Scope of Domestic Review of Investment Awards

1. Scope of Domestic Review of Investment Awards Investment Treaty Forum, 9 May 2008 Anthony Wilson King & Spalding International LLP 130431v1

2. Introduction • Availability of recourse to domestic courts for review of investment arbitration awards depends on the applicable rules of arbitration. • Domestic court review of investment awards is limited to non - ICSID awards. • ICSID awards are not subject to review of domestic courts: Article 53(1) of the ICSID Convention “The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention.”

3. Introductioncont’d • Limited Grounds for Annulment of ICSID awards by ICSID itself under Article 52 (Annulment) of the Convention. • Note that arbitrations under the ICSID Additional Facility Rules do not benefit from the protection of Article 53 of the Convention and may therefore be subject to domestic court challenge - e.g. see Raymond Loewen -v- USA in the US District Court for the District of Columbia (2005). (Although Loewen’s challenge failed.) (The ICSID Additional Facility Rules may be applied in disputes between states and foreign nationals where either the state or the country to which the foreign national belongs is not party to the ICSID Convention.)

4. Introductioncont’d • Investment disputes subject to UNCITRAL and other non-ICSID arbitration rules (e.g. ICC Arbitration Rules; Arbitration Rules of the Stockholm Chamber of Commerce) are subject to court review in the seat of arbitration under domestic arbitration statutes. • Grounds for review / setting aside may include lack of due process or excess of jurisdiction by arbitrators (see Article 34 of the UNCITRAL Model Law) but vary depending on the applicable domestic arbitration statute.

5. Introductioncont’d • Although still rare, the number of domestic court challenges to non-ICSID investment arbitrations appears to be increasing. • Most domestic court challenges to date have been unsuccessful.

6. England -Grounds for Challenging an Award Arbitration Act 1996 - ss. 67 & 68 67. (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court - (a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or (b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction. ……… 68. - (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.

7. Republic of Ecuador v Occidental Exploration & Production Co (No 1) 2005 (CA) • Held, that the English courts have jurisdiction to hear a challenge to a BIT arbitration award under s.67 of the Arbitration Act. • Court entitled to interpret the provisions of a BIT. • Although the arbitration arose out of a treaty, the issue did not concern state rights and was therefore not ‘non-justiciable’.

8. Republic of Ecuador v Occidental Exploration & Production Co (No 2) 2006 “It is now well-established that a challenge to the jurisdiction of an arbitration panel under section 67 proceeds by way of a re-hearing of the matters before the arbitrators. The test for the court is: was the tribunal correct in its decision on jurisdiction? The test is not: was the tribunal entitled to reach the decision that it did.”

9. Czech Republic v. European Media Ventures SA 2007 • UNCITRAL Arbitration Award - challenge under s. 67 of the Arbitration Act 1996 on the grounds that the arbitral tribunal lacked substantive jurisdiction. • Czech Republic argued that Article 8 of the Czechoslovak - Belgian Luxembourg BIT did not confer jurisdiction on a tribunal to make an award of compensation (quantum) but only the amount of compensation (liability). High Court upheld the arbitral tribunal’s determination that Article 8 did confer jurisdiction to determine whether compensation should be awarded.

10. Sweden - Czech Republic v. CME, Svea Court of Appeal, May 15, 2003 (UNCITRAL Award) • Challenge under ss. 33 and 34 of the Swedish arbitration Act governing whether an award is invalid / should be set aside. • Arbitration brought pursuant to the Netherlands - Czechoslovak BIT. • Court heard the arbitrators • Ground 1: Czech-appointed arbitrator “excluded” from deliberations • Ground 2: (serious) misconduct of the arbitrators • Ground 3: (serious) mistake in appreciation of relevant law

11. Sweden - Czech Republic v. CME, Svea Court of Appeal, May 15, 2003 (UNCITRAL Award) cont’d • Ground 4: Litispendens/res judicata re: Lauder v. Czech Republic arbitration in London brought under the US - Czechoslovak BIT. (Lauder was the ultimate owner of CME) • Challenge rejected. On Ground 4 the Court held that there were fundamental differences between the London and Swedish proceedings - the arbitrations arose out of different treaties and concerned different parties.

12. Czech Republic v. Saluka, Swiss Federal Tribunal, Sept. 7, 2006 (UNCITRAL award) • Ground: arbitration agreement in BIT not applicable ratione temporis as purported treaty breach took place prior to the investment • Challenge rejected

13. Russia v. Franz Sedelmayer, Judgments of the City Court of Stockholm and of the Svea Court of Appeal, December 18, 2002 and June 15, 2005 (UNCITRAL award) • Ground: no valid agreement to arbitrate as Sedelmayer not an ‘investor’ • As Sedelmayer claimed to be an ‘investor’ under the BIT, he was entitled to initiate arbitration under the BIT. No review by court of substantive determinations of arbitral tribunal • Court competent to hear the challenge as court of seat of arbitration, but challenge is rejected • Confirmed on appeal

14. Canada v. S.D. Myers, Federal Court of Canada, January 13, 2004 (NAFTA award) Canada argued for a ‘reasonable and pragmatic’ standard of review • “Courts restrain themselves from exercising judicial review with respect to international arbitration tribunals so as to be sensitive to the need of a system for predictability in the resolution of disputes and to preserve the autonomy of the arbitration forum selected by the parties” • duty to object to an arbitral tribunal’s jurisdiction at an early stage of the proceedings • Challenge rejected

15. Mexico -v- Metalclad corporation; Supreme Court of British Columbia (2001) • Arose out of controversial NAFTA case under the ICSID Additional Facility arbitration rules Metalclad -v- Mexico. The seat of the arbitration was Vancouver, BC. • Mexico sought to have the entire award set aside on the ground that the Tribunal exceeded its jurisdiction in finding that a breach of NAFTA’s transparency provisions constituted a breach of NAFTA Article 1105’s fair and equitable treatment provisions. • Mexico’s challenge partially upheld by the BC Court - arbitral tribunal was held to have exceeded its jurisdiction.

16. Conclusion • Should the increasing number of domestic court challenges to non-ICSID investment arbitration awards deter parties from opting for non-ICSID arbitration - assuming they have the choice?