Usually, in England, the proposed arbitrator will be an active/retired underwriter with the third arbitrator often being a lawyer, sometimes a senior barrister (Queen's Counsel)

Arbitrations in the UK and Bermuda on the one hand and the US on the other have only a limited amount in common procedurally, although all are designed to resolve differences outside of the court system. Some of the important differences are discussed below:

1. Agreement to Arbitrate
The English courts are very supportive of an arbitration agreement and will stay court proceedings brought in breach of that agreement. The English Arbitration Act (the “Act”) also empowers the arbitrators to rule upon their own jurisdiction.

The situation is broadly the same in Bermuda, whereas in the US, the Federal Arbitration Act 1925 is not nearly so detailed/prescriptive as the Act, allowing the parties greater freedom to determine how the arbitration should be conducted. One thread is however consistent: that the courts in each jurisdiction are keen to find an agreement to arbitrate.

Some US States have introduced legislation to make arbitration agreements in insurance contracts unenforceable. However, it is not thought that this legislation applies to reinsurance contracts or international insurance contracts (the latter because of the US' treaty obligations under the New York Convention).

2. The Arbitrators
Selection: Prior to and during the process of appointment, the parties may not discuss the merits of their claim with the arbitrators. On the whole, barring issues of conflict, the process is largely uncontroversial. The same applies to Bermuda, although the process can be more controversial because of concerns about partiality in a small market.

As for the US, parties may and do interview potential party-appointed arbitrators to solicit their views on the claim. It is because of the role played by the party appointed arbitrator in the arbitration (see below), that the appointment of the umpire or third arbitrator is therefore much more controversial.

Qualifications: Usually, in England, the proposed arbitrator will be an active/retired underwriter with the third arbitrator often being a lawyer, sometimes a senior barrister (Queen's Counsel). The same applies to Bermuda although anecdotal evidence is that lawyers are more commonly appointed than non-lawyers.

In the US, arbitration clauses can be more relaxed about a nominees' required qualifications. Grounds for disqualification: In England, the Act sets out the grounds upon which a court might remove an arbitrator, which includes bias or lack of required qualifications. The same applies to Bermuda but the “test” may be a little firmer in the US, where a party must provide evidence of an arbitrator's partiality before a court will exercise its power to remove them from the tribunal.

Role of the party appointed arbitrator: This is the area where the approach differs most. In England and in Bermuda, arbitrators are strictly neutral to the appointing party. They do not advocate the appointing party's case.

In the US, the arbitrator is expected to actively advocate the appointing party's case. That is why the selection of the third arbitrator/umpire is so crucial and so fraught with controversy as it is they who may influence the outcome of proceedings.

3. Arbitration Procedure
Procedure: In England the parties are free to agree the procedure to be adopted in the arbitration, subject to certain mandatory provisions in the Act. In Bermuda, the arbitrators have wide procedural discretion, with the powers of the court to interfere with the arbitration process reduced to a minimum.

The Federal Arbitration Act sets out the framework within which arbitration can take place in the US, leaving it to the parties to specify more detailed procedures (such as a reference to the rules of ARIAS or the American Arbitration Association).

Ex-parte communications with party appointed arbitrator: In England and Bermuda, all communications with an arbitrator should be copied to all members of the tribunal and the other parties to the arbitration. In the US, direct (ex-parte) communications are allowed between the appointing party and “its” arbitrator up to a point to be decided by the parties or tribunal, which is usually either the organisational meeting or on the submission of pre-hearing briefs.

Security for Costs/Award: In England, the arbitrators have the power to order the claimant to give security for costs where it is financially impaired. In Bermuda, there is no power to order security for costs and in the US, although such power exists, an order is rarely made.

In the US security for a sum sometimes to the value of the amount claimed can be ordered to be paid by the Respondent before they file a Defence. No such power exists in practice in England or Bermuda.

Discovery: In England and Bermuda, this is limited to the production of limited relevant documents for inspection by the other side. In contrast, US arbitrators commonly require parties to produce significantly wider categories of documents and allow deposition of witnesses.

Federal law gives arbitration tribunals the power to subpoena non-parties to produce documents and, in some cases, to give depositions in advance of the hearing whereas the English tribunal has no such powers.

Confidentiality: It is only in England that arbitration proceedings are confidential to the parties (as a matter of common law). In both Bermuda and the US, whilst the parties generally treat arbitrations as confidential, they are not bound to any confidentiality in the absence of a provision in the arbitration agreement or a Confidentiality Agreement.

Law and “Equity”: All of the jurisdictions recognise what are known as “honourable engagement” clauses which entitle arbitrators to look to the general purpose of the contracts and to depart, if necessary, from the literal and ordinary meaning of the words in order to give effect to the purposes of the transactions (although, in England, this only applies to arbitration agreements entered into after 31 January 1997).

Court assistance: This is available throughout proceedings in England although is more limited in Bermuda. In the US, the court has few powers other than to confirm interim awards of security.

4. The Award
In England, the Act requires that the arbitrators give a written, reasoned Award unless the parties agree to dispense with this requirement. It is also usual for Bermudan arbitration tribunals to give reasons. This is to be contrasted with the US where it is unusual for arbitrators to give a reasoned Award, which makes appealing the Award on the substantive issues difficult if not impossible.

Costs: In terms of costs, in Bermudan and English proceedings, the usual costs order is for the losing party to pay the winner's costs. A winning party should then expect to be awarded between 70 and 80 percent of their costs. In the US, the parties generally bear their own costs regardless of outcome.

Appeals: In England a right of appeal on a point of law exists, unlike in Bermuda and the US. However English courts are very loath to grant the right of appeal and although some appeals have succeeded in shipping and commodity cases since the Act, there has only been one successful appeal of a reinsurance case (of three that have reached the court in nine years).

This Special item appeared in issue 110 of JTW News - November 2006

Author: Jonathan Sacher | Neil Owen - Berwin Leighton Paisner LLP