Procedural requirements for arbitrator challenges: Finding fault with CEMEX v. Venezuela
One fundamental principle of investor-State arbitration is the ability of parties to have their disputes resolved by independent and impartial arbitrators. In order to ensure adherence to this principle, laws and rules governing investor-State arbitrations grant parties the right to challenge arbitrators lacking these qualifications. Given the importance of ensuring arbitrator independence and impartiality, and as evidenced by the recent decision in and subsequent commentary on Vivendi v. Argentina, practitioners and stakeholders in investor-State arbitrations are devoting significant efforts to defining the substantive standards warranting arbitrator challenges, and to understanding what those standards require in practice.
Yet what has received only minor attention, and deserves significantly more, is the issue of procedural requirements for arbitrator challenges. A challenge decision made public in early 2010 illustrates the importance of one such procedural issue— the issue of time limits for bringing challenges. In that case, CEMEX v. Venezuela, a case under the ICSID Convention and ICSID Rules, the Tribunal rejected the Respondent’s challenge on the ground that it was not “promptly” filed. According to the Tribunal, because the proposal to remove the arbitrator was not timely, the Tribunal did not have to consider it on the merits.
This decision is problematic for a number of reasons. First, it effectively requires the parties to monitor and investigate the activities of arbitrators (and the entities and people connected to them), rather than enforcing arbitrators’ continuing duties of investigation and disclosure. Second, it allows procedural standards under the ICSID Arbitration Rules—and vague standards at that—to negate parties’ substantive rights under the ICSID Convention. And third, it likewise purports to allow procedural standards to release tribunals from their substantive obligations under the ICSID Convention. Whether better analysis of any of these three issues would have produced a different outcome is uncertain. What is certain, however, is that the approach followed by the Tribunal in the CEMEX challenge decision is flawed.
Background of the dispute and proposal for disqualification
In October 2008, and in response to actions taken by the Venezuelan government affecting the cement industry, CEMEX initiated a case against Venezuela under the ICSID Convention and the bilateral investment treaty between Venezuela and the Netherlands. On 31 December 2008, CEMEX appointed Robert B. von Mehren as its arbitrator; and on 12 February 2009, Mr. von Mehren furnished the parties his curriculum vitae and the declaration of independence and impartiality required under Rule 6 of the ICSID Rules. The Tribunal was constituted on 6 July 2009.
On 21 September 2009, counsel for Venezuela wrote the Tribunal regarding an issue that needed to be “addressed and clarified.” It informed the Tribunal that a separate ICSID case against Venezuala, Holcim v. Venezuela, had been registered by the ICSID Secretariat in April 2009 that, like CEMEX, arose out of Venezuela’s actions toward the cement industry in 2008. Counsel for Venezuela further explained that claimant’s counsel in Holcim was Debevoise and Plimpton LLP (“Debevoise”), the same firm where the claimant-appointed arbitrator in CEMEX, Mr. von Mehren, had been a partner before he retired. Counsel for Venezuala noted that Mr. von Mehren continued to list a Debevoise office, telephone number, and e-mail address on his curriculum vitae, and asked for additional information on the relationship between Mr. von Mehren and Debevoise.
Mr. von Mehren responded that same day by confirming that he was a retired partner of Debevoise, but continued to have an office there and use secretariat services provided by the firm. He also explained that he received a pension from Debevoise that was based on the firm’s earnings while he was a partner. Mr. von Mehren added that he had not known that the Holcim case had been brought, much less that Debevoise was acting as counsel for the claimant in that case.
On 15 October 2009, the respondent sought additional information regarding the office and secretariat services provided by Debevoise and the measures that were being taken to protect the confidentiality of the arbitration proceedings. Mr. von Mehren responded on 20 October. The following day Venezuela replied in an email that it remained uncomfortable with the relationship between Mr. von Mehren and Debevoise and intended to formally challenge the arbitrator under Article 57 of the ICSID Convention. On 26 October 2009 the respondent filed its challenge, seeking to disqualify Mr. von Mehren on the basis of his continuing relationship with Debevoise, counsel to claimants in Holcim, an action against Venezuela arising out of the same set of fact as the CEMEX dispute.
The disqualification decision
In a decision dated 6 November 2009, the two un-challenged members of the Tribunal rejected as untimely Venezuela’s proposal to disqualify Mr. von Mehren. The Tribunal explained that for arbitration proceedings to be “orderly and fair,” arbitrator challenges must be made in a “timely fashion.” It noted that neither the ICSID Convention, nor the ICSID Arbitration Rules, establish any “definite deadline beyond which a challenge is not to be considered,” but that Rule 9(1) of the Arbitration Rules does state that a “party proposing the disqualification of an arbitrator … shall” do so “promptly.” The Tribunal then asserted, without further discussion, that, pursuant to ICSID Arbitration Rule 27, the “sanction for the failure to object promptly is waiver of the right to make [the] objection.”
According to the Tribunal, by using the word “promptly,” Rule 9(1) did not “fix a quantifiable deadline,” and instead left it up to tribunals to decide on a case-by-case basis whether a challenge was timely filed. The Tribunal then looked to other tribunals’ application of the rule. It cited Azurix v. Argentina, CDC v. Seychelles, and Vivendi v. Argentina as examples of decisions where delays of eight months, 147 days, and 53 days, respectively, had been deemed too long to qualify as “prompt.” It also noted that the tribunal in Saba Fakas v. Turkey had described as “promptly” filed a proposal for disqualification brought ten days after that tribunal’s constitution.
Turning to the facts of the case before it, the Tribunal stated that the Respondent learned that Mr. von Mehren was a retired partner of Debevoise no later than 12 February 2009, the date prior to constitution of the Tribunal when the Respondent received Mr. von Mehren’s curriculum vitae. The Tribunal further observed that the Respondent knew that Debevoise was representing the claimants in Holcim when ICSID registered that case on 10 April 2009. Rejecting the Respondent’s argument that Mr. von Mehren’s curriculum vitae did not contain full information about his relationship with Debevoise, and that the Respondent only obtained such information after asking for it in September 2009, after which time it promptly filed the proposal for disqualification, the Tribunal concluded:[I]n April 2009, the Respondent had in hand all the elements allowing it to
raise the questions it raised in September 2009. It waited more than five months to put those questions. It did it more than two months after the constitution of the Tribunal. Having immediately received on 21 September 2009 the required information, it still waited one month before presenting its proposal for disqualification.
The Tribunal then declared that, pursuant to ICSID Arbitration Rule 27, the “sanction for the failure to object promptly is waiver of the right to make [the] objection.”
Issues with the Decision
The CEMEX challenge decision is problematic for a number of reasons. For one, the Tribunal effectively imposed on the Respondent a continuing duty to police the activities of the arbitrators and the entities and persons related to them. The Tribunal stated that, as of 10 April 2009, the Respondent “had in hand all the elements allowing it to raise the questions it raised in September 2009.” Those elements were two: the CV of one of the three arbitrators in CEMEX, which listed the address, phone number, and email of an office at Debevoise, the law firm where the arbitrator had formerly been a partner; and the registration of a separate ICSID case, Holcim, in which Debevoise was representing the claimants. The Tribunal thus effectively concluded that the Respondent was required to continually assess whether any of the relationships listed in the arbitrators’ CVs created situations giving rise to doubts as to the arbitrators’ independence or impartiality. Further, according to the Tribunal, the Respondent’s failure to monitor and investigate the arbitrators’ circumstances and relationships barred the Respondent’s challenge.
This approach, however, imposes the duty to investigate and disclose potential conflicts on the wrong player. As indicated by ICSID Arbitration Rule 6 and challenge decisions, and reinforced by practical realities regarding who has access to the relevant information, it is the arbitrator, not the parties, who must investigate whether conflicts exist and disclose them if they do. To charge parties with constructive knowledge of conflicts that may arise based on information disclosed in arbitrators’ CV is to impose a difficult, and misplaced, burden on those parties.
A second issue with the Tribunal’s decision is that it abdicated its own responsibility under the ICSID Convention to review the challenge proposal based on the Respondent’s purported non-compliance with the Arbitration Rules. As noted by the Tribunal, Rule 27 of the Arbitration Rules states that if a party “knows or should have known that a provision of the Arbitration Rules or “of any other rules or agreement applicable to the proceedings … has not been complied with and which fails to state promptly its objections thereto, shall be deemed … to have waived its right to object.” What the Tribunal did not note, however, is that Rule 27 does not purport to waive tribunals’ obligations under the ICSID Convention. Article 58 of the ICSID Convention requires tribunals to take a decision on “any proposal to disqualify [an] … arbitrator.” It also obligates tribunals to replace the arbitrator if “the proposal is well-founded.” There is no exception in the ICSID Convention allowing tribunals to refuse to evaluate a disqualification proposal on the grounds that the proposal was not “promptly” filed.
A third, similar problem with the CEMEX challenge decision is that the Tribunal too easily relied on vague procedural provisions in the Arbitration Rules to negate parties’ rights under the ICSID Convention. More specifically, the ICSID Convention affirms’ parties rights to arbitrators of “high moral character …, who may be relied upon to exercise independent judgment.” It also grants parties the right to challenge arbitrators who manifestly lack such qualities, and specifies that parties can seek to annul awards if the tribunal was improperly constituted, if an arbitrator was corrupt, or if the tribunal failed to adhere to fundamental rules of procedure. Under Arbitration Rule 27, failure to “promptly” raise an objection regarding non-compliance with the Arbitration Rules may waive the right to raise that objection. Yet Rule 27 does not state that failure to promptly raise an objection regarding non-compliance with the Arbitration Rules waives parties’ rights under the ICSID Convention to arbitration by independent and impartial arbitrators and in accordance with fundamentally fair procedures. Even more significantly, Arbitration Rule 9, which is the provision specifically governing the procedural requirements for arbitrator challenges, contains no language stating that failure to “promptly” file a challenge will result in a waiver of the right to seek to disqualify an arbitrator.
Nowhere in the Disqualification Decision does the Tribunal adequately explain how or why failure to comply with a vague procedural standard will result in the waiver of parties’ fundamental Convention rights to challenge arbitrators for a manifest lack of required qualifications. Rather, the Tribunal simply makes conclusory statements that it need not consider untimely disqualification proposals. And although the Tribunal does cite some cases in support of its interpretation of “promptness,” in each of the cases where the tribunals determined the proposals were not “prompt,” the tribunals nevertheless proceeded to examine the merits of the challenges.
Participants in and observers of the ICSID arbitration system have been increasingly emphasizing the importance of arbitrator independence and impartiality. Real or apparent lack of those qualities can delay resolution of disputes, increase costs, and threaten the legitimacy of this means of investor-State dispute resolution. Yet while much attention has been paid to the substantive standards used to ensure arbitrator independence and impartiality, relatively little has been focused on the procedural aspects of arbitrator challenges. As the CEMEX challenge decision shows, however, these procedural issues can—rightly or wrongly—determine the outcome of a disqualification proposal.
Author: Lise Johnson is an attorney-at-law and is currently a legal consultant working on issues relating to international investment law and policy.