The US District Court for the District of Columbia has denied a petition to vacate a US$21 million arbitral award rendered by a Washington DC-seated tribunal constituted under the UK-Argentina bilateral investment treaty (BIT). The court then allowed a cross-petition to confirm the award. Argentina had urged the court to refuse to enforce the award under the New York Convention and to vacate the award under the Federal Arbitration Act on the ground that Gabrielle Kaufmann-Kohler, the arbitrator appointed by AWG, was a director of UBS AG, which held shares in companies doing business with AWG.

The court rejected the challenge to arbitrator Kaufmann-Kohler in strong terms, noting that the connection to AWG was "so remote and trivial that no reasonable person would conclude she was partial to a party as a result of that relationship" (Republic of Argentina v. AWG Group Ltd., (D.D.C Sept. 30 2016)).

Section 10 of the Federal Arbitration Act (FAA) provides, in relevant part, that a:

(9 U.S.C. § 10(a)(4).)

Section 9 of the FAA further provides that "at any time within one year after the award is made any party to the arbitration may apply to the court ... for an order confirming the award" (9 U.S.C. § 9).

Article IV of the New York Convention sets out the requirements for an application to confirm an award that is subject to that Convention.

The case stems from Argentina's termination of a 30-year contract to provide water and sewage services to the greater Buenos Aires area with a private consortium that included AWG. In 2006, Argentina terminated the contract and AWG commenced arbitration under the UK-Argentina BIT under the International Centre for Settlement of Investment Disputes (ICSID) Additional Facility Rules. In the arbitration, Argentina challenged the appointment of Professor Gabrielle Kaufmann-Kohler on the ground that she served as a non-executive member of the UBS board and UBS had passive investment in other consortium members.

Kaufmann-Kohler had claimed to be unaware of the relationship between UBS and the water companies, but concluded that UBS' shareholdings were insufficient to affect her impartiality as an arbitrator. The arbitral tribunal agreed with Kaufmann-Kohler, noting that she was not involved in UBS' business management activities and did not participate in the research or development of its financial products.

On the merits, the tribunal went on to conclude that Argentina had violated the fair and equitable treatment provisions of the BIT and awarded AWG $20.9 million in damages (see Legal Updates, ICSID tribunals reject defense of necessity and Damages awarded against Argentina for breach of fair and equitable treatment obligation). Argentina challenged the award before an ICSID ad hoc committee, raising the challenge to Kaufmann-Kohler, but the review committee upheld the award.

On July 6, 2015, Argentina petitioned to vacate the arbitration award on the grounds that the tribunal:

On September 1, 2015, AWG cross-petitioned to confirm the award, pursuant to 9 U.S.C. § 9, and Article IV of the New York Convention.

The court denied the vacatur petition and granted the cross-petition to confirm the award.

The court rejected the challenge arbitrator Kaufmann-Kohler in strong terms, noting that the connection to AWG was "so remote and trivial that no reasonable person would conclude she was partial to a party as a result of that relationship." The court noted that the role in an intermediary company is far more remote relative to the parties than the types of long-standing, direct, and repeated business relationship with a party that has supported a finding of evident partiality by an arbitrator. The court also noted that the IBA Guidelines on Conflicts of Interest in International Arbitration do not support Argentina's position because the Guidelines expressly focus on the substantive nature, or materiality, of a challenged arbitrator's financial or business interest in the award by requiring a controlling interest in an entity with, or some other direct economic interest in, the award.

Regarding Argentina's assertion that the tribunal exceeded its powers by improperly calculating damages and failing properly to apply international law, the court noted that courts "have no business" weighing the merits of, or considering whether there is equity in, a particular claim. Here, neither the UK-Argentina BIT nor the applicable UNCITRAL Arbitration Rules expressly provide for a method to calculate damages. The tribunal looked to customary international law for the legal principles that govern the determination of damages. This approach was clearly within the tribunal's purview and therefore there was no basis to vacate the award.

This case reinforces the well-established standard that arbitrators are not held to same standards regarding recusal as judges. There must be a real, as opposed to theoretical, connection between the arbitrator and a party, before a court will find evident partiality by an arbitrator.