Border Timbers v. Zimbabwe

This case concerns the application for annulment (the "Application") of the award rendered on 28 July 2015 in the arbitration proceeding between Border Timbers Limited, Timber Products International (Private) Limited and Hangani Development Co. (Private) Limited and the Republic of Zimbabwe (ICSID Case No ARB/10/25) (the "Border Timbers Award" or the "Award") rendered by an arbitral tribunal composed of the Honourable L. Yves Fortier, Mr Michael Hwang, and Prof David A.R. Williams (the "Tribunal").

The Border Timbers Award decided on a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the Agreement between the Swiss Confederation and the Republic of Zimbabwe on the Promotion and Reciprocal Protection of Investments, which entered into force on 15 August 1996 (the "Switzerland-Zimbabwe BIT") and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"). In ICSID Case No ARB/10/15, the von Pezold Claimants brought their dispute on the basis of the Agreement between the Republic of Zimbabwe and the Federal Republic of Germany concerning the Encouragement and Reciprocal Protection of Investments, which entered into force on 29 September 1995 (the "Germany-Zimbabwe BIT"), the Switzerland-Zimbabwe BIT and the ICSID Convention.

Zimbabwe applied for annulment of the Award on the basis of Article 52(1) of the ICSID Convention, identifying three grounds for annulment: (i) the Tribunals were not properly constituted (Article 52(1)(a)); (ii) manifest excess of powers (Article 52(l)(b)); and (iii) serious departure from a fundamental rule of procedure (Article 52(1)(d)).

In its Amended and Restated Application for Annulment, which was filed on 7 June 2017, together with the Applicant's Memorial on Annulment, the Applicant added a further ground for annulment, namely that the Award had failed to state the reasons on which it is based (Article 52(1)(e)).

On 21 October 2015, Zimbabwe filed the Application with the Secretary-General of ICSID. Zimbabwe's Application also contained a request under Article 52(5) of the ICSID Convention and Rule 54(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the "ICSID Arbitration Rules") for a stay of enforcement of the Award until Zimbabwe's Application was decided (the "Request for Stay").

On 2 November 2015, pursuant to Rule 50(2) of the ICSID Arbitration Rules, the Secretary-General of ICSID registered the Application. On the same date, in accordance with Arbitration Rule 54(2), the Secretary-General informed the Parties that the enforcement of the Award had been provisionally stayed.

By letter dated 21 December 2015, in accordance with ICSID Arbitration Rules 6 and 53, the Parties were notified that an ad hoc Committee composed of Dr Veijo Heiskanen, a national of Finland and designated as President of the Committee, Ms Jean Kalicki, a national of the United States of America, and Professor Azzedine Kettani, a national of Morocco, had been constituted (the "Committee"). On the same date, the Parties were notified that Ms Jara Mínguez Almeida, Legal Counsel, ICSID, would serve as Secretary of the Committee.

In accordance with ICSID Arbitration Rules 53 and 13(1), the Committee held a first session with the Parties on 1 February 2016 by teleconference. In addition to the Committee and the Secretary, participating in the teleconference were:

For the Applicant:

Mr Philip Kimbrough Kimbrough & Associés
Mr Tristan Moreau Kimbrough & Associés
The Honourable Prince Machaya Attorney General of the Republic of Zimbabwe
Ms Fortune Chimbaru Acting Director Civil Division, Attorney General's Office, Republic of Zimbabwe
Ms Elizabeth Sumowah Legal Advisor, Ministry of Lands and Rural Resettlement, Republic of Zimbabwe

For the Respondents:

Mr Matthew Coleman Steptoe & Johnson UK LLP
Ms Helen Aldridge Steptoe & Johnson UK LLP
Mr Thomas Innes Steptoe & Johnson UK LLP
Mr Charles O. Verrill, Jr Attorney at Law

The proceedings shall consist of two parts. The first part ("Part I") shall deal with the Applicant's request that the enforcement of the Awards be stayed for the duration of the annulment proceedings.

The second part ("Part II") shall deal with the Applicant's applications to annul the Awards. Each part of the proceedings shall consist of a written phase followed by an oral hearing before the Committees.

On 23 February 2016, the Applicant filed an application requesting the order of provisional measures under Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules (the "Application for Provisional Measures"). Apart from a request for provisional measures, the Applicant also sought an interim order to preserve the status quo pending the Parties' filing of further observations on the matter.

On 12 September 2016, pursuant to Articles 44 and 52(4) of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules, the Applicant filed an Application for Provisional Measures to Exclude Consideration of the Merits in Part I (the "Second Application for Provisional Measures").

For the Applicant:

Mr Philip Kimbrough Kimbrough & Associés
Mr Tristan Moreau Kimbrough & Associés
The Honourable Prince Machaya Attorney General of the Republic of Zimbabwe
Ms Fortune Chimbaru Acting Director Civil Division, Attorney General's Office, Republic of Zimbabwe
Ms Elizabeth Sumowah Legal Advisor, Ministry of Lands and Rural Resettlement, Republic of Zimbabwe
Ms Varaidzo Zifudzi Principal Director, Legal Services, Ministry of Finance and Economic Development, Republic of Zimbabwe
Mr Chrispen Mavodza Director, Legal Affairs Department Ministry of Foreign Affairs, Republic of Zimbabwe
Mr Zvinechimwe Ruvinga Churu Principal Director, Budgets and Acting Permanent Secretary, Ministry of Finance and Economic Development, Republic of Zimbabwe

For the Respondents:

Mr Matthew Coleman Steptoe & Johnson UK LLP
Ms Helen Aldridge Steptoe & Johnson UK LLP
Mr Thomas Innes Steptoe & Johnson UK LLP
Mr Charles O. Verrill, Jr Attorney at Law
Mr Heinrich von Pezold

Court Reporter:

Mr Trevor McGowan The Court Reporter Ltd

On behalf of the Applicant:

The Honourable Prince Machaya Attorney General, Republic of Zimbabwe
Mr Willard L. Manungo Permanent Secretary, Ministry of Finance and Economic Development, Republic of Zimbabwe
Mr John Panonetsa Mangudya Governor of the Reserve Bank of Zimbabwe

On behalf of the Respondents:

Mr Heinrich von Pezold

For the Applicant:

Mr Philip Kimbrough Kimbrough & Associés
Mr Tristan Moreau Kimbrough & Associes
The Honourable Prince Machaya Attorney General of the Republic of Zimbabwe
Ms Fortune Chimbaru Acting Director Civil Division, Attorney General's Office, Republic of Zimbabwe
Ms Elizabeth Sumowah Legal Advisor, Ministry of Lands and Rural Resettlement, Republic of Zimbabwe
Ms Varaidzo Zifudzi Principal Director, Legal Services, Ministry of Finance and Economic Development, Republic of Zimbabwe
Mr Chrispen Mavodza Director, Legal Affairs Department Ministry of Foreign Affairs, Republic of Zimbabwe
Ms Fatima Chakupamambo Maxwell Judge, Republic of Zimbabwe
Ms Virginia Sithole Resident legal advisor, Exchange Control, Reserve Bank, Republic of Zimbabwe
Mr Onias Claver Masiwa Chief Inspector Exchange Control, Head of Exchange Control Inspectorate of the Reserve Bank, Republic of Zimbabwe

For the Respondents:

Mr Matthew Coleman Steptoe & Johnson UK LLP
Ms Helen Aldridge Steptoe & Johnson UK LLP
Mr Thomas Innes Steptoe & Johnson UK LLP
Ms Vivian Fischer Steptoe & Johnson UK LLP
Mr Charles O. Verrill, Jr Attorney at Law
Mr Heinrich von Pezold

Court Reporters:

Ms Diana Burden Diana Burden Ltd
Ms Laurie Carlisle Diana Burden Ltd

The VPBs alleged that, as a result of the events summarized above, Zimbabwe had breached Articles 4(2) (expropriation), 2(1) (fair and equitable treatment), 2(2) (non-impairment), 4(1) (full protection and security) and 5 (free transfer of payments) of the Germany-Zimbabwe BIT, as well as Articles 6(1) (expropriation), 4(1) (fair and equitable treatment, non-impairment and full protection and security) and 5 (free transfer of payments) of the Switzerland-Zimbabwe BIT.

On 11 January 2013, the Tribunal issued Procedural Order No 3, which disposed of an application by the VPBs, inter alia, to strike out jurisdictional challenges and other defenses allegedly raised for the first time by Zimbabwe in its Rejoinder on the Merits, despite its submissions to the contrary during the first procedural joint session. In Procedural Order No 3, the Tribunal admitted Zimbabwe's jurisdictional objections into the record, acknowledging "special circumstances" within the meaning of ICSID Arbitration Rule 26(3). The Tribunal further joined Zimbabwe's jurisdictional challenges to the merits and vacated the previously set hearing dates to accommodate further briefing on the new issues.

On 22 July 2013, the Tribunal issued Procedural Order No 6, addressing a further request for provisional measures advanced by the VPBs, which was prompted by the entry of new intruders into the properties. In Procedural Order No 6, the Tribunal dismissed the application on the basis, inter alia, that the VPBs had failed to adduce evidence warranting the wide-ranging measures requested and to show emergency and necessity, as required under Article 47 of the ICSID Convention and ICSID Arbitration Rule 39(1).

On 3 February 2015, the Tribunal declared the proceedings in both cases closed, in accordance with ICSID Arbitration Rule 38(1).

As to Zimbabwe's Approval Objection, which was based on Article 9(b) of the Germany-Zimbabwe BIT, the Tribunal noted that the provision appeared to conflict with Ad Article 2(a) of the Protocol to the Germany-Zimbabwe BIT. Article 9(b) appeared to require formal approval of investments, while Ad Article 2(a) did not contain any such requirement. Relying on the general rule of treaty interpretation in Article 31 of the Vienna Convention on the Law of Treaties, the Tribunal concluded that there was no specific requirement of approval.¹⁷ The Tribunal further found that Zimbabwe was in any event estopped from denying that it had given approval to the VPBs' investments, if approval was required.¹⁸ Accordingly, the Tribunal dismissed Zimbabwe's Approval Objection.

On the merits, the Tribunal upheld the great majority of the VPBs' claims, finding that Zimbabwe had (i) unlawfully expropriated the VPBs' investments, including those which had not been formally seized but had been rendered worthless as a result of the expropriation of other properties.²⁴ The Tribunal also held that Zimbabwe had breached (ii) the fair and equitable treatment standards in Article 2(1) of the Germany-Zimbabwe BIT and Article 4(1) of the Switzerland-Zimbabwe BIT;²⁵ (iii) the non-impairment standard in Article 2(2) of the Germany-Zimbabwe BIT and Article 4(1) of the Switzerland-Zimbabwe BIT;²⁶ (iv) the full protection and security standard in Article 4(1) of the Germany-Zimbabwe BIT and Article 4(1) of the Switzerland-Zimbabwe BIT;²⁷ and (v) the free transfer of payments standard in Article 5 of Germany-Zimbabwe BIT and Article 5 of the Switzerland-Zimbabwe BIT.²⁸

The Tribunal rejected Zimbabwe's necessity defense, finding that it did not meet the requirements of Article 25 of the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts (the "ILC Articles"), which the Parties agreed governed the issue. More specifically, the Tribunal noted that Zimbabwe had not declared a state of emergency at the relevant time, and that the settlers constituted a minority of the overall citizenry; accordingly their actions "were of a scale that was not uncontrollable by the Government and the police forces."²⁹ On the contrary, "the Zimbabwean Government chose to inflame the situation rather than dissolve it through legal means."³⁰ Zimbabwe had thus failed to demonstrate a threat to the essential interests of the State.

The Tribunal also found, in connection with Zimbabwe's necessity defense, that the land occupations by the settlers did not constitute a threat to the survival of the State and accordingly the measures taken by Zimbabwe had not been taken to save Zimbabwe of a "grave and imminent peril."³¹ The Tribunal further ruled that the measures taken by Zimbabwe were not the "only way" to deal with the unrest at hand,³² and that its conduct was racially motivated and breached "its obligation erga omnes not to engage in racial discrimination."³³ As a result, Zimbabwe's conduct constituted "an impairment to the international community as a whole and ILC Article 25(1)(b) precludes a defense of necessity [in such a case]."³⁴

Finally, further in connection with Zimbabwe's necessity defense, the Tribunal held that Zimbabwe "not only contributed to its economic decline and but was also one of the primary instigators of the situation."³⁵ Accordingly, Zimbabwe could not invoke the necessity defense in Article 25 of the ILC Articles.³⁶

The Applicant seeks the annulment of the Award, in its entirety, on eight separate grounds. These eight grounds are formulated on the basis of four of the five grounds of annulment in Article 52(1) of the ICSID Convention: (i) the Tribunal was not properly constituted (Article 52(l)(a)); (ii) the Tribunal manifestly exceeded its powers (Article 52(1)(b)); (iii) there has been a serious departure from a fundamental rule of procedure (Article 52(l)(d)); and (iv) the Award failed to state the reasons on which it is based (Article 52(l)(e)).

The Respondents deny that the Award breached Article 52(l)(d) of the ICSID Convention. In particular, they argue that the Applicant has not shown that it was effectively deprived of its right to be heard. Indeed, according to the Respondents, the scope of the right to be heard is not without limits; it only requires that the parties be given a fair and reasonable opportunity to present their case, within the procedural limits determined by the arbitral tribunal. Consequently, when the Tribunal ruled that the Applicant's evidence and arguments relating to its Illegality Objection were raised out of time and were inadmissible, the Applicant was not deprived of the right to be heard as it had been given sufficient opportunity to plead its case but failed to take advantage of it.⁴⁹

The Respondents submit that the Applicant waived its right to rely on the President's alleged non-disclosure in these annulment proceedings as it failed to challenge him during the arbitration, or indeed in a timely manner under ICSID Arbitration Rule 9(1).⁶⁴

According to the Applicant, both the third and the fourth ground of annulment refer to the same facts but are based on different legal grounds—whereas the third ground refers to Article 52(1)(a) of the ICSID Convention (the Tribunal was not properly constituted), the fourth ground is based on Article 52(1)(d) (serious departure from a fundamental rule of procedure). In particular, the Applicant contends that the President's duty to disclose any issue which could give rise to justifiable doubts as to his impartiality or independence is a "fundamental rule of procedure."⁸⁰

Third, the Applicant argues that the Tribunal failed to apply (or applied erroneously) Articles 7(1) and 7(2) of the Switzerland-Zimbabwe BIT.⁸⁷ In particular, the Tribunal should have applied these provisions to the effect that the Applicant's obligations to provide full security and to indemnify investors would have been "nullified or at least suspended."⁸⁸

The Respondents note, first, that the Tribunal applied Article 25 of the ILC Articles, which reflects customary international law, and not Zimbabwean law in determining whether the Applicant could invoke the necessity defense to excuse itself from liability.⁸⁹

Second, the Respondents argue that Ad Article 3(a) of the Protocol to the Germany-Zimbabwe BIT does not exclude measures taken for reasons of public security and order from compliance with the fair and equitable treatment standard in the BIT.⁹⁰ Instead, it relates to the State's obligation to provide national treatment and most-favored nation ("MFN") treatment to foreign investors.

Moreover, the Tribunal did not fail to consider and apply Ad Article 3(a). Indeed, the Tribunal referred to the provision several times in the Award, when addressing the VPBs' claim for breach of the BIT'S fair and equitable treatment standard.⁹¹ The Respondents note, in this connection, that the Applicant's characterization of Ad Article 3(a) as a treaty-based necessity defense (or non-precluded measures clause) was expressly rejected by the Tribunal.⁹²

Under Ground 6, the Applicant argues that, under Article 9(a) of the Germany-Zimbabwe BIT⁹⁷ and Article 2 of the Switzerland-Zimbabwe BIT,⁹⁸ the Tribunal had to apply Zimbabwean law to determine the legality of the VPBs' investments.⁹⁹ However it failed to do so, most notably in relation to the requirement to seek the Reserve Bank of Zimbabwe's approval for each and every investment, as required by the Zimbabwean exchange control regulations.¹⁰⁰

In the Applicant's view, as a result, the Tribunal exceeded its powers when finding, in disregard of the applicable exchange control regulations, that the Respondents' investments were legal and thus qualified as investments protected under Article 9(a) of the Germany-Zimbabwe BIT and Article 2 of the Switzerland-Zimbabwe BIT.

The Applicant submits that the Tribunal wrongly found jurisdiction over the Respondents' illegal investments. According to the Applicant, under Article 9(a) of the Germany-Zimbabwe BIT and Article 2 of the Switzerland-Zimbabwe BIT, the Tribunal could only assert jurisdiction over investments that had been made "in accordance with the laws" of Zimbabwe.¹¹¹

The Respondents submit that Article 52(l)(b) of the ICSID Convention requires that any excess of power, whether as to failure to apply the proper law or excess of jurisdiction,¹¹⁸ must be "manifest." The Respondents contend that, according to the jurisprudence of ICSID annulment committees, an excess of power can only be manifest if it is evident, that is, with only one interpretation being possible on the issue in question.¹¹⁹ In particular, the Respondents assert that if the relevant reasoning of the tribunal is tenable or arguable, there cannot be any "manifest excess of power."¹²⁰ According to the Respondents, the reasons given by the Tribunal on the Applicant's illegality arguments were evidently tenable and thus cannot result in the annulment of the Award.

The Respondents argue that, as a preliminary matter, the Applicant's eighth ground of annulment is inadmissible as it was not mentioned in the Applicant's Annulment Application. It is therefore time-barred under ICSID Arbitration Rule 50(1)(c)(iii), which requires that an application for annulment must "state in detail ... the grounds on which it is based." Therefore, at a minimum, the application must identify the bases under Article 52 of the ICSID Convention which the applicant is invoking.

The Respondents submit that Article 52(l)(e) of the ICSID Convention only requires that the reasoning of the challenged award can be followed; it does not require that the reasons be "appropriate" or "convincing."¹³⁰ Nor can an ICSID tribunal be criticized on annulment for not having considered arguments that the parties did not make in the underlying arbitration proceeding.¹³¹

(1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds:

(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.

While Article 52 sets out the annulment grounds in abstract terms, their real test therefore being in their application, there is a well-established understanding of the legal basis and the scope of annulment under the ICSID Convention. Thus, the practice of ICSID annulment committees has confirmed that the grounds of annulment listed in Article 52 are exclusive, and that it is the applicant that carries the burden of proof in establishing that any of the annulment grounds it invokes exist.¹³⁸

It is also clear from the language of Article 52, and it is well established in ICSID annulment practice, that annulment is an extraordinary remedy and not an appeal from the legal or factual findings of the arbitral tribunal.¹³⁹ The object and purpose of annulment proceedings is not to test the substantive correctness of the award; indeed, Article 53(1) of the ICSID Convention specifically provides that "[t]he award 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." Annulment can be successful only if there is a fundamental flaw in the award, or in the proceeding that led to it, that falls under one or more of the annulment grounds in Article 52. The function of an ICSID ad hoc committee is not to review the factual findings of an ICSID tribunal or its decision on the merits, but to determine whether any of the annulment grounds in Article 52 has been established. Nor is an ICSID annulment proceeding a retrial and accordingly it is based on the record before the tribunal.¹⁴⁰ Pursuant to ICSID Arbitration Rule 34(1), it is the tribunal, and not an ICSID annulment committee, that is the judge of the admissibility of evidence and its probative value.¹⁴¹

It follows from these principles that a party seeking annulment cannot make new arguments on the merits that were not made in the original proceedings, or more generally, try to re-argue the case on the merits. Thus, for instance, in Klöckner I, the ad hoc committee noted that an application for annulment cannot be used by a party "to complete or develop an argument which it could and should have made during the arbitral proceeding or help that party retrospectively to fill gaps in its arguments."¹⁴² Other ICSID annulment committees have made similar observations.¹⁴³

There is no dispute between the Parties that the right to be heard is a fundamental rule of procedure. The Committee agrees, as have agreed other ICSID ad hoc committees.¹⁴⁵ However, the Parties disagree as to whether the Tribunal committed a serious breach of this rule.

The Committee notes that the Tribunal took its decisions in Procedural Order Nos 7, 8 and 9 in the context of protracted proceedings, which resulted in additional pleading rounds beyond the initially envisaged two rounds and in several postponements of the evidentiary hearing. As summarized above, the additional pleading rounds were ordered by the Tribunal, in particular, in order to allow Zimbabwe to raise its Illegality Objection, even though Zimbabwe had initially indicated that it did not intend to challenge the jurisdiction of the Tribunal. Zimbabwe did not raise any jurisdictional objections in its Counter-Memorial, and while it did raise certain jurisdictional and admissibility objections in its Rejoinder, including on the basis that the VPBs' investments allegedly had not been approved as required under Article 9(b) of the Germany-Zimbabwe BIT, it did not challenge the legality of the VPBs' investments. Although filed late under ICSID Arbitration Rule 41(1), the Tribunal admitted all of these objections in Procedural Order No 3, finding that "special circumstances" existed, within the meaning of ICSID Arbitration Rule 26(3), which justified the admission of the objections even if pleaded out of time.

In its Rebutter dated 19 April 2013, Zimbabwe expanded its Approval Objection under Article 9(b) of the Germany-Zimbabwe BIT and also raised, for the first time, an objection to the legality of the investments under both Article 9(b) of the Germany-Zimbabwe BIT and Article 2 of the Switzerland-Zimbabwe BIT, on the basis that the VPBs had failed to obtain approval from competent Zimbabwean authorities for their investments.¹⁴⁶ Although the Tribunal had not scheduled further pleadings beyond Zimbabwe's 19 April 2013 Rebutter, on 4 July 2013, Zimbabwe wrote a letter to the Tribunal raising a wider illegality objection (the "Wider Illegality Objection"), arguing now that all of the VPBs' investments were in breach of Zimbabwe's exchange control regulations and therefore illegal. On 8 August 2013, the Tribunal issued Procedural Order No 7, dismissing the VPBs' application not to admit the Illegality Objection raised in the Rebutter, deciding not to admit Zimbabwe's 4 July 2013 letter as an additional pleading, and ordering Zimbabwe instead to file by 16 August 2013 a Re-Rebutter setting out its Illegality Objection under Article 9(b) of the Germany-Zimbabwe BIT and Article 2 of the Switzerland-Zimbabwe BIT.

After hearing the Parties by way of a telephone conference on 11 October 2013, the Tribunal on 15 October 2013 issued Procedural Order No 9, excluding, inter alia, Zimbabwe's 26 September 2013 pleading insofar as it raised the new Wider Illegality Objection that Zimbabwe had not raised in its 15 August 2013 Re-Rebutter. The Tribunal found that "[t]his expansion of [Zimbabwe's] jurisdictional objections was done in breach of the Tribunal's Procedural Orders, in particular paragraph 55(i) of PO No 3 and paragraph 62 of PO No 7, as well as Arbitration Rules 31(3) and 41(1)."¹⁴⁸ The Tribunal also found that no special circumstances existed within the meaning of ICSID Arbitration Rule 26(3) to warrant the admission of the Wider Illegality Objection at that stage of proceedings.¹⁴⁹ The Tribunal also declared inadmissible certain passages in Zimbabwe's witness statements, insofar as they related to the Wider Illegality Objection.

It is well-established that an ICSID annulment proceeding is indeed an annulment proceeding and not an appeal, and it is therefore not a place for a party to raise an argument that it did not make in the underlying arbitration proceeding¹⁵²—and even less a place to raise an argument that contradicts the argument raised by a party in the arbitration proceeding. Consequently, insofar as the Applicant seeks to argue now, in this annulment proceeding, that Exhibit C-858 constitutes evidence of illegality, it raises a new argument that cannot be considered at this stage of the proceedings, even assuming it were valid (which in any event is not the case, as conceded by Zimbabwe in the arbitration).

The Committee further notes that, while the Applicant now argues that its Illegality Objection was an objection to jurisdiction, in the arbitration it characterized its objection as an objection to admissibility rather than jurisdiction.¹⁵⁴ However, the issue of characterization of the Applicant's objection has no bearing on the Committee's determination as to whether or not there has been a serious breach of a fundamental rule of procedure. While under ICSID Arbitration Rule 41(2) an ICSID tribunal "may on its own initiative consider, at any stage of the proceeding, whether the dispute or any ancillary claim before it is within the jurisdiction of the Centre and within its own competence," the burden of proof remains with the party raising a preliminary objection, whether based on jurisdiction or admissibility. Indeed, ICSID Arbitration Rule 41 ("Preliminary Objections"), which requires that preliminary objections "be made as early as possible" and be filed "no later than the expiration of the time limit fixed for the filing of the counter-memorial, or, if the objection relates to an ancillary claim, for the filing of the rejoinder," covers all preliminary objections, including those to "competence," and not only objections to jurisdiction. While the provision makes an exception for situations in which "the facts on which the objection is based are unknown to the party at that time," the Tribunal did allow Zimbabwe to raise its Illegality Objection late, after the completion of the first two rounds of pleadings. Moreover, and in any event, Exhibit C-858 (which the Applicant argues constituted new evidence relevant to illegality) cannot be considered to evidence a new fact which was unknown to Zimbabwe at the time; as noted above, both Parties agreed in the arbitration that it was not relevant evidence as it did not relate to a transaction entered into by the VPBs.¹⁵⁵

The Respondents note that the World Bank Sanctions Board has no power to pronounce sanctions against States and accordingly its sanctioning powers are irrelevant in this proceeding. According to the Respondents, Mr Fortier is not an official of the World Bank and when chairing the Sanctions Board—he acts independently, just as he acted independently when chairing the Tribunal. Consequently, Mr Fortier's function as a chairperson of the Sanctions Board was not a disclosable matter, and even if it had been, Zimbabwe had ample time to challenge him—until 3 February 2015, when the Tribunal declared the proceedings closed. In accordance with ICSID Arbitration Rule 27, the Applicant has therefore waived its right to challenge Mr Fortier's alleged lack of impartiality.

As to the Applicant's argument that Mr Fortier's late disclosure deprived it of the opportunity to challenge him, the Committee notes that under ICSID Arbitration Rule 9(1) "[a] party proposing the disqualification of an arbitrator pursuant to Article 57 of the Convention shall promptly, and in any event before the proceeding is declared closed, file its proposal with the Secretary-General, stating its reasons therefor."¹⁵⁷ In the present case, as the Applicant became aware of the alleged basis for disqualification during the hearing, it could have brought an application for disqualification at any time between the end of the hearing, which occurred on 2 November 2013, and 3 February 2015, the date when the Tribunal declared the proceedings closed. The Committee is unable to agree that a proposal for disqualification at that stage of the proceedings would have been futile as the Tribunal had not yet rendered its award.

Consequently, in view of its failure to propose disqualification promptly, as soon as it became aware of the alleged basis of disqualification, the Applicant must be considered to have waived its right to challenge Mr Fortier, in accordance with Rule 27 of the ICSID Arbitration Rules. According to Rule 27, a party which knows that a provision of the Rules has not been complied with and which fails to state promptly its objections, "shall be deemed ... to have waived its right to object."¹⁵⁸ Accordingly, it cannot be said that the Applicant was deprived of the opportunity to challenge the President of the Tribunal and that, as a result, it was denied the right to be heard.

The Respondents argue that Zimbabwe could have invoked Article 57 of the Convention and accordingly could have proposed the disqualification of Mr Fortier at any time after the date when it became aware of the alleged manifest lack of impartiality, until the closure of the proceedings on 3 February 2015; however, it failed to do so. Having thus failed to comply with ICSID Arbitration Rule 9(1), which requires a party to raise its proposal for disqualification "promptly," the Applicant must be deemed to have waived its right to challenge, in accordance with ICSID Arbitration Rule 27.

The Committee agrees that ICSID Arbitration Rules 9(1) and 27 are indeed the relevant provisions in this context. Consequently, insofar as the Applicant relies in support of its application on the mere fact of Mr Fortier's function as chairperson of the Sanctions Board (said to be incompatible with his function as President of the Tribunal), the annulment application stands to be dismissed on the same basis as the Applicant's second ground of annulment—the Applicant must be considered to have waived its right to seek disqualification under ICSID Arbitration Rule 27.

The Applicant contends that the Tribunal applied customary international law and Zimbabwean law when deciding on the Applicant's necessity defense and thus failed to apply the relevant provisions of the BITs—Ad Article 3(a) of the Protocol to the Germany-Zimbabwe BIT and Article 7(1) and 7(2)(b) of the Switzerland-Zimbabwe BIT. The Tribunal thus failed to apply the applicable law and thus exceeded its powers within the meaning of Article 52(l)(b) of the ICSID Convention.

The Respondents submit that the Tribunal did apply the applicable international law when determining Zimbabwe's necessity defense and made clear that they did not apply Zimbabwean law. The Respondents further note that Ad Article 3(a) of the Protocol to the Germany-Zimbabwe BIT does not deal with necessity, and Zimbabwe never invoked Article 7(2) of the Switzerland-Zimbabwe BIT before the annulment proceedings.

The Committee notes that Zimbabwe raised its necessity defense in the arbitration proceedings primarily in terms of Article 25 of the ILC Articles, and that the Tribunal devoted a significant part of the Award to this issue.¹⁶¹ Having analyzed the issue extensively, the Tribunal eventually dismissed the defense, concluding that Zimbabwe had not satisfied the requirements of Article 25. Consequently, the Tribunal did apply international law rather than Zimbabwean law when determining Zimbabwe's necessity defense.' As noted above, the Tribunal also specifically addressed Zimbabwe's defense based on Ad Article 3(a) of the Germany-Zimbabwe BIT, dismissing it.¹⁶² While the Tribunal did not specifically address Article 7(1) of the Switzerland-Zimbabwe BIT, this provision only provides for national treatment and MFN treatment in relation to restitution, indemnification, compensation or other settlement of claims in the context of "war, other armed conflict, revolution, a state of emergency, revolt, insurrection or riot," and accordingly does not contain any general necessity defense. Moreover, as noted by the Respondents, Zimbabwe never specifically invoked Article 7(2) of the Switzerland-Zimbabwe BIT in the arbitration,¹⁶³ and in any event, Article 7(2) also does not provide for a necessity defense; it merely refers to necessity as an exception to the obligation to restitute or compensate for destruction of property in the circumstances referred to in Article 7(1).

As the Committee noted above, a party seeking annulment of an ICSID award cannot raise new arguments in an annulment proceeding that it did not raise in the underlying arbitration proceedings. As stressed by the ad hoc Committee in Klöckner I, an application for annulment cannot be used "to complete or develop an argument which it could and should have made during the arbitral proceeding or help that party retrospectively to fill gaps in its arguments."¹⁶⁶