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Евразийский юридический журнал

Основания для признания недействительными арбитражных решений согласно конвенции ИКСИД

Over the past few decades one of the essential trends in world economy has been the expanding of international investment.

This provides an opportunity for developing countries to get access to external financing, capital and expertise. On the other hand, foreign investors enter new markets, spread influence and get new possibilities for growth in comparison with competitors.

However, it also means the necessity to provide an effective mechanism for resolving potential dispute between investors and host states. The International Centre for Settlement of Investment Disputes (ICSID) is one of the acknowledged institutions in this area. ICSID was founded under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) — a treaty that entered force in 1966, and which today has been signed and ratified by 153 States.

According to the official statistics by31 December 2017, ICSID had registered 650 cases under the ICSID Convention and Additional Facility Rules The total number of registered cases more than doubled from 25 in 2010 to 53 in 2017. This result highlights the critical demand for professional dispute settlement between foreign investors and the state that hosts the investment.

One of the key aspects in the dispute resolution is the extraordinary grounds for the revision and annulment of the arbitral award.

According to the article 52 of the ICSID Convention there are five grounds for annulment of the award:

  • the Tribunal was not properly constituted;
  • the Tribunal has manifestly exceeded its powers;
  • there was corruption on the part of a member of the Tribunal;
  • there has been a serious departure from a fundamental rule of procedure; or
  • the award has failed to state the reasons on which it is based.

This article will focus on the grounds of corruption, departure from fundamental rule of procedure, exceeding tribunals' powers. They can be characterized as universal reasons for the invalidity of the arbitral awards.

Corruption on the part of a member of the tribunal. There is no clear definition of corruption in international law. A number of international treaties like the United Nations Convention against Corruption[6] identify the illegal nature of this phenomenon, however, they do not precise it. According to the signature and ratification status by 3 October 2017there are 140 signatories and 183 parties in the Convention.

Corruption can be described as "offences relating to the improper influencing of people in certain positions of trust" or as 'the act of doing something with an intent to give some advantage inconsistent with official duty and the rights of others".

One of the first definitions of this phenomenon was formulated in 1931 by J.J. Senturian who stated that "corruption is the misuse of public power for private profit". A similar approach is followed by the Transparency International which defines corruption as "the abuse of public or private office for personal gain".

A similar definition adopted by the World Bank describes corruption as "abuse of public power for private benefit".

Corruption can also be defined as the act of an official or fiduciary person who unlawfully and wrongfully uses his station or character to procure some benefit for himself or for another person, contrary to duty and the rights of others.

The reason for invalidity of a court decision based on corruption and fraud is fixed in various sources of international law.

Corruption by one of the arbitrators has long been acknowledged as a ground for annulment. As early as 1672, Samuel von Pufendorf maintained that in cases of manifest collusion between an arbitrator and one of the parties, the award should not be binding on the other party[14]. A few years later, Scotland's 1695 Articles of Regulation provided that one of the few reasons for which an arbitral award could be challenged was 'corruption, bribery, or falsehood, to be alleged against the Judges Arbitrators'. Moreover, several authors considered that corruption by an arbitrator should result in the annulment of the award.

Some of the first draft rules on international arbitral procedure included corruption as a ground for annulment as well. L'Institut de Droit International approved the 1875 Draft Rules for International Arbitral Procedure, which provided that an arbitration award was void in case of 'proved corruption' by one of the arbitrators. Most importantly, the International Law Commission Model Rules on Arbitral Procedure also included this ground for annulment (both the 1953 draft and the 1958 draft). Although the Model rules regulated the procedure of the interstate arbitration, they also contained the initial grounds for annulment of the arbitral awards, which were later transferred to the ICSID Convention. The Tribunal in the Sharjah/Dubai Boundary Case recognized the provisions of the ILC Model Rules on Arbitral Procedure as an international custom.

The ICSID Convention's travauxpreparatoires demonstrate that some representatives suggested that the word "bias" be included, either replacing "corruption" or as an addition, while others recommended that the term "corruption" be replaced with "misconduct". All of these proposals were, however, rejected. The final text of Article 52(1)(c) notes that ICSID awards may be annulled if "there was corruption on the part of a member of the Tribunal".

In International law, a broad understanding of corruption has developed, which include any facts of the use of power to achieve personal goals in contradiction with the basics of public policy. The formation of bias between the party's representative and the judge can also be qualified as a fact of corruption behavior in accordance with the general understanding of corruption. In accordance with the above provisions, the terms "bias", "corruption", "misconduct" are used in a similar context.

The current research has not revealed any cases related to the corruption in ICSID practice. However, there were some cases in interstate arbitration that are worth mentioning.

In the case of the United States and Venezuelan Commission of 1866a fact of fraud was established in the work of the tribunal. Under the convention between

  • J M Bell, Treatise on the Law of Arbitration in Scotland (Stanford, 1877), 34.
  • See E de Vattel, The Law of Nations (edited by J Chitty) (Cambridge, 1834), 277-8 (stating ‘before they can pretend to evade such a sentence, they should prove, by incontestable facts, that it was the offspring of corruption or flagrant partiality’); J C Bluntschli, Das ModerneVolker- recht der Civilisirten Staten, Als Rechtbuch Dargestellt (1868), § 495, at 289; P Fiore, Le Droit International Codifie (Paris: Pedone, 1911), 619-20; and W E Hall, A Treatise on International Law (8th edn, Ox­ford: Clarendon Press, 1924), 420; A Balasko, Causes de Nullite de la Sentence Arbitrale en Droit International Public (Paris: Pedone, 1938), 7-19 and 118-19 (distinguishing between judexsuspectus and corrup­tion). See W M Reisman, Nullity and Revision (New Haven: Yale Uni­versity Press, 1971), 493-508.
  • See Institute de Droit International, The Hague Session, 1875, Projet de reglement pour la procedure arbitrale internationale, Article 27.
  • See Report of the International Law Commission Covering the Work of its Fifth Session, Jun 1-Aug 14, 1953, Official Records of the General Assembly, Eighth Session, Doc A/CN.4/76, 237.
  • Dubai-Sharjah Border Arbitration, Award, 19 October 1981, (1981) 91 International Law Reports 543.
  • See History of the ICSID Convention, Vol II, 271.
  • See History of the ICSID Convention, Vol II, 271.

the United States and Venezuela of April 25,1866, a joint commission passed on forty-nine claims against Venezuela of the nominal amount of $ 4,823,273.31. The charges against the Commission were based on the fact thatan umpire was selected in violation of established procedures, there was a collusion between the United States commissioner, the United States minister at Caracas, and his brother-in-law. The brother-in-law, who acted as the representative of the United States in the work of the commission, received as a result of this collusion a significant amount of attorney's fees. These funds were then distributed between the United States carer, his brother-in -law, and the umpire.

Thereupon the committee on foreign affairs of the house of representatives of the USA made a report stating that the former commission "was a conspiracy; its proceedings were tainted with fraud; that fraud affects its entire proceedings;" that its decisions were a nullity and that a new commission be appointed to pass de novo on the claims[18]. Accordingly a joint resolution to that effect was passed in March, 1883.

Serious departure from a fundamental rule a procedure. One of the possible variations of this ground for annulment of the arbitral award is violation of independence and impartiality of the tribunal.

The well-known statement by Lord Hewart CJ in the English case R v Sussex Justices, ex parte McCarthysaysthat" justice should not only be done, but should manifestly and undoubtedly be seen to be done".

The requirement for the administration of justice by an independent and impartial court is universally recognized in international law.

According to article 10 of the UNCITRAL Model Law on International Commercial Arbitration there are grounds for challenge of arbitrators such as "circumstances exist that give rise to justifiable doubts as to his impartiality or independence".

Article 7 (3) of the ICC Rules notes "An arbitrator shall immediately disclose in writing to the Secretariat and to the parties any facts or circumstances of a similar nature which may arise during the arbitration".

Independence can be defined as "the absence of any connection, financial or otherwise, with a party to the proceedings". Impartiality suggests "the absence of prejudice or bias".

In accordance with provisions of Resolution of the ILA on Public Policy as a Bar to Enforcement of International Arbitral Awards 2002 the requirement of impartiality of tribunals is a procedural fundamental principle and an example of procedural public policy.

According to the definition provided by the European Court of Human Rights in a recent case:

"In order to establish whether a tribunal can be considered as 'independent', regard must be had, inter alia, to the manner of appointment of its members and their term of office, the existence of guarantees against outside pressures and the question whether the body presents an appearance of independence ... . As to the question of 'impartiality', there are two aspects to this requirement. First, the tribunal must be subjectively free of personal prejudice or bias. Secondly, it must also be impartial from an objective viewpoint, that is, it must offer sufficient guarantees to exclude any legitimate doubt in this respect.".

The Bangalore Principles of Judicial Conduct (article 4.6) say that a judge shall disqualify himself or herself in any proceedings in which there might be a reasonable perception of a lack of impartiality of the judge including, but not limited to, instances where: the judge has actual bias or prejudice concerning a party or personal knowledge of disputed evidentiary facts concerning the proceedings.

The same provisions are in the IBA Guidelines on Conflicts of Interest in International Arbitration:

"(1) General Principle Every arbitrator shall be impartial and independent of the parties at the time of accepting an appointment to serve and shall remain so until the final award has been rendered or the proceedings have otherwise finally terminated.

(7) Duty of the Parties and the Arbitrator

(a) A party shall inform an arbitrator, the Arbitral Tribunal, the other parties and the arbitration institution or other appointing authority (if any) of any relationship, direct or indirect, between the arbitrator and the party".

According to the position of the K. S. Carlston"the legal effect of such a failure is not to be judged upon the purely abstract basis of whether it constitutes a departure from the terms of submission. The question is rather: does the departure constitute a deprivation of a fundamental right so as to cause the arbitration and the resulting award to lose its judicial character? Unless its effect is to prejudice materially the interests of a party, the charge of nullity should not to be open to a party".

In every case of doubts in impartiality or independence of the tribunal, it is necessary to understand how such violations can lead to an invalid award. In ICSID practice there is no single approach to define violation of independence and impartiality.

For example, in Amco Asia Corp v Indonesia, the challenged arbitrator had given tax advice to the individual who controlled the claimants in the arbitration. In addition, the arbitrator's law firm and claimants' counsel in the arbitration had a profit-sharing arrangement and a joint office. However, the two arbitrators agreed that a party- appointed arbitrator inevitably may have some degree of acquaintance with the party in question, and noted that the arbitrator in such cases cannot be disqualified simply on the basis of that acquaintance unless there is a 'manifest' or 'highly probable' lack of impartiality, something which did not exist in the particular case.

The ICSID case, Comparna de Aguasdel Aconquija SA & Vivendi Universal v Argentine Republic. The question was about legal work carried out by a partner of the president's law firm for Vivendi's predecessor, Compagnie Generale des Eaux, which affected the president's ability to exercise independent judgment. In these circumstances, the committee members held that the President's independence could not be regarded as being impaired. As they stated: "[T]he mere existence of some professional relationship with a party is not an automatic basis for disqualification of an arbitrator or Committee member. All the circumstances need to be considered in order to determine whether the relationship is significant enough to justify entertaining reasonable doubts as to the capacity of the arbitrator or member to render a decision freely and independently".

The ICSID arbitration case GAMI v United Mexican States say that the claimant had failed to show what it asserted, for example, that there was 'a clear relationship of dependency' between the arbitrator and counsel for the respondent. In the absence of such showing, the challenge could not be sustained because the facts of the case did not show that a 'real risk' existed that the challenged arbitrator could not be relied upon to act with independence and impartiality.

Precedents also exist with regard to situations where arbi­trators disclosed facts casting doubt on their independence and impartiality which arose after their appointment. In Holiday Inns v Morocco, for example, the arbitrator appointed by the claim­ants revealed that in the course of the arbitration he had become a director of the claimants and subsequently resigned pursuant to Article 56(3) of the ICSID Convention.

The exceeding of the tribunals powers. TheNew York Convention 1958 - Convention on the Recognition and Enforcement of Foreign Arbitral Awards[26] and the UNCITRAL Model Law on International Commercial Arbitration (art.16) also emphasize that the arbitral award can be annulled if the tribunal exceeds its power. "Arbitral jurisdiction is limited to the consent of the parties, and this consent provides the sole basis for the exercise by the tribunal of its powers of decision"[28]. Proceeding from this statement, it can be concluded that if the subject of the dispute stays out of the agreement, the dispute is beyond the jurisdiction of the court, and as a consequence, the tribunal will not have a basis for implementation of its powers. The Soufrakicommittee stated that "there is an excess of power if the tribunal: asserts its jurisdiction over a person or a State in regard to whom it does not have jurisdiction". ICSID practice shows that tribunal exceeded its power when it does not exercise its jurisdiction, and also when its decision goes beyond its jurisdiction.

Overall, modern trends in investment emphasize the necessity for effective dispute resolution settlement in the area of investment. The ICSID is one of the world leaders in the field of investment arbitration. However, one of the key aspects in arbitration is grounds for annulment of arbitral awards. There is no single tribunals practice about invalidity of ICSID decisions especially about the departure from fundamental rules of procedure. It can be explained by variety of possible conflict situations and number of approaches for legal qualifications of the grounds for annulment. In every particular situation parties should analyze carefully factual circumstances in order to predict possible negative consequences.

ГУСЕВ Дмитрий Олегович
студент Российского государственного университета правосудия (РГУП) (Приволжский филиал)

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