In the previous issue, we explored the English court’s approach to challenges mounted by a party against an arbitrator’s independence or impartiality under the UK’s legislative framework for arbitration in the context of commercial arbitration. In this issue we will compare how similar challenges are resolved before arbitral tribunals in the context of investment treaty arbitration.
The prevailing approach in investment treaty arbitration is that an arbitrator may be disqualified or should step down if the circumstances disclose a reasonable likelihood that the arbitrator is biased in the eyes of the reasonably informed observer. Accordingly, any challenge against an arbitrator’s appointment on the ground of bias will turn on two questions. First, how much knowledge should be imputed to the fictitious observer; and second, what is a reasonable likelihood of bias.
The English courts impute the observer with knowledge of the legal traditions from where the judge hails. It therefore appears that challenges founded on conduct peculiar to a particular legal community will not be entertained. In practice, this usually reduces the prospect of a successful challenge to an arbitrator on the ground of bias.
Arbitral tribunals and quasi-judicial bodies in the investment treaty sphere are slow to impute knowledge of legal traditions and industry norms to the fictitious observer. In a decision from 2009 (LCIA Reference No. 81160, Decision of 28 August 2009, digest in 23(2) Arb. Int. (2011), p 442), a challenge against the appointment of an arbitrator was made in circumstances similar to that relied on by the challenging party in A v B (in which the arbitrator had had a history of being instructed by the solicitors of one of the parties; the challenge was unsuccessful). In the 2009 case, the arbitrator was a commercial barrister specializing in insurance matters who was regularly instructed by one of the respondents, these instructions comprising 11% of all his instructions over the previous five years. The challenge was upheld (the arbitration being one of three making up the tribunal). The reasoning was:
“4.1 … whilst fully conscious of the traditions and cultural norms of the London insurance market, and the local lawyers that serve it, the case at hand related to an international arbitration, albeit seated in London. Thus, whilst the applicable contractual and legal standard was that set out in the LCIA Rules and English law, it did not follow that a fair-minded and informed observer (through whose eyes, the circumstances of the case were to be examined) should be as fully attuned with local traditions and culture as a member of the community, or wholly uncritical of it.” (emphasis added)
The disqualification therefore stands in contrast to the court decision in A v B. Arguably, it conforms better with the reasonable expectations of commercial parties of international origin, and takes account of the plurality of values and perspectives inherent in cross-border relationships. Indeed, this highlights the peril of assuming not only that the challenging party understands the particular norms of the arbitrator’s home jurisdiction but that the challenging party accepts those norms.
As two recent cases show, arbitral tribunals and quasi-judicial bodies in investment treaty arbitration proceedings have also adopted a stricter approach to challenges of an arbitrator’s impartiality.
In Blue Bank International & Trust (Barbados) Ltd v Bolivarian Republic of Venezuela, the appointed arbitrator was a partner in the Madrid office of Baker & McKenzie (B&M). He was a member of B&M’s International Arbitration Steering Committee. At that time, two other offices of B&M, in New York and Caracas (both separate legal entities), represented the claimant in a separate parallel proceeding against the respondent in Longreev v Venezuela. The arbitrator was not involved in those proceedings. In accepting a challenge made by the respondent, it was found that the shared use of the same corporate name, the arbitrator’s involvement with the firm’s arbitration operations on a global scale through his membership in the steering committee, as well as the probability that he may have to decide on issues relevant to Longreev v Venezuela, established a sufficient likelihood that he may be biased against the respondent. He was accordingly disqualified.
In the second case, an arbitrator in Burlington Resources Inc v Ecuador was challenged by the respondent. The circumstances are noteworthy. The challenged arbitrator had responded in writing to reject the challenge. This was reviewed by the other members of the tribunal. They noted that the final paragraph of his written explanations provided no answer to the allegations raised but instead chastised respondent’s counsel as being unethical for wrongfully applying information obtained from a different client in a separate proceeding to raise the challenge. They determined that the reasonable observer reading that final paragraph would conclude that the arbitrator possessed a manifest lack of impartiality. As a consequence, he was disqualified.
It should be noted that where a challenge arises in the context of investment treaty arbitration, as opposed to private commercial arbitration, special considerations may justify a more interventionist approach to the independence and impartiality of the tribunal. Investment arbitrations typically involve much higher stakes than the private arbitrations. Claims are made against states and their assets and so public interest considerations are engaged. No clearer example of this can be seen in the series of ICSID investment arbitrations made against Argentina following the measures it took in response to its economic collapse in 2001. The ad hoc Committee in Vivendi v Argentina II held that an arbitrator was held to a higher standard of independence given the public interest engaged by the claims made against Argentina:
“... a director [of a bank] in the exercise of his or her function is under a fiduciary duty vis-à-vis the shareholders of the bank to further the interests of the bank and therefore postpone conflicting interests.
218 That is fundamentally at variance with his or her duty as independent arbitrator in an arbitration involving a party in which the bank has a shareholding or other interest, however small it may be. Since a major international bank has connections with or an interest in virtually any major international company (which companies are also the most likely to end up in international arbitrations), this suggests that the positions of a director of such a bank, and that of an international arbitrator, may not be compatible and should not be, or in a modern international arbitration environment, should no longer be combined.
219 As a minimum, the ad hoc Committee sees here reason for extreme caution, especially in ICSID cases where the public interest is often strongly engaged.”
Thus it was made clear that the standard of protection against bias should not be compromised to accommodate the emergence and even prevalence of phenomena such as the increasing overlap in economic, social or private interests between parties and the tribunal.
It is this heightened standard which further distinguishes the approach of certain national courts to challenges against arbitrators from that adopted by tribunals in international arbitration proceedings.