Investment Arbitration Reporter

By Luke Eric Peterson

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The Secretariat of the International Centre for Settlement of Investment Disputes (ICSID) will prepare a background paper on the workings of the ICSID annulment process, as a first step in meeting demands made by the Republic of the Philippines to the Centre’s governing body.

As previously reported by IAReporter, the Philippines took the unusual step of raising criticisms of the annulment process at a recent meeting of the ICSID’s Administrative Council.*

The Philippines had called for the creation of a task force of legal experts to analyze and prepare a report on the implementation of the ICSID annulment mechanism, and to propose possible improvements or “guidelines”.

Although the Philippines delegation spoke briefly at the recent annual meeting of the Administrative Council, the government’s proposal was not put to a vote. Instead, the initial outcome of the Administrative Council meeting has been a move by the ICSID Secretariat to prepare a “background paper” on the annulment process. This paper will be presented to the members of the ICSID’s Administrative Council at a future date.

ICSID Secretary-General Meg Kinnear, tells IAReporter that any further steps remain up in the air:

“Once members have had the opportunity to reflect on that paper and to consult with relevant officials in their home jurisdiction, it will be for members to determine what next steps, if any, are appropriate.”

German investor weighs in on Philippines’ criticism of annulment process

While the Philippines has framed its proposals to the ICSID Administrative Council as a broader set of concerns about the overall working of the annulment system – and the recent spate of awards that have been overturned - these criticisms have caught the eye of a German corporation that has been locked in a long-running dispute with the Philippines government at ICSID.

According to Michael Nolan of Milbank Tweed, arbitration counsel to Fraport AG, the proposal to the Administrative Council is “improper” in light of the ongoing arbitration between Fraport and the Philippines. Nolan says that counsel for the Philippines has made clear that it intends to challenge the implications of an annulment decision from December 2010 in the new arbitration that Fraport filed in March.

Thus, Nolan argues that the proper forum for discussing the annulment ruling is the ongoing arbitration proceeding, and he questions the propriety of the Philippines using its role as a member of the ICSID Administrative Council to raise its concerns about the annulment system at a time when the arbitration is pending.

“(T)he Philippines should not use its position on the Administrative Council to try to advance its position as a party to an ongoing arbitration,” he noted in comments to IAReporter.

Nolan also characterizes the Philippines’ proposal to the ICSID Administrative Council as part of a broader campaign – including public remarks and writing by legal counsel and experts - to “discredit the 2010 annulment decision”.

Nolan adds that “there is a danger for the larger investor-state arbitration enterprise if the discussion on annulment is hijacked by those who have suffered a disappointment in an annulment proceeding. The potential for the discussion to become distorted is especially great when the state party that has suffered a loss on annulment is a party to ongoing arbitral proceedings at the same time that it is petitioning the Administrative Council.”

Counsel for the Philippines declined to comment on the criticisms voiced by Fraport.

State responses to unfavourable arbitration developments vary

More generally, the tensions over the Philippines’s proposal are reminiscent of other situations where host governments have responded to unfavourable arbitration developments with policy (or, in some cases) legal responses.

As we’ve reported recently, the Republic of Ecuador has initiated a state-to-state arbitration against the United States, in an effort to force discussion of the proper interpretation of a treaty clause that figured prominently in a recent arbitration claim against Ecuador.**

More frequently, state-parties to certain investment treaties have discussed whether a joint interpretive statement might be an appropriate response in the face of unusual or far-reaching interpretations given to a particular treaty obligation in the context of investor-state arbitration proceedings. Indeed, we’ve reported on one variant of this process which manifested itself in a recent domestic court challenge to a NAFTA Chapter 11 arbitral award.***

* Our recent reporting on the Philippines’ proposal to the Administrative Council appears here: http://www.iareporter.com/articles/20110920_2 ** Our latest reporting on the Ecuador case is here: http://www.iareporter.com/articles/20110905 *** Our reporting on the intervention by the NAFTA state-parties in a recent court proceeding is here: http://www.iareporter.com/articles/20111005

Investment Arbitration Reporter is a specialized news publication tracking developments in the area of international investment law and policy.

The publication does not offer legal or financial advice or recommendations of any kind.
 
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