Chapter 5: Competition and Interaction between States and Tribunals with
5.2 Coping strategies provided by the investor-state arbitration mechanism
5.2.3 Requesting annulment of the award
466 Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, ICSID Case No. ARB/03/4, Award, 7 February 2005, paras. 7, 9.
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Requesting annulment of the award is one of the options available for the losing parties. The legitimacy and correctness of ICSID awards are not subject to judicial review by domestic courts under national laws. Domestic courts have no power of review over ICSID awards. Article 52 of the ICSID Convention, however, offers its own self-contained system for international review. Each disputing party may request annulment of the ICSID award, which is to be decided by an ad hoc Annulment Committee of three persons appointed by the Chairman of the ICSID Administrative Council. The grounds for annulment under the ICSID Convention are listed exhaustively, including (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based.
The annulment of ICSID awards is restricted to these five grounds, mostly procedural in nature. Ad hoc Annulment Committees are not courts of appeal.
Annulment is different from an appeal in two aspects. The first relates to the decision under review. Annulment is concerned only with the legitimacy of the process of the decision but not with its substantive correctness. Appeal is concerned with both. As to the second aspect, the result of a successful annulment is merely the invalidation of the original decision, whereas a successful appeal may result in the replacement of the decision by a new decision. 467
Article 52(3) of the ICSID Convention stipulates that an ad hoc Annulment Committee “shall have the authority to annul the award or any part thereof.” In practice, it has been interpreted as giving committees a wide discretion or flexibility in determining whether annulment is appropriate in the circumstances. The ad hoc Committee in Vivendi v. Argentina, for instance, said that “it appears to be established that an ad hoc committee has a certain measure of discretion as to whether to annul an award, even if an annullable error is found” and that “it is necessary for an ad hoc committee to consider the significance of the error relative to the legal rights of the parties.” 468 It seems that preserving the finality of the award is often viewed by ad hoc committees to take precedence over the principle of correctness. Ad hoc
467 Christoph Schreuer, The ICSID Convention: A Commentary, Cambridge University Press, 2nd edition, 2009, p. 901.
468 Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No.
ARB/97/3, Decision on Annulment, 3 July 2002, para. 66.
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committees tend to refrain from exercising annulment review in an extensive way.
Even if a violation of one of the five grounds in Article 52(1) is found, an annulment would not necessarily be the outcome. An ICSID award would not be annulled unless the ad hoc committee is convinced that there has been a serious violation of one of the five grounds.
Of the five grounds for annulment, improper constitution of the tribunal and corruption on the part of a member of the tribunal has rarely been used. The other three grounds, manifest excess of powers, serious departure from a fundamental rule of procedure and failure to state reasons, have been frequently invoked by the parties requesting annulment. The very language of these grounds, however, demands a cautious approach for ad hoc committees. For instance, the tribunal’s excess of powers must be “manifest” in order to constitute a ground for annulment. Only a
“serious” departure from a “fundamental” rule of procedure can justify challenging an award.
An excess of powers occurs when a tribunal exceeds the limits of its jurisdiction.
The question is what a “manifest” excess of powers is. In practice, ad hoc committees have adopted the approach that the excess of powers must be “plain”, “clear”,
“obvious” or “evident” on its face to become “manifest”. The tribunal’s excess of powers, if susceptible of argument one way or the other and cannot be found with certainty and immediacy, is not manifest. 469 Therefore, if the tribunal’s excess of jurisdiction is not obvious or self-evident on its face but rather could be argued one way or the other, there would not be a manifest excess of powers. To make things more complicated, most jurisdictional provisions relied upon by tribunals, such as umbrella clauses and MFN clauses, may be subject to wide or narrow interpretation.
They may be interpreted one way or the other as if they were accordions. According to the approach followed by ad hoc committees, wide interpretation of umbrella clauses and MFN clauses, as a possible interpretation, is not obviously untenable or arbitrary and thus does not amount to manifest excess of powers. It follows that the request for annulment of awards on the ground of manifest excess of jurisdiction has rarely been accepted by ad hoc committees. As a matter of fact, the issue of excess of jurisdiction has been ruled on in 18 annulment decisions and has led to only one annulment. 470
469 Christoph Schreuer, The ICSID Convention: A Commentary, Cambridge University Press, 2nd edition, 2009, pp. 939-940.
470 ICSID Secretariat, Background Paper on Annulment for the Administrative Council of ICSID, 10 August 2012,
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Furthermore, it has been recognized by ad hoc committees that failure to exercise an existing jurisdiction also amounts to an excess of powers. It is held that the tribunal commits an excess of powers not only if it exercises a jurisdiction which it does not have, but also if it refuses or fails to exercise a jurisdiction which it possesses.
Therefore, an award interpreting the investor-state arbitration provision in an extensive way may not be annulled since it does not constitute a manifest excess of powers, while an award interpreting the same provision in a strict way may instead be annulled due to the tribunal’s failure to exercise its existing jurisdiction. For example, in MHS v. Malaysia, the tribunal found that the service contract for the location and salvage of historical relics from an ancient shipwreck, similar to other commercial contracts, was not an “investment” for the purpose of the ICSID arbitration, and thus concluded that it had no jurisdiction over the dispute. 471 The award, however, was annulled by an ad hoc annulment committee on the ground that the tribunal manifestly exceeded its powers by failing to exercise a jurisdiction over the dispute.
In the view of the annulment committee, the term “investment” was unqualified under both the ICSID Convention and the UK-Malaysia BIT. No requirement of objective characteristics was added to the term “investment”. Since the contract at issue was one of a kind of asset constituting a claim to money and to performance in accordance with the UK-Malaysia BIT, there was an investment within the meaning of the UK-Malaysia BIT. 472
In addition, with respect to the appointment of members of ad hoc committees, the Chairman of the ICSID Administrative Council has wide discretion, while the disputing parties have no say. In contrast to the appointment of arbitrators, the appointment of ad hoc committee members is less predictable and more uncertain. It seems that requesting annulment of the award is not a credible strategy for the host states to deal with the jurisdictional expansion of tribunals. It is not only because annulment is an exceptional and narrowly circumscribed remedy, but also ad hoc committees appointed entirely by the ICSID Administrative Council tend to defeat the request for annulment on the ground of manifest excess of jurisdiction.