The final judgment in a line of authority described as the most important for the international arbitration community in a decade was handed down on 27 November 2020 by the UK Supreme Court ( UKSC 48).
The Court found that arbitrators have a duty to disclose appointments in overlapping arbitrations, that the arbitrator in the relevant arbitration breached this duty, and that an appearance of bias might well have existed at a point in time. The Court, however, unanimously dismissed Halliburton’s application.
Did the UK Supreme Court provide much-needed clarity around an arbitrator’s duty to disclose subsequent appointments or did it inadvertently undermine confidence in the impartiality of international arbitral tribunals?
The Court dismissed Halliburton’s appeal from the Court of Appeal’s much-dissected 2018 decision to dismiss an application to remove an arbitrator on the basis of apparent bias. The inference of apparent bias was said to arise from the arbitrator’s failure to disclose to one party, Halliburton, his subsequent appointment to multiple overlapping cases.
The case turned on its facts but the Court took the opportunity to provide clarity on the test for apparent bias; the heightened need for such clarity is discussed in a previous Corrs Insight. The decision will be successful in putting the brakes on parties mounting tactical challenges to arbitrators on the grounds of impartiality.
But the judgment will also give pause to clients who select arbitration as their mode of dispute resolution because arbitration provides the opportunity to resolve disputes on terms of their own choosing.
That Halliburton did not want the arbitrator in question appointed, and Chubb did, was clear from the very outset of the substantive matter. On the other hand, Halliburton itself was a repeat appointer of Professor William W. Park as arbitrator, whose participation in the arbitral award apparently was limited to expressing his profound disquiet about the arbitration’s fairness.
Given what later eventuated, it is a matter of some note that the pool of appointable arbitrators appeared so small that this situation could not be avoided entirely. This aspect is difficult to explain to international clients who are the end-users of the business of arbitration.
These clients are willing to step outside the court system and pay directly for access to justice, through significant fees disbursed to arbitrators. As such, these clients are entitled in return to expect and demand parity of treatment before the arbitrator.
For immediate purposes, it will be vital to revisit agreements to arbitrate and test whether they provide sufficient protection to the parties to ensure that the contractual controls on the arbitral process are calibrated correctly, including the appointment of arbitrators and potentially the circumstances in which the parties agree those arbitrators may accept and disclose subsequent, overlapping appointments.
The dispute concerned rejected insurance claims arising from the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Transocean and Halliburton were defendants in private claims for damages arising from the incident; both settled the action and subsequently claimed on their respective insurance policies held by Chubb. Chubb refused an indemnity and to pay out under the policies.
Consequently, Halliburton commenced an arbitration against Chubb in London. The parties each selected an arbitrator but failed to agree on the chairperson.
Following a contested hearing, the English Commercial Court appointed Chubb’s preferred chairperson, Mr Rokison QC. Prior to appointment, Mr Rokison disclosed to the parties that he previously had acted and currently was acting in a number of arbitrations that involved Chubb.
The basis for the proceedings before the Courts of England and Wales, ultimately heard by the Supreme Court, concerned Mr Rokison’s failure to disclose to Halliburton two subsequent appointments as an arbitrator in disputes arising out of the Deepwater Horizon oil spill, including one as Chubb’s appointee.
Halliburton discovered Mr Rokison’s subsequent appointments eighteen months into its arbitration. Halliburton challenged the impartiality of Mr Rokison and sought to have him removed under section 24(1)(a) of the Arbitration Act 1996 (UK). This empowers the Court to remove an arbitrator upon a party’s application if ‘circumstances exist that give rise to justifiable doubts as to his impartiality’. Halliburton impugned the conduct of Mr Rokison on the basis that he accepted the subsequent appointments, failed to disclose them, and failed to resign from the first arbitration, which Halliburton alleged gave rise to an appearance of bias. The application was dismissed at first instance ( EWHC 137).
UK Court of Appeal
In February 2018, the UK Court of Appeal dismissed Halliburton’s appeal from the first instance decision ( EWCA Civ 817).
- The Court of Appeal held that an arbitrator sitting in more than one arbitration arising out of the same facts could be a legitimate concern in overlapping arbitrations, but in itself this did not justify an inference of apparent bias: ‘something of substance’ is required to support such an inference.
- Further, the Court decided that, while the chairperson ought to have disclosed to Halliburton his proposed appointment in the subsequent references, the non-disclosure would not lead a fair-minded and informed observer to conclude that there was a real possibility that the chairperson was biased.
Appeal to the UK Supreme Court
Permission to appeal to the UK Supreme Court was granted to Halliburton on the following two issues:
- 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
- whether and to what extent he or she may do so without disclosure.
As we discussed previously, the appeal was considered critical to the integrity of the arbitral process and the appeal to the Supreme Court was decided on different grounds, at least to some extent, from those argued before the Court of Appeal.
Unanimous decision to dismiss
The Supreme Court clarified that arbitrators have a duty to disclose facts and circumstances that might reasonably give rise to the appearance of bias. The Court also determined that Mr Rokison had failed to comply with that duty because he failed to disclose a subsequent appointment in a related arbitration. Interestingly, the Court went on to state that, at the time of the subsequent appointment, a fair-minded and informed observer might well have concluded that Mr Rokison's failure to disclose it created an appearance of bias.
Despite the findings, the Court relied upon a sequence of facts (including the timing of Halliburton’s application and the measured manner of Mr Rokison’s response) unanimously to dismiss Halliburton’s application. Critically, the Court determined that the fair-minded and informed observer would not conclude that circumstances existed that gave rise to justifiable doubts as to the chairperson’s impartiality as at the date of the hearing.
Test for apparent bias
The Court restated the test for apparent bias, being whether a ‘fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased’.
Lord Hodge, writing the majority judgment, emphasised that the context forms an important part of the material to be considered, and adopted HHJ Kirby’s description of the objective observer as ‘neither complacent nor unduly sensitive or suspicious’ (Johnson v Johnson (2000) 201 CLR 488, 53).
Lord Hodge also noted that this test was similar to the test of ‘justifiable doubts’ adopted in the UNCITRAL Model Law and the IBA Guidelines on Conflicts of Interest in International Arbitration, without deciding whether the tests were one and the same.
While noting that the test applies equally to judges and arbitrators, the Court noted at some length the fundamental differences between judicial and arbitral determinations of disputes, including arbitrators’ financial interest in reappointment, which differences must be borne in mind in applying the test to arbitrators.
This test applies to the question of 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.
The Court observed that the informed observer would have regard to the contractual and factual matrix, including custom and practice in the subject matter field of arbitration. The Court disagreed with the Court of Appeal’s decision that ‘something more’ was required to establish apparent bias; depending on custom and practice, mere acceptance of appointments in multiple references is capable of giving rise to an appearance of bias.
On this basis, arbitrators should proceed on the understanding that disclosure is required (unless the arbitration is one in which there is an accepted practice of multiple appointments).
Disclosure v confidentiality
The Court affirmed that the appearance of bias is best avoided by prompt disclosure of matters that arguably could be said to give rise to a real possibility of bias.
- The Court disagreed with the trial judge’s conclusion that disclosure is not a legal duty in English law and is merely good arbitral practice (unless the parties submit their dispute to arbitration under arbitral rules that impose a legal obligation). The Court decided that the statutory duties of an arbitrator (arising from section 33 of the 1996 Act) give rise to an implied term in the contract between the arbitrator and the parties that the arbitrator will act fairly and impartially.
Further, an arbitrator would not comply with that term if the arbitrator at and from the date of his or her appointment did not disclose matters that are relevant and material to an assessment of the arbitrator’s impartiality and might reasonably lead to an adverse conclusion. This aspect assisted Mr Rokison, because of the element of doubt over the legal duty to disclose at the time he failed to do so, but subsequent arbitrators will not escape this duty.
- Whether disclosure of appointment to multiple references is required will depend on the customs and practices of the arbitrations in question. If the customs and practice of the type of arbitration have created expectations of multiple references, for example, this would agitate against the need for disclosure. This is an objective test; the Court recognised that parties to an arbitration (who may not have the same experience of the relevant arbitration field as the commonly appointed arbitrator) may have different expectations of disclosure and impartiality.
- This legal duty to disclose does not, however, override the legal duty in England and Wales of privacy and confidentiality.
- The Court noted that the relationship between the duty to uphold confidentiality and the duty to disclose is unclear, as the law in this area is developing, but did provide practical guidance to arbitrators. If an arbitrator in one arbitration seeks appointment in a second arbitration, and such appointment ought to be disclosed to one or more parties in the first arbitration, disclosure can be made only if the parties to the second arbitration give their consent. If consent is not given, the arbitrator must decline the second appointment. Such consent may explicitly be sought and given, or inferred from the underlying arbitration agreement in the context of the customs and practice of the arbitration field (for example, if the parties incorporate certain institutional rules into their agreement).
- This approach appears to balance parties’ competing interests: disclosure of multiple appointments is important to avoid a potential ‘inequality of arms and material asymmetry of information’, but categories of exceptions to privacy and confidentiality must be limited to what is necessary in the interests of justice.
The decision was unanimous but some of the complex details of the case are reflected in the separate judgment of Lady Arden. In particular, Lady Arden found that confidentiality will not be breached if disclosure is made without giving the names of the other parties to the subsequent arbitration, other than that of the overlapping party (who may be taken to have consented to the disclosure), but that this disclosure alone would not necessarily of itself be enough to discharge the duty of disclosure.
In circumstances where arbitrator appointment in overlapping cases now has been considered at every level of the UK judicial system, it appears the availability of tactical challenges is limited. Most users of arbitration, who uniformly desire efficient proceedings with as few avenues for obstruction and obfuscation as possible, on this basis will welcome the UK Supreme Court’s decision. In particular, this decision highlights the difficulty in challenging an arbitrator on the basis of impartiality. This is valuable in light of the significant costs that parties may incur if they wish to challenge either the arbitrator or the award, where arbitrators fail to abide by requisite standards.
The Court emphasised the importance of maintaining party autonomy to appoint arbitrators from limited pools in particular industries, where it is the custom and practice to appoint arbitrators to multiple overlapping arbitrations. This aspect of the decision appears, however, to be slightly out of step with a trend towards encouraging greater diversity in appointment of arbitrators.
Whether London will become less appealing as a seat of arbitration in favour of emerging jurisdictions remains to be seen. While certainty as regards the test for apparent bias and protection of the duty of confidentiality is attractive to parties, continuing uncertainty about the ability to challenge an arbitrator or award for failure to disclose that which ought to have been disclosed may be an unacceptable risk to some international parties. Despite placing ‘a premium on frank disclosure’ in arbitration, the Court leaves the extent of required disclosure to be determined in light of the custom and practice of each relevant field of arbitration, which is a standard that any one arbitrator or party may find difficult to identify.
Immediate practical concerns
The matters covered in this lengthy line of authority are of immediate practical concern to parties presently involved in arbitrations, as well as in future disputes. We agree with the Court that it falls to arbitral institutions to incorporate this guidance into the rules and for parties to consider amending the terms of existing or prospective arbitration agreements to specifically provide for:
- explicit consent to disclose to each party to the relevant arbitration agreement all appointments related to that arbitration agreement;
- a requirement to disclose, at any stage of proceedings, related arbitrator appointments (regardless of the extent of any overlap);
- liability for costs thrown away as a consequence of the arbitrator’s failure to disclose information that ought to have been disclosed (even if the disclosure is not sufficient to found an application for removal); and/or
- a prohibition on subsequent appointments in overlapping cases with a common party without the consent of all parties to the arbitration agreement (potentially even in circumstances in which not all of those parties are party to the arbitration).
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.