What is Annulment?
Annulment means ‘the act of annulling something’ and annul means ‘to invalidate’. Black’s
Law Dictionary defines it as ‘the act of nullifying or making void [...]’1. It also defines
‘annulment of judgment’ as ‘[a] retroactive obliteration of a judicial decision, having the
effect of restoring the parties to their pretrial positions.’ Annulment is a narrow form of
review compared to what might be expected of an appellate court for the purposes of the
ICSID Convention.
What is the difference between annulment and appeal?
A successful annulment leads to complete invalidation of the original decision. It results in
the legal destruction of the original decision without replacing it with the ad hoc Committee’s
determination. Some parts of annulment resemble ‘cassation’ proceedings known to civil law
states like France and Italy. Whereas a successful appeal generally leads to its modification.
Annulment does not deal with the substantive correctness of the decision because it
relates to the merits of the case. It is instead based on limited fundamental standards listed
exhaustively in Article 52(1) of ICSID Convention. Whereas appeal deals with substance.
This distinction has been emphasised by several ad hoc Committees. The first generation of
decisions2 was criticised for improperly crossing the line between annulment and appeal by
re-examining their merits3. In Klockner I4, the ad hoc Committee still held that a finding that
there existed annulment grounds would have to automatically lead to the award’s annulment.
The second generation of decisions was more moderate. In AES v Hungary5, the Committee
stated ‘As a preliminary matter, the Committee notes that the scope of its present task is
limited to determining whether to annul either all or part of the Award, or to let the Award
stand. As unambiguously expressed in Article 53 of the Convention, an award is not subject
to an appeal. Annulment must therefore be different from appeal. It is well settled in
international investment arbitration that an ad hoc committee may not substitute its own
judgment on the merits for that of a tribunal. As such, the Committee has no competence to
express any view on the substantive correctness of the Tribunal’s reasoning’. In MINE v
Guinea6, the Committee found that ‘Article 52(1) makes it clear that annulment is a limited
remedy. This is further confirmed by the exclusion of review of the merits of awards by
Article 53. Annulment is not a remedy against an incorrect decision. Accordingly, an ad hoc
Committee may not in fact reverse an award on the merits under the guise of applying Article
52’. In MCI Power v Ecuador7, the ad hoc Committee confirmed that the annulment process
is not an appeal mechanism. They confirmed that ‘The annulment mechanism is not designed
to bring about consistency in the interpretation and application of international investment
law. The responsibility for ensuring consistency in the jurisprudence and for building a
coherent body of law rests primarily with the investment tribunals […]’. In Alapli v Turkey8,
1
Black’s Law Dictionary (10th edn). Thomson West 2014
2
Amco Asia Corporation and others v. Republic of Indonesia, Decision annulling the award, May 16, 1981, 1
ICSID Rep. 509, 539 (1993)
3
George R. Delaume, The Finality of Arbitration Involving States: Recent Developments, 5 ARB. INT’L 21, 32
(1989)
4
Klockner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Societe Camerounaise des
Engrais, Decision annulling the award, May 3, 1985, 2 ICSID Rep. 95, 126, 138, 161 (1994)
5
AES Summit Generation Limited and AES-Tisza Erömü Kft v The Republic of Hungary, ICSID Case No.
ARB/07/22, Decision of the ad hoc Committee on the Application for Annulment (29 June 2012)
6
MINE v Guinea, Decision on Annulment, 22 December 1989
7
MCI Power Group L.C. and New Turbine, Inc. v Republic of Ecuador, ICSID Case No. ARB/03/6, Decision
on Annulment (19 October 2009)
8
Alapli v Turkey, ICSID Case No. ARB/08/13, para 31
,the Committee further stated that this process ‘has achieved a careful balance between the
interest of ensuring the finality of awards, on the one hand, and of guaranteeing the
fundamental fairness of the arbitral process, on the other hand’. The third generation of
decisions were issued in the early 2000s, which evidenced a more balanced approach to the
annulment application by rejecting the ‘hair trigger’ standard as seen in Klockner I in favour
of a ‘material violation’ approach. In Wena v Egypt9, the Committee stated that, both in the
context of an alleged serious departure from a fundamental rule of procedure and failure to
state reasons, annulment requires that such violation must be capable of taking the Tribunal
to a result different from the one they reached. In Vivendi v Argentina10, the Committee
stated that it ‘must guard against the annulment of awards for trivial cause’. Regarding an
annullable error, it found it necessary ‘to consider the significance of the error relative to the
legal rights of the parties’. Like in Wena, it also found that ‘the failure to exercise a
jurisdiction’ must be ‘clearly capable of making a difference to the result that it can be
considered a manifest excess of power’. Schreuer commented that the tribunal’s decision not
to decide had a devastating effect on the investor’s protection, in which the non-annulment of
the award would ‘probably have spilled over to a large number of similar cases’11.
Is annulment a discretionary remedy?
Article 52(3) of ICSID Convention states that the ad hoc Committee ‘shall have the authority
to annul the award or any part thereof’. However, it does not clarify whether they are obliged
to annul or have discretion not to annul it even if one of the conditions of annulment under
Article 52(1) is met. Following Klöckner v Cameroon12 and other ad hoc Committee
decisions, the discretionary standard was accepted over time. In that case, they held that,
except in exceptional circumstances, annulment would have to be automatic. ‘Save under
exceptional circumstances, which in any case are not present here, the Committee is inclined
to consider that the finding that there is one of the grounds for annulment in Article 52(1)
must in principle lead to total or partial annulment of the award, without the Committee
having any discretion, the parties to the Washington Convention and the parties to an
arbitration under the ICSID system having an absolute right to compliance with the
Convention’s provisions, and in particular with the provisions of Article 52’. Whereas in
MINE v Guinea13, the Committee took the opposite view. ‘The Convention does not require
automatic exercise of that authority to annul an award whenever a timely application for its
annulment has been made and the applicant has established one of the grounds for annulment.
Nor does the Committee consider that the language of Article 52(3) implies such automatic
exercise.’ ‘An ad hoc Committee retains a measure of discretion in ruling on applications for
annulment. To be sure, its discretion is not unlimited and should not be exercised to the point
of defeating the object and purpose of the remedy of annulment. It may, however, refuse to
exercise its authority to annul an award where annulment is clearly not required to remedy
procedural injustice and annulment would unjustifiably erode the binding force and finality of
ICSID awards.’ This was reiterated in Amco v Indonesia14 as they ruled ‘The authority
provided by Article 52(3) to enable an Ad Hoc Committee to annul the Award or any part
9
Wena Hotels Limited v. Arab Republic of Egypt, Decision on application for annulment, Feb. 5, 2002, 41 ILM
933
10
Compania de Aguas del Aconquija SA and Vivendi Universal v Argentine Republic, Decision on application
for annulment, July 3, 2002, 41 ILM 1135
11
Christoph Schreuer (2004), ‘Three Generations of ICSID Annulment Proceedings’, in Emmanuel Gaillard and
Yas Banifatemi (eds.), Annulment of ICSID Awards (Juris 2004), page 20.
12
Klöckner v Cameroon, ICSID Case No. ARB/81/2, Decision on Annulment (3 May 1985)
13
MINE v Guinea, ICSID Case No. ARB/84/4, Decision of the Ad hoc Annulment Committee (19 December
1989)
, thereof does not imply its automatic exercise whenever and wherever one of the Parties has
established one of the grounds for annulment. An Ad Hoc Committee retains a measure of
discretion in its ruling on applications for annulment. This is clearly implied in the
Convention through the use of terms such as “manifest”, “serious” and “fundamental”.’ Such
proposition has been adopted by several ad hoc Committee decisions15.
How has annulment developed over the years?
The power of annulment conferred upon ad hoc Committees by the ICSID Convention has
evolved over the years. In the last decade, some annulment decisions became the subject of
renewed criticism due to ‘an unprecedented level of activism in reviewing ICSID awards’. In
part, this is due to the inflationary nature of requests for annulment. Requesting parties
typically use three of the annulment grounds under Article 52(1) to attack an award,
including manifest excess of powers, serious departure from a fundamental rule of procedure
and failure to state reasons16. Ad hoc committees have tried to cope with this nature of
requests in different ways. In Fraport v Philippines17, Tribunal’s decision was annulled, but
the Philippines wrote to the ICSID Administrative Council pointing out ‘a systemic problem
of ICSID ad hoc committees failing to adhere to the mandate established in Article 52 of the
ICSID Convention’. They requested the Council to ‘issue guidelines regarding the remedy of
annulment, as a necessary measure to ensure the implementation of Article 52 of the ICSID
Convention in accordance with its provisions’. Thus, ICSID Secretary-General asked ICSID
Secretariat to prepare a background paper on annulment for consideration by the Council,
which was released in August 201218 and updated in May 201619. However, no specific
guidelines have yet been issued. Yet the statistics presented on both detailed reports prepared
by the ICSID Secretariat do not show an argument that the ad hoc Committees have been
overly interventionist. There has been an increase in the number of annulment cases filed
each year but there has also been an increase in the annual ICSID cases commenced each
year. Therefore, the increase in annulment applications is not surprising. Nonetheless,
subsequent ad hoc Committees have conformed to the Philippines’ request. But in Sempra20,
they ruled that ‘it is unnecessary to consider’ such grounds where there is one instance that
warrants annulment entirely, which has the benefit of economy but will increase the pressure
towards annulment. In contrast, in Enron21 and Vivendi II22, the Committees got so
overwhelmed by the multitude of arguments that they lost track of such grounds, which
became entirely secondary.
Whereas in large measure, this is due to an extensive interpretation of the annulment
grounds. For example, failure to apply the proper law may generally consist of excess of
14
Amco v Indonesia, ICSID Case No. ARB/81/1, Decision on the Applications for Annulment of the 1990
Award and the 1990 Supplemental Award (17 December 1992)
15
Wena Hotels v Egypt, ICSID Case No. ARB/98/4, Decision on Annulment (5 February 2002); Vivendi v
Argentina, ICSID Case No. ARB/97/3, Decision on Annulment (3 July 2002); CDC v Seychelles, ICSID Case
No. ARB/02/14, Decision on Annulment (29 June 2005); Mitchell v DR Congo, ICSID Case No. ARB/99/7,
Decision on Annulment (1 November 2006); Soufraki v UAE, ICSID Case No. ARB/02/7, Decision on
Annulment (5 June 2007)
16
Helnan v. Egypt, Decision on Annulment, 14 June 2010, para. 8; Rumeli v. Kazakh- stan, Decision on
Annulment, 25 March 2010, para. 3.
17
Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No.
ARB/03/25
18
ICSID (2012), ‘Background Paper on Annulment For the Administrative Council of ICSID'
19
ICSID (2016), ‘Updated Background Paper on Annulment for the Administrative Council of ICSID’
20
Sempra v. Argentina, Decision on Annulment, 29 June 2010
21
Enron v. Argentina, Decision on Annulment, 30 July 2010
22
Vivendi II v. Argentina, Decision on Annulment, 10 August 2010,
