No Matter how Egregious: Manifest Excess of Power and Misapplication of the Law under the ICSID Convention

Under Article 52 (1) (b) of ICSID Convention, a party may request annulment of the award, inter alia, when “the Tribunal has manifestly exceeded its powers”. To date, more than half of the rendered ICSID awards have gone through annulment proceedings 1, with manifest excess of power being invoked in the 90 percent of all the completed proceedings 2. As annulment jurisdiction should not be conflated with appellate jurisdiction, which is clearly excluded from the ICSID system, annulment for excess of power is not intended to allow review for misapplication of the law, “no matter how egregious” 3. The scope of annulment based on manifest excess of powers is normally confined to circumstances in which either the tribunal failed to exercise jurisdiction, or did exercise it with no jurisdictional basis, or when it omitted to apply the proper law 4. The latter situation must be distinguished from the ones where errors have been committed in the application or interpretation of the proper law. Annulment jurisdiction is not aimed at addressing substantive issues of the award. It is aimed at verifying whether serious procedural errors were committed within the arbitral process 5. Erroneous application or interpretation of the applicable law cannot therefore be admitted as a cause for annulment. Otherwise, the ad hoc committee would be acting as a de facto appeal organ. Yet, while the dividing line between misapplication and non-application appears clear-cut on paper, the annulment case law has not always appeared consistent in drawing such line in practice 6. It has in fact been the case that serious forms of misapplication of the law – due for example to misinterpretation of certain provisions or of their mutual relationship – have been equalled with failure to apply the proper law, thereby being considered as a valid ground for annulment 7. When annulment claims are filed for alleged manifest excess of power, ad hoc committees often find themselves going down a “slippery slope” where formal aspects of the decision-making process end up dangerously close to the merits of the dispute 8. Against this backdrop, this contribution will examine if erroneous application of the proper law may be considered as a ground for annulment under Article 52 (2) (b) of the ICSID Convention. This chapter is organized in five parts. First, it will address the implications of the finality of the awards under the ICSID Convention, and the role assigned to the annulment mechanism. Second, the standard of “manifestness” of the excess under the ICSID Convention will be addressed, investigating how deep ad hoc committees are allowed to delve into the award to “spot” excess of power, and how serious the latter should be to justify annulment. The third and fourth parts will tackle “non-application” and “misapplication” of the law respectively, with the aim of clarifying the boundary between the two for the purpose of annulment jurisdiction. Finally, the paper will consider whether trespassing the strict limits of the annulment mechanism is compatible with the principle of finality of ICSID awards, and desirable in terms of legitimacy of the system. The argument will be made that the underlying need for an appellate process should be left to the current negotiations for the reform of investor-State arbitration, with the possible view of establishing a permanent adjudicative body. Having appeals disguised as requests for annulments risks jeopardizing the already creaky architecture of international investment arbitration.