Sam Luttrell discusses the bias challenge to Judge Brower in Perenco v Ecuador.
Bias challenges are an increasingly common feature of investor-state arbitration. The Permanent Court of Arbitration (PCA) at The Hague recently upheld a challenge brought by a state-respondent against a leading arbitrator, the Honourable Charles N. Brower. The PCA held that comments made by Judge Brower concerning Ecuador's disobedience of interim measures and withdrawal from the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (Washington Convention) gave rise to justifiable doubts as to his impartiality or independence. The decision raises the question of whether the PCA's decision is enforceable given that the parties may not have had the power to contract out of the ICSID challenge procedure.
The challenge to Judge Brower arose out of an ICSID arbitration between French company, Perenco, and the Ecuadorian state-oil company Empresa Estatal Petroleos del Ecuador (Petroecuador). Perenco filed for ICSID arbitration in April 2008, alleging that Ecuador had breached the France-Ecuador Bilateral Investment Treaty (BIT) by expropriating Perenco's participating interest in an oil tenement in the Amazon region of Ecuador. Perenco appointed Judge Brower as its arbitrator. The parties agreed that any challenges to arbitrators would be resolved by the Secretary General of the PCA according to the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines).
Facts giving rise to the challenge
Ecuador formally denounced the Washington Convention on 6 July 2009. Ecuador's reaction to the ICSID tribunal's provisional measures (which included a temporary restraining order against the State), and its withdrawal from the Washington Convention, attracted a good deal of media attention. In August 2009, Judge Brower was interviewed byThe Metropolitan Corporate Counsel. After being asked to comment on Ecuador's withdrawal from the Washington Convention, Judge Brower was asked the following question:
Editor: Tell us what you see as the most pressing issues in international arbitration.
Brower: 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.
On 19 September 2009, Ecuador filed a Request for Disqualification of Judge Brower with the Secretary General of the PCA, alleging that Judge Brower's answer to the above question gave rise to justifiable doubts as to his impartiality or independence. On 13 October 2009, the PCA gave notice to the parties that it accepted jurisdiction to decide upon the challenge. Perenco gave notice that it was of the view that the challenge lacked merit, and submissions were filed in October and November 2009.
The PCA's decision
In arriving at his decision as to Judge Brower's bias, the Secretary General of the PCA applied General Standard 1 and General Standard 2 (Conflict of Interest) of the IBA Guidelines. He stated the question was one of whether:
from a reasonable third person’s point of view having knowledge of the relevant facts, Judge Brower’s comments give rise to justifiable doubts as to his impartiality or independence. Stated in another way, could a reasonable and informed third party conclude that there is a likelihood that Judge Brower may be influenced by factors other than the merits of the case as presented by the parties in reaching his decision?
The Secretary General concluded that:
the combination of the words chosen by Judge Brower and the context in which he used them have the overall effect of painting an unfavourable view of Ecuador in such a way as to give a reasonable and informed third party justifiable doubts as to Judge Brower’s impartiality.
Ecuadoralso argued that Judge Brower appeared to have prejudged two issues: first, the issue of whether provisional measures are legally binding under the Washington Convention; and second, the merits issue of expropriation. The Secretary General held that Ecuador's argument on prejudgment of the provisional measures issue failed because Judge Brower was simply repeating what the tribunal had already decided. As to the merits prejudgment question, The Secretary General concluded that Judge Brower's comments also gave rise to a justifiable doubt that he had prejudged the issue of whether Ecuador had expropriated Perenco's investment.
Questions raised by this case
The challenge to Judge Brower raises a number of complex questions of international law, both practical and theoretical:
- Was it open to the parties to agree for the Secretary General of the PCA to decide challenges?
At the time the agreement to refer challenges to the PCA was concluded in October 2008, Ecuador was a member state of the Washington Convention. Article 71 of the Washington Convention proscribes that withdrawal only becomes effective six months after formal notice is given by the withdrawing state. Ecuador's withdrawal from the Washington Convention only took effect on 6 January 2010, almost four months after the request for disqualification of Judge Brower was filed with the PCA. The effect of Article 72 of the Washington Convention is that withdrawal cannot operate retroactively. It follows that despite Ecuador's withdrawal from the Convention, the Perenco v Ecuador arbitration was, at the time of the challenge that arose out of it, still subject to the Convention. The Washington Convention is a multilateral treaty. It is trite law that a multilateral treaty is not capable of exclusion bybilateral agreement of two signatories, let alone one signatory and a corporate national of another. Whilst there is an emerging custom of referring ICSID bias challenges to the PCA, this is normally only done where the challenge is to a member of an annulment committee and the Chairman of ICSID is conflicted out. It is therefore likely that it was not open to the parties to agreement for the PCA to determine challenged and as such the validity of the agreement to refer challenges to the PCA is, therefore, open to question under international law.
- Were the parties able to 'opt-down' into the lower threshold for bias challenges posited by the IBA Guidelines?
Given that the Convention was still applicable to the challenge when it was filed, the standard for arbitrator independence and impartiality should have been derived from the Washington Convention. Article 57 allows for the challenge of any tribunal member on account of any fact indicating a manifest lack of the qualities required of an arbitrator under Article 14(1), namely high moral character, expertise and independent judgment.
- Would the result have been different if the PCA had applied the Washington Convention instead of the IBA Guidelines.
The Washington Convention threshold is set significantly higher than the threshold for bias challenges posited by the IBA Guidelines. The key word in Article 57 of the Convention is manifest. ‘Manifest’ has been interpreted to mean ‘obvious or evident’ and to ‘exclude reliance on speculative assumptions or arguments’, and to operate as an evidentiary condition which ‘imposes a relatively heavy burden of proof on the party making the proposal [to disqualify]’. With these authorities in mind, and considering the material facts of the challenge, the challenge to Judge Brower may not have succeeded if it was heard by the remaining arbitrators under normal ICSID procedure and decided by application of the Washington Convention.
The challenge to Judge Brower is a good example of the legal complexity of bias challenges in investor-state settings, where the law of nations and the law of commerce do not always interact with certainty. The challenge to Judge Brower illustrates this friction. The problem is firstly one of autonomy: to what extent are the parties free to tailor challenge procedures in an ICSID arbitration? The issue then evolves into a question of applicable law – what law applies to a challenge that arises out of an arbitration between an investor and a state that has denounced (but not yet effectively withdrawn from) the Washington Convention? Without criticising his decision, we might have answers to these questions if Judge Brower refused to stand down, and Ecuador was put in a position where it had to attempt to enforce the decision of the Secretary General of the PCA. However, the fact that Judge Brower resigned voluntarily means these questions remain unanswered.