Assessing arbitrator impartiality in the wake of Halliburton v. Chubb

Published in the printed materials at the 2022 ABA Insurance Coverage Litigation Committee CLE Seminar

On November 27, 2020, the day after Thanksgiving was celebrated in the United States, the United Kingdom's Supreme Court issued the long-awaited decision in Halliburton Company v. Chubb Bermuda Insurance Ltd.,¹ a decision that has been characterized as bringing clarity to an arbitrator's duty of disclosure where the arbitrator has received multiple appointments by the same party in different arbitrations involving the same subject matter.

The facts

This matter concerned an arbitrator well known in the London insurance-coverage arena, Kenneth Rokison QC. The case arose out of the Deepwater Horizon disaster in the Gulf of Mexico, which spawned (at least) three separate insurance-coverage arbitrations.

Arbitration number one was between Halliburton and Chubb. Halliburton had settled the claims against it and sought coverage from Chubb under a Bermuda Form insurance policy. Chubb denied the claim on the premise that the settlement was not reasonable, among other grounds. Mr. Rokison was appointed by the English High Court to chair that Tribunal due to the fact the parties were unable to reach agreement as to the chair. Prior to that appointment, Mr. Rokison disclosed to Halliburton and the High Court that he was presently acting as an arbitrator in two pending arbitrations involving Chubb and had served as an arbitrator in other prior arbitrations in which Chubb was a party, either as sole, chair or party-appointed. Halliburton made no objection to these disclosures.

Arbitration number two was between Transocean and Chubb. Transocean was the owner and operator of the Deepwater Horizon drilling rig. It also had settled the claims against it and Chubb also rejected its claim for coverage. Chubb appointed Mr. Rokison to that arbitration.

Arbitration number three was been Transocean and another insurer. That insurer also appointed Mr. Rokison to that panel when the arbitrator it had originally appointed withdrew due to a health issue.

In short, Mr. Rokison was appointed to three separate arbitrations which arose out of the Deepwater Horizon disaster, two of which involved Chubb, including one in which he was appointed by Chubb. The dispute before the Supreme Court arose out of the fact that Mr. Rokison did not subsequently disclose his appointments in Arbitrations numbers two and three to Halliburton in Arbitration one. His stated reason was that he already had made disclosure of other previous appointments to Halliburton and to the High Court at the time the High Court appointed him as chair in Arbitration number one. When Halliburton learned of Mr. Rokison's other two appointments, it requested that he resign his role as chair of that panel. Chubb opposed this request on the premise that it would result in delay and wasted costs. Accordingly, Halliburton asked the High Court to remove Mr. Rokison under Section 24(1)(a) of the English Arbitration Act of 1996: "that circumstances exist that give rise to justifiable doubts as to his impartiality."

The High Court dismissed Halliburton's application. It did, however, grant leave to appeal to the Court of Appeal on condition that the arbitral hearing would proceed as scheduled, and expressly not because the court believed Halliburton's position had a reasonable chance of success, but rather to seek guidance for the arbitral community. The Court of Appeal also dismissed Halliburton's application holding that, while Mr. Rokison was under a legal duty to disclose his appointments in Arbitration number two and three to Halliburton, his failure to do so did not raise justifiable doubts as to his impartiality. Halliburton then took the issue to the Supreme Court, which granted leave.

Although Halliburton's appeal arose in the context of an ad hoc insurance-coverage arbitration, the Supreme Court thought that the question before it was of wider significance and could potentially have an impact on all English-seated arbitrations. The Supreme Court, therefore, allowed submissions from other potentially implicated arbitral bodies, specifically, the LCIA, ICC, CIArb, GAFTA and LMAA.² These bodies divided into two competing views.

On the one hand, the LCIA, ICC and CIArb, basically supported Halliburton's view. They believed that the appointment of the same arbitrator in multiple arbitrations concerning the same or similar subject matter and only one party in common in each, could give rise to a concern regarding potential bias. On the other hand, the LMAA and GAFTA, arbitral organizations involving maritime and agricultural commodities trading respectively, consider repeat arbitrator appointments not only to be commonplace, but also helpful, as a means of ensuring consistency in arbitral decisions. It should be noted that in ad hoc London insurance-coverage arbitrations, particularly those involving the Bermuda form, it is not uncommon for the policyholder to name the same arbitrator for all disputes arising out of the same loss throughout the coverage tower.

The Supreme Court, like the two courts beneath it, also ruled against Halliburton. While the Supreme Court, like the Court of Appeal, held that Mr. Rokison had a duty to disclose the other two appointments to Halliburton, the Supreme Court nevertheless purported to apply an objective test to determine whether a fair-minded and informed observer, having regard to the particular characteristics of international arbitration, would conclude that there was a real possibility that the arbitrator was biased. As far as Mr. Rokison was concerned, the Supreme Court ruled that, at the time of the hearing for removal in January 2017, an objective observer would not have concluded that Mr. Rokison was biased because (i) there had been a lack of clarity at the relevant time as to whether Mr. Rokison had a duty of disclosure; (ii) the appointments in Arbitrations two and three followed the appointment in Arbitration one, which might have been why Mr. Rokison failed to come back to Halliburton with that disclosure; (iii) it was not likely that there would be an overlap in evidence or legal submission among the three arbitrations; (iv) there was no suggestion that Mr. Rokison was deriving any secret financial benefit; and (v) there was nothing to support subconscious ill will on Mr. Rokison's part towards Halliburton in light of Halliburton's efforts to remove him.³

The legal principles

An objective test should be used when issues of impartiality arise

The English Arbitration Act makes clear in Section 33 that arbitrators must "act fairly and impartially between the parties." [49]⁴ In considering whether Mr. Rokison upheld that duty, the Supreme Court had to decide whether a subjective or objective test should be used. In that regard, the Supreme Court decided, following existing case law in England, that an objective test was appropriate: "whether a fair-minded and informed observer, having regard to the particular characteristics of international arbitration, would conclude that there was a real possibility that the tribunal was biased." [52]

The Supreme Court gave some insights into what it had in mind with respect to "the particular characteristics of international arbitration." Specifically, among other things, the Supreme Court mentioned (i) the private nature of arbitrations, which theoretically could give rise to misconduct that might not occur in public proceedings; (ii) the fact that arbitrators are paid and conceivably would want to continue to get paid through future appointments; and (iii) the fact that arbitral awards are generally not subject to appeal and thereby are insulated from scrutiny by another body. [55 - 59]

Arbitrators have a legal duty of disclosure

It has long been an accepted custom and practice for arbitrator candidates to make disclosures of matters that might be considered a conflict of interest or that might be construed as creating some bias on the arbitrator's part. These matters usually include such things prior engagements as counsel for or against a party and prior appointments as an arbitrator in disputes involving a party. Sometimes an arbitrator will disclose a personal or professional relationship with somebody associated with a party.

Interestingly, notwithstanding this common practice, prior to Halliburton there actually was no clear duty of disclosure established under English law.⁵ Indeed, the English Arbitration Act of 1996 does not expressly set forth a duty of disclosure. And, no such duty was clearly established under English common law either. The Supreme Court, however, found that such a duty was implied under Section 33 of the Act, which directs arbitrators to act fairly and impartially. [75 – 76, 78, 81]. The Supreme Court explained that an arbitrator's obligation to disclose matters that could give rise to questions of impartiality was "encompassed with the statutory obligation of fairness" and also was "an essential corollary of the statutory obligation of impartiality." [78] Accordingly, while not stated expressly, the Supreme Court found that the duty of disclosure was implied within the greater statutory obligations of fairness and impartiality, which Lord Hodge summarized as follows:

An arbitrator, like a judge, must always be alive to the possibility of apparent bias and of actual but unconscious bias. …One way in which an arbitrator can avoid the appearance of bias is by disclosing matters which could arguably be said to give rise to a real possibility of bias. Such disclosure allows the parties to consider the disclosed circumstances, obtain necessary advice and decide whether there is a problem with the involvement of the arbitrator in the reference and, if so, whether to object or otherwise act to mitigate or remove the problem…. [70]

Stated differently, in order for an arbitrator to act fairly and impartially, an arbitrator must disclose matters which could be deemed to affect the arbitrator's ability to do either. The theory is, according to Lord Hodge, that once an arbitrator does so, the arbitrator has, in essence, put the matter in the hands of the parties and the chips can then fall where they may.

The times for assessing whether there is a duty of disclosure and whether there is possible bias may be different

While the duty of disclosure was deemed the underpinning of ensuring an arbitrator's impartiality, the duty of impartiality continues throughout the arbitration, such that the question of whether an arbitrator might be biased does not necessarily rise and fall based solely on whatever disclosure might have been made at the outset of an arbitration. Indeed, the Supreme Court made a distinction between assessing whether the arbitrator had a duty of disclosure and the time for assessing the question of whether the arbitrator could potentially be biased.

The distinction is as follows:

1. the assessment of an arbitrator's duty of disclosure must be made by reference to the fact and circumstances at the time the duty arose and during the time the duty subsists [119 – 120]; but
2. the assessment of whether there are legitimate doubts as to an arbitrator's impartiality must be made by reference to the facts and circumstances known at the time of the hearing to remove the arbitrator from the panel. [50, 121]

The Supreme Court's analysis of the first assessment point above involved its consideration of the submissions of the various arbitration organizations. Again, the Supreme Court noted that it was common practice in the world of GAFTA and the LMAA for arbitrators to be appointed to multiple arbitrations involving the same or overlapping subject matters and parties as a means of achieving consistency in decisions. In those contexts, disclosure of multiple related appointments may not be required because the practice is known to any party engaged in such arbitrations. [128 – 129, 137]

In contrast, this practice is rare with respect to the other arbitral organizations. Given that Bermuda Form arbitrations are ad hoc, and do not fall under the auspices of either GAFTA or the LMAA, the Supreme Court determined that arbitrators are required to disclose other related appointments, both at the time of appointment as well as during the pendency of the arbitration, if other related appointments are made. [137]

Halliburton was an ad hoc Bermuda Form arbitration so, as far as Mr. Rokison was concerned, the Supreme Court found that he had a legal duty to disclose to Halliburton his subsequent appointments, even though he already had made disclosures regarding prior appointments by Chubb at the time he was appointed chair of the Halliburton panel. Because Mr. Rokison had not done so, the Supreme Court found that he had breached his duty of disclosure. [138 – 145]

Due to the Supreme Court's second assessment point above, the inquiry did not end there – the facts and circumstances known at the time of the hearing to remove Mr. Rokison in January 2017 also had to be considered. In that regard, the Supreme Court reviewed the state of affairs as of the time of the hearing and, applying the objective test of a "fair-minded and informed observer," considered the following:

• The extent to which there was a legal duty of disclosure under English law was not clear at the time of the hearing.
• Both of the Transocean arbitrations had commenced after the Halliburton arbitration had started.
• Both of the Transocean arbitrations were expected to be resolved on preliminary issues, which meant it was not likely that they would overlap with the Halliburton arbitration in terms of submissions or evidence.
• Mr. Rokison did not receive any "secret" financial benefit from his subsequent appointments; and
• There was otherwise no basis to assume that Mr. Rokison had any unconscious ill will.

Although the Supreme Court concluded that Mr. Rokison had breached his duty of disclosure by failing to disclose his subsequent appointments at the time of those appointments, it nevertheless concluded that that breach did not give rise to a real possibility of bias based on the other facts and circumstances known at the time of the hearing to remove him. [149 – 150]

The duty of confidentiality may give way to the duty of disclosure

Arbitrations are generally meant to be private and confidential. Some may even consider the fact of the arbitration's existence to be confidential, although that may be a somewhat extreme view. [88, 92] The Supreme Court, nevertheless, took an arbitrator's duty of confidentiality into consideration in defining the extent of an arbitrator's duty of disclosure.

The Supreme Court explained that, as far as English-seated arbitrations are concerned, there are two general rules regarding the duty of confidentiality. First, the duty of confidentiality does not prohibit all forms of disclosure with respect to the existence of a related arbitration. Second, at the same time, the duty of disclosure does not give an arbitrator carte blanche to disclose whatever is necessary to persuade a party that there should be no doubts about the arbitrator's impartiality. [101] In other words, some limited disclosure is allowed.

In particular, as far as ad hoc Bermuda Form arbitrations are concerned, the Supreme Court decided that an arbitrator may disclose his or her participation in a related arbitration and the identity of the common party, without obtaining the express consent of the relevant parties. The Supreme Court based this conclusion on the assumption that the common party consents to that disclosure by virtue of having appointed the arbitrator to more than one arbitration. And, the consent of the other party is not required for such a limited disclosure. [104]

Notwithstanding these general rules, if an arbitrator cannot make the necessary level of disclosure regarding an earlier appointment without breaching the duty of confidentiality, the arbitrator will have to decline the second appointment. [88] Needless to say, this would undoubtedly be a very fact-specific analysis and will turn on the amount of detail that the arbitrator would need to disclose.

The takeaways

1. An objective test – the perspective a "fair-minded and informed" observer – should be applied to determining whether an arbitrator is potentially biased.
2. While the test is the same for any arbitration – the perspective a "fair-minded and informed" observer – the arbitral custom and practice of the relevant field of arbitration must be considered. Specifically, applying that test in an arbitration under the auspices of GAFTA or the LMAA, where multiple appointments in related matters is commonplace, should yield a different result that an arbitration in other contexts, such as under the ICC, LCIA or CIArb, or in the context of ad hoc Bermuda Form arbitrations.
3. Arbitrators in English-seated arbitrations have a legal duty to disclose matters that could give rise to questions regarding the arbitrator's impartiality.
4. The assessment of whether an arbitrator breached his or her duty of disclosure must be made based on facts and circumstances known at the time the duty arose and during the time the duty subsisted. [119 – 120; 156] In addition, the duty of disclosure is a continuing duty and circumstances may change before there is disclosure. [120]
5. The assessment of whether there is a real possibility that an arbitrator is biased must be made based on facts and circumstances known at the time of the hearing to remove the arbitrator.
6. Even though an arbitrator also has a duty to maintain the confidentiality of arbitrations, it should be assumed (absent a contract restricting or prohibiting disclosure or binding rules which have different effect) that parties to such arbitrations accept the notion that an arbitrator may disclose limited information about the arbitration without obtaining the express consent of the parties to the relevant arbitration if the arbitrator is asked to accept another appointment in a related arbitration, particularly if the relation between the arbitrations is a common party.

Needless to say, while the Supreme Court sought to reaffirm the duties of arbitrator fairness and impartiality, the decision in Halliburton has given rise to substantial debate and analysis. Opinions as to whether the Supreme Court got it right seem to vary depending on the point of view of parties that are "repeat customers" of the London arbitral circuit versus those that pass through just once, or rarely. Regardless, English law is now clear that an arbitrator is allowed to accept multiple appointments by the same party, even in the context of the same subject matter, as long as proper disclosure is made and a "fair-minded and informed" observer has no concerns.