IV AIDA EUROPE CONFERENCE, LONDON 13-14.09.2012

REINSURANCE Working Party Session

Dr Kyriaki NOUSSIA,Dr Kyriaki NOUSSIA, LL.M, Ph.D., Attorney at LawLL.M, Ph.D., Attorney at Law

TOPIC: TOPIC:

The Issue Of “Bias Of Arbitrators” In The Issue Of “Bias Of Arbitrators” In Reinsurance Arbitrations.Reinsurance Arbitrations.

1. Preamble1. Preamble International or reinsurance arbitrations International or reinsurance arbitrations

> lack > lack universally recognized standard-setting body, or universally recognized standard-setting body, or arbitral sets of worldwide etiquette rules, or arbitral sets of worldwide etiquette rules, or statutes/conventions with specific principles statutes/conventions with specific principles (eg. on bias of arbitrators). (eg. on bias of arbitrators).

Reference to bias of arbitrators Reference to bias of arbitrators merely general merely general

2. Introduction2. Introduction To assure a just and fair judgment To assure a just and fair judgment arb. tribunal must be neutral & unbiased arb. tribunal must be neutral & unbiased - both between the parties - both between the parties - and in the subject-matter of the dispute.- and in the subject-matter of the dispute.

Differences in various statutes/rules/guidelines Differences in various statutes/rules/guidelines

Re impartiality / independence of intern. arbitrators Re impartiality / independence of intern. arbitrators often more a question of form than substance. often more a question of form than substance.

Main objection to this Main objection to this => ongoing dispute re subj. / obj. standard => ongoing dispute re subj. / obj. standard for measuring impartiality/ independence for measuring impartiality/ independence of arbitratorsof arbitrators

2. Introduction (cont.)2. Introduction (cont.) 2004 IBA Guidelines on Conflicts of Interest in International 2004 IBA Guidelines on Conflicts of Interest in International

Arbitration Arbitration

= attempt to balance two conflicting policy goals:= attempt to balance two conflicting policy goals:

a) permit parties sufficient autonomy a) permit parties sufficient autonomy to select the arbitrator of their choiceto select the arbitrator of their choice

&&

b) protect parties’ right to have full, timely disclosure b) protect parties’ right to have full, timely disclosure => make their own judgments => make their own judgments if any facts or circumstances set reasonable doubts if any facts or circumstances set reasonable doubts re arbitrators’ impartiality or independence.re arbitrators’ impartiality or independence.

3. Independence & Impartiality3. Independence & Impartiality““Independence” Independence” arbitrator = free from involvement or relationship with arbitrator = free from involvement or relationship with

parties (obj. standard)parties (obj. standard)

““Impartiality” Impartiality” interior frame of mind that arbitrator brings to reference interior frame of mind that arbitrator brings to reference

(subj. standard) (subj. standard)

English Arbitration Act 1996 (Ch. 23 § 24)English Arbitration Act 1996 (Ch. 23 § 24) allows parties petition in court to remove arbitrator allows parties petition in court to remove arbitrator

““if circumstances exist that give rise if circumstances exist that give rise to justifiable doubts as to his impartiality”. to justifiable doubts as to his impartiality”.

Arbitrator’s personal interest in outcome of case Arbitrator’s personal interest in outcome of case suffices to disqualify arbitratorsuffices to disqualify arbitrator((Dimes v. Proprietors of the Grand Junction CanalDimes v. Proprietors of the Grand Junction Canal (1852) 3HL Cas. 759)(1852) 3HL Cas. 759)

3. Independence & Impartiality 3. Independence & Impartiality (cont.)(cont.)

Problem of independence and impartiality Problem of independence and impartiality > acute > acute

when arbitrators from different backgrounds when arbitrators from different backgrounds with little or no international experience with little or no international experience find themselves in an international arbitration find themselves in an international arbitration

4. Problems (Biased Arbitrations)4. Problems (Biased Arbitrations) Repeat ArbitratorsRepeat Arbitrators

Repeat arbitratorsRepeat arbitrators same party or companies same party or companies appoint same arbitrator in several arbitrationsappoint same arbitrator in several arbitrations

Repeated appointmentsRepeated appointments need be disclosed need be disclosed to avoid removal of arbitrator later in process to avoid removal of arbitrator later in process to avoid use of this reason to challenge or set aside the awardto avoid use of this reason to challenge or set aside the award

HoweverHowever repetition of appointment repetition of appointment > does not necessarily mean monopoly of appointment, > does not necessarily mean monopoly of appointment,

4. Problems (Biased Arbitrators) 4. Problems (Biased Arbitrators) (cont.)(cont.)

PracticePractice repeated appointment more than once a year repeated appointment more than once a year > non disclosure will lead to arguments on impartiality & > non disclosure will lead to arguments on impartiality &

independence independence

=> such repeated appointment should be disclosed=> such repeated appointment should be disclosed

Failure to discloseFailure to disclose = non automatic challenge of arbitrator= non automatic challenge of arbitrator= factor of aggravation in review of arbitrator’s = factor of aggravation in review of arbitrator’s

independence & impartialityindependence & impartiality

4. Problems (Biased 4. Problems (Biased Arbitrators) (cont.)Arbitrators) (cont.)

Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. (at 151) U.S. Supreme Court arbitrators should avoid not only actual partiality but also the appearance of partiality.

Most common alleged partiality financial conflict past or present business relations.

4. Problems (Biased 4. Problems (Biased Arbitrators) (cont.)Arbitrators) (cont.)

Arbitrators often chosen due to experience in relevant industry.

If industry rather specialised (e.g. reinsurance) occurrence of alleged partiality = frequent.

4. Problems (Biased 4. Problems (Biased Arbitrators) (cont.)Arbitrators) (cont.)

Drawing the line between required business experience impermissible partiality problematic in the reinsurance industry due to the very structure of the industry and the cession and retrocession of risks between companies.

4. Problems (Biased 4. Problems (Biased Arbitrators) (cont.)Arbitrators) (cont.)

New Jersey Supreme Court in Barcon Associates v. Tri-County Asphalt Corp., 86 N.J. 179, 183 (1981) offered guidance

“…the line of impartiality is crossed when the arbitrator is involved in active and significant business dealings with a party during the pendency of an arbitral proceeding.”

5. Possible Remedies 5. Possible Remedies Question of bias of arbitrator Question of bias of arbitrator

should be judged should be judged from perspective of a reasonable personfrom perspective of a reasonable person- such that the court must consider such that the court must consider - whether or not the fair-minded observer whether or not the fair-minded observer - would consider that there was a real danger of biaswould consider that there was a real danger of bias

If arbitrator If arbitrator = unaware of his indirect interest in award= unaware of his indirect interest in award => no real likelihood of bias on his part.=> no real likelihood of bias on his part.

6. Position Adopted in Practice?6. Position Adopted in Practice? Quite recently in USA Quite recently in USA

Federal appeals court Federal appeals court tried to clarify the arbitrator 'evident partiality' standard.tried to clarify the arbitrator 'evident partiality' standard.

3.2.2012 3.2.2012 US Court of Appeals for the Second Circuit ruled in US Court of Appeals for the Second Circuit ruled in

Scandinavian Reinsurance Co v St Paul Reinsurance CoScandinavian Reinsurance Co v St Paul Reinsurance Co No 10-0910-cv, 2012 US App LEXIS 2082, (2d Cir Feb 3 2012) No 10-0910-cv, 2012 US App LEXIS 2082, (2d Cir Feb 3 2012)

failure of two arbitrators failure of two arbitrators

to disclose their service as arbitrators in another concurrent arbitration to disclose their service as arbitrators in another concurrent arbitration

is not a conflict that would warrant vacating an award is not a conflict that would warrant vacating an award

although the undisclosed arbitration involved "a common witness, although the undisclosed arbitration involved "a common witness, similar legal issues, and a related party". similar legal issues, and a related party".

6. Position Adopted in Practice? 6. Position Adopted in Practice? (Cont.)(Cont.)

Scandinavian Reinsurance Co v St Paul Scandinavian Reinsurance Co v St Paul Reinsurance CoReinsurance Co

Initial Ruling (Federal trial court)Initial Ruling (Federal trial court)

- in view of similarities between the two arbitrations, - in view of similarities between the two arbitrations, - the arbitrators' service in first arbitration - the arbitrators' service in first arbitration - amounted to a material conflict of interest in the St Paul arbitration - amounted to a material conflict of interest in the St Paul arbitration - that should have been disclosed to the parties. - that should have been disclosed to the parties.

- - Arbitrators' failure to disclose their service Arbitrators' failure to disclose their service - warranted vacating the St Paul arbitration award - warranted vacating the St Paul arbitration award - under Section 10(a)(2) of the Federal Arbitration Act - under Section 10(a)(2) of the Federal Arbitration Act - for evident partiality.- for evident partiality.

6. Position Adopted in Practice? 6. Position Adopted in Practice? (Cont.)(Cont.)

Scandinavian Reinsurance Co v St Paul Reinsurance CoScandinavian Reinsurance Co v St Paul Reinsurance Co Second Circuit Ruling Second Circuit Ruling Second CircuitSecond Circuit reversed the federal trial court's judgment reversed the federal trial court's judgment

Arbitrators' overlapping service Arbitrators' overlapping service NOT suggesting arbitrator predisposed NOT suggesting arbitrator predisposed to rule in any particular way in the St Paul arbitrationto rule in any particular way in the St Paul arbitration

Second CircuitSecond Circuit focused inquiry on whether specific overlapping service was indicative of biasfocused inquiry on whether specific overlapping service was indicative of bias & & ruled that evident partiality may be found only ruled that evident partiality may be found only "where a reasonable person would have to conclude that an arbitrator was "where a reasonable person would have to conclude that an arbitrator was

partial to one party to the arbitration". partial to one party to the arbitration".

7. Conclusions 7. Conclusions Scandinavian ReScandinavian Re concerned domestic reinsurance arbitrationconcerned domestic reinsurance arbitration

BUTBUT decision is significant decision is significant for international arbitration practitioners for international arbitration practitioners

provides further guidance provides further guidance about appropriate level of arbitrator about appropriate level of arbitrator disclosure disclosure

reaffirms reaffirms that unless failure to disclose is suggestive of biasthat unless failure to disclose is suggestive of bias an arbitral award should be confirmed. an arbitral award should be confirmed.

7. Conclusions (cont.)7. Conclusions (cont.)

Significance for international arbitration practitioners Significance for international arbitration practitioners Scandinavian ReScandinavian Re

significant for international arbitration practitioners significant for international arbitration practitioners clarifies further level, boundaries clarifies further level, boundaries of appropriate arbitral disclosure of appropriate arbitral disclosure necessary to satisfy arbitrator's obligations. necessary to satisfy arbitrator's obligations. Practitioners need Practitioners need request reasoned awards (arbitrator denying that to be excluded)request reasoned awards (arbitrator denying that to be excluded) follow court's useful guidance (and enumerated factors) follow court's useful guidance (and enumerated factors) to determine whether conduct is sufficient to determine whether conduct is sufficient to warrant to warrant vacaturvacatur on the basis of evident partiality.on the basis of evident partiality.

7. Conclusions (cont.)7. Conclusions (cont.) Initiatives such asInitiatives such as Resolution by contract precise, detailed

contract drafting in reins. agreement Disclosure requirements require certain

disclosure requirements by the arbitrators Reform by legislation state legislation >

seems obvious yet may end undesirable

7. Conclusions (cont.)7. Conclusions (cont.) However to the extent that a stature sets

out a standard or test of impartiality, that standard or test will undoubtedly be subject to refinement and interpretation by court

Industry guidelines i.e. not really a fourth solution but a combination of the above

IV AIDA EUROPE CONFERENCE, LONDON 13-14.09.2012

REINSURANCE Working Party Session

Thank you Thank you for your attention!for your attention!

Dr. Kyriaki NoussiaDr. Kyriaki Noussiak.noussia@lexarb.com

URL: URL: http://www.lexarb.com