Running the orange light: Halliburton v Chubb

Summary

On Friday, 27 November 2020, the Supreme Court handed down a long awaited judgment in Halliburton v Chubb that concerned the issue of when an arbitrator should make disclosure of circumstances which may give rise to justifiable doubts as to his/her impartiality. In a unanimous decision (with Lady Arden concurring), the Supreme Court dismissed Halliburton’s appeal and found that a fair-minded and informed observer would not conclude that there were circumstances that would give rise to justifiable doubts about impartiality of the Chairman of the tribunal, Mr Rokison.

Background and facts

This case concerned one of several insurance arbitrations that arose following the explosion and fire on the Deepwater Horizon drilling rig in the Gulf of Mexico in 2010. The rig was owned by Transocean Holding LLC (“Transocean”). The Appellant, Halliburton, which provided cementing and monitoring services, had insured its activities under a Bermuda Form liability policy with Chubb Bermuda Insurance Ltd (“Chubb”).

It is well known that the Deepwater Horizon accident caused very extensive damage and loss of life and led to several claims before the US courts. In 2014, a US federal court apportioned liability between the parties following which both Halliburton and Transocean settled their civil claims in the US and paid civil penalties. Halliburton then claimed the amounts back from Chubb against the insurance policy. Chubb declined to pay Halliburton’s settlement on the grounds that it was not reasonable. Transocean also claimed against its liability insurers (including Chubb). They contested its claims on the same grounds.

Halliburton’s Bermuda form policy provided for disputes to be resolved by arbitration. As a result, Halliburton commenced a London-seated arbitration against Chubb and nominated Professor William W. Park as an arbitrator. Chubb nominated Mr. John D. Cole, but because the party-appointed arbitrators were unable to agree on the Chairman, the High Court appointed Mr Rokison, one of Chubb’s candidates, as the third arbitrator on 12 June 2015.

However, without Halliburton’s knowledge, Mr Rokison accepted two other appointments in arbitrations arising from the Deepwater Horizon accident. Namely, i) in December 2015, Chubb appointed Mr Rokison as an arbitrator in a related excess liability claim brought against it by Transocean (the “Second Appointment”); and ii) in August 2016, he was appointed as an arbitrator in a claim between Transocean and a different insurer (the “Third Appointment”). After discovering his appointment in these two related cases, Halliburton applied to the court to remove Mr Rokison as a Chairman under section 24 of the Arbitration Act 1996, but the court refused its application. Halliburton then appealed to the Court of Appeal which dismissed the appeal. Halliburton appealed once again before the Supreme Court.

The decision

The Supreme Court found that the arbitrators’ duty of impartiality set out in sections 1 and 33 of the Arbitration Act is a fundamental principle of arbitration law. The test to establish whether an arbitrator has an apparent bias is objective and it consists of establishing whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the arbitrator was biased. In order to promote the principles of impartiality and fairness, each arbitrator has a legal duty to disclose any potential conflicts of interests he or she may have that may give rise to justifiable doubts about his/her impartiality. A failure to disclosure relevant matters is a factor that a fair-minded and informed observer may take into account in assessing whether there is a real possibility of bias.

Importantly, the Supreme Court drew a distinction between the appropriate time for assessing whether an arbitrator had a duty to make disclosure, and the appropriate time for assessing the possibility of an arbitrator’s bias. In particular:

• the assessment of the arbitrator’s duty of disclosure can only be made by reference to circumstances at the time the duty arose and during the period in which the duty subsisted; and
• the assessment as to whether there are justifiable doubts regarding an arbitrator’s impartiality can only be made according to circumstances that existed at the date of the hearing of the application to remove the arbitrator.

The Supreme Court then acknowledged that in some circumstances, the acceptance of multiple appointments involving a common party and the same or overlapping subject matter may give rise to an apparent bias. However, the Supreme Court explained that this will depend on the practice in a given field of operation. For example, while the occurrence of interrelated arbitrations is rare in ICC’s practice, it is a reasonably common trait of GAFTA (the Grain and Feed Trade Association), LMAA (the London Maritime Arbitrators Association) and ARIAS (UK) (the Insurance and Reinsurance Arbitration Society), arbitrations. The Supreme Court found that in the context of Bermuda Form arbitrations, if the circumstances give rise to a conclusion that there was a real possibility of bias, the arbitrator is under a legal duty to disclose his/her appointments unless otherwise agreed by the parties to the arbitration.

As a result, once appointed as the Chairman in the arbitration between Halliburton and Chubb, Mr Rokison became subject to the statutory duty of fairness and impartiality under section 33 of the Arbitration Act which he owed to both parties. Because his subsequent appointment by Chubb in related arbitration proceedings was a circumstance that might have reasonably given rise to the real possibility of bias, Mr Rokison was under a legal duty to disclose it to Halliburton. In other words, the Supreme Court concluded that Mr Rokison’s failure to disclose his subsequent appointments was a breach of his legal duty of disclosure.

Importantly, however, on the particular facts of this case, the Supreme Court found that the fair-minded and informed observer would not infer from Mr Rokison’s oversight that there was a real possibility of unconscious bias on his part at the time of the hearing on his removal in January 2017. This was due to several reasons:

• At that time, it was not clear whether there was a legal duty of disclosure under English law;
• Both Transocean arbitrations had commenced several months after the Halliburton arbitration;
• It was likely that both Transocean arbitrations would be resolved on preliminary issues and as such, there would be no overlap in evidence or legal submissions;
• Mr Rokison received no secret financial benefit from his appointments; and finally
• There was no basis for inferring any unconscious ill will on Mr Rokison’s part.

As a result, the Supreme Court rejected Halliburton’s appeal and found that there was no real possibility of bias.

Commentary

Halliburton v Chubb is a welcome decision that provides clarity over arbitrators’ legal duty of disclosure in English law. This is because it provides helpful guidance as to how the courts will assess any allegations of appearance of impartiality, notably in the context of related, multiple appointments in the future.

Significantly, the Supreme Court addressed the dynamics between the duty of disclosure and the duty of confidentiality, which as it acknowledged, was not clear. In general, it stated that the duty of disclosure does not override the arbitrator’s duty of privacy and confidentiality in English law. As such, disclosure can only be made if the parties owed confidentiality obligations give their consent. However, this was different in Bermuda Form arbitrations where an arbitrator may disclose the existence of another arbitration and the identity of the common party in that arbitration without obtaining its prior consent. The Supreme Court explained that this was because consent of the common party could be inferred from its action in seeking to nominate or appoint the arbitrator and the consent of the other party was not required for such limited disclosure.

One of the most important outcomes for the insurance and reinsurance industry is the fact that the Supreme Court explicitly acknowledged the fact that multiple appointments, often arising from the same events, are a common practice in certain industries. The Supreme Court relied on written and/or oral submissions of specialist arbitral associations (who were given permission to intervene) including the LMAA and the GAFTA (which contained the already-mentioned report of ARIAS (UK)) that described the practice of multiple appointments and noted that it differed from the ICC and LCIA’s experience (which have much tighter and restrictive rules on multiple appointments).

In that regard, the Supreme Court noted the practice of treaty reinsurance arbitrations, which are conducted by a limited pool of specialist arbitrators and often involve multiple disputes about the same subject matter. The Supreme Court referred to the ARIAS (UK) report, and explained that practitioners in the reinsurance field are well aware of the possibility of overlapping appointments and usually do not expect such appointments to be disclosed.

In addition, the Supreme Court relied on the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”) which establish a traffic light system of green, orange and red lists of situations that may give rise to doubts as to an arbitrator’s impartiality and independence. According to the IBA Guidelines, the appointment as an arbitrator in two or more occasions within the past three years by one of the parties or its affiliate is included on the Orange List. However, the Supreme Court also referred to footnote 5 of the IBA Guidelines according to which “[i]t may be the practice in certain types of arbitration, such as maritime, sports or commodities, to draw arbitrators from a smaller pool of individuals. If in such fields it is the custom and practice for parties to frequently appoint the same arbitrator in different cases, no disclosure of this fact is required, where all parties in the arbitration should be familiar with such custom and practice.”

Overall, the good news is that, the Supreme Court has implicitly confirmed the status quo of the arbitration practice in the insurance/reinsurance markets using Bermuda Form or similar types of arbitration clauses. While the arbitrators might be required to give more detail in their disclosure regarding multiple appointments in the future as a result of this decision, it is unlikely that it will lead to a substantive number of challenges – or removal of arbitrators on those grounds.

The most important implications of Halliburton v Chubb for commercial arbitration practice in general are discussed in a related article on Arbitrator’s Duty of Disclosure and Apparent Bias - “Justice must be seen to be done”. Click here for more details.

Click here for a link to the Supreme Court’s decision in Halliburton v Chubb.