This comment explores the relationship between the domestic enforcement of commercial international arbitral awards and a State’s exposure to investor-State arbitral claims. This exploration begins in Part I with a survey of the multilateral framework that governs the enforcement of foreign arbitral awards. Part II compares the legal infrastructure for enforcement in several domestic jurisdictions by highlighting the differences in the amount of judicial discretion to deny enforcement, particularly with respect to awards annulled in the seat. Part III analyzes the feasibility of investor-State claims based on the non-enforcement of an arbitral award by assessing the arguments in two such cases where non-enforcement may have opened the door for future claims. Finally, Part IV investigates whether or not a greater level of domestic judicial discretion in the enforcement of arbitral awards, due to a lack of strict national laws governing such enforcement, increases the State’s exposure to investor-State claims. Ultimately, this comment concludes that a greater level of discretion does increase the State’s exposure to investor-State claims.
Part I: Multilateral Framework
The New York Convention
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, is the leading treaty governing the enforcement of international arbitral awards and outlines what obligations States have concerning the recognition of arbitral awards the State characterizes as foreign.01Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. I, June 10, 1958, 330 U.N.T.S. 38 [hereinafter New York Convention]. The 156 State parties to the New York Convention agreed to “recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon”02Id. at art. III. unless certain circumstances are met that permit the State the to refuse to enforce an award.03Id. at art. V. The reasons for non-enforcement are limited and exhaustively listed in Article V of the Convention. The text of the article is permissive instead of compulsory, stating that “recognition and enforcement of the award may be refused.”04 Id. (emphasis added).
The use of the word “may” was a deliberate choice on the part of the drafters of the Convention to protect the pro-arbitration and pro-enforcement aspect of the system. Under the rules for treaty interpretation defined in Article 31 of the Vienna Convention on the Law of Treaties,05The Vienna Convention on the Law of Treaties has been ratified by 114 states and signed but not yet ratified by 15 states. Many of the parties to the Vienna Convention have also ratified the New York Convention. However, France has not signed or ratified the Vienna Convention, and the United States has signed but not ratified it. Status of Treaties – Vienna Convention on the Law of Treaties,
European Convention on International Commercial Arbitration
In 1961, several countries convened to write the European Convention on International Commercial Arbitration (also known as the Geneva Convention when discussed in context). This treaty outlined some of the rights and obligations for the enforcement and annulment of international arbitral awards. The drafters of this treaty saw the diversity in national legislation on enforcement as problematic, and found that the New York Convention did not do enough to resolve this inconsistency.10
Part II: National Frameworks
The State parties to the New York Convention and the Geneva Convention have fairly pro-arbitration regimes, only withholding enforcement for the permissible reasons given by the applicable convention. However, a greater, clearer distinction can be made between the jurisdictions that further limit the discretion of their domestic courts in matters of non-enforcement and those that do not. This division can be seen clearly in how the jurisdictions treat awards that have been previously annulled in the seat, as this is a possible ground for annulment under Article V but not under some domestic legislation.
The French and American theories are the two divergent, main schools of thought on the correct role of judicial discretion in enforcing a previously annulled award. Because the two approaches generally take the same pro-enforcement position a majority of the time, this paper will focus on one of their key differences: the amount of discretion allowed in each jurisdiction in the enforcement of awards annulled in the seat. The goal is to determine whether or not a less restrictive national policy on non-enforcement can affect a State’s traditional obligations under a bilateral investment treaty, or BIT.
The French Theory
France is a party to the New York Convention and the Geneva Convention, and as such is bound by their provisions. However, since 1984, the French Courts have relied on their modified domestic arbitration provisions to determine if non-enforcement is appropriate.12See Norsolar S.A. v. Pabalk Ticaret Limited Sirketi, cour d’appel [CA] [regional court of appeal] Paris, Dec. 15, 1981, 1-10192; Norsolar S.A. v. Pabalk Ticaret Limited Sirketi, cour de cassation, Oct. 9, 1984, 83-11.3555. Where the Convention is silent or vague, France filled the gap by clarifying the obligations of its courts through domestic legislation. Whereas the Convention allows refusal of enforcement in certain, clearly stated circumstances, Article 1520 of the New [French] Code of Civil Procedure further limits those circumstances to: (1) the arbitral tribunal wrongly upheld or declined jurisdiction; (2) the arbitral tribunal was not properly constituted; (3) the arbitral tribunal ruled without complying with the mandate conferred upon it; (4) due process was violated; or (5) recognition or enforcement of the award is contrary to international public policy.13
The French judiciary does not have the discretion to withhold enforcement for the reasons given in the New York Convention unless they can find a corresponding reason under Article 1520. Article 1526 provides that “neither an action to set aside an award nor an appeal against an enforcement order suspends enforcement of an award.”15Emmanuel Gaillard, France Adopts New Law on Arbitration, 245
In the case of Hilmarton, Ltd. v. Omnium de Traitement et de valorisation (OTV), the French courts clearly demonstrated that they will not hesitate to enforce annulled awards and uphold the greater limits on non-enforcement enacted in the domestic code. The dispute in this case involved a contract under Swiss law and an arbitration seated in Geneva. The court in Geneva annulled the award, but the party holding the award sought enforcement in France anyway. The French Supreme Court held that the party
could rely upon the French law on international arbitration concerning the recognition and enforcement of international arbitration awards rendered abroad, and especially on Art. 1502 NCCP,18In the updated code, this provision is now Art. 1520. which does not list the ground provided for in Art. 5 of the 1958 Convention among the grounds for refusal of recognition and enforcement.19Hilmarton Ltd. v. Omnium de Traitement et de valorisation (OTV), Cour de cassation [Cass.] [Court of Cassation] Premiere Chambre Civille, Mar. 23, 1994, Bull. Civ. 1994, no. 104, 92-15137 (p.79), note Grégoire (Fr.).
In a direct comparison with the New York Convention, the court found that the permissive gap in the treaty allowed for local interpretations and limitations on the grounds for non-enforcement, and did not compel deference out of reasons of international comity.
The court continued to expound on this idea, saying that “the award rendered in Switzerland is an international award which is not integrated in the legal system of that State, so that it remains in existence even if set aside, and its recognition in France is not contrary to international public policy.”20Id. at 665.
The French position openly rejects the view held in many jurisdictions that an annulment in the seat of the arbitration effectively ends the existence of the award.21Thomas Webster, Evolving Principles in Enforcing Awards Subject to Annulment Proceedings, 23
In France, courts are bound to enforce awards, regardless of the annulment proceedings in other States, unless the award breaches one of the grounds enumerated in French domestic law. However, there is some level of judicial discretion as to when an award falls into these categories. The French courts are tasked with interpreting the limitations of Article 1520 and applying that interpretation. The French courts have not lost their ability to engage in discretionary applications of law to the specific facts at hand; they merely have fewer circumstances in which they can do so, compared with other jurisdictions that allow more grounds for non-enforcement.
The American Theory
The United States holds arbitral awards in high regard, and is generally considered a pro-enforcement jurisdiction. However, the implementing arbitration statute in the United States, the Federal Arbitration Act, does not contain a section similar to French Article 1520 that clarifies when courts should or should not enforce awards.24Vesna Lazic, supra note 14. In contrast to the French system where the New York Convention has been implemented but plays more of a “residual” role because the French legislature has passed compatible but more specific laws on the topic,25Anne-Sophie Dufêtre et al., Commercial Arbitration France,
Most American courts will enforce foreign awards that do not meet the grounds listed in the Convention, and will sometimes use their discretion to enforce awards that do pertain to the listed grounds in the Convention. American courts will largely defer to the annulments in the seat of arbitration as ending the award.26Clifford Hendel, supra note 17, at 2; Jessica Rodriguez, Enforcement of Annulled Arbitral Awards in the United States: Is a Return to Chromalloy Warranted?,
American courts have occasionally expressed a willingness to enforce awards annulled in the seat, but have done so based on judicial interpretation of the Article V factors and a standard that has developed through case law. In Chromalloy Gas Turbine Corp. v. Arab Republic of Egypt, an American company entered into a contract with the Egyptian Air Force, and a dispute arose that required the parties to arbitrate. Chromalloy won the initial arbitration, but Egypt had the award annulled by the Cairo Court of Appeals. Chromalloy sought to enforce its award in the United States despite the annulment in the seat.30Chromalloy, supra note 8, at 908 The United States District Court held that it was not bound by the Egyptian annulment because the annulment was based on a review of the merits of the claim.31i> Id. at 913. Citing the public policy ground in the New York Convention, the court further reasoned that prohibiting this kind of substantive review was crucial to preserving the finality of awards and was such a fundamental issue for American public policy that it necessitated judicial intervention.32Clifford Hendel, supra note 17, at 2.
The court restated its ability to enforce foreign awards annulled in the seat in Baker Marine Ltd. v. Chevron, adding a caveat that this power should only be exercised when there are adequate reasons to necessitate this course of action.33Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F.3d 194, 197 (2d Cir. 1999). In Spier v. Calzaturificio the court reiterated this position by stating “when a competent foreign court has nullified a foreign arbitration award, United States courts should not go behind that decision absent extraordinary circumstances.”34Spier v. Calzaturificio Tecnica, 71 F. Supp. 2d 279, 288 (S.D.N.Y. 1999). In both Baker Marine and Spier, the courts found that the parties had failed to present extraordinary circumstances that justified judicial enforcement of the awards.35See id.; Baker Marine, supra note 33. Later courts have tried to interpret what “extraordinary circumstances” means and have used their discretion in applying the standard.36See TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 936-39 (D.C. Cir. 2007). In TermoRio, the court found that an extraordinary circumstance would be one that “is repugnant to the fundamental notions of what is decent and just in the United States.”37Id. at 939.
In COMMISA v. Pemex, the court reviewed these standards before deciding to enforce an award that had been annulled in Mexico.38Corporación Mexicana de Mantenimiento Integral v. Pemex-Exploración y Producción, 962 F. Supp. 2d 642, 654-60 (S.D.N.Y. 2013). The court found that this annulment “violated the basic notions of justice” because the claimant was penalized by a retroactively applied law and left without a remedy in the local courts.39Id. at 658-61. This analysis of the decision strongly centered on the particular facts of the case. The TermoRio standard not only permits, but also demands, that judges engage in this type of ad hoc factual analysis to determine enforceability.
This “extraordinary circumstances” standard is rarely met and is known to be quite stringent.40See Thai-Lao Lignite (Thailand) Co., Ltd & Hongsa Lignite (LAO PDR) Co. Ltd v. Government of the Lao People’s Democratic Republic 997 F. Supp. 2d 214, 223 (S.D.N.Y. Feb. 6, 2014) (noting that the standard is “infrequently met” and should be reserved for “clear-cut cases”). In TermoRio the court said “we must be very careful in weighing notions of ‘public policy’ in determining whether to credit the judgment of a court in the primary state vacating an arbitration award.”41TermoRio, supra note 36, at 938. However, when the standard is met, U.S. courts are tasked with analyzing the competence of foreign courts. They can decide to give deference to annulments in certain jurisdictions, but ignore those in others.
The general American practice gives much weight to concerns of international comity, and will usually honor the foreign annulment decisions.42Clifford Hendel, supra note17, at 4. The default position is deference and respect for the decisions of the seat, unless the parties can show egregious conditions in the annulment proceeding. American courts have not limited the grounds for non-enforcement further than those listed in Article V, resulting in more instances in which courts must decide whether or not enforcement is proper. Further, there is an additional level of judicial discretion in defining what constitutes extraordinary circumstances that necessitate intervention.
Other jurisdictions tend to employ similar methods and reasoning to enforcement decisions as either the French or American system. In line with France, some civil law jurisdictions have adopted national legislation that incorporates an exhaustive list of grounds for refusal of enforcement; these jurisdictions generally presume that the arbitral awards are valid.43Belgium is another jurisdiction that subscribes primarily to the French theory of enforcement. In fact, Belgian courts enforced an award that had been set aside in Algerian courts four years before France’s landmark case on the subject. See Sonatrach v. Ford, Bacon and Davis Inc., Brussels Court of First Instance, 6 December 1988, excerpt in XV
Similar to the United States, Germany has implemented Article V of the New York Convention into its domestic code, but does not have a specific provision further limiting the grounds for refusal of enforcement.47§1061(1) ZPO. Section 1061(1) of the German Code of Civil Procedure states, “recognition and enforcement of foreign arbitral awards shall be granted in accordance with the Convention.” When faced with the question of whether or not to enforce an award that had been annulled in the seat, the German Supreme Court said, “If the award is not yet binding, or has been set aside in the country of origin, then its recognition and enforcement is to be denied.”48Bundesgerichtshof, 22 February 2001, No. III ZB 71/99, excerpt in XXIX
In contrast to the American and French schools of thought, the judiciary in some jurisdictions plays a very active role in reviewing awards and evaluating their enforcement. These jurisdictions tend to be those that have historically been more wary and distrustful of arbitration. Some have been known to subject these awards to de novo review.51
Part III: Does this Patchwork of Enforcement Policies Give Investor Claimants a Remedy under International Investment Law?
While some scholars say that these multilateral agreements on enforcement increase the consistency in the domestic treatment of awards, Hamid Gharavi illustrates the persisting problem of inconsistency in the global landscape of arbitral award enforcement, in spite of these attempts at uniformity.
An award rendered and annulled in European Convention State A for violation of public policy could be enforced in European Convention State B pursuant to Article IX(I) of the Convention. State C, signatory to New York Convention but not to the European Convention, however, could refuse enforcement of the award pursuant to Article V(I)(e) of the New York Convention. State D, also signatory to the New York Convention but not to the European Convention, could enforce the award on the ground that annulment proceedings should have been brought before the courts of State E under the law of which the award was rendered.53Hamid Gharavi, supra note 10, at 127.
In this hypothetical, but realistic, scenario, a new arbitration proceeding on the same cause of action could be brought which resulted in two different awards from the same cause of action being enforced differently from jurisdiction to jurisdiction. This inconsistent treatment is a consequence of the patchwork of international and domestic authorities on the non-enforcement of international arbitral awards.
Given that there are different schools of thought surrounding the non-enforcement of awards as discussed above, successful claimants can expect different treatment of their award depending on the jurisdiction. Since awards can easily be valued in the hundreds of millions, claimants have a great interest in ensuring enforcement. When these awards are denied enforcement or have been annulled, parties seeking recognition and enforcement have invoked the protections of BITs to seek adequate relief. Those investors may choose to bring claims against the States whose courts issued the annulments, or against the State that refused to enforce their award.54W. Michael Reisman and Heide Iravani, Article: Symposium: Arbitration and National Courts: Conflict and Cooperation: The Changing Relation of National Courts and International Arbitration, 21
Can an Unenforced Award be an Investment?
For an investor to bring a claim in the International Centre for the Settlement of Investment Disputes (ICSID), the predominant forum for investor-State disputes, the tribunal must determine whether or not there is jurisdiction. For proper ICSID jurisdiction, there must be an investor with the proper nationality under the relevant BIT and the dispute must arise out of a covered investment.55Convention on the Settlement of Investment Disputes Between States and Nationals of Other States arts. 25-27 (October 14, 1966). The term “investment” is defined in the BIT, and can vary slightly from treaty to treaty. For a claimant looking to protect the enforcement of an arbitral award through the ICSID system, the first challenge will be establishing that the dispute, concerning the non-enforced award, arises out of an investment.
In Saipem v. The People’s Republic of Bangladesh, an Italian corporation entered into a contract with a Bangladeshi State entity to construct a gas pipeline in Northeastern Bangladesh.56Saipem v. Bangladesh, ICSID Case No. ARB/05/7, Award on Jurisdiction, ¶ 7 (2007). The contract contained an ICC arbitration clause for dispute settlement and named Dhaka, Bangladesh as the seat.57Id. at ¶ 10. After a dispute arose, the parties participated in an ICC arbitration and the tribunal rendered an award for Saipem.58Id. at ¶ 48. The High Court in Bangladesh refused to enforce the award.59Id. at ¶ 50. The Claimant submitted a request for arbitration in ICSID under the Italian-Bangladeshi BIT, claiming that the courts of Bangladesh had, by refusing to allow the claimant to collect on its award, expropriated the investment without compensation.60Id. at ¶¶ 52-58 (2007). Saipem eventually won on the merits because the tribunal because the tribunal saw the Bangladeshi court’s interference as an overreach. See later discussion on the substantive merits. During the ICSID proceedings, Bangladesh claimed that this case fell outside of ICSID jurisdiction, because it did not involve an investment. 61Id. at ¶¶ 86-87. The tribunal was tasked with determining whether rationae materiae jurisdiction existed.
The tribunal began by applying the “Salini test,” a set of criteria that scholars and previous tribunals have held to be inherently present in investments. These criteria are not legally required to prove an investment, but many tribunals have held that they are objectively essential for any investment, regardless of how “investment” is defined under the BIT.62W. Michael Reisman and Anna Vinnik, What Constitutes an Investment and Who Decides?, in
Saipem contended that the contract for the construction of the pipeline was an investment because the company committed substantial financial, technical, and human resources to the project.64Saipem v. Bangladesh, supra note 56, at ¶ 100. The Tribunal agreed and stated that it “wish[ed] to emphasize that for the purpose of determining whether there is an investment under Article 25 of the ICSID Convention, it will consider the entire operation.65See also Holiday Inns v. Morrocco, ICSID Case No. ARB/72/1, Decision of Jurisdiction (May 12, 1974). In the present case, the entire or overall operation includes the Contract, the construction itself … and the related ICC arbitration.”66Saipem, supra note 56, at ¶ 110. Therefore, the tribunal held that any dispute arising out of the ICC arbitral award constituted an investment under the BIT and under Article 25 of the ICSID Convention because it was connected to the greater venture.67Id. The Tribunal failed to decide whether or not the ICC award constituted property, which was connected to one of the definitions of “investment” in the BIT.
In Romak S.A. v. The Republic of Uzbekistan, a case before a permanent court of arbitration, the tribunal again contemplated whether or not a dispute arising from the non-enforcement of an arbitral award constituted a dispute arising from an investment. Because the BIT contained a provision that allowed the parties to opt into ICSID jurisdiction, the tribunal decided the interpretation of “investment” should be the same as it would be in an ICSID claim.68Romak S.A. v. Uzbekistan, Case No. AA 280, Award, ¶¶185, 193 (Perm. Ct. Arb. 2009).
Romak, a Swiss corporation, entered into a contract with Uzbekistan. The contract contained an arbitration clause for all disputes arising out of the agreement. When Romak did not receive adequate payment for its services, it initiated arbitration, prevailed in the case, and attempted to enforce the award in Uzbekistan.69Id. at ¶ 13. Uzbekistan did not annul the award, but it refused to enforce it. Romak took the award to France for enforcement, and the French courts granted it. However, the bank account against which Romak tried to enforce was protected under sovereign immunity, leaving Romak without financial remedy.70Id. at ¶ 69. Seeking recourse, Romak brought a claim to ICSID under the BIT between Switzerland and Uzbekistan alleging a breach of fair and equitable treatment and expropriation.
When faced with the question of whether or not this dispute arose out of an investment, the tribunal engaged in a very similar line of reasoning to that of the Saipem case. The tribunal began its analysis with a traditional interpretation under the Vienna Convention, looking at the ordinary meaning and also the object and purpose of the agreement.71Id. at ¶¶ 169-86 It found that the purpose of the BIT “suggests an intent to protect a particular kind of assets, distinguishing them from mere ordinary commercial transactions.”72Id. at ¶ 189. Like the Saipem tribunal, the arbitrators here found:
the award is so inextricably linked to the Romak Supply Agreement that any determination as to whether Romak holds an investment under BIT cannot be made without reference to the entire economic transaction that is the subject of these arbitral proceedings. The award merely constitutes the embodiment of Romak’s contractual rights.73Id. at ¶ 211.
When the tribunal analyzed Romak’s agreement, it found that it lacked the necessary criteria under the Salini test, and therefore the contract could not constitute an investment.74W. Michael Reisman and Heide Iravani, supra note 54; Romak, supra note 69, at ¶ 242. The tribunal specified “[i]f the underlying transaction is not an investment within the meaning of the BIT, the mere embodiment or crystallization of rights arising thereunder in an arbitral award cannot transform it into an investment.”75Romak, supra note 69, at ¶ 211.
Tribunals have proven willing to categorize an unenforced arbitral award as a dispute arising from an investment, as long as the original arbitration involved an investment under the BIT or one that passed the Salini test. There is not much precedent on whether or not the awards by themselves constitute an investment under the treaty, but that is a possible, if tenuous, route for future claims. If the tribunals adhere strictly to the Salini test, it will be difficult for an investor to prove that a standalone arbitral award is an investment. If, however, the tribunal favors a broad definition of investment or rejects the strict, mandatory application of the Salini test, an investor could be successful in convincing the tribunal that the award itself should be considered an investment for purposes of determining jurisdiction. One might do this by demonstrating the value of the award and arguing that a broad interpretation of investment is more in line with the intentions of the drafters of the ICSID convention. 76See Inmaris Perestroika Sailing Maritime Services GMBH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶129 (Mar. 8, 2010) (declining to apply the Salini test, stating that it was “not persuaded that it is appropriate to impose such mandatory definition through case law where the Contracting States to the ICSID Convention chose not to specify one”). See also Julian Davis Mortenson, The Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law, 51
Substantive BIT claims
The majority of BITs contain similar protections, promising investors fair and equitable treatment, full protection and security, and national treatment. They also generally prohibit illegal expropriation and obligate States to grant covered investors the same treatment as investors from the most favored nation. Each of these provisions can be quite complex, and they all have wide ranging precedent that could influence a tribunal’s interpretation in each case. This comment will only briefly address one of the substantive claims that arose in the two aforementioned cases to simplify the analysis and to show that these types of cases can have interesting and potentially meritorious substantive arguments.
In Saipem, the claimant alleged that by revoking the authority of the ICC arbitrators and deciding not to enforce the arbitral award, the “courts of Bangladesh acted in violation of the New York Convention and in an illegal, arbitrary and idiosyncratic manner amounting to a violation of the protection afforded to foreign investors under… the BIT.”77Saipem, supra note 56, at ¶ 141. Saipem specifically accused Bangladesh of illegally expropriating the award. Illegal expropriation has evolved over the years to contain three main components: (i) the act is attributable to the State; (ii) the act involved either transferring property rights or rendering the use of the property obsolete; and (iii) the original owner does not receive proper compensation.78Barry Appleton, Regulatory Takings: The International Law Perspective, 11
The tribunal emphasized that the claims were based on an allegation that the courts of Bangladesh breached the New York Convention in such a way as to deny Saipem the protections afforded to investors under the BIT.81Michael Reisman and Heide Iravani, supra note 54. To determine whether or not this action constituted illegal expropriation, the tribunal used the “sole effects doctrine” to determine whether or not the taking was “substantial” enough to meet this threshold. 82Saipem Award, supra note 80, at ¶ 133. Because all of Petrobangla’s (the Bangladeshi, State-owned company in the original dispute) assets were located in Bangladesh, Saipem could not enforce the award in any another jurisdiction. The tribunal found this to be compelling evidence of a substantial taking.83Id. at ¶ 130.
The tribunal held that a finding of a substantial taking is not sufficient to prove illegal expropriation, but that there must also be an overreach on the part of the judiciary.84 Id. at ¶ 133. The Tribunal stressed “that Saipem’s claim [did] not deal with the courts’ regular exercise of their power to rule over annulment or setting aside proceedings… It [dealt] with the court’s alleged wrongful interference.”85Saipem, supra note 56, at ¶ 155. In this way, the tribunal narrowed the appropriate grounds for expropriation to illegitimate interference, leaving sovereign courts the ability to enforce or not according to their international obligations. Here the tribunal reviewed the evidence and the merits of Bangladeshi court’s decision de novo and found the court’s ruling to be unsubstantiated based on the facts presented.86Saipem Award, supra note 80, at ¶ 155. The tribunal concluded that the Bangladeshi courts had “abused their supervisory jurisdiction over the arbitration process.”87Id. at ¶ 159. Acknowledging that national courts have “substantial discretion,” the tribunal specified that in this case the standard used by the Bangladeshi courts and the “manner in which the judge applied that standard to the facts indeed constituted an abuse of right.”88Id.
The tribunal in Saipem seemed to be guided by the New York Convention and the substantive articles of the relevant BIT when determining if a refusal rose to the level of “wrongful interference.” It relied heavily on the distinction between international and domestic obligations and permissibility. The parties in Romak raised very similar arguments, and Romak even cited the award in Saipem; however, given the successful challenge to jurisdiction, the tribunal did not express any thoughts as to the merits of these arguments.
Part IV: What Does This Mean For Investors with Annulled or Unenforced Awards?
Viability of These Cases Based on Jurisdiction
Past ICSID tribunals have been willing to hear and consider arguments of claimants who have been unable to enforce their arbitral award, alleging that this refusal constitutes a breach of the BIT. There has been very little case law on the subject, but what exists suggests that the tribunals may be reluctant to do so without proof that the national courts improperly intervened. This inappropriate intervention can come in many forms, including an abuse of judicial discretion, as in Saipem, or a misinterpretation of the enumerated grounds for annulment under Article V. Investors may find that their claim falls on sympathetic ears if they can argue that in refusing to enforce an award, even one that has been annulled in the seat, the national courts breached substantive obligations under the New York Convention and that their original arbitration arose out of a transaction or infrastructure that would fall under the meaning of investment in the BIT.
This patchwork of theory and practice regarding the enforcement of awards can play a role in these cases, rare as they may be. Jurisdictions like France, that have legislated more clarity into the vague and permissive space created by the New York Convention, have reduced the number of instances where the judiciary can use its discretion to deny enforcement of awards compared to jurisdictions that have not taken such steps. For proponents of the finality of international arbitration, having the default rule favor enforcement better serves the parties who consented to the arbitration in the first place. As Jan Paulsson stated, “a core objective of the New York Convention was to free the international arbitral process from the domination of the law of the place of arbitration.”89Jan Paulsson, Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment, 9
This comment illustrated the inconsistencies in global practice by comparing different jurisdictions’ procedures for enforcing awards annulled in the seat, highlighting the room for judicial discretion in States that have not adopted a more rigorous domestic approach to non-enforcement. Jan Paulsson has also argued that a State which legislates more stringent standards for non-enforcement of arbitral awards is bound to apply those heightened standards under Article II of the New York Convention without any deference to an award’s annulment elsewhere.90 Id. at 18. The French system adheres to this approach and does not discriminate based on the jurisdiction of the seat; rather, the courts analyze all awards under the more limited grounds allowed by the French domestic code.91See generally Albert Jan van den Berg, Annulment of Awards in International Arbitration, in
Jurisdictions that are both signatories to the European Convention on Commercial International Arbitration and have codified its provisions into their domestic code have stricter guidance on proper enforcement than simply the grounds listed in the New York Convention. The judiciary in these States would be bound by their domestic law implementing these stricter grounds for non-enforcement, limiting the circumstances in which they can use their discretion to refuse enforcement and theoretically making them more pro-enforcement and reducing their vulnerability to cases brought for improper non-enforcement.
Jurisdictions like the United States, which have only implemented the listed grounds of Article V of the New York Convention in their domestic legislation, give their judiciaries more permissible grounds to deny enforcement and increase the instances of judicial discretion in the non-enforcement process. The more authority the national judiciary believes it has to deny enforcement, and the greater the number of grounds it has to do so, the greater the vulnerability for the State in an investor-State dispute brought under a BIT.
Some scholars have argued that this kind of comparable flexibility has increased suspicion toward the American (and American style) policy of enforcement. As Hamid Gharavi wrote, “[c]ertain countries may receive the impression of being victims of a pick and choose policy of US courts regarding enforcement of arbitral awards.”92Hamid G. Gharavi, Chromalloy: Another View,
Part V: Conclusion
Investors would likely be more successful bringing an investor-State claim arising out of an unenforced commercial arbitral award in jurisdictions that do not have domestic legislation limiting the grounds for non-enforcement further than the discretionary language of the New York Convention. To have a chance at a successful claim, the investor would need to prove that the award arose from a dispute concerning an investment under the BIT and that the domestic court’s decision not to enforce was an abuse of discretion and was an improper interference. There are several common arguments that can be made on the merits pursuant to the traditional articles of BITs; however, those would vary widely depending on the facts in any particular claim. Practically speaking, an investor interested in pursuing this kind of claim would need to have vast resources and a substantial arbitral award that has been denied enforcement to make a claim of this nature worth the risk.
Investment cases brought under BITs for non-enforcement of commercial arbitral awards are still incredibly rare and infrequent. Even when they are brought, there is a heavy burden on the claimant to prove both proper jurisdiction and the merits of the claim. Given the low probability of a successful case against a State on these grounds, a State may find that a stance on enforcement that preserves a discretionary role for the judiciary is preferable for public policy reasons. Some States, as shown in the analysis of the different theories of enforcement, give more credence to concerns of international comity, while others prioritize the finality of arbitral awards. Vulnerability to cases like this are only one small factor in a greater political balance between protecting State sovereignty, foreign and national investors, the international arbitration system, and shielding the State from cases brought by investors with unenforced awards.
References [ + ]
|01.||↵||Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. I, June 10, 1958, 330 U.N.T.S. 38 [hereinafter New York Convention].|
|02.||↵||Id. at art. III.|
|03.||↵||Id. at art. V.|
|04.||↵||Id. (emphasis added).|
|05.||↵||The Vienna Convention on the Law of Treaties has been ratified by 114 states and signed but not yet ratified by 15 states. Many of the parties to the Vienna Convention have also ratified the New York Convention. However, France has not signed or ratified the Vienna Convention, and the United States has signed but not ratified it. Status of Treaties – Vienna Convention on the Law of Treaties, |
|06.||↵||Vienna Convention on the Law of Treaties art. 31(1), May 23, 1969, 1155 U.N.T.S. 331.|
|07.||↵||Id. at art. 31(2)b.|
|08.||↵||See generally Chromalloy Aeroservices v. Arab Republic, 939 F. Supp. 907 (1996); Corporación Mexicana de Mantenimiento Integral v. Pemex-Exploración y Producción, 962 F. Supp. 2d 642 (S.D.N.Y. 2013) (enforcing the arbitral award despite its annulment in Egypt).|
|09.||↵||Maxi Scherer, Effects of Foreign Judgments Relating to International Arbitral Awards: Is the Judgment Route Wrong?, 4 |
|11.||↵||European Convention on International Commercial Arbitration art. IX, April 21, 1961, 484 U.N.T.S. 364.|
|12.||↵||See Norsolar S.A. v. Pabalk Ticaret Limited Sirketi, cour d’appel [CA] [regional court of appeal] Paris, Dec. 15, 1981, 1-10192; Norsolar S.A. v. Pabalk Ticaret Limited Sirketi, cour de cassation, Oct. 9, 1984, 83-11.3555.|
|14.||↵||Vesna Lazic, ARTICLE: SELECTED ISSUES: Enforcement of an Arbitral Award Annulled in the Country of Origin, 13 |
|15.||↵||Emmanuel Gaillard, France Adopts New Law on Arbitration, 245 |
|16.||↵||Maxi Sherer, supra note 9.|
|17.||↵||Id.; Clifford Hendel, International Enforcement of Arbitral Awards Annulled at their Seat—A Global Overview with Emphasis on the US and French Positions, available at http://www.nysba.org/Sections/International/Seasonal_Meetings/Vienna_2014/Coursebook/Panel_15/Hendel_paper.html.|
|18.||↵||In the updated code, this provision is now Art. 1520.|
|19.||↵||Hilmarton Ltd. v. Omnium de Traitement et de valorisation (OTV), Cour de cassation [Cass.] [Court of Cassation] Premiere Chambre Civille, Mar. 23, 1994, Bull. Civ. 1994, no. 104, 92-15137 (p.79), note Grégoire (Fr.).|
|20.||↵||Id. at 665.|
|21.||↵||Thomas Webster, Evolving Principles in Enforcing Awards Subject to Annulment Proceedings, 23 |
|22.||↵||Mike McClure, Enforcement of Arbitral Awards that have been Set Aside at the Seat: The Consistently Inconsistent Approach across Europe, |
|23.||↵||See Putrabali Adyamulia v Rena Holding et Société Mnogutia Est Epices, Cour de cassation [French Supreme Court], no 05-18053 (2007) XXXII YB Comm Arb 299 (reiterating that an international arbitral award is not linked to any one State order, but is part of a completely separate and independent international system).|
|24.||↵||Vesna Lazic, supra note 14.|
|25.||↵||Anne-Sophie Dufêtre et al., Commercial Arbitration France, |
|26.||↵||Clifford Hendel, supra note 17, at 2; Jessica Rodriguez, Enforcement of Annulled Arbitral Awards in the United States: Is a Return to Chromalloy Warranted?, |
|27.||↵||See generally Vesna Lazic, supra note 14.|
|28.||↵||Mike McClure, supra note 22.|
|29.||↵||Karaha Bodas Co., L.L.C Plaintiff v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F. 3d 274, 308-310 (Fifth Cir. 2004); Francisco González de Cossío, Enforcement of Annulled Awards: Towards a Better Analytical Approach, 32 |
|30.||↵||Chromalloy, supra note 8, at 908|
|31.||↵||i> Id. at 913.|
|32.||↵||Clifford Hendel, supra note 17, at 2.|
|33.||↵||Baker Marine (Nig.) Ltd. v. Chevron (Nig.) Ltd., 191 F.3d 194, 197 (2d Cir. 1999).|
|34.||↵||Spier v. Calzaturificio Tecnica, 71 F. Supp. 2d 279, 288 (S.D.N.Y. 1999).|
|35.||↵||See id.; Baker Marine, supra note 33.|
|36.||↵||See TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 936-39 (D.C. Cir. 2007).|
|37.||↵||Id. at 939.|
|38.||↵||Corporación Mexicana de Mantenimiento Integral v. Pemex-Exploración y Producción, 962 F. Supp. 2d 642, 654-60 (S.D.N.Y. 2013).|
|39.||↵||Id. at 658-61.|
|40.||↵||See Thai-Lao Lignite (Thailand) Co., Ltd & Hongsa Lignite (LAO PDR) Co. Ltd v. Government of the Lao People’s Democratic Republic 997 F. Supp. 2d 214, 223 (S.D.N.Y. Feb. 6, 2014) (noting that the standard is “infrequently met” and should be reserved for “clear-cut cases”).|
|41.||↵||TermoRio, supra note 36, at 938.|
|42.||↵||Clifford Hendel, supra note17, at 4.|
|43.||↵||Belgium is another jurisdiction that subscribes primarily to the French theory of enforcement. In fact, Belgian courts enforced an award that had been set aside in Algerian courts four years before France’s landmark case on the subject. See Sonatrach v. Ford, Bacon and Davis Inc., Brussels Court of First Instance, 6 December 1988, excerpt in XV |
|44.||↵||A reversal of the award can take place only on one or more of the following grounds: (a) absence of a valid arbitration agreement; (b) the arbitral tribunal was constituted in violation of the rules applicable thereto; (c) the arbitral tribunal has not complied with its mandate; (d) the award is not signed or does not contain reasons in accordance with the provisions of Article 1057; (e) the award, or the manner in which it was made, violates public policy or good morals.|
|45.||↵||Mike McClure, supra note 20.|
|46.||↵||Yukos Capital SARL v. OJSC Oil Co. Rosneft  EWHC 2188; |
|47.||↵||§1061(1) ZPO. Section 1061(1) of the German Code of Civil Procedure states, “recognition and enforcement of foreign arbitral awards shall be granted in accordance with the Convention.”|
|48.||↵||Bundesgerichtshof, 22 February 2001, No. III ZB 71/99, excerpt in XXIX |
|49.||↵||Oberlandsgericht Rostock, 28 October 1999, (2000) XXVYBCA717, at 719; Nigel Blackaby, supra note 41.|
|50.||↵||Vesna Laznic, supra note 14.|
|52.||↵||Id. at 306.|
|53.||↵||Hamid Gharavi, supra note 10, at 127.|
|54.||↵||W. Michael Reisman and Heide Iravani, Article: Symposium: Arbitration and National Courts: Conflict and Cooperation: The Changing Relation of National Courts and International Arbitration, 21 |
|55.||↵||Convention on the Settlement of Investment Disputes Between States and Nationals of Other States arts. 25-27 (October 14, 1966).|
|56.||↵||Saipem v. Bangladesh, ICSID Case No. ARB/05/7, Award on Jurisdiction, ¶ 7 (2007).|
|57.||↵||Id. at ¶ 10.|
|58.||↵||Id. at ¶ 48.|
|59.||↵||Id. at ¶ 50.|
|60.||↵||Id. at ¶¶ 52-58 (2007). Saipem eventually won on the merits because the tribunal because the tribunal saw the Bangladeshi court’s interference as an overreach. See later discussion on the substantive merits.|
|61.||↵||Id. at ¶¶ 86-87.|
|62.||↵||W. Michael Reisman and Anna Vinnik, What Constitutes an Investment and Who Decides?, in |
|63.||↵||Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶ 52 (July 23, 2001), 42 ILM (2003).|
|64.||↵||Saipem v. Bangladesh, supra note 56, at ¶ 100.|
|65.||↵||See also Holiday Inns v. Morrocco, ICSID Case No. ARB/72/1, Decision of Jurisdiction (May 12, 1974).|
|66.||↵||Saipem, supra note 56, at ¶ 110.|
|67.||↵||Id. The Tribunal failed to decide whether or not the ICC award constituted property, which was connected to one of the definitions of “investment” in the BIT.|
|68.||↵||Romak S.A. v. Uzbekistan, Case No. AA 280, Award, ¶¶185, 193 (Perm. Ct. Arb. 2009).|
|69.||↵||Id. at ¶ 13.|
|70.||↵||Id. at ¶ 69.|
|71.||↵||Id. at ¶¶ 169-86|
|72.||↵||Id. at ¶ 189.|
|73.||↵||Id. at ¶ 211.|
|74.||↵||W. Michael Reisman and Heide Iravani, supra note 54; Romak, supra note 69, at ¶ 242.|
|75.||↵||Romak, supra note 69, at ¶ 211.|
|76.||↵||See Inmaris Perestroika Sailing Maritime Services GMBH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶129 (Mar. 8, 2010) (declining to apply the Salini test, stating that it was “not persuaded that it is appropriate to impose such mandatory definition through case law where the Contracting States to the ICSID Convention chose not to specify one”). See also Julian Davis Mortenson, The Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law, 51 |
|77.||↵||Saipem, supra note 56, at ¶ 141.|
|78.||↵||Barry Appleton, Regulatory Takings: The International Law Perspective, 11 |
|79.||↵||Saipem v. Bangladesh, ICSID Case No. ARB/05/7, Award, ¶128 (2009); Michael Reisman and Heide Iravani, supra note 54.|
|80.||↵||Saipem, supra note 56, at ¶130.|
|81.||↵||Michael Reisman and Heide Iravani, supra note 54.|
|82.||↵||Saipem Award, supra note 80, at ¶ 133.|
|83.||↵||Id. at ¶ 130.|
|84.||↵||Id. at ¶ 133.|
|85.||↵||Saipem, supra note 56, at ¶ 155.|
|86.||↵||Saipem Award, supra note 80, at ¶ 155.|
|87.||↵||Id. at ¶ 159.|
|89.||↵||Jan Paulsson, Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment, 9 |
|90.||↵||Id. at 18.|
|91.||↵||See generally Albert Jan van den Berg, Annulment of Awards in International Arbitration, in |
|92.||↵||Hamid G. Gharavi, Chromalloy: Another View, |