Halliburton v Chubb: Implications for energy sector arbitrations

The Supreme Court's decision should provide comfort to international energy companies that use London as the seat of arbitration.

 
Background

Following the Deepwater Horizon disaster in the Gulf of Mexico in 2010, which killed 11 people and polluted an estimated 1,100 miles of shoreline, US courts apportioned 67% of the blame to operator BP, 30% to offshore rig firm Transocean and 3% to oilfield services company, Halliburton.

The arbitration wrangle between Halliburton and its insurer Chubb Bermuda Insurance has been underway since Halliburton agreed to make damages payments to the US government in 2014.

Halliburton sought to recoup part of its losses through its insurance policy, but Chubb declined saying it had not reasonably agreed to such a high sum.

The case involved claims under a Bermuda form insurance policy, which were referred to arbitration in London.

The aspect of the dispute presided over by the Supreme Court arose after it was discovered that the chairman appointed to oversee the dispute resolution proceedings between Halliburton and Chubb had not disclosed that he had been appointed separately by Chubb and Transocean for other Deepwater Horizon cases involving them.

This led to Halliburton alleging bias and calling for his removal.

The English High Court and Court of Appeal both ruled that the chairman's appointment to other cases did not amount to bias and was a “regular feature” of international arbitration.

Halliburton appealed to the Supreme Court, which was asked to consider the arbitrator’s duty of impartiality, the duty to give disclosure of other appointment, and the extent to which an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without giving rise to the appearance of bias.

The court's decision would therefore be significant in setting a precedent on whether an arbitrator should step down if overseeing other overlapping appointments, and setting the standard for whether an arbitrator could be deemed biased.

Decision

The Supreme Court unanimously dismissed Halliburton’s appeal. 

In dismissing the appeal, the Supreme Court re-affirmed the existing position at English law that an arbitrator's duty to act fairly and impartially is core.

The duty of disclosure is a secondary obligation arising from the arbitrator’s primary duty to act fairly and impartially.

In considering an allegation of apparent bias against an arbitrator, the test is whether the fair-minded and informed observer would conclude there is a real possibility of bias.

The courts will apply that objective test, having regard to the particular characteristics of international arbitration, including the private nature of most arbitrations.  

What does this mean for energy-related international arbitrations?

The Supreme Court struck a sensible balance. There remains a high bar in protecting against bias or the appearance of bias by arbitrators that the English courts will support where adequate disclosures are not made. 

This is yet another example of the English Courts demonstrating a pragmatic and pro-arbitration approach to international arbitration.

Energy, particularly oil and gas, remains fertile ground for high-profile, high-stakes disputes. The global energy community – traditionally heavy users of English-seated arbitrations – will likely welcome the balance that has been struck by the Supreme Court.

Importantly, the Supreme Court expressly noted that it saw no material difference in its application of the duty of disclosure under English common law and its obligation as set out in the major institutional rules or the IBA Guidelines.

This should provide comfort to international energy and natural resource companies that often use London as the seat of international arbitrations.

For more information on Fieldfisher's energy disputes and international arbitration expertise, please contact dispute resolution partner Simon Sloane.