Practical Law

Section 33 of the Arbitration Act 1996 imposes a duty on arbitrators to “act fairly and impartially as between the parties” and section 24(1)(a) provides that the court has the power to remove an arbitrator if circumstances exist that “give rise to justifiable doubts as to his impartiality”.

This week I’m looking at the Court of Appeal’s decision in Halliburton Company v Chubb Bermuda Insurance Ltd and others, where the court had to decide whether an arbitrator should be removed under section 24 in circumstances where he had accepted multiple appointments in overlapping cases without telling the parties.

Halliburton Company v Chubb Bermuda Insurance Ltd and others

Although the facts are quite complex, the key point is that the arbitrator in question was appointed in the Halliburton arbitration as chair (the arbitration clause provided for three arbitrators) and he was subsequently appointed by Chubb in two further arbitrations (the Transocean arbitrations), which didn’t involve Halliburton and which he didn’t disclose to Halliburton. (Before accepting the first appointment, the arbitrator had disclosed his previous involvement with Chubb, including that he was currently appointed as arbitrator in two pending references.)

All three arbitrations concerned the Deepwater Horizon accident in the Gulf of Mexico.

When Halliburton learned of the second and third appointments, it raised the issue with the arbitrator, who explained that he had not disclosed the fact to Halliburton because it did not occur to him that he was under any obligation to do so under the IBA Guidelines. He also suggested:

“… with the benefit of hindsight, that it would have been prudent for me to have informed your clients through your firm, and I apologise for not having done so.”

However, he continued that while the three arbitrations were concerned with the Deepwater Horizon accident, they did not “raise the same or even similar issues”.

Although the arbitrator had offered to resign in the Transocean arbitrations, Chubb was not prepared to agree to this, so Halliburton applied for the arbitrator’s removal under section 24, arguing that the failure to disclose the appointments and the subsequent response to the challenge gave rise to an appearance of bias.

At first instance, the court dismissed the application (something Matt discussed at the time). Ultimately, so did the Court of Appeal:

“… having carefully considered both individually and collectively all the arguments advanced by Halliburton (orally and in writing), we agree with the judge’s overall conclusion that the fair-minded and informed observer, having considered the facts, would not conclude that there was a real possibility that [the arbitrator] was biased.”

The relevant law

In my view, the Court of Appeal’s discussion about the relevant law is the interesting part of this case. The court started by:

• Summarising the law on an arbitrator’s duty of impartiality.
• Confirming that section 24(1)(a) reflects the common law test for apparent bias, namely whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.

The court then went on to answer a number of questions, and it is those that I want to focus on.

Can an arbitrator accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without it giving rise to an appearance of bias?

The Court of Appeal considered a number of relevant cases, including adjudication cases such as AMEC Capital Projects Ltd v Whitefriars City Estates Ltd and Beumer Group UK Ltd v Vinci Construction UK Ltd (which I discussed at the time).

It concluded that the mere fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matters, with only one common party, does not of itself give rise to an appearance of bias, although it may be a legitimate concern for the parties.

In adjudication, where the Scheme for Construction Contracts 1998 applies, an adjudicator could only act in these circumstances if consent had been given under paragraph 8, as I discussed in my last blog. However, where the Scheme does not apply, in my view, the guidance provided by the Court of Appeal could equally apply to adjudicators.

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

After reviewing the authorities, the Court of Appeal stated that:

“… we consider the present position under English law to be that disclosure should be given of facts and circumstances known to the arbitrator which, in the language of section 24 of the Act, would or might give rise to justifiable doubts as to his impartiality. Under English law this means 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.”

That summary doesn’t necessarily add to what we already knew, but some of the discussion does. In particular, the court stressed the importance of disclosure where the position is borderline, because the relevant test includes circumstances that “would or might lead the fair-minded and informed observer” to conclude that there was a real possibility that the arbitrator was biased.

Interestingly, the court quoted Lord Woolf from the 2003 case of Taylor v Lawrence, where he stated:

“A further general comment which we would make, is that judges should be circumspect about declaring the existence of a relationship where there is no real possibility of it being regarded by a fair-minded and informed observer as raising a possibility of bias. If such a relationship is disclosed, it unnecessarily raises an implication that it could affect the judgment and approach of the judge. If this is not the position no purpose is served by mentioning the relationship.”

I think that’s a very interesting point, but it is arguably not as relevant 15 years later in the current climate of full disclosure.

I’ve blogged in the past on the RICS’ conflicts of interest guidance note, which also provides some useful guidance for surveyors acting as dispute resolvers. I understand that RICS is currently in the process of amending this guidance note.

What are the consequences of failing to disclose circumstances that should have been disclosed?

The Court of Appeal stated that there are two questions that must be asked when a court is deciding the consequences of non-disclosure:

• Should disclosure have been made in accordance with the principles set out above?
• What is the significance of that non-disclosure in the context of the application with which the court is dealing?

The court recognised that non-disclosure is a factor to be taken into account in considering the issue of apparent bias, as it is in adjudication (as cases such as Beumer demonstrate and, in that case, the non-disclosure in question resulted in a finding that there had been a material breach of the rules of natural justice).

The court also stated that an inappropriate response by a tribunal to the suggestion that there should be or should have been disclosure may:

“… further colour the thinking of the observer and may fortify or even lead to an overall conclusion of apparent bias…”

The court cited two cases that will be familiar to many of you, namely Paice v Harding and Cofely Ltd v Bingham. Therefore, it is clear that a tribunal must give careful thought when responding to such claims, and remember that the theory that “defence is the best form of attack” should not be deployed.

My take-aways

I think that this is an interesting case on the topic of apparent bias, which also demonstrates the Court of Appeal’s continuing support for arbitration generally. It also highlights that arbitrators and adjudicators should always have in mind the relevant test for apparent bias when considering whether disclosure of an involvement should be made. If the arbitrator or adjudicator is in any doubt about an involvement, my recommendation is to disclose it. Transparency at the outset of the proceedings will give the parties confidence that the tribunal understands their duty of impartiality.