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Juan Domingo Araque Toledo
Associate, Uría Menéndez SLP, Madrid
juan.araque@uria.com

On 11 June 2020, an ad hoc committee (the ‘Committee’)¹ rendered a decision on the request filed by the Kingdom of Spain (‘Spain’) to annul the award issued in Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l v Spain, ICSID Case No ARB/13/36 (the ‘Underlying Arbitration’ or ‘Eiser’). The Committee annulled the award resulting from the Underlying Arbitration (the ‘Award’) based on article 52(1)(a) of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the ‘ICSID Convention’).²

The Underlying Arbitration involved Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. (the ‘Eiser parties’) on one side, and the Kingdom of Spain (‘Spain’) on the other. The dispute concerned measures implemented by Spain that altered the regulatory and economic regime of renewable energy projects, that failed to grant fair and equitable treatment to the Eiser parties pursuant to article 10(1) of the Energy Charter Treaty.

In the Underlying Arbitration, Doctor Stanimir A Alexandrov was appointed by the Eiser parties as a member of the arbitral tribunal. The Eiser parties also used the Brattle Group (including Carlos Lapuerta, as one of the experts involved) as their designated quantum and regulatory experts.

After the Award was rendered, Spain requested its annulment invoking, among others, article 52(1)(a) and (d) of the ICSID Convention, on the grounds that an improper long-standing relationship existed between Alexandrov on the one hand, and Lapuerta and the Brattle Group on the other. Such relationship had not been disclosed by Alexandrov during the Underlying Arbitration. This would apparently compromise Dr Alexandrov’s impartiality.

According to Spain, during his 15 years of practice at Sidley Austin LLP, Alexandrov and his team appointed the Brattle Group in numerous cases, in four of which Lapuerta was involved as the testifying expert.³ Spain also argued that, while serving as an arbitrator in Eiser, Alexandrov was working with the Brattle Group in two other arbitrations, and was appointed as an arbitrator by the same party that engaged the Brattle Group as its expert in four cases. In two of these four cases, Spain alleged, the testifying expert was Lapuerta, and three of these cases were ongoing at the same time as the Underlying Arbitration.⁴

Two main arguments led the Committee to decide the annulment of the award: (1) the Arbitral Tribunal was improperly constituted pursuant to article 52(1)(a) of the ICSID Convention; and (2) this caused a serious departure from a fundamental rule of procedure pursuant to article 52(1)(d) of the ICSID Convention.

A standard for the annulment of an award based on article 52(1)(a) of the ICSID Convention was then set forth, which now provides a precedent for future applications for annulment. The Committee’s analysis is, thus, worth reviewing.

(1) The improper constitution of the Arbitral Tribunal

The Committee adopted a similar approach to the criteria used in EDF v Argentina,⁵ which involves a three-step test to determine whether there were ‘reasonable grounds to doubt the independence or impartiality of one of the arbitrators’⁶ (the ‘EDF test’). This test poses the following three questions:

1. Was the right to raise this matter waived because the party concerned had not promptly and sufficiently raised it?

2. If not, has the party seeking annulment established that a third party would find an evident or obvious appearance of lack of impartiality or independence on the part of an arbitrator on a reasonable evaluation of the facts of the case?

3. If so, could the manifestly apparent lack of impartiality or independence on the part of that arbitrator have had a material effect on the award?⁷

The Committee conducted an analysis applying the EDF test and concluded that the standard set out by the EDF Committee to establish a reasonable doubt on the impartiality and independence of the arbitrator was met. The first two questions were addressed by the Committee in section IV.A. of the decision (‘Improper Constitution of the Arbitral Tribunal’), while the third question was analysed in section IV.B (‘Serious Departure from a Fundamental Rule of Procedure’).

Improper Constitution of the Arbitral Tribunal

The opportunity to challenge Dr Alexandrov

In regard to the first issue (ie, whether the right to raise the matter had been waived because the concerned party did not raise it in a timely manner), the Eiser parties argued that Spain waived its right to challenge Alexandrov’s independence and impartiality. The reason provided by the Eiser parties was that Spain should have been aware of the relationship during the Underlying Arbitration, which would allow Spain to challenge Alexandrov before the Award was rendered.⁸ Spain, on the other hand, argued that it became aware of the relationship only after the Award was issued in May 2017.⁹

The Committee stated that Spain would not be prevented from challenging an arbitrator for the first time in the annulment phase should the relevant facts became known only after the arbitration proceedings were closed.¹⁰ Hence, the relevant question raised by the Committee was whether Spain knew, or should have known, about the relationship before the Award was rendered.

After analysing the evidence provided by the Eiser parties, the Committee concluded that there was no convincing evidence to prove that Spain had knowledge of the relationship before the Award. Therefore, one could not conclude that Spain waived its right to object to the independence and impartiality of Alexandrov.

According to the Committee, the alleged waiver ‘cannot be established without proof that the party concerned had actual or constructive knowledge of all the facts’ and ‘(t)he existence of the information in the public domain does not discharge the burden of the Eiser parties to prove that Spain was aware of the relevant facts’, thus concluding that Spain did not waive its right to challenge Alexandrov.¹¹

Determining an appearance of lack of impartiality or independence

In relation to the second question raised (ie, did the party seeking the annulment establish that a third party would find that there is an indication of a lack of impartiality or independence on the part of an arbitrator, based on a reasonable assessment of the facts of the case), the Committee adopted the criteria established in Blue Bank v Venezuela¹² to determine whether there was ‘an evident or obvious “appearance of dependence or bias”’.¹³ For this, the Committee analysed (a) the existence of the relationship; and (b) whether Alexandrov should have disclosed this relationship.

The existence of the relationship

Alexandrov was challenged on the basis of his relationship with the Brattle Group in two cases prior to Eiser: Tethyan Copper v Pakistan¹⁴ and SolEs Badajoz v Spain.¹⁵ In these two cases, the challenges put forward against Alexandrov were rejected. However, in Eiser the Committee reached the conclusion that an improper relationship between Alexandrov and the experts appointed by the Eiser parties existed. This poses the question in relation to what was the distinctive criterion used by the Committee in the Eiser case to reach this conclusion.

The Committee considered that the ‘factual pattern’ of Eiser's arbitration is not comparable to that of the Tethyan case,¹⁶ given that in the Tethyan case: (i) the non-challenged arbitrators were aware of the relationship between Alexandrov and the Brattle Group; and (ii) the non-challenged arbitrators issued a decision on the challenge in which they considered that Alexandrov and the Brattle Group’s involvement could not affect their deliberations in any way. Additionally, in that case Alexandrov stated that he had only interacted with Professor Davis (Brattle’s expert) in one case and that their relationship had already ended by the time Pakistan proposed the challenge.¹⁷

Likewise, in SolEs Badajoz v Spain, the Committee showed that Alexandrov did not act simultaneously with Lapuerta.¹⁸

These circumstances differ from the case in Eiser, in which the Committee found up to four arbitration proceedings in which Alexandrov and Lapuerta had worked for the same party as lawyer and expert, respectively, and two of these relationships were contemporaneous to the Eiser case.

Based on the criteria set out in Blue Bank v Venezuela, the Committee concluded that, from the perspective of an unbiased third-party observer, there was a manifest appearance of bias on the part of Alexandrov.

The duty to disclose the relationship

Regarding the duty of disclosure, the Committee adopted the criteria established in Alpha Projektholding v Ukraine¹⁹ and Suez v Argentina,²⁰ to determine whether the relationship was ‘likely to give rise to justifiable doubts as to [Dr Alexandrov’s] reliability for independent judgment’.²¹

The Committee concluded that the relationship itself was sufficient to require it to be disclosed.²² Despite the independence of the experts’ activity in arbitrations, and the fact that they were appointed by the clients and not by their representatives, there was a duty to disclose the relationship, not only as a consequence of its existence, but also ‘by the extent of the past and present interactions, at issue’.²³

Accordingly, it follows that the answer to the second question raised by the Committee is that as the relationship constituted,from an unbiased third-party observer’s perspective,a clear appearance of dependence or bias, Alexandrov had the duty to disclose it during the course of the arbitration proceedings.

(2) A serious departure from a fundamental rule of procedure

Regarding the third part of the EDF test (ie,whether the manifest indication of a lack of impartiality or independence of the arbitrator have a material effect on the Award), the Committee assessed the impact that the relationship between the arbitrator and the expert had on the Award.

In this respect, the Committee concluded that the relationship could have had a material effect on the Award, resulting in a serious breach of a fundamental rule of procedure (article 52(1)(a) of the Convention).²⁴ On these grounds, the Committee concluded that the non-disclosure of the relationship warrants annulment under clauses (a) and (b) of paragraph (1) of Article 52.²⁵ In its analysis, the Committee observed that unanimity amongst the arbitrators in the Award does not preclude annulment,²⁶ given the possibility that Alexandrov could have influenced the opinion of his co-arbitrators during their deliberations.²⁷

Although the Committee could not affirm with certainty that, if the relationship had been revealed, it would have had a material impact on the final result of the Underlying Arbitration, what can be affirmed is that, as a result of the non-disclosure of the relationship, Spain was denied the possibility (although not the certainty) of obtaining a different award.²⁸ Thus, the non-disclosure of the relationship created uncertainty upon what would be the result if such relationship would have been disclosed, generating a material impact on the Award.

Conclusions

The three-step test adopted from the EDF v Argentina annulment decision is the basis on which the improper constitution of an arbitral tribunal must, in the author’s view, be determined pursuant to article 52(1)(a) of the ICSID Convention.

First, it must be determined if the right to challenge an arbitrator has been waived by the party that requests the annulment. The right to challenge is deemed waived when it is established that the challenging party had knowledge of the controverted relationship before the issuing of the arbitral award and yet failed to present its challenge.

The existence of a relationship that may compromise the impartiality and independence of an arbitral tribunal is determined by the closeness of the relationships of an arbitrator with other participants in the arbitration procedure, the number of cases in which they have worked or are currently working together and the simultaneity of such procedures.²⁹ The standard to be used to judge the relationship as improper is the perspective of an unbiased observer with access to all the relevant facts surrounding the controverted relationship.

The uncertainty created by the non-disclosure of a problematic relationship involving an arbitrator may have a material impact on the award. To determine whether such ‘material impact’ has been caused, it is not necessary to demonstrate that the outcome of the underlying arbitration would have been different had the relationship been disclosed.³⁰ According to the Eiser criteria, ‘when one of the most basic requirements of justice, such as the right to an independent and impartial tribunal, is disregarded, an award cannot stand and must be annulled in its entirety’.³¹

Notes

1. The ad hoc Committee was formed by Professor Ricardo Ramírez Hernández, Mr Makhdoom Ali Khan and Judge Dominique Hascher.

2. Article 52(1)(a) of the ICSID Convention states the following: ‘(1) Either party may request annulment of the Award by an application in writing addressed to the Secretary-General on one or more of the following grounds:(a) that the Tribunal was not properly constituted’.

3. Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l vSpain, ICSID Case No ARB/13/36. Decision on the Kingdom of Spain’s Application for Annulment, at para 53.

4. Ibid, at para 194.

5. EDF International SA, SAUR International SA and León Participaciones Argentinas SA v Argentine Republic, ICSID Case No ARB/03/23. Annulment decision of 5 February 2016, at para 136.

6. Ibid,  at para 136.

7. Eiser (see n 3 above), at para 180.

8. Ibid, at para 185.

9. Ibid, at para 182.

10. The general rule establishes that the challenge must be done promptly and, in any event, before the proceedings are closed. However, parties may challenge an arbitrator in the annulment phase if the relevant facts became known after the proceedings were closed. See EDF International SA, SAUR International SA and León Participaciones Argentinas SA v Argentine Republic, ICSID Case No ARB/03/23. Annulment decision of 5 February 2016 at para 130.

11. Eiser (see n 3 above), at para 190.

12. Blue Bank International & Trust (Barbados) Ltd v Bolivarian Republic of Venezuela, ICSID Case No ARB 12/20, Decision on Disqualification, para 60. The decision states the following: ‘The applicable legal standard is an “objective standard based on a reasonable evaluation of the evidence by a third party”. As a consequence, the subjective belief of the party requesting the disqualification is not enough to satisfy the requirements of the Convention’.

13. Eiser (see n 3 above), at para 191.

14. Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan, ICSID Case No ARB/12/1. Decision of Co-Arbitrators.

15. SolEs Badajoz GmbH v Kingdom of Spain, ICSID Case No ARB/15/38.

16. Eiser (see n 3 above), at para 212.

17. Ibid,at paras 213, 214.

18. Ibid,at para 218.

19. Alpha Projektholding GmbH v Ukraine, ICSID Case No ARB/07/16. Decision on Respondent’s Proposal to Disqualify Arbitrator Dr Yoram Turbowicz of 19 March 2020, paras 51, 52.

20. Suez, Sociedad General de Aguas de Barcelona, SA and Vivendi Universal, SA v Argentine Republic, ICSID Case No ARB/03/19. Decision on the Proposal for the Disqualification of a Member of the Arbitral Tribunal of 11 October 2007, para 20.

21. Discussion Paper of the ICSID Secretariat on Possible Improvements of the Framework for ICSID Arbitration of 22 October 2005. The Discussion Paper states that ‘(u)nder the UNCITRAL Arbitration Rules, an arbitrator is required to disclose to the parties any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence’. This criteria was cited both in Alpha Projektholding v Ukraine (n 19 above) and Suez v Argentina (n 20 above).

22. The Committee makes reference to the Opinions of the Lord of Appeal for Judgment to thePinochet case, in which it is stated that ‘impartiality may be compromised not only through a specific act but also where the appearance of impartiality has not been strongly guaranteed’ (Eiser Decision on the Kingdom of Spain’s Application for Annulment, para 225). According to this, the mere appearance of impartiality would be enough to compromise an arbitrator’s independence.

23. Eiser (see n 3 above) at para 228.

24. This conclusion differs from the criteria exposed by the Annulment Committee in EDF v Argentina, according to which ‘[...] it will generally be difficult to show how reasonable doubts about the independence or impartiality of an arbitrator – as opposed to actual bias or lack of independence – had a material effect on the award. Even in the case of actual bias or lack of independence, it may still be difficult to establish that such an effect existed, because of the confidentiality of the deliberations’ (EDF International SA, SAUR International SA and León Participaciones Argentinas SA v Argentine Republic, ICSID Case No ARB/03/23. Annulment decision of 5 February 2016, para 133).

25. Eiser (see n 3 above), at para 253.

26. In this regard, the Committee adopted a different approach to the one adopted by the annulment Committee of Vivendi II (Compañiá de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Decision on the Argentine Republic’s Request for Annulment of the Award of 20 August 2007), in which one of the reasons for which the award was not annulled was that the tribunal had been unanimous. The Committee of EDFv Argentina (n 24 above) also considered that this factor was not decisive.

27. Eiser (see n 3 above), at para 246.

28. Ibid, at para 251.

29. Ibid, atpara 225. Note that in Eiser, the Committee analysed the uncontested facts enlisted in para 205 to reach the conclusion that Alexandrov had the duty to reveal his relationship with the Brattle Group and Lapuerta.

30. Regarding this, the Committee cites the Decision on Annulment of Caratube v Kazakhstan (Caratube International Oil Company LLP v.The Republic of Kazakhstan, ICSID Case No ARB/08/12), according to which ‘A departure is serious if the violation of the fundamental rule of procedure produced a material impact on the award. The applicant however is not required to prove that the violation of the rule of procedure was decisive for the outcome, or that the applicant would have won the case if the rule had been applied’. See Eiser Decision on the Kingdom of Spain’s Application for Annulment, at para 252.

31. Eiser (see n 3 above), at para 254.

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