Supreme Court clarifies key principles and reinforces arbitration-friendly approach

17th December 2020

Commercial dispute resolution specialists Gwendoline Davies, Lynsey Oakdene and Nick McQueen consider two recent Supreme Court judgments of significance to the international arbitration community. The first clarifies the approach to determining the governing law of an arbitration agreement and to granting anti-suit injunctions; the second clarifies the law on arbitrator bias and the duties of impartiality and disclosure.

WM Comment

Arbitration can be an attractive alternative to court litigation as a formal method of resolving commercial disputes and is the method of choice for resolving cross-border disputes. It is also unaffected by Brexit.

These Supreme Court judgments provide much-needed certainty and consistency of approach in complex areas of the law. They reinforce the arbitration-friendly approach of the English courts which play an important supervisory role in support of the arbitration process. As Halliburton’s counsel pointed out in Halliburton v Chubb [1], the main reasons why parties in international arbitration choose to arbitrate in England are the reputation of London and that the English legal system guarantees neutrality and impartiality [2]. It is therefore important that English law upholds rules which support the integrity of international arbitration.

It is important to give careful thought to dispute resolution clauses from the outset. All too often, contracting parties are keen to push forward with their commercial arrangements and they fail to plan effectively for how disputes will be managed if things go wrong. If the parties choose arbitration, careful drafting of the contract and arbitration agreement (including specifying the governing law and the seat (place) of arbitration) can lead to significant time and costs savings and make disputes easier to resolve in the long run.

How can we help?

Walker Morris has a large team of specialists experienced in all aspects of commercial dispute resolution across all sectors, including national and international arbitration, litigation, mediation, expert determination and other forms of alternative dispute resolution. Two of our partners are Fellows of the Chartered Institute of Arbitrators.

If you trade internationally and/or are considering arbitration, and need any assistance or advice on drafting, dispute resolution options or strategy, please contact Gwendoline, Lynsey, Nick or any member of the commercial dispute resolution team.

Determining the governing law

An ‘arbitration agreement’ is typically a clause in the parties’ contract where they agree to resolve any disputes through arbitration. It is effectively a separate agreement from the underlying contract and the two will not necessarily be governed by the same law.

In Enka v Chubb [3] the Supreme Court set out the following principles for determining the governing law of an arbitration agreement:

• The law applicable to the arbitration agreement will be (a) the law chosen by the parties to govern it or (b) in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected.
• Where the law applicable to the arbitration agreement is not specified, a choice of governing law for the contract will generally apply to an arbitration agreement which forms part of the contract.
• The choice of a different country as the seat of the arbitration is not sufficient by itself to negate an inference that a choice of law to govern the contract was intended to apply to the arbitration agreement.
• There are additional factors which may, however, negate such an inference and may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat.
• Where there is no express choice of law to govern the contract, a clause providing for arbitration in a particular place will not by itself justify an inference that the contract (or the arbitration agreement) is intended to be governed by the law of that place.
• In the absence of any choice of law to govern the arbitration agreement, the arbitration agreement is governed by the law with which it is most closely connected. Where the parties have chosen a seat of arbitration, this will generally be the law of the seat, even if this differs from the law applicable to the parties’ substantive contractual obligations.
• The fact that the contract requires the parties to attempt to resolve a dispute through good faith negotiation, mediation or any other procedure before referring it to arbitration will not generally provide a reason to displace the law of the seat of arbitration as the law applicable to the arbitration agreement by default in the absence of a choice of law to govern it.

Anti-suit injunctions

In Enka v Chubb the Court of Appeal had granted an anti-suit injunction restraining Chubb from continuing Russian court proceedings in alleged breach of the arbitration agreement. The Supreme Court agreed with the Court of Appeal that the principles governing the grant of an anti-suit injunction in support of an arbitration agreement with an English seat do not differ according to whether that agreement is governed by English law or foreign law. The court’s concern will be to uphold the parties’ bargain, absent strong reason to the contrary, and the court’s readiness to do so is itself an important reason for choosing an English seat of arbitration.

Arbitrator bias and the duties of impartiality and disclosure

The Arbitration Act 1996 empowers the court to remove an arbitrator on the ground that circumstances exist that give rise to justifiable doubts as to his or her impartiality. In Halliburton v Chubb the Supreme Court considered two main issues: whether and to what extent an arbitrator may accept appointments in several arbitrations concerning the same or overlapping subject matter with only one common party without giving rise to an appearance of bias; and whether and to what extent they may do so without disclosure.

The Supreme Court set out the following principles which are of wide application:

• Arbitrators have a statutory duty to act fairly and impartially. It applies equally to all arbitrators, however they are appointed. A party-appointed arbitrator is expected to meet precisely the same high standards of fairness and impartiality as the person chairing the tribunal.
• When considering an allegation of apparent bias, the English courts will apply the objective test of whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility of bias. This objective test has regard to the realities of international arbitration (for example, the fact that arbitration is a private process, the right of appeal is limited, and arbitrators have a financial interest in obtaining further appointments) and customs and practices in the relevant field of arbitration (the Supreme Court recognised throughout the judgment that there are distinctive customs and practices in different types of arbitration).
• Unless the parties to the arbitration otherwise agree, arbitrators have a legal duty to disclose facts and circumstances which would or might reasonably give rise to the appearance of bias. This duty of disclosure is a component of the statutory duty to act fairly and impartially. It underpins the integrity of English-seated arbitrations and promotes transparency.
• Failure to disclose is a factor for the fair-minded and informed observer to take into account in assessing whether there is a real possibility of bias.
• The duty of disclosure does not override the arbitrator’s duty of privacy and confidentiality. Whether and to what extent an arbitrator may disclose the existence of a related arbitration without obtaining the express consent of the parties to that arbitration depends on whether the information to be disclosed is within the arbitrator’s obligation of privacy and confidentiality and, if it is, whether the consent of the relevant party or parties can be inferred from their contract having regard to the customs and practices of arbitration in their field.
• In assessing whether an arbitrator has failed in a duty to disclose, the fair-minded and informed observer must have regard to the facts and circumstances as at, and from, the date when the duty arose. In contrast, the observer assesses whether there is a real possibility that an arbitrator is biased by reference to facts and circumstances known at the date of the hearing to remove the arbitrator.
• The party applying to remove the arbitrator does not have to show that substantial injustice has been or will be caused to it.
• Where an arbitrator accepts appointments in several arbitrations concerning the same or overlapping subject matter with only one common party, this may, depending on the relevant custom and practice, give rise to an appearance of bias. Whether they have to disclose their acceptance of such appointments also depends on custom and practice.

[1] Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48

[2] See the 2018 International Arbitration Survey: The Evolution of International Arbitration conducted by the School of International Arbitration at Queen Mary University of London

[3] Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38