The Investment Treaty Arbitration Review: Annulment of Investment Arbitration Awards
The finality of the award is one of the main features associated with arbitration. It is based on the general principle that arbitral awards are not subject to review on the merits. Generally, the correctness of the award is subordinate to its finality. However, like all general principles of law, its operation is defined by limited exceptions, such as found in the remedy of annulment.
II DISTINGUISHING BETWEEN ANNULMENT AND SETTING-ASIDE APPLICATIONS
Although in terms of procedure there are many similarities between International Centre for Settlement of Investment Disputes (ICSID) and non-ICSID arbitrations, the annulment mechanism is unique to the former.
Particularly, in arbitrations conducted outside the framework of the ICSID Convention, including that under the Additional Facility Rules, awards may be challenged by way of a setting-aside application in national courts at the seat or otherwise resisted at the enforcement stage. Yet, ICSID tribunals' awards 'shall not be subject to any appeal or to any other remedy'2 other than the annulment. The ad hoc committee in CDC v. Seychelles noted:
[The annulment] mechanism protecting against errors that threaten the fundamental fairness of the arbitral process (but not against incorrect decisions) arises from the ICSID Convention's drafters' desire that Awards be final and binding, which is an expression of “customary law based on the concepts of pacta sunt servanda and res judicata,” and is in keeping with the object and purpose of the Convention. Parties use ICSID arbitration (at least in part) because they wish a more efficient way or resolving disputes than is possible in a national court system with its various levels of trial and appeal, or even in non-ICSID Convention arbitration (which may be subject to national courts' review under local laws and whose enforcement may also be subject to defenses available under, for example, the New York Convention).3
Together with the provisions on the enforcement of awards,4 the annulment mechanism manifests the self-contained nature of the ICSID regime. The same nature dictates that the grounds for annulment of ICSID tribunals' awards are limited to those set out in the ICSID Convention.
III GROUNDS FOR ANNULMENT
Article 52 of the ICSID Convention specifies that either party may request annulment of the award on any of the following grounds:
- the tribunal was not properly constituted;
- the tribunal has manifestly exceeded its powers;
- there was corruption on the part of a member of the tribunal;
- there has been a serious departure from a fundamental rule of procedure; or
- the award has failed to state the reasons on which it is based.
The ad hoc committee in Wena Hotels v. Egypt observed:
These grounds for annulment are enumerated exhaustively. . . . The power for review is limited to the ground of annulment as defined in this provision. These grounds are to be interpreted neither narrowly nor extensively.5
As such, more often than not a party seeking annulment of the award would rely on several grounds listed in Article 52 in its application to the Secretary-General. In any event, an ad hoc committee is not bound by the scope of the annulment application and can annul the award in whole or in part.6
However, an ad hoc committee is not authorised to provide its determination of the issues contained in the annulled parts of the award or substitute the reasoning of the tribunal for its own.7
A brief analysis of the grounds for annulment is given below.
i Improper constitution of the tribunal
Article 52(1)(a) of the ICSID Convention mirrors other instruments providing for post-award remedies (e.g., Article V(d) of the New York Convention and Articles 34(2)(a)(iv) and 36(1)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration). Professor Schreuer notes that Article 52(1)(a) 'was intended to cover a variety of situations such as absence or invalidity of the agreement between the parties, non-compliance with a nationality requirement or another form of ineligibility'.8
However, as the procedural irregularities are closely monitored by the Secretariat of the ICSID,9 this ground is seldom relied on10 in the annulment proceedings and does not play a role in practice.11
ii Manifest excess of powers
According to Article 52(1)(b) of the ICSID Convention, the excess of powers must be manifest, meaning clear, obvious, easily recognisable or evident, as interpreted by ad hoc committees.12 In addition, some ad hoc committees have added the requirement of seriousness or materiality to the outcome of the case.13
According to Professors Dolzer and Schreuer, '[a]n excess of power occurs where the tribunal deviates from parties' agreement to arbitrate'.14 An analysis of annulment decisions' discussions on this ground indicates that such a deviation is deemed to have occurred when the tribunal either exceeds its jurisdiction or erroneously declines it, or fails to apply the applicable law.
A jurisdictional excess of powers takes place when the tribunal wrongly assumes jurisdiction over a dispute, exceeds the scope of its jurisdiction or erroneously declines its jurisdiction.15 While deciding on its jurisdiction, the tribunal must consider the jurisdictional requirements set out in Article 25(1) of the ICSID Convention16 and other requirements as may be set by the relevant treaty or contract.17 The tribunal is bound to decline its jurisdiction if one or more of these requirements are not fulfilled, even if the parties do not raise jurisdictional objections.18
A failure to apply the proper law may take the form of either a total disregard of the applicable law or applying a law other than law determined pursuant to Article 42(1) of the ICSID Convention.19 Therefore, a mere error in application of the law may not constitute a ground for the annulment. This is in line with the principle that an annulment is not an appeal, a principle that ad hoc committees routinely stress.20
Article 52(1)(c) of the ICSID Convention allows an ad hoc committee to annul the award should it be proved that there was corruption on the part of a member of the tribunal. This ground closely resembles that set out in Article 52(1)(a) and its purpose is to safeguard the integrity of the arbitral process.
iv Serious departure from a fundamental rule of procedure
Article 52(1)(d) of the ICSID Convention sets a double threshold for a violation capable of annulment to be found. First, the infringed rule must be of fundamental character. Second, the violation of the rule must be serious.21
The requirement of a 'fundamental rule' means that only violations of the most important procedural principles may amount to a ground for annulment, such as the right to be heard, impartiality of the arbitral tribunal, equality between the parties, and rules of treatment of evidence and burden of proof, as well as deliberation between the members of the tribunal.22 Further, a violation has to be serious.23
v Failure to state the reasons
Article 48(3) of the ICSID Convention states that the award shall consider every issue put before the tribunal and shall state the reason for the tribunal's decision. This provision is closely connected to Article 52(1)(e) of the ICSID Convention, which gives the ad hoc committee the power to annul the award if the tribunal failed to motivate its award.
The rationale behind the duty to state reasons is to enable the parties to follow and understand the tribunal's thinking. It is not material whether the tribunal's reasons are correct or convincing.24
A failure to state reasons can take different forms. It may be a total absence of reasons or a failure to deal with every question. Contradictory or frivolous reasons also fall within the notion of the failure to state reason.25
The procedure for annulment of an ICSID award is set in Article 52 of the ICSID Convention and supplemented by the ICSID Arbitration Rules, that apply mutatis mutandis, similarly to Articles 41 to 45, 48, 49, 53 and 54, and of Chapters VI and VII.26
According to Article 52(2), the annulment application shall be made to the Secretary-General within 120 days of the date the award being rendered. However, when the applicant invokes Article 51(1)(c) of the ICSID Convention ('corruption on the part of a member of the tribunal'), the 120 day-period starts to run from the date when such grounds were discovered, yet in any event within three years of the date the award was rendered.
As it follows from Article 52(2), only an award can be subject of annulment. Any decision made before the award is rendered, such as decision on jurisdiction or interim measures, must become a part of the award. As such, a party needs to await the award before bringing the application for the annulment.27
Upon receipt of the application, the chair of the Administrative Council of ICSID shall appoint a three-member ad hoc committee to hear the annulment application. The members of the ad hoc committee are appointed from the ICSID panel of arbitrators, provided that none of the members of the committee:
- have been a member of the tribunal that rendered the award;
- are of the same nationality as any such member;
- are a national of the state party to the dispute or of the state whose national is a party to the dispute;
- have been designated to the panel of arbitrators be either of those states; or
- have acted as a conciliators in the same dispute.28
The parties' procedural agreements entered into with regard to the arbitration in which the challenged award was rendered will often apply to the annulment proceedings. Yet, during the first session of an ad hoc committee, the parties may diverge from their original agreements.29
The ad hoc committee may, if it considers that the circumstances so require, stay enforcement of the award pending its decision.30 Granting a stay of the enforcement may be made subject to furnishing a security.31
In addition, any of the parties applying for the annulment may also request the Secretary-General for a provisional stay of the award's enforcement. As soon as the ad hoc committee is constituted it shall, if either party requests, rule within 30 days on whether the stay should be continued and, unless it decides to continue the stay, the provisional stay is automatically terminated.32
When considering the application for annulment, the ad hoc committee shall neither interpret the invoked grounds in a restrictive nor a broad manner, rather its interpretation should be appropriate and reasonable.33 There is no presumption in favour of either annulment or validity of the award.34 The annulment of the award is at the discretion of the ad hoc committee.35
According to Article 52(6), if the award is annulled, the dispute shall, at the request of either party, be submitted to new a tribunal for reconsideration.
Annulment is the exceptional remedy. It is intended to protect the fundamental principles of due process and be balanced against a principle of finality of arbitral awards. As such, annulment is available only on a limited number of grounds expressly provided in Article 52 of the ICSID Convention.
1 This chapter is based on earlier revisions prepared by Sundra Rajoo, the former director of the Asian International Arbitration Centre (AIAC), with the assistance of Eleo Szulc and Smrithi Ramesh. All have since left the AIAC. The information in this chapter was accurate as at April 2019.
2 Article 53 of the ICSID Convention.
3 CDC Group plc v. Republic of the Seychelles, (ICSID Case No. ARB/02/14), Decision on Annulment, 29 June 2005, at para. 36.
4 Articles 53-55 of the ICSID Convention.
5 Wena Hotels Ltd. v. Arab Republic of Egypt (ICSID Case No. ARB/98/4), Decision on Annulment, 5 February 2002, at paras. 17, 18.
6 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (Vivendi I) (ICSID Case No. ARB/97/3), Decision on Annulment, 3 July 2002, at para. 69.
7 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, p. 38.
8 C. Schreuer, The ICSID Convention: A Commentary, CUP, 2001, p. 928.
9 ibid., p. 929.
10 See e.g., Sempra Energy International v. Argentine Republic (ICSID Case No. ARB/02/16), Decision on Annulment, 29 June 2010.
11 R. Dolzer, C. Schreuer, Principles of International Investment Law, 2nd ed., OUP, 2012, p. 303.
12 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 82.
13 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (Vivendi I) (ICSID Case No. ARB/97/3, Decision on Annulment of 3 July 2002, para. 86.
14 ibid., p. 304.
15 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 87.
16 Article 25(1) of the ICSID Convention reads: 'The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.'
17 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 85.
18 Article 25 of the ICSID Convention.
19 Article 42(1) of the ICSID Convention reads: 'The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.'
20 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 90.
21 Article 52(1)(c) of the ICSID Convention.
22 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 99.
23 Wena Hotels Ltd. v. Arab Republic of Egypt (ICSID Case No. ARB/98/4), Decision on Annulment, 5 February 2002, at para. 58.
24 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 105.
25 Victor Pey Casado and Foundation 'Presidente Allende' v. Republic of Chile (ICSID Case No. ARB/98/2), Decision on Annulment, 18 December 2012, at para. 86.
26 Article 52(4) of the ICSID Convention.
27 Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 30.
28 Article 52(3) of the ICSID Convention.
29 Note B to the ICSID Arbitration Rule 53 of the annotated notes to the ICSID Regulation and Rules, 1968, Doc. ICSID/4/Rev.; Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, at para. 50.
30 Article 52(5) of the ICSID Convention.
31 See e.g., Adem Dogan v. Turkmenistan, (ICSID Case No. ARB/09/9), Decision on Annulment, 15 January 2016.
32 Rule 54(2) of the ICSID Arbitration Rules.
33 Maritime International Nominees Establishment v. Republic of Guinea (ICSID Case No. ARB/84/4, Decision on Annulment, 6 January 1988, at para. 4.05.; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (Vivendi I) (ICSID Case No. ARB/97/3), Decision on Annulment, 3 July 2002, at para. 62.
34 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (Vivendi I) (ICSID Case No. ARB/97/3), Decision on Annulment, 3 July 2002, at para. 62; Consortium R.F.C.C. v. Kingdom of Morocco (ICSID Case No. ARB/00/6), Decision on Annulment, 18 January 2006, at para. 220.
35 Maritime International Nominees Establishment v. Republic of Guinea (ICSID Case No. ARB/84/4, Decision on Annulment, 6 January 1988, at para. 4.10.