I. Definition of sovereign immunity
Sovereign immunity can be defined as a plea that can be claimed by one State against another State’s national court adjudication and enforcement jurisdiction, being invoked upon the basis that the given grievance would damage the State’s sovereignty.1 This doctrine originated within the formal independence and equality of States.2
A. Immunity from execution
While state immunity is not in itself an obstacle to arbitration, difficulties inevitably arise when the terms of discussion encompass the question of whether immunity extends from the establishment of jurisdiction to execution.3
Enforcement obstacles are most likely to arise when a winning party attempts to enforce its award against the host State. In addition, it is also likely to arise when a state entity in a third State that is member of the Convention on the settlement of investment disputes between states and nationals of other states or United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards attains the host State’s assets.4 Unless the State is reluctant to evade its obligations, it may seek immunity from execution.5 This strategy is generally more effective if the losing party is a State – this is because sovereign immunity places state assets under state protection.6
B. Difference from immunity from jurisdiction
Most Bilateral Investment Treaties (BITs) include arbitration provisions, with a view to settling disputes that have arisen from the interpretation of the treaties. Signatory States have therefore already agreed to waive their jurisdictional immunity by voluntarily signing such treaties.7 This development over time has served to reiterate the restricted immunity theory, which has been adopted in some National Laws8 and International Conventions.9
There is also difference from immunity from enforcement under Article 55 of the ICSID Convention. Even though the Convention imposes the obligation to recognize and enforce ICSID awards, States’ immunity from execution remains unaffected. This article only applies to immunity from execution, not from jurisdiction; and only refers to execution, not to recognition.10
A particularly remarkable example of this is the United Nations Convention on Jurisdictional Immunities of States and Their Property (UNCSI), which refers to instances in which States have implicitly waived their jurisdictional immunity by signing the treaties.11 This pattern has been cited in support of the claim that the convention’s member States have the right to enter a plea of jurisdictional immunity. However, this proposition may not extend to the execution immunity plea.12
II. Effects of sovereign immunity from execution
Even if the arbitral award is recognized by the national court, the foreign investor then, depending on whether state’s property is for commercial or diplomatic activities (execution immunity), faces the obstacle of enforcement. The investor must prove the debtor State’s assets are commercial to seize, but there is no certain definition of commercial assets or public assets.13 Therefore, the foreign investor may seek to attach commercial assets of debtor state in different countries. This issue may cause treaty-shopping.14
Mr. Franz Sedelmayer v. The Russian Federation, Decision of the Oberlandesgericht Köln, Case No. 16 W 35/02, 6 October 2003, para. 19; Mr. Franz Sedelmayer v. The Russian Federation, Decision of the Swedish Supreme Court, 1 July 2011, para. 17; Mr. Franz Sedelmayer v. The Russian Federation, Decision of Oberlandesgericht Frankfurt, 4 October 2002.
III. State's consent to waive immunity from execution
Waivers of immunity are quite rare in practice – this means that private parties may be in a better bargaining position when demanding a waiver of immunity from execution.15 It is also not uncommon for economic development agreements to include a waiver of immunity clause.16 In one example, the Republic of Argentina had already waived its immunity from execution in favour of the foreign investor,17 however, this did not work in practice. The French courts have also demonstrated that a host State can waive its immunity from execution, in a particularly well-known case in which the French Supreme Court confirmed the theory of implicit waiver of immunity from execution, making specific reference to an ICC arbitration clause in the process.18
NML Capital Limited (Appellant) v Republic of Argentina (Respondent),Judgment of the United Kingdom Supreme Court, 6 July 2011, para. 59; Société NML Capital Ltd v. République Argentine, Judgment of the French Court of cassation, 28 September 2011, para. 1; Société NML Capital Ltd. v. République Argentine, Judgment of the French Court of Cassation, 28 March 2013, para. 1; International Law Commission, Draft articles on Jurisdictional Immunities of States and their Property, 1991; Commisimpex S.A. v. Republic of the Congo and Caisse Congolaise d'Amortissement, ICC Case No. 9899AC/DB, Final Arbitration Award, 3 December 2000, para. 49; Commisimpex S.A. v. Republic of the Congo and Caisse Congolaise d'Amortissement, ICC Case No. 9899AC/DB, Judgment of the French Court of Cassation, 10 January 2018, p. 1; Commisimpex S.A. v. Republic of the Congo and Caisse Congolaise d'Amortissement, ICC Case No. 9899AC/DB, Judgment of the French Court of Cassation, 24 January 2018, p. 1; Creighton v. Ministre des Finances de l’État du Qatar, Democratic Republic of the Congo v FG Hemisphere Associates Court of Appeal of the Hong Kong Administrative Region, 8 June 2011, para. 150.
IV. Example clause
However, questions arise as the third State’s sovereign immunity act may directly contradict the said clauses.20 In responding to the question, a third state may establish its own sovereignty act. If third state’s sovereignty act does not allow waiver immunity from execution, a foreign investor cannot seize the assets of the debtor state that are held within the third state’s territory, even though the debtor state has already waived its immunity from execution.21 Alternatively, the third state may allow the investor to seize the debtor state’s assets in its territories, even though debtor state’s own act does not permit the waiver clause from immunity.
V. United Nations convention on jurisdictional immunity of States and their property (UNCSI)
The UNCSI (2004)22 is the first international legal instrument to issue the law on sovereign immunity – however, it has not yet entered into force. Sovereign immunity therefore persists as a significant consideration when identifying assets that may be seized with a view to complying with an arbitral award.23
However, more than a decade after it was first drafted, the UNCSI has still not entered into force. In order for each article to enter into force, the UNCSI requires the assent of at least 30 State parties; however, at the time of writing only 21 States have met this condition. This convention can be asserted as a step but not much more because it supports the restricted immunity theory.
Al-Adba, N.M., The Limitation of State Sovereignty in Hosting Foreign Investments and The Role of Investor-State Arbitration to Rebalance The Investment Relationship, University of Manchester, 2014, p. 181.
Bello, T., Sovereign Immunity and Enforcement of Arbitral Awards; Breaking the Barrier, 2019.
Bjorklund, A.K., State Immunity and the Enforcement of Investor-State Arbitral Awards, in Binder, C., Kriebaum, U., Reinisch, A. and Wittich, S., (eds.), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer, 2008 p. 858.
Collier, J. and Lowe, V., The Settlement of Disputes in International Law; Institutions and Procedures, 1999, pp. 271-272.
Coop, G., Nistal, A. and Volterra, R. G., Sovereign Immunities And Investor-State Awards: Specificities Of Enforcing Awards Based On Investment Treaties in Fouret, J., (ed.) Enforcement Of Investment Treaty Arbitration Awards, 2015, pp. 67-83.
Fouret, J. (ed.), Enforcement of Investment Treaty Arbitration Awards, 2015, pp. 99-113.
Fox, H. and Webb, P., The Law of State Immunity, 3rd ed., 2013.
Lew, J.D.M., Mistelis, L.A. and Kröll, S.M., Comparative International Commercial Arbitration, 2003.
Matute, C., Forum Shopping in the Execution of ICSID Awards: Is it Time to Revive the UN Convention on State Immunity?, 2016.
Saleem, A.M., To What Extent Do States Have the Right to Use its Sovereign Immunity Defence against ICSID Awards?, University of Dundee - Centre for Energy, Petroleum and Mineral Law & Policy, 2013, p. 4.
Schreuer, C. H., Review: State Immunity: Some Recent Developments, Cambridge, 1991, pp. 213-221.