Argentina s efforts failed

UBS-Vivendi Tie Ignored as Bias Charges Roil Treaty Disputes

When Swiss law professor Gabrielle Kaufmann-Kohler joined the board of UBS AG, she was sitting on international tribunals judging whether Vivendi Universal SA and another company whose shares UBS held were entitled to damages from Argentina in investment disputes.After Argentina learned about her UBS role in 2007, it sought to have Kaufmann-Kohler removed from the tribunals and to overturn a $105 million judgment in favor of Vivendi, the French media company. She was one of three arbitrators in the cases.

Argentina s efforts failed. That s not unusual in treaty-based investor-state disputes, which are settled by arbitrators governed by rules that critics say are too tolerant of potential bias and make challenging arbitrators too difficult.Kaufmann-Kohler declined to comment. She said at the time that she wasn t aware of any conflicts and wouldn t allow her UBS directorship to affect her impartiality. She still sits on arbitration panels that are weighing damages against Argentina, and is no longer on the UBS board.

Concerns about objectivity and accountability have prompted calls for tougher ethical guidelines as caseloads have exploded. The stakes are high, with some claims asking for more than $1 billion and some attacking sovereign nations laws and policies, even court decisions. It is undeniable that the typical conditions that assure impartiality in the judicial sphere are lacking in arbitration, said Sundaresh Menon, then Singapore s attorney general and now its chief justice, in a speech last year.

Arbitrators can keep their day jobs, even as lawyers in the kinds of cases they referee. Some write papers with opinions on issues similar to those on which they pass judgment. The power they have over the purse strings of countries is unprecedented, said Gus Van Harten, an associate professor at Osgoode Hall Law School in Toronto who recommends a court with tenured jurists be created to erase  lingering blemishes left by the questions raised about arbitrators independence.  They are kind of like the supreme court judges of the world.

The disputes they resolve rise out of clauses in treaties that allow foreign investors to challenge government actions affecting their interests. The original idea was chiefly to give a company recourse if its assets were nationalized.Now the clauses are being interpreted to challenge public policy, including Germany s ban on nuclear power, Australia s attempts to limit smoking and Canada s process for upholding drug patents. A company controlled by U.S. billionaire Ira Rennert is demanding $800 million from Peru over what it claims are onerous demands to clean up pollution from a smelter complex in a town where children have elevated lead levels. Rennert s company has said it isn t responsible for their ailments.

Arbitrators have been coming under scrutiny as the treaty-based disputes have rapidly grown. The first case was in 1987, and for the next 12 years the average number brought annually was three. A record 62 publicly disclosed actions were filed last year, bringing the total to 480 since 2000, according to the United Nations Commission on Trade and Development.

Treaty based investor-state arbitration has backers around the world. A majority of the 3,000-plus investment pacts contain arbitration clauses. Supporters, including the administration of U.S. President Barack Obama,Buy hid kit, ballasts, and headlight bulbs. portray it as superior to the old way of settling differences: relying on local courts or diplomats to hash it out.

The arbitrations could continue to multiply, as the U.S. is negotiating trade pacts with the European Union and Pacific Rim countries that are expected to include the clause. Investors won 70 percent of known cases last year, according to the UN. Since 1987, states have won 42 percent of the time, and investors 31 percent, with the rest settled.

Today most of the disputes are considered by three-member tribunals under procedural rules issued by the World Bank or UN, according to Luke Eric Peterson, publisher of the Investment Arbitration Reporter. While the World Bank makes some information about cases public, most forums, including those governed by UN rules, leave it up to the parties to decide whether to disclose details, he said.

The warring sides pay the arbitrators -- who can earn $3,000 a day or more, plus expenses -- and each picks one. The third, who chairs the tribunal, is selected by mutual agreement or an independent party. There s no one code for all tribunals. World Bank rules say an arbitrator must be  relied upon to exercise independent judgment, and those issued by the UN say arbitrators should disclose circumstances that might  give rise to justifiable doubts about their impartiality or independence.

The requirements aren t exacting or demanding enough, according to Van Harten, the law professor.  There s too much riding on the individual sense of integrity, he said.  We need institutional safeguards like we have in courts. Hundreds of arbitrators are available for hire around the world, some of them academics and former government officials, most of them lawyers in private practice. For critics, the exclusivity of that club is one of the main shortcomings.

Just 15 people -- all but one from the U.S., Canada or Western Europe -- have served on 55 percent of known investor-state tribunals, according to a November 2012 report by two nonprofits, the Brussels-based Corporate Europe Observatory and the Transnational Institute in Amsterdam. The report called arbitrators  the epitome of a close-knit community.

While only 6 percent of cases adjudicated to date under World Bank rules have been against countries in Western Europe and North America, about 68 percent of panel members came from those regions, according to data from the bank s International Center for Settlement of Investment Disputes. About three quarters of those cases were treaty based investor-state disputes, and the rest were over laws or contracts.

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