Bias Challenge to Arbitrator Fails

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Attempting to remove an arbitrator at the early stages of arbitration for alleged bias is difficult to do. The ability to make the challenge depends on the law of the jurisdiction governing procedural issues in the arbitration. Nevertheless, even if entertained, a petition to remove an arbitrator for bias is an uphill battle. In a recent case, the petitioner lost the battle, at least in the New York federal court.

In Endurance Specialty Insurance Ltd. v. Horseshoe Re Ltd., No. 23-cv-1831(JGK) (Jul. 5, 2023), two Bermuda domiciled companies began arbitration proceedings under two materially identical reinsurance contracts with identical arbitration provisions. The parties could not agree on an umpire and the arbitration provisions required them to petition the Secretary General of the Court of Arbitration of the International Chamber of Commerce (“ICC Court”) to appoint one. The ICC Court appointed an umpire, but one of the parties objected. The ICC Court rejected the petition to disqualify the umpire for bias in a written decision.

The objector then petitioned the New York State Supreme Court to remove the umpire for lack of impartiality and the other party removed the matter to the New York federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). The objecting party moved to remand the case back to the New York state court and the other party moved to dismiss the petition for failure to state a claim.

The court, in a detailed opinion found that it had jurisdiction to address the bias claim under 9 U.S.C. section 203, which is Chapter 2 of the New York Convention. It then concluded that because the Bermuda Arbitration Act 1986 controlled the conduct of the arbitration, it did not have the authority to remove the arbitrator. But the court went on to state that even if it did have the authority, the petition would fail based on the facts.

To come within the New York Convention the arbitration “(1) must arise out of a legal relationship (2) which is commercial in nature and (3) which is not entirely domestic in scope.”

Here, all three elements are established. Both Horseshoe and Endurance acknowledge that they are legal parties to two commercial contracts containing the arbitration agreements at issue. . . Furthermore, neither party is a domestic entity; both are based in Bermuda, which is also the location of the arbitration itself. . . Therefore, the three elements listed above are plainly met and the arbitration falls under the New York Convention.

On whether the court had the authority to remove the umpire for bias, the court stated that “Both parties agree that the Bermuda Arbitration Act, specifically Section 34(1), governs the removal of an arbitrator under Bermuda procedural law.” The court also found that Section 34(1) clearly states that the court may remove an arbitrator for misconduct and that “court” was defined as the Supreme Court of Bermuda. Thus, held the court, only the Supreme Court of Bermuda could remove the umpire in this dispute.

Nevertheless, the court went on to find that the petitioner failed to identify any reasonable basis for disqualifying the umpire under the applicable law. The court held that the petition to remove the umpire was unconvincing in alleging any “real danger” of bias. The court found that the cited bases for the umpire’s supposed bias and prejudice fell far short of meeting that standard, whether considered individually or taken together. Even under New York law, the appearance of bias was not clearly apparent given the alleged facts.

The court concluded as follows:

In sum, the Court is without authority to remove a sitting arbitrator in an arbitration proceeding conducted under Bermuda procedural law, and in any event, the petition fails on the merits. [the] motion to dismiss the petition is granted.

Back to Bermuda go the parties but the case is important for the notion that real bias must be demonstrated for a court to remove an arbitrator.

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