L ARS MARKERT AND CATHARINE TITI*
C. POST-AWARD PHASe/eNFORCeMeNT
With the rendering of an award that is unfavorable to the host state, the “game” is by no means over. Host states have access to set-aside or annulment proceedings for a limited review of the award. Even if host states do not follow this route, they can simply decide not to pay up. This leaves the investor in a difficult position. Since the investor will likely not be able to enforce the award in the territory of the host state, it is left with “asset tracing” and other efforts to enforce the arbitral award elsewhere.
1. FUNDAMeNTAL USe OF THe ANNULMeNT PROCeSS OR SeT-ASIDe PROCeeDINgS
Host states putting up vigorous defenses in investment arbitrations display a growing tendency to institute set-aside118 or annulment proceedings against adverse arbitral awards. While per- ceptions about the use of annulment at ICSID vary,119 empirical data seem to suggest that in
116. For an account, see National Grid (n 64) [85].
117. UNCTAD (n 107) 11. For a temporal differentiation, Roberts (n 109) 216.
118. On setting aside proceedings in international investment law, see Lars Markert and Helene Bubrowski,
‘National setting aside proceedings’ in Marc Bungenberg and others (eds), International Investment Law (Baden-Baden 2015) 1460.
119. In a 2012 survey, ICSID explained on the basis of empirical data that the rate of annulments from 2001 to 2012 was 7%, while the rate of annulments from 1971 to 2000 was 13%, ICSID, Background Paper on Annulment for the ICSID Administrative Council 2012, [37]. According to Burgstaller and Rosenberg, almost half of all examined awards for which annulment proceedings had been instituted up until 2010 had ended up wholly or partially annulled, Markus Burgstaller and Charles B. Rosenberg, ‘Challenging international arbitral awards: to ICSID or not to ICSID?’ (2011) 27 Arbitration International 91, 97.
about one-third of all cases annulment proceedings are instituted against final awards.120 In 57% of these cases annulment is pursued by the respondent host state.121 To give an illustration, Argentina, respondent in the largest number of investment claims initiated against a single host state,122 has regularly filed set-aside or annulment applications as part of its defense strat- egy. In light of recent—not uncontroversial123—annulments and set-asides, it has been noted that “Argentina’s legal strategy of pursuing all possible avenues of appeal [sic] against arbitral verdicts […] has paid dividends.”124
Recourse to domestic courts in an attempt to set aside an investment arbitral award is not a novel device. A delicate matter susceptible to inviting questions over the relationship between domestic courts and arbitral tribunals,125 recourse to the national judge needs to be evaluated against the backdrop of the forum delivering the arbitral award. A necessary distinc- tion has to be drawn between ICSID and non-ICSID awards: pursuant to Article 53(1) of the ICSID Convention, ICSID awards are not subject to appeal or to any remedy other than those provided therein. The case is different for awards delivered through other fora, including the ICSID Additional Facility.126 The British Columbia Supreme Court’s partial set-aside of the Metalclad award,127 where the court read its own requirements into the fair and equitable treat- ment standard under Article 1105 of NAFTA, is seen as a criticized example of a court over- stepping the boundaries of judicial review128—something host states may encourage if they are to have unfavorable awards set aside.129 The difficulty in investment arbitration is that reviewable issues of jurisdiction and procedure are often hard to distinguish from merits-like assessments of the scope and provisions of the IIAs. The line between jurisdictional and substantive issues will often—sometimes quite deliberately—be blurred. This makes it necessary for national courts to apply the correct standard of review in set-aside proceedings, that is, not to conduct a full de
120. As of August 2012, there had been 150 ICSID Convention awards rendered, for which 53 annulment proceedings had been instituted, ICSID, Background Paper on Annulment (n 119) [36].
121. ICSID, Background Paper on Annulment (n 119) [39].
122. UNCTAD, ‘IIA Issues Note No. 1: Recent Developments in Investor-State Dispute Settlement (ISDS)’
(n 6) 29, Annex 2.
123. Christoph Schreuer, ‘From ICSID annulment to appeal—Half way down the slippery slope’ (2011) 10 The Law and Practice of International Courts and Tribunals 211, 218. (with respect to the annulments in the Enron and Sempra cases); BG Group PLC v Argentina, Motion for Leave to file Amicus Curiae Brief and Brief of Professors and Practitioners of Arbitration Law as Amici Curiae in Support of Petition for a Writ of Certiorari, 29 August 2012, 9, available at <http://italaw.com>.
124. Luke Eric Peterson, ‘U.S. Court tears up $185+ million award due to failure of arbitrators to respect treaty’s call for 18 months of local litigation in Argentina’ (2012) 5 IAReporter.
125. On this topic, see Schreuer, ‘Interaction of international tribunals and domestic courts in investment law’ (n 27) 87–88.
126. See Schreuer, ‘Interaction of international tribunals and domestic courts in investment law’ (n 27) 91–92.
127. Metalclad Corporation v United Mexican States (Award, 2000) ICSID (Additional Facility) Case No ARB(AF)/97/1.
128. Todd Weiler, ‘Good faith and regulatory transparency: the story of Metalclad v. Mexico’ in Todd Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (Cameron May 2005) 713, 729; see also Henri C. Alvarez, ‘Judicial review of NAFTA Chapter 11 arbitral awards’ in Frédéric Bachand and Emmanuel Gaillard (eds), Fifteen Years of NAFTA Chapter 11 Arbitration (Juris Publishing 2011) 103, 108; Chris Tollefsen, ‘Metalclad v. United Mexican States revisited: judicial oversight of NAFTA’s Chapter Eleven investor-state claim process’ (2002) Minnesota Journal of Global Trade 183, 211.
129. For examples, see Markert and Bubrowski (n 118), fn 24 and accompanying text.
novo review of the arbitral tribunal’s decision on the merits while at the same time guaranteeing fundamental procedural rights and principles.130 It remains to be seen whether set-aside proceed- ings will become an effective host state defense, also in light of Argentina’s only temporary suc- cess in the BG Group case.131 While state courts follow different approaches in their standard of review, most of them have shown deference to the findings of arbitral tribunals and have resisted a merits review of investment awards. Eventual “outliers” have sometimes been vacated in the next instance or come under critical scrutiny132—making the set-aside “option” one of uncertain outcome for host states.
2. NON-PAYMeNT OF ARBITRAL AWARDS
Another popular “defense” for host states is non-compliance with arbitral awards.133 As Alexandroff and Laird point out,134 historical examples of refusals to pay include the cases of Benvenuti & Bonfant v Congo,135 SOABI v Senegal,136 and LETCO v Liberia.137 More recent examples are Kazakhstan’s,138 Kyrgyzstan’s,139 and Thailand’s140 refusals to pay arbitral awards. In an ad hoc
130. Markert and Bubrowski (n 118) 1467.
131. BG Group PLC v Argentina, U.S. Supreme Court, opinion (5 March 2014) reversed the lower instance decision which had set aside the arbitral award.
132. See Petrobart Limited v Kyrgyzstan, Svea Court of Appeal, Judgment, 13 April 2006 (set aside on this ground by Svea Supreme Court, Judgment, 28 March 2008); Kyrgyzstan. Petrobart Limited, Svea Court of Appeal, Judgment, 19 January 2007 (all three court decisions as reported in Kaj Hobér and Nils Eliasson,
‘Review of investment treaty awards by municipal courts’ in Katia Yannaca-Small (ed), Arbitration under International Investment Agreements (Oxford University Press 2010) 635, 651–54); Czech Republic v Pren Nreka, Cour d’Appel de Paris, Judgment, 25 September 2008, 4; Région Kaliningrad v Lituanie, Cour d’Appel de Paris, 1ère Ch. civ, 18 November 2010; Mexico v Cargill Inc., Ontario Court of Appeal, Judgment, 4 October 2011, [42] (‘the standard of review of the award the court is to apply is correctness, in the sense that the tri- bunal had to be correct in its determination that it had the ability to make the decision it made.’); see also BG Group PLC v Argentina, Motion for Leave to file Amicus Curiae Brief (n 123).
133. See generally Alan S. Alexandroff and Ian A. Laird, ‘Compliance and enforcement’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008) 1171–1187.
134. Alexandroff and Laird (n 133) 1171, 1177–1185.
135. S.A.R.L. Benvenuti & Bonfant v People’s Republic of the Congo (Award, 1980) ICSID Case No ARB/77/2.
136. Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal (Award, 1988) ICSID Case No ARB/82/1.
137. Liberian Eastern Timber Corp. (LETCO) v Liberia (Award, 1986) ICSID Case No ARB/83/2.
138. AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v Republic of Kazakhstan (Award, 2003) ICSID Case No ARB/01/6.
139. See Petrobart Limited v Kyrgyz Republic (Award, 2005) SCC Arbitration No 126/2003. As a result of diplomatic pressure, in 2011 Kyrgyzstan eventually gave in and paid up on the arbitral award. However, it continued to refuse payment on another investment arbitral award rendered against it two years earlier, Sistem Muhendislik Insaat Sanayi ve Ticaret A.S. v Kyrgyz Republic (Award, 2009) ICSID Case No ARB(AF)/06/1. See Luke Eric Peterson, ‘Lengthy debt collection battle ends, as former Soviet state pays arbitral award; unusual form of diplomatic assistance seen’ (2011) 4 IAReporter; Jarrod Hepburn and Luke Eric Peterson, ‘As new arbi- tral claim is brought against Kyrgyzstan, an ICSID award remains unpaid’ (2011) 4 IAReporter.
140. See Walter Bau AG v Kingdom of Thailand (Award, 2009) UNCITRAL. See Luke Eric Peterson, ‘Thailand comes out swinging in fight over non-payment of BIT arbitral award; government alleges that minority share- holder in highway project had contract obligation not to sue under treaty’ (2011) 4 IAReporter.
investment arbitration, Russia also became notorious for refusing to comply with the Sedelmayer award.141 More recently, Argentina has made headlines for not compensating successful claimants in awards finding against it in the wake of its 2001 financial crisis.142
With respect to non-payment of arbitral awards, an important distinction has to be made.
Host states’ non-payment may be seen as legitimate during the recourse against arbitral awards in set-aside or annulment proceedings, given the fact that the arbitral award may sub- sequently lose its binding force. However, once all forms of recourse against arbitral awards are exhausted, non-payment becomes a “defense” that is not envisaged by the system. As such it is to be seen more critically, if only for the fact that it undermines the depoliticization aimed at by the investor-state dispute settlement system. Article 27(1) of the ICSID Convention pro- vides that investor home states can resort to diplomatic protection if a contracting party to the ICSID Convention fails to “abide by and to comply with” ICSID arbitral awards. Recently, other channels beyond formal diplomatic protection143 have been used in order to “sanction”
failures to pay arbitral awards, occasionally putting a strain on bilateral relations between investor host and home state.144
3. INITIATION OF STATe-TO-STATe DISPUTe SeTTLeMeNT
Two further trends may be observed in the context of recent investment arbitrations where the losing state continues the legal battle either by turning against its treaty partner, in state-to- state arbitration, or by resorting to legal proceedings against the state that has enforced an arbitral award against assets of the host state.
A rather recent development is the use of state-to-state arbitration over the interpretation of the investment agreement that has formed the basis of an arbitration. In the context of the Chevron dispute,145 state-to-state arbitration was initiated by Ecuador against the United States on the basis of the U.S.-Ecuador BIT146 with a view to clarifying the scope of the latter’s substan- tive provisions. At first sight, such proceedings may seem to target future investment arbitra- tions brought on the basis of the same BIT. However, in Ecuador’s case, it may have also been an attempt to use it as a “defense,” considering that Ecuador had instituted set-aside proceedings against the arbitral award in Dutch courts. Any finding favorable to Ecuador in the state-to-state
141. Sedelmayer v Russian Federation (Award, 1998) SCC. On Russia’s failure to pay in the Sedelmayer case, see Alexandroff and Laird (n 133) 1182.
142. It appears, however, that a post-award settlement has been reached at least for a number of cases, Kyriaki Karadelis, ‘Argentina ‘close’ to settling treaty awards’ (2013) Global Arbitration Review, 20 September 2013.
On these topics, see generally Catharine Titi, ‘Investment arbitration in Latin America: the uncertain veracity of preconceived ideas’ (2014) Arbitration International 31 (2).
143. For an overview of state measures that fall short of the diplomatic protection principle under public international law, Lars Markert and Stephan Wilske, ‘The use of diplomatic channels’ in Guenther Horvath and Stephan Wilske (eds), Guerilla Tactics in International Arbitration (Wolters Kluwer 2013) 298, 303.
144. ‘United States initiates suspension of Argentina’s trade benefits because of nonpayment of U.S. compa- nies arbitration awards’ in John R Crook, ‘Contemporary practice of the United States relating to international law’ (2012) 106 American Journal of International Law 678–680. For a critical analysis, see Titi, ‘Investment arbitration in Latin America’ (n 142).
145. Chevron (n 29).
146. Treaty between United States of America and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment (entered into force 11 May 1997) (U.S.-Ecuador BIT).
arbitration could have been presented in the national court proceedings in the hope of exerting a positive influence on the national judge.147 Ultimately Ecuador did not prevail in the state-to- state arbitration, with the tribunal denying jurisdiction, which might explain why the outcome is not mentioned in the set-aside proceedings before the Dutch courts.148
Another quite interesting avenue is for a respondent host state to institute “retaliatory”
proceedings against a state that has aided an investor in enforcing an investment award against it. In a recent case, the Russian region of Kaliningrad resorted to investment arbitration against Lithuania, alleging that enforcement of an earlier commercial arbitral award against its assets amounted to expropriation.149 The case was filed under the investor-state mechanism of the Russia-Lithuania BIT, with the regional Russian Government purporting to qualify as an investor under the treaty.150 While the claim was ultimately dismissed, this type of pro- ceeding could make states hesitant about assisting in enforcement proceedings against other states. Much will surely depend on the international standing of the enforcing state and the independence of its judiciary. However, even then there may be diplomatic implications for the enforcing state. This can be seen in the case of Russia, which apparently voiced strong objec- tions to the assistance of Swedish courts in enforcement efforts by a German investor over an unpaid arbitral award delivered against Russia.151
It is doubtful whether state-to-state arbitration triggered during an existing investor-state dispute may directly impact an already delivered award,152 and acceptance of jurisdiction in such proceedings has been described by one legal expert as a renegotiation of a treaty by means of arbitration.153 Nonetheless, it remains a possible response available to a losing respon- dent state.