AIDA REINSURANCE WORKING PARTY London 13 September 2012

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AIDA REINSURANCE WORKING PARTY

London 13 September 2012

THE BIAS OF ARBITRATORS IN REINSURANCE ARBITRATIONS

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A PICTURE IS WORTH A THOUSAND WORDS.

Lady Justice (from time immemorial).

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Definition of BIAS

A predisposition or prejudice.

Influence (usually unfairly).

(The Concise Oxford Dictionary, 1990).

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Definition of BIAS (cont.)

In a more technical sense, bias is related to natural justice.

Two main rules:

• rule against bias: against departure from the standard of even-handed justice “Nemo judex in causa sua”.

• audi alteram partem: or hear the other side. A decision cannot stand unless the person directly affected by it was given a fair opportunity both to state his case and to know and answer the other side’s case.

(Oxford Dictionary of Law, 4th Edition, 1997).

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Translation of this fundamental principle into arbitration.

Generally accepted duties of arbitrators:

a) to be and remain impartial during the arbitration;

b) to disclose any circumstances likely to give rise to justified doubts as to the arbitrator’s impartiality

or independence.

Duty of impartiality extends to independence, hence, an arbitrator must be impartial and independent.

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Independence and Impartiality

“Independence is a question of fact and impartiality is an attitude, a mental state reflecting an absence of prejudice vis à vis the specific case to be judged and a procedural form of conduct, that puts both parties on an equal footing.”

(Current Recommendations on the Independence and Impartiality of Arbitrators Issued by the Spanish Arbitration Club).

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Legal recognition of principles

Most arbitration laws, namely those based on the UNCITRAL Model Law 1985, as amended in 2006 and revised in 2010, as well as arbitral institutions recognise and enforce these principles.

Article 11 UNCITRAL Model Law:“When a person is approached in connection with his or her possible appointment as an arbitrator, he or she shall disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence. An arbitrator, from the time of his or her appointment and through the arbitral proceedings, shall without delay disclose any circumstances to the parties and the other arbitrators unless they have already been informed by him or her of these circumstances.”

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Article 12 UNCITRAL Model Law:

“1. Any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.

2. A party may challenge the arbitrator appointed by it only for reasons of which it becomes aware after the appointment has been made.

3. …”

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A sample of laws follows:

The English 1996 Arbitration Act:

“1. General principles.

The provisions of this Part are founded on the following principles, and shall be construed accordingly …

(a)the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

24. Power of court to remove arbitrator.

(1)A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on any of the following grounds:

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(a)that circumstances exist that give rise to justifiable doubts as to his impartiality;

33. General duty of the tribunal.

(1)The tribunal shall—

(a)act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b)adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.

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(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its

decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”

The Spanish 2003 Arbitration Act, article 17:

“An arbitrator must be and remain independent and impartial during the arbitration proceedings. In any event, he will not be able to keep personal, professional or commercial ties with the parties.

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The proposed arbitrator must disclose all circumstances that may give rise to justifiable doubts as to his impartiality and independence. The arbitrator shall disclose without delay any circumstance arisen after his appointment.”

The Peruvian 2008 Arbitration Act, article 28:

“1. All arbitrators shall be and remain during the arbitration independent and impartial. The proposed arbitrator must disclose all

circumstances that may give rise to doubts as to his impartiality and independence.”

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A sample of arbitral institutions rules follows:

Rules of the London Court of International Arbitration, article 5.2:

“All arbitrators conducting an arbitration under these Rules shall be and remain at all times impartial and independent of the parties; and none shall act in the arbitration as advocates for any party. No arbitrator, whether before or after appointment, shall advise any party on the merits or outcome of the dispute.”

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5.3:

“Before appointment by the LCIA Court, each arbitrator shall furnish to the Registrar a written résumé of his past and present professional positions; he shall agree in writing upon fee rates conforming to the Schedule of Costs; and he shall sign a declaration to the effect that there are no circumstances known to him likely to give rise to any justified doubts as to his impartiality or independence, other than any circumstances disclosed by him in the declaration. Each arbitrator shall thereby also assume a continuing duty forthwith to disclose any such circumstances …”

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ICC 2012 Arbitration and ADR Rules, article 11:

“1 Every arbitrator must be and remain impartial and independent of the parties involved in the arbitration.

2 Before appointment or confirmation, a prospective arbitrator shall sign a statement of acceptance, availability, impartiality and independence. The prospective arbitrator shall disclose in writing to the Secretariat any facts or circumstances which might be of such a nature as to call into question the arbitrator’s independence in the eyes of the parties, as well as any circumstances that could give rise to reasonable doubts as to the arbitrator’s impartiality. The Secretariat shall provide such information to the parties in writing and fix a time limit for any comments from them.”

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Arias Arbitration Rules (2nd. Edition, 1997), article 9.2:

“The Tribunal shall:

9.2.1 act fairly and impartially as between the Parties, giving each Party a reasonable opportunity of putting their case and dealing with that of their opponent;”

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Remarks

• Apparently, the English arbitration act and the Arias (UK Rules) do not require the disclosure of circumstances.

• LCIA Rules: arbitrator not an advocate for party.

• ICC Rules: highlights perspective of parties when appreciating circumstances.

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Key issue: “circumstances likely to raise justified doubts”

Objective lack of impartiality not required, justified doubts are enough.

Dual perspective:

• In the eyes of the parties.• In the arbitrator’s own eyes.

Appearance: “Caesar’s wife must be above suspicion”.

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What circumstances?

• No catalogue of circumstances.

• Guiding standard (IBA Guidelines for International Arbitrations).

“Doubts are justifiable if a reasonable and informed third party would reach the conclusion that there was a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties to reaching his or her decision.”

• Facts or circumstances giving rise to “justified doubts” must be proved.

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Circumstances extracted from Spanish case law

1. One of the partners of the law firm representing the defendant had been a trainee with Chairman of Tribunal.

2. Chairman belonged to Board of Directors of Academic Centre run by party’s counsel law firm, earning no fees for this function.

3. Chairman’s daughter had worked for party.4. Party counsel shared academic activities with Chairman.5. Chairman’s daughter was a law professor at the law school

where party counsel also taught.6. Chairman’s son in law worked in the IT department of the law

firm representing the defendant.7. Chairman dedicated a law book to the senior partner of the law

firm representing the defendant.8. Chairman issued legal opinions at the request of the defendant

and the defendant’s subsidiary for other unrelated matters before the arbitration.

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Lessons extracted from Spanish case law

Proof of circumstances in detail is not required. Case by case analysis. The Court will analyse circumstances as a whole, not

in isolation. The Court did not accept IBA Guidelines as reference

because Spanish law, the Arbitration Institution Rules and case law (from the Constitutional Court) provided enough guidance on the point and, further, it was not an international arbitration.

The Court confirmed the challenge and removed the Chairman.

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Consequences of lack of independence or impartiality

• The arbitrator should abstain or resign.

• The arbitrator may be challenged.

• The arbitrator may be liable for damages.

• The arbitral institution that appointed the arbitrator may also be liable for damages.

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Reinsurance arbitration: specific issues

• Qualifications required.

• Customary to appoint people from the industry (retired or otherwise). See section 6.3 of Arias UK Rules).

• Risk of independence or impartiality being undermined?

• Ad hoc or institutional arbitration?

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CONTACTS

Jorge AngellSenior Partner

L.C. RODRIGO ABOGADOSLagasca, 88 – 4th floor28001 Madrid, Spain

Tel. (+34) 914 355 412Fax (+34) 915 766 716

www.rodrigoabogados.comE-mail address:

[email protected]

http://www.rodrigoabogados.com/

mailto:[email protected]

AIDA REINSURANCE WORKING PARTY London 13 September 2012

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