Australia: Preserving arbitral integrity: UK Supreme Court to hear Deepwater Horizon appeal

Last Updated: 21 May 2019
Article by Joshua Paffey and Lee Carroll

In a decision being watched with keen interest by many in the international arbitration community, the UK Supreme Court will soon hear an appeal on whether an arbitrator may accept appointments in multiple references concerning overlapping subject matter with only one common party – without giving rise to an appearance of bias and without disclosure.

Subject to the Court's approval, the ICC International Court of Arbitration, the LCIA and the Chartered Institute of Arbitrators are expected to intervene in the case, known as the Deepwater Horizon appeal.

As it stands, the decision of the Court of Appeal means arbitrators can accept multiple appointments in arbitrations with overlapping subject matters, without disclosure, and without necessarily giving rise to doubts about their impartiality.

Under Australian law, a similar position could be reached. Section 18A of the International Arbitration Act 1974 (Cth) provides that there are justifiable doubts as to the impartiality of an arbitrator if there is a 'real danger of bias' on the part of the arbitrator. This test is not unlike the English test, which assesses – from the perspective of a fair-minded and informed observer – whether there is a 'real possibility' that the arbitrator is biased.

The facts of the case

The factual backdrop to this important case is the BP oil spill in the Gulf of Mexico in 2010. Transocean was the owner of the Deepwater Horizon oil rig. Halliburton had been engaged to provide cementing and well-monitoring services in relation to the abandonment of the well. Both settled claims against it arising from the oil spill.

Halliburton then made a claim on its insurance policy with Chubb, who refused to pay, contending (among other things) that the settlement was unreasonable. As a result, Halliburton commenced arbitration against Chubb in London under the insurance policy. Both parties appointed an arbitrator but, unable to agree the chairman, the English High Court appointed 'M' as chairman.

Subsequent to his appointment, M accepted appointments as arbitrator in two other references arising out of the oil spill. First, a claim by Transocean against Chubb in relation to the settlement of its claims and second, a claim by Transocean against another insurer. In the first reference, M was appointed by Chubb. In the second reference, M was appointed as chairman by agreement of the parties following the resignation of the first-appointed chairman. Critically, M failed to disclose these appointments to Halliburton.

When Halliburton learned of the appointments and challenged M's impartiality, M said that it had not occurred to him that he had a duty to disclose the appointments but offered to resign if Chubb agreed. Chubb did not agree, so Halliburton sought to have M removed as arbitrator under section 24(1)(a) of the Arbitration Act 1996 (UK), which provides that a party may apply to the court to remove an arbitrator if 'circumstances exist that give rise to justifiable doubts as to his impartiality'. The application was founded on a submission that M's conduct (in accepting and not disclosing the appointments, and then not resigning) gave rise to an appearance of bias.

Significance of appeal

The outcome of the appeal in Deepwater Horizon is critical to the integrity of the arbitral process. The facts of the case aside, the real issue here is the perception of the prospective participant in or user of arbitration – the person on the street.

Arbitrator trustworthiness and reliability is critical to preserving the legitimacy and integrity of the arbitral process, and the Deepwater Horizon case has brought to the fore the issue of transparency of arbitrator appointments. In an environment where international arbitration is the preferred method of resolving cross- border disputes (according to 97% of participants in the 2018 Queen Mary International Arbitration survey), and national courts in some jurisdictions are being influenced more than ever, a decision which ensures that respect for arbitrators (and therefore the process) is maintained, is essential.

As it stands, the Deepwater Horizon case means that arbitrators can accept more than one appointment in arbitrations with overlapping subject matters, without necessarily giving rise to doubts about their impartiality. Even if the Supreme Court agrees with its lower courts and finds that the circumstances of the case do not give rise to justifiable doubts as to the arbitrator's impartiality, it should be minded to grasp the opportunity to clarify the disclosure obligations of arbitrators and prospective arbitrators alike. Specifically, the Supreme Court should confirm that arbitrators are required to disclose, at any stage of the proceedings, related arbitrator appointments, no matter the extent of the relation (big or small).

The IBA Guidelines already provide that any doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure.

But it is clear from this case that arbitrators need more guidance.

The ICC recently issued a revised note to parties and arbitral tribunals on the conduct of arbitrations under the ICC Rules, which applied from 1 January 2019. This note extends the existing disclosure obligations of arbitrators and prospective arbitrators, which are with respect to the parties and their affiliates, to 'non-parties having an interest in the outcome of the arbitration'. Therefore, arbitrators are now required to consider relationships with interested non-parties which may give rise to doubts as to impartiality.

The Supreme Court should also take the opportunity to clearly opine that disclosure must include disclosure of related arbitrator appointments, no matter to what extent the facts of the related arbitrations overlap. It may then fall to arbitral institutions to pick up and incorporate this extension in their rules.

It is also important that this guidance is given because where arbitrators fail to abide by the requisite standards (often unintentionally) it imposes significant costs on the parties, whether by challenging arbitrator appointments, or in the unfortunate annulment of arbitral awards (which then leaves the parties with the prospect of having to start proceedings afresh).

A failure to abide by requisite standards also undermines public confidence in arbitration. To maintain its legitimacy, international arbitration must ensure that its decision-makers are, and are perceived to be, impartial.

We look forward to the Supreme Court's further guidance on the issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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