Should arbitrators live on Mars? Challenge of arbitrators in investment arbitration.

• Author: Bottini, Gabriel

Legitimacy of investment arbitration is becoming one of the main concerns of all the institutions and persons involved in the process. There is no doubt that the perception by the parties in investment disputes of the independence and impartiality of arbitrators is a conditio sine qua non of such legitimacy. (1)

Under the existing arbitral regimes, the tool that parties have to address the lack of independence or impartiality of an arbitrator is essentially the challenge procedure. (2) That is why effective and transparent challenge mechanisms are fundamental for the integrity of international investment arbitration. (3)

Even the first case brought before the International Centre for Settlement of Investment Disputes (ICSID), Holiday Inns S.A. v. Morocco, (4) involved a circumstance affecting the independence of one of the arbitrators. (5) In another of the first ICSID cases, Amco Asia Corp v. Indonesia, (6) a challenge was actually presented, although it was rejected. (7) The literature on disqualification of arbitrators is however relatively scarce and, more importantly, reported decisions on challenges in investment arbitration are very few.

It has been rightly noted that "[t]he process of disqualification is often shrouded in secrecy, thus hindering the development of known, consistent standards." (8) As for arbitration in general, transparency is fundamental for challenge procedures. Publication of a higher number of reasoned decisions on challenges to arbitrators could be an important contribution to the functioning of investment arbitration, by signaling to prospective arbitrators and parties what kind of circumstances could affect the integrity of the Tribunal.

Part I of this Article briefly describes the provisions regarding challenges of arbitrators contained in the arbitration rules most widely used in the investment context. Part II discusses some of the most important challenge decisions in investment arbitration where reasons have been provided. It is suggested that a few of them have made important contributions to the theoretical development of the law on challenge of arbitrators, although the application of the principles to the facts is not always shared. This article concludes by stressing the need to further develop standards of independence and impartiality of arbitrators in order to make them more exacting, while suggesting that there might be some structural limitations in the existing arbitral systems to fulfill the growing aspirations of legitimacy of the international community.

1. RULES AND STANDARDS ON CHALLENGE OF ARBITRATORS

   1. The ICSID Rules

      Chapter V of the ICSID Convention contains the provisions on replacement and disqualification of conciliators and arbitrators. (9) In particular, Article 57 establishes the following:

      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 under Section 2 of Chapter IV. (10) In turn, Article 14(1) requires that arbitrators "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." (11) It should be noted, as to the last part of the sentence, that the Spanish version refers to persons "inspiring full confidence in their impartiality of judgment" ("inspirar plena confianza en su imparcialidad de juicio"), and the French version to persons "offering all guarantee of independence in the exercise of their functions" ("offrir toute garantie d'independance dans l'exercice de leurs fonctions").

      It has been noted that while the English text refers to independence, the Spanish text refers to impartiality. (12) This is probably because at the time of the drafting of the ICSID Convention independence and impartiality were not always seen as wholly dissimilar concepts. (13) However, it has been rightly concluded that Article 14 requires both the application of the standard of independence--defined as relating to the "lack of relations with a party that might influence an arbitrator's decision"--and that of impartiality--defined as the "absence of a bias or predisposition toward one of the parties" or "in relation to the issues in dispute." (14)

      Aside from the standards of independence and impartiality, it appears that the Spanish text of Article 14--inspire "full confidence in their impartiality of judgment"--and the French text--offer "all the guarantee of independence in the exercise of their functions"--set a higher standard than the English text. In accordance with Article 33(4) of the Vienna Convention on the Law of Treaties, any difference of meaning that the application of the ordinary methods of interpretation cannot resolve must be removed by having regard to the object and purpose of the Treaty. (15) It seems that the unchallenged arbitrators, if finding this difference of meaning, should apply the three criteria since, in light of its object and purpose, it does not appear that an arbitration conducted using the ICSID Convention in one of its official languages should be subject to less stringent standards than those in another ICSID case applying the ICSID Convention in any of the other two official languages.

   2. The UNCITRAL Rules

      Challenge of arbitrators in the context of the United Nations Commission on International Trade Law (UNCITRAL) is regulated in Articles 9 through 12 of the Arbitration Rules. (16) The first of these provisions deals with the important issue of disclosure. It provides for the duty of a "prospective arbitrator" to disclose "any circumstances likely to give rise to justifiable doubts as to his impartiality and independence." (17) The UNCITRAL Rules expressly provide for the continuation of such duty once the arbitrator is appointed. (18)

      Under the UNCITRAL Rules, it is generally recognized that failure to disclose a circumstance that should have been disclosed may give rise to justifiable doubts as to independence and impartiality, although the latter consequence is sometimes qualified introducing additional criteria. (19) Disclosure of circumstances that may appear to affect independence or impartiality is so fundamental for the legitimacy of international arbitration, that failure to comply with the duty to disclose should weigh heavily in the consideration of a challenge against an arbitrator.

      Article 10 provides that "[a]ny arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator's impartiality or independence." (20) It is generally contended that this provision establishes an objective test--to be applied in accordance with the view of a "reasonable, fair-minded and informed person" (21)--even though the article does not provide expressly for such a third-person approach. In any event, such "objective standard" has been coupled with the rejection of the requirement of actual bias, and the adoption of the standard of "apprehension of bias" or "appearance of bias" in the following words:

      One might say that under the UNCITRAL Arbitration Rules doubts are justifiable or serious if they give rise to an apprehension of bias that is, to the objective observer, reasonable. Actual bias or partiality need not be established.... In sum the test to be applied is that the doubts existing on the part of the claimant here must be 'justifiable' on some objective basis. (22) Other arbitration rules, such as the Rules of the London Court of International Arbitration (LCIA) and the International Arbitration Rules of the American Arbitration Association (AAA), also require arbitrators to be both independent and impartial. (23) In light of what has already been said in relation to ICSID rules, (24) it appears that, generally speaking, at present international arbitration allows for a challenge against an arbitrator both if he has any relationship that may affect his independence or if he is predisposed in favor of or against any of the parties or in relation to the matters to be considered in the arbitration.

   3. The IBA Guidelines

      On May 22, 2004 the Council of the International Bar Association (IBA) approved the IBA Guidelines on Conflicts of Interest in International Arbitration. (25) The IBA Guidelines were originally developed for international commercial arbitration, but the working group that drafted them later "realized that the Guidelines should equally apply to other types of arbitration, such as investment arbitrations (insofar as these may not be considered as commercial arbitrations)." (26)

      The IBA Guidelines, which are not legal provisions and hence not binding per se, (27) require arbitrators to be impartial and independent "during the entire arbitration proceeding" until its termination. (28) Arbitrators should not act if "facts or circumstances 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." (29)

      The test to determine whether the doubts are justifiable is "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 merits of the case as presented by the parties in reaching his or her decision." (30) An "appearance test" is therefore explicitly adopted, to be applied objectively. (31)

      The fundamental duty of disclosure of arbitrators is regulated in some detail in the IBA Guidelines. (32) Arbitrators shall disclose facts or circumstances which in the eyes of the parties may give rise to doubts as to the arbitrator's impartiality or independence, and "[a]ny doubt as...