Category: Arbitration

The Singapore Convention on Mediation: The UK’s Serious Commitment to ADR

Following the public consultation on the United Nations Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention on Mediation”), which ran from 2 February to 1 April 2022, the UK Government signed the treaty on 3 May 2023. Once the UK has implemented the Convention into domestic legislation and deposited the instrument of ratification, it will enter into force six months later as provided in Article 14.1 of the treaty. To date, 56 countries have signed the Singapore Convention, and 11 of the signatories have also ratified it.

The Singapore Convention on Mediation was adopted by UNCITRAL in 2019 as a multilateral treaty providing a uniform and efficient framework for the enforcement and invocation of international settlement agreements resulting from the mediation of commercial disputes. Mediation is the most common form of alternative dispute resolution (ADR) and probably the quickest way of resolving disputes. As for the settlement of disputes, a neutral third party facilitates a negotiated agreement without any decision-making power.

There is a tendency in the UK to stimulate parties to mediate their arisen or potential disputes instead of litigating in courts, therefore, to immerse mediation as an integral step in the court process. In this regard, the Ministry of Justice’s Call for Evidence on Dispute Resolution in England and Wales set out the goals of the civil justice system to integrate dispute resolution processes, including resolving disputes consensually through mediation. Following this, the Government made proposals on the automatic/mandatory mediation of civil disputes valued up to £10,000 by Her Majesty’s Courts and Tribunals Service (HMCTS) as part of the court process. The latter is at the consultation stage.  

By signing the Singapore Convention, the UK has demonstrated its serious outlook for becoming a leader in the promotion of mediation as an essential part of the civil justice system. In the absence of such an international treaty, there is a process to be followed for a settlement agreement to get enforced. A party would need to make a claim for breach of contract and get a judgment that is to be enforced first unless the terms of the settlement have been recorded in a “Tomlin order”.

With the UK’s membership to the Singapore Convention, international mediation agreements or iMSAs (settlement agreements qualifying under the Convention) as well as settlements will become directly enforceable without any further need to issue a claim for breach of contract or to litigate the case on the merits. Having the Singapore Convention together with the New York Arbitration Convention and Hague Convention on Choice of Court Agreements in its armoury will enhance the UK’s credibility as an attractive dispute resolution hub as well as promote its relations with global trading partners. Furthermore, membership in these fundamental Private International Law instruments will also have serious Brexit implications. Needless to say, the UK’s plans to ratify the Hague Judgments Convention significantly contribute to these ends (for more on this see the blogpost here: The Ball is Rolling: The UK to ratify the Hague Judgments Convention? – The Institute of International Shipping & Trade Law (IISTL) Blog.

The next step in the reform of the Arbitration Act 1996

Recently, the Law Commission for England and Wales published the Second Consultation Paper on the Review of the Arbitration Act 1996 containing provisional law reform proposals to ensure that the arbitration law remains state of the art. Back in 2021, the Ministry of Justice asked the Law Commission to undertake a review of the Arbitration Act 1996. Following this, the Commission published its first public consultation paper unfolding provisional law reform proposals. The consultation period was open by December 2022. See the previous post about the first consultation paper here: Law Commission to review the Arbitration Act 1996

The consultation questions in the previous paper were around the shortlisted aspects of the arbitration, including confidentiality, independence of arbitrators and disclosure, discrimination, immunity of arbitrators, summary disposal of issues that lack merit, interim measures ordered by the court in support of arbitral proceedings (section 44 of the Act), jurisdictional challenges against arbitral awards (section 67), and appeals on a point of law (section 69). In addition, the Commission encouraged consultees to suggest and comment on any other topics which were not covered but might need reviewing.

It is worth reiterating the main points of my response to the first consultation paper:

  • As of the status quo based on the existing legislation and authorities, relitigation and reconsideration by the court following the challenges brought under Section 67 not only double the waste of time and expenses by the repetitive proceedings and potential parallel or inconsistent judgments but also go against the whole idea of arbitration and the fundamental principle “Kompetenz-kompetenz”.
  • The courts’ powers to grant interim injunctions derive from the two fundamental legal frameworks – Arbitration Act 1996, Section 44 and Senior Courts Act 1981, Section 37. The revision of the existing legal frameworks to reflect the interrelationship and boundaries of the instruments with regard to the court’s powers to make orders in support of arbitral proceedings would be in line with the objectives and general principles of the Arbitration Act 1996 to improve the law relating to arbitration, in general. Indeed, the revision would bring clarity about the application scope of the Act (see the Introductory Act to the Arbitration Act 1996) and contribute to the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.

Based on the suggestions made by the consultees involved in the first round of the reform project, in its second consultation paper, the Commission has made new proposals about the proper law of the arbitration agreement. Furthermore, the Commission considers the following two issues as the most controversial ones among the others and seeks the views of consultees on the revised proposals: (1) challenges to awards under section 67 on the basis that the tribunal lacked jurisdiction; and (2) discrimination in arbitral appointments.

The second consultation paper will be open by 23:59 hours on 22 May 2023. The responses of consultees to this second consultation paper will be taken along with responses to the first consultation to inform the final report and recommendations. All the details of the project and relevant consultation documents are available here: Review of the Arbitration Act 1996 – Law Commission

Anti-assignment clauses and subrogation under foreign law

Dassault Aviation SA v Mitsui Sumitomo Insurance Co Ltd [2022] EWHC 3287 (Comm) involved the effect of an anti-assignment clause in a contract on statutory rights of subrogation under an insurance policy subject to Japanese law taken out by one of the parties. Mitsui Bussan Aerospace Co Ltd (“MBA”) and Dassault entered into a sale contract governed by English law under which Dassault would manufacture and deliver to MBA two aircraft and certain related supplies and services for supply to the Japanese Coast Guard. Article 15 of the Sale Contract, titled “Assignment-Transfer”, provided:

“Except for the Warranties defined in Exhibit 4 that shall be transferable to Customer, this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party.

Notwithstanding the above and subject to a Seller’s prior notice to Buyer, Seller shall have the right to enter into subcontracting arrangements with any third party, for the purpose of the performance of this Contract”

The Sale Contract contained an arbitration agreement providing for arbitration under the ICC rules and for the seat of arbitration to be London.

MBA entered into a contract of insurance with MSI, governed by Japanese law, without seeking Dassault’s consent. The Policy covered the risk of MBA being held liable to the Japanese Coast Guard for late delivery under the Sale Contract. In fact, delivery was delayed and the Japanese Coast Guard claimed liquidated damages for late delivery. MBA claimed that sum from MSI (less a deductible) under the Policy, and MSI accepted that claim and paid MBA in turn.

Article 25 of the Japanese Insurance Law provides:

“An insurer, when the insurer has made an insurance proceeds payment, shall, by operation of law, be subrogated with regard to any claim acquired by the insured due to the occurrence of any damages arising from an insured event (under a non-life insurance policy which covers claims arising due to default or any other reason, such claims shall be included; hereinafter referred to as the ‘insured’s claim’ in this Article), up to the smaller of the amounts listed below:

(i) the amount of the insurance proceeds payment made by the insurer; or

(ii) the amount of the insured’s claim (if the amount set forth in the preceding item falls short of the amount of damages to be compensated, the amount that remains after deducting the amount of the shortfall from the amount of the insured’s claim).”

Article 26 of the Japanese Insurance Law provides: “A contractual provision that is incompatible with the provisions of […] [Article 25] that is unfavourable to an insured shall be void.” However it permits of agreement that an insurer would not be subrogated, as not being “unfavourable to the insured”.

The mechanism of subrogation under Japanese Law is the transfer of rights: the insurer acquires the right to sue in its own name, including the right to initiate proceedings. This was reinforced by Article 35 (1) of the Policy which essentially reproduced Article 25 of the Japanese Insurance Law and provide:

“In the event that the Insured acquires a right to claim for damages or other claim […] as a result of the occurrence of Losses, such claims shall be transferred to [MSI] when [MSI] pays the insurance benefits for said Losses..”

30 April 2021, MSI submitted a request for arbitration under the arbitration agreement in the Sale Contract against Dassault. The Tribunal considered the jurisdictional issue as a preliminary issue. In its Partial Award on jurisdiction by a majority decision, the Tribunal dismissed Dassault’s jurisdictional objection. The Tribunal held that: (i) Article 15 of the Sale Contract did not apply to involuntary assignments and/or assignments by operation of law; (ii) as a matter of Japanese law, the transfer of rights from MBA to MSI occurred by operation to law pursuant to Article 25 of the Japanese Insurance Act. The majority found that, since the transfer occurred by operation of law, Article 15 did not apply to it

On appeal under s.67 of the Arbitration Act 1996 Cockerill J that the effect of Article 15 was that the subrogation to MSI was of no effect and the Tribunal had no jurisdiction to hear its claim against Dassault. So far as the authorities went, there was a presumption that the court should not be prevented from giving effect to such a clause when the transfer is one which is voluntary (in the sense of consented to). The authorities did not justify a conclusion that prohibitions on assignment should not be taken to carve out transfers which occur “by operation of law” in a broad sense. The relevant test was whether the transfer was voluntary in that it was in the power of MBA to prevent the transfer. The answer was that it was. MBA might have chosen not to insure or might have chosen a policy governed by another system of law. It might have excluded the operation of Article 25 instead positively reinforcing it with Article 35 of the Policy. It might have chosen not to make a claim. It was therefore in the power of MBA to comply with the provision. It acted voluntarily or consented to take a step which on a certain contingency would put it in breach of that provision.

MSI pointed out that it was difficult to say that subrogation under English law was acceptable, whereas the subrogation equivalent of another legal system was not. Dassault replied that an English law subrogation does not involve a transfer and there simply is a relevant difference for the purposes of a clause such as this. Secondly, the assumption that there is no problem with English law subrogation might not be a safe one.

This required a consideration of the nature of subrogation in English law. Would the third rule of English law subrogation, that an insurer can pursue a claim in the name of the insured, but not pursuant to a transfer of right, be affected by Article 15 or a clause like it?  Cockerill J was not prepared to decide that Dassault’s argument would probably gain traction based on a fairly slight and somewhat abstract argument and its case must therefore (for present purposes) stand or fall on the basis that English law subrogation would not fall foul of Article 15.

MSI argued that “a question of public policy arises… because the general view of English contractual law is that it’s sensible for parties to obtain insurance and they should not be penalised for doing so“. Cockerill J rejected this because one could not imply into the clause a blanket exception for insurance: it would be contrary to the express words of the contract and it would fail the business efficacy test.

The moral of this tale is that if your contract contains a ban on assignment, you need to take care with taking out insurance under a policy subject to a foreign law. If subrogation under that system of law operates by a direct transfer of rights to the insurer, it will be caught by the ban on assignment in your contract.

Charters, subjects and arbitrators’ jurisdiction

Hopeless appeals sometimes clear the air. One such was today’s appeal by the claimants in the arbitration decision of The Newcastle Express [2022] EWCA Civ 1555.

Owners of a largish bulker fixed her for a voyage carrying coal from Australia to China. The charter was on the terms of an accepted proforma containing a London arbitration clause, and subject to Rightship approval. The recap, however, contained the words SUB SHIPPER/RECEIVERS APPROVAL, and no sub was ever lifted. The charterers declined to accept the vessel, alleging that Rightship approval had not been obtained on time; the owners alleged wrongful repudiation, and claimed arbitration.

The charterers argued that because the necessary approvals had not been forthcoming no agreement of any kind had been concluded, and politely sat out the owners’ proceedings. The arbitration tribunal decided that there had been a concluded contract; that it therefore had jurisdiction; and that the owners were entitled to something over $280,000 in damages. On an appeal under ss.67 and 69 of the Arbitration Act Jacobs J allowed the charterers’ s.67 appeal, holding that there had never been either a contract or an agreement to arbitrate anything; hence neither the charter nor the arbitration bound the charterers. For good measure he also said that he would have allowed a s.69 appeal on the law.

The owners unsuccessfully appealed to the Court of Appeal. They argued first, one suspects without much enthusiasm, that the “sub shipper/receivers approval” term was not a precondition of there being any contract, but instead acknowledged the presence of an agreement and merely qualified the duty to perform it. The Court of Appeal had little difficulty sweeping this point aside. Terms fairly clearly giving a person the right to disapprove a transaction on commercial grounds, as here, were fairly consistently construed in the same way as other “subject to contract” terms: and this one was clearly intended to allow either party to walk away without penalty.

This left the separability point: why not invoke the “one-stop-shop” preference adumbrated in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, [2007] 4 All ER 951 and engage in a bit of constructive interpretation, so as to treat the parties as having agreed that even if the main agreement hadn’t been concluded they had agreed on any dispute, including whether the agreement was enforceable, being decided by arbitrators? To this, however, there was a simple answer. Harbour Assurance v Kansa Insurance Co [1993] QB 701 before the 1996 Act, and the post-1996 Fiona Trust case itself, showed that this chicken wouldn’t fight. It was all very well to separate out the arbitration agreement in cases where the parties had seemingly agreed but there was some alleged vitiating factor, such as mistake or duress, in their agreement. But here the very point at issue was whether there had been agreement on anything in the first place: if there had not, any arbitration provision fell with the agreement itself. Game set and match, therefore, to the charterers.

This must all be right. Admittedly it does leave claimants in a quandary when faced with defendants who, like the charterers in this case, deny that parties ever reached agreement and refuse to arbitrate. Do they have to go to the expense of an arbitration in the full knowledge that they may then have to traverse the same ground again in a court to prove that the arbitrator had jurisdiction to decide in their favour?

The solution suggested by Males LJ at [86], an agreement ad hoc to arbitrate the jurisdiction point, is certainly useful, though it requires agreement from the other party. A further possibility might be to amend s.32 of the Act. Currently this allows an application to the court to determine jurisdiction, but only with the agreement either of both parties or of the tribunal and the court. There is something to be said for relaxing this requirement where one party refuses to take part in the proceedings at all, and saying that in such a case either party can demand a court determination as of right. Ironically the threat to force on the other party a quick trip to the Commercial Court, with the extra costs that involves, might act as a wholesome encouragement to agree to the one-stop-shop businesspeople are always said to want and which Males LJ advocates.

The Law Commission, as it providentially happens, is currently looking at s.67 and s.32, and has a consultation paper out (in which it tentatively suggests, among other things, that a s.67 appeal should not be a rehearing except where the other party plays no part in the arbitration). This is perhaps another idea that could be discreetly fed to it. You have till 15 December, when the consultation closes, to get any proposals together.

Misdelivery by the carrier after discharge and the Article III Rule 6 time bar: the ‘Alhani gap’ is filled

FIMBank p.l.c. v KCH Shipping Co., Ltd [2022] EWHC 2400 (Comm)

The Commercial Court (Sir William Blair) has recently handed down judgment in FIMBank p.l.c. v KCH Shipping Co., Ltd, an appeal under section 69 of the Arbitration Act 1996, holding that the time bar in Article III rule 6 of the Hague-Visby Rules can apply to claims in relation to misdelivery after discharge. The Court’s decision resolves an important question which had not previously been decided by the English courts, and which has divided leading academic commentators as well as judges in other common law jurisdictions.

Background

The appeal relates to a claim brought by FIMBank p.l.c. (“FIMBank”), as the holder of bills of lading, for the alleged misdelivery of cargo by the contractual carrier, KCH Shipping Co., Ltd (“KCH”). The bills were concluded on the Congenbill form, and were subject to the Hague-Visby Rules, including the time bar in Article III r 6 of one year after delivery which applies to claims against carriers.

FIMBank served a Notice of Arbitration on KCH after that time bar expired. Its position was that its claim was nevertheless not caught by the time bar, contending that: (a) on the facts, delivery took place after discharge; and (b) as a matter of law, the time bar did not apply to claims for misdelivery occurring after discharge. In its submission, this was so given that the Hague-Visby Rules do not regulate a carrier’s obligation to deliver cargo (as opposed to the carriage of goods by sea), and only relate to a ‘period of responsibility’ which ends with the discharge of cargo. FIMBank further argued that the parties had, in any event, contractually disapplied the Rules in respect of the period after discharge, insofar as Clause 2(c) of the Congenbill form provided: “The Carrier shall in no case be responsible for loss and damage to the cargo, howsoever arising prior to loading into and after discharge from the Vessel …”.

In an Award on preliminary issues, the arbitral tribunal determined that FIMBank’s claim was time-barred irrespective of whether delivery post-dated discharge on the facts (which remained a matter in dispute). This was because: (i) the Hague[1]Visby Rules time bar can apply to claims relating to misdelivery occurring after discharge; and (ii) Clause 2(c) of the Congenbill form does not disapply the Rules in respect of the period after discharge.

The Court’s reasoning

The Court upheld the tribunal’s decision on both questions, and accordingly dismissed the appeal.

On the first question, it concluded that, on its true construction, Article III r 6 of the Hague-Visby Rules applies to claims for misdelivery of cargo after discharge. The Court noted that this conclusion avoided the need for fine distinctions as to the point at which discharge ended, and accorded with the objective of the rule which was intended to achieve finality and to enable the shipowner to clear its books. It further observed that, although certain common law authorities and commentaries might be said to support the construction of Article III r 6 for which FIMBank contended (including Carver on Charterparties and Voyage Charters), there was no international judicial or academic consensus to that effect.

The Court held that, even if its conclusion above was wrong, the tribunal’s decision was in any event justified by its finding that the bills of lading contained an implied term providing that the Hague-Visby Rules obligations and immunities are to continue after actual discharge and until delivery takes place, in line with the reasoning of the Court of Appeal in The MSC Amsterdam [2007] EWCA Civ 794.

On the second question, the Court held that, on a proper construction, Clause 2(c) did not disapply the Hague-Visby Rules to the period after discharge. Although FIMBank relied in this regard on The MSC Amsterdam, in which the express terms of the bill of lading concerned were held to have disapplied the Hague Rules after discharge, the Judge held that that decision did not warrant a different result, insofar as it featured a bill of lading with materially distinguishable terms.

Simon Rainey K.C. of Quadrant Chambers and Matthew Chan of Twenty Essex acted for KCH, instructed by Kyri Evagora and Thor Maalouf of Reed Smith LLP














Law Commission to review the Arbitration Act 1996

Yesterday, on 22 September 2022, the Law Commission for England and Wales published a public consultation paper unfolding provisional law reform proposals to ensure that the Arbitration Act 1996 remains state of art. After the Ministry of Justice asked the Commission to undertake a review of the Arbitration Act 1996 in 2021, the work began in January 2022. While consulting with a wide range of stakeholders in the field and assessing the current legal framework, the Commission has concluded that the Arbitration Act works very well, without any need for substantial reforms. However, it has been revealed that several discrete topics might necessitate amendments to ensure that the Act fits its purpose and continues to promote the UK as a leading destination for commercial arbitration. The Commission has drafted the consultation questions around the shortlisted aspects of arbitration:

1. Confidentiality

2. Independence of arbitrators and disclosure.

3. Discrimination. 

4. Immunity of arbitrators. 

5. Summary disposal of issues that lack merit. 

6. Interim measures ordered by the court in support of arbitral proceedings (section 44 of the Act). 

7. Jurisdictional challenges against arbitral awards (section 67). 

8. Appeals on a point of law (section 69). 

In addition, the Commission encourages consultees to suggest and comment on any other topics which are not covered in the consultation paper but might need reviewing.

The Commission welcomes responses to the paper between 22 September 2022 and 15 December 2022 using an online form, email, or post. After the consultation has been completed, the Commission will analyse the responses and ensure further stakeholder engagement as appropriate. The follow-up report of the final recommendations for law reform will be published by the Commission, and the Ministry of Justice together with other interested departments will decide whether to implement them.

More information on the reform project and the consultation paper are available at Review of the Arbitration Act 1996 | Law Commission.

The anti-suit injunction and state immunity.

UK P&I Club NV and Another v República Bolivariana de Venezuela (The RCGS Resolute) – [2022] EWHC 1655 (Comm), raises, for the first time, the question of the effect of a claim to state immunity when a party claims an anti-suit injunction against a State.

A Venezuelan navy patrol intercepted a cruise liner, ‘Resolute’, in March 2020. A collision resulted and the navy vessel suffered hull damage and eventually sank. ‘Resolute’ was insured by UK P&I Club NV, a subsidiary of United Kingdom Steam-Ship Assurance Association. The Club’s Rules contained the two usual provisions relating to coverage: a “pay to be paid” clause under which liability to provide indemnity was postponed until actual payment of damages by the owners; and an English law and London arbitration clause.

In 2020 Venezuela brought civil claims in the courts of Dutch Curaçao and Venezuela against Resolute, the owners, head managers and the Clubs. The Clubs obtained an ex parte interim anti-suit injunction against Venezuela in the High Court and then sought a permanent anti-suit injunction against Venezuela to restrain it from pursuing both sets of foreign proceedings, on the basis that its direct action claim against them was subject to London arbitration.

Sir Ross Cranston held that Venezuela’s claim against the Clubs had been made under local legislation permitting a direct action. If the local law treats the claim as derived from the insurance policy the arbitration clause would be binding. He concluded that this was the case here and by pursuing judicial proceedings Venezuela was in breach of the arbitration clause. This was a ‘quasi-contractual’ claim which would be treated in the same way as a contractual claim. The court would ordinarily exercise its discretion to restrain the pursuit of proceedings brought in breach of an arbitration or jurisdiction clause, unless the injunction defendant could show strong reasons to refuse the relief.

However, there was the question of state immunity to consider. Although the commercial activity exception in s.3(1)(a) and the arbitration exception in s9(1)(a) of the State Immunity Act 1978 applied and meant that Venezuela did not have adjudicative immunity, it did have enforcement immunity under section 13(2)(a) which clearly states “relief shall not be given against a State by way of injunction …” Adjudicative immunity and enforcement immunity were separate and did not stand or fall together.

Article 6 of the European Convention on Human Rights applied in that s.13(2) deprived the Clubs of a remedy otherwise available to them. However Article 6 was not infringed as under customary international law there was no generally recognised right to an anti-suit injunction and section 13(2)(a) lies within the range of possible rules consistent with current international standards. Section13(2)(a) could also be justified as well by reference to legitimate domestic policy, if pursued by proportionate means.

Sir Ross Cranston noted [124]: “Finally, the fact that the Clubs will not have an injunction preventing parallel proceedings does not render worthless their right to have Venezuela’s claims determined by way of London arbitration. As well as an order to this effect, there may also be supportive remedies available to the Clubs including, at least in a contractual context, the compensation for breach of the arbitration agreement and declaratory relief which the Clubs are seeking in the arbitration, and which could be relied upon to resist enforcement of any judgment which Venezuela obtains in the foreign proceedings.”

The position may be different in respect of an anti-suit injunction ordered by arbitrators pursuant to their powers under s48(5) of the Arbitration Act 1996. In The London Steam-Ship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain [2020] EWHC 1582 (Comm) Henshaw J held that this was a matter for the arbitrators at first instance, but stated [188]:  “I consider the better view to be that SIA section 13 governs the exercise but not the existence of the court’s power to grant an injunction, and that AA 1996 section 48 permits an arbitrator to grant an injunction against a state.”

Halliburton v Chubb: Is Timing Everything?

Simon Rainey QC and Gaurav Sharma

On 27 November 2020, the Supreme Court handed down its highly anticipated judgment in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, unanimously dismissing Halliburton’s appeal.  In doing so, it found that, at the relevant time of assessment, a fair-minded observer would not have considered that the circumstances gave rise to reasonable doubts as to the impartiality of the chairman of the tribunal hearing the parties’ dispute arising out of the Deepwater Horizon incident in 2010.

Critics of the decision will undoubtedly focus on the consequences of the court’s view that the “relevant time” was the time of the hearing to remove chairman under section 24(1)(a) of the Arbitration Act 1996 (the Act), rather than the time of his acceptance of an appointment by Chubb in a separate arbitration – also relating to non-payment by Chubb under an insurance policy related to the Deepwater Horizon incident – around six months after his appointment in the arbitration between Halliburton and Chubb.

However, the decision brings finality to a key issue in the English law of arbitration, namely the existence of a legal duty to disclose an arbitrator’s participation in other arbitrations involving the same subject matter and a common party.  In addition, it delivers clarity in relation to certain other aspects of disclosure and arbitral practice more generally – notably including the interaction between the duty of disclosure on one hand and the obligation of confidentiality on the other, and the application of the English rules on disclosure just as equally to party-appointed arbitrators as to tribunal chairs.

The Disputes, The Arbitrations, The Appeals

The Deepwater Horizon was an offshore oil and gas drilling rig leased by BP and operated by Transocean at BP’s Macondo Prospect in the Gulf of Mexico.  Cementing and well monitoring services were provided by Halliburton.  On 20 April 2010, the rig experienced a major blowout in the course of the temporary abandonment and plugging of a well, resulting in the tragic loss of several rig workers’ lives, significant oil spills and environmental damage, and the sinking of the rig on 22 April 2010.

The US Government brought proceedings against BP, Transocean and Halliburton in relation to the damage caused by the incident.  A trial to determine liability before the Federal Court for the Eastern District of Louisiana resulted in a judgment on 4 September 2014 apportioning blame in percentage terms as between the three defendants.  Halliburton settled certain of the US Government’s claims against it in the amount of US$1.1 billion, but its liability insurer, Chubb, resisted its subsequent insurance claims on the basis that the settlement amount was not reasonable.  Accordingly, Halliburton commenced London arbitration proceedings against Chubb under its Bermuda Form policy, resulting in the High Court’s appointment on 12 June 2015 of Mr Kenneth Rokison QC as chair of the tribunal in default of agreement by the two party-appointed arbitrators.

Mr Rokison subsequently accepted an appointment by Chubb in December 2015 in its separate arbitration with Transocean arising out of the same incident following Transocean’s settlement of claims with the US Government; and an appointment in a third arbitration arising out of the same incident between Transocean and another insurer in August 2016.

At the time, Mr Rokison made no disclosure in the arbitration between Halliburton and Chubb of his appointment in the other two references.  In November 2016, Halliburton became aware of these appointments and applied to the court pursuant to section 24(1)(a) of the Act to remove him as chair of the tribunal on the grounds of perceived bias. The High Court dismissed the application following a hearing on 12 January 2017 and Halliburton appealed against this decision.  The Court of Appeal dismissed Halliburton’s appeal, resulting in Halliburton’s appeal to the Supreme Court.

The Legal Duty To Disclose Multiple Appointments With A Common Party

The issues before the Supreme Court were (i) 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, and (ii) whether and to what extent the arbitrator may do so without disclosure.

Giving the leading judgment, Lord Hodge made clear that in cases of apparent bias such as the present, the court was not concerned “to ‘make windows into men’s souls’ in search of an animus against a party or any other actual bias, whether conscious or unconscious.”  Instead, its task was to examine “how things appear objectively”.  [Para. 52]

The analysis was done in the context of section 24(1)(a) of the Act which allows for the removal of an arbitrator where “circumstances exist that give rise to justifiable doubts” as to the arbitrator’s impartiality.  The court considered that this could be the case “if the arbitrator at and from the date of his or her appointment had such knowledge of undisclosed circumstances as would, unless the parties waived the obligation, render him or her liable to be removed under section 24 of the 1996 Act”.  Agreeing with the Court of Appeal, the Supreme Court affirmed that this gave rise to a legal duty to make a disclosure of such matters which would otherwise cause the arbitrator to be in breach of their “statutory obligation of fairness”.  In other words, “an arbitrator who knowingly fails to act in a way which fairness requires to the potential detriment of a party is guilty of partiality”.  [Para. 78]

The court accepted the submissions of the ICC, LCIA and CIArb who favoured the recognition of such a legal duty in international arbitration proceedings; and those of the GAFTA and the LMAA to the effect that parties who chose to arbitrate their commodities and shipping disputes under those specialist rules understood that the smaller pool of specialist arbitrators involved might well act in multiple arbitrations arising out of the same subject matter, without needing to disclose that fact.  Lady Arden reinforced the importance of having clear evidence of a practice of dispensing with parties’ consent for arbitrators to appear in multiple arbitrations: while the English courts might trust arbitrators to decide cases on the basis of the evidence before them and set aside any inequality of arms and material asymmetry of information, this was something that “may not translate easily for the many parties to arbitrations who are familiar with different legal systems”. [Para 164]

Right Place, Wrong Time

The question therefore arose whether participants in Bermuda Form arbitrations would typically expect disclosure of an arbitrator’s involvement in related arbitrations.  The court found no evidence of parties acceding to a general practice of non-disclosure, which was also consistent with the fact that Mr Rokison had made disclosures to the parties in the other two arbitrations that arose out of the present subject matter of his role in the arbitration between Halliburton and Chubb.  Accordingly, the court found that Mr Rokison’s appointment in the second and third arbitrations should have been disclosed to Halliburton, and his failure to do so was a breach of legal duty which meant that a fair-minded and informed observer may well have concluded that there was a real possibility of bias.  [Para 147]

Ultimately this was of little consequence, however, as the court ruled that the relevant time for the determination of possible bias was not when he was appointed in the second reference (December 2015) – but the date of the hearing of the application to remove him as an arbitrator (January 2017).

This, said the court, was because of section 24(1)(a) of the Act’s use of the present tense requiring an examination of whether circumstances “exist” when the issue of an arbitrator’s removal arises for determination by the court.  By the time of the removal hearing concerning Mr Rokison, Halliburton had discovered his appointment in the other arbitrations and questioned him about that in correspondence, resulting in him providing an explanation for his failure to disclose – based on an oversight and belief that there would not be material overlap between the different sets of proceedings.  Halliburton accepted this explanation as being truthful, and the court was not persuaded that a fair-minded and informed observer assessing the situation at the date of the removal hearing – having the benefit of Mr Rokison’s explanation for his failure to disclose – would infer that there was a real possibility of bias on Mr Rokison’s part.  [Para 149]

So, Arbitrators Have A Statutory Duty to Disclose.  But What If They Don’t?

In their judgments, both Lord Hodge and Lady Arden recognised the risk of affirming the existence of the legal duty to make a disclosure which might not lead to an arbitrator’s disqualification or removal if not complied with.  Lady Arden acknowledged that “There is a concern that the duty of disclosure carries no sanction if an application is made to the court about a non-disclosure by the arbitrator and fails.”  But in her view, this missed the point, which was that “it would still be a breach of the terms of appointment with such consequences, if any, as the law of contract prescribes.  In addition, a person may commit a breach of contract but incur no liability as a result, and the situation postulated falls into that category.”  [Para 169]

Lord Hodge explained how in circumstances of a breach of the legal duty to disclose, an “arbitrator might, depending on the circumstances, face an order to meet some or all of the costs of the unsuccessful challenger or to bear the costs of his or her own defence.” [Para 111]
In other words, the failure would amount to a breach of a strictly legal obligation with the usual consequences associated with such a breach – though it would have no bearing on the situation obtaining at the date of a removal hearing and the assessment to be carried out then. 

Conclusion

The Supreme Court’s decision may cause disquiet in some quarters, especially amongst those who expect a failure to make a material disclosure to have more significant consequences – notably disqualifying an arbitrator from acting, or continuing to act, altogether.  The fact that the disclosable information in this case came to light by chance will only reinforce the sense of arbitrariness that some observers may have in the idea of assessing the issue at some point in time after the disclosure should have been made, but was not.  This in turn risks perpetuating any concerns participants in international arbitration proceedings may have as to the willingness and ability of English law to police the conduct of those who decide their disputes and their failure to make material disclosures affecting the fairness of proceedings.

More generally, one cannot help but wonder whether the court’s decision might result in some arbitrators showing less concern for their duty to make disclosures of relevant information in English-seated arbitrations in future.  This would be a shame, especially in light of the highly confidential nature of commercial arbitration and the difficulty of obtaining credible information as to the reliability and trustworthiness of arbitrators in advance of appointment as things stand.

However, it is not a given, and we must hope that it will not be the case.  Further, we should welcome the fact that the court’s decision brings clarity as to the nature of an arbitrator’s legal duty of disclosure, and how and when the examination of apparent bias will fall to be conducted.

Equally, we should be thankful for the court’s clarification as to the interaction between the duty to disclose involvement in multiple proceedings and any duties of confidentiality owed by that arbitrator to the various parties involved across the disputes.  Lady Arden explained that “the implied term as to confidentiality is independent of the implied term that the arbitrator should comply with his impartiality duty. It is truly a self-standing term”.  [Para 175.]  A customary high-level disclosure made on an anonymised basis will usually suffice to provide a party with the necessary information to enable it to assess whether or not it wishes to object to an arbitrator’s appointment.  However, if further information that is confidential is reasonably required by a party to make that assessment and would require another party’s consent in order to be divulged, then “if consent is not forthcoming, the arbitrator will have to decline the proposed appointment”.  [Para. 188]  It is not hard to appreciate the reasonableness of Lady Arden’s logic: arbitrators are, for better or worse, private judges who undertake paid appointments on a commercial and contractual basis.  If a request for consent to provide detailed information is made in the context of “the voluntary decision of the arbitrator to pursue a further appointment” (para. 180) and refused, then that is tough luck for the arbitrator in question who will simply “have to decline the proposed appointment”.  (Para. 188).

Finally, we should congratulate the Supreme Court for spelling out in terms that party-appointed arbitrators are subject to precisely the same obligations, and precisely the same standards, as tribunal chairs when it comes to impartiality and considerations of fairness.  This point was made in passing in reference to Halliburton’s appointment of Mr William Park as its arbitrator in three references against different insurers in insurance claims arising out of the Deepwater Horizon disaster, without any disclosure; juxtaposed with Mr Park’s statement of “profound disquiet about the arbitration’s fairness” made when the award was rendered in the Halliburton v Chubb arbitration, based on Mr Rokison’s non-disclosure of other appointments (Para. 26).  The court was, understandably, unimpressed by the suggestion that a party-appointed arbitrator should be afforded greater leniency in respect of his or her choice of disclosures compared with a chair, since “that is not a distinction which English law would recognise as a basis for a party-appointee avoiding the obligation of disclosure.  The disagreement among people involved in international arbitration as to the role of the party-appointed arbitrator is a circumstance which points to the disclosure of such multiple nominations; it does not provide a ground for nondisclosure”.  (Para 144).  This view echoes the position taken by the courts of other major arbitral centres around the world in relation to the strict disclosure obligations of party-appointed arbitrators (see for example the 25 February 2020 decision International Commercial Chamber of the Paris Court of Appeal in Dommo v Barra y Enauta).  Moreover, it is hugely reassuring to hear the court reaffirm what all participants in international arbitration proceedings hope and expect to be the case in respect of each and every one of the arbitrators mandated with the resolution of their legal dispute.

Non signatory third parties, the New York Convention and enforcement of arbitration agreements in the US. SCOTUS says ‘Yes, they can’.

In 2007, ThyssenKrupp Stainless USA, LLC, entered into three contracts with F. L. Industries, Inc., for the construction of cold rolling mills at ThyssenKrupp’s steel manufacturing plant in Alabama. Each of the contracts contained an identical arbitration clause.  F. L. Industries, Inc., then entered into a subcontractor agreement with GE Energy Power Conversion France SAS, Corp. (GE Energy), under which  GE Energy agreed to design, manufacture, and supply motors for the cold rolling mills. Between 2011 and 2012, GE Energy delivered nine motors to the Alabama plant for installation. Soon thereafter, respondent Outokumpu Stainless USA, LLC, acquired ownership of the plant from ThyssenKrupp.

According to Outokumpu, GE Energy’s motors failed by the summer of 2015, resulting in substantial damages. Outokumpu and its insurers filed suit against GE Energy in Alabama state court in 2016 and GE Energy removed the case to federal court under 9 U. S. C. §205, which authorizes the removal of an action from state to federal court if the action “relates to an arbitration agreement . . . falling under the Convention [on the Recognition and Enforcement of Foreign Arbitral Awards].” GE Energy then moved to dismiss and compel arbitration, relying on the arbitration clauses in the contracts between F. L. Industries, Inc., and ThyssenKrupp which defined the terms “Seller” and “Parties” to include subcontractors. 

The District Court granted GE Energy’s motion to dismiss and compel arbitration with Outokumpu and Sompo Japan Insurance Company of America. 

The Eleventh Circuit reversed the District as including a “requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration.” This requirement was not satisfied because “GE Energy is undeniably not a signatory to the Contracts.” It further held  that GE Energy could not rely on state-law equitable estoppel doctrines to enforce the arbitration agreement as a non signatory because, in the court’s view, equitable estoppel conflicts with the Convention’s signatory requirement. The equitable estoppel doctrine permits a non-signatory to a contract which contains an arbitration clause to rely on that arbitration clause when the signatory asserts claims that implicate the contract.

The Supreme Court first found that in cases which fall under Chapter 1 of the U.S. Federal Arbitration Act (FAA), which governs domestic and other arbitrations seated in the U.S., non-signatories may enforce arbitration clauses against signatories.

The Supreme Court then held that the only provision of the New York Convention that addresses the enforcement of arbitration agreements was Article II(3) and the nonexclusive language of that provision did not set a ceiling that tacitly precludes the use of domestic law to enforce arbitration agreements. This states that “[t]he court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Nothing in the text of the Convention “conflict[s] with” the application of domestic equitable estoppel doctrines permitted under Chapter 1 of the FAA. 9 U. S. C. §208.

The Court subsequently remanded the case to the Eleventh Circuit to decide whether applicable domestic-law equitable estoppel doctrines would permit GE Energy to compel arbitration.