exploration and Production Inc (“BP”) in connection with the Deepwater Horizon drilling rig (“Deepwater Horizon”), located in the Gulf of Mexico. Transocean Holdings LLC (“Transocean”), also supplied services to BP in connection with Deepwater Horizon.

In April 2010, Deepwater Horizon exploded. In the aftermath of the disaster, numerous claims were brought against BP, Transocean and Halliburton. These included claims brought by the US Government. In 2014, a U.S. Federal Court in Louisiana determined culpability for the incident as follows: BP 67%, Transocean 30% and Halliburton 3%. However, prior to the Federal Court handing down its judgment, Halliburton settled some of the claims that had been brought against it.

Subsequently, Halliburton sought to bring a claim in connection with its settlement under a “Bermuda Form” liability policy that it had taken out with ACE Bermuda Insurance Ltd (now known as Chubb Bermuda Insurance Ltd (“Chubb”) – the defendants to this appeal. Chubb refused to meet Halliburton’s claim, alleging, amongst other things, that Halliburton’s settlement was unreasonable. Transocean, who had also taken out a policy with Chubb, were equally unsuccessful in their attempts to recover from Chubb (although Transocean did not settle their claims until after the Federal Court’s judgment).

In accordance with the dispute resolution procedure in their liability policy, Halliburton commenced an ad-hoc arbitration against Chubb. The terms of the arbitration clause in the policy enabled each party to appoint one arbitrator, with the third arbitrator to be jointly-appointed. However, the parties could not agree on a third arbitrator and as such a High Court hearing was required to determine the third appointment. At the hearing, the court appointed Mr Rokison (proposed by Chubb) as the third arbitrator. This was despite the fact that Mr Rokison had disclosed to Halliburton and the court that he had previously been involved in arbitrations involving Chubb, with further appointments concerning Chubb pending.

Further to his appointment in the Halliburton arbitration, Mr Rokison accepted two further arbitral appointments related to issues arising out of the Deepwater Horizon disaster. These included an appointment made on behalf of Chubb. Crucially, Mr Rokison failed to disclose the additional appointments to Halliburton.

When, several months later, Halliburton learned of Mr Rokison’s additional appointments, it sought an explanation from him as to the reasons for his failure to disclose them. Unsatisfied by Mr Rokison’s response, Halliburton subsequently applied to the English courts under section 24 of the Arbitration Act 1996 to remove Mr Rokison from the arbitral tribunal in its action against Chubb. Halliburton was unsuccessful in its action both at first instance and in the Court of Appeal. Therefore, Halliburton appealed to the UKSC.

The decision of the United Kingdom Supreme Court

In addressing Halliburton’s appeal, the UKSC was primarily concerned with two key issues:

(i) 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, and

(ii) whether and to what extent the arbitrator may do so without disclosure [para 2].

In delivering his judgment, Lord Hodge concluded that when considering whether there is a real possibility of bias, English courts should apply the “objective test of the fair-minded and informed observer”. This hypothetical observer would, amongst other things, have an appreciation of the nature of international arbitration. This includes an understanding of the privity of proceedings, which, for example, mean that where a common arbitrator is appointed in multiple references concerning the same or overlapping substance, the party not common to those proceedings is unaware of the evidence and submissions presented to such tribunals or of the arbitrator’s response to said evidence/submissions. When applying the test, Lord Hodge added that regard should also be had to facts of each case, in particular the “customs and practices of the relevant field of arbitration” regarding multiple appointments of the type with which this appeal was concerned.

Lord Hodge determined that where, absent agreement to the contrary by the parties, the objective observer upon completion of his or her analysis might reasonably conclude that in the circumstances there is a real possibility of bias, arbitrators have a duty to disclose their multiple appointments. Failure to make such a disclosure may give rise to an appearance of bias, although that omission would only be a factor that the observer would take into account, as opposed to conclusive evidence of bias.

Applying these conclusions to the facts of the case, the UKSC determined that the relevant customs and practices in the context of Bermuda Form arbitrations meant that Mr Rokison did have a duty to disclose to Halliburton the additional appointments that he had accepted. This duty to disclose did not override Mr Rokison’s duty of privacy and confidentiality to the parties in the additional appointments, as in certain circumstances disclosure of information necessary to consider the potential bias could be provided to third parties without the consent of the parties to the relevant arbitration.

Yet, despite Mr Rokison’s failure to disclose his additional references, the UKSC did not find that there was a real possibility of bias in this case. The court found that the test of fair-minded and informed observer should be applied based on the factual circumstances known at the first instance hearing for Mr Rokison’s removal as an arbitrator (which took place in January 2017). On that basis, Lord Hodge, amongst other things, noted that at that date Mr Rokison’s duty to disclose the additional appointments was not clear, nor had Mr Rokison received any “secret financial benefit” as a result of the appointments. As such, the UKSC was unconvinced by Halliburton’s submissions as to the real possibility of bias, and rejected the appeal.

Implications for International Arbitration

As the popularity of arbitration as a dispute resolution mechanism continues to grow, we welcome attempts by the English courts to bring clarity to an area of law where we will undoubtedly see disputes increase in years to come. However, as we watch the international arbitration community begin to react to the UKSC’s judgment, we cannot help but think that the court’s efforts may have fallen somewhat short.

Whilst the decision does provides important guidance on the duty of disclosure and its relationship with the duty of confidentiality and privacy, it is perhaps not the simple, bright-line guidance that many would have hoped. In many respects, the decision reinforces the suggestion that each case will turn upon its own facts, with the objective and fair-minded observer required to consider the need for disclosure and the presence of a real possibility of bias in the context of the particular type of arbitration that is the subject of the dispute. As such, how the principles that this appeal has established will be applied outside of the context of “Bermuda Form” arbitrations remains to be seen.

Interestingly, the decision may also have unintended consequences for the insurance market. Traditionally, the liability of an arbitrator under English law has been very limited, with section 29 of the Arbitration Act 1996 providing arbitrators with immunity from claims other than where he or she is shown to have been in “bad faith”. However, Lord Hodge at paragraph 111 of the judgment suggests that, where a matter that is not disclosed is serious but the non-disclosure does not amount to apparent bias, the court might order an arbitrator “to meet some or all of the costs of the unsuccessful challenge or to bear the costs of his or her defence.” This appears to be one of the only occasions in the judgment in which the court addresses the issue of sanctions for non-disclosure. However, this could expose arbitrators (and by extension their insurers) to a wider range of claims than previously understood, and thus impact upon the availability/premiums of liability policies for arbitrators.

With the Arbitration Act 1996 rapidly closing in on its 25th birthday, perhaps what is really needed is a ‘return to the drawing board’ with respect to arbitration legislation in the UK. Greater codification may help to remedy many of the issues that the industry is currently facing. However, we suspect that the Government may have more pressing concerns in the immediate future. In the meantime, we expect that the “fair-minded and informed observer” may have a busy few months ahead, as the international arbitration community begins to grapple with this landmark judgment.

The full text of the judgment is available here.

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