Arbitrator Challenges at ICSID: Why a Different Standard?

1. Arbitrator Challenges at ICSID: Why a Different Standard? Audley Sheppard 11 September 09 BIICL 13th Investment Treaty Forum Conference

2. Summary • Procedure for challenging an ICSID arbitrator • Time limits • ICSID test for arbitrator conflict of interests • Notable ICSID challenges • Recommended changes BIICL 13th Investment Treaty Forum Conference

3. Procedure for challenging an ICSID arbitrator • Article 58 ICSID Convention: • The decision on any proposal to disqualify a[n] 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.

4. 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

5. Comment • “It’s 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)

6. 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

7. 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.”

8. 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 arbitrator’s reliability for independent judgment to be questioned by a party

9. 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)”

10. 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.”

11. Non-ICSID test • Contrast disclosure requirements and grounds for challenge: • UNCITRAL: “circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence” • ICC: “lack of independence or otherwise” • LCIA: same as UNCITRAL

12. 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”

13. 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”

14. Notable ICSID challenges:1. 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 BIICL 13th Investment Treaty Forum Conference

15. Notable ICSID challenges:1. Arbitrator and a Party (cont.) • Vivendi v. Argentina • Arbitrator’s 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

16. Notable ICSID challenges:1. Arbitrator and a Party (cont.) • Lemire v. Ukraine • Arbitrator’s law firm instructed by Ukraine in unrelated investment arbitration • Challenge rejected

17. Notable ICSID challenges:2. Arbitrator and Counsel • Amco Asia Corp v. Indonesia • Arbitrator’s firm and claimant’s 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 • Arbitrator’s 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

18. Notable ICSID challenges:3. Issue and subject matter conflict • Suez v. Argentina • Arbitrator’s 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

19. Most recent ICSID Cases 19 BIICL 13th Investment Treaty Forum Conference • S & T Oil Equipment v. Romania • Arbitrator’s 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 September 09

20. 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) BIICL 13th Investment Treaty Forum Conference

21. Reform? • 2006 proposed amendment: • Amend Rule 6(2), disclosure requirement, to include – • “any circumstances likely to give rise to justifiable doubts as to the arbitrator’s reliability for independent judgment” • Not adopted • Note approach to appointments to annulment committees

22. 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

23. 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

24. BIICL 13th Investment Treaty Forum ConferenceAudley Sheppard