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21 May 2018
In Halliburton Company v Chubb Bermuda Insurance Ltd & Others  EWCA Civ 817, the Court of Appeal considered the extent to which an arbitrator may, without the parties' knowledge, accept appointments in several matters in relation to the same or overlapping subject matters with only one common party without giving rise to an appearance of bias. The arbitrations related to the Deepwater Horizon incident. As disputes in the oil and gas industry can reverberate through the value chain, and associated insurance, the decision is of particular interest to the sector.
Halliburton Company ("Halliburton") had provided cementing and well-monitoring services to BP on the Deepwater Horizon oil rig in the Gulf of Mexico (the "Deepwater Rig") and had purchased insurance from Chubb Bermuda Insurance Ltd ("Chubb") in relation to potential liability arising from its presence on the Deepwater Rig. Transocean Holdings LLC ("Transocean"), who owned the rig, had also purchased the same liability insurance from Chubb on the same terms as Halliburton, in relation to its provision of crew and drilling teams for the Deepwater Rig.
Following the explosion and fire at the Deepwater Rig in April 2010 which caused an oil spillage that attracted international attention, Halliburton made a claim on its liability insurance against Chubb. Chubb refused to pay Halliburton's claim, contending amongst other things that Halliburton's settlement of the claims was not reasonable, and/or that Chubb had reasonably not consented to the settlement. In January 2015, Halliburton appointed the third respondent as its arbitrator and Chubb appointed the fourth respondent as its arbitrator. Halliburton and Chubb could not agree on a third arbitrator for their dispute so an application was made to the High Court for appointment of an arbitrator selected from candidates put forward by both sides. The High Court selected the second respondent, M, who was Chubb's preferred arbitrator. M had disclosed that he had previously acted as arbitrator in a number of arbitrations in which Chubb was involved, including in two pending references where M was appointed by Chubb.
After the date of his appointment by the High Court, M was appointed in two further arbitrations relating to the Deepwater Horizon. First, in a dispute between Chubb and Transocean and, second, in another claim made by Transocean on the same layer of insurance. M failed to disclose to Halliburton that he had been subsequently appointed arbitrator in those two arbitrations. Halliburton issued a claim seeking that M be removed as arbitrator as Chubb was relying on similar arguments in both arbitrations.
The claim was dismissed at first instance by Mr Justice Popplewell who concluded that there was nothing in the acceptance of the Transocean appointments by M which resulted in the appearance of bias against Halliburton even if the issues in dispute in both cases were identical or substantially overlapping. There was no duty on M to disclose to Halliburton his appointment on an overlapping matter. In any case, even if disclosure ought to have been made, the failure to do so did not give rise to a real possibility of apparent bias against Halliburton. The matter was appealed by Halliburton to the Court of Appeal (the "Appeal").
The Court of Appeal provided guidance as to when arbitrators should make disclosure of circumstances which may result in doubts about his impartiality and the consequences of failing to disclose such circumstances.
Lord Justice Hamblen considered the grounds for the Appeal. By reference to AMEC Capital Projects Ltd v Whitefriars City Estates Ltd  1 WLR 723 he found that the mere fact that an arbitrator has previously decided on an issue, and accepted appointments in multiple references concerning the same or overlapping issues, does not give rise to apparent bias. Arbitrators are assumed to be trustworthy and to understand that they should approach each case with an open mind. Therefore 'something more' than appointment in overlapping subject matters is required to establish bias.
Disclosure of circumstances which may result in doubts about the arbitrator's impartiality
There are no statutory requirements in relation to disclosure but under common law, judges should disclose facts or circumstances which could give rise to doubts about their impartiality. Lord Justice Hamblen formulated an objective test that he found applies equally to judges and arbitrators:
"disclosure should be given of 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 tribunal was biased (…) the test is an objective one, to be judged by reference to what the fair-minded and informed observer would or might conclude."
The decision as to whether or not to disclose a potential bias is to be determined prospectively by reference to an objective test. The Court of Appeal agreed with the LCIA rules that disclosure is only required of facts or circumstances known to the arbitrator but clarified that there is no duty of inquiry.
In terms of the consequences of failing to disclose circumstances which may result in doubts about the arbitrator's impartiality the Court of Appeal found that if a disclosure that ought to have been made has not been made that will mean the arbitrator has not displayed the 'badge of impartiality' that he should have.
The Appeal was dismissed on the basis that there was no apparent bias as the non-disclosure was accidental and the similarity of the overlapping issues did not give rise to any significant concerns. Applying the objective test, a fair and minded observer would not consider that the mere oversight to disclose would give rise to justifiable doubts as to M's impartiality.
The Court of Appeal considered the following factors relevant from the perspective of the fair-minded and informed observer: (1) the non-disclosed circumstance does not in itself justify an inference of apparent bias; (2) disclosure ought to have been made, but the omission was accidental rather than deliberate; (3) the very limited degree of overlap means that this is not a case where overlapping issues should give rise to any significant concerns; (4) 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 (5) there was no substance in Halliburton's criticisms of M's conduct after the non-disclosure was challenged or in the other heads of complaint raised by them.
The Court of Appeal found that it was likely that M had done everything he could to ensure that his appointment in other matters did not affect his approach in the present matter. Nevertheless Lord Justice Hamblen did comment that best practice in international arbitration would require the disclosure to have been made.
Oil and gas, or related insurance, disputes can turn on issues of a highly technical nature or specific industry standards. As such, arbitrator availability with the required expertise may be limited.
The decision of the Court of Appeal ensures that the available 'pool' of arbitrators is not unnecessarily narrowed, by disqualifying any individual that has previous or current appointments concerning the same or similar issues, facts, or law. An arbitrator may acquire information and knowledge from appointment on overlapping issues, but that does not necessarily cast doubt as to the arbitrator's impartiality. This case clarifies that the arbitrator will only be disqualified if there is 'something more' which is also 'something of substance' that could be perceived as tainting the arbitrator's impartiality. In taking this approach, English law allows arbitrators (as judges) to develop areas of expertise that are useful to commercial parties.
The importance placed by the Court of Appeal on disclosure of circumstances that may give rise to justifiable doubts as to the arbitrator's impartiality is of significance. Provided an arbitrator has done everything she or he could to ensure that nothing influenced in any way his approach to the current dispute they should be entitled to be appointed.
An apparent bias may arise if the arbitrator fails to disclose any matter which a fair and reasonable person would deem should have been disclosed. However, even this will not, in itself, immediate disqualification.
For further information on this topic please contact Phillip Ashley, Simon Kilgour or Richard Bamforth at CMS Cameron McKenna Nabarro Olswang LLP by telephone (+44 20 7367 3000) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The CMS Cameron McKenna Nabarro Olswang LLP website can be accessed at cms.law.
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