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DOUBLE HATTING: DUTY TO DISCLOSE TIES BETWEEN ARBITRATORS AND EXPERTS IN INTERNATIONAL ARBITRATION
An arbitrator’s failure to disclose a professional relationship with an expert witness led an ICSID ad hoc committee to issue a unanimous decision to annul a €128 million award against Spain in its entirety, and to order the two claimants to pay the full costs of the proceeding, as well as Spain’s legal fees and expenses.
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Published 28 July 2020
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Craig Deuchrass
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Introduction
An arbitrator’s failure to disclose a professional relationship with an expert witness led an ICSID ad hoc committee (the “Annulment Committee”) on 11 June 2020 to issue a unanimous decision to annul a €128 million award against Spain in its entirety, and to order the two claimants, Eiser Infrastructure Limited and Energia Solar Luxembourg (hereinafter the “Eiser Parties”) to pay the full costs of the proceeding, as well as Spain’s legal fees and expenses.
The historic ruling was made because the arbitrator failed to disclose a longstanding professional relationship with one of the Eiser Parties’ expert witnesses, which, it was found, created a “manifest appearance of bias”. The Annulment Committee’s decision marks the first time in ICSID history that an award has been annulled for improper constitution of the tribunal and for a serious departure from a fundamental rule of procedure – two grounds for annulment under the ICSID Convention.
Background
The case was based on the Energy Charter Treaty (“ECT”), the energy industry international investment agreement, and was initiated by the Eiser Parties who alleged that regulatory reforms relating to the energy sector implemented by Spain caused them to suffer €256 million in damages.
In May 2017, an ICSID tribunal chaired by Mr John Crook of the US ordered Spain to pay €128 million plus interest after finding that the reforms violated the ECT. The Eiser Parties’ appointee to the tribunal, Dr Stanimir Alexandrov, and Spain’s appointee, Mr Campbell McLachlan QC of New Zealand, joined in the unanimous ruling.
Spain filed for annulment soon after, arguing that Dr Alexandrov had violated his obligation of independence and impartiality by failing to disclose a 15-year relationship with Mr Carlos Lapuerta, of the Brattle Group, who had been retained by the Eiser Parties as an expert on damages in the arbitration.
The Annulment Committee’s decision
In its decision, the Annulment Committee concluded that a tribunal may be held to have been improperly constituted for annulment purposes where an arbitrator lacked independence or impartiality at any time during the arbitration.
The Annulment Committee noted that Dr Alexandrov, whilst a partner at law firm Sidley Austin in Washington DC, had been appointed as arbitrator in four cases in which the Brattle Group had been instructed as experts by the party that appointed him. In two of those cases, Mr Lapuerta was the testifying expert. Three of the cases proceeded at the same time as the Eiser arbitration.
In at least eight other cases, Dr Alexandrov was counsel where the client engaged the Brattle Group as expert. In three of those cases, Mr Lapuerta was the testifying expert.
The Annulment Committee stated that this relationship should have been disclosed, and that Dr Alexandrov’s absence of disclosure deprived Spain of the opportunity to challenge him in the arbitration proceedings.
In doing so, the Annulment Committee found support for its decision in the IBA Guidelines on Conflicts of Interest in International Arbitration:
“The ongoing obligation to disclose cannot be construed narrowly in favor of the arbitrator. It must be approached from the point of view of a party. Disclosure inoculates arbitrators from the possibility of any, real or perceived, conflict of interest. As the IBA Guidelines state, “[a]ny doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure.” There are multiple ways in which a conflict of interest may arise when an arbitrator also acts or has acted as counsel, in another dispute, albeit between different parties. The risks and possibilities of conflict of interest, inherent in double-hatting, dictate caution.” (Annulment decision paragraph 223).
Conclusion
The Annulment Committee’s decision turned on the fact that this situation involved an arbitrator sitting in adjudication of an expert’s work in one matter while simultaneously, as counsel, advocating for the same expert’s analysis in another. In the future, there will be less scope for members of ICSID tribunals to have co-existing professional relationships with parties or experts involved in the arbitration.
The high bar set by the Annulment Committee will, in turn, demand that tribunal members engage in a more rigorous and comprehensive disclosure process, making more information on potential conflicts of interest available; that is, any information that may risk a decision potentially becoming annulled.
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DOUBLE HATTING: DUTY TO DISCLOSE TIES BETWEEN ARBITRATORS AND EXPERTS IN INTERNATIONAL ARBITRATION
An arbitrator’s failure to disclose a professional relationship with an expert witness led an ICSID ad hoc committee to issue a unanimous decision to annul a €128 million award against Spain in its entirety, and to order the two claimants to pay the full costs of the proceeding, as well as Spain’s legal fees and expenses.
Published 28 July 2020
Associated sectors / services
Authors
Introduction
An arbitrator’s failure to disclose a professional relationship with an expert witness led an ICSID ad hoc committee (the “Annulment Committee”) on 11 June 2020 to issue a unanimous decision to annul a €128 million award against Spain in its entirety, and to order the two claimants, Eiser Infrastructure Limited and Energia Solar Luxembourg (hereinafter the “Eiser Parties”) to pay the full costs of the proceeding, as well as Spain’s legal fees and expenses.
The historic ruling was made because the arbitrator failed to disclose a longstanding professional relationship with one of the Eiser Parties’ expert witnesses, which, it was found, created a “manifest appearance of bias”. The Annulment Committee’s decision marks the first time in ICSID history that an award has been annulled for improper constitution of the tribunal and for a serious departure from a fundamental rule of procedure – two grounds for annulment under the ICSID Convention.
Background
The case was based on the Energy Charter Treaty (“ECT”), the energy industry international investment agreement, and was initiated by the Eiser Parties who alleged that regulatory reforms relating to the energy sector implemented by Spain caused them to suffer €256 million in damages.
In May 2017, an ICSID tribunal chaired by Mr John Crook of the US ordered Spain to pay €128 million plus interest after finding that the reforms violated the ECT. The Eiser Parties’ appointee to the tribunal, Dr Stanimir Alexandrov, and Spain’s appointee, Mr Campbell McLachlan QC of New Zealand, joined in the unanimous ruling.
Spain filed for annulment soon after, arguing that Dr Alexandrov had violated his obligation of independence and impartiality by failing to disclose a 15-year relationship with Mr Carlos Lapuerta, of the Brattle Group, who had been retained by the Eiser Parties as an expert on damages in the arbitration.
The Annulment Committee’s decision
In its decision, the Annulment Committee concluded that a tribunal may be held to have been improperly constituted for annulment purposes where an arbitrator lacked independence or impartiality at any time during the arbitration.
The Annulment Committee noted that Dr Alexandrov, whilst a partner at law firm Sidley Austin in Washington DC, had been appointed as arbitrator in four cases in which the Brattle Group had been instructed as experts by the party that appointed him. In two of those cases, Mr Lapuerta was the testifying expert. Three of the cases proceeded at the same time as the Eiser arbitration.
In at least eight other cases, Dr Alexandrov was counsel where the client engaged the Brattle Group as expert. In three of those cases, Mr Lapuerta was the testifying expert.
The Annulment Committee stated that this relationship should have been disclosed, and that Dr Alexandrov’s absence of disclosure deprived Spain of the opportunity to challenge him in the arbitration proceedings.
In doing so, the Annulment Committee found support for its decision in the IBA Guidelines on Conflicts of Interest in International Arbitration:
“The ongoing obligation to disclose cannot be construed narrowly in favor of the arbitrator. It must be approached from the point of view of a party. Disclosure inoculates arbitrators from the possibility of any, real or perceived, conflict of interest. As the IBA Guidelines state, “[a]ny doubt as to whether an arbitrator should disclose certain facts or circumstances should be resolved in favour of disclosure.” There are multiple ways in which a conflict of interest may arise when an arbitrator also acts or has acted as counsel, in another dispute, albeit between different parties. The risks and possibilities of conflict of interest, inherent in double-hatting, dictate caution.” (Annulment decision paragraph 223).
Conclusion
The Annulment Committee’s decision turned on the fact that this situation involved an arbitrator sitting in adjudication of an expert’s work in one matter while simultaneously, as counsel, advocating for the same expert’s analysis in another. In the future, there will be less scope for members of ICSID tribunals to have co-existing professional relationships with parties or experts involved in the arbitration.
The high bar set by the Annulment Committee will, in turn, demand that tribunal members engage in a more rigorous and comprehensive disclosure process, making more information on potential conflicts of interest available; that is, any information that may risk a decision potentially becoming annulled.
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Craig
DeuchrassSenior Associate
Specialising in Commercial disputes, Banking & financial disputes and Commercial arbitration
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