Most treaties make clear that the awards handed down by ISDS tribunals are binding on the parties to the proceedings. The BIT between Bosnia and Herzegovina and San Marino (2011) contains language typical in this regard: “The arbitration award shall be final and binding on both parties to the dispute and shall be executed according to the law of the Contracting Party concerned” (Article 10.6). Compliance with an arbitral decision rendered against a State under an investment treaty thus becomes an international obligation of the State whose violation can, for example, give grounds for countermeasures.
Most States have honoured their obligations and paid awards voluntarily, though there have been several known cases of non-payment.185 In the event a State does not comply with an arbitral award, investors can seek enforcement in national courts and locate commercial assets in an enforcing jurisdiction. They can also seek the assistance of their home government. Article 27 of the ICSID Convention allows the exercise of diplomatic protection in such cases.186 In consonance with Article 27, most IIAs also permit, or at
185 Peterson and Hepburn, 2011. In addition to the preceding governments, Argentina, Russia, and Zimbabwe have been reluctant to honour awards against them. See Peterson, 2010.
186 “No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other
least do not preclude, the assistance of an investor’s home State in the event of a host State’s refusal to pay. For example, the above-mentioned agreement between Bosnia and Herzegovina and San Marino allows a Party to exercise diplomatic protection if “the other Contracting Party should fail to abide by or to comply with any award rendered by an arbitral tribunal” (Article 10.4).
The Colombia-Japan BIT (2011) envisages a possibility of State-State proceedings in these situations:
“2. If the disputing Party fails to abide by or comply with an award, upon a request of the Contracting Party other than the disputing Party, an arbitration board in conformity with Article 24 [on State-State arbitration] may be established. The requesting Party may seek in such proceedings:
(a) a determination that the failure to abide by or comply with the final award is inconsistent with the obligations of this Agreement; and
(b) a recommendation to the disputing Party to abide by or comply with the award.”
There are examples when home States have suspended advantages otherwise available to non-complying States and have exerted diplomatic pressure.187
Contracting State shall have failed to abide by and comply with the award rendered in such dispute.” (Article 27(1)).
187 In March 2012, the United States suspended application of its generalized system of tariff preferences (GSP) to Argentina. The United States' GSP scheme allows exporters from eligible countries to pay lower customs duties on their exports to the United States. The US Government explained that the GSP benefits will be suspended until Argentina honours the outstanding arbitral awards rendered against it in favour of US claimants.
Enforcement procedures. Awards rendered under the ICSID Convention are subject to its enforcement provisions. To facilitate enforcement, the ICSID Convention requires that each Contracting State188 treat pecuniary obligations in awards rendered under the Convention as if they were final judgments of the courts of that State. The annulment procedure described in section II.Q.2 above is the only way to challenge an ICSID Convention award. The a-national nature of ICSID Convention arbitration means that a disputing party may not challenge an award any further after losing its application for annulment.
With respect to investment treaty awards rendered outside the ICSID Convention (including awards issued under the ICSID Additional Facility Rules189), the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards serves as the main tool to facilitate enforcement. It allows eligible arbitral awards to be enforced in any of the 149 States that are parties to the Convention.
The New York Convention provides that each State party must recognize and enforce arbitral awards rendered outside its territory.
Most States have made a declaration that they will apply the Convention only to the recognition and enforcement of awards made in the territory of another Contracting State (i.e., not any third State). Thus, most non-ICSID Convention arbitrations are sited in a New York Convention State in order to facilitate enforcement.
Indeed, some investment treaties contain a requirement that the arbitration be sited in a State party to the New York Convention.190
188 One hundred and forty-nine States had ratified the Convention as of August 2013.
189 See section II.D above.
190 For example, the Colombia-Korea FTA provides: “If the disputing parties fail to reach an agreement, the tribunal shall determine the place in accordance with the applicable arbitral rules, provided that the place shall
Upon the signature of the New York Convention, a significant number of States also made a declaration that they will apply the Convention only to differences arising out of legal relationships that are considered “commercial” under national law. In order to avoid any dispute about the applicability of the New York Convention in an enforcement procedure, some IIAs explicitly state that the relevant relationships are deemed “commercial” for the purposes of the New York Convention.191
Under Article V(1) of the New York Convention, a national court of the State where the enforcement is sought can only refuse to enforce an award if the party challenging it offers proof that:
“(a)The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b)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 his case; or
(c)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 [...].; or
be in the territory of a State that is a party to the New York Convention.”
(Article 8.22(1))
191 Canada's Model BIT (2004), Article 45.7 (“A claim that is submitted to arbitration under this Section shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention”). See also Reinisch, 2010, pp. 671, 673–674 (noting that there is a general agreement that awards rendered under IIAs are enforceable under the New York Convention).
(d)The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreements, was not in accordance with the law of the country where the arbitration took place; or
(e) 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, that award was made.”
Section 2 of Article V provides that a court can also refuse enforcement if:
“(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.”
It is generally accepted that national courts should exercise a highly deferential standard of review when deciding whether or not to enforce an arbitral award under the New York Convention. The grounds for refusing enforcement found in Article V(1) deal generally with procedural matters, and challenges to awards in investor-State cases based on them have usually not been successful.192
The Article V(2) grounds encompass policy objections that might exist in the enforcing State that would defeat enforcement of an award. The first is the question of arbitrability — whether the subject matter of the arbitration was capable of being removed from a national court for decision. In an ISDS case this should not be a frequent problem given that the State itself would have consented to arbitrate the dispute. The public policy defense in Article V(2)(b), on the other hand, is often considered a significant threat to
192 Reinisch, 2010, p. 677.
enforcement in commercial cases and could give rise to difficult issues in investment cases as well.193
Sovereign immunity from execution. By virtue of their agreement to arbitrate, States are generally held to have waived any immunity-based objection to the jurisdiction of national courts enforcing awards. It is generally accepted, however, that a State’s assets enjoy separate immunity. A waiver of jurisdictional immunity does not equate to a waiver of execution immunity.194 Neither the New York Convention nor the ICSID Convention contains a waiver of execution immunity; the New York Convention is silent on the topic, while the ICSID Convention explicitly states that the enforcement provisions of the Convention were not intended to derogate from domestic State immunity laws.
The amenability to execution of a State’s assets will thus depend on the national immunity law in the jurisdiction where the assets are located. Some jurisdictions, for example China, have absolute immunity. A larger number of States follow the restrictive theory of immunity, under which sovereign assets, such as diplomatic property and central bank assets, are not subject to execution;
however, commercial property may be seizable.195 This means that a
193 Ibid., pp. 680–681.
194 Fox, 2008, pp. 599, 601.
195 The UN Convention on Jurisdictional Immunities of States and Their Property lists the following property that is generally immune from execution: “(a) property, including any bank account, which is used or intended for use in the performance of the functions of the diplomatic mission of the State or its consular posts […] for the use of missions; (b) property of a military character or used or intended for use in the performance of military functions; (c) property of the central bank or other monetary authority of the State; (d) property forming part of the cultural heritage of the State or part of its archives and not placed or intended to be placed on sale; (e) property forming part of an exhibition of objects of scientific, cultural or historical interest and not placed or intended to be
State’s sovereign assets cannot be seized absent an explicit waiver of execution immunity. A State’s commercial assets will likely be subject to execution in any State that has adopted the restrictive theory of immunity.