Arbitration. Precautionary Measure

In a recent judgment[1], Chamber IV of the Federal Court of Appeals on Administrative Matters (the “Court”) decided to accept the precautionary measure requested by the Argentine Government and ordered the suspension of an arbitration until the action to set aside that had been initiated was decided upon. In an arbitration initiated by National Grid Transco (“NGT”) against the Argentine Government before the International Centre for Settlement of Investment Disputes (“ICSID”) the Argentine Government had challenged and requested the replacement of the arbitrator Dr Andrés Rigo Sureda. The International Court of Arbitration of the International Chamber of Commerce (“ICC”), as appointing authority, rejected the challenge, reason why the Argentine Government initiated an action to set aside this decision and, following it, requested a precautionary measure to suspend the arbitration.

NGT had initiated the arbitration against the Argentine Government considering that the application of Law No 25,561 was against the right it had acquired as party of the company Transener through its stock participation in Citelec, which in its place was part of the former company. NGT had appointed Eli Whitney Debevoise as a party arbitrator, while the Argentine Government had appointed Miguel Alejandro Garro. According to the applicable rules, that is, the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL Rules”)[2], the arbitrators proceeded to appoint Dr. Andrés Rigo Sureda as the presiding arbitrator of the Arbitral Tribunal.

The Argentine Government challenged the presiding arbitrator of the Arbitral Tribunal based on the loss of impartiality and independence in the case since Rigo Sureda was the president of arbitral tribunals in demands initiated before ICSID against the Argentine Government in the “Azurix” and “Siemens” cases. NGT objected this challenge and Mr. Rigo Sureda, on his behalf, communicated his decision not to resign from his post to the parties. Before this situation, the Permanent Court of Arbitration communicated to the parties the designation of the ICC as the appointing authority to decide over the grounds of the challenge. Soon after, the ICC rejected the challenge.

Before this decision, the Argentine Government had presented a request to set aside the decision sustaining that the rejection of the challenge sought, together with the lack of communication from the ICC of the grounds over which it had made its decision, to cause serious damages, which were considered as violations to its right of due process.

In effect, the Court, in order to decide over the matter, requested through the Ministry of Foreign Office, International Trade and Culture –on several opportunities- the remission of a certified copy of the case “National Grid Transco plc (United Kingdom) vs. Argentine Republic (Argentina) UNC 72/CCO”.

On June 12, 2007 the Argentine Government requested the Court to dictate a precautionary measure ordering the Arbitral Tribunal to suspend the arbitration until the action to set aside was decided upon. In order to establish its legal grounds the Argentine Government indicated that

(i)                   the verisimilitude of rights was proved since the presiding arbitrator of the Arbitral Tribunal did not have the basic conditions of impartiality and independence for the legitimate exercise of its function as arbitrator; and

(ii)                 the danger in delay was also proved since on July 9 the evidence hearing was to take place in the arbitration proceeding, after which the only step left was the presentation by the parties of their pleadings and after that the award was to be rendered –with the intervention of the challenged arbitrator- the reason why the action for setting aside would become abstract.

The Court considered that the requisites established in article 230 of the Argentine Civil and Commercial Procedural Code had been met and therefore dictated the precautionary measure requested ordering the suspension of the arbitration.

In relation to judicial control by the courts at the seat of arbitration during the arbitration proceedings –that is, before the award has been rendered- the principle of autonomy of the arbitration proceedings applies. According to it, the arbitration should proceed with practically no interference by the judicial courts during it, that is, until the corresponding award has been rendered. Even though this principle has been recognized in several modern arbitration laws, the present case shows a clear rejection of it.

In effect, this principle, that privileges the primacy and respect of the parties’ free will, and therefore, the set of rules chosen by them (i.e. the Arbitration Rules of the ICC, LCIA[3], AAA[4], or UNCITRAL), was clearly incorporated in the UNCITRAL Model Law on International Commercial Arbitration of 1985 (“Model Law”), which establishes:

“In matters governed by this Law, no court shall intervene except where so provided in this Law.”[5]

According to this, judicial intervention during the arbitration proceeding has an exceptional character, being strictly limited to functions of assistance[6] and collaboration. This has also been the position adopted by the English Arbitration Act and by other modern laws.

Arbitration is founded on the parties’ free will, in such a way that these can choose to give competence to arbitrators over judicial courts to solve the disputes that arise or have arisen from a contractual or not contractual relationship. Therefore, it is logically understood that they are empowered to choose the most adequate proceeding that shall be observed to accomplish the dispute resolution system chosen.[7]

The exercise of the parties’ free will in a case with distinct international elements is widely accepted in relation to the determination of both the applicable substantive law and the rules that will govern the arbitration proceeding.

This is typical of “institutionalized” arbitrations, where the administration and control of the proceeding is in charge of a specialized entity that has its own rules of procedure. Consequently, the intervention of judicial courts is limited to specific situations, when the judicial “imperium” is needed (for the execution of precautionary measures or relative to evidence or for the execution of the arbitral award). In this sense, it has been said that:

“Besides that, the institution that administrates displaces the courts in almost a complete manner, notwithstanding the possible intervention of these before means of recourse against the award that can not be waived.”[8]

We must then analyze the regulations that UNCITRAL Rules contain specifically in relation to the challenging of arbitrators in the arbitration proceeding. In this sense, article 12 establishes as grounds for challenge the lack of impartiality or independence of the arbitrator. This is why at the moment of its nomination the arbitrator must reveal –according to article 11- all circumstances that may give way to justified doubts on its impartiality or independence.

In the present case, the ICC –as the appointing authority designated to decide over this matter- rejected the challenge made by the Argentine Government. This decision is final and binding, according to article 7 (4) of the ICC Rules of Arbitration.

“The decisions of the Court as to the appointment, confirmation, challenge or replacement of an arbitrator shall be final and the reasons for such decisions shall not be communicated.”

This decision – as the ones regarding the confirmation, designation or replacement of an arbitrator- is considered of an administrative nature and therefore the description of the grounds for acceptance or rejection is not mandatory.

In this same sense, the Cour d’Appel[9] of Paris has sustained that:

“… [N]o interlocutory judicial review will be permitted of the Court of Arbitration’s action on a challenge to an arbitrator; nor may the ICC be held liable for damages in respect thereto, as long as it has respected the procedural obligations of the Rules”.