Eyes Wide Open: The Quest for Arbitrator Impartiality in the Wake of Halliburton

Robert P. Jacobs

Jacobs_Robert_03491_Headshot_4C_Print_frameOn November 27, 2020, the day after Thanksgiving was celebrated in the United States, the United Kingdom Supreme Court issued a long-awaited decision in Halliburton Company v. Chubb Bermuda Insurance Ltd., a decision that has been characterized as bringing clarity to an arbitrator’s duty of disclosure where the arbitrator has received multiple appointments by the same party in different arbitrations involving the same subject matter. From the policyholder’s perspective, however, the decision brought neither clarity nor a reassuring result.

Here are the facts:

This matter concerned an arbitrator well known in the London insurance coverage arena, Kenneth Rokison QC. The case arose out of the Deepwater Horizon disaster in the Gulf of Mexico, which spawned (at least) three separate insurance coverage arbitrations.

Arbitration 1 was between Halliburton and Chubb. Halliburton had settled the claims against it and sought coverage from Chubb under the Bermuda Form policy that it had sold to Halliburton. Chubb denied the claim on the premise that the settlement was not reasonable. Mr. Rokison was appointed by the English High Court to chair that panel.

Arbitration 2 was between Transocean and Chubb. Transocean was the owner of the Deepwater Horizon drilling rig. It also had settled the claims against it and Chubb also rejected its claim for coverage. Chubb appointed Mr. Rokison to that arbitration.

Arbitration 3 was between Transocean and another insurer. That insurer also appointed Mr. Rokison to that panel.

So, Mr. Rokison was appointed to three separate arbitrations involving the same subject matter, two of which involved Chubb, including one in which he was appointed by Chubb. And, Mr. Rokison did not disclose his appointments in Arbitrations 2 and 3 to Halliburton in Arbitration 1, on the premise that he already had made disclosure of other previous appointments to Halliburton and to the High Court. When Halliburton learned of Mr. Rokison’s other two appointments, it requested that he resign his role as chair of the panel in Arbitration 1. Chubb opposed this request on the premise that it would result in delay and wasted costs. Accordingly, Halliburton asked the High Court to remove Mr. Rokison under Section 24(1)(a) of the English Arbitration Act of 1996: “that circumstances exist that give rise to justifiable doubts as to his impartiality.”

The High Court dismissed Halliburton’s application. The Court of Appeal also dismissed Halliburton’s application holding that, while Mr. Rokison was under a legal duty to disclose his appointments in Arbitration 2 and 3 to Halliburton, his failure to do so did not raise justifiable doubts as to his impartiality. So, Halliburton took the issue to the Supreme Court.

The Supreme Court, like the two courts beneath it, also ruled against Halliburton. While the court also held that Mr. Rokison had a duty to disclose the other two appointments to Halliburton, the court nevertheless purported to apply an objective test to determine whether a fair-minded and informed observer, having regard to the particular characteristics of international arbitration, would conclude that there was a real possibility that the arbitrator was biased. As far as Mr. Rokison was concerned, the court ruled that, at the time of the hearing for removal in January 2017, an objective observer would not have concluded that Mr. Rokison was biased because (i) there had been a lack of clarity at the relevant time as to whether Mr. Rokison had a duty of disclosure; (ii) the appointments in Arbitrations 2 and 3 followed the appointment in Arbitration 1, which might have been why Mr. Rokison failed to come back to Halliburton with that disclosure; (iii) it was not likely that there would be an overlap in evidence or legal submission among the three arbitrations; (iv) there was no suggestion that Mr. Rokison was deriving any secret financial benefit; and (v) there was nothing to support subconscious ill will on Mr. Rokison’s part towards Halliburton in light of Halliburton’s efforts to remove him.

So, what now for policyholders? Indeed, in light of the Supreme Court’s ruling in Halliburton, there are several things of which a policyholder should be aware when it is creating a panel to sit in judgment of its insurance coverage dispute.

The Incentives of Repeat Business

Multiple arbitral appointments—repeat business—was the issue that Halliburton believed gave rise to justifiable doubt as to Mr. Rokison’s impartiality. Halliburton’s concern was legitimate, because most businesses depend on repeat business to be successful and, to motivate its customers to return, the business needs to please those customers. Therein lies the dilemma when the business is an arbitration practice and the customers are parties to contractual disputes in which arbitration is mandated—what might the arbitrator do to please those customers and earn their repeat business when the only thing that actual pleases a party to an arbitration is winning?

It is only human nature to pick arbitrators who you think will serve your business interests by giving you the best chance of winning. This is true for insurance companies and policyholders alike. But it is primarily just the insurance companies that present the prospect for repeat business due to the dispute resolution provisions in their policies. This raises the question of whether the prospect of repeat business from insurance companies creates an incentive to give those customers what they want.

Inside Information

If a party is able to appoint the same arbitrator multiple times, the party gets to know that arbitrator. For instance, they might get to know the arbitrator’s philosophy on contractual interpretation, such as whether the arbitrator is a strict constructionist or whether the arbitrator considers a greater factual context to ascertain a party’s reasonable expectations. They also might get to know their positions on specific coverage issues, particularly with respect to Bermuda Form policies for which there is no judicial guidance (due to the fact that the policies require confidential arbitrations as opposed to litigation in courts). They also might get to know how the arbitrator operates as a member of a tribunal—is the arbitrator passive or active and how well does the arbitrator typically get along with his or her co-arbitrators? But, most importantly, they will know the arbitrator’s track record with regard to insurance coverage disputes. Due to the confidential nature of English-seated arbitrations, this is valuable information not available to a party that is not a regular customer in that market, i.e., a policyholder.

Ex Parte Communication

If a party is able to appoint the same arbitrator in multiple arbitrations involving the same or similar issues, that party is able to have what amounts to ex parte communications with that arbitrator. For instance, if an insurer is a party to two arbitrations involving, for example, the timing of personal injury with respect to particular type of disease, and the insurer is able to appoint the same arbitrator in both arbitrations, the insurer will have the opportunity to present its arguments with respect to that issue to the same arbitrator twice. So, regardless of whether the two arbitrations are proceeding simultaneously or years apart, if an insurer is able to present its arguments in arbitration number one, while the policyholder in arbitration number two is walled off from knowing what the insurer said in arbitration number one, the insurer has the ability, in essence, to communicate “privately” with that arbitrator, as far as the policyholder in arbitration number two is concerned.

WHAT A POLICYHOLDER CAN DO

Arbitrations definitely have their benefits, such as the flexibility afforded the parties to negotiate the schedule and other terms of engagement, as opposed to being at the mercy of codes, local rules, and crowded court dockets. And, most importantly, it gives the parties the ability to choose their judges, instead of having them randomly assigned. But, given the above realities, policyholders should be diligent during the process of selecting a tribunal and should not be timid about doing the following:

  • Diligent investigation. London’s arbitral circuit is not as large as one might think, and the insurance coverage circuit is even smaller. Most solicitors and barristers who practice in that arena know the players. And, given that it is not that large, word of arbitral appointments gets out and the reputations of most arbitrators are well known. So, as soon as the insurer announces its arbitrator appointment, or when candidates for the chair are being considered, a policyholder should ask its London counsel, and anyone else who regularly practices in this area, for their insights. The key question to ask is whether there are any concrete concerns as to potential bias or lack of impartiality. It should be noted, however, that merely because an arbitrator might have a reputation as being appointed mostly by insurers, that is not enough; there must be something very precise, such as (possibly) if an arbitrator has been appointed by the same insurer numerous times (more than 2–3) and in quick succession such that it might be perceived that the arbitrator is, in essence, an advocate for the insurer.In addition to asking others for insight, a policyholder should research the proposed arbitrator in other ways, such as simple online legal research to see if the arbitrator’s name comes up in any legal decisions. This is very easy to do if the proposed arbitrator is a former judge, but it also is not difficult if the arbitrator served as an advocate. As mentioned, most of the arbitrator candidates in this arena are very established and will have substantial experience in the courts. If this research reveals legal decisions regarding insurance issues, that could be valuable intelligence.
  • Raise a concern in writing. While it may not be easy to have an arbitrator removed from a panel, it is not uncommon for arbitrators to recuse themselves if a party raises a concern. Indeed, despite the repeat business concern, most arbitrators want to preserve their reputations and would not want to open themselves up to claims of bias. If an insurer has appointed an arbitrator who, for whatever reason, gives rise to some legitimate concern of bias, a policyholder should not hesitate to raise that concern in writing. Specifically, a letter should be sent to the arbitrator that explains the basis for concern and that asks the arbitrator to confirm that he or she will be able to objectively consider the issues in dispute. If the arbitrator does confirm his or her objectivity, there unfortunately is little that a policyholder can do other than bring the matter to the High Court, an effort thar would be extremely challenging, as Halliburton Notwithstanding that, raising a concern in writing does nevertheless lay down a marker in the event that a legitimate concern of bias reveals itself it more clearly during the proceedings.
  • Resort to the courts. The English High Court can remove an arbitrator on certain grounds, including when there are legitimate doubts about his or her impartiality. Of course, Halliburton sought relief in court and it did not work. Regardless, there are scenarios in which the specific facts surrounding an arbitrator’s appointment will be too much and the courts will act. For instance, in Cofely Ltd. v. Bingham, the arbitrator in question had been appointed by the claimant so many times over a three-year period, that those appointments generated 25 percent of the arbitrator’s income over that period. And, it was determined that the arbitrator had found in the claimant’s favor 18 out of 25 times (nearly three-quarters of the time). Based on these statistics, the court found that there were justifiable doubts about the arbitrator’s independence and impartiality and removed the arbitrator. Needless to say, this is an extreme case and doubts about impartiality should not have to rise to this level before the High Court will act.

As the Halliburton court stated, “an arbitrator should be trusted to decide the case solely on the evidence or other material adduced in the proceedings in question.” While this is a reasonable proposition, what does it take to call that starting proposition into question? It seems that Halliburton had a more than justifiable concern and it should not take 18 rulings in favor of one party over a three-year period to have an arbitrator removed. The reality, however, is that contractual provisions requiring the resolution of disputes via a UK arbitration leave many policyholders with no choice but to adapt to the customs and practices of that forum, including having to face arbitrator appointments that cause concern.

Practical advice to policyholders: keep your eyes wide open, seek advice from your counsel, and do not hesitate to voice concerns through appropriate means.