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Mme Jae Hee Suh

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Compliance with Arbitral Awards

I. Definition

1.

An arbitral award is complied with when an award debtor, i.e., a party ordered by the award to take a certain action (for example, to pay damages or costs), satisfies its obligations in accordance with the terms of the award. In the absence of voluntary compliance, an award creditor, i.e., a party with an award in its favour, may seek recognition and enforcement of the award.

II. Related Wiki Notes

III. Obligations to comply with arbitral awards

3.

A party’s obligation to comply with arbitral awards is found in: (i) for ICSID awards, the ICSID Convention (A); (ii) for non-ICSID awards, in the applicable national law of the seat and arbitral rules (B); and (iii) for both ICSID and non-ICSID awards, and where applicable, the applicable investment treaty (C).

A. Obligation to comply with an ICSID award

4.

Article 53(1) of the ICSID Convention provides that an ICSID award is “binding on the parties to an ICSID arbitration” and “not […] subject to any appeal or remedy except those provided for in [the] Convention” (namely, supplementation and rectification,1 interpretation,2 revision3 and annulment4). See further Grounds of Annulment in ICSID Awards and Corrections of Mistakes in ICSID and UNCITRAL Awards. Article 53(1) also obliges each party to “abide by and comply with the terms of the award except to the extent that enforcement has been stayed pursuant to [the] Convention.” See further Stay of Enforcement of ICSID Awards. 

5.

A State award debtor that fails to comply with an arbitral award would thus be in breach of its international obligation under the ICSID Convention. In principle, such non-compliance, as a breach of the ICSID Convention, may be a subject of dispute between the State award debtor and the investor’s home State, which is capable of being referred to the International Court of Justice under Article 64 of the ICSID Convention. In practice, such intervention from the home State is unlikely and thus far unprecedented, and an award creditor will need to seek recognition and enforcement of the award in domestic courts of a jurisdiction where the award debtor’s assets are located. See further Recognition and Enforcement of ICSID Awards.

6.

The obligation to comply with ICSID awards exists independently of any potential procedural obstacles in the course of enforcement, such as sovereign immunity from execution, and these obstacles do not excuse non-compliance.5 See further Sovereign Immunity from Execution (in Enforcement).

B. Obligation to comply with a non-ICSID award

7.

In the non-ICSID context, the law of the arbitral seat and the applicable arbitral rules govern the binding nature of arbitral awards and parties’ obligation to comply with the awards.  The arbitration statutes of many major arbitral seats (such as London,6 Hong Kong,7 and Singapore8) provide that arbitral awards are final and binding on the parties. The major arbitral rules used in or designed for treaty arbitrations (such as UNCITRAL Rules,9 the SCC Rules,10 and the 2017 SIAC Investment Treaty Rules11) contain similar provisions obliging parties to comply with arbitral awards. See further Recognition and Enforcement of Non-ICSID Awards, Corrections of Mistakes in ICSID and UNCITRAL Awards and Stay of Enforcement of Non-ICSID Awards.

C. Obligation to comply with awards in investment treaties

8.

In addition to the obligations under the ICSID Convention (for ICSID awards) and under the law of the seat and arbitral rules (for non-ICSID awards), many investment treaties also oblige the contracting States to comply with arbitral awards rendered by a treaty tribunal (see, for example, Sweden-Venezuela BIT,12 Armenia-BLEU (Belgium-Luxembourg Economic Union) BIT13 and Kuwait - Portugal BIT14). Non-compliance by a State award debtor may therefore amount to a breach of the applicable treaty.

IV. Voluntary compliance with arbitral awards

9.

Although there are no clear statistics on the issue, some commentators have observed that the rate of voluntary compliance with treaty awards by States is high, particularly in the ICSID context given the World Bank influence.15 Notable instances of State compliance with arbitral awards include the Czech Republic’s payment of the USD 355 million award16 in CME Czech Republic B.V. v. The Czech Republic, despite the award being among the largest made in arbitral proceedings at the time and reportedly causing issues with the government budget,17 and Hungary’s prompt payment of the USD 76.2 million award18 in ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary.19 

10.

In practice, the limits on the State budget procedure and separation of powers under local law may constrain a State’s ability to timely comply with arbitral awards. In this regard, some States have provided for specific budgetary mechanisms in local law to ensure timely payment. For example, Guatemala and Bolivia have an exceptional procedure allowing the executive to make certain budgetary modifications during the year without the authorisation of the parliament, which enabled the States to comply promptly with their obligations under the Railroad Development Corporation (RDC) v. Republic of Guatemala award (within eleven months) and Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia award (within six months) respectively.20

V. Non-compliance with arbitral awards

11.

States’ refusal to comply voluntarily with arbitral awards has sometimes necessitated prolonged enforcement and/or annulment proceedings. Notable examples include Argentina (in CMS v. Argentina21), Thailand (in Walter Bau v. Thailand22), Zimbabwe (in Funnekotter v. Zimbabwe23), Russia (in Sedelmayer v. Russia24), and Romania (in Micula v. Romania25).

12.

States, for their part, have sometimes experienced difficulties in collecting amounts awarded in their favour, such as legal costs.26 According to a 2015 study on 56 cases where costs awards were rendered in the period to 31 December 2013, 37% of cost awards (13 out of 35) made in favour of respondents were not voluntarily paid by claimants, either in full or in part (compared to 19% of cost awards (4 out of 21) made in favour of claimants).27 See further Security for Costs.

Bibliography

Annacker, C., Achtouk-Spivak, L. and Bouraoui Z., ICSID Awards, Global Arbitration Review, 4 January 2019.

Cardosi, J.M., Precluding the Treasure Hunt: How the World Bank Group Can Help Investors Circumnavigate Sovereign Immunity Obstacles to ICSID Award Execution, Pepperdine Law Review, Vol. 41, Issue 1, 2013.

Charlotin, D., Looking Back: German investor, Franz Sedelmayer, was early-adopter of investment treaty arbitration, but had to engage in decade-long assets hunt against Russia, Investment Arbitration Reporter, 29 August 2017.

Charlotin, D., UK Supreme Court Finds In Favour of Micula Brothers and Lifts Stay of Enforcement of ICSID Award, Investment Arbitration Reporter, 19 February 2020. 

Gill, J. and Hodgson, M., Costs awards – who pays?, Global Arbitration Review, 2015.

Hirsh, M., Explaining Compliance and Non-Compliance with ICSID Awards: The Argentine Case Study and a Multiple Theoretical Approach, Journal of International Economic Law, 19, 2016.

Ben Mansour, A., Domestic Procedures for the Payment of Damages by States in Investment Arbitration, Investment Treaty News, 20 June 2020.

Peterson, L.E., How Many States Are Not Paying Awards under Investment Treaties?, Investment Arbitration Reporter, 7 May 2010.

Peterson, L.E., Investor Seeks to Collect on BIT Award Following Thailand’s Failure to Pay, Investment Arbitration Reporter, 22 April 2010.

Peterson, L.E., Zimbabwe Not Paying ICSID Award, Investment Arbitration Reporter, 7 May 2010.

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