IV AIDA EUROPE CONFERENCE, LONDON 13-14.09.2012 REINSURANCE Working Party Session

1. IV AIDA EUROPE CONFERENCE, LONDON 13-14.09.2012REINSURANCE Working Party Session Dr Kyriaki NOUSSIA, LL.M, Ph.D., Attorney at Law TOPIC: The Issue Of “Bias Of Arbitrators” In Reinsurance Arbitrations.

2. 1. Preamble • International or reinsurance arbitrations > lack  universally recognized standard-setting body, or  arbitral sets of worldwide etiquette rules, or statutes/conventions with specific principles (eg. on bias of arbitrators). • Reference to bias of arbitrators  merely general

3. 2. Introduction • To assure a just and fair judgment  arb. tribunal must be neutral & unbiased - both between the parties - and in the subject-matter of the dispute. • Differences in various statutes/rules/guidelines Re impartiality / independence of intern. arbitrators  often more a question of form than substance. • Main objection to this => ongoing dispute re subj. / obj. standard for measuring impartiality/ independence of arbitrators

4. 2. Introduction (cont.) • 2004 IBA Guidelines on Conflicts of Interest in International Arbitration = attempt to balance two conflicting policy goals: a) permit parties sufficient autonomy to select the arbitrator of their choice & b) protect parties’ right to have full, timely disclosure => make their own judgments if any facts or circumstances set reasonable doubts re arbitrators’ impartiality or independence.

5. 3. Independence & Impartiality “Independence”  arbitrator = free from involvement or relationship with parties (obj. standard) “Impartiality”  interior frame of mind that arbitrator brings to reference (subj. standard) English Arbitration Act 1996 (Ch. 23 § 24)  allows parties petition in court to remove arbitrator “if circumstances exist that give rise to justifiable doubts as to his impartiality”. Arbitrator’s personal interest in outcome of case  suffices to disqualify arbitrator (Dimes v. Proprietors of the Grand Junction Canal (1852) 3HL Cas. 759)

6. 3. Independence & Impartiality (cont.) • Problem of independence and impartiality > acute  when arbitrators from different backgrounds  with little or no international experience  find themselves in an international arbitration

7. 4. Problems (Biased Arbitrations) • Repeat Arbitrators Repeat arbitrators  same party or companies appoint same arbitrator in several arbitrations Repeated appointments  need be disclosed  to avoid removal of arbitrator later in process  to avoid use of this reason to challenge or set aside the award However  repetition of appointment > does not necessarily mean monopoly of appointment,

8. 4. Problems (Biased Arbitrators) (cont.) • Practice  repeated appointment more than once a year > non disclosure will lead to arguments on impartiality & independence => such repeated appointment should be disclosed • Failure to disclose = non automatic challenge of arbitrator = factor of aggravation in review of arbitrator’s independence & impartiality

9. 4. Problems (Biased Arbitrators) (cont.) • Commonwealth CoatingsCorp. 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.

10. 4. Problems (Biased Arbitrators) (cont.) Arbitrators  often chosen due to experience in relevant industry. If industry rather specialised (e.g. reinsurance)  occurrence of alleged partiality = frequent.

11. 4. Problems (Biased 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.

12. 4. Problems (Biased 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.”

13. 5. Possible Remedies Question of bias of arbitrator • should be judged • from perspective of a reasonable person • such that the court must consider • whether or not the fair-minded observer • would consider that there was a real danger of bias If arbitrator = unaware of his indirect interest in award => no real likelihood of bias on his part.

14. 6. Position Adopted in Practice? • Quite recently in USA • Federal appeals court • tried to clarify the arbitrator 'evident partiality' standard. 3.2.2012  US Court of Appeals for the Second Circuit ruled in Scandinavian Reinsurance Co v St Paul Reinsurance Co No 10-0910-cv, 2012 US App LEXIS 2082, (2d Cir Feb 3 2012)  failure of two arbitrators  to disclose their service as arbitrators in another concurrent arbitration  is not a conflict that would warrant vacating an award  although the undisclosed arbitration involved "a common witness, similar legal issues, and a related party".

15. 6. Position Adopted in Practice? (Cont.) • Scandinavian Reinsurance Co v St Paul Reinsurance Co Initial Ruling (Federal trial court) - in view of similarities between the two arbitrations, - the arbitrators' service in first arbitration - amounted to a material conflict of interest in the St Paul arbitration - that should have been disclosed to the parties. - Arbitrators' failure to disclose their service - warranted vacating the St Paul arbitration award - under Section 10(a)(2) of the Federal Arbitration Act - for evident partiality.

16. 6. Position Adopted in Practice? (Cont.) • Scandinavian Reinsurance Co v St Paul Reinsurance Co Second Circuit Ruling Second Circuit  reversed the federal trial court's judgment Arbitrators' overlapping service  NOT suggesting arbitrator predisposed to rule in any particular way in the St Paul arbitration Second Circuit  focused inquiry on whether specific overlapping service was indicative of bias & ruled that evident partiality may be found only "where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration".

17. 7. Conclusions Scandinavian Re  concerned domestic reinsurance arbitration BUT  decision is significant for international arbitration practitioners  provides further guidance about appropriate level of arbitrator disclosure  reaffirms that unless failure to disclose is suggestive of bias an arbitral award should be confirmed.

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

19. 7. Conclusions (cont.) • Initiatives 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

20. 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

21. IV AIDA EUROPE CONFERENCE, LONDON 13-14.09.2012REINSURANCE Working Party Session Thank you for your attention! Dr. Kyriaki Noussia k.noussia@lexarb.com URL: http://www.lexarb.com