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Annulment of ICSID Awards

I. Definition

1.

Annulment is one of the five post-award remedies provided for by the ICSID Convention, the other remedies being: rectification (Article 49); supplementary decision (Article 49); interpretation (Article 50) and revision (Article 51).1

2.

Unlike the other remedies, an application for annulment is considered by a new tribunal (an ad hoc Committee). Although ad hoc Committees exercise the power to annul awards, they are not considered superior to or more legitimate with regards to arbitral tribunals.2

II. Exclusive and limited nature of the ICSID annulment mechanism

3.

Annulment is only available in respect of ICSID awards.3 Preliminary pre-award decisions such as decisions on jurisdiction,4 provisional measures, arbitrator challenges5 and procedural orders are not “awards” that can be annulled in themselves according to Article 52(1) of the ICSID Convention. However, they may be subject to annulment if they form a part of the final award.

4.

Article 53(1) of the ICSID Convention precludes parties from challenging ICSID awards in national courts. The annulment process has been described as being “self-contained6 and “autonomous from domestic law”.7 See further Section VI below.

5.

Furthermore, ad hoc Committees may not amend or revise awards.8 However, special circumstances and considerations such as procedural efficiency may potentially enable the ad hoc Committee to revise “simple” aspects of the award.9

III. Annulment is not an appeal

6.

Annulment is not an appeal of the tribunal’s award,10 and should not revisit the merits of the case.11 ICSID arbitration “lacks an appellate structure”.12 The annulment process is designed to safeguard the integrity, not the outcome, of ICSID arbitration,13 and its focus is not the merits or substance of the award.14 Ad hoc Committees have furthermore found that their role does not consist in harmonizing or settling differences within ICSID jurisprudence.15

7.

However, some annulment tribunals have been criticised for improperly re-examining the merits of a case by other annulment tribunals16 and by commentators (“thereby effectively transforming an annulment proceedings into an appeal”).17

IV. Standard of review

8.

Annulment has been described by annulment tribunals as: an “extraordinary remedy with a high threshold”;18 an “exceptional remedy”;19 and as “a limited and extraordinary remedy”.20 Commentators have described it as the “most drastic remedy available under the ICSID Convention”.21

V. Procedural considerations

A. Request for annulment

9.

Either party (or both parties) may request the annulment of an award.22 Due to its discretionary nature, the right to apply for annulment or pursue certain claims may be waived by the parties, either explicitly or by submitting untimely objections according to ICSID Arbitration Rule 27.23

10.

The request for annulment must be submitted 120 days following the date of the original award24 or the rectified award.25 An exception is made however when the request is made on the ground of corruption of the tribunal, in which case the time-limit is “120 days after discovery of the corruption” and “in any event within three years on which the award was rendered.”26

B. Formal requirements in applying for annulment

12.

The application for annulment must be in writing,28 identify the award to which it relates, indicate the date of the application, state in detail the grounds on which it is based and be accompanied by the payment of the application fees.29

13.

Neither the Convention nor the Rules specify the degree of detail required in the annulment application. Arbitral jurisprudence suggests however that while the mere recital of the annulment grounds found in Article 52(1) does not suffice,30 there is no requirement to exhaustively detail the reasons either.31 Tribunals agree that the grounds for annulment need to be stated and that the basic “gist” of the complaint should be ascertainable.32

14.

To this extent, while the applicant must state the grounds on which its request for annulment is based within the time limit provided in Article 52(2) and Rule 50(3)(b), it may develop its arguments past this date as long as it does not invoke new grounds.33 Grounds invoked after this time-limit are inadmissible,34 unless new facts come to light during the proceeding.35

C. Application of other provisions found in the ICSID Convention or Rules

15.

Articles 41-45, 48-49 and 53-54 of the ICSID Convention36 and the ICSID Arbitration Rules apply mutatis mutandis to annulment proceedings,37 allowing inter alia for parties to file preliminary objections within the annulment framework under Rule 41(5) albeit a higher threshold,38 request the rectification or supplementation of decisions on annulment under Article 49(2)39 and request the intervention of non-disputing third parties under Rule 37(2).40

D. Request for a stay of enforcement of the award pending annulment proceedings

16.

The applicant may request that the appointed ad hoc committee stay the enforcement of the award until it issues its decision on annulment. A provisional stay will be automatically granted pending the ad hoc Committee’s decision on the stay.41 See further Stay of enforcement of ICSID awards.

VI. Frequency and success rate

17.

As of 31 December 2020, there were 7 decisions annulling the award in whole or in part (with 56 rejected applications) since 2011. This is a notable decline in the success rate in the prior decade, where there were 8 decisions annulling the award in whole or in part (with 13 rejected applications).42

VII. Grounds for annulment

18.

The exhaustive list of grounds for annulment43 is set out in Article 52(1), being (specific analysis and case law on each ground is available via the below hyperlinked cross-references): 

  1. the Tribunal was not properly constituted;
  2. the Tribunal has manifestly exceeded its powers;
  3. there was corruption on the part of a member of the Tribunal;
  4. there has been a serious departure from a fundamental rule of procedure; or
  5. the award has failed to state the reasons on which it is based.
19.

The customary rules of treaty interpretation reflected in Article 31 of the Vienna Convention have also been held by annulment tribunals to apply in interpreting the available grounds.44 These grounds should not be interpreted narrowly or broadly.45 There is also no presumption either in favour or against annulment.46  

20.

If one of the grounds for annulment is established, this does not automatically require the annulment tribunal to annul the award in whole or in part, albeit the annulment tribunal’s discretion in that regard is not unlimited.47 Annulment will ensue only if the flaw has had a serious adverse impact on one of the parties.48 See further Grounds of annulment and Ad hoc Committees and their powers.

VIII. Total or partial annulment

21.

An award can be annulled in whole or in part49 but this outcome necessarily depends on the award or the invoked ground(s) of annulment. For instance:

  1. An award on jurisdiction rendered by an arbitral tribunal rejecting its jurisdiction is “indivisible” and must either be upheld or annulled in full;50
  2. Some grounds of annulment such as the improper constitution of the tribunal may affect the entire award, mandating the ad hoc Committee to annul it in full;51
  3. The annulment of an arbitral tribunal’s decision on liability will necessarily affect the same tribunal’s decision on compensation.52
22.

An ad hoc Committee need not analyse all grounds invoked by the applicant if it finds that one of the grounds successfully annuls the award in its entirety.53

23.

The part(s) of the award that were not requested to be annulled by the applicant remain res judicata regardless of the decision of the ad hoc Committee.54 

IX. Allocation of costs and legal fees in annulment proceedings

24.

Ad hoc Committees exercise discretion in allocating costs and legal fees in annulment proceedings.55

25.

After considering the circumstances of each case, Committees have generally followed one of the following approaches:

  1. The parties share the costs of the proceedings equally and bear their own legal fees;56
  2. “Costs follow the event” with each party bearing its own legal fees57 or with the unsuccessful party reimbursing a part58 or all of the prevailing party’s legal fees.59
  3. The partially successful party bears the majority of the costs of the proceedings and each party bears its own legal fees.60

X. Consequences of annulment: resubmission tribunal

26.

If an award is annulled, the entire dispute or parts of it can be reheard at the request of a party by a new tribunal (Article 52(6) of the ICSID Convention and Rule 55),61 thereby providing the parties with a "second chance to arbitrate the same issues again".62

27.

In the case of a partial annulment (i.e. regarding certain aspects of the tribunal’s jurisdiction,63 merits,64 damages,65 etc.), the portions of the award that have not been annulled will stand66 and are res judicata.67 The subsequent resubmission tribunal may only revisit the annulled portions of the award.68

Bibliography

ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016

Bishop, R.D. and Marchili, S.M., Annulment Under the ICSID Convention, Oxford University Press, 2012.

ICSID, The ICSID Caseload – Statistics, Issue 2020-1

McLachlan, C., Shore, L. and Weiniger, M., International Investment Arbitration: Substantive Principles, Oxford University Press, 2nd ed., 2017.

Reed, L., Paulsson, J. and Blackaby, N., Chapter 5: The ICSID review regime, in Guide to ICSID Arbitration, Kluwer Law International, 2004.

Lim, C.L., Ho, J. and Paparinskis, M., International Investment Law and Arbitration, 3rd ed., Cambridge University Press, 2019.

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