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Mr Subarkah Syafruddin

Litigation Associate - DLA Piper LLP (US)

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Domestic Courts

I. Definition

1.

The language of Article 34 of United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (“UNCITRAL Model Law”) provides that an application to “set aside” is the “exclusive recourse” against an arbitral award. The Model Law does not use the word “annulment,” which is used in the language of Article 52 of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (“ICSID Convention”).

2.

Various bilateral and multilateral treaties1 allow investors to pursue arbitration outside of the ICSID Convention framework. Unlike arbitrations under the Convention, which are subject to a particular and self-contained procedure for annulment, the review of these cases is not subject to a specific annulment procedure.2 Rather, in the absence of a special annulment procedure, domestic courts of the place of arbitration generally apply annulment procedures under the principle of locus regit processum.3

II. Legal regime

3.

Courts generally apply the rules governing annulment of commercial arbitration awards to the annulment of investment arbitral awards.4 A judge, appointed in accordance with the requirements set forth by applicable domestic laws, oversees the review process.5 The judge, who may or may not have any specific experience in international law, will generally apply the grounds for review of international awards under their own legal system.

III. Grounds for annulment

4.

83 States and 107 jurisdictions have adopted the UNCITRAL Model Law.6 Thus, in most jurisdictions, the grounds for annulment will resemble the six grounds for annulment articulated in Article 34 of the UNCITRAL Model Law. These include: (i) incapacity of a party or invalidity of the arbitration agreement; (ii) inability of the party to their present case due to lack of notice or otherwise; (iii) award going beyond the scope of the submissions; (iv) tribunal composition not in accordance with the agreed procedure; (v) lack of arbitrability; and (vi) conflict with public policy.7 The last two grounds are not expressly included in the ICSID Convention.

5.

Additionally, the Model Law does not expressly provide for three grounds of annulment provided for under the ICSID Convention:  manifest excess of power, failure to apply the correct law, and corruption. Although “manifest excess of power” may correspond to certain grounds under Model Law (incapacity of a party, invalidity of the  arbitration agreement, or award going beyond the scope of the submissions),8 ICSID tribunals have interpreted this ground to include failure to apply the correct law.9 As for corruption, despite not being  explicitly mentioned in the Model Law, it could potentially fall within the ambit of the “public policy” ground for setting aside an award under Article 34(2)(b)(ii) of the Model Law.10

6.

Notwithstanding the widespread adoption of the Model Law, “none of the most popular seats for international commercial arbitration in Europe and the Americas has adopted” it.11 Arbitration laws that are not based on the UNCITRAL Model Law may differ or be even more restrictive than the laws in leading arbitral jurisdictions with respect to the grounds for setting aside an award. For instance, some United States courts have recognized the doctrine of “manifest disregard of the law” as a basis for setting aside awards, including international awards rendered in the United States.12 By contrast, in France, where domestic awards are subject to annulment on the basis of French conceptions of morality and justice (ordre public interne), annulment of international awards may be granted when there are violations of internationally recognized norms.13

IV. Review of annulment proceedings

7.

Unlike a final ICSID annulment decision—for which there is no procedure for revisiting the decision of the ad hoc committee in annulment proceedings—first instance court decisions in annulment proceedings for non-ICSID awards may be appealed to a higher court in many jurisdictions.14

V. Waiver

8.

Few countries allow the parties to an arbitration agreement to enter into an “exclusion agreement,” pursuant to which they  waive ex ante the right to seek annulment of the award.15 In Saluka Investments v. Czech Republic, the Swiss Federal Tribunal noted that Switzerland, Belgium, Sweden, Malaysia and Tunisia were the only jurisdictions allowing the parties to waive this right.16

VI. Treaty interpretation in annulment proceedings

9.

With respect to annulment proceedings, there is no consensus among domestic courts on the extent to which a court may review the arbitral tribunal’s treaty interpretation on issues of jurisdiction and admissibility. Some courts may defer to the tribunal’s interpretation of the underlying treaty on certain issues. Some courts, however, may review the underlying treaty de novo or without reference to any legal conclusion or assumption made by the tribunal on other issues.

10.

The English Court of Appeal, affirming the High Court’s decision, held in Occidental Exploration & Production Company v. The Republic of Ecuador that English courts were not barred by the English doctrine of non-justiciability from analyzing and interpreting provisions of the U.S.-Ecuador BIT in determining whether the tribunal had rightly asserted jurisdiction in the underlying arbitration.17 Similarly, in The Russian Federation v. Mr. Frans J. Sedelmayer, the Stockholm District Court and the Svea Court of Appeal interpreted the Germany-Russia BIT.18 In decisions 4A_396/2017 and 4A_398/2017, the Swiss Supreme Court considered requests for annulment of two interim arbitral awards on jurisdictional grounds, in which the appealing party argued that the arbitral tribunals had wrongfully interpreted the underlying treaty and accepted jurisdiction. Although the Swiss Supreme Court ultimately agreed with the tribunals’ interpretation of the term “territory,” as well as the tribunals’ application of jurisdiction ratione temporis and its interaction with the definition of “investment” in the underlying BIT, the court affirmed its power to review an arbitral tribunals’ treaty interpretation in the context of investment arbitration proceedings.19

11.

By contrast, in BG Group v. Republic of Argentina, the Supreme Court of the United States held that the local litigation requirement under the United Kingdom-Argentina BIT is primarily a matter for arbitrators to interpret and apply, and courts should review their interpretation with deference.20

Bibliography

Bell, G., The UNCITRAL Model Law and Asian Arbitration Laws, Implementation and Comparisons, Cambridge University Press, 2018.

Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Redfern and Hunter on International Arbitration, 5th ed., Oxford University Press, 2009.

Fernandez-Armesto, J., Different Systems for the Annulment of Investment Awards, ICSID Review-Foreign Investment Journal, 2011.

Steindl, B.H., ICSID Annulment vs. Set aside by State Courts, Year Book on International Arbitration, 2015.

Verhoosel, G., Annulment and Enforcement Review of Treaty Awards: To ICSID or Not to ICSID, ICSID Review—Foreign Investment Journal, 2018.

Pizzuro, J., Garcia R.B. and Perla, J.O., Substantive Grounds for Challenge, Global Arbitration Review, 31 July 2020.

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