LAW AND PRACTICE ON
IMPARTIALITY AND
INDEPENDENCE IN
INTERNATIONAL INVESTMENT
ARBITRATION
MASTER: INTERNATIONAL AND EUROPEAN LAW TRACK: TRADE AND INVESTMENT LAW
“It is of fundamental importance that justice should not only be done but should
manifestly and undoubtedly be seen to be done.”
Table of content
Introduction page 3
Chapter 1 The legal standard page 8
1.1 The duty of disclosure page 9
1.2 The challenge proceeding page 11
1.3 Decision on disqualification taken by the two
unchallenged arbitrators page 15
1.4 Conclusion page 17
Chapter 2 Party Appointment page 18
2.1 The party appointment debate page 19
2.2 Opic Karimum v Venezuela page 21
2.3 Universal Compression v Venezuela page 24
2.4 Conclusion page 26
Chapter 3 Moving towards an international public law way
of dispute settlement page 28
3.1 Between two worlds page 28
3.2 The European Commission’s investment court proposal page 31
3.3 Conclusion page 35
Conclusion page 36
Introduction
International investment law is for a significant part based on bilateral investment treaties (BIT) at the moment there are close to 3000 BITS,1Investment State Dispute Settlement (ISDS) is a
legal system that is part of these BITS. Under ISDS investors who invest in a foreign state whose rights have been violated by the host state can challenge this state in arbitration. It is an important enforcement mechanism that empowers investors in case of breach of the investors rights,2
without a way of dispute settlement treaties would only be declarations of good will rather than enforceable set of rules.3
Domestic courts are not perceived to be independent enough in resolving disputes against their own state.4Therefore, dispute settlement will often times happen through specific forums like ICSID arbitration rules (most treaties refer to ICSID which is a World Bank Institution) or arbitration forums such as UNCITRAL (United Nations Commission on International Trade Law), SCC (Arbitration Institute of the Stockholm Chamber of Commerce) and ICC
(International Chamber of Commerce’s).
Once a dispute arises the legal matter is decided by arbitrators hired to only resolve the matter at hand, after that the arbitration tribunal is dissolved. Parties to the dispute are free to appoint their arbitrator. The investor appoints his arbitrator, the state appoints theirs and the two arbitrators will choose the third and final arbitrator. They can base their selection on grounds such as sharing the same legal or cultural background, awards from previous tribunals the arbitrator was part of, public statements, published writing etc.
Party appointment has been criticized for two main reasons. The first reason is that the
international investment arbitration world is small therefore parties, counsel and arbitrators will often times interlink. It is easy for conflict of interest to arise, or at least an appearance of conflict of interest, in situations where a party or its counsel re-appoints the same arbitrator in multiple arbitrations, appoints an arbitrator they already have a professional or personal relationship with and situations where arbitrators work both as arbitrator and counsel. Judges unlike arbitrators
1United Nations UNCTAD, Investment Dispute Navigator See for the statistics
http://investmentpolicyhub.unctad.org/IIA , a total of 2927 bilateral treaties of which 2278 BIT’s are in force and 361 other International Investment Agreements of which 285 are in force (visited 03/03/16).
2Schill, The sixth path: Reform investment arbitration from within, Max Planck Institute for International Law
04/06/2014, p. 6.
3
Ibid.
enjoy security of tenure and a monthly salary, therefore there is no link between the judge and parties unlike the link that can exist through party appointment.
The second reason for criticism is that in investment arbitration procedures that were developed for international commercial arbitration are used, this often times has been a source of concern when applied in disputes in which one party is a state.5The scope of authority arbitrators have is
very broad and can cover any decision that affects the investor and his property. The cases are about important issues such as health, environment and other public interest.6There is no appeal mechanism and there is no oversight by national courts or other international tribunals, once the decision has been rendered there is no way to go back and re-evaluate.7The outcome of the
arbitration can have substantial consequences, because the award extends to the legislative, judicial and or executive decisions the host state made.8If the state loses it means the payment of
public funds to the claimant and this can impact the government’s budget that could have been directed to important programs.
Australia has expressed its frustration after the tobacco company cases, Argentina and Nicaragua have threatened to withdraw from ICSID and countries such as Bolivia, Ecuador and Venezuela already withdrew.9An unfavourable decision on such important issues is much more likely to be
accepted by the parties if the arbitration is considered to be done in a legitimate manner. The independence and impartiality of arbitrators has to be viewed in a greater scheme and not only in a case by case manner,10if there is no faith in the legitimacy of ISDS arbitration tribunals
international investment system as a whole will be at risk.11 A popular quote from Alfred
Denning explains why even the perception of a judge not being independent or impartial is bad for the system as a whole:
5Corporate Europe Observatory, Who Guards the Guardians? The Conflict of interest of investment arbitrators,2012,
available at http://corporateeurope.org/trade/2012/11/chapter-4-who-guards-guardians-conflicting-interests-investment-arbitrators, Visited (03/03/06).
6Tobacco company’s cases against Australia and Uruguay against regulation of tobacco advertising. Philip Morris
Asia Limited (Hong Kong) v. The Commonwealth of Australia UNCITRAL PCA Case No. 2012-12 and Philip Morris Brands Sàrl, Abal Hermanos S.A.v Urugay ICSID Case No. ARB/10/7, Also see Nuclear power Germany Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/1.
7Van Harten, Investment Treaty Arbitration, Procedural Fairness, and the Rule of Law, in Stephan Schill (ed)
International Investment Law and Comparative Public Law,2010, p. 637.
8
Ibid.
9Bolivia Submits a Notice under Article 71 of the ICSID Convention, ICSID News Release, 16/05/07, Ecuador
ICSID News Release, 09/07/09, Venezuela ICSID News Release, 26/01/12.
10Schill, Ordering Paradigms in International Investment Law: Bilateralism—Multilateralism—Multilateralization,
Douglas, Pauwelyn and Vinuales, The Foundations of International Investment Law: Bringing Theory into Practice,2014, p. 134.
11
EU Commission concept paper investment in TTIP and beyond – the path for reform, p 6-7 available at http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF (visited 03/03/16).
“Justice must be rooted in confidence and confidence is destroyed when right-minded people go away thinking: 'The judge was biased ”.12
This statement explains the importance of appearance of bias, if a judge appearance to be bias to his decision cannot stand. This statement shows that the effectiveness and legitimacy of
international investment arbitration as a system depends on the arbitrators being independent and impartial. The reason why these two concepts are so important is because arbitration is based on trust. In order for arbitration to be considered legitimate parties will have to have faith that it is done in a fair and unbiased manner, therefore independence and impartiality are a key element of ISDS.
Gus van Harten, Jan Paulsson and many others have spoken about need for safeguards.13
Paulsson has for example argued that arbitrators should be chosen by a neutral body from a pre-existing list of arbitrators with built-in mechanisms of monitoring and renewing the list.14While
van Harten is an advocate for an international investment court with all the safeguards that come with a court system. He argues that the reason why these safeguards are so important is because ISDS shifts the powers judges to arbitrator’s without guaranteeing an independent and impartial tribunal.15
The European Commission in an attempt to resolve some of the issues in ISDS proposed an international investment court in the TTIP negotiations. This court would replace the existing ISDS mechanism in all ongoing and future EU investment negotiations.16 The Commission
suggests breaking the link between parties by a established list, security of tenure, pre-established fees and requiring certain qualifications from arbitrators like being able to hold judicial office in their home state. Trade commissioner Cecilia Malmström also states on her blog:
“So how do we create trust? We need to introduce the same elements that lead citizens to trust their domestic courts. Concretely, I want to restore trust by setting up an Investment Court
12
Mcoetropolitan Properties Company ltd vs Lannon, (1969) 1 QB 577 p 599.
13Van Harten, A Report On the Flawed Proposals of Investor State Dispute Settlement On TTIP and CETA, Osgoode
Hall Law School Legal Studies Research Paper Series, Research Paper no16, Volume 11, Issue 4 2015. Paulsson, Moral Hazard in international dispute resolution, Inaugural Lecture as Holder of the Michael R. Klein Distinguished Scholar Chair, University of Miami School of Law, p 10.
14Paulsson, ibid p 6.
15Van Harten, supra n. 13, p. 1.
16European Commission, Draft text on Investment Protection and Investment Court System in the Transatlantic Trade
and Investment Partnership (TTIP) http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf (visited 21/03/16)
System under TTIP – one that is accountable, transparent and subject to democratic principles. It will be judges, not arbitrators, who sit on these cases”.17
The EU wants to create trust in ISDS by breaking the link between parties and arbitrator
suggesting the party appointment, an important element in arbitration, is causing a lack of trust in the arbitrator’s independence and impartiality. Because of the EU court proposal this paper will re-evaluate the ISDS safeguards for independence and impartiality to see if there is a problem and if this court proposal is a better way to guarantee an independent and impartial tribunal.
The purpose of this paper is to examine the law and practice of independence and impartiality in ICSID investment arbitration and to establish that the EU investment court is a better way of ensuring independence and impartiality. While UNICTRAL, the SCC, ICC, and LCIA rules are frequently used in investment arbitration, these are set aside to focus on ICSID Convention as it is considered to be the leading international investment arbitration institution with a total of 159 states party to the ICSID convention and most ISDS proceedings being conducted under this convention.This research is done by analyzing books, academic papers and decisions on disqualification since independence and impartiality are mainly safeguarded by challenge proceedings.
The first chapter will focus on the legal standard and its two safeguards, the duty of disclosure and the challenge procedure. This chapter will show that these safeguards are insufficient in guaranteeing independence and impartiality. It will show that the duty of disclosure leaves a great room of discretion for the arbitrator and it will argue that the threshold on the burden of proof for disqualification is too high which leads to certain situations considered acceptable in ICSID arbitration that would not exist in other arbitration tribunals or courts.
The second chapter will focus on party appointment, it will highlight the debate on party appointment and its negative impact on the trust in arbitration, and analyse two cases in which arbitrators have not been disqualified to highlight the practice.
The third chapter will argue that international investment arbitration is part of international public law. It will argue that the institutional safeguards of public law, such as security of tenure, a monthly salary and an objective way of case appointment are needed to guarantee an independent and impartial tribunal. This chapter will analyse the EU Commissions international investment
17
Cecilia Malmström, Proposing an Investment Court System, 16/09/15, http://ec.europa.eu/commission/2014-2019/malmstrom/blog/proposing-investment-court-system_en (visited 05/05/16).
court proposal and argue that by installing the institutional safeguards this court system
guarantees independence and impartiality and could become the future way of dispute settlement in international investment law.
Chapter 1 The legal standard
The requirement for independence and impartiality is generally found in all arbitration rules.18
Article 14 paragraph 1 of the ICSID Convention states that the persons who serves as an arbitrator in the proceeding must be;
- a person of high moral
- with a recognized competence in the fields of law, commerce, industry or finance - and can be relied upon to exercise independent judgement.
Only the Spanish version of the ICSID rules refers to impartiality, both the English and French version only speak on independent judgement but it has been agreed upon that both independence and impartiality are required in ICSID.19These two concepts are often times seen as two sides of the same coin20and are collectively referred to as bias.21In Suez v Argentina the difference
between the two concepts was confirmed, the unchallenged co-arbitrators said that independence refers to the lack of a relationship with one of the parties that might influence the decision and impartiality refers to the absence of prejudgement of one of the parties.22
There are two safeguards for independence and impartiality in investment arbitration, the duty of disclosure and the challenge proceeding. This chapter will first discuss the problems with both these safeguards, and then discuss how the decision on disqualification taken by the unchallenged co-arbitrators causes problems. This chapter will conclude that the two safeguards for
independence and impartiality in ICSID arbitration are insufficient.
18Art 14 (1) ICSID Convention, art 11 UNICTRAL Arbitration Rules, art 14 (1) SCC Arbitration Rules, art 11 (1)
ICC Arbitration Rules and art 5 (3) LCIA Arbitration Rules.
19Spanish ICSID art 14.1 states ‘inspirar plena confianza en su imparcialidad de juicio’, which translates ‘inspire full
confidence in its impartiality of judgment’.
20Alberto and López, China and International Commercial Dispute Resolution, Independence and Impartiality of
Arbitrators: A comperative perspective,2015, p. 101. Also see Suez Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v Argentine Republic ICSID Case No. ARB/03/17, Decision on the Proposal for the Disqualification of a Member of the Arbitral Tribunal, 22/10/07 para 28.
21Urbaser S.A. and Others v Argentine Republic, ICSID Case No. ARB/07/26 para 43. 22Ibid, para 28.
1.1 Duty of disclosure
Arbitrators have a duty of disclosure,23 the disclosure declaration gives details of any past or present professional, business or other relationship with the parties, along with other circumstances that might cause an arbitrator’s reliability for independent judgment to be questioned by a party.The duty of disclosure has three purposes:
- parties need the information to consider appointing an arbitrator
- the information given can also become the basis for challenging an arbitrator
- and also serves a function in a much broader context than a basis for disqualification by promoting transparency, this can help in the confidence in the arbitration process, everyone involved will have all the information relevant that may have effect on the independence and impartiality of the arbitrator.24
Because of these reasons complete disclosure is a vital part of ISDS. The IBA guidelines on conflict of interest (IBA guidelines) provide a guideline on information that needs to be disclosed. The guideline is rooted in the practice of commercial arbitration but can be applied to investment arbitration.25The IBA guidelines contain a red, orange and green list. The red list contains
situations in which conflict of interest is apparent and arbitrator shouldn’t accept appointment. The orange list contains situations that can appear as conflict of interest and need to be disclosed to the parties. And the green list contains situations that are not considered to contain conflict of interest.
The IBA guidelines are the most extensive and detailed code so far for arbitration, and are considered to be best practice in arbitration.26The guidelines are not binding unless agreed upon
by the parties but are gaining momentum as they are incorporated in the EU Canada trade agreement, CETA.27Unfortunately, due to the fact these guidelines aren’t binding not disclosing
certain information from these lists can’t lead to disqualification, even though in both ICSID and non ICSID institutions provide that arbitrators have a duty of disclosure.28
23Article 6 ICSID Arbitration Rules, art 11 UNCITRAL Arbitration Rules. 24Catherine Rogers, Ethics in international arbitration, 2014, p 92. 25IBA Guidelines, Introduction, para. 5.
26Audley Sheppard, Arbitrator Independence in ICSID Arbitration, in Christina Binder et al (ed) International
Investment Law for the 21stEssays in Honour of Christoph Schreuer 131,2009, p. 136. 27Art 8.30 (1) CETA
28Art 15 (1) SCC Arbitration Rules, Rule 6 ICSID Arbitration rules, declaration is extended for the entire duration of
In Tidewater v Venezuela case29, Tidewater proposed disqualification of Stern on grounds of
non-disclosure of previous multiple appointments by Venezuela and its counsel. Tidewater argued that Stern had been appointed three times by law firm Curtis, Mallet-Prevost, Colt & Mossle (Curtis), and four times by Venezuela’s attorney general.30Only upon request did Stern disclose three cases in which Venezuela appointed her.31
Venezuela argued the information that they appointed Stern was available on the ICSID website and is readily available for Tidewater and that it was equally public that Curtis represented them.32Stern argued that she believes the duty of disclosure is only for unknown facts.33The two unchallenged co-arbitrators ruled that arbitrators should disclose all relevant information because they are in the best position the evaluate their own potential conflicts and therefore should not count on due diligence from the party’s counsel, but the public availability should be taken into account when considering disqualification.34The co-arbitrators conclude that non-disclosure of publicly available information does not warrant disqualification.35According to art 7 of the IBA
guidelines parties have a duty to investigate information that is available to them. ICSID rules do not include a duty to investigate but disqualification cases such as Tidewater have expressed the importance, arbitrators have a duty to disclose but parties have a duty to be investigate
Art 4.1 of the IBA guidelines states that the failure to fulfil the requirement of disclosure creates an appearance of bias and can be ground for disqualification, even when the facts that were not disclosed themselves would not lead to disqualification. Some national courts have agreed on that non-disclosure is an act that creates an appearance of bias.36However, in investment arbitration a failure to disclose does not lead to disqualification.
Art 6 of the ICSID arbitration rules requires a disclosure of all relevant information, it is important that all parties to the dispute have all the information necessary. Unfortunate, not all information is public and arbitrators have a duty to disclose all information as non-disclosure could lead to an appearance of bias. If non-disclosure doesn’t lead to disqualification it will lead to a great deal of trust in the arbitrators to self-regulate.37A weakness of self-regulating is that it
29Tidewater INC and others v The Bolivarian Republic of Venezuela, ICSID case no, ARB/10/05 Decision on
Claimant’s Proposal to Disqualify Professor Brigitte Stern 23/12/10.
30Para 14. 31Para 8. 32Para 22. 33Para 29. 34Para 54. 35Para 57. 36Rogers, supra n 24, p 93. 37
Schill, Conceptions of Legitimacy of International Arbitration, in David Caron et al (ed), Practising Virtue: Inside International Arbitration, 2015, p 108.
leaves a lot of room for discretion on interpretation,38because terms such as independence and
impartiality are up to the arbitrator to interpret. All information relating the parties should be disclosed, disclosing information that might seem irrelevant might become important and can create suspicion if discovered at a later stage.39
1.2 Challenge proceeding
Under article 57 of the ICSID Convention, an arbitrator may be challenged on the grounds indicating a manifest lack of the qualities required by article 14 (1). The arbitration will get suspended40until the two unchallenged arbitrators decide on the proposal.41
Under other arbitral institutions the threshold for disqualification is different, in UNICTRAL, LCIA and the SCC justifiable doubt is sufficient to disqualify an arbitrator,42 in ICC the
threshold is reasonable doubts.43The IBA guidelines explain that justifiable or reasonable doubt
is a test based on appearance of bias from the view of a reasonable third person.44
The meaning of manifest lack has been interpreted in several different decisions on challenge procedures. In Amco Asia45the unchallenged co arbitrators concluded that manifest means highly
probable quasi-certain lack of the qualities from art 14.1 ICSID.46
In Compania de Aguas v Argentina,47the unchallenged arbitrators rejected Amco Asia’s interpretation of manifest. According to the unchallenged co-arbitrators manifest could imply certain circumstances that might appear to a reasonable third person to create an appearance of lack of independence or impartiality, but do not do so manifestly. “In such case, the arbitrator might be heard to say that, while he might be biased, he was not manifestly biased and that he would continue to sit”.48They concluded the quasi- certain approach was an incorrect
38 Rogers, Regulating International Arbitrators: A Functional Approach to Developing Standards of Conduct, p
71-73.
39Ibid.
40Art 9 (6) ICSID Arbitration Rules 41Ibid art 9 (4).
42Art 12 UNCITRAL Arbitration Rules, art 5 (5) of the LCIA Arbitration Rules, art 14 (1) SCC Arbitration Rules. 43Art 11(3) ICC Arbitration Rules.
44
IBA Guidelines on Conflict of interest, Explanation to General Standard 2 paragraph B.
45Amco Asia Corp. v. Republic of Indonesia, ICSID Case ARB/81/1, Decision on the proposal to disqualify an
arbitrator, of 24 June 1982, unpublished, but mentioned in Compania de Aguas del Aconquija S.A. & Vivendi Universal S.A. v Argentine Republic, ICSID case no ARB/97/3, Decision on the Challenge of the President of the Committee, para 21.
46Daele Challenge and Disqualification of Arbitrators in International Arbitration, 2012, p 218. 47
Supra note 40.
interpretation of manifest and if facts lead to a reasonable doubt the challenge should be upheld.49
The reasonable doubt test became the new standard until Suez v Argentina.50
In Suez v. Argentina,51the deciding co-arbitrators determined that, for the challenge to succeed, the challenging party had to prove facts that lead to an informed third person to conclude clear and obvious lack of the qualities of art 14.52They also stressed that art 57 places a heavy burden
of proof on the party requesting disqualification.53A clear and obvious lack of actual bias is the
quasi certain approach used in the AMCO case.
In a later case arbitrator Schreuer in a challenge decision against arbitrator Gabriel Kaufmann-Kohler said that manifest does not refer to the seriousness of the lack of qualities but refers to ease in which it is detected:
“Something is manifest if it can be discerned with little effort and without deeper analysis”.54
This leads to the conclusion that in order for an arbitrator to considered to lack the qualities of art 14.1 ICSID a reasonable informed third person must be able to conclude and with ease that there is a clear and obvious lack of impartiality or independence.55This interpretation of the means a
very high burden of proof on the party requesting disqualification.
Since the Blue Bank v Venezuela56case there seems to be another shift in de analysis of manifest lack. Venezuela proposed disqualification of Mr. Jose Alonso based on his partnership at Baker & McKenzie in Madrid and his membership of Baker & McKenzie’s International Arbitration Steering Committee.57Baker and McKenzie in Caracas represented the claimant in another
ICSID arbitration case against Venezuela.58Dr Kim, the Chairman, applied “an objective standard based on a reasonable evaluation of the evidence by a third party”59and interpreted the
word manifest of Art. 57 ICSID Convention as meaning evident and obvious and relating to the
49Supra note 40, para 22.
50Daele, Case Comment Saint Gobain v Venezuela and Blue Bank v Venezuela, The Standard for Disqualifying
Arbitrators Finally Setteled and Lowered, ICSID review vol 29, no 2 2014 p 298.
51Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A.v The Argentine Republic, ICSID
Case No. ARB/03/19, Decision on a Second Proposal for The Disqualification of a Member of the Arbitral Tribunal 12/05/08.
52Ibid para 29.
53Suez supra n 51, para 29.
54EDF International S.A and others v Argentine Republic, ICSID case no ARB/03/23, Challenge decision regarding
Professor Gabrielle Kaufmann-Kohler 25/06/2008, para 68.
55James Crawford, Challenges to Arbitrators in ICSID Arbitration, in Caron et al. (ed), Practising Virtue: Inside
International Arbitration,2015, p 605.
56Blue Bank International & Trust (Barbados) LTD v The Bolivarian Republic of Venezuela, ICSID Case no
ARB/12/20, Decision on the Parties Proposals to Disqualify a Majority of the Tribunal, 12/11/13.
57Para 22. 58
Longreef Investments A.V.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/5.
ease with which the alleged lack of qualities can be perceived.60Based on “sharing the corporate
name, the existence of an international arbitration steering committee at a global level, and Mr. Alonso's statement that his remuneration depends primarily but not exclusively on the results achieved by the Madrid firm imply a degree of connection or overall coordination between the different firms comprising Baker & McKenzie International”,61and the similarity of the issues
between the two ICSID cases against Venezuela, the Chairman “found that a reasonable third party would find the appearance of the lack of impartiality in Mr. Alonso’s judgment and, upheld the challenge”.62The chairman determined that art 14 and 57 do not require prove of actual bias but it’s sufficient to establish the appearance of such bias established by a reasonable third person.
This interpretation that appearance of bias is sufficient was followed in cases such as Burlington Resources v Ecuador.63ICSID seems to be moving towards a reasonable doubt test where appearance if bias is used and bringing the threshold more in line with other arbitral institutions. The different test that was used in ICSID for a long time was unique “... no other arbitral
institution or law uses this test”.64The establishment for manifest lack was much a higher
threshold than the justifiable doubts test applied in other tribunals. This high threshold has been criticized by commentators and tribunals,65as it sends the message that certain relationships and
behaviour that would be considered unacceptable in other tribunals would not make this high threshold and would be allowed in ICSID.66
In Caratube v Kazakhstan67, Bruno Boesch was challenged on two grounds, his involvement in an earlier UNICITRAL case, and Mr Boesch’s repeat appointments by Curtis Mallet-Prevost Colt & Mossle LLP. On the burden of proof claimant argued that “Mr Boesch must be disqualified if they can show that there are reasonable doubts as to his independence or impartiality”.68
Kazakhstan argued that the existence of reasonable doubt is insufficient and that clear evidence of
60Ibid para 61. 61Ibid para 67.
62Blue bank supra n 56, para 69. 63
Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on the Proposal for Disqualification of Professor Francisco Orrego Vicuña, 13/12/13.
64Luttrell, Bias Challenges in Investor-State Arbitration, Lessons from International Commercial Arbitration,2011, p
458.
65Kahale, Investor-State Arbitration Broken? Transnational Dispute Management, 2012, p 7. Available at
http://www.curtis.com/siteFiles/News/Is%20Investor-State%20Arbitration%20Broken.pdf (visited 30/05/16). Also see Companıa de Aguas del Aconquija SA and Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Decision on the Challenge to the President of the Committee, 3/10/01, para 20.
66Kahale supra n 65, p 7.
67Caratube International Oil Company LLP & Mr Devincci Salah Hourani v The Republic of Kazachstan, ICSID case
no ARB13/3, Decision on the Proposal to Disqualification of Mr Bruno Boesch, 20/03/14.
this lack of impartiality and independence must be shown.69The two unchallenged co-arbitrators
agreed with Kazakhstan and reiterated the high burden of proof and said “the claimant must show that the third party would find that there is an evident or obvious appearance of lack of
impartiality or independence based on a reasonable evaluation of the facts of the present case”.70
The two unchallenged arbitrators followed his interpretation of the chairman in Blue Bank and Burlington Resources, which shows a new standard for interpretation of manifest.71This new
standard is still conservative as it requires an evident obvious appearance of bias which is still different from appearance of bias test in non-ICSID tribunals. The following example shows the difference that obvious evident appearance of bias makes in comparison to regular appearance of bias. In Repsol v Argentina72 Argentina proposed disqualification of Mr. Orrego Vicuña because
he sat in three other tribunals73regarding annulment of awards involving Argentina that were
partiality or fully annulled, Mr Orrego Vicuña wrote about his views on interpretation of a clause in the applicable BIT. Dr Kim as the chairman had to decide on this proposal. He concluded that the three previous cases all involved different laws and facts and dismissed the proposal.74In an
UNCITRAL case CC/Devas v India,75India proposed disqualification of Mr. Orrego Vicuña for
the same prejudgement of the meaning of same clause in the same earlier cases. Following the classic reasonable doubt standard Orrego Vicuña was disqualified because a reasonable observer might conclude he already had clear views on the arguments that were going to be used in this tribunal, he stuck to his views and wrote about it. In both these cases the same grounds were the basis for disqualification but the outcome is clearly different.
In a more recent case, Total S.A v Argentine Republic,76Argentine filled a proposal to disqualify
Total’s party appointed arbitrator, Ms. Teresa Cheng. The arbitrators determined that the manifest standard is strict and high and consists of two components:
- there must a fact (or facts)
69Ibid para 57. 70Ibid para 59. 71
This new standard was also followed in RSM Productions Corporation v Saint Lucia, ICSID case no ARB/12/20, Decision on Claimant’s Proposal For The Disqualification of Dr. Gavan Griffith QC, 23/10/14.
72Repsol S.A and Repsol Butanos S.A v The Republic of Argentine, ICSID case no ARB/12/38, Decision on the
Proposal to Disqualify the Majority of the Tribunal, 13/12/13.
73Enron Creditors Recovery and Ponderosa Assets LP v Argentine Republic, ICSID Case no ARB/01/3, 30/07/10.
CMS Gas Transmission Company v Argentine Republic, ICSID Case no ARB/01/8, 25/09/10. Sempre Energy International v Argentine Republic, ICSID Case no ARB/02/16, 29/06/10.
74Repsol, supra note 72, para 77.
75CC/Devas Ltd, Devas Employees Mauritius Private Limited and Telecom Devas Mauritius Limited v India,
UNCITRAL, PCA Case no 2013-09, 13/09/13.
76
Total S.A v Argentine Republic, ICSID case no. ARB/04/01, Decision on Argentine Republic’s Proposal to Disqualify Ms. Teresa Cheng 26/08/16.
- of such nature that a third party can conclude after reasonable assessment that it is evident that there is indeed a manifest lack77.
The party requesting proposal has a high burden of proof, the facts must “…must have the character, nature or importance that may lead to the interference that it’s manifest, obvious that the challenged person cannot exercise independent judgement in particular proceeding…”78
In this case appearance of bias was not used and is more in line with the older interpretation of the meaning of manifest. It shows that not all tribunals follow the Blue Bank’s shift towards an appearance of bias test, and even when appearance of bias test is used it is not similar to the justifiable doubt test used in other arbitral tribunals due to the requirement that the appearance has to be evident and obvious.
1.3 Decision on disqualification taken by the two unchallenged arbitrators
Art 58 of the ICSID convention requires the decision on the disqualification proposal to be made by the two unchallenged arbitrators. This procedure has often been as a source for criticism.79In
an interview the IAReported had with Karel Daele,80Daele said that challenges in ICC and SCC
have all lead to successful disqualifications of arbitrators, cases in ICSID with the similar facts are not successful. He went as far as saying “the ICSID system does not work”81because it is difficult to understand how in 30 challenge cases at the time only one was successful.82He says one of the reason why most challenge procedures fail is the fact that the co-arbitrators have to decide on the challenge of their colleague. Grounds for disqualification are often times very similar based on double hats, relationships with one of the parties or counsel, multiple
appointments, published opinion etc. They may have a level of sympathy because it is possible
77Ibid para 104. 78
Total, supra n 76, para 105.
79Rosenberg, To Use a Cannon to Kill a Mosquito: Why the Increase in Arbitrator Challenges in Investment
Arbitration does not Warrant a Complete Overhaul of the System, in Ian Laird et al (ed), Investment Treaty Arbitration and International Law,2015, p 15.
80IAReporter, Interview: Author of Forthcoming Study on Disqualification Explains Why ICSID Arbitrators Are So
Difficult to Unseat,08/06/11 available at http://www.iareporter.com/articles/interview-author-of-forthcoming-study-on-arbitrator-disqualification-explains-why-icsid-arbitrators-are-so-difficult-to-unseat/ (visited 08/05/16).
81Ibid.
82Victor Pey Casado and President Allende Foundation v Republic of Chile, ICSID case no ARB/98/2, 21/02/06.
they themselves have been faced a similar challenge,83or can one-day face with a similar ground
for a challenge.84
The challenge procedure is designed as a safeguard the system and to ensure impartial and
independent tribunal, it cannot be denied that the co-arbitrators deciding on their colleague has no influence in the outcome, having the co-arbitrators decide in a challenge with the interest of their colleague in mind will undermine the effectiveness of this safeguard.85In the ICJ and the ICC the
entire court decides on the disqualification proposal and in UNCITRAL tribunal the appointed authority decides.86The only time the co-arbitrators in ICSID can’t decide but the chairman of the administrative council is when the majority of the arbitrators are challenged, when arbitrators can’t reach a decision or in case of a sole arbitrator. The challenge proceedings place the two arbitrators in the uncomfortable position of deciding on a challenge to one of their colleagues.87It
wasn’t until 2014, decades after the first tribunal and 84 disqualification proposal’s,88that the first ICSID arbitrator was disqualified by the unchallenged co-arbitrators.89
Having the chairman of ICSID administrative counsel assess whether or not the challenged arbitrator in fact lacks the qualities of independence and impartiality lead to a more legitimate way of handling challenge.90Arbitral institutions would be better suited in assessing if there is a conflict of interest and a lack of independence and impartiality, not only is there a certain distance between them and the parties but as a arbitral institution they would want to safeguard the
tribunal as much as possible.
83IAReporter, supra n 80. 84
Rosenberg supra n 79, p 16-17. Also see Opic Karmum Corporation v The Bolivarian Republic of Venezuela, Decision on the Proposal to Disqualify Professor Phillipe Sands, Arbitrator, ICSID case no ARB/10/14, 05/05/11. Later discussed in chapter two, Tawil was deciding on a challenge regarding multiple appointments and relationship with the party while he and Stern were facing a challenge at the same time regarding the same grounds.
85IAReporter, supra n 80, Karel Daele says: ‘You get a conflict between the interest of investment arbitration and the
interests of individual parties. From the perspective of an investor or a state involved in a high-stakes case, you just want a tribunal where all three arbitrators are totally independent and impartial’.
86Sobota, Repeat Arbitrator Appointments in International Investment Disputes, in Chiara Giorgetti (ed) Challenges
and Recusals of Judges and Arbitrators in International Courts and Tribunals,2015, p 293.
87Kahale, supra n 65, p 8. Puig, The Social Capital of the Arbitration Market, p 405. Research shows a resignation of
73 arbitrators, that besides the awkward position arbitrator resignations are also a result from other factors such as illness.
88Giorgetti, C., Challenges and Recusals of Judges and Arbitrators in International Courts and Tribunals, 84
challenges until 2014 resulted in, 21 resignation of arbitrators, 3 proposals were withdrawn before decision, and 59 decisions issued. Only four of the 59 decisions were upheld. Available at
http://kluwerarbitrationblog.com/2015/12/23/new-book-challenges-and-recusals-of-judges-and-arbitrators-in-international-courts-and-tribunals-giorgetti-ed-2015/ , (vistited 10/05/2016).
89Caratube, supra n 67. 90
Bedard et al, Challenges to Arbitrators: Should the Challenge Process Be Overhauled? In Investment Treaty Arbitration and International Law, in Ian Laird et al (eds) 2015, p 66.
Changing the way challenge procedures are done is very difficult since it is part of art 57 ICSID, any amendment made to the convention will have to be taken unanimously by every all 159 ICSID members.91
1.4 Conclusion
Independence and impartiality are required under all arbitral tribunals. The way this is safeguarded is through the duty of disclosure and challenge proceedings. Full disclosure is required but non-disclosure of information does not lead to disqualification. Since the duty of disclosure is an important aspect of safeguarding independence and impartiality a binding set of rules should be adopted on information that should be disclosed and consequence of
disqualification in case of non-disclosure.
ICSID seems to have a different threshold than other arbitral tribunals. Actual bias or obvious evident appearance of bias is very difficult to prove, impartiality is a state of mind and invisible to the rest of the world which creates a problem of evidence.92 The new appearance of bias test is
still considered as having higher burden of proof. In order to truly guarantee independence and impartiality in the current system any appearance of bias from a reasonable third person should be sufficient to disqualify an arbitrator. Arbitrators should be subject to the highest form of
safeguarding independence and impartiality which means lowering the threshold to justifiable doubt. The fact that the unchallenged co-arbitrators are deciding on the proposals makes it very difficult for arbitrators to be disqualified in cases they would probably be disqualified for in other forums. This all leads to the conclusion that challenge proceedings fall short in safeguarding independence and impartiality.
91
Art 66, ICSID Convention
Chapter 2 Party appointment
The parties right to select their arbitrators is one of the main advantages of international
arbitration as compared to court proceeding. A party will select an arbitrator who is more likely to render a verdict in their favour in order to increase their chances of winning the tribunal.93“The reality is that everything a party does, once a dispute has broken out, is focused on winning”.94
George Kahale has argued that by carefully selecting an arbitrator experienced practitioners can predict the outcome of a tribunal. This is why he argues it is often times difficult for an agreement to be made on the third arbitrator.95
The world of international investment arbitration is highly competitive.96Therefore, it doesn’t
come as a surprise that law firms, arbitral institutions and arbitrators all compete for high profiled cases.97The arbitration community follows the Global Arbitration Review’s Investment
Arbitration Report to see who is ranked the highest or receives an award. These awards are elaborate and Charles Brower has said, the ‘Hollywood’s annual ‘Oscars’ extravaganza have nothing on us!’98
Arbitrators will usually accept appointments, by accepting a case the arbitrators will get visibility which is good for their career and reputation.99Other than a career boost the financial gains are
considerable, in the Yukos v Russian Federation case the average compensation for each of the arbitrators was 1.75 million EUR, on average ICSID arbitrators receive $200.000 per case.100A decision not to accept an appointment means the arbitrator has to decline a substantial pay check. The debate on abolishing party appointment has been interesting, Albert Jan van den Berg, Jan Paulsson and Charles Brower have all openly discussed and disagreed on whether party
appointment should be left to the parties or a third appointing party should do so in order to break
93Rogers, supra n 38, p 74. 94Paulsson, supra n. 13, p 10. 95Kahale, supra n 65, p 3. 96Supra note 24, p 1. 97Rogers, supra n 24, p. 31. 98Supra note 24, p 1. 99 Puig, supra n 87, p 398. 100Ibid.
the link between the parties and arbitrator and in doing so increase the perception of legitimacy.101
This chapter will discuss the party appointment debate and it analyze two cases in order to show how party appointment can create problems with independence and impartiality.
2.1 The party appointment debate
Paulsson argued that legitimacy in investment arbitration should be increased by removing party appointment because arbitrators are not always independent and impartial as they consider ‘their party’ when rendering awards,102and parties view the arbitrator they appoint as ‘their arbitrator’
that will help them win.103He argued the best way to remove instances of appearance of bias and arbitrators acting unethically is to eliminate party appointment. He suggested that appointments should be made from a pre-existing list of qualified arbitrators by an international body and a monitoring mechanism should be put into place.104
Van den Berg questioned if party appointed arbitrators in international investment arbitration are unbiased. Out of the 150 public decisions he found 34 dissenting opinions, all dissenting opinions were written by the arbitrator appointed by the losing party. “A 100% score of dissenting
opinions in favour of the party that has appointed the dissenting arbitrator is statistically
significant”.105He argues that since there are three arbitrators 33% chance of dissent opinions can
be expected. By eliminating the presiding arbitrator, since he or she is not party appointed, the chance will be 50% dissents. Even if parties carefully select their arbitrator and appoint an arbitrator based on his views that he expressed publicly and careful selection influences half of the arbitrators 75% dissents can be expected but not 100%.106100% dissent opinions in favour of the losing party written by the arbitrator they appointed raises serious concerns about the
independence and impartiality of these arbitrators.107Arguments to allow dissent opinions are that
101
Paulsson, supra n 13. van den Berg, Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration, Manoush Arsanjani et al. (ed) Looking to the future: Essay on International Law in Honor of W. Micheal Reisman, 2011. Brower and Rosenberg, The Death of the Two-Headed Nightingale: Why the Paulsson —Van den Berg Presumption that Party-Appointed Arbitrators Are Untrustworthy is Wrongheaded, 6 World ARB & Med. Rev (2012), Van den Berg, Charles Brower’s Problem with 100 per cent- Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration, Arbitration International, 2015, Vol 31.3 p 381-391 6 WORLD ARB. & MED. REV. (2012).
102Paulsson, ibid p 6. 103Ibid p 10. 104Ibid p 11.
105Van den Berg supra note 101, p 824. 106
Ibid.
they will lead to a better award, arbitrators will act more responsibly, help in the confidence of the parties and contribute to development of law as it highlights a different angle.108
He gives a few examples, in one case CME v The Czech Republic,109the arbitrator appointed by
the Czech Republic dissented on points of facts, law and the deliberations of the arbitration. Arbitrators usually don’t comment on the deliberations as they are considered confidential, as a result arbitrators were called in as witnesses to the Svea Court of Appeal in Sweden, as the arbitration took place there.110He argues that dissenting opinions should not include the details of
the deliberations as they are confidential, dissents should be based on the interpretation of facts and law. Dissents on the deliberation process show an arbitrator as being an advocate for the party that appointed him.111
Charles Brower disagreed with Paulsson and van den Berg because they assume party appointed arbitrators are not independent and impartial. Brower says that Paulson exaggerates that party appointment is a moral hazard by using examples of a few bad apples and painting those as the norm.112 He argues that states have always insisted on party appointment,113and that selecting
arbitrators from a pre-established list will not work because states in the past have proven they can’t agree on the list. He used NAFTA as an example where the states agreed on creating a list of 45 arbitrators however they were not able to agree who to put on the list.114In the Iran- US
tribunals the states were also not able to agree on the list. On the dissenting opinions Brower states that the prospect of a possible dissenting opinion can encourage the deliberative process115 He argued that party appointment is an important feature of arbitration,116and “the importance of dissents is demonstrated by the fact that a large number of international courts, tribunals and institutions permit international adjudicators both permanent and party appointed to dissent”.117
The two important elements of perceived legitimacy in are party appointments and the ability to dissent if the arbitrator does not agree with the views of the majority.
2.2 Opic Karimun
108Ibid p 823.
109CME Czech Republic B.V v The Czech Republic, UNCITRAL Arbitration, 13/09/01, Dissenting opinion of the
Arbitrator JUDr Jaroslav Hándl against the Partial Arbitration Award, available at http://www.italaw.com/sites/default/files/case-documents/ita0179.pdf (visited 305/05/16)
110Van den Berg supra n 101, p 829. 111Ibid p 830.
112Brower and Rosenberg supra n 101, p 9. 113Ibid.
114Ibid p 12. 115Ibid p 33. 116
Brower and Rosenberg, supra n 101, p 27.
In Opic Karimun v Venezuela118, the two unchallenged arbitrators, Doug Jones and Guido
Santiago Tawil, addressed a challenge to disqualify Philippe Sands who was appointed by Venezuela. Opic asked Sands to disclose his appointments by Venezuela and by its counsel, law firm Curtis Mallet-Prevost, Colt & Mosle (Curtis).119 In his declaration he stated that he had been appointed by Curtis in two pending cases in the last three years and he had been appointed by Venezuela in two related pending cases in the past three years.120
Opic proposed disqualification of Sands because of his appointments by Venezuela and its counsel.121Opic refers to the IBA guidelines and argued that the orange list of the guidelines section 3.1.3 provides that conflict of interest can arise if an arbitrator is appointed in more two cases in the last three years by the party and section 3.3.7 if appointed more than three times in the past three years by its counsel.122 As Sands disclosed he had been appointed by Venezuela in
two cases in the last three years which means his appointment in this case surpasses what the IBA guidelines consider acceptable and can create an conflict of interest.
Opic argues that Sands is currently sitting in six pending ICSID cases, in three of these cases he had been appointed by Curtis, Sands has sat on eight other treaty arbitrations in the last three years of which five appointments came from Curtis. Out of these fourteen arbitrations Sands disclosed nine which five were appointments by Curtis.123In their calculation Opic counts the
present case as well and conclude that Sands has 5 appointments by Curtis in the past three years almost double what the IBA guidelines allow.
Opic claims that “these appointments suggest that there is, at a minimum, an ongoing
professional and business relationship between Professor Sands and the Curtis as well as a prior relationship between Professor Sands and the respondent”.124 They conclude that due to these
appointments and fees receives from these appointments, Sands cannot be relied to be independent.
118Opic Karimum, supra n 84. 119Para 7. 120Para 10. 121Para 11. 122Para 17. 123 Para 18.
Opic relied upon the criteria used in the Suez tribunal to determine a connection between party and arbitrator:125
(a) The proximity of the connection: the connection between Sands, Venezuela and Curtis is direct.
(b) The intensity or frequency of interactions: Sands relies on Venezuela and Curtis for a significant portion of his appointments, which gives Sands a reason to be partial towards the claimant and its counsel.
(c) The degree of dependence of an arbitrator upon a party for benefits: they argued that Sands receives a direct financial benefit as a result of the relationship which creates an appearance of dependence.
(d) The materiality or significance of such benefits: Opic argued that “the connections are material to and significantly affect the compensation that Professor Sands earns as an arbitrator, particularly given his statement concerning his withdrawal as counsel in ICSID arbitrations.”
Venezuela argues that Opic “exaggerates its arguments by counting a single appointment twice”.126Venezuela states that he has been appointed by Curtis is not over 50% but 42% of his
total appointments.127Even if the situation falls under the orange list of the IBA guidelines Sands states that this does not prove bias but only requires disclosure of the appointments.128Venezuela
argues that Opic is merely speculating and does provide evidence that Sands has a financial incentive in making decisions that benefit Curtis.129
On the Suez criteria, Sands argues130:
(a) proximity: multiple appointments by the same law firm on cases that are not similar is considered neutral.
(b) Intensity or frequency: argues the relationship in not intense, in one case there was only the communication only regarded his availability and in another case there was one conference call in the beginning stage of the tribunal.
(c) Dependence: Opic does not provide objective evidence.
(d) Materiality or significance: he argues that the two cases, three counting Opic cannot count as significant. 125Ibid. 126para 29. 127Ibid. 128Para 32. 129 Para 33. 130Para 36.
In his explanation Sands says that he is a tenured professor with a set salary and pension at University College London, he receives income from academic writing, he is a practising lawyer and acts as counsel in cases before the ICJ as well as arbitration cases at the Permanent Court of Arbitration (PCA) and he sits as arbitrator in non ICSID cases that are not disclosable.131In 2010 his total income from arbitration was less than 6%.132Sands says that therefore he cannot be
dependent on Curtis for appointments or his finances.
In a previous case Tidewater133the deciding co-arbitrators decided that multiple appointments by themselves are considered neutral because this is consistent with the fact that they are included in the IBA guidelines orange list rather than the red list. The co-arbitrators in this case acknowledge that in arbitration parties are allowed to choose their arbitrator, but multiple appointments can damage the confidence of the other party in ISDS therefore multiple appointments by the same party or counsel cannot be seen viewed as neutral but is indeed an objective indication of the existence of a relationship.134
On the appointments by Venezuela the deciding co-arbitrators argue that two cases were related. The first arbitration under the Nova Scotia rules was not fully established and the second case was unanimously rejected under UNCITRAL rules because ICSID was the correct forum that needed to be used.135The co-arbitrators state the IBA guidelines are not binding and don’t believe
these appointments alone are a basis for disqualification.136
On the appointments of Curtis, Sands was appointed in two unrelated cases by Turkmenistan. The co-arbitrators again conclude that these appointments alone do not serve as a basis for disqualification, they do not meet the threshold of the IBA guidelines.137Furthermore, there is no objective evidence to provide dependence on Venezuela or Curtis. On the alleged financial dependence that co-arbitrators state that it is clear that Sands has income from other sources and does not rely on Curtis. Because no facts were provided which lead to a manifest lack of
independence or impartiality the proposal to disqualify Sands was dismissed.
The deciding co-arbitrators fail to take into account that Sands repeat appointment by Curtis have an appearance of bias and probably would have been disqualified under the reasonable doubt threshold. Even if the two cases in which he was appointed by Venezuela are similar, the fact
131Opic Karimum, supra n 84, para 39. 132Ibid para 40.
133Tidewater v The Bolivarian Republic of Venezuela, ICSID case no, ARB/10/05 Decision on Claimant’s Proposal
to Disqualify Professor Brigitte Stern 23/12/10.
134Opic Karimum, supra n 84, para 47. 135Para 51.
136
Para 52.
remains that Sands has been appointed by Curtis in 42% of his appointments which is an
indication of an existence of a professional relationship. Independence in their reasoning seems to be linked to financial dependence overall not just in ISDS arbitration, if that would be considered the way of determining dependence no arbitrator would ever be disqualified on this ground since arbitrators are often time practitioners and scholars who generate income in different ways. 2.3 Universal Compression v Venezuela
Guido Santiago Tawil, one of the unchallenged arbitrators in Opic Karimum, was facing a
challenge at the same time in Universal Compression v Venezuela.138The basis for this challenge
was the close professional relationship Tawil had with the party that appointed him. For almost 10 years Tawil and King & Spalding (counsel for the claimant) worked together as counsel in several ISDS cases in which they always argued in favor of the investor.139Ms. Silvia Marchili who was acting as counsel for Universal in the current case also worked as co-counsel with Tawil in three ICSID cases and Marchili had also been employed for four years in M.&M. Bomchil a law form where Tawil is a partner.140
Venezuela argued that “all circumstances, including the nature, scope, length and recentness of the relationship lead to the conclusion that a very significant relationship exists between Dr. Tawil and Claimant’s counsel”.141Furthermore Tawil’s declaration did not include a case in which Tawil worked with King & Spalding in a recent arbitration.142
Venezuela argued that the investors counsel was in a privileged position, they know Tawil’s stance on relevant legal issues and said it’s a “clear violation of the procedural fairness”.143
Universal objected this challenge, it argued that “Tawil’s connections to Claimant’s legal team involve a normal and unobjectionable degree of overlap among participants in the relatively small world of investment arbitration”.144In one of the cases Tawil acted as local counsel to the
claimant and King& Spalding did the international part. Two of the cases ended in 2008 and 2009 and in the third case Tawil’s involvement was minimal.
Marchilli had indeed worked for Tawil as a junior associate but left five years ago. Venezuela argued that the IBA guidelines section 4.4.2 includes situations where arbitrator and counsel
138Universal Compression International Holdings, S.L.U. v The Bolivarian Republic of Venezuela, Decision on the
Proposal to Disqualify prof. Brigitte Stern and Prof. Guido Santiago Tawil, ICSID case no ARB/10/09, 20/05/2011.
139Para 50. 140Para 50. 141Para 51. 142Para 51. 143 Para 52.
served together such a situation this falls under the green list which means that no conflict arises from such a relationship and doesn’t need to be disclosed. Furthermore, they argued that the knowledge King& Spalding may know the arguments Tawil used in the unrelated cases against Venezuela but that that can never meet the standard of manifest lack of impartiality required by art 57.145
In his explanation Tawil argued that in his career he has acted both as counsel and arbitrator for both investors and states and his independence and impartiality was never put into question.146 Tawil explains that having served with the arbitrator’s counsel as co-counsel or co-arbitrator has never been considered as a valid argument to disqualify an arbitrator, and if this became a ground for disqualification most arbitrators would not be disqualified.147As to his failure to disclose the
third case he states that his involvement consisted of just one conference call, it is considered de minimus and falls under the IBA guidelines green list which means it does not need to be disclosed. On his professional relationship with Marchilli, Tawil argues that it is normal for lawyers to switch firms and that no relationship exists between him and Marchilli since leaving his firm.
In this case decision had to be made on proposal of the majority of the tribunal and the decision went to the chairman. The chairman dismissed the proposal to disqualify Tawil because there was no ongoing relationship with the arbitrator and counsel, their relationship of acting as co-counsel ended in 2009,148she was one of many junior associates in Tawil’s firm and the chairman finds it
difficult to envision that his independence and impartiality could be affected by this
relationship.149The case involves different parties and facts and therefore King & Spalding is not
in a privileged position of knowledge of Tawil’s views. On his failure to disclose to chairman does agree that the third case should have been part of Tawil’s duty of disclosure but that non-disclosure doesn’t lead to disqualification.
The chairman fails to take the length of the relationship with King & Spalding into account, the relationship did end by the time Tawil was appointed but the length of a relationship is very important. The first arbitration lasted from October 2001 till October 2008, the second arbitration lasted from April 2001 till October 2009, respectively eight and eight and half years. The IBA guidelines are the most extensive guidelines for arbitration at the moment, insufficient for
145Para 58. 146Para 60. 147Para 61. 148 Para 101. 149Para 106.
investment arbitration because commercial arbitration tribunals are much shorter than investment arbitration.150
Over such a long period of time it is only normal that Tawil and King & Spalding to have built a personal or professional relationship.151Due to the length and intensity of the relationship an appearance of bias can be concluded. This makes Tawil’s appointment inappropriate, the world of ISDS is small but there are plenty of other arbitrators Universal could have appointment instead they went with the person they knew would render an award in their favor.
2.4 Conclusion
Party appointment is an inherent feature of arbitration and one cannot fault parties for carefully selecting their arbitrator in order to win. Although one might argue that party appointments do not necessarily result in actual bias, perceptions are especially important in ISDS. As seen in the previous chapter the appearance of bias creates doubt about the independence and impartiality and are persuasive regardless of the qualities of the arbitrator involved.152The success of
international courts depends to a large extent on the integrity of those who decide the cases. If arbitrators carry out their function ethically, and are perceived to do so, the public will have confidence in judicial institutions and their decisions. What seems to be creating the biggest problem for safeguarding independence and impartiality is the appointment process as arbitrators and parties very often interlink.
Party appointment has often times been criticized as creating a link between arbitrator and the party appointing them. Most of the arbitrations between foreign investors and states are complex and call for highly experienced arbitrators, but the pool of such arbitrators is small. Puig’s research found that out of the pool of 419 arbitrators, 10 % were appointed in more than half of the arbitrations, 50% of the arbitrators were only appointed once.153Because of this small pool it is normal for arbitrators and parties to overlap and for relationships to exist. One can argue these arbitrators are chosen because of their expertise but by appointing arbitrators over and over or appointing the arbitrator the party or counsel has a relationship with and an appearance of bias becomes easy to conclude.
Taking this into account in combination with van den Berg’s arguments on dissenting opinions leads to the conclusion that party appointment in due to the lack of binding rules on appointment
150Daele, supra n 46 p 296. 151Ibid.
152
Kahale, supra n 65, p 6.
is a problem for safeguarding independence and impartiality. As parties and counsel consider reappointment and overlap between arbitrator and counsel normal and unobjectionable even when it creates an appearance of bias. The link between party and arbitrator should be broken and other ways of appointing parties should be explored in order to increase legitimacy in investment arbitration.
Chapter 3
Moving towards an international public law way of dispute
settlement
This chapter will argue that international investment arbitration should be interpreted in a public law manner. International investment arbitration is different from commercial arbitration because it involves a state’s exercise of its regulatory powers. The safeguards that work for commercial arbitration such duty of disclosure and challenge procedures, as argued in the prior chapter insufficient in proving guarantees. This chapter will argue the need to incorporate safeguards found in public law in order to guarantee an independent and impartial tribunal.
3.1 Between two worlds
Commercial arbitration involves disputes arising from contracts between private entities or state if its acting in a private capacity. In classic investment arbitration the disputes are between two states. Either one of these parties is able to bring a claim and both parties have rights and
obligations, their relationship is equal.154In international investment arbitration only the investor can bring a claim.
The method used to settle disputes in international investment arbitration is modelled after the rules of commercial arbitration, they share the features such as party appointment and are governed by similar rules,155but there are important differences between these two systems. The most important difference between international commercial arbitration and international
investment arbitration is that many issues at the core of the arbitration are of a public law nature and limit the state’s regulatory powers.156They involve the state’s public health regulations,157
protecting the environment,158re-evaluation of currency use and inflammation adjustments,159 protection of cultural inheritance.160International investment arbitration involves the legality of
states exercising its power and is not based in contracts such as commercial arbitration. International investment arbitration can also be distinguished from international public law because of the difference in function.161International public law mostly contains rules governing
154
Van Harten, Percieved Bias in Investment Treaty Arbitration, in Michael Waibel et al. (eds) The Backlash against Investment Arbitration, 2010, p 433.
155De Brabendere, Investment Treaty Arbitration as Public International Law, Procedural Aspects and
Implementations,2014, p 49.
156Schill, supra n 2, p 12.
157Phillip Morris v Australia supra n 6.
158Gallo v. Canada, PCA Case No. 55798, Award, Methanex Corp v US, UNCITRAL/NAFTA, Final Award of the
Tribunal on Jurisdiction and Merits, 03/08/05, Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections
159CMS Gas supra n 73. 160
Southern Pacific Properties Ltd v Arab Republic of Egypt, ICSID case no. ARB/84/3, Award on Merits, 20/05/92.
the relationship between states, although classic customary rules contain some rules about the protection of foreign investors and their investments.162The second difference is that investors
can bring claims states about its regulatory powers. The third difference type of consent states give, in investment arbitration the consent is general in nature, unlike tribunals that are created for a certain historical event such as the tribunals formed after the second world war that were
consent on that specific subject matter was given. These treaties are a “unilateral, generalized and prospective offer to arbitrate that any covered investor can take up”.163The final difference is
that there is no need to exhaust local remedies before evoking treaty rights.
Van Harten argues that international investment arbitration is a public law system.164He argues
that the disputes don’t arise from a reciprocal but a regulatory powers of a sovereign state. The sovereignty if the state is the very basis of international public law therefore international investment law should be considered as part of international public law and dispute settlement should be done in a public law manner.165
Arbitration is a frequently used and considered to be an acceptable manner of dispute settlement between sovereign public law bodies and private persons.166Art 6 (1) of the European
Convention on Human Rights states that everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal. The European Court of Human Rights (ECtHR) stated that the member states can fulfil this of independent and impartial tribunal through arbitration.167In the Regent Company v Ukraine, a commercial arbitration case, Regent
Company argued Ukraine breached art 6(1) for not enforcing an arbitration award against a company that was state owned. The ECtHR reaffirmed that an arbitration tribunal is a court established by law in terms of art 6 (1), court in this article is not only understood as a court in the classic manner, and that the award should be enforced.
Arbitration is a way of ensuring independent and impartial tribunal in the same way courts can but the problem in investment arbitration is the insufficiency in which it is safeguarded, the lack of a binding code of conduct, the high burden of proof in comparison to other arbitral tribunals and challenge procedures decided upon by the unchallenged co-arbitrators all leads to ICSID tribunals not being able to guarantee independence and impartiality.
162Schill, supra n 2, p 12. 163Ibid, p12.
164Van Harten supra n 154, p 434. 165Ibid.
166Schill, supra n 2, p 14. 167
Ibid, also see Lithgow and Others v United Kingdom, Judgement 08/06/86, ECHR Series A No. 102, at para 201. Regent Company v Ukraine, Judgement, 03/04/08, para 54.
