Enforcement and Recovery: Theory

Introduction

This chapter considers the theory of enforcement and recovery of both International Centre for Settlement of Investment Disputes (ICSID) and non-ICSID awards in municipal courts in disputes involving states. As the number of investor–state disputes and resulting awards continues to grow,[2] the existence of an effective enforcement regime remains critical to ensuring the legitimacy and utility of investment treaty protection for both states and investors.

This chapter addresses:

  • the enforcement framework for ICSID awards under the 1965 Convention on the Settlement of Disputes between States and Nationals of Other States (the ICSID Convention);
  • the enforcement framework for non-ICSID awards, particularly under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention);
  • recent developments affecting the recognition of intra-EU investor–state awards;
  • the availability of jurisdictional immunity in applications for recognition of investor–state awards; and
  • the availability of execution immunity in respect of state property.

Investor–state dispute settlement provides foreign investors with a right to commence arbitration against a host state directly for a breach of investment protections afforded by bilateral or multilateral investment treaties entered into between states. In doing so, investor–state disputes are governed by international rather than domestic legal norms. However, when it comes to enforcement and recovery, arbitral awards must be incorporated into domestic legal systems for award creditors to avail themselves of the coercive power of states and recover against state property. Therefore, it is at the point of enforcement and recovery that municipal laws most clearly intersect with investor–state dispute settlement.

As this chapter explores, the terms 'recognition', 'enforcement' and 'execution' have been the subject of both academic and judicial consideration, and their meaning is not without controversy. For the sake of clarity, this chapter uses the term 'recognition' to refer to the process of incorporating awards into the domestic legal order up to the point where measures of execution are available (akin to exequatur in the civil tradition). The term 'execution' is used to refer to recovery against property of an award debtor. The term 'enforcement' is used generally to refer to a spectrum of activity, capable of encompassing either or both recognition and execution.

Enforcement of ICSID awards in municipal courts

The ICSID Convention has been ratified by 155 contracting states.[3] It provides the framework for the enforcement of ICSID awards[4] in the municipal courts of contracting states. The key provisions dealing with recognition and enforcement of ICSID awards are found in Section 6 of the ICSID Convention.

Recognition

Article 53(1) provides that '[t]he 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' and requires each party to abide by and comply with the terms of the award, except to the extent enforcement has been stayed pursuant to the Convention.

Article 53 gives effect to the 'closed-loop' or 'self-contained' system of the ICSID Convention, which precludes any recourse against an award other than through the mechanisms available under the Convention itself.[5] These mechanisms are contained in Section 5 of the ICSID Convention and provide for parties to request interpretation of an award (Article 50), revision of an award (Article 51) and annulment of an award on certain prescribed grounds (Article 52).

Article 54(1) imposes an obligation on contracting states to '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'. The requirements for seeking recognition or enforcement are set out in Article 54(2), which provides that '[a] party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority . . . a copy of the award certified by the Secretary-General . . .'.

Article 54(1) refers only to enforcement of 'pecuniary obligations' imposed by an award. Thus, it does not apply to other types of relief, such as an order for specific performance or a declaration.

Although procedural requirements differ between municipal courts, together Articles 53 and 54 enable an award creditor to obtain recognition of an ICSID award in the designated municipal courts of any contracting state on presentation of a certified copy of the award, subject only to the remedies provided for in Section 5 of the ICSID Convention. There is no scope under the enforcement framework of the ICSID Convention for municipal courts to refuse recognition on other grounds, be they jurisdictional, procedural, public policy or merits-based. Accordingly, the ICSID Convention provides for a comprehensive, self-sufficient system of international arbitration in the area of investment disputes.[6]

This distinguishing feature of the ICSID Convention was described in the following terms by the United Kingdom Supreme Court in Micula and others v. Romania[7] (Micula):

[I]t is a notable feature of the scheme of the ICSID Convention that once the authenticity of an award is established, a domestic court before which recognition is sought may not re-examine the award on its merits. Similarly, a domestic court may not refuse to enforce an authenticated ICSID award on grounds of national or international public policy. In this respect, the ICSID Convention differs significantly from the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

However, in Micula, the Supreme Court acknowledged the possibility of additional defences against enforcement in certain exceptional or extraordinary circumstances if (1) national law recognises such defences in respect of final judgments of domestic courts and (2) they do not directly overlap with the grounds of challenge under Articles 50 to 52 of the ICSID Convention.[8] This possibility arises because the obligation under the Article 54(1) is to enforce an ICSID award 'as if it were a final judgment of a local court'. Proponents of the principle of equivalence argue that it follows from the equivalence between ICSID awards and final judgments of local courts that any remedies against final judgments must also be available against ICSID awards. However, the Supreme Court in Micula acknowledged the 'countervailing force' of the contrary argument that this reading of Article 54(1) fails to take proper account of the self-contained scheme of the ICSID Convention.[9] For proponents of this latter view, the purpose of equating an award with a final judgment is limited to giving legal force to the award for the purpose of executing it and to provide machinery for that purpose.[10]

Ultimately, the Supreme Court in Micula did not need to determine the question and noted that the different interpretations of the ICSID Convention could only be authoritatively resolved by the International Court of Justice, there being valid arguments on both sides.[11]

Execution

The matter of execution is dealt with in Articles 54(3) and 55 of the ICSID Convention. The same insulation from municipal law does not apply at the stage of execution. Article 54(3) provides that '[e]xecution of the award shall be governed by the laws concerning execution of judgments in force in the State in whose territories such execution is sought'. Article 55 clarifies that '[n]othing 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'.

Notably, in the French and Spanish language versions of the ICSID Convention (which are equally authentic), the same word is used for 'enforce' or 'enforcement' in Articles 53 and 54(1)–(2) and for 'execution' in Articles 54(3) and 55, whereas the English language text appears to denote three distinct juridical concepts – recognition, enforcement and execution.

Reconciliation of the French and Spanish language versions of the ICSID Convention with the English version is considered by Professor Schreuer in his leading commentary on the Convention:[12]

Art. 54(1) uses the word 'enforce' twice. Art. 54(2) also refers to 'enforcement'. By contrast, Art. 54(3) uses the word 'execution' twice. This would suggest that the words 'enforcement' and 'execution' stand for different concepts. But a look at the equally authentic French and Spanish texts of the Convention yields a different picture. The French text consistently uses 'l'exécution' five times in paras. 1, 2 and 3 of Art. 54. Similarly, the Spanish text is consistent in using 'ejecutar' and 'ejecuten' in Art. 54(1), 'ejecución' in Art. 54(2) and 'ejecutará' and 'ejecución' in Art. 54(3). This means that a distinction between enforcement and execution cannot be sustained on the basis of the French and Spanish texts.

Referring to Article 33(4) of the 1969 Vienna Convention on the Law of Treaties, Professor Schreuer concludes, '[i]n the case of Art. 54 of the ICSID Convention, the interpretation that best reconciles the three texts would appear to be that the words “enforcement” and “execution” are identical in meaning'.[13]

This issue and the juridical content of the terms 'recognition', 'enforcement' and 'execution' were recently considered by the Australian courts in Kingdom of Spain v. Infrastructure Services Luxembourg Sàrl [14] in the context of whether or not the Kingdom of Spain had submitted to the jurisdiction of the Australian court and thereby waived sovereign immunity by reason of its ratification of the ICSID Convention.

At first instance, the Federal Court of Australia found that the English text of the ICSID Convention draws a clear distinction between recognition and enforcement on one hand and execution on the other, preserving foreign state immunity only in relation to execution.[15] The Kingdom of Spain argued, relying on the Spanish and French texts, that there is in fact no distinction between enforcement and execution in the ICSID Convention. In reconciling the different language versions of the ICSID Convention, Justice Stewart came to a different conclusion from Professor Schreuer, holding 'the only way of reading the three texts consistently with each other is to give those words the meaning of the English word “execution” where they are used in Art 54(3) and Art 55'.[16] As a consequence, the preservation of foreign state immunity in Article 55 is limited to immunity 'from execution in the sense of post-judgment execution and not the broader concept of enforcement'.[17]

On appeal, the Full Federal Court approached the issue differently. It accepted the Kingdom of Spain's submission that the distinction in the ICSID Convention is between 'recognition' on the one hand and 'enforcement/execution' on the other.[18] However, the Full Federal Court reached the same conclusion as the first instance decision because it characterised the proceedings as an application for recognition only, and therefore held that the preservation of foreign state immunity in Article 55 did not apply.[19]

The question then became what form of orders gives effect to an application for recognition. This question was determined in a further judgment of the Full Federal Court,[20] which held that 'the order to which the party is entitled is one which gives the award the recognised status of a judgment and is enforceable as such'.[21] Turning to the content of the phrase, 'as if it were a final judgment' in Article 54(1), the Full Federal Court described the obligation on contracting states in the following terms:[22]

There is to be no difference in consequence and status between an award and a judgment. Thus, it is legitimate to perfect this statutory command to 'enforce as if', by entering judgment for the award debtor's pecuniary obligations under the award and thereby creating a judgment debt . . . such an approach 'gives the required recognised status to the award in the domestic firmament: It is to be seen as (recognised as) equivalent to a domestic judgment and is to be enforceable as such.'

At present, the Federal Court of Australia's approach is consistent with that of other jurisdictions, both common law and civil law, as demonstrated by the decision of the United States District Court for the Southern District of New York in Liberian Eastern Timber Corporation v. Government of the Republic of Liberia [23] and the decisions of the French courts in Benvenuti & Bonfant Co v. People's Republic of Congo [24] and Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal.[25]

Recognition of non-ICSID awards in municipal courts

Not all investor–state arbitrations are conducted under the ICSID Convention. Investor–state disputes are also commonly determined under different rules (such as the UNCITRAL Rules) or under the auspices of the Permanent Court of Arbitration, the International Chamber of Commerce (ICC) or the Stockholm Chamber of Commerce. Awards arising from these cases can be enforced in municipal courts either under the New York Convention (where it applies) or the municipal law of the forum (where it does not). Given the wide scope of the New York Convention and its ratification by a large number of states, this chapter considers the recognition of non-ICSID awards in municipal courts under the provisions of the New York Convention.

Although the New York Convention does not contain any express provision with respect to awards to which a state is party, it has been applied to such awards.[26]

Article III of the New York Convention requires that '[e]ach 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 Convention.

Under Article IV, to obtain recognition and enforcement, the applicant must supply a duly authenticated original award or a duly certified copy thereof and the original arbitration agreement or a duly certified copy thereof. Further, if the award or agreement is not made in the official language of the country where recognition and enforcement is sought, a certified translation into that language must also be produced.

As noted above, the key difference between enforcement under the ICSID Convention and the New York Convention is the availability of grounds on which a party can resist enforcement in municipal courts. Unlike the ICSID Convention, the New York Convention does not establish a 'closed-loop' or 'self-contained' system. The grounds on which recognition and enforcement of a non-ICSID award may be refused by a municipal court on application of the party against whom it is invoked are set out in Article V(1). In summary, that party must be able to prove that:

  • the parties to the arbitration agreement were, under the law applicable to them, under some incapacity, or the said agreement is not valid;
  • the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present its case;
  • the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
  • the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement was not in accordance with the law of the country where the arbitration took place; or
  • the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.

Article VI provides that if an application for setting aside of the award has been made, the municipal court before which recognition and enforcement is sought may, if it considers it proper, adjourn the decision on enforcement and may, on the application of the award debtor, order the other party to give suitable security.

In addition, under Article V(2), the enforcing court may also refuse recognition and enforcement of a non-ICSID award where it finds that:

  • the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
  • the recognition or enforcement of the award would be contrary to the public policy of that country.

The scope afforded to these grounds, particularly the public policy ground, differs between jurisdictions. While many take a 'pro-arbitration' stance and afford the Article V grounds a narrow construction, others subject awards to more scrutiny, including by reference to municipal concepts of arbitrability and public policy.

Recognition of investor–state awards in the European Union

No discussion of recognition and the impact of concepts of arbitrability and public policy is complete without consideration of the position of investor–state awards under EU law, which has in recent years undergone considerable, albeit controversial, development. In March 2018, in Slovak Republic v. Achmea BV (Achmea),[27] the Court of Justice of the European Union (CJEU) denied the arbitrability of investment disputes between EU Member States and investors from EU states 'which may concern the application or interpretation of EU law'.[28] Achmea held that submitting such disputes to a body that is not part of the judicial system of the EU (such as an investor–state arbitral tribunal) would 'have an adverse effect on the autonomy of EU law'.[29]

Achmea arose in the context of a bilateral investment treaty between two EU Member States. Whether Achmea's reasoning also applies to a multilateral treaty such as the Energy Charter Treaty, to which the EU itself and a number of EU Member States and non-EU Member States are party, has been a matter of debate. In September 2021, the CJEU answered the question in the affirmative in its ruling in the Republic of Moldova v. Komstroy (Komstroy),[30] concluding that, as a matter of EU law, Article 26 of the Energy Charter Treaty is not applicable to 'intra-EU' disputes.[31]

Thus, in light of the CJEU's rulings in Achmea and Komstroy, any intra-EU investor–state award (i.e., between an investor of an EU Member State on the one hand and an EU Member State on the other) will face serious obstacles for recognition and enforcement before courts in EU Member States.

Foreign state immunity

Introduction

The doctrine of foreign state immunity occupies a fundamental place in international law and international relations. In 2012, the International Court of Justice in Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening) opined that:[32]

The Court considers that the rule of State immunity occupies an important place in international law and international relations. It derives from the principle of sovereign equality of States, which, as Article 2, paragraph 1, of the Charter of the United Nations makes clear, is one of the fundamental principles of the international legal order. This principle has to be viewed together with the principle that each State possesses sovereignty over its own territory and that there flows from that sovereignty the jurisdiction of the State over events and persons within that territory. Exceptions to the immunity of the State represent a departure from the principle of sovereign equality. Immunity may represent a departure from the principle of territorial sovereignty and the jurisdiction which flows from it.

Some 200 years earlier, in 1812, the United States Supreme Court in The Schooner Exchange v. M'Faddon,[33] recognised foreign state immunity in what is regarded as a foundational decision in the development of the doctrine. The Supreme Court in The Schooner Exchange drew on reasoning from general principles of territorial sovereignty, the equality and independence of states, and notions of implied consent, personal immunities of heads of state, of ambassadors, of visiting forces and by reference to treaty and other practice.[34]

Foreign state immunity comprises two related concepts relevant at two stages of the enforcement process: (1) immunity from suit (i.e., immunity of foreign states from the jurisdiction of municipal courts) (jurisdictional immunity); and (2) immunity from execution (i.e., immunity of a foreign state's property from execution of a judgment or award against such property) (execution immunity).[35] This distinction finds support in customary international law and international treaties on immunity.[36] However, there is no single international treaty regime in force governing foreign state immunity.[37]

Accordingly, the application of the doctrine of foreign state immunity has primarily been subject to each state's municipal laws. In practice, this has resulted in a lack of uniformity in the development and application of the rules of foreign state immunity as between states.[38] Unsurprisingly, foreign state immunity and its limits and exceptions has generated considerable controversy over time.[39] Practitioners are well advised to consider closely the specific laws of the jurisdictions in which they are engaged.

In its original conception, foreign state immunity was (broadly) absolute.[40] A small minority of states today maintain a doctrine of absolute foreign state immunity.[41] However, over the past several decades a majority of states have accepted into their municipal legal systems a concept of restrictive immunity through state practice, statutory enactment or by case law.[42] In broad terms, restrictive jurisdictional immunity applies in respect of a state's sovereign as opposed to commercial acts, while restrictive execution immunity serves to protect state property that is sovereign in nature rather than commercial.[43] As a general rule, states with a doctrine of restrictive immunity provide for a general immunity, subject to a number of exceptions.[44] The balance of this chapter addresses the restrictive immunity context.

The two most common frameworks through which arbitral awards are sought to be recognised and enforced against states are the ICSID Convention and the New York Convention. As noted above, the ICSID Convention has been found to remove jurisdictional immunity in respect of recognition proceedings, while expressly reserving execution immunity to the municipal legal system in which execution of an ICSID award is sought. The New York Convention contains no express provisions dealing with foreign state immunity.

Restrictive jurisdictional immunity

Restrictive jurisdictional immunity is a general immunity subject to exceptions. The main exceptions are waiver or submission, or both; and engaging in a commercial activity.

Waiver or submission

A foreign state cannot rely on jurisdictional immunity to the extent that it has been waived by a submission to jurisdiction.[45] A waiver can be express or implied but must be clear and unequivocal. It is trite that an appearance before a court merely to assert immunity is not a waiver.[46] Equally, it is uncontroversial to treat as binding a submission to jurisdiction implied when a state appears before a court and takes active steps to defend the merits of a dispute.[47]

However, waiver by prior agreement is a common source of contention and is addressed in greater detail below.

Arbitration agreement

The International Law Commission's Special Rapporteur, Sompong Sucharitkul, in his sixth report stated:[48]

Once a State agrees in a written instrument to submit disputes which have arisen or may arise between it and other private parties to a transaction, there is an irresistible implication, if not an almost irrebuttable presumption, that it has waived its jurisdictional immunity in relation to all pertinent questions arising out of the arbitral process, from its initiation, judicial confirmation and enforcement of the arbitral award.

In respect of the courts of the forum in which the arbitration is seated, the above is uncontroversial. However, there are divergent approaches between states as to whether an agreement to arbitrate under the law of one state amounts to an implied waiver of jurisdictional immunity in other states where enforcement of the award is sought.[49]

Thus, Australia has adopted the 'narrower view' and limits the implication of an agreement to arbitrate to a waiver of jurisdictional immunity to the supervisory forum.[50] By contrast and in support of the 'wider view' is a line of United States case law[51] commencing with Ipitrade International SA v. Federal Republic of Nigeria,[52] in which the United States District Court of the District of Columbia held that Nigeria, in agreeing to arbitrate, must have contemplated enforcement of arbitral awards in other New York Convention signatory states. Accordingly, Nigeria had implicitly waived its jurisdictional immunity under the US Foreign Sovereign Immunities Act (1976).[53]

In practice, divergence remains between jurisdictions, and practitioners should carefully consider the scope of arbitration agreement exceptions in the jurisdictions in which they are engaged.

New York Convention

It is generally accepted that the combination of (1) an agreement to arbitrate (where such arbitration and award is one to which the New York Convention would apply); and (2) ratification by a state of the New York Convention is sufficient to waive jurisdictional immunity in respect of enforcement of New York Convention awards. This is consistent with Articles III and V of the New York Convention.

Professor Schreuer addressed the question of waiver of jurisdictional immunity and the New York Convention as follows:[54]

The [New York] Convention by itself would not support a withdrawal of immunity. In fact, it does not even mention that question. Its function in our context is to create an obligation of courts of Parties to the Convention to enforce arbitral agreements and awards rendered in other States Parties to the [New York] Convention. It thereby creates the necessary jurisdictional nexus to the forum State to make submission to arbitration operative as a waiver of immunity. In other words, the combination of an agreement to arbitrate in a State Party to the [New York] Convention and of the obligations under the [New York] Convention should lead to a withdrawal of immunity for purposes of the arbitration in all other Parties to the [New York] Convention. This joint operation of consent to arbitrate and treaty provisions to make it effective in a large number of States is not an undue extension of jurisdiction over States which have submitted to arbitration. It is entirely foreseeable for them and part of the legal framework accepted when consenting to arbitration.

Similarly, the Federal Court of Canada has held that 'the mere fact' of agreeing to arbitration seated in a state party to the New York Convention is sufficient to waive jurisdictional immunity in Canada.[55]

As to whether the ratification of the New York Convention, without more, is sufficient to amount to an implied waiver of jurisdictional immunity, the courts in the United States have considered the issue in detail. In Seetransport Wiking Trader v. Navimpex Centrala (Seetransport),[56] the United States Court of Appeals for the Second Circuit found an implied waiver on the basis of the New York Convention. The Court held that: 'when a country becomes a signatory to the [New York] Convention, by the very provisions of the Convention, the signatory state must have contemplated enforcement actions in other signatory states . . . [the New York Convention] expressly permits recognition and enforcement actions in Contracting States'.[57] More recently, in Process and Industrial Developments Ltd v. Federal Republic of Nigeria, the US District Court for the District of Columbia found that Nigeria had impliedly waived its jurisdictional immunity by signing the New York Convention, holding:[58]

This line of authority is unbroken, and for good reason. The New York Convention 'specifically declares that it “shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought”' and 'further provides that “[e]ach 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[.]”' Seetransport, 989 F2d at 578 (quoting N.Y. Conv., arts. I, III). As the Second Circuit persuasively reasoned in Seetransport, no state could sign such a document without contemplating that it would be subject to actions for enforcement of arbitral awards in the courts of other [New York] Convention signatories, including the U.S. . . .

As a matter of principle, the US case law on this issue has much to commend it, particularly given the near universal coverage of the New York Convention and the public interest in ensuring effective enforcement of arbitral awards when engaged with state actors and consistent with global economic connectivity.

ICSID Convention

A body of case law also exists supporting the proposition that by becoming a signatory to the ICSID Convention, a state waives jurisdictional immunity in respect of the (designated) courts of other contracting states in relation to an ICSID award, but not in respect of execution immunity. This follows from the language of Article 54 (and Article 55) of the ICSID Convention.

Thus, in Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal,[59] the French Court of Cassation observed that a foreign state that has consented to ICSID arbitration has thereby agreed that the award may be granted recognition, meaning that it has waived jurisdictional immunity. Similarly, in Blue Ridge Investments LLC v. Republic of Argentina,[60] the United States Court of Appeals for the Second Circuit held that Argentina had waived its jurisdictional immunity by becoming a party to the ICSID Convention. The Court stated: 'In light of the enforcement mechanism provided by the ICSID Convention, we agree with the District Court that Argentina “must have contemplated enforcement actions in other [s]tates including the United States”.'[61] The decision in Blue Ridge Investments was affirmed more recently in Mobil Cerro Negro Ltd v. Bolivarian Republic of Venezuela.[62]

In Australia, the same conclusion was reached by the Federal Court in Eiser Infrastructure Limited v. Kingdom of Spain[63] and affirmed at an appellate level in Kingdom of Spain v. Infrastructure Services Luxembourg Sàrl,[64] which held that:[65]

The question then arises whether Art 54(1) and (2) [of the ICSID Convention] constitute Spain's agreement to submit to the jurisdiction of the [Federal Court of Australia] in a recognition proceeding. The answer is that they do . . . The view that a plea of immunity is not available in recognition proceedings is well-established and Spain's contentions [to the contrary] are notable for their heterodoxy . . .

The above position represents a principled approach to the question of waiver of jurisdictional immunity in the context of ICSID Convention awards, in light of the plain meaning and effect of Article 54 of the ICSID Convention.

Commercial transactions

Under the doctrine of restrictive immunity, the basic principle upon which the commercial transaction exception to jurisdictional immunity rests is that when a foreign state acts in a 'commercial' matter within the ordinary jurisdiction of municipal courts, it should be subject to that jurisdiction. Notoriously, the principle is easy to state at this high level of generality but often difficult to apply to particular fact scenarios. This issue is explored in further detail in relation to execution immunity below.[66]

Restrictive execution immunity

Execution immunity has been described as 'the last fortress, the last bastion of State Immunity'.[67] Execution against a state's property is only permissible in two main scenarios: (1) through an explicit or implied waiver of execution immunity; or (2) through enforcement against a state's commercial property (in restrictive immunity jurisdictions).

Waiver

So far as explicit waivers of execution immunity are concerned, these may be as to general state property or in respect of some specific property earmarked by the state to satisfy a liability or arbitral award.[68]

In respect of implied waivers of execution immunity, generally, and especially so in common law jurisdictions, a waiver of jurisdictional immunity does not extend to a waiver of execution immunity.[69]

No implied waiver of execution immunity is available from the language of the ICSID Convention given that Article 55 of the ICSID Convention expressly preserves execution immunity to the domestic laws of contracting states.

The New York Convention contains no express provisions addressing foreign state immunity, whether as to jurisdiction or execution. However, a small number of civil law jurisdictions, principally France and Switzerland,[70] have found that a waiver of jurisdictional immunity through submission to arbitration in a New York Convention state extends to a waiver of execution immunity.[71] Thus, in Société Creighton v. Qatar,[72] the French Court of Cassation held that Qatar had impliedly waived its execution immunity by entering into an arbitration agreement providing for the ICC Rules, which proscribe that an award will be binding upon the parties and that the parties are obliged to comply.[73] As a consequence these jurisdictions are considered to be particularly pro-enforcement.

Commercial property

The doctrine of restrictive immunity holds that states are not immune in relation to acts undertaken by a state as a commercial actor in contrast to acts undertaken by a state in a sovereign capacity. As a consequence it is generally accepted that execution immunity does not extend to a state's commercial property.[74]

However, the question as to what is commercial property is complex[75] because there is not always a clear division between acts jure imperii and jure gestionis.[76] By way of illustration, a contract for the supply of goods or services in return for monies may be commercial in nature but be entered into in furtherance of a sovereign purpose. Similarly, the commercialisation of state-owned natural resources involves both commercial and sovereign acts.

Municipal laws differ in how to address this issue, particularly as to whether the inquiry is focused upon the nature of the act or its purpose.

In some jurisdictions, the law is developing so as to focus on the nature of the act, rather than its purpose.[77] Thus, the US Foreign Sovereign Immunity Act (1976) permits execution against foreign state property in the United States 'used for a commercial activity in the United States'.[78] 'Commercial activity' is defined to mean '[e]ither a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.'[79]

The UK State Immunity Act (1978) provides that a state is not immune in respect of proceedings relating to 'a commercial transaction', where a 'commercial transaction' includes 'any contract for the supply of goods or services'; and 'any loan or other transaction for the provision of finance . . .'.[80] Thus, it distinguishes commercial transactions and contracts from transactions or activity into which a state engages in the exercise of sovereign authority, and requires the conduct in question to be examined to determine into which category conduct falls.[81] Highlighting the intricacies of such inquiries in Orascom Telecom Holding SAE (Orascom) v. The Republic of Chad,[82] Chad sold oil via a pipeline constructed with loans extended by the World Bank (among others), with the proceeds from oil sales being held in a bank account in London to facilitate repayment of the loan monies. The court held that the funds did not have execution immunity from attachment to pay an award arising from a dispute in the telecommunications sector won by Orascom in an ICC arbitration.[83]

In the Republic of Argentina v. Weltover Inc, the United States Court of Appeal for the Second Circuit identified that:[84]

Conduct that has been held to constitute commercial activity in the United States includes a State's issuance of bonds to U.S. investors, a national space agency's obtaining and assertion of U.S. patents, a national airline's sale of tickets to U.S. passengers, a defense ministry's purchase of military supplies, a State art gallery's publication of books and advertising of exhibitions in the United States, a State commission's entry into a contract with a U.S. company for the sale of an aircraft, and a State instrumentality's sale of spices to, and purchase of supplies from, U.S. companies.

However, indicative of divergent views between states on this issue, the United Nations Convention on Jurisdictional Immunities of States and Their Property adopts a hybrid nature and purpose approach, providing:[85]

In determining whether a contract or transaction is a 'commercial transaction' . . . reference should be made primarily to the nature of the contract or transaction, but its purpose should also be taken into account if the parties to the contract or transaction have so agreed, or if, in the practice of the state of the forum, that purpose is relevant to determining the non-commercial character of the contract or transaction.

A further practical issue is that in seeking to establish that state property is not sovereign but commercial, there can often exist information asymmetry as between a state and a private entity in favour of the state, which can make discharging the evidentiary burden challenging.

Conclusion

As this chapter demonstrates, the legal foundations of investor–state dispute resolution in respect of enforcement and recovery reflect a complex intersection of international law and municipal laws that are subject to varying interpretations across different jurisdictions and legal traditions. Jurisprudence continues to develop in relation to key concepts such as recognition, enforcement and execution, as well as the scope and limitations of arbitrability, public policy and foreign state immunity. This area of the law is dynamic and merits close attention.

Notes

[1] Andrew Battisson and Tamlyn Mills are partners at Norton Rose Fulbright.

[2] The number of cases registered by ICSID under the ICSID Convention and Additional Facility Rules has increased from between one and four cases per year between 1972 and 1996, to 58 cases in 2020, the highest number recorded by ICSID in any year (see 'The ICSID Caseload – Statistics', Issue 2021–2 at https://icsid.worldbank.org/sites/default/files/Caseload%20Statistics%20Charts/The%20ICSID%20Caseload%20Statistics%202021-2%20Edition%20ENG.pdf).

[3] ICSID, 'List of Contracting States and Other Signatories of the Convention' at https://icsid.worldbank.org/sites/default/files/documents/2021_Sep.ICSID.ENG.pdf.

[4] That is, awards rendered under the ICSID Convention. Awards issued under the ICSID Additional Facility Rules or administered by ICSID under the UNCITRAL Rules are not, strictly, ICSID awards.

[5] Aron Broches, 'Awards Rendered Pursuant to the ICSID Convention: Binding Force, Finality, Recognition, Enforcement, Execution', ICSID Review – Foreign Investment Law Journal at p. 288, where the architect of the ICSID Convention describes it as establishing 'a complete, exclusive and closed jurisdictional system, insulated from national law'.

[6] A J van den Berg, 'Some Recent Problems in the Practice of Enforcement under the New York and ICSID Conventions', (1987) 2 ICSID Review – Foreign Investment Law Journal 439, at p. 441.

[7] [2020] UKSC 5 at Paragraph 68.

[8] id. at Paragraph 78.

[9] id. at Paragraph 81.

[10] ibid.

[11] id. at Paragraph 83.

[12] Christoph Schreuer, The ICSID Convention: a Commentary (Cambridge University Press, 2010) at p. 1134.

[13] id. at p. 1135.

[14] [2021] FCAFC 3.

[15] Eiser Infrastructure Limited Ltd v. Kingdom of Spain [2020] FCA 157 at Paragraph 98.

[16] id. at Paragraph 142. See also Paragraph 153.

[17] id. at Paragraph 144.

[18] Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3 per Perram J at Paragraphs 75–97.

[19] id. at Paragraphs 22–25.

[20] Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. (No. 3) [2021] FCAFC 112.

[21] id. per Allsop C J at Paragraph 7.

[22] id. at Paragraph 9. The Kingdom of Spain has applied for special leave to the High Court of Australia. As at November 2021, that application remains pending.

[23] 650 F Supp 73 (SDNY 1986).

[24] Court of Appeal, Paris (26 June 1981) 1 ICSID Reports 368 at 371; 108 Journal du Droit International 843 at 845.

[25] Court of Cassation (11 June 1991) 2 ICSID Reports 341; 118 Journal du Droit International 1005.

[26] A J van den Berg, 'Some Recent Problems in the Practice of Enforcement under the New York and ICSID Conventions', (1987) 2 ICSID Review – Foreign Investment Law Journal 439 at pp. 447–448.

[27] Case C-284/16, EU:C:2018:158 (CJEU).

[28] id. at Paragraph 55.

[29] id. at Paragraph 59.

[30] Case C-741/19 (2019/C 413/41) (CJEU).

[31] id. at Paragraphs 60–66.

[32] Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening) Judgment [2012] ICJ Rep 99, at Paragraph 57.

[33] 7 Cranch 116 (1812).

[34] 7 Cranch 116, 137–143 (1812); The Law Reform Commission, 'Foreign State Immunity', Report No. 24, Australian Government Publishing Service (1984) per Professor Crawford (the ALRC Report) at Paragraph 8.

[35] Andrea K Bjorkland, 'Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes', 21 Am. Rev. Int'l Arb. (2010) 211 at p. 211.

[36] id. at p. 212; Hazel Fox and Philippa Webb, The Law of State Immunity, Third edition (Oxford University Press, 2013) at p. 13, citing Al-Adsani v. UK (2002) 24 EHRR 11; Jones v. Minister of Interior of Saudi Arabia & Ors [2006] UKHL 26. See also Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening) Judgment [2012] ICJ Rep 99 at Paragraph 56; 'Report of the International Law Commission on the work of its Thirty-second session', UN GAOR, 35th Session, Supp. No 10, UN Doc A/35/10 (5 May–25 July 1980), p. 147 at Paragraph 26. See, also, International Convention for the Unification of Certain Rules relating to the Immunity of State-owned Vessels, opened for signature 10 April 1926 (1937) 179 LNTS 199 (entered into force 8 January 1936), dealing with the immunity and liability of state ships in commercial use; European Convention on State Immunity, opened for signature 16 May 1972 (1972) 74 ETS 16 (entered into force 11 June 1976), a treaty in force between eight European states (Austria, Belgium, Cyprus, Germany, Luxembourg, Netherlands, Switzerland and the United Kingdom).

[37] The United Nations Convention on Jurisdictional Immunities of States and Their Property (opened for signature 2 December 2004) is not yet in force.

[38] P D Winch, 'State Immunity and Execution of Investment Arbitration Awards: A Review of the Plea of Sovereign Immunity and the Execution of Investment Arbitration Awards from the Viewpoint of the Forum State', in C Titi (ed.), European Yearbook of International Economic Law: Public Actors in International Investment Law (Springer, 2021), at pp. 57–77.

[39] See, e.g., Hersch Lauterpacht, 'The Problem of Jurisdictional Immunities of Foreign States' (1951) 28 British Yearbook of International Law 220 at p. 247; Eiser Infrastructure Limited Ltd v. Kingdom of Spain [2020] FCA 157 at Paragraph 64, citing the ALRC Report at p. xxi, Paragraph 32.

[40] See, e.g., The Cristina [1938] AC 485 at p. 490 per Lord Atkin; the ALRC Report at Paragraph 10.

[41] Including, notably, the People's Republic of China and Hong Kong per Democratic Republic of the Congo & Ors v. FG Hemisphere Associates LLC (2011) 14 HKCFAR 95; (2011) 14 HKCFAR 395; the ALRC Report at Paragraph 12, footnote 53.

[42] The ALRC Report at Paragraphs 13-15; James Crawford, 'Execution of Judgments and Foreign Sovereign Immunity', 75 Am. J. Int'l L. 820 at pp. 858–865 (1981). See, e.g., I Congreso del Partido [1978] QB 500 (per Robert Goff J); [1980] 1 Lloyd's Rep. 23 (Court of Appeal); and [1983] 1 AC 244 (House of Lords); Trendtex Trading Corporation v. Central Bank of Nigeria [1983] 1 AC 244 at p. 261 where Lord Wilberforce opined that Trendtex established 'that as a matter of contemporary international law, the "restrictive" theory should be generally applied'.

[43] Andrea K Bjorkland, 'Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes', 21 Am. Rev. Int'l Arb. (2010) 211 at p. 213.

[44] See, e.g., Foreign Sovereign Immunities Act 1976, Section 1604 (United States); State Immunity Act 1978, Section 1 (United Kingdom); Foreign State Immunities Act, Section 9 (Australia).

[45] See, e.g., Foreign Sovereign Immunities Act 1976, Section 1605(1) (United States); Foreign States Immunities Act 1985, Section 10 (Australia); State Immunity Act 1978, Section 2 (United Kingdom).

[46] See, e.g., the ALRC Report at Paragraph 24.

[47] ibid; see also Rights of Minorities in Polish Upper Silesia case, PCIJ Reports, Series A, No. 15, pp. 24–25 (1928); Baccus SRL v. Servcio Nacional del Trigo [1957] 1 QB 438.

[48] Sompong Sucharitkul, 'Sixth Report on Jurisdictional Immunities of States and Their Property', 1984 Yearbook Int'l L. Comm. 5 at Paragraph 255.

[49] The ALRC Report at Paragraph 107.

[50] See Foreign State Immunity Act (1985) (Australia) at Section 17.

[51] See, e.g., Birch Shipping Corp v. Embassy of Tanzania 507 F Supp 311 (1980); the ALRC Report at Paragraph 106.

[52] 465 F Supp 824 (D.D.C. 1978).

[53] The Foreign State Immunities Act (1976) (United States) was amended in 1988 to include a wider view arbitration exception at Section 1605(a)(6), which, at least so far as the United States is concerned, puts the matter beyond doubt.

[54] Christoph Schreuer, State Immunity: Some Recent Developments (Cambridge University Press, 1988) at p. 87.

[55] TMR Energy Ltd v. State Property Fund of Ukraine, 2003 FC 1517, at Paragraph 65.

[56] 989 F2d 572 (2d Cir. 1993).

[57] id. at p. 578. See also Creighton Ltd v. Qatar, 181 F3d 118, 126 (D.C. Cir. 1999) approving Seetransport, but noting that Qatar did not impliedly waive jurisdictional immunity as it had not at the relevant time ratified the New York Convention; and Tatneft v. Ukraine, 771 F. App'x 9, 10 (D.C. Cir. 2019). In 2020, the US Supreme Court denied a petition to appeal this decision: Ukraine v. Pao Tatneft, 140 S. Ct. 901 (2020).

[58] Process and Industrial Developments Ltd v. Federal Republic of Nigeria 506 F Supp 3d 1, 8 (2020).

[59] (1991) 30 ILM 1169 at p. 1169. See also Benvenuti & Bonfant v. People's Republic of the Congo, Court of Appeal, Paris (26 June 1981) 65 ILR 88 at p. 90.

[60] 735 F3d 72 (2nd Cir. 2013).

[61] id. at p. 84. See also Liberian Eastern Timber Corporation (LETCO) v. The Government of the Republic of Liberia, 650 F Supp 73 (SDNY 1986) at p. 76.

[62] 863 F3d 96 (2nd Cir. 2017).

[63] [2020] FCA 157 at Paragraph 98.

[64] [2021] FCAFC 157.

[65] id. at Paragraphs 37–38 per Perram J. See also Lahoud v. The Democratic Republic of Congo [2017] FCA 982 at Paragraph 20 per Gleeson J (as she then was).

[66] The ALRC Report at Paragraph 90.

[67] Sompong Sucharitkul, Commentary to ILC Draft Articles, Article 18, 1, C/AN.4/L/452/Add3.

[68] Andrea K Bjorkland, 'Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes', 21 Am. Rev. Int'l Arb. (2010) 211 at p. 222.

[69] See, e.g., European Convention on State Immunity, opened for signature 16 May 1972 (1972) 74 ETS 16 (entered into force 11 June 1976), Article 23; the ALRC Report at Paragraph 29; Andrea K Bjorkland, 'Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes', 21 Am. Rev. Int'l Arb. (2010) 211 at p. 223.

[70] Sarah Francois-Poncet et al., 'Enforcement of Foreign Arbitral Awards Against Sovereign States or State Entities – France', in R Doak Bishop (ed.), Enforcement of Arbitral Awards Against Sovereigns (Juris, 2009), pp. 355, 369–371; Michael E Schneider and Joachim Knoll, 'Enforcement of Foreign Arbitral Awards Against Sovereigns – Switzerland', in R Doak Bishop (ed.), Enforcement of Arbitral Awards Against Sovereigns (Juris, 2009), 311 at pp. 343–345.

[71] Jacob A Kuipers, 'Too Big to Nail: How Investor-State Arbitration lacks an Appropriate Execution Mechanism for the Largest Awards', 39 B.C Int'l & Comp. L. Rev. 417 (2016) at p. 426.

[72] Société Creighton v. Ministre des Finances de L'Etat du Qatar et autre, Court of Cassation [Cass.] le civ, 6 July 2000, 127 J.D.I. 1054 (2000).

[73] See Article 24(2) of the ICC Rules 1998, now Article 35(6) of the ICC Rules 2021.

[74] August Reinisch, 'European Court Practice Concerning State Immunity from Enforcement Measures', 17 European J. Int'l L 803 (2006) at pp. 813-817; Andrea K Bjorkland, 'Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes', 21 Am. Rev. Int'l Arb. (2010) 211 at p. 225.

[75] Although falling outside the scope of this chapter, the challenges of identifying and locating state commercial property are considerable.

[76] Jack Beatson, 'The Final Chapter of the Demise of the Pure Absolute Doctrine of State Immunity in English Law: A Swedish vignette', Arbitration International, 2021, 37, 419 at p. 427.

[77] Cf. the State Immunity Act (Singapore) (Chapter 313, Revised Edition 2014), which includes a commercial exception to execution immunity for property 'which is for the time being in use or intended for use for commercial purposes', per Section 15(4).

[78] Section 1610(a).

[79] Foreign Sovereignty Immunity Act (1976) (United States) per Section 1603(d).

[80] State Immunity Act (1978) (United Kingdom) per Section 3(1) and Section 3(3). The State Immunity Act (Singapore) (Chapter 313, Revised Edition 2014) is modelled closely on the UK State Immunity Act (1978).

[81] For a recent detailed discussion of the evolution of English law from absolute to restrictive immunity, and the difficulties of drawing a dividing line between sovereign and commercial purposes and the challenges posed by legal tests that shift the inquiry 'from a status based one turning on the identity of the [state] to a conduct based one founded on the subject matter of the of the proceedings', see generally, Jack Beatson, 'The Final Chapter of the Demise of the Pure Absolute Doctrine of State Immunity in English Law: A Swedish vignette', Arbitration International, 2021, 37 at pp. 419–431.

[82] [2008] EWHC 1841 (Comm) at Paragraphs 20–25.

[83] Andrea K Bjorkland, 'Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes', 21 Am. Rev. Int'l Arb. (2010) 211 at p. 227.

[84] 504 U.S. 607 (1992) at p. 614.

[85] United Nations Convention on Jurisdictional Immunities of States and Their Property, GA Res. 59/38 (2 December 2004) per Article 2(2).

Unlock unlimited access to all Global Arbitration Review content