The Statue of Justice - lady justice or Iustitia / Justitia the Roman goddess of Justice

In April 2018, the Court of Appeal issued its decision in Halliburton Company v (1) Chubb Bermuda Insurance Ltd (2) [M] (3) [N] (4) [P] [2018] EWCA Civ 817, in which Halliburton applied sought M’s removal on the grounds that circumstances existed that gave rise to justifiable doubts as to M’s impartiality under section 24(1)(a) of the Arbitration Act 1996 (the “AA 1996“)

The overall factual backdrop is the Deepwater Horizon disaster. Halliburton Company (“Halliburton“) and Transocean Holdings LLC (“Transocean“) both reached separate settlements in relation to certain claims brought against them and each sought to recover sums under their liability insurance.  The insurers resisted payment on the grounds that the settlements reached were not reasonable and the insurers had not reasonably consented to the settlements.

Halliburton commenced an arbitration (seated in London) against Chubb Bermuda Insurance Ltd (“Chubb“), a Bermudan insurance company, and both parties appointed arbitrators but were unable to agree on a third arbitrator.  As a result, the English High Court appointed M, who was Chubb’s preferred candidate, following a contested hearing.  Following M’s appointment by the court, M accepted appointments as an arbitrator in two other references, each of which involved a claim by Transocean against its insurers in respect of cover for Transocean’s liabilities arising out of the incident.  In one reference, M accepted an appointment by Chubb in respect of a claim by Transocean against Chubb and in that regard he informed Chubb’s solicitors of his appointment in the Halliburton v Chubb reference and invited them to disclose this to Transocean.  In the other Transocean reference, a claim by Transocean against another insurer, the chairman of the tribunal resigned and was replaced by M at the parties’ agreement.  Halliburton was not informed of the appointment in either reference, either before M accepted the appointment or thereafter.

Halliburton subsequently discovered that M had been appointed in the two references relating to Transocean and wrote to M seeking an explanation.  M responded and explained that it had not occurred to him that he was under any obligation to disclose the Transocean references to Halliburton, although he acknowledged that it would have been “prudent” to have done so.  M explained that the two Transocean references both gave rise to a preliminary issue that did not overlap with the issues in the Halliburton reference and offered to resign from the Transocean references if the determination of the preliminary issue did not bring those references to an end.  M expressed the view that in circumstances where he had been appointed by the Court following a contested hearing, he considered that he would be in breach of his duties to the parties to resign as a result of one party’s opposition and proposed to the parties that if they could agree a mutually acceptable replacement chairman, he would resign.

Chubb was not willing to agree to M’s resignation and ultimately Halliburton sought M’s removal under section 24(1)(a) AA 1996.  Halliburton relied upon (a) M’s acceptance of the appointments in the Transocean arbitrations; (b) M’s failure to disclose those appointments to Halliburton; and (c) M’s response to the challenge to his impartiality.

First Instance Decision

Popplewell J gave an overview of English law on the removal of an arbitrator on the grounds that circumstances exist that give rise to justifiable doubts as to his or her impartiality. The test is the common law test for apparent bias.  This is an objective test: whether the hypothetical fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.

In respect of M’s acceptance of the appointments, Halliburton argued that the appointment by Chubb involved M being given a secret benefit by Chubb in the form of remuneration from the arbitration and that M would learn information in the Transocean references that was relevant to the issues in the Halliburton arbitration and available to Chubb but not to Halliburton.

As regards the alleged secret benefit, the High Court held that as arbitrators have a duty to act impartially they will not be disposed to decide the case in favour of the appointing party.  Furthermore, the appointment confers no immediate benefit on the arbitrator appointed and the party paying the fees will be determined in due course by the tribunal.  As such, a fair minded observer would not have doubts as to M’s impartiality on this basis.

As regards the fact that M would learn relevant information, Popplewell J noted that it is common in international arbitration for the same subject matter to give rise to a number of disputes between different parties, particularly in the context of insurance and reinsurance claims and in maritime disputes. He further noted that it is common in such cases for arbitrators to sit in different arbitrations arising out of the same subject matter, that the tribunal is under a duty to decide each arbitration on the material before it in that reference and that arbitrators are able to put out of their minds material that has come before them in another reference if it does not arise in the case they are deciding.  The High Court held that the fact that a tribunal has decided an issue before (such as in a different reference) is not sufficient to establish apparent bias.  As a result, the Court held that the fair minded observer would not consider M to be unable to act impartially as a result of his appointment in the Transocean references.

In respect of M’s failure to disclose the Transocean appointments, this ground was rejected for two reasons.  First, Popplewell J held that if M’s acceptance of the Transocean appointments would not itself give rise to any reasonable concerns over his independence, then he would be under no obligation to disclose those appointments.  Whilst it may be prudent to make broader disclosures, there is no obligation to do so.  Second, even if M ought to have disclosed the Transocean appointments, his failure to do so would not give rise to apparent bias against Halliburton.  M explained in correspondence that he did not disclose the appointments because he honestly believed that there was no obligation to do so, and the honesty of that explanation was not challenged.  The Court held that the IBA Guidelines did not assist Halliburton as they do not represent or override the English law of apparent bias.

Finally, the Court rejected Halliburton’s arguments in respect of M’s response to Halliburton’s complaint and found that in fact M had responded appropriately.  However, in any event, if the first and second grounds of complaint did not give rise to an appearance of bias, Popplewell J noted that “it can never be a proper ground for removal of an arbitrator that the process of unsuccessfully advancing misconceived submissions to the contrary has of itself created such a possibility“.

Court of Appeal Decision

Halliburton appealed on the grounds that (a) the judge erred in concluding that M’s acceptance of the Transocean appointments was unobjectionable; (b) the judge erred in giving no or insufficient weight to the failure to disclose the appointments; (c) the judge should have found that the appearance of bias was reinforced by M’s failure to deal appropriately with Halliburton’s concerns; and (d) the judge failed to address properly or at all Halliburton’s submissions in support of the application.

The parties agreed that the judge at first instance had directed himself correctly as to the law, although Halliburton contended that the judge had failed to give sufficient regard to the risk of unconscious bias, which the Court of Appeal recognized was a relevant risk for the fair minded and informed observer to take into account.

The Court of Appeal first considered the question as to whether an arbitrator can 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 recognized that Halliburton had a legitimate concern that such circumstances could give rise to potential unfairness as one party would have information and knowledge that was not known to the other party and may thus gain an advantage by adducing evidence and making submissions that influence the common arbitrator (without the knowledge of the other party).  The Court, however, agreed with the views expressed by Leggatt J in Guidant LLC v Swiss Re International SE [2016] EWHC 1201 in which he acknowledged that an appointment in an overlapping reference amounted to a “legitimate basis for objecting to the appointment” but found that this did not, in itself, justify an inference of apparent bias.

The Court held that “the starting point is that an arbitrator should be trusted to decide the case solely on the evidence or other material adduced in the proceedings in question“.  The Court therefore held that an arbitrator accepting appointments in multiple references concerning the same or overlapping subject matter will not, of itself, give rise to a finding of apparent bias and something more of substance is required.

The Court then considered when an arbitrator should make a disclosure of circumstances which may give rise to doubts as to his or her impartiality and concluded that disclosure should be made of circumstances which would or might lead the fair-minded and informed observer to conclude that there was a real possibility of bias.  The Court disagreed with the Commercial Court decision in finding that the question of whether the circumstances might lead to such a finding depends upon the circumstances as they were known at the time.  Therefore it is not correct to make the determination as to whether disclosure should be made on the same basis as the determination as to whether the circumstances in fact give rise to a finding of apparent bias.

The Court held that non-disclosure of facts that should have been disclosed is a factor to be taken into account in considering apparent bias and that an inappropriate response to the suggestion that there should have been a disclosure “may further colour the thinking of the observe and may fortify or even lead to an overall conclusion of apparent bias“.  Notwithstanding this, the Court concluded that non-disclosure of a fact or circumstance that should have been disclosed but does not, in fact, give rise to justifiable doubts as to the arbitrator’s impartiality “cannot, however, in and of itself justify an inference of apparent bias. Something more is required“.

In applying this analysis to the facts of the case, the Court held that M’s acceptance of the appointment was itself not sufficient to give rise to a finding of apparent bias, and that something else of substance was required in order to make good a case as to the existence of apparent bias. Taking into account the issues raised by Halliburton:

  • The mere fact of overlap between the different references does not give rise to justifiable doubts as to impartiality and in any event the degree of overlap was limited as the Transocean references were determined on the basis of a preliminary issue that did not arise in the Halliburton reference.
  • The fact that M received a financial benefit as a result of the appointment by Chubb in the Transocean reference was not significant as it would equally apply to any party-appointed arbitrator.
  • Taking into account the IBA Guidelines, the Court considered that as a matter of good practice in international arbitration, the disclosure should have been made and this, taken together with the other factors (including the degree of overlap), might have been argued to combine together to give the fair-minded and informed observer a basis for a reasonable apprehension of a lack of impartiality. As such, M ought to have disclosed the appointments in the Transocean references to Halliburton, although the appointments would not in themselves give rise to an inference of apparent bias.
  • The Court held that M dealt with Halliburton’s concerns appropriately. In particular, taking into account the circumstances of his appointment and that Chubb wished him to remain in office, it was appropriate to determine that he should remain in office until either the parties agreed or the Court ordered otherwise.

The Court therefore ultimately held that taking all the matters together the circumstances did not give rise to an inference of apparent bias.  The Court took account of the following factors: (a) the non-disclosed circumstance does not itself give rise to a finding of apparent bias; (b) disclosure ought to have been made, but non-disclosure was accidental; (c) the limited degree of overlap; and (d) that there was no substance to the complaints over M’s conduct after the non-disclosure was challenged.

As regards Halliburton’s complaints that non-disclosure was indicative of unconscious bias, the Court held that relevant experience is material to the risk of such bias and M is a well known and experienced arbitrator who would, with the benefit of Halliburton’s concerns having been raised before the determination of substantive issues in the case, now be conscious of the matters which he might otherwise have been unconscious.

Comment

There has been significant discussion and criticism of the Court of Appeal’s decision in Halliburton v Chubb. Whilst it is positive that the Court of Appeal has provided guidance on when the duty of disclosure arises that takes into account accepted practice in international arbitration, such as the IBA Guidelines, the Court held that it does not follow that a failure to disclose will necessarily lead to any consequences, such as a finding of apparent bias.

Practitioners have also approached with some surprise the Court’s conclusion that in circumstances where an arbitrator is appointed in multiple references with overlapping subject matter and only one common party, there is a presumption that the arbitrator is able to determine the matters in each reference solely on the basis of the information before the tribunal in that reference.

Finally, on the facts of this case, a significant proportion of the international arbitration community in London would consider that there is a strong case for apparent bias when the factors are taken cumulatively.  First, given the circumstances of M’s appointment in the Halliburton reference, it was foreseeable that Halliburton would have concerns over M being appointed by Chubb in a separate reference arising out of the same facts.  Second, it appears that absent the preliminary issue in the Transocean references there was some risk of overlapping issues between the Transocean and Halliburton references, albeit there was a different factual context.  Consideration of the preliminary issue was not inevitable and it was also not inevitable that it would have disposed of the issue. Accordingly, at the time of his appointment, M could not have predicted that there would be no relevant overlap between the references.  Third, it is difficult to understand M’s failure to disclose the appointment in the Transocean references, particularly in circumstances where there was a potential degree of overlap and M did disclose his appointment in the Halliburton reference to Transocean.  Fourth, M’s offer to resign if Chubb agreed can have little weight considering the circumstances of M’s appointment in the Halliburton reference.  It is highly unlikely that Chubb would ever have agreed to M’s resignation and there was no incentive on Chubb to do so.  Taken together, and taking into account the risk that M could unconsciously be influenced by submissions and evidence in the Transocean references, it is certainly arguable that these factors arguably do give rise to legitimate concerns as to M’s impartiality.

It is important to mention, however, that there are two features of this case that are relevant to the outcome and may have weighed in the balance against a finding of apparent bias, which are not taken into account in the analysis above.  First, this is a case in the insurance sector in which there are a smaller pool of specialized arbitrators and in which it is much more common for arbitrators to sit in overlapping references than it is in international arbitration more widely.  Second, at the time of the application the Transocean references had been determined under the preliminary issue and therefore the risk of overlap did not in fact arise.  That the Court should make the decision as to apparent bias retrospectively, taking into account all of the factors that have arisen, is important as this allows the Court to take into account any failure by the arbitrator to disclose the circumstances and the arbitrator’s response to questions being raised as to the failure to disclose.

We understand that Halliburton has applied to the Supreme Court for permission to appeal but at the time of writing the outcome of that application is not yet known.  Given the complex nature of the issues raised, this would provide a valuable opportunity for further guidance on this issue and it is hoped that the Supreme Court will take the opportunity to give such guidance.