Among the various review mechanism listed in the ICSID Convention, the annulment

remedy is the most appropriate, extensively used and the most consequential for the
system’s evolution.1The extent of annulment under ICSID Convention draws the
strength from the fact that the Convention delineates the concept of appeal and
annulment under Article 52. David Caron through his dominant article (Framing the
Work of ICSID Annulment Committees) 2 stated a lucid demarcation between an
appeal mechanism and ICSID annulment procedure. He also pointed out that the
difference between the two was indistinct and this uncertainty demented both the task
of AD hoc committee and the academicians.

Fresh report supported a homogeneous view that the distinction between annulment
and appeal is general and abstract and that merely recognizing this difference will not
put an end to the principle of finality, the degree of deference to be accorded to the
tribunal and the appropriate scope of the different aspects of the annulment remedy. 3
There are two inter-related ideas depicting the character of the ICSID annulment
remedy that demands attention.

Primarily, the major contention is that annulment is not an appeal and ad hoc
committee may not look into substance of the award. In MCI Power Group, LC and
New Turbine, Inc v Republic of Ecuador, it was stated that the fact the ad hoc
committee should not be concerned with the substantive correctness of the contents of
award completely overrides their very existence. Its power is actually inhibited by the
fact that it can only check the procedural accuracy of the award in accordance with
Article 52 of the Convention. Consequently, the role of an ad hoc committee is a
limited one, restricted to assessing the legitimacy of the award and not its
correctness.4Moreover, Caron in its article stated that‘the tendency of annulment

1
Hi-Taek Shin, ‘Annulment’ in Meg Kinnear and others (eds), Building International Investment Law:
The First 50 Years of ICSID (Kluwer Law International 2015) 699.
2
David D Caron,‘Framing the Work of ICSID Annulment Committees’ (2012) 6 World Arb &
Mediation Rev 173, 182.
3
Alejandro A Escobar and Ernesto J Fe´liz de Jesu´s, ‘La decisio´n de anulacio´n en el caso Iberdrola
Energı´a, SA c Repu´blica de Guatemala: Alcance del esta´ndar aplicable a causales de anulacio´n bajo
el Convenio del CIADI’ (2016) 31(1) ICSID Rev—FILJ 104, 112.
4
MCI Power Group, LC and New Turbine, Inc v Republic of Ecuador, ICSID Case No ARB/03/6,
Decision on Annulment (19 October 2009) para 24.
committees to delve too deeply into the substance of the award is the concern most
often and most strenuously raised’.5

In view of the above, the need of the hour, it is necessary is to strike a judicious
balance between binding nature of the award and the legitimacy of the arbitral
process, as well as the award should be protected at all cost, though this is a subjective
exercise. The ambit of article 52 and 53 is narrow in its scope as it fails to cover
appeals against ICSID awards and stays limited to the grounds mentioned in the
provisions, restricting the ad hoc committee to expressing the views on the merit of
the tribunal. The ad hoc committee was kept at bay from deciding the correctness of
the award but rather determine its legitimacy.Moreover, the ad hoc committee in the
case of El Paso v Argentina stated that it would review the annulment allegations
‘corresponding to those, which are exhaustively listed in Article 52 of the ICSID
Convention; the remaining allegations, which do not refer to the grounds for
annulment, will be rejected without any analyses.6

Secondly the observation of the committee and the reporters is that annulment deals
with the “procedural legitimacy”. Caron indicated that the legitimate decision making
process involves an authority that helps in resolving disputes which could be properly
constituted, free from evil of corruption and observes fundamental rules of procedure.

Grounds for Annulment:

The Tribunal was not properly constituted:

During the negotiations of the ICSID Convention, it was clarified that: the expression
‘not properly constituted’ was intended to cover a variety of situations such as, for
instance, absence of agreement or invalid agreement between the parties, the fact that
the investor was not a national of a Contracting State, that a member of the Tribunal
was not entitled to be an arbitrator, etc. 7 The two pertinent questions that arise from
5
Supra note 2.
6
El Paso Energy International Company v Argentine Republic, ICSID Case No ARB/03/15, Decision
of the ad hoc Committee on the Application for Annulment of the Argentine Republic (22 September
2014) para 137.
7
ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID (5 May
2016) (Updated Background Paper) para 2;
the discussions of the ad hoc committee are a) whether this ground is wider and
broader in scope to cover additional issues in addition to the establishment of the
tribunal b) whether in case a previously rejected challenge is put forward as a ground
for annulment, the ad hoc committee’s role is limited to verifying compliance with the
procedure provided in the Convention to determine arbitrator challenges.

The first aspect of the discussion has been dealt by the ad hoc committee in the case
EDF International v Argentina, where they observed that Article 52(1)(a) states only
about compliance with requirements of Chapter IV of the Convention cited “
Constitution of the Tribunal” is narrow in its scope.8 The ad hoc committee found that
an award might be annulled under Article 52(1)(a) of the ICSID convention on the
ground of mere absence of the arbitrator to meet standard requirements under Article
14(1). The second aspect has been dealt by the ad hoc committee in the case of
Azurix v Argentina it was held that the sole condition to annul an award under
Article 52(1)(a) if it is proved that there was failure to comply properly with the
procedure for challenging members of the tribunal set out in other provisions of the
ICSID Convention’.9

Manifest Excess of Power

A tribunal exceeds its powers when it does not respect the limits set by the parties’
consent to arbitrate, including by deciding issues not submitted to it or failing to apply
the applicable law.10 The analysis of the two aspects are a) whether there is a
difference in the application of this ground in regard to jurisdictional determinations
and, b) what is meant by failure to apply the applicable law. In connection with the
first issue the ad hoc committee held in the case of Sanayi ve Ticaret Anonim Sirketi
v Turkmenistan, that whenever the tribunal does not considers its limit, it transcends
with power and it can be a ground for annulment. 11 With respect to the second issue, it
is evident that erroneous application of the law is no ground for annulment of an

8
EDF International SA, SAUR International SA and Leon Participaciones Argentinas SA v Argentine
Republic, ICSID Case No ARB/03/23, Decision (5 February 2016) (EDF) para 67.
9
Azurix Corp v Argentine Republic, ICSID Case No ARB/01/12, Decision on the Application for
Annulment of the Argentine Republic (1 September 2009) para 41
10
Ibid.; Iberdrola Energı´a SA v Republic of Guatemala, ICSID Case No ARB/09/5, Decisio´n sobre la
Solicitud de Anulacio´n del Laudo presentada or Iberdrola Energı´a, SA (13 January 2015) (Iberdrola)
11
Kil|c¸ I˙nsaat I˙thalat I˙hracat Sanayi ve Ticaret Anonim Sirketi v Turkmenistan, ICSID Case No
ARB/10/1, Decision on Annulment (14 July 2015) (Kil|c¸) para 55
award. Based on the findings of the ad hoc Committee in Amco Asia v Indonesia, it
has recently been suggested that annulment will not be warranted provided the
tribunal has ‘consulted the proper ‘‘body of law’’, and that the ‘‘identity of the law’’
was the correct one’.12The ad hoc Committee in Daimler v Argentina observed that
what it could do was ‘determine whether the Tribunal correctly identified the
applicable law and endeavored to apply it’.13 The annulment would be render invalid
if identification of the applicable law is not done and proper body of law is not
consulted. Even if a specific provision is not applied, it will not render the award
invalid and annulled.

(iii) Serious departure from a fundamental rule of procedure

This ground of annulment includes minimal standards of procedure respected because

of international law. Annulment in every case does not call for breach of specific rules
but rather of fundamental principle. For annulment, a fundamental or core rule which
is serious in nature has to be breached held in Teco v Guatemala14. Regard need not
be given by the tribunal to every element but the tribunal cannot ignore the existence
of an important evidence. The ignorance of a particular evidence has to be supported
by a reasoned order as to why the evidence was ignored.

There have been many proposals regarding new remedies in the sphere of investment
arbitration since the decade. Many academicians in this field have discussed appeal
facilities for quite some time. The views are not consistent. It was argued that
permanent appeal mechanism would be better for investment arbitration. The two

12
Compan˜ı´a de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID
Case No ARB/97/3, Decision on the Argentine Republic’s Request for Annulment of the Award
Rendered on 20 August 2007 (10 August 2010) (Vivendi II) para 247(i).
13
Daimler Financial Services AG v Republic of Argentina, ICSID Case No ARB/05/1, Decision on
Annulment (7 January 2015) para 191.
14
TECO Guatemala Holdings, LLC v Republic of Guatemala, ICSID Case No ARB/10/23, Decision
on Annulment (5 April 2016) para 131.
aspects related to debate over appeal mechanism are a) an ad hoc committee can annul
an award but no modification can be done by them in this regard which is a
distinguishing feature between appeal and annulment. Whereas an appellate body has
the power to modify the award, thus saving the time to start a fresh.
Whenever there is a discontent regarding a particular annulment decision, ICSID
should enter to guide the process to the right track. However, it would be preferred
that we have a standing body which is governed by transparent procedure to have
accountability by the members who are elected and who would pursue discussions on
policies for the same.