Perenco-nominated arbitrator disqualified for interview comments in ICSID dispute with Ecuador

By Fernando Cabrera Diaz

February 14, 2010

Permanent Court of Arbitration (PCA) Secretary-General Cristiaan M.J. Kroner has accepted the challenge by Ecuador to remove the Honourable Charles N. Brower as arbitrator in its dispute with oil company Perenco Ecuador Limited.  In his December 9, 2009 ruling Mr. Kroner concludes that “comments made by Judge Brower in an August 2009 interview gave rise to reasonable doubts as to Judge Brower’s impartiality or independence in the dispute.”

The challenge to Judge Brower arose out of comments he made in a published article entitled “A World-Class Arbitrator Speaks!” in the August 2009 issue of The Metropolitan Corporate Counsel. Judge Brower was interviewed about a wide range of topic for the article, but the controversial comments came when he was asked what he thought were the most pressing issues in international arbitration.

The Judge responded by saying:  “There is an issue of acceptance and the willingness to continue participating in it, as exemplified by what Bolivia has done and what Ecuador is doing. Ecuador currently is expressly declining to comply with the orders of two ICSID tribunals with very stiff interim provisional measures, but they just say they have to enforce their national law and the orders don’t make any difference. But when recalcitrant host countries find out that claimants are going to act like those who were expropriated in Libya, start bringing hot oil litigation and chasing cargos, doing detective work looking for people who will invoke cross-default clauses in loan agreements, etc., the politics may change. After a certain point, no one will invest without having something to rely on.”

Judge Brower was referring in part to Ecuador’s refusal to abide by a temporary restraint order and subsequent provisional measures issued by the tribunal in the Perenco case, which recommended that Ecuador refrain from trying to collect alleged debts from the company while the debts were being disputed in the arbitration.

Ecuador seized Perenco’s oil assets on March 3, 2009 in an attempt to forcibly collect debts the company had allegedly accumulated from its refusal to pay taxes under a windfall tax law (Law 42) enacted amid rising oil prices in 2006. The country has maintained that the tribunal’s provisional measures are not binding as a matter of international law.

In refusing to pay the Law 42 tax, Perenco has argued that Law 42 is in violation of its contract with Ecuador and the France-Ecuador bilateral investment treaty.

After becoming aware of Judge Brower’s comments in August of 2009 Ecuador filed for the judge’s disqualification on September 19, 2009.
By previous agreement of the parties, arbitrator challenges in the dispute are resolved by the Secretary-General of the PCA, applying the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines).

Under the IBA Guidelines the relevant question in resolving the challenge to Judge Brower is whether the interview comments constitute circumstances 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,” said Secretary-General Kroner in his decision.

According to Mr. Kroner, Judge Brower’s remarks could lead an informed third person to reasonably infer that Judge Brower was drawing an analogy between Ecuador and Libya in the famous nationalizations of oil companies in the 1970s.  As a result, Mr. Kroner went on to conclude that although Judge Brower may not have actually prejudged the issue of expropriation, from a reasonable third person’s point of view his comments could give rise to an appearance that he had prejudged the issue.

Based on these reasons, Secretary-General Kroner sustained Ecuador’s challenge and disqualified Judge Brower from the arbitration.
ITN spoke top Perenco spokesperson Rodrigo Marquez, who said that the company had no comment on the disqualification of Judge Brower.  Mr. Marquez did confirm that Judge Brower had been replaced by a new Perenco-nominated arbitrator Neil Kaplan.

ITN also contacted a senior official of the Ecuadorian government who called the agreement between the parties to use the PCA and in particular the IBA Guidelines to resolve issues regarding impartiality of arbitrators an important development in the field.

“This precedent is fundamental to the system of settlement of investment disputes. The fact that the parties, on their own initiative, established higher standards of excellence and fairness for the arbitrators than those standards established under the ICSID Convention sends a good message to the arbitrators who have the sensitive and delicate task of judging sovereign states…,”added Mr. Galindo.

The arbitration is now set continue at ICSID with a full panel, added Mr. Marquez.


PCA Decision on Ecuador’s Request to Disqualify Judge Brower available at Investment treaty arbitration:

Previous ITN Reporting

“Ecuador defies provisional measures in dispute with French oil company,” By Damon Vis-Dunbar, Investment Treaty News, 8 June 2009, is available here: