International arbitration update: December 2020
The first, Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb  UKSC 38 (Enka v Chubb), was handed down on 9 October 2020 and addresses the question of which system of national law governs the validity and scope of the arbitration agreement when the law applicable to the contract containing it differs from the law of the seat of the arbitration.
The second, Halliburton Company v Chubb Bermuda Insurance Ltd (Formerly known as Ace Bermuda Insurance Ltd)  UKSC 48 (Halliburton v Chubb), was handed down on 27 November 2020 and addresses the circumstances in which an arbitrator in an international arbitration may appear to be biased, raising important questions about the duty of impartiality and an arbitrator’s obligation to make disclosure.
Enka v Chubb
This case has provided much-needed clarity on the law of arbitration agreements. It was heard on an expedited basis with the first instance trial, the appeal to the Court of Appeal and the appeal to the Supreme Court all being heard in just over seven months. The result is a 115-page judgment delivering a 3-2 majority with two dissenting judgments.
International colleagues will know that this is an issue which divides courts and commentators.
- There are those who favour the “main contract approach”, whereby the law that governs a contract should generally also govern an arbitration agreement which, though separable, forms part of that contract.
- Conversely, there are others who prefer the “seat approach”, whereby the law of the chosen seat of the arbitration should generally govern the arbitration agreement.
The majority view
This judgment has provided key principles which now, as a matter of the English rules on conflicts of law, govern the determination of the law applicable to the arbitration agreement in international commercial contracts where there is no express choice of law in an arbitration agreement contained within a main contract.
The basic position is that a choice of law in respect of the main contract, whether express or implied, will generally apply to an arbitration agreement contained within that contract. In the absence of an express or implied choice of law governing a main contract containing an arbitration agreement, there is an inference that the arbitration agreement will be governed by the law of the seat.
These principles are transposed, almost verbatim, from paragraph 170 of the judgment.
- Where a contract contains an arbitration agreement, the law applicable to the arbitration agreement may not be the same as the law applicable to the main contract and is to be determined by applying English common law rules.
- This means that the law applicable to the arbitration agreement will be: (i) the law chosen by the parties to govern it; or (ii) in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected.
- The question of whether the parties have chosen a law to govern the arbitration agreement is answered by the application of English law rules of contractual interpretation (because English law is the law of the forum), which requires one to construe the arbitration agreement and the contract containing it as a whole.
- Where the law applicable to the arbitration agreement is not specified, a choice of governing law for the main contract will generally apply to an arbitration agreement which forms part of the contract.
- The choice of a different country as the seat of the arbitration is not, without more, sufficient to negate an inference that a choice of law to govern the contract was intended to apply to the arbitration agreement.
- However, there are additional factors which may negate such an inference and may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat. For example: (i) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country’s law (with reference being made to the Swedish and Scottish arbitration acts); and (ii) the existence of a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective (i.e. the validation principle). Either factor may be reinforced by circumstances indicating that the seat was deliberately chosen as a neutral forum for the arbitration.
- Where there is no express choice of law to govern the contract, a clause providing for arbitration in a particular place will not by itself justify an inference that the contract (or the arbitration agreement) is intended to be governed by the law of that place.
- In the absence of any choice of law to govern the arbitration agreement, the arbitration agreement is governed by the law with which it is most closely connected. Where the parties have chosen a seat of arbitration, this will generally be the law of the seat, even if this differs from the law applicable to the parties’ substantive contractual obligations.
The minority view
Whilst the majority view offers clear principles, there remains the prospect of future development in this area of the law, in particular in view of the extensiveness of the dissenting judgments.
The key issue of principled divergence between the majority and the minority was the question of the proper law of the arbitration agreement in circumstances where the parties have not made an express or implied choice of law in the main contract (i.e. the principle in paragraph 8 above). Whereas the majority had held that the law of the seat is more closely connected, the minority held that the law of the main contract, as determined under the default rules, would be the law that has the closest and most real connection with, and should therefore determine the proper law of, the arbitration agreement.
Other issues considered
In the interest of brevity, we have restricted ourselves only to the key principles determined by the majority view. However, the judgment itself is a helpful resource for those considering issues such as:
- the principle of the separability of arbitration agreements;
- the validation principle;
- a summary of various international approaches to the law of the arbitration agreement (including the “closely connected” test and an analysis of the provisions of the New York Convention); and
- the reach of the curial law as distinct from the law that governs the validity and scope of the arbitration agreement.
Despite the clarity offered by the majority’s principles, we anticipate that litigation will still arise where parties seek a determination as to whether there has been an express or implied choice of law of the main contract and/or the arbitration.
To avoid ambiguity and potential satellite litigation, parties negotiating international commercial contracts containing arbitration agreements would be well advised, where possible, to provide for an express choice of law in respect of both the main contract and the arbitration agreement.
Halliburton v Chubb
This recent case saw the Supreme Court grappling again with issues of perpetual relevance in our field of international arbitration: impartiality, confidentiality and disclosure. In reaching their unanimous view, the Supreme Court justices emphasised the importance of proper disclosure as a means of maintaining the integrity of international arbitration.
As the appeal raised questions of law of general importance in the field of arbitration the Supreme Court allowed written and/or oral representations from the ICC, the LCIA, CIARb, the LMAA and GAFTA.
The Supreme Court was asked: (i) whether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias; and (ii) whether and to what extent the arbitrator may do so without disclosure.
The case arose from the Deepwater Horizon disaster on the drilling rig in the Gulf of Mexico, which resulted in numerous claims against the parties involved, and subsequently between those parties and their insurers (hence Chubb’s involvement as one of the world’s largest insurers). In the case of Halliburton and Chubb the relevant contract was a Bermuda Form insurance policy providing for ad hoc arbitration with an English seat.
The appeal was issued by Halliburton to remove the chair of the arbitral tribunal (Mr Rokison) under section 24(1)(a) of the Arbitration Act 1996 on the ground that circumstances existed that gave rise to “justifiable doubts as to his impartiality”.
The key background information is:
- Mr Rokison was appointed to the Halliburton and Chubb arbitration following a contested hearing before the English High Court;
- without Halliburton’s knowledge, Mr Rokison subsequently accepted appointments in two further arbitrations with overlapping subject matter; in the second arbitration he was appointed by Chubb in respect of its dispute with a third party and in the third arbitration he was appointed jointly by the parties (which included the same third party as in the second arbitration);
- Halliburton’s primary complaints were that Mr Rokison had accepted the subsequent appointments in the second and third arbitrations but failed to notify Halliburton or give it the opportunity to object to what Halliburton perceived as a potential disadvantage because it had no means of informing itself of the evidence led before and legal submissions made to the tribunals in the second and third arbitrations; and
- Mr Rokison offered to resign from the Halliburton and Chubb arbitration, but Chubb refused to permit him to do so and Mr Rokison said that he could not resign in light of Chubb’s refusal.
The Supreme Court dismissed Halliburton’s appeal and in doing so refused to remove Mr Rokison. They did so because although Mr Rokison had breached his legal duty to make an appropriate disclosure, the Court was not persuaded that the “fair-minded and informed observer” would infer from that oversight that there was a real possibility of unconscious bias on Mr Rokison’s part.
The Court’s summary of the law is at paragraphs 151 to 157 of the judgment. The key principles are set out below.
Impartiality and the “test” for a real possibility of bias
- The obligation of impartiality is a core principle of arbitration law, which, as a matter of English law, applies equally to arbitrators howsoever appointed.
- The test as to whether there is a real possibility of bias is an objective assessment that is carried out by the fictitious “fair-minded and informed observer” who has regard to the realities of international arbitration. Those “realities” include matters as broad as the customs and practices in arbitrations in the relevant field, the debate in the international arbitration community as to the precise role of the party-appointment arbitrator, the professional reputation and level of experience of the individual arbitrators and the possibility of opportunistic or tactical challenges employed by parties to engender delay.
- Whether the “fair-minded and informed observer” might reasonably (note not would) reach a conclusion that there is a real possibility of bias will depend on the facts of the particular case, in particular the customs and practices of the relevant field of arbitration.
- The interveners provided helpful input for the Court’s purposes on the subject of whether and when the fact of multiple overlapping appointments with only one or some common parties concerning the same or overlapping subject matter can give rise to reasonable doubts as to the arbitrator’s impartiality. The ICC, LICA and CIArb all maintained that the prospect of impartiality will depend on the facts, while the LMAA and GAFTA emphasised that the arbitrations they administer are conducted by arbitrators from a relatively limited pool with extensive and particular experience such that multiple appointments are common and rarely give rise to reasonable doubts of impartiality.
The arbitrator’s legal duty to disclose
- Where circumstances exist that might reasonably give rise to a conclusion by the “fair-minded and informed observer” that there was a real possibility of bias, the arbitrator is under a legal duty under English law to disclose such appointments, unless the parties to the arbitration have agreed otherwise.
- The legal duty is derived from the statutory obligation of fairness and impartiality contained within s. 33 of the Arbitration Act 1996.
- Whether or not the duty to disclose arises will depend upon the customs and practice in arbitration in the relevant field.
How the arbitrator’s legal duty to disclose in one reference interacts with the arbitrator’s duty of privacy and confidentiality to the parties in another reference
- An arbitrator’s duty of privacy and confidentiality is a product of contract or the performance of an equitable duty of confidence.
- Absent a contract restricting or prohibiting disclosure or binding rules with a contrary effect, certain limited disclosure can be made without obtaining the express consent of the relevant parties so long as the consent can be inferred, for example from the arbitration agreement itself, particularly where the parties are adopting institutional rules which require disclosure in certain circumstances. That said, there will be many matters which cannot be disclosed without express consent.
- Limited disclosure may extend to: i) the identity of the common party in the second reference; ii) whether the proposed appointment in the second reference by the common party was to be a party-appointment or a nomination for appointment by a court or third party; and iii) a statement of the fact that the second reference arose out of the same underlying subject matter.
The consequences of an arbitrator’s failure to disclose
- An arbitrator’s failure to make a disclosure will not automatically result in a real possibility of bias. However, it is a factor for the “fair-minded and informed observer” to take into account when applying the objective test for a real possibility of bias.
When the duty to disclose and the possibility of bias fall to be assessed
- In assessing whether an arbitrator has failed in a duty to make disclosure one must have regard to the facts and circumstances as at and from the date when the duty arose.
- In assessing whether there is real possibility of bias one must have reference to the facts and circumstances known at the date of the hearing to remove the arbitrator.
Other issues considered
Once more in the interest of brevity we have restricted ourselves to the key principles. Those with more time will find the judgment to contain useful discussion on matters such as:
- international norms with respect to issues of impartiality and disclosure arising in arbitrations with overlapping appointments and some common parties, including the different subjective test employed by certain institutions and the IBA Guidelines and the thresholds for disclosure in different jurisdictions;
- the differing international understandings of the role and obligations of the party-appointed arbitrator as compared with arbitrators appointed by the party-appointed arbitrators or those appointed by institutions or by the Court;
- the different impartiality considerations that apply to arbitrators as opposed to judges; and
- the principle of open justice and whether an arbitrator’s right to protect his/her reputation should afford them anonymity in the context of challenges to their impartiality.
The guidance for arbitrators appears to be relatively consistent: When, on being asked to accept an appointment, an arbitrator knows of a matter which ought to be disclosed, prompt disclosure provides the best safeguard. Indeed Lady Arden went as far as to say that:
unless the arbitration is one in which there is an accepted practice of dispensing with any need to obtain parties’ consent to further appointments, an arbitrator should proceed on the basis that a proposal to take on a further appointment involving a common party and overlapping subject-matter (in that it arises out of the same event) is likely to require disclosure of a potential conflict of interest. The fact that an arbitrator is to be trusted to decide the case on the evidence is not a complete answer to the objections based on inequality of arms and material asymmetry of information.
Of course, the obligation of impartiality continues throughout the reference and should be revisited often to enable the arbitrator to maintain what the Court has called a “badge of impartiality”.