Analysis of the UK Supreme Court Decision in Halliburton v Chubb (Part I)

Oyinkansola Badejo-Okusanya & Orji A. Uka

0 509

A historically contentious subject in international commercial arbitration is the knotty question of when, and to what extent, an arbitrator owes a duty of disclosure to the disputing parties in the proceedings. The duty to disclose flows from an arbitrator’s obligation to not only be impartial and unbiased, but also to be manifestly seen to be impartial and unbiased. This in turn stems from the twin principles of natural justice and procedural fairness, which are the hallmarks of the arbitral process. In the recent case of Halliburton v Chubb delivered on 27 November 2020, the UK Supreme Court was presented with an opportunity to determine the circumstances in which an arbitrator is required to make conflict of interest disclosures. This article examines whether (and the extent to which) the Supreme Court succeeded in doing so, as well as the decision’s potential impact on the practice of international commercial arbitration in general and in Nigeria in particular.

Facts of the Case

The appellants, Halliburton Company (“Halliburton”) entered into a Bermuda Form liability policy (“the Policy”) with ACE Bermuda Insurance Limited, now called Chubb Insurance Ltd (“Chubb”) in 1992 (which was renewed annually). BP Exploration and Production Inc (“BP”) was the lessee of Deepwater Horizon drilling rig in the Gulf of Mexico. The rig was owned and operated by Transocean Holdings LLC (“Transocean”). BP was contracted to provide crew and drilling teams while oil services giant, Halliburton provided cementing and well-monitoring services to BP in relation to the plugging of the well.

In April 2010, there was an explosion and a fire on the drilling rig when a well ruptured and caused arguably the largest oil spill in the history of marine oil drilling operations. The explosion caused extensive damage and resulted in 11 deaths and over 200 million gallons of oil spilling out of the ruptured well into the Gulf, sparking off numerous legal claims by the US Government as well as individual and corporate claimants. In one of such cases brought against BP, Transocean and Halliburton, the Federal Court for the Eastern District of Louisiana, in a judgment delivered on 4 September 2014, apportioned liability amongst the defendants in the following proportion: BP 67%, Transocean 30% and Halliburton 3%.

However, before the judgment was delivered, Halliburton had settled the claims against it by paying approximately US$1.1 billion. After the judgment, Transocean settled the claims against it for about US$ 212 million and paid civil penalties to the US Government of about US$1 billion. Thereafter, Halliburton claimed the amount from Chubb under the Policy, but Chubb refused to settle the claim contending amongst other things that Halliburton’s settlement payment was unreasonable and it was reasonable for it (Chubb) not to have consented to the settlement.

As stated earlier, the Policy between Halliburton and Chubb was a Bermuda Form policy, a type of policy created in the 1980s to provide high excess commercial general liability insurance to companies operating in the United States. Bermuda Form policies usually contain a clause providing for disputes to be resolved by arbitration. Bermuda Form arbitrations are ad hoc arbitrations which are not subject to the rules of an arbitral institution.

This particular policy was governed by the laws of the State of New York and contained a standard arbitration clause which provided for the seat of the arbitration to be in London by a tribunal of three arbitrators, one each appointed by each party and the third by the two arbitrators chosen by the parties. The Policy further provided that if the party-appointed arbitrators could not agree on the appointment of the third arbitrator, the High Court of Justice in London would make the appointment. This is exactly what happened as Halliburton and Chubb appointed Professor William W. Park and Mr. John D. Cole respectively and these two were unable to agree on the appointment of the third arbitrator.

In June 2015, Mr. Justice Flaux of the High Court of Justice appointed Mr. Kenneth Rokison, QC who incidentally was one of the arbitrators proposed to the court by Chubb, for appointment as the third arbitrator. Although Halliburton objected to the appointment of Mr. Rokison as well as the other candidates proposed by Chubb, upon his appointment by Flaux J., Halliburton did not appeal against the order.

Before expressing his willingness to be appointed, Mr. Rokison disclosed to Halliburton and the court that he had previously acted as an arbitrator in several arbitrations in which Chubb was a party, including as party-appointed arbitrator nominated by Chubb. He also disclosed that he was currently appointed as arbitrator in two pending references in which Chubb was involved. The court did not deem these disclosures as impediments to his appointment and went ahead to appoint him.

While the parties to this arbitration were still exchanging pleadings, Mr. Rokison accepted another appointment in December 2015, as an arbitrator in relation to a claim by Transocean against Chubb arising out of the same incident. He was appointed by Chubb. Before accepting his appointment in this second reference, Mr. Rokison disclosed to Transocean his appointment in the first reference in which Haliburton was the Claimant against Chubb. Transocean did not object to his appointment. In August 2016, he also accepted a third appointment arising out the same Deepwater Horizon incident. This time he was appointed as a substitute arbitrator on the joint nomination of the parties to the claim, Transocean and a different insurer. However, Mr. Rokison did not disclose these two subsequent appointments to Halliburton, the Claimant in the first reference.

It so transpired that in the second and third references, there was a preliminary issue which was potentially dispositive of the claims in those arbitrations if the tribunals decided in favour of the insurers. The issue was whether the fines and penalties that Transocean had paid to the US Government should be taken into consideration in these two references. Ultimately, the tribunals issued awards on the preliminary issues on 1 March 2017 and decided in favour of Chubb and the other insurer. The awards brought the two references to an end without either tribunal having to consider questions as to the reasonableness of Transocean’s settlement, which was the major issue in the first reference at issue.

Haliburton discovers Mr. Rokison’s appointments

On 10 November 2016, Halliburton discovered Mr. Rokison’s appointments in the two subsequent references and their lawyers wrote to him expressing their concerns. In response, Mr. Rokison informed the parties that he had not disclosed those appointments because it had not occurred to him at the time of those appointments that he was under any obligation to disclose them under the IBA Guidelines. He then admitted that, with the benefit of hindsight, it would have been prudent for him to have disclosed those appointments and apologised for not having done so. Nevertheless, despite being invited by Halliburton’s lawyer to resign, he did not do so, as a result of which Halliburton issued a Claim Form in the High Court seeking an order under section 24(1)(a) of the English Arbitration Act 1996 that Mr. Rokison be removed as an arbitrator.

Mr. Justice Popplewell of the High Court heard Halliburton’s application and, in a judgment delivered on 3 February 2017, dismissed the application. In his judgment, Popplewell J. rejected Halliburton’s contentions that – (i) Mr. Rokison would derive a secret benefit in the form of the remuneration which he would receive from the arbitrations; (ii) the overlap between the three references, which meant that Mr. Rokison would learn information in the Transocean references, which information would be available to Chubb but not to Halliburton, gave rise to justifiable concerns; and (iii) the chairman of a tribunal had an enhanced duty [beyond that of party appointed arbitrators] to maintain demonstrable impartiality and fairness. The judge held that the arbitrator’s failure to disclose the subsequent appointments did not give rise to a real possibility of bias against Halliburton. Aggrieved, Halliburton appealed to the Court of Appeal.

In the second part of this article, we will highlight the decision of the Court of Appeal, the apex court, and provide an analysis of the outcome of the case.


Oyinkansola Badejo-Okusanya is a Founding Partner  and Orji A. Uka, is a Senior Associate of Africa Law Practice (ALP) NG & Co. Lagos

Leave A Reply

Your email address will not be published.