In a much anticipated decision, the UK Supreme Court has considered to what extent arbitrators can accept appointments in overlapping arbitrations without giving rise to an appearance of bias, and to what extent they can do so without disclosure.
We consider what the decision means both for arbitrators seeking to avoid an appearance of bias, and parties seeking to challenge apparent bias.
Impartiality is a core principle of arbitration law. Section 1 of the Arbitration Act 1996 provides that the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal and, under s.33 of the Act, arbitrators owe a general duty to act fairly and impartially as between the parties. Where circumstances exist that give rise to justifiable doubts as to an arbitrator's impartiality, a party can apply to the court under s.24 of the Act to remove that arbitrator.
Most arbitral institutions' rules contain similar provisions, and many also place an ongoing obligation on arbitrators to disclose circumstances which might give rise to doubts as to their impartiality or independence.
In addition, there are various guides such as The International Bar Association Guidelines on Conflicts of Interest in Arbitration which (while non-binding and subsidiary to national laws and arbitral rules) provide useful guidance to arbitrators and parties on independence and impartiality. The IBA Guidelines include a "traffic light" list of indicative situations which may give rise to justifiable doubts, and guidance on disclosure that arbitrators should make in order to avoid the appearance of bias.
Facts of the case
This case concerned an arbitrator's involvement in three overlapping insurance arbitrations arising out of the Deepwater Horizon oil rig disaster:
- Arbitration 1 - the parties (Halliburton and Chubb) could not agree on the Chairman for the arbitration. The arbitrator eventually appointed had been proposed by Chubb. He disclosed that he had previously been involved in multiple arbitrations involving Chubb (and had previously been appointed by Chubb), and was involved in two current references involving Chubb. Halliburton opposed his appointment and the parties applied to the court. The court appointed this arbitrator as Chairman.
- Arbitration 2 - The same arbitrator was subsequently appointed by Chubb in separate proceedings with another insured, concerning similar subject matters. The arbitrator disclosed to the insured in this arbitration that he had been appointed in arbitration 1 between Halliburton and Chubb, and also disclosed his prior involvement in arbitrations involving Chubb. He did not however disclose this new appointment to Halliburton.
- Arbitration 3 - The same arbitrator was then appointed in a further related dispute between the insured in arbitration 2, and another insurer (i.e. not Chubb). Again, he did not disclose this appointment to Halliburton.
In short, although the arbitrator disclosed his prior involvement with Chubb before accepting arbitration 1, and disclosed his involvement in arbitration 1 to the parties in arbitrations 2 and 3, he did not provide further disclosure to Halliburton when he was later appointed on two related arbitrations to which Halliburton was not a party.
Halliburton subsequently learned of the arbitrator's appointments in arbitrations 2 and 3 and wrote to him, arguing that he owed a continuing duty to disclose potential conflicts of interest under the IBA Guidelines. Halliburton was not satisfied with his response, and made an application to remove him as arbitrator, on the grounds that his conduct gave rise to justifiable doubts as to his impartiality.
What is the perceived risk of multiple appointments?
Where an arbitrator accepts appointments in overlapping arbitrations with only one common party, unfairness may arise (or could be seen to arise) because the common party (in this case, Chubb) potentially stands to acquire an unfair advantage over its opponents through its participation in more than one related arbitration. As each arbitration is private and confidential, a party in Chubb's position could for instance:
- make submissions in one arbitration which may influence how the arbitrator approaches both arbitrations, but which a party in Halliburton's position would be unaware of and unable to respond to;
- share information with the arbitrator in arbitration 2 that is not shared with the party in arbitration 1;
- gain an insight into the views and approach of the arbitrator in arbitration 2 and tailor their approach and submissions in arbitration 1 accordingly; or
- in an extreme case (as happened in the context of an adjudication in Beumer Group UK Ltd v Vinci Construction UK Ltd) advance mutually inconsistent cases in the two proceedings without the party in Halliburton's position knowing.
There is also a perceived risk that, because arbitrators are paid by the parties (albeit through arbitral bodies), an arbitrator may have a financial interest in obtaining further appointments which gives rise to a conflict of interest.
Supreme Court decision
Halliburton's application to remove the arbitrator failed first in the High Court and then the Court of Appeal. Halliburton appealed to the Supreme Court.
The objective observer
The Supreme Court reiterated that in cases such as this, where the allegation is of apparent (not actual) bias, the test that the court must apply is whether the fair-minded and informed observer would conclude there is a real possibility that the arbitrator is biased. This fair-minded observer (also referred to in the judgment as the 'objective observer') is, in the words of previous authority "neither complacent nor unduly sensitive or suspicious".
Can an arbitrator accept overlapping appointments with one common party?
The court recognised that what is appropriate in arbitrations governed by institutional rules such as those of the ICC or LCIA, may differ from practice in e.g. trade, commodities or insurance arbitrations, where multiple overlapping arbitrations may be very common. The objective observer should bear this in mind when assessing if the overlapping appointments give the appearance of bias. The Supreme Court therefore differed from the Court of Appeal, and held that the simple fact of accepting appointments in multiple overlapping references with only one common party could, depending on the relevant custom and practice, of itself give the appearance of bias.
Can an arbitrator accept multiple overlapping appointments without disclosure?
The court also held that arbitrators are under a legal duty to disclose circumstances which would or might lead the fair-minded and informed observer to conclude there was a real possibility that the arbitrator was biased. This duty gives rise to an implied term in the arbitrator's contract.
The fact that an arbitrator has accepted multiple appointments in references with overlapping subject matter and one common party is a matter which may have to be disclosed, depending on the custom and practice in the relevant field of arbitration.
If the relevant custom and practice militates towards disclosure, then an arbitrator's failure to disclose relevant circumstances could itself (quite aside from the circumstances themselves) amount to apparent bias, because it could be said to demonstrate a lack of regard to the interests of the party to whom disclosure should be made.
When assessing whether an arbitrator should have disclosed relevant circumstances, the court should consider the position at the time the circumstances became known to the arbitrator. However, when assessing whether the objective observer would conclude there was a real possibility of bias, the court must take into account the circumstances that exist at the time of the hearing of the application to remove the arbitrator.
Application in this case
In the circumstances of this case, under Bermuda Form insurance arbitrations, the court found that the arbitrator should have disclosed the multiple overlapping appointments.
However, it found that the objective observer would not conclude, on the facts available at the time of the hearing of Halliburton's application to remove the arbitrator, that there was a real possibility of bias. By this time, the arbitrator had given an account of his non-disclosure, and Halliburton accepted that his oversight was genuine. The objective observer would expect arbitration 1 to conclude before arbitrations 2 and 3, such that there would be no prejudice to Halliburton, and the arbitrator had indicated that arbitrations 2 and 3 were likely to be (and ultimately were) disposed of by a preliminary issue, meaning they had little impact on arbitration 1. The arbitrator's response to the challenge was "courteous, temperate and fair" and there was no indication he bore Halliburton ill will as a result of the challenge which might itself indicate bias.
Finally, the court noted that it was not clear at the time of the appointments that there was a legal duty under English law to provide disclosure - although that argument has now been significantly curtailed by this decision.
This decision is welcome in so far as it recognises a legal duty for arbitrators to disclose circumstances which might give rise to an appearance of bias - to that extent, it upholds the integrity and transparency of English-seated arbitration. However, after considering interventions from arbitral bodies the ICC, LCIA, CIArb, LMAA and GAFTA, this decision also recognises that in specific fields such as trade, commodities and insurance arbitrations, multiple overlapping appointments will be common and unproblematic. Indeed, in such cases there may be significant benefits for the parties in appointing an arbitrator who is already familiar with the issues in dispute and wider context. In such cases, the pool of expert arbitrators may be small, and there may be no expectation of disclosure.
However, the decision has caused some unease in the international arbitration community because of an apparent desire by the court to come to a decision which did not require it to remove this particular arbitrator, an eminent practitioner. It is arguable that, had this arbitration been conducted under institutional rules, the arbitrator would have been removed and (given Halliburton's opposition) may never have been appointed in the first place. This does put the English common law position somewhat out of step with the international community, where stricter, subjective conflicts and disclosure rules prevail.
The decision also does not specifically address related disclosure issues around so called 'frequent flyers' - i.e. arbitrators who are repeatedly appointed by the same parties in different (not overlapping) arbitrations.
- Arbitrators should err on the side of caution and give disclosure of circumstances which might give rise to justifiable doubts as to their impartiality. The very fact of such disclosure may itself allay any concerns and head off contentious proceedings. Such disclosure does not trump the general principle of arbitral confidentiality, but limited disclosure of the common party will normally be possible.
- English law is objective - Ultimately though, the test for removal of an arbitrator under English law is objective, not subjective - what matters is whether the arbitrator's conduct gives the appearance of bias in the eyes of the fair-minded informed observer (and at the time of the hearing), not in the eyes of the complaining party.
- Institutional rules may be more favourable to parties making a challenge - by contrast, many arbitral institutions impose stricter, subjective rules on disclosure than the English common law approach. Although the precise formulation of the rule differs, the IBA Guidelines, ICC and LCIA Rules all require arbitrators to disclose facts or circumstances which might call into question the arbitrator's impartiality or independence in the eyes of the parties, rather than in the eyes of an objective observer. Although this was not possible in this ad hoc arbitration, parties with concerns as to arbitrator impartiality may therefore be well advised to make challenges under institutional rules where available (and indeed may be required to exhaust such procedures before bringing proceedings under s.24 of the Arbitration Act).