Proposed Reform of the ICSID Annulment Proceedings

LITERATURE REVIEW

The above topic seeks to critically assess the need for the proposed reform of the ICSID the annulment proceedings (Article 52 ICSID Convention) by addressing the following questions:

• What is the current position of the law in relation to ICSID annulment proceedings?
• What has the existing mechanism failed to address?
• What improvements can be made on the annulment proceedings for a more effective, efficient, consistent and coherent system of settlement of investment disputes?
• How can the suggested reform by ICSID – clarification and streamlining of the annulment proceedings – resolve the ambiguities/loopholes in the existing mechanism in relation to the conduct of the proceedings, the scope and extent of the members of the ad hoc committee’s powers, time limits for consideration of cases by the ad hoc committee, appointment of members of the ad hoc committee?
• What are the likely effect of the suggested reforms?
• How can the member States’ confidence be reinstated in the ICSID as an institution, considering that some States (Bolivia, Ecuador, Venezuela) have withdrawn their membership?
• Can an external appellate body be established, hence eliminating the finality of ICSID awards and Article 53 which disallows appeals or should there be an appellate body within the institution, preserving its self-regulatory nature?

There are several books authored by renowned arbitration experts which are quite instructive on ICSID annulment procedure, its effectiveness whilst taking note of its deficiencies.

As a strong proponent for ICSID, Schreuer, in his very detailed commentary[1] on the ICSID system described the institution’s working by furnishing details about the Preamble and each Article in the Convention, supported by the ICSID Rules.

Article 52 on annulment proceedings is discussed extensively in the Commentary and the author regarded annulment as an exception to the concept of finality of awards as provided in Article 53. The author identified annulment as the only internal remedy by which an award can be set aside.

The author does not specifically fault the ICSID system nor identify its weaknesses in relation to the annulment proceedings. Rather, the author criticised the conduct of proceedings by annulment committees in certain cases but states that the current law appears to be more settled than the first generation of cases (Klocknér I and Amco I). Also, he identified a gap in the Convention for not providing for disqualification of members of the annulment committee and suggests reliance on Rules 8 -12 on incapacity, resignation and disqualification of arbitrators to close the gap.

 

The authors of ‘Guide to ICSID’[2] whilst succinctly addressing the ICSID system, identified annulment as the most drastic remedy available under the ICSID system. The effect of annulment and its difference from appeals are highlighted.

It was noted that the annulment process would undercut the finality of ICSID awards and minimise investors’ confidence in ICSID arbitration. The fears expressed by these authors have become reality hence the urgent call for a reform of the system.

The authors did not proffer solution should this fear expressed play out. They only suggested that the parties to ICSID arbitration waive their right to annul the awards as provided the Convention.

The compilation of works by renowned authors and arbitration experts, ‘The Future of ICSID and the Place of Investment Treaties in International law[3]’ and papers by Christopher Schreuer, Meg Kinnear, Alan Pellet, Laurentt Gouiffes, Jürgen Kurtz are directly relevant to the above topic.

They have identified the problems associated with ICSID annulment mechanism such as the readiness of the ad hoc committee to annul awards, the repeated ‘back-to-back’ annulment proceedings, the length of time and cost involved in hearing and deciding cases, the uncertainty of the exact meaning and scope of the five grounds of annulment (though only three have actually been relied on since the inception of ICSID), delving into the merits of the case thus acting in an appellate capacity.

Furthermore, the inconsistency of decisions of the ad hoc committees due to the different standards of review held by the committees which tends to question the integrity of the annulment process, hence leading to loss of confidence in the institution and its ability to effectively and efficiently resolve investment disputes.

The authors proffered solutions by suggesting that a permanent body of legal experts be established for hearing appeals from the awards which would require an amendment of the ICSID system.

However, the suggestion that the ICSID system be amended to create an appellate body has been criticized in an article by Christian J. Tameson ‘An Appealing option: The Debate about an ICSID Appellate Structure’ as subjecting ICSID arbitration to a longer process, more expensive in terms of cost. Also, identified in the article is that the process of amending the Convention is quite cumbersome. Christopher Schreuer in the compilation on the future of ICSID also opines that a preventive measure by ensuring the consistency of the ICSID awards be adopted, rather than a remedial one of having an appellate body.

This compilation contains papers which are quite instructive on different ways of filling the lacuna in the ICSID system. It is however, necessary to attempt to identify a range of effective and appropriate suggestions and how viable they will be in laying to rest the several criticisms. Where necessary, the author will highlight the possible dangers or shortcomings of adopting these proffered solutions.

Jürgen Kurtz [4]identifies the interdependence of Investment and Trade, being salient and dynamic fields of public international law. He notes that their connections have been ‘under explored and under-theorized’. In Chapter 6 of the Kurtz’s book which focuses on dispute resolution, the author discusses the procedure for dispute resolution adopted by WTO which has an appellate body that has succeeded in ‘building confidence and acceptance of the new and expansive legal system in the WTO’.

He further shares the potential lessons learnt from the WHO experience in dispute resolution and suggests reforms which can be beneficial in resolving investment disputes. He referred to Donald Mcrae’s paper on ‘The WTO Appellate Body: A Model for ICSID Facility’ which also is quite instructive on the improvements ICSID can make to achieve consistency and coherency in its workings.

To counter this, it should be pointed out that Article 53 of ICSID disallows any form of appeal with the aim of ensuring finality of awards. The Convention only provided a limited remedy, annulment which has the tendency of invalidating an award where the integrity of the process is challenged and found to be wanting, based on any of the grounds set out in Article 52 of the Convention. Substantive correctness of an award appears to be sacrificed for its finality. The finality and binding nature of an ICSID award is a major distinguishing factor for ICSID as an arbitral body. Therefore, what has been workable under the WTO might not be helpful under ICSID as the two bodies have totally different agenda.

Gray B. Born’s book on ‘Internation Arbitration : Law and Practice’ and Vladimir Pavic’s articleon ‘Annulment of Arbitral Awards in International Commercial Arbitration’ and some others will be helpful as it would be necessary to compare the annulment process under the ICSID system and the UNCITRAL Rules and also learn lessons for the success of the latter.

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

The International Centre for Settlement of Investment Disputes (ICSID)[5] established by the World Bank has been quite effective in terms of achieving its objectives channelled towards international investment dispute settlement, which is between a host State and private investors who are nationals of another State[6]. The finality provision[7] and the self-contained enforcement process are its strength and distinguishing factors between ICSID and non-ICSID regime[8].

The Convention provides for post-award processes – rectification[9], supplementation[10], interpretation[11], revision[12], annulment[13] and execution[14]. The first five are post award remedies available under ICSID, however, annulment as observed under ICSID, being central to our discussion, is a unique and exclusive remedy. It is a known fact that ICSID is a self-contained mechanism and does not give room for judicial review of its awards. Therefore, the Centre provides for internal control mechanism which it utilises to achieve finality of its awards, even at the risk of their correctness being downplayed.

This discourse shall be limited to annulment, its peculiar nature in reviewing awards, its strength and weakness and how it can become more effective. For a better understanding, it is necessary to have a brief insight into the drafting history of the annulment procedure under ICSID[15].

HISTORICAL BACKGROUND TO ICSID ANNULMENT

Annulment was intended to be an extraordinary ‘remedy’[16], an exceptional recourse which a defeated or unsatisfied party in an ICSID arbitration may explore. The Convention appears to have adopted a mechanism which prefers finality of awards over their substantive correctness. The finality of the arbitral proceedings is further enhanced where a number of grounds for annulment are highlighted and the annulment committee is not to review the award based on the merits but on the integrity of the process involved in rendering the award.

The grounds for annulment listed under Article 52 of the Convention are exhaustive and as a requirement, any request for annulment must be brought under at least one of these grounds:

1. That the Tribunal was not properly constituted;
2. That the Tribunal has manifestly exceeded is powers;
3. That there was corruption on the part of a member of the Tribunal;
4. That there has been a serious departure from a fundamental rule of procedure;
5. That the award has failed to state the reasons on which it is based.

The origin of these grounds derives from the 1953 United Nations International Law Commission Draft Convention on Arbitral Procedure (ILC Draft)[17]. There was no provision for annulment in the “Working Paper in the Form of a Draft Convention” of June 5, 1962, which is the ICSID Convention’s earliest draft and an internal World Bank document. The Preliminary Draft of a Convention on the Settlement of Investment Disputes between States and Nationals of other States (“Preliminary Draft”)[18] reflected provisions on annulment specifically in Section 13 (1) which provided only three grounds:

(a) That the tribunal has exceeded its powers;

(b) That there was corruption on the part of a member of the tribunal;

(c) That there has been a serious departure from a fundamental rule of procedure, including failure to state the reasons for the award.

The purpose of the provision was to provide a remedy where the fundamental principles of law governing the Tribunal’s Proceedings have been violated. It was noted that the procedure was not an appeal but merely a call for a ruling by a three-member Committee, appointed by the Chairman, which will either affirm or negate the award based on the grounds listed. The unsatisfied or aggrieved party would need to apply to the Chairman for a declaration that the award is invalid.

During the Regional Consultative Meetings in 1964, the grounds were deliberated on and there were alterations and additions such as the restriction of ‘excess of powers’ by a requirement: that it must be ‘manifest’ excess of powers; to avoid the frustration of awards and make the annulment provision more restrictive. Also, it was suggested that “departure from a fundamental rule of procedure” be couched as “fundamental principles of justice” but the Chairman of the meeting, Aron Broches, who was then the General Counsel of the World Bank pointed out that the “departure from a fundamental rule of procedure” was to be construed widely to include the principles of natural justice which extends to parties’ right to be heard.[19]

After the series of meetings, a further draft of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (“First Draft”) was done and the annulment provision read:

“(1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds:

(a) that the Tribunal was not properly constituted;

(b) that the Tribunal has manifestly exceeded its powers;

(c) that there was corruption on the part of a member of the Tribunal;

(d) that there has been a serious departure from a fundamental rule of procedure; or

(e) failure to state the reasons for the award, unless the parties have agreed that reasons need not be stated.”

After this, another draft, Revised Draft Convention on the Settlement of Investment Disputes (“Revised Draft”) was prepared and Article 52 on annulment was a reproduction of the First Draft with a little alteration of the last ground which now reads:

“(e) that the award has failed to state the reasons on which it is based.”

Since 1964 when the Revised draft was presented, the annulment regime has not been amended. In Chapter two when each ground will be considered in line with the cases in which they were raised, the perceived strengths and weaknesses of this annulment regime shall be identified. This will be helpful in having an insight into how the law has developed over time and provide a guide to the achieving a rewarding reformed regime. Considering also that it is over Fifty (50) years since ICSID came into force, it has become necessary to have a reform of the system to accommodate the modern day situations which were probably not envisaged when the law was drafted.

 

NATURE OF ANNULMENT

Annulment is generally concerned with an award and the legitimacy of the process by which the award was arrived at. It is not permitted for new arguments on merits to be made when annulment proceedings are ongoing, nor presentation of new evidence.[20] The focus of adhoc committee, in an annulment application, is on the award of the arbitral tribunal and how such was arrived at.

Annulment proceedings differ from judicial appeals in three major ways. First, the annulment proceedings is conducted by an ad hoc committee, composed of three persons from the Panel of Arbitrators, specially set up by the Chairman of the Administrative Council. An appeal is heard by a higher body which presupposes that existence of a hierarchical system. Second, the committee is not permitted to delve into the merits of the original award. As the authors of “Guide to ICSID Arbitration” observed, ‘the annulment system is designed to safeguard the integrity, not the outcome, of ICSID arbitration proceedings[21].’ An appeal considers and determines both the procedural and substantive matters. The third difference is in the effect of annulment which is to invalidate the original award, not to amend it. There will be further discussion on this later in this chapter.

Though the distinction between annulment and appeal appear to be clear-cut, the question may be raised on how relevant the distinction is in the effectiveness and efficiency of the annulment mechanism. Has the distinction been helpful in any way?

The importance of this distinction cannot be overemphasized it has helped the ad hoc committees to understand their roles when exercising their annulment powers, thus limiting their powers to review awards to examining the legitimacy of the process adopted in making such awards. Christopher Schreuer, in his publication on the history of annulment proceedings discussed in three generations[22], noted that after the first generation annulment cases, Klöckner I[23] and Amco I[24], wereseriously criticised, the second[25] and third[26] generations took to correction and understood for their limits whilst reviewing an award, to wit:  David Caron, in his influential article published in 1992 wherein he pointed out that the criticism against ICSID is misplaced, noted that ‘the difference between an annulment and appeal process remain(ed) vague, and this vagueness confus(ed) the task of ad hoc committee members and scholars alike’[27].

An independent arbitrator and consultant, Gabriel Bottini also revealed thus:

‘More recent commentaries have similarly noted that the distinction between annulment and appeal is general and abstract and that merely acknowledging this distinction does not suffice to resolve the tensions between the principle of finality, the degree of deference to be accorded to the tribunal and the appropriate scope of the different aspects of the annulment remedy.’[28]

Also, the scope of an appeal differs depending on the legal system under consideration, whether it is a common or civil law jurisdiction.[29]

This author submits that regardless of the observation about the differences being vague, they are helpful in better appreciating the ICSID annulment mechanism.

 

 

EFFECT OF ANNULMENT

According to Article 52 (6) of the ICSID Convention, the decision of an annulment committeemay be either a confirmation of the grounds of the application which may result in a partial or full annulment of the awards or rejection of the grounds which will leave the award intact.

When there is a successful annulment application, the effect is that the award is made void and it will be as though the award was never made. Annulment erases ‘the preclusive effect of the award and provide the parties with a second chance to arbitrate the same issues again before an entirely new ICSID tribunal’[30]. The original award is not tampered with at all and the parties have the opportunity of presenting their case before a new arbitral tribunal, where the application for annulment is successful.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER TWO

GROUNDS FOR ANNULMENT

As identified in the first chapter, the essence of annulment is to provide a limited and exceptional remedy in unusual situations where the fundamental standards for arbitrating under the ICSID Convention (summarised and captioned as grounds for annulment under Article 52 (1)) have been seriously violated.

The ad hoc committee in Consortium R.F.C.C. v. Kingdom of Morocco[31]stated: ’The sole purpose of Article 52 is to provide for an exceptional remedy in cases where there has been a manifest and substantial breach of a number of essential principles set out in this Article.’ This implies that not all breaches will make the case qualified for annulment, rather there must be a substantial breach, which cannot be ignored.

The committee in Soufraki v. United Arab Emirates also stated that the essence and object of the annulment process is to control the integrity of the tribunal, procedure and integrity of the award, rather than to substitute its views for those of the tribunal[32].

In this chapter, this author shall analyse the procedure for annulment and each of the grounds. This is with a view to identifying the successes and weaknesses of the annulment mechanism.

THE PROCEDURE FOR ANNULMENT PROCEEDINGS

Article 52 of the ICSID Convention provides generally for how annulment proceedings will be conducted. These provisions are complemented by the ICSID Arbitration Rules which govern all ICSID arbitration proceedings and post-award remedy proceedings[33].

The steps involved in an annulment proceedings are: first, the filing of an application for annulment to the ICSID Secretary-General, by either disputing party within 120 days after the award was rendered, with the exception of cases involving an allegation of corruption[34] of any member of the arbitral tribunal. The application must:

1. identify the award to which it relates;
2. indicate the date of the application;
3. state in detail the grounds on which it is based pursuant to Article 52(1) of the ICSID Convention; and
4. be accompanied by the payment of a fee for lodging the application.[35]

Annulment applications must be made with regard to a final award, not an interlocutory decision, even if an issue constitutes a ground for annulment before an award is rendered. The period earmarked for an annulment has been seriously criticised. Further discussions in this regard are found later is this chapter.

Article 52 (5) of the Convention provides that the committee shall grant a stay of enforcement of the award upon the applicant’s request if the circumstances warrant same. Therefore, if the committee do not find it necessary or if the applicant does not request, the party in whose favour the award was made can go ahead and enforce the award. This is capable working hardship should the award be annulled.

As at 15 April 2016, the number of annulment proceedings which have been instituted was a total of Eighty – Seven (87)[36]. In Three (3) of those cases, the annulment proceedings were resubmission proceedings. Based on the statistics made available by UNCTAD[37], as at 1 January 2017, there were Eight (8) publicly known decisions rendered in ICSID annulment proceedings for the year 2016, two were partially annulled and six were rejected by the ad hoc committees.

At this juncture, it is necessary to discuss each ground of annulment, how different ad hoc committees have interpreted them and the criticisms.

 

GROUNDS FOR ANNULMENT: SOME IDENTIFIED SUCCESSES AND PROBLEMS UNDER THE ANNULMENT MECHANISM.

It is noteworthy that the exact scope of the grounds for annulment were not defined by the Convention, even though the trauvaux preparatoir has been helpful in appreciating the intention of the drafters. This has been said to confer a wide discretion on the ad hoc committee[38] when interpreting the grounds, especially during the conduct of evidentiary proceedings which has been identified as a problem of annulment mechanism[39].However, their discretion needs to be exercised in fulfilment of the purpose of annulment, which is a limited remedy, to ensure finality and binding nature of awards.

The grounds upon which an application may be brought are exhaustive, therefore, any ground outside those listed under Article 52 (1) will not be considered. The role of the ad hoc committee is limited to a review of the award of the original tribunal and the committee is not allowed to consider the merits of the case.  It has been argued that in practice, however, there are instances where the committee cannot do without deliberating on the substance of the case such as where grounds like failure to state reasons and manifest excess of powers[40]. For example, the distinction between failure to apply the proper law and erroneous application of the law has been said to be gradually melting away[41].

Christopher Schreuer[42] has done a very detailed Commentary on each of these grounds, therefore, it will be unnecessary to reproduce same here. However, for the purpose of our discourse, each ground will be discussed in line with the cases where possible, to highlight the strengths and shortcomings of the annulment mechanism thus agreeing with the notion that its reform has become imperative.

‘(a) that the Tribunal was not properly constituted’

This ground covers allegations as non-compliance with the nationality requirement under Article 52 (3) of the Convention or other forms of ineligibility of the arbitrators[43]. Articles 14(1), 37-40 & 56-58 are the relevant provisions of the Convention on the constitution of an arbitral tribunal and, the procedure and standard of proof where an application is brought for disqualification of any member of the tribunal, supplemented by Arbitration Rules 1-12.

Where the tribunal does not grant an application for disqualification of a member of the tribunal and the party who challenges the application is not satisfied with its decision, that party will have to wait for the final award before an application for annulment on that ground or more, can be made. The justification for this is that it prevents spurious applications for annulment on the ground of composition or qualification of the arbitral committee, in line with the desirability of making annulment an exceptional remedy.

However, this has been criticised as being time wasting as the unsatisfied party would have to reluctantly sit through the arbitral proceedings till an award is rendered[44] before challenging an issue which should have been resolved at the preliminary stage.

This ground also includes a departure from the parties’ agreement[45]. Where the annulment committee imports terms which are not contemplated by the parties’ agreement, it may result in an application for annulment under this ground. This is not limited to ICSID arbitration but also observed under commercial arbitration.

‘(b) that the Tribunal has manifestly exceeded its powers’

Under this heading, not every excess of powers should render an award qualified for annulment but such must be ‘manifest’, that is, obvious and not requiring much effort to be identified. According to the ad hoc Committee in Soufraki v United Arab Emirates[46], the powers of ICSID tribunals are ‘defined by three parameters, the jurisdictional requirements [as set out in Article 25 of the ICSID Convention], the applicable law [determined according to the provisions of Article 42 of the ICSID Convention] and the issues raised by the parties’[47].

Schreuer[48] identified different issues which may fall under this heading, as have been considered in different cases: failure to exercise jurisdiction when it exists[49], failure to apply the proper law[50], to mention a few.

 ‘(c) that there was corruption on the part of a member of the Tribunal’

An alleged bias will not suffice here unless it can be shown that there has been monetary compensation. There has been no successful invocation of this ground hence the ad hoc committee is yet to pronounce on it.

 

‘(d) that there has been a serious departure from a fundamental rule of procedure’

Reliance on this ground required that the applicant demonstrate that these two cumulative requirements have been met: the departure from a rule of procedure is serious and the rule is fundamental. This principle is related to the exercise of due process which explains the great care with which the ground is considered. The decisions on this annulment ground reveal that a narrow interpretation is adopted by the ad hoc committees when it is being considered.

The applicant will be required to identify the particular rule of procedure which is affected, showing that the departure from the fundamental rule is a serious one[51]. This was not a requirement in the ICSID Convention and it has been suggested that it should suffice if the applicant shows that the tribunal could have arrived at a different decision.[52]

Annulment requests on this ground have included pleas on the right to be heard, the lack of impartiality of the arbitral tribunal or failure to treat the parties equally. Of importance is the decision in the MINE v Guinea[53]where the Republic of Guinea sought to have the award in favour of MINE annulled in part on this ground and others, as Guinea objected to the tribunal’s use of a theory of damages which was presented by neither party. Guinea had presented raised questions on the calculation of damages but were not considered by the tribunal. The Ad hoc committee regarded this omission to deliberate on the Guinea’s questions to be in relation to Guinea’s right to be heard and upheld the application for annulment, for a serious departure from the procedural rule.

In Repsol v. Empresa [54] , this ground was raised in the annulment proceeding but the applications were declined for no clear evidence to establish this ground of annulment was relied upon.

The issue with this ground is that it is quite similar to another ground, failure to state reasons, which has led some of the annulment committees to rule on one of these similar grounds and disregard the other.

Another issue with this ground is how to establish that the rule of procedure which has been breached is a fundamental one. As concerns evidentiary matters, the ad hoc committee in Teco v Guatelema[55]stated that the committee is not obliged to refer to every piece of evidence but where there is a form of emphasis on an evidence, the tribunal is not expected to gloss over it. Rather, the tribunal will be expected to explain why the emphasised evidence is ‘insufficient, unpersuasive or otherwise unsatisfactory’[56].

 

‘(e) that the award has failed to state the reasons on which it is based’

This ground is also of importance to the protection of due process in ICSID arbitration and is confirmed in non-ICSID Arbitration, as this duty to state reasons is a minimum requirement[57]. It is grounds mostly relied upon and has been invoked in different contexts as: insufficient reason[58], contradictory reasons[59], failure to address with all questions[60], to mention a few.

 

SOME CRITICISMS AGAINST THE ANNULMENT MECHANISM

Having highlighted the strength of the ICISD arbitral system as found in the finality of its awards[61] and the self-contained enforcement systems[62], and its success as being the most utilised arbitral body in investment treaty matters[63], there are lots of criticisms against the arbitral system. The criticisms to be identified here are those related to the ICSID annulment mechanism.

1. Composition of the Annulment Committee

The challenge here is that the same persons who have acted as Counsel before an arbitral tribunal also appear as a member of annulment committee, referred to by an author as ‘dual role of the tribunal and ad hoc committee’[64]. This has been found to be at the risk or perception of bias, whether admitted or not[65].

Also, the singular system of appointing members of the arbitral tribunal and ad hoc committee as done by the ICSID President of the Administrative Council has been criticised as being too risky, compared to the system in other arbitral bodies as the ICC International Court of Arbitration which appointment is conducted by the national committee. The singular system confers so much power into the hands of an individual which also gives room for bias or considering the human nature of preferring a thing or person over another.

These issues affect the credibility of ICSID and create a level of awkwardness considering parties’ monetary interest at stake when the parties ought to have increased confidence in the system. This is heightened by the non-availability of provisions to challenge the membership of the annulment committee as done with the arbitral tribunal.

2. Review of Procedural Matters, not Substantive

ICSID system of laws generally governs the procedure and conduct of dispute resolution within the institution. As has been earlier pointed out, annulment is a limited review system restricted to the award alone. The annulment committee is expected to consider the legitimacy of each award and not even allowed to as much as substitute figures[66] because is within it will amount to delving into the substance of a matter.

It is understandable that the institution upholds the principle of finality over correctness, which makes business common sense to desire an expeditious dispute resolution forum. However, a party who is dissatisfied with the substance of award has not recourse outside ICSID.

3. Inconsistency and Incoherence

The decisions of the ICSID tribunals and ad hoc committee depends on the membership, thus subjective. This results in its failure to achieve consistency and coherence in its decisions. There should be moves made towards a sustainable level of consistency its decision which WTO has been able to achieve with its Appellate body, hence enhancing the integrity of the WTO dispute resolution system. It has built a consistent case law which it ensures that its tribunals follow.

Though there is no de jure system of precedence in arbitration, it has been said that it does exist de facto[67]. This should aid in building consistency in the ICSID case law.

4. The Grounds for Annulment

These grounds need to be amended as they have not be altered or added to since they were inserted into the Convention in 1964. The proposed amended Rules should contain an updated version of the grounds which clear definitions. Also, the powers of the annulment committee members need to be defined. The best description of an annulment is when distinguished from an appeal. There should be more guideline released on the committees’ exercise of powers when considering annulment applications.

CHAPTER 3

COMPARATIVE ARBITRAL MODELS: AN OVERVIEW

The concept of a request for annulment is not new to arbitration as Article V of the 1958 New York Convention and Articles 34 and 36 of the United Nations Commission on International Trade Law (UNCITRAL) Model Law permit such but in respect of a challenge to the enforcement of an arbitral award.[68] However, annulment under these non-ICSID regimes is different from ICSID annulment, though they are not without similarities.

The WTO appellate body has been proposed to be a model for ICSID in achieving finality of its decision. Is this really workable? Should the two bodies be compared at all?

The essence of this comparative analysis is to identify the workings of the review systems under non-ICSID institutions or regimes and recommend to ICSID where necessary, those aspects which will improve its review system, particularly the annulment system.

 

The UNCITRAL REGIMES

Under most jurisdictions, there is a general presumption that awards are final and binding on parties, as found under ICSID arbitration, which award is subject to review only in exceptional circumstances. This explains why there are also limited means of challenging arbitral awards in almost all jurisdictions, which include requesting to have an award annulled under the arbitration legislation and in the courts of the arbitral seat.

A successful party in an arbitral proceedings will put a premium to the award while the losing party will be more likely to sacrifice speed to get a more accurate award[69]. It is, therefore, necessary to ensure that the efficiency of arbitral bodies extends to the review of the awards even though it has been recorded that in practice, the losing party has a very slim chance of changing the outcome[70].

The 1985 UNCITRAL Model Law (revised in 2006) on International and Commercial Arbitration[71] presents an ‘influential approach to the annulment of awards’[72], alongside the 1976 UNCITRAL Arbitration Rules which has provided a valuable guide for institutional rules and the conduct of ad hoc arbitrations. The aims of the Model law are to assist in harmonising the existing national arbitration laws and reduce the differences therein. Each country is meant to domesticate the Model law with certain modifications.

Article 34 of the Model Law provides for exclusive grounds upon which an award may be annulled that is, set aside or vacated by national courts, upon parties’ application. These grounds are quite similar to those in Article 52 of the ICSID Convention but couched in different wordings. The courts, however, are totally precluded from tampering with ICSID awards in any way by virtue of Article 54 of the Convention. The role of national courts is to enforce the award automatically like it is a court decision.

The striking thing about of the Model Law is that the time limit for applying for an award to be set aside varies, depending on the provision in the Country where it was domesticated. For example, in the United Kingdom, the time limit for applying for an award to be domesticated is Twenty-eight (28) days[73] while in China, it is three months[74].

One of the criticisms of the ICSID annulment system, which will be further discussed in the next chapter, is that the time limit for applying for annulment[75] is too long which makes the annulment proceedings drag on for a long period. This author submits that the time limit of 120 days should be made the default rule and parties should be allowed to set lesser time limits in their agreement. The time limit for applications on corruption as a ground has been requested to be extended, for the sake of developing countries where information technology is not effectively utilised or has not developed to the point where corrupt conducts will be detected easily and promptly, thus may take a longer time to detect the corruption.

It may be argued that this may result in the lack of uniformity of the law relating to the timing but if will improve the system’s workings and make it more effective and efficient, it should be considered.

 

THE WTO SYSTEM AND ITS APPELLATE BODY

The World Trade Organisation (WTO) has laws which provide for protection of foreign trade, just like there are laws which protect foreign investments. International law protection for foreign trade and investment, these sub-disciplines of International economic law, though birthed at about the same period, have their inception ‘grounded in highly distinct strategic imperatives’[76].

According to Jürgen Kurtz[77], both aspects of public international law have a working dispute settlement system but their differences far outweigh their similarities. Amongst the differences highlighted, one is of relevance in this discourse which is, that the WTO adopts the default state-to-state- dispute settlement which limits the participation of private legal practitioners. Whereas, investor-state dispute settlement under most modern investment treaties provide opportunities for private practitioners, even though it also adopts the state-to-state dispute settlement,

The Agreement Establishing the World Trade Organisation and the Dispute Settlement Understanding[78] which came into force in January 1995 has its disputes resolved by its tribunals and WTO Appellate body has been recorded to be successful, in that it achieves consistency and coherence[79] in its case law whilst achieving finality of its decisions. As identified as Donald McCrae,[80] the appellate body’s areas of strength which are instrumental to its success include, but not limited to: its design (the clarity, simplicity and predictability of its mandate); its size and composition[81] and the expeditious manner[82] in which matters are handled.

This Coherence and integrity, according to McCrae, refers to ‘both the consistent application of particular provisions, as well as the harmonious interpretation of the provisions of agreements that in certain important respects overlap[83].’ In practice, that might be achieved if interpretative bodies adopt a similar approach to interpretation of each agreement, even though each agreement is expected to be interpreted according to its own terms.

If ICSID should consider setting up an appeals facility or if one is set up in respect of investment law generally, it must be prepared to engage itself in specific instance interpretations of separate agreements.  However, in the absence of a multilateral regime for investment, it would be unnecessary for an appeals facility to ensure coherence in bilateral agreements, but ‘it might be able to ensure the integrity of a specific agreement if the interpretation of that agreement was to come before it on several occasions.[84]’

The WTO comprises of a regime based on a common institutional framework which is not the case with ICSID or international investment law generally. This buttresses the fact that an appeals facility may not be as workable in ICSID.

Part of the success of the WTO Appellate Body has been attributed to its cautious approach it adopts in interpretation. Also, the fact that it does going beyond the expectations of the WTO Members and its ability to foster an institutional sense within the WTO dispute settlement process[85]. The appellate body also ensures that panels follow Appellate Body rulings and maintain the integrity of process of WTO dispute settlement.

This is however not the practice with investment tribunals which do not stick to a rigid timetable, and cases can continue for a considerable period of time. Also, separate and dissenting opinions are more common and tribunal members reluctant in stating their views of the law.

From all that has been discussed above about the WTO Appellate body, the suggestion here is not necessarily to create an appellate system for ICSID, though there were lots of people clamouring for an appellate body within ICSID[86] but has considerably died down now. The appellate body may be a good option as there will be room to review the merits of a dispute and ensure correctness of an award. However, that will at the expense of a longer period of resolving disputes and involve more cost.

What is worthy of emulation is the speed at which the matters before the WTO appellate body resolve their matters as well as the ability to achieve consistency and maintain the integrity of the institution. Though it has been argued that the authority of the WTO tribunals is undermined as it is almost certain that their decisions will be subject to appeal. However, as long as the participants are happy with the system, which has been said to have recorded much progress, then it is submitted that ICSID develop a means whereby its decisions will be consistent whilst maintaining its integrity. It will restore States’ confidence in the system and prevent more State from withdrawing their membership[87]. As suggested by McCrae, more lawyers should be engaged in the Administrative Council of ICSID, to further assist in achieving coherence in the system.

CHAPTER 4

REFORM OF THE ICSID ANNULMENT

In January 2017, the Administrative secretariat of ICSID made an announcement, calling for suggestions from the entire public, on how the ICSID Rules and Regulations can be amended. It commenced the amendment process in October 2016, however, this is not the first amendment exercise the Secretariat would embark upon. The Arbitration has been amended its Rules, on different matters, three different times: 1984, 2003 and 2006.

There has been several suggestions from the public^[88] on how to improve the effectiveness and efficiency of annulment process. Some of the suggestions include:

• ICSID Rules should expressly provide for a summary procedure (as in Article Rule 41(5)) on the ground that a request for annulment is manifestly without legal merit^[89].

• A request for annulment should be accompanied with the reasons for the annulment application based on at least one of the annulment grounds listed in Article 52 (1)^[90].

• ICSID Arbitration Rule 50 provides that annulment applications may be made within 120 days of the award being rendered^[91]. This period should be reduced as this period in which a dissatisfied party may seek an annulment of an award is too long and is used to delay the proceedings. This would require the amendment of Article 52 of the ICSID Convention which is not within the scope of this review plans^[92].

• Also, structures should be put in place to make it more efficient and in order to achieve consistency of award. More attention should be paid towards the constitution and function of ad hoc committees which determine the annulment of awards. The current system where the same persons who are Counsel in one case then act as committee member in another makes the system  Others have raised concerns regarding annulment committee members who act as counsel in separate ICSID arbitrations.
• Coherency within the annulment regime should be achieved in order to foster the integrity and legitimacy of ICSID and its review system.  The application of Article 52 is fundamental to this goal. It is suggested that ICSID formally establish a pool of arbitrators to serve solely as ad hoc committee members; and • Exclude ad hoc committee members from serving as counsel in ICSID arbitrations

RECOMMENDATIONS

This author recommends the following:

1. Parties should be allowed to decide, in their agreement, the time limit for applying for annulment while the provision in Article 52 (2) of the Convention which provides for 120 days from when the award was rendered will be the default rule. Also, for corruption as a ground, the time limit should be extended to Seven (7) years, for those nations which are incapable of detecting corruption or fraud promptly.
2.  The number of times an annulment can be requested, for each case should be limited to one, to prevent a proliferation of the annulment process^[93] as was experienced in the first generation of ICSID annulment, Klockner I^[94]and Amco I^[95].  This will foster the expeditious manner of handling matters which is what arbitration is known to stand for.
3. To resolve the issue of consistency and coherence of decisions, there should be a permanent body with a fixed number of members whose sole responsibility will be to consider and decide on the annulment applications. This should enhance consistency of the ICSID case laws to a large extent and restore the lost confidence in the integrity of the institution. Schreuer suggested that there should be preliminary rulings before which will run concurrently with the proceeding before the original tribunal as this will save time and addresses the important preliminary issues, rather than they being pushed till after an award has been rendered[96]. Schreuer also observed that an appellate body will not solve this issue of inconsistency[97].

There will also be more respect for the authority of the Arbitral tribunal if the number of cases which get to the stage of annulment is seriously reduced. This is in line with the design of the annulment mechanism which is meant to be a limited remedy to deal with extraordinary emergency situations[98] and used where there has been a substantial breach of the grounds of annulment.

4. It has been suggested by Schreuer that an award debtor seeking annulment should deposit a security, which could take the form of a Bank Guarantee when an application for annulment is made[99]. This kind of security should be different from that required when an application for stay of enforcement is brought under Arbitration Rule 54. That way, there is an assurance that if the application for annulment is not granted, the award would be enforced with ease, from the security deposited.

The effect of this would be to limit the number of annulment applications whilst securing enforcement of the award should the application be declined upon its consideration.

CONCLUSION

This dissertation has examined briefly, the current position of the law in relation to ICSID annulment mechanism and the experiences before the ad hoc committee. It has also identified some of the ambiguities in the existing mechanism in relation to the conduct of the proceedings, the scope and extent of the ad hoc committee members and highlighted some of the criticisms

.

Some recommendations were made on the possible ways of improving the annulment proceedings for a more effective, efficient, consistent and coherent system of settlement of investment disputes under ICSID and thereby restore the waning confidence of its members.

The expected effect of these suggested reforms has been stated.

The proposed amendment of the law relating to the ICSID annulment mechanism is a well thought and commendable move which shows that the institution desires growth whilst adapting to the changes in this modern time. It is undoubted the fact that the institution has the interest of its members at heart, which is also highly commendable.

 

 

[1] Christopher Schreuer, The ICSID Convention: A Commentary, (2^nd edn Cambridge UK 2009).

[2] Lucy Reed, Jan Paulsson & Nigel Blackaby, Guide to ICSID Arbitration, (Kluwer The Netherlands, 2004).

[3] Jansen Calamita, David Earnest and Markus Burgstaller, The Future of ICSID and the Place Of Investment Treaties In International Law (BIICL 2013).

[4] Jürgen Kurtz, The WTO and International Investment Law, Converging Systems (Cambridge University Press, 2016).

[5] icsid.worldbank.org, https://icsid.worldbank.org/en/Pages/about/default.aspx, accessed on 25 August 2017.

[6] Gabriel Bottini, ‘Present and Future Of ICSID Annulment: The Path to An Appellate Body?’ (2016) 31 ICSID Review p 726.

[7] International Centre for Settlement of Investment Disputes (ICSID) Convention, Article 53.

[8] Lucy Reed, Jan Paulsson and Nigel Blackaby, Guide To ICSID Arbitration (Kluwer Law International 2011) p 95.

[9] ICSID Convention, Article 49 (2).

[10] ibid.

[11] ICSID Convention, Article 50.

[12] ibid Article 51.

[13] ibid, Article 52.

[14]ibid, Article 53 – 55 provide for recognition, enforcement and execution Of ICSID Awards.

[15] ‘Updated Background Paper on Annulment for the Administrative Council of ICSID’ (icsid, 2017) <http://icsid.worldbank.org/en/Documents/resources/Background%20Paper%20on%20Annulment%20April%202016%20ENG.pdf> accessed 29 August 2017.

[16] Even though it can be argued whether annulment is really a remedy since it is meant to be limited and not put to use at all times but only in extreme circumstances.

[17] International Law Commission (ILC) Draft, Article 30.

[18] The Preliminary Draft was a second working paper prepared by World Bank staff for consideration at the regional consultative meetings of experts.

[19] ‘Updated Background Paper On Annulment For The Administrative Council Of ICSID’ (ICSID, 2016)

<https://icsid.worldbank.org/en/Documents/resources/Background%20Paper%20on%20Annulment%20April%202016%20ENG.pdf> accessed 29 August 2017 p 6.

[20] Christoph Schreuer and others, The ICSID Convention: A Commentary (2nd edn, Cambridge University Press 2009) p 901-902.

[21] Lucy Reeds and other, ibid (n 4) 99.

[22] Christopher Schreuer, ‘Three Generations of ICSID Annulment Proceedings’ in ‘Annulment of ICSID Awards’ Arbitrationlaw.Com’ (Arbitrationlaw.com, 2017) <https://arbitrationlaw.com/library/three-generations-icsid-annulment-proceedings-chapter-2-annulment-icsid-awards> accessed 6 September 2017.

[23] Klöckner Industrie-Anlagen GmbH and Others v United Republic of Cameroun and Societe Camrounaise des Engrais, S.A. ICSID Case No ARB/81/2,Decision on Annulment (3 May 1985), 2 ICSID Reports 95, 122 (1994).

[24] Amco Asia Corporation and other v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Annulment, 16 May 1986.

[25] Klöckner II, Amco II, Maritime International Nominees Establishment (MINE) V Government of Guinea, Decision on Annulment, 22 December 1989.

[26] Wena Hotels v Egypt, Decision on Annulment, 5 February 2002, Vivendi v Argentina, Decision on Annulment, 3 July 2002; CDC v Seychelles, Decision on annulment, 29 June 2005.

[27] David Caron, ‘Reputation and Reality in the ICSID Annulment Process: Understanding the Distinction between Annulment and Appeal’ (1992) 7 ICSID Review p 23.

[28] Gabriel Bottini, ‘Present and Future Of ICSID Annulment: The Path to an Appellate Body?’ (2016) 31 ICSID Review p 714 – 715.

[29] ibid p 715.

[30] Lucy Reed and others, ibid (n 4) p 99.

[31] ICSID Case No. ARB/00/6, Decision of the ad hoc Committee on the Application for Annulment of Consortium R.F.C.C., para. 223 (January 18, 2006) [unofficial translation from French].

[32] Soufraki v United Arab Emirates, Decision on the Application for Annulment and Separate Opinion, ICSID Case No ARB/02/7, 23 (5 June 2007); see MCI Power Group LC and New Turbine Inc v Ecuador, ICSID Case No. ARB/03/6, Decision on Annulment, 24 (19 Oct 2009).

[33] Rules of Procedure for Arbitration Proceedings (“ICSID Arbitration Rules”), Arbitration Rules 50, 52 – 55 are applicable to the annulment under the Convention, including the institution of annulment proceedings, the appointment of an ad hoc Committee to decide the application and stays of enforcement of the award while the annulment application is pending.

[34] Arbitration Rule 50(3) (b); ICSID Convention Article 52(2). For corruption cases, the application may be filed within 120 days of discovery of the corruption and in any event, within three years after the award was rendered.

[35] Arbitration Rule 50(1).

[36] ‘Updated Background Paper On Annulment For The Administrative Council Of ICSID’ (ICSID,2016)<https://icsid.worldbank.org/en/Documents/resources/Background%20Paper%20on%20Annulment%20April%202016%20ENG.pdf> accessed 29 August 2017.

[37] ‘Investor-State Dispute Settlement: Review of Developments In 2016’ [IIA Issue Note, No. 1, 2017] 24 / 41 (UNCTAD, 2017) <http://unctad.org/en/PublicationsLibrary/diaepcb2017d1_en.pdf> accessed 31 August 2017.

[38] Matthias Scherer, ‘ICSID Annulment Proceedings Based on Serious Departure from a Fundamental Rule of Procedure’ [2007] Czech (& Central European) Yearbook of Arbitration <http://www.lalive.ch/data/publications/ICSID_Annulment_Based_on_Departure_from_Rule_of_Procedure.pdf> accessed 9 July 2017.

[39] Matthias Scherer, ibid.

[40]David Caron, ‘Framing the Work of ICSID Annulment Committees‘ (2012) 6 World Arbitration & Mediation Review World Arbitration & Mediation Review (WAMR), Vol:6, No:2, <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2506072> accessed 25 August 2017183

[41] David Caron, ibid p 183.

[42] Christoph Schreuer and others, (n 16) p 890-1095.

[43] ‘Updated Background Paper on Annulment for the Administrative Council of ICSID’ (icsid, 2017) <http://icsid.worldbank.org/en/Documents/resources/Background%20Paper%20on%20Annulment%20April%202016%20ENG.pdf> accessed 1 September 2017.

[44] Christoph Schreuer and others, (n 16), p 922.

[45] ibid p 52-53.

[46] Hussein Nuaman Soufraki v United Arab Emirates, ICSID Case No ARB/02/7, Decision of the ad Hoc Committee on the Application for Annulment of Mr. Soufraki (5 June 2007).

[47] ibid paras 37, 41.

[48] Christopher Schreuer, (n16) p 943.

[49] Luchchetti v Peru (sub nomine: Industri Nacional de Alimentos), Decision on Annulment, 5 September 2007.

[50] Amco I (n 20).

[51] Wena Hotels v Egypt …para 56, 58.

[52]

[53] MINE v Guinea, ibid, (n 21).

[54] Repsol YPF Ecuador S.A. v. Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/01/10, Decision on Annulment of January 8, 2007.

[55] TECO Guatemala Holdings, LLC v Republic of Guatemala, ICSID Case No ARB/10/23, Decision on Annulment(5 April 2016).

[56] ibid para 131.

[57]Vladimir Pavic, Annulment Of Arbitral Awards In International Commercial Arbitration, in Christina Knahr, Christian Koller, Walter Rechberger And August Reinisch (Eds), Investment And Commercial Arbitration – Similarities And Divergences (Eleven International Publishing, 2010) p 138.

[58] Klöckner v Cameroun, (n 19), para 118.

[59] ibid 116. The committee found that there was no contradiction in the reasons stated by the tribunal.

[60] Mine v Guinea, (n 21) para 5.13; Wena Hotels v Egypt, Decision on Annulment, 5 February 2002, paras 75-110.

[61] The fact that its decisions are not subject to judicial review compared to other arbitral bodies as the International Chamber of Commerce (ICC) International Court of Arbitration, London Court of International Arbitration (LCIA),

[62] The automatic enforcement of ICSID Awards is an  added advantage as it is not subject to the procedure under the Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958 (“the New York Convention”)

[63] This may be due to the credibility attached to the World Bank as an institution and/or its identified strengths and not necessarily as a result of the efficiency of the dispute resolution body.

[64] Hamid Gharavi, ‘ICSID Annulment Committees: The Elephant in the Room’ (Derainsgharavi.com, 2014) <http://www.derainsgharavi.com/2014/11/icsid-annulment-committees-the-elephant-in-the-room/> accessed 12 August 2017.

[65] ibid.

[66] Hamid Gharavi, ibid (n 28).

[67]

[68] Philippe Pinsolle, ‘The Annulment of ICSID Arbitral Awards’ (2000) 1(1) J World Investment 243 rd.

[69] Vladimir Pavic, ibid (n 53) p 131.

[70] Gary Born, ‘International Arbitration: Law and Practice’, (Kluwer Law International, 2012) p 304.

[71] Adopted by the United Nations Commission on International Trade Law in 1985.

[72] Gary Born, ibid (n 3) p 304.

[73] Arbitration Act 1996, Section 70 (3).

[74] Chinese Arbitration Law, Article 59.

[75] The time limit is 120 days from the date the award was rendered. ICSID Convention Article 52 (2).

[76] Jürgen Kurtz, The WTO And International Investment Law – Converging Systems (Cambridge University Press 2016) p 1.

[77]ibid.

[78] Annex 2 to the WTO Agreement.

[79] Donald McRae, ‘The WTO Appellate Body: A Model For An ICSID Appeals Facility?’ Journal of International Dispute Settlement, Vol. 1, No. 2 (2010), pp. 371–387 <https://academic.oup.com/jids/article/1/2/371/902957> accessed 19 August 2017.

[80] Ibid p 373 – 375.

[81] The Appellate Body is composed of seven members ‘of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally’ which are to be ‘broadly representative of membership in the WTO’. Dispute Settlement Understanding, Article 17.2.

[82] There is a 9-12 month time limit within which cases is handled. Donald McRae, ibid (n 13) p 375.

[83] Donald McRae, ibid (n 12) p 383.

[84] Donald McCrae, ibid (n 13) p 384. He further observed:

“Given the essentially bilateral nature of obligations in the field of investment,

it is difficult to see how an appeals facility for investor state dispute settlement

would bring coherence and integrity into that body of law.”

[85] ibid.

[86] Julius Cosmas, ‘Legitimacy Crisis In Investor – State International Arbitration System A Critique On The Suggested Solutions & The Proposal On The Way Forward-Julius Cosmas’ (2015) Vol 4 International Journal of Law and Policy Review (IJLPR) p 19-20.

[87] Like the Latin America countries; Bolivia, Ecuador, and Venezuela who have withdrawn their membership

[88] ‘Public Comment To Amendment Of ICSID Rules And Regulations’ (Icsid.worldbank.org, 2017) <https://icsid.worldbank.org/en/Documents/about/Public%20Comments%20to%20Amendment%20to%20ICSID%20Rules%20and%20Regulations.pdf#search=reform> accessed 10 July 2017.

[89] ibid, p

[90] ibid

[91] ibid

[92] ibid

[93] Vincent Nmehielle, ‘Enforcing Arbitration Awards under the International Convention for the Settlement of Investment Disputes (ICSID Convention)’ (2017) 7 Annual Survey of International & Comparative Law, Article 4 <http://digitalcommons.law.ggu.edu/cgi/viewcontent.cgi?article=1058&context=annlsurvey> accessed 4 August 2017.

[94] ibid (n 21).

[95] ibid.

[96] Christoph Schreuer, ‘Why Still ICSID?’ in Jansen Calamita, David Earnest and Markus Burgstaller, ‘The Future of ICSID And The Place Of Investment Treaties In International Law’ (BIICL 2013) p 208.

[97] ibid.

[98] Christoph Schreuer, ibid. p 206.

[99] Ibid, p 207.