Originally from Investment Treaty Arbitration and International Law - Volume 3

I. INTRODUCTION: IS INVESTMENT ARBITRATION BROKEN?

In the last ten years, the number of investment arbitrations has increased significantly. This trend suggests that investment arbitration is, overall, alive and well. However, recent threats to withdraw from the ICSID Convention and bilateral investment treaties (“BITs”) indicate that ICSID arbitration is not fully meeting the needs of all participants in the arbitral process. According to some opinion makers in several Latin American States, a “pro-investor bias” in ICSID arbitration has undermined the legitimacy of the ICSID framework as a whole. For those countries threatening withdrawal from ICISD, investment arbitration thus might be deemed to be “broken.”

In legal circles, the effectiveness of international arbitration is often measured in terms of the enforceability of final arbitral awards. However, for users of international arbitration, i.e. the parties to disputes, the effectiveness and hence the legitimacy of the arbitral process also derives from the ability of non-prevailing parties to prevent recognition and enforcement of flawed awards. Indeed, in connection with its 2007 withdrawal from ICSID, Bolivia stated that “one of the arguments against ICSID” is the lack of an appellate mechanism. It thus would appear that Bolivia (and perhaps other Latin American States as well) perceives the existing ICSID annulment mechanism to be ineffective in preventing recognition and enforcement of allegedly flawed awards.

The following contribution inquires whether confidence in ICSID arbitration could be strengthened by less far-reaching means than creating an appellate mechanism that would significantly alter the dynamics of the entire ICSID arbitration process. One means could be to introduce additional grounds for annulment pursuant to Article 52(1) ICSID Convention. As will be shown below, since the current annulment mechanism already successfully fulfills its role in protecting the procedural integrity of ICSID arbitration, to meet the concerns about ICSID awards raised by Bolivia and other States, any additional grounds for annulment would need to address the merits of the awards. However, it remains an open question whether the international community would be willing to broaden the scope of ICSID annulment to allow for a review of ICSID awards on such grounds. Indeed, other measures might be more appropriate to increase confidence in the quality of ICSID awards.