In recent years, there has been a proliferation of challenges to arbitrators in international investment treaty arbitrations. Whilst this has spanned both institutional and ad hoc proceedings, the trend has been particularly noticeable for cases being heard under the auspices of the International Centre for Settlement of Investment Disputes (“ICSID”).
This proliferation may be attributed to various factors, including: (i) conflicts arising from the fact that a rapidly expanding caseload has jeopardised the perceived independence of individuals who have acted as counsel or sat as arbitrator in numerous proceedings; (ii) the perception that parties are, in any case, increasingly interested in the impartiality of their tribunal; and (iii) the desire by some parties to disrupt and delay proceedings to the maximum possible extent.
The procedure for challenging an ICSID arbitrator is established in Articles 57 and 58 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature at Washington on 18 March 1965 (the “Convention”).
Pursuant to Article 57, there are two possible limbs under which a party may propose that an arbitrator be disqualified:
First, a party may challenge the appointment of an arbitrator “on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14”. Article 14(1) requires arbitrators to be persons of “high moral character and recognized in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment”. These requirements tie in to Rule 6(2) of ICSID’s Arbitration Rules, which contains, inter alia, a continuing obligation on arbitrators to disclose “past and present professional, business and other relationships (if any) with the parties and… any other circumstance that might cause [an arbitrator’s] reliability for independent judgment to be questioned by a party”.
Second, a party may also propose the disqualification of an arbitrator “on the ground that he was ineligible for appointment to the Tribunal under Section 2 of Chapter IV”. Section 2 of Chapter IV deals with the constitution of a Tribunal and contains certain restrictions on eligibility relating to nationality and other criteria.
Should a party challenge an arbitrator pursuant to Article 57, the decision on whether to disqualify that arbitrator is taken by the other members of the Tribunal, “provided that where those members are equally divided, or in the case of a proposal to disqualify a sole… arbitrator, or a majority of the… arbitrators, the Chairman [of the ICSID Administrative Council] shall take the decision” (Article 58).
In practice, recent challenges to arbitrators have generally been argued under the first limb of Article 57, i.e., by one party alleging that an arbitrator exhibits a manifest lack of the qualities required by Article 14(1), specifically an inability to exercise “independent judgment”. Consequently, challenges have often centred on the personal and professional relationships of arbitrators and have clustered around the involvement of certain parties.
Argentina, for example, has challenged a number of arbitrators in relation to the myriad cases brought against it since its financial crisis of 2001-2, including in ICSID cases against, among others: (i) Vivendi Universal S.A.; (ii) Suez, Sociedad General de Aguas de Barcelona S.A.; (iii) Azurix Corporation; (iv) Siemens AG and (v) Abaclat (this latter case gaining particular prominence for its recent majority decision that mass claims may be brought under the Convention – for which see further the Volterra Fietta Client Alert of 7 September 2011). All these cases found against Argentina.
On the other hand, another South American State, Venezuela, has been on the receiving end of at least three recent challenges to its appointed arbitrators: in Tidewater v Venezuela, OPIC Karimum v Venezuela and Universal Compression v Venezuela.
In both Tidewater and Universal Compression, the claimants argued for the disqualification of arbitrator Brigitte Stern on the basis of three situations contained in the Orange List of the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”, which are increasingly seen as good practice in the industry): first, multiple appointments by the same party; second, multiple arbitrations on related issues; and third, multiple appointments by the same counsel. Both challenges were dismissed for lack of evidence.
Although the decision in OPIC Karimum differed from the two other cases in its reasoning as to whether repeat appointments by the same party or counsel constituted a neutral factor in determining a challenge, the end result was the same, arbitrators Doug Jones and Guido Santiago Tawil ruling that a challenge against Philippe Sands should fail as the company had not satisfied the “relatively high burden of those seeking to challenge ICSID arbitrators”. The Convention, it was held, required more than an “appearance” of a lack of independence or impartiality.
This high threshold was recently affirmed by Judge Kenneth Keith and Mr Georges Abi-Saab in a decision declining Venezuela’s challenge to an arbitrator in ConocoPhillips v. Venezuela. Venezuela sought the disqualification of Mr L. Yves Fortier on the basis of his disclosure of an upcoming merger of his law firm with another firm that provided legal services to ConocoPhillips, arguing that this contributed to the appearance of bias. Judge Keith and Mr. Abi-Saab reiterated that there was a “relatively heavy burden” on those seeking to disqualify an arbitrator by proving a “manifest” (meaning “obvious” and “highly probable, not just possible”) lack of independence and impropriety based on objective evidence. It was held that Mr. Fortier’s explanation regarding the timing of his disclosure was sufficient, and that there was no evidence to justify his disqualification in this case.
Recent decisions have reinforced an increasingly widespread belief in the arbitration world that there exists only a remote chance of success when challenging arbitrators in ICSID proceedings. Indeed, while there have been over 40 challenges lodged against sitting ICSID arbitrators since the early 1980s, successfully changing the composition of a tribunal has proven highly problematic in the absence of a voluntary resignation.
Practitioners and commentators alike point to two potential flaws in the system. First, as determined by Jones and Tawil above, the substantive threshold under ICSID, which requires a “manifest” lack of required qualities, seems to be unusually high when compared to other rules or national arbitration laws. The UNCITRAL Arbitration Rules, by contrast, require only the presence of “justifiable doubts” as to an arbitrator’s independence and impartiality. There is no easy solution to this. The fact that this requirement is established in the Convention makes altering it a daunting task – one that would entail agreement by all member States.
The second perceived flaw relates to the procedural method by which decisions on disqualification are made. In this regard, it has been argued that there is a certain illogic to placing these decisions in the hands of a challenged individual’s co-arbitrators. There are several potential reasons for concern. Those co-arbitrators may have been working with that individual for some time and be reluctant to acknowledge any bias. Further, they may have extensive personal relationships with the individual which might influence their decision. Finally, there may be an underlying reluctance (however unconscious) to “cut the branch of the tree on which they were sitting” — namely, a hesitancy for arbitrators to allow challenges to succeed when that might consequently increase the chances of a successful challenge being made against them.
Some parties have sought to circumvent these perceived problems by attempting to remove the decision from ICSID’s hands. In the case of Perenco v Ecuador, a decision on disqualification was made, by virtue of prior agreement between the parties, by the Permanent Court of Arbitration (“PCA”) in reliance upon the IBA Guidelines. That challenge, in 2009, was successful (albeit that there remains uncertainty as to whether the PCA’s decision, being contrary to the provisions of the Convention, was any more than a nullity of no binding effect — a line of argument that finds support in the fact that the relevant arbitrator, Charles Brower, subsequently resigned notwithstanding the PCA’s decision).
In Abaclat v Argentina, Argentina (with ICSID’s consent) similarly sought the disqualification of two arbitrators, Pierre Tercier and Albert Jan van den Berg, by requesting a non-binding assessment of its disqualification demands from the PCA, citing concerns with ICSID’s registering of the mass claim as one reason why the challenge should be referred externally. Argentina complained that these arbitrators had prejudged certain issues and demonstrated a lack of impartiality in their handling of the case. In a recommendation dated 19 December 2011, the Secretary-General of the PCA, Christiaan M. J. Kröner, decided against Argentina, concluding that its disqualification request merely reflected Argentina’s dissatisfaction with the majority of the Tribunal’s rulings against it and its subjective perception of the arbitrators under challenge. In the view of the Secretary-General, no objective evidence, from which it would be reasonable to infer a lack of independence or impartiality, had been put forward. The full text of the PCA’s recommendation is available here.