To disclose or not to disclose? UK Supreme Court defines standards for arbitrator's impartiality and duty of disclosure

Other Author      Marcelo Richter, Global International Arbitration Legal Assistant

Introduction

Arbitrators’ independence and impartiality is one of the cornerstones of arbitration. The system is based on trust: the arbitrators are given a vote of confidence by the parties to settle their divergences independently and impartially. Not surprisingly, besides national laws and institutional rules, there is a plethora of soft laws – guidelines, codes of ethics and codes of conduct – designed to offer legal security and predictability to users on this controversial topic.

The English Arbitration Act 1996 (“AA 1996”) imposes a general duty on arbitrators to act fairly and impartially between the parties (Section 33(1)(a)). The AA 1996 also offers the parties the power to apply to English courts to remove an arbitrator on the ground that circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality (Section 24(1)(a)). Historically, English courts have generally interpreted the Section 24(1)(a) standard of “justifiable doubts” in line with the common law test for “apparent bias”, though there has been no absolute ruling in this respect. Until now.

Today, following a two-day hearing held in November 2019, with interventions from the ICC, the LCIA, the LMAA, GAFTA and CIArb as amicus curiae, the UK Supreme Court (“UKSC”) rendered a long-awaited decision¹ establishing the current English-law position whether and to what extent an arbitrator may:

• accept appointments in multiple references on the same or overlapping subject matter with only one common party, without thereby giving rise to an appearance of bias; and
• do so without making disclosure to the party who is not the party in common.

For the reasons explained below, this decision corroborates the notion that the applicable threshold under English law for disqualification of arbitrators is high. The current position as today decided by the UKSC is that:

• there may be circumstances in which the acceptance of appointments in multiple references might reasonably cause the objective observer to conclude that there is a real possibility of bias. However, whether the objective observer would reach that conclusion will depend on the facts of the particular case and especially upon the custom and practice in the relevant field of arbitration; and
• where such circumstances might reasonably give rise to a conclusion by the objective observer that there was a real possibility of bias, the arbitrator is under a legal duty to disclose such appointments. A failure of an arbitrator to make such disclosure is a factor for the fair-minded and informed observer to take into account when assessing whether there is a real possibility of bias, by reference to the circumstances of the case.

Factual Background

The dispute underlying the UKSC’s decision stems from an explosion, followed by an oil spill, on the Deepwater Horizon offshore drilling rig that began on 20 April 2010 in the Gulf of Mexico (the “Disaster”). Built in 2001, the Deepwater Horizon was a drilling rig situated in the Gulf of Mexico and was owned by the Swiss company Transocean Holdings LLC (“Transocean”). Transocean leased the Deepwater Horizon to BP Exploration and Production Inc. (“BP”), which contracted Halliburton Company (“Halliburton”) to provide certain services. Both Halliburton and Transocean purchased liability insurance on the Bermuda Form from Chubb Bermuda Insurance Ltd. (“Chubb”).

Following the Disaster, the US Government, corporations and individuals brought numerous claims against BP, Halliburton and Transocean. In September 2014, the US Federal Court in Louisiana rendered a judgment apportioning the liability between BP (67%), Transocean (30%) and Halliburton (3%). However, shortly before judgment, Halliburton concluded a settlement of these claims in the sum of approximately US$1.1 billion. Given the adverse decision by the US Federal Court, Halliburton made a claim on its liability insurance. Chubb refused to pay Halliburton’s claim, arguing, inter alia, that the insured’s settlement of the claims was not a reasonable settlement and/or that the insurer had not consented to the settlement.

Arbitration between Halliburton and Chubb

By virtue of Chubb’s decision refusing to indemnify the insured, in January 2015, Halliburton commenced an arbitration against the insurer (“Arbitration 1”). The insurance policy was governed by New York law and provided for a London-seated arbitration by three arbitrators, one chosen by each party and the chair chosen by the co-arbitrators, or failing agreement, the English High Court (“EWHC”).

“N” and “P” were appointed as co-arbitrators but being unable to agree on the third arbitrator, the EWHC appointed "M" (now identified in the UKSC judgment as Kenneth Rokison QC (“KR”)) in June 2015 (a well-known and respected international arbitrator). Before his appointment, KR disclosed that he had previously acted as arbitrator in numerous disputes in which Chubb had participated—including as Chubb’s appointee—and Halliburton did not object to KR on this basis. Events continued as follows:

• December 2015: KR was appointed by Chubb in an arbitration brought by Transocean against Chubb under the insurance policy (“Arbitration 2”). KR disclosed to Transocean his appointment in Arbitration 1 and Transocean did not object;
• August 2016: KR was appointed as chair in another arbitration brought by Transocean against another insurer under the same layer of insurance (“Arbitration 3”).
• KR failed to disclose in Arbitration 1 his appointments in Arbitrations 2 and 3.
• November 2016, Halliburton became aware that KR had been appointed in Arbitration 2 and Arbitration 3 and sought KR's explanation.
• KR said it did not occur to him that he was under any obligation to disclose these appointments to Halliburton. He explained that while he still did not think the circumstances put any obligation on him to make a disclosure, with “the benefit of hindsight …it would have been prudent [to do so]."

Since Chubb did not consent to KR’s proposed resignation, Halliburton sought an order for KR to be removed and for the appointment of a replacement arbitrator pursuant to Section 24(1)(a) of the AA 1996.

UK Courts’ Decisions

EWHC’s Decision

Halliburton’s application under Sections 24(1)(a) of the AA 1996 was founded on a submission that his conduct had given rise to an appearance of bias—no allegation of actual bias or lack of impartiality was made against KR. Before the EWHC, Halliburton relied on three elements of KR’s conduct as giving rise to an appearance of bias:

• Ground 1 - his acceptance of the appointments in Arbitrations 2 and 3;
• Ground 2 - his failure to disclose those appointments to Halliburton; and
• Ground 3 - his response to the challenge to his impartiality.

Popplewell J stated that, under English law, the court’s power to remove an arbitrator is based on alleged lack of impartiality. None of the parties subsequently challenged Popplewell J’s view on this point, which was also upheld by the EWCA and the UKSC. In short, the position is:

• Section 33 of the AA 1996 requires the tribunal to act fairly and impartially between the parties;
• to assess whether circumstances exist that give rise to justifiable doubts as to an arbitrator’s impartiality, the common law test for apparent bias applies;
• the test whether the fair-minded and informed observer would conclude that there was a real possibility that the arbitrator was biased. The fair-minded observer is gender-neutral, is not unduly sensitive or suspicious, reserves judgment on every point until he has fully understood both sides of the argument, is not complacent and is aware that judges and other tribunals have their weaknesses. The “informed” observer is informed on all matters that are relevant to put the matter into its overall social, political or geographical context. These include the local legal framework, the law and practice governing the arbitral process and the practices of those involved as parties, lawyers and arbitrators;
• the test is an objective one and hence not dependent on the characteristics of the parties, (for example, their nationality). The fair-minded observer is not to be confused with the person who has brought the complaint;
• the IBA Guidelines may assist the Court on what may constitute an unacceptable conflict of interest and what matters may require disclosure. However they are not legal provisions and do not override the applicable legal principles (so if no apparent bias is established, compliance with the IBA Guidelines is irrelevant); and
• all factors that are said to give rise to the possibility of apparent bias must be considered not merely individually but cumulatively.

By applying the common law test for apparent bias, the EWHC rejected all three Halliburton’s grounds and dismissed the challenge on the basis that KR’s appointments in Arbitrations 2 and 3 would not lead a fair-minded and impartial observer to conclude that there was justifiable doubt as to KR’s impartiality.

EWCA’s Decision

Halliburton appealed against the EWHC’s decision and the EWCA decided the following issues:

• 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 appearance of bias;
• whether and to what extent an arbitrator may do so without disclosure;
• when should an arbitrator disclose circumstances that may give rise to justifiable doubts as to his impartiality? and
• what are the consequences of failing to disclose circumstances which should have been disclosed?

Multiple Appointments

Hamblen J pointed out that Halliburton’s concern regarding potential inside information and knowledge that KR could acquire in Arbitrations 2 and 3 was a legitimate one but did not justify, in itself, an inference of apparent bias. However, he agreed with Popplewell J’s objective test in the sense that multiple appointments, per se, do not justify an inference of apparent bias because an arbitrator should be trusted to decide each case solely upon the evidence or other materials adduced before it in that particular proceeding. As a result, the fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not by itself give rise to an appearance of bias. Something more is required, which needs to be something of substance to lead the fair-minded and informed observer to conclude that there is a real possibility that the tribunal will not bring an open mind and objective judgment to bear.

When should an arbitrator disclose circumstances that may give rise to justifiable doubts as to his impartiality?

Whether and to what extent an arbitrator may accept such multiple appointments without disclosure was addressed by the EWCA in connection with its general analysis of the standard of disclosure. The EWCA noted that while the AA 1996 sets out no requirements in relation to disclosure, many institutional rules governing arbitration include provisions requiring disclosure of facts or circumstances that may give rise to justifiable doubts as to an arbitrator’s impartiality. Under the common law, judges are also required to disclose facts or circumstances that would or might provide the basis for a reasonable apprehension of lack of impartiality and the EWCA held that the same approach applies to arbitral tribunals.

While acknowledging that many institutional rules have a stricter test of disclosure which imports a subjective test, it held that the present position under English law is that disclosure should be given of facts and circumstances known to the arbitrator that, in the language of Section 24 of the AA 1996, would or might give rise to justifiable doubts as to his impartiality. Under English law, this means those facts or circumstances that would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased (an objective test).

Consequences of Failing to Disclose

The EWCA held that non-disclosure was a factor to be taken into account in considering the issue of apparent bias and was to be addressed at the time the disclosure ought to have been made (not with the benefit of hindsight). It pointed out that KR ought to have made, as a matter of good practice in international arbitration and, in the circumstances of the case, as a matter of law, disclosure to Halliburton at the time of his appointments in Arbitrations 2 and 3. This is because best practice and other factors, such as the actual degree of overlap about which KR knew little at the time and the nature of other connections, might have been argued to combine together to give the fair-minded and informed observer a basis for a reasonable apprehension of lack of impartiality.

The EWCA then provided an extensive analysis of the case background and relevant factors that would have led the fair-minded and informed observer, having considered the facts, to conclude that there was in fact a real possibility that KR was biased. The EWCA addressed the following factors:

• the non-disclosed circumstance does not in itself justify an inference of apparent bias;
• disclosure ought to have been made but the omission was accidental, not deliberate;
• the "very limited" degree of overlap meant this was not a case where overlapping issues should give rise to significant concerns;
• the fair-minded and informed observer would not consider that mere oversight in such circumstances would give rise to justifiable doubts as to impartiality; and
• there was no substance in Halliburton’s criticisms of KR’s conduct after the non-disclosure was challenged.

After considering these points, the EWCA dismissed Halliburton’s appeal and agreed with Popplewell J’s overall conclusion that the fair-minded and informed observer, having considered the facts of the case, would not deduce that there was a real possibility that KR was biased. Halliburton appealed to the Supreme Court.

UKSC’s Decision

The UKSC dismissed the appeal. As mentioned above, the UKSC dealt with two main issues, as analysed below.

Duty of impartiality - what is the test applicable to the arbitrator’s duty of impartiality?

The UKSC pointed out that “impartiality has always been a cardinal duty of a judge and an arbitrator”, a principle enshrined within Sections 24(1)(a) and 33 of the AA 1996. In line with the EWHC’s and EWCA’s decisions, the UKSC stated that the objective test of “justifiable doubts” provided under the AA 1996 is similar to the objective test of “appearance of bias”.

However, the test in English law involves a fair-minded and informed observer, requiring objectivity and detachment in relation to the appearance of bias. The test also applies equally to judges and arbitrators, although it should take into account the differences in nature and circumstances between them. The UKSC decided that, when addressing an allegation of apparent bias in an English-seated arbitration, English courts will: (a) apply the objective test of the fair-minded and informed observer; and (b) have regard to the particular characteristics of international arbitration compared to judicial courts.

Duty of disclosure - Do arbitrators have a legal duty to disclose particular matters? Is disclosure relevant to apparent bias? What is the appropriate time for assessing the need for disclosure and possibility of bias?

The EWHC and the EWCA disagreed as to whether disclosure is a legal duty under English law or merely good practice. The UKSC followed the EWCA’s position, stating that, under English Law, arbitrators have a legal duty to disclose “facts or circumstances which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased.” The UKSC further emphasised that this duty is within the statutory duties of every arbitrator under section 33 of the AA 1996 and which underpins the integrity of English-seated arbitrations.

The legal duty of disclosure does not, however, override the arbitrator’s duty of privacy and confidentiality in English law. Where information which needs to be disclosed is subject to a duty of confidentiality, disclosure can only be made if the parties to whom confidentiality is owed give their consent. Such consent may be express but may also be inferred from the arbitration agreement itself in the context of the custom and practice in the relevant field of arbitration.

The UKSC also considered whether or not a failure to make disclosure demonstrates lack of impartiality. It concluded that the failure to disclose “may in certain circumstances amount to apparent bias.”

Finally, the UKSC agreed with the EWCA’s conclusion that, when assessing whether there should have been a disclosure, one must have regard to the circumstances “prevailing at the time when the arbitrator acquired the requisite knowledge of those circumstances”. Accordingly, and considering that the duty of disclosure is a “continuing duty”, the question of what is to be disclosed “is to be considered prospectively”. The UKSC further stated that the determination of the time by reference to which the court must assess the question of the possibility of bias is of “central importance to the outcome of this appeal.” Once again the UKSC agreed with the EWCA, stating that the test for apparent bias shall be applied “at the time of the hearing to remove”.

UKSC’s conclusion

Firstly, the UKSC concluded that where an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party, this may, depending on the relevant custom and practice, give rise to an appearance of bias. However, given the circumstances of the case, the UKSC rejected the appeal on this point, stating that the “existence of possibly overlapping arbitrations with only one common party would not necessarily cause the fair-minded and informed arbitrator to conclude that there was a real possibility of bias”, when assessed at the date the appointment to Arbitration 2 was made.

Secondly, the UKSC decided that, unless the parties to the arbitration otherwise agree, arbitrators have a legal duty to make disclosure of facts and circumstances which would or might reasonably give rise to the appearance of bias. Accordingly, the court was persuaded that KR “was under a legal duty to disclose his appointment” in Arbitration 2 to Halliburton, and his failure to disclose “was a breach of his legal duty of disclosure.” However, given the circumstances of the case, the UKSC rejected that “the fair-minded and informed observer would infer from the oversight that there was a real possibility of unconscious bias” on KR’s part.

What Can be Learned?

The UKSC judgment has been highly anticipated in the arbitration community and provides further clarity as to the position under English law in relation to the duty of impartiality and an arbitrator's duty of disclosure.

The UKSC judgment confirms that the assessment of whether there is a real possibility of bias having regard to the fair-minded and informed observer, will turn on the specific facts and context, as was the case here. Further, this objective assessment also takes into account the customs and practices of particular fields in international arbitration – therefore the particular field of arbitration (whether it be construction, commercial, insurance or shipping etc.) is important to consider as this may have an impact on the objective assessment of whether there is a possibility of bias.