It is often said that one of the many benefits of arbitration is that parties can choose their decision maker(s). In international arbitrations, where three-member tribunals are common, each party usually appoints one arbitrator and a third arbitrator is named by either the two appointed arbitrators or the arbitral institution managing the arbitration, if any. In the case of a one-member tribunal, the parties usually agree on the sole arbitrator.
Needless to say, many questions may arise in this initial, crucial phase of an arbitration. What happens, for example, if a party consistently appoints the same arbitrator? The appearance of bias or lack of independence in situations of recurring or repeat appointments raises problems that are of growing concern in the arbitration community. How many times can an arbitrator be appointed by the same party and still be said to be impartial? Twice? Three times? Does it matter whether the parties have mutually agreed on the appointment or if the person is a “party-appointed” arbitrator? Should arbitrators refuse appointments from parties that have appointed them in the past? Should they disclose the details of all prior appointments?
Decision-maker impartiality and independence is a core requirement of procedural fairness. A party may therefore request that an arbitrator be disqualified if it believes there is an objective, justifiable doubt as to an arbitrator’s independence or impartiality. Although most arbitration rules include a requirement that arbitrators be “independent of the parties” (Article 7 of the ICC Rules of Arbitration, for example), few, if any, provide further guidance.
The IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) are recognized as the pre-eminent set of guiding principles for assessing arbitrator independence. Part I of the IBA Guidelines provides seven “general standards” regarding impartiality, independence and disclosure. Part II sets out “Application Lists”: three colour-coded “lists of specific situations that… do or do not warrant disclosure or disqualification of an arbitrator.”1 These guidelines help decide when, what and if any information should be disclosed by an arbitrator to the parties. Although often referenced in arbitral decisions, the IBA Guidelines are not binding (unless the parties state otherwise) and do not have any force of law. In fact, some parties use the ambiguity surrounding the applicable conflict of interest rules to delay proceedings or unfavourable awards.
Of particular interest is a recent decision on a challenge that was part of an important case – Universal Compression International Holdings, S.L.U. v Bolivarian Republic of Venezuela2 (Universal v Venezuela) – heard under the auspices of ICSID (International Centre for Investment Disputes). The claimant, Universal, made the challenge against arbitrator Professor Brigitte Stern on the basis that Professor Stern had been appointed by Venezuela in at least three other pending ICSID cases, all of which dealt with foreign investors in the service industry that, like Universal, alleged that Venezuela had expropriated their property. In two of those cases, Stern had been named by the same counsel for Venezuela as in the case at issue. Universal claimed that Stern had failed to disclose these prior appointments, which raised further doubts as to her independence. Venezuela, in turn, challenged the arbitrator appointed by Universal, Professor Guido Santiago Tawil, because of his alleged close professional ties with several members of counsel for Universal.
The challenges to arbitrators Stern and Tawil were dismissed. The decision was formally issued by ICSID’s Chairman of the Administrative Council, World Bank President Robert Zoellick (but was very likely drafted by the ICSID Secretary-General, Meg Kinnear). This decision has significantly raised, and clarified, the bar for disqualification of an ICSID arbitrator.
Under the ICSID Convention, persons designated to serve as arbitrators must exercise “independent judgment” and may be disqualified “on the account of any fact indicating a manifest lack” of such judgment. According to the Universal v Venezuela decision, the term “manifest” means “obvious” or “evident.” As a result, a “relatively high burden of proof” lies on the party moving to disqualify an arbitrator. A simple belief that an arbitrator lacks independence or impartiality is insufficient to disqualify him or her; facts must be proven by “objective” evidence. In the case at hand, having failed to adduce evidence sufficient to meet this standard, both proposals to disqualify were rejected as being too “speculative.”
Although multiple appointments within a three-year period is included in the IBA Guidelines’ “orange list” of situations that may give rise to justifiable doubts as to an arbitrator’s impartiality, Stern’s various appointments by Venezuela, on their own, were found not to amount to objective evidence that she suffered from a “manifest” lack of independent and impartial judgment. The decision notes that “Stern has been appointed in more than twenty ICSID cases, evidencing that she is not dependent – economically or otherwise – upon Respondent for her appointments in these cases.” As for Tawil, it was not “evident” that the mere fact of a relationship between him and counsel for Universal, gave rise to a “manifest” lack of impartiality, especially considering that this situation is included in the IBA Guidelines’ “green list” of acceptable relationships that do not require any disclosure. Taken together, this suggests that the IBA Guidelines are to be applied with robust common sense and without an unduly formalist interpretation.
The decision’s reference to the scope of the duty to disclose is also insightful. To ensure that parties have complete information and that the appointment process is as transparent as possible, arbitrators should include in their letter of acceptance to the parties details of all prior appointments by an appointing party as well as details of any professional relationships with a party’s counsel, including, “out of an abundance of caution,” information that is already in the public domain. However, in assessing whether an arbitrator’s failure to disclose such appointments results in a manifest lack of independence or impartiality, the public availability of that information – such as, in this case, the public knowledge of Stern’s appointment by Venezuela in other ICSID cases – ought to be taken into account.
This decision comes on the heels of two earlier ICSID decisions on requests to disqualify Arbitrator Stern due to her repeated appointments by Venezuela. In both cases, it was held that something in addition to multiple appointments was needed to disqualify an arbitrator.3 Taken together, these decisions lend justification to the argument that limiting the number of times an arbitrator may be appointed by a party restricts that party’s choice and its right to select the best possible arbitrator for any given case. This applies not only to international investment arbitration, but also to other specialized or industry-specific arbitrations (construction arbitration and insurance arbitration, to name but two). If one of the benefits of arbitration is the ability to choose one’s decision maker, then the possibility of repeat appointments is a necessary corollary. And so be it.
The real question is whether there is reason to fear that an arbitrator will favour the party that named him or her if there is, for example, a possibility that he or she will be reappointed by that party in the future. Probably not. Arbitrators deserve a little more of our confidence, and a little less of our cynicism.