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Same arbitrator repeatedly appointed by the same party: a case for disqualification?

08 September 2011

Two decisions consider applications to disqualify ICSID arbitrators on the basis of partiality demonstrated by repeated appointments by the same party or law firm.

In Opic Karimun Corp v Bolivarian Republic of Venezuela, ICSID Case No ARB/10/14 (Decision on the Proposal to Disqualify Professor Philippe Sands, 5 May 2011) and Universal Compression International Holdings, SLU v Bolivarian Republic of Venezuela, ICSID Case No ARB/10/9 (Decision on the Proposal to Disqualify Professor Brigitte Stern and Professor Guido Santiago Tawil, Arbitrators, 20 May 2011) both tribunals, in reachi,ng their decisions, referred to non-binding International Bar Association (IBA) guidelines on Conflict of Interest in International Arbitration. The tribunals' decisions recognise a degree of realism in the appointment process yet underscore the difficulty in successfully challenging an arbitrator before the International Centre for the Settlement of Investment Disputes.

Opic Karimun and Universal consider proposals to disqualify ICSID arbitrators on the basis of apparent partiality demonstrated by repeated appointments by Venezuela, Curtis, Mallet-Prevost, Colt & Mosle LLP (the firm) and Venezuela's Attorney General.

In Opic Karimun Professor Doug Jones and Professor Guido Santiago Tawil addressed a challenge to disqualify Professor Philippe Sands on the basis that, at the time of his appointment, he was sitting in six pending ICSID cases, of which he had received three appointments from the firm, that in the past year he sat in eight arbitrations, of which five appointments had come from Venezuela or the firm, and that he disclosed only nine publicly available arbitrations of which five appointments had come from Venezuela or the firm.

In Universal Professor Brigette Stern and Professor Guido Santiago Tawil were challenged. Professor Tawil was challenged on the basis of former professional roles as co-counsel with the claimant's law firm and because one of claimant's counsel previously worked as an associate for Professor Tawil. The challenge against Professor Tawil was rejected. Professor Stern was challenged on the basis that she failed to disclose that she was acting as party-appointed arbitrator for Venezuela in at least three additional pending ICSID proceedings, and that the multiple appointments in themselves suggest partiality.

This note considers the challenges based on multiple appointments in both cases.

Parties' Arguments

In Opic Karimun and Universal, the claimants argued that Articles 14 and 57 of The International Centre for Settlement of Investment Disputes (ICSID) Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) require that arbitrators be both impartial and independent. Article 57 states that an arbitrator can be disqualified on account of any fact that indicates a manifest lack of the qualities mentioned in Article 14, namely: high moral character, competence and independence. The claimants contended that the requirement of impartiality implies the absence of bias or predisposition toward one of the parties. They submitted that it is not necessary to prove actual bias but rather that the appearance of bias or of a conflict is sufficient. Reasonable doubt about the impartiality of an arbitrator was argued to be sufficient to disqualify an arbitrator under the manifest standard.

In both cases, the claimants also referred to the IBA Guidelines on Conflicts of Interest in International Arbitration dated 22 May 2004 (the IBA Guidelines). These guidelines are recognised as non-binding but persuasive authority. The IBA Guidelines provide three lists of potential conflict issues depending on the gravity of the apparent conflict. Sections 3.1.3 and 3.3.7 of the IBA Guidelines "Orange List" provide that justifiable doubts about an arbitrator's impartiality or independence may arise where an arbitrator has been appointed by a party in two or more instances within the last three years and that doubts may arise where an arbitrator has received more than three appointments by the same counsel within the last three years. The claimants contended that multiple appointments by the same party or counsel create the potential for undue influence and for an unfair advantage for the appointing counsel or party. These appointments supposedly suggest at the minimum an ongoing professional and business relationship between the arbitrator and the appointing party. In Opic Karimun, it was argued that Professor Sands could not be relied upon to exercise independent judgment because he is "beholden to the Respondent and the Respondent's law firm for a significant number of his arbitration appointments (and therefore presumably his compensation)".

The claimants in Opic Karimun additionally invoked the criteria in Suez, Sociedad General de Aguas de Barcelona SA et al v Argentine Republic (ICSID Case No ARB/03/17) looking to (a) the proximity of the connection; (b) the intensity or frequency of interactions; (c) the degree of dependence of an arbitrator upon a party for benefits; and (d) the materiality or significance of such benefits. The claimants argued that the proximity and intensity of the connections between the party and the arbitrator were direct and intense and that Professor Sands has derived significant financial gain from the relationship.

Decision

Both tribunals emphasised that Article 57 of the ICSID Convention requires that there be a "manifest lack of qualities required" in an arbitrator. This imposes a "relatively heavy burden of proof on the party making the proposal" and requires that the deficiencies be proved by objective evidence. Accordingly, the tribunal in Opic Karimun required that, in order to succeed, a proposal to disqualify an arbitrator must establish the facts underlying the proposal and show that these facts give rise to a manifest lack of the qualities required by Article 14(1).

In Opic Karimun, the tribunal held that the multiple appointments did not demonstrate the manifest lack of qualities necessary under the ICSID Convention. However, the tribunal recognised that in certain instances multiple appointments alone could be sufficient for a challenge (although it did not give any further indication on what these instances could be).

The tribunal in Universal held that no objective facts had been presented to suggest that Professor Stern's impartiality would be manifestly impacted by multiple appointments, noting that she has an extensive career as an arbitrator and is therefore not "dependent – economically or otherwise – upon the Respondent for her appointments in these cases". Consequently, the Chairman found that the appointment of Professor Stern on three prior occasions by Venezuela did not on its own indicate a manifest lack of the qualities required of an arbitrator.

Comment: These cases demonstrate the difficulty that a party will face when challenging an arbitrator under the ICSID Convention. A high burden of proof must be reached to disqualify an arbitrator. Objective proof is required of actual partiality and the appearance of bias is insufficient for a successful challenge.

Looking at these cases in unison demonstrates how small and interconnected the international arbitration community is. While Professor Guido Santiago Tawil was deciding on the challenge to Professor Sands in Opic Karimun, he himself was the subject of a challenge simultaneously in Universal (on the basis of professional connections to the party that appointed him).

Candid pronouncements in Opic Karimun highlight an inherent tension between a system of party-appointed arbitrators and the highest standards of impartiality in the administration of justice. The tribunal notes that:

"The suggestion […] that multiple appointments are 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." (Opic Karimun, paragraph 47)

The ICSID Convention demands a lack of predisposition to either side of a dispute but in practice tolerates the selection of arbitrators based on perceived predispositions to a party selecting them.

This tension is receiving increasing mention in scholarly works with renowned scholars (and arbitrators) highlighting the statistical propensity for party-appointed arbitrators to dissent on behalf of the parties appointing them, and other arbitrators calling for institutions to take the role of appointing arbitrators. The impartiality of arbitrators is fundamental and as such is an issue of recurring importance.

Further Information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legisation in commerical dispute resolution.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 (0)20 3088 3710.