The question of whether an arbitrator can accept appointments in related or overlapping references can arise with surprising frequency, especially in the context of excess layer insurance programmes. In Halliburton, the Court of Appeal held that (1) an arbitrator should have made disclosure of later references but (2) on the facts of the case, neither the fact of the later references nor the failure to disclose them would have led a fair-minded and informed observer to conclude that there was a real possibility that the arbitrator was biased.

The Court of Appeal’s decision is considered by David Turner QC of 4 New Square.

THE FACTS

Following the Deepwater Horizon explosion in the Gulf of Mexico on 20 April 2010, numerous claims were made against BP (the lessee of the rig), Transocean Holdings (the owner of the rig, which also supplied crew and drilling teams) and Halliburton (which provided cementing and well-monitoring services to BP. Both Halliburton and Transocean had purchased excess liability insurance on the Bermuda Form from Chubb: the policies were governed by New York law but provided for arbitration in London by three arbitrators.

Halliburton settled private claims against it for approximately US$1.1bn. Transocean paid US$212m to settle the private claims which it faced, and also paid civil penalties of around US$1bn to the US Government.

Chubb declined to indemnify Halliburton in respect of the sums paid to settle the private claims, contending that the settlement was not a reasonable settlement and/or had been entered into without Chubb’s consent. Accordingly, in January 2015, Halliburton commenced an arbitration. Following disagreement between the parties, the High Court was asked to appoint the third arbitrator. In June 2015, Flaux J appointed M as the third arbitrator (referred to as “Reference 1”). Prior to his appointment, M had disclosed that he had previously acted as an arbitrator in arbitrations to which Chubb was a party, including appointments on behalf of Chubb, and that he was appointed in two current arbitrations in which Chubb was involved.

In December 2015, M accepted an appointment from Chubb on an arbitration involving Transocean which also arose out of the Deepwater Horizon explosion (“Reference 2”). In August 2016, M also accepted an appointment as a substitute arbitrator on another claim made by Transocean, but this time against a different insurer on the same layer as Chubb (“Reference 3”).

In November 2016, Halliburton learned of M’s appointment in References 2 and 3. In the same month, potentially dispositive preliminary issues of policy construction were heard in References 2 and 3. On 29 November 2016, Halliburton’s UK lawyers wrote to M, referring to the IBA Guidelines on Conflicts of Interest in International Arbitration and seeking an explanation for the failure to disclose the appointments in References 2 and 3. M responded by email shortly thereafter, saying that he had not made any disclosure to Halliburton at the time of his appointment to References 2 and 3 because it had not occurred to him that he was required to do so, and pointing out that his involvement in the later references had been limited thus far to the preliminary issues as to contractual construction; he concluded by stating that he would be prepared to resign from References 2 and 3 if they were not brought to an end by the preliminary issues.

Halliburton responded by expressing concern as to M’s impartiality and suggesting he should resign from Reference 1; Chubb, in the meantime, made clear that it was not prepared to agree to him doing so.

In a further email dated 15 December 2016, M expressed regret that he had not disclosed his appointments in References 2 and 3, if only to avoid any suggestion of a lack of transparency. He indicated that if he were free to act in his own self-interest he would resign as it was of fundamental importance that both parties should have confidence in his impartiality. However, he also recognised that he owed duties not just to Halliburton but also to Chubb, and that he had undertaken to serve as Chair of the Tribunal in Reference 1 until it was completed. He suggested that the parties should attempt to agree the identity of a suitable successor, but that if they could not do so then he would have to leave his fate in the hands of the Court.

On 21 December 2016, Halliburton issued a claim form seeking an order that M be removed as an arbitrator in Reference 1, pursuant to section 24(1)(a) of the Arbitration Act 1996. On 17 February 2017, Popplewell J dismissed Halliburton’s application. On 1 March 2017, the issues of policy construction in References 2 and 3 were decided in Insurers’ favour, thereby disposing of both of those arbitrations.

On 5 December 2017, the Tribunal in Reference 1 found in Chubb’s favour. The arbitrator nominated by Halliburton declined to join in the award on the basis that the failure to disclose the appointments in References 2 and 3 was inconsistent with the parties’ entitlement to expect impartiality and even handedness.

THE JUDGMENT BELOW

In his judgment at first instance ([2017] EWHCD 137 (Comm)), Popplewell J rejected Halliburton’s suggestion that M’s appointment in References 2 and 3 amounted to a secret benefit from Chubb. He also rejected the argument that the appointments in References 2 and 3 gave rise for concern on account of the possibility that M might learn information in those references which was relevant to Reference 1 but not available to Halliburton, holding that (1) it was undesirable that parties should be constrained in their selection of arbitrators simply because there might be multiple arbitrations arising out of a single event, and (2) the principle of finality would be served if the Tribunal were already familiar with the background to the subject matter of the dispute. Further, the duty under section 33 of the Arbitration Act 1996, requiring the arbitrator to decide the case by reference to the material available to the parties, meant that an arbitrator would not be precluded from sitting on two tribunals each seised with a dispute involving a materially identical subject matter.

Accordingly, Popplewell J concluded that:

  • There was nothing in the acceptance of References 2 and 3 which could give rise to an appearance of bias on M’s part against Halliburton;
  • If the acceptance of the References could not give rise to an appearance of bias, then the failure to disclose those references could not, without more, give rise to any equivalent concern.

Popplewell J rejected an alternative route to the revocation of M’s appointment through an application of CPR Part 3.1(7), holding that the power of revocation provided by that rule related only to orders made under the Civil Procedure Rules themselves and did not extend to the statutory power of appointment exercised by a High Court judge under section 18 of the Arbitration Act.

THE COURT OF APPEAL’S DECISION

Principles

In the Court of Appeal, Halliburton contended that Popplewell J had failed to have adequate regard to the unfairness where an arbitrator accepted overlapping references. In particular, Halliburton stressed the potential for an arbitrator to be privy to become privy to information in one reference which is unknown to the other party in a different reference; and also for a party appearing in all references to tailor its approach in the light of the views of the common arbitrator as they became apparent in an earlier reference. The legitimacy of such concerns had led Leggatt J to refuse to appoint the Insured’s proposed arbitrator in Guidant LLC v Swiss Re International SE [2016] EWHC 1201, albeit that he had accepted the Insured’s submission that the appointment of a common arbitrator did not justify an inference of apparent bias.

The Court of Appeal agreed with Leggatt J that while “inside information” or “inside knowledge” might be a legitimate concern in overlapping arbitrations with a common arbitrator but only one common party, such a state of affairs did not justify an inference of apparent bias: as to that, the starting point remained Dyson LJ’s dictum in AMEC Capital Projects v Whitefriars City Estates [2005] 1 WLR 723 at [20]-[21] to the effect that tribunals (like judges) are assumed to be trustworthy and approach every case with an open mind even if they have previously decided the issue before it. It followed that an arbitrator could be trusted to decide a case solely on the evidence before him in the reference in question, even where there was a common party. In so holding, it is notable that the Court of Appeal cited, but did not endorse, Fraser J’s conclusion in Beumer Group UK Ltd v Vinci Construction UK Ltd [2016] EWHC 2283 (TCC) that the failure to disclose the use of the same adjudicator in two construction adjudications arising out of the same subject matter amounted to a breach of natural justice rendering the adjudicator’s decision unenforceable.

The Court of Appeal did not agree with Popplewell J’s view that the analysis of whether there was apparent bias was itself determinative of whether M should have disclosed the fact of References 2 and 3 to Halliburton. The Court noted that authorities such as Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451 indicated that an obligation to disclose might arise in circumstances which fell short of those required to support a finding of apparent bias. A similar approach had also been taken in the Privy Council’s recent decision in Wael Almazeedi v Michael Penner [2018] UKPC 3.

As a matter of English law, an arbitrator was obliged to disclose facts known to him which might give rise to justifiable doubts about his impartiality.

It followed that a court considering an allegation of non-disclosure after the event should consider two distinct questions:

  • First, whether disclosure should have been made;
  • Second, the significance of that non-disclosure in context.

Application to the Facts

In the present case, the Court of Appeal considered that the circumstances of M’s appointment and the fact of overlap between the references could not give rise to justifiable doubts as to his impartiality. Halliburton’s suggestion that the further references amounted to the conferment of a financial benefit on M for which he should be disqualified was “wholly inconsistent” with the manner in which international arbitration is conducted and would lead to “absurd” consequences.

The Court considered that, as a matter of best practice in international commercial arbitration and as a matter of law, disclosure should have been made of the further references. In so far as M was under duties of confidentiality in relation to those references, the need to provide disclosure to Halliburton would regarded as an exception to such duties.

Nevertheless, the Court of Appeal agreed with Popplewell J’s conclusion that the fair-minded and informed observer considering all the facts would not conclude that there was a real possibility that M was biased. Accordingly. Halliburton’s appeal was dismissed.

COMMENTARY

The Court of Appeal’s decision will not provide a complete answer to the question of whether arbitrators can or should accept appointments in overlapping references. Where the Court is being asked to exercise its power of appointment, the concerns about “inside information” or “inside knowledge” alluded to by Leggatt J in the Guidant case may well still militate against the appointment of a common arbitrator to multiple references. However, the decision in Halliburton clearly emphasises that arbitrators are to be trusted to approach each reference solely by reference to the evidence available and submissions made in that reference: thus, and provided appropriate disclosure is made, the decision confirms that there is little practical impediment to an arbitrator being a party-appointed arbitrator in multiple, overlapping references.

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