Jan 08,2021 | 8 min read

"Halliburton Co. v. Chubb Bermuda Insurance Ltd." By Sugyata Choudhary

The English Case that settles the law on ‘apparent bias’ of an Arbitrator in an International Commercial Arbitration 

The English Supreme Court has recently, in the case of Halliburton Co. vs Chubb Bermuda Insurance Ltd decided a very crucial question of law concerning the need for continual disclosure by an Arbitrator where it has accepted appointments in subsequent references concerning an overlapping subject matter with common parties involved. This judgment has been frowned upon by the Arbitration Community and has been a subject of much debate and deliberation. Consequently, it was appealed against in the English Supreme Court. While the Court of Appeal judgment holds that non-disclosure by an Arbitrator of a subsequent reference made by a common party in an overlapping subject matter will not necessarily lead the court to infer apparent bias leading to termination of the mandate of the arbitrator, it has however observed and recognized disclosure as a good practice to keep any unnecessary doubts at bay. The English Supreme Court has now put the controversy to rest by confirming the duty to disclose.

This article presents a brief analysis of this judgment.

Brief Facts

BP Exploration and Production Inc (“BP”) is the lessee of the Deepwater Horizon oil rig (“oil rig”) in the Gulf of Mexico. It hired a company called Transocean Holdings LLC (“T”), and Halliburton Company (“H”) for various sub-contracting services related to the oil rig. On 20th April 2010, a blast in the oil rig causing severe damage (“the incident”). Several claims were brought against BP, T and H by the US Government and other corporate and individual claimants. The private claim for damages was pursued through a Plaintiff’s Steering Committee (PSC). Both T and H had insured their claims with the same insurer- Chubb Bermuda Insurance Ltd. (“Chubb”).

Following a liability trial by the Federal Court of Louisiana, a judgment was given on 4 September 2014 apportioning the liability damage between the three companies as follows: BP - 67%;  T- 30% and H - 3% of the damage. Shortly before the judgment, H concluded a settlement of the PSC claims against it for a sum of US$ 1.1 billion. Post the Judgment, T settled the claims for US$ 12 billion.

Thereafter, H made a claim on its liability on Chubb which was refused by Chubb inter alia on the ground H’s settlement of the claims was not reasonable settlement and/or that Chubb had reasonably not consented to the settlement. H went ahead and commenced arbitration against Chubb wherein one Mr M was appointed as the Presiding Arbitrator by the Court (“Reference 1”). M was the preferred candidate of Chubb. Before his appointment, M had disclosed that he had been appointed in several arbitrations where Chubb was a party including appointments on behalf of Chubb.

A few months later, M entered upon another reference in an arbitration initiated by T, an insurance claim, arising out of the same incident (“Reference 2”). Before his appointment in Reference 2, M disclosed to the parties in Reference 2 about his appointment in Reference 1. However, he did not disclose his appointment in Reference 2 to H and Chubb, the parties in Reference 1. A few months later, M accepted another appointment in an arbitration initiated by T against another insurer (“Reference 3”) which was also an insurance claim arising out of the same incident.

Soon thereafter, H learnt of the appointment of M in References 2 and 3, and took an objection to the continuation of the arbitral proceedings, raising the issue of bias due to non-disclosure by M. H relied upon the IBA Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”) concerning continuity of disclosure of potential conflicts of interest. M responded that it did not occur to him that such disclosure would be required to be given, and in all fairness offered to withdraw from the Arbitration provided Chubb (the Respondent) consented to his withdrawal. However, since Chubb did not consent to termination of his mandate, he did not withdraw from the Arbitration. Accordingly, an action was brought by H seeking an order pursuant to section 24(1)(a) of the Arbitration Act, 1996 that M be removed as an arbitrator. 

In February 2017, the English High Court delivered its judgment dismissing H’s application, concluding that there was nothing in the acceptance of the appointment in Reference 2, which gave rise to an appearance of bias against H, even if the issues which had to be decided in the references were identical or substantially overlapping, which the Court found, they were not.

The Law

The English Law on impartiality in Arbitration states that the object of arbitration is to obtain the fair resolution of disputes “by an impartial tribunal”. Section 24 of the Arbitration Act provides that the court has the power to remove an arbitrator on the grounds: 

“1(a) that circumstances exist that give rise to justifiable doubts as to his impartiality.” – This section has been held to reflect the common law test for apparent bias, namely whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased. This is an objective test and is not to be confused with the approach of the person who has brought the complaint.

Issues: 

In light of the factual scenario and the legal position set out above, two broad issues in the case are as below:

  1. 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 apparent bias; and

  2. What are the consequences of failing to disclose circumstances which should have been disclosed?

Court of Appeal Decision :

About the first issue, the Court followed the decisions in Locabail (UK) Ltd. v Bayfield Properties Ltd and AMEC Capital Projects Ltd. v. Whitefriars City Estates Ltd. It held that the mere fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not give itself rise to an appearance of bias. In the AMEC case, the court held that Arbitrators are assumed to be trustworthy and understand that they should approach every case with an open mind. The mere fact of appointment and decision making in overlapping references does not give rise to justifiable doubts about the arbitrator’s impartiality. He quoted Dyson LJ to say “something more is required”, which must be “something of substance”.

In so far as the second issue is concerned, the Court while referring to the comments of Lord Mance in Helow v Home Secretary, held that non-disclosure of a fact or circumstance which should have been disclosed, but does not in fact, on examination give rise to justifiable doubts as to arbitrator’s impartiality, cannot, however, in and of itself justify an inference of apparent bias. Something more is required. It is pertinent that the court also observed the ratio in the decision of Paice v Harding and Cofley Ltd. v. Bingham held that non-disclosure is a factor to be taken into account in considering the issue of apparent bias. An appropriate response to the suggestion that there should have been disclosure may further colour the observer's thinking. It may fortify or even lead to an overall conclusion of apparent bias.

The Supreme Court Decision

The Supreme Court upheld the Court of Appeal's aforesaid decision and unanimously dismissed the Appeal while reaffirming the duty of the Arbitrator to make disclosures.

The Court held that :

1. The duty of impartiality is a core principle of Arbitration Law which applies equally to party-appointed arbitrators and independently appointed arbitrators;

2. The Arbitrator is under a legal duty that might give rise to justifiable doubts about his or her impartiality; this duty does not override the Arbitrators duty of privacy and confidentiality in English Law.

3. In assessing if there is a possibility that the Arbitrator was biased regarding the circumstances at the time of the court hearing for removal of Arbitrator.

4. In certain circumstances, the Arbitrators' acceptance of appointments in multiple references concerning the same or overlapping subject matter with only one common party may give rise to an apparent bias- but whether the acceptance does so will depend on the customs practices in the relevant field of arbitration.

5. Since in Bermuda, the customs are such that failure to disclose about subsequent appointment would give rise to doubt regarding impartiality. In this case, it is under a legal duty to disclose to H the later appointments. However, on various facts of the case, including that M had offered to resign, no evidence of any malicious gain, and absence of an ill will, H’s challenge fails, and the appeal deserves to be dismissed.

Observations and Analysis

While the Court of Appeal’s decision observes that in the context of international commercial arbitration, as a matter of good practice disclosure should have been made, it has, however, on facts, held that the present case would fall under the Orange List of the IBA Guidelines, which calls for disclosure where an arbitrator serves in arbitration on the related issue involving one of the parties. This raised an important question about the interpretation of the Orange List provided in the IBA guidelines and suggested that some clarity from the IBA and the Arbitration Community must be supplied to interpret these lists.

The Court of Appeal also, considered the actual degree of overlap to be minimal and held that it would not, in itself, give a fair-minded and informed observer the basis for a reasonable apprehension of lack of impartiality. Further, while in view of the Hon’ble judges, the degree of overlap between the multiple references was not significant enough to as to hamper the impartiality of the Arbitrator, what amounts to “overlap” to lead a fair-minded and informed observer to conclude that possibility of bias exists, remains unclear.

The Court observed that the Arbitrator recognized that it would have been “prudent” to make disclosure and that he acknowledged that the non-disclosure was an innocent oversight, was not something for which he can be blamed. Still, it cannot excuse non-disclosure of a fact that ought properly to have been disclosed based on the principles explained. But the point that is missed is, that mere a statement given by the Arbitrator that the non-disclosure was due to “innocent oversight” conclusive proof, to determine whether it should be taken into account to advert the applicability of the test for apparent bias.

While the Supreme Court has set a sounds precedent in holding that M did in fact have a statutory and legal duty to disclose his appointments in multiple references involving a single common party, it has also left room for exceptions to be made to this rule based on customary practices of International Commercial Arbitration Law. This judgment is received and interpreted by the International Commercial Arbitration community across the globe yet to be seen.


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ABOUT THE AUTHOR


Sugyata Choudhary

Lawngitude is a boutique practice providing cutting edge legal services to start-ups in India and abroad. The firm provides comprehensive and customised legal solutions to new businesses, MSMEs, technology based and e-commerce start-ups. From incorporation and operations upto investment, growth and consumer litigations, Lawngitude has your business covered with a 360 degree legal protection model. Available for Advisory VC on Sundays.

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