London and Bermuda Newsletter
Not infrequently, the parties or the arbitrators are unable to agree on a suitable third arbitrator. For example, in a reinsurance dispute, the parties may have very different views as to the profile of the “ideal” candidate for a third arbitrator and national bias may play a role, with the parties preferring candidates from their home jurisdictions. In circumstances where the parties or arbitrators are unable to agree a third arbitrator, how is the issue resolved?
This question arose in a recent decision of the Bermuda Supreme Court, Montpelier Reinsurance Ltd. v Manufacturers Property & Casualty Limited,  Bda L.R. 9 (Kawaley J). In this case, one party had appointed a well-known English arbitrator and the other a well-known US arbitrator. Although the arbitration clause provided, in the first instance, that the party-appointed arbitrators should appoint a third arbitrator, the applicant concluded that the arbitrators were “hopelessly deadlocked” and applied, pursuant to Bermuda’s arbitration statute, for the Supreme Court to appoint a third arbitrator.
The Judge declined to accede to the applicant’s request, holding that, “clear evidence of that the contractually agreed appointment procedure is unworkable is required” before the court can exercise its powers to appoint a third arbitrator. In declining to determine the issue, the Judge was particularly influenced by the fact that the arbitration clause provided two alternative means of selecting a third arbitrator in the event that the party-appointees were unable to agree. First, the clause provided that the arbitrators could implement the ARIAS-US Umpire Appointment Procedure. Second the clause provided that the arbitrators could each nominate three candidates, then each strike two from the other’s list with lots being drawn to select the third arbitrator.
The Judge adjourned the application to enable the parties to clarify whether the arbitrators could appoint a third arbitrator using the contractually agreed mechanisms or were genuinely deadlocked, stating:
“In my judgment, the importance of respecting the parties’ contractually agreed dispute resolution procedure is too great to justify this Court appointing a third arbitrator by means of an order which is not subject to appeal in circumstances where it is far from certain that the arbitrators are deadlocked on the application of the third and final lot-drawing appointment mechanism.”
The typical Bermuda arbitration clause provides that each party shall appoint one arbitrator and that the two party-appointed arbitrators shall then appoint a third arbitrator to act as chairman or umpire of the arbitral tribunal. However, in practice, the parties may instead attempt to agree a third arbitrator or to agree a procedure for selecting the third arbitrator.