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Challenge to ICSID arbitrators rejected
Practical Law UK Legal Update 6-506-3843 (Approx. 7 pages)
Challenge to ICSID arbitrators rejected
by PLC Arbitration
| Published on 08 Jun 2011 • International |
In Universal Compression International Holdings SLU v Bolivarian Republic of Venezuela (ICSID Case No ARB/10/9), the chairman of the ICSID Administrative Council has rejected requests to disqualify Professor Brigitte Stern and Professor Guido Santiago Tawil, which had been made on the basis that Stern had been repeatedly appointed by the respondent and that Tawil had acted as co-counsel with the claimant's lawyers on previous occasions.
Speedread
The chairman of the Administrative Council of ICSID has rejected two applications to disqualify both of the party-appointed arbitrators on the basis that they lacked impartiality and independence.
The claimant requested the disqualification of Professor Brigitte Stern, primarily on the basis that she had failed to disclose previous multiple appointments by the respondent. He found that the initial non-disclosure was an "honest exercise of discretion", and Stern had, in any event, subsequently disclosed the prior appointments before the tribunal was formally constituted. However, he was of the view that arbitrators should include publicly available information about previous appointments in their declarations, out of an abundance of caution.
The respondent's application to disqualify Professor Tawil, which was based on his long professional relationship with the claimant's counsel law firm, King & Spalding LLP, was also dismissed. Tawil's failure to disclose his peripheral involvement in one potential matter on which King & Spalding were not subsequently instructed was an "honest exercise of [his] discretion" and probably did not require disclosure. Moreover, on analysing the cases in which Professor Tawil had acted as co-counsel, the chairman concluded that there was "no ongoing relationship" between them, as they did not currently act and have not acted since October 2009 as a co-counsel in an investor-state arbitration.
The case follows a similar approach to that taken a few months earlier in Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5) (a disqualification application against Stern on similar grounds), in which mere non-disclosure of multiple appointments was not enough to disqualify an arbitrator. However, both this decision and Tidewater highlight the importance of including both private and publicly available information regarding previous appointments to avoid the significant time and costs which will inevitably be involved where grounds for disqualification may potentially exist. (Universal Compression International Holdings SLU v Bolivarian Republic of Venezuela (ICSID Case No ARB/10/9).)
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 14 requires that an arbitrator shall be a person of "high moral character and recognised competence … who may be relied upon to exercise independent judgment".
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.
Facts
The claimant Universal Compression International Holdings SLU appointed Professor Guido Santiago Tawil as arbitrator. The respondent, the Bolivarian Republic of Venezuela appointed Professor Brigitte Stern as arbitrator. Both arbitrators filed an arbitrator's declaration on the ICSID standard form as prescribed by rule 6(2) of the ICSID Arbitration Rules.
In her rule 6(2) declaration of 20 August 2010, Professor Stern crossed out the following text of the standard form:
"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."
On 1 October 2010, Professor Stern submitted a letter to ICSID stating:
"I was faced recently with a situation from which it appears that some parties to ICSID arbitration want not only that private information be disclosed, but also that public information be released by an arbitrator at the time of making the declaration of independence.
I therefore, for the avoidance of doubt, would like to release the following information, which is available on the ICSID website, as a precision of my declaration of independence and partiality sent to ICSID on 17 August 2010.
I have been nominated by Venezuela [the respondent] in the following three cases, respectively in the years 2007, 2008, and 2010:
Vanessa Ventures Ltd v Bolivarian Republic of Venezuela (ICSID Case No ARB(AF)/04/6), in the year 2007.
Brandes Investment Partners LP v Bolivarian Republic of Venezuela (ICSID Case No ARB/08/3), in the year 2008.
Tidewater Inc v Bolivarian Republic of Venezuela (ICSID Case No ARB/10/5).
I reconfirm here that I see no reason why I should not serve on the Arbitral Tribunal to be constituted with respect to the dispute between Universal and Venezuela."
Professor Tawil attached a statement to his rule 6(2) declaration, confirming that he had "no relationship with any of the parties". In that statement, Professor Tawil disclosed the following facts and relationships with the claimant's counsel, King & Spalding LLP:
- He acted as co-counsel to the claimant's counsel in two ICSID arbitrations (Azurix Corporation v Argentine Republic (ICSID Case No ARB/01/12) and Enron Creditors Recovery Corporation and Ponderosa Assets LP v Argentine Republic (ICSID Case no ARB/01/3), both of which had concluded.
- One of the associates (Ms Silvia Marchili) at King & Spalding LLP worked as a junior associate between 2003 and 2006 in the legal team which Professor Tawil led at his firm M & M Bomchil.
Professor Tawil confirmed that he did "not consider that such circumstances affect in any way my ability to serve in this Tribunal or the reliance on my independent judgment".
The parties were unable to agree on a candidate for the president of the tribunal and accordingly, Mr William Rowley QC was appointed by the Secretary General.
Universal requested the disqualification of Professor Stern on the basis that her multiple appointments by Venezuela and its counsel, not disclosed in her original declaration, conflicted with three situations on the Orange List of the IBA Guidelines and gave rise to justifiable doubts in Universal's mind about Professor Stern's ability to exercise independent and impartial judgment in the proceedings.
Venezuela requested the disqualification of Professor Tawil on the basis of his relationship with King & Spalding LLP, purportedly resulting from his having acted as co-counsel in proceedings, which allegedly had recently concluded or were pending.
Venezuela's request was also based on the fact that Ms Silvia Marchili had previously worked with Professor Tawil at his firm, M & M Bomchil.
Decision
The chairman of the Administrative Council of ICSID dismissed both requests for the disqualification of Professor Stern and Professor Tawil.
Applicable legal standards
The chairman summarised the applicable legal standards regarding Articles 14 and 57 of the ICSID Convention, derived from previous cases. The concept of independence in Article 14 encompasses a duty to act with both independence and impartiality, and the notion of impartiality must be viewed objectively. There is a relatively heavy burden on the party seeking to demonstrate a manifest lack of the qualities required of an arbitrator, as required by Article 57 (Suez and others v Argentina (ICSID Case No ARB/03/17)).
To succeed, a proposal to disqualify an arbitrator must:
- Establish the facts underlying the proposal.
- Demonstrate that those facts give rise to a manifest lack of the required qualities.
The chairman also confirmed that, while the IBA Guidelines are widely recognised in international arbitration as the pre-eminent set of guidelines for assessing arbitrator conflicts, it is universally recognised that they are indicative only (both in the context of commercial and investment treaty arbitration).
Professor Stern
The chairman was of the view that no objective fact had been presented that would suggest that Professor Stern's independence or impartiality would be manifestly impacted by multiple appointments by Venezuela. Professor Stern had been appointed in over 20 ICSID cases, demonstrating that she is not dependent (economically or otherwise) on Venezuela for her appointment in such cases.
As regards Universal's contention that Professor Stern's ability to judge the present case impartially and independently was undermined because she had been appointed by Venezuela in four other arbitrations involving similar legal issues, the chairman was of the view that the international arbitration framework "would cease to be viable if an arbitrator was disqualified simply for having faced similar factual or legal issues in other arbitrations". Moreover, to the extent that there may be similarities between the arguments in various cases, the chairman accepted Professor Stern's statement that "the fact of whether I am convinced by a pleading depends on the intrinsic value of the legal arguments and not on the number of times I hear the pleading".
The chairman also rejected Universal's argument that justifiable doubts arose about Professor Stern's independence and impartiality because she did not, at the time of accepting her appointment, disclose information about other appointments, which was publicly available. In the chairman's view, this "initial omission" in Professor Stern's rule 6 declaration was the product of "an honest exercise of discretion" by her.
Professor Tawil
The chairman analysed the professional relationship between Professor Tawil and King & Spalding LLP, and considered Venezuela's contention that the relationship was more recent, protracted and close than had been indicated by Professor Tawil in his rule 6 declaration, thereby placing Universal in a "privileged position" to know Professor Tawil's stance on several legal issues.
The chairman accepted that Professor Tawil's decision not to disclose a third case in which he had simply participated in preliminary discussions about the possible terms of engagement on a matter on which King & Spalding were not, in fact, subsequently instructed, was the "honest exercise of [his] discretion". At most, this should be regarded as a "Green List situation" which, therefore, did not require disclosure.
The chairman noted that Professor Tawil and King & Spalding do not currently act and have not acted since October 2009 as a co-counsel in an investor-state arbitration, and there was no ongoing relationship between them.
On the concerns raised regarding Ms Marchili, she had been a junior associate and one of several lawyers in Professor Tawil's team at M & M Bomchil, and in any event, had left that firm almost five years previously.
Comment
The timing of Professor Stern's supplemental letter to ICSID (summarising the publicly available information regarding her previous three appointments by Venezuela in earlier arbitration proceedings) suggests that this further disclosure may have been prompted by the disqualification application which Professor Stern was then facing in Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5). The chairman in the present case endorsed the approach taken in the disqualification application in Tidewater, namely that arbitrators should include in their rule 6 declarations publicly available information on details of prior appointments, out of an abundance of caution. However, in assessing whether an arbitrator's non-disclosure of such appointments results in a manifest lack of independence or impartiality, the public nature of that information must be taken into account. These two decisions indicate that the tribunal will take a pragmatic approach when considering non-disclosure of publicly available information, but at the same time, they highlight that it will inevitably save significant time and costs for the declaration to include any relevant publicly available information on prior appointments.
The chairman was also pragmatic in his recognition of the fact that similar factual and legal issues will arise repeatedly in international investment arbitrations, and it would be wholly unworkable if arbitrators were prevented from accepting appointments on this basis.