Arbitrator bias and the duty of disclosure: Supreme Court adopts a pragmatic approach
When parties agree in a contract that any disputes arising from that contract will be referred to arbitration, they hope that any tribunal that will be appointed will be free of bias and approach the matter fairly. One of the long running debates, particularly in specialist fields where there has traditionally been a limited pool of arbitrators, is to what extent arbitrators need to disclose previous relationships with the parties to an arbitration or their lawyers.
In this recent Supreme Court judgment, the court examined the requirements that an arbitrator has to disclose related and/or linked appointments.
For those now participating in London-seated arbitrations (of any format) going forward, the judgment will likely lead to increased disclosure by arbitrators and greater transparency of their relationships with the parties and their lawyers. This is a (largely) welcome development and continues to build on the existing strength of London-seated arbitration.
The case concerned an arbitration under a Bermuda Form liability policy which arose out of the damage caused by the explosion and fire on the Deepwater Horizon drilling rig in the Gulf of Mexico in 2010.
The appellants (“Halliburton”) entered into a Bermuda Form liability policy (“Policy”) with ACE Bermuda Insurance Ltd, which is now called Chubb Bermuda Insurance Ltd (“Chubb”), in 1992 and the Policy was renewed annually. Following extensive litigation in the United States, Halliburton settled various claims, paying approximately USD 1.1 billion.
Halliburton claimed against Chubb under the Policy but Chubb refused to pay Halliburton’s claim. Halliburton invoked the Policy arbitration clause and each party nominated an arbitrator. The nominated arbitrators were unable to agree on the third arbitrator as chairman so in accordance with the arbitration clause the court appointed Mr Rokison QC (proposed by Chubb), as third arbitrator (hereinafter the “First Reference”).
Following Mr Rokison’s appointment in the First Reference, he went on to accept a further two appointments (“Further References”) closely connected (involving Chubb and on similar issues) with the First Reference. Halliburton discovered these appointments in November 2016, and, during the course of correspondence with Halliburton’s lawyers, Mr Rokison (while reiterating his impartiality) pragmatically offered to resign if both parties could agree upon a replacement chairman, but in the absence of such an agreement he would continue as appointed so as to avoid breaching his other statutory duties (as arbitrator) to the parties. The parties could not agree to a replacement chairman and in December 2016 Halliburton sought an order from the High Court under the 1996 Arbitration Act (“1996 Act”) that Mr Rokison be removed as an arbitrator.
The Earlier Decisions
That application was dismissed and Halliburton appealed to the Court of Appeal.
The Court of Appeal decided that while the existence of appointments in such related arbitrations could cause the party which was not involved in the related arbitrations to be concerned, the appointment of a common arbitrator did not on its own justify the inference of apparent bias; something more of substance was required.
The second issue which the Court of Appeal addressed was to identify the circumstances in which an arbitrator should make disclosure of matters which may give rise to justifiable doubts as to his or her impartiality.
The Court of Appeal held that Mr Rokison ought (as a matter of law) to have made a disclosure to Halliburton at the time of his appointments in the Further References. Nonetheless, the court agreed that the fair-minded and informed observer, having considered the facts, would not conclude that there was a real possibility that Mr Rokison was biased. Halliburton appealed the decision to the Supreme Court.
The issues before the Supreme Court
The principal issues raised in the appeal were:
- 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
- whether and to what extent the arbitrator may do so without disclosure.
The Supreme Court Decision
The Supreme Court unanimously dismissed Halliburton’s appeal and held that:
- in relation to the first issue, if an arbitrator accepts appointments in several references concerning the similar or overlapping subject matter with only one common party, this may give rise to an appearance of bias;
- as to the second issue, unless the parties to the arbitration otherwise agree, arbitrators do have a legal duty to make disclosure of facts and circumstances which would, or might reasonably, give rise to the appearance of bias, though such a duty of disclosure is dependent upon the customs and practice in the relevant field;
- as a matter of English law (and recognising the differences in arbitration formats), and in the absence of an agreement to the contrary between the parties, multiple (related) appointments should be disclosed; and
- therefore, a fair-minded and informed observer (the relevant objective test) would not have inferred that there was a real possibility of unconscious bias on Mr Rokison’s failure to disclose the further appointments as:
(a) the position on arbitrator disclosure under English law was not clear at the relevant times;
(b) the time sequences of the three references may have explained why Mr Rokison disclosed the First Reference in the Further References but not the other way around; and
(c) that the Further References would have likely been resolved by a preliminary issue hearing such that there would not be any overlap in evidence or legal submissions with the First Reference.
The decision of the Supreme Court seeks to balance the need to set an appropriate threshold of disclosure to protect against arbitrator bias (or the appearance of bias), without encouraging unnecessary intervention in arbitral processes, and, while clarifying the legal position, questions remain amount how the law will be applied in practice going forward.
In particular, it remains to be seen how the clarification of the law will be addressed in the context of repeat appointment forums such as the London Maritime Arbitrator’s Association (for maritime disputes) and The Grain and Feed Trade Association (for commodity disputes), which often draw upon a relatively small pool of arbitrators and where it is not uncommon for the same arbitrators to be repeatedly appointed by the same company or group of companies.
We suggest that all parties to future arbitrations consider their approaches to requesting arbitrator disclosure prior to appointment, to avoid issues such as here. We hope, following this decision, that all arbitration formats and arbitrators will take active steps to both: (i) record appointments; and (ii) use that data to make appropriate disclosures.
Ultimately, and despite some continuing concerns about the manner in which arbitrator disclosure should be sought and provided, this judgment should further strengthen international confidence in London-seated arbitrations by:
- restating the core principles of arbitrator impartiality;
- recognising the importance of confidentiality in arbitration proceedings, but also how this can be balanced with arbitrator disclosure obligations; and
- reiterating that parties should have confidence in the ability to seek appropriate High Court intervention in appropriate circumstances.