‘Frequent flyers’ and full disclosure – Awaiting the Supreme Court decision in Halliburton v Chubb

Halliburton Company v Chubb Bermuda Insurance Ltd

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2019-12-20

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Arbitrator impartiality is a hot topic in the arbitral community, not least because the issue has now come before the Supreme Court of England and Wales. The hearing in Halliburton v Chubb took place in November 2019, with interventions from the London Court of International Arbitration and the International Chamber of Commerce, amongst others. The decision is eagerly awaited, but in readiness it is important to recap on how the case has unfolded to date, how opinions have differed and what issues are now before the Supreme Court.  A report on the Supreme Court decision will follow.

Background

On 20 April 2010, there was an explosion and fire on the Deepwater Horizon oil rig in the Gulf of Mexico as a result of a blow out at a well (the Incident). Transocean Holdings LLC (Transocean) was the owner and BP Exploration and Production Inc. (BP) the lessee of the rig. Halliburton Company (Halliburton) provided cementing and well-monitoring services to BP.

Multiple claims were brought against Transocean, BP and Halliburton by the US government, corporates and private individuals. The private claims for damages were pursued through a Plaintiff’s Steering Committee (PSC). Most claims were consolidated into a single ‘Multi District Litigation’. On 4 September 2017, the Federal Court for the Eastern District of Louisiana issued a liability judgment apportioning blame between the entities as follows: BP 67%, Transocean 30% and Halliburton 2%. Before the judgment, Halliburton settled the PSC claims against it for around US$1.1b. After the judgment, Transocean settled the PSC claims against it for a lesser sum of US$212m with civil penalties of US$1b to the US Government.

Halliburton looked to Chubb for insurance cover for the loss, but Chubb refused to pay, primarily on the basis that the underlying settlement was not reasonable and Chubb had not (reasonably) consented to it.

Arbitrator appointments

In January 2015 Halliburton commenced arbitration (Reference 1), appointing ‘N’ as its arbitrator. Chubb appointed ‘P’. When the third arbitrator could not be agreed, an application was made to the English High Court and Flaux J appointed ‘M’ on 12 June 2015. ‘M’ was Chubb’s preferred candidate, who had, prior to his appointment, disclosed multiple previous and then existing appointments as Chair and party-appointed arbitrator in arbitrations involving Chubb (including as Chubb’s appointee). Halliburton had objected to ‘M’ at the time, but not for this reason. It was concerned with ‘M’s ability, as an English lawyer, to interpret and apply the provisions of an insurance policy governed by a modified form of New York law.

On 10 November 2016, Halliburton discovered that, after his appointment as Chair, ‘M’ had accepted appointments as arbitrator in two further references involving claims by Transocean against its excess liability insurers:

1. December 2015: In relation to a claim by Transocean against Chubb arising out of the same Incident and under the same insurance policy, ‘M’ accepted an appointment by Chubb (Reference 2). ‘M’ disclosed to Transocean his appointment in Reference 1 and in the other Chubb arbitrations already disclosed to Halliburton. ‘M’ did not disclose his appointment in Reference 2 to Halliburton.

2. August 2016: In relation to a claim by Transocean against another excess insurer arising out of the same Incident and on the same layer of insurance, ‘M’ accepted an appointment as a replacement Chair (Reference 3). The appointment was not disclosed to Halliburton.

In References 2 and 3, there was to be a potentially dispositive (if decided in favour of insurers) trial of preliminary issues on policy construction, which did not arise in Reference 1 and would avoid the tribunal having to go on to consider reasonableness of the settlement issues (being issues also arising in Reference 1).

Application to remove M as arbitrator

After some correspondence with ‘M’ on the issue, on 21 December 2016, Halliburton issued a claim form seeking an order from the English High Court under section 24(1)(a) of the Arbitration Act 1996 (the Act) to remove ‘M’ as an arbitrator and replace him with a new arbitrator. Section 24(1)(a) of the Act gives the court the power to remove an arbitrator “…where circumstances exist that give rise to justifiable doubts as to his impartiality”. It is important to note that Halliburton made no allegation of actual bias or lack of impartiality against ‘M’. The issue was that ‘M’s conduct had given rise to an appearance of bias. The assertion as to an appearance of bias was founded upon the following conduct:

1. ‘M’s acceptance of the appointments in References 2 and 3.
2. ‘M’s failure to disclose those appointments to Halliburton.
3. ‘M’s response to the challenge to his impartiality.

Following the High Court’s judgment on the issue of 3 February 2017 (see below), on 1 March 2017, preliminary issues awards concerning the policy construction issues were issued in favour of Chubb in References 2 and 3, which brought those references to an end. On 5 December 2017, a Final Partial Award on the merits was issued in Chubb’s favour in Reference 1. Arbitrator ‘N’ stated that he was unable to join in the award as a result of “…profound disquiet about the arbitration’s fairness”.

The Law

Section 1 of the Arbitration Act 1996 (the Act) states:

“1. General principles
The provisions of this Part are founded on the following principles, and shall be construed accordingly-

(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal…”

Section 33 of the Act supplements this as follows:

“33. General duty of the tribunal.
(1)The tribunal shall—
(a) act fairly and impartially as between the parties…”

The duty to act impartially is reflected in section 24 of the Act, which gives the court the power to remove an arbitrator and states:

“24. Power of court to remove arbitrator
(1) A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerns and to any other arbitrator) apply to the court to remove an arbitrator on any of the following grounds-

(a) that circumstances exist that give rise to justifiable doubts as to his impartiality;
(b) …”

Whether circumstances exist that give rise to justifiable doubts as to an arbitrator’s impartiality is determined applying the common law test for apparent bias: Locobail (UK) Ltd v Bayfield Properties Ltd [2000]. Those circumstances must be considered both individually and cumulatively: Cofely v Bingham [2016].

The test is an objective one that looks at whether the fair-minded and informed observer, having considered the relevant facts, would conclude that there was a real possibility that the tribunal was biased: Porter v Magill [2002]. It is not to be confused with the approach of the complainant, but involves taking a balanced and detached approach once informed of all relevant matters: Hellow v Secretary of State for the Home Department [2008].

The International Bar Association Guidelines on Conflicts of Interest in International Arbitration 2014 (IBA Guidelines) are helpful as guidance, but do not supplant the above legal principles.

High Court: H v L & Others (3 February 2017)

Mr. Justice Popplewell determined that no grounds had been advanced, individually or cumulatively, that established any circumstances giving rise to justifiable doubts as to ‘M’s impartiality.

In particular, he determined that:

1. The informed and fair minded observer would not regard ‘M’ as unable to act impartially by virtue of the fact that he is an arbitrator in more than one reference arising out of the same incident in which the same, substantially overlapping or different issues arise and in respect of which he might hear different evidence or argument. It is in cases where, for example, a common party to more than one reference puts forward mutually inconsistent cases that a genuine conflict arises and it is then for an arbitrator to tender resignation in one or more of those references.

2. Having found that accepting appointments in more than one reference did not give rise to any justifiable doubts as to ‘M’s impartiality, there was no obligation upon ‘M’ to disclose the same to Halliburton since there is no obligation to disclose circumstances that an informed observer would not consider give rise to a real possibility of impartiality. However, even if ‘M’ ought to have disclosed the further appointments in References 2 and 3, his failure to do so would not have given rise to a real possibility of apparent bias.

3. ‘M’s conduct in handling the challenge to his appointment by Halliburton served only to reinforce the confidence that any fair-minded observer would have in ‘M’s ability to conduct the arbitration fairly and impartially. It did not give rise to an appearance of bias.

In the alternative, Halliburton had argued that the Court had power to revoke or vary the original Order of Flaux J dated 12 June 2015 appointing ‘M’ as Chair and to replace ‘M’ with Sir Stephen Tomlinson. This was rejected by Mr. Justice Popplewell as being too late in the day, but particularly impossible in the absence of any jurisdiction of the Court to do so.

Court of Appeal: Halliburton Co. v Chubb Bermuda Insurance Ltd & Others (19 April 2018)

The Court of Appeal determined:

1. That whilst inside information or knowledge (being information or knowledge obtained by an arbitrator in one proceeding but not in another) is a legitimate concern in overlapping arbitrations with a common arbitrator and one common party, this does not justify an inference of apparent bias because an arbitrator should be trusted to decide each case solely upon the evidence and material before it in that particular proceeding. As a result, the fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not of itself give rise to an appearance of bias. Something more is required, which must be something of substance.

2. The fact that such appointments may be accepted is not determinative of whether disclosure should be given before accepting them:

a. As a matter of English law, disclosure should be given of facts and circumstances known to the arbitrator which, by section 24 of the Act, would or might give rise to justifiable doubts as to his impartiality. This means facts or circumstances which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased. Whilst subjective tests appear in various institutional arbitral rules and in the IBA Guidelines (i.e. referring to circumstances “in the eyes of the parties” or “in the mind of any party” giving rise to doubts as to impartiality), the test as a matter of English law is objective and the question as to what might lead to a conclusion of apparent bias is to be considered prospectively (rather than retrospectively) based upon the facts and circumstances actually known to an arbitrator at the time.

b. Non-disclosure of a fact or circumstance which should have been disclosed, but does not in fact, on examination, give rise to justifiable doubts as to the arbitrator’s impartiality, cannot in and of itself justify an inference of apparent bias. Again, ‘something more’ is required.

3. In light of the above:

a. ‘M’s acceptance of multiple appointments in related references with one common party was not sufficient to justify an inference of bias, although the court accepted that this may give rise to legitimate concerns in the eyes of Halliburton, which could have been alleviated by disclosure. Overlapping issues in those proceedings also does not give rise to justifiable doubts as to impartiality and in this case the overlap was minimal.

b. In international arbitration and, insofar as it reflects international commercial arbitration practice, by the IBA Guidelines, disclosure of an appointment in related arbitrations including with a common party would have been good practice.

c. The fact that best practice would have required disclosure, together with other factors (i.e. the degree of overlap and other connections), might have been argued cumulatively to give the fair-minded and informed observer a basis for a reasonable apprehension of lack of impartiality. On the particular facts of this case, disclosure ought, as a matter of law, to have been made. Such disclosure would form an exception to the duty of confidentiality in the other arbitration.

d. The non-disclosure would not have led the fair minded and informed observer to conclude that there was in fact a real possibility that ‘M’ was biased. In particular, the court noted that the failure to disclose was accidental, the degree of overlap between the references was limited and ‘M’s conduct in handling the challenge was appropriate and could not be criticised.

The essential difference between the High Court and Court of Appeal decisions concerned the finding by the Court of Appeal that disclosure of the relevant circumstances should have been made.

Commentary

The issue of arbitrator impartiality is not clear cut and many commentators have argued that the law has been left unclear.

Indeed, a number of questions arise out of the High Court and Court of Appeal decisions for the Supreme Court’s consideration, including:

  1. Can an arbitrator accept multiple appointments in related arbitrations, and separately not disclose such appointments, without giving rise to an appearance of bias? What is the “something more” that the Court of Appeal said is required, which must be of substance in order to justify an appearance of bias?  Is “something more” required?
  2. Do multiple appointments in related arbitrations breach the rule on ex parte communications?
  3. Should parties trust arbitrators and does the law provide sufficient protection against unconscious bias?
  4. Should disclosure of multiple appointments in related arbitrations be given before accepting such appointments or at the time a conflict arises? Is the question as to an appearance of bias prospective or retrospective?
  5. Are the specialist nature of the dispute, limited pool of available arbitrators, experience/reputation of an arbitrator, limited overlap of issues and any innocence of the non-disclosure relevant factors to take into account when determining an appearance of bias?

We can only wait to see whether the Supreme Court will address some or all of the questions above and whether it will align itself with the decision of the High Court, the Court of Appeal, or take a different stance altogether. Watch this space – a report on the Supreme Court’s decision is coming soon!