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By an ICSID award rendered in May 2017 (the “Award”), Spain’s changes to its renewable energy regime were held to have breached its Energy Charter Treaty obligation to accord fair and equitable treatment to the claimant-investors (“Eiser”). The tribunal awarded Eiser damages of €128 million.
However, in June 2020 the Award was annulled by an ICSID annulment committee (the “Committee”) because one of the arbitrators failed to disclose his relationship with Eiser’s quantum expert. The Committee’s decision emphasises the importance of the disclosure of any circumstances which may cast doubt on an arbitrator’s independence and impartiality.
Basis for the annulment challenge
The crux of Spain’s challenge was that one of the three arbitrators, Dr Alexandrov, failed to disclose his relationship with Eiser’s quantum expert (the "Brattle Group").
That 15-year relationship involved:
The Committee’s review focused on the following two annulment grounds:
Both of these grounds were held to be satisfied, leading to the annulment of the Award.
The Committee’s analysis
The Committee applied the following three-stage test to determine whether the Award should be annulled [180]:
The Committee held that Spain did not have actual or constructive knowledge of the extent of the relationship before the Award was issued [189] and therefore did not waive its right to object to the independence and impartiality of Dr Alexandrov [190].
The Committee held that although “some interaction” between arbitrators, lawyers and experts conducting investment arbitrations is inevitable, the more “connections” there are between them, “the more chances there are that these may give rise to conflicts” and that for the sake of “fair and objective conduct of the arbitral proceedings, these should, therefore, be declared and specifically brought to the attention of the parties and other arbitrators” [217].
The Committee held that on the facts, Dr Alexandrov’s undisclosed relationship with the Brattle Group created a manifest appearance of bias. The tribunal was therefore held to have been improperly constituted (per Article 52(1)(a) of the ICSID Convention).
The Committee observed that “Arbitrators should either not sit in cases or be prepared to be challenged and/or disqualified where, on an objective assessment of things, assessed by a fair minded and informed third party observer, they may not be perceived as independent and impartial…” [219].
The Committee further held that the absence of disclosure was a serious departure from a fundamental rule of procedure (per Article 52(1)(d) of the ICSID Convention). The Committee reached this conclusion because “independence and impartiality of an arbitrator is a fundamental rule of procedure” [239] and by failing to disclose the relationship, Spain was denied the opportunity to challenge Dr Alexandrov in the underlying arbitration, depriving it of its right to an independent and impartial tribunal [241].
The Committee held that that “It is in the very nature of deliberations that arbitrators exchange opinions and are persuaded or influenced by the opinions of their colleagues” [246] and consequently the “undisclosed relationship could have had a material effect on the Award” [253], satisfying this third stage of the applicable test.
Commentary
Apart from serving as a reminder of the fundamental importance of disclosure of conflicts (actual, potential or perceived), it will be interesting to see whether this decision may result in parties to investment treaty arbitrations nominating (or at least considering) arbitrators which they may not otherwise have nominated, so as to reduce the risk of a subsequent challenge to the arbitrator or annulment of the award.
26 August 2020
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