The recent decision of the English Court of Appeal in Halliburton Company (Halliburton) v. Chubb Bermuda Insurance Ltd (Chubb). & Ors [2018] EWCA Civ. 817 has raised serious discussions, debates, and, depending on one’s views, uncertainties on the questions of an arbitrator’s impartiality and duty to disclose certain information to parties in an arbitral proceeding.
The effect of the Court of Appeal’s decision is underscored by the fact that notable arbitration institutions, including the Chartered Institute of Arbitrators, the London Court of International Arbitration and the Court of Arbitration of the International Chamber of Commerce have each sought and obtained the permission of the United Kingdom Supreme Court (UKSC) to appeal the decision. The UKSC will hear the substantive appeal later this year.
The case arose following an explosion at the Deepwater Horizon Oil Rig owned by Transocean Holdings LLC (Transocean). Halliburton was engaged to provide cementing and well-monitoring services to BP Exploration and Production Inc. (BP), the lessee of the rig. As expected, affected third parties made claims against Transocean, Halliburton and BP. Prior to the explosion, Halliburton and BP had purchased excess liability insurance from Chubb. Halliburton and Transocean both negotiated and agreed settlement terms in relation to the claims against them. Thereafter, Halliburton made a claim on its insurance policy with Chubb, who refused to pay, contending (among other things) that the settlement was unreasonable. Consequently, Halliburton commenced arbitration proceedings against Chubb, pursuant to the relevant provisions of the insurance contract between both parties. Under the said contract, arbitration was to be held in London by three arbitrators, one chosen by each party. The presiding arbitrator was to be chosen by the arbitrators appointed by both parties or by the High Court, where both parties are unable to agree on the choice of the presiding arbitrator.
Due to certain reasons, the arbitrators appointed by both parties were unable to agree on the choice of the presiding arbitrator. Thus, the High Court appointed “M”, who incidentally was Chubb’s preferred arbitrator. Prior to his appointment by the High Court, “M” disclosed that he was currently acting as an arbitrator in multiple arbitrations involving Chubb, and the number of times he was appointed by Chubb to act as arbitrator in arbitral proceedings concerning it.
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Subsequently, “M” accepted appointments to act as arbitrator in two separate disputes arising from the explosion at the Deepwater Horizon Oil Rig. The first dispute involved arbitral proceedings commenced by Chubb against Transocean, whilst the second dispute involved arbitral proceedings commenced by Transocean against another insurance company. Instructively, “M” did not disclose these subsequent appointments to Halliburton.
When Halliburton learnt of “M”’s appointments, it ultimately asked that “M” should resign his appointment as presiding arbitrator. Following “M”’s refusal to resign, Halliburton commenced proceedings at the High Court of England and Wales (the “High Court”) for his removal by the High Court. During the proceedings, it became clear that Chubb was relying on similar arguments in the arbitration commenced against it by Halliburton and the arbitration initiated by Chubb against Transocean.
The decision of the High Court turned on the issue of apparent bias and disclosure in arbitration appointments. Specifically, the High Court was asked to determine whether (and if in the affirmative), to what extent, an arbitrator may accept appointments in multiple arbitration proceedings involving the same or similar subject matter, and the arbitrator’s disclosure obligations in such circumstances.
The High Court rejected the argument that “M”’s involvement in the three identified arbitrations would render him biased, or give rise to bias so that his ability to act independently was (or could be) impaired. This position was [essentially] endorsed by the Court of Appeal which held that while “M” ought to have disclosed his subsequent appointments to the parties in the first arbitration, a “fair minded and informed observer having considered the facts” would not reach a conclusion of a real possibility that “M” was biased. It is instructive to note that the Court of Appeal did not consider the failure to disclose fatal. Rather, the court relied on the test of a fair minded and informed observer.
The Court of Appeal’s reasoning and conclusions have been severely criticized. See for example – Paul Stanley “Halliburton Company v. Chubb Bermuda Insurance Ltd. (available at http://s3-eu-west-2.amazonaws.com/sqe-essexcourt/wp-content/uploads/2018/05/08152814/hburton.pdf). Paul Stanley’s criticisms of the position taken by the Court of Appeal can be summarized as follows: (i) the Court of Appeal did not consider that international arbitration is largely unregulated and there is great incentive for an arbitrator to act in a particular way to ensure repeat business. In particular, the author noted that “professional arbitrators who accept or seek multiple appointments from one party have an incentive not to bite the hands that feeds them”; (ii) recourse against an unfavourable award is extremely limited necessitating the need to ensure fairness in the arbitration process; and (iii) arbitrators in overlapping disputes are likely to have seen evidence which will be known to one party only, effectively compromising the integrity and fairness of the process. Undoubtedly, these are valid concerns, and it would be interesting to see how the UKSC will rule.
From a Nigerian law standpoint, arbitrators’ duty to disclose circumstances that give rise to justifiable doubts as to the arbitrator’s impartiality [or independence] is provided for in section 8(1) of the Arbitration and Conciliation Act (ACA); and section 10(1) of the Lagos State Arbitration Law, respectively.
The decision of the Federal High Court (FHC) in the case of Gobowen Exploration & Production Limited v. Axxis Petroconsultants Limited (Suit No. FHC/L/CS/1661/2013) is illustrative of the importance attached to an arbitrator’s duty to disclose. In this case, the FHC annulled an award because one of the arbitrators failed to disclose his family relationship with the lead counsel of the party who appointed him. (For a full analysis of the decision, please see: Abimbola Akeredolu and Chinedum Umeche, “Arbitrators’ impartiality and independence: commentary on Gobowen v Axxis, Arbitration International, Volume 34, Issue 1, March 2018, Pages 143-148).
Similarly, the case of Nigerian National Petroleum Corporation (NNPC) v. Total E&P Nigeria Limited & 3 Ors. (Suit No. FHC/ABJ/CS/390/2018) involved an application to disqualify the presiding arbitrator from further participation in the arbitral proceedings and to set aside a partial award issued by the tribunal, on the basis, inter alia, that the presiding arbitrator did not make certain disclosures upon his appointment. Although the FHC, rightly, in our view, declined jurisdiction to entertain the suit, issues pertaining to the arbitrator’s failure to disclose and alleged bias featured prominently in the case.
A recalcitrant party can derail the arbitral process by challenging the appointment of an arbitrator for a number of reasons. The judge in NNPC v. Total E & P was evidently confronted with this situation and deprecated the applicant’s attitude in these words: “I have noted that the Notice of Arbitration… was dated and issued as far back as 16 June, 2015. I have also noted that … the Joint Terms of the Appointment of the Arbitrators, was reached by the parties on 25 April 2016. These are periods of well over 3 years respectively, yet no appreciable progress has been made on the substance of the dispute… All the delays are occasioned by the Applicant [NNPC]’s unrelenting challenge to the constitution and functioning of the arbitral tribunal”. Worse still, even an award can be annulled by a court on the basis of an arbitrator’s failure to disclose a conflict of interest as seen in Gobowen’s case. These situations undoubtedly undermine the arbitration process and ultimately diminishes the functional utility of arbitration as a preferred means of resolving [commercial] disputes.
The importance of ensuring impartiality [or seeming impartiality] is important to any adjudicatory process, especially arbitration. In the English case of R. v. Sussex Justices ex parte McCarthy [1924] 1 K.B. 256, Lord Hewarty CJ, observed that it is ‘of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done’.
A proactive approach should therefore be adopted in dealing with issues pertaining to arbitrator’s impartiality, independence and conflict of interest generally. That said, there is a need to ensure that parties do not take advantage of the emphasis on impartiality, independence and conflict of interest generally to unduly delay arbitral proceedings. The International Bar Association Guidelines on Conflicts of Interest in International Arbitration (as updated from time to time), even though non-binding, is a useful guide for arbitrators and parties to evaluate impartiality, independence, and disclosure obligations in any given situation.
Chinedum Umeche, FCIArb, is a Senior Associate and the Team Lead of Banwo & Ighodalo’s Litigation, Arbitration and Alternative Dispute Resolution Practice Group.
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