The Peculiar Case of Pakistan

This April, Pakistan enacted the Investment Disputes Act to make awards under the ICSID Convention enforceable in Pakistan. This was following a ruling in SGS v. Pakistan before an ICSID Tribunal. The Bill was passed following an ordinance issued almost four years ago which has been renewed under successive regimes, before finding fruition in April. This puts Pakistan in a unique and unenviable position as it does not have a law to bring the New York Convention or the UNCITRAL Model Law into effect, but will now recognise ICSID awards.

Background

Arbitration in Pakistan is still largely governed by the 1940 Act which was enacted by the British for the undivided Indian colony. Though Pakistan has signed the NYC, the enforceability of foreign arbitral awards is unclear as the NYC has not been implemented. The first attempt to implement the NYC was made in 2005, when the new Arbitration Act was passed as an Ordinance (along with an Ordinance to implement the ICSID Convention in 2006, which is now the Investment Disputes Act) almost 50 years after they signed on the NYC.

Ordinances in Pakistan have a limited life under Article 89 of the Constitution and must be tabled before the Houses of Parliament within 4 months of issue. Owing to the declaration of Emergency, they never saw the light of day and in Sindh High Court Bar Association v. The Federation of Pakistan, they were repealed as they were not passed within the requisite period.

Enactment and Controversy

But, in April 2010 President Zardari controversially re-promulgated the repealed Ordinances along with 11 others while the National Assembly was still in session, in alleged violation of Article 89. On the expiry of successive 4 month periods, the Ordinances were granted further 4 month extensions until April this year when the Investment Disputes Act was finally passed.

However, there is no word on when the new Arbitration Act will be enacted, but it is expected to follow the Investment Disputes Act. Thus, Pakistan finds itself in a position where it has given full effect to the ICSID Convention while not bringing the NYC or the UNCITRAL Model Law into effect. In doing so, Pakistan is not only one of the few countries to have not implemented the NYC, but is probably the only country to have implemented the ICSID Convention, while not implementing the NYC.

Lessons for India?

Unlike Pakistan, India is not a party to the ICSID Convention. However, India still lacks a framework for the implementation of Investment Treaty Awards. The issues surrounding ITAs have been dealt with in some detail in this paper, co-authored by Deepak.

The enactment of the Investment Disputes Act in Pakistan is part of the larger trend of settling investment disputes through arbitration. It also underscores the need for a legislation or an adequate mechanism to deal with Investment Disputes in India.

Some interesting links on arbitration

1. Law and Other Things has published a guest post by Mr. Anirban Bhattacharya on how the Supreme Court of India has, on several occasions made a false assumption that the jurisdiction to appoint arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996, is vested in itself. This assumption, which has been manifested by the Court repeatedly in its decisions and other documentations, goes against the dictum in S.B.P. and Co. Vs. Patel Engineering, (2005) 8 SCC 618 which had expressly held that the power of appointment under Section 11(6) is a judicial function vested in the Chief Justice, whose office is distinct from the Court over which he presides.

Qatar signs ICSID Convention

Qatar recently signed the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention). The official announcement by ICSID can be found here. The Convention provides a forum for the arbitration of investment treaty disputes between one State party to the Convention on the one hand and an investor holding the nationality of another State party to the Convention on the other.

We had earlier reported the withdrawal of Bolivia from this Convention.

Revenge time: Arbitral tribunals strike back at national courts?

National courts in different jurisdictions have, for long, jealously guarded their monopoly in adjudication. In this process they have sought to keep private adjudication mechanisms including arbitration under their strict control. We have had some discussions on how Indian courts have interpreted the statute to give themselves larger powers over arbitral tribunals. Now, it seems the arbitral tribunals are striking back at courts by holding sovereign States liable under Bilateral Investment Treaties for anti-arbitration decisions taken by their courts.

Everybody hates Bolivia: At least every arbitrator does according to Bolivia

In an interesting development, Bolivia has challenged all three members of an ICSID tribunal hearing an investment dispute against it on the ground of bias. The Tribunal had asked Bolivia to suspend criminal investigation against one of the claimants. Though a preliminary report appears here, no further details are available. As per Article 58 of the ICSID Convention, the decision on the Challenge will have to be taken by the President of the World Bank acting as ex-officio Chairman of ICSID as the challenge concerns a majority of arbitrators. 

Bolivia, after a period of strained relationship with ICSID, served a notice under Article 71 of the Convention on May 2, 2007 denouncing the Convention. The same came to effect on November 3, 2007. However, this does not exclude the jurisdiction of ICSID tribunals in matters filed before the date of withdrawal. Moreover, there are several Bilateral Investment Treaties currently in force in which Bolivia accepts the jurisdiction of ICSID. As these BITs have not been revoked, ICSID tribunals will continue to enjoy jurisdiction in disputes arising out of them.

On a different note, Prof. Gary Born recently argued on the Kluwer Arbitration Blog that institutions must publish their decisions on challenges to arbitrators so that other parties, while deciding on the choice of arbitrators, may be guided by these decisions. ICSID regularly publishes most of its decisions, including decisions on challenges to arbitrators. It will be interesting to read the decision on Bolivia's challenge when published.

Does having been classmates with a party’s counsel undermine impartiality and independence of an arbitrator? ICSID says no.

During the course of an arbitral proceeding if counsel for one of the parties chances upon a twenty-something year old graduation photograph of a particular batch of a reputed law school depicting one of the arbitrators standing next to the counsel for his adversary, can he challenge the arbitrator on account of lack of independence? Does the fact of not having disclosed the “shared educational experience” warrant removal of the arbitrator?

An ICSID tribunal was recently faced with similar fact situations in Alpha Projektholding GmbH v Ukraine [ICSID Case No. ARB/07/16]. In this case Dr. Yoram Turbowicz, an arbitrator of Israeli nationality, appointed by claimant had submitted a declaration in accordance with Rule 6(2) of the ICSID Rules inter alia stating “[a]ttached is a statement of (a) my past and present professional and other relationships (if any) with the parties and (b) any other circumstances that might cause my reliability for independent judgment to be questioned by a party”. After the commencement of the arbitral proceedings, the counsel for the Respondent, in a letter addressed to the Secretariat of the ICSID alleged: “Dr. Yoram Turbowicz and Counsel for the Claimant Dr. Leopold Specht maintain personal relations, which have arisen in the course of their studies in the Harvard University, where Dr. Turbowicz and Dr. Specht were together enrolled in LLM (1987-1988) and SJD programs (Dr. Turbowicz in 1988-1990 and Dr. Specht in 1988-1992)”. Further it was argued for the respondent that the non-disclosure of this relationship between the arbitrator and the counsel for claimant constituted a violation of Rule 6.2 of the ICSID Arbitration Rules which required the arbitrator to disclose “past and present professional, business and other relationships (if any) with the parties” and “any other circumstance that might cause [his] reliability for independent judgment to be questioned by a party”. Additionally it was argued that publicly available material did not establish that the arbitrator had sufficient experience in transnational investment or commercial arbitration and hence the only feasible explanation for the claimant’s choice of arbitrator was the personal relationship. The arbitrator admitted that he had studied at Harvard together with the claimant’s counsel. However, he emphatically asserted that they shared no personal or professional relationship that required to be disclosed under Rule 6(2).

The other two members of the Tribunal deciding on the challenge stated that the “reliability to exercise independent judgment”, as required by the ICSID rules entailed two concepts – impartiality and independence. They observed that the two concepts had to be considered independent of each other and stated the difference between the two observing: 

“It is generally considered that “[in]dependence” is concerned exclusively with questions arising out of the relationship between an arbitrator and one of the parties, whether financial or otherwise [...] By contrast the concept of “impartiality” is considered to be connected with actual or apparent bias of an arbitrator – either in favour of one of the parties or in relation to the issues in dispute.”

On the standard to be met for a successful challenge to an arbitrator, the other two members of the Tribunal quoted the award in SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan [ICSID Case No. ARB/01/13] which held:

“An arbitrator cannot, under Article 57 of the [ICSID] Convention, be successfully challenged as a result of inferences which themselves rest merely on other inferences […]. The facts established or undisputed must, in the circumstances of the particular case, be plainly capable of giving rise to the inference claimed to be derived from such facts. The inference resulting from the facts must be that, manifestly, that is, clearly, the person challenged is not to be relied upon for independent judgment, or that a readily apparent and reasonable doubt as to that person’s reliability for independent judgment has arisen from the facts established or not disputed.”

On the facts of the dispute, it was held that the respondent had not divulged the source of or given evidence in support of its allegation that that the arbitrator continued to maintain personal relationship with the claimant’s counsel and hence this aspect of the allegation had to be disregarded. Coming to the question of whether having attended Harvard as batch-mates affected independence of the arbitrator, the other two members observed: 

“The Two Other Members are aware of no case and of no scholarly learning that holds, or even argues, that long-ago encounters at an educational institution, standing alone, provide objective grounds, either real or perceived, for justifying an obvious misgiving as to impartiality or for demonstrating an evident lack of reliability as to independence”. 

Further, it was held that the non-disclosure of the shared education experience did not warrant removal of the arbitrator as the facts presented by the respondent did not cross the de minimis threshold.

It is interesting to note that what was held was that shared educational experience alone did not warrant disqualification. What would be the outcome if the respondent was able to establish that during the Harvard days, the arbitrator and the counsel shared something more than mere acquaintance, say a friendship? Would the fact that twenty years of no contact have passed exempt these facts too from disclosure?  Or what if the claimant's counsel had filed an objection to the arbitrator stating they had unpleasant encounters while in college? Can these ghosts of their law school past haunt the arbitrators decades later in their professional lives? The position is unclear.