ARBITRATOR'S IMPARTIALITY AND INDEPENDENCE IN ICSID: BLUE BANK INTERNATIONAL & TRUST (BARBADOS) LIMITED V. BOLIVARIAN REPUBLIC OF VENEZUELA REVISITED
In a recent decision delivered on November 12, 2013, the Chairman of the Administrative Council of International Centre for Settlement of Investment Disputes (ICSID), disqualified the Claimant's appointed arbitrator, Mr Jose Maria Alonso, a Spanish national from serving as arbitrator in the bilateral investment treaty arbitration commenced by Blue Bank International & Trust (Barbados) Ltd ("Blue Bank") against the Bolivarian Republic of Venezuela ('Venezuela')[i] on the grounds that his law firm elsewhere is acting against Venezuela in a different arbitration.
This paper first gives an overview of the facts and the decision of the Chairman of the Administrative Council of ICSID. In the second part, an evaluation of the standards for the disqualification of an arbitrator particularly in relation to the independence and impartiality of the arbitrator is carried out through the comparison of the standard under ICSID jurisprudence with those found in the UNCITRAL Model Law and Arbitration Rules[ii] and in the International Bar Association ("IBA") Guidelines on Conflict of Interest in International Arbitration ("IBA Guidelines"). The paper concludes with an analysis of the Chairman's decision and the recommendation of a possible solution to the lingering problem of bias challenge in ICSID proceedings.
B. Summary of Facts and Decision of the Chairman
Blue Bank had on June 25, 2012 commenced ICSID arbitration against Venezuela for alleged breach of the 1994 Agreement between the Government of Barbados and the Government of the Republic of Venezuela for the Promotion and Protection of Investments, in force since 1995. By a letter dated October 8, 2012, Blue Bank appointed Mr Jose Maria Alonso a national of Spain as arbitrator. The appointment was accepted by Mr. Alonso who submitted and circulated his declaration, statement and curriculum vitae pursuant to the Rule 6 (2) of the ICSID Arbitration Rules.
In his statement, Mr. Alonso indicated that "[H]e is a Partner at Baker & Mckenzie Madrid, SLP in charge of the Dispute Resolution department in Madrid (Spain). That Baker & Mckenzie SLP is a firm belonging to Baker & Mckenzie International (Swiss Verein) and that all the firms that form part of Baker & Mckenzie International are independent and that remuneration of Partners depends mainly on the turnover of each particular firm. He further asserted that neither himself nor Baker & Mckenzie Madrid SLP has or had any relationship with the parties in the proceedings." However, he acknowledged being aware of ICSID arbitration against Republic of Venezuela in an unrelated matter initiated by Baker & Mckenzie New York and Baker & Mckenzie Caracas in 2011, in which both offices were representing a company called Longreef Investment. He further maintained that given the independent structure of Baker & Mckenzie International, he would not be provided with any information, intervene or take part in said proceedings and that he considered himself completely independent and impartial as an arbitrator in the Blue Bank proceedings.
On its part, Venezuela appointed Dr. Santiago Torres Bernardez as arbitrator. He also submitted his declaration, statement and curriculum vitae and these were circulated to the parties on November 16, 2012.[iii] Meanwhile, Venezuela had on November 5, 2012 submitted a proposal for the disqualification of Mr. Alonso based on his position at Baker & Mckenzie. It contended that there were justifiable doubts as to whether Mr. Alonso, who coordinates the global arbitration practice of a firm, could sign an award rejecting argument that are being defended by other partners of the same firm against the same respondent in another case.
The chairman in his decision stated that he was bound by the standard set forth in the ICSID Convention and that his decision was made in accordance with Articles 57 and 58 of the ICSID Convention.[iv] He also pointed out that the applicable standard is an "objective standard based on a reasonable evaluation of the evidence by a third party" and that consequentially the subjective belief of the party requesting the disqualification is not enough to satisfy the requirement of the Convention.[v] He also acknowledged that, in regards to the meaning of the word "manifest" in Article 57 of the Convention, a number of decisions had concluded it means "evident" or "obvious" and it relates to the ease with which the alleged lack of the qualities can be perceived.[vi]
Further, the Chairman noted certain undisputed facts: (i) Mr. Alonso is a Partner in Baker & Mackenzie Madrid; (ii) his firm's New York and Caracas offices represented the claimant in a parallel arbitration proceeding against Venezuela (Longreef v. Venezuela); (iii) Mr. Alonso has no direct involvement in the parallel Longreef v. Venezuela case; and (iv) That Mr. Alonso is a member of Baker & Mckenzie's International Arbitration Steering Committee. The Chairman further noted that the sharing of a corporate name and the existence of an international steering committee at the global level implied a degree of connection or overall coordination between the different firms comprising Baker & Mckenzie International[vii].
Without detailed explanation, the chairman held that given similarity of issues likely to be discussed in Longreef v. Venezuela and the Blue Bank case and the fact that both cases were ongoing, it was "highly probable" that Mr. Alonso would be in a position to decide issues that were relevant in Longreef v. Venezuela if he remained an arbitrator in the case. He concluded that in view of the facts of the case, it had been demonstrated that a third party would find an evident or obvious appearance of lack of impartiality upon a reasonable evaluation of the facts in this case.[viii]
C. Comparison of ICSID Standard with UNCITRAL and IBA Guidelines Standards
The ICSID Convention and Rules Standard
An evaluation of the standard for disqualification of an arbitrator under ICSID will first require the consideration of the criteria for appointment given that a challenge proceeding will only be commenced when a party feels that the arbitrator has not met the criteria or has fallen short of the criteria required of him. In the light of the above assertion, certain provisions of the ICSID Convention and Rules will be examined.
Article 14 (1) of the ICSID Convention provides that"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." (Emphasis added).
ICSID Rule 6 (2) requires the arbitrator to sign a declaration of independence and also provide a written statement of (a) his past and present professional, business and other relationships (if any) with parties and (b) any other circumstance which might cause the arbitrator's reliability for independent judgment to be questioned by a party. It should be noted, that the obligation to disclose to the Secretary-General of ICSID is a continuing one which lasts throughout the arbitration proceedings.[ix]
On the issue of disqualification, Article 57 of the ICSID Convention provides that "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. A party to arbitration proceedings may, in addition, propose the disqualification of an arbitrator on the ground that he was ineligible for appointment to the Tribunal.'(Emphasis added).
Article 58 of ICSID Convention further provides that the decision to disqualify an arbitrator shall be taken by the other members of the tribunal, however where the disqualification proposal involves a sole arbitrator or a majority of them, or where the co-arbitrator cannot agree, the Chairman of ICSID Administrative Council should decide.[x]
The UNCITRAL Model Law and Rules Standard
Article 12 of the Model Law provides that "An arbitrator may be challenged only if circumstance exist that give rise to justifiable doubts as to his impartiality or independence."
Under the UNCITRAL Rules,[xi] Articles 11-13 deal with the disclosure obligation and challenge of an arbitrator. Article 11 requires the arbitrator when approached for a possible appointment to disclose any circumstance likely to give rise to justifiable doubts as to his or her impartiality or independence. The obligation to disclose to the parties and the other arbitrators is a continuing one which is to last throughout the arbitration proceeding. (Emphasis added).
Article 12, inter alia, provides that "an arbitrator may be challenged, if circumstance exist that give rise to justifiable doubts as to the arbitrator's impartiality or independence." Further, Article 12(3) provides that an arbitrator that fails to act, or in the event of the de jure or de facto impossibility of performing his or her function, the procedure in respect to the challenge of an arbitrator contained in Article 13 shall apply.
Article 13 provides for the time line within which a notice of challenge to the appointment of an arbitrator is to be made. It further provides that when this notice is made, all the parties may agree to the challenge and consequentially the arbitrator may withdraw from his or her office. It is however provided that this is not to imply acceptance of the validity of the grounds of challenge.
The IBA Guidelines Standard
Under the general standard regarding impartiality, independence and disclosure, the IBA General Principle stipulates that "every arbitrator shall be impartial and independent of the parties at the time of accepting an appointment to serve and shall remain so during the entire arbitration proceeding until a final award has been rendered or the proceeding has otherwise finally terminated."
The General Standard 2(a) provides that, "an arbitrator shall decline to accept an appointment or, if the arbitration ha[s] already commenced, refuse to continue to act as an arbitrator if he or she has any doubts as to his or her ability to be impartial or independent."
General Standard 2(b) stipulates that "the same principle applies if facts or circumstance exist, or have arisen since the appointment, that from a reasonable third person['s] point of view having knowledge of the relevant facts, give rise to justifiable doubts as to the arbitrator's impartiality or independence, unless the parties have accepted the arbitrator in accordance with the requirement set out in General Standard (4). (Emphasis added).
General Standard 2(c) explains that doubts are justifiable if a reasonable and informed third party would reach the conclusion that there was a likelihood that the arbitrator may be influenced by factors other than the merit of the case as presented by the parties in reaching his or her decision.
Further General Standard 2(d) clarifies that justifiable doubts necessarily exist as to the arbitrator's impartiality or independence if there is an identity between a party and the arbitrator; if the arbitrator is a legal representative of a legal entity that is a party in the arbitration, or if the arbitrator has a significant financial or personal interest in the matter at stake.
In addition to the above standards, the IBA guidelines provide for practical application of the general standards under four categories. The Red List which consist of "a non-waivable Red List" that contains situations in which justifiable doubts are in fact present and which should serve as a basis for the disqualification of the arbitrator. It also consist of "a waivable Red List" which contains situations in which justifiable doubts are present and which would lead to the disqualification of the arbitrator, nevertheless the parties can waive the conflict and still allow the arbitrator to continue. The Orange list contains situation that may or may not justify a disqualification of the arbitrator. The test is usually based on a reasonable person's point of view who when presented with the fact determines whether there are justifiable doubts as to the arbitrator's impartiality or independence. The Green List contains those situations that will ordinarily not raise justifiable doubts and in such situations, the arbitrator should not be disqualified.
One cannot help but agree with Sam Luttrell when he posited that the inter-operation of Article 14(1) and 57 produces a rule that an ICSID arbitrator may only be challenged for bias where he or she manifestly lacks the capacity to exercise independent judgment.[xii] In Amco v. Indonesia the co-arbitrators in interpreting the ICSID Convention and Rules set the following standard: "[A]rticle 57 requires that fact be alleged-necessarily, that they be proven by the party who files the proposal to disqualify - which indicate the lack of said quality: that means that as apparently conceded by the Respondent, the mere feeling of 'non-reliability' does not suffice, since it has to be based on facts; that those facts should indicate a manifest lack of the required quality. Now considering the high interesting semantic remarks presented by the Claimant, the undersigned note that in Random House Dictionary, there are four several synonymous words of 'manifest', three of them being 'evident', 'obvious', 'plain'. That means that the facts referred to in Article 57 have to indicate not a possible lack of the quality, but a quasi-certain, or as to go far as possible, a highly probable one"[xiii].
The preponderance of the decisions in ICSID cases and opinions of learned authors clearly suggest that the requirement of a "manifest" lack of the prescribed qualities is arguably a higher threshold than "justifiable doubts" for the successful challenge of an arbitrator.[xiv] However the higher threshold standard has not been accepted as a settled position. It was criticized and rejected by the non-challenged members of the ad hoc Committee in the subsequent case of Vivendi v. Argentina I.[xv] The non-challenged members acknowledged that the "manifest lack" language could be interpreted as to set a more stringent standard for disqualification than an "appearance of bias" standard, but they explicitly rejected such an interpretation. Interestingly, they held that in a case where the facts were undisputed, the term "manifest" accorded to a reasonable doubt test: "[B]ut in cases where (as here) the facts are established and no further inference of impropriety is sought to be derived from them the question seems to us to be whether a real risk of impartiality based upon those facts (and not any mere speculation or inference) could reasonably be apprehended by either party. If (and only if) the answer is yes, can it be said that the arbitrator may not be relied on to exercise independent judgment? That is to say, the circumstance actually established (and not merely supposed or inferred) must negate or place in clear doubt the appearance of impartiality. 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."
One would observe that the decision in the Vivendi case is a radical departure from the challenge decisions in other ICSID cases interpreting the standard for disqualification in ICSID. Not only did it reject the high threshold rule, it imported into ICSID proceedings the "appearance of bias or reasonable third party test." Same can also be said of the Urbaser case that applied the "reasonable third party test"too. However, one would say that the decisions in the Vivendi and Urbaser cases are not shocking or surprising, given that the non-challenged members of the ad hoc committees resorted to the use of the IBA Guidelines as the benchmark for the determination of the meaning of "manifest lack" as contained in Article 14(1) of the ICSID Convention. Karel Daele justifies this approach by arguing that the "reasonable doubts or reasonable third party" standard lowers the threshold for making a successful challenge and correspondingly, heightens the protection of the parties against an unqualified arbitrator.[xvi]
In the realm of international commercial arbitration, both the UNCITRAL Model Law and Rules and the IBA Guidelines recognise justifiable doubts as a basis for challenging an arbitrator.[xvii]. In fact in the Explanation to General Standard 2 of the IBA Guidelines, the Working Group admitted deriving the wording impartiality or independence from the broadly adopted Article 12 of the Model law, and the use of an appearance test based on "justifiable doubts" as to the impartiality or independence of the arbitrator as provided in Article 12(2) of the UNCITRAL Model Law to be applied objectively (a reasonable third person test). It is therefore apparently clear that the Model Law has had profound effect in this area. In the words of Sam Lutrell, the consistency of the Model Law, Article 12 with General Standard 2 of the IBA Guidelines has also contributed to the export of the Model Law standard into ICSID arbitration.[xviii]
The author is of the opinion that while the application of the UNCITRAL and IBA Standards in ICSID cases where parties have chosen the UNCITRAL Rules or the IBA Guidelines is justifiable; there is no justification for the application of these standards to cases that are conducted strictly under the ICSID Convention and Rules. A literal reading of the relevant provisions of the various Rules under consideration in this paper shows that while the reasonable person test can be applied in commercial arbitrations or in UNCITRAL arbitrations, on the basis of the standard contained in the Model law or IBA Guidelines. Same cannot be said of ICSID, where as pointed out earlier the preponderance of the cases have made it clear that under the 'manifest lack of independence' standard there need to be both a clear and actual demonstration of bias, not simply a doubt or legitimate concerns or a likelihood of bias or even appearance of bias. This approach has been recognised and followed by ICSID tribunals in previous cases. For instance, in the Perenco v. Ecuador case, the parties agreed that any challenge to the arbitrators would be resolved by the Secretary-General of the Permanent Court of Arbitration (PCA) in accordance with the IBA Guidelines. The Secretary-General in upholding the challenge to Judge Brower filed by Ecuador applied the General Standard 1 and General Standard 2 of the IBA Guidelines. But in the Suez v. Argentina, a case conducted under the ICSID Convention and Rules, the Tribunal in complying with the ICSID standard held that an objective standard was required by the Convention. In its words it posited that: "Implicit in Article 57 and its requirement for a challenger to allege a fact indicating a manifest lack of the qualities required of an arbitrator by Article 14, is the requirement that such lack be proven by objective evidence and that mere belief by the challenger of the contested arbitrator's lack of independence or impartiality is not sufficient to disqualify the contested arbitrator."
D. Analysis of the Decision
The ruling in Blue Bank v. Venezuela adds to the increasing number of cases that illustrate the current trend that is observed internationally towards the increase of challenges against arbitrators. This decision of the Chairman in this case is significant for a number of reasons. First, it is the second successful disqualification of an arbitrator in the history of ICSID. Also it is the first in which the decision was taken by ICSID itself.[xix] Further, the decision has once again brought to the fore the questions as to what are the exact standards for the disqualification of an arbitrator in ICSID arbitration conducted under the ICSID Convention and Rules.
In the case at hand, the main contention by Venezuela is hinged on alleged direct and indirect economic interests that Mr. Alonso had in the outcome of the two cases against it, given that a favourable result in the other case in addition to a vote favorable to the Blue Bank in this case would contribute to the expansion of the practice of Baker & Mckenzie in the investment arbitration community. It was further noted that Mr. Alonso would be deciding issues similar or identical to those which Baker & Mckenzie would be arguing against Venezuela in other case.
The Chairman in his ruling stated what he considered to be the applicable standard under the ICSID jurisprudence. However in his application of the rule to the facts of the case, he concluded that given the similarity of issues likely to be discussed in the Blue Bank and Longreef cases and the fact that both cases are ongoing, it is highly probable that Mr. Alonso would be in a position to decide issues that are relevant in Longreef v. Venezuela if he remained an arbitrator in the Blue Bank case and that it has been demonstrated that a third party would find an evident or obvious appearance of lack of impartiality. One interesting element of the decision that raises concern is the fact the Chairman did not disclose the similar issues that have given rise to the high probability of Mr. Alonso being biased. It is submitted that by his conclusion, the Chairman missed the point and reached the wrong conclusion by his application of the "obvious appearance or reasonable third party test"as first enunciated in the Vivendi case. He clearly lowered the standard to reach a conclusion which will be satisfactory to the challenging party-Venezuela.[xx] Further, one speculates that the decision of the Chairman was borne out of a desperate attempt to dispel the growing apathetic feeling of parties to ICSID to the outcome of challenge proceedings under ICSID.[xxi]
At a point where stakeholders in ICSID arbitration are in desperate need for a solution to the ever increasing bias challenge, which has been described as becoming more dynamic and abstract, as the 'scorched earth game' of international arbitration and litigation against states becomes more 'vulgar' and profitable.[xxii] The decision of the Chairman of the Administrative Council of the ICSID in the Blue Bank v. Venezuela has neither resolved the controversy nor ameliorated it. Rather, it contributed to the already complicated picture of bias challenge in ICSID.
In the author's opinion, the time is ripe for the controversy to be put to rest. This can be achieved by amending of the ICSID Convention and Rules to bring them in consonance with the standards contained in the IBA Guidelines and the UNCITRAL Rules. This can be achieved by adopting the recommendation of the ICSID Secretariat that the disclosure requirements in Rule 6(2) be changed to reflect the "justifiable or reasonable doubts" test.[xxiii] The author also agrees with Audley Sheppard's[xxiv] suggestion that a challenge proposal should be decided by an independent ad hoc committee[xxv] given the concern by challenging parties as to whether the remaining arbitrators will have a conflict of interest themselves when determining a challenge, in that they may have been or might expect to be challenged themselves one day and may have a subliminal desire to set the standard at a high threshold.
However, until the above proposals are implemented, it is important that calm is restored to the already troubled waters of bias challenge in ICSID arbitration by a strict adherence to high threshold of 'manifest lack of independence' as contained in the black letters of the ICSID Convention and rules.
*Author - Mr. Ikemefuna Stephen Nwoye
Principal Chief Counsel - NWOYE (Barrister and Solicitor)
*An earlier version of this paper was published by the NYU Law Center for Transnational Litigation, Arbitration and Commercial Law in its Transnational Notes. The paper was selected as one of the reading materials (articles and textbooks) for the International Investment Law and Arbitration Class Spring 2014 at NYU Law. It was also presented as a "Recent Development in International Arbitration Discussion Paper" at an International Arbitration Association (NYU-Law) Oval-table Event/Meeting.
[i] See The Decision on the Parties Proposal to Disqualify a Majority of the Tribunal - Blue Bank International & Trust (Barbados) Ltd v. Bolivarian Republic of Venezuela. https://www.iareporter.com/downloads/20131118_1 .
[ii] The choice of the UNCITRAL Model Law for this paper is based on the pivotal role it plays not just in international commercial arbitrations, but also in international investment arbitrations and its wide acceptance in ad hoc arbitrations. Over fifty countries have modelled their national arbitration laws after the UNCITRAL Model Law.
[iii] It should be noted that in this case, challenge proposals were filed by both the Claimant and Respondent. It was this development that triggered Article 59 of the ICSID Convention and Rule 9 of the Arbitration Rules which required the Chairman to decide the challenge proposal. However due to the resignation of the Respondent appointed arbitrator Dr. Santiago Torres, the Chairman did not deliver a decision on his challenge proposal which was premised on repeat appointments by the Argentine Republic and Venezuela and on his alleged systematic findings in favour of States. Therefore the paper focuses on the decision as it related to Mr. Jose Maria Alonso.
[iv] Id. at para. 62.
[v] Id. at para. 60.
[vi] Id. at para. 61.
[vii] Id. at paras. 66 and 67.
[viii] Id. at paras. 68 and 69.
[ix] The continuing obligation to disclose circumstance which might cause the arbitrators reliability to be questioned by a party was incorporated by the 2006 amendment to the ICSID Arbitration rules which came into effect on April 1, 2006.
[x] In a case where the neutrality of ICSID may be questioned, the ICSID has a practice of referring such challenge proposal to the Secretary-General of the Permanent Court of Arbitration (PCA) at The Hague. For instance see the 2003 challenge proposal of the arbitrator in Generation Ukraine v. Ukraine.
[xi] As revised in 2010
[xii] See Sam Luttrell, Bias Challenges in Investor-State Arbitration: Lessons from International Commercial Arbitration p. 458 in Evolution in Investment Treaty Law and Arbitration Edited by Chester Brown, Kate Miles https://dx.doi.org/10.1017/CBO9781139043809.027 .
[xiii] See also Suez v. Argentina; CDC v. Seychelles Decision of June 29, 2005
[xiv] See Lucy Reed, Jan Paulsson and Nigel Blackaby, Guide to ICSID Arbitration.81 (The Hague: Kluwer, 2011); also see Sam Luttrell, supra note 13, at p. 458.
[xv] See also Urbaser v. Argentina, where it was held that an appearance of such bias from a reasonable and informed third person's point of view is sufficient to justify doubts about an arbitrator's independence or impartiality. See also Karel Daele, Challenge and Disqualification of Arbitrators in International Arbitration 221 (Wolters Kluwer 2012).
[xvi] Id. at p. 225.
[xvii] See also the disqualification provision of national arbitration laws and also those of the arbitral institutions. For instance Sections 1(a), 24(1)(a) and 33(1)(a) of the UK Arbitration Act 1996; Article 1033 of the Dutch Arbitration Act 1986 and Article 180 (1)(c) of the Swiss Private International Law Act. Under Institutional Arbitral Rules, see Article 6(4) of the Permanent Court of Arbitration Rules; also Article 10.2 and 10.3 of the London Court of International Arbitration Rules 1998 and Article 13 and 14 of the International Chamber of Commerce Rules of Arbitration 2012.
[xviii] See Sam Lutrell, supra note 13, at p.448,
[xix] See Luke Eric Peterson, ICSID removes Arbitrator in Blue Bank v. Venezuela Case due to his Law Firm elsewhere acting against Venezuela www.iareporter.com/articles/20131118_4
[xx] Contrast with the decision of Messrs Fernandez-Armesto and Jurgen Voss in the Lemire v. Ukraine case, where in rejecting the challenge of Lemire's appointed arbitrator Jan Paulsson by Ukraine on the basis of a disclosure that his firm, Freshfields Bruckhaus Deringer had taken in instruction to represent the Ukraine in an ICSID arbitration, they held that no manifest lack of the qualities required of an ICSID arbitrator had been demonstrated.
[xxi] It will be recalled that in early May 2007, Bolivia announced that it withdrew its ascension to the ICSID Convention, this was believed to be a fallout of the resurgent Calvo-ist sentiment in late April 2007 echoed by the Bolivarian Alliance for Americas (ALBA) comprising of Bolivia, Nicaragua and Venezuela which condemned the pressure exercised by some multinational companies operating in their countries. See Antonio R.Parra, The History of ICSID, 236 (Oxford University Press 2012)
[xxii] See Sam Luttrell supra note 13, at p.482.
[xxiii] See ICSID Secretariat Discussion Paper, 'Possible Improvements of the Framework for ICSID Arbitration (22 October 2004).
[xxiv] See Auddley Sheppard, Arbitrator Independence in ICSID Arbitration in International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer https://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780199571345.001.0001/acprof-9780199571345-chapter-10 .
[xxv] It should be noted that it is only ICSID that requires the non-challenged arbitrators to determine a challenge proposal. See Article 58 of the ICSID Convention.