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Mere non-disclosure of multiple appointments not enough to disqualify an ICSID arbitrator
Practical Law UK Legal Update Case Report 2-504-9156 (Approx. 6 pages)
Mere non-disclosure of multiple appointments not enough to disqualify an ICSID arbitrator
by PLC Arbitration
| Published on 23 Feb 2011 • International, USA (National/Federal) |
In Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5) (decision dated 23 December 2010 but only just published), an application to disqualify Professor Brigitte Stern, the arbitrator appointed by the respondent, was rejected by the two other arbitrators.
Speedread
The claimants in an ICSID arbitration applied to disqualify the arbitrator appointed by the respondent on the ground that she had failed to disclose previous multiple appointments by the respondent. The claimants argued that this gave rise to objective and justifiable doubts regarding her independence and impartiality. The application failed. The remaining arbitrators refused to disqualify the respondent-appointed arbitrator and found that:
- In ICSID arbitration the standards applicable in relation to disclosure and disqualification differed. Failure by an arbitrator to disclose a matter that should have been disclosed on appointment would not necessarily justify disqualification.
- As a rule, arbitrators should disclose appointments by the same party, even if information about the appointments is publicly available. However, non-disclosure of previous appointments was not, of itself, sufficient to disqualify an arbitrator when her non-disclosure was based on an honest exercise of judgement, and was in accordance with her usual practice; and particularly where she had made immediate disclosure and filing of supplementary explanation on the request of one of the parties
- Multiple appointments as an arbitrator by one party in unrelated disputes were neutral and, without more, were not enough to show lack of impartiality or independence.
- Where there were overlapping issues in cases in which the arbitrator was appointed by the same party, this could pose a risk if lack of independence or impartiality in case of overlap of factual issues, but not legal issues.
The decision has the potential to influence the practice of disclosure in ICSID arbitrations concerning publicly available information on multiple appointments. However, given that non-disclosure of such information is not necessarily sufficient to disqualify an arbitrator, in practice, parties should conduct their own research into appointments by the same party. (Tidewater Inc and others v Venezuela (ICSID Case No ARB/10/5) (23 December 2011).)
Background
Article 14(1) of the ICSID Convention provides:
"Persons designated to serve on the Panels shall be persons of high moral character and recognized competence in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment. Competence in the field of law shall be of particular importance in the case of persons on the Panel of Arbitrators."
Article 57 of the ICSID Convention governs disqualification as follows:
"A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14."
Article 14 requires that an arbitrator shall be a person of "high moral character and recognised competence … who may be relied upon to exercise independent judgment".
Article 58 of the ICSID Convention provides in the relevant part:
"The decision on any proposal to disqualify [an] ... arbitrator shall be taken by the other members of the ... Tribunal."
Rule 6(2) of the ICSID Arbitration Rules addressed disclosure by arbitrators as follows:
"Before or at the first session of the Tribunal, each arbitrator shall sign a declaration in the following form: (...)".
"To the best of my knowledge there is no reason why I should not serve on the Arbitral Tribunal constituted by the International Centre for Settlement of Investment Disputes with respect to a dispute between ___________________and___________________."
"Attached is a statement of (a) my past and present professional, business and other relationships (if any) with the parties and (b) any other circumstance that might cause my reliability for independent judgment to be questioned by a party. I acknowledge that by signing this declaration, I assume a continuing obligation promptly to notify the Secretary-General of the Centre of any such relationship or circumstance that subsequently arises during this proceeding."
The IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) set out general principles and guidance to assist parties and arbitrators in assessing and dealing with potential conflicts of interest. The Guidelines also set out various factual situations (divided into Red, Orange and Green lists) with different disclosure requirements and consequences for each list. The Orange List sets out situations where a disqualifying conflict of interest may be present and the relevant circumstances should be disclosed. Paragraph 3.1.3 of the Orange List specifies the following situation:
"The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties."
For further discussion of the IBA Guidelines, see Practice note, Selection of party-nominated arbitrators.
Facts
The respondent appointed Professor Brigitte Stern as an arbitrator. She filed an arbitrator's declaration on the ICSID standard form as prescribed by Rule 6(2) of the ICSID Arbitration Rules. She crossed out the following text of the standard form:
"Attached is a statement of (a) my past and present professional, business and other relationships (if any) with the parties and (b) any other circumstance that might cause my reliability for independent judgment to be questioned by a party."
The claimants requested the Secretary of the tribunal that Professor Stern provide a complete declaration, as the ICSID Arbitration Rules did not contemplate deletions. As a result, Professor Stern filed a declaration without deletions together with an accompanying document, disclosing three other ICSID cases in which she had been appointed arbitrator by Venezuela. In one of the cases she had been appointed more than three years ago. She explained that she thought the obligation to disclose concerned only unknown facts, while her appointments by Venezuela in ICSID cases were in the public domain.
The claimants filed a proposal to disqualify Professor Stern, arguing that:
- Multiple appointments by the same party and the same counsel gave rise to objective and justifiable doubts regarding her independence and impartiality. Those doubts were compounded by the arbitrator's failure to disclose them in her declaration.
- The IBA Guidelines should be applied as persuasive authority not only in commercial arbitrations but also in investment arbitrations.
- The IBA Guidelines did not contain any exceptions to the duty of disclosure concerning publicly known information.
- The three-year time limit concerning previous appointments prescribed in paragraph 3.1.3 of the Orange List of the IBA Guidelines should be interpreted flexibly.
- Multiple appointments, as addressed in the Orange List, gave at least a potential for undue influence or appearance of such influence.
- In one of the disclosed cases an identical issue was at the core of the dispute. This meant the arbitrator, deciding in the other case, would be prejudging this issue in the present case.
- Not all the appointments finally disclosed by Professor Stern were in the public domain. The ICSID website listed the names of arbitrators in the tribunal but did not provide information about which party had appointed them.
Professor Stern explained, among other things, that in her view the obligation of disclosure concerned only facts that were unknown to the parties, and suggested that this understanding was confirmed by other arbitrators' disclosure practice in other ICSID arbitrations.
Decision
The arbitrators dismissed the claimants' proposal to disqualify Professor Stern.
They decided that:
- The standard for disqualification of an arbitrator for lack of independence and impartiality, prescribed in Articles 14 and 57 of the ICSID Convention, was higher than the standard of disclosure prescribed in the ICSID Arbitration Rules. The standard for disqualification required the applicant to show that it was obvious and highly probable, not just possible, that the arbitrator could not be relied upon to exercise independent and impartial judgement.
- Non-disclosure would in itself indicate manifest lack of impartiality only if the circumstances of non-disclosure called into question the arbitrator's ability to exercise independent and impartial judgement.
- The IBA Guidelines could be, and were, applied in investment treaty arbitrations for their indicative value. However, the circumstances falling within the Orange List of the IBA Guidelines did not of themselves indicate an objective conflict of interest, and no presumption regarding disqualification was attached to them.
- The time limits indicated in the IBA Guidelines should not be interpreted too strictly. For example, an appointment accepted shortly after the three-year time limit, leading to the constitution of the tribunal within the three-year period in a pending case, should be included in the number of subsequent multiple appointments.
- As a rule, arbitrators should disclose appointments by the same party that occurred within the previous three years, including appointments which were publicly available. They should not rely on parties' counsel's due diligence, as the arbitrators were in the best position to provide information about past appointments. However, in deciding requests for disqualifications, it was necessary to take into account the transparency of ICSID arbitration and the fact that information about appointments was publicly available on the ICSID website and in the ICSID Register of Requests for Arbitration.
- Non-disclosure of previous appointments was not sufficient to disqualify an arbitrator when her non-disclosure was based on an honest exercise of judgement and was in accordance with her usual practice; particularly where she had made immediate disclosure of supplementary explanation on the request of one of the parties.
- Multiple appointments as an arbitrator by one party in unrelated disputes were neutral, as an arbitrator exercised independent judgement in each case: multiple appointments could be the consequence of the arbitrator's independence as well as an indication of justified doubts about it.
- To prove lack of impartiality or independence in the case of multiple appointments, the applicant would have to show that the prospect of continued and regular appointments might have created a relationship of influence on arbitrator's judgment or that the arbitrator would have been influenced by factors outside the case record by virtue of her knowledge derived from other cases. The claimants had failed to show such circumstances in this case.
- Where the factual situations raised in two arbitrations interrelated, there could be a risk of an arbitrator appointed in both arbitrations benefiting from knowledge of the facts not available in one of the cases, and a risk of pre-judging liability. However, in the present case, the overlap was between the issues of law, not facts.
Comment
The decision confirms that, in case of multiple appointments by the same party, the three-year period prescribed in the IBA Guidelines should be interpreted flexibly. As a result, the arbitrator should disclose information about pending arbitrations, even if the appointment itself happened more than three years ago.
The decision has the potential to influence the practice of disclosure in ICSID arbitrations concerning publicly available information on multiple appointments. However, given that non-disclosure of such information is not necessarily sufficient to disqualify an arbitrator, in practice, parties should conduct their own research into appointments by the same party.