Role of the Board: Legal and Institutional Issues

Transcript Role of the Board: Legal and Institutional Issues

Workshop II: THE ICSID ANNULMENT MECHANISM

ANNULMENT

 A post-award remedy  Provided by Article 52 ICSID Convention  Process may lead to full or partial annulment of an ICSID Award 2 © 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.

“Annulment is an essential but exceptional remedy”

- Aron Broches

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

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

ANNULMENT - GROUNDS

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.

Grounds for Annulment Invoked During Proceedings

35 20 15 30 25 31 21 28 10 5 4 0 Art. 52(1)(a) Improper constitution of the Tribunal Art. 52(1)(b) Manifest excess of powers 0 Art. 52(1)(c) Corruption Art. 52(1)(d) Serious departure from a fundamental rule of procedure Art. 52(1)(e) Failure to state reasons 7 © 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement. Number of Times Invoked

MANIFEST EXCESS OF POWERS

 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

• • or Dual Requirement:

(i) Is there an excess of power?

( ii) Is the excess manifest?

Prima facie test: Is the alleged excess of powers so egregious as to amount to “manifest”?

• • or “Manifest” means “obvious” or “self-evident” “Manifest” includes an element of materiality 9 © 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.

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?

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.”  1.

Tribunal manifestly exceeded its powers because Failed to apply UK-Malaysia BIT’s broad definition of “investment” Required a significant contribution to the economic development of host State Failed to take into account the preparatory work of the ICSID Convention 11 © 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.

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

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

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.

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

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

SERIOUS DEPARTURE FROM A FUNDAMENTAL RULE OF PROCEDURE

  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

 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, 2010 Ad hoc Committee Conclusion

 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

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

ANNULMENT OUTCOMES – BY DECADE

120 100 80 60 40 20 0 96 4 0 0 1971-1980 0 9 1 3 1981-1990 0 Number of Convention awards rendered Number of decisions annulling the award in part or in full 18 0 1 1991-2000 1 13 8 2001-2010 5 23 4 2011 0 Number of decisions rejecting the application for annulment Number of annulment proceedings discontinued 6 22 © 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) 23 © 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 24 © 2012 by International Centre for Settlement of Investment Disputes. Content may be reproduced for educational use with acknowledgement.