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

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 September 09

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.

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

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)

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

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.”

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

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)”

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.”

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

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”

Non-ICSID test (cont.) Test: ECHR/English law: IBA Guidelines: “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”

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 BIICL 13th Investment Treaty Forum Conference September 09

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 EDF v. Argentina Same grounds Failure to disclose did not indicate manifest lack of independence

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

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 Azurix v. Argentina Arbitrator’s law firm appointed counsel as arbitrator in other arbitrations Hrvatska Electroprivreda v. Slovenia Chairman and counsel from same barristers’ Chambers Counsel not allowed to appear

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 Saba Fakes v. Turkey Arbitrator appointed by Turkey in another arbitration raising similar issues

Most recent ICSID Cases 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 19 BIICL 13th Investment Treaty Forum Conference September 09

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 September 09

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

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

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

BIICL 13th Investment Treaty Forum Conference Audley Sheppard