REPUBLIC OF ARGENTINA, Pеtitioner, v. AWG GROUP LTD., Respondent.
Civil Action No. 15-1057 (BAH)
United States District Court, District of Columbia.
Signed September 30, 2016
211 F. Supp. 3d 335
BERYL A. HOWELL, Chief Judge
Elliot Friedman, Carlos Ramos-Mrosovsky, Marshall H. Fishman, Freshfields Bruckhaus Deringer US LLP, New York, NY, for Respondent.
MEMORANDUM OPINION
BERYL A. HOWELL, Chief Judge
The Republic of Argentina (“Argentina”) filed this lawsuit seeking vacatur of an international arbitration award against the country in the amount of $20,957,809, plus interest, in favor of the respondent AWG Group Ltd. (“AWG”). Pet. to Vacate Arbitration Award (“Pet.”), ECF No. 1. AWG, for its part, seeks confirmation, recognition, and enforcement of that same award. Cross-Pet. for Confirmation, Recognition and Enforcement of Award (“Resp.’s Cross-Pet.”), ECF No. 12.1 Argentina’s instant petition is not the only effort by the country to avoid unfavorable arbitration awards arising out of disputes between Argentina and private consortia that contracted with Argentina to provide infrastructure and public services in the country. See, e.g., BG Grp., PLC v. Republic of Argentina, — U.S. —, 134 S.Ct. 1198, 188 L.Ed.2d 220 (2014) (reversing the D.C. Circuit’s vacatur of a $185 million dollar arbitration award against Argentina in favor of British firm that was part of consortium with a majority interest in an Argentine entity holding “exclusive license to distribute natural gas in Buenos Aires”); Argentine Republic v. Nat’l Grid PLC, 637 F.3d 365 (D.C. Cir. 2011) (affirming denial of Argentina’s petition to vacate a $53 million dollar arbitration award and grant of respondent National Grid’s cross-motion to confirm the same).
The arbitration award at issue in this case arises from a now-terminated thirty-year contract between Argentina and a private consortium, which included AWG, “to operate the water distribution and treatment systems serving the city of Buenos Aires.” Resp.’s Mem. in Opp’n Pet. to Vacate Arbitration Award and in Supp. of Cross-Pet. for Confirmation, Recognition and Enforcement of Award (“Resp.’s
In accordance with the terms of the UK-BIT, the parties’ dispute was submitted to binding international arbitration before an expert tribunal (the “Tribunal”), which confirmed its jurisdiction, see Pet., Ex. B to Decl. of Matthew Slater (“Slater Decl.”), AWG Grp. Ltd. v. The Argentine Republic, Decision on Jurisdiction (Aug. 3, 2006) (“Decision on Jurisdiction”), ECF No. 1-5, and after twelve years of proceedings entered a final award in favor of AWG in April 2015. Resp.’s Mem. at 1, 4, 11-12. Argentina now seeks to vacate the Tribunal’s award under the Federal Arbitration Act (“FAA”),
I. BACKGROUND
Summarized below is the factual and procedural background pertinent to the resolution of the pending motions.5
On December 28, 1992, Argentina awarded a concession for the “provi[sion of] water and sewage services to Buenos Aires and surrounding municipalities” to a private consortium, which included AWG, a British corporation. Pet. ¶¶ 5, 13-14; Pet., Ex. C to Slater Decl., AWG Grp. v. The Argentine Republic, Decision on Liability (July 30, 2010) (“Decision on Liability”) ¶¶ 1, 33, ECF No. 1-6. Prior to this award, Argentina had declared its public services to be in “a state of emergency” and had taken steps to establish “a regulatory framework to privatize certain public services.” Pet. ¶¶ 10-11; Decision on Liability ¶¶ 28-31. Under this scheme, concessionaires would provide services, new capital, and technology, and in turn, “would be entitled to the payment of tariffs.” Pet. ¶¶ 11-12; Decision on Liability ¶¶ 30-32. To attract “the necessary long-term private and foreign capital,” the new regulatory framework: (1) pegged the Argentine peso to the United States dollar at a ratio of 1:1; and (2) permitted tariff adjustments “to take account of changing and unexpected circumstances.” Resp.’s Mem. at 5-6; Decision on Liability ¶¶ 29, 124. Argentina also entered into more than fifty bilateral investment treaties, including the UK-BIT,6 through which the countries sought to “encourage cross-border private investment.” Resp.’s Mem. at 4; Decision on Liability ¶¶ 29, 124.
The Buenos Aires water and sewage concession was granted to a consortium comprised of AWG and other foreign and Argentine companies, which together formed and operated as an Argentine company named Aguas Argentinas S.A. (“AASA”).7 Pet. ¶ 13; Decision on Liability ¶¶ 32-33. On April 28, 1993, AASA entered into a thirty-year contract with Argentina (the “Concession Contract”). Pet. ¶ 14; Decision on Liability ¶ 34. In accordance with the requirement in the Concession Contract to provide an “upfront investment to improve and expand the system,” AASA obtained loans from multilateral lending agencies, payable in United States dollars, while AASA had agreed to receive tariff payments in Argentine pesos, which were pegged under the terms of the Concession Contract to the United States dollar at a ratio of 1:1. Pet. ¶ 15; Decision on Liability ¶ 35. The Concession Contract included a termination clause “allowing termination under specified circumstances, including termination for the concessionaire’s fault.” Pet. ¶ 16; Decision on Liability ¶ 114.
By 2001, AASA had invested $1.7 billion in the Concession Contract, “yield[ing] substantial improvements in the water distribution and sewage system serving Buenos Aires.” Resp.’s Mem. at 6; Decision on Liability ¶¶ 35-36. Around this time, however, Argentina “began to experience significant economic difficulties that would eventually lead to a financial crisis having serious consequences for the country, its people, and its investors, both foreign and national.” Decision on Liability ¶ 41; Pet. ¶ 18. “[T]o return stability to the country,” Argentina adopted “a series of policies and measures,” including, in 2002, Emergency Law No. 25,561. Pet. ¶ 19; Decision on Liability ¶ 44. This measure, inter alia: (1) “abolished the currency
Starting in March 2002, Argentina and AASA engaged in negotiations “to adjust the terms of the Concession Contract,” but were unable to come to an agreement. Pet. ¶ 20; Decision on Liability ¶¶ 46-47, 49-50. Argentina ignored or rejected AASA’s requested “tariff adjustments and modifications to its operation conditions” and, instead, “demanded that AASA provide water and sewage services to areas outside the scope of [the Concession Contract]” and “insisted that AASA continue to comply fully with its investment obligations.” Resp.’s Mem. at 7; Decision on Liability ¶¶ 44-51. Argentina also “alerted AASA to several significant performance failures in violation of the Concession Contract.” Pet. ¶ 20; Decision on Liability ¶ 52. In September 2005, the AASA requested termination of the Concession Contract, which Argentina refused. Resp.’s Mem. at 7; Decision on Liability ¶ 53. Several months later, in March 2006, Argentina terminated the Concession Contract for fault by AASA. Pet. ¶ 21; Decision on Liability ¶ 56.
B. The Arbitration
On April 17, 2003, after passage of the Emergency Law, but prior to the termination of the Concession Contract, the foreign investors in AASA requested arbitration against Argentina claiming that Argentina’s actions “violate[d] three specific treaty provisions: 1) guarantees against direct and indirect expropriation of their investments; 2) guarantees to accord their investments full protection and security; and 3) guarantees to accord their investments fair and equitable treatment.” Decision on Liability ¶¶ 48, 127; see UK-BIT, arts. 2(2), 5.
Each of the foreign investors (hereinafter “Claimants”) invoked Argentina’s consent to arbitrate in the bilateral investment treaty governing their investment.8 Decision on Liability ¶¶ 1-2. Since the other bilateral investment treaties provided for International Centre for Settlement of Investment Disputes (“ICSID”) arbitration, Argentina and AWG agreed that the ICSID would also administer AWG’s case, subject to the Arbitration Rules of the United Nations Commission on International Trade Rules (“UNCITRAL Rules”), which is a default international arbitration scheme provided for in the UK-BIT. Decision on Liability ¶¶ 2, 4; BIT, art. 8(3). This scheme permitted all of the foreign investors’ claims to be arbitrated before
The Tribunal, appointed in fall 2003, was comprised of three members. Decision on Liability ¶ 5; Pet. ¶ 24. The Claimants appointed Professor Gabrielle Kaufmann-Kohler; Argentina appointed Professor Pedro Nikken; and, because the parties could not agree on a third arbitrator, ICSID appointed Professor Jeswald W. Salacuse to be the Tribunal President. Decision on Liability ¶¶ 5-6; Pet. ¶ 24. The seat of the arbitration was designated to be Washington, D.C. Pet., Ex. A to Slater Decl., AWG Grp. Ltd. v. The Argentine Republic, Award (Apr. 9, 2015) (“Final Award”) at i, ECF No. 1-4; Decision on Liability ¶ 9.
Over the course of the arbitration, from the time of AWG’s request for arbitration in April 2003 to the Tribunal’s issuance of the final award twelve years later, in April 2015, the Tribunal issued five decisions. Decision on Liability ¶ 1; Final Award at i. In the first decision, issued on August 3, 2006, the Tribunal rejected Argentina’s objections to the Tribunal’s jurisdiction to hear the claims. Decision on Jurisdiction ¶ 69. The second decision responded to Argentina’s request to remove Professor Kaufmann-Kohler from the Tribunal, because she had served as an arbitrator in a different case, in which the panel had already issued an award against Argentina. Resp.’s. Mem. at 14. This challenge was rejected by “the two unchallenged arbitrators (including Argentina’s appointee),” in accordance with agreed-upon procedures. Resp.’s Mem. at 14; Resp.’s Cross-Pet., Ex. 16 to Friedman Decl., AWG Grp. v. The Argentine Republic (Oct. 22, 2007) (“First Disqualification Decision”) ¶¶ 12, 17, ECF No. 12-17 (citing ICSID Arbitration Rule 9(4)).9 The third decision responded to a second request from Argentina to remove Professor Kaufmann-Kohler, following her appointment on April 19, 2006, to the Board of Directors of UBS (“UBS Board”), “on grounds that her directorship, and her decision not to disclose it, gave rise to justifiable doubts as to her impartiality and independence, in conflict with the ICSID Convention and the UNCITRAL Rules.” Pet. ¶¶ 28-29; Pet., Ex. K to Slater Decl., Challenge to Mrs. Gabrielle Kaufmann Kohler (“Second Disqualification Challenge”) at 1-2, ECF No. 1-14. The two unchallenged arbitrators, again, rejected Argentina’s claim.10 Pet., Ex. H to Slater Decl., AWG Grp. Ltd. v. The Argentine Republic (May 12, 2008) (“Second Disqualification Decision”) ¶ 26, ECF No. 1-11. In any event, on April 15, 2009, nearly a year after the Second Disqualification Decision, “Professor Kaufmann-Kohler resigned as an independent director [of UBS]” in order “to avoid any possible expression of doubt about her arbitral independence.” Resp.’s Mem. at 22; Resp.’s Cross-Pet., Ex. 23 to Friedman Decl., Kaufmann Kohler Leaves UBS Board, Global Arbitration Review, May 1, 2009, at 1, ECF No. 12-24.
Over a year after Professor Kaufmann-Kohler had resigned from the UBS Board, the Tribunal issued its fourth decision, on
C. Procedural History
On July 6, 2015, Argentina petitioned to vacate the Tribunal’s arbitration award on the grounds that the Tribunal acted with evident partiality, under
II. LEGAL STANDARD FOR REVIEW OF CHALLENGED ARBITRATION AWARD
Review of arbitral awards is “extremely limited,” Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350, 354 (D.C. Cir. 2006) (quoting Teamsters Local Union No. 61 v. United Parcel Serv., Inc., 272 F.3d 600, 604 (D.C. Cir. 2001)), and is “not an occasion for de novo review.” Scandinavian Reins. Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012) (quoting Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir. 2004)). Courts “do not sit to hear claims of factual or legal error by an arbitrator” as they would “in reviewing decisions of lower courts.” Kurke, 454 F.3d at 354 (internal citations and quotations omitted). Indeed, the standard of review of arbitral awards is so narrow that courts are “not authorized to reconsider the merits of an award even though the parties may allege that the award rests on errors
The Supreme Court has explained that this high level of deference is required for arbitration awards because, “[i]f parties could take ‘full-bore legal and evidentiary appeals,’ arbitration would become ‘merely a prelude to a more cumbersome and time-consuming judicial review process.’ ” Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 133 S. Ct. 2064, 2068, 186 L. Ed. 2d 113 (2013) (quoting Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 588 (2008)). Thus, where the parties have chosen arbitration, they “must now live with that choice.” Id. at 2071.
The fact that the document containing an arbitration agreement is a treaty does not “make[ ] a critical difference,” since “[a]s a general matter, a treaty is a contract, though between nations.” BG Grp. PLC, 134 S.Ct. at 1208. “Consistent with the ‘emphatic federal policy in favor of arbitral dispute resolution’ recognized by the Supreme Court as ‘apply[ing] with special force in the field of international commerce,’ the FAA affords the district court little discretion in refusing or deferring enforcement of foreign arbitral awards ....” Belize Soc. Dev. Ltd. v. Gov’t of Belize (“Belize Soc. Dev. I”), 668 F.3d 724, 727 (D.C. Cir. 2012) (alteration in original) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)).
III. DISCUSSION
Argentina urges vacatur of the arbitration award under two provisions of the FAA’s
A. Statutory Framework
Both the United States and Argentina are parties to the New York Convention, which applies to arbitral awards made in the territory of a signatory country to the Convention. See New York Convention, art. I(1); Belize Soc. Dev. I, 668 F.3d at 731 n.3 (“If the place of the award is ‘in the territory of a party to the Convention, all other Convention states are required to recognize and enforce the award, regardless of the citizenship or domicile of the parties to the arbitration.’ ” (quoting Creighton Ltd. v. Gov’t of the State of Qatar, 181 F.3d 118, 121 (D.C. Cir. 1999))). The Supreme Court described the purpose of the New York Convention as to “encourage the recognition and enforcement of
The New York Convention, which has been codified as chapter 2 of the FAA,
Under the domestic provisions of the FAA, the court must confirm an arbitration award unless there are statutory grounds to vacate, modify, or correct the arbitrators’ decision.
- where the award was procured by corruption, fraud, or undue means;
- where there was evident partiality or corruption in the arbitrators, or either of them;
- where the аrbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; 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.
B. Argentina’s Claim of Evident Partiality by a Tribunal Member
Invoking the grounds set out in the FAA’s
1. Relevant Background
Review of the chronology of events and the factual basis for the alleged partiality demonstrates that Argentina’s challenge to one of the Tribunal members falls far short. On July 17, 2003, the Claimants appointed Professor Kaufmann-Kohler as one of three arbitrators to hear the Claimant’s ICSID cases, including AWG’s case at issue in this litigation. Second Disqualification Decision ¶ 3.16 Subsequently, these three arbitrators on the Tribunal commenced hearings and issued decisions in the Claimant’s cases, on such issues as “timetables and procedures on submission of documents, the jurisdiction of the tribunal, requests by a group of nongovernmental organization to participate as amicus curiae, the withdrawal of certain parties, and various other matters concerning the orderly management and processing of the arbitral proceedings.” Id. ¶ 6 (footnotes omitted).
During this ongoing arbitration activity, on April 19, 2006, Professor Kaufmann-Kohler was appointed to a three-year term as a non-executive member of the UBS Board. Id. ¶ 11. At this time, “she submitted on a confidential basis a list of all her arbitrations to UBS and was subsequently
Upon learning of Professor Kaufmann-Kohler’s appointment to the UBS Board over a year after her appointment, Argentina filed a challenge to disqualify Professor Kaufmann-Kohler from the arbitration proceedings on November 29, 2007.17 Id. ¶ 11. This challenge was premised on UBS’s ownership of shares in two members of the consortium responsible for “the Buenos Aires water privatization that is at the heart of the dispute.” Id. ¶ 21. Specifically, “[a]ccording to the Vivendi web site, UBS was a ‘main investor’ in the corporation, holding 2.38% of its registered voting stock as of March 31, 2007. UBS also held some 2.1% of the voting shares of Suez as of March 7, 2007.” Id. ¶ 12. In its challenge, Argentina also pointed out that “UBS does research on and makes recommendations with respect to investments in the water sector, a sector in which the Claimants operate, and UBS has developed financial products that it sells to investors to permit them to invest in the water sector on a global basis.” Id. Further, Argentina cited the fact that, as a non-executive member of the UBS Board, Professor Kaufmann-Kohler is compensated for her services, in part, with UBS stock. Id. Notably, UBS is not a shareholder of AWG. Id. ¶ 21.
In a submission to the remaining two arbitrators determining the challenge, Professor Kaufmann-Kohler explained that until Argentina’s challenge was lodged, “she had no knowledge of the business relationships alleged to exist between the Claimants and [UBS].” Pet., Ex. F to the Slater Decl., Letter from Gabrielle Kaufmann-Kohler to Gonzalo Flores (Dec. 21, 2007) (“Dec. 21, 2007 Kaufmann-Kohler Letter”) at 1; Pet. ¶ 14. After Argentina brought these business relations to her attention, she requested that UBS “verify the accuracy of the UBS shareholdings in the Claimants and was informed by the UBS Corporate Group General Counsel that UBS held 2.38% of the shares and voting rights of Vivendi Universal on March 31, 2007 and 2.13% of Suez’s share capital on March 7, 2007 and 1.3% on April 18, 2006.” Second Disqualification Decision ¶ 14; Dec. 21, 2007 Kaufmann-Kohler Letter at 1. Professor Kaufmann-Kohler submitted to the remaining two arbitrators on the Tribunal additional contextual information “that UBS, as a global financial institution, has many business relatiоnships with many corporations and states worldwide but that she as an independent, non-executive director has no involvement in individual investment decisions and did not receive any information about such individual investment decisions” and “that non-executive directors do not deal with individual UBS client matters or transactions.” Second Disqualification Decision ¶ 14.
Similarly, UBS itself confirmed, “[a]ll these shareholdings are fairly small, if not fractional. They do not have a strategic meaning of any kind. UBS would invest in hundreds, if not thousands of commercial
Notwithstanding the minimal nature of UBS’s investments in two consortium members other than AWG and the challenged arbitrator’s lack of knowledge about the UBS investments until alerted by Argentina, as well as her lack of any role or decision-making authority over UBS’s investments, Argentina attempted to bolster its challenge by offering expert reports from Cornell University Law School Professor Charles W. Wolfram (“Wolfram Reports”). Id. ¶ 15; see generally Pet., Ex. D to Slater Decl., Expert Report of Charles W. Wolfram (Feb. 29, 2008); Pet., Ex. E to Slater Decl., Reply Expert Report of Charles W. Wolfram (Mar. 24, 2008). As noted by the unchallenged arbitrators, the Wolfram Reports focused almost entirely on consortium members, Suez and Vivendi, not AWG, to support Argentina’s argument that Professor Kaufmann-Kohler’s position on the UBS Board rendered her impartial in evaluating AWG’s claims. Second Disqualification Decision ¶ 15.
Ultimately, the unchallenged arbitrators of the Tribunal, including Argentina’s appointed arbitrator Professor Nikken, concluded that Argentina’s Second Disqualification Challenge must be dismissed for failure “to prove any fact indicating a manifest lack of independence or impartiality.” Id. § V, ¶ 1. With respect to AWG, the unchallenged arbitrators reasoned that, “the only connection, if one may call it that, between Professor Kaufmann-Kohler and the Claimant AWG Group Limited is the fact that she is a director of UBS and that UBS, among its many other activities and interests throughout the world, conducts research and develops financial products related to the water sector,” but they concluded that this connection is insufficient to give rise to “justifiable doubts as to an arbitrator’s independence and impartiality.” Id. ¶ 24. Based on this conclusion, the two unchallenged members further found that Professor Kaufmann-Kohler was not required to disclose facts that would not have given rise to justifiable doubts as to impartiality. Id. ¶ 26. The two unchallenged members acknowledged “the possibility of a connection between the AWG case and the other two cases in the sense that if it were established that Professor Kaufmann-Kohler were predisposed to favor the Claimants in the ICSID cases such predisposition would also favor AWG Group Limited which is a partner with the other Claimants in the Buenos Aires water privatization,” id. ¶ 21, but as they found no such predisposition, the arbitrators did not have occasion to address any implications of this connection, see id. ¶¶ 40, 48.18
Notwithstanding the two unchallenged arbitrator’s findings, subsequent to the Second Decision on Disqualification, in an
2. Analysis
Following the lead of Justice White’s concurrence, the D.C. Circuit, in Al-Harbi v. Citibank, instructed that “ ‘the burden on a claimant for vacation of an arbitration award due to “evident partiality” is heavy, and the claimant must establish specific facts that indicate improper motives on the part of an arbitrator.’ ” 85 F.3d 680, 683 (D.C. Cir. 1996) (quoting Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 991 F.2d 141, 146 (4th Cir. 1993) (relying on Justice White’s concurrence in Commonwealth Coatings)). “ ‘The alleged partiality must be direct, definite, and capable of demonstration rather than remote, uncertain or speculative.’ ” Al-Harbi, 85 F.3d at 683 (quoting Peoples Sec. Life Ins. Co., 991 F.2d at 146) (internal quotation marks omitted). “ ‘[A] mere appearance of bias is insufficient to demonstrate evident partiality.’ ” Hammad v. Lewis, 638 F.Supp.2d 70, 75 (D.D.C. 2009) (quoting Alston v. UBS Fin. Servs., Inc., No. 04-01798, 2006 WL 20516, at *3 (D.D.C. Jan. 2, 2006)).
Other circuits to have considered the issue have employed an objective test that “ ‘evident partiality ... will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’ ” Scandinavian Reins. Co., 668 F.3d at 72 (quoting Morelite Constr. Corp. v. New York City Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir. 1984)); see also Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 645 (6th Cir. 2005) (same); JCI Commc’ns, Inc. v. Int’l Bhd. of Elec. Workers, Local 103, 324 F.3d 42, 52 (1st Cir. 2003) (same). Even though the D.C. Circuit has not expressly endorsed this standard, the parties appear to agree that it applies here. See Resp.’s Mem. at 26 (citing Al-Harbi v. Citibank, N.A., No. 94-2425, 1995 WL 450523, at *2 (D.D.C. July 17, 1995)); Pet.’s Mem. in Opp’n to Resp.’s Cross-Pet. for Confirmation, Recognition and Enforcement of Award & in Further Supp. Pet. to Vacate Arbitration Award (“Pet.’s Opp’n”) at 16, ECF. No 17 (stating award must be vacated where an arbitrator has a relationship “such that reasonable
Set against the “onerous standard for vacatur,” Al-Harbi, 85 F.3d at 683, Argentina’s claim of evident partiality rests entirely on Professor Kaufmann-Kohler’s position as a non-executive member on the UBS Board for a limited three-year period, from April 19, 2006, to April 15, 2009, out of the twelve-year duration of the arbitration. Despite the notable facts that UBS held no interest in AWG, that the challenged arbitrator served on the UBS Board for only a fraction of the time she served on the Tribunal, and that she had resigned from the UBS Board at the time of issuance of the Decision on Liability and the Final Award, Argentina points to UBS’s investments in two of AWG’s consortium partners and UBS’s general investment activities in the water sector, as evidence of the challenged arbitrator’s partiality. This evidence is wholly insufficient to establish Argentina’s claim of evident partiality for at least three reasons.
First, in the context of UBS’s overall business, that company’s interests in AWG’s consortium partners, Suez and Vivendi, was inconsequential. UBS “is among
Relatedly, since UBS had no more than a trivial interest in Suez and Vivendi, the challenged arbitrator’s role at UBS and her compensation in UBS stock is likewise inconsequential. Courts have repeatedly rejected claims of evident partiality based on an arbitrator’s attenuated investment in one of the parties or, as here, an entity with tangential investments in a party.22
Transit Cas. Co. v. Trenwick Reins. Co., 659 F.Supp. 1346, 1353 (S.D.N.Y. 1987) (denying vacatur on grounds that relationship was “trivial” where arbitrator owned stock in Cigna Corporation, which had a subsidiary, Cigna Holdings, which owned 100% of the Aetna Insurance Corporation, which in turn owned 7.6% of the shares of the challenging party’s parent company); Standard Tankers (Bahamas) Co. v. Motor Tank Vessel, Akti, 438 F.Supp. 153, 160 (E.D.N.C. 1977) (finding arbitrator’s ownership of “a small number of shares” in a party’s parent company was immaterial where there was still “such a vast number of outstanding shares of stock”); see also Sphere Drake Ins. Ltd. v. All Am. Life Ins. Co., 307 F.3d 617, 621 (7th Cir. 2002) (“A judge can’t hold even a single share of a party’s stock, but this would not imply ‘evident partiality’ for purposes of
The challenged arbitrator’s role as a non-executive member of the UBS Board further demonstrates the attenuated nature of her relationship to the parties. As a matter of course, this arbitrator “ha[d] no involvement in individual investment decisions and did not receive any information about such individual investment decisions” and “[did] not deal with individual UBS client matters or transactions.” Second Disqualification Decision ¶ 14. This role in an intermediary company is far more remote relative to the parties than the types of long-standing, direct, and repeated business relationship with a party that has supported a finding of evident partiality by an arbitrator. See, e.g., Schmitz v. Zilveti, 20 F.3d 1043, 1044 (9th Cir. 1994) (arbitrator’s law firm represented the parent company of a рarty in “at least nineteen cases during a period of 35 years”); Morelite, 748 F.2d at 84 (father-son relationship between an arbitrator and party). Thus, the challenged arbitrator’s role on the Board of a limited investor in non-parties Suez and Vivendi for a relatively short time period during the arbitration is so remote and trivial that no reasonable person would conclude she was partial to a party as a result of that relationship. Al-Harbi, 85 F.3d at 683.24
Second, the fact that UBS, “among its many other activities and interests throughout the world, сonducts research and develops financial products related to the water sector,” Second Disqualification Decision ¶ 24, contributes little to Argentina’s claim of evident partiality. Argentina cites no case law even suggesting that an arbitrator’s position with a company that invests in the same general sector as the parties gives rise to evident partiality. To the contrary, arbitrators are often called upon from relevant industries because they bring the benefit of expertise. See Commonwealth Coatings, 393 U.S. at 150 (White, J., concurring) (recognizing that arbitrators are often “of the marketplace”); see also JCI Commc’ns, 324 F.3d at 52 (noting that “mere fact that the panel included business rivals of one party does not rise to the level of evident partiality” because arbitrators from relevant industries bring expertise that “would be a considerable benefit”).
Finally, given the attenuated business interest between UBS and AWG’s business consortium partners, the challenged arbitrator had no duty to investigate and disclose these “marginally disclosable” facts. Al-Harbi, 85 F.3d at 683 (referencing Commonwealth Coatings, 393 U.S. 145,
Unlike the relationship in Applied Indus., however, the relationship between the challenged arbitrator as a non-executive director and UBS is far more remote than that between the operational Chairman, President, and CEO of a company and the company he serves. Not only that, the relationship between UBS and AWG’s co-claimants was more remote because UBS was only a trivial investor, in contrast to the ongoing service contract relationship at issue in Applied Indus. In any event, once the challenged arbitrator was made aware of UBS’s investment in AWG’s partners, she immediately withdrew from deliberations, sought confirmation from UBS regarding “the accuracy of the UBS shareholdings in the Claimants,” and disclosed that information as part of the underlying disqualification proceedings. See Second Disqualification Decision ¶¶ 13-14. In other words, upon being made aware of a potential conflict, even a trivial one, Professor Kaufmann-Kohler more than fulfilled her duty to investigate. See Applied Indus., 492 F.3d at 139 (stating that “[o]nce the arbitrator [i]s aware that a nontrivial conflict of interest might exist, the calculus change[s]” and “the arbitrator ha[s] a continuing duty to ensure that neither he nor his corporation ha[ve] a direct or indirect interest in the outcome of the arbitration.” (internal quotation marks omitted)). These efforts and actions taken by the challenged arbitrator in an abundance of caution confirms that the record here lacks any facts “that indicate improper motives.” Al-Harbi, 85 F.3d at 683.
In sum, the “evident-partiality standard is, at its core, directed to the question of bias.” Scandinavian Reins. Co., 668 F.3d at 73. The record here does not objectively suggest that the challenged arbitrator had any reason to be biased against Argentina. Thus, the Court agrees with the conclusion of the two unchallenged arbitrators, whose decision is, in any event, due deference, that “[a]n objective analysis ... does not ... lead a reasonable, informed person to conclude that a justifiable doubt exists as to Professor Kaufmann-Kohler’s impartiality or independence” with respect to AWG. Second Disqualification Decision ¶ 24.
C. The Tribunal Did Not Exceed Its Powers
Argentina claims that the Tribunal exceeded its powers by failing to apply applicable
The FAA authorizes vacatur of an arbitration award “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.”
The Supreme Court has cautioned that courts “have no business weighing the merits of the grievance [or] considering whether there is equity in a particular claim.” Garvey, 532 U.S. at 509 (alteration in original) (internal quotation marks and citation omitted). Deference to an arbitrator’s judgment applies, even if the court is convinced that the arbitrator “committed serious error.” Id. (internal quotation marks and citation omitted). “Because the parties ‘bargained for the arbitrator’s construction of their agreement,’ an arbitral decision ‘even arguably construing or applying the contract’ must stand, regardless of a court’s view of its (de)merits.” Oxford Health Plans, 133 S.Ct. at 2068 (quoting Eastern Associated Coal Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S. 57, 61 (2000)). Argentina simply cannot overcome this high hurdle requiring deference to the Tribunal’s determinations.
1. The Tribunal Did Not Exceed Its Power When It Awarded Damages
Argentina argues that the Tribunal exceeded its powers in awarding damages, claiming that the Tribunal lacked authority (1) to award damages arising after the Concession Contract’s lawful termination in 2006, and (2) to calculate damages assuming that Argentina was required to ensure AASA’s viability. AWG counters that “[t]he two damages-related excess of power arguments presented in the Petition are nothing more than quarrels with the way the Tribunal assessed the evidence and applied the law.” Resp.’s Mem. at 39. Despite Argentina’s efforts to cloak its challenge to the amount of damages awarded аs jurisdictional arguments under
Argentina concedes that “the Tribunal was only authorized to award damages for actions in violation of the BIT,” Pet. ¶ 74, which, in turn, required the Tribunal to look to “the applicable principles of international law,” UK-BIT, art. 8(4). Neither the UK-BIT itself, nor the UNCITRAL rules applicable here, expressly provide
To assist with the calculation of damages, the Tribunal appointed an independent financial expert, Dr. Akash Deep, Senior Lecturer in Public Policy at the John F. Kennedy School of Government of Harvard University and a former Senior Economist of the Bank for International Settlements in Basel, Switzerland. Id. ¶ 12; see also Pet., Ex. L to the Slater Decl., AWG Grp. v. The Argentine Republic, Final Report of the Financial Expert to the Tribunal (July 22, 2013), ECF No. 1-15; Pet., Ex. M to the Slater Decl., AWG Grp. v. The Argentine Republic, Response to the Tribunal’s Query About the Failure of AASA (Sept. 21, 2014), ECF No. 1-16. The Tribunal determined, by applying customary international law principles on damages, that the process for calculating damages consisted of three steps: (1) “determine the value of the investment in the hypothetical situation where Argentina did not take measures that violated its treaty obligations,” (2) “determine the value of the investment as a result of the offending measures that Argentina did take,” and (3) “subtract the second value from the first and then actualize that amount by means of an appropriate interest rate to arrive at the damages owing to the Claimants so as to put them in the financial position they would have been [in] had Argentina not breached the applicable BITs.” Id. ¶ 28.
The Tribunal noted that this damages calculation was complicated by the nature of the Claimants’ investments. Id. ¶ 29. In particular, the stream of revenue intended to compensate Claimants for their early-on investments “depended on many variables, both foreseen and unforeseen, over the next three decades, including population growth in the area, general economic conditions, technological changes, labor conditions, management efficiency, inflation, operating
The Tribunal determined, as a preliminary matter, that the valuation period for calculating damages would begin at the point in time before Argentina’s illegal actions took place. Id. ¶ 36. The Tribunal further determined that starting in 2002, when Argentina first breached the BITs, “the Claimants[ ] had the right to a revenue stream which would continue for another 21 years until the year 2023, not just for another five years until the year 2006 when, unknown to them in 2002, Argentina would terminate the Concession [Contract].” Id.
The Claimants detailed “five individual elements of loss as a result of Argentina’s treaty violations: (1) loss on AASA’s debts that the Claimants had guaranteed; (2) in the case of Suez, losses on future management fees (after 2002); (3) also in the case of Suez, losses on unpaid management fees earned before 2002; (4) losses on the Claimants’ equity investments in AASA; and (5) losses on unpaid dividends due to the Claimants as shareholders of AASA.” Id. ¶ 58. The Tribunal awarded damages for the first four of these elements, id. ¶¶ 68, 83, 86, 103, ultimately determining that the last element, “losses on unpaid dividends,” was subsumed by the value of the shareholder’s equity in AASA, id. ¶ 104.
As noted, Argentina raises two challenges to this damages calculation. First, Argentina argues that because the Tribunal concluded no violation of the UK-BIT occurred when Argentina terminated the Concession Contract in 2006, see Decision on Liability ¶¶ 156, 246, any damages encompassing projected cash flows after 2006 fall outside of arbitrators’ scope of authority. Pet. ¶ 74. This was an argument presented to and rejected by the Tribunal. See Final Award ¶¶ 35-36. Specifically, in the underlying arbitration, Argentina unsuccessfully argued that “any injury incurred by the Claimants after the termination in 2006 was a matter to be resolved in Argentine courts according to the dispute resolution provisions of the Concession Contract.” Id. ¶ 35 While Argentina correctly states that the Tribunal found no violation of the UK-BIT from the 2006 termination of the Concession Contract, the Tribunal at the same time found that Argentina’s wrongful acts occurred much earlier than 2006 and continued to flow thereafter. Id. ¶ 36 (noting that the Tribunal determined that the first breach of the treaties took place in 2002). In other words, Argentina mischaracterizes the Tribunal’s award of damages for post-2006 projected profits as damages “arising from termination of the Concession Contract,” Pet.’s Opp’n at 34, when they are not.
A review of the Final Award makes clear that the Tribunal did not award damages for the termination of the Concession Contract itself, but instead determined that the UK-BIT violations entitled the Claimants to future lost profits post-dating 2006 regardless of whether the Concession Contract had been lawfully terminated in 2006. The Tribunal reasoned: “Under international law ... the Claimants’ are entitled to full compensation for what they have lost as a consequence of Argentina’s treaty violations .... To limit the valuation period to five instead of twenty-one years would, of course, seriously undervalue the investments lost as a consequence of Argentina’s treaty violations.” Final
When, as here, “it is contemplated that the arbitrator will determine remedies for contract violations that he finds, courts have no authority to disagree with his honest judgment in that respect.” United Paperworkers, 484 U.S. at 38. In this case, the Tribunal undisputedly had jurisdiction under the UK-BIT to award damages for a violation, and upon finding a violation, calculated those damages. There is simply no evidence that in calculating damages, the Tribunal exceeded its powers. See Oxford Health Plans, 133 S.Ct. at 2071 (“Under § 10(a)(4), the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all. Because he did, and therefore did not ‘exceed his powers,’ we cannot give Oxford the relief it wants.”).26
Second, Argentina argues that the Tribunal exceeded its powers by assuming in its damages calсulation that the country “should have taken certain measures to ensure AASA’s continued financial health throughout the crisis” and that AASA would have continued to be viable in the absence of Argentina’s treaty violations. Pet. ¶¶ 76-77. Although Argentina asserts that none of these steps was required by the Concession Contract, see id. ¶ 78, the damages in this case were based, in part, on “the hypothetical situation where Argentina did not take measures that violated its treaty obligations.” Final Award ¶ 28. In Kanuth, this Circuit recognized that an arbitration damages award “based on accountant projections of future earnings for a company that had existed for less than ten months” was “[b]y [its] very nature ... speculative,” but was nevertheless entitled to deference. 949 F.2d at 1181. Similarly, here, the Tribunal was required to engage in some degree of speculation to determine the predicted cash
2. The Tribunal Did Not Exceed Its Powers When It Elected Not to Apply the Principle of Necessity
Argentina claims that the Tribunal exceeded its power when it chose not to apply the “exculpatory customary international law principle of necessity” and instead “dispensed its own policy choices.” Pet. ¶ 80. AWG dismisses this claim as “nothing more than a disagreement with the Tribunаl’s factual and legal findings.” Resp.’s Cross-Pet. at 43. The Court agrees with AWG.
As previously discussed, the UK-BIT required the Tribunal to look to “applicable principles of international law” when deciding disputes, UK-BIT, art. 8(4), and Argentina is correct that the necessity defense is such a principle. The necessity principle is set forth in Article 25 of the ILC’s Articles, which provides, in pertinent part:
- Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:
- Is the only way for the State to safeguard an essential interest against a grave and imminent peril; and
- Does not seriously impair an es- sential interest of the State or States towards which the obligation exists, or of the international community as a whole.
- In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:
- The international obligation in question excludes the possibility of invoking necessity; or
- The State has contributed to the situation of necessity.
Decision on Liability ¶ 249.
According to Argentina, the Tribunal insufficiently addressed the factors enumerated in Article 25(1)(a) and (2)(b) for the necessity defense by “summarily conclud[ing] that it was ‘not convinced that the only way Argentina could satisfy that essential interest was by adopting measures that would subsequently violate the treaty rights of the Claimants’ investments to fair and equitable treatment.’ ” Pet. ¶ 82 (quoting Decision on Liability ¶ 260). Argentina bolsters this position by pointing out that “ ‘a combination of endogenous and exogenous factors contributed to the Argentine crisis at the beginning of this century.’ ” Id. (quoting Decision on Liability ¶ 264). According to Argentina, the Tribunal’s “summary” conclusions exceeded its authority because those findings “failed to define the applicable legal standards under customary international law,” as required by a decision issued by the ICSID Annulment Committee on the same day as the Tribunal’s Decision on Liability. Id. ¶ 83 (citing Enron Creditors Recovery Corp., Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No. ARB/01/3, Annulment Decision, ¶¶ 368-73 (July 30, 2010)). Argentina interprets this decision to require that a single definition of “only way,” a phrase used in Article 25(1)(a) “be adopted and explained,” and that “different definitions of ‘contributed to,’ ” a phrase in Article 25(1)(b), “be analyzed
Notwithstanding that the Tribunal’s Decision on Liability and the ICSID Annulment Committee decision were issued contemporaneously, Argentina utterly fails to explain why the Tribunal should have found this ICSID Annulment Committee decision to be binding or even persuasive authority in its rejection of the necessity defense. While international law principles are binding on the parties in the instant arbitration, Argentina cites no principle of international law that the rulings by a set of arbitrators in one arbitration are or even should be binding on another set of arbitrators presiding over different parties to a different dispute. To the contrary, generally arbitrators have “the power to determine whether a prior award is to be given preclusive effect ....” SBC Advanced Sols., Inc. v. Commc’ns Workers of Am., Dist. 6, 794 F.3d 1020, 1028 (8th Cir. 2015) (quoting Trailways Lines, Inc. v. Trailways, Inc. Joint Council, 807 F.2d 1416, 1425 (8th Cir. 1986)); see also W.R. Grace & Co. v. Local Union 759, Int’l Union of United Rubber, Cork, Linoleum & Plastic Workers of Am., 461 U.S. 757, 764-65 (1983) (finding an arbitrator’s determination that he was not bound by a prior arbitrator’s decision to be binding on the court).
In any event, the Court need not determine whether the Tribunal’s interpretation of customary international law should have been informed or somehow bound by the determinations of another panel because the Decision on Liability demonstrates that the Tribunal was “arguably construing or applying the contract.” Kanuth, 949 F.2d at 1180-81 (quoting United Paperworkers, 484 U.S. at 38). In this decisiоn, the Tribunal expressly analyzed the UK-BIT and concluded that “principles of international law” applied. See Decision on Liability ¶ 62-63. The Tribunal next separately addressed each of the four conditions on the application of the defense of necessity in Article 25 of the ILC Articles explaining: “The customary international law, as restated by Article 25 of the ILC Articles, quoted above, imposes additional strict conditions.” Id. ¶ 258. In analyzing each of the four conditions, the Tribunal set forth its reasoning for finding that Argentina failed to satisfy the defense. Id. ¶¶ 260-63 (discussing each of the four conditions). Although, only discussion of two conditions included express reference to international law sources such as the Commentary to the ILC Articles and decisions by other investment arbitration panels; in none of the discussions did the Tribunal suggest that it was departing from its mandate to apply “applicable principles of international law.” Id.
Accordingly, the Tribunal did not “dispense [its] own brand of industrial justice,” but rather interpreted and applied the customary international law as was required. Garvey, 532 U.S. at 509 (quoting United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597 (1960)). Even if the Tribunal’s interpretation or application was in error, that would be insufficient to vacate the award. See id. (finding even serious error to be insufficient to vacate arbitral award); Oxford Health Plans, 133 S.Ct. at 2068 (“Only if ‘the arbitrator act[s] outside the scope of his contractually delegated authority’—issuing an award that ‘simply reflect[s] [his] own notions of [economic] justice’ rather than ‘draw[ing] its essence from the contract’—may a court overturn his determination.” (alterations in original) (quoting Eastern Associated Coal, 531 U.S. at 62)). Similarly, Argentina’s contention that “there
D. The Arbitral Award Must Be Confirmed
For arbitral awards governed by the New York Convention, a “court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the [New York] Convention.”
Still, to obtain confirmation of an award, the New York Convention requires that the applicant shall supply: “(a) [t]he duly authenticated original award or a duly certified copy thereof;” and “(b) [t]he original agreement referred to in article II or a duly certified copy thereof.” New York Convention, art. IV(1). AWG has complied with these requirements by submitting to the Court a copy of the award, as authenticated and submitted by the Tribunal, see Final Award, and by dirеcting the Court to “Article 8 of the BIT and in AWG’s submitting its claim to arbitration,” Resp.’s Mem. at 45 (footnote omitted); Chevron Corp. v. Republic of Ecuador, 949 F.Supp.2d 57, 66-67 (D.D.C. 2013) (“Because the BIT constitutes Ecuador’s ‘standing offer’ to arbitrate, all Chevron must show is that it was a U.S. ‘company or national’ that submitted an ‘investment dispute’ in order for the Court to find it had a binding arbitration agreement with Ecuador.”). Accordingly, the arbitral award must be confirmed.
IV. CONCLUSION
For the foregoing reasons, Argentina’s petition to vacate the arbitral award is denied and AWG’s petition to confirm the award is granted.
An appropriate order will accompany this Memorandum Opinion.
BERYL A. HOWELL
Chief Judge