To Disclose Or Not To Disclose? UK Supreme Court Defines Standards For Arbitrator's Impartiality And Duty Of Disclosure

• Published date: 30 November 2020
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Arbitration & Dispute Resolution
• Law Firm: Mayer Brown
• Author: Ms Rachael O'Grady, Lisa Dubot and Mark McMahon

Other Author Marcelo Richter, Global International Arbitration Legal Assistant

Introduction

Arbitrators' independence and impartiality is one of the cornerstones of arbitration. The system is based on trust: the arbitrators are given a vote of confidence by the parties to settle their divergences independently and impartially. Not surprisingly, besides national laws and institutional rules, there is a plethora of soft laws - guidelines, codes of ethics and codes of conduct - designed to offer legal security and predictability to users on this controversial topic.

The English Arbitration Act 1996 ("AA 1996") imposes a general duty on arbitrators to act fairly and impartially between the parties (Section 33(1)(a)). The AA 1996 also offers the parties the power to apply to English courts to remove an arbitrator on the ground that circumstances exist that give rise to justifiable doubts as to the arbitrator's impartiality (Section 24(1)(a)). Historically, English courts have generally interpreted the Section 24(1)(a) standard of "justifiable doubts" in line with the common law test for "apparent bias", though there has been no absolute ruling in this respect. Until now.

Today, following a two-day hearing held in November 2019, with interventions from the ICC, the LCIA, the LMAA, GAFTA and CIArb as amicus curiae, the UK Supreme Court ("UKSC") rendered a long-awaited decision¹ establishing the current English-law position whether and to what extent an arbitrator may:

• accept appointments in multiple references on the same or overlapping subject matter with only one common party, without thereby giving rise to an appearance of bias; and
• do so without making disclosure to the party who is not the party in common.

For the reasons explained below, this decision corroborates the notion that the applicable threshold under English law for disqualification of arbitrators is high. The current position as today decided by the UKSC is that:

• there may be circumstances in which the acceptance of appointments in multiple references might reasonably cause the objective observer to conclude that there is a real possibility of bias. However, whether the objective observer would reach that conclusion will depend on the facts of the particular case and especially upon the custom and practice in the relevant field of arbitration; and
• where such circumstances might reasonably give rise to a conclusion by the objective observer that there was a real possibility of bias, the arbitrator is under a legal duty to disclose such appointments. A failure of an arbitrator to make such disclosure is a factor for the fair-minded and informed observer to take into account when assessing whether there is a real possibility of bias, by reference to the circumstances of the case.

Factual Background

The dispute underlying the UKSC's decision stems from an explosion, followed by an oil spill, on the Deepwater Horizon offshore drilling rig that began on 20 April 2010 in the Gulf of Mexico (the "Disaster"). Built in 2001, the Deepwater Horizon was a drilling rig situated in the Gulf of Mexico and was owned by the Swiss company Transocean Holdings LLC ("Transocean"). Transocean leased the Deepwater Horizon to BP Exploration and Production Inc. ("BP"), which contracted Halliburton Company ("Halliburton") to provide certain services. Both Halliburton and Transocean purchased liability insurance on the Bermuda Form from Chubb Bermuda Insurance Ltd. ("Chubb").

Following the Disaster, the US Government, corporations and individuals brought numerous claims against BP, Halliburton and Transocean. In September 2014, the US Federal Court in Louisiana rendered a judgment apportioning the liability between BP (67%), Transocean (30%) and Halliburton (3%). However, shortly before judgment, Halliburton concluded a settlement of these claims in the sum of approximately US$1.1 billion. Given the adverse decision by the US Federal Court, Halliburton made a claim on its liability insurance. Chubb refused to pay Halliburton's claim, arguing, inter alia, that the insured's settlement of the claims was not a reasonable settlement and/or that the insurer had not consented to the settlement.

Arbitration between Halliburton and Chubb

By virtue of Chubb's decision refusing to indemnify the insured, in January 2015, Halliburton commenced an arbitration against the insurer ("Arbitration 1"). The insurance policy was governed by New York law and provided for a London-seated arbitration by three arbitrators, one chosen by each party and the chair...