A version of this post was originally published on Practical Law Arbitration blog and is reproduced with the permission of Thomson Reuters.

The judgment raises legal questions which are of general importance in arbitration. In particular, it addresses the circumstances in which an arbitrator may appear to be biased and, the related issue of when an arbitrator must disclose circumstances which may give rise to justifiable doubts about his or her impartiality.

Lord Hodge delivered the leading judgment (with whom Lord Reed, Lady Black and Lord Lloyd-Jones agreed). Lady Arden agreed with the outcome but some of her reasoning differed. In reaching its decision, the UK Supreme Court received interventions from a number of interested parties, including the ICC, LCIA, Chartered Institute of Arbitrators, LMAA and GAFTA.

Background to the appeal

The dispute arose out of insurance claims regarding the explosion of an oil rig in the Gulf of Mexico. This incident led to legal claims against the parties involved, including against Halliburton, which had provided services in relation to the oil rig.

Halliburton was insured by Chubb under a Bermuda Form liability insurance policy. Halliburton settled its legal claims arising from the incident and then sought to recover these payments from Chubb under the insurance policy. Chubb refused to pay out on grounds that the settlements reached were not reasonable, so Halliburton commenced arbitration proceedings against Chubb.

Under the terms of the arbitration clause, which provided for London-seated arbitration, Halliburton and Chubb each appointed one arbitrator but, as they could not agree on the third arbitrator (to act as chairman), he was appointed by the High Court.

Subsequently, and without Halliburton’s knowledge, the appointed arbitrator, ”Mr R”, then accepted appointments in two further arbitral references arising out of the same incident; in one, he was appointed by the rig owner (who was also insured with Chubb under a Bermuda Form insurance policy) to hear its claim against Chubb; in the other, he was joint nominee of the parties in a claim by the rig owner against another insurer. Notably, Mr R did not disclose his later appointments to Halliburton.

When Halliburton learned of Mr R’s appointment in the subsequent arbitrations, it applied to the High Court under section 24(1)(a) of the Arbitration Act 1996 Act (the “1996 Act”) to have Mr R removed as arbitrator for lack of impartiality/apparent bias on the ground “that circumstances exist that give rise to justifiable doubts as to his impartiality”.

The High Court and the Court of Appeal refused Halliburton’s application and Halliburton appealed to the Supreme Court.

The principal issues raised in the appeal were:

1. Whether and to what extent an arbitrator’s acceptance of appointments in multiple references concerning the same or overlapping subject matter (in this case, liability insurance claims arising out of the oil rig incident) with only one common party (in this case, Chubb), could give rise to the appearance of bias?
2. Whether and to what extent an arbitrator can accept such appointments without disclosing them

Applicable legal principles

In deciding the principal issues, Lord Hodge first considered an arbitrator’s core duties of impartiality and of disclosure, and how far an arbitrator’s obligation to respect privacy and confidentiality constrains this ability to make disclosure. He also considered the relevant time by reference to which the court must assess the questions of the need for disclosure and the possibility of apparent bias.

The duty of impartiality

The duty of impartiality is a “cardinal duty” of an arbitrator and is enshrined within section 33 of the 1996 Act which sets out an arbitrator’s general duty to “act fairly and impartially as between the parties” [49 and 63].

The test for whether an arbitrator has shown impartiality or apparent bias under section 24(1)(a) of the 1996 Act (ie. “that circumstances exist that give rise to justifiable doubts as to his impartiality”) is the same as that at common law, and is an objective test. This requires considering “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased” (Porter v Magill [2001] UKHL 67) [52 to 55, 69].

However, in the arbitration context, this test must be applied taking into account the differences between judicial and arbitral determination of disputes [55]. The following characteristics are relevant (among others): the private and consensual nature of arbitration; the limited nature of appeals; the divergent views of arbitrators arising out of their differing expertise, jurisdictions and legal traditions; the differing perceptions of the role of a party-appointed arbitrator in the arbitration field; and, due to the mainly private nature of arbitration, a party’s inability to inform itself (by attending other proceedings) of a common arbitrator’s response to evidence and submissions in arbitrations to which it is not a party [56 to 68].

The duty of disclosure

An arbitrator in London-seated arbitrations has a legal duty of disclosure (the Supreme Court approved the Court of Appeal’s development of English law in this respect). This is because an arbitrator’s disclosure duty is a component of its statutory duties under section 33 of the 1996 Act to act fairly and impartially in conducting arbitral proceedings. These duties also give rise to an implied term in the arbitrator’s contract with the parties that he will act fairly and impartially [75 to 76, 78 and 81].

Regarding the content of this disclosure duty, an arbitrator is obliged to disclose facts or circumstances known to him or her which would or might reasonably cause the objective observer (having considered the facts) to conclude that there was a real possibility that the arbitrator was biased [74 and 107].

Relationship between duties of disclosure and confidentiality

The legal duty of disclosure does not override an arbitrator’s duties of privacy and confidentiality, and where the information is subject to these duties, disclosure requires express consent [88]. However, consent can also be inferred from the customs and practices in the relevant field of arbitration. For example, arbitrations under certain institutional rules (for example, the LCIA, ICC, and ICSID Arbitration Rules) require disclosure to the institution or the parties of matters which may include information about other arbitrations so, the arbitrating parties, in incorporating these rules, thereby implicitly consent to disclosing information about their arbitration to the parties to a prospective arbitration under such rules [88 to 91]. By contrast, the practice as to privacy, confidentiality and disclosure may differ in ad hoc arbitrations in which parties may maintain the confidentiality of the existence of the arbitration itself by prohibiting any disclosure (in which case, the parties’ express consent for an arbitrator to disclose its appointments is required) [92].

Relevant time for assessing (i) the need for disclosure and (ii) the possibility of bias

In assessing whether an arbitrator has failed in his or her duty of disclosure, it is necessary to consider the facts and circumstances as at the time the duty arose, that is, at the time the arbitrator accepted an appointment in a potentially overlapping arbitration (and during the period in which the duty subsists) [119 to 120].

By contrast, in assessing whether there is a real possibility that an arbitrator is biased, the Court must have regard to the facts and circumstances known at the date of the court hearing of the application to remove the arbitrator under section 24(1)(a) of the 1996 Act. [50, 121].

Answer to issue 1 above: arbitrator’s overlapping references

There may be circumstances in which an arbitrator’s acceptance of appointments in multiple arbitral references involving a common party and the same or overlapping subject matter would, without more, give rise to an appearance of bias [131].

Whether such an appointment does so in fact, will depend on the facts of the case, the terms of the arbitration clause, and the customs and practices in the relevant field of arbitration. This is because in different subject matter fields of arbitration, parties have different expectations as to the degree of an arbitrator’s independence and differing views as to the benefits to be gained by having an arbitrator who is involved in multiple related arbitrations [127 to 131]. For example, in ICC arbitrations, interrelated arbitrations are uncommon, meaning that any such instances may more readily give rise to an appearance of bias, whereas in GAFTA and LMAA arbitrations, multiple appointments are common [128].

Answer to issue 2 above: arbitrator’s obligation to disclose overlapping references

The starting point is that, unless the parties to the arbitration agree otherwise, arbitrators have a legal duty to disclose facts and circumstances which would or might reasonably give rise to the appearance of bias [136].

The fact that an arbitrator has accepted appointments in multiple arbitral references concerning the same or overlapping subject matter with only one common party is a matter which may have to be disclosed [136]. This is because a common party to two overlapping arbitrations may obtain an advantage over its opponent in the arbitration which is heard later by having access to information about the common arbitrator’s responses to evidence or arguments advanced in the arbitration which is heard first [142]. An arbitrator’s failure to disclose its appointment in multiple overlapping references to the party who is not common to the arbitral references deprives that party of the opportunity to address and potentially resolve the undisclosed matters [118].

However, whether an arbitrator needs to make disclosure will depend on the customs and practices in the relevant field of arbitration [136]. For example, while in GAFTA and LMAA arbitrations, there is an established practice of arbitrators taking on multiple appointments without need for disclosure, this custom or practice does not exist in Bermuda Form arbitrations; multiple appointments must therefore be disclosed in the context of Bermuda Form arbitrations [137].

Lord Hodge held that “in cases where disclosure is called for, the acceptance of those appointments and the failure by the arbitrator to disclose the appointments, taken in combination might well give rise to the appearance of bias” [136].

Application to the facts

If Halliburton had been aware of Mr R’s appointment in the second arbitral reference, it might have had concerns about the fairness of its arbitration due to the inequality of knowledge and opportunities to communicate with Mr R [41 and 143].

Therefore, at the time of Mr R’s appointment to the second arbitral reference, “the existence of potentially overlapping arbitrations with only one common party was a circumstance which might reasonably give rise to the real possibility of bias” [145]. Accordingly, Mr R was under a legal duty at that time to disclose to Halliburton his appointment in the subsequent arbitration involving Chubb, as well as the fact that it arose out of the same incident and was a party-appointment [146]. In failing to make that disclosure, Mr R had breached his legal duty of disclosure [147].

However, no apparent bias was found on Mr R’s part. At the time the High Court heard Halliburton’s application to remove Mr R, it could not be said on the facts that the “fair-minded and informed observer” would infer from R’s failure to disclose that there was a real possibility of bias. This was because:

• Mr R’s failure to disclose was an oversight at a time when it was not clear whether English law imposed a legal duty of disclosure;
• The subsequent arbitrations had commenced several months after the Halliburton arbitration which would normally be expected to be heard first;
• Mr R explained that the subsequent references were likely to be determined by a preliminary legal issue so that Chubb would not benefit from being a common party to these related arbitrations and, if they were not so resolved, Mr R had offered to resign from these arbitrations anyway;
• Mr R had not received any secret financial benefit; and
• There was no basis for inferring from Mr R’s actions, that he bore any unconscious ill will as a result of Halliburton’s challenge [149 to 150].

Observations

The Supreme Court’s judgment clarifies the test for arbitrator impartiality or apparent bias in London-seated arbitrations. While the test is an objective one, to be applied from the perspective of the “fair-minded and informed” observer, in assessing allegations of an arbitrator’s apparent bias, the English courts must now take into account the particular characteristics of arbitral dispute resolution (considered above).

It is also now clear that, in some cases, the acceptance by arbitrators of multiple appointments in multiple references with overlapping subject matter and one common party might give rise to a real possibility of apparent bias. Whether it does so will be fact-specific and depend on the arbitration clause in question and the customs and practices in the relevant field of arbitration.

The judgment also reaffirms the Court of Appeal’s finding that, in London-seated arbitrations, an arbitrator has a legal duty to disclose matters which would or might reasonably give rise to justifiable doubts as to his or her impartiality. The elevation of disclosure to a legal duty is likely to promote greater transparency and is consistent with best practice (for example, under the IBA Guidelines). It is also likely to promote arbitrator fairness and impartiality since an arbitrator’s non-disclosure will now carry more weight as a factor the English courts must consider when assessing whether there are justifiable doubts as to an arbitrator’s impartiality, justifying his or her removal (under section 24(1)(a) of the 1996 Act).

There may also be circumstances in which the combination of an arbitrator accepting multiple overlapping references and failing to disclose these will give rise to apparent bias. The question of whether an arbitrator must disclose these overlapping appointments to avoid apparent bias will depend on the distinctive customs and practices of the arbitration in question.

The judgment also clarifies the way in which an arbitrator is to reconcile the competing tensions of party confidentiality and the duty to disclose overlapping appointments (where required). Whether an arbitrator requires the parties’ express consent to make disclosures or whether this can be inferred, will depend on the customs and practices in the specific field of arbitration; there is no “one size fits all” approach.

The fact that the Supreme Court has permitted these variations upholds party autonomy in arbitration and reflects differing practices in the field of arbitration. However, as foreshadowed by Lord Hodge, we may now see arbitral institutions including express clarifications on the duty of disclosure in their arbitral rules and guidance. Lord Hodge suggested that, “rather than having disputes about the existence or absence of such a duty [of disclosure] by proof of a general custom and practice in a particular field of arbitration, there may be merit in putting the matter beyond doubt by express statement in the rules or guidance of the relevant institutions”. [135]

In addition, where arbitrators are appointed in ad hoc arbitrations, we may expect to see that their terms of engagement will now include a waiver of confidentiality to enable them to disclose their appointment in subsequent arbitrations, to the extent necessary to comply with the legal duty of disclosure.

It remains to be seen whether raising the duty of disclosure to a legal obligation will increase the number of challenges to arbitral appointments and awards, and potentially give rise to personal claims against arbitrators. Lord Hodge rejected this suggestion. Among other reasons, he considered that challenges concerning non-disclosure under the IBA Guidelines have rarely succeeded; in jurisdictions in which there is a legal duty of disclosure, there is little evidence of personal claims against arbitrators; further, as the duty of disclosure is a component of the section 33 duties of fairness and impartiality which do not support claims in damages, it is likewise questionable whether there is a legal basis under English law for damages claims relating to non-disclosure (absent bad faith); and he considered that section 29 of the 1996 Act would protect arbitrators against personal claims for non-disclosure in most circumstances (absent bad faith) [106]. We may, however, now see some institutions adapting their rules to give arbitrators wider immunity against personal claims.

Finally, the judgment is a positive endorsement of London-seated arbitrations. The Supreme Court recognised that English law must reaffirm the duties of arbitrator fairness and impartiality to maintain the reputation of London as an arbitral seat. Lord Hodge stated that a legal duty of disclosure in English law “underpins the integrity of English-seated arbitrations” [81]. He also considered that, notwithstanding the differing perspectives on party-appointed arbitrators’ roles in the wider field of arbitration, “a party appointed arbitrator in English law is expected to come up to precisely the same high standards of fairness and impartiality as the person chairing the tribunal” [62 to 63]. As stated by Popplewell J. at first instance, this entails being “entirely independent of their appointing party and bound to conduct and decide the case fairly and impartially” [63].

Authored by Nathan Searle and Katie Duval.