Arbitrator Challenges at ICSID: Why a Different Standard?

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Arbitrator Challenges at ICSID Why a Different
Standard?

• Audley Sheppard

• 11 September 09

• BIICL 13th Investment Treaty Forum Conference

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Summary

• Procedure for challenging an ICSID arbitrator
• Time limits
• ICSID test for arbitrator conflict of interests
• Notable ICSID challenges
• Recommended changes

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Procedure for challenging an ICSID arbitrator

• Article 58 ICSID Convention
• The decision on any proposal to disqualify an
  arbitrator shall be 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 that decision.

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Procedure for challenging an ICSID arbitrator
(cont.)

• Contrast
• UNCITRAL Appointing Authority
• ICC ICC Court
• LCIA LCIA Court
• With right to challenge under national law
• ICJ unanimous decision of other Judges

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Comment

• Its the remaining arbitrators on the tribunal
  who generally have to decide whether the
  challenged colleague lacks independence or
  impartiality.  This is not the way it is done in
  the ICC or the AAA.  It is not the way it is done
  in the LCIA.  There is, I think, an
  understandable fear of cronyism.  I am not saying
  that there is cronyism, but there is a perception
  of cronyism.
• (Rusty Park, Fordham University Law School, 2009)

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Time limit for challenge

• Rule 9(1) Arbitration Rules
• Challenge must be brought promptly and in any
  event before the proceedings are closed
• Contrast
• UNCITRAL 15 days from appointment or discovery
  of facts
• ICC 30 days
• LCIA 15 days

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ICSID test for arbitrator conflict of interests

• Article 14(1) ICSID Convention
• Persons designated to serve on the Panels shall
  be persons of high moral character and recognized
  competence in the fields of law, commerce,
  industry or finance, who may be relied upon to
  exercise independent judgment.
• Article 40(2) of the Convention states
• Arbitrators appointed from outside the Panel of
  Arbitrators shall possess the qualities stated in
  paragraph (1) of Article 14.

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ICSID test (cont.)

• Rule 6(2) Arbitration Rules
• Arbitrator declaration disclosing
• past and present professional, business and other
  relationships (if any) with the parties
• any other circumstances which might cause the
  arbitrators reliability for independent judgment
  to be questioned by a party

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ICSID test (cont.)

• Article 57 ICSID Convention
• Party may propose that an arbitrator is
  disqualified on the basis of any fact indicating
  a manifest lack of the qualities required by
  Article 14(1)

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ICSID test (cont.)

• Articulation of test
• Vivendi v Argentina
• Manifest imposes a relatively heavy burden of
  proof on the party making the proposal
• The test is whether a real risk of lack of
  impartiality based upon those facts (and not
  upon any mere speculation of inference) could
  reasonably be apprehended by either party ...
  That is to say, the circumstances actually
  established (and not merely supposed or
  inferred) must negate or place in clear doubt the
  appearance of impartiality.
• Suez v Argentina
• It is important to emphasise that the language
  of Article 57 places a heavy burden of proof on
  the Respondent to establish facts that make it
  obvious and highly probable, not just possible,
  that Professor Kaufmann-Kohler is a person who
  may not be relied upon to exercise independent
  and impartial judgement.

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Non-ICSID test

• Contrast disclosure requirements and grounds for
  challenge
• UNCITRAL circumstances exist that give rise to
  justifiable doubts as to the arbitrators
  impartiality or independence
• ICC lack of independence or otherwise
• LCIA same as UNCITRAL

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Non-ICSID test (cont.)

• Contrast disclosure requirements and grounds for
  challenge
• ICJ independent judges, elected .. from among
  persons of high moral character
• ECHR independent and impartial tribunal
• IBA Guidelines impartial and independent of the
  parties

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Non-ICSID test (cont.)

• Test
• ECHR/English law
• question is whether a fair-minded and informed
  observer, having considered the facts, would
  conclude that there was a real possibility that
  the tribunal was biased (Porter v Magill)
• IBA Guidelines
• doubts are justifiable if a reasonable and
  informed third party would reach the conclusion
  that there was a likelihood that the arbitrator
  may be influenced by factors other than the
  merits of the case as presented by the parties in
  reaching his or her decision

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Notable ICSID challenges1. Arbitrator and a
Party

• Holiday Inn SA/ Occidental Petroleum v. Morocco
• Arbitrator appointed non-exec director of
  Occidental
• Permitted to resign
• Amco Asia Corp v. Indonesia
• Arbitrator given tax advice to controlling
  claimant
• Test included impartiality
• Part appointment assumes some acquaintance
• Appearance of partiality must be manifest
  highly probable
• Challenge rejected
• Zhinvali Development Ltd v. Republic of Georgia
• Occasional social contacts
• Suggestion that judgement affected purely
  speculative
• Challenge rejected

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Notable ICSID challenges1. Arbitrator and a
Party (cont.)

• Vivendi v. Argentina
• Arbitrators firm instructed on tax matter by
  party connected to Vivendi
• Work unrelated and arbitrator not involved
• Challenge rejected
• Suez v. Argentina
• Arbitrator non-exec director of UBS, minor
  shareholder in Suez
• Spanish version of Art. 14(1) refers to person
  who inspires full confidence in his
  impartiality of judgement
• Considered four criteria proximity intensity
  dependence materiality
• Challenge rejected
• EDF v. Argentina
• Same grounds
• Failure to disclose did not indicate manifest
  lack of independence
• Challenge rejected

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Notable ICSID challenges1. Arbitrator and a
Party (cont.)

• Lemire v. Ukraine
• Arbitrators law firm instructed by Ukraine in
  unrelated investment arbitration
• Challenge rejected

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Notable ICSID challenges2. Arbitrator and
Counsel

• Amco Asia Corp v. Indonesia
• Arbitrators firm and claimants counsel had had
  joint office and profit sharing arrangements
• Continued to share premises and administrative
  services
• Lack of independence must be manifest
• Challenge rejected
• SGS v. Pakistan
• Arbitrator has appointed/agreed counsel to be
  arbitrator in other cases
• Must establish facts, inference from facts must
  be reasonable
• Challenge rejected
• Azurix v. Argentina
• Arbitrators law firm appointed counsel as
  arbitrator in other arbitrations
• Challenge rejected
• Hrvatska Electroprivreda v. Slovenia
• Chairman and counsel from same barristers
  Chambers
• Counsel not allowed to appear

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Notable ICSID challenges3. Issue and subject
matter conflict

• Suez v. Argentina
• Arbitrators involvement in Vivendi
• Award so flawed
• Must show fact indicating manifest lack of
  impartiality or independence
• Challenge rejected
• Electrabel v. Hungary
• Arbitrator appointed by Hungary in parallel
  arbitration against Hungary raising same issues
• Challenge rejected
• Saba Fakes v. Turkey
• Arbitrator appointed by Turkey in another
  arbitration raising similar issues
• Challenge rejected

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Most recent ICSID Cases

• S T Oil Equipment v. Romania
• Arbitrators firm was representing an investor in
  a case against Romania
• Arbitrator resigned
• PIP SARL v. Gabon
• Arbitrator previously chairman of an ICSID
  tribunal which made award against Gabon
• Awaiting decision
• Azurix Corp v. Argentina annulment
• Improper constitution of the Tribunal (Art
  52(1)(a))
• Challenge had been heard in accordance with
  procedures and rejected, tribunal properly
  constituted
• Only annul if did not comply with procedure for
  challenge

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September 09
BIICL 13th Investment Treaty Forum Conference
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Some non-ICSID (BIT) cases

• AWG v. Argentina (UNCITRAL)
• National Grid Plc v. Argentina (UNCITRAL)
• Eureko v. Poland (UNCITRAL)
• Canfor Corporation v. United States (UNCITRAL)
• Grand River Enterprises v. United States of
  America (UNCITRAL)
• Ghana v. Telekom Malaysia Berhad (UNCITRAL,
  heard by Dutch courts)
• BG Group v. Argentina (ICC)

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Reform?

• 2006 proposed amendment
• Amend Rule 6(2), disclosure requirement, to
  include
• any circumstances likely to give rise to
  justifiable doubts as to the arbitrators
  reliability for independent judgment
• Not adopted
• Note approach to appointments to annulment
  committees

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Recommendations

• Challenges decided by an independent ad hoc
  committee
• Time limit of 30 days from appointment or
  discovery of facts
• Requirement of independence and impartiality

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Recommendations (cont.)

• Test for disqualification justifiable doubts as
  to independence and impartiality
• Doubts justified if a fair-minded and informed
  observer, if having considered the facts, would
  conclude that there was a real possibility that
  the arbitrator was not independent or not
  impartial

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BIICL 13th Investment Treaty Forum
ConferenceAudley Sheppard