Conflicts of interest are of great interest to law firms, prosecutors, and arbitrators. In two major international arbitrations, parties are seeking review by the United States Supreme Court of the standard that courts should apply when considering whether to vacate an arbitration award based on an alleged conflict of interest. The cases are important not only because of the large size of the awards at issue, but also because arbitration is the preferred method by which the world’s commercial disputes are being resolved.
US courts are divided on how they should apply the “evident partiality” standard contained in the Federal Arbitration Act, which must be demonstrated in order to vacate an arbitration award based on an arbitrator’s alleged conflict of interest. Five circuit courts follow the Second Circuit standard requiring an award to be vacated only if a court would have to conclude an arbitrator was partial. The Ninth Circuit requires only a reasonable impression of possible bias and the Eleventh Circuit articulates the Second Circuit standard, but applies the Ninth Circuit standard. The litigants petitioning for certiorari arise in different procedural postures, but both cases request clarification of the standard.
In Grupo Unidos Por El Canal, S.A. et. al. v. Autoridad Del Canal, US Supreme Ct 23-660, the petitioners are a consortium of builders that built the new lane for the Panama Canal seeking to vacate an arbitration award of $285 million rendered in Miami by an International Court of Commerce (“ICC”) arbitration panel. The Eleventh Circuit denied their motion to vacate the award, which they claim was influenced by “evident partiality.” Petitioner Grupo claims that the Eleventh Circuit applied too strict a standard of requiring actual bias when the standard should be an impression of partiality. In support of the petition, Grupo claims the arbitrators failed to disclose at the onset cross appointments as arbitrators and continuing professional relationships with each other. In response, the Canal Authority has argued that the evident partiality standard is not case determinative, that Grupo is merely splitting hairs, and that the arbitrator relationship among the elite world international arbitrators is ‘ubiquitous.”
In Occidental Exploration and Production Company (“OEPC”) v. Andes Petroleum Ecuador Limited (“Andes”), US Supreme Ct No. 23-506, OEPC filed a similar petition for certiorari in connection with an arbitration in which Andes was awarded more than $550 million award. Like Grupo in the Panama Canal case, OEPC contends that the lower courts applied the wrong standard in reviewing OEPC’s claim of arbitrator conflicts of interest. In opposition, Andes argued that OEPC would have lost under any standard. Andes further notes that the Supreme Court has previously denied petitions for certiorari presenting the same general question at least fifteen times in the last twenty-five years.
The OEPC matter resolved a dispute whether OEPC is required to share money with Andes that OEPC won in a previous arbitration against the Republic of Ecuador. A three-member AAA arbitration panel ruled unanimously in favor of Andes Petroleum. However, OEPC claimed that the arbitrator it had selected failed to disclose that, before and during the arbitration, the arbitrator was serving as a co-arbitrator with one of Andes Petroleum’s attorneys in a separate matter.
The United States District Court for the Southern District of New York denied OEPC’s motion to vacate the arbitration award and the United States Court of Appeals for the Second Circuit affirmed. The Second Circuit ruled that, “Unlike a judge, who can be disqualified in any proceeding in which his impartiality might reasonably be questioned, an arbitrator is disqualified only when a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side.” The Circuit Court also noted that it had ruled, in an earlier case, that it did not think that “the fact that two arbitrators served together in one arbitration at the same time that they served together in another is, without more, evidence that they were predisposed to favor one party over another in either arbitration.”
In its petition for certiorari, OEPC argued that the Second Circuit applied too strict a standard in assessing the arbitrator’s alleged conflict of interest. It argued that the standard should not be whether a reasonable person “would have to conclude” the arbitrator was actually biased, but rather whether the arbitrator “might reasonably be thought to be biased.” In response, Andes argued that “whatever differences may exist in terminology are academic,” as OEPC would have lost under any standard. Just last month, the parties in Andes jointly moved to defer consideration of the petition for writ of certiorari pending an agreement to settle the case. The Grupo matter is going to conference on March 22, 2024, when the Supreme Court may decide whether to grant review of the matter – without regard to whether OEPC settles.
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