Vivendi v. Argentina

Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Republic of Argentina, ICSID Case No. ARB/97/3

 

Decisions and awards available at https://www.italaw.com/cases/309

Keywords

Arbitrator independence, attribution, broad dispute resolution clause, contractual forum selection clause, damages, expropriation, fair and equitable treatment, jurisdiction, legitimate expectations

Key dates

Original proceeding (“Vivendi I”)

Request for Arbitration: 26 December 1996

Constitution of Tribunal: 1 December 1997

Award (original proceeding): 21 November 2000

Request by Argentina for Annulment of Award: 23 March 2001

Decision on Challenge to President of Annulment Committee: 3 October 2001

Decision on Annulment: 3 July 2002

Request by Argentina for Supplementary Decisions and Rectification of

Annulment Decision: 23 August 2002

Decision on Argentina’s Request for Supplementary Decisions and Rectification: 28 May 2003

Resubmitted proceeding (“Vivendi II”)

Request for Resubmission of Dispute to Arbitration: 24 October 2003

Decision on Jurisdiction in Resubmitted Proceeding: 14 November 2005

Award in Resubmitted Proceeding: 20 August 2007

Application for Annulment of Award in Resubmitted Proceeding: 19 December 2007

Decision on Argentina’s Request for a Continued Stay of Enforcement of Award: 4 November 2008

Hearing on Annulment: 15–17 July 2009

Decision on Annulment: 10 August 2010

Arbitrators (original proceeding)

Judge Francisco Rezek (president)

Mr. Peter D. Trooboff (claimant appointee)

Judge Thomas Buergenthal (appointed by ICSID after Argentina failed to appoint an arbitrator)

First ad hoc Annulment Committee

Mr. L. Yves Fortier (president)

Prof. James R. Crawford

Prof. José Carlos Fernandez Rozas

Arbitrators (resubmitted arbitration proceeding)

Mr. J. William Rowley (president)

Prof. Gabrielle Kaufmann-Kohler (claimant appointee)

Prof. Carlos Bernal Verea (respondent appointee)

Second ad hoc Annulment Committee

Dr. Ahmed S. El-Kosheri (president)

Prof. Jan Hendrik Dalhuisen

Amb. Andreas J. Jacovides

Forum and applicable procedural rules

International Centre for Settlement of Investment Disputes (ICSID)

ICSID Rules of Procedure for Arbitration Proceedings

Applicable treaty

France–Argentina Bilateral Investment Treaty (BIT)

Alleged treaty violations

  • Expropriation
  • Fair and equitable treatment
  • Protection and full security

Other legal issues raised

  • Challenges to awards—ICSID annulment proceedings—standard for
  • annulment
  • Conflicts of interests
  • Damages
  • Jurisdiction—attribution—authority to resolve claims involving conduct of
  • federal states’ political subdivisions
  • Jurisdiction—broad dispute resolution provision
  • Jurisdiction—effect of contractual forum selection clause

1.0 Case Summary

Originally filed in late 1996, this long-running ICSID case may have finally terminated with the second decision on annulment, issued in August 2010. The dispute arose out of the troubled relationship that developed between the parties to a 1995 concession agreement (the “Concession Contract”) to privatize the water and sewage services of the Province of Tucumán in Argentina. The claimants alleged that almost immediately after Compagnie Générale des Eaux (CGE, now Vivendi Universal S.A.) and its Argentine affiliate, Compañía de Aguas del Aconquija S.A. (CAA) (hereinafter referred to collectively as “the Claimants”) took over the water and sewage services concessions for Tucumán, they were systematically deprived of their rights under the France–Argentina Bilateral Investment Treaty (BIT) by the provincial authorities. The Claimants asserted, inter alia, that the provincial authorities acted wrongfully when they unilaterally modified tariffs contrary to the Concession Contract; used the media to generate local hostility toward them; made numerous, unjustified accusations against the concessionaire while themselves acting in flagrant violation of the agreement; interfered directly with CAA’s customer relationships, including inciting its customers not to pay their bills; and, after forcing the Claimants to renegotiate the Concession Contract, used their law-making powers to reject or undermine proposals that could have resolved issues with the concession and saved it from failure.

The Claimants argued that these alleged attacks destroyed the economic value of the Concession Contract and, by mid-1997, left them with no choice but to terminate the concession. The Claimants also asserted that, after the termination of the concession, they were held “hostage” by the provincial authorities and obliged to provide services for a further ten months. Even after they were released from their obligation in October 1998, the harassment continued, culminating in a series of targeted enactments to prevent CAA from collecting on outstanding invoices.

The Claimants initiated the ICSID action on the ground that these acts and omissions of the provincial authorities were legally attributable to the Argentine Republic. They further argued that the federal government itself directly breached the BIT by failing to properly control and correct the actions of the provincial authorities. According to the Claimants, these actions and omissions constituted a violation of the fair and equitable treatment (FET) and full protection and security standards in Articles 3 and 5(1) of the BIT, and an expropriation of the Claimants’ investment contrary to Article 5(2) of the BIT. The Claimants sought damages totalling US$316.9 million, plus compound interest from November 1997, for the harms inflicted upon them (paras. 1.1.1, 3.2.1–3.2.4, Vivendi II Award).

Argentina defended on various grounds of jurisdiction and on the merits. It argued that this case involved exclusively contractual matters (i.e., disputes arising under the Concession Contract) and the actions of provincial authorities, over which the Tribunal did not have jurisdiction. Argentina also asserted that, shortly aer starting the concession, CAA doubled the water bills to an impoverished population without warning and without noticeably improving service. CAA then proceeded to destroy the confidence of the population by negligently delivering black, undrinkable and potentially unhealthy water over a period of many weeks. Argentina contended that this situation understandably caused consumers to revolt and, in some cases, to refuse to pay vastly inflated bills. Argentina asserted that BITs were never intended to protect investors from the consequences of their own mistakes nor to provide them with an insurance policy against the due exercise of the state’s regulatory activity and that this is even more so the case when the service provided is as vital as the provision of water and sewage services. Faced with Claimants’ material breaches of the concession agreement, the Province had the right and the responsibility to take the requisite steps to ensure the availability of safe drinking water for its population on an affordable and accessible basis. Argentina claimed that, far from constituting an expropriation or unfair and inequitable treatment, the Province of Tucumán’s conduct merely discharged the Province’s responsibilities, both as a contracting party and as a government, and therefore the Claimants’ case should be dismissed (paras. 3.3.1–3.3.6, Vivendi IIAward).

On 21 November 2000, the tribunal in the original proceeding (the “Vivendi I Tribunal”) issued its award, in which it addressed Argentina’s jurisdictional objections and the merits of the dispute. It determined that it had jurisdiction over the dispute. In reaching that conclusion, it rejected Argentina’s argument that a forum selection clause in the Concession Contract, which required the contracting parties to submit all disputes regarding that contract to the exclusive jurisdiction of Tucumán’s local administrative tribunals, prevented it from hearing the case.

Nevertheless, the Vivendi I Tribunal found that proper evaluation of almost all of the claims under the BIT first required interpretation and application of the Concession Contract. Noting that, through the forum selection clause, the parties to the Concession Contract had assigned the task of interpreting and applying that contract expressly and exclusively to the administrative courts of Tucumán, theVivendi I Tribunal dismissed the claims on the ground that the Claimants had to pursue their rights in those local courts before seeking relief under the BIT. With respect to the remaining claims whose resolution did not depend on interpretation and application of the Concession Contract, the Vivendi I Tribunal dismissed them on the merits, stating that the evidence failed to establish that Argentina had breached the BIT either through its own actions or omissions, or through the actions or omissions of provincial authorities attributable to the national government.

Pursuant to Article 52 of the ICSID Convention, Claimants applied for annulment of the portion of the award dismissing their claims.

In the first annulment proceeding (the Vivendi I annulment proceeding), the annulment committee annulled the award in part. It agreed with the Tribunal’s determination that it had jurisdiction over the dispute. It determined, however, that the Tribunal had exceeded its powers by failing to examine the merits of the claims regarding the actions of the Tucumán authorities, and that annulment was therefore warranted under Article 52(1)(b).

Claimants resubmitted the dispute to ICSID. In the resubmitted proceeding (Vivendi II), the Tribunal determined that Argentina had breached the BIT’s provisions on FET, protection and full security, and expropriation.

TheVivendi II Tribunal awarded damages of US$105 million plus 6 per cent compound interest. It further determined that each party should be liable for its own costs with respect to the substantive proceeding on the merits but that Argentina should be liable for all costs regarding the jurisdictional phase, because its objections to jurisdiction had already been raised and found meritless (para. 10.2.6, Vivendi II Award).

Argentina responded to the award with an application for its annulment. It argued that annulment was warranted under Article 52 of the ICSID Convention, on the grounds (i) that the Tribunal had not been properly constituted, (ii) that the Tribunal had manifestly exceeded its powers, (iii) that there had been a serious departure from fundamental rules of procedure, and (iv) that the award failed to state the reasons on which it was based. Yet, after repeatedly emphasizing that the ICSID Convention only grants annulment committees very limited powers of review, the second Annulment Committee rejected Argentina’s application for annulment of the Vivendi II award.

Notably, in contrast to the apparently very deferential stance it took toward the Tribunal’s treatment of legal and factual issues in the proceedings, the second Annulment Committee rather severely criticized one of the arbitrators for her lack of good judgment in failing to investigate and disclose information to the parties regarding her possible conflicts of interests.

2.0 Select Legal Issues

Throughout the various stages of this long-running investment treaty arbitration, a number of significant legal issues arose. Several dealt with issues of jurisdiction. In particular, the Tribunal and Annulment Committee in the original arbitration proceeding made it clear that a host state can be responsible under a BIT for acts of its provincial authorities in breach of the BIT, even if the host state itself had no previous direct dealings with the investor. TheVivendi I Tribunal and first Annulment Committee also determined that a contractual forum selection clause in an agreement between an investor and a government entity that requires disputes relating to the investment to be pursued before local courts will not prevent the investor from initiating an ICSID case based on claims under a BIT.

In the resubmitted arbitration proceeding (Vivendi II), the Tribunal considered the significance of the host state’s intent to a potentially expropriatory measure, taking the view that intention was a peripheral consideration and that the effect of the measure was the critical issue. TheVivendi II Tribunal also considered the content of the FET standard, stating that the words “fair and equitable” should be interpreted autonomously and in accordance with their ordinary meanings and that the standard includes an apparently broad obligation to “do no harm.” Further, the Vivendi II Tribunal considered the circumstances in which compensation for lost profits may be appropriate, finding that, in this case, the Claimants could not recover such damages because they had not established with sufficient certainty that the investment would be profitable.

Most recently, the Vivendi II Annulment Committee’s rejection of Argentina’s application for annulment evidenced a very deferential stance toward the Tribunal’s decisions, illustrating that annulment of awards can be a challenging undertaking.

At various stages in the proceedings, issues were raised regarding arbitrator independence and impartiality, including conflicts that may arise from arbitrators performing other roles such as serving as counsel in other investor–state disputes or serving on the board of directors of an international bank. In each circumstance, however, the party’s concerns regarding conflicts of interests were effectively rejected.

These issues are discussed in more detail below.

2.1 Original arbitration proceeding

Argentina’s responsibility for the acts of its provincial government

In its preliminary objections to jurisdiction, Argentina argued, inter alia, that the BIT provided for consent to jurisdiction only for disputes between the Claimants and the Argentine Republic, whereas in this case, the dispute related exclusively to a Concession Contract, to which the Argentine Republic was not a party.

The Tribunal disagreed and held that it was well established that actions of a political subdivision of a federal state, such as the Province of Tucumán in the federal state of the Argentine Republic, were attributable to the central government under international law. It held that it was equally clear that the internal constitutional structure of a country could not alter these obligations. The Tribunal accordingly rejected this jurisdictional argument (paras. 49–50, Vivendi I Award).

Jurisdiction over the investment dispute, notwithstanding the contractual forum selection clause

Argentina had objected that the Tribunal did not have jurisdiction over the dispute because the dispute arose from the Concession Contract and the parties to that agreement had contractually committed to resolve all disputes before the administrative tribunals of Tucumán. The Tribunal rejected that argument. In doing so, it relied on Article 8 of the BIT, which grants investors the right to submit “dispute[s] relating to investments” to ICSID. According to the Tribunal, the contractual forum selection clause “did not and could not constitute a waiver by [the Claimants] of [their] rights under Article 8 of the BIT to file the pending claims against the Argentine Republic” (para. 53, Vivendi I Award).

2.2 First annulment proceeding

Contractual forum selection clause

The Annulment Committee agreed with the Tribunal that the exclusive forum selection clause in the Concession Contract did not prevent the Tribunal from having jurisdiction over the claims brought pursuant to the BIT. It stated that where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal should give effect to any valid forum selection clause in that contract. On the other hand, where (as in the case before it) “the fundamental basis of the claim” is a treaty laying down an independent standard by which the conduct of the parties is to be judged, the existence of an exclusive jurisdiction clause in a contract between the claimant and the respondent state (or one of its subdivisions) cannot operate as a bar to the application of the treaty standard (para. 101, Vivendi I, Decision on Annulment).

Nevertheless, the Annulment Committee disagreed with the Tribunal’s decision that it could not decide key aspects of the Claimants’ BIT claims because those claims involved issues of contractual performance or non- performance. The Annulment Committee stated that the forum selection clause did not and could not prevent the Tribunal from fulfilling its duty of determining whether there had been a breach of the BIT, even if that task required the Tribunal to interpret and apply the Concession Contract (paras. 104–111, Vivendi I, Decision on Annulment), saying, “In the Committee’s view, it [was] not open to an ICSID tribunal having jurisdiction under a BIT in respect of a claim based upon a substantive provision of that BIT, to dismiss the claim on the ground that it could or should have been dealt with by a national court” (para. 102). The Annulment Committee stated that by failing to determine the Claimants’ claims alleging wrongful conduct of the Tucumán authorities, the Tribunal had manifestly exceeded its powers, an annullable error under ICSID Convention Article 52(1)(b). The Committee concluded by annulling the portion of the award relating to those particular claims.

Conflicts of interests in arbitral proceedings

During the annulment proceedings, Argentina sought to challenge the appointment of L. Yves Fortier as president of the first Annulment Committee, after he disclosed that a partner at his law firm had advised Vivendi on a tax matter in the years immediately preceding his appointment to the Annulment Committee. The partner continued to be paid by Vivendi on a retainer. According to Argentina, the relationship between Mr. Fortier and Vivendi raised doubts regarding whether the Committee member could be relied upon to exercise independent judgment as required under the ICSID Convention.

Applying the ICSID Arbitration Rules governing challenges to arbitrators, the other two members of the Annulment Committee decided, and rejected, Argentina’s proposal to disqualify Mr. Fortier. The two Committee members reasoned that the test they should apply was whether “a real risk of lack of impartiality based upon [the] facts (and not on any more speculation or inference) could reasonably be apprehended by either party” (para. 25, Vivendi I, Decision on Challenge to Committee Member). They further stated that “[i]f the facts would lead to the raising of some reasonable doubt as to the impartiality of the arbitrator or member, the appearance of security for the parties would disappear and a challenge by either party would have to be upheld” (para. 25).

The Committee members then concluded that those considerations did not support disqualification based on the facts before them. They noted that although an arbitrator’s professional relationship with a party could warrant his or her disqualification, in this case it did not. Factors influencing that determination were that Mr. Fortier was not personally involved in representing Vivendi, that the matters on which his partner represented the Claimant were not related to the investor–state dispute and would soon come to an end, and that Mr. Fortier “immediately and fully” disclosed information regarding his relationship with the Claimant (para. 26).

2.3 Resubmitted arbitration proceeding

In the resubmitted arbitration (Vivendi II), the Tribunal determined that the provincial authorities of Tucumán (for which Argentina was responsible) violated the FET standard in Article 3 of the BIT and the protection and full security standard in Article 5(1) of the BIT, and also expropriated the Claimants’ investment in breach of Article 5 of that treaty. With respect to the FET claim, the Vivendi II Tribunal rejected Argentina’s arguments that CAA had frustrated and breached the Concession Contract and that the governmental actions about which Claimants complained were responsible, proportionate and appropriate responses to CAA’s inadequate performance of a fundamental public service. The Tribunal held that on the facts before it, it was only possible to conclude that the provincial government, improperly and without justification, mounted an illegitimate “campaign” against the concession, the Concession Contract and the “foreign” concessionaire, aimed either at reversing the privatization or forcing the concessionaire to renegotiate (and lower) CAA’s tariffs (paras.7.4.18–7.4.19, Vivendi II Award).

With respect to the expropriation claim, the Vivendi II Tribunal held that the government’s actions were not legitimate regulatory responses to CAA’s failings, but were sovereign acts designed illegitimately to end the concession or to force its renegotiation. According to the Tribunal, the Claimants were radically deprived of the economic use and enjoyment of their investment, the benefits of which (i.e., the right to be paid for services provided) had been effectively neutralized and rendered useless. Under these circumstances, rescission of the Concession Contract represented the only rational alternative for Claimants. The Tribunal concluded that by leaving the Claimants with no other rational choice, the Province thus expropriated Claimants’ right of use and enjoyment of their investment under the Concession Contract (paras. 7.5.20–7.5.34, Vivendi II Award).

Expropriation and the “effects” test

In holding Argentina liable for violating the BIT’s prohibition on unlawful expropriation, the Vivendi II Tribunal held that there was extensive authority for the proposition that the state’s intent, or its subjective motives, are at most a secondary consideration when determining whether a measure is expropriatory. Although improper motives could weigh in favour of showing a measure to be expropriatory, this was not a requirement to establish an expropriation, because the effect of the measure on the investor, not the state’s intent, was the critical factor.

Turning to the present case, the Tribunal noted that the structure of Article 5(2) of the BIT directed it first to consider whether the challenged measures were expropriatory and only then to ask whether they complied with the conditions listed in the treaty as being necessary to render the expropriation lawful (i.e., that the expropriation be done for a public purpose, be non-discriminatory, not be contrary to specific commitments, and be accompanied by payment of compensation). The Tribunal held that if it concluded that the challenged measures were expropriatory, there would be a violation of Article 5(2) of the BIT, even if the measures might be for a public purpose and non-discriminatory, because no compensation had been paid. The Tribunal affirmed the finding of the tribunal in Santa Elena v. Costa Rica that the purpose for which the property was taken “does not alter the legal character of the taking for which adequate compensation must be paid”[1] (paras. 7.5.20–7.5.21, Vivendi II Award).

The Tribunal’s interpretation of the expropriation standard is significant because it stands in apparent contrast to the view of some other tribunals that non-discriminatory regulations enacted for a public purpose are not compensable expropriations[2] (or are not compensable expropriations unless specific commitments to refrain from enacting the challenged regulations had been given).[3]

Fair and equitable treatment purportedly includes a “do no harm” standard

In defending against the FET claim, Argentina argued that the requirement in Article 3 for host states to grant foreign investors “fair and equitable treatment according to the principles of international law” required states to accord with the minimum international law standard of treatment. Argentina further asserted that this standard, as “classic[ally]” formulated in the 1926 Neer decision,[4] is violated only when the government’s conduct “amount[s] to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency” (para. 6.6.3).

The Tribunal rejected Argentina’s argument that the FET standard was so limited, even going so far as to label the Neer standard as “obsolete” (paras. 7.4.5–7.4.9, 7.4.46, Vivendi II Award). The Tribunal additionally declared that there was “no doubt” that the fair and equitable standard includes a “government’s obligation not to disparage and undercut a properly granted concession (a ‘do no harm’ standard)…albeit one granted by a predecessor government,” in order to rescind the concession or to “force” a renegotiation (para. 7.4.39). Applying that “do no harm” standard, the Tribunal determined Argentina had directly undermined the Claimants’ legitimate expectations of their investment and violated Article 3 of the BIT (paras. 7.4.36–7.4.46).

The Vivendi II Tribunal’s interpretation of the FET standard is notable for its breadth. Its rejection of the narrower Neer formulation as “obsolete” is also notable given that, as recently as the 2009 Glamis decision under NAFTA, that exact formulation has been described as representing the FET standard under customary international law.[5] It should be recognized, however, that the Vivendi II Tribunal’s adoption of a strong interpretation of the FET standard did not appear to matter to the outcome of the case: the Tribunal stated that even if it had applied the narrower Neer standard advanced by Argentina, it still would have found Argentina to have breached the FET obligation (para. 7.4.46).

Damages for lost profits

After determining that Argentina violated Articles 3 and 5 of the BIT, the Vivendi II Tribunal proceeded to determine the amount of damages owed. It stated that the appropriate amount due in cases of unlawful conduct by a state was that which would be “sufficient to compensate the affected party fully and to eliminate the consequences of the state’s action” (para. 8.2.8). This amount, the Tribunal continued, would be based on the “fair market value” of the concession (para. 8.2.11).

The vast majority of Claimants’ claims for damages (roughly US$300 million of its US$316.9 million claim) were based on lost profits the Claimants asserted the concession would have generated during the life of the 30-year concession, had the government not acted wrongfully and had the concession continued. Argentina challenged the Claimants’ attempt to derive the fair market value of the concession from their purported lost profits, noting that many international tribunals had determined that an award based on lost profits is generally only appropriate if the relevant enterprise was profitable and had operated for a sufficient period to establish its performance record, circumstances not present in the case of the Tucumán concession.

The Tribunal sided with Argentina on this point. It rejected the Claimants’ request for lost profits on the ground that the Claimants had failed to meet their obligation to establish with “convincing evidence” and “a sufficient degree of certainty that the Tucumán concession would have been profitable” (paras. 8.3.5 and 8.3.8). The Tribunal concluded that, instead, the amount of damages should be based on recovering the value of the investment the Claimants had actually already made (paras. 8.3.3–8.3.5 and 8.3.13). With the caveat that setting the amount of damages “is not an exact science,” the Tribunal determined that Argentina was obliged to pay the Claimants US$51 million plus 6 per cent interest compounded annually from August 1997, and US$54 million plus 6 per cent interest compounded annually from September 2002 (8.3.16 and 8.3.21).

More on arbitrator conflicts of interests

During the resubmitted arbitration proceeding, Argentina sought to challenge the Claimants’ counsel’s use of legal arguments that were based on the award in another treaty-based investor–state dispute, Eureko v. Poland.[6] One of the Claimants’ counsel, Stephen Schwebel, had been an arbitrator in Eureko v. Poland during the period when the Claimants’ Vivendi case was ongoing. Argentina raised concerns about the ability of Mr. Schwebel to interpret the standard investment treaty obligations in Eureko v. Poland without consciously or subconsciously considering how that legal ruling might impact the Vivendi dispute, in which Mr. Schwebel was acting as counsel. Argentina accordingly made a formal request for any reference to the Eureko v. Poland award to be stricken from the Claimants’ legal briefs.

The Tribunal refused to make such an order. It further determined that the question of whether Mr. Schwebel’s role as arbitrator in the Eureko case should affect the weight to be given to the Eureko award was a question best reserved for a later stage of the proceedings.[7] However, given that the final award in the resubmitted proceedings does not expressly refer to Argentina’s objection and cites the Eurekoaward as authority, it would seem that the Vivendi II Tribunal rejected Argentina’s position.

2.4 Second annulment proceeding

Annulment under Article 52(1)(b), (d)and  (e) of the ICSID Convention

Argentina applied to annul the Vivendi II award on various grounds including, briefly, that the Tribunal wrongly accepted jurisdiction and failed to apply applicable law, which consisted of provincial and national law and the terms of the Concession Contract. Argentina further argued that annulment was warranted because the Tribunal improperly relied on some evidence and information—including allegations relating to the government’s purported “campaign to destroy” the Concession Contract— while ignoring other important evidence and information, including considerations relating to the right to water as a human right (paras. 244–45). These errors, Argentina argued, supported annulment under subsections (b), (d) and (e) of ICSID Convention Article 52(1), which, respectively, permit annulment if a tribunal manifestly exceeds its powers, seriously departs from a fundamental rule of procedure, or fails to state reasons upon which the award is based.

In its decision rejecting those arguments, the ad hoc Committee noted that “procedural incidents” and “erroneous findings of law and fact” “can be considered grounds for annulment,” but “only if they rise to the exacting standards for annulment as expressed in Article 52(1)” of the ICSID Convention (para. 251). Without much elaboration and evidencing an apparently high degree of deference to the Tribunal’s decisions, the ad hoc Committee then stated that no findings in or aspects of the Vivendi II award met the high standards warranting annulment.

Annulment under Article 52(1)(a) and (d)—and even more on conflicts of interests in arbitration proceedings

Argentina also sought annulment based on the acts and omissions of one of the arbitrators, Professor Kaufmann-Kohler. More specifically, Argentina contended that those acts and omissions warranted annulment of the award under Article 52(1)(a) because they caused an improper constitution of the Vivendi II Tribunal, and under Article 52(1)(d) because they constituted a serious departure from a fundamental rule of procedure.

The facts supporting Argentina’s application were that, while serving on the Vivendi II Tribunal, Professor Kaufmann-Kohler was also a member of the Board of Directors of UBS. UBS, in turn, was the single largest shareholder in Vivendi during the pendency of those arbitration proceedings. At no time during her service on the Tribunal, however, did Professor Kaufmann-Kohler disclose to the parties information about UBS’s holdings that might raise questions about conflicts of interests.

Argentina argued that these relationships gave rise to justifiable doubts as to the arbitrator’s independence and impartiality and that it had been unable to exercise its right to challenge Professor Kaufmann-Kohler’s continued service on the Tribunal because Professor Kaufmann-Kohler did not fully investigate or disclose those circumstances.

The second Annulment Committee roughly criticized Professor Kaufmann- Kohler’s failure to investigate and disclose these issues to the disputing parties. It also agreed with Argentina that, due to Professor Kaufmann- Kohler’s contemporaneous service on the board of UBS and as an arbitrator, the Tribunal was not properly constituted and there had been a departure from a fundamental rule of procedure (para. 232). The Committee nevertheless stated that it had the discretion regarding whether to annul the award and would exercise that discretion to let the award stand.

Notably, one of the arbitrators, Professor J. H. Dalhuisen, filed a separate opinion in which he further raised issues relating to arbitrator independence and impartiality. His separate opinion, however, focused not on the conduct of Professor Kaufmann-Kohler, but aimed its criticism at the ICSID Secretariat which, according to Professor Dalhuisen, assumed roles that threatened the independence of the Annulment Committee members. Professor Dalhuisen concluded by suggesting that if the “self- cleaning forces in the international arbitration system are no longer sufficiently strong,” “a treaty change probably involving the creation and operation of a specialised international court” would be necessary (para. 26, Separate Opinion).


Notes

[1] Compañía del Desarrollo de Santa Elena S.A. v. The Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (17 February 2000), 15 ICSID REV–FILJ 169 (2000).

[2] See, e.g., Glamis Gold Ltd. v. United States of America, Final Award (14 May 2009), para. 354.

[3] E.g., Methanex Corp. v. United States of America, Final Award on Jurisdiction and Merits (3 August 2005), Part IV, Chapter D, para. 7.

[4] Neer v. Mexico, 4 R. Int’s Arb. Awards, 60–62 (1926).

[5] Glamis Gold Ltd. v. United States of America, Final Award (14 May 2009), paras. 21–22.

[6] Eureko B.V. v. Republic of Poland, Ad Hoc (based on the Netherlands–Poland BIT).

[7] L. Peterson (2007), Investment Treaty News, 17 January.