Tag Archives: Awards

Ensuring ISDS rule-of-law outcome

AnullmentBlogAs a matter of principle, the outcome of ISDS proceeding, which is the arbitral award, is final and binding. This very feature has made international arbitration a success since it provides a speedy and efficient outcome for both states and foreign investors. International rules such as the ICSID Convention and the New York Convention provide mechanisms to ensure respect for the rule of law outcome in the proceedings. Where a breach of the conventions has occurred, this could result in an annulment or refusal of enforcement of the award.

The ICSID Convention has 153 state parties and most ISDS proceedings are conducted under this convention. The convention provides that both the state and foreign investor can request the award to be annulled for limited procedural reasons. Annulment is fundamentally different from appeal, as it only targets the legitimacy of the decision-making by the tribunal, and not the substantive correctness of the award.

Under the ICSID Convention, an award can be annulled for reasons of flaws on the part of the tribunal, among others, if it has manifestly exceeded its powers or if there was corruption by a member of the tribunal. Further, a serious departure from a fundamental rule of procedures is also a ground for annulment. The Chairman of the ICSID Administrative Council will assign an annulment committee to decide on a particular annulment proceeding.

In Enron v. Argentina, the committee found that the tribunal erred by too simply and quickly drawing legal conclusions from economists’ expert reports. By evaluating Argentina‘s defences in a manner that was so incomplete, according to the committee, it amounted to a failure to apply the applicable law. The award was therefore annulled.

The annulment committee also sided with the state in Klöckner v. Cameroon, where it held that the tribunal assumed that certain principles applied to the case, such as principles of loyalty and openness, rather than actually demonstrated that these principles existed. Therefore, the annulment committee found that the tribunal had manifestly exceeded its powers.

Outside the scope of the ICSID system, the New York Convention serves as an enforcement and recognition tool for arbitral awards. It provides that a domestic court may refuse to enforce an arbitral award on grounds, among others, that a party to the dispute was not given opportunity to present its case or if the award contains matters on issues beyond the scope of the arbitration agreement.

New Report on the Proposed EU Permanent Investment Court

EFILA_EUThe European Federation for Investment Law and Arbitration (EFILA) recently released a new report on the permanent investment court proposed by the European Commission within the context of the TTIP negotiations. The report is highly critical of the EU proposal, on two main grounds. First, under the proposed court system, states have the exclusive power to appoint judges, while investors lack any influence over who hears the disputes. This removes a significant benefit of arbitration as a method of dispute resolution, and creates an inherent imbalance between investors and states. Second, the proposed system has two tiers – the Tribunal of First Instance and the Appeals Tribunal – and allows parties to appeal an award on issues of law and fact. This undermines the finality of arbitral awards, and is likely to burden small and medium-size investors by increasing the length and cost of proceedings.

EFILA launched the report at its Annual Conference, held in Paris on 5 February 2016. The event, entitled “Investment Arbitration 2.0?”, brought together experienced arbitration experts, state officials, and representatives of investors to discuss current issues in investment arbitration. Panels discussed such topics as third party funding, the role of tribunal secretaries, and the relationship between investment arbitration and the rule of law.

One session of the conference was dedicated to discussing the EU court proposal. Most, but not all, panelists agreed with the criticisms advanced in the EFILA report. One speaker noted that investors are unlikely to trust the neutrality of judges that are appointed and paid by states. A U.S.-based academic retorted with examples from other permanent international courts showing that state-appointed judges are not necessarily pro-state in how they rule. Another panelist noted that the proposed investment court would not have a secretariat or its own set of arbitration rules, and that it would be impossible to apply a pre-existing set of arbitration rules to the proposed two-tier court structure populated by permanent judges.

Someone commented that the EU proposal “appears half-baked”. Nonetheless, as EFILA secretary-general Nikos Lavranos emphasized, the arbitration community must take it seriously.