The duty of disclosure is a legal duty in court and arbitral proceedings. If you are involved in arbitration, the arbitrators appointed are under such a duty to disclose where there is apparent bias or impartiality – but what are the limits of that duty? The specialist commercial lawyers at Bahamas law firm ParrisWhittaker are specialists in advising on disclosure issues in commercial disputes.
A ruling1 from the UK’s Supreme Court, which has highly persuasive authority on the courts in The Bahamas, is particularly noteworthy because various arbitral bodies intervened in the case (including the ICC, LCIA and GAFTA).
One of the key issues for the court was, in what circumstance must an arbitrator disclose circumstances which may give rise to justifiable doubts as to their impartiality?
What’s the background?
Following an explosion of an oil rig in the Gulf of Mexico, claims were made against Halliburton, a provider of cementing and well-monitoring services (as well as other parties). Halliburton settled its claims – but when it tried to recover the payments from the insurer, the insurer refused on the basis the settlement was unreasonable.
Arbitration proceedings against the insurer ensued, and one of the arbitrators (A) was appointed by the court. However, A failed to disclose to Halliburton that he had since accepted two further appointments as arbitrator in disputes relating to the rig explosion. The insurer therefore sought to have him removed as arbitrator.
The Supreme Court considered the key issues of impartiality and disclosure; and the limits to the duty of disclosure in such circumstances. It said that an arbitrator in London-seated arbitrations has, unless otherwise agreed between the parties, a legal duty to disclose facts or circumstances that could appear to be bias. However, that legal duty of disclosure does not override duties of privacy and confidentiality.
The Court then stated that consent to disclosure can be inferred from arbitral customs and practice, including under the rules of arbitral institutions (subject to specific restrictions and limits in a particular arbitration). So whether disclosure must be made depends on the customs and practices of the relevant field of arbitration.
What about A?
In this particular case, the court concluded that A was under a legal duty to disclose his appointment in the subsequent arbitration reference, and he had breached that duty. However, applying the “fair-minded and informed observer” to the particular circumstances, there was found no apparent bias. Therefore, Halliburton’s appeal failed.
What does this mean?
Commercial organisations are dealing with disputes in a court culture that increasingly encourages arbitration over litigation. This ruling provides important clarification on the issue of the appearance of bias on the part of an arbitrator and the limits to an arbitrator’s legal duty of disclosure. Particularly, the rules, customs and practice of a given arbitral institution will need to be considered in context.
It is of note that Lord Hodge suggested a solution to minimise the risk of further disputes similar to that in this case, involving disclosure by the court-appointed arbitrator. He said “rather than having disputes about the existence or absence of such a duty… by proof of a general custom and practice in a particular field of arbitration, there may be merit in putting the matter beyond doubt by express statement in the rules or guidance of the relevant institutions”.