Workshop II: THE ICSID ANNULMENT

MECHANISM

1 © 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.

Arbitration AcademyJuly 12, 2012

ANNULMENT

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 2

A post-award remedy

Provided by Article 52 ICSID Convention

Process may lead to full or partial annulment of an ICSID Award

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.

3

“Annulment is an essential but exceptional remedy” - Aron Broches

EXCEPTIONAL REMEDY

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 4

ICSID Awards are final, binding and non-appealable

Annulment is an exception to the principle of finality of Awards

Annulment is not an appeal

PRINCIPLES IDENTIFIED BY AD HOC COMMITTEES

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 5

Annulment is not a remedy against an incorrect decision, an ad hoc Committee cannot substitute its determination on the merits

Ad hoc Committees should exercise their discretion not to defeat the object and purpose of the remedy or erode the binding force and finality of awards

Ad hoc Committees have the discretion to determine the extent of an annulment (partial or full)

ANNULMENT - GROUNDS

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 6

1. Tribunal was not properly constituted;2. Tribunal manifestly exceeded its powers;3. Corruption on the part of a member of the

Tribunal;4. A serious departure from a fundamental rule

of procedure; or 5. Award failed to state the reasons on which it

is based.

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 7

0

5

10

15

20

25

30

35

4

31

0

21

28

Grounds for Annulment Invoked During Proceed-ings

Number of Times Invoked

MANIFEST EXCESS OF POWERS

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 8

The Tribunal has manifestly exceeded its powers

- Exceeding jurisdiction- Failure to exercise jurisdiction- Failure to apply proper law

MANIFEST EXCESS OF POWERS – APPROACHES BY AD HOC

COMMITTEES

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 9

• Dual Requirement:(i) Is there an excess of power?

(ii) Is the excess manifest?or• Prima facie test: Is the alleged excess of powers

so egregious as to amount to “manifest”?

• “Manifest” means “obvious” or “self-evident”or• “Manifest” includes an element of materiality

Malaysian Historical Salvors SDN BHD (MHS) v. Malaysia, Decision of April 16, 2009

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 10

Tribunal concluded that it had no jurisdiction because there was no investment – MHS’s contract with Malaysia did not significantly contribute to Malaysia’s economic development

Did the Tribunal manifestly exceed its powers by failing to exercise a jurisdiction that it possessed?

MHS v. Malaysia, Decision of April 16, 2009Ad hoc Committee Conclusions

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 11

The contract between MHS and Malaysia constituted an investment. “There is no room for another conclusion.”

Tribunal manifestly exceeded its powers because1. Failed to apply UK-Malaysia BIT’s broad definition of

“investment”2. Required a significant contribution to the economic

development of host State3. Failed to take into account the preparatory work of

the ICSID Convention

MHS v. Malaysia, Decision of April 16, 2009Dissenting Opinion

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 12

“A manifest excess of powers is an excess of powers that is easily perceived or discerned by the mind, without the need for deeper analysis.”

“If there was a manifest excess of powers (including a jurisdictional excess), the Committee can intervene. But I do not think that that threshold can be passed in this case without converting the limited grounds of annulment into the ampler grounds of an appeal.”

Patrick Mitchell v. Democratic Republic of Congo Decision of November 1, 2006

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 13

Tribunal had concluded that a law firm activity in DRC constituted an investment under US-DRC BIT

Tribunal noted that economic contribution to the host State was “not a formal requirement for the finding that a particular activity or transaction constitutes an investment”

Mitchell v. DRC, Decision of November 1, 2006Ad hoc Committee Conclusions

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 14

The Award failed to state the reasons for why the Tribunal regarded the law firm as an investment. Since a law firm is an uncommon operation in relation to the concept of investment, there must be some contribution to the economic development of the DRC.

Combination of “flaws” in the Award led to annulment

Sempra Energy International v. Argentine Republic, Decision of June 29, 2010

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 15

The Tribunal held that Article XI of the US-Argentina BIT dealing with measures necessary for the maintenance of public order was “inseparable from the customary law standard insofar as the definition of necessity and the conditions for its operation are concerned.”“Since the Tribunal has found above that the crisis invoked does not meet the customary law requirements of Article 25 of the [ILC] Articles on State Responsibility, it concludes that necessity or emergency is not conducive in this case to the preclusion of wrongfulness, and that there is no need to undertake a further judicial review under Article XI given that this Article does not set out conditions different from customary law in such regard.”

Sempra v. Argentina, Decision of June 29, 2010Ad hoc Committee Conclusion

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 16

The Tribunal exceeded its powers by applying as the primary law Article 25 of the ILC Articles instead of Article XI of the BIT

The excess was “manifest” as it was “evident without the need to engage in an elaborate analysis of the text of the Award”

SERIOUS DEPARTURE FROM A FUNDAMENTAL RULE OF PROCEDURE

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 17

Must be “serious” and “fundamental” Can relate to

- Impartiality- Right to be heard- Deliberation- Evidence and Proof

Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines, Decision of Dec. 23, 2010

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 18

The Tribunal admitted new evidence into the record but did not invite the parties to submit comments on the evidence submitted by the other party.

The Tribunal relied on the new evidence in the Award and concluded that Fraport’s investment violated a law.

Fraport v. Philippines, Decision of Dec. 23, 2010Ad hoc Committee Conclusion

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 19

The Tribunal’s failure to give the parties an opportunity to address new evidence constituted a serious departure from the right to be heard and materially affected the outcome of the dispute.

FAILURE TO STATE THE REASONS

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 20

The award failed to state the reasons on which it is based

- Absence of reasons- Contradictory reasons- Failure to deal with every question

FAILURE TO STATE THE REASONSWhat is the required standard of

reasons?

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 21

Frivolous and contradictory reasons are equivalent to no reasons

Failure to state adequate or convincing reasons is not a ground for annulmentbut

Some Committees have considered that “insufficient” and “inadequate” reasons could in certain circumstances be annullable

ANNULMENT OUTCOMES – BY DECADE

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 22

1971-1980 1981-1990 1991-2000 2001-2010 2011 -0

20

40

60

80

100

120

49

18

96

23

0 1 0

13

40 3 1

800 0 1

5 6

Number of Convention awards rendered Number of decisions rejecting the application for annulment

Number of decisions annulling the award in part or in full Number of annulment proceedings discontinued

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.

23

ANNULMENT - OVERALL

344 Convention Arbitrations Registered

150 Convention Awards Rendered

53 Annulment Proceedings Instituted

18 Decisions Refusing Annulment

12 Proceedings Discontinued

12 Awards Annulled(6 in full + 6 in part)

© 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. 24

“It is not surprising that parties to ICSID proceedings may seek to exhaust their procedural remedies.”

- Aron Broches