Rejection of a Claim of Bias against Arbitrators
On February 3, 2012, the U.S. Court of Appeals for the Second Circuit issued its decision in Scandinavian Reinsurance Company Limited v. St. Paul Fire & Marine Insurance Co. The court reversed the lower court’s evident partiality ruling and denied Scandinavian Re’s petition to vacate the award.
The facts are interesting. The dispute arose over the failure of the umpire and one of the party-arbitrators to disclose that they were serving as panel members in another arbitration. The other arbitration was a dispute over some similar issues, involved related parties, and included a common witness who testified in both proceedings – in a contradictory fashion. The federal district court found that there was a material conflict of interest and that the arbitrators’ failure to disclose this conflict of interest warranted vacating the arbitral award.
In reversing the lower court, the Second Circuit unanimously held that evident partiality as that term is used in the Federal Arbitration Act § 10(a)(2) may be found only ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration. It ruled that Scandinavian Re had not met the burden of establishing that the arbitrators’ failure to disclose their role in the two arbitrations was indicative of bias and constituted a conflict of interest that should lead to vacating the arbitral award. Their concurrent service in these arbitrations, according to the court, did not automatically suggest that they were not impartial nor did it show a predisposition to rule in a particular way in the arbitration even if the issues in the other concurrent arbitration were similar.
Even though Scandinavian Re argued that it was misled by the arbitrators’ repeated assurances to the parties that they understood themselves to be obligated to make thorough and ongoing disclosures, the Second Circuit disagreed that vacating the award was appropriate because an arbitrator failed to consistently live up to his or her announced standards for disclosure or to conform in every instance to the parties’ respective expectations regarding disclosure.
The Court observed, it would have been better for the arbitrators to have disclosed the fact of their involvement in the other case but that the remedy of vacating the award was not necessary. Despite the outcome in this case, the court did offer the following comment on the importance of timely and full disclosure by arbitrators: Disclosure not only enhances the actual and apparent fairness of the arbitral process, but it helps to ensure that that process will be final, rather than extended by proceedings like this one.
Scandinavian Reinsurance Company Limited v. Saint Paul Fire and Marine Insurance Company, Docket No. 10-0910-cv, 2012 U.S. App. LEXIS 2082 (2nd Cir. Feb. 3, 2012), rev’g 732 F. Supp. 2d 293 (S.D.N.Y. 2010).