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Mme Yael Ribco Borman

Associate - Shearman & Sterling

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Award Failed to State the Reasons on which it is Based

I. Definition

1.

Article 52 of the ICSID Convention sets forth five grounds for annulment of an arbitral award. One of the most relied upon grounds for annulment is the one in Article 52(1)(e) of the ICSID Convention, namely, when “the award has failed to state the reasons on which it is based”.

2.

In one of the first annulment cases, the MINE v. Guinea ad hoc Committee held that “the requirement that an award has to be motivated implies that it must enable the reader to follow the reasoning of the Tribunal on points of fact and law”.1 The Committee further stated that “the requirement to state reasons is satisfied as long as the award enables one to follow how the tribunal proceeded from Point A. to Point B. and eventually to its conclusion, even if it made an error of fact or of law”.2 This formula has been repeatedly applied by subsequent ad hoc committees.3

II. Connection to article 48(3) of the ICSID convention

3.

The ground for annulment under Article 52(1)(e) is strictly related to the requirement expressed in Article 48(3) of the ICSID Convention (and Arbitration Rule 47) that awards “shall deal with every question submitted to the Tribunal, and shall state the reasons upon which it is based”.4 

III. Effects of waiver

4.

The requirement to state the reasons for a decision is so fundamental that a waiver of the requirement in an arbitration agreement would not prevent a party from seeking an annulment for failure of an award to state reasons.5

IV. Standard of review

A. Threshold

5.

The ground for annulment under Article 52(1)(e) has been considered to be a “minimum requirement6 for tribunals to state reasons sufficient “to ensure that a reasonable reader may understand the award”.7 

6.

The threshold to annul an award under Article 52(1)(e) is high.8 Ad hoc committees have held that annulment under Article 52(1)(e) should only take place when the point lacking reasoning is “crucial or decisive”,9necessary for the Tribunal’s decision10 or “essential for the outcome of the case”.11 Tribunals are therefore not required to “explain each and every statement and conclusion it has reached”.12

B. No review of the reasoning itself

7.

In accordance with the general prohibition for ad hoc committees to act as appeal organs or review the substance of the tribunals’ decision, Article 52(1)(e) does not allow ad hoc committees to intrude into the legal and factual decision-making or rule on the correctness or persuasiveness of the tribunal’s reasoning or decision.13 

8.

However, in limited circumstances, ad hoc committees would further explain, clarify or supplement the reasoning given by a tribunal, or construe the award so as to confirm the award’s consistency.14 

V. Application of the "failure to state reasons" ground of annulment in ICSID annulment case law

9.

The following circumstances have been raised by parties seeking to annul an award as potentially constituting a “failure to state reasons”. Whether the award was annulled in accordance with Article 51(2)(e) depended on the specific circumstance(s) raised and the facts of the case:

  1. Total absence of reasoning in all or part of an award;15
  2. Contradictory reasoning;16
  3. Unclear, insufficient, inadequate or “frivolous” reasoning;17
  4. Implicit reasons or reasoning by reference;18
  5. Failure to address each and every argument and question raised by the parties;19
  6. Failure to refer to every piece of evidence, case law or literature submitted by the parties.20

Bibliography

Bishop, R.D. and Marchili, S., Failure to State Reasons on which an Award is Based, in Annulment Under the ICSID Convention, 2012, Oxford University Press, pp. 151-197. 

Cheng, T. and Trisotto, R., Reasons and Reasoning in Investment Treaty Arbitration, Suffolk Transnational Law Review, Vol. 32, Issue 2, 2009, pp. 409-434.

Crivellaro, A., The Failure to State Reasons in ICSID Awards, Les Cahiers de l’Arbitrage, Vol. 4, 2012, p. 865.

Giannakopolous, C., Reconceptualizing “Failure to State Reasons” as a Ground for Annulment under Article 52(1)(e) of the ICSID Convention, Journal of International Dispute Settlement, Vol. 8, Issue 1, 2017, pp. 125-154.

Guillaume, G., Failure to State Reasons in ICSID Awards, in Gaillard, E. (ed.), The Review of International Arbitral Awards, IAI Series on International Arbitration, Vol. 6, 2010, pp. 271–282.

ICISD Secretariat, Updated Background Paper on Annulment for the Administrative Council of ICSID, 5 May 2016, pp. 60-62.

Lalive, P., On the Reasoning of International Arbitral Award, Journal of International Dispute Settlement, Vol. 1, Issue 1, 2010, pp. 55–65.

Mullen, S. and Whitsitt, E., Quantum, Annulment and the Requirement to give Reasons: Analysis and Reform, Arbitration International, Vol. 32, Issue 1, 2016, pp. 59–80.

Schreuer, C., Malintoppi, L., Reinisch, A. and Sinclair, A., Annulment, in The ICSID Convention - A Commentary, 2nd ed., 2010, pp. 996-1023.

Sturzenegger, M., ICSID Arbitration and Annulment for Failure to State Reasons – The Decision of the Ad Hoc Comitteee in Maritime International Nominees Establishment v. Republic of Guinea, Journal of International Arbitration, Vol. 9, Issue 4, 1992, pp. 173-198.

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