Annulment of award was unqualified (ICSID)

Practical Law UK Legal Update 5-520-4674 (Approx. 6 pages)

Annulment of award was unqualified (ICSID)

by Hannah Ambrose, Herbert Smith LLP

Background

A party may seek annulment of an ICSID award on limited grounds, which include where there has been a serious departure from a fundamental rule of procedure (Article 52, ICSID Convention). The application will be decided by an ad hoc committee of three arbitrators. If the award is annulled, in whole or in part, by the ad hoc committee, either party may re-submit the dispute to a new ICSID tribunal (Article 52(6), ICSID Convention).

In Amco Asia Corporation and others v Republic of Indonesia (ICSID Case No. ARB/81/1) (Annulment decision of 16 May 1986) (Amco I), the ad hoc committee annulled the award with qualifications. The tribunal to whom the dispute was re-submitted had to consider which parts of the first award had not been annulled, and were therefore res judicata, and which had been annulled (Amco Asia Corporation and others v Republic of Indonesia (ICSID Case No ARB/81/1) (Decision on jurisdiction of 10 May 1988)) (Amco II).

For detailed discussion about annulment, see Practice note, Annulment of awards in ICSID arbitration.

Facts

The dispute between the parties relates to the Ninoy Aquino International Airport Passenger Terminal III in the Philippines. The claimant originally filed a request for arbitration with ICSID in 2003 (First Proceeding). The majority of the tribunal dismissed the claimant's claim on the ground that it lacked jurisdiction ratione materiae. The decision was based on a finding that the claimant's investment fell outside the scope of the relevant bilateral investment treaty (BIT), because it was not made in compliance with Philippines law (see Legal update, Investment not in accordance with law).

The claimant successfully sought annulment of the award in the First Proceeding (Annulment Decision), on the ground that the tribunal had seriously departed from a fundamental rule of procedure by denying the applicant the right to be heard on new evidence submitted on Philippines law (Fraport AG Frankfurt Airport Services Worldwide v The Philippines (ICSID Case No ARB/03/25) (Decision of the Annulment Committee of 23 December 2010), discussed in Legal update, Arbitral award annulled for violation of claimant’s right to be heard).

The claimant submitted a second Request for Arbitration to ICSID. The respondent reserved its rights to raise jurisdictional, admissibility and substantive objections to the claimant's filing a new dispute and ICSID's decision to register the Request under a new case number.

At the first procedural hearing, the tribunal considered:

Whether any portions of the annulled award remained binding on the parties.
The treatment of the records (documentary disclosure, witness statements, expert reports, and oral evidence) of the First Proceeding and of an ICC arbitration between related parties and concerning the same subject matter.

The respondent submitted that the tribunal had authority, as part of the determination of its own jurisdiction, to interpret the Annulment Decision of the ad hoc committee and to decide whether there were determinations in the annulled award that remained binding on the parties. It based its arguments on the principles of finality of awards (Article 53, ICSID Convention) and judicial economy to limit re-litigation of the same dispute. The respondent argued that:

The scope of the annulment was limited to the parts of the annulled award "tainted by an alleged procedural violation", that being the only one of the claimant's arguments for annulment accepted by the ad hoc committee.
The language used by the ad hoc committee supported the position that it was the dispositif of the annulled award, captioned "AWARD", and not the entire decision that was annulled in its entirety.

The claimant contended that the annulled award was void in its entirety.

Decision

The tribunal found that:

The annulled award was annulled in its entirety and it denied the respondent's request to consider certain paragraphs therein binding on the parties.
The awards in the ICC Arbitration were not to be considered binding on the parties to the second ICSID proceeding.
The records of the First Proceeding should be admitted into the records of the second proceeding, subject to certain provisos.

The tribunal also established guidelines for the treatment of the evidence of witnesses and experts who gave testimony in the First Proceeding and the ICC Arbitration.

Binding effect of annulled award

The tribunal distinguished this case from the situation in Amco I. In Amco I, the dispositif of the annulment decision contained qualifications. However, in this case, the tribunal concluded that, in the absence of any qualifications in the dispositif of the Annulment Decision, attempts to determine which issues were res judicata and which issues may be re-litigated, would be likely to expose its own decision to a request for annulment.

The tribunal did not agree that the words of the ad hoc committee in its Annulment Decision led to the conclusion that the annulment was limited. The ad hoc committee doubted the whole basis on which the first tribunal was proceeding: the first tribunal failed to re-open the proceedings following receipt of additional evidence on the interpretation of Philippine law; the first tribunal relied on its interpretation of Philippine law to conclude that it did not have jurisdiction ratione materiae; the issue of whether it had jurisdiction ratione materiae formed the ratio of the annulled award; and failure to permit fresh submissions on evidence of Philippine law was therefore a serious departure of the right to be heard.

These considerations supported the conclusion that the ad hoc committee did not leave parts of the annulled award standing. Therefore, the tribunal found that the findings of fact and conclusions of law in the annulled award had no binding effect.

Records of First Proceeding and ICC Arbitration and question of witnesses and experts

The tribunal, pursuant to Article 43 of the ICSID Convention, admitted into the record of the second proceeding, the records of the First Proceeding and of the ICC Arbitration, on the proviso that:

Submission was orderly.
Both records were an evidentiary matter only and not binding on the parties to the second proceeding.
The tribunal should be the judge of their probative value, in accordance with Rule 34(1) of the ICSID Arbitration Rules.

The tribunal adopted guidelines for witnesses and experts who had given evidence in the First Proceeding:

A party can submit witness and expert testimony, in full or in part, of its own witnesses and experts from the First Proceeding.
A party can submit a new statement from those witnesses and experts.
The other party can submit any remainder of that testimony and can call those witnesses and/or experts for cross-examination.
A party can submit witness and expert testimony, in full or in part, of the other party's witnesses and experts from the First Proceeding; if they have not been submitted by the other party, they can be cross-examined only with the permission of the tribunal.
The other party can submit the remainder of that testimony.
The tribunal is entitled to call upon a party to produce at the hearing for cross-examination any witness or expert whose written testimony has been submitted in the First Proceeding.

Witness and expert testimony in the ICC Arbitration could be referred to but will not be considered testimony in the second proceeding. Those witnesses and experts cannot be called for examination unless a new statement or report is introduced in those proceedings.

Binding effect of the ICC awards

The tribunal determined that the ICC Arbitration awards were not binding on the parties to these proceedings as there was no identity of:

Parties.
Petitum (object – whereby the same type of relief is sought in different sets of proceedings).
Causa petendi (cause – whereby the same legal arguments are adduced in different sets of proceedings).

The ICC Arbitration was brought under concession agreements between a Philippines operating company, PIATCO, and the Philippines' Authority, and PIATCO sought a declaration that the concession agreements were valid. By contrast, the ICSID arbitration was brought under the Germany-Philippines BIT and seeks a determination that the state has breached the BIT. There was therefore no justification for application of the general principle of collateral estoppel.

Comment

As the tribunal acknowledged in its Procedural Order, had the respondent's arguments concerning the power of the tribunal to analyse the annulled award succeeded, it may have led to very murky waters in terms of which parts of the annulled award remained binding and which did not. The scope for challenge of an award based on a line by line analysis of an annulled award is apparent and such an in-depth analysis could not possibly have been in the contemplation of the ad hoc committee in its annulment decision. The clear lesson from Fraport is that an ad hoc committee with intentions to limit the extent to which its decision renders an award ineffective must express those intentions in an unequivocal way.

The issue of parallel, factually related, contractual proceedings sitting alongside BIT claims is not an unusual one: on many occasions the locally incorporated company which has entered into, for example, a licence agreement, a lease or a concession agreement with a government entity, pursues a contractual claim whilst investors in that company pursue remedies under a treaty.

The tribunal in Fraport has come up with a pragmatic way of balancing its obligations to assess witness credibility and the relevance and weight of evidence with the need for judicial economy and efficiency. Notably, the parties were not too far apart in their observations on how the tribunal should deal with witness and expert evidence from the first proceedings and the tribunal's guidance (see paragraphs 77 and 78 of the Procedural Order) provides an even-handed approach which allows parties considerable flexibility with regard to previous evidence.

The tribunal also laid down a proviso as to the presentation of the record of the first proceedings. Hopefully, the tribunal's attempts to ensure carefully co-ordinated logistics will allow the parties and the tribunal to proceed with the arbitration without undue difficulty, cost and delay with regard to the presentation of the documentary record.

Case

Fraport AG Frankfurt Airport Services Worldwide v Philippines, Procedural order no 1, ICSID Case no ARB/11/12.

Annulment of award was unqualified (ICSID) | Practical Law