By

Ishita Wargaht

The principal responsibility of any counsel in a dispute lies in the orchestration and administration of any procedural mechanisms aimed at resolving the conflict. The importance of such a representation is highlighted in many conventions. The International Covenant on Civil and Political Rights¹ and the European Convention on Human Rights² are two preeminent examples. Such a legal representation is equally important in an arbitration proceeding. However, there is always a probability of the existence of a conflict of interest with respect to the individuals involved in an arbitration proceeding. This conflict mainly arises between the arbitrators and the counsels representing the parties. This post analyses the remedies available to ICSID tribunals in case of an arbitrator-counsel conflict of interest while referencing the London Court of International Arbitration (“LIAC”),³ ICC International Court of Arbitration (“ICC”),⁴ and International Bar Association (“IBA”)⁵ for a comparative analysis.

The International Centre for Settlement of Investment Disputes (“ICSID”) has long been regarded as the cornerstone of investor-state dispute resolution, providing a specialized forum for the resolution of investment disputes and is governed by the ICSID Convention, Regulations, and Rules (“ICSID Rules”).⁶ These rules, among others, demarcate the powers and remedies available to the tribunals in case of any arbitrator-counsel conflict of interest contention, for example, where a counsel has some connection with one of the arbitrators which can result in bias and lack of impartiality in the proceedings. Procedurally, in case any such contention is raised by the parties, the only remedy available at hand is to remove the conflicted arbitrator. However, in recent times, tribunals have taken a different stance and have begun removing the conflicted counsel.

This stand was first taken in the Hrvatska Tribunal,⁷ where, in order to avoid bias due to the acquaintance of one of the counsels with the arbitrators, the counsel was disqualified from representing the concerned party. When questioned as to where the tribunal got the authority to order such a removal, the tribunal opined that it was authorized under Article 44 of the ICSID Convention to make such a decision. Citing the aforementioned case, the same was held in the Rompetrol Tribunal⁸ wherein it was also added that such a power could only be used in exceptional circumstances when the integrity of the proceedings could be compromised. A similar understanding was reflected in the Edmond Khudyan Tribunal⁹ and Fraport Tribunal¹⁰ decisions. In the Theodore David Einarsson Tribunal decision,¹¹ (Feb. 24, 2022).] during deliberations regarding the removal of counsel, it was asserted that ICSID Tribunals lack the authority to monitor a counsels’ adherence to ethical obligations imposed by local codes. These ethical constraints, stemming from codes governing lawyers’ professional conduct, encompass responsibilities such as not discontinuing representation without just cause and maintaining confidentiality. The Tribunal argued that as the removal of counsel directly impacts the fundamental fairness of proceedings, it falls within the jurisdiction of the ICSID Tribunal.

These above-referenced decisions indicate that ICSID tribunals have the authority to disqualify the representation by a counsel in a particular case. However, such a disqualification is based on exceptional circumstances, and the recourse should be availed only when the integrity of the proceedings would be compromised should the counsel not be removed.

Arbitration is a self-contained, party-centric dispute resolution mechanism existing outside the realm of stare decisis. For example, ICSID tribunals render non-precedential awards that subsequent tribunals are free to follow or ignore. It can be argued that it is an unnecessary practice recognized only in a handful of cases, is not a customary norm, and does not hold any precedential value. Therefore, it can be claimed that when arbitrator-counsel disputes arise, the arbitrator should be disqualified, not the counsel.

However, such a contention does not hold water, and to understand the need for such an alternate remedy, the concept of fungibility is relevant. Fungibility means the quality of being interchangeable or substituted.¹² In the context of arbitration, it refers to the parties that can be replaced. In an arbitration proceeding, the level of fungibility of each participant is not equal and depends on the relevance of the parties. In the case of arbitrator-counsel disputes, the fungibility level of arbitrators is lower than that of the counsels as arbitrators are appointed by a common consensus between the parties themselves, which forms the foundation of any arbitration agreement. This is also recognized in the ICSID convention as the principle of immutability. It means that a properly constituted arbitral tribunal cannot be changed as it may imperil the legitimacy of the whole process, thereby also attributing procedural sanctity to such an aspect. The ICSID Convention explicitly states, “[a]fter a Commission or a Tribunal has been constituted and proceedings have begun, its composition shall remain unchanged.”¹³ Additionally, while removing an appointed arbitrator, the principal consequences, both for the parties and the arbitration system, are the increased cost of the dispute and the length of the proceedings.¹⁴ A counsel, on the other hand, is appointed by the express choice of the respective parties, thereby having a higher fungibility level than that of an arbitrator, and therefore, in most cases, the counsel should be removed. However, this should not be construed as a hard-and-fast rule. Before resorting to any alternative, the concept of fungibility should be analyzed according to the facts of each case. The circumstances of a particular case might mandate the removal of an otherwise less fungible participant, for example, an arbitrator, especially when the counsel has been involved extensively in the case for a long period of time. Removing the counsel in such a case shall just prolong the process and not be in the best interests of all the participants in the proceeding.

The concept of fungibility therefore explains why is there a need for an alternate remedy in the case of an arbitrator-counsel dispute. The author in the current piece is proposing to attribute procedural sanctity to the removal of a counsel as against the customary and procedural mandate of removing the arbitrator after assessing the fungibility of the concerned actors in the proceedings and analyzing the facts and circumstances of each case.

The primary problem in ICSID decisions is their non-precedential nature. As noted above, while there are only a handful of decisions available for an arbitrator-counsel dispute wherein the counsel is disqualified from participating in the proceedings, these are of a non-precedential nature.¹⁵ This gap was also observed by a commentator who stated:

At any rate, there is no rule of binding precedent in investment treaty arbitration. There is nothing in the ICSID Convention itself or in its travaux préparatoires to indicate the existence of such a doctrine. The decentralized structure of investment treaty arbitration is not well suited to the application of stare decisis. There are over 3000 distinct investment treaties currently in force. There is no hierarchy as between ICSID tribunals, and no mechanism of appeal. There are limited grounds for annulment and the annulment mechanism is not designed to provide consistency or predictability. And the publication of investment arbitration awards is subject to party consent. These factors have occasionally led to divergent and even conflicting awards on the same points of law or similar facts.¹⁶

This empowers the arbitral tribunal to exercise its powers in a wider import than necessary thereby necessitating the consolidation of such an alternate remedy within the framework of ICSID to impart procedural legitimacy to the same.
Secondly, for the cases that necessitate the removal of an arbitrator instead of a counsel in case of an arbitrator-counsel conflict of interest, the power to decide upon such a removal is given to the arbitral tribunal (including the conflicted arbitrator). Such an inclusion of the conflicted arbitrator is also observed in LIAC,¹⁷ ICC,¹⁸ and IBA¹⁹ processes. However, logical gaps can be observed in such a process. By including the conflicted arbitrator in an issue that involves himself as a party to the conflict of interest, gives rise to a secondary conflict of interest. The first and the primary one being between the arbitrator and the counsel and the secondary one being the constitution of the tribunal in deciding such an issue. In such a case, only the non-conflicted arbitrators (i.e., the ones not a party to the conflict of interest) should determine the secondary issue.

To conclude, the remedies available to ICSID tribunals in arbitrator-counsel conflicts constitute a dynamic area within the landscape of investor-state dispute resolution. While traditionally the remedy involved removing the conflicted arbitrator, recent decisions, as exemplified by the Hrvatska Tribunal,²⁰ demonstrate a shifting trend towards disqualifying the counsel. This evolution, grounded in the authority granted by Article 44 of the ICSID Convention, underscores the tribunal’s commitment to preserving the integrity of proceedings and addressing exceptional circumstances where the participation of a conflicted counsel could compromise the fairness of the proceedings.

However, challenges persist, notably the non-precedential nature of previous decisions and the logical gaps in the process, particularly while deciding on the removal of an arbitrator which also includes the conflicted arbitrator. These problems have a simple solution, codify a tribunal’s ability to remove conflicted counsel into the framework of the ICSID convention. Additionally, the conflicted arbitrator should not be allowed to participate in deliberations involving himself and the conflicted counsel. Overall, a balanced and comprehensive approach is essential to enhance the legitimacy and effectiveness of the ICSID dispute resolution mechanism.