Why Argentina's Petition to Vacate an Award in AWG Group Ltd v. Republic of Argentina Matters for Future Arbitrations

Faegre Drinker Biddle & Reath LLP

On 6 July 2015, Argentina filed with the U.S. District Court for the District of Columbia a petition to vacate an UNCITRAL arbitration award of approximately $20 million rendered in favour of AWG Group Ltd (No. 15-cv-01057, 6 July 2015). The outcome of this petition could have broader implications for determining partiality of arbitrators.

Challenging an Arbitrator’s Impartiality

Argentina has brought this action pursuant to §10(a)(2) and §10(a)(4) of the Federal Arbitration Act which provide for an award to be vacated where there was “evident partiality or corruption in the arbitrators, or either of them” or “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” To substantiate its claims, Argentina states that Professor Gabrielle Kaufmann-Kohler, a co-arbitrator appointed by AWG in the arbitration that yielded the award in question, was partial because of her service as a director and shareholder of UBS, the largest investor in one of the AWG claimants. Further, it is Argentina’s case that the award must be vacated due to Professor Kaufmann-Kohler’s failure to disclose her acceptance of the appointment as director and her failure to investigate adequately the potential for the appointment to compromise her independence and impartiality.

Although Argentina’s latest attempt to challenge Professor Gabrielle Kaufmann-Kohler is not unexpected considering it has attempted to have her disqualified on several occasions in the past ((see for example Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentina (ICSID Case No ARB/97/3)(Second Annulment Proceedings) and EDF International SA and others v Argentina (ICSID Case No ARB/03/23)), the outcome of this particular challenge may be of considerable importance. This is because the District Court has been asked to consider and clarify certain issues which the arbitration tribunal failed to address and has thereby been provided with an opportunity to positively influence the existing jurisprudence in relation to impartiality of arbitrators.

Future Arbitration Issues at Stake

First, the District Court will be able to clarify how arbitral tribunals should approach the question of fiduciary duty, which is owed by non-executive and shadow directors to their company if such directors are also appointed to an arbitration tribunal. Argentina argues that as a member of UBS’ board of directors, Professor Kaufmann-Kohler had a fiduciary responsibility to further UBS’ economic interests and could not knowingly act contrary to UBS’ interests. As the tribunal failed to address the issue of fiduciary duty, the arbitrator’s natural inclination to protect the economic interests of a company, or the justifiable doubts such role created regarding the arbitrator’s ability to act impartially, the District Court can revisit these concerns and further refine the applicable rules.

Secondly, the District Court can also address the issue of any direct financial interest Professor Kaufmann-Kohler may have had in UBS’ performance because at least half of her annual compensation as a non-executive director was paid in UBS shares. The tribunal rejected Argentina’s challenge in relation to this point but provided no analysis to support its conclusion. Although it is generally accepted that the smaller the shareholding, the less likely it is that a challenge will be upheld, one must consider all the circumstances present in this particular case and the District Court can provide further guidance on the applicable scales.

Lastly, and perhaps most importantly, Argentina’s recent challenge may provide the right window of opportunity to reignite a debate in relation to the parties’ ability to appoint an arbitrator who has ruled against a particular defendant on several occasions in the past. Although an arbitrator’s participation in an earlier tribunal which found against one of the parties would not, on its own, establish a lack of impartiality ((Participaciones Inversiones Portuarias SARL v Gabonese Republic (ICSID Case No. ARB/08/17)), one may wonder whether there is some likelihood of the jurisprudence on this area being developed further here. A potential “amalgamation” of several different issues which, although on their own would not be sufficient a challenge to a particular arbitrator’s appointment, could possibly lead to a finding of partiality ((Burlington Resources Inc v Republic of Ecuador (ICSID Case No ARB/08/5)).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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