Insurer Seeks to Vacate Award Due to Arbitrator Bias in Bermuda

AM Editorial Team

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The Endurance Specialty Insurance Limited v Horseshoe Re Limited case dealt with an arbitration and governing law clause in a reinsurance contract that required disputes to be arbitrated in Bermuda, applying Bermuda procedural law and New York substantive law. The case concerned the removal of presiding arbitrator, Sir Bernard Eder, on the ground that he was not sufficiently impartial.

It was agreed that each party would appoint an arbitrator and the two party-appointed arbitrators would then appoint a third arbitrator or umpire, failing which a party could ask the Court of Arbitration of the International Chamber of Commerce (“the ICC Court”) to appoint one. The agreement also specified that all arbitrators were to be “completely impartial and disinterested in their respective appointing parties and in the result of the arbitration”.

Endurance challenged the appointment of Sir Bernard Eder before the ICC Court on the basis that he was biased due to the ICC Court providing him with correspondence in which Endurance “aggressively opposed” the appointment of someone with his precise background, and because of Sir Bernard’s unfavourable treatment of Endurance’s counsel in an unrelated arbitration. The ICC Court rejected Endurance’s challenge, so Endurance petitioned the New York court to remove Sir Bernard.

The New York court found that it had subject-matter jurisdiction under the New York Convention, but did not have the power actually to remove Sir Bernard because the Bermuda arbitration statute limited that power to the Supreme Court of Bermuda. Notwithstanding this jurisdictional finding, the New York court nevertheless went on to consider whether there was any merit in Endurance’s application as a matter of Bermuda procedural law. Bermuda law provides for an arbitrator to be removed only if there is a real danger of bias.

There were three bases on which it was contended that Sir Bernard was biased: (i) that the ICC Court had disclosed to him that Horseshoe requested an arbitrator with his precise background; (ii) that the ICC Court had disclosed to him that Endurance opposed an arbitrator with his precise background; and (iii) that Sir Bernard had a negative experience with Endurance’s counsel in a previous arbitration.

The ICC Court had previously found that Sir Bernard had only been informed of the parties’ arbitrator preferences because those statements were contained in the parties’ formal submissions on the appointment, which were disclosed as part of the ICC Court’s usual practice. The ICC Court found (and the US federal court agreed) that disclosure of a party’s general preferences as to the profile of the arbitrator was not sufficient to give rise to a risk of bias.

As to Sir Bernard’s involvement in a previous arbitration involving Endurance’s counsel, it was relevant that the previous arbitration was unrelated to the present case, the alleged bias related to procedural decisions, and the bias was alleged towards counsel rather than Endurance itself. The ICC Court found that “prior unfavourable procedural decisions by an arbitral tribunal typically do not constitute bias unless they are manifestly improper or raise due process concerns”. There were no such concerns in the instant case. Sir Bernard had not disclosed the interaction with Endurance’s counsel, but this was not a sufficient ground to remove him.

The New York court agreed with the ICC Court’s assessment, concluding that Endurance’s petition to remove Sir Bernard was unconvincing in alleging any ‘real danger’ of bias. The cited bases for Sir Bernard’s supposed bias and prejudice fell far short of meeting that standard, whether considered individually or taken together.

From a Bermuda perspective, an application to remove an arbitrator from a Bermuda-seated arbitration tribunal would be viewed as a matter subject to the exclusive jurisdiction of the Bermuda court. However, were the roles reversed (i.e. a Bermuda court being asked to consider a procedural issue under a US seated arbitration) it is highly unlikely that, having found itself to be without jurisdiction, the Bermuda court would have gone on to provide commentary on the substantive merits of the application.

The case highlights the importance of an arbitrator’s impartiality and independence, and the limited avenues of appeal available in arbitration. It also emphasizes the need for a fair-minded and informed observer to be satisfied that there is no appearance of bias or justifiable doubts as to the arbitrator’s impartiality. Finally, it highlights the premium on frank disclosure in arbitration, given the private and confidential nature of the process and the limited discovery available to the parties.