Editors’ Note: This article has been updated to reflect a Correction.
One of the oft-touted advantages of an arbitration award issued by the International Center for the Settlement of Investment Disputes (ICSID) is that it cannot be reviewed by national courts of any member country. Yet, such awards still must be brought to a national court for recognition and enforcement if a losing party refuses to pay the award voluntarily. This article looks at the practicalities of enforcing an ICSID award in the United States and certain best practices recommended by a recent New York City Bar report.1
The Convention on the Settlement of Investment Disputes between States and Nationals of other states (ICSID Convention) is a multilateral treaty, formulated by the World Bank and ratified by 147 countries including the United States.2 The ICSID system hears international investment disputes between a foreign investor and the state that hosts the investment. It provides for a self-contained dispute resolution process that is intended to foreclose the review by any court of final arbitral awards.
Article 52 of the ICSID Convention establishes the process by which either party may request annulment of the award by an annulment committee convened within the ICSID system. Section 6 of the ICSID Convention, which comprises Articles 53, 54, and 55, is titled “Recognition and Enforcement of the Award.” Article 53 provides that the award “shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention.” Article 54 of the convention requires all member states to “recognize” an ICSID award and to “enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.”
The report by a subcommittee of the International Commercial Disputes Committee of the city bar noted there were differing views on the meaning of the terms “recognition,” “enforcement” and “execution” in the ICSID award context but that they should be seen as points progressing along a single continuum with (1) “recognition” referring to confirmation or certification of an ICSID award as a final and binding disposition of claims, with res judicata effect; (2) “enforcement” referring to conversion of the ICSID award into a judicial judgment ordering the award debtor to comply with the award, including paying any amount due; and (3) “execution” referring to coercive measures that an award creditor may take when an award debtor refuses to pay the converted award voluntarily. (Co-author David Zaslowsky was on the subcommittee that issued the report titled “Recommended Procedures for Recognition and Enforcement of International Arbitration Awards Rendered Under the ICSID Convention.”)
Execution of an ICSID award, because it is against a foreign state, necessarily implicates the provisions of the Foreign Sovereign Immunities Act (FSIA). The FSIA affords significant protections to foreign sovereigns concerning the execution of judgments against them. For example, no execution activity against a foreign sovereign may be undertaken until a federal court has expressly ordered attachment and execution. 28 U.S.C. §1610(c).
Enforcing ICSID Award
Article 69 of the ICSID Convention imposes an obligation upon each member state to take legislative and other measures necessary to make the ICSID Convention effective. Accordingly, clear and consistent procedures for the recognition and enforcement of ICSID awards are important.
In the United States, the statutory provision implementing the ICSID Convention, 22 U.S.C. §1650a, provides, in relevant part:
(a) An award of an arbitral tribunal rendered pursuant to chapter IV of the convention shall create a right arising under a treaty of the United States. The pecuniary obligations imposed by such an award shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States. The Federal Arbitration Act shall not apply to enforcement of awards rendered pursuant to the convention.
The last sentence reinforces the concept that ICSID awards are not subject to judicial court review. This enabling legislation does not, however, establish specific procedures for enforcing ICSID awards, thereby giving rise to risks that a domestic court might impose procedural burdens that interfere with the swift recognition and enforcement of an ICSID award.
One risk is that the requirement under 22 U.S.C. §1650a to afford “full faith and credit” to ICSID awards may encourage a party contesting recognition or enforcement to argue that one or more of the exceptions to the requirement of full faith and credit apply to ICSID awards. After reviewing the possible full faith and credit challenge grounds, the city bar committee report concluded that, as a practical matter, those grounds are so narrow and limited they afford no viable challenge to the recognition and enforcement of an ICSID award.
Another issue is that recognition and enforcement proceedings could begin even though annulment proceedings are pending. Article 52 of the ICSID Rules provides that parties seeking annulment of an ICSID arbitral award must commence annulment proceedings within 120 days from the date on which the award was rendered. However, nothing in the ICSID Convention requires the victorious party to wait until that 120-day period has elapsed before seeking recognition or enforcement of the award. The result is that some prevailing parties may be inclined to commence enforcement proceedings as quickly as possible, notwithstanding the possibility or even the existence of annulment proceedings. Should the “procedures” of a country’s enforcement regime address that contingency?
Relevant Case Law
As the city bar committee report makes clear, only a handful of cases in the United States addresses the recognition and enforcement of ICSID awards—all of them decided by the federal court in the Southern District of New York. In each of the cases, the court recognized and enforced the ICSID award and entered judgment expeditiously on an ex parte basis. However, the cases are split on the issue of whether notice of the judgment must be provided to the judgment debtor before execution proceedings are commenced.
The first case involved the Liberian Eastern Timber Corporation (LETCO), which sought recognition and enforcement of a final ICSID award against the Liberian government. The district court granted LETCO’s application, issuing an ex parte order directing entry of judgment.3 The 1986 order also provided that LETCO was “entitled to enforcement of the pecuniary obligation of the award in its favor…” Liberia then moved to vacate both the judgment and the writs of execution on the ground that the court lacked jurisdiction under the FSIA to enter the judgment or execute the award against the property. The court upheld the entry of judgment but dissolved the writ of execution on the ground that the assets that were the subject of the writ were immune from execution under the FSIA.4
The ex parte order and judgment issued on behalf of LETCO in 1986 provided guidance for investors that prevailed against the Argentine Republic in two ICSID arbitrations in 2007—Enron and Ponderosa Assets v. Argentine Republic5 and Sempra Energy International v. Argentine Republic.6 In each of those cases, the award creditor filed an affidavit and a certified copy of its ICSID award on an ex parte basis and the district court recognized the awards and entered judgment. The Enron and Sempra orders and judgments, which were substantively identical, provided, in pertinent part:
[I]t is ORDERED that the annexed pecuniary obligations in the Award…be recognized and entered as a judgment by the Clerk of this Court in the same manner and with the same force and effect as if the Award were a final judgment of this Court….
In neither Enron nor Sempra did the court require that notice of the judgment be served on the judgment debtor. As a significant aside, in each of these cases, the ICSID award was ultimately annulled by an annulment committee convened within the ICSID system.
In Siag v. The Arab Republic of Egypt,7 the award creditors submitted papers that mirrored those from the earlier cases. Rather than immediately granting the relief sought, however, the court requested a memorandum of law addressing whether the putative judgment debtor, Egypt, was entitled to notice and an opportunity to be heard before judgment is entered. The court ultimately decided to rely on the provisions of New York state law (CPLR Article 54) for purposes of enforcing the ICSID award. The court in Siag ordered as follows:
The judgment creditors should submit a true and accurate copy of the arbitration award, accompanied by an affidavit stating that the proposed judgment was not obtained by default and that it is unsatisfied in whole or in part. See CPLR §5402(a). The affidavit should also set forth the remaining unpaid amount, affirm that enforcement of the award has not been stayed, and set forth the proper address for notice to Egypt. See id. Upon the filing of such an affidavit, the judgment creditor shall, within thirty days, provide proper notice of the filing to the judgment debtor. Id
Although the Siag decision is perhaps not as clear as it might be, the best reading of it is that the court ruled that the ICSID award would be recognized and enforced on an ex parte basis, with notice to be served by mail within 30 days following the filing of the judgment.
After considering these cases, the ICSID Convention and its enabling legislation in the U.S., as well as enforcement procedure statutes in other countries, the city bar committee report recommended the following best practices for enforcing an ICSID award in the Southern District of New York. A party seeking to have an ICSID award recognized and enforced should submit to the court (i) an ex parte application setting forth the relief it seeks; (ii) an accompanying affidavit re-affirming the relief sought, providing background information concerning the arbitration, such as the identity of the parties and a short summary of the procedural history of the arbitration (when the hearing occurred, when the award was issued, etc.), and further comporting with the requirements of Article 54 of New York’s CPLR; and, (iii) a copy of the award, certified by the ICSID Secretary-General. No notice should have to be provided to the opposing party at this juncture in the process.
This proposed procedure, isolated from considerations related to execution, allows for the swift recognition and enforcement of ICSID awards, which is a guiding principle of the ICSID Convention. With such an ex parte proceeding, the award creditor is protected from any improper attempts by the award debtor to discredit or challenge the award, which would be contrary to the ICSID system, or to delay the res judicata effect of the award. An award creditor will obtain recognition and enforcement (not execution) of its award immediately in the form of a judgment of the court.
In addition, within 30 days of the filing of the district court’s judgment, the judgment creditor should mail the judgment debtor a copy of such judgment. Service of the entered judgment by mail is fully in keeping with the intent of the ICSID Convention as well as the language of the ICSID implementing statute, which references “full faith and credit,” and New York’s laws governing the recognition and enforcement of sister-state judgments that are entitled to receive “full faith and credit” in enforcement proceedings.8
In sum, were the subcommittee analyzing this issue and writing on a tabula rasa, it would have likely recommended that the implementing legislation set forth more detailed procedures for enforcing ICSID awards than are currently included in 22 U.S.C. §1650a. However, in light of the existing statutes and the difficulties in seeking their amendment, the subcommittee concluded that the best practices in the city bar committee report was the best way forward.
Lawrence W. Newman is of counsel and David Zaslowsky is a partner in the New York office of Baker & McKenzie and are the authors of “Litigating International Commercial Disputes” (West). They can be reached at email@example.com and firstname.lastname@example.org.
1. A subcommittee of the International Commercial Disputes Committee of the New York City Bar recently published a report on this subject (the city bar committee report). That subcommittee was chaired by Edward G. Kehoe and included one of the co-authors of this column (Zaslowsky) as well as Dana C. McGrath and William H. Taft V. The report can be found at http://www2.nycbar.org/pdf/report/uploads/20072262-ProceduresforAwardsunderICSID.pdf.
2. March 18, 1965, 17 U.S.T. 1270, 575 U.N.T.S. 159.
3. Liberian Eastern Timber v. Republic of Liberia, 650 F.Supp. 73, 75 (S.D.N.Y. 1986) (LETCO).
4. LETCO, 650 F.Supp. at 76–78.
5. Enron v. Argentine Republic, No. M-82 (S.D.N.Y. Nov. 20, 2007).
6. Sempra Energy Int’l v. Argentine Republic, No. M-82 (S.D.N.Y. Nov. 14, 2007).
7. 2009 WL 1834562 (S.D.N.Y. June 19, 2009).
8. Although it is beyond the scope of this article, the city bar committee report addressed the issue of the requirements of the FSIA with respect to service of process.