Legal update: Arbitrator’s duty of disclosure04Jan2021
On 27 November 2020, the UK Supreme Court handed down its judgment in Halliburton Company v Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd)  UKSC 48 (see also the summary of the case here). Lord Hodge (with whom Lord Reed, Lady Black and Lord Lloyd-Jones agreed, and Lady Arden agreed subject to further points) clarified the principles of disclosure by, and apparent bias of, an arbitrator.
This article will provide a summary of the facts of the case and the rulings made by the Supreme Court regarding the two main issues raised in the appeal. It also discusses further points raised by Lord Hodge in the judgment before he reached a conclusion, as well as key takeaways and practical tips for arbitrators based upon the comments of the Court.
Halliburton faced and settled claims by the US Government and individual claimants arising out of the Deepwater Horizon drilling rig incident in 2010 (“Civil Claims”). Chubb, who was Halliburton’s insurer, refused to pay the claim on the grounds that the settlement was unreasonable. The two parties commenced arbitration in January 2015, but were unable to agree on the appointment of the third arbitrator as chairman. The English Court of First Instance appointed Mr Kenneth Rokison QC in June 2015 (Chubb’s nominee) having knowledge of the fact that Mr Rokison had previously acted for Chubb and was currently the appointed arbitrator in two pending arbitrations in which Chubb was involved.
Subsequently, Mr Rokison accepted appointments in two other arbitrations, the subject of one of which was the core of the dispute in this case. It was an arbitration between Transocean (another defendant in the Civil Claims) and Chubb. This arbitration also concerned liability insurance coverage arising out of the same Deepwater Horizon incident. Mr Rokison only disclosed his appointment in Halliburton to Transocean, but not the other way round.
In November 2016, Halliburton discovered Mr Rokison’s appointment in the Transocean arbitration. After extensive correspondence between the two parties, Halliburton initiated proceedings against Mr Rokison in December 2016, seeking an order to remove him as chairman. The claim was rejected by the High Court, and the appeal by Halliburton was dismissed by the Court of Appeal.
Rulings in the case
The Supreme Court judgment specifically provided guidelines on the following 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.
On the first issue, Lord Hodge commented that the practice of an arbitrator accepting multiple appointments by one party concerning the same or overlapping subject is not “inherently problematic so long as the arbitrator can approach each individual arbitration objectively and with an open mind” (para. 128). However, it may give rise to an appearance of bias, depending on the relevant custom and practice in the particular industry in question.
The Court came to this conclusion after receiving assistance in the form of further written submissions by the parties involved after the hearing of the appeal, including the 5 Interveners being the International Court of Arbitration of the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”), the Chartered Institute of Arbitrators (“CIArb”), the London Maritime Arbitrators Association (“LMAA”), and the Grain and Feed Trade Association (“GAFTA”).
The ICC submitted that interrelated arbitrations of this kind are rare in ICC arbitrations. Where it did occur, it may give rise to an appearance of bias. GAFTA and the LMAA represented that it was common in their field of operation that the same arbitrator was appointed in multiple overlapping references.
On the second issue, the Court held that the test in English law on whether disclosure is required is whether the facts or the circumstances which are to be disclosed would or might reasonably cause the fair-minded and informed observer to conclude that there was a real possibility that the arbitrator was biased (the “Objective Test”). The question of whether to disclose is to be answered after taking into account the circumstances at the time of decision. Even where subsequently new developments took place and the objective observer would conclude that no real possibility of bias exists, it does not negate the need for disclosure at that earlier point in time.
The objective observer would also take into account the distinctive customs and practice of the industry and arbitration in question. It is possible that some customs in a particular field may create expectations so as to negate the need for disclosure. In other fields, a failure to disclose multiple appointments by an arbitrator may give rise to the appearance of bias, resulting in the need for the arbitrator to remove himself or face removal by the court.
Where a disclosure should have been made but was not in fact made, this failure to disclose in itself would be a factor taken into account by the objective observer as to whether there was a real possibility of bias. Lord Hodge concluded that unless otherwise agreed by the parties to the arbitration, arbitrators have a legal duty to make disclosure of facts and circumstances which would or might reasonably give rise to the appearance of bias. This is also to afford the party other than the common party an opportunity to assess whether and to what extent the circumstances involved unfairness and how to respond.
On the facts of the case, it was held that Mr Rokison was under a legal duty to disclose his appointment in Transocean to Halliburton, and has breached that duty by failing to make disclosure. The fair-minded and informed observer, having considered the question of whether to disclose around the date of Mr Rokison’s acceptance of appointment by Transocean, “may well have concluded that there was a real possibility of bias” (Para 147). This appointment also had the potential to give rise to unfairness, and the fact that Halliburton had no opportunity to address might amount to apparent bias.
That said, the Court went further and stated that having the benefit of the circumstances known to the court at the date of the hearing at first instance, Mr Rokison’s non-disclosure would not be inferred to mean that there was a real possibility of bias.
The Court also discussed in depth the following topics before reaching its conclusion: (i) the duty of impartiality; and (ii) the relationship between disclosure and the duty of privacy and confidentiality.
The duty of impartiality
The Court emphasised that impartiality has always been a cardinal duty of a judge and an arbitrator, and the Objective Test applies to both equally. However, it is important to bear in mind that the nature and circumstances of judicial and arbitral determination of disputes are different:
- Judges resolve civil disputes in open court, while arbitration, being a consensual form of dispute resolution, is conducted in private;
- Parties to a civil dispute in court usually have a right of appeal, but an arbitrator’s decision is not often subject to appeal;
- A judge hold a public office and is funded by general taxation. Judges also generally have a higher degree of security of tenure of office, whereas arbitrators are remunerated by the parties to the arbitration, meaning that if arbitral work is a significant part of the arbitrator’s practice, he has a financial interest in obtaining further appointments as arbitrator;
- Arbitrators, including lawyers and other professionals, come from various jurisdictions and may have divergent views of what constitutes acceptable conduct;
- A party in commercial litigation may sit in on a hearing of other court cases, but a party to an arbitration may not do the same, and thus has no means of being informed of submissions made in another arbitration involving the same arbitrator and same opposing party;
- There are different understandings of the role of a party-appointed arbitrator and the chairman in the field of international arbitration.
As a result of these differences, the circumstances taken into account by the objective observer would also be different in the context of an arbitrator in comparison to a judge.
The Court clarified that despite the different perceptions as regards the role of arbitrators appointed by a party, an appointing institution or the court, all arbitrators are expected to adhere to the same high standards of fairness and impartiality as the chairman of the tribunal in English law. The Court observed that this practice appears to be increasingly widely accepted as the legal norm internationally, even though some legal systems still take a different view. This is why the court, when applying the Objective Test, will have to recognise the existence of this debate within the arbitration community and take into account how the parties and their appointees conduct themselves in comparison to the chairman.
Further, the professional reputation and expertise of an individual arbitrator as well as the possibility of opportunistic and tactical challenges by a party in the hope of having their case be determined by, in their opinion, a more favourable tribunal are also relevant considerations for the objective observer.
These factors are also reasons why proper disclosure is crucial to maintaining the integrity of the arbitration – the aggrieved party may not have recourse otherwise.
The relationship between disclosure and the duty of privacy and confidentiality
As English-seated arbitrations are private and confidential, the Court discussed the balance between the two important duties and when consent of the parties are required before an arbitrator discloses information to another, solely for the purpose of complying with his statutory duty of impartiality.
As with the different practices regarding acceptance of multiple appointments by an arbitrator in similar circumstances, there is also a variety of practices with regard to the relevant disclosure procedure. Some arbitration rules (such as the ICC Arbitration Rules article 11(2)) provide a basis for the inference that the parties to the arbitration consent to disclosure of such information about that arbitration to the parties to a prospective arbitration under the same rules. Where parties submit to an ad hoc arbitration without any set rules, consent of both parties will be required before disclosure can be made. This will depend on the relevant arbitration agreement and the customs and practice in the relevant field.
The duty of privacy and confidentiality is not absolute. As a general rule, in the context of a proposed appointment by a common party, an arbitrator can disclose the existence of a current or past arbitration involving a common party and the identity of the common party without obtaining the express consent of the parties to that arbitration, unless the parties have agreed to prohibit such disclosure.
This is also what the Court held on the facts of this case: in Bermuda Form arbitrations, an arbitrator may disclose to the extent accepted in the general rule. The consent of the common party can be inferred from its further appointment of the arbitrator in another arbitration, whereas the consent of the other party is not required for such limited disclosure. Only when the arbitrator is requested to disclose anything beyond this limited scope will he have to obtain express consent of the parties.
Key takeaways and practical tips for arbitrators
When does the duty of disclosure arise?
The threshold under English law to trigger the legal duty of disclosure is low. The Court emphasised that it is not necessary that the facts to be disclosed would cause the objective observer to conclude that there was a real possibility that the arbitrator was biased. So long as the objective observer might reasonably reach that conclusion, the duty arises.
Before accepting further appointments by a common party, a prudent arbitrator would first consider whether it is within the customs and practice of the relevant industry to do so:If it is, one may consider making a pre-appointment disclosure to ensure the smooth operation of the arbitration system. This is to avoid the time-consuming exercise of accepting the appointment only having to resign upon a party’s objection following post-appointment disclosure;
(a) If it is not, an arbitrator should decline the further appointment so as to avoid the risk of appearing biased.
(b) When in doubt, always decline the appointment to ensure compliance with the duty of impartiality.
What to disclose when and/or before an arbitrator accepts multiple appointments in arbitrations arising from similar facts?
If permitted under the relevant arbitration rules, disclose the existence of the arbitration, whether current or past, as well as the common party to the arbitrations. In many cases such limited scope of disclosure may already satisfy the recipient. Anything further the consent of the parties to the arbitration will be required before disclosure.
It is interesting that the Court, in its deliberation of the second issue, commented that rather than disputing over whether there is a duty to disclose depending on the traditions and customs of a particular area of arbitration, it would be beneficial to put an express statement in the arbitration rules and publish relevant guidelines with regard to this duty (Para 135). The parties to an arbitrations can always contract out of the rules.
The Court may well have taken this opportunity in a high profile case with 5 international arbitration entities joining as interveners to give the industry a nudge forward, both in terms of case law and further refinement of the arbitration rules. Being a landmark decision in English arbitration law, developments in various arbitration institutes will surely follow.
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Disclaimer: This article was originally published on Arbitrium, an international arbitration news site for arbitration practitioners. It is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.