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Mr Jeremy Shelley

Senior Legal Officer - Attorney-General’s Department (Australia)

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Enforcement and Recognition of ICSID awards

I. Definition

1.

The ICSID Convention offers a self-contained system of arbitration in which domestic courts have a very limited role.1 Where a party to an ICSID arbitration does not comply with an award voluntarily,2 recourse must be had to domestic courts for the recognition, enforcement and execution of awards against State or investor assets. This Note sets out the rules and risks relevant to this process.

II. Related Wiki Notes

III. The obligation to comply with awards

3.

The ICSID Convention obliges the parties to an arbitration to “abide by and comply with” awards rendered by ICSID tribunals.3 A State that does not do so risks, at least theoretically, an action by the investor’s host State before the International Court of Justice for breach of the treaty obligation.4 In addition, the prohibition on diplomatic protection set out in Article 27(1) is lifted.5 In practice, the circumstances of a particular case would need to be particularly grave to motivate a state to take these steps to protect their investor and no examples can be readily provided. In practice, where a State does not comply with an award, an award creditor will need to enforce it in the domestic courts of a jurisdiction in which assets are available against which the award may be executed.

IV. Recognition and enforcement of awards

4.

Article 54 of the ICSID Convention first requires contracting States to recognise ICSID awards as binding. This requires a domestic court to confirm the legally binding nature of the award, that it has res judicata effects, and to take the steps necessary under domestic law to give legal effect to the award within the State’s domestic legal system.6 Contracting States are obliged to enforce the pecuniary obligations set out in each ICSID award as though it were a final judgment of a court in that State.7 Federal States are permitted to treat an award as though it were a final judgment of a courts of a constituent State or province.8 Appeal or review of ICSID awards other than through the mechanisms provided for within ICSID Convention is expressly excluded by Article 53(1).9 This means that domestic courts are not permitted to scrutinise ICSID awards in the same manner as is allowed under Article V of the New York Convention.10

5.

In spite of this, the procedural law of many States allows enforcement, execution or both, to be opposed on public policy or other grounds.11 As such, domestic courts do from time-to-time entertain applications opposing enforcement or execution of ICSID awards and in so doing evaluate the award or procedure that led to it for compatibility with local constitutional or public policy requirements, contrary to terms of the ICSID Convention.12 While there are no readily apparent examples of final judgments declining enforcement, there are a number of examples of courts positively validating ICSID awards against these domestic law standards before enforcing the pecuniary obligations therein. For example, after CMS Gas Transmission Co. v Argentina, the then Attorney-General for Argentina stated publicly that ICSID awards could be reviewed by the Argentine Supreme Court and if found to be incompatible with the constitution, could not be complied with. Ultimately, the award in CMS was enforced in the courts of the United States.13 Yet, this issue is not unique to Argentina. A more recent example is seen in the state aid proceedings before the courts of the European Union,14 relating to the ICSID award issued in Micula v Romania.15 Further, amendments to the Constitution of the Russian Federation which came into force on 4 July 2020, permit its Constitutional Court to decide whether to implement foreign or international arbitral awards that impose obligations on the Russian Federation depending on whether the awards are considered to be contrary to Russian public policy.16 Accordingly, in spite of the terms of Articles 53 and 54, the courts of some States are permitted by domestic law to review ICSID awards for consistency with domestic public policy, their constitution or other standards. 

A. Timing issues

6.

There is no specification in the ICSID Convention on when an award creditor may apply for recognition of the award.17 Accordingly, this could be done prior to or even in parallel with annulment or review proceedings (or other post-award remedies available under the ICSID Convention).18 While domestic courts in the United States have been willing to recognise ICSID awards in these circumstances, enforcement and execution may not be granted until all post-award proceedings are resolved.19 This is could be due to the operation of foreign sovereign immunities legislation, or other issues arising from the civil procedure legislation in the State in which recognition is sought. 

B. Enforcement procedure

7.

Article 54(2) of the ICSID Convention provides that a party seeking recognition and enforcement of an ICSID award20 must provide the competent court in the State in which enforcement is sought with a copy of the award certified by the ICSID Secretary-General.21 No further specification as to enforcement procedure is provided by the ICSID Convention.

C. Execution

8.

In many common law jurisdictions­, execution of the award may be treated as a further additional procedural step distinct from recognition and enforcement. It may be required to give practical effect to an award in circumstances where the award debtor does not comply with court orders for enforcement of the award. For example, after the award creditor applies for and obtains a judgement from the court recognising and enforcing the pecuniary obligations in the award, if the award debtor still does not comply with that judgement, the award creditor may apply to the court for execution of the award against certain assets or property of the award debtor.22 The court might give orders for the seizure and sale of specified real property or chattels belonging to the award debtor to satisfy the award. Whether execution exists as a separate procedural step may vary from jurisdiction to jurisdiction. Indeed, it is notable that the French text of the ICSID Convention does not include distinguish between enforcement and execution.

9.

Indeed, Article 54(3) provides that execution of the award shall be governed by the domestic laws concerning the execution of judgements in force in the state in which execution is sought.23 This presents a further potential avenue for award debtors to resist execution on grounds other than those set out in the ICSID Convention. Domestic courts in France, the United States and United Kingdom have accepted that execution is an issue independent from enforcement,24 and one that is governed by domestic law. However, the domestic law on execution in many States permits the court to have regard to public policy or other issues in deciding whether to grant execution over particular assets. Parties seeking execution need to consider this possibility. 

D. Sovereign immunity from execution

10.

Article 55 of the ICSID Convention expressly defers to domestic law on sovereign immunities in force in the State in which enforcement is sought. This means that respondent States frequently seek to resist execution against State assets by making arguments based on foreign sovereign immunities legislation.25 See further Sovereign Immunity from Execution.

V. Conclusion

11.

The ICSID Convention provides a simplified process for recognition and enforcement of arbitral awards that is intended to be autonomous from domestic law. In practice, however, it is possible for domestic courts carrying out these steps at the very least to hear arguments that they should decline to enforce an award or grant execution due to substantive or procedural aspects of the award or arbitral procedure. If such arguments are accepted, these courts would effectively be reviewing ICSID awards in a manner expressly prohibited by the Convention. While no examples this occurring in final judgments have been found by this author, there are a growing number of intermediate courts and government officials that suggest this is possible. In addition, certain States appear to facilitate this in their law on civil procedure and constitutions. Accordingly, award creditors should anticipate challenges to enforcement and execution proceedings based on domestic law, while award debtors should consider whether the domestic courts at the place of enforcement might be willing to review aspects of the award or arbitral proceedings, in spite of the terms of the ICSID Convention.

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