What is Annex VII arbitration? Part XV of UNCLOS deals with the settlement of disputes concerning the interpretation or application of the Convention. When parties are unable to settle a dispute by negotiation, conciliation or other peaceful means, the Convention provides for compulsory dispute settlement. Article 287 sets out a choice of compulsory dispute settlement procedures, namely (i) ITLOS; (ii) the ICJ; (c) an Annex VII arbitral tribunal or (d) an Annex VIII special arbitral tribunal for specific categories of disputes. States that do not make a written declaration setting out their choice of procedure are deemed to have accepted Annex VII arbitration. Moreover, if the parties have not chosen the same dispute settlement procedure, the dispute may only be submitted to Annex VII arbitration, in the absence of agreement to another procedure.

An Annex VII arbitral tribunal is composed of five members and is free to determine its own procedure, unless the parties agree otherwise. Annex VII arbitration thus offers greater flexibility than dispute settlement bodies with fixed rules of procedure, namely ITLOS and the ICJ.  This may partially account for the increasing popularity of Annex VII arbitration. The PCA is acting as registry in the four pending Annex VII arbitrations.

Philippines/China – Maritime jurisdiction of the Philippines in the West Philippines Sea (aka South China Sea)

Initiated: 22 January 2013 by the Philippines

Status of submissions: The Philippines filed a statement of claim on 22 January 2013. On 19 February 2013 China rejected and returned the Philippines’ Notification and Statement of Claim.

Points of interest:

In response to China’s rejection of the statement of claim, the Philippines stated that the arbitration would proceed and that the 5-member arbitration panel would be formed with or without China.  Presumably, the Philippines had in mind the procedure set out in Article 3 of Annex VII. The provisions on the appointment of arbitrators provide that China has 30 days from receipt of the statement of claim to appoint one member to the tribunal, and that if the appointment is not made within that period, the Philippines may, within two weeks of the expiration of that period, request that the appointment be made by the President of ITLOS in accordance with subparagraph (e) of Article 3.  Article 3(e) requires the ITLOS President to make such an appointment from a list of arbitrators maintained by the UN Secretary-General within 30 days of the receipt of the request and in consultation with the parties. The Department of Foreign Affairs of the Philippines confirmed on Monday 25 March 2013 that they had made such a request to the President of ITLOS, Judge Yanai, and that he has appointed Judge Stanislaw Pawlak (Poland) as an arbitrator on behalf of China.

As for the remaining three arbitrators, subparagraph (d) of Article 3 provides that in the absence of agreement of the parties within 60 days of the notification of claim, they are to be nominated in accordance with subparagraph (e) outlined above. The 60-day period expired on 23 March 2013 and the Philippines have 2 weeks from that date to request the President to appoint the remaining arbitrators.

As for non-appearance, Article 9 of Annex VII provides that absence of a party or failure of a party to defend its case shall not constitute a bar to the proceedings. In theory then, this arbitration may proceed without the participation of China, though the tribunal must, as a preliminary matter, satisfy itself that it has jurisdiction over the dispute and that the claim is well founded in fact and law. China may have a well-founded objection to the jurisdiction of the tribunal based on a declaration made regarding the dispute settlement provisions of UNCLOS under Article 298. Before considering the Article 298 issue it is noted that the Chinese also reportedly reject the claim on the basis that it violates the consensus enshrined in the Declaration on the Conduct of Parties in the South China Sea. China ratified UNCLOS in June 1996 but made a further declaration under Article 298 in August 2006. The declaration provides:

“The Government of the People’s Republic of China does not accept any of the procedures provided for in Section 2 of Part XV of the Convention with respect to all the categories of disputes referred to in paragraph 1 (a) (b) and (c) of Article 298 of the Convention.”

Article 298 provides that States may choose not to accept the four compulsory dispute settlement procedures of Article 287 with respect to certain categories of dispute namely (a) disputes involving maritime boundaries or historic titles; (b) disputes concerning military activities and (c) disputes being dealt with by the Security Council. It follows that China is not obliged to accept Annex VII arbitration for a dispute involving sea boundary delimitations or historic titles. However, 298.1(a)(i) provides that in such cases, either party to the dispute may request the creation of a conciliation commission under Annex V. Unlike the procedures set out in Article 287, the decisions of an Annex V conciliation commission are not binding. Article 298.1(a)(ii) provides:

“after the conciliation commission has presented its report, which shall state the reasons on which it is based, the parties shall negotiate an agreement on the basis of that report; if these negotiations do not result in an agreement, the parties shall, by mutual consent, submit the question to one of the procedures provided for in section 2, unless the parties otherwise agree.”

As a result, if the arbitration proceeded without the participation of China, and the arbitral tribunal found that it lacked jurisdiction due to China’s declaration under Article 298, China would be required to submit the dispute to Annex V conciliation and to negotiate an agreement on the basis of the report of the conciliation commission. Of course, the Philippines may argue that the dispute in question is not covered by the Article 298 declaration, and it is entitled to a forum in which to do so. Article 288(4) of UNCLOS provides that in the event of a dispute as to whether a court or tribunal has jurisdiction, the matter shall be settled by decision of that court or tribunal.