Removal of an arbitrator for bias in a Bermuda arbitration (according to a New York court)

For policies issued in the Bermuda market, (re)insureds and (re)insurers typically agree a fairly standardised “Bermuda style’ arbitration and governing law clause which requires disputes to be resolved by arbitration seated in Bermuda or London with policy provisions to be interpreted according to a modified form of New York law. Decisions of the Bermuda and English courts addressing the Bermuda market arbitration clause are rare but the United States federal court (for the Southern District of New York) recently considered the approach to be applied on an application for the removal of an arbitrator for bias in a Bermuda arbitration (and notwithstanding that the US court also found that the issue was a procedural matter for the Bermuda court to exclusively determine).

Endurance Specialty Insurance Limited v Horseshoe Re Limited, on behalf of its separate accounts HS0083 and HS0084, No. 23-CV-1831 (JGK), 2023 WL 4346605 (S.D.N.Y.) concerned 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. Endurance sought the removal of presiding arbitrator, Sir Bernard Eder, on the ground that he was not sufficiently impartial. It had been 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”, although this stipulation would have applied in any event under the Bermuda arbitration statute.

The party-appointed arbitrators were unable to agree on a presiding arbitrator so Horseshoe applied to the ICC Court who appointed Sir Bernard Eder, a retired English judge. Endurance challenged the appointment before the ICC Court on the basis that Sir Bernard was said to be biased (a) because the ICC Court had provided him with correspondence in which Endurance “aggressively opposed” the appointment of someone with his precise background, and (b) 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, on the basis that the arbitration fell under the New York Convention, and Endurance’s application was said to be tightly intertwined with that arbitration such that it fell within the scope of section 203 of the New York Convention. However, the court went on to hold that it 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: “Endurance’s petition to remove Sir Bernard is unconvincing in alleging any ‘real danger’ of bias. The cited bases for Sir Bernard’s supposed bias and prejudice fall 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, a position which the US court acknowledged. 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. That said, while the New York court apparently could not resist providing commentary on the removal issue, its conclusion that there was no basis for removing Sir Bernard as a matter of Bermuda is one that the Bermuda court would almost certainly have reached in the particular circumstances.

* Please note: this decision has now been appealed. The outcome of the appeal is awaited.

Kennedys has recently authored the Bermuda chapter of the 2023 edition of ICLG – International Arbitration Laws and Regulations, which can be found here, which surveys arbitration agreements, governing legislation, jurisdictional considerations, choice of law rules, selection of arbitral tribunals, preliminary relief and interim measures under Bermuda’s arbitration regime.