Recent Key UK decisions

Introduction

The English courts have recently brought welcome clarity to several aspects of English arbitration law. We set out below a few key cases addressing arbitration issues decided by English courts in the past year. (Please also see the UK Supreme Court’s seminal decision in Enka v Chubb (covered in issue 15 of the International Arbitration Report)

Arbitrator conflicts and apparent bias

The UK Supreme Court delivered its long awaited judgment in Halliburton Company (Halliburton) v Chubb Bermuda Insurance Ltd (Chubb) [2020] UKSC 48 on arbitrator conflicts and apparent bias. The judgment clarifies two important English law questions:

(a) Does an arbitrator have a duty to disclose information to parties in circumstances where there have been multiple appointments in related arbitrations?
(b) What test should be applied to issues of apparent bias once that information has been disclosed or, as in Halliburton v Chubb, where that information has not been disclosed?

The dispute arose following the explosion of the BP-operated offshore oil drilling rig, Deepwater Horizon, in 2010. Halliburton was a sub-contractor to BP on Deepwater Horizon, providing cementing and well-monitoring services. Numerous claims were brought against Halliburton and Transocean LLC (Transocean), the lessee of the Deepwater Horizon rig. This led to liability and settlements on the part of Halliburton and Transocean. Both Halliburton and Transocean were insured by Chubb so to cover the settlements, they initiated claims under their respective liability policies against Chubb. Chubb disputed the claims, contending that the settlements were not reasonable.

Halliburton invoked arbitration against Chubb, and after a protracted litigation Mr Kenneth Rokison QC was appointed as the presiding arbitrator by the High Court. Unbeknownst to Halliburton, Mr Rokison had also accepted appointments in two arbitrations in which Transocean was a party: as Chubb’s nominee in one arbitration (the Second Arbitration), and another involving Transocean and another insurer (the Third Arbitration). Halliburton challenged Mr Rokison’s impartiality and called for his resignation under section 24 of the Arbitration Act 1996 (the Act).

Is disclosure a legal duty?

The Supreme Court confirmed that disclosure is a legal duty under English law unless waived by the parties. On the issue of multiple arbitral appointments, the Supreme Court held that acceptance of arbitral appointments concerning the same or overlapping subject matter with only one common party may give rise to an appearance of bias, as inequality of knowledge between the common party and the other party or parties may confer an unfair advantage. On the facts, the Supreme Court determined that Mr Rokison had breached his obligation to the parties to make disclosure.

What is the test for judging apparent bias?

The Supreme Court confirmed that the test is whether a “fair-minded and informed observer” would conclude that there was a real possibility that the arbitrator was biased. A fair and informed observer is someone who will apprise themselves of all of the facts before forming a judgment. The Supreme Court held that the fair-minded and informed observer must have regard to the facts and circumstances “at and from the date when the duty arose and during the period in which the duty subsisted”.

What does the arbitrator need to disclose?

An arbitrator should disclose facts or matters which would or might reasonably lead to an apprehension of bias.

What happens where there are competing duties of privacy and confidentiality?

The Supreme Court observed that an arbitrator is capable of disclosing enough information to the parties so that they can test whether there is a concern about bias, without actually breaching its duty of privacy and confidentiality. Further, the Supreme Court held that in the absence of a contract to the contrary or rules restricting / prohibiting disclosure, certain disclosures may be made without obtaining the express consent.

When should the arbitrator make the disclosure?

The arbitrator should make disclosure as soon as facts or matters arise that lead to the disclosure. In Halliburton v Chubb, this was as soon as Mr Rokison was appointed in the Second and Third Arbitrations.

When will an arbitrator be removed?

The English courts will determine whether or not to remove an arbitrator by reference to matters known “at the date of the hearing to remove the arbitrator”, and not by reference to the facts and matters known at the time disclosure should have been made.

Is the failure to disclose a factor?

Although it is not determinative, a fair-minded and informed observer may decide that the arbitrator’s failure to disclose could itself be evidence of bias, or an appearance of bias.

Takeaways

Halliburton v Chubb has clarified that an arbitrator has a duty to disclose an apparent bias. Further, an arbitrator’s failure to disclose in similar circumstances may nullify an arbitral appointment because one can no longer plead lack of certainty in English law.

Importantly, the Supreme Court also confirmed that the tests for disclosure and bias should be determined by reference to the relevant arbitral institution’s rules, where applicable. It was only because the insurance policy provided for ad-hoc arbitration in Halliburton v Chubb that the Supreme Court opined on the relevant tests as a matter of English law. This is another reason why incorporation of institutional rules of a major institution can be preferable, as institutional rules are generally clear and user friendly. Challenges to arbitral appointees within arbitral institution procedures also generally remain confidential, rather than playing out before English courts.

Orders against a non-party to an arbitration

The Court of Appeal confirmed in A and B v C, D and E [2020] EWCA Civ 409 that the English courts have the power to compel a non-party to an arbitration to provide witness evidence in an arbitration seated in another jurisdiction.

The claimants appealed against the High Court’s first instance decision to dismiss their application for the compulsory taking of evidence of the third defendant, who was resident in England but a non-party to the arbitration, under section 44(2)(a) of the Arbitration Act. The third defendant argued, inter alia, that the English courts had no jurisdiction to make such an order.

The Court of Appeal held that, unless otherwise agreed by the parties, section 44(2)(a) of the Arbitration Act grants the English courts the power to compel a non-party to provide evidence in arbitral proceedings, regardless of the seat of arbitration. The decision turned, inter alia, on the wording of the Act which provides that the English courts have the power to order the taking of evidence from “witnesses”, a word which is not synonymous with “parties” or with those who were in the control of a party. The court noted parallels that the English courts could, in support of foreign court proceedings, order evidence to be taken from a non-party witness by way of deposition pursuant to CPR 34.8. The court held that the third defendant was therefore required to provide evidence in support of the New York seated arbitration.

The Court of Appeal’s judgment brings clarity to whether the English courts have the power to order the taking of evidence of a non-party to the arbitral proceedings. It is not yet clear whether the English courts’ other powers under section 44 of the Act can be exercised against non-parties, for example an order regarding the preservation of evidence (section 42(2)(b) of the Act). However, the decision in A and B v C, D and E paves the way for a broad interpretation.

Multi-tier clauses – does a failure to comply with a negotiation stage lead to jurisdictional issues?

In February 2021, judgment was handed down by the High Court in Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm). This case concerned a challenge under section 67 of the Arbitration Act to an arbitration award dealing with jurisdictional issues, on grounds that the tribunal’s conclusions on jurisdiction were wrong and they lacked substantive jurisdiction to hear the claim.

Central to the challenge was the construction of a multi-tiered arbitration clause which provided for alternative dispute resolution (ADR), namely good faith endeavors to reach amicable settlement, prior to submitting the dispute to arbitration. The applicant alleged that the parties had failed to comply with the amicable settlement provision and therefore the arbitral tribunal lacked jurisdiction to hear the dispute and the award was of no effect and unenforceable.

This case was preceded in 2014 by Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2015] 1 WLR 1145, which was also a challenge to an award under section 67 of the Act and similarly turned on the construction of a multi-tiered arbitration clause which contained ADR provisions, namely, to seek to resolve the dispute or claim by friendly discussions. In the Emirates Trading case, the court held that a dispute resolution clause in an existing and enforceable contract which requires the parties to seek to resolve a dispute by friendly discussions in good faith and within a limited period of time is enforceable as a matter of English law. The court went on to conclude that the condition precedent to arbitration, although enforceable, was satisfied. Therefore the court held inter alia that the tribunal did have jurisdiction to hear the dispute and dismissed the challenge.

The court in Sierra Leone was, however, invited by the parties’ counsel to take a different approach to the issues and to consider first if the question of whether or not negotiation preconditions to arbitration are satisfied, is a matter that goes to the tribunal’s jurisdiction at all or whether it is merely a question of admissibility. This point was not argued in Emirates Trading. Prior to 2019, there had been no decision nor even debate in a judicial context in an English court as to whether some matters thought to be jurisdictional are in fact not issues of jurisdiction at all and are more properly to be treated as issues of admissibility. This is a new line of argument that was seen for the first time in cases in 2020.

This is an important question because only if it is a jurisdictional matter does it falls within the court’s powers under section 67 of the Arbitration Act. It was common ground between the parties that if it is instead a question of admissibility, then parties have no right to challenge the award under section 67, and indeed interference by a court in the issue is expressly curtailed and discouraged by section 1(c) of the Arbitration Act.

The court in Sierra Leone (Burton J) concluded that the question as to compliance with a multi-tier dispute resolution clause is indeed a question of admissibility. The court held that the question was not whether the claim is arbitrable or whether there is another forum in which it should be decided (which would be jurisdictional matters), but whether the arbitration has been presented too early. Burton J agreed with the tribunal’s reasoning in its jurisdiction award that if reaching the end of the settlement period provided in the arbitration agreement is to be treated as a condition precedent at all, it could only be a matter of procedure (i.e. admissibility of the claim) and not a matter of jurisdiction. Pre-arbitration procedural issues are capable of being resolved by the tribunal and indeed required to be submitted to the tribunal for determination.

This case will have significant ramifications for how multi-tiered arbitration agreements are construed, and how challenges to such agreements and to subsequently rendered awards are dealt with by courts and tribunals. It is worth noting that the court also cited academic commentary on this point which noted that presumptively this would be the case in most legal systems, and concluded that the international authorities submitted by counsel for the respondent are “plainly overwhelmingly in support of a case that a challenge such as the present does not go to jurisdiction”. Therefore, this decision is likely to echo in courts around the world.

Key takeaways

There are a few key takeaways from this judgment. Firstly, should parties wish for ADR to amount to a precondition to arbitration and for the tribunal to lack jurisdiction if those steps are not completed, then parties are wise to provide for that expressly and clearly in the dispute resolution clause. This case is also a reminder of the potential risks of drafting multi-tiered dispute resolution clauses where the final mechanism is arbitration. In light of those risks, drafters may wish to consider whether or not such provisions are in fact necessary or desirable. ADR can be commenced by parties voluntarily at any stage, both prior to and during proceedings – there is no need to provide for ADR in addition to arbitration (and experience shows that ADR can in fact perform better at a later point in proceedings than at the preliminary stage provided for in most contracts). There is also a related practical point, where faced with such a clause, if parties wish to avoid costly and time consuming satellite litigation, it is always worth endeavoring to comply with all stages of a multi-tiered dispute resolution clause prior to commencing arbitration. There often will be time or business constraints that require the parties to commence proceedings sooner, but as a general rule, satisfying the prior stages of a multi-tier dispute resolution clause should always be considered where arbitration is the final mechanism.