Executive Summary

This Chapter explains how arbitral awards may be recognised or enforced. The process differs between awards rendered under the ICSID Convention and for other awards. The ICSID Convention requires all ICSID Contracting States to automatically recognise ICSID awards and grant them the same legal status as final judgments of their own courts. Unlike the ICSID Convention, the New York Convention does not require automatic recognition and enforcement of awards. Instead, the prevailing party must seek both recognition and enforcement before national courts, which have some leeway to deny the request. In either case, it may be possible to raise a sovereign immunity defence against the enforcement or execution of an award.

1.0 Introduction

Once a party receives a favourable award from an arbitral tribunal, it will often have to seek court recognition and enforcement in order to compel the other party’s compliance. Recognition is the process through which an award receives the status of a local court judgment, while enforcement involves action by national courts to require compliance.

The applicable rules for the recognition and enforcement depend on the type of arbitration pursued. The rules of the International Centre for the Settlement of Investment Disputes (ICSID) at the World Bank ensure that a party can obtain recognition and enforcement of ICSID awards under the terms of the ICSID Convention. Enforcement of arbitral awards issued by other arbitral institutions, however, is generally subject either to the rules of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) or, occasionally, solely to domestic law provisions.

Because the great majority of states are parties to the New York and ICSID Conventions, these conventions have significantly facilitated worldwide enforcement of arbitral awards. A claimant that has received a favourable arbitration award under the ICSID Convention or the New York Convention may be able to enforce it in the more than 150 states that are signatories to each of these Conventions. For practical reasons, enforcement efforts typically occur in those jurisdictions where the respondent has assets, which may well include foreign jurisdictions.

2.0 Recognition and Enforcement of Foreign Awards

There are two major international treaties that require state parties to recognise and enforce most arbitral awards. The first is the ICSID Convention covering ICSID awards (which resolves disputes between foreign investors and states), and the second is the New York Convention, which applies to arbitral awards more generally.

If the state where recognition and enforcement is sought is party to the ICSID or New York Convention, it has an international obligation to recognise and enforce arbitral awards in accordance with the provisions of the relevant convention, barring an applicable exception, such as the sovereign immunity defence.

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2.1 ICSID Awards

2.1.1 Recognition

The ICSID Convention, which has 154 Contracting States as of July 2018, makes recognition and enforcement of ICSID awards relatively straightforward. The Convention requires all ICSID Contracting States to automatically recognise ICSID awards and grant them the same legal status as final judgments of their own courts. A disputing party, therefore, need only present a copy of the award certified by the ICSID Secretary General to the court where it is seeking recognition or enforcement.1 This automatic recognition is an important step toward enforcing the award. Even absent enforcement, recognition of an award can be legally significant, as it will give the award conclusive effect and the award may preclude re-litigation, or it may determine issues in other proceedings.2

2.1.2 Enforcement

The enforcement of awards is more complicated than recognition since the ICSID Convention makes an important distinction between monetary and non-monetary awards.3 National courts have an obligation under the ICSID Convention to enforce monetary relief granted by an ICSID award. The ICSID Convention does not provide specific rules concerning the manner in which these obligations must be executed. Instead, the law of the country where recognition and enforcement is sought governs execution.4 The rules concerning execution therefore vary from country to country.

Automatic enforcement does not apply to non-pecuniary relief, such as orders for restitution of expropriated property. National courts are not obligated to enforce non-pecuniary relief ordered in the award, but they may do so depending on the national law on the enforcement of arbitral awards. Nevertheless, the national courts are legally required to recognise the award itself, even when it contains nonpecuniary relief.

2.1.3 Stay of Enforcement

Although the ICSID Convention generally requires automatic recognition and enforcement, an annulment committee5 has the power to stay enforcement of the award during annulment proceedings if it views this as necessary under the circumstances.6 (See Chapter 24 for a discussion of Annulment.) However, it is not required to do so.7 Enforcement is usually stayed provisionally while the committee evaluates the request for a stay unless the creditor shows a high risk of noncompliance by the state. The request for stay may be made with the annulment request itself or at any stage during the annulment proceedings. But, if a party files an application for annulment and fails to make a request for a stay of enforcement, or if the annulment committee declines to continue or grant a stay, the award is immediately enforceable.8

Annulment committees determine whether specific circumstances exist that require a stay of enforcement. These circumstances may include the legitimacy of the request for the stay, the prospect of prompt compliance with the award, and the difficulty of recovering payment in the event the award is annulled and no continuation of the stay of enforcement has been granted.9 In practice, tribunals have held that a respondent state should be entitled to a stay of enforcement, treating it as virtually automatic.10

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An annulment committee’s decision to stay can be granted either unconditionally or subject to certain conditions. Committees have, for example, granted stays of enforcement under the condition the applicant places a portion of the award in escrow,14 or provides an unconditional and irrevocable bank guarantee.15

2.2 Non-ICSID Awards

The New York Convention, which controls recognition and enforcement of most non-ICSID awards, has been accepted by 159 Contracting States (as of July 2018). The New York Convention provides requirements for recognition and enforcement of foreign arbitral awards, and leaves states very few grounds not to recognise and enforce awards. States that are not party to the Convention determine recognition and enforcement issues based on their national law or other applicable treaties.

Unlike the ICSID Convention, the New York Convention does not require automatic recognition and enforcement of awards. Instead, the prevailing party must seek both recognition and enforcement before national courts, which have some leeway to deny the request. However, the New York Convention limits the grounds for denial.23 As noted in Chapter 24, the award need not be accepted if the court determines that:

  • One of the parties lacked the capacity to enter into the underlying arbitration agreement;
  • The agreement was not valid under the applicable law (generally the law of the seat of the arbitration);
  • The arbitral proceedings did not follow basic principles of due process, such as when a party does not receive proper notice of the proceedings or was unable to present its case;
  • The award goes beyond the scope of the arbitral agreement;
  • The arbitral tribunal was not properly constituted;
  • The subject matter is not capable of settlement by arbitration; or
  • The award is in conflict with public policy.

Since the New York Convention’s grounds for denying recognition and enforcement of an arbitral award are evaluated by national courts, the interpretation of these grounds may vary considerably from jurisdiction to jurisdiction.

Public policy is a commonly invoked reason for refusing to recognise a foreign or non-domestic award.24 For the purposes of the New York Convention, public policy includes those national public policies that are of mandatory application to international matters, even absent any direct connection of the matter to the forum where judicial recognition is sought.25 This exception to recognition and enforcement in the New York Convention does not exist in the ICSID Convention.26

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Although the New York Convention allows national courts to deny recognition or enforcement of an award that has been annulled or set aside at the place of arbitration, national courts are not required to reject an annulled award.29 For example, French courts will sometimes enforce an annulled award made in a country other than France.30 In contrast, US courts will typically refuse enforcement of an award annulled at the seat of the arbitration,31 unless refusing to enforce is inconsistent with US public policy.32

3.0 The Sovereign Immunity Defence

When a party seeks to enforce an award against a state or state agency, as is often the case following investment arbitration, the state may attempt to raise the defence of sovereign immunity. Sovereign immunity is a legal principle establishing that a state may not be sued in the courts of another state. This principle may apply either to the issue of whether a court may hear the enforcement suit, or to the issue of whether it may order execution of the award against particular assets of a state.

National courts often consider that the state’s consent to arbitration constitutes a waiver of sovereign immunity against the enforcement suit (i.e., the right to hear the enforcement suit).33 Accordingly, this section focuses instead on the issue of sovereign immunity from execution of the award against particular assets.

When possible, obtaining an express waiver of sovereign immunity against both the enforcement suit itself and execution is advisable to avoid any possible future enforcement and execution issues following arbitration with a state or state entity. A waiver clause could be included in a BIT (rarely),34 or in an investment contract or arbitration agreement between the investor and the host state.35 A number of arbitral institutions, including ICSID,36 have recommended model clauses for that purpose.37

The New York and ICSID Conventions control the process of award recognition and enforcement. A state’s sovereign immunity defence is, however, subject to the national law of the place of execution. The following two sub-sections address sovereign immunity as a defence against the execution of ICSID and non-ICSID awards.

3.1 ICSID Awards

Because the ICSID Convention establishes very favourable provisions for the recognition and enforcement of awards, it might appear that the sovereign immunity issue would be less relevant in this context. However, the ICSID Convention explicitly leaves the details of award execution to the national law in the jurisdiction where execution is sought.38 Given that the national law that determines whether assets are subject to sovereign immunity is generally the same for ICSID and non-ICSID awards, investors will face similar challenges whether the award is an ICSID or non-ICSID award.

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3.2 Non-ICSID Awards

The New York Convention does not directly address the invocation of sovereign immunity as a barrier to the execution of an arbitral award. Although the New York Convention regulates the enforcement of arbitral awards, the sovereign immunity defence will generally depend on national law.41 States often enact sovereign immunity legislation to clarify the scope of immunity from execution.

Even when national courts might otherwise accept the sovereign immunity defence and decline to execute an award against particular assets, sovereign immunity clauses in investment agreements may bar the defence of sovereign immunity. Note that one recent investment arbitration ended in a settlement agreement that contained a clause effectively waiving sovereign immunity. The clause stipulated that the execution and performance of the settlement agreement were “private and commercial acts” for which the state was not acting in its public capacity.42

Statutes in the United States and the United Kingdom provide for a sovereign immunity defence against execution of arbitral awards, only admitting enforcement in limited circumstances such as where the state has waived its immunity.43 In continental Europe, the applicable rules have mainly developed through court decisions.44 For example, the French Supreme Court requires a specific and express waiver of immunity to allow the execution of an award against public assets.45

Even among those states that do not fully accept the sovereign immunity defence, it may not be possible to execute an arbitral award against just any asset of a foreign sovereign. National law will commonly limit the execution to certain classes of assets, most notably those that are used for commercial purposes.47 If instead the assets are used for public purposes, such as operating an embassy, many national courts will allow the sovereign immunity defence and decline to execute the award.

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Notes

1
1. ICSID Convention, Article 54(2).

2
2. Christoph Schreuer et al., The ICSID Convention: A Commentary, 2nd ed., 2009, p. 1129.

3
3. ICSID Convention, Article 54(1).

4
4. Id. Article 54(3).

5
5. For details on the operation of annulment committees under the ICSID Convention, see Chapter 24.

6
6. ICSID Convention, Article 52(5).

7
7. Id. Article 52(2).

8
8. Christoph Schreuer et al., The ICSID Convention: A Commentary, 2nd ed., 2009, p. 1064.

9
9. Andrea K Bjorklund et al., “Stay of Enforcement Pending Annulment and Set-aside Proceedings in Investment Arbitration” in Enforcement of Investment Treaty Arbitration Awards: A Global Guide 43, pp. 51-53 (Julien Fouret ed., 2015).

10
10. Id. pp. 49-50.

11
SGS Société Générale de Surveillance S.A. v Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on the Continued Stay of Enforcement of the Award, 22 March 2013.

12
12. Id. para. 92.

13
13. Id. para. 95.

14
14. See, e.g., Sempra Energy International v Argentine Republic, ICSID Case No. ARB/02/16, Decision on Request for Stay of Enforcement, 5 March 2009, para. 117.

15
15. See, e.g., Ron Fuchs v Georgia, ICSID Case No. ARB/07/15, Decision of the ad hoc Committee on the Stay of Enforcement of the Award, 12 November 2010, para. 45.

16
16. Azurix Corp v Argentine Republic, ICSID Case ARB/01/12, Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award, 28 December 2007, para. 14(a).

17
17. Id. para. 14(c).

18
18. Id. para. 14(f).

19
19. Id. para. 44.

20
20. Id. para. 14(g)(i).

21
21. Id. para. 39.

22
22. Id. para. 43.

23
23. New York Convention, Article V.

24
24. Gary Born, International Commercial Arbitration, 2014, p. 3646.

25
25. Id. p. 3658.

26
26. Christoph Schreuer et al., The ICSID Convention: A Commentary, 2nd ed., 2009, pp. 1140-1141.

27
27. ST-AD GmbH v Republic of Bulgaria, PCA Case No. 2011-06 (ST-BG), Thuringer Court of Appeal Decision on Enforceability of Award, 20 November 2013, para. 8.

28
28. Id. para. 35.

29
29. Pabalk Ticaret Sirketti v Norsolor, Cass. Civ. 1, 9 October 1984, Revue de l’arbitrage 1985, p. 431; Hilmarton v Omnium de Traitement et de Valorisation, Cass. Civ. 1, 23 March 1994, ASA Bulletin 1994, p. 445; Arab Republic of Egypt v Chromalloy Aero Services, Paris Court of Appeal, 14 January 1997, Revue de l’arbitrage 1997, p. 395.

30
30. Hilmarton v Omnium de Traitement et de Valorisation, Cass. Civ. 1, 23 March 1994, ASA Bulletin 1994, p. 445; Arab Republic of Egypt v Chromalloy Aero Services, Paris Court of Appeal, 14 January 1997, in Revue de l’arbitrage, 1997, p. 395; Directorate General of Civil Aviation of the Emirate of Dubaï v Bechtel International Company LLC, Paris, 29 September 2005, in Revue de l’arbitrage, 2005, p. 1096; PT Putrabali Adyamulia v Rena Holding, Cass. Civ. 1, 29 June 2007, in Revue de l’arbitrage, 2007, p. 515; Emirates Telecommunications Corporation v/ Planor Africa and others, Cass. Civ. 1, 28 March 2013, in Revue de l’arbitrage, 2013, p. 411.

31
31. TermoRio S.A. E.S.P. v Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007).

32
32. Corporacion Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v Pemex-Exploracion y Produccion, 962 F. Supp. 2d 642 (S.D.N.Y. 2013).

33
33. 28 U.S.C. § 1605(a)(6).

34
34. Inna Uchkunova & Oleg Temnikov, “Enforcement of Awards Under the ICSID Convention—What Solutions to the Problem of State Immunity?” 29 ICSID Review pp. 187-211 (2014).

35
35. Graham Coop et al., “Sovereign Immunities and Investor-state Awards: Specificities of Enforcing Awards Based on Investment Treaties”, in Enforcement of Investment Treaty Arbitration Awards: A Global Guide 67, p. 81 (Julien Fouret ed., 2015).

36
36. ICSID Model Clauses, Clause 15 (“The Host State hereby waives any right of sovereign immunity as to it and its property in respect of the enforcement and execution of any award rendered by an Arbitral Tribunal constituted pursuant to this agreement.”)

37
37. Id. p. 81.

38
38. ICSID Convention, Article 54(3).

39
39. AIG Capital Partners v Republic of Kazakhstan, [2005] EWHC 2239 (High Court, England & Wales, 20 October 2005).

40
40. Liberian Eastern Timber (LETCO) v Republic of Liberia, 659 F. Supp. 606, 610 (DDC, 16 April 1987).

41
41. The adoption of the New York Convention arguably constitutes an implied waiver of sovereign immunity given that it imposes obligations to honour arbitral awards. Nicholas Pengelley, “Waiver of Sovereign Immunity from Execution: Arbitration is Not Enough”, 26 Journal of International Arbitration 859, 868-869 (2009). However, this argument has had mixed success. Indeed, the New York Convention does not necessarily prohibit non-execution on the basis of sovereign immunity. “Rules of procedure” under Article III of the Convention could be read as embracing general principles of public international law that are part of the relevant domestic procedural law, which may include sovereign immunity, such that they bar the execution of an award. Graham Coop et al., “Sovereign Immunities and Investor-state Awards: Specificities of Enforcing Awards Based on Investment Treaties”, in Enforcement of Investment Treaty Arbitration Awards: A Global Guide 67, 73 (Julien Fouret ed., 2015).

42
42. AES Summit Generation Limited and AES-Tisza Erömu Kft v Republic of Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010, para. 4.9.

43
43. In the United States, the Foreign Sovereign Immunities Act has detailed and complex provisions addressing scope of immunity against execution. 28 U.S.C. §§ 1605(a)(6), 1606, 1610. In the United Kingdom, the State Immunity Act establishes a general immunity from execution, with two exceptions based on consent in writing and for the commercial use of property. S. 13 SIA 1978, c. 33 17 ILM (1978) 112.

44
44. In France, Germany, Spain and Italy, issues of sovereign immunity are dealt with by the courts. See, e.g., Eurodif Corporation v Islamic Republic of Iran, Cass. Civ. 1, 14 March 1984, in Semaine Juridique, 1984; Creighton Limited v Ministry of Finance and Ministry of Municipal Affairs and Agriculture of the State of Qatar, Cass. Civ. 1, 6 July 2000, in Revue de l’arbitrage, 2001; Kingdom of Thailand v Werner Schneider, acting in his capacity as insolvency administrator of Walter Bau AG (In Liquidation), Berlin Higher Regional Court, Decision of 26 March 2012, 20 Sch 10/11; Sedelmayer v Russian Federation, German Federal Supreme Court, Decision of 4 October 2005, VII ZB 9/05; Judgement of the Spanish Constitutional Court 107/1992 of 1 July 1992 (BOE 177, 24 July 1992).

45
45. NML Capital Ltd v Argentine Republic, Cass. Civ. 1, 28 March 2013, in Revue générale de droit international public, 2013

46
46. Id.

47
47. See, e.g., 28 U.S.C. § 1610.

48
48. Birch Shopping v United Republic of Tanzania, 507 F. Supp. 311, paras. 312-313 (DDC, 18 November 1980).

49
49. Walker International Holdings Ltd v Republic of Congo, [2005] EWHC 2813 (Commercial Court of the High Court of England & Wales, 6 December 2005).