Recognition, Enforcement and Recovery of Investment Treaty Awards: Part I

Introduction

As the number of investor-state disputes and resulting awards continues to grow, the existence of an effective enforcement regime remains critical to ensuring the legitimacy and utility of investment treaty protection for both states and investors. Part 1 of this two-part article begins with a concise summary of the enforcement framework for investment treaty awards under the two most important conventions governing this subject:  the 1965 Convention on the Settlement of Disputes between States and Nationals of Other States (the ICSID Convention), and the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).  

Before examining these conventions, it is worth recalling what makes investor-state dispute settlement unique in the enforcement context.  Investor–state dispute settlement provides foreign investors with a right to commence arbitration directly against a host state 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. It is therefore at the point of enforcement and recovery that national laws most clearly intersect with investor–state dispute settlement. 

Because investment treaty awards are typically rendered against states, sovereign immunity is commonly raised in recognition or enforcement proceedings to prevent the exercise of subject matter jurisdiction against states, or to protect certain types of state property from measures of execution.  The interaction between sovereign immunity laws and regimes providing for the recognition and enforcement of investment treaty awards will be considered later in Part 2 of this two-part article.

Enforcement of ICSID awards

ICSID awards are not subject to any appeal or review except as provided for under the ICSID Convention itself .

Recognition and enforcement of ICSID awards is dealt with in Section 6 of the ICSID Convention.  There are five key principles set forth in that section:

1. Contracting states are obliged to recognise an ICSID award as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court in that state (Article 54(1)). 
2. (which permits requests for interpretation, revision and annulment in certain circumstances) (Article 53). This is a distinguishing feature of the ICSID Convention, often referred to as the ‘closed-loop’ or ‘self-contained’ system. It means there is no scope for national courts to refuse recognition of ICSID awards that have not been annulled, including on jurisdictional, procedural, public policy or merits-based grounds.
3. All that is required to seek recognition is to furnish to the competent court or other authority a copy of the award certified by the Secretary-General of ICSID (Article 54(2)).
4. Although there is no scope for a national court to refuse recognition of ICSID awards, an ICSID tribunal or annulment committee may provisionally stay enforcement under the ICSID Convention. For example, an annulment committee may stay execution if an application for annulment is made. Otherwise, ICSID awards are immediately binding and enforceable (Article 53). 
5. Execution is governed by national laws concerning execution of judgments (Article 54(3)).  The application of national laws relating to immunity of foreign states from execution is preserved and therefore may still apply (Article 55). 

Controversy has arisen due to differences in language between the equally authentic French, Spanish and English versions of the ICSID Convention.

In the French and Spanish language versions, 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.

This issue, and the juridical content of the terms ‘recognition’, ‘enforcement’ and ‘execution’, were recently considered by the Federal Court of Australia in Kingdom of Spain v. Infrastructure Services Luxembourg Sàrl [2021] FCAFC 3. In that case, the Full Court of the Federal Court considered whether the Kingdom of Spain, against which an ICSID award had been issued in favor of a foreign investor, had waived sovereign immunity by reason of its ratification of the ICSID Convention. The Full Court held that the ICSID Convention drew a distinction between 'recognition' on the one hand and 'enforcement/execution' on the other. However, it characterized the proceedings before it as merely an application for recognition only, not for enforcement/execution. The Full Court therefore held that the preservation of foreign state immunity in Article 55 of the ICSID Convention did not bar the application for recognition. 

Enforcement of non-ICSID awards

The New York Convention’s prescribed grounds for refusing recognition and enforcement are exclusive, which means national courts cannot refuse recognition and enforcement on any other grounds.

Not all investor–state arbitrations are conducted under the ICSID Convention and its related arbitration rules. 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 (PCA), the International Chamber of Commerce (ICC) or the Stockholm Chamber of Commerce (SCC). Non-ICSID awards can be enforced in national courts either under the New York Convention (where it applies) or the national law of the forum where enforcement is sought (where it does not). 

The New York Convention is not designed specifically to deal with awards rendered against states.  It therefore does not contain any express provision with respect to awards to which a state is party.  Even so, it has been applied to such awards.  

There are four key principles to enforcement of a non-ICISD award under the New York Convention:

1. Contracting states are obliged to recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where enforcement is sought (Article III).
2. To seek enforcement, the award creditor must supply an authenticated original or certified copy of the award and the original or a certified copy of the arbitration agreement (Article IV), and where necessary, a certified translation.
3. There are prescribed grounds on which recognition and enforcement of a non-ICSID award may be refused (Article V), such as public policy grounds or if the award has been set aside at the seat.
4. A decision on enforcement may be adjourned or deferred if an application for setting aside of the award has been made in the courts of the place of arbitration (Article VI).

Recognition of investor–state awards in the European Union

The position of investor–state awards under EU law has undergone considerable, albeit controversial, development in recent years.

In Slovak Republic v. Achmea BV Case C-284, EU:C:2018:158 (Achmea), the Court of Justice of the European Union (CJEU) in March 2018 denied the arbitrability of ‘intra-EU’ investment disputes, meaning, disputes between EU Member States and investors from EU states which may concern the application or interpretation of EU law. Whether or not correctly decided, Achmea greatly upset the expectations of EU users of the investor-state dispute settlement system.

Achmea arose in the context of a bilateral investment treaty between two EU Member States. Therefore, for a time, it was thought possible that Achmea’s prohibition against ‘intra-EU’ investor-state dispute settlement might not apply to multilateral investment treaties such as the Energy Charter Treaty. However, the CJEU dispelled this possibility in September 2021 in its ruling in the Republic of Moldova v. Komstroy Case C-741/19 (2019/C 413/41) (Komstroy). The CJEU concluded that, as a matter of EU law, Article 26 of the Energy Charter Treaty is not applicable to 'intra-EU' disputes. 

Although tribunals in investor-state arbitrations have thus far refused to decline jurisdiction on the basis of the rulings in Achmea and Komstroy, any intra-EU investor–state award will likely face questions regarding recognition and enforcement before courts in EU Member States.

(See also our article on important developments in the application of the Energy Charter Treaty within the EU, in the December 2021 edition of the International Arbitration Report.)

Conclusion

The legal foundations of investor-state dispute resolution in respect of recognition, enforcement and recovery reflect a complex intersection of international law and national laws.

Jurisprudence continues to develop in relation to key concepts such as recognition, enforcement and execution.  This area of the law is dynamic and businesses involved in, or contemplating commencing, an investor-state dispute would be well advised to anticipate enforcement and recovery issues at an early stage.