During the last 12 months, there have been two significant cases in the English courts which considered the issues of bias and conflicts of interest in international arbitration. James Mullen explains further.
In November 2020, the Supreme Court handed down its much-anticipated judgment in Halliburton Company v Chubb Bermuda Insurance Ltd1 which considered whether there was unconscious bias on the part of an arbitrator that had been appointed on the tribunal of three separate arbitrations, but which had clear overlap in terms of parties and subject matter. The Halliburton case on the law of arbitrator bias was of such interest to the arbitration community that several arbitral institutions including the ICC, LCIA, Clarb, LMMA and GAFTA were permitted to make submissions as intervening parties.
Then, in January 2021, the Court of Appeal gave judgment in Secretariat Consulting Pte Ltd & ors v A Company2 which considered whether a conflict of interest arose where one company within a group providing expert witness services was engaged to act for a party in one arbitration, and another company within the same group which had been appointed to act against the same party in a separate arbitration concerning the same project.
Unconscious Bias
Halliburton Company v Chubb Bermuda Insurance Ltd
The disputes arose from the explosion and fire on the Deepwater Horizon drilling rig in 2010 in the Gulf of Mexico. Chubb refused to cover Halliburton under an insurance policy and so Halliburton commenced arbitration proceedings against Chubb. Mr Kenneth Rokison QC (“the Arbitrator”) was appointed as chairman for the tribunal. He was then appointed on two further arbitrations:
- An arbitration between the rig's owner, Transocean, and Chubb.
- An arbitration between Transocean and another insurer.
The Arbitrator failed to disclose his appointment on these two further arbitrations to Halliburton. When they found out, Halliburton applied to the court under section 24 of the Arbitration Act 19963. It is important to point out that the issue related to unconscious bias and/ or the appearance of bias, not actual bias by the Arbitrator. The High Court and Court of Appeal dismissed Halliburton's application and Halliburton appealed to the Supreme Court.
The issues to be determined
The Supreme Court identified the two principal issues that needed to be determined:
- 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.
- Whether and to what extent the arbitrator may do so without disclosure.
As to the first principal issue, the Supreme Court held that where an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party, this may, depending on the relevant custom and practice, give rise to an appearance of bias.
As to the second principal issue, the Supreme Court held that, unless the parties to the arbitration otherwise agree, arbitrators have a legal duty to disclosure facts and circumstances which would or might reasonably give rise to the appearance of bias. The fact that an arbitrator has accepted appointments in multiple references concerning the same or overlapping subject matter with only one common party is a matter which may have to be disclosed, depending upon the customs and practice in the relevant field. In cases in which disclosure is called for, the acceptance of those appointments and the failure by the arbitrator to disclose the appointments taken in combination might well give rise to the appearance of bias.
The Supreme Court's guidance on bias
In its decision, the Supreme Court gave guidance on five issues regarding bias:
- The test for apparent bias was whether a fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.
- That disclosure of particular matters was a legal obligation, not just good practice.
- Where information that needs to be disclosed is subject to the
arbitrator's duty of privacy and confidentiality,
disclosure can only be made with the consent of the
parties to whom the duty of privacy was owed. The
consent may be express or inferred from the arbitration
agreement.4 If the arbitrator seeking appointment
in a later arbitration does not obtain the consent, they must
decline the second appointment.
- A failure to disclose matters is a factor for a fair-minded and informed observer to take into account when there was a real possibility of bias.
- Whether there has been a failure in a duty to disclose is to be assessed by the fair-minded and informed observer having regard to the facts and circumstances at the time the duty to disclose arose. As to the possibility of bias, the relevant time to assess was the time of the hearing to remove the arbitrator, not the time of the arbitrator's acceptance of the appointment
Applying the principles - was there bias on the part of the Arbitrator?
Applying its guidance, the Supreme Court decided at the time of the hearing in the High Court to remove the Arbitrator, and taking into account the facts and circumstances known at the date of the hearing, it could not be said that a fairminded and informed observer would infer from the Arbitrator's failure to disclose that there was a real possibility of bias. However, the Arbitrator had breached his legal duty to disclose.
Conflicts of interest in international arbitration
Fiduciary relationships
A fiduciary relationship arises where one party (X) has undertaken to act for or on behalf of another (Y) in a particular matter in circumstances which give rise to a relationship of trust and confidence. One of the key duties of a fiduciary is loyalty. The other key duties are no conflict, no profit (X must not profit from its position at the expense of Y) and confidentiality.
There are several settled categories of fiduciary relationship; for example, trustees and beneficiaries, agents and principals, and solicitors and clients. Importantly, there is no legal authority in England and Wales saying that an expert witness in legal proceedings has a fiduciary relationship with its client. Indeed, one of the underlying principles of expert evidence in legal proceedings is that, even though the expert is appointed and paid by a party, they must be independent and their overriding duty is to assist the court or the tribunal.
Secretariat Consulting Pte Ltd & Ors v A Company
The Secretariat Group are an international organisation which provides expert witness services for litigation and arbitrations, including delay and quantum expert services in construction disputes. They have offices in North America, Europe, Asia and Australia.
The project in question concerned the development of a petrochemical plant by Party A. The project manager for the project was TP.
Disputes arose between Party A and a subcontractor commenced ICC proceedings against Party A (“Arbitration 1”). Party A approached Secretariat Consulting Pte Ltd (“SCL”), one of the companies within the Secretariat Group and based in Singapore, to provide delay expert services and support in Arbitration 1. SCL undertook a conflict check across the Secretariat Group and concluded that there was no conflict. In the letter of engagement, SCL confirmed it had no conflict of interest and that it would maintain that position for the duration of the engagement.
Subsequently, TP commenced ICC proceedings against Party A for unpaid fees (“Arbitration 2”). TP approached Secretariat International UK Ltd (“SIUL”), another company within the Secretariat Group based in the UK, to provide quantum and delay services on Arbitration 2. Party A told SCL that it considered SIUL's engagement by TP to create a conflict of interest but SCL disagreed. Without Party A's knowledge, SIUL began working for TP in Arbitration 2.
Later, when Party A sought to expand SCL's works in Arbitration 2, TP informed the tribunal that it had already engaged someone from Secretariat as its quantum expert. Party A alleged that there was a conflict.
High Court
Party A applied to the High Court for an injunction preventing the Secretariat Group from acting for TP in Arbitration 2, arguing that the Secretariat Group had breached their fiduciary relationship.
The High Court granted the injunction, finding that a clear relationship of trust and confidence arose between Secretariat and Party A which give rise to a fiduciary duty of loyalty and there was plainly a conflict of interest for Secretariat in acting for Party A in Arbitration 1 but against Party A in Arbitration2. Secretariat appealed.
Court of Appeal
The Court of Appeal (“CA”) dismissed Secretariat's appeal, but not on the grounds that it owed a fiduciary duty to Party A. The CA said that, in principle, the relationship between an expert and their client may have one of the characteristics of a fiduciary relationship, such as duty of loyalty or a duty to avoid conflicts. Further, an expert's overriding duty to the court or tribunal did not necessarily mean that an expert could not owe a fiduciary duty to their client.
However, the CA did not consider it necessary or appropriate to decide whether an expert owed a fiduciary duty to their client because, in this particular case, there was a contractual obligation in SCL's retainer with Party A whereby SCL owed a contractual duty to avoid conflicts of interest for the duration of its retainer. That provision was based on conflict checks undertaken in respect of all Secretariat entities and so it extended to all entities within the Secretariat Group, not just SCL.This conclusion was supported by the fact that the entities within the Secretariat Group marketed themselves as one global firm operating under the Secretariat brand. There was a clear conflict of interest given the overlap of parties, role, project and subject matter. Accordingly, there had been a breach of the contractual obligation to avoid conflicts of interest.
Commentary
It is common for arbitrators to be appointed on several international arbitrations running at the same time. However, in Halliburton, the issue was the same arbitrator being appointed on three arbitrations where there was overlap in terms of parties and subject matter.
The decision in Halliburton was based on the facts of that specific case but, in reaching its decision, the Supreme Court confirmed principles for broader application. In international arbitration, there are different arbitral institutions and rules and international parties that will have different customs, practices and perceptions. The Supreme Court recognised this and so it resisted being too prescriptive with these principles, instead adopting flexibility which can then be applied to the facts of each specific case. Of those principles, one that may be surprising is that the time to assess whether there has been bias by an arbitrator is the time of the hearing to remove them, not, for example in the Halliburton case, the time that the Arbitrator accepted his appointment on the second arbitration. Another important aspect of international arbitration is its confidential nature (as opposed to Court proceedings which are public) and the Halliburton decision clarifies the relationship between an arbitrator's duty to disclose and any duties of confidentiality that an arbitrator may owe to the parties.
As to the Secretariat case, given the lack of legal authority on whether an expert witness in legal proceedings has a fiduciary relationship with their client, it may be surprising that Party A raised such a novel argument in seeking an injunction. Although the CA said that, in principle, the relationship between an expert and their client may have one of the characteristics of a fiduciary relationship, they were clearly reluctant to create another category of fiduciary relationship if it did not have to, saying that it might not be appropriate to import all the “legal baggage” that may be imported into the expression “fiduciary” into a relationship between a client and an expert. In Secretariat, the CA was able to avoid having to make a decision on that issue on the basis that SCL had a contractual obligation to avoid conflicts of interest.
While companies that provide expert witness services will be pleased that the CA declined to find that experts have a fiduciary relationship with their clients, it is common for large companies that offer expert witness services across multiple jurisdictions to be involved in international arbitrations and the Secretariat case highlights the importance for parties who engage such companies (and, indeed, any company that offers expert witness services) to check the conflict of interest provisions within the expert's terms of engagement. Indeed, such large companies may wish to make clear in their appointment that other companies within the group are considered to be separate from each other to try to avoid the situation in Secretariat arising again.
Footnotes
1 [2020] UKSC 48
2 [2021] EWCA Civ 6
3 S.24 allows parties to apply to the court for the removal of an arbitrator on certain grounds, including the existence of circumstances which give rise to justifiable doubts as to the arbitrator's impartiality.
4 For example, article 11(2) of the ICC rules which says that before appointment the prospective arbitrator shall disclose in writing to the ICC Secretariat any facts or circumstances which might call into question the arbitrator's independence in the eyes of the parties, as well as any circumstances that could give rise to reasonable doubts as to the arbitrator's impartiality. The Secretariat shall provide such information to the parties in writing and fix a time limit for any comments from them.
This article is taken from Fenwick Elliott's 2021/2022 Annual Review. To read further articles go to Fenwick Elliott Annual Review 2021/2022
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.
