The Appeal of Icsid Awards: How the Aminz Appellate Mechanism Can Guide Reform of Icsid Procedure

• Citation: Vol. 41 No. 2
• Publication year: 2013

THE APPEAL OF ICSID AWARDS: HOW THE AMINZ APPELLATE MECHANISM CAN GUIDE REFORM OF ICSID PROCEDURE

Christopher Smith^*

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TABLE OF CONTENTS

I. INTRODUCTION...............................................................................568

II. THE Icsid AND APPEAL OF ARBITRAL AWARDS...........................571

A. The ICSID: Past and Present...................................................571
B. The ICSID Annulment Mechanism...........................................572
C. Proposals for Reform of Review of Awards at the ICSID........575

III. INTERNATIONAL COMMERCIAL ARBITRATION...............................578

IV. The Arbitrators' and Mediators' Institute of New Zealand................................................................................579

V. Mapping the Aminz Arbitral Appellate Rules Onto The Icsid System................................................................................582

A. Confidentiality .......................................................................... 582
B. The Impact of the New Appellate Mechanism upon the Annulment Process...................................................................584
C. Issues Subject to Appeal ........................................................... 587
D. Structuring the New Appellate Mechanism..............................589
E. Appellate Procedure at the ICSID............................................591

VI. Conclusion...................................................................................592

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I. Introduction

The use of international arbitration as an alternative to litigation in national courts has increased rapidly over the past three decades.¹ This has occurred in part because of the recent precipitate growth in foreign direct investment.² As a dispute resolution mechanism based on mutual consent, international arbitration must be attractive to both governmental and private parties in order to provide an advantage over other methods of dispute resolution, thereby encouraging parties to arbitrate their disputes.

The advantages of international arbitration generally include quicker resolution of disputes, lower costs than traditional litigation, avoidance of potential "home field" bias for one of the parties, and confidentiality, among many others.³ Allowing parties to settle their disputes in a manner predetermined by contract is undoubtedly a positive development in a rapidly globalizing world, especially when it results in increased certainty in the dispute resolution process for all of the parties involved. While this process is ideal, international arbitration suffers from a few serious problems that, if not addressed, will hinder its future prospects as an efficient method of dispute resolution.

In the process of seeking rapid finality, developments specific to international investment arbitration have created two primary problems that produce uncertainty. The first problem is the almost universal lack of a genuine appellate process that would allow parties to appeal awards resulting from the faulty legal reasoning of tribunals.⁴ Consequently, errant legal rulings made by arbitrators are not subject to any meaningful form of judicial review.⁵ Second, the lack of clear precedent creates additional uncertainty, exacerbated by the problem that some arbitral agreements seem to be intentionally drafted to avoid settled domestic law on certain contractual

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issues.⁶ While this latter problem is of greater concern in the commercial and employment contexts,⁷ it does raise an important point about international investment arbitration, namely, the role of precedent.

The lack of both appellate review and clear precedent creates uncertainty in international investment arbitration. The former creates problems for the parties involved in any specific dispute and the latter for the legal regime as a whole. The importance of foreign direct investment to the global economy cannot be underestimated, and in order to assure its continued role in the international economy, these issues must be confronted.⁸ This Note will address the importance of establishing a system of appellate review in international investment arbitration, particularly at the International Centre for Settlement of Investment Disputes (ICSID), which is the leading international arbitration institution for the settlement of investor-state disputes.⁹ The ICSID currently uses an annulment mechanism in lieu of providing an appellate option.¹⁰ This annulment procedure has arguably increased uncertainty in international investment arbitration.¹¹

Over the past few years, research on international investment arbitration has developed considerably, particularly with regard to the ICSID.¹² The topics addressed have included the annulment mechanism at the ICSID, the role of precedent in investment arbitration, and the problem of uncertainty in the field. This body of research provides a foundation upon which this Note seeks to build by considering a recent development in commercial arbitration.

In order to improve understanding of the method by which an appellate mechanism might work, this Note will consider an existing arbitral appellate mechanism at a commercial arbitration organization as a template for an appellate procedure at the ICSID. In contrast to an analysis of the appellate

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mechanism previously considered by the ICSID in 2004,¹³ using an arbitral appellate procedure that is already in existence will provide a more direct insight into how an ICSID appellate mechanism might look and how it would function best.

This Note will use the appeals rules for arbitration recently enacted at the Arbitrators' and Mediators' Institute of New Zealand, Inc. (AMINZ) as a starting point for analyzing an appellate framework at the ICSID. The appellate process at the AMINZ is only a few years old¹⁴ and while this Note will provide some insight into it, an independent study of this mechanism is beyond the scope of this analysis. Instead, the AMINZ appellate system will be used to shed light on possible reform of the process at the ICSID. Beyond providing a basic background of the AMINZ, it is only within the context of the ICSID procedure that the AMINZ will be evaluated, and any claims made herein should be taken in that light.

Using the AMINZ appellate rules as a framework for an ICSID appellate procedure will help not only to illustrate how to effectively implement such reforms, but will also assist in evaluating potential problems that such a mechanism might encounter and how to address those issues effectively. Because international commercial and investment arbitration vary to a degree in both their goals and procedures, using an actual appellate process as a framework illustrates the manner in which appeals of investor-state tribunal awards might vary from the commercial arbitration setting. It is the objective of this Note to provide such insight and to act as a basis for further research into the topic as the necessity for an appellate procedure at the ICSID is likely to grow in the coming years.

Critically, the appellate mechanism proposed in this Note will address the two major shortcomings of the current ICSID annulment procedure. First, it will remedy the genuine lack of an appellate process at the ICSID. With a new appellate mechanism, parties will be able to appeal awards based on legal grounds, thus remedying parties' concerns that an award will be issued against them that is not subject to appeal, regardless of how errant the tribunal's legal reasoning might have been. Second, the proposed mechanism will increase certainty in international investment law as the appellate tribunals establish a clearer body of precedent.¹⁵ By settling legal

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inconsistencies rendered by arbitral tribunals, parties will be able to make future decisions with a better understanding of the possible legal ramifications of their actions.

Part II presents background material on the ICSID. First, the organization's general characteristics are discussed. Second, an evaluation of the current annulment mechanism and its insufficiency in light of the current needs of international investment law are provided. Third, current proposals for reform of the ICSID's review procedure are presented, including the reasons such proposals fall short of accomplishing their intended goals.

Part III provides a general background of developments in international commercial arbitration, with particular attention given to procedures for appeal of awards. Part IV presents a closer look at the AMINZ, and the defining characteristics of its recently enacted appellate mechanism. Part V provides an analysis of how the AMINZ appellate mechanism could be successfully mapped onto the ICSID system. Key issues analyzed include the confidentiality of proceedings, the extent to which the new mechanism would replace the current annulment mechanism, the categories of issues that would be subject to appeal, the manner in which the appellate mechanism would structurally operate, and how the critical procedural rules would function. Lastly, Part VI concludes the Note.

II. THE ICSID AND APPEAL OF ARBITRAL AWARDS

A. The ICSID: Past and Present

The ICSID was created after the ICSID Convention, a multilateral treaty promulgated by the World Bank, entered into force in late 1966.¹⁶ The primary purpose for creating the ICSID was to facilitate the arbitration and conciliation of international investment disputes.¹⁷ Today, it accomplishes this in three ways.¹⁸ First, the ICSID Convention itself and the Regulations and Rules promulgated by the ICSID Administrative Council "provide[ ] the

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basic procedural framework for conciliation and arbitration of investment disputes arising between member countries and investors that qualify as nationals of other member countries."¹⁹ Second, the Additional Facility Rules adopted in 1978 "authoriz[e] the ICSID Secretariat to administer certain...