Saturday, April 23, 2011

Non-enforcement of arbitral awards: ICSID takes a U-turn

Enforcement of arbitral awards under bilateral investment treaties has been a complex matter. Unlike the Iran - US claims tribunal awards against Iran which are satisfied from an initial deposit made by Iran at the time of the formation of the tribunal, BIT awards enjoy no such certainty of enforcement. While common sense dictates that a BIT that provides investors a right to arbitration of disputes should also, impliedly, provide a right to have an award enforced, enforcement mechanisms are mostly left to the procedural laws of the respondent State.

Recently, Mr. Prabhash Ranjan and I co-authored an article (pending publication in the Asian Journal of Comparative Law) arguing that the enforcement framework of the New York Convention is inept for the enforcement of BIT awards. We argued this from the Indian experience. The evolution of the the definition 'public policy' in India, from the narrower to the broader view, is well known and has been covered elsewhere in this blog. We argued that even under the narrower view, an award which is against the 'interests of India' will be considered to be against public policy and hence non-enforceable. A BIT award rejecting a position advocated by the Republic of India - say, in a matter of regulatory expropriation - will be considered to be against the 'interests of India' and hence non-enforceable on public policy considerations.

A safeguard against such non-enforcement of adverse awards by States was introduced into the framework of BIT arbitration by the ICSID award in Sapiem v. Bangladesh. In that case, the refusal by the High Court Division of the Supreme Court of Bangladesh to enforce an ICC award in favour of Sapiem and against a government company amounted to expropriation. This sent a warning to States against over-use of the power to refuse enforcement.

However, on March 31, 2011, the ICSID award in GEA v. Ukraine took a U-turn in this matter. The award held that an ICC award was not a protected 'investment' under the Germany-Ukraine BIT or the ICSID Convention and hence its non-enforcement did not amount to expropriation.

While both Sapiem and GEA concerned non-enforcement of awards arising out of commercial contracts, not BIT arbitrations, Sapiem gave out the signal that non-enforcement of an arbitral award could be dealt with by another arbitral proceeding which would characterise the first non-enforcement as a violation of the BIT. GEA undoes this hope.

The silver lining is that it is possible to argue that the non-enforcement of an adverse BIT award, as opposed to an award in a commercial arbitration, amounts to a situation where a breach is adjudicated and yet, no reparation is made, which is a continuing breach of the BIT obligations and a breach of the customary norms of reparation codified in the Articles on State Responsibility [See Art. 28-39].

Still, the point remains that it is too risky to leave enforcement of BIT awards either to the discretion of the respondent States, or the New York Convention framework. An alternative framework for enforcement of BIT awards needs to emerge multilaterally or bilaterally.

1 comment:

  1. Thanks for the post, Deepak.

    I have been following the GEA case closely and am quite glad to see such a timely post.

    Without going into the main issue of non-enforcement of BIT awards here, I just wanted to say something regarding your reading of Saipem as a "safeguard."

    I believe the fact that Saipem (and GEA, too) concern non-enforcement of ICA awards, which you correctly note, should always illuminate any analysis of Saipem. I believe in the conceptual separateness and distinct nature of ICA and ITA. As such, whereas the Tribunal in Saipem (which if I recall correctly had distinguished members such as Gabrielle Kauffman-Kohler and Christoph Schreuer) may have reached the right result considering the judgment of the Bangladeshi court, I am more concerned about the policy implications of such judgment.
    Consider SAW Pipes, Patel Engineering and the like - all cases of the Indian Supreme Court's misadventures with arbitration. Following Saipem, there is a possibility that all International commercial disputes settled by ICA, and subsequently interfered with by national courts (SAW, Patel), can be converted in investment disputes. As such, Saipem, in my opinion, provides a tunnel for converting ICA disputes into ITA disputes, thereby linking the two. Conceptually, I am quite disconcerted by this. Practically, Saipem meant that there was an additional tier of review (BIT arbitration) for assessing the compliance of local courts and judgments with law and practice of international arbitration (particularly the New York Convention) - this comes quite close to Holtzmann, Schwebel et al.'s claims of an international court of arbitration and Kaplan's notion of a "world court". As such I am not quite sure if Saipem was indeed a "safeguard" as you say.



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