REUTERS | Carlos Garcia Rawlins

Arbitrator conflicts in a global era: some reflections on the challenges in ConocoPhillips v Venezuela, as the quantum phase of the case nears its conclusion

The six challenges against L Yves Fortier QC, brought by Venezuela over the past five years in the case of ConocoPhillips Petrozuata BV and others v Bolivarian Republic of Venezuela as a result of his association with Norton Rose, are well known, as is the fact that they have all been dismissed. Apart from their number, the challenges are notable because they bring to the fore some of the key dilemmas surrounding arbitrators (or indeed aspiring arbitrators) practising in large law firms, the misuse of challenges to arbitrators and the appropriate breadth of arbitrators’ disclosure.

The first challenge was brought by Venezuela in October 2011, following Mr Fortier’s disclosure in relation to the then recently-announced merger of Norton Rose (of which he was a partner) with Macleod Dixon. The Caracas office of Macleod Dixon was engaged in providing legal services to ConocoPhillips Company, as well as acting adversely to Venezuela in a number of contentious matters, including before the International Centre for Settlement of Investment Disputes (ICSID). Following the challenge, Mr Fortier announced his decision to resign from Norton Rose by the end of 2011, in light of the potential for conflicts and increasing difficulties of practising as an arbitrator within a large law firm. The challenge was dismissed by his co-arbitrators.

In September 2013, the tribunal, by a majority (Judge Keith and Mr Fortier) rendered its Decision on Jurisdiction and Merits, which was unfavourable to Venezuela. As the quantum phase got underway, the five remaining challenges followed in quick succession. Four of the challenges targeted Mr Fortier’s alleged on-going relationship with Norton Rose, including his use of Norton Rose partners as tribunal secretaries in other unrelated cases (including in the Yukos Energy Charter Treaty arbitrations), and having an arrangement with a Norton Rose affiliate for the provision of benefits for the legal secretaries employed by his cabinet.

Two of the five post-award challenges were decided by the chairman of the ICSID Administrative Council; the remaining three were decided by the co-arbitrators. All of the challenges have been dismissed. This is significant because ICSID jurisprudence on arbitrator challenges has evolved between the first and subsequent challenges to Mr Fortier. It now requires a lower threshold of “appearance” of bias (albeit the appearance still has to be “evident” or “manifest” as that term appears in Article 57 of the ICSID Convention) following Blue Bank International & Trust (Barbados) Ltd v Bolivarian Republic of Venezuela. In that case, a challenge to an arbitrator, whose law firm’s branch in another jurisdiction acted adversely to Venezuela was upheld exceptionally (although other factors contributed to that decision).

Although none of the challenges in ConocoPhillips has been successful, they nevertheless highlight the points introduced above (although those points are certainly not exhaustive).

First, the rise of global law firms undoubtedly makes it more difficult for arbitration practitioners associated with them to sit as arbitrators; this also affects the arbitrator pool and diversity. This is further pronounced following the revisions in 2014 to the International Bar Association (IBA) Guidelines on Conflicts of Interest, which now include, in the non-waivable red list, a situation where the arbitrator’s firm (as opposed to the arbitrator personally, as was the case under the 2004 version of the Guidelines) regularly advises a party to the proceedings and derives significant financial income as a result. This amendment, as well as the concept of a non-waivable red list, was criticised recently in a judgment from the English Commercial Court in W Ltd v M SDN BHD. That case involved a situation where the arbitrator was unaware of a conflict having arisen as a result of a merger of his firm’s client, despite having conducted a conflict check. Even though it technically fell within the non-waivable red list, the judge declined to follow the IBA Guidelines. The question is whether a matter as complex as conflicts in the era of global law firms should not be approached with more flexibility. In a similar vein, the recent Report on the Reception of the IBA Arbitration Soft Law Products records that one of the changes to the IBA Guidelines on Conflicts of Interest, proposed by a respondent of the survey, was to provide further guidance on the meaning of the term “law firm”, particularly as there are different ways in which law firms are now organised and profits are distributed.

Secondly, the case highlights the practice of using arbitrator challenges as a dilatory tactic and the difficulty of combating such behaviour. The right to a fair hearing before an independent/impartial arbitrator would make it difficult to cap the number of permissible challenges. While interim adverse costs orders are an option that should probably be deployed more often, they may not be a sufficient deterrent for a recalcitrant party. An amendment to ICSID Arbitration Rule 9(6) that mandates an automatic suspension of the proceedings to introduce discretion on the part of the ICSID (or the arbitrators deciding on the challenge) might go some way to addressing the potential for abuse of this mechanism.

Thirdly, it underscores the importance of early disclosure of any circumstances that might cause the arbitrator’s reliability for independent judgment to be questioned (ICSID Arbitration Rule 6). Although in ConocoPhillips the potential conflict arose in the course of the proceedings (as opposed to at the outset), a separate challenge on the grounds of the arrangements regarding the secretaries’ benefits (which may have seemed inconsequential) could, perhaps, have been avoided had it been disclosed earlier. While it may be argued that unnecessary disclosure should be avoided as it has the tendency to fuel unmeritorious challenges, the flipside of the argument is that, if full disclosure is made at the start of the arbitration, parties have less propensity to bring a challenge then; even if they do, it would still appear better to have the matter resolved at the outset, rather than risk delaying the proceedings later on in the process.

While the hearing on quantum was finally held recently, it is unlikely that this is going to be the end of the matter. Given the six unsuccessful challenges and Venezuela’s dissatisfaction with the Decision on Jurisdiction and Liability, we are likely to see an application for annulment, once the final award is issued.

Allen & Overy Lucia Raimanova

2 thoughts on “Arbitrator conflicts in a global era: some reflections on the challenges in ConocoPhillips v Venezuela, as the quantum phase of the case nears its conclusion

  1. I find it very interesting observation regarding the rise of large international law firms and conflicts of interest in arbitration. Polycentric law firms may have some sort of “advantage” this way as their partners would probably more likely satisfy the IBA Guidelines on Conflicts of Interest in International Arbitration (“Guidelines”) standards considered below. I note, though, that such “polycentric” arguments were of no use to Mr. Alonso in the Blue Bank case.

    I do not think that inclusion of arbitrator’s firm in point 1.4 of the Non-Waivable Red List of the 2014 Guidelines (as opposed to arbitrator personally under the 2004 Guidelines) was entirely new concept. I think that the 2014 Guidelines rather made explicit something that was implicit under the 2004 Guidelines. As follows from the Explanation to General Standard 6(a) of the 2004 Guidelines “the arbitrator must in principle be considered as identical to his or her law firm”.

    I agree, however, that the Guidelines shall be approached with flexibility. I think that the General Standard 6(a) provides for such flexibility as it sets out that “the activities of an arbitrator’s law firm, if any, and the relationship of the arbitrator with the law firm, should be considered in each individual case. The fact that the activities of the arbitrator’s firm involve one of the parties shall not necessarily constitute a source of such conflict, or a reason for disclosure.” The Explanation to General Standard 6(a) of the Guidelines even acknowledges that “growing size of law firms should be taken into account as part of today’s reality in international arbitration.”

    On the other hand, the General Standard 2(d) provides that “justifiable doubts necessarily exist as to the arbitrator’s impartiality or independence in any of the situations described in the Non-Waivable Red List.” The Guidelines (i.e., General Standard 2(d) in connection with point 1.4 of the Non-Waivable Red List against General Standard 6(a)) thus seem to be internally inconsistent. In this case the flexible approach seems to me more appropriate (as it is difficult to establish absolutely general rule).

    I think that the above was ultimately (in my opinion correct) conclusion of Knowles J in W Ltd v M Sdn Bhd [2016] EWHC 422 (Comm). Interestingly enough, the case also involved secretarial services to the challenged arbitrator.
    It must be also noted (as I believe that this relates to flexibility in some way) that the Guidelines, unless expressly agreed upon by the parties or determined as applicable rules by the tribunal (if tribunal has power to do so) are only guidelines and shall be treated as such. This was also the case in the above English case and ConocoPhillips case itself. After all, the tribunal refused to apply investigation duty under the General Standard 7(c) of the Guidelines in its 27 February 2012 decision on the proposal to disqualify l. Yves Fortier, Q.C., arbitrator. The tribunal concluded that “The IBA General Standards are not law for ICSID tribunals. Moreover, in their own terms, they are “Guidelines”; “they are not legal rules and do not override any …arbitral rules chosen by the parties”.”

    I look forward to see how these issues will be addressed in the annulment proceedings (if any). Though, it seems to me that on the facts of this case, the challenges of the tribunal were not very controversial so I would not expect any surprises. I think that the arbitrators could consider in cases of jurisdictional challenges such as this to issue partial award so that the matter does not delay the enforcement once the final award is issued.

Leave a Reply

Your email address will not be published. Required fields are marked *