Arbitrator’s Duty of Disclosure – Maintaining “the Badge of Impartiality”

It is a basic expectation of parties to an arbitration that their matter is heard by an independent and impartial arbitrator.[1] Indeed, it is a fundamental principle in international arbitration, and arbitrators have a duty to remain independent and impartial throughout the arbitration proceedings.[2]

A frank disclosure of any circumstances giving rise to doubts as to an arbitrator’s independence or impartiality is seen as a key to the perception of an arbitrator’s impartiality.[3]  Whether the arbitrator has a legal duty to disclose or if it is just a matter of good practice has garnered some debate. Most countries, particularly those adopting the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), recognize the arbitrator’s duty of disclosure.[4] In England, which has not adopted the Model Law, the position had been somewhat unclear.[5]

Further, disclosure is not always a clear-cut exercise as it is placed on the other end of the pendulum with the competing duty of confidentiality. Apart from the question of whether an arbitrator has a duty to disclose, the scope of this duty is also difficult to define which is often discussed broadly. Standards for disclosure maybe different from jurisdiction to jurisdiction, though in majority of jurisdictions, especially those adopting Model law, the test for disclosure is an objective one.[6]

The IBA Guidelines on Conflicts on Interest in International Arbitration (the “IBA Guidelines”) provide guidance to arbitrators on matters of disclosure and have come to be widely used by international arbitration practitioners. The IBA Guidelines set a stricter standard for arbitrators to disclose circumstances “that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence”. Although, at most times the IBA Guidelines serve as soft law where parties agree to be guided by it in addition to agreed arbitration rules and procedures. The rules of certain arbitral institutions adopt a similar subjective test.[7] All in all, there is a quite bit of navigation required in assessing the contours of an arbitrator’s duty to disclose depending on the arbitration laws, rules agreed by the parties and prevalent practice.

In the UK, the Supreme Court’s decision in Halliburton v Chubb[8] is the new discussion point in the international arbitration community regarding arbitrator’s duty to disclose and apparent bias. While this decision has been generally well received, for some it stirs further debate and calls for question on London’s appeal as the desired seat.[9]

The most notable point perhaps is the Supreme Court’s holding on arbitrator’s having legal duty of disclosure which the court spelled out for the first time in express terms. In this important decision, the Supreme Court clarified the approach for assessing an arbitrator’s apparent bias under English law, and also seized the opportunity to discuss the tension between an arbitrator’s duty to disclose and duty of confidentiality.

Noting that the matter raised questions of law of general importance to the arbitration field, the Supreme Court also allowed several prominent arbitral institutions and organizations to make their submissions as interveners, including LCIA, CIArb, LMAA and GAFTA.

While this article does not aim to delve into details of the factual background, it sets out a brief description of the issue of challenge as to arbitrator’s apparent bias and failure to disclose.

Background to the challenge on the arbitrator

The arbitration in question was instigated by Halliburton against Chubb for insurance payments under a Bermuda Form liability policy arising from the incident of Deepwater Horizon drilling rig (the “Rig”) that occurred in Mexico in 2010. The two arbitrators nominated by the parties were unable to agree on appointing the presiding arbitrator. As a result, the High Court appointed the presiding arbitrator (the “Arbitrator”), who happened to be one of the arbitrators proposed by Chubb to the court.

The Arbitrator disclosed to Halliburton and the court his previous appointment as arbitrator in several arbitrations in which Chubb was a party, including arbitration where he was as a party-appointed arbitrator nominated by Chubb. He also disclosed that he was then currently appointed as arbitrator in two pending references in which Chubb was involved.  However, the High Court did not view these circumstances as a concern to the Arbitrator’s appointment.

During the arbitration proceedings, Halliburton learnt about the Arbitrator’s involvement in two further appointments subsequently taken up by the Arbitrator which dealt with related subject matter. One of these arbitrations involved Chubb and the owner of the Rig (Transocean Holding LLC, hereinafter referred to as “Transocean”), in which the Arbitrator was in fact nominated by Chubb as its party-appointed arbitrator (the “Second Arbitration”). The other arbitration involved Transocean and another insurer (the “Third Arbitration”).

Halliburton challenged the Arbitrator’s appointment in the court seeking an order under section 24(1)(a) of the Arbitration Act 1996[10] (the “Arbitration Act”) that the Arbitrator be removed. Halliburton argued that the Arbitrator’s appointment gave Chubb an unfair advantage of being a common party to two related arbitrations where Chubb could make submissions to the Arbitrator and consider his responses without Halliburton’s knowledge. It also asserted that the Arbitrator’s failure to disclose his appointments in the subsequent arbitrations gave rise to apparent bias.

Upon dismissal of Halliburton’s claims on both the trial and appeal level, Halliburton appealed to the Supreme Court. While upholding the lower court’s decision (although on different reasons), the Supreme Court unanimously rejected the appeal finding that there was no apparent bias. Below are some of the key points of the Supreme Court’s decision.

The duty of impartiality

The Supreme Court highlighted section 1 and section 33 of the Arbitration Act, which provide for an arbitrator’s duty of impartiality. It further held that the test for apparent bias in English-seated arbitrations is an objective one which requires a fair-minded and informed observer to conclude that there is a real possibility of bias having regard to all the facts.

Overlapping arbitrations and apparent bias

With respect to arbitrations involving same or overlapping subject matter with only one common party, the Supreme Court noted the importance of considering various practices and customs in the relevant field when assessing whether such multiple appointments give rise to appearance of bias. The court noted different practices under institutional rules, such as the ICC, where multiple appointments are less common thus more readily giving rise to an appearance of bias. On the other hand, in arbitrations in certain specialist fields such as maritime and sports, multiple appointments seem to be more prevalent as arbitrators are drawn out from a limited and specialised pool of individuals.

Thus, accepting multiple appointments with overlapping subjects with only one common party may itself give the appearance of bias depending on the relevant custom and practices.

Duty of disclosure

The Supreme Court noted that to comply with their duty to act fairly and impartially under the Arbitration Act, the arbitrators have a legal obligation to disclose the circumstances which would or might lead the objective observer to conclude a real possibility of arbitrator’s bias, unless the parties have waived that obligation.

With respect to multiple appointments in arbitration involving overlapping subject matter, the arbitrator may have to disclose depending on the custom and practices in the relevant field of arbitration.

The duty to disclose and confidentiality considerations

The Supreme Court stated that under English law, arbitrations are both private and confidential, and therefore impose an implied duty on parties and arbitrators to respect the confidentiality of the proceedings. The Court also noted the developing nature of this area of law and the variant practices of different arbitral institutions and certain specialist arbitrations when it comes to disclosure of an arbitrator’s multiple appointments in same or overlapping subject matters.

The Court held that disclosure can be made only if the parties to whom the confidentiality obligation is owed give their consent. The consent could be express or inferred from the arbitration agreement in the context of the custom and practice in the relevant field. The court referred to institutional rules of ICC, LCIA, ICSID requiring disclosure to the institution or the parties of matters which may include information about other arbitrations, from which parties’ consent to disclosure may be inferred. The court also referred to certain specialist arbitrations and institutional rules such as GAFTA and LMAA where multiple appointments of arbitrators often arising out of the same events is an accepted feature of their arbitrations. In such cases, the question of the relationship between such disclosure and the duty of confidentiality does not arise where parties are taken to have accepted that such practice does not give rise to questions of impartiality.

In relation to Bermuda Form arbitrations, the Supreme Court found that it is not uncommon for arbitrators to disclose their involvement in prior or current arbitrations involving a common party without disclosing the identity of the other party or details of the arbitration. Thus, in such arbitration the arbitrator may, in the absence of agreement to the contrary by the parties to the relevant arbitration, make such limited disclosure of the existence of that arbitration and the identity of the common party without obtaining the express consent of the relevant parties. The consent of the common party can be inferred from its action in seeking to nominate or appoint the arbitrator. The other party’s consent is not required as their identity is not disclosed.

Failure to disclose possibly giving rise to apparent bias

Where an arbitrator has accepted an appointment in multiple arbitrations in circumstances which might reasonably give rise to justifiable doubts as to his or her impartiality, a failure to disclose those matters to the party who is not the common party to the arbitration deprives that party of the opportunity to address those matters. The non-disclosure may also demonstrate a lack of regard of the interests of the non-common party.  Thus, a failure to disclose may in certain circumstances amount to apparent bias and is a factor to be taken into account by an objective observer when assessing the real possibility of bias.

Commentary

The Supreme Court’s decision in Halliburton v Chubb provides a welcomed clarification on the arbitrator having a legal duty to disclose. Up until the decision, the English law position on this was not clear. In fact, it has been debated as to its existence, and there are further arguments of whether it is a primary or a secondary duty.[11] What the Court clarifies is that the duty to disclose is an implied duty (if not express) stemming from arbitrator’s duty of impartiality and independence under s.33 of the Arbitration Act.

The Court also clarified that the duty of disclosure does not override the duty of confidentiality. Therefore, these are two independent duties which must be balanced against each other when the arbitrator has to make an assessment on whether to disclose certain facts or circumstances.

Another important takeaway from the case is the difference between disclosure which does not breach confidentiality and disclosure that is made as an exception to the confidentiality obligations of the arbitrator.[12] It would appear that, in general, an arbitrator may make limited disclosure as to the existence of a related arbitration without obtaining the express consent and without breaching his/her duty of confidentiality. As far as the Bermuda Form arbitration is concerned, noting the common practice in Bermuda Form arbitrations, the Court held that an arbitrator may, in the absence of agreement to the contrary by the parties to the relevant arbitration, disclose the existence of that arbitration and the identity of the common party without obtaining the express consent of the relevant parties. It must be kept in mind that the Supreme Court held “consent” to be the key component in deciding whether the disclosure breaches the arbitrator’s duty of confidentiality. This consent could be express or inferred. In this case, the Court stated that the consent of the common party can be inferred from its action in seeking to nominate or to appoint the arbitrator, whereas the consent of the other party is not required since its identity is not disclosed. It would thus appear that arbitrator’s duty of disclosures comes with restrictions and greater weight is to be given to confidentiality obligations in some way. So how is the arbitrator supposed to discharge his/her duty of disclosure now that the Court clearly states it to be a legal obligation? Well, the Court sent a clear message that where the arbitrator is unable to obtain consent of the relevant parties and therefore unable to disclose without breaching confidential obligations, the arbitrator should decline the appointment. This serves as a useful reminder of professional principles for arbitrators when weighing whether to disclose information and/or to accept an appointment.

It must also be noted that Supreme Court’s ruling is specific to the Bermuda Form arbitration and therefore the situation in other arbitrations have to be assessed separately based on the relevant practices of arbitration in that field and the party’s contract on how they expect the information in a relevant arbitration to be treated. Indeed, the Supreme Court noted that while there seems to be general practice in English-seated arbitrations to make limited disclosure of matters involving a common party without obtaining express consent, whether the ruling on consent in this case can be applied by analogy to other arbitrations will depend on their particular characteristics, circumstances and practice in their respective field.[13] In doing so, the Court has set different standards for different arbitrations, which could be useful where matters will be dealt with a contextual inquiry that each set of unique circumstances deserve. On the other hand, it may only create further confusion as it does not provide concrete guidance for arbitrators and could possibly lead to increased challenges to arbitrator’s appointment and litigation.[14]

The divergence of the court’s approach from the international standards and practices which apply a subjective test for appearance of bias, such as the IBA Guidelines, also raises some questions on the desirability of this approach. Parties who need to protect their interests by stricter standards of disclosure may well want to adopt the IBA Guidelines or select institutional rules that are best fit for their dispute and expectations. On the other hand, for specialist arbitrations, parties may want to opt for specialist institutional rules which are in line with their industry practices and spell out the rules of disclosure. As noted by the Court, rather than having disputes about the existence or absence of such a duty by proof of a general custom and practice in a particular field of arbitration, arbitral institutions may consider having express statements in their rules or guidance to put the matter beyond doubt.[15] The court also noted that in line with the principle of party autonomy, parties can draw out provisions in their contracts with respect to putting any limitation of an arbitrator’s obligations of disclosure.[16]

To conclude, the decision does not give hard and fast guidelines to arbitrators with respect to the exact contours of the duty of disclosure. Instead, it provides a heavily contextual exercise. Having said that, the Supreme Court does prompt arbitrators to carefully consider their duty of disclosure and confidentiality when taking multiple appointments. While one may argue that the “objective test” sets less stringent requirements on arbitrators than the subjective test in other institutional rules, it does set a high standard for an arbitrator taking up appointment by establishing a contextual and thoughtful inquiry rather than a general rule. This surely calls for arbitrators to take a more cautious approach.

The Supreme Court’s decision also serves as a reminder to parties to draft arbitration agreements or select rules based on what they expect from the arbitrators in terms of disclosure and confidentiality. It also paves way for a shift towards a more specialist approach based on customs and practices of arbitrations in a specialised field and makes one wonder if would result in a rise of parties opting for specialised arbitral institutions for their disputes.

References

[1] Noah Rubins and Bernhard Lauterburg, “Independence, Impartiality and Duty of Disclosure in Investment Arbitration”, in: C. Knahr, C. Koller, W. Rechberger and A. Reinisch (ed.), Investment and Commercial Arbitration – Similarities and Divergences, Utrecht: Eleven International Publishing 2010, at 153.

[2] Nigel Blackaby, Constantine Partasides, Alan Redfern and Martin Hunter, Redfern and Hunter on international arbitration, Student Version, 6th Edition, Oxford: Oxford University Press 2015 (‘Redfern and Hunter’), at 4.75.

[3] Rubin and Lauterburg, supra note 1, at 153.

[4] France, which has not adopted the Model Law, also recognizes arbitrator’s duty to disclose circumstances likely to affect their independence or impartiality.

[5] Although the English Arbitration Act 1996 shares a lot of features of Model Law.

[6] Redfern and Hunter, supra note 2, at 4.82 at 4.82 (Quoting the Explanatory Notes to the IBA’s 2004 Guidelines on Conflict of Interest).

[7] Such as Article 11 of the ICC Arbitration Rules and article 5.4 of the LCIA Rules which adopted a similar standard for disclosure.

[8]  Halliburton Company v. Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd) [2020] UKSC 48 (Halliburton v Chubb).

[9] See Terry Gangcuangco’s report “Chubb enjoys success in Supreme Court Case versus Halliburton”, 30 November 2020, Insurance Business Mag discussing comments from some practitioners. Available at <https://www.insurancebusinessmag.com/ca/news/breaking-news/chubb-enjoys-success-in-supreme-court-case-versus-halliburton-240542.aspx>.

[10] Arbitration Act 1996, c.23.

[11] Halliburton v Chubb, supra note 8, Lady Arden’s reasoning at paras 160- 166.

[12] In Halliburton v Chubb, at para 17, the court referred to the current exceptions to confidentiality that are set out in the judgment of Lawrence Collins LJ, as he then was, in the Michael Wilson & Partners Ltd case.

[13] Halliburton v Chubb, supra note 8, at para 105.

[14] Kate Cervantes-Knox, Hadley Hickson and Rachel Armstrong, “Arbitrator’s Duty of Disclosure and Apparent Bias – “Justice must be seen to be done” ,The Supreme Court’s Decision in Halliburton v Chubb (2020) DLA Piper Publications available at <https://www.dlapiper.com/en/spain/insights/publications/2020/11/arbitrators-duty-of-disclosure-and-apparent-bias/>.

[15] Halliburton v Chubb, supra note 8, at para 135.

[16] Halliburton v Chubb, supra note 8, at para 135.

Author:

Shadha Zawawi

The author is an experienced arbitration lawyer with over six years’ experience in handling disputes as counsel and an arbitrator. She is currently pursuing her LLM in International Business Law from Osgoode Hall Law School, York University.