The legal test applied to the duty of disclosure, the assessment of possible bias of an arbitrator and the consideration on the interplay of the duties of privacy and confidentiality in arbitration.
January 27, 2021
Halliburton Company v Chubb Bermuda Insurance LTD 2020 UKSC 48
Supreme Court of the United Kingdom
Reed CJ; Hodge, Lloyd-Jones, Black, Arden, SCJJ 27-Nov-20
Reported by Faith Wanjiku & Ian Otenyo
Arbitration – arbitrator – challenge to an arbitrator – appearance of bias – likelihood of bias due to nondisclosure – nondisclosure of relevant information to a party that could give an impression of bias – where the arbitrator had taken up references in the past in a related matter with one common party –whether and to what extent an arbitrator ought to 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 – United Nations Commission on International Trade Law, article 12
Arbitration – disclosure – conflict of interest – where a party in arbitration claimed the arbitrator had conflict of interest since he had arbitrated in other references where a common party was involved – relationship between disclosure and the duty of privacy and confidentiality in reference to matters previously handled – whether an arbitrator was under legal duty to make disclosure on the nature of past references where a common party was involved – Arbitration Act 1996 (Cap 23), section 33
The appellant provided cementing and well monitoring services to British Petroleum (BP) in the Gulf of Mexico. Transocean Ltd also provided services to BP, including overlapping services to those provided by the appellant. The appellant entered into a liability policy with the respondent. Transocean Ltd was also insured with the respondent. Both Transocean and Halliburton had purchased liability insurance from Chubb on the Bermuda Form. The Bermuda Form policy was created to provide high excess commercial general liability insurance and they contain a clause providing for disputes to be resolved by arbitration. Bermuda Form arbitrations were ad hoc arbitrations, which were not subject to the rules of an arbitral institution. In 2010, there was a fire explosion on an oil rig in the Gulf of Mexico that caused oil to spill. Consequently, thousands of civil claims were brought against BP, Halliburton and Transocean. BP also claimed against Halliburton and Transocean. Following a trial in the United States in which judgment was given apportioning blame among the parties, the appellant sought to claim a proportion of that settlement under its insurance policy. The respondent declined to pay the appellant’s claim. Arbitration commenced where both parties selected their arbitrators, but the parties were unable to agree on the chairman. The parties approached the High Court and the respondent’s first-choice candidate “M” was selected as chairman. The instant appeal arises out of the discovery by the appellant that “M” had accepted appointment as an arbitrator in two other references both of which arose out of the same fire explosion and oil spill at the Gulf of Mexico. The appellant applied to the court to remove “M” as arbitrator. That application was refused hence the instant appeal.
i. Whether and to what extent an arbitrator ought to 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.
ii. Whether an arbitrator was under legal duty to make disclosure on the nature of past references where a common party was involved.
iii. What was the relationship between disclosure and the duty of privacy and confidentiality where an arbitrator had been appointed to arbitrate a matter that required disclosure of matters related to a reference he or she previously handled?
Relevant provisions of the law Arbitration Act 1996, CHAPTER 3
Section 33 - General duty of the tribunal
1)The tribunal shall
a)Act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and
b)Adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
2)The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”
United Nations Commission on International Trade Law
Article 12 – Grounds for challenge
When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.
1. The instant appeal raised important questions about the requirement that there ought to be no apparent bias and that arbitrators had a duty to make disclosures. An arbitrator ought to be impartial and should not be biased in favour of or against any party in a reference. An arbitrator that was not in fact subject to any bias should also not give the appearance of bias.
2. In determining whether an individual was biased, an observer had to be fair-minded and informed, and after they had considered the facts, would conclude that there was a real possibility that the tribunal was biased. The fair-minded and informed observer was an objective observer. The fair-minded and informed observer was neither complacent nor unduly sensitive or suspicious.
3. That objective test for the appearance of bias was similar to the test of justifiable doubts was adopted by the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (as amended in 2006) article 12(2).
4. There was a distinction between party-appointed arbitrators and neutral arbitrators. In the case of a party-appointed arbitrator, an undisclosed relationship with the appointing party constituted evident partiality only if the relationship violated the contractual requirement of disinterestedness or prejudicially affected the award. The court recognised that in insurance and reinsurance arbitrations, the parties sought arbitral panels with high expertise and that it was common to have repeat players who had connections with the industry. That understanding applied in relation to both party-appointed arbitrators and neutral arbitrators or umpires. Beyond that, recognising that party-appointed arbitrators were expected to espouse the view or perspective of the appointing party and serve as de facto advocates, it considered that party appointment involved various degrees of partiality in contrast with the neutral arbitrator.
5. The fair-minded and informed observer should consider the circumstances of the arbitration in question and whether, objectively and as a generality, one could expect people who enter into references of that nature to be informed about the experience and past performance of the arbitrators involved. In the context of many international arbitrations, past experiences was a factor of limited weight.
6. Arbitrators were not under similar obligation as judges when asked to accept a reference but, taking up a reference, the arbitrator may reasonably feel under an obligation to carry out the remit unless there were substantial grounds for self-disqualification.
7. An arbitrator could avoid the appearance of bias by disclosing matters which could arguably be said to give rise to a real possibility of bias. Such disclosure allows the parties to consider the disclosed circumstances and make decisions accordingly.
8. The parties had agreed to submit their arbitration under the International Chamber of Commerce Arbitration Rules 2017. Under those codes the arbitrator was required to 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.
9. An arbitrator may fail to make disclosure for entirely honourable reasons, such as forgetfulness, oversight, or a failure properly to recognise how matters would appear to the objective observer. Notwithstanding understandable the reasons for it, the fact of non-disclosure in a case which calls for disclosure would inevitably colour the thinking of the observer.
10. If an arbitrator had a financial interest in the dispute he or she would be disqualified and the award would be voidable. Absent disclosure, the other party to the arbitration would be unaware of that disqualifying interest. As such, it would be incumbent on the arbitrator to disclose the relationship in order to comply with his statutory duty of fairness under section 33 of the Arbitration Act 1996. Unless the parties had expressly or implicitly waived their right to disclosure, such disclosure was not just a question of best practice but was a matter of legal obligation.
11. While the statutory duty on the arbitrator to act fairly and impartially arose on his or her appointment, there was a necessity for pre-appointment disclosure if the arbitration system was to operate smoothly and the making of such disclosure was recognised as good practice. If an arbitrator waited until after appointment to make disclosure, the arbitrator could resign after appointment when a party objected to his or her appointment following disclosure.
12. The existence of a legal duty promoted transparency in arbitration and was consistent with best practice as seen in the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) and in the requirements of institutional arbitrations such as those of International Court of Arbitration of the International Chamber of Commerce (ICC) and London Court of International Arbitration (LCIA). There was a legal duty of disclosure in English law which was encompassed within the statutory duties of an arbitrator under section 33 of the Arbitration Act 1996 and which underpin the integrity of English-seated arbitrations.
13. Privacy and confidentiality of arbitration proceedings was regarded as a fundamental characteristic of the agreement to arbitrate. Party autonomy was paramount in modern arbitration law, combined with the assumption that parties value English arbitration for its privacy and confidentiality. Party autonomy required the court so far as possible to respect the parties’ choice of arbitration. Their choice of private arbitration constituted an election for an alternative system of dispute resolution to that provided by the public courts. The same philosophy should limit court intervention to the minimum necessary in the public interest, which must include the public interest in ensuring not that arbitrators necessarily decide cases in a way which a court would regard as correct, but that they at least decide them in a fundamentally fair way.
14. Where the information which should be disclosed was subject to an arbitrator’s duty of privacy and confidentiality, disclosure could be made only if the parties to whom the obligations were owed gave their consent. In such a circumstance, if a person sought appointment as an arbitrator in a later arbitration did not obtain the consent of the parties to a prior related arbitration to make a necessary disclosure about it, or the parties to the later arbitration did not consent to the arbitrator’s disclosure of confidential matters related to that prospective appointment to the parties to the earlier arbitration, the arbitrator ought to decline the second appointment. Such consent may be express or may be inferred from the arbitration agreement itself in the context of the custom and practice in the relevant field.
15. Where parties submitted to an ad hoc arbitration, practice as to privacy, confidentiality and disclosure could differ. An arbitrator could make disclosure of an existing or prospective arbitration without first obtaining the express consent of all parties to the arbitration about which disclosure required to be made would depend on the relevant arbitration agreement and the custom and practice in the relevant field.
16. In the instant appeal the court was concerned with Bermuda Form arbitration which was a specialist form of arbitration. It was not disputed that it was common practice for parties, and in particular insurance companies, to appoint arbitrators who had experience in interpreting the Bermuda Form policy on repeated occasions, including in arbitrations related to the same occurrence. There were sound reasons for doing so because the Bermuda Form contains some unique provisions and there was an interest in obtaining consistency of interpretation of the policy in the absence of published reports of the awards which the arbitrators had made.
17. It was common for arbitrators in Bermuda Form arbitrations to disclose their involvement in prior or current arbitrations involving a common party without disclosing the identity of the other party or details concerning the arbitration, as the circumstances of the current case demonstrate. The duty of privacy and confidentiality was not absolute such that parties to an arbitration could determine as a matter of contract the extent to which they wish matters to be treated as confidential, or that there was a common practice for arbitrators in English-seated arbitrations to make such high-level disclosure of their involvement in other relevant arbitrations without obtaining the express consent of the parties to the arbitrations about which disclosure was being made.
18. English-seated arbitrations vouch for two things. First, as a general rule the duty of privacy and confidentiality was not to prohibit all forms of disclosure of the existence of a related arbitration in the absence of express consent. Secondly, the duty of disclosure did not give an arbitrator carte blanche to disclose whatever was necessary to persuade a party that there was no justification for doubts about his or her impartiality.
19. Information that could be disclosed without having to obtain the express consent of the parties to the disclosed arbitration should be limited. In many cases such a limited disclosure may satisfy the recipient. If an arbitrator needs to disclose more detail about another arbitration in order to comply with the duty of disclosure, the arbitrator or proposed arbitrator must obtain the consent of the parties to the arbitration or proposed arbitration about which he or she was making a disclosure. An arbitrator could make disclosure of the existence of that arbitration and the identity of the common party in accordance with the practice in that field without obtaining the express consent of the relevant parties.
20. Where an arbitrator accepted appointments in multiple references concerning the same or overlapping subject matter with only one common party that may, depending on the relevant custom and practice, give rise to an appearance of bias. In the circumstances surrounding the instant appeal, a fair minded and informed observer, looking at the facts and circumstances which would be known to him or her at the date of the hearing, would not conclude that there was a real possibility of bias, therefore the appeal failed.
Relevance to the Kenyan situation A
rbitration being a way of settling disputes privately required that the arbitrator should balance the legal duty to disclose relevant information against maintaining the traditional practice of arbitration which required details of a reference to be kept confidential. The United Kingdom (UK) judgement puts into perspective the interplay between the two legal duties of an arbitrator. The UK case discussed in detail the test that should guide future arbitrations when determining presence of bias due to non-disclosure of relevant information. The test employed by Kenyan courts in determining whether the lack of disclosure on the part of the arbitrator amounted to apparent biasness was stated in the case of Chania Gardens Limited vs GILBI Construction Company Limited & Another (2015) eKLR where the court asserted that:
“The test whether a person is in position to act judicially and without any bias has been suggested to inquire if there exist grounds from which a reasonable person would think that there was a real likelihood that the arbitrator could not or would not fairly determine the dispute on the basis of the evidence and arguments to be adduced before him.”
In the case of West Park Limited v Villa Care Limited & another  eKLR, the applicant had lost faith in the arbitrator’s ability to be impartial owing to his failure to disclose material change of circumstances that would bring about the conflict of interest. The court stated that the duty for an arbitrator to disclose depended on whether the circumstance sought to be disclosed gave rise to justifiable doubts about the arbitrator’s impartiality and independence. The court further stated that there was no rule that prohibited an arbitrator from handling subsequent reference involving one or more of the same parties or one involving an advocate who had appeared before him.
The UK case can offer guidance to Kenyan courts as it has an expanded approach to the test of establishing if an arbitrator was biased or not through his non-disclosure. It was stated in the Halliburton case that:
“The fair-minded and informed observer should assess whether there is a real possibility that an arbitrator was biased by reference to the facts and circumstances known at the date of the hearing to remove the arbitrator while taking into consideration the custom and practice in arbitrations in that particular field.”
The UK Supreme Court’s detailed judgment thus provides critical guidance for arbitrators, practitioners, institutions and arbitration users alike.