Workshop II:
THE ICSID ANNULMENT
MECHANISM
Arbitration Academy
July 12, 2012
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© 2012 by International Centre for Settlement of Investment Disputes.
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ANNULMENT
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
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.
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“Annulment is an
essential but exceptional
remedy”
- Aron Broches
3
© 2012 by International Centre for Settlement of Investment Disputes.
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EXCEPTIONAL REMEDY

ICSID Awards are final, binding and non-appealable

Annulment is an exception to the principle of finality of
Awards

Annulment is not an appeal
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© 2012 by International Centre for Settlement of Investment Disputes.
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PRINCIPLES IDENTIFIED BY
AD HOC COMMITTEES

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)
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© 2012 by International Centre for Settlement of Investment Disputes.
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ANNULMENT - GROUNDS
1.
2.
3.
4.
Tribunal was not properly constituted;
Tribunal manifestly exceeded its powers;
Corruption on the part of a member of the Tribunal;
A serious departure from a fundamental rule of
procedure; or
5. Award failed to state the reasons on which it is based.
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© 2012 by International Centre for Settlement of Investment Disputes.
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Grounds for Annulment Invoked During Proceedings
35
31
28
30
25
21
20
15
Number of Times Invoked
10
4
5
0
0
Art. 52(1)(a) Improper Art. 52(1)(b) Manifest
constitution of the
excess of powers
Tribunal
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Art. 52(1)(c)
Corruption
© 2012 by International Centre for Settlement of Investment Disputes.
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Art. 52(1)(d) Serious Art. 52(1)(e) Failure to
departure from a
state reasons
fundamental rule of
procedure
MANIFEST EXCESS OF POWERS

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The Tribunal has manifestly exceeded its powers
- Exceeding jurisdiction
- Failure to exercise jurisdiction
- Failure to apply proper law
© 2012 by International Centre for Settlement of Investment Disputes.
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MANIFEST EXCESS OF POWERS –
APPROACHES BY AD HOC COMMITTEES
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
•
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“Manifest” includes an element of materiality
© 2012 by International Centre for Settlement of Investment Disputes.
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Malaysian Historical Salvors SDN BHD (MHS) v.
Malaysia, Decision of April 16, 2009

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?
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MHS v. Malaysia, Decision of April 16, 2009
Ad hoc Committee Conclusions

The contract between MHS and Malaysia constituted an
investment. “There is no room for another conclusion.”
Tribunal manifestly exceeded its powers because
1. Failed to apply UK-Malaysia BIT’s broad definition of
“investment”
2. Required a significant contribution to the economic
development of host State
3. Failed to take into account the preparatory work of the
ICSID Convention

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© 2012 by International Centre for Settlement of Investment Disputes.
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MHS v. Malaysia, Decision of April 16, 2009
Dissenting Opinion

“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.”
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Patrick Mitchell v. Democratic Republic of Congo
Decision of November 1, 2006

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”
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© 2012 by International Centre for Settlement of Investment Disputes.
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Mitchell v. DRC, Decision of November 1, 2006
Ad hoc Committee Conclusions

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
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Sempra Energy International v. Argentine
Republic, Decision of June 29, 2010
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.”

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Sempra v. Argentina, Decision of June 29, 2010
Ad hoc Committee Conclusion

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”
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SERIOUS DEPARTURE FROM A
FUNDAMENTAL RULE OF PROCEDURE


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Must be “serious” and “fundamental”
Can relate to
- Impartiality
- Right to be heard
- Deliberation
- Evidence and Proof
© 2012 by International Centre for Settlement of Investment Disputes.
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Fraport AG Frankfurt Airport Services Worldwide v.
Republic of Philippines, Decision of Dec. 23, 2010

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.
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Fraport v. Philippines, Decision of Dec. 23, 2010
Ad hoc Committee Conclusion

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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.
© 2012 by International Centre for Settlement of Investment Disputes.
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FAILURE TO STATE THE REASONS

The award failed to state the reasons on which it is
based
- Absence of reasons
- Contradictory reasons
- Failure to deal with every question
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© 2012 by International Centre for Settlement of Investment Disputes.
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FAILURE TO STATE THE REASONS
What is the required standard of reasons?



Frivolous and contradictory reasons are equivalent to
no reasons
Failure to state adequate or convincing reasons is not
a ground for annulment
but
Some Committees have considered that “insufficient”
and “inadequate” reasons could in certain
circumstances be annullable
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ANNULMENT OUTCOMES – BY DECADE
120
96
100
80
60
40
23
18
20
4
13
9
0
0
0
1
3
0
0
1
8
1
5
4
6
0
0
1971-1980
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1981-1990
1991-2000
2001-2010
2011 -
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.
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)
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© 2012 by International Centre for Settlement of Investment Disputes. Content may
be reproduced for educational use with acknowledgement.
“It is not surprising that parties to ICSID proceedings
may seek to exhaust their procedural remedies.”
- Aron Broches
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© 2012 by International Centre for Settlement of Investment Disputes.
Content may be reproduced for educational use with acknowledgement.