On 20 April 2010, the Deepwater Horizon drilling rig exploded in the Gulf of Mexico. 11 crew members were killed in the resulting blast, and the oil spill was not capped until 15 July, causing one of the largest marine oil spills in history.
Aside from the environmental and other prosecutions which followed, a number of arbitrations arose between the various parties involved in the operation of the drilling rig and their insurers. BP was the lessee of the rig; Transocean, the rig’s owner; and Halliburton provided cementing and well-monitoring services to BP in relation to the abandonment and capping of the well. All three were insured by Chubb under Bermuda Form liability policies, which provided for the laws of New York to apply, with arbitration in London.
The insured parties, BP, Transocean and Halliburton, had settled litigation arising from the explosion and had claimed against Chubb under their respective policies. Chubb declined cover on the grounds that the settlements were unreasonable and that they had not been consulted prior to the settlements. Halliburton and Transocean referred the same issues in dispute with Chubb, arising out of the same event, to arbitration. While not binding, the decision in the first arbitration to be completed was likely to be dispositive of the remaining arbitrations.
Halliburton was the first to invoke its arbitration against Chubb (reference 1). Each party appointed an arbitrator, but the party arbitrators were unable to agree on the third member of the panel, and chair. Mr Rokison QC, an experienced arbitrator proposed by Chubb, was appointed by the High Court in London after a contested hearing. Halliburton had objected to Mr Rokison’s appointment, not over any issues with him personally, but from a principled objection to the use of English QCs where New York law applied and because insurers had a practice of repeatedly appointing arbitrators known to them. Mr Rokison disclosed to Halliburton and to the Court that he had previously arbitrated disputes in which Chubb was a party, including as arbitrator appointed by Chubb.
After his appointment as tribunal chair in the Halliburton arbitration, Mr Rokison accepted appointment by Chubb in the Transocean arbitration (reference 2). He disclosed to Transocean that he had been appointed in the Halliburton arbitration, and the other appointments made by Chubb previously disclosed to Halliburton. However, he did not disclose to Halliburton his subsequent appointment in the Transocean arbitration. He then accepted a further appointment with the consent of the parties, as a replacement arbitrator, in a further arbitration by Transocean against another insurer, arising out of the same Deepwater Horizon event (reference 3). In that arbitration, he also failed to disclose the appointment to Halliburton.
In all of this, Mr Rokison accepted that disclosure would have been “prudent”, but pointed out that it was simply an oversight.
When it learned of the further appointments, Halliburton insisted that Mr Rokison resign, and Chubb insisted that he stay on. Halliburton applied to the High Court for his removal from the tribunal in reference 1. There was no suggestion of actual bias – Halliburton’s case was founded on apparent unconscious bias. Chubb prevailed in the High Court and in the Court of Appeal.
The Supreme Court considered four issues:
(1) The duty of impartiality
No allegation was made of actual bias, the court being concerned only with an objective assessment of apparent bias, avoiding the necessity to “make windows into men’s souls”. While adopting a subjective analysis would create problems in itself, an objective analysis without the benefit of any examination of Mr Rokison effectively put the onus on the challenging party of proving a reasonable ground for inferring bias from the perspective of the fair-minded informed observer. The test is whether or not there was a real possibility of bias, without the observer being complacent or overly sensitive or suspicious in making such an assessment.
The starting point, for the Supreme Court, was that an arbitrator owes no duty to the appointing party over and above any other party, and that appointments in related or overlapping disputes should be of no particular concern. Similarly, being impartial and independent can carry with it an obligation to bring one’s existing industry knowledge and expertise to the consideration of the dispute.
On this point, the court seemed unconcerned that submissions made in references (2) & (3) might affect the determination in reference (1), without Halliburton having the benefit of having heard those submissions and to have had the opportunity to make submissions on them. To be fair, that is an issue of natural justice to which most arbitrators should have turned their minds.
[Note – the equivalent provisions in the Model Law relating to (1) “equal treatment” is in article 18; to (2) disclosure of justifiable doubts to independence and impartiality is in article 12; and to (3) the challenge procedure in article 13. The Model Law does not have the equivalent ground for challenge on the basis of “serious irregularity” in section 68 of the UK Act, however an award can be set aside for breaches of natural justice and, more broadly, public policy in article 34.]
(2) The duty of disclosure
The obligation to disclose is one of good practice; and is a continuing obligation. Under the IBA Guidelines on Conflicts of Interest in International Arbitration, disclosure is triggered by the existence of facts or circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence.
[Note – article 12 of the Model Law refers to “justifiable” doubts.]
The court held that there is a legal duty, at common law, to disclose to the parties any issue which would or might lead the fair minded and informed observer to conclude that there was a real possibility that the arbitrator was biased. By way of example, as in the Saxmere case here in New Zealand, where an arbitrator has a close financial relationship with a party (for which we must include their counsel), then there would be reasonable doubt as to the arbitrator’s impartiality. How far that extends to a presumed financial relationship, absent any direct evidence, is an issue not considered by the court.
The more critical issue considered is where an arbitral candidate fails to recognise or disclose such a relationship, and the parties remain unaware of the disqualifying interest. Disclosure is therefore a matter of legal obligation, rather than simply best practise
(3) The extent to which privacy and confidentiality constrains disclosure
Where an arbitrator has accepted appointments in arbitrations with common parties, or which arise out of common events, the question of the privacy of the arbitral proceedings arises.
The general position outlined by the court is that, where an arbitrator has information which is subject to an obligation of confidentiality and privacy, the consent of the parties having the benefit of that obligation must be obtained prior to disclosure, and any subsequent appointment may need to be declined if that consent cannot be obtained.
Context is, of course, critical to this consideration, as duties of privacy and confidentiality are not absolute.
(4) Whether a failure to disclose demonstrates partiality
The issues of concern are an inequality of information between the parties, and in the case of related arbitrations, one of the parties not being aware of or not having the opportunity to address an issue which may influence the mind of the decision maker. This may amount to apparent bias.
If partiality is established, or the appearance of it sufficient to give rise to the real possibility of bias, then at a minimum the issue should be disclosed; typically, though not always, this will require the consent of the parties to proceed with the appointment; and in more egregious cases, the appointment should simply be declined or the arbitrator withdraw.
From a practical perspective, the Supreme Court adopted the more cautious approach outlined in the IBA Guidelines of disclosure, avoiding the potential for challenge. On the more difficult issue of a failure to disclose, the judgment is less clear.
On the two core issues on appeal, the court accepted that overlapping arbitrations may give rise to perceptions of bias; and on the second issue, a failure to disclose might well of itself give rise to the appearance of bias, depending on the surrounding circumstances.
Applying the facts, Mr Rokison came under a duty to act fairly and impartially in relation to reference 1; the appointment in reference 2 had the potential to give rise to unfairness, which Halliburton had no opportunity to address; an objective observer might reasonably conclude there was a real possibility of bias. Mr Rokison should have disclosed his appointment in reference 2 to Halliburton.
However, a fair-minded and informed observer, looking at the facts and circumstances known at the time of the hearing, would not conclude that there was a real possibility of bias, and therefore Halliburton's appeal failed.
The decision is not without its critics.
The core issue of emphasising the importance of impartiality is not to be overlooked, and clarifying the obligations of disclosure is timely. However, many commentators have observed that Mr Rokison was given a free pass; others have challenged the objective approach of the fair-minded observer, pointing out that such an assessment is difficult without the benefit of cross-examination of the arbitrator in question. Neither criticism carries particular weight.
On balance, the decision gives welcome guidance on serial arbitration appointments, how apparent bias is to be assessed and the obligations of disclosure. While the case turned primarily on international arbitrations, and specifically on the Bermuda Form, the guidance is useful for all arbitrations, and any other consideration of apparent or unconscious bias.
Arbitrators, adjudicators and, to a degree, mediators should take note - if there is likely to be any cause to doubt your impartiality to deal with the issues, the disclosure is the better part of valour.