Lawrence W. Newman and David Zaslowsky ()
A hallmark of arbitration awards issued by the International Center for the Settlement of Investment Disputes (ICSID) is that they cannot be reviewed by national courts of any member country. Yet, unless they are paid voluntarily, such awards still must be brought to a national court for recognition and enforcement. In our July 2012 column, we wrote about the procedures for enforcing such awards in the United States. At the time, there were only a handful of cases that addressed the subject, as well as a then-recently published report by the New York City Bar Association.1 On July 11, 2017, the Second Circuit became the first circuit court to address the matter. Its decision rejected the summary procedures that had been followed by numerous courts in the Southern District of New York.
The ICSID Convention
The Convention on the Settlement of Investment Disputes between States and Nationals of other States (the ICSID Convention) is a multilateral treaty, formulated by the World Bank and ratified by 153 countries, including the United States. March 18, 1965, 17 U.S.T. 1270, 575 U.N.T.S. 159. The ICSID system 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.”
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. 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.
The Second Circuit’s recent decision was in Mobil Cerro Negro Ltd. et al. v. Bolivarian Republic of Venezuela, No. 15-707 (2d Cir. July 11, 2017). During the 1990s, Mobil (acting through subsidiaries) invested in two oil development ventures in Venezuela. In early 2007, in conjunction with the country’s nationalization of its oil industry, the Venezuelan government seized Mobil’s interests in the projects. Mobil then submitted a request for arbitration, seeking compensation from Venezuela for its losses from the expropriation. On Oct. 9, 2014, an ICSID arbitral tribunal issued a unanimous award in Mobil’s favor for approximately $1.6 billion, plus interest.
One day after the ICSID panel announced the award, Mobil filed an ex parte petition in the Southern District of New York, asking the court to recognize the award pursuant to 22 U.S.C. §1650a, and to enter judgment directly on the award. The district court granted the petition and entered judgment against Venezuela that day. Venezuela moved to vacate the judgment and, in February 2015, the district court denied the motion to vacate.
The district court concluded that it had subject matter jurisdiction under certain exceptions to sovereign immunity recognized in the Foreign Sovereign Immunities Act (FSIA) and in §1650a (quoted above). The ex parte procedures—which did not satisfy the FSIA’s requirements for personal jurisdiction—were sufficient, the district court reasoned, because a procedural “gap” in §1650a permitted courts to take guidance from New York state law. Accordingly, it turned to the summary procedures for recognizing and enforcing “foreign judgments” that are set forth in New York Civil Practice Law and Rules (N.Y. CPLR) Article 54. The district court disclaimed any need to obtain personal jurisdiction over Venezuela under the FSIA, in light of Venezuela’s participation in the Convention and the permission given by N.Y. CPLR Article 54 for New York state courts to enter “foreign judgments” even absent jurisdiction over the judgment debtor.
The Other Approach
On appeal, the Second Circuit stated that there had been numerous Southern District of New York cases that permitted entry of judgment on an ICSID award through ex parte proceedings. Indeed, the court noted that it had summarily affirmed one of those decisions in a non-precedential Table decision.
But, the Second Circuit explained, a number of courts had followed a second approach. This approach requires award-creditors to pursue a plenary action in compliance with the FSIA’s personal jurisdiction, service, and venue requirements in order to enforce an ICSID award. Courts adopting this approach do not read §1650a to require summary enforcement and turn to the FSIA for guidance regarding how to bring an enforcement action against a foreign sovereign.
Not surprisingly, Venezuela argued that the second approach was the one that had to be followed. Furthermore, after oral argument, the Second Circuit requested the views of the United States through the Office of Legal Adviser at the Department of State. In its amicus brief, the United States joined Venezuela in taking the position that the FSIA provides the sole source of subject matter jurisdiction over an action to enforce an ICSID award against a foreign sovereign and that the FSIA’s procedural rules must be followed in such proceedings.
The Second Circuit agreed with Venezuela. It rejected Mobil’s argument that §1650a also provides a grant of subject matter jurisdiction to the federal courts over award enforcement actions against foreign sovereign award-debtors. The court could not reconcile that notion with the Supreme Court’s emphatic and oft-repeated declaration that the FSIA is the “sole basis for obtaining jurisdiction over a foreign state in our courts.” Argentine Republic v. Amerada Hess Shipping, 488 U.S. 428, 434 (1989).
But subject matter jurisdiction was not the determinative issue here. Under the facts of this case, there was subject matter jurisdiction under both the implicit waiver and arbitration exceptions of the FSIA. There was, however, no personal jurisdiction over Venezuela because service of process had not been made in accordance with the requirements of the FSIA. And, there was no apparent basis for venue in New York under the FSIA’s venue provisions. Thus, the court next had to determine whether the FSIA also controls the procedures by which such actions must be brought against a foreign sovereign award-debtor.
The district court concluded that Congressional intent on this issue was unclear. The Second Circuit, however, held there was no such ambiguity. It quoted from the Supreme Court’s decision stating that the FSIA’s “purpose is to set forth comprehensive rules governing sovereign immunity,” including “procedures for commencing lawsuits against foreign states.” Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 495 n.22. In fact, under the arbitration exception in the FSIA, the statute explicitly contemplates the exercise of federal court jurisdiction over actions to enforce international arbitral awards against foreign sovereigns, yet nowhere in the FSIA did Congress expressly exempt such actions from the statute’s service or venue requirements.
Under Mobil Cerro, it would appear that ICSID award-creditors must pursue federal court judgments to enforce their awards against a foreign sovereign by filing a federal action on the award against the sovereign, serving the sovereign with process in compliance with the FSIA, and meeting the FSIA’s venue requirements.2 Ex parte petitions may not be used. Because Mobil did not meet these requirements, the Second Circuit vacated the judgment and remanded with instructions to dismiss the petition.
At the same time, the Second Circuit was mindful of the fact that ICSID awards were intended to be immunized from substantive assault outside the ICSID tribunal. It therefore made sure to explain that its decision was not an invitation for protracted litigation. Thus, the Second Circuit stated specifically that, though the lawsuit might be referred to as “plenary” as opposed to “summary,” does not “portend a proceeding in which the court must entertain all manner of substantive defenses.”
The court also noted that it was important for the ICSID award-debtor to be a party to the action so that it would be able to make “non-merits challenges” to the award; for example, to question the authenticity of the award presented for enforcement, the finality of the award, or the possibility that an offset might apply to the award that would make execution in the full amount improper. But this did not detract from the fact that §1650a already made clear that Federal Arbitration Act grounds for vacating an award—such as fraud, corruption, or misconduct by the arbitrator—are unavailable to ICSID award-debtors. As the Second Circuit stated, the sovereign will “not be permitted to make substantive challenges to the award.”
In sum, the intent of the Second Circuit seems clear. It could not find authority in the statutes for a summary, ex parte procedure and so apparently wants “plenary light” instead. We will have to wait to see whether the district courts deliver, but, considering that there are multiple cases already pending against Venezuela, the wait should not be long.
1. A sub-committee of the International Commercial Disputes Committee of the New York City Bar Association published the report. One of us (Mr. Zaslowsky) was on that sub-committee.
2. Perhaps this is not the last word on the subject. Micula v. Romania, No 15-3109 presents the same issues and, though argued before the Second Circuit in 2016, no decision has yet been reached.