Who Observes the Fair-Minded Observer? A Note on Halliburton v Chubb

Published: 4/12/2020

On 27 November 2020 the Supreme Court handed down its long awaited judgment in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, unanimously dismissing Halliburton’s appeal whilst raising issues of critical importance in international arbitration: the arbitrators’ duties of impartiality, disclosure and confidentiality.

The judgment is available here.

The facts of this long running saga, summarised briefly below, are well known. The Supreme Court found that at the relevant time of assessment (itself controversial), a fair minded and informed observer would not have considered that the circumstances of the case gave rise to reasonable doubts as to the impartiality of the chairman of the tribunal hearing the parties’ dispute arising out of the Deepwater Horizon incident in 2010. This was a very specific and fact based conclusion following a thorough, more general, analysis of the relative weight to be afforded to the arbitrators’ core duties.

It remains to be seen what verdict the international arbitration community reaches on the decision, but for one so long anticipated, there is already a clear sense of anti-climax in the result. Many were hopeful that at this critical juncture, as England splinters from Europe, an opportunity would be taken by the Supreme Court to go further in upholding the paramount importance to the international community of the perceived independence of arbitrators (and not only the independence per se), and the centrality of individual arbitrators’ duty of disclosure to that principle. Doing so would arguably have involved the application of a more principled approach to the recognition of the duty of disclosure as a major tenet of international arbitration common to different cultures around the globe, with the circumstances of this particular case as an exception, rather than, as here, using the circumstances of the case as a foundation for English law’s composition of the principle.

Fundamentally, notwithstanding an explicit statement of the duty to disclose under English law and clarity as to how it interacts with the duty of confidentiality, the decision has left parties without the tools to remove arbitrators when they have justifiable doubts about his or her apparent bias. This appears to be an arbitrator-centred decision that fails to afford appropriate respect to the parties as the true owners of the proceedings.   

How we got here

The Deepwater Horizon was an offshore oil and gas rig which was leased by BP and operated by Transocean at BP’s Macondo Prospect in the Gulf of Mexico. Certain offshore services were provided by Halliburton. Tragically, on 20 April 2010, a major blow out occurred on the rig, leading to loss of life, significant environmental damage and ultimately, the loss of the rig. Following proceedings in the US brought by the US Government, a judgment in September 2014 apportioned liability between each of the three defendants: Halliburton, Transocean and BP. Halliburton settled part of its liability, but became embroiled in arbitration proceedings when its insurer, Chubb, rejected claims brought by Halliburton under its insurance policy. The claim was brought as a Bermuda Form arbitration, with the various policy claims governed by New York Law, but London providing the seat.

In the absence of agreement as to the choice of the presiding arbitrator, the English High Court appointed Kenneth Rokison QC who had been proposed by Chubb but rejected by Halliburton on the basis that he was an English lawyer. Prior to his appointment, Mr Rokison disclosed he had previously been appointed by Chubb in previous arbitrations and was currently acting as arbitrator in two references involving Chubb. Following accepting his appointment, Mr Rokison also accepted appointments in two additional arbitrations relating to the Macondo incident, one by Chubb and one by Transocean. He did not disclose either of these two appointments to Halliburton, which became aware of them later and asked Mr Rokison to resign. He advised the parties that he would not do so, on the basis that he had been appointed to his role by the English Court, that the issues involved across the arbitrations were not similar and that he would continue to be independent and impartial throughout.

Halliburton applied to the English Court under section 24 of the Arbitration Act 1996 (Act) for Mr Rokison’s removal on the basis of apparent unconscious bias, including that Mr Rokison “did not pay proper regard to Halliburton’s interest in the fairness of the procedure.”  Its challenge throughout its passage through the English Court system has been unsuccessful.

Issues before the Supreme Court

The Supreme Court was asked to decide two main issues:

  • Whether and to what extent an arbitrator is entitled to accept appointments in multiple arbitrations relating to the same or overlapping matters where there is only one common party, without this giving the appearance of bias; and
     
  • Whether and to what extent the arbitrator could accept multiple appointments without providing disclosure.
"The duty of disclosure itself has no teeth if in reality, the arbitrator’s subjective views are not challenged"
The decision

Under section 24(1)(a) of the Act, an arbitrator may be removed where ”...circumstances exist that give rise to  justifiable doubts” as to the arbitrator’s impartiality. It is reassuringly clear from the judgment that English law regards impartiality as a core duty of an arbitrator and this might be one of the most important legacies of this decision, especially in light of the concomitant sacrosanct duty of confidentiality.

In giving the leading judgment, Lord Hodge made clear that the task of the Court in cases of apparent bias was not to ”make windows into men’s souls” in search of bias against a party, but to examine ”how things appear objectively” [¶52]. This is different to the test adopted by many institutional rules, which favour a subjective test ”in the eyes of the parties” (although it is of course important to note that this was a Bermuda form arbitration, not one subject to the institutional rules and (certainly as regards the ICC and LCIA) their more party centric approach).

Lord Hodge affirmed the position taken by the Court of Appeal that an arbitrator is under a legal duty to make disclosure of such matters which would otherwise cause the arbitrator to be in breach of their statutory obligation of fairness. A failure to make such disclosure is a factor of consideration for the objective observer to take into account. Who, however, is the “objective observer”?

The Court found that Mr Rokison’s appointment in the second and third Macondo arbitrations should have been disclosed to Halliburton and that his failure to do so amounted to a breach of legal duty that could have led a fair minded and informed observer to conclude that there was a real possibility of bias [¶147]. Little, however, turned on this as the Court ruled that because section 24(1)(a) used the present tense ”exist”, the relevant time for assessing possible bias was not when Mr Rokison was appointed in the second reference but the time of the hearing of the application for his removal.  The result of this was that, in the period between the time disclosure should have been made and the hearing, Halliburton had become aware of the second and third appointments and Mr Rokison had had the opportunity to give what was accepted as a truthful account of his oversight and belief that there was no material overlap between the proceedings. In all of those circumstances, the Court concluded that a fair minded and informed observer as at the date of the removal hearing, would not have inferred there was any real possibility of bias on the part of Mr Rokinson.

As far as confidentiality is concerned, the Court clarified that the legal duty of disclosure cited does not override the arbitrator’s duty of confidentiality under English law. Whilst an arbitrator presiding over multiple related arbitrations must disclose the existence of the overlapping arbitration and the identity of the common party without even needing the consent of the common party appointing him (which is implied, ¶104), further disclosure can be made only if the parties to whom the obligations are owed consent.

Comment

The decision undoubtedly maintains a consistent line in the English Court’s position on arbitrator challenges, namely that such challenges rarely succeed and, absent exceptional circumstances, the English court will not intervene. Its desire to give this impression may have been particularly acute in light of Brexit. In doing so it will no doubt continue to deter those who may seek to raise arbitrator challenges for opportunistic or tactical reasons.  It also provides clarity as to the English legal position on apparent bias in international arbitration and an arbitrator’s legal duty of disclosure, as well as the interaction between the duty to disclose involvement in multiple proceedings and duties of confidentiality to the parties concerned. However, there must be a risk that many in the international community will be expressing the view “not (necessarily) in a good way.” 

Both the objective test and the Court’s assessment as to the time at which the possibility of bias is to be assessed, create a risk that has the potential for concern. The duty of disclosure itself has no teeth if in reality, the arbitrator’s subjective views are not challenged. Too much control is afforded to arbitrators to assess his/her conflicts whilst they are also proffered something of a “get out” clause where the timing of the assessment of bias is ultimately retrospective. In short, the duty outlined by the Supreme Court is all well and good but, in reality, is devoid of impact. Once the duty to disclose has been breached, the presumption must be that there is apparent bias, which the arbitrator must then refute.  This is not however the outcome of the Supreme Court judgment.

The Supreme Court is evidently focused on the arbitrator as being not only the gravitas of the proceedings but also arguably the main “fair-minded and informed observer” capable of evaluating its bias, when it is in fact the parties who are the best placed to show their discomfort at any issues that could cause even an appearance of bias. In this sense, it is not enough to require disclosure in cases where the arbitrator “might not be sure whether the truth, if disclosed, would give rise to justifiable doubts” (¶110). The arbitrator should be compelled to consider if the parties in the specific case might have justifiable doubts. As stated by one commentator, in these cases, the arbitrator shall “stretch” his mind to disclose facts that he might himself consider as calling into question his independence, but which might do so in the eyes of the parties[1].

If we follow this reasoning and refocus on the parties as the main beneficiaries of the duty of disclosure, the very discussion about the timing can be reassessed. Even if at the time of the hearing for removal the circumstances of the case show that there could be no more risk of bias, this approach overlooks how that arbitral tribunal generated justified discomfort for the parties from when facts were revealed until the said hearing. The imperative need for trust between parties and arbitrators during the arbitration, regardless of the specific circumstances of the case, should have prevailed since day one over any possible doubts of bias – and even if the doubt was finally assuaged.

Whilst the rhetoric used by the Supreme Court is consistent with its pro-arbitration stance, in failing to provide any credible mechanism for the arbitrator to be challenged, there is a risk that longer term its unwillingness to provide the substance behind the duty could be a factor contributing to parties choosing to arbitrate in a jurisdiction that may be perceived to be more respectful of the multi-cultural nature of its users and more concerned to apply the highest possible standards to its arbitrators. London must be seen not only to be setting the scope of the obligations it expects of arbitrators, but applying them. Here it may be falling short.

 

[1] Stephen R. Bond, “The Selection of ICC Arbitrators and the Requirement of Independence”. Arbitration International Kluwer Law International, 1988, v. 4, p. 303-304.

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