Arbitrators – Apparent Bias and Duty to Disclose

Deepwater Horizon site
Under the Arbitration Act 1996, the court may remove an arbitrator in various circumstances, including where “… circumstances exist that give rise to justifiable doubts as to his impartiality”. This has recently been subject to judicial scrutiny by the Court of Appeal in Halliburton Company v Chubb Bermuda Insurance Ltd which deals with the issue of whether an arbitrator may accept appointments in multiple overlapping arbitrations and the extent to which he/she needs to disclose such appointments to the parties to the other arbitrations.

The case arose from a dispute following the Deepwater Horizon oil rig explosion and fire which killed 11 workers and caused extensive environmental damage along the US Gulf Coast. Following the incident, numerous claims were made against Transocean, BP and Halliburton. Transocean and Halliburton had liability insurance on the Bermuda Form from Chubb on materially identical terms. After settling with the claimants, both made claims under the insurance policies which Chubb rejected on the basis that the settlements were unreasonable.

Halliburton commenced arbitration proceedings against Chubb and each party appointed an arbitrator.  The parties could not agree on the identity of the third arbitrator so the High Court appointed M to chair the tribunal. M had disclosed that he was then sitting in two (unrelated) cases to which Chubb was party.

Transocean later also commenced arbitration against Chubb. Chubb named M as its party-appointed arbitrator. Prior to accepting this appointment, M disclosed to Transocean his appointment in the Halliburton case and in the other Chubb arbitrations which had been disclosed to Halliburton. M did not, however, disclose to Halliburton his proposed appointment in the Transocean dispute.

Halliburton applied to the court to remove M as arbitrator on the grounds of “…justifiable doubts as to his impartiality”. The application was dismissed by the Commercial Court on the grounds that there was no appearance of bias against Halliburton on M’s part and that if the circumstances do not otherwise establish an appearance of bias, they need not be disclosed (see previous article here). Halliburton appealed.

The Court of Appeal accepted Haliburton’s concerns that unfairness may arise where an arbitrator accepts appointments in overlapping references with only one common party. However, arbitrators are assumed, like judges, to be trustworthy and to understand that they should approach every case with an open mind. The mere fact of an overlap does not give rise to justifiable doubts of impartiality.

The Court went on to consider whether the fact of the second appointment should have been disclosed. It disagreed with the first instance analysis that whether there was apparent bias was itself determinative of whether M should have disclosed his appointment in the other arbitrations and concluded that, in the context of international commercial arbitration, it was best practice for an arbitrator to disclose circumstances that would or might lead the observer to reach the conclusion there was a real possibility of bias so disclosure should have been made of the further references.

Nevertheless the Court rejected the appeal, finding that the non-disclosure taken together with the other relevant factors would not have led the fair-minded and informed observer to conclude that there was in fact a real possibility that M was biased. Non-disclosure of a fact or circumstance which should have been disclosed, but does not in fact, on examination, give rise to justifiable doubts as to the arbitrator’s impartiality, cannot, in itself justify an inference of apparent bias.

This decision makes it clear that it is to be assumed that arbitrators will approach each case with an open mind and deal with it on the basis of the evidence available and that an arbitrator may, therefore, be appointed in multiple overlapping references provided appropriate disclosure is made. Nevertheless the finding that disclosure of an overlapping appointment may be required where it might lead to an inference of bias will likely lead to more challenges to non-disclosure by arbitrators and it remains to be seen how the Courts will build on this decision.

Katy Carr