The standard that courts should apply in deciding whether to vacate an arbitration award based on arbitrator conflicts of interest is drawing increased focus in appeals to the United States Supreme Court.
As this blog recently discussed, a consortium that was on the losing side of a $238-million arbitration over the construction of the third set of locks for the Panama Canal filed a petition for certiorari to the United States Supreme Court in December, arguing that the United States Court of Appeals had applied the wrong standard in refusing to vacate that award.[1]
Occidental Exploration and Production Company (“OEPC”), a subsidiary of Occidental Petroleum Company, has filed a similar petition for certiorari in connection with an arbitration in which Andes Petroleum Ecuador Limited (“Andes Petroleum”) won a more than $550 million award against OEPC.[2] Like the petitioner 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 Petroleum contends that OEPC would have lost under any standard, and 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 concerns a dispute over whether OEPC is required to share money with Andes Petroleum 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. OEPC sought to vacate the award, claiming that the arbitrator that 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.[3] 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 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 argues that the Second Circuit applied too strict a standard is assessing the arbitrator’s alleged conflict of interest. It argues 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 biased.” In response, Andes Petroleum argues that “whatever differences may exist in terminology are academic,” as OEPC would have lost under any standard.
The Supreme Court is expected to decide in March whether to grant review in the OEPC/Andes Petroleum matter.
[1] Grupo Unidos por el Canal, S.A. v. Autoridad Del Canal de Panama, No. 23-660.
[2] Occidental Exploration & Production Co. v. Andes Petroleum Ecuador Ltd., No. 23-506.
[3] Andes Petroleum Ecuador Ltd. v. Occidental Exploration & Production Co., 20-23 WL 4004686 (2d Cir. June 15, 2023).