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Multiple appointments potentially relevant to disqualification of ICSID arbitrator
Practical Law UK Legal Update 3-506-4207 (Approx. 6 pages)
Multiple appointments potentially relevant to disqualification of ICSID arbitrator
by PLC Arbitration
| Published on 15 Jun 2011 • International |
In OPIC Karimum Corporation v Bolivarian Republic of Venezuela (ICSID Case No ARB/10/14), Professor Doug Jones (President of the Tribunal) and Professor Guido Santiagoe Tawil (the arbitrator nominated by the claimant) dismissed the claimant's application to disqualify Professor Philippe Sands (the arbitrator nominated by the respondent), which had been made on the basis that Sands had previously been appointed by the respondent and its counsel on a number of occasions.
Speedread
An ICSID tribunal has rejected an application to disqualify Professor Philippe Sands, the arbitrator nominated by the respondent, on the basis that he lacked impartiality and independence.
The claimant sought the disqualification of Sands on the basis that he had previously been appointed by the respondent and its counsel on a number of occasions. The application was dismissed on the facts because two of the prior appointments by the respondent related to the same facts and were made in what was effectively the same case. The tribunal in the first of those cases was never constituted and the matter was superseded by subsequent UNCITRAL proceedings, in which jurisdiction was unanimously rejected. As regards the previous appointments by the respondent's counsel, these did not reach a level which would, by themselves, demonstrate the required manifest lack of independence.
The case is significant because the tribunal disagreed with the approach taken recently in the disqualification decision in Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5), in which the tribunal was of the view that multiple appointments in unrelated cases should be regarded as a "neutral" factor in a challenge application.
Here, the tribunal considered that multiple appointments are an "objective indication" that the party and its counsel consider that they are more likely to succeed with their preferred arbitrator on the panel. The decision illustrates the fine line that parties and their counsel must tread when choosing an arbitrator. It highlights the need to carefully consider previous appointments, ensuring that they do not exceed the limits imposed by the IBA Guidelines on Conflicts of Interest in International Arbitration, taking particular care over the consideration of prior appointments in respect of which it is not abundantly clear which part of the IBA Guidelines they fall into. (OPIC Karimum Corporation v Bolivarian Republic of Venezuela (ICSID Case No ARB/10/14).)
Background
Article 14(1) of the ICSID Convention provides:
"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. Competence in the field of law shall be of particular importance in the case of persons on the Panel of Arbitrators."
Article 57 of the ICSID Convention governs disqualification as follows:
"A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14."
Article 58 of the ICSID Convention provides in the relevant part:
"The decision on any proposal to disqualify [an] ... arbitrator shall be taken by the other members of the ... Tribunal."
Rule 6(2) of the International Centre for Settlement of Investment Disputes (ICSID) Arbitration Rules addresses disclosure by arbitrators as follows:
"Before or at the first session of the Tribunal, each arbitrator shall sign a declaration in the following form:
'To the best of my knowledge there is no reason why I should not serve on the Arbitral Tribunal constituted by the International Centre for Settlement of Investment Disputes with respect to a dispute between ___________________and___________________...
'Attached is a statement of (a) my past and present professional, business and other relationships (if any) with the parties and (b) any other circumstance that might cause my reliability for independent judgment to be questioned by a party. I acknowledge that by signing this declaration, I assume a continuing obligation promptly to notify the Secretary-General of the Centre of any such relationship or circumstance that subsequently arises during this proceeding.'"
The IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) set out general principles and guidance to assist parties and arbitrators in assessing and dealing with potential conflicts of interest. The guidelines also set out various factual situations (divided into Red, Orange and Green Lists), with different disclosure requirements and consequences for each list.
The Orange List sets out situations where a disqualifying conflict of interest may be present and the relevant circumstances should be disclosed. Paragraph 3.1.3 of the Orange List specifies the following situation:
"The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties."
The Green List addresses situations where a disqualifying conflict of interest is not present and no disclosure is necessary. Paragraph 4.4.2 of the Green List specifies the following situation:
"The arbitrator and counsel for one of the parties or another arbitrator have previously served together as arbitrators or as co-counsel."
For further discussion of the guidelines, see Practice note, Selection of party-nominated arbitrators.
In Suez and others v Argentina (Case Nos ARB/03/19 and ARB/03/17), the tribunal set out four criteria it considered necessary to evaluate the effect of an alleged connection on an arbitrator's independence and impartiality:
- The proximity of the connection.
- The intensity or frequency of any interactions.
- The degree of dependence of an arbitrator on a party for any benefits.
- The materiality or significance of any benefits.
(For further discussion, see Legal update, Arbitrator impartiality and independence in ICSID arbitration.)
In Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5) (23 December 2010), the tribunal was of the view that multiple appointments as an arbitrator by one party in unrelated disputes should be regarded as "neutral" when considering an application to disqualify an arbitrator and, without more, were not enough to show lack of impartiality or independence (see Legal update, Mere non-disclosure of multiple appointments not enough to disqualify an ICSID arbitrator).
Facts
The claimant, OPIC Karimum Corporation, appointed Professor Guido Santiago Tawil as arbitrator. The respondent, the Bolivarian Republic of Venezuela, appointed Professor Philippe Sands as arbitrator. Both arbitrators filed a declaration in the ICSID standard form as prescribed by rule 6(2) of the ICSID Arbitration Rules.
Sands attached a statement to his rule 6(2) declaration disclosing the following matters:
- Within the past three years, Sands had been appointed as arbitrator in two other ICSID cases by a party who was represented by the respondent's law firm, Curtis Mallet-Prevost, Colt & Mosle LLP. Both cases remained pending.
- Within the past three years, Sands had been appointed as arbitrator by the respondent in two related cases, neither of which were currently pending.
- Since first accepting an appointment as an arbitrator in an ICSID case in 2007, Sands had declined to accept any new instructions to act as counsel in any new ICSID investment treaty arbitrations.
Before the constitution of the tribunal, the claimant requested the disqualification of Sands on the grounds that his appointments by Curtis Mallet "taint his independence ... and indicate a manifest lack of Professor Sand's ability to be relied on for independent judgment". The claimant contended that, if Sands was permitted to continue to sit as an arbitrator in this arbitration, he would have been appointed in five arbitration proceedings within the past five years either by Curtis Mallet or by the respondent, which represented more than half of his publicly disclosed appointments. The claimant submitted that, in view of the ongoing professional and business relationship between Sands and Curtis Mallet, and Sands' prior relationship with the respondent, Sands was beholden to Curtis Mallet and to the respondent for a significant number of his arbitration appointments, and therefore, presumably his compensation. The claimant also submitted that, in view of the finance and support that Venezuela is allegedly providing to Bolivia, a further ICSID case in which Sands was appointed by Bolivia within the last three years should also be taken into account.
In support of the respondent's rejection of these allegations, Sands indicated that "the proportion of [his] total income that was obtained from sitting as an arbitrator in 2010 was less than 5.89%". Moreover, two of the appointments relied on by the claimant related to the same facts and were effectively the same case, as the arbitral tribunal in one of the cases was never constituted and Sands did not receive any fee.
Decision
The tribunal dismissed the claimant's application to disqualify Sands.
They acknowledged that, for the claimant to succeed, it must establish a manifest lack of ability on the part of Sands to exercise independent judgment in the proceedings. Moreover, there is a relatively high burden on those seeking to challenge ICSID arbitrators.
The tribunal did not agree with the approach adopted in the disqualification decision in Tidewater, in which the tribunal suggested that multiple appointments as an arbitrator by the same party in unrelated cases are a "neutral factor". Instead, the tribunal was of the view that multiple appointments as arbitrator by a party or its counsel constitute a consideration that must be carefully considered in the context of a challenge. The tribunal commented:
"The suggestion by the arbitrators in Tidewater that multiple appointments are likely to be explicable on the basis of a party's perception of the independence and competence of the oft appointed arbitrator is in our view unpersuasive. In a dispute resolution environment, a party's choice of arbitrator involves a forensic decision that is clearly related to a judgment by the appointing party and its counsel of its prospects of success in the dispute. In our view, multiple appointments of an arbitrator are an objective indication of the view of parties and their counsel that the outcome of the dispute is more likely to be successful with the multiple appointee as a member of the tribunal than would otherwise be the case."
The tribunal accepted that the IBA Guidelines are both non-exhaustive and not, in themselves, decisive of whether or not the standards set out in the guidelines for impartiality and independence have been met. They do, however, indicate that multiple appointments represent an issue relevant to impartiality and independence, and in the tribunal's view, the guidelines are correct in doing so. This is the case both in international commercial arbitration and investment treaty arbitration, where the need for independence is at least as great. The tribunal was also of the view that, in the absence of exceptional circumstances, multiple appointments by counsel and by parties should be considered separately, not cumulatively.
However, on the facts of the case, the tribunal concluded that the two previous appointments by the respondent related to the same facts and were made in what was effectively the same case. The tribunal in the first of those cases was never constituted and was superseded by subsequent UNCITRAL proceedings, in which jurisdiction was unanimously rejected. Accordingly, the tribunal concluded that the multiple appointments by the respondent did not represent an issue with respect to Sands' independence in this case.
As regards the previous appointments by Curtis Mallet, the tribunal considered that Sands had been appointed in two unrelated cases involving Turkmenistan. However, these two appointments did not reach a level that would, by themselves, demonstrate the required manifest lack of independence.
The tribunal did not accept the claimant's arguments regarding Sands' alleged financial dependence on either the respondent or Curtis Mallet. It was clear that Sands had "extensive independent income sources unrelated to fees derived from his appointments as arbitrator in investment arbitrations".
Finally, the claimant failed to support its allegations regarding the relationship between Bolivia and Venezuela and, therefore, any appointment of Sands by Bolivia in unrelated proceedings was irrelevant.
Comment
This decision highlights the fine line that parties and their counsel must tread when choosing an arbitrator. In essence, a party or its counsel will want to identify an arbitrator who is likely to be broadly in sympathy with the arguments that will be put forward (for example, because he or she favours a strict literal interpretation of contract), while at the same time avoiding any appearance of bias and ensuring compliance with the IBA Guidelines.
The decision is significant, given that the tribunal declined to follow the approach taken recently in the Tidewater disqualification proceedings. In its view, confidence in the investor-state arbitration could be undermined by the perception that multiple appointments arise from a relationship of familiarity and confidence, which is harmful to the requirement of independence established by the ICSID Convention.
Although, on the facts of the case, the number of prior appointments by the respondent and its counsel fell within the maximum levels permitted by the IBA Guidelines, the tribunal concluded that multiple appointments should be regarded as an objective indication that the party and his counsel consider that they are more likely to succeed with their preferred arbitrator on the panel.
This shift in presumption from Tidewater highlights the need for parties to carefully consider previous appointments when identifying a suitable arbitrator and to ensure they do not exceed the limits imposed by the guidelines, taking particular care over the consideration of prior appointments in respect of which it is not abundantly clear which part of the IBA Guidelines they fall into.