ISSUE CONFLICTS IN INVESTMENT TREATY ARBITRATION: A MOVE TOWARDS STRICTER APPLICATION OF IMPARTIALITY STANDARDS? (PART 2 OF 3-PART SERIES)

by Kuda Tshiamo*[1]

 

 PART 1 :: PART 2 :: PART 3

 

The previous blog discussed the various standards employed by different investment arbitration institutions. It is now necessary to look at some of the cases in which issue conflicts have been invoked as a ground for arbitrator challenge in investment treaty arbitration.

 

  1. CASE STUDIES: ISSUE CONFLICTS CHALLENGES

It is not in dispute that a number of cases have come before the tribunals in an attempt to ensure that the arbitration proceedings will not be marred with lack of independence and impartiality.[2] Some of these cases have been successful while others were dismissed.

 

  1. Telkom Malaysia v Ghana ( District Court of The Hague) October 2004

This was a case conducted under the UNCITRAL Rules. In this case, Prof. Gaillard’s appointment as an arbitrator was vigorously challenged. The main issue for contention stemmed from the fact that at the time of his appointment, Prof. Gaillard was also acting as counsel in a different ICSID case on annulment proceedings.[3] Respondent argued that Prof. Gaillard was likely to be biased towards a pro-investor approach because, in RFCC v Morocco, he was actually seeking annulment of an award in favour of Morocco – an award that Ghana was relying on in the present case.[4]

In applying Dutch law, the District Court of The Hague was of the view that Prof. Gaillard indeed appeared to have an issue conflict, namely, the likelihood not to act in an impartial manner and there was doubt as to whether he will conduct the proceedings in a justifiable manner. Consequently, he was instructed to take off one hat: either to resign as counsel in the said RFCC case or to give up his arbitrator role in the present proceedings (Ghana case). He resigned in the RFCC case.[5]

  1. Ubaser v Argentina (ICSID Tribunal) August 2010[6]

In this case, the Respondent’s appointee Prof. McLachlan was rejected by the Claimant based solely on his previous academic publications in relation to the Most Favoured Nation (hereinafter “MFN”) clauses and the defence of necessity. As a result, Prof. McLachlan had to provide a statement of assurance to the effect that he would not be biased or constrained in his judgment. He also stated that his prior publications will not have a bearing on the outcome of the current proceedings. He further assured the parties that there would not be any pre-judgment of issues.

The other arbitrators came to the conclusion that Prof. McLachlan’s previous academic publications did not go against the spirit and letter of Article 14(1) of the ICSID Convention. The publications, thus, did not depict him as presenting an appearance that he was not prepared to hear the proceedings without upmost independence and impartiality. As a result, the challenge was dismissed.

 

  1. Universal Compression International v Venezuela (ICSID) May 2011

This case involved a challenge on the basis that the proposed arbitrator, Prof. Stern, had been engaged in arbitrations brought by the Claimant. The argument by the Claimant was that Prof. Stern had been appointed by the Respondent in three other previous matters with the Claimant. It , therefore, feared that she would be exposed to several arbitration proceedings addressing the same legal issues. It is actually quite surprising that this was deemed a challenging factor at all, it would appear that the more she is exposed to multiple arbitration proceedings on the same issue, the more experience and expertise she would attain in the area and that can provide some level of legal certainty.

Prof. Stern was of the view that only the “intrinsic value of legal arguments” would convince her and not the “number of times” she has heard similar proceedings. Indeed, one cannot be disqualified solely based on participation in similar arbitration proceedings. The World Bank President was also not moved by this challenge. He stated that “international investment framework would cease to be viable if an arbitrator was disqualified simply for having faced similar factual or legal issues in other arbitrations.” The Claimant challenge was properly dismissed.

 

  1. RECENT TRENDS: HAS THE BAR BEEN RAISED HIGHER?

In this section a number of recent cases on the subject matter are discussed in an attempt to determine if the international investment arbitration tribunals have raised the standards on issue conflicts higher.   This section is therefore concerned with the latest trends on issue conflicts.

 

  1. CC/Devas (Mauritius) Ltd, Devas Employees, Mauritius Private Limited & Telcom Mauritius Limited v Republic of India (PCA) September 30 2013[7]

The challenge by the Respondent in this matter was directed at Marc Lalonde and Prof Orrego Vicuna. The main ground for opposition to appointment of these two was that they had allegedly prejudged the meaning of a treaty provision, namely “essential security interests” which was expected to form the substantial part of the current proceedings. In addition, both arbitrators had previously served together in two tribunals against Argentina where they took a similar position on a similar clause. It was alleged further that Prof. Orrego Vicuna had participated in a third tribunal which also gave the same results on the legal issue in question. In addition to that, he had manifested “strong public declarations on the subject have included at least one clear writing in addition to the three decisions in the aforementioned cases, a chapter in a book published in 2011 in which he strongly defended his position.”

The appointees reaffirmed their impartiality and denied any likelihood of bias in the current proceedings. They argued that the challenge lacked merit and was based on an unprecedented foundation. The appointing authority held that with respect to Prof. Orrego Vicuna a reasonable observer would come to the conclusion that his mind could not be convinced, and as a result the challenge for his disqualification was sustained. As regards Marc Lalonde, it was held that his pronouncements did not give rise to any appearance of bias, and challenge for his disqualification was denied.

 

  1. Blue Bank International & Trust (Barbados) v Venezuela (ICSID) November 2013

Mr. Maria Alonso, the Claimant’s appointee, was challenged by the Respondent on the basis that he was a partner at the Madrid office of the law firm Baker & Mackenzie, the New York and Caracas offices of which represented another Claimant (Longreef) in an unrelated ICSID arbitration case against Venezuela. Mr. Alonso maintained that he had no involvement in the other case and had no financial interest in its outcome.

The World Bank President found the challenge to be justified in the circumstances, mainly for the reason that given the similarity of issues arising in the two arbitrations, it was highly likely that Mr. Alonso would be in a position to decide issues that would also arise in the Longreef case. It was accordingly held that a third party would find evident or obvious appearance of lack of impartiality.

 

  1. Caratube International Oil Company LLP & Mr. Devincci Salah Hourani v Republic of Kazakhstan (ICSID) 20 March 2014[8]

In this case, the Claimants alleged a number of factors as being capable of rendering Mr. Boesch unqualified to act as an arbitrator in the present proceedings. Firstly, it was argued that due to his previous appointments as an arbitrator in case of Ruby Roz Agricol v. The Republic of Kazakhstan by Curtis, Mallet-Prevost, Colt & Mosle LLP on behalf of Kazakhstan, he could not possibly exercise the required level of independence and impartiality as there were obvious similarities in the two cases.

It was further argued that a number of persons who tendered in witness statements in the Ruby Roz case in which case Mr. Boesch acted as an arbitrator were also likely to provide evidence in the present arbitration proceedings. It was the Claimants’ contention that, moreover, Mr. Boesch failed to disclose his knowledge of facts in the Ruby case to the members of the tribunal. The other argument advanced was that due to several appointments as an arbitrator by Curtis, Mallet-Prevost, Colt & Mosle LLP and the Respondent, his objectiveness in rendering independent and impartial decision would be impaired.

Interestingly, it was the Claimants’ argument that Mr. Boesch should also be disqualified on the ground that he had no experience whatsoever with regard to ICSID arbitration. They maintained this appointment was an attempt by the Respondent to ensure that the outcome was “likely to be successful with the multiple appointee as a member of the tribunal” and that the appointment was not based on merit at all. It would appear to the writer herein that disqualification based solely on lack of experience with due respect would be baseless, as that would only mean the field is only dominated by the few individuals who are deemed experienced. The Respondent gave counter arguments to the aforementioned points.

The tribunal held that in light of both parties’ arguments and overlap in the Ruby Roz case with the present arbitration case “independently of Mr. Boesch’s intentions and best efforts to act impartially and independently – a reasonable and informed third party would find it highly likely that, due to his serving as arbitrator in the Ruby Roz case and his exposure to the facts and legal arguments in that case, Mr. Boesch’s objectivity and open-mindedness with regard to the facts and issues to be decided in the present arbitration are tainted.” It was consequently held that the Claimants had demonstrated with sufficiency that a third party would reasonably believe that Mr. Boesch is incapable of rendering a fair and objective judgment as he would prejudge the legal issues in the present case based on his involvement in the Ruby Roz case.

 

  1. CONCLUSIONS

The argument in this blog is not whether or not a third party test is wrong. The paper is mainly concerned with making an inquiry as to whether this approach elevates the prevailing standards of investment arbitration on issue conflicts. It has been argued that the current provisions on these main investment treaties on issue conflicts do not envisage a third party inquiry which seems to have emerged in the latest decisions rendered by these tribunals.

From the above review of caselaw on issue conflicts, it appears that the trend entails considering what a bystander or a third party would believe in the circumstances. This, it is submitted raises the bar too high, higher than what had been perceived to be the standard before.

 

 

 

[1]A practising attorney at Rantao Kewagamang Attorneys, Gaborone, Botswana. LLB (University of Botswana); LLM- International Trade and Investment Law (University of Pretoria, South Africa & University of Amsterdam, Netherlands); MBA Candidate (Amity University, India).

[2] Hansel T. Pham ‘ICCA-ASIL Joint Task Force on Issue Conflicts in Investor-State Arbitration’ (12 April 2014) http://www.asil.org/blogs/icca-asil-joint-task-force-issue-conflicts-investor-state-arbitration#sthash.HkHe24iE.dpuf

[3] The RFCC v Morocco case ICSID Case No. ARB/00/6

[4] RFCC v Morocco, ibid.

[5] RFCC v Morocco case, ibid.

[6] ICSID Case No. ARB/07/26 Decision on Proposal to Disqualify Professor McLachlan.

[7] PCA case no 2013-09. Decision for the disqualification of Mac Lalonde as presiding arbitrator and Prof. Orrego Vicuna as co-arbitrator.

[8] Case No. ARB/13/13Decision on the proposal for disqualification of arbitrator Bruno Boesch.

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