ICSID Experdited Arbitration is tempting; however, old sins make long shadows, and the question of changing inter alia the annulment proceeding to be more like an appeal mechanism is still open.
Let me start with a few statistics regarding the whole discussion about, firstly, an appeal mechanism; secondly, the efficiency of the annulment procedure (Article 52 ICSID) and thirdly, the cost of it.
Generally, the discussion is familiar and has been a part of the ICSID reform package since 2022; however, without significant changes.
Putting it in a nutshell, ‘appeal generally focuses on compliance with due process and the substantive correctness of the decision. By contrast, annulment more narrowly focuses on compliance with due process, regardless of errors in applying the law or the findings of fact. Grounds for appeal are normally broader than the usual grounds for annulment’. That is why ‘The role of an ad hoc committee is similar to that of a court of cassation. The ad hoc committee can annul the award (or part of the award) based on one of the grounds enumerated in Article 52(1), but it cannot ‘amend or replace such awards, nor […] re-view the merits of the dispute’.
It’s worth adding that in the 2015 and 2018 editions of the QMUL survey, the lack of an appeal mechanism was ranked as the fourth and eighth worst characteristics of international arbitration, respectively. It is especially interesting in the context of the 2020 QMUL-CCIAG Survey Investors’ Perceptions of ISDS, where equal proportions of respondents favoured (35%) and opposed (35%) the inclusion of such a mechanism. At the same time, respondents, as you might expect, those in favour of or not strongly against the appeal, declared:
- 77% for the inclusion of a mechanism for the review of serious procedural irregularity
- 66% for the inclusion manifest errors of law
- 48% for the inclusion manifest errors of merits
- 42% for the inclusion manifest errors of fact
- 89% of respondents reject the idea of a re-hearing of the tribunal’s factual and legal findings
One more stat needs to be mentioned – there was overall a consensus amongst interviewees that the scope of review on appeal, if introduced, should be strictly defined and limited.
The above proves that in mind that ICSID boasts around 160 parties annually (it can be presumed) and ICSID proceedings involve States from every geographic region of the world, there is ‘insatiable hunger for the changes, e.g. of Article 52 of the ICSID Convention. However, it did not happen, and parties are still looking for justice understood as compliance with the ‘rule of law’, which, e.g. delimits the State’s sovereignty rights (see Article 2 (2) and (7) of the Charter of the United Nations).
It’s even more visible when we talk about the cost and effect of the annulment procedure – it is hard to get rid of the impression that it is not a good value-for-money revision proceeding.
The above statistic proves it. If we compare them with the average amount expected to be incurred for annulment proceedings by a party of USD 1.1-1.4 million and the ad hoc committees’ costs of USD 410,000-460,000, the question rise: Why not change (at least) the Article 52 (1) (b) and (d) ICSID Convention in a way that would make the judgment more consistency?
In the end, ‘manifested excision’ of the powers (Article 52 (1) (b) ICSID Convention) is mainly about failure to (1) apply moral law and (2) erroneous application of law and departure from fundamental consists of, e.g. breach parties right to be heard (Article 52 (1) (d) ICSID Convention). If we closely look at propositions of Grounds for appeal and standard of review in the UNICTRAL document ‘Possible reform of investor-State dispute settlement (ISDS) Appellate mechanism’ (1) error in the application or interpretation of the law and (2) manifest error in the assessment of the facts have reached a high level of support in 2020 QMUL survey.
Also, discussed change might resolve the problem of Article 51 of the ICSID Convention, which by some Tribunals is considered to be power to reconsider their decisions and make a revision of an award. The situation is not different from settled by ad hoc committee opinion regarding the discretion not to annul an award even though it considers the conditions for a ground for annulment under Article 52(1) ICSID Convention. Even if it seems logical that as long as the error had no material impact on the outcome of the dispute, the award should not be ‘destroyed’, there is no expressis verbis legal ground for such a position. Meanwhile, the inconsistency of judgments is a bone of contention as the ISCDs members would like to be treated accordingly to the fundamental principle of international investment law, i.e. non-discrimination principle.
The strategy of small steps should be incorporated into the actions of the Working Group, and their members should not close their eyes to the expressly verbalised position of ISCD users. The EU also should play an essential role in the next step as a COUNCIL DECISION on the position to be taken on behalf of the European Union in the International Centre for Settlement of Investment Disputes (ICSID) plainly expressed the position that: ‘The European Union and its Member States are pursuing the creation of a permanent multilateral investment court that would replace the current system of investment arbitration by a permanent mechanism.’ If it happens, the new body shall undoubtedly be modelled on the appeal system as an agreement with, e.g. Canada shows (CETA agreement).
Then the meaning of ISCD may drastically diminish, as reality shows, ISCD is not the first choice arbitration model but only ‘fifth’.
Fouret, J, Rémy gerbay R.; Alvarez. M., G, The ICSID Convention, Regulations and Rules : A Practical Commentary. Cheltenham, UK: Edward Elgar Publishing, 2019
Menon, S. A Tale of Two Systems: The Public and Private Faces of Investor-State Dispute Settlement ICSID Review, Vol. 37, No. 3 (2022), pp. 619–637
Kaufman, D., The Canada-EU Interim Appeal Arbitration Agreement: A Hail Mary Pass, or the Panacea? http://arbitrationblog.kluwerarbitration.com/2019/09/21/the-canada-eu-interim-appeal-arbitration-agreement-a-hail-mary-pass-or-the-panacea/
Possible reform of investor-State dispute settlement (ISDS) Appellate mechanism Note by the Secretariat (https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/uncitral_wp_-_appeal_14_december_for_the_website.pdf)
2020 QMUL-CCIAG Survey: Investors’ Perceptions of ISDS May 2020 (https://arbitration.qmul.ac.uk/media/arbitration/docs/QM-CCIAG-Survey-ISDS-2020.pdf)