Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (Discussion Paper, 22 October 2004)

—— , ‘Suggested Changes to the ICSID Rules and Regulations’ (Working Paper, 12 May 2005)

Kaufmann-Kohler, G, ‘Annulment of ICSID Awards in Contract and Treaty Arbitrations: Are there Differences?’ in E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (New York, Juris Publishing, 2004)

—— , ‘In Search of Transparency and Consistency: ICSID Reform Proposal’, 2(5) TDM (2005)

Legum, B, ‘The Introduction of an Appellate Mechanism: The U.S. Trade Act of 2002’, in Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (New York, Juris Publishing, 2004)

Paulsson, J, ‘International Arbitration and the Generation of Legal Norms: Treaty Arbitration and International Law’, 3(5) TDM (2006)

end p.1205

Prime, T, and Scanlan, G, ‘Stare Decisis under Court of Appeal Judicial Confusion and Judicial Reform’, 23 Civil Justice Quarterly 212 (2004)

Reinisch, A, ‘Necessity in International Investment Arbitration—An Unnecessary Split of Opinions in Recent ICSID Cases? Comments on CMS v Argentina and LG&E v Argentina’, 3(5) TDM (2006)

Shahabuddeen, M, Precedent in the World Court (Cambridge, Cambridge University Press, 1996) Footnotes 39 See Bala?, ‘Review of Awards’, Ch 27 above. ?Parts of this chapter have previously appeared in C Schreuer, ‘Diversity and Harmonization of Treaty Interpretation in Investment Arbitration’, 3(2) TDM (2006) and in C MacLachlan, L Shore, and M Weiniger, International Investment Arbitration: Substantive Principles (Oxford, Oxford University Press, 2007). 1 See M L Shahabuddeen, Precedent in the World Court (Cambridge, Cambridge University Press, 1996). 2 J Hardisty, ‘Reflections on Stare Decisis’, 55 Ind LJ 41 (1980); see also T Prime and G Scanlon, ‘Stare Decisis under Court of Appeal Judicial Confusion and Judicial Reform’, Civil Justice Quarterly 212 (2004) at 215, where these English authors describe the doctrine of precedent ‘as a mechanism for promoting certainty and predictability in the law’. 3 R Bhala, ‘The Power of the Past: Towards De Jure Stare Decisis in WTO Adjudication’, 33 Geo Wash Int'l L Rev 873 (2001) at 941. 4 J Paulsson, ‘International Arbitration and the Generation of Legal Norms: Treaty Arbitration and International Law’, 3 TDM (September 2006), available at <http://transnational-dispute-management.com> (accessed 20 September 2006). 5 J Crawford, ‘The ILC's Articles on Responsibility of States for Internationally Wrongful Acts: A Retrospect’, 96 AJIL 874 (2002) at 886. 6 DM Price, ‘Chapter 11—Private Party v Government Investor-State Dispute Settlement: Frankenstein or Safety Valve?’, 26 Can-USLJ 107 (2000) at 111. 7North American Free Trade Agreement (adopted 17 December 1992, entered into force 1 January 1994) Can TS 1994 No. 2; (1993) 32 ILM 612 (NAFTA) Art 1136(1): ‘An award made by a Tribunal shall have no binding force except between the disputing parties and in respect of the particular case’. 8Amco v Indonesia , Decision on Annulment, 16 May 1986, 1 ICSID Reports 509. 9 Ibid at para 44; see also Amco v Indonesia , Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 395. 10LETCO v Liberia , Award, 31 March 1986, 2 ICSID Reports 346. 11 Ibid at 352. 12Feldman v Mexico , Award, 16 December 2002, 7 ICSID Reports 341. 13 Ibid at para 107. 14EnCana v Ecuador , Award, 3 February 2006, para 189; El Paso v Argentina , Decision on Jurisdiction, 27 April 2006, para 39; Suez v Argentina , Decision on Jurisdiction, 16 May 2006, paras 26, 31, 60–5; Jan de Nul & Dredging International v Egypt , Decision on Jurisdiction, 16 June 2006, paras 63, 64; Azurix v Argentina, Award, 14 July 2006, para 391; Pan American Energy v Argentina , Decision on Preliminary Objections, 27 July 2006, para 42; Grand River Enterprises Six Nations Ltd v United States , Decision on Jurisdiction, 20 July 2006, para 36; ADC v Hungary , Award, 2 October 2006, para 293; World Duty Free v Kenya , Award, 4 October 2006, para 16. 15Compa??a de Aguas del Aconquija, SA & Vivendi Universal (formerly Compagnie G?n?rale des Eaux) v Argentine Republic , Decision on Jurisdiction, 14 November 2005. 16 Ibid at para 94. 17Gas Natural SDG, SA v The Argentine Republic , ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Question on Jurisdiction, 17 June 2005 (footnote in original). 18Enron v Argentina , Decision on Jurisdiction, 14 January 2004. 19 Ibid at para 40. 20Enron v Argentina , Decision on Jurisdiction (Ancillary Claim), 2 August 2004 at para 25. 21AES Corp v Argentina , Decision on Jurisdiction, 26 April 2005 at paras 17–33. 22 Ibid at para 22. 23The MOX Plant Case ( Ireland v United Kingdom ) (Provisional Measure, Order of 3 December 2001) 126 ILR 260 (2005) at 273–4; Dispute Concerning Access to Information under Article 9 of the OSPAR Convention ( Ireland v United Kingdom ) 126 ILR 334 (2005). 24Art 53 of the ICSID Convention (footnote in original). 25SGS Soci?t? Gen?rale de Surveillance SA v Islamic Republic of Pakistan , ICSID Case No. ARB/01/13 and SGS Soci?t? Gen?rale de Surveillance SA v Republic of the Philippines , ICSID Case No. ARB/02/6 (footnote in original). 26AES v Argentina , Decision on Jurisdiction at paras 24–5. 27 Ibid at para 26. 28 Ibid at para 27. 29 Ibid at para 28. 30 Ibid at paras 30–1. 31 Ibid at paras 51–9, 70, 73, 86, 89, 95–7. 32Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan , Decision on Jurisdiction, 14 November 2005. 33 Ibid at para 76. 34Gas Natural SDG, SA v Argentina , Decision on Jurisdiction, 17 June 2005. 35 Ibid at paras 20–35. 36 Ibid at para 36. 37 Ibid at paras 37–51. 38 Ibid at para 52. 39SGS v Philippines , Decision on Jurisdiction, 29 January 2004. 40SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 383. 41SGS v Philippines , at para 97 (original footnotes omitted). 42 In addition to conflicting answers to similar questions in different cases, there is the occasional problem of conflicting outcomes of parallel proceedings concerning the same dispute. See especially Ronald S Lauder v The Czech Republic , Final Award, 3 September 2001, 9 ICSID Reports 66 and CME v The Czech Republic , Partial Award, 13 September 2001, 9 ICSID Reports 121. 43Salini Costruttori SpA et Italstrade SpA c/Royaume du Maroc , Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002), 6 ICSID Reports 400, para 61; Compa??a de Aguas del Aconquija, SA & Vivendi Universal (formerly Compagnie G?n?rale des Eaux) v Argentine Republic , Decision on Annulment, 3 July 2002, 6 ICSID Reports 340, para 55; SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 383, para 55; SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518, paras 131–5. 44SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 383 at paras 163–73; SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518, paras 125, 128; Joy Mining v Egypt , Award, 6 August 2004, para 81; CMS v Argentina , Award, 12 May 2005, paras 296–303; Eureko v Poland , Partial Award, 19 August 2005, paras 244–60; Noble Ventures v Romania , Award, 12 October 2005, paras 42–62; El Paso v Argentina , Decision on Jurisdiction, 27 April 2006, paras 66–86; Pan American Energy v Argentina , Decision on Preliminary Objections, 27 July 2006, paras 92–115. 45Ethyl Corp v Canada , Decision on Jurisdiction, 24 June 1998, Decision on Jurisdiction, 7 ICSID Reports 12 at paras 76–88 and in Ronald S Lauder v The Czech Republic , Final Award, 3 September 2001; Wena Hotels v Egypt , Decision on Jurisdiction, 29 June 1999, 6 ICSID Reports 74, at para 87; SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 383, at para 184. 46Enron Corp and Ponderosa Assets, LP v Argentina , Decision on Jurisdiction, 14 January 2004, at para 88. See also A Goetz v Burundi , Award, 10 February 1999, 6 ICSID Reports 5, at paras 90–3. 47Maffezini v Spain , Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 396, at paras 38–64; Siemens v Argentina , Decision on Jurisdiction, 3 August 2004, at paras 32–110; Salini v Jordan , Decision on Jurisdiction, 29 November 2004, at paras 115, 119; Plama v Bulgaria , Decision on Jurisdiction, 8 February 2005, at paras 216–26; Gas Natural v Argentina , Decision on Jurisdiction, 17 June 2005, at paras 24–31, 41–9. 48Suez, Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA v Argentina , Decision on Jurisdiction, 3 August 2006. 49 Ibid at para 65. 50 Ibid at paras 65 and 66. 51 Ibid at para 99. 52Art 25 of the International Law Commission's Articles on State Responsibility. See J Crawford, The International Law Commission's Articles on State Responsibility (Cambridge, Cambridge University Press, 2002) at 178 ff. 53CMS Gas Transmission Company v Argentina , Award, 12 May 2005, 44 ILM 1205 (2005). 54LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v The Argentine Republic , Decision on Liability, 3 October 2006. 55 For an incisive analysis of the differences between the two cases see A Reinisch, ‘Necessity in International Investment Arbitration—An Unnecessary Split of Opinions in Recent ICSID Cases? Comments on CMS v Argentinaand LG&E v Argentina’, 3(5) TDM (December 2006). 56CME v The Czech Republic , Final Award, 14 March 2003, 9 ICSID Reports 264. 57 Ibid at paras 87–93. 58 Ibid at paras 437, 504. 59Aguas del Tunari v Bolivia , Decision on Jurisdiction, 21 October 2005. 60 Ibid at paras 249–57. 61 Ibid at paras 47, 258–9. 62 Ibid at paras 260–3. 63 Ibid at para 262. 64SGS v Pakistan , Decision on Jurisdiction, 6 August 2003. 65 See SA Alexandrov, ‘Breaches of Contract and Breaches of Treaty’, 5 JWIT 555 (2004) at 570–1; E Gaillard, ‘Investment Treaty Arbitration and Jurisdiction over Contract Claims—The SGS Cases considered’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005) at 325, 341–2. 66NAFTA Art 2001(1): ‘The Parties hereby establish the Free Trade Commission, comprising cabinet-level representatives of the Parties or their designees’. NAFTA Art 1131(2): ‘An interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal established under this Section’. 67 FTC Note of Interpretation of 31 July 2001. 68 See Mondev International Ltd v United States of America , Award, 11 October 2002, 6 ICSID Reports 192, at paras 100 ff; United Parcel Service of America, Inc v Canada , Award, 22 November 2002, 7 ICSID Reports 288 at para 97; ADF Group, Inc v United States of America , Award, 9 January 2003, 6 ICSID Reports 470, at paras 175–8; Loewen Group, Inc. and Raymond L Loewen v United States of America , Award, 26 June 2003, 7 ICSID Reports 442, at paras 124–8; Waste Management, Inc v United Mexican States , Award, 30 April 2004, at paras 90–1. See also United Mexican States v Metalclad Corp , Judgment, Supreme Court of British Columbia, 2 May 2001, 5 ICSID Reports 236, at paras 61–65. 69Methanex v United States , Award, 3 August 2005. 70 Ibid, part II, ch H, at para 23. 71 Generally see B Legum, ‘The Introduction of an Appellate Mechanism: The U.S. Trade Act of 2002’, in E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (New York, Juris Publishing, 2004) at 289 ff. 72 See Uruguay-US BIT, 25 October 2004, Annex E, 44 ILM 268 (2005) at 296. 73Central America-Dominican Republic Free Trade Agreement, 5 August 2004, Art 10.20(10). 74Singapore-US FTA, 1 January 2004, Art 15.19(10). 75Chile-US FTA, 1 January 2004. 76 Ibid, Art 10.19(10). 77ICSID Secretariat, ‘Possible Improvements of the Framework for ICSID Arbitration’ (Discussion Paper, 22 October 2004). 78ICSID Secretariat, ‘Suggested Changes to the ICSID Rules and Regulations’ (Working Paper, 12 May 2005). 79 For a fuller discussion, see Qureshi, ‘An Appellate System in International Investment Arbitration?’ ch 28 above. 80 The idea has been put forward before: see G Kaufmann-Kohler, ‘Annulment of ICSID Awards in Contract and Treaty Arbitrations: Are there Differences?’ in Gaillard and Banifatemi, above n 72. See also G Kaufmann-Kohler, ‘In Search of Transparency and Consistency: ICSID Reform Proposal’, 2(5) TDM (2005) at 8. 81Treaty Establishing the European Community, Article 234:

The Court of Justice shall have jurisdiction to give preliminary rulings concerning:

(a) the interpretation of this Treaty;

(b) the validity and interpretation of acts of the institutions of the Community and of the ECB;

(c) the interpretation of the statutes of bodies established by an act of the Council, where those statutes so provide.

Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court of Justice to give a ruling thereon.

Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court of Justice. 0 Authors: Giuditta Cordero Moss Keywords: Arbitral rules & institutions – Evidence – Conduct of proceedings – Claims This chapter analyses the relationship between the tribunal's initiative and the arguments made by the parties. It considers the extent to which a tribunal may or shall integrate or develop arguments that should have been made by the parties, both in respect of questions of fact and in respect of questions of law. It argues that the tribunal is bound in respect of its jurisdiction and of the factual scope of the dispute, but enjoys considerable freedom in respect of the inferences that it draws from the evidence and in respect of the legal consequences of the proven facts. Under certain circumstances, the tribunal's own inferences and arguments should be communicated to the parties, so as to give them the possibility to comment there on.

0subscriber_article?script=yes&id=%2Fic%2FMonograph%2Flaw-iic-9780199231386&recno=62&searchType=browse Chapter 31 Tribunal's Powers Versus Party Autonomy ?

(1)The Tribunal as an Umpire or an Inquisitor?1209

(a) ICSID Arbitration 1210

(b) Arbitration Laws Applicable to Non-ICSID Arbitration 1210

(i) An Adversarial System? 1211

(ii) Foreign Law as a Fact? 1212

(iii) Not a Pure Umpire 1213

(2)Rules on the Tribunal's Power1214

(a) Treaty Rules: Nature of Claim, Applicable Law 1214

(i) Nature of the Claim 1214

(ii) Applicable Law 1215

(b) Arbitration Law Rules: Decisions ex Bono et Aequo, Arbitrability 1217

(i) Decisions ex Bono et Aequo 1218

(ii) Arbitrability 1219

(c) Arbitration Agreements Rules: Factual Scope of the Dispute, Exclusion of Specific Relief, Applicable Law 1219

(i) Factual Scope of the Dispute 1220

end p.1207

(ii) Exclusion of Relief 1220

(iii) Applicable Law 1221

(3)Rules on the Tribunal's Conduct1221

(a) Party's Default 1222

(b) Adverse Inferences 1222

(c) Additional Information 1224

(d) Burden of Proof 1224

(e) Impartiality 1225

(f) Fair Hearing 1225

(4)Rules on the Validity and Enforceability of the Award1226

(a) No Review of the Merits 1227

(b) Excess of Power 1228

(c) Fair Hearing 1229

(d) Procedural Irregularity 1229

(e) Need for Guidelines as to the Tribunal's Role 1230

(5)The Tribunal's Power in Respect of Questions of Fact1230

(a) Can the Tribunal Request Additional Information to Undermine Uncontested Evidence? 1230

(b) Is the Tribunal Bound to Decide only on Invoked Facts? 1233

(6)The Tribunal's Power in Respect of Questions of Law1234

(a) Can the Applicable Law be Disregarded if the Parties do not Sufficiently Prove it? 1234

(b) Can the Tribunal Develop its Own Legal Arguments? 1236

(i) New Qualifications under Sources Already Introduced in the Proceedings 1236

(ii) New Sources 1237

(iii) New Remedies 1238

(c) Distinction between Domestic and International Arbitration? 1239

(7)Inviting the Parties to Comment1241

Concluding Remarks1242

THIS chapter analyses the relationship between the tribunal's initiative and the arguments made by the parties. As a general rule, the parties' submissions determine the scope of the dispute and hence the tribunal's mandate. The arbitral tribunal is not supposed to exceed the powers thus conferred on it by the parties. There are situations, however, in which the arguments made by one or more parties may require integration or further elaboration. The most evident example is the situation where the defendant does not participate in the proceedings. Even the arguments made by a participating party, however, may be insufficiently developed. This chapter will analyse to what extent a tribunal may or shall integrate or develop arguments that should have been made by the parties, both in respect of questions of fact and in respect of questions of law.

end p.1208

The question of how active the tribunal may be in respect of the arguments made by the parties is not approached uniformly in the various arbitration systems, as will be briefly explained in Section (1) below.

The power of the tribunal is ultimately limited by the rules on jurisdiction (Sect (2)) and any mandatory rules of procedure (Sect (3)) contained in the applicable international investment treaty, the ICSID Convention or the applicable arbitration law, as well as the applicable arbitration rules or the arbitration agreement. The power of the tribunal is also limited, indirectly, by the criteria for determining the validity and enforceability of an arbitral award (Sect (4)), and, in particular, by the principles of excess of power, adversarial proceeding, and procedural irregularity. These principles are fundamental in most arbitration regulations that an investment dispute may be subject to, whether it is an ICSID procedure, an ad hoc procedure under the UNCITRAL Rules, or an institutional arbitration as referred to in the relevant investment treaty, such as arbitration under the Arbitration Rules of the Stockholm Chamber of Commerce. They are generally to be found also in the national arbitration laws that become applicable to investment arbitration if the proceedings are carried out not as ICSID, but as ad hoc or institutional arbitration.

Within the framework of these principles, the tribunal enjoys a certain freedom in respect of the arguments made by the parties. This chapter argues that the tribunal is bound in respect of its jurisdiction and of the factual scope of the dispute, but enjoys considerable freedom in respect of the inferences that it draws from the evidence (Sect (5)) and in respect of the legal consequences of the proven facts (Sect (6)). Under certain circumstances, the tribunal's own inferences and arguments should be communicated to the parties, so as to give them the possibility to comment thereon (Sect (7)).

(1) The Tribunal as an Umpire or an Inquisitor?

The role of the tribunal is not regulated clearly and uniformly. Some rules on the conduct of arbitral proceedings are relevant to this question, as will be seen in Sections (2) and (3) below, and some rules on the validity and enforceability of arbitral awards constitute the ultimate limits upon the tribunal's initiative, as will be seen in Section (4) below. Within the range of these principles, there seems to be a certain room for the tribunal to decide its own role in respect of the arguments made by the parties. The various arbitration systems have different approaches to the tribunal's role.

end p.1209

(a) ICSID Arbitration

Within the framework of ICSID arbitration, it seems to be undisputed that a tribunal is not bound to base its award on the legal arguments that were presented to it by the parties. In numerous cases, the validity of an award was challenged by alleging that the award was not based on the parties' arguments, and the relevant ad hoc Committees have always concluded that the tribunals had not committed a procedural irregularity by founding the decision on legal arguments that were not presented by the parties. 1

The only limitation on a tribunal's initiative in this respect seems to have been mentioned by the Kl?ckner I ad hoc committee, which, after having affirmed the tribunal's ability to develop its own legal arguments, briefly affirmed that the legal framework established by the parties should not be exceeded. This limitation should not be interpreted in the sense that the tribunal should disregard any legal arguments applicable to the facts submitted in the proceeding, as long as these arguments lead to a qualification different from those proposed by the parties; otherwise, the tribunal's own initiative in respect of the legal arguments would be reduced significantly. This would not be compatible with the tribunal's duty itself to ascertain and apply the relevant law in the given circumstance of the case. 2

(b) Arbitration Laws Applicable to Non-ICSID Arbitration

Investment arbitration that takes place in the framework of an arbitration institution or as ad hoc arbitration is subject to the arbitration law and rules that apply also to commercial arbitration in the respective countries. In respect of commercial arbitration, there does not seem to be a generally acknowledged understanding of

end p.1210

how active a role the tribunal may assume: commentators range from encouraging an active role for the arbitral tribunal, 3 to scepticism towards such a role 4 and nearly exclusion thereof. 5

It is not unusual for legal doctrine on international commercial arbitration to focus its attention on the consensual character of arbitration and emphasize that the arbitral procedure should be left totally to the parties. Party autonomy is, and rightly so, deemed to be the clear fundament of commercial arbitration; as a consequence, the arbitral tribunal is deemed to have a rather restricted scope for its own initiative. This neutral role of a tribunal that does not interfere with the autonomy of the parties, that listens to their arguments, and confines its own role to deciding which of the presented arguments deserves to win, is sometimes defined as the ‘role of an umpire’. The opposing role, more judiciary and interventionist, inspired by the maxim iura novit curia, would consist in the tribunal taking various measures on its own initiative, rather than upon the request of one of the parties, to develop a factual and legal argumentation, as well as to identify the applicable law.

(i) An Adversarial System?

The alternative between an ‘umpire’ and an ‘inquisitor’ may be reminiscent of the classical opposition between the adversarial common law systems and the inquisitorial civil law systems. The usefulness of the classical division into adversarial and inquisitorial systems, however, may be questioned: while either of these forms is rarely to be found in its pure form in any system of civil procedure nowadays, it is dubious how much it would be possible to apply it to international arbitration. 6

end p.1211

An adversarial approach in the strict sense is certainly not reflected in the arbitration law that mostly represents the common law systems, English law. The UK Arbitration Act of 1996 does not seem, in many respects relevant here, to be substantially different from the approach in civil law countries. 7 The UK Arbitration Act confers on the tribunal the power to determine a series of matters on its own initiative (provided that there is no agreement to the contrary between the parties): for example, the decision of procedural and evidential matters, 8 or the default power to determine a series of remedies, if the parties have not specified the remedies that may be awarded. 9 Also, in drawing inferences from the evidence produced by the parties and in developing its reasoning, the tribunal is not bound by the arguments made by the parties. 10 All these powers speak for arbitrator autonomy, rather than for party autonomy. This, however, does not mean that the tribunal faces no limits in assuming an inquisitorial role or taking over one party's interests against the other party's: the overriding principle is that the proceeding is conducted fairly and impartially, 11 and this mandatory requirement is deemed sufficient to ensure a balance between adversarial and inquisitorial proceedings. 12

(ii) Foreign Law as a Fact?

A peculiar treatment is reserved, in the common law systems, for foreign law: foreign law is considered as a fact and has therefore to be proved by the parties. This

end p.1212

is unknown in most civil law systems, where not only domestic, but also foreign law has in principle to be applied ex officio by the tribunal, in accordance with the maxim iura novit curia. 13 However, even if foreign law is treated as a fact under English arbitration law, which is examined here as representative of the common law systems, it does not mean that in questions of foreign law party autonomy totally prevails over the tribunal's independent evaluation. First of all, as seen above, the arbitral tribunal has extensive powers in procedural evidential matters and may evaluate the evidence independently. If foreign law is treated as a fact, it will be subject to the same powers as described above. Secondly, if the foreign law is not satisfactorily proved, the tribunal may apply the presumption that foreign law is the same as English law, and will apply (on its own initiative) English law, thus avoiding falling into the role of an umpire who would have to choose the arguments made by the other party. 14

(iii) Not a Pure Umpire

The role of a pure umpire, therefore, is not to be found in the English arbitration law any more than in the international or national civilian arbitration rules that are discussed in more detail in Section (3) below. As will be seen, tribunals have considerable powers to act on their own initiative by requesting additional information, and they are not bound to decide in favour of the participating party in case of default by the other party (which implies that they have the power to make their own independent evaluation of the arguments, rather than limiting themselves to choose between the available arguments).

end p.1213

(2) Rules on the Tribunal's Power

The arbitral tribunal must exercise its mandate within the limits that have been granted it by the applicable sources. These consist mainly of: (i) the rules in the relevant treaty establishing the arbitration, the ICSID Convention, or the applicable state arbitration law, (ii) arbitration rules applicable to the chosen arbitration proceeding, and (iii) the arbitration agreement. Below, there follows an examination of the most important limitations on the tribunal's power in respect of the parties' arguments contained in these respective sources.

It is important, in this context, to distinguish between the situations where a tribunal exercises powers that it does not have, and the situations where it wrongly exercises powers that it has. The distinction is of significant relevance to the effectiveness of the award: while awards rendered as a consequence of an erroneous exercise of existing powers may, generally, not be considered as invalid or unenforceable, 15 awards rendered as a consequence of the exercise of powers that were never conferred on the tribunal may be set aside and refused enforcement. 16 This distinction will be pursued in the following subsections.

(a) Treaty Rules: Nature of Claim, Applicable Law

Investment arbitration concerns disputes between a foreign investor and the host state, and is carried out on the basis of a Bilateral Investment Treaty (BIT) between the host state and the investor's state or of a multilateral treaty such as the NAFTA or the Energy Charter Treaty. The treaty establishing arbitration may contain rules that are relevant to the analysis of the tribunal's power to act on its own motion in respect of the parties' arguments.

(i) Nature of the Claim

Arbitral jurisdiction may be limited to claims relating to violations of the treaty or it may extend also to claims relating to a breach of contract. 17 These treaty provisions must be considered as limits on a tribunal's power; a tribunal may not exceed

end p.1214

these limits while it is integrating or developing the parties arguments. Thus, a tribunal that is empowered to decide only on a claim for violation of treaty may not extend or interpret the arguments by the parties and award damages for breach of contract (unless the breach of contract also constitutes a violation of the treaty, in which case, however, the basis of the award is the latter). The general principle according to which an award may not be reviewed for error in law or for error in the interpretation of the contract would not be applicable in this context. This is because the error in question would be made in connection not with the decision on the merits (which is beyond the scope of control that may be exercised on an award), but with the exercise of the tribunal's jurisdiction, as determined by the applicable investment treaty (which is within the scope of the validity control). An award rendered on matters outside the jurisdiction of the tribunal is an award rendered without power, therefore invalid and unenforceable, as will be seen in Section (4) below.

(ii) Applicable Law

The treaty establishing arbitration may contain instructions in respect of the law to be applied by the tribunal to the merits of the dispute. 18 Violation of these rules does not necessarily simply amount to an error in the merits of the award. Disregard of treaty rules on applicable law is a violation of the duties established by the treaty in respect of the conduct of the proceedings and, in particular, in respect of the legal standard against which the disputed facts shall be measured. Given the significance of the applicable law for the outcome of the dispute, such violation may be considered as a serious procedural irregularity or an excess of the power conferred on the tribunal. Both are grounds for invalidity and refusal of enforcement of the award, as will be seen in Section (4) below.

It is not easy, however, to draw the borderline between such a violation of the tribunal's duties and a simple error by the tribunal in interpreting or applying the treaty: the tribunal's wrong interpretation of the choice of law rule contained in the treaty is not a ground for ineffectiveness of the award, just as the wrong application of the law is not. If, however, the tribunal's failure to apply this choice of law rule is not due to an error in its interpretation or application, but is a violation of the duty to take that rule into consideration, it may lead to ineffectiveness of the award (just as the disregarding of a choice of law rule in the applicable arbitration law or in the arbitration agreement would, as will be seen in Sect 2(c)(iii) below). 19

end p.1215

A criticism of a recent decision by the Svea Court of Appeal in Sweden 20 illustrates this point. The decision was rendered in connection with the challenge to an SCC award between CME and the Czech Republic issued in an investment arbitration based on the BIT between the Netherlands and the Czech Republic. One of the questions that the Court was called on to decide was whether the arbitral tribunal had disregarded the rule on the governing law contained in the BIT. The BIT provided for application of the law of the host country in combination with principles of international law; the tribunal did not consider the law of the host country but only principles of international law, and the validity of the award was therefore challenged. The Swedish Court relied on the principle that error in the interpretation or application of the law cannot be judicially reviewed, and limited itself to prima-facie verifying whether the tribunal seemed to have applied any law at all. The Court seemed to consider a more detailed examination of the matter to be beyond the scope of its own jurisdiction.

This approach does not seem to be fully justified. It has been observed that, in respect of technical aspects such as those that were at issue in that particular case, applying the principles of international law could be deemed equivalent to applying no law at all, because they do not contain relevant rules. 21 Apart from this point of substance, however, the point of procedure mentioned above remains: a tribunal that fails to apply the choice of law clause contained in the BIT is a tribunal that violates the treaty. According to Article 34(6) of the Swedish Arbitration Act, a procedural irregularity can be sanctioned with the invalidity of the award if it has probably influenced the outcome of the case. In order to verify whether Article 34(6) of the Swedish Arbitration Act was applicable, the Court should have examined more accurately whether the tribunal, when it determined the applicable law, had taken into consideration the choice of law rule contained in the BIT. The examination, however, should have been restricted to the question whether the rule had been applied. Whether the rule had been applied erroneously is not within the scope of judicial review. 22

end p.1216

The opposite approach was taken by the Supreme Court of British Columbia in its decision on a challenge to an award rendered between the US company Metalclad and the United Mexican States under the NAFTA. 23 One of the questions that the Supreme Court examined was whether the tribunal had applied the correct legal standard to assess the conduct of the state. The tribunal had measured the state's conduct against Article 1105 of the NAFTA. Also the Supreme Court considered Article 1105 to represent the applicable rule. However, the Court disagreed with the tribunal in the assessment of the content of Article 1105: while the tribunal considered Article 1105 to require transparency in the regulatory system of the host country, the Court held that the ‘fair and equitable treatment’ and ‘full protection and security’ granted by Article 1105 do not extend to requiring a transparent regulatory system. The Court concluded that, by reading such a requirement into Article 1105, the tribunal had exceeded the scope of the submission to arbitration.

In its eagerness to ascertain that the proper legal standard was applied, the Court seems here to have gone dangerously close to reviewing the tribunal's interpretation of the law. 24

(b) Arbitration Law Rules: Decisions ex Bono et Aequo, Arbitrability

If an investment dispute is subject to institutional or ad hoc arbitration, it is not regulated by the ICSID instruments, but by the relevant arbitration rules and by the arbitration law existing in the country where the tribunal is located. The Energy Charter Treaty, for example, provides for investment disputes to be submitted to arbitration according to the ICSID Rules, the UNCITRAL ad hoc Arbitration Rules, or arbitration in the Arbitration Institute of the Stockholm Chamber of Commerce. 25 In case of ad hoc or institutional arbitration, therefore, the investment dispute will be subject to the arbitration law of its venue, as if it were a commercial dispute (without prejudice, however, to any additional rules applicable to investment disputes and contained in the applicable investment treaty, such as those mentioned in Sect (2)(a) above).

end p.1217

Arbitration law is quite heterogeneous, since it extends from the uniform regulation contained in international conventions (of which, for non-ICSID disputes, the most notable is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards), via the 1985 UNCITRAL Model Law on International Commercial Arbitration, to the arbitration law in force in each country. While the New York Convention uniformly regulates the enforcement of arbitral awards in the 137 countries that have so for ratified it, 26 the UNCITRAL Model Law is not a binding instrument. It has been adopted, literally or with minor variations, in about 50 countries, 27 and has thus achieved a certain harmonization of those national arbitration laws. In the remaining countries (including Sweden), arbitration law is not harmonized and may vary considerably from system to system.

(i) Decisions ex Bono et Aequo

A rule that is often encountered in arbitration law and that might have relevance for the question of the tribunal's power in respect of the parties' arguments is the rule preventing the tribunal from deciding the merits as an amiable compositeur unless it has been empowered by the parties to do so. This provision, if contained in the arbitration law of the country of origin of the award (or in the law of another country that the parties may have chosen to govern the arbitral procedure), represents a limit upon the tribunal's discretion in evaluating the arguments made by the parties. Thus, a tribunal that, going beyond the arguments made by the parties, renders an award simply based on its own sense of justice and without applying the governing law, applicable treaties, or customary law, or that supplements its findings at law with equitable principles, would violate the applicable rule on the tribunal's duties, and the award would be ineffective, as will be seen in Section (4) below.

A rule limiting the tribunal's power to decide ex bono et aequo unless empowered to do so by the parties is generally present in national arbitration laws (see the UNCITRAL Model Law Art 28(3)), but not without exception: the Swedish Arbitration Act, for example, does not contain it (however, the SCC Rules contain a similar rule, as will be seen immediately below).

The definition of when a decision is taken as an amiable compositeur, or ex bono et aequo, rather than at law, is not completely uncontroversial. A decision taken simply on the basis of the tribunal's sense of justice would undoubtedly be a decision taken ex bono et aequo. Less clear is whether a decision made on the basis of soft sources such as codes of conduct or private codifications, generally also defined as lex mercatoria, could be defined as a decision made at law or as a decision ex bono et aequo. According to a widespread (but not uncontroversial) opinion in legal literature, a decision based on such sources would not be deemed to be taken at law, but

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neither in equity: it would be deemed as a decision taken according to ‘rules of law’, as opposed to a decision taken ‘at law’. Some arbitration laws and arbitration rules make a distinction among the three categories of decisions: those made in equity, those made in accordance with rules of law, and those taken at law. Thus, a tribunal would have the authority to apply the lex mercatoria on its own motion if the arbitration rules or the applicable arbitration law provide that the tribunal has the power to apply on its own motion ‘rules of law’. The SCC Rules, for example, contain this terminology. If the arbitration rules, on the contrary, provide for the application of a ‘law’, then the tribunal would not be empowered to decide on its own motion on the basis of soft sources. The UNCITRAL Rules, for example, use the word ‘law’. According to this interpretation of the terminology, therefore, a tribunal rendering an award on the basis of the soft law, even if the parties have not empowered it to do so, would render an effective award if the procedure was subject to the SCC rules, whereas it would violate the rules determining its powers if the procedure was subject to the UNCITRAL Rules. 28

(ii) Arbitrability

Arbitration laws generally contain a rule specifying what disputes may be subject to arbitration, such as, for example, Article 7 of the UNCITRAL Model Law. Also countries that have not adopted the UNCITRAL Model Law may contain a provision on arbitrability, such as, for example, section 33(1) of the Swedish Arbitration Act. An award on matters that may not be resolved by arbitration is invalid and unenforceable under, respectively, Article 34(2)(b)(i) of the UNCITRAL Model Law and Article V(2)(a) of the New York Convention. Thus a tribunal that, irrespective of the arguments made by the parties, renders an award on a matter that is not arbitrable would render an ineffective award.

(c) Arbitration Agreements Rules: Factual Scope of the Dispute, Exclusion of Specific Relief, Applicable Law