Summary
The Supreme Court has handed down judgment (available here: https://www.supremecourt.uk/cases/docs/uksc-2018-0100-judgment.pdf) in one of the most eagerly-awaited and hotly debated cases in the recent history of English arbitration law, in which we were instructed to act for the Chartered Institute of Arbitrators as an intervening party.
Halliburton's appeal against the decision of the Court of Appeal (The Chancellor, Simon and Hamblen LJJ - [2018] EWCA Civ 817) has been dismissed and the Supreme Court has confirmed the decision that the arbitrator would not be removed on the grounds of apparent bias under section 24 of the Arbitration Act 1996.
The Supreme Court has provided some clarity to the law in the area of the appointment of an arbitrator in multiple cases arising out of the same incident, with one common party. Broadly, the Court indicated that arbitrators in that position should disclose the fact to all parties. However, the Court has declined to issue the unqualified approval or condemnation of that practice which some had called for. Instead, the Supreme Court expressed the view that the approach to be taken will to some extent depend upon the nature of the contract out of which the arbitration arises, and the rules which the parties have agreed will apply.
The Court also offered significant comments on other issues which arose in the appeal, including the nature of an arbitrator's duty of disclosure, and the interplay between that duty and the obligation of confidentiality.
The arbitrator in question, identified only as M in Court until now, has been revealed to be the well-known and eminent arbitrator Kenneth Rokison QC ("KR"), formerly of 20 Essex Street Chambers, now retired. The two other arbitrators on the panel, also anonymous until now, were former President of the LCIA Court, Professor William W (Rusty) Park and Mr John D Cole.
The decision will disappoint many arbitration professionals and academics, who had expressed views that the Court of Appeal's decision was based upon flawed reasoning and ought to be reversed to avoid an unwelcome divergence of English law on apparent bias from more widely accepted principles applied in other jurisdictions and internationally.
I was instructed to act for the Chartered Institute of Arbitrators as an intervenor in the case, led by Louis Flannery QC of Mishcon de Reya.
Background to the appeal
KR was appointed by the English Court as arbitrator and chairperson on a tribunal to resolve a dispute between Halliburton and its insurer, Chubb, who had refused to indemnify Halliburton against the cost of settling claims arising out of the Deepwater Horizon disaster. Chubb has proposed KR as the arbitrator and Halliburton has resisted his appointment. KR disclosed to Halliburton and the Court that he had acted as an arbitrator in several cases to which Chubb was a party. The Judge had nevertheless agreed with Chubb and appointed KR.
KR was then appointed by Chubb in another arbitration concerning a similar dispute (between Transocean and Chubb) arising out of the same incident, and over the extent to which Transocean had lost its right to an indemnity under its insurance by reason of the terms on which it had settled claims against it arising out of Deepwater Horizon.
When Halliburton later found out about this second appointment, it complained that the arbitrator ought to have disclosed his position as arbitrator in a related arbitration, also involving Chubb but not involving Halliburton. Halliburton argued that the two appointments potentially gave Chubb an advantage and involved the arbitrator communicating with Chubb about matters related to Halliburton's arbitration, but without revealing such communications to Halliburton.
The English Commercial Court (Popplewell J) and Court of Appeal refused to order KR's removal under section 24 of the Arbitration Act.
The Court of Appeal's decision attracted extensive commentary, much of it criticising the Court of Appeal for its failure to recognise the perceived advantage held by Chubb from the twin appointments, and for the apparent lack of clarity in the Court of Appeal's decision as to why the failure to disclose did not give rise to grounds to remove KR. To read more on this commentary, go to the article written by Paul Stanley QC of Essex Court Chambers: https://s3-eu-west-2.amazonaws.com/sqe-essexcourt/wp-content/uploads/2018/05/08152814/hburton.pdf
The issues in the Supreme Court
In the Supreme Court, a range of issues were raised to challenge the Court of Appeal's decision, including:
(i) What is the source of an arbitrator's duty to disclose matters which might give rise to a perception of apparent bias? Is there such a duty at all?
(ii) Can the breach of such a duty give rise, without more, to grounds for removal of an arbitrator under section 24, or is something more than that always required?
(iii) If the duty to disclose is breached, what more is required to justify removal? Is it simply a matter of examining the nature of the breach, or must the failure to disclose be accompanied by entirely separate factors to justify removal?
(iv) What is the relevance of the particular's arbitrator's standing and reputation? Should the court take it into account if the Judges have knowledge of such standing? Is it proper to do so even where the identity of the arbitrator is kept secret?
(iv) How does the way the arbitration transpires affect how to treat a failure to disclose a potential circumstance which justifies concern as to apparent bias? Should the Court take into account the fact that, by the time the challenge is heard by the Court, it has become clear that the way the arbitration was handled meant that the potential advantage to one party did not fully arise?
The Supreme Court's decision
The Result
The Supreme Court's decision, in a judgment of Lord Hodge with which Lord Black, Lord Reed and Lord Lloyd-Jones agreed, confirmed the result in the Court of Appeal – the challenge to KR's appointment would not succeed, and therefore the award would not be set aside, either on the grounds of KR's acceptance of the two appointments, or his failure to disclose.
Lady Arden gave a judgment which agreed with the judgment of Lord Hodge but added some additional remarks.
Interventions and the parties' positions
Given the perceived importance of the case, and the strength of feeling in the international arbitration community regarding the Court of Appeal's decision, five organisations successfully applied to the Supreme Court to intervene in the case: the LCIA, ICC, CIArb, GAFTA and the LMAA. All were permitted to make submissions, although only the LCIA and ICC were permitted to make oral submissions. I was instructed to represent the CIArb, alongside lead counsel Louis Flannery QC of Stephenson Harwood.
The positions of each intervenor varied but there were two broad camps: The LCIA and the ICC expressed concern about the approach of the Court of Appeal, in particular the extent to which an arbitrator's experience and reputation can properly be taken into account in deciding whether there are justifiable doubts as to his or her impartiality. CIArb agreed, adding that it was relevant that KR appeared from his comments to have considered disclosing his involvement in both arbitrations and decided against it, although his decision was described as "innocent" and "inadvertent" in the lower courts.
The LMAA and GAFTA took a different approach, supporting the Court of Appeal's conclusion and highlighting to the Supreme Court the particular practices in arbitrations in their sectors, in which there is a smaller pool of arbitrators and appointments in multiple, overlapping cases, are much more well known.
The route to the Supreme Court's decision
The test for removal of an arbitrator
The Supreme Court confirmed that the relevant time for consideration of any circumstances relied upon to establish apparent bias is at the time of the hearing. This follows from section 24(1)(a) which states that an arbitrator may be removed where "circumstances exist that given rise to justifiable doubts as to his impartiality…" [present tense emphasised].
The Supreme Court discussed at length the test in English law for the removal of an arbitrator, particularly the question of apparent bias. Whilst the Court did not explicitly conclude that a different test is to be applied to arbitrators from the test applied for the removal of judges, the Court did explain at length the particular features of international arbitration to which a court will have regard when considering an application to remove. These characteristics include the privacy of arbitration, the fact that arbitrators are appointed and remunerated by the parties, the limited availability of any review of arbitrators' decisions on the merits; and the diverse professional, cultural and legal background of international arbitrators.
Disclosure
The Supreme Court went on to consider arbitrators' disclosure of matters which might be relevant to their perceived impartiality. The Court noted the importance of prompt disclosure in providing the "badge of impartiality" to the arbitrator even where the matter disclosed to the parties would not, in itself, justify disqualification.
The Supreme Court noted that, under the rules of the ICC and the LCIA, and under the IBA Guidelines, arbitrators should make disclosure of facts and circumstances that may in the eyes of the parties give rise to doubts about the arbitrator’s independence and impartiality. Under those codes, therefore, even the risk of a subjective perception of doubt as to the arbitrator's impartiality is enough to justify disclosure. Therefore those requirements go further than English law, which restricts itself to matters which might cause doubts in the mind of a reasonable objective observer.
In the arguments before the Court, an issue arose as to whether the duty to disclosure was a legal duty, or a rule pf practice. The Court of Appeal had decided that it was a legal duty. The significance of this was that, Halliburton argued, a breach by the arbitrator of a legal duty of disclosure should have consequences, even without more.
The Supreme Court (agreeing with submissions which we had made on behalf of CIArb) agreed that arbitrators are under a legal duty to disclose facts and circumstances known to the arbitrator which, in the language of section 24 of the Act, would or might give rise to justifiable doubts as to his impartiality. The legal duty arises because of the duty in section 33 of the Arbitration Act 1996 to act fairly and impartially, which gives rise to an implied term in each agreement between the arbitrator and the parties that the arbitrator will disclose as appropriate.
Doing so requires the arbitrator to inform the parties of any circumstance that might lead the fair-minded observer to doubt that the arbitrator is biased. The Supreme Court confirmed that, notwithstanding some suggestions to the contrary, it is sufficient to trigger the duty to disclose that a circumstance known to the arbitrator might give rise to justifiable doubts as to his impartiality.
The Supreme Court only qualified its agreement with the Court of Appeal's formulation of the duty in one respect: Whilst generally arbitrators must disclose matters known to them which would or might give rise to justifiable doubts, there is the "possibility of circumstances occurring in which an arbitrator would be under a duty to make reasonable enquiries in order to comply with the duty of disclosure." This is broadly consistent with General Standard 7(d) in Part I of the IBA Guidelines, although the Supreme Court did not adopt General Standard 7(d) as stating English law definitively.
Confidentiality
The Supreme Court was also required to address the question of the confidentiality of the arbitrations in which one arbitrator is appointed (or invited to be appointed). This was because, in order to make disclosure to the parties in each arbitration of the other arbitration, the arbitrator would either need the agreement of both parties in the other arbitration, or the duty of confidentiality would need to be qualified so as to permit such limited disclosure.
The Supreme Court considered that the duty of confidentiality is not a fixed and consistent duty in every arbitration. It is a product of the nature of arbitration which gives rise to an implied obligation on the parties and the arbitrators, or (another potential basis for the confidentiality) an equitable duty because they have acquired the information in circumstances importing an obligation of confidence.
However, not all arbitrations are the same. They vary widely according to the sector or industry to which the arbitration relates, and the rules under which they are being conducted. With those variations come variations to the implied duty of confidentiality, or the circumstances importing an obligation of confidence. The Court agreed with the principal cases identified by Lawrence Collins LJ in Emmott v Michael Wilson & Partners Ltd in which disclosure would be permissible and not a breach of the duty of confidence. But as to whether disclosure is permissible, without the consent of the parties to the arbitration about which disclosure is made, that will depend on the type of arbitration and whether custom and practice in that field indicates that the duty of confidence in that type of arbitration will prohibit disclosure.
The party to whom a disclosure is made will receive that information in circumstances which import an obligation of confidence and therefore, the recipient will be entitled to use the information only for the purpose of judging the impartiality and suitability of the arbitrator making the disclosure.
Where did all this leave the decision in Halliburton?
Disclosure
Taking all of the above into account, KR was in breach of a legal duty to disclose to Halliburton his appointment in Chubb v Transocean.
The Supreme Court did consider that the appointment of an arbitrator in a related case involving a common party might amount to a circumstance which might give rise to justifiable doubts. However the extent to which it would do so is influenced by the custom and practice in the particular field of arbitration in question. Here, in the field of insurance arbitration, the custom and practice appeared to the Supreme Court to be that arbitrators are quite commonly appointed in overlapping references.
Whether the related appointments in cases with a common party will trigger a duty to disclose will also be affected by the custom and practices in the field of arbitration in question. However, "rather than having disputes about the existence or absence of such a duty by proof of a general custom and practice in a particular field of arbitration, there may be merit in putting the matter beyond doubt by express statement in the rules or guidance of the relevant institutions."
In conclusion therefore, "Unless the parties to the arbitration otherwise agree… [t]he fact that an arbitrator has accepted appointments in multiple references concerning the same or overlapping subject matter with only one common party is a matter which may have to be disclosed, depending upon the customs and practice in the relevant field."
In Bermuda Form arbitrations, where the insurer party is likely to be a "repeat player", but the other party will often be a business not so immersed in the field, there is not an established custom and practice of arbitrators accepting multiple appointments without disclosure. Therefore, in such arbitrations a duty of disclosure will ordinarily be triggered by a proposed appointment in an arbitration arising out of the same incident as an earlier arbitration with a common party.
Breach of the duty of disclosure
The Supreme Court accepted that, at the time when KR was appointed in the second arbitration, there was a risk that his appointment would give rise to unfairness. This was because at that stage, it was possible that similar issues would arise for determination by the Tribunal in each reference, one after the other, but that Halliburton would be unaware of the events and communications in the other arbitration.
This amounted to something which might reasonably cause an objective observer to conclude that there was a real possibility of bias. KR was therefore in breach of a duty to disclose.
That duty, taking into account the confidentiality restrictions, was to disclose to Halliburton that (i) the arbitrator was approached by Chubb to be appointed in a second reference, (ii) that the second reference arose out of the same incident as Halliburton's arbitration. This would not breach any confidentiality obligation. Nor would KR breach such an obligation by providing a high-level statement that similar issues might arise in the second arbitration.
Consequences of the breach
The timing of the decision as to removal of an arbitrator was crucial in this final step in the reasoning. The Supreme Court was satisfied that, because KR breached the duty of disclosure when he accepted the second appointment, the fair-minded and informed observer may well have concluded that there was a real possibility of bias at that point.
However, the Supreme Court declined to say whether that would have been the conclusion, because the relevant time was when the matter came for determination by Popplewell J. By then, KR had explained (in courteous and temperate terms) that his failure to disclose was an oversight and that the way the arbitrations had proceeded meant that the risk of overlap and advantage to Chubb as against Halliburton had fallen away.
Lady Arden's judgment
In a separate judgment, Lady Arden added remarks which express her own view (but not the view of the Court as a whole) rather more trenchantly. Her Ladyship suggested that "unless the arbitration is one in which there is an accepted practice of dispensing with any need to obtain parties’ consent to further appointments, an arbitrator should proceed on the basis that a proposal to take on a further appointment involving a common party and overlapping subject-matter (in that it arises out of the same event) is likely to require disclosure of a potential conflict of interest." She recognised the force in the "objections based on inequality of arms and material asymmetry of information that have been raised by Halliburton." She stated that "[s]uch an appointment is likely to give rise to a potential inequality of arms and material asymmetry of information. In principle the parties to both the current and proposed arbitration should be given a chance to object to the arbitrator accepting the new appointment."
Whilst it is fair to say that the judgment of Lord Hodge did recognise the potential unfairness of the position of an arbitrator in multiple arbitrations with a common party arising out of the same event, it is notable that Lady Arden felt moved to make her own remarks on the matter.
Where does this leave us?
Many of the questions which arose on this appeal were answered with variations on the phrase "it depends". The approach could uncharitably be compared to a sort of mystic wisdom, offering answers which are never wrong, whilst also not being very helpful.
But, more seriously, the Court did at least resolve that a reasonable, objective conclusion that there was a risk of bias could arise from the inequality between the position of the common party and that of the other parties, where an arbitrator is appointed in multiple cases. This was the sort of unfairness which Halliburton complained of. The recognition of the significance of such inequality was welcome and was one of the aspects of the case on which CIArb focussed its submissions.
We also now know that the objective, reasonable perception of such a risk gives rise to a legal duty to disclose. However a breach of that duty will not produce an immediate and certain basis for challenge. Circumstances may change between that time and the hearing of a challenge, which overtake the position and 'put the genie back in the bottle'. This would mean that an arbitrator might not be removed, even where they have breached a legal duty to disclose a matter which, at the time, might give rise to a reasonable, objective, conclusion that there was a risk of bias.
However, beyond those conclusions, it appears that much of the controversy which arose in the case will go unresolved.
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