The undisclosed relationship between an arbitral tribunal member and one of the claimants’ experts has led to a €128m award being annulled.
The International Centre for Investment Disputes Resolution’s (ICSID) annulment committee decided that the relationship could have had a “material effect” on the award.
Eiser Infrastructure and Energia Solar Luxembourg brought claims against Spain alleging regulatory reforms it had implemented fell foul of the Energy Charter Treaty, the energy industry’s international investment agreement.
The claimants sought €256m in damages and, in May 2017, the three-person arbitral tribunal found unanimously in favour of Eiser and ordered Spain to pay €128m.
Spain then sought an annulment on the basis that the claimants’ appointed tribunal member, Dr Stanimir Alexandrov – at the time the co-head of US firm Sidley Austin’s international arbitration group – had failed to disclose a 15-year working relationship with its expert, Carlos Lapuerta, who worked for the Brattle Group.
The tribunal noted that Dr Alexandov had been appointed as arbitrator in four cases in which the Brattle Group had been instructed as the experts by the party that appointed him as arbitrator.
In two of those cases, Mr Lapuerta was the appointed expert and three of them proceeded at the same time as the arbitration involving Spain.
In a further eight cases, Dr Alexandrov – who left Sidley Austin in 2017 and now practises on his own – had been appointed counsel where the client had engaged the Brattle Group as expert. In three of those cases, Mr Lapuerta was the testifying expert.
The committee stressed that “the arbitrator has a duty not only to be impartial and independent but also to be perceived as such by an independent and objective third-party observer. This duty includes the duty to disclose any circumstance that might cause his reliability for independent judgment to be reasonably questioned by a party”.
It would be “manifestly apparent” to such an observer that Dr Alexandrov lacked impartiality, the committee went on.
This meant that Dr Alexandrov’s non-disclosure deprived Spain the opportunity to challenge him about it and “deprived Spain from seeking the benefit and protection of an independent and impartial tribunal which the right to challenge is intended to provide”.
The fact that the decision was unanimous did not mean it could not be annulled, the committee said.
“Each member of the tribunal, including Dr Alexandrov, is expected to have influenced the other two with his views and analysis, during the course of deliberations… it would be unsafe to hold that Dr Alexandrov’s views and analysis could not have had any material bearing on the opinions of his fellow arbitrators. It is not improbable that they had such effect.”
It did not matter, the committee added, that Mr Lapuerta was not the main testifying expert in the present case. He still had “an important role”.
It concluded that the undisclosed relationship could have had a material effect on the award. “The non-disclosure was, therefore, serious and warrants annulment.”
The claimants were ordered to pay $4m in costs.
Commenting on the case, Michael O’Connor, a partner at City firm Charles Russell Speechlys, said it was inevitable that lawyers and experts would form relationships and could find themselves acting for the same client on multiple matters.
“Where those individuals also act as arbitrators, or adjudicators, there is the prospect that they could well find themselves in a similar situation to which Dr Alexandrov and Mr Lapuerta found themselves.
“This is particularly the case where disputes arise in very discreet areas and there is a limited number of professionals operating in those areas.”
He urged experts, arbitrators and counsel to consider “very carefully” before accepting an instruction whether there was a potential conflict of interest. This decision meant they should “err on the side of caution and disclose them”, he said.
“It is not inevitable that there will be a finding of a conflict of interest and full and frank disclosure of these relationships allow the parties an opportunity to investigate and question such matters and make informed decisions on the potential risks.”