Title: From non-disclosure to disqualification: a possible legal ground to challenge arbitrators in ICSID tribunals

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Title: From non-disclosure to disqualification: a possible legal ground to challenge arbitrators in ICSID tribunals

Name: Yifei Ma

Email: ym0327@outlook.com Student Number: 13657828

Master track: International Trade and Investment Law (International and European Law) Supervisor: Mr. dr. V. (Vid) Prislan

Date of Submission: June 30th, 2022 Word Count: 12668

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2 / 37 Acknowledgment:

Firstly, I wish to acknowledge and pay respect to my thesis supervisor and FIAMC couch Dr.

Vid Prislan. Along the way, he supported me, challenged me, and most importantly, treated me with care and kindness. Studying in a totally different country can be challenging, but Dr. Prislan has been there for me from the beginning. After being selected to be part of the FIAMC team of the University of Amsterdam, I received academic training which was incredibly informative from him.

I remember he would spend hours helping me organize my ideas and structure my argument. It was during one of the sessions we had that I grew interested in the topic of legal grounds for disqualification of arbitrators, and thus this thesis. During the process of writing, Dr. Prislan helped me to build my study on solid ground with feasible approaches.

I’d also like to thank my teammates from FIAMC, who not only supported me as peers from academia but also as friends who share joy and sorrow in life. I especially wish to express my gratefulness to the de facto team leader Christoph Martens, who has been my role model and dear friend since the day we met. He has taught me so much inside and outside of my study and I am truly lucky to have him in my life.

I appreciate my neighbors and friends from Poeldjikstraat for being interested in my study and asking questions from a different perspective that sometimes are surprisingly helpful. I am lucky to have them around throughout the year and enjoy the activities outside of my study.

I’m also grateful for the sponsorship from the Sino-Dutch Bilateral Exchange Scholarship program. I wouldn’t be studying in the Netherlands without the generous financial assistance that allowed me to enjoy my study as a full-time student.

Last but not least, I owe my greatest gratitude to my parents, who supported me both financially and mentally. I understand being my parents can be difficult as I cannot live up to all their expectations, but it does not change the fact that they love me and I love them.

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3 / 37 Abstract:

This research is dedicated to exploring the relationship between arbitrators’ non-disclosure and their disqualification.

On one hand, based on the observation and interpretation of ICSID Rules of Procedure for Arbitration Proceedings, IBA Guidelines on Conflicts of Interest in International Arbitration, and Code of Conduct for Adjudicators in International Investment Disputes, there is a legal duty to disclose certain relationships and circumstances. Arbitrators are required to do so not only out of their ethnic standard but also out of what is put down by law as a duty. Therefore, non-disclosure is not merely an unimportant mistake arbitrators make during the processing but a violation of their legal duty. Furthermore, the mentioned instruments have also provided the content of the disclosure duty.

On the other hand, non-disclosure meets the requirement for disqualification under ICSID Convention. Lack of impartiality is one of the grounds for disqualification, and the arbitrators’ action of deliberately withholding the information can be seen as a manifest of partiality.

Unfortunately, there hasn’t been an ICSID case where non-disclosure itself has been seen as a ground for disqualification. However, similar practices can be found in the United States. Not only has the supreme court declared non-disclosure an act of impartiality, but the California civil procedure code has also made it clear that non-disclosure itself can be the legal ground for disqualification of arbitrators.

The link between non-disclosure and disqualification is logical and strong. Full acceptance of this link would mean that non-disclosure can automatically lead to disqualification, and this is not undesirable as it oversimplifies the procedure of disqualification and could create room for abuse of rights.

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4 / 37 Content:

1. Introduction ... 5

2. The duty to disclose ... 7

The existence of disclosure duty ... 7

The content of the disclosure duty ... 9

The exemptions ... 14

Conclusion ... 15

3. The legal grounds for disqualification ... 16

Requirement under ICSID Convention ... 16

The interpretation of the term “manifest” ... 17

The interpretation of the term “independence” and “impartiality” ... 19

Conclusion ... 21

4. The link between non-disclosure and disqualification ... 22

Cases where non-disclosure was the claim ... 22

The practice of the United States ... 23

The impact and the conclusion ... 26

5. Why is the link not desirable? ... 28

Tribunals’ attitude ... 28

The undesirable link ... 30

The legitimacy of international investment arbitration ... 31

6. Conclusion ... 32

7. Bibliography ... 35

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5 / 37 1. Introduction

Arbitrators possess great power, and it is their virtues as an adjudicator that determined the practicality of the arbitration system. One of the greatest differences between a court and arbitral tribunal is that the parties are free to choose whomever they are comfortable and confident with. It is only natural that the appointing party wishes to have arbitrators who would adjudicate in favor of them to secure their interest. Obviously, although this would benefit the appointing party, at least in the short term, the integrity of the arbitration system would be greatly demised. This is why every arbitration rule, including ICSID Convention, ensures that a practical mechanism to disqualify partial arbitrators and in place so that the party who suffers from unfair adjudication would enjoy their right to legal remedy.

The advantages of having free choice of arbitrators can only be beneficial when such freedom is limited and exercised within the scope that would not jeopardize the other party’s right to a fair settlement. In this sense, the mechanism of disqualification is what essentially guarantees the reliability of the arbitration system.

However, one couldn’t stress enough the significance of the caution when parties exercise the right to disqualify the appointed arbitrators. The disqualification of appointed arbitrators would lead to serious consequences both legal and personal. Disqualification not only frustrates the proceeding and impacts the final costs in the arbitration, but also leads to potential damage to the reputation of the challenged arbitrator.1 Just like unsupervised appointments can harm the arbitration system, unsupervised disqualification can also be hurtful. The abusive use of the system can force the qualified arbitrators to leave the tribunal, having negative effects on the tribunal’s efficiency and competence.

Unfortunately, ICSID Convention does not offer clear guidance on what are the legal grounds to disqualify an arbitrator, leaving uncertainty to the adjudicators to interpret the meaning of the text and analyze the situation case by case. Among the situations, one raises questions yet was never answered: Can non-compliance of arbitrators disclose duty lead to their disqualification? In other words, is the action of non-disclosure per se a legal ground for disqualification?

1 Daele K, ‘Saint Gobain v Venezuela and Blue Bank v Venezuela: The Standard for Disqualifying Arbitrators Finally Settled and Lowered’ (2014) 29(2) ICSID Review 296

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To answer this question, one divides the article into six parts. In part one, one will give a brief introduction to the question. In part two, one will discuss the duty to disclose certain relationships and circumstances and the exemptions to such a duty. In part three, one will address the legal grounds for disqualification, especially the part where the lack of impartial judgment plays a role.

In part four one will demonstrate the link between non-compliance with the disclosure duty and disqualification. In this part, one will borrow ideas from other jurisdictions where the link is acknowledged in practice and codified. In part five, one would argue that even though in theory non-disclosure can be the legal ground for disqualification, the application is not desirable and should be treated with caution as it can be easily abused. In part six, one concludes the article.

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7 / 37 2. The duty to disclose

The existence of disclosure duty

The duty of disclosure is established under Rule 6 (2) of the ICSID Rules of Procedure for Arbitration Proceedings, where an arbitrator is obliged to make a declaration on their quality as an arbitrator, and attach a statement on their “past and present professional, business and other relationships (if any) with the parties”, or any other circumstance that might cause their reliability for independent judgment to be questioned by a party.2 A one-page document has been created by ICSID as a template to implement this rule. However, there is no guidance on the content of the declaration, it simply contains a box in which one of two options has to be marked with a cross:

“statement attached” or “no statement attached”. Under this mechanism, arbitrators enjoy considerable freedom in two aspects: they can decide if there is the need to disclose certain information, and they can decide in which manner will the disclosure be drafted.3 Nevertheless, despite the lack of compulsory content and formality of the disclosure, it is an undeniable fact that the duty of disclosure does exist in ICSID rules.

The existence of the duty of disclosure under ICSID rules has been supported by the tribunal of Suez et al. v. Argentina, who held that “A reasonable interpretation of ICSID Arbitration Rule 6 is that an arbitrator is required to disclose a fact only if he or she reasonably believes that such fact would reasonably cause his or her reliability for independent judgment to be questioned by a reasonable person.”4 By reasoning the condition of making the disclosure, the tribunal implied that there is a duty of disclosure arising from ICSID Arbitration Rule 6.

The duty of disclosure has also been formulated by the IBA Guidelines on Conflicts of Interest in International Arbitration. The Guidelines are developed by International Bar Association (IBA), with the aim to protect arbitration proceedings from ill-founded challenges against arbitrators.5 The

2 ‘Rule 6 (2) of The Rules of Procedure for Arbitration Proceedings (the Arbitration Rules) of ICSID’

(International Centre for Settlement of Investment Disputes)

<https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf> accessed 12 June 2022

3 Fach Gómez K, Key Duties of International Investment Arbitrators (Springer International Publishing 2019)

4 Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No. ARB/03/17, para. 46

5 ‘Introduction of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d- d33dafee8918&amp;gt> accessed 26 June 2022

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duty of disclosure is established under IBA Guidelines (3)a, where an arbitrator shall disclose facts or circumstances that give rise to doubts as to the arbitrator’s impartiality or independence in the eyes of the parties.6

As acknowledged in the introduction of IBA Guidelines, the document does not provide legal provisions with default binding power on parties to dispute.7 However, “since their issuance in 2004, the IBA Guidelines have gained wide acceptance within the international arbitration community.

Arbitrators commonly use the Guidelines when making decisions about prospective appointments and disclosures. Likewise, parties and their counsel frequently consider the Guidelines in assessing the impartiality and independence of arbitrators, and arbitral institutions and courts also often consult the Guidelines in considering challenges to arbitrators.”8

In practice, due to the unbinding status of IBA Guidelines, tribunals constituted under ICSID Conventions usually acknowledge the indicative value, but hold that they must ultimately apply the legal standard laid down in the ICSID Convention itself,9 and it is up to the tribunal to decide whether to accept IBA Guidelines10 and to accept which part of the IBA Guidelines.11 However, It has been recognized that the wide use of the IBA Guidelines proves them to be a useful “catalog of the bases for challenges as well as for the parameters of an arbitrator's duty of disclosure.”12 Consequently, as the duty to disclose is clearly formulated in the IBA Guidelines whose persuasive authority of the IBA Guidelines is recognized by multiple ICSID tribunals, 13 It can be argued that

6 ‘(3)a of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d-

d33dafee8918&amp;gt> accessed 26 June 2022

7 ‘Introduction of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d- d33dafee8918&amp;gt> accessed 26 June 2022

8 ‘IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d- d33dafee8918&amp;gt> accessed 26 June 2022 2

9 Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No.

ARB/10/5, Decision on Claimant's Proposal to Disqualify Professor Brigitte Stern, Arbitrator, 23 December 2010.

para 42

10 Participaciones Inversiones Portuarias SARL v. Gabonese Republic, ICSID Case No. ARB/08/17, Decision on the Proposal to Disqualify an Arbitrator, 12 November 2009. para. 24

11 Hrvatska Elektroprivreda, d.d. v. The Republic of Slovenia, ICSID Case No. ARB/05/24, Tribunal's Ruling regarding the participation of David Mildon QC in further stages of the proceedings, 6 May 2008. para 19

12 Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Decision on Respondent's Proposal to Disqualify Arbitrator Dr. Yoram Turbowicz, 19 March 2010. para 56

13 See, e.g. , Hrvatska Electroprivreda, d.d. v. Republic of Slovenia , ICSID Case No. ARB/05/24, Decision on Disqualification, May 6, 2008, para 12; EDF Int’l S.A., SAUR Int’l S.A. and León Participaciones Argentinas S.A.

v. Argentine Republic , ICSID Case No. ARB 03/23, Decision on Disqualification, June 25, 2008, paras 25, 34, 50, 60; Azurix v. Argentine Republic , ICSID Case No. ARB/01/12, Decision on Annulment, September 1, 2009, para 263; Participaciones Inversiones Portuarias SARL v. Gabonese Republic , ICSID Case No. ARB/08/17, Decision

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9 / 37 the duty to disclose exists in ICSID arbitrations.

The existence of the duty of disclosure in ICSID arbitrations can also be found in the Code of Conduct for Adjudicators in International Investment Disputes. This is a Code of Conduct for Adjudicators in International Investment Disputes developed by the Secretariats of the ICSID and the United Nations Commission on International Trade Law (UNCITRAL). The Code is intended to provide applicable principles and provisions addressing matters such as independence and impartiality, and the duty to conduct proceedings with integrity, fairness, efficiency, and civility. It is based on a comparative review of standards found in codes of conduct in investment treaties, arbitration rules applicable to ISDS, and international courts.14 At the time of this writing, the most recent vision was published on September 22, 2021. The latest version includes the duty of disclosure in article 10 “Disclosure Obligations”, demanding that “Candidates and Adjudicators shall disclose any interest, relationship or matter that may, in the eyes of the disputing parties, give rise to doubts as to their independence or impartiality”.15 Since the Code remains a work in progress, it has no legally binding power on the parties to disputes. However, as has been proved by practice, a draft can be of great guidance to the adjudicators before it has been finalized.

The content of the disclosure duty

The duty of disclosure has been put into words and practice. The more important question would be, what exactly should be disclosed by arbitrators? The subject of disclosure hasn’t always been clear, and the content and formality of disclosure tend to be the arbitrator’s decision.

As quoted previously, the content of disclosure duty under Rule 6 (2) of the ICSID Rules of Procedure for Arbitration Proceedings consists of two parts. Firstly, under Rule 6 (2)(a), “his/her past and present professional, business and other relationships (if any) with the parties”. Secondly, under Rule 6 (2)(b),” any other circumstance that might cause his /her reliability for independent judgment to be questioned by a party”.

on Disqualification, November 12, 2009, para 15.

14 ‘Code of Conduct for Adjudicators in International Investment Disputes | ICSID’ (International Centre for Settlement of Investment Disputes) <https://icsid.worldbank.org/resources/code-of-conduct> accessed 26 June 2022

15 ‘Article 10 Disclosure Obligations of Draft Code of Conduct for Adjudicators in International Investment Disputes Version Three’ (International Centre for Settlement of Investment Disputes)

<https://icsid.worldbank.org/sites/default/files/documents/Code_of_Conduct_V3.pdf> accessed 26 June 2022

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At first sight, Rule 6 (2) indicates a rather broad, if not unlimited disclosure duty. The first part of the disclosure duty put no restriction on the timeframe and content of the relationship. Time-wise, the duty covers relationships both in the past and at present. Subjects-wise, there is no strict rule on the exact nature of the relationship as the list is not exhaustive. The second part even goes as far as using the term “any” and “might”, indicating that regardless of other conditions, such as the time of the occurrence of the relationship, nature of the relationship, the awareness of the relationship, as long as there is a possibility of raising questions, might not even have been substantially supported.

It is suggested that the second part of the disclosure duty is broader than the first. The tribunal of Alpha v. Ukraine made a distinguishment between the term “relationship” used in the first part, and the term “circumstance”. Based on the interpretation under Webster’s Dictionary, “relationship”

connotes the “state of being related or interrelated,” thereby requiring in this instance a personal connection of some sort, whereas “circumstance,” again according to Webster's Dictionary, connotes a “condition, fact or event accompanying, conditioning, or determining another,” thereby referencing certain facts or situations that are attendant to, or are surrounding, certain other facts or situations.16 The tribunal comes to the conclusion that the second part of the disclosure duty has a broad meaning due to the usage of different words.

However, when reading the two parts together, one argues that the scope of disqualification is not as broad as it seems. First of all, from a certain perspective, the second part can be seen as being narrower than the first one, instead of being broader. The same tribunal also admits that the lack of the usage of the terms “past and present” and “(if any)” suggest that the second part is less encompassing as it is unclear whether the time limit and scope of nature of the information can be as expansive as clearly put in the first part. In the end, the tribunal adopts a separate approach to interpret the relationship between the two parts of the disclosure duty, “that is, that 6(2)(b) calls for the disclosure of facts, in time and in-kind, signifying an unspecified degree of likelihood of impairment to impartiality or independence whereas 6(2)(a) calls for total disclosure of any and all relationships with the parties, even those that are ancient in age or subjectively minor in character.”17 One offers an alternative to read the connection between the two parts. One argues that the two parts

16 Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Decision on Respondent's Proposal to Disqualify Arbitrator Dr. Yoram Turbowicz, 19 March 2010. para 53

17 Ibid 54

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of the disclosure duty should be read together, which can lead to a narrower interpretation. The term

“other” used in the second part of the disclosure duty implies that the limitation set on the second part applies to the first part as well. According to the Webster's Dictionary, the term “other” means

“additional”. An expression such as “Pineapples and any other fruits that might be too sweet should not be put on pizzas” implies the author’s option that pineapples are sweet, even though it was not explicitly expressed. Similarly, the expression of the second part of the disclosure duty, “any other circumstance that might cause his /her reliability for independent judgment to be questioned by a party”, implies that the drafters’ opinion that the “relationships” mentioned in the first part of the disclosure duty should only be disclosed when they “might cause his /her reliability for independent judgment to be questioned by a party”.

It is noteworthy that the term “independent judgment” derives from the arbitrator’s requirement to “be relied upon to exercise independent judgment” under Article 14(1) of the ICSID Convention.

The same provision is put down in the Spanish version as “inspirar plena confianza en su imparcialidad de juicio”, meaning impartial instead of independent. Since all versions of the Convention are equally authentic, tribunals have mostly come to the acceptance that the impartiality standard should be applied in the same way as the independence standard despite being missing in the English version.18 Therefore, it is reasonable to conclude that “independent judgment” in the disclosure duty can also include “impartial judgment”.

Disclosure duty Under Rule 6 (2) of the ICSID Rules of Procedure for Arbitration Proceedings, the subject of the disclosure is limited to those that might cause the arbitrators’ independent or impartial judgment to be questioned. If only considering the textual meaning of the rule, the subject of the disclosure duty is narrowed down but still remains broad as unlike UNCITRAL Rules which introduce the concept of “justifiable doubts”19, ICSID Arbitration Rules create no objective test for determining the duty of disclosure in words. However, it does not mean that independent and impartial judgment can be questioned for any reason without justification. To clarify this point, the ICSID Working Paper which proposed the amendment to ICSID Arbitration Rules states that the

18 Compañía de Aguas del Aconquija S. A. & Vivendi Universal v. Argentina, ICSID Case No. ARB/97/3, Decision on the Challenge to the President of the Committee of 3 October 2001, para 14

19 Article 11 of UNCITRAL Arbitration Rules’ (United Nations Commission On International Trade Law |)

<https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/uncitral-arbitration-rules-2013- e.pdf> accessed 26 June 2022

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“circumstance” refers to those that are “likely to give rise to justifiable doubts as to the arbitrator’s reliability for independent judgment”.20 In practice, ICSID tribunals tend to accept the commentary of the ICSID Working Paper and interpret the justifiable doubts with arbitrators’ subjective understanding, which is essentially based on the objective understanding of a reasonable person.

Firstly, it is up to the arbitrators to decide whether or not to make the disclosure of the information that could raise justifiable doubts, which is a subjective decision. It is only then when their non- disclosure has been questioned and became subject to review by the other arbitrators, that their prior subjective determination of the nature of the information is examined with the objective standards.

This requirement also makes the disclosure duty more feasible: it is already difficult enough to ask the arbitrators to “put themselves in the parties’ shoes”,21 let alone to ask them to speculate the unreasonable nuanced questions that could be raised by the parties.

In practice, certain relationships or circumstances that have been acknowledged ought to be disclosed as they are likely to give rise to justifiable doubts. For example, “the direct financial relationship and interaction between the party or its counsel and the expert”22 should be disclosed and the fact that the arbitrator and the council went to the same law school does not need to be disclosed.23 There is not an exhaustive list of such a relationship or circumstance, and the tribunals are only asked to determine the nature of the relationship or circumstance when challenges have been raised. In addition, since the language used in the rule are “any circumstance” and “might”, the arbitrators are encouraged to disclose more. When the arbitrators are not entirely sure if the relationships and circumstances might rise justifiable doubts, they should disclose them, as the uncertainty itself suggests the possibility of rising justifiable doubts.

The IBA Guidelines offer a rather broad scope of disclosure duty by asking arbitrators to disclose” facts or circumstances exist that may, in the eyes of the parties, give rise to doubts as to the arbitrator’s impartiality or independence”, and “any doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure.”24. However, the

20 Muchlinski P, Ortino F and Schreuer C (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008)

21 Fach Gómez K, Key Duties of International Investment Arbitrators (Springer International Publishing 2019)

22 Merck Sharpe & Dohme (I.A.) LLC v. Republic of Ecuador, PCA Case No. 2012-10 (formerly AA 442), Decision on Challenge to Arbitrator Judge Stephen M. Schwebel II, 8 August 2012, para 78

23 Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Decision on Respondent's Proposal to Disqualify Arbitrator Dr. Yoram Turbowicz, 19 March 2010, para 63

24 ‘Part I 3(a), (d) of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar

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drafters do have put a certain limitation on the scope of disclosure duty. “There should be a limit to disclosure, based on reasonableness; in some situations, an objective test should prevail over the purely subjective test of ‘the eyes’ of the parties.”25 Situations set out in the Green List are not subject to disclosure.26 “The Green List is a non-exhaustive list of specific situations where no appearance and no actual conflict of interest exists from an objective point of view”27

The Green List includes firstly the previously expressed legal opinions concerning an issue that also arises in the arbitration. Secondly, current services for a firm in association or in alliance with the arbitrator’s law firm but that does not share significant fees or other revenues with the arbitrator’s law firm, renders services to one of the parties, or an affiliate of one of the parties, in an unrelated matter. Thirdly, contacts with another arbitrator, or with counsel for one of the parties through membership in the same professional association, or social or charitable organisation, or through a social media network, or have previously served together as arbitrators, or teaches in the same faculty or school, or serves as an officer of a professional association or social or charitable organisation, or was a speaker, moderator or organiser in one or more conferences, or participated in seminars or working parties of a professional, social or charitable organisation. Fourthly, contacts between the arbitrator and one of the parties that initiated prior to appointment, or holds an insignificant amount of shares in one of the parties, or an affiliate of one of the parties, which is publicly listed, or the arbitrator and a manager, director or member of the supervisory board, or any person having a controlling influence on one of the parties, or an affiliate of one of the parties, have worked together as joint experts, or in another professional capacity, including as arbitrators in the same case, or the arbitrator has a relationship with one of the parties or its affiliates through a social media network.28

Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d- d33dafee8918&amp;gt> accessed 26 June 2022

25 ‘Part II 7 of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d-

d33dafee8918&amp;gt> accessed 26 June 2022

26 ‘Part I Explanation to General Standard 3 of IBA Guidelines on Conflicts of Interest in International Arbitration’

(International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72- eb14-4bba-b10d-d33dafee8918&amp;gt> accessed 26 June 2022

27 ‘Part II 7 of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d-

d33dafee8918&amp;gt> accessed 26 June 2022

28 ‘Part II Green List of IBA Guidelines on Conflicts of Interest in International Arbitration’ (International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72-eb14-4bba-b10d- d33dafee8918&amp;gt> accessed 26 June 2022

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It is noteworthy that the fact that the Green List conveys circumstances that do not require disclosure does not mean circumstances other than those listed are subject to disclosure. The expression that “situations that, such as those set out in the Green List, could never lead to disqualification under the objective test set out in General Standard 2, need not be disclosed.”29 suggests Green List is merely an indication of what is exempted from disclosure, General Standard 2 is what decides if the circumstance should be disclosed or not. If situations in the Orange List or even Read List do not lead to disqualification under the objective test set out in General Standard 2, they are exempt from disclosure as well.

The exemptions

Another question that should be raised is whether there is justification for non-compliance with the disclosure duty. In practice, even if the arbitrators failed to disclose relationships or circumstances that are prima facie subject of disclosure, their non-disclosure can be justified for various reasons.

Firstly, non-disclosure can be justified by the fact that relationships or circumstances are not known to the arbitrator. The tribunal of Suez, Barcelona and Vivendi v. Argentina looks for the arbitrator’s awareness of the relationship30 when determining whether the non-disclosure is justifiable. The said tribunal holds that even though there is a shareholding connection between the claimant and UBS, the bank that the arbitrator provides service for, such connection was not known to the arbitrator. The circumstance should have been disclosed if the arbitrator was aware of it, which was not the case. It is unreasonable to expect an arbitrator to disclose what they do not know, and thus the non-disclosure is justified. The tribunal also implied that this justification is only acceptable when the arbitrator’s ignorance is reasonable. The tribunal acknowledges that it is reasonable for the arbitrator to rely on the outcome of the UBS investigation, which did not inform the arbitrator of the connection. Should the tribunal decide that it is unreasonable for the arbitrator to merely rely on the outcome of the UBS investigation, and there is more due diligence to be required on the

29 ‘Part I Explanation to General Standard 3 of IBA Guidelines on Conflicts of Interest in International Arbitration’

(International Bar Association | International Bar Association) <www.ibanet.org/MediaHandler?id=e2fe5e72- eb14-4bba-b10d-d33dafee8918&amp;gt> accessed 26 June 2022

30 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Annulment, 5 May 2017 (the 2006 ICSID Arbitration Rules applied) para 206

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arbitrator’s part, the justification might not have been accepted as the arbitrator though was unaware of the circumstance, should have known it. This justification would not only cover relationships that formed before the appointment, but also those that formed during the proceeding. However, once the arbitrator becomes aware of the relationship, he is obliged to disclose it.

Secondly, non-disclosure can be justified by the fact that relationships or circumstances are already known to the parties. The tribunal of Tidewater v. Venezuela looks for the arbitrator’s

“honest exercise of judgment”31 when determining whether the non-disclosure is justifiable. The said tribunal holds that because what the arbitrator failed to disclose was already in public domine and known to the parties, the judgment of non-disclosure is honest and can be justified. The reason why non-disclosure is under regulation is it conveys ill-intention that the arbitrator wishes to hide certain information, which could harm the fairness of the arbitration. When the information is publicly available, it is unreasonable to assume such ill-intention.

However, it is noteworthy that the fact that the information is unknown to the challenged arbitrators or known to the challenging party does not mean such information does not need to be disclosed. It is still a part of the disclosure duty. Non-disclosure under such circumstances, even though violates the disclosure duty, does not lead to legal consequences such as disqualification.

Conclusion

The duty of disclosure does exist under ICSID rules and other “soft laws” such as IBA guidelines and the Code of Conduct for Adjudicators in International Investment Disputes. The duty of disclosure mainly concerns relationships and circumstances that would raise the justifiable doubts about the arbitrator’s independent and impartial judgment. Such doubtable relations include but are not limited to direct fanatical relations. In this aspect, The IBA guidelines are more precise on the subject of the disclosure by listing the circumstances that do not require disclosure. However, The IBA guidelines are not clear on what should be disclosed either. Even if certain relationships or circumstances are subject to disclosure, arbitrators’ non-disclosure can be justified with reasons such as the information was not known to the arbitrator or it was already known to the parties.

31 Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No.

ARB/10/5, Decision on Claimant's Proposal to Disqualify Professor Brigitte Stern, Arbitrator, 23 December 2010, para 55

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Requirement under ICSID Convention

It is no easy task to disqualify an arbitrator in an ICSID arbitration, even though rules for disqualification are explicated as stated under the ICSID Convention.32 Among the 92 cases where arbitrators are challenged on the ICSID website, only 4 are successfully challenged.33 It can be argued that the reason for such a low success rate is that disqualification is too serious to be treated without extensive consideration. Disqualification not only frustrates the proceeding and impacts the final costs in the arbitration, but also leads to potential damage to the reputation of the challenged arbitrator.34 The mechanism of disqualification is designed to provide both parties with a fair and equal chance to be adjudicated by ensuring the possibility to remove unsuitable adjudicators.

However, this mechanism can also be abused if suitable arbitrators are wrongly disqualified for unjustified reasons. 35 Therefore, striking a balance and clarifying the threshold of disqualification is essential to guarantee the cornerstone and legitimacy of international investment arbitration, which is the consent given by both parties with insurance of the arbitrator’s quality.

Under ICSID Convention, arbitrators can be disqualified provided there be “any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14”36, which demands arbitrators to “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.”37 There are three criteria, high moral character, recognized competence, and independence. However, at the time of writing, no arbitrator has been challenged for their lack of moral character and

32 ‘Chapter V Functions with Respect to Individual Proceedings’ (International Centre for Settlement of Investment Disputes) <https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf>

accessed 26 June 2022

33 ‘Decisions on Disqualification | ICSID’ (International Centre for Settlement of Investment Disputes)

<https://icsid.worldbank.org/cases/content/tables-of-decisions/disqualification> accessed 26 June 2022

34 Daele K, ‘Saint Gobain v Venezuela and Blue Bank v Venezuela: The Standard for Disqualifying Arbitrators Finally Settled and Lowered’ (2014) 29(2) ICSID Review 296

35 Ibid

36 ‘Article 57 of the ICSID Convention’ (International Centre for Settlement of Investment Disputes)

<https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf> accessed 26 June 2022

37 ‘Paragraph (1) of Article 14 of the ICSID Convention’ (International Centre for Settlement of Investment Disputes) <https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf>

accessed 26 June 2022

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competence, and thus neither of the two criteria will be further discussed. In addition, as mentioned previously, the term “independent judgment” can also be interpreted as “impartial judgment”, and both should be equally considered when deciding arbitrators’ quality. In conclusion, should an arbitrator manifest a lack of independence or impartiality, they can be disqualified under the ICSID Convention.

That being said, the ICSID Convention does not specify the meaning of “manifest” or

“independence and impartiality”, leaving room for interpretation on the degree and nature of criteria of disqualification.

The interpretation of the term “manifest”

The interpretation of the term “manifest” is the key to deciding the degree of the “lack of independence and impartiality”. The very first challenge decision issued in 1982 in Amco Asia Corp.

v. Indonesia suggests that the term would be interpreted narrowly. The said tribunal sets a high threshold by holding that manifest means “not a possible lack of the quality, but a quasi-certain, or to go as far as possible, a highly probable one”38, therefore, the mere appearance of partiality was not a sufficient ground for disqualification of the arbitrator.39 The threshold was lowered by the tribunal of Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, which is the second tribunal assessing disqualification of an arbitrator and the understanding of

“manifest”. The said tribunal adopts the “reasonable doubts test” and holds that “If the facts would lead to the raising of some reasonable doubt as to the impartiality of the arbitrator or member, the appearance of security for the parties would disappear and a challenge by either party would have to be upheld.”40 Unlike the previous tribunal, this tribunal suggests that the lack of independence and impartiality does not need to be “highly probable”, appearing in a “reasonable” manner would suffice. For years after this relatively low threshold has been accepted and put into practice by a number of tribunals such as SGS Société´ Générale de Surveillance SA v Islamic Republic of

38 Daele K, ‘Saint Gobain v Venezuela and Blue Bank v Venezuela: The Standard for Disqualifying Arbitrators Finally Settled and Lowered’ (2014) 29(2) ICSID Review 296

39 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on the Proposal for the Disqualification of a Member of a Arbitral Tribunal, 22 October 2007, para 29.2

40 Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3. para 25

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Pakistan41, EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic42, and Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, and Bilbao Biskaia Ur Partzuergoa v. Argentine Republic.43

However, the “highly possible” test did not disappear completely and was once again adopted by the tribunal of Suez v Argentina. The said tribunal acknowledges Christoph Schreuer’s observation in his Commentary on the ICSID Convention that the word “manifest” imposes a relatively heavy burden on the party making the proposal to disqualify an arbitrator, and interprets it. Consequently, the said tribunal holds that the term “manifest” should be understood as “obvious”

and “evident”.44 The high threshold was once again adored by a number of tribunals, such as Participaciones Inversiones Portuarias SARL v Gabonese Republic45, Alpha Projectholding GmbH v Ukraine46 , Universal Compression v Bolivarian Republic of Venezuela47 , ConocoPhillips Company and others v Bolivarian Republic of Venezuela,48

Once again, things changed when the then Chairman of the Administrative Council of ICSID, Dr. Jim Young Kim was asked to decide the disqualification of arbitrators in the Blue Bank v Venezuela case. When it comes to the disqualification standard, Dr. Kim holds that although there is no problem in interpreting the term “manifest” as “obvious” and “evident”, “proof of actual dependence or bias” is not required by the ICSID Convention. Therefore, an obvious or evident appearance of lack of independence or impartiality that is reasonable through a third party’s judgment would suffice the legal ground for disqualification.49

41 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Claimant's Proposal to Disqualify Arbitrator, 19 December 2002, para 20

42 EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Challenge Decision Regarding Professor Gabrielle Kaufmann-Kohler, 25 June 2008, para 64

43 Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic, ICSID Case No. ARB/07/26, Decision on Claimants' Proposal to Disqualify Professor Campbell McLachlan, Arbitrator, 12 August 2010, para 43

44 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on the Proposal for the Disqualification of a Member of the Arbitral Tribunal, 22 October 2007, para 34

45 Participaciones Inversiones Portuarias SARL v Gabonese Republic, ICSID Case No ARB/08/17, Decision on Proposal for Disqualification of an Arbitrator, 12 November 2009, para 22

46 Alpha Projectholding GmbH v Ukraine, ICSID Case No ARB/07/16, Decision on Proposal for Disqualification of an Arbitrator ,19 March 2010, para 44

47 OPIC Karimun Corporation v Bolivarian Republic of Venezuela, ICSID Case No ARB/10/14, Decision on Claimants’ Proposal to Disqualify an Arbitrator, 5 May 2011, para 45

48 ConocoPhillips Petrozuata BV, ConocoPhillips Hamaca BV and ConocoPhillips Gulf of Paria BV v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/30, Decision on the Proposal to Disqualify L Yves Fortier, QC, Arbitrator, 27 February 2012, para 56

49 Blue Bank International & Trust (Barbados) Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No.

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The decision in Blue Bank is more than welcome, and the appearance standard was applied by Dr. Kim three weeks after when deciding on three other challenges. This new standard can be said to be the better one for the following reasons. Firstly, the opinion of the Charman can be of more authority, at least has more influence on tribunals, and easier to be accepted by them. A common understanding of the term “manifest” and what kind of evidence is required in challenge proceedings would enhance the predictability and consistency of the ICSID system. Secondly, the lower threshold for disqualification would be in compliance with the common practice of other arbitration rules of international investment and other related branches of law. After all, there is no reason for ICSID rules to be unusually strict.50

The interpretation of the term “independence” and “impartiality”

Another issue whose clarification is highly desired is the interpretation of the term

“independence” and “impartiality”. In practice and in theory, what counts as “lack of independence”

and “impartiality”?

The definition of these terms is not provided under the ICSID Convention. In fact, if it were not for the interpretation made by the tribunal of Suez v Argentina, the term “impartiality” would not even be discussed in the scope of ground for discrimination. It can be argued that the drafters of the ICSID convention initially did not attach too much significance to “independence”, let alone

“impartiality”. This argument is supported by the early drafts of the Convention. The Working Paper in the Form of a Draft Convention and the Preliminary Draft of a Convention on the Settlement of Investment Disputes Between States and Nationals of other States do not mention anything that is related to arbitrators’ independence and impartiality. All that was mentioned were the other qualities required of arbitrators under Article 14 paragraph 1 of the ICSID Convention, which did not include independence or impartiality back then. The two requirements were only added to the ICSID Convention after the concerns as been repeatedly voiced due to their importance and ubiquity.51

Consequently, it became the later arbitrators’ and scholars’ job to break down the meaning of

ARB/12/20, Decision on the Parties Proposal to Disqualify a Majority of the Tribunal, 12 November 2013, Para 60. 61

50 Daele K, ‘Saint Gobain v Venezuela and Blue Bank v Venezuela: The Standard for Disqualifying Arbitrators Finally Settled and Lowered’ (2014) 29(2) ICSID Review 296

51 Cleis MN, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions (Brill 2017)

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“independence” and “impartiality”. One of the tribunals that offered the definition and the difference between the two is Suze v. Argentina, which holds that independence relates to the lack of relations with a party that might influence an arbitrator’s decision, while impartiality concerns the absence of a bias or predisposition toward one of the parties. Not only does the tribunal decides on the meaning of the two concepts, but also points out there they cannot be confused with each other and arbitrators can be independent but not impartial and vice versa52 Among scholars, independence is commonly understood as the absence of an actual, identifiable relationship with one of the disputing parties, or with someone closely connected to a party. In this case. regardless of the effect that the relationship has on the case, the existence of the connection can be seen as a sign that the arbitrator is lack independence. However, in other cases, such as where the arbitrator is familiar with counsel for one of the disputing parties, de minimis threshold plays a role in the determination of independence. For example, if an arbitrator’s financial tie to a counsel is significant or if a social relationship goes beyond a remote acquaintance or sporadic encounters. Whether an arbitrator is independent is mostly relied on an objective criterion where the nature of the connection is all that matters.53 Impartiality, on the other hand, is defined as, as supported by the tribunal of Suze v.

Argentina, “freedom from favoritism, not biased in favor of one party more than another” under Webster’s Unabridged Dictionary.54 Impartiality is greatly associated with subjectiveness. It is largely the arbitrators’ state of mind and is, therefore, more difficult to quantify. For this reason, the burden of proof for a challenge based on partiality is usually reduced, and the appearance of bias or justifiable doubts as to the arbitrator’s impartiality is usually sufficient for disqualification.55 If an arbitrator’s state of mind is to deliberately hide a certain fact that is subject to disclosure, such a behavior can be seen as a lack of impartiality, at least raising doubts about the lack of impartiality.

52 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on the Proposal for the Disqualification of a Member of a Arbitral Tribunal, 22 October 2007, para 29

53 Cleis MN, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions (Brill 2017)

54 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on the Proposal for the Disqualification of a Member of a Arbitral Tribunal, 22 October 2007, para 29

55 Cleis MN, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions (Brill 2017)

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“The requirements of independence and impartiality serve the purpose of protecting the parties against arbitrators being influenced by factors other than those related to the merits of the case.”56 The purpose of disclosure is to guarantee the fairness of the arbitral procedure by offering the parties the necessary information to consider the quality of the arbitrators. If such disclosure is incomplete or even misguiding, it is almost inevitable that one party’s right to have a fair arbitration will be harmed. It is not necessarily the case that the arbitrator is trying to favor one party over another by deliberately not disclosing certain information that could interest one of the parties, but it is highly possible that by doing so, the arbitrator could cause the same outcome as favoring one party on purpose. Since no one is in the place to tell the arbitrator’s state of mind, the only basis to judge on is the appearance, which also echoes the broader approach to interpret the term “manifest”.

Knowingly breaking the rule concerning disclosure can be seen as an act out of ill intention, and since the consequence is one party being favored, it can be argued that the arbitrator’s intention appears to be biased and partial towards one party.

56 Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic, ICSID Case No. ARB/07/26, Decision on Claimants' Proposal to Disqualify Professor Campbell McLachlan, Arbitrator, 12 August 2010, para 43

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Does the non-compliance with the disclosure duty of an arbitrator a legal ground for their disqualification? At first sight, deliberate non-disclosure can be seen as a sign of arbitrators hiding certain connections and favoring one party, which raises a justifiable doubt about arbitrators’ quality and manifest an appearance of lack of impartial judgment. All factors considered, it is possible to challenge an arbitrator based on the fact that they failed to comply with disclosure. However, in practice, no tribunal has ever ruled that non-disclosure can automatically lead to a successful challenge. Non-disclosure itself is rarely the cause when disqualification is brought up, and in such cases, the tribunals are reluctant to give a clear-cut answer.

Cases where non-disclosure was the claim

In Burlington Resources v Ecuador, Professor Orrego Vicuña was challenged for three reasons, two of them being his repeat appointments as arbitrator by Freshfields and his non-disclosure of these appointments in this case. Instead of answering whether non-disclosure itself can be the legal ground for disqualification based on the tribunal’s understanding of relevant articles such as Articles 14 and 57 of the ICSID Convention and ICSID Arbitration Rule 6, the tribunal bars the challenge based on the lack of ratione temporis. The tribunal turned into ICSID Arbitration Rule 9 on the time limit of raising a challenge, which goes as follows:” A party proposing the disqualification of an arbitrator pursuant to Article 57 of the Convention shall promptly, and in any event before the proceeding is declared closed, file its proposal with the Secretary-General, stating its reasons therefor.” The tribunal looked into presidents on ratione temporis and compared them to the case.

The tribunal concludes that the challenges of Professor Orrego Vicuña’s repeated appointments and non-disclosure were not raised promptly, and the merits of these grounds for challenges would not be addressed. 57 The tribunal does address the issue of whether non-disclosure per se can be the ground for disqualification, leaving us with an impression that, were it not for the lack of ratione temporis, the possibility would be worth considering. There is no set framework for the prompt

57 Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5 (formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador)), Decision on the Proposal for Disqualification of Professor Francisco Orrego Vicuña 13 December 2013, para 71 to 75

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challenge, and arbitrators enjoy a great amount of discretionary power in deciding what qualifies to be prompt. It is possible that the tribunal’s decision was influenced by the reluctance to dive into the issue of non-disclosure and the effect it has on disqualification, as such an issue has been a topic of diversion for many years before.

In Universal v. Venezuela, Professor Brigitte Stern was challenged for, inter alia, her non- disclosure of other ICSID appointments by Venezuela. The claimant argues that the challenged arbitrator’s non-disclosure raises justifiable doubts and should therefore lead to her non-disclosure.

The tribunal does not uphold the challenge, not because that non-disclosure does not automatically lead to a successful challenge, but because the content of disclosure was of “public nature”. The tribunal holds that due to the fact the information was known, or at least should have by the challenging party, non-disclosure would not raise justifiable doubts. This finding suggests that the tribunal acknowledges that there is a duty to disclose certain information, but failing to do so might not automatically meet the threshold of “manifest lack of impartiality” as long as the challenged arbitrator’s decision is made under “an honest exercise of discretion”58. This is the same as what one suggested previously. One suggested that the fact that the circumstances or relationships are already known is used to exempt arbitrators’ non-compliance to their disclosure duty, even though they should have disclosed those circumstances or relationships in the first place. In this case, the tribunal holds that the violation of the challenged arbitrator’s disclosure duty can be excused, and no legal consequence would come after it.

However, those two cases ruled the way they are for special reasons. If the challenged arbitrators fail to disclose information that is known to the arbitrator and unknown to the challenging party, and the challenge was brought timely, can the non-disclosure itself be the ground for disqualification? ICSIC arbitrations lack this type of precedence, but legal practice in other jurisdictions can shed some light on this issue.

The practice of the United States

In the United States, arbitrators’ conducts are under the restriction of the agreement made by

58 Universal Compression International Holdings, S.L.U. v. Bolivian 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, para 92 to 96

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the disputing parties. If such an agreement is not reached by the disputing parties, the vacuum of applicable rules will be filled by default standards such as Federal Arbitration Act ("FAA"), the Uniform Arbitration Act ("UAA"), or the Revised Uniform Arbitration Act ("RUAA"). These rules addressed a variety of problematic behaviors on the arbitrators’ side and their legal consequences.

For example, under FAA, the award of the arbitration can be vacated for arbitrators’ ill behaviors including, inter alia, the existence of “evident partiality”.59 This is the standard that gives judges room to interoperate the nature of specific conduct of arbitrators, such as non-disclosure, and decide the validity of the rendered award.60

The Supreme Court of the United States made the further explanation on the term “evident partiality” in the Commonwealth Coatings Corp. v. Continental Casualty Company case.

The case involved a dispute over a painting job in Puerto Rico between the prime contractor, respondent Continental Casualty, and the subcontractor, petitioner Commonwealth Coatings. The contract for the painting job included an arbitration agreement, and each party selected an arbitrator who, together, selected a third neutral arbitrator. The third arbitrator had done sporadic but repeated and significant business with the prime contractor, including rendering services on the projects at issue in the immediate dispute. This fact was not disclosed to the subcontractor by the arbitrator or the prime contractor until after an award was issued. The subcontractor challenged the arbitration award on, among other grounds, evident partiality, but the U.S. District Court for the District of Puerto Rico declined to vacate the award, and the First Circuit affirmed before the Supreme Court granted certiorari.61 The court held that the arbitration award should be vacated, but the reasoning was divided into three directions. While Justice Abe Fortas suggested that “where there existed no claim of actual partiality, unfairness, or misconduct, § 10(a) could not support a finding of evident partiality.” In his dissenting opinion,62 the majority of the court, including, Justice Black and Justice White, acknowledged the existence of “evident partiality”. However, although Justice Black and

59 9 U.S.C. § 10(a) provides:

(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration-… (2) where there was evident partiality or corruption in the arbitrators, or either of them;

60 Charles N. Brower, ‘Keynote Address: The Ethics of Arbitration: Perspectives from a Practicing International Arbitrator’ (2010) 5 BERKELEY J. INT’L L. PUBLICIST <

https://www.itainreview.org/articles/2021/vol3/issue3/keynote-address-arbitrator-ethics-in-international- arbitration.html > accessed 26 June 2022

61 Heather Cameron, 'Blind Justice and Just Arbitrators: Understanding the Federal Arbitration Act's Evident Partiality Standard' (2021) 89 Fordham L Rev 2233

62 Commonwealth Coatings v. Continental Cas., 393 U.S. 145, 115 (1968)

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Justice White are generally on the same side, they have expressed different understanding of the term “evident partiality”.

Justice Black held that the evident partiality standard requires the arbitrator to not only lack bias "but also must avoid even the appearance of bias."63 The arbitrator’s non-disclosure "manifest violation of the strict morality and fairness Congress would have expected on the part of the arbitrator and the other party in the case."He held that to some extent this threshold applied to arbitrators is similar to that applied to biased judges, and since the appearance of bias would lead to disqualification of the said judge, there is no reason to ease arbitrators’ obligation of disclosure when determining highly similar proceedings. 64 He even took a step further, holding that impartiality of the arbitrators should be examined with more caution because they enjoy much more discretionary power.65

Justice White agrees that the award should be vacated, but offers a different insight on the threshold of determining “evident partiality”. Justice white noticed that there are significant differences between an arbitrator and a judge as arbitrators are usually more familiar with the industries of the parties, and thus standards for judges should be not applied to arbitrators exactly and the standards should be less strict. Therefore, arbitrators should not be automatically disqualified when the information is already known or too trivial to require disclosure. 66 Justice White confirmed that due to the fact arbitration is a legal procedure highly dependent on parties’

consent and it is the usual practice of regulating arbitrators’ behavior by contract, it would be better for the parties to make a clear request for arbitrators’ disclosure, preferably specify the content and time. In this way, neither the challenged arbitrator nor the party that selected them would suffer from unexpected or even malicious disqualification challenges based on non-compliance with disclosure duty.

However, what is helpful to the issue of this article is that neither Justice Black nor Justice While had rejected the idea that non-disclosure itself can be a legal ground for disqualification.

There might be some conditions on the exact content and depth of such disqualification, but as long as those conditions are met, there is no reason why an arbitrator can be successfully challenged for

63 Ibid 150

64 Ibid 148

65 Ibid 148-49

66 Ibid 150

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Perhaps influenced by the instructive judgment made by the Supreme Court, the California legislature introduced a new set of rules addressing the disclosure duties of arbitrators and the legal consequences of non-disclosure. The revised Civil Procedure Code demands arbitrators to disclose

“all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial"67, and failing to do so would lead to the disqualification of the arbitrator.68 It should be stressed that if an arbitrator fails to comply with his disclosure duty, the court is required by law to vacate the award, meaning that the disqualification is almost automatic as the court would not have an alternative.69 To facilitate the application of the new rules, the Chief Justice of the California Supreme Court, as chair of the Judicial Council, appointed a 19-person Blue Ribbon Panel of Experts on Arbitration Ethics to assist the council in its task. Together they developed a set of ethics rules that are aimed at increasing "public confidence in arbitration”. 70

The impact and the conclusion

The upside of this reform is clear. On one hand, the more precise the disclosure duties are, the more it is implied that the relationships or circumstances not mentioned are not subject to disclosure.

Under the reformed rules, the subject of disclosure is precise enough for the arbitrators to have a clear understanding of what must be disclosed and be free from concern that certain non-disclosure, even though in their view is perfectly justifiable, would cause their disqualification. On the other hand, the consequence of the non-compliance is clear, the motive of non-disqualification, which has been painfully causing trouble due to the uncertainty, would be free from consideration. There would be no point in going deep into concepts such as “manifest”, or “justifiable doubts” as the rule is clear that non-disclosure itself is a legit ground for disqualification.

However, it is argued that the strict rules and severe consequences set by the revised Civil Procedure Code echo those applied to judges and are likely to reduce productivity and efficiency, and being much more strict on arbitrators’ quality and performance than what is required by the

67 California Code, Code of Civil Procedure - CCP § 1281.9 (a) (U.S.)

68 California Code, Code of Civil Procedure - CCP § 12891.91(a) (U.S.)

69 California Code, Code of Civil Procedure - CCP § 1286.2(a)(6) (U.S.)

70 Jay Folberg, 'Arbitration Ethics' (2002) 9 Disp Resol Mag 5

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References

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Outline : Conclusion