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ISDS Control Mechanisms (Annulment and Setting Aside)

  • Lin JacobsenEmail author
Living reference work entry
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Abstract

International investment arbitration may take place within or outside of the delocalised system of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). An ICSID arbitral award is automatically enforceable within a contracting State, whereas the prevailing party with a non-ICSID award will likely resort to the New York Convention to have its award recognised and enforced by a State court. Correspondingly, the challenge to an ICSID award and a non-ICSID award will also take on different forms. This chapter compares such challenges by reviewing the annulment mechanism under the ICSID Convention and the grounds for non-enforcement under the New York Convention.

Keywords

ICSID Convention Delocalised Annulment Article 52 of the ICSID Convention New York Convention Set-aside Recognition and enforcement Article V of the New York Convention Seat of arbitration Enforcement court Harmonisation 

Introduction

International investment arbitration may take place within or outside of the decentralised and delocalised system of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention or the Convention).1 One major difference between the two systems would be that whereas the ICSID system is self-contained, arbitration outside of the ICSID system will inevitably interact with State law. While an ICSID award is automatically enforceable in a contracting State, a party seeking to enforce a non-ICSID award will likely rely on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which requires each contracting State to recognise and enforce arbitral awards rendered in the other contracting States.2 A party challenging an ICSID award will only be able to find remedies within the ICSID system, the most drastic of which is annulment under Article 52 of the ICSID Convention. A party resisting enforcement of a non-ICSID award can ask a State court at the seat of arbitration to set it aside, and/or ask the State court where the enforcement is sought to not recognise the award under Article V of the New York Convention and/or at least delay the enforcement if a set-aside application is pending under Article VI of the New York Convention. The grounds for annulment under Article 52 of the ICSID Convention and the grounds for non-recognition under Article V of the New York Convention share some commonalities. The self-contained nature of the ICSID Convention, the restrictive jurisdiction of ICSID ad hoc committees and the significant role played by State courts in the application of the New York Convention may lead to the speculation that non-ICSID awards are more vulnerable to enforcement challenges than ICSID awards. However, this may not necessarily be the case. With further harmonisation of State laws related to international arbitration, any discrepancy between the finality of ICSID awards and non-ICSID awards may be further diminished.

Annulment Under the ICSID Convention

Finality v. Legitimacy

The ICSID Convention prides itself on being an independent and self-contained system for international investment arbitration. A cornerstone for the self-contained and delocalised structure is the finality of an ICSID arbitral award which is enshrined in Article 53 of the ICSID Convention. Article 53 provides that an award handed down by an ISCID tribunal shall be “binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention”.3 In other words, any challenge to any aspect of an ICSID award can only be carried out and will only be resolved in accordance with the mechanisms found within the ICSID Convention; a review by State courts is strictly off the limits.

To ensure the legitimacy of the system, it would be imperative for the ICSID Convention to provide for proper channels of review and sufficient remedies in respect of challenged awards. In fact, the ICSID Convention strives to strike a balance between the sacred finality of awards and the indispensable mechanism of review.

On the one hand, the ICSID Convention does not allow appeal but provides for other remedies such as rectification, interpretation, revision and annulment. A party may request an arbitration tribunal to decide any question which it has omitted to decide in the award, and the tribunal shall rectify any clerical, arithmetical or similar error in the award.4 If there is a dispute as to the meaning or the scope of an award, either party may request interpretation of the award.5 Either party may request revision of the award on the ground of discovery of some formerly unknown fact of such a nature as to decisively affect the award.6

On the other hand, the remedy of annulment seems antithetical to the concept of finality. Either party may request annulment of the award by an ad hoc committee on one or more of the specified grounds in Article 52(1) of the ICSID Convention.7 Thus within Article 52 is another delicate dance of balance between respecting the finality of arbitral awards and providing for an adequate review mechanism to ensure the legitimacy of the ICSID system. On a close inspection, the ICSID Convention’s emphasis on finality seems paramount. In fact, Article 53 specifically states that the final and binding award shall include any annulment decision by an ad hoc committee.8 Assuring the finality of ICSID arbitration awards is a fundamental goal for the ICSID system, as illustrated by the drafting history of the ICSID Convention, and as a result the annulment mechanism has purposefully been given a limited scope to safeguard against only violations of fundamental principles of law governing the arbitral proceedings.9 Annulment is not an appeal which would call for a review of the merits of the case; mistake in fact or misapplication of law is not a ground for annulment.10 If an ad hoc committee decides to annul any part of an award, it cannot substitute its own decision for the annulled decision; the reopened dispute can only be resolved by a new tribunal constituted in accordance with the ICSID Convention.11

According to the ICSID Background Papers for the Administrative Council prepared by the ICSID Secretariat, decisions by the ad hoc committees over the years are consistent with these principles and have established that: “(1) the grounds listed in Article 52(1) are the only grounds on which an award may be annulled; (2) annulment is an exceptional and narrowly circumscribed remedy and the role of an ad hoc committee is limited; (3) ad hoc committees are not courts of appeal, annulment is not a remedy against an incorrect decision, and an ad hoc committee cannot substitute [its reasoning for] the tribunal’s determination…; (4) ad hoc committees should exercise their discretion not to defeat the object and purpose of the remedy [of annulment] or erode the binding force and finality of awards; (5) Article 52 should be interpreted in accordance with its object and purpose, neither narrowly nor broadly; and (6) an ad hoc committee’s authority is circumscribed by the Article 52 grounds specified in the application for annulment, but an ad hoc committee has discretion with respect to the extent of an annulment, i.e. either partial or full.”12

Article 52 and the Specified Grounds of Annulment

Article 52 sets out how a party may seek to annul an ICSID arbitral award. Either the State or the investor of another contracting State may initiate the process by filing an application for annulment with the ICSID Secretary General within 120 days after the date on which the award is rendered (where annulment is requested on the grounds of corruption, within 120 days after discovering the corruption and in any event within 3 years after the date of the award).13 The application will be decided by an ad hoc committee consisting of three members appointed by the Chairman of the Administrative Council from the ICSID Panel of Arbitrators.14 Among other things, a member of an ad hoc committee cannot be of the same nationality as any member of the original tribunal which decided the case, cannot have the same nationality as either party to the dispute, cannot have been designated to the Panel of Arbitrators by either State and cannot have acted as a conciliator in the same dispute.15 The ICSID Convention Arbitration Rules apply, mutatis mutandis, to an annulment proceeding.16 In addition, Article 52(4) provides that Articles 41–45, 48, 49, 53 and 54 of the ICSID Convention apply mutatis mutandis to proceedings before an ad hoc committee.17 Upon an application for annulment, the ad hoc committee may stay the enforcement of the award pending its decision; an applicant may also request a stay in its application in which case the enforcement of the award will be stayed provisionally until the ad hoc committee rules on the request.18 If the award is annulled, the dispute shall at the request of either party be submitted to a new ICSID tribunal.19 The fact that the ad hoc committee cannot amend or replace the award with its own decision is an important feature that distinguishes annulment under Article 52 from appeal.20 The annulment decision per se, however, is not subject to any further review within the ICSID system.

Unlike the tribunal proceedings, the applicant in an annulment application is solely responsible for making all advance payments requested by ICSID.21 The payments are made without prejudice to the right of the ad hoc committee to decide how and by whom the costs will be ultimately paid.22

It has been universally recognised that an application for annulment can only be based on one of the five specified grounds under Article 52(1), namely:
  1. (a)

    that the original tribunal was not properly constituted

     
  2. (b)

    that the tribunal manifestly exceeded its powers

     
  3. (c)

    that there was corruption on the part of a member of the tribunal

     
  4. (d)

    that there has been a serious departure from a fundamental rule of procedure

     
  5. (e)

    that the award has failed to state the reasons on which it is based23

     
The interpretation and application of these grounds by various ad hoc committees also prove to be a careful balancing act. Annulment is viewed as a remedy for procedural errors in an arbitral proceeding rather than an enquiry into the substance. Ad hoc committees should only scrutinise the legitimacy of the decision-making process, not the correctness of the tribunal’s reasoning.24 However, in practice the line between procedures and substance may not be so clear-cut. This section will try to demonstrate this point by looking at each ground for annulment, in particular the grounds under (b), (d) and (e) of Article 52(1) as the grounds under (a) and (c) are rarely invoked by the applicants. Most applications cite the grounds under (b), (d) and (e) cumulatively and often an applicant cites the same facts to support multiple grounds for annulment, which may create an impression that the grounds are interchangeable.25
  1. (a)

    Improper constitution of the tribunal

     

This ground is intended to cover situations where the tribunal’s constitution diverges from the parties’ agreement or where an arbitrator has failed to meet applicable requirements.26

According to the Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), this ground had only been raised in five annulment applications up to the time of the paper.27 In four cases the challenge on this ground was rejected and in the fifth case this ground was not addressed as the ad hoc committee annulled the award on other grounds.28 Applications based on this ground may be unlikely to succeed because in practice the parties would have been able to raise this objection during the arbitration as tribunals would usually ask the parties whether they have any objection to the constitution of the tribunal or to any individual arbitrator when they deal with procedural matters of the arbitration.29
  1. (b)

    Manifest excess of powers

     

A tribunal may exceed its powers either in its exercise of jurisdiction or application of law. To make an award annullable, the excess must also be “manifest”, which has been interpreted by most ad hoc committees to mean obvious, clear or self-evident, discernible without the need for an elaborate analysis.30 However, the determination of whether the “manifest” threshold has been met may require an analysis dangerously close to a review of substance. Tellingly, some committees have determined that for an excess to be “manifest” it must have been so serious or material that it actually affected the outcome of the case.31 One cannot help but wonder whether it is possible to make such a determination without reviewing the merits.

Regarding a tribunal’s jurisdiction, given that an important premise of the ICSID system is the States’ consent to submit themselves to the system, it is imperative that the tribunal does not go beyond the scope of the parties’ arbitration agreement.32 In addition, a tribunal must decline jurisdiction where any jurisdictional requirement in Article 25 is not met even if the parties do not raise any objection.33 Ad hoc committees have held that an excess of power may exist if a tribunal has exercised jurisdiction that it does not have, has exceeded its jurisdiction or has rejected jurisdiction where jurisdiction actually exits.34 This seems very clear in principle. However, to determine the existence and extent of a tribunal’s jurisdiction, a review of the substance of the matter may be unavoidable, for example where the determination involves the interpretation of the relevant bilateral investment treaty (BIT). One may argue that the requirement that any excess be “manifest” should help avoid the need for a substantive analysis. However, to determine whether the “manifest” threshold has been reached may itself perilously border on a review of the substance. In any case an applicant seeking to annul an award on this jurisdictional ground may have a high hurdle to overcome because it is a generally accepted principle under the ICSID Convention that a tribunal is the judge of its own competence.35 According to the Updated Background Paper (2016), the issue of lack of jurisdiction or excess of jurisdiction had been ruled on in 30 annulment decisions and had led to one full annulment and one partial annulment, whereas the non-exercise of jurisdiction where it actually exists had been ruled on in 13 decisions and had led to one full annulment and two partial annulments.36

Regarding a tribunal’s application of law, Article 42(1) of the ICSID Convention stipulates that an ICSID tribunal must decide a dispute in accordance with such rules of law as agreed by the parties.37 The ad hoc committees have generally held that a tribunal’s failure to apply the proper law or acting ex aequo et bono without the parties’ agreement could constitute a manifest excess of powers.38 Difficult questions arise where a tribunal may have erroneously applied the correct law. Annulment is not an appeal and in the drafting history of the ICSID Convention the Legal Committee confirmed that even a manifestly incorrect application of the correct law would not be a ground for annulment.39 However, some ad hoc committees have taken the view that gross or egregious misapplication or misinterpretation of the proper law may amount to non-application and therefore constitute a ground for annulment, whereas others deem this approach to be bordering on an appeal.40 Again the line between procedures and substance seems blurred. According to the Updated Background Paper (2016), the failure to apply proper law had been ruled on in 52 annulment decisions and had led to two partial annulments and two full annulments.41
  1. (c)

    Corruption of a member of the tribunal

     
According to the Updated Background Paper (2016), this ground had not yet been dealt with in any annulment decision.42 However, it is worth noting that the drafters of the ICSID Convention decided not to replace “corruption” with suggested alternatives such as “misconduct”, “lack of integrity” or “a defect in moral character” and they also decided not to subject this ground to the requirement that corruption be evidenced by a court judgement or reasonable proof that corruption might exist.43
  1. (d)

    Serious departure from a fundamental rule or procedure

     

The ground of “a serious departure from a fundamental rule or procedure” has a wide connotation including principles of justice, but excludes a tribunal’s failure to observe ordinary arbitration rules.44 The drafting history shows that “fundamental rules of procedures” were intended to be references to principles and the drafters specifically named the parties’ right to be heard as one such principle.45 Fundamental rules of procedures identified by the ad hoc committees include: (i) the equal treatment of parties; (ii) the right to be heard; (iii) an independent and impartial tribunal; (iv) the treatment of evidence and proof; and (v) deliberations among members of the tribunal.46 Despite the right to be heard being recognised as a fundamental rule or procedure, the tribunal is not bound by the parties’ arguments: a party’s failure to anticipate or address an argument relied on by the tribunal does not constitute a deprivation of a party’s right to be heard.47

Once the fundamentality of a rule is established, the departure from it must be “serious” in order for it to constitute a ground for annulment. Such a determination will probably involve a close inspection of the facts and the conduct of the tribunal, where the line between procedures and substance may again be less clear-cut than expected. Some ad hoc committees have required the departure to have a material impact on the outcome of the award for the annulment application to succeed.48

According to the Updated Ground Paper (2016), this ground had been ruled on in 41 annulment decisions and had led to one full annulment, two partial annulments and the annulment of one decision on supplemental decisions and rectification.49
  1. (e)

    Failure to state the reasons on which the award is based

     

This ground is closely linked to the requirement in Article 48(3) of the ICSID Convention that arbitral awards deal with every question submitted to the tribunal and state the reasons upon which they are based.50 Given the requirement under Article 48(3) to state reasons, it is probably unlikely to come across a tribunal award without any explanation of its reasoning. The requirement to state reasons is intended to ensure that the parties can understand the reasoning of the tribunal, that is, how the tribunal has come to its conclusion, going from point A to point B, whereas the correctness of the reasoning or whether it is convincing is not relevant.51

The ad hoc committees have generally held that “frivolous” and “contradictory” reasons are equivalent to no reasons and could lead to annulment.52 However, where the reasons are deemed insufficient or inadequate, the extent of insufficiency and inadequacy required to justify annulment is open to debate.53 Some ad hoc committees have taken the approach that as long as they can infer the tribunal’s reasoning from what is submitted to the tribunal, annulment is not warranted.54 Any analysis required to determine whether a tribunal’s reasoning is insufficient or inadequate and if so whether the insufficiency or inadequacy is to such a degree that it warrants annulment may call for a review of the facts and merits of the case. Indeed, one criticism levelled against the so-called first-generation annulment decisions is that the ad hoc committees engaged in a review of the quality and correctness of the tribunal’s reasoning, thus wading into the forbidden waters of appeal.55 Tellingly, although the failure to address a particular question is not a ground for annulment, some ad hoc committees have found that if such failure might have affected the tribunal’s ultimate decision it would amount to a failure to state reasons, in which case the award may be annullable.56 It thus seems that even if a defect in a tribunal’s reasoning does not fall squarely under any of the specified grounds under Article 52(1), it may still result in annulment if in an ad hoc committee’s reasoning this error amounts to a failure to state reasons. Again the line between procedures and substance is blurred.

According to the Updated Background Paper (2016), this ground had been ruled on in 50 proceedings and led to two full annulments and six partial annulments.

Development and Trend

In his seminal paper entitled “Three Generations of ICSID Proceedings”, Mr Schreuer identified three generations of ICSID annulment decisions: (i) the first two ICSID annulment cases, Klöckner I and Amco I,57 are in Mr Schreuer’s view problematic because the ad hoc committees “reviewed the merits of the cases” and “improperly cross[ed] the line between annulment and appeal”; (ii) the second generation of annulment decisions alleviated such concern; and (iii) the third generation of annulment decisions, epitomised by WENA and Vivendi,58 demonstrates that “the ICSID annulment has found its proper balance”.59 For Mr Schreuer one demonstration of such proper balance is the decision of these ad hoc committees to forego the approach that the finding of an annulment ground would automatically lead to annulment and opt for a material violation approach instead.60 Under the so-called material violation approach, the ad hoc committee needs to consider the significance of the annullable error relative to the rights of the parties and in order for a violation to lead to annulment it must be so serious and manifest that it is capable of making a difference to the arbitral award.61 According to Mr Schreuer, the third generation of annulment decisions abandoned the activist approach used by some earlier ad hoc committees and established annulment as what it is meant to be: an unusual remedy for unusual circumstances.62

Following a string of annulment decisions (including Sempra and Enron63) in the summer of 2010, the question was raised whether a fourth generation of ICSID annulment jurisprudence arrived.64 In Sempra v Argentina and Enron v Argentina, ad hoc committees based their annulment decisions on the determination that the tribunals had not properly understood and applied the necessity defence advanced by Argentina.65 In the former, the ad hoc committee found that the tribunal had wrongly equated the necessity defence under customary international law and the relevant BIT. In the latter, the committee found that the tribunal had not applied some essential legal elements of the necessity defence under customary international law in its analysis. These decisions reinforce the impression that erroneous interpretation and application of law by a tribunal could form a basis for annulment. This seemingly expansive approach led to the criticism that the ad hoc committees in these decisions reviewed the substance of the case like a court of appeal, exceeding the restricted scope of Article 52.66

Did these decisions indeed spearhead a fourth generation of ICSID annulment cases? If that were the case, we would expect a more activist approach by the ad hoc committees to produce a higher rate of annulments. The statistics seem to suggest otherwise. According to the Updated Background Report (2016), there had been an increase in annulment applications in the recent period, but the increase was a reflection of the vastly increased number of arbitration proceedings and awards under the ISCID Convention in the same period.67 In the meantime the rate of annulment had seen a trend of decrease: the rate of annulment was 13% in the period of 1971–2000, 8% in the period of 2001–2010 and 3% in the period of 2011–2016.68 The statistics based on cases registered or administered by ICSID as of 30 June 2019 seem to confirm the trend.69 From 2011 to such time in 2019, there were 181 ICSID awards; there were 44 decisions rejecting the application for annulment; 19 annulment proceedings were discontinued; and there were 6 decisions annulling the award in part or in full, making the annulment rate for the new decade 3%.70 The rare instances of annulment seem to be consistent with its nature of being an unusual remedy for unusual situations.

Problems and Reform?

If the statistics give the reassurance that there is no trend of an ever-increasing number of interventionist ad hoc committees with an expansive approach, the annulment mechanism under Article 52 of the ICSID Convention still faces several challenges.

First of all, as shown above, in the reasoning of ad hoc committees, the line between procedures and substance is sometimes blurred. The annulment mechanism is meant to rectify significant flaws of the procedures and ad hoc committees are prohibited from taking on the mantle of a court of appeal. However, as observed by the Solicitor General of the Philippines, whose request in the wake of Fraport71 that ICSID issue guidelines for ad hoc committees to follow prompted the Administrative Council to issue the Background Report (2002), an ad hoc committee may, under the guise of a procedural ground under Article 52, effectively apply an appellate standard to annul an award for what constituted in the committee’s view a mistaken interpretation and application of the relevant law.72 Whatever guidelines the Administrative Council may issue, the blurred line between procedures and substance may subsist as a creative ad hoc committee may always find a way to subsume an argument based on misinterpretation or misapplication of law under a procedural ground.

Secondly, true to the decentralised reputation of the ICSID system, different ad hoc committees may reach different conclusions based on the same or similar facts.73 As an illustration of this issue, the committees in Sempra,74 Enron75 and CMS76 dealt with similar issues based on the same BIT yet came to different conclusions. All three cases concerned proceedings brought by investors against Argentina in relation to the measures it took following a financial and economic crisis and in all three cases Argentina raised the defence of necessity. The ad hoc committee in Sempra annulled the award because it found that the tribunal applied customary international law in its interpretation of the defence and did not identify or apply the primary applicable law, that is, the relevant provisions in the BIT, which failure constituted a manifest excess of powers.77 The ad hoc committee in Enron also annulled the entire award. However, unlike the ad hoc committee in Sempra, it found no fault in the tribunal’s treatment of the customary international law as applicable law, but found that the tribunal had failed to apply a number of the essential legal elements of the necessity defence under customary international law, which constituted a manifest excess of powers and therefore a ground for annulment.78 In CMS, which preceded Sempra and Enron by a few years, the ad hoc committee criticised the tribunal’s failure to distinguish between the primary law of the BIT and the secondary customary international law, but found no manifest excess of powers after noting that as an ad hoc committee it had limited jurisdiction under Article 52 and that it could not substitute its own view for that of the tribunal.79 Such divergent reasoning may have an adverse impact on the legitimacy and credibility of the ICSID system, especially considering that there is no review mechanism in respect of annulment decisions within the system. One can only hope that the guidance given by Administrative Council can help minimise such discrepancy.

Thirdly, the grounds for annulment are limited to those specified under Article 52(1). It may be problematic if an obvious error by the tribunal does not fall squarely under any of the five grounds. In Tidewater, Venezuela asked the ad hoc committee to annul the tribunal’s calculation of compensation because, after having affirmed in step 1 of its reasoning the elements to be used in calculating the market value, the tribunal did not do so in its calculation.80 Based on this fact, Venezuela sought annulment on the three grounds commonly invoked: manifest excess of power, serious departure from a fundamental rule of procedure and failure to state reasons. Although the tribunal made an obvious error in its calculation, the ad hoc committee found that it could not annul the tribunal’s calculation on the ground of manifest excess of power because Venezuela’s claim of non-application of proper law was not established given that the tribunal correctly identified and applied the relevant BIT as applicable law. The ad hoc committee said that Venezuela erred in deeming the tribunal’s interpretation of the term “market value” under the relevant provision of the BIT as applicable law as this amounted to treating as applicable law what in reality was step 1 of the tribunal’s application of law. Neither did the ad hoc committee find a serious departure from a fundamental rule of procedure as there were no procedural shortcomings during the proceeding. The ad hoc committee finally annulled the compensation which was the result of the tribunal’s obvious calculation mistake on the ground of contradictory reasons. The committee found that the tribunal “contradicted its own analysis and reasoning by quantifying its estimation using one concrete criterion…which it has rejected as unreasonable”.81 However, one is left wondering whether it is possible for a different ad hoc committee to refuse annulment on the last ground by finding that there was no contradictory reasoning, rather the tribunal made a mistake in applying its reasoning.

In light of the potential issues, should the ICSID annulment mechanism be reformed? Any reform would need to take into account the ICSID Convention’s dual goals of finality and legitimacy. The ICSID system prides itself on the finality of its awards and the speedy resolution of disputes that is expected to accompany such finality provided by a self-contained system. However, to ensure the legitimacy of such a self-contained system, sufficient review mechanism may be indispensable. On the other hand, if annulment proceedings unnecessarily protract investment disputes at the expense of finality and/or speediness of the proceeding or if annulment decisions are perceived as too arbitrary to perform an adequate review function, the legitimacy of the system will also suffer. To address such competing goals, it may be desirable to implement a more expansive review mechanism inside the ICSID system.

The 1953 United Nations International Law Commission Draft Convention on Arbitral Procedure, from which the ICSID Convention derived its grounds for annulment, actually contemplated having an independent body, the International Court of Justice, rule on annulment applications.82 An independent judiciary body will likely create a more consistent jurisprudence of annulment, in contrast with situations where different ad hoc committees may reach different conclusions based on the same or similar facts or reach the same or similar conclusions based on divergent reasoning. However, giving the annulment power to an independent body will undoubtedly undermine the self-contained character of the ICSID system. Should any reform proceed in this direction, it is likely that the scope of annulment will remain as (if not more) restricted.

Alternatively, the ICSID system may consider giving ad hoc committees more grounds for annulment and/or the power to substitute its own reasoning if in its view the tribunal has erred. Despite the current consensus that the remedy of annulment should be reserved for procedural errors, some ad hoc committees seem to nevertheless review the merits of the case under the guise of a procedural review. One may wonder if it is more efficient to specifically accept serious misapplication of law as a permissive ground for annulment. Similarly, if an ad hoc committee can substitute its own reasoning, it may be easier for it to correct obvious mistakes by the tribunal and the parties can save the cost and time of going through a new arbitration to obtain a new award. Of course, such proposals are not without risks. Allowing ad hoc committees to engage in a review of substance (even if it is limited to a serious misapplication of law) may open the Pandora box and turn the annulment mechanism into an appellate review, thus seriously undermining the finality of ICSID arbitral awards. Giving an ad hoc committee the power to substitute its own reasoning may create an incentive for different ad hoc committees to turn the annulment process into a venue for them to advance their own interpretation and application of the law especially if their view differs from that of the original tribunal.

According to Stephen Hawkins, one of the basic rules of the universe is that nothing is perfect. The ICSID system with all its virtues is no exception. But it can try, with constant reform and adjustment, to achieve a balance between “the Scylla of complete fairness and the Charybdis of absolute finality”.83

Non-recognition Under the New York Convention

Resisting Enforcement of Non-ICSID Arbitral Awards

For arbitration conducted outside the self-contained ICSID system, the prevailing party is likely to rely on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), also known as the New York Convention, to give effect to the arbitral award.

The New York Convention applies to the recognition and enforcement of foreign arbitral awards, that is, arbitral awards made in the territory of a contracting State other than the contracting State where the recognition and enforcement of such awards are sought and arbitral awards not considered as domestic awards in the enforcement State.84 Each contracting State shall recognise such arbitral awards as binding and enforce them.85 The party seeking to enforce the award must present the enforcement court with a duly authenticated original award and the original arbitration agreement or a duly certified copy of such documents.86

As its name may suggest, the New York Convention advocates recognition and enforcement of arbitral awards. However, Article V of the New York Convention sets out an exhaustive list of exceptions where a court may refuse to enforce an award. By requiring the party resisting enforcement to prove its case, Article V seems to place the burden of proof on that party.87 The word “may” gives the enforcement court discretion to grant enforcement even if one or more exceptions under Article V are established.88 However, an enforcement court may preclude a party from invoking an objection if it fails to raise it promptly during the arbitration or has participated in the arbitration despite the objection.89

Grounds for Refusing Enforcement Under the New York Convention

The grounds for refusing enforcement of a foreign arbitral award under Article V of the New York Convention are as follows.
  1. (a)

    Incapacity or invalid arbitration agreement

     

Under Article V(1)(a), the court may refuse to enforce an award if the party resisting the award can prove that the parties were under the law applicable to them, under some incapacity or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication on such law, under the law of the country where the award was made.90

Pieter Sanders, the Dutch lawyer who prepared the first draft of the New York Convention, compared international arbitration to a young bird that rises in the air but from time to time falls back to its nest.91 The nest is made of State law. Several grounds for non-recognition of the award under the New York Convention are linked to State law, including this one under Article V(1)(a). The incapacity of the parties is determined by the law applicable to them. The validity of the arbitration agreement is determined by the law governing the agreement, and if the agreement does not specify a governing law, the law of the seat of arbitration.

The requirement for a valid arbitration agreement underscores the importance of the parties’ consent to arbitration. However, a party may be estopped from invoking this ground if it fails to raise it promptly during the arbitration and/or willingly participates in the arbitration despite the alleged invalidity.92 The enforcement court, with the authority to determine whether such preclusion is warranted, may undertake an independent analysis of the validity of the arbitration agreement.93 The US Supreme Court has held that courts may independently review whether the parties have agreed to arbitrate a dispute’s merits.94

It is also worth noting that Article II(1) of the New York Convention requires the arbitration agreement to be in writing whereas Article II(2) defines the term “agreement in writing” to include an arbitral clause in a contract or arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.95 Different jurisdictions may have different interpretation of this term, which may lead to inconsistency and uncertainty.96 Professor Albert Jan van den Berg suggests that proper exercise of residual discretion by the enforcement court (e.g. to refute a party’s objection of no or defective written agreement if it willingly participated in the arbitration despite the objection) and a progressive interpretation of Article II(2) (e.g. interpreting it to impose a minimal requirement) may be useful in avoiding non-enforcement in circumstances where it would be appropriate to grant enforcement.97
  1. (b)

    Procedural defects

     

Under Article V(1)(b), the court may refuse to enforce an award if the party resisting enforcement can prove that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present its case.98

However, the party resisting enforcement on this ground may have difficulty proving its case if the enforcement court believes that the irregularity did not affect the outcome of the arbitration.99 In addition, the enforcement courts are likely to defer to arbitrators’ procedural decisions.100 Active participation in arbitration, notwithstanding the procedural defects, may result in the enforcement court to deem the objection waived.101

The objection under Article V(1)(b) of the New York Convention is similar in nature to the ground for annulment under Article 52(d) of the ICSID Convention, that is, a serious departure from a fundamental rule of procedure. “Fundamental rules of procedures” under the ICSID Convention refer to principles, such as the right to be heard. Article V(1)(b) of the New York Convention also focuses on the right to be heard. Under the ICSID Convention, ad hoc committees’ interpretation of fundamental rules of procedures in annulment proceedings forms part of the ICSID jurisprudence. Under the New York Convention, the law for determining procedural defects is not specified. However, the generally accepted view is that the standard of due process for the purpose of Article V(1)(b) of the New York Convention should be that of the enforcing court, while it should also give due regard to the international character of arbitration.102
  1. (c)

    Excess of powers

     

Under Article V(1)(c), the court may refuse to enforce an award if the party resisting enforcement can prove that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration (although the decisions on matters submitted to arbitration may still be recognized and enforced).103

This provision is similar to the ground for annulment under Article 52(b) of the ICSID Convention, that is, a manifest excess of power by the arbitral tribunal, in particular in relation to the tribunal’s exercise of jurisdiction. Article V(1)(c) can be invoked in circumstances where the arbitrators have exceeded their mandate as prescribed by the arbitration agreement. However, although under the interpretation of some ad hoc committees a tribunal declining jurisdiction where jurisdiction actually exists may trigger a ground for annulment under Article 52(b) of the ICSID Convention, Article V(1)(c) of the New York Convention does not specify this ground as a basis for the court to refuse enforcement. It may not be necessary as there would be no award to be enforced under the New York Convention if the arbitral tribunal has declined jurisdiction.

In an ICSID arbitration, in addition to the parties’ agreement, the ICSID Convention also imposes certain mandatory requirements which must be satisfied before a tribunal can accept jurisdiction, such as Article 25(1) of the ICSID Convention. Article V(1)(c) of the New York Convention does not contain similar provisions and does not specify which law should govern the interpretation of the arbitrators’ jurisdictional scope. If the arbitration agreement is silent on this point, there may be conflicts of law issues. As with other jurisdictional objections, the enforcement court may find that a party has waived the claim under Article V(1)(c) if it has failed to promptly raise the objection.104
  1. (d)

    Improper composition of the panel or arbitral procedure

     

Under Article V(1)(d), the court may refuse to enforce an award if the party resisting enforcement can prove that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.

ICSID has a similar ground for annulment: under Article 52(a) of the ICSID Convention, a party may seek to annual an award on the ground that the original tribunal was not properly constituted. As consent is essential to all international arbitration, it is not surprising to see both systems grant supreme importance to the parties’ agreement in respect of the constitution of the arbitral authority and other procedural matters. The ICSID system also imposes additional requirements such as nationality requirements. As for the New York Convention, the parties’ agreement is paramount in regulating the composition of the tribunal and the arbitral procedure and failing such agreement the law of the seat of arbitration will come into play.
  1. (e)

    Award not binding or having been set aside

     

Under Article V(1)(e), the court may refuse to enforce an award if the party resisting enforcement can prove that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.105

One of the most important improvements of the New York Convention over the 1927 Geneva Convention, its predecessor, is its elimination of the so-called double exequatur requirement under which the party seeking enforcement of an award had to prove that it had become final in both the country it was issued, and the country in which enforcement was sought.106 This progress is understood to be the result of a compromise between two competing concerns: eliminating the need for judicial proceedings in both the rendering jurisdiction and the enforcement jurisdiction, and avoiding enforcement if the award has been set aside by a court in the rendering jurisdiction.107 However, if the award is not binding, it may still be a ground under Article V(1)(e) for the enforcement court to refuse enforcement. The New York Convention does not give specific guidance on how to interpret “binding”. The fact that an award is the subject of a set-aside application should not be conclusive evidence that the award is not binding. If that were the case, the finality of arbitral awards would be an illusion and the very raison d’être of international arbitration would be in question. Given the importance of consent to international arbitration, one suggestion is that whether an award is binding for the purpose of Article V of the New York Convention should depend on whether the parties intended to enter into a binding arbitration.108

If an application to set aside an award in the seat of arbitration (or, if different, the country under the law of which the award was made) is successful, it will become a basis on which the enforcement court may refuse enforcement. The significance of the seat of arbitration is evident. It supervises and enforces the arbitration process. If an award is annulled at the seat, under the classical approach deference should be given to the seat and the award should not be enforced in any jurisdiction including that of the enforcement court.109 However, this approach is not universally adopted: under the internationalist approach, of which France is a major proponent, every court where enforcement is sought can carry out independent assessment.110 Despite the divergent views, given the New York Convention’s pro-enforcement stance, most jurisdictions impose an increasingly high burden of proof on the party seeking to enforce an award annulled at the seat.111 That being said, Article V does allow a court to grant enforcement despite an award having been set aside by a court at the seat of arbitration. Courts have enforced annulled awards under unusual circumstances such as where the set-aside procedure is tainted by serious irregularity, the annulment is based on local public policy standards or other local standards of review, or the annulment is the result of a substantive review which was contractually prohibited by the parties.112
  1. (f)

    Arbitrability and public policy

     

Under Article V(2) of the New York Convention, the court where enforcement of the award is sought may also refuse enforcement if it finds that the subject matter of the difference is not capable of settlement by arbitration under the law of the country in which the court sits or that the recognition or enforcement of the award would be contrary to the public policy of that country.113

As a nod to the importance of State laws, the interpretation of arbitrability and public policy under Article V(2) is governed by the law of the country in which the enforcement court sits. There is no universal standard of non-arbitrability, but common examples of non-arbitrable matters include certain categories of criminal disputes and family law matters.114 There are few instances of enforcement being refused on this ground probably because arbitrability is an issue that would usually be resolved during the arbitration.115

The notion of public policy may vary from jurisdiction to jurisdiction. According to a report compiled by the International Bar Association in 2015 based on a survey of more than 40 jurisdictions, it is impossible to precisely define this concept, but “public policy as a ground for refusing the recognition or enforcement of foreign awards under Article V(2)(b) of the [New York] Convention is overwhelmingly considered to include only a very limited number of fundamental rules or values”.116 This shows that despite the potentially diverse interpretation by various States of the public policy exception, there is a consensus among different jurisdictions that this concept should be narrowly interpreted for the purpose of Article V(2)(b) of the New York Convention. Consistent with the pro-enforcement policy of the New York Convention, even jurisdictions traditionally reputed to take an expansive view of public policy have been aligning themselves with the international consensus on narrow interpretation.117 A corollary of the narrow interpretation is that the violation must be sufficiently serious for the award not to be recognised and enforced,118 for example, where giving effect to the award would be repugnant to fundamental notions of what is decent and just in the enforcement State.119 In fact, an objection to enforcement on the ground of public policy seldom succeeds and may give the enforcement court the impression that the party invoking it has an extremely weak case.120

Delaying Enforcement Under the New York Convention

In addition to the grounds for refusing enforcement under Article V, Article VI of the New York Convention gives the party resisting enforcement a way to delay enforcement. Under Article VI, if an application for setting aside the award has been made in the seat of arbitration (or, if different, the country under the law of which the award was made), the court where recognition or enforcement is sought may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party seeking enforcement of the award, order the party resisting enforcement to give suitable security.121

Whether the enforcement court uses discretion to determine the propriety of adjournment is of particular significance. Without such analysis, Article VI could act as an automatic stay of enforcement once the party resisting enforcement files a set-aside application at the seat (or, if different, the country under the law of which the award was made). This would run counter to the goal of the New York Convention to expedite the enforcement of foreign awards.

The New York Convention does not offer guidance on how the enforcement court should exercise its discretion. To foster consistency among jurisdictions, one suggestion is that enforcement courts use a standard similar to that they use in deciding preliminary injunctions. In other words the enforcement will be stayed only if the party resisting enforcement can prove that it is likely to prevail; that it will be irreparably harmed by enforcement; and that the previous two factors combined outweigh the harm that the other party would suffer from the stay.122 The fact that Article VI provides for both imposing a stay and posting security does make it look like an operative clause for granting interim remedies. However, the suggestion that the standard used in deciding preliminary injunctions should be used for the purpose of Article VI to promote consistency is based on the assumption that different jurisdictions use similar standards in deciding preliminary injunctions. It will also require the enforcement court to evaluate the set-aside application in a foreign jurisdiction under foreign law. Whether this approach would help achieve the New York Convention’s purpose of making it easier to enforce foreign arbitral awards would probably depend on the degree of harmonisation of State laws.

The New York Convention and State Law

As illustrated by Pieter Sanders’ bird-nest metaphor, State law is indispensable to the operation of the New York Convention. The discussion of the grounds for refusing or delaying enforcement in the section above has already touched upon the importance of both the jurisdiction where the award is issued and the jurisdiction where the enforcement is sought.

In particular, if an award is set aside by a court at the seat of arbitration (or, if different, the country under the law of which the award was made), the court where enforcement is sought may refuse to grant enforcement pursuant to Article V(1)(e). This shows deference to the seat of arbitration. However, empirical evidence shows that arbitral awards are rarely set aside by the courts in the rendering jurisdiction.123 Creating a new annulment authority within the New York Convention, similar to the ad hoc committee in ICSID annulment proceedings, may make the review process look more objective, but such a move would be impractical and unlikely as it would involve a major revamp of the New York Convention. Another option would be giving the enforcement court the power to set aside the award, but such an arrangement would be antithetical to the New York Convention’s mission to facilitate the recognition and enforcement of foreign arbitral awards. Therefore, the key to enhancing the effectiveness of the New York Convention and ensuring its legitimacy may lie in further harmonisation of State laws in relation to international arbitration. If the courts in different jurisdictions review set-aside applications with similar criteria, the actual or perceived differences among State laws would become less and less important as a factor of consideration when the parties select the seat of arbitration. As important as the seat is to the arbitration process, the internationalisation and harmonisation of State laws related to international arbitration will reduce the risk of seat shopping based on State law.124

The New York Convention has been interpreted to leave the enforcement courts with a discretion to enforce annulled awards. The approaches taken by different courts in exercising the discretion may not be consistent.125 As Chromalloy and TermoRio illustrate, even courts within the same country may reach different conclusions as to whether an award set aside at the seat can be enforced.126 The divergence is also on a global scale as illustrated by the split between the classical approach and the so-called internationalist approach.127

The exercise of such residual discretion by enforcement courts should be assessed in the light of Article VII of the New York Convention. Article VII, widely known as the more-favourable-right provision, stipulates that the New York Convention shall not deprive an interested party of its right to rely on a more favourable treaty or domestic law concerning recognition or enforcement instead of the New York Convention.128 The word “shall” seems to imply that it is mandatory to allow the parties to enjoy the more favourable domestic law. This is the position taken by the French court in Hilmarton v OTV, where the court permitted enforcement of an arbitral award in favour of OTV which had been set aside in Switzerland, the seat of arbitration.129 Since annulment of an award is not one of the grounds for refusing enforcement under French law, the court held that the permissive language of Article V(1)(e) in conjunction with the mandatory language of Article VII meant that the French court must apply the more liberal domestic regime and enforce the award even though it had been annulled at the seat of arbitration.130 However, Hilmarton also sought to enforce the Swiss court’s annulment in France and another French court recognised the annulment.131 The dispute was re-submitted for arbitration in Switzerland and Hilmarton obtained a favourable result this time.132 Hilmarton then sought to enforce its award in France, which meant that at one point there were two conflicting awards in the French legal system.133 This saga shows the dilemma which could arise if enforcement courts give themselves full discretion in determining whether to enforce annulled awards with no regard for the set-aside by a court at the seat despite it being a permissive ground for non-enforcement under the New York Convention.134

In response, scholars such as Professor Albert Jan van den Berg have proposed amending the New York Convention to, for example, give more weight to the courts at the seat of arbitration within the context of set-aside.135 However, given that there are over 160 contracting State parties to the New York Convention,136 it is probably very difficult and time consuming to build consensus among the different States on a new draft of the convention. A prolonged (or failed) attempt to amend the New York Convention may undercut the effectiveness of the existing convention.137

As with the review of set-aside applications by the court at the seat of arbitration, the consistency in the exercise of residual jurisdiction by enforcement courts to enforce annulled award may be better achieved by harmonisation and internationalisation of relevant State laws. Although cases like Chromalloy, TermoRio and Hilmarton show that courts have adopted different approaches in this area, courts have generally used discretion to enforce an annulled award mainly in two situations: (1) there is a de minimis ground for refusing enforcement (e.g. a minor violation of the applicable arbitration rules); and (2) a party resists the enforcement of an award on the basis of an objection which it did not raise in the arbitration.138 Such commonality should send a reassuring message that it is possible for enforcement courts to apply generally consistent standards in exercising their discretion to enforce annulled awards through further harmonisation of State laws related to international arbitration.

In summary, as the operation of State courts is intertwined with the operation of the New York Convention, a key to the continued success of the New York Convention is the harmonisation and internationalisation of State laws related to international arbitration. This would be the case for both the courts at the seat of arbitration and the courts of enforcement. Harmonisation of State laws in this area will decrease the likelihood of conflicts of law in the enforcement process and make it less problematic if a State court needs to analyse foreign law in the process. It is also worth noting that the grounds for denying enforcement of foreign arbitral awards under Article V of the New York Convention are almost identical to the grounds for set-aside under Article 34(2) of the UNCITRAL Model Law on International Commercial Arbitration,139 which has been adopted in 80 States in a total of 111 jurisdictions.140 Therefore, when an enforcement court ponders whether to grant enforcement to an award which has been set aside by, or which is the subject of a set-aside proceeding before, a court at the seat of arbitration, it is likely that the latter jurisdiction has adopted an arbitration law which requires its court, in deciding whether to set aside the award, to consider the same or similar factors as the enforcement court in its deliberation of whether to grant enforcement. Arguably, there is already a solid foundation for State courts to achieve harmonisation in their interpretation and application of relevant State laws in the context of set-aside and non-recognition of foreign arbitral awards.

Conclusion: Choice Between the ICSID Convention and the New York Convention

After having looked at both annulment under the ICSID Convention and the non-recognition under the New York Convention, a logical question may be which system is more desirable to a party to a potential international investment arbitration.

As the section headed “Non-recognition Under the New York Convention” has shown, the two systems share some common grounds for annulment and non-recognition such as serious procedural defects, improper constitution of the tribunal and excessive exercise of powers by the tribunal. Under both systems, the grounds for annulment and non-recognition are exhaustive. Under both systems, the reviewing body (the ad hoc committee for the ICSID Convention and a State court under the New York Convention) has the discretion to give effect to the award even if one or more grounds for annulment or non-recognition are met. However, the review is not an appeal and the reviewing body cannot substitute its own reasoning for that of the arbitral tribunal under either system. Both systems provide for an interim stay on enforcement while the challenge to the award is pending, with the possibility of requesting the party resisting enforcement to post security.

One major difference between the ICSID Convention and the New York Convention is that the former is a self-contained and delocalised system, whereas the operation of the latter is not independent of State law.

This difference may translate into a more definitive finality for an ICSID award in the sense that the only challenge faced by such an award is an annulment application before an ad hoc committee within the ICSID system. After the ad hoc committee’s ruling, there would be no further review possible. In contrast, a foreign arbitral award enforceable under the New York Convention not only may be subject to a set-side proceeding in the court at the seat of arbitration, but also faces the danger of not being recognised by an enforcement court. An enforcement court may enforce an annulled award, while it is also possible for the enforcement court to grant enforcement to an award which is the subject of a set-aside proceeding only to have the court in the rendering jurisdiction set it aside later. In addition, assuming enforcement proceedings could be brought in more than one jurisdiction, even if the party resisting enforcement succeeds in one jurisdiction, in theory it is always possible for the other party to try another bite at the apple by initiating a new enforcement proceeding in another jurisdiction. Such dilemma would not occur in the ICSID system.

The ICSID Convention may provide for higher finality also because only a final award can be the subject of an annulment proceeding, whereas for arbitration outside the ICSID system interim decisions such as one relating to the tribunal’s jurisdiction may also become the subject of set-aside proceedings.141

Last and not the least, an ICSID award, if not annulled, is automatically enforceable in all contracting States. This would seem to offer stronger finality in terms of enforcement than a foreign award under the New York Convention which may have to navigate the labyrinth of the court system of the enforcement State.

However, the flip side of the finality is that, if annulled, an ICSID award would have no hope of being enforced. In contrast, even if a non-ICSID award has been set aside, under the New York Convention an enforcement court may still exercise it discretion to enforce it.

Given the ICSID Convention’s focus on finality and the importance of State courts to the operation of the New York Convention, it is not surprising that State courts seem to have wider powers of review than ad hoc committees within the ICSID system. State courts reviewing set-aside or non-enforcement applications are not subject to the same restrictions that apply to the ICSID ad hoc committees, who are told to only scrutinise procedural errors and the legitimacy of the tribunal proceedings, but not the correctness of the tribunal’s reasoning. The public policy ground for non-recognition under the New York Convention, which does not constitute a ground for annulment under the ICISD Convention, seems to also give State courts more leeway in making their decision. It would seem a logical conclusion that the set-aside rate of non-ICSID awards would be higher than the annulment rate of ICSID awards. However, by comparing the limited data available on non-ICSID awards with the available data on ICSID awards, Ms Steindl casts doubt on that conclusion.142 This may have something to do with both State courts’ general deference to arbitration awards and the expansive approach taken by some ICSID ad hoc committees despite their restrictive mandate.143 A creative ad hoc committee may always find a way to subsume a review of substance under a procedural ground whereas a State court, especially one bound by the principle of stare decisis, may be reluctant to set aside an arbitral award if the established jurisprudence favours enforcement.

For an investor deciding between the two systems, the costs of the proceedings should also be relevant. According to the Updated Background Paper (2016), the costs of ICSID annulment proceedings concluded since July 2020 till the time of the report had averaged US$388,000.144 While the costs of set-aside and/or non-recognition proceedings may vary from State to State, it is possible that the costs of ICSID annulment proceedings are higher than the costs of challenging arbitral awards in some State courts.

In conclusion, although the ICSID Convention seems to offer a higher degree of finality, in practice the risk of non-enforcement faced by a non-ICSID arbitral award may not be much higher than the risk of annulment faced by an ICSID award. As harmonisation and internationalisation of State laws relating to international arbitration continues, the discrepancy if any between the operation of the two systems in this respect should be further diminished. Ultimately, the choice between the two systems may depend as much on the financial implications of annulment and set-aside proceedings under the respective system.145

Footnotes

  1. 1.

    International Centre for Settlement of Investment Disputes. “About ICSID”. World Bank Group. https://web.archive.org/web/20120610184851/http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=ShowHome&pageName=AboutICSID_Home. For a commentary, see Fouret J et al (2019) The ICSID convention, regulations and rules: a practical commentary. Edward Elgar, London, 1504 p.; Supnik KM (2009) Making amends: amending the ICSID convention to reconcile competing interests in international investment law. Duke Law J 59(2):343–376

  2. 2.

    Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”), The Convention entered into force on 7 June 1959 (Article XII). https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards. For a commentary, see Quigley LV (1961) Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Yale Law J 70(7):1049–1082; van R Springer J (1969) The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Int Lawyer 3(2):320–331

  3. 3.

    The ICSID Convention, Art. 53.

  4. 4.

    The ICSID Convention, Art. 49.

  5. 5.

    The ICSID Convention, Art. 50.

  6. 6.

    The ICSID Convention, Art. 51.

  7. 7.

    The ICSID Convention, Art. 52.

  8. 8.

    The ICSID Convention, Art. 53(2).

  9. 9.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 72; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 71. See also Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, p 35.

  10. 10.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 73; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 72.

  11. 11.

    The ICSID Convention, Art. 52(6).

  12. 12.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 75; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 74.

  13. 13.

    The ICSID Convention, Article 52(2).

  14. 14.

    The ICSID Convention, Article 52(3).

  15. 15.

    Ibid.

  16. 16.

    The ICSID Convention Arbitration Rules, Rule 53.

  17. 17.

    The ICSID Convention, Article 52(4). Such specific references have led some people to argue that other provisions of the ICSID Convention may not apply to proceedings before an ad hoc committee. See Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 51 and Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 48.

  18. 18.

    The ICSID Convention, Article 52(5).

  19. 19.

    The ICSID Convention, Article 52(6).

  20. 20.

    Marboe I (2010) Introductory note to Sempra energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1441.

  21. 21.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 54; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 53.

  22. 22.

    Ibid.

  23. 23.

    The ICSID Convention, Article 52(1).

  24. 24.

    Marboe I (2010) Introductory note to Sempra Energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1441

  25. 25.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, p 23

  26. 26.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 72; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 77.

  27. 27.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 79.

  28. 28.

    Ibid.

  29. 29.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 79; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 78.

  30. 30.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 84; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 83.

  31. 31.

    Ibid.

  32. 32.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 86; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 85.

  33. 33.

    As an example, Article 25(1) sets outs certain mandatory requirements that must be satisfied in relation to the dispute before an ICSID tribunal can accept jurisdiction. Namely, there must be a legal dispute arising directly out of an investment between a contracting State and a national of another contracting State which the parties to the dispute have consented in writing to submit to ICSID arbitration. Not surprisingly, whether the national has made an “investment” is often an issue of contention.

  34. 34.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 88; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 87.

  35. 35.

    The ICSID Convention, Article 41(1); Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 89; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 88.

  36. 36.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 89.

  37. 37.

    The ICSID Convention, Article 41(1). The Article provides that in the absence of the parties’ agreement the tribunal shall apply the law of the contracting State party and such rules of international law as may be applicable.

  38. 38.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 94; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 93.

  39. 39.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 73; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 72.

  40. 40.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 94; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 93.

  41. 41.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para 94.

  42. 42.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para 97.

  43. 43.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 96; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 95. It should also be noted that an arbitrator agreeing to serve on an ICSID tribunal must sign a declaration that he/she will not accept any instruction or compensation with regard to the proceeding from any source except as provided in the ICSID Convention. See the ICSID Convention Rules, Rule 6(2). If an arbitrator breaches this declaration, it may lead to annulment. See Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 97; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 96.

  44. 44.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 99; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 98.

  45. 45.

    Ibid.

  46. 46.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 100; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 99.

  47. 47.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, p 31

  48. 48.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 101; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 100.

  49. 49.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 101.

  50. 50.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 103; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 102. A failure to deal with a question submitted to a tribunal is not an annullable ground specified under the ICSID Convention and under Article 49(2) in such case a party may request the same tribunal to make the decision concerning the neglected question after the award is rendered.

  51. 51.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 106; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 105.

  52. 52.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 108; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 107.

  53. 53.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 107; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 106.

  54. 54.

    Ibid.

  55. 55.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, p 35. See also Chaisse J, Donde R (2018) The state of investor-state arbitration – a reality check of the issues, trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67

  56. 56.

    Such failure may also amount to a serious departure from a fundamental rule of procedure. Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 105; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 104.

  57. 57.

    Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, Decision annulling the award, May 3, 1985; Amco Asia Corporation and others v. Republic of Indonesia, Decision annulling the award, May 16, 1986.

  58. 58.

    Wena Hotels Ltd. v. Arab Republic of Egypt, Decision on application for annulment, February 5, 2002; Vivendi Universal, S.A. v. Argentine Republic, Decision on application for annulment, July 3, 2002.

  59. 59.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, pp 17–19

  60. 60.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, p 19

  61. 61.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, pp 19–20

  62. 62.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, p 42

  63. 63.

    Sempra Energy International v. The Argentine Republic, Decision on application for annulment, 29 June 2010; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on application for annulment, 30 July 2010.

  64. 64.

    Nair P, Ludwig C (2010) ICSID annulment awards: the fourth generation? Glob Arbitr Rev 5(5), October

  65. 65.

    Ibid.

  66. 66.

    Nair P, Ludwig C (2010) ICSID annulment awards: the fourth generation? Glob Arbitr Rev 5(5), October

  67. 67.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 112.

  68. 68.

    Ibid.

  69. 69.

    The ICSID Caseload – Statistics, Issue 2019–2, available at: https://icsid.worldbank.org/en/Pages/ICSIDSearch.aspx?k=caseload%20statistics

  70. 70.

    Ibid.

  71. 71.

    Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, Decision on annulment, 23 December2010. In Fraport, the tribunal found that it lacked jurisdiction because it found that Fraport’s investment had violated a Philippine law and therefore would not be protected by the Germany-Philippines BIT which would only apply to investments that are legal under the host State’s law at the initiation of investment. The ad hoc committee annulled the award on the ground that, among other things, the tribunal seriously violated a fundamental rule of procedure by failing to invite submissions from the parties on a crucial later legal development, that is, a resolution issued by a Philippine State Prosecutor to dismiss private criminal complaints relating to alleged violations of the relevant Philippine law by Fraport officials.

  72. 72.

    Letter from Mr. Jose Anselmo I. Cadiz, Solicitor General, Republic of the Philippines, to the ICSID Administrative Council (June 27, 2011).

  73. 73.

    Marboe I (2010) Introductory note to Sempra Energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1443

  74. 74.

    Sempra Energy International v. The Argentine Republic, Decision on application for annulment, 29 June 2010

  75. 75.

    Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on application for annulment, 30 July 2010.

  76. 76.

    CMS Gas Transmission Company v. The Republic of Argentina, Decision on application for annulment, 25 September 2007.

  77. 77.

    Marboe I (2010) Introductory note to Sempra Energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1443

  78. 78.

    Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards, pp 17–42; Marboe I (2010) Introductory note to Sempra Energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1442

  79. 79.

    Marboe I (2010) Introductory note to Sempra Energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1442

  80. 80.

    Tidewater Investment SRL and Tidewater Caribe, C.A. v. Venezuela, Decision on annulment, December 27, 2016.

  81. 81.

    Ibid, para. 193.

  82. 82.

    Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 12; Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 7.

  83. 83.

    Van Houtte H (2004) Article 52 of the Washington Convention – A brief introduction. In: Gaillard E, Banifatemi Y (eds) Annulment of ICSID Awards.

  84. 84.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article I.

  85. 85.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article III.

  86. 86.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article IV.

  87. 87.

    US courts have uniformly held that the burden of proof is on the party resisting enforcement. See: Strub MH Jr (1990) Resisting enforcement of foreign arbitral awards under Article V(1)(e) and Article VI of the New York Convention: a proposal for effective guidelines. Texas Law Rev 68(5):1031–1072

  88. 88.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V(1).

  89. 89.

    See: Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: Grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  90. 90.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V(1)(a).

  91. 91.

    Sanders P (1999) The making of the convention, in Enforcing Arbitration Awards under the New York Convention, United Nations Publication, Sales E.99 V.2.

  92. 92.

    See in general Albert Jan van den Berg (1996) Residual discretion and validity of the arbitration agreement in the enforcement of arbitral awards under the New York Convention of 1958. Current Legal Issues in International Commercial Litigation, SICBL Publications, Vol. VIII.

  93. 93.

    Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  94. 94.

    First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).

  95. 95.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article II.

  96. 96.

    See in general van den Berg AJ (1996) Residual discretion and validity of the arbitration agreement in the enforcement of arbitral awards under the New York Convention of 1958. Current Legal Issues in International Commercial Litigation, SICBL Publications, Vol VIII.

  97. 97.

    Ibid.

  98. 98.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V(1)(b).

  99. 99.

    Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  100. 100.

    Ibid.

  101. 101.

    Ibid.

  102. 102.

    Ibid.

  103. 103.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V(1)(c).

  104. 104.

    Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  105. 105.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V(1)(e).

  106. 106.

    See: Sanders P (1999) The making of the convention, in Enforcing Arbitration Awards under the New York Convention. United Nations Publication, Sales E.99 V.2; Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  107. 107.

    Strub MH Jr (1990) Resisting enforcement of foreign arbitral awards under Article V(1)(e) and Article VI of the New York Convention: a proposal for effective guidelines. Texas Law Rev 68(5):1047

  108. 108.

    Strub MH Jr (1990) Resisting enforcement of foreign arbitral awards under Article V(1)(e) and Article VI of the New York Convention: a proposal for effective guidelines. Texas Law Rev 68(5):1058–1061

  109. 109.

    Nolan M, Aitelaj K (2019) Jurisdictional challenges. In: J William Rowley QC (general ed), Gaillard E, Kaiser GE (eds) Global Arbitration Review, The guide to Challenging and Enforcing Arbitration Awards, p 48

  110. 110.

    Nolan M, Aitelaj K (2019) Jurisdictional challenges. In: J William Rowley QC (general ed), Gaillard E, Kaiser GE (eds) Global Arbitration Review, The guide to Challenging and Enforcing Arbitration Awards, p 49

  111. 111.

    Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: Grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  112. 112.

    See: Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: Grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement; Petit S, Grant B (2018) Awards set aside or annulled at seat, Zombies, ghosts and buried treasures. International Arbitration Report, Issue 10, pp 21–22

  113. 113.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V(2).

  114. 114.

    Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  115. 115.

    Ibid.

  116. 116.

    See International Bar Association (2015) Report on the public policy exception in the New York Convention, p 18, October. Available at: https://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/Recogntn_Enfrcemnt_Arbitl_Awrd/publicpolicy15.aspx

  117. 117.

    Stothard P, Biscarro A (2018) Public policy as bar to enforcement. International Arbitration Report, Issue 10, pp 23, 24

  118. 118.

    Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: Grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement

  119. 119.

    TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007).

  120. 120.

    van den Berg AJ (1996) Residual discretion and validity of the arbitration agreement in the enforcement of arbitral awards under the New York Convention of 1958. Current Legal Issues in International Commercial Litigation, SICBL Publications, Vol VIII.

  121. 121.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article VI.

  122. 122.

    Michael H. Jr. Strub (April 1990) Resisting enforcement of foreign arbitral awards under Article V(1)(e) and Article VI of the New York Convention: A proposal for effective guidelines. Texas Law Rev 68(5):1064

  123. 123.

    Michael H. Jr. Strub (April 1990) Resisting enforcement of foreign arbitral awards under Article V(1)(e) and Article VI of the New York Convention: A proposal for effective guidelines. Texas Law Rev 68(5):1064

  124. 124.

    See Chaisse J (2015) The issue of treaty shopping in International Law of Foreign Investment – structuring (and restructuring) of investments to gain access to investment agreements. Hast Bus Law Rev 11(2):225–306

  125. 125.

    See in general Bird RC (2011) Enforcement of annulled arbitration awards: a company perspective and an evaluation of a New York Convention. NC J Int Law Commer Regul 37:1013–1058

  126. 126.

    Chromalloy Aeroservices v. Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C 1996); TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007).

  127. 127.

    Nolan M, Aitelaj K (2019) Jurisdictional challenges. In: J William Rowley QC (general ed), Gaillard E, Kaiser GE (eds) Global Arbitration Review, The guide to Challenging and Enforcing Arbitration Awards, pp 43–51

  128. 128.

    The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article VII.

  129. 129.

    Petit S, Grant B (2018) Awards set aside or annulled at seat, Zombies, ghosts and buried treasures. International Arbitration Report, Issue 10, pp 20–22

  130. 130.

    Ibid.

  131. 131.

    Bird RC (2011) Enforcement of annulled arbitration awards: a company perspective and an evaluation of a New York Convention. NC J Int Law Commer Regul 37:1037

  132. 132.

    Ibid.

  133. 133.

    Ibid.

  134. 134.

    Ibid.

  135. 135.

    van den Berg AJ (2008) Hypothetical draft convention on the international enforcement of arbitration agreements and awards. International Council for Commercial Arbitration, May. Available at http://www.arbitrationicca.org/media/0/12133674097980/hypotheticaldraftconventionajbrevO6.pdf.

  136. 136.
  137. 137.

    See Stewart K, Matthews J (2002) Online arbitration of cross-border, business to consumer disputes. Univ Miami Law Rev 56:1111–1138

  138. 138.

    van den Berg AJ (1996) Residual discretion and validity of the arbitration agreement in the enforcement of arbitral awards under the New York Convention of 1958. Current legal issues in International Commercial Litigation, SICBL Publications, Vol VIII; Petit S, Grant B (2018) Awards set aside or annulled at seat, Zombies, ghosts and buried treasures. International Arbitration Report, Issue 10, pp 20–22

  139. 139.

    See: UNCITRAL Model Law on International Commercial Arbitration, Article 34(2).

  140. 140.
  141. 141.

    Steindl BH (2015) ICSID annulment vs. set aside by State courts. In: Yearbook on International Arbitration, vol 4, p 198

  142. 142.

    Steindl BH (2015) ICSID annulment vs. set aside by State courts. In: Yearbook on International Arbitration, vol 4, pp 195–200

  143. 143.

    Steindl BH (2015) ICSID annulment vs. set aside by State courts. In: Yearbook on International Arbitration, vol 4, pp 181–208, 188, 202–203

  144. 144.

    Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para.53.

  145. 145.

    Steindl BH (2015) ICSID annulment vs. set aside by State courts. In: Yearbook on International Arbitration, vol 4, p 203

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.Ogier Law FirmHong KongPeople’s Republic of China

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