By: Sarah B. Biser, Partner and Construction Practice Co-Chair, and Philip Z. Langer, Associate, Fox Rothschild LLP.
The parties in a $238-million dispute over the construction of the third set of locks for the Panama Canal are raising issues concerning alleged conflicts of interest on the part of the International Chamber of Commerce (“ICC”) arbitrators in the United States District Court for the Southern District of Florida.[2] The case may address rarely litigated issues concerning whether arbitrators who sit on multiple arbitration panels together or who support appointment of each other to lead arbitration panels have disabling conflicts of interest.
The case pits Grupo Unidos por el Canal, S.A. (“Grupo”), a consortium of Spanish, Italian, Belgian, and Panamanian construction firms, against Autoridad del Canal de Panama (“ACP”), the Panamanian entity that operates the Panama Canal and that sponsored the multi-billion-dollar, decade-long project to expand the Canal’s capacity by building a new set of locks (the “Project”). The current dispute (the “Panama 1 Arbitration”), which centers on the suitability of the rock coming from the excavations to be used to produce concrete aggregates for the Project, was arbitrated before a three-member ICC Tribunal and resulted in a $238-million award to ACP and against Grupo. The ICC Tribunal reversed a decision of the dispute review board established in the parties’ contract.
Grupo has filed a motion to vacate the award, claiming that the arbitrators failed to disclose purported conflicts of interest involving “multiple cross-appointments and interrelationships among themselves and other involved in the dispute.” (Grupo Motion to Vacate, at 2.)
In particular, Grupo is claiming that it was improper for the arbitrators not to disclose that: (1) ACP’s arbitrator purportedly “appointed” the Tribunal president to a different arbitration tribunal before the Panama 1 Arbitration Tribunal began its deliberations, a position that Grupo said could garner the Tribunal president several hundreds of thousands of dollars; (2) during the Panama 1 Arbitration, the Tribunal president sat on multiple arbitral tribunals with the tribunal president in an earlier arbitration between the parties (the “Cofferdam Arbitration”), which dealt with “questions of principle” also at issue in the Panama 1 Arbitration; (3) potential conflicts of interest arising from the activities of the barristers’ chambers to which ACP’s arbitrator belongs; and (4) one of the arbitrators was sitting on an arbitration panel with counsel for ACP. (Grupo Motion to Vacate, at 7-12.)
For its part, ACP argues that none of Grupo’s claims raises true conflict requiring vacatur of the award.
Without regard to the outcome, this matter raises the importance of Arbitrator’s impartiality and independence, which is the bedrock of international arbitration. Recent arbitration awards have been vacated or annulled due to arbitrator conflicts of interest or even mere appearances of impropriety. Parties may waive such conflicts, however, if the parties do not raise the conflicts in a timely and appropriate manner.
Recent proceedings demonstrate the importance of this issue.
On June 11, 2020, an annulment committee appointed in an ICSID case annulled a $128 million award against Spain in an Energy Charter Treaty case and ordered the claimants to pay all fees and costs in the case. The ruling was based on the arbitrator failing to disclose his 15-year relationship with claimant’s damages expert involving eight cases by the arbitrator’s law firm, including several where the expert was currently engaged. In addition, the arbitrator had presided over cases where the expert had previously testified. Because this information was not adequately disclosed, Spain did not have a chance to object at any time, including at the time the Tribunal was formed.
On December 16, 2015, France’s highest court annulled an arbitration award due to an arbitrator’s connection to the prevailing party. The Court of Cassation held that the partial award must be set aside because the arbitrator was a partner in a Canadian law firm that had a continuing relationship with the prevailing party.
Disqualification of Arbitrators-Know Your Audience
Finesse is required in the disqualification process, particularly when asserted later in the proceedings. Each arbitral forum has a different procedure and criteria for disqualification, and knowing the internal rules may make the difference between winning and losing the motion. One key difference is the degree to which information regarding disqualification will be shared with the Tribunal itself and whether the Tribunal has a voice in the decision.
Disqualification before the International Centre for Dispute Resolution (ICDR)
The ICDR follows the same disqualification procedure as its domestic affiliate, the American Arbitration Association. A party must send a challenge to the Administrator within 15 days of becoming aware of the circumstances supporting the challenge. Under Article 14 of ICDR Arbitration Rules, the Administrator notifies the opposing party of the challenge and grants a time to respond. The Tribunal is also notified of the challenge, but is not told which party filed the challenge. The Administrator may request information from the arbitrator who is being challenged. If the opposing party accepts the challenge, then the arbitrator must withdraw, or the arbitrator may withdraw unilaterally without admission that the challenge was correct. In the absence of agreement, the Administrator in his or her sole discretion will decide the challenge.
Disqualification Before the International Court of Commerce (ICC)
Under Article 14 of the ICC Rules, a party’s challenge must be filed in writing with the Secretariat within 30 days after the party becomes aware of a conflict, and the challenge must specify the facts and circumstances on which the challenge is based. The ICC itself “shall decide on the admissibility and, at the same time, if necessary, on the merits of a challenge after the Secretariat has afforded an opportunity for the arbitrator concerned, the other party or parties and any other members of the arbitral tribunal to comment in writing within a suitable period of time.” Unlike in the ICDR, the ICC Tribunal and the affected arbitrator, as well as all parties, shall be heard before a decision is issued.
Disqualification Before the ICSID Convention Arbitration
For treaty cases, challenges are filed with the ICSID Secretary-General or the Tribunal under Article 57 of the ICSID Convention. Once received, the challenge is forwarded to the Chairperson of the ICSID Administrative Counsel if the challenge is to a sole arbitrator or a majority of the Tribunal. A schedule is set for the challenged arbitrator to respond and for the other parties to comment. A decision on the challenge is usually made by the other members of the Tribunal (Article 58). Where a sole arbitrator or a majority of the Tribunal is challenged, the decision is made by the Chairperson of the Administrative Council.
Standards Governing Disqualification
In the ICDR, four factors are weighed in disqualification motions: whether the conflict is (a) direct, (b) continuing, (c) substantial, and (d) whether the challenge is timely. Other arbitral fora apply similar rules and consider the disqualification criteria used by the seat of arbitration. That makes sense, because, if the award is challenged in court, the disqualification motion will be reviewed by the court as well.
Conclusion
Legitimate disqualification motions advance the integrity of the Tribunal, but must be brought timely and with good cause. Even if denied during the actual arbitration, the motion may be reconsidered at the annulment stage. Each arbitration forum has its own rules for disqualification motions, and these rules should be strictly followed. The Grupo case may provide helpful guidance to parties and arbitrators concerning the types of relationships and activities that may be considered conflicts, which is an area of increased scrutiny in arbitrations.
The author, Sarah Biser, is a partner at Fox Rothschild LLP, which represents Constructora Urbana, a Panamanian contractor that is one of the four shareholders of Grupo.
[1] The case is entitled Grupo Unidos por el Canal, S.A. v. Autoridad del Canal de Panama, Case No. 1:20-cv-24867 (S.D. Fla.). The parties to the motion to vacate include Grupo Unidos por el Canal, S.A., Sacyr, S.A., Webuild S.p.A., and Jan De Nul, N.V.
[2] The case is entitled Grupo Unidos por el Canal, S.A. v. Autoridad del Canal de Panama, Case No. 1:20-cv-24867 (S.D. Fla.). The parties to the motion to vacate include Grupo Unidos por el Canal, S.A., Sacyr, S.A., Webuild S.p.A., and Jan De Nul, N.V.
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