It is a (perhaps sad) fact of life that, in addition to the awful human and environmental cost of a tragedy like the one that occurred at the Macondo Prospect in the Gulf of Mexico in April 2010, there always seems to be plenty of work for lawyers in trying to sort out the legal and financial consequences of what went wrong.
And, as the Court of Appeal’s decision in Halliburton Company v Chubb Bermuda Insurance Ltd and others [2018] EWCA Civ 817 shows, that process can often see important points of legal principle being considered by our highest courts.
The facts
The Deepwater Horizon rig was owned by Transocean Holdings LLC and leased by BP Exploration and Production Inc. The tragedy occurred when an oil well which was in the process of being plugged and temporarily abandoned suffered a blow out. Halliburton had been appointed by BP to provide cementing and well-monitoring services in relation to the abandonment of the well.
Both Transocean and Halliburton had purchased liability insurance from Chubb. The main policy terms were the same and, although the policies were governed by New York law, the policies provided for arbitration in London by a tribunal of three arbitrators, one chosen by each of the parties with the third chosen by the first two.
Numerous claims were made against BP, Transocean and Halliburton by the US government and various private and public claimants. At a trial in 2014, a US Federal Court apportioned blame. BP was 67% responsible. Transocean was 30% responsible. Halliburton was 3% responsible. Before the judgment, Halliburton had settled the claims against it for $1.1bn. After the judgment, Transocean (which had a much greater share of the liability) settled the claims against it for a far lower sum – $212m (although it did also pay $1bn by way of penalties to the US government).
Halliburton tried to recover some of the money it had paid to settle the claims under its insurance policy with Chubb. Chubb refused to pay on the basis that the settlement was excessive. Halliburton commenced arbitration proceedings. One of the arbitrators appointed was M, an English lawyer. At the time of this appointment, M was appointed by Chubb on two separate arbitrations (and had previously acted in a number of other arbitrations involving Chubb). M disclosed this to Halliburton.
However, while the arbitration between Chubb and Halliburton was underway (statements of case were being exchanged), M accepted a further appointment by Chubb in an arbitration brought by Transocean under its liability policy for the Deepwater Horizon project. Although M disclosed his involvement in the Halliburton arbitration (as well as his other dealings with Chubb) to Transocean, he did not disclose his new appointment in the Transocean arbitration to Halliburton.
Eight months later, M then accepted a further appointment arising out of Deepwater Horizon. This involved Transocean and a different insurer to Chubb. Again, M did not disclose this appointment to Halliburton.
Once they found out about M’s appointments in the two Transocean arbitrations, Halliburton’s lawyers wrote to him highlighting his continuing duty under the International Bar Association Guidelines to disclose potential conflicts of interest. M explained that he did not think that the guidelines applied and refused Halliburton’s request to resign. Halliburton applied to court seeking an order under section 24(1)(a) of the Arbitration Act 1996 that M be removed as arbitrator because circumstances existed giving rise to justifiable doubts as to his impartiality. Halliburton argued that M’s acceptance of the two Transocean appointments, his failure to disclose them and his response to Halliburton’s challenge created the appearance of bias.
The decision
At both first instance – before Popplewell J ([2017] EWHC 137 (Comm)) – and on appeal, Halliburton failed.
Hamblen LJ, who gave the leading judgment of the Court of Appeal, acknowledged that the case raised “issues of importance in relation to commercial arbitration law and practice”. Relying on AMEC Capital Projects Ltd v Whitefriars City Estates Ltd [2005] 1 WLR 723, Hamblen
LJ agreed with the first instance decision that the simple fact that an arbitrator had accepted multiple appointments in proceedings involving the same or overlapping subject matter but only one common party was not enough for an inference of apparent bias. Arbitrators are assumed to be trustworthy and to approach each case with an open mind. Something more – “something of substance” – was needed.
While the Court of Appeal accepted that M should have disclosed the Transocean appointments, a fair-minded and informed observer would not conclude there was a real possibility that M was biased, especially given the fact that M’s failure to disclose was accidental rather than deliberate.
Consequences
The principles in Halliburton will apply to anyone appointed in a property or construction arbitration. And although it is probably best practice for arbitrators to be as open as possible about overlapping appointments, they can take some comfort that an inadvertent failure to disclose one may not be enough to have them removed as arbitrator.
The court felt that the test for disclosure for apparent bias was not set out in any specific arbitral rules but, rather, was the same common law test applicable to judges. It “should be given of facts and circumstances known to the arbitrator… which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased”.
Whether or not it is met will depend on the individual facts of the specific case in question.
Stuart Pemble is a partner at Mills & Reeve LLP
