Recognition and Enforcement of Awards Under the ICSID Convention

1. Carolyn B. Lamm Joint Seminar of the IBA, ICC, ICC México and Mexican Bar Association Mexico City, June 14, 2000 Recognition and Enforcement of Awards Under the ICSID Convention

2. Topic • Recognition and Enforcement of Awards Under the ICSID Convention • How does the ICSID Convention differ from the New York Convention in promoting finality and providing a self-contained system of dispute resolution? • How have the Convention’s recognition and enforcement provisions operated in practice in terms of the prospects and obstacles faced by investors and States seeking to obtain compliance with an award?

3. Enforcement Under The New York Convention • Article III: • “Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles.” • Article V: • Recognition and enforcement may be denied if the award debtor proves existence of one or more specific grounds • Set aside is subject to the applicable national law

4. Exceptions to the NY Convention’s Enforcement Obligation • Article V(1)-(2): Recognition and enforcement of the award “may be refused” on the following grounds: • Incapacity of the parties to the arbitration agreement or other invalidity of the arbitration agreement • No proper notice to award debtor of arbitrator appointment or arbitral proceedings, or other inability of award debtor to present its case • Award exceeds scope of the arbitration agreement • Composition of the arbitral tribunal or arbitral procedure was contrary to the parties’ agreement or forum State law • Subject matter of the dispute was not arbitrable • Enforcement would be contrary to public policy • Award is not yet binding or has been set aside or suspended

5. Set Aside Under the NY Convention • New York Convention, Art. V(1)(e): • Set aside falls under the exclusive jurisdiction of courts in “the country in which, or under the law of which, that award was made” • As such, States are free to define the grounds for set aside • See, e.g., Alghanim v. Toys “R” Us, 126 F.3d 15, 23 (2nd Cir. 1997): “The Convention specifically contemplates that the state in which, or under the law of which, the award is made, is free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief.”

6. Set Aside Under the UNCITRAL Model Law • UNCITRAL Model Law, Art. 34(2), where enacted, provides a limited list of set aside grounds, which mirrors the NY Convention’s non-recognition grounds: • Incapacity of parties or invalidity of arbitration agreement • Lack of notice or inability to present case • Award exceeds scope of arbitration agreement • Irregular composition or arbitral procedure • Subject matter not arbitrable • Award conflicts with local public policy

7. Set Aside Under U.S. Law • In the U.S., the grounds for set aside under the Federal Arbitration Act (9 U.S.C § 10(a))include: • Whether the award was procured by fraud, corruption or undue means; • Whether there was partiality or corruption of the arbitrator; • Whether the arbitrators were guilty of misconduct; and • Whether the arbitrators exceeded their power • Generally, U.S. courts have interpreted the grounds for setting aside narrowly, taking into account the strong public policy in support of arbitration proceedings, and enforcement of arbitration awards

8. The ICSID Convention: Self-Contained Dispute Resolution “Most systems of arbitration are subject to the law and the control of the courts of the place of arbitration and of the place where recognition and enforcement of the arbitral award are sought. . . . In contrast to the other forms of arbitration, arbitration under the ICSID Convention is insulated from the control of national legal systems. The ICSID Convention provides that arbitral awards rendered thereunder shall not be subject to any appeal or to any other remedy except certain remedies internal to the system of the Convention.” Antonio R. Parra, Provisions on the Settlement of Investment Disputes in Modern Investment Laws, Bilateral Investment Treaties and Multilateral Instruments on Investment, 12 ICSID Rev.—Foreign Inv. L. J. 287, 300-301 (1987)

9. The ICSID Convention: Self-Contained Dispute Resolution (cont’d) • The ICSID Convention promotes finality in two main ways: • It makes awards binding upon the parties and limits the parties’ recourse to the remedies set forth in the Convention (Article 53) • It requires Contracting States to recognize and enforce ICSID awards as if they were a final judgment of a court in that State (Article 54)

10. ICSID Terminology: “Recognition” “Recognition of an ICSID award is the formal confirmation that the award is authentic and that it has the legal consequences provided by the law.” Christoph Schreuer, The ICSID Convention: A Commentary 1128 (2009)

11. ICSID Terminology: “Enforcement” and “Execution” • “Enforcement” and “execution” can be used as distinct terms in others contexts, but the equally authoritative English, Spanish and French ICSID texts use the terms interchangeably. E.g., Article 54(1): • English: “Each Contracting State shall . . . enforce . . . .” • Spanish: “Todo Estado Contratante . . . hará ejecutar . . . .” • French: “Chaque Etat contractant . . . assure l'exécution. . . .” • Both terms refer to the process of the prevailing party collecting the awarded monetary damages or achieving the other relief granted by the award, typically through the exercise of a national court’s authority

12. ICSID Awards Are Binding on the Parties • ICSID Convention, Art. 53(1) “The award shall be binding on the parties . . . . Each party shall abide by and comply with the terms of the award . . . .”

13. The Parties Only Have Recourse to the Remedies in the Convention • ICSID Convention, Art. 53(1) “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.”

14. The ICSID Convention’s Limited Remedies • The only remedies provided by the ICSID Convention are interpretation, revision, annulment, supplementation, and rectification • Each remedy is “self-contained” (i.e., the request for the remedy is heard by an ICSID tribunal or ad hoc committee, not a national court) • None of the remedies allow a review of the merits of a tribunal’s decision • The parties may not agree to waive or adjust the Convention’s self-contained system of review

15. Grounds for Annulment • Article 52(1): Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based.

16. The Parties Have an Immediate Obligation to Comply But May Request a Stay of Enforcement • ICSID Convention, Art. 53(1) “Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.”

17. A Stay of Enforcement Suspends the Obligation to Comply • May be granted in accordance with a request for interpretation, revision, or annulment of an award • Not available for supplementation and rectification • A party that requests revision or annulment is entitled to a provisional stay of enforcement

18. Tribunals and Ad Hoc Committees Exercise Substantial Discretion Over Requests for Stays of Enforcement Factors typically considered include: • Whether enforcement of the award, if upheld, would be prompt • Whether the party requesting the stay was engaged in dilatory tactics • Whether the party requesting the stay offered security • Whether proceeding with enforcement would likely cause irreparable injury to the award debtor See Reed, Paulsson, Blackaby, A Guide to ICSID Arbitration 105 (2004)

19. A Stay of Enforcement May Be Conditional • See, e.g., Enron Corp. v. Argentina, Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award, ¶ 26 “[A] discretionary power to allow or deny a remedy may implicitly include a power to allow the remedy subject to conditions, and . . . such an interpretation would be consistent with the objects and purposes of Article 52(5), which is designed to enable the ad hoc committee to balance the rights of the parties pending annulment proceedings.”

20. Annulment Committees Have Addressed Non-Compliance by Conditioning Stays of Enforcement • CMS: Required Argentina to provide a letter of assurance that it would comply with the award upon the completion of the annulment process • Vivendi: Recognizing that Argentina had failed to abide by its promise to pay in CMS, required Argentina to submit a more precise statement of assurance • Sempra Energy: Recognizing that Argentina had failed to satisfactorily comply with the Vivendi committee’s request, required Argentina to make a US$ 75 million escrow payment

21. The ICSID Convention Requires Recognition & Enforcement by Contracting States ICSID Convention, Art. 54(1): “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.”

22. The Enforcement Obligation Extends Only to Pecuniary Obligations • ICSID Convention, Art. 54(1): “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.” • Reflects concern that the courts of some countries do not have the power to order non-pecuniary forms of relief • Non-pecuniary obligations are still binding and can be enforced outside of the ICSID regime (e.g., under the New York Convention)

23. Execution Against States Remains Subject to Sovereign Immunity • ICSID Convention, Art. 54(3): “Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.” • ICSID Convention, Art. 55: “Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.”

24. Enforcement in Practice • The process begins with the acquisition of a certified copy of the award • Secretary-General typically able to provide in 2-3 days • May be necessary to obtain a certified translation • The enforcing party must determine which courts are the appropriate forum for enforcement of ICSID awards in the State in which it seeks enforcement • List of designated courts is available at http://icsid.worldbank.org under “Documents”

25. Enforcement By a State • A State may receive a pecuniary award (e.g., for arbitral costs and counsel fees or damages on the basis of a counter-claim) • Key issue is typically whether the investor has identifiable assets against which the award can be executed • Telenor Mobile Communications AS v. Republic of Hungary: Major transnational telecommunications company paid US$ 1.25 million award • Plama Consortium Limited v. Republic of Bulgaria: Claimant company was “owned” by a sole individual with limited financial resources, and has thus far failed to pay the award of US$ 7.46 million in costs

26. Enforcement By an Investor • States have traditionally complied voluntarily with their obligations • “[I]n almost all of the . . . 23 cases of awards upholding claims, the respondents ultimately discharged their payment obligations, either in accordance with the terms of the awards or in accordance with post-award settlement agreements on the parties.” Antonio R. Parra, The Enforcement of ICSID Arbitral Awards, in Enforcement of Arbitral Awards Against Sovereigns 136-37 (Bishop ed., 2009) • Recognition has historically not been considered an obstacle • Argentina’s interpretation of Art. 54 as allowing national court review is a notable exception • The Convention clearly precludes such national court review • Art. 54(1) requires the award be treated as a “final judgment,” and a decision subject to appeal or another form of review would not qualify as “final” See Christoph Schreuer, The ICSID Convention: A Commentary 1142 (2009)

27. Enforcement By an Investor (cont’d) • The primary obstacle to enforcement against a State is sovereign immunity • There have been four known national court decisions addressing efforts to execute an ICSID award against a debtor State: • S.A.R.L. Benvenuti & Bonfant v. People’s Republic of the Congo (ICSID Case No. ARB/77/2) • Liberian Eastern Timber Corporation v. Republic of Liberia (ICSID Case No. ARB/83/2) • Société Ouest Africaine des Bétons Industriels v. Senegal (ICSID Case No. ARB/82/1) • AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v. Republic of Kazakhstan (ICSID Case No. ARB/01/6) • In each case, the State successfully resisted the attempt to execute the award

28. Conclusion • ICSID arbitration is an advantageous form of international dispute resolution in terms of providing final and enforceable awards • The ICSID Convention specifies that awards are binding on the parties, and restricts the parties to a limited set of internal remedies • The Convention obligates Contracting States to recognize ICSID awards and enforce the pecuniary obligations set forth in them • The Convention does not, however, displace national laws governing sovereign immunity from execution • While most States have complied voluntarily with their obligations, a prevailing investor may face obstacles in executing an award against a recalcitrant State

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