International Economic Law and Policy Blog | 29 March 2017
The fourth man: an intriguing sub-plot in the Yukos arbitration
by Rob Howse
The Yukos case is among the most flamboyant investor-state arbitrations (Chevron v. Ecuador a close competitor). Yukos reads like a paperback thriller-settling of scores between rogue oligarchs and the Putin regime with billions at stake. Definitely worth a mini-series on HBO or Showtime. Last night at the ISDS answer to the Oscars-the Global Arbitration Review annual awards-a Dutch court snatched the prize for most important decision 2017, a highlight of the black-tie event in a Milan hotel.
The Hague district court judges had set aside the UNCITRAL/Energy Charter Treaty award against Russia. That decision is on appeal in Holland. And there are proceedings elsewhere. For instance, the DC Circuit stayed litigation on the arbitral award pending a final outcome in the Netherlands.
Because it invalidated the award on other grounds, the Hague court did not reach an issue of systemic importance; can arbitrators outsource some of their basic functions to juniors or assistants? The Russian Federation claimed that Yves Fortier’s assistant turned into a Fourth Man, a covert extra arbitrator who conceived and drafted a large part of the award. Fortier is one of a handful of so-called Super-Arbitrators who take on a large number of cases and seem to run a kind of arbitration "brand". The assertions regarding Fortier and his assistant provide a rare window into some of the most debatable aspects of investor-state arbitration as it is currently practiced.
In argument before the Hague court, Jan van den Berg, himself a member of the Super-Arbitrator elite but counsel for the Russian Federation in this particular dispute, pointed to "a dramatic discrepancy in the hours of the Assistant and the hours of the Arbitrators." Van den Berg alleged that Fortier’s assistant Valasek "in fact spent his “additional time” of approximately 50% compared to the "average" on tasks that by law are exclusively and personally assigned to the arbitrators, such as deliberating and (re)formulating the decisions and the grounds for it. The unauthorised delegation also becomes clear from the Tribunal’s refusal,based on the confidentiality of the Tribunal’s deliberations, to provide a specification of the hours spent by Mr Valasek."
The plot thickens when the plagiarism detective comes on the scene-top linguist Dr. Carole Chaski evaluates the text of the award and comes to the conclusion that "with over 95% certainty, Mr Valasek himself wrote approximately 70% of the three most important chapters."
So is Mr. Valasek really the Fourth Man and did Fortier betray (as Russia counsel van den Berg would have it) the expectations of the parties about the professional responsibilities he would personally perform? Van den Berg pointed out astutely there were other individuals who were compensated for providing normal administrative support to the tribunal. So that was not Mr. Valasek’s more-than-million-dollar role.
One could pick methodological bones with Dr. Chaski’s report (as did an opposing expert). And it’s true that judicial clerks have (limited) drafting functions in many legal systems. But hey let’s get real: the million dollar bill plus for Valasek cannot but raise serious questions. Yukos is only one case (admittedly a complex one) and Valesek’s invoice is about 10 times the annual salary of a judicial clerk for a US Supreme Court Justice. Those of us in the US law school world appreciate just what kind of top legal talent the clerks represent.
In the DC Circuit proceeding, a long-standing friend and colleague of mine, Columbia law professor George Bermann, offered an expert opinion on the issue of Fortier’s alleged outsourcing to Valasek. Professor Bermann opined: "It is generally viewed as impermissible for arbitral secretaries to produce even a preliminary draft of substantive portions of an award. This is so, irrespective of the degree of care a tribunal brings to its subsequent review of the draft:"
I would only nuance Professor Bermann’s statement in noting that Valasek, as van den Berg indicated, was not even declared or proposed to the parties as the arbitral secretary, but merely as Fortier’s assistant who could help out with logistics if he himself were unavailable.
According to Professor Bermann, "There...exists in international arbitration a powerful consensus that for arbitral secretaries to draft substantive portions of the awards is off limits. The consensus in this respect is especially clear and overwhelming. According to a 20 15 survey of international arbitrators and practitioners conducted by Queen Mary University of London (in conjunction with White & Case LLP) and based on 763 questionnaire responses and 105 in-person interviews, over 87% of survey respondents opposed having arbitral secretaries prepare drafts of substantive parts of the awards or even discuss the merits of the dispute with the arbitrators.[footnote omitted] Similar surveys of international arbitrators decidedly reflect that same consensus."
I’m not entirely persuaded by this kind of evidence because survey responders may have their reasons for not being entirely candid. These kinds of questionnaires don’t prove fully that Fortier’s practice was that far off the industry norm. But that isn’t to say the industry norm is acceptable from a legitimacy point of view.
In a different proceeding, where Venezuela sought to disqualify him as an arbitrator (mostly for grave conflict of interest reasons not connected to the Yukos behavior), the issue nevertheless again came up of Fortier’s alleged outsourcing in Yukos. One of the pathologies of investor-state arbitration is that conflict of interest issues are at least in the first instance decided by the challenged arbitrator’s professional buddies,the fellow arbitrators. In the Venezuela case, the other two arbitrators gave Fortier a clean bill of health, and pointed to his response regarding the allegations of van den Berg in Yukos: "Mr. Valasek did not write the tribunal’s reasoning and conclusions of the Yukos awards”.
An examination of the more than 600-page award reveals that it is impossible to identify any discrete parts or sections of that tome labelled or indicated either as "reasoning" or "conclusions" (although on more than a handful of occasions the tribunal does refer to its "conclusions" in passing). The inevitable inference is that Arbitrator Fortier’s statement avoided a precise answer to the question posed to him,or its substance. Arbitrator Fortier used terminology that would not permit one to determine which pages or paragraphs of the award were drafted by him or which by Mr. Valasek (or others).
Will the "who wrote it" mystery be resolved in the further proceedings? Hard to say. But the million dollar plus bill for Valasek and some of the concerns raised by van den Berg might ultimately get aired in a different legal context. Not so long ago, a Spanish court found civil liability for arbitrator misconduct. Depending on the credibility of the allegations and the legal rules of that jurisdiction, it is possible that Fortier might be subject to a professional misconduct lawsuit in a domestic jurisdiction.