Annulment Proceedings under the ICSID Arbitration Rules
Annulment proceedings can be instituted at the request of either party following the pronouncement of the award. The result of such proceedings would be the potential annulment of the award, or of any part of it. There has traditionally been no appeal mechanism in investor-state arbitration; but, treaty practice is evolving in this respect.
The purpose of an annulment is to ensure procedural justice, meaning the integrity, the propriety and the fairness of the arbitration proceedings which lead to the award. As stated in 2016 by the annulment Committee in TECO v. Guatemala[i], this means that annulment committees are not entitled, for instance, to review the substantive correctness of awards, either in fact or in law, as an appeal tribunal would do.
This purpose of guaranteeing procedural justice conflicts with another fundamental objective: the finality of the award. In this respect, committees, such as the Postova banka v. Greece Committee[ii] in 2016, have often stressed that the need to balance these two objectives explains why annulment should be seen as an extraordinary remedy with a high threshold.
This also explains why there are so few grounds on which a party can request an annulment. Article 52 of the ICSID Convention lists those grounds, which are:[iii]
The improper constitution of the tribunal,
The manifest excess of power,
Corruption on the part of a member of the tribunal,
Serious departure from a fundamental rule of procedure,
The failure to state the reasons on which the award is based.
Where an annulment committee finds that at least one of these grounds is fulfilled, it has the power to annul the award in part or in its entirety.
However, as a matter of principle, it is not entitled to amend or replace the parts annulled; this is the task of a new arbitration tribunal, at the request of either party. We can see from the practice of annulment committees that manifest excess of power, serious departure from a fundamental rule of procedure and the failure to state reasons are the main grounds for an annulment.
The Three Main Grounds
1. Manifest Excess of Power
Manifest excess of power gives rise to two questions: first, what is an excess of power and second when can such an excess be said to be manifest?
Answers of these two questions can be found in the practice of annulment committees. These committees have considered that excess of power relates to issues of jurisdiction and applicable law. This is due to the fact that these two issues are key elements of the parties’ consent to arbitration.
With regards to jurisdiction, the excess of power relates to the requirements set out in Article 25 of the ICSID Convention[iv] as well as in the parties’ arbitration agreement. As explained for instance by the Micula v Romania[v] Committee in its 2016 decision, it can consist of either a tribunal’s failure to exercise its jurisdiction or, on the other hand, in a tribunal exceeding the jurisdiction granted to it. As for applicable law, a failure to apply the proper law and the application of a law that is not proper have both been characterized as an excess of power. This was well explained, for example, in 2016 by the Committee in Tidewater v. Venezuela[vi].
On the other hand, as long as the arbitration tribunal correctly identifies the proper law, endeavours to apply it to the facts and stays within its limits when applying it, it is considered that there is no excess of power.
It has been largely acknowledged that the applicable standard in assessing whether an excess of power is manifest is similar for excesses relating to both jurisdiction and to the applicable law. On the other hand, there is no consensus among annulment committees regarding the actual standard to be applied.
One line of authority, exemplified by the annulment decision in Micula v. Romania[vii], assesses how readily apparent the excess is. This standard has been referred to by Committees using various formulations: the excess must be ‘plain on its face’, ‘evident’, ‘obvious’, ‘clear’ or ‘easily recognizable’.
A second line of authority focuses instead on the effect of the excess of power. For instance, in Vivendi v. Argentina[viii], the Committee stated that the excess of power should be capable of making a difference to the result.
It should be noted that for some committees, there is no conflict between those two approaches. For instance, the Committee in Lahoud v. DRC[ix] expressed this view in its 2016 decision.
2. Depature from Fundamental rule of Procedure
When considering departure from a fundamental rule of procedure, it shoudl be noted that not all the rules of procedure are covered by this ground for annulment, nor are all potential departures. This is indicated by Article 52 of the ICSID Convention.
In order to plead this ground, two conditions must be met:
The rule must be of a fundamental nature,
The departure must be serious.
This is why annulment committees, when they assess whether arbitration tribunals have seriously departed from a fundamental rule of procedure, conduct an analysis which focuses on these two cumulative conditions.
When we look at the practice of annulment committees, we can see that in order for a rule of procedure to be considered fundamental, it must meet a very high threshold. Virtually all annulment committees have considered that only those rules of natural justice which are concerned with the essential fairness of the procedure are fundamental rules of procedure. This was the finding of the annulment Committee in SAUR v. Argentina[x], for instance.
These rules include the equal treatment of parties, the right to be heard, the right to an independent and impartial tribunal, the treatment of evidence and burden of proof, and the deliberations among members of the tribunal.
Unlike the first condition, the seriousness of the departure cannot be ascertained in the abstract – it is a purely factual assessment, as was emphasized in 2016 by the Committee in Adem Dogan v. Turkmenistan[xi]. In order for the annulment to be granted, the departure must have a material impact on the outcome of the award. This appraisal of the material impact caused by the violation of a fundamental rule of procedure is highly speculative.
For this reason, committees have considered that they cannot do more than determine whether the tribunals’ compliance with a rule of procedure could potentially have affected the award.
As illustrated by the annulment decision in TECO v. Guatemala[xii], committees have argued that expecting more from them would require them to stand in the shoes of the arbitration tribunals which is something annulment bodies are simply not permitted to do.
3. Failure to State the Reasons for Award
The parties to the dispute and the public at large must be able to understand the reason why a tribunal has decided that a sovereign act does or does not violate the law.
It is often emphasized by annulment committees that this requirement exists as a matter of public policy. For instance, the annulment Committee in Tidewater v. Venezuela[xiii] explained that the legitimacy of the process depends on its intelligibility and its transparency. Consequently, they have considered that it is the tribunals’ duty to identify and to let the parties know the factual and legal premises that led to their decision. As was explained in MINE v. Guinea[xiv], the requirement to state reasons is satisfied as long as the award makes clear how the tribunal got from point A to point B and eventually to its conclusion, even if it made an error of fact or of law.
On the other hand, we can see from the practice of annulment committees that this ground does not allow a committee to appraise the correctness or persuasiveness of the reasoning or to inquire into the quality of the reasons given.
Given that the ICSID Convention is silent about what exactly constitutes a failure to state reasons, it has been up to annulment committees to define this ground further. Although we can see diverging views across their practice, annulment committees have identified five situations in which this ground is satisfied. These are:
Frivolous and inadequate reasons,
Implicit reasons, and
The main ground on which committees have found that there was a failure to state reasons is contradictory reasons. The threshold for such a finding is very high.
All committees have agreed that the reasons must be genuinely contradictory in that they cancel each other out so as to amount to no reasons at all. As stated by the Committee in Continental Casualty v. Argentina[xv], they must be such as to be incapable of standing together on any reasonable reading of the decision.
[i] TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No ARB/10/23, [ICSID: 2016].
[ii] Postova Banka, A.S. and Istrokapital SE v. The Hellenic Republic, ICSID Case No ARB/13/8, [ICSID: 2016].
[iii] Convention on the Settlement of Investment Disputes between States and Nationals of Other States, ICSID, §52 (1965).
[iv] Convention on the Settlement of Investment Disputes between States and Nationals of Other States, ICSID, §25 (1965).
[v] Ioan Micula, Viorel Micula and Others v. Romania, ICSID Case No ARB/05/20, [ICSID: 2016].
[vi] Bolivarian Republic of Venezuela v. Tidewater Investment SRL and Tidewater Caribe, C.A., ICSID Case No ARB/10/5, [ICSID: 2016].
[vii] Ioan Micula, Viorel Micula and Others v. Romania, ICSID Case No ARB/05/20, [ICSID: 2016].
[viii] Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No ARB/97/3 [ICSID: 2010].
[ix] Antoine Abou Lahoud et Leila Bounafeh-Abou Lahoud v. La République Démocratique du Congo, Affaire CIRDI No ARB/10/4, [ICSID: 2016].
[x] SAUR International S.A. v. République argentine, Affaire CIRDI No ARB/04/4, [ICSID: 2016].
[xi] Adem Dogan v. Turkmenistan, ICSID Case No ARB/09/9, [ICSID: 2016].
[xii] TECO Guatemala Holdings LLC v. Republic of Guatemala, ICSID Case No ARB/10/23, [ICSID: 2016].
[xiii] Bolivarian Republic of Venezuela v. Tidewater Investment SRL and Tidewater Caribe, C.A., ICSID Case No ARB/10/5, [ICSID: 2016].
[xiv] Maritime International Nominees Establishment (MINE) v. Government of Guinea, ICSID Case No ARB/84/4, [ICSID: 1989].
[xv] Continental Casualty Company v. The Argentine Republic, ICSID Case No ARB/03/9, [ICSID: 2011].
Author Details: Rishabh Shukla (New Law College, Bharati Vidyapeeth to be Deemed University)
The views of the author are personal only. (if any)