title: sovereign immunity from execution of arbitral awards1431914/fulltext03.pdf · and 2004 unsci...
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Department of Law
Spring Term 2020
Master Programme in Investment Treaty Arbitration
Master’s Thesis 15 ECTS
Title: Sovereign Immunity from Execution of
Arbitral Awards
Subtitle: A Focus on Attaching and Executing Central Bank Assets
and 2004 UNSCI
Author: Aman Prasad
Supervisor: Ylli Dautaj
2
Table of Contents
ACKNOWLEDGEMENTS ................................................................................................... 03
AUTHORS DECLARATION ............................................................................................... 04
LIST OF ABBREVIATIONS ................................................................................................ 05
ABSTRACT & KEYWORDS ............................................................................................... 07
PART-1: INTRODUCTION ................................................................................................. 09
1.1. RESEARCH QUESTION, PROBLEM FORMULATION AND PURPOSE .................................... 14
1.2. METHODS AND SOURCES ................................................................................................ 14
1.3. PURPOSE AND DELIMITATIONS OF THE TOPIC ................................................................. 16
1.4. DEFINITIONS AND TERMINOLOGY ................................................................................... 16
1.5. DISPOSITION AND ROAD MAP ......................................................................................... 19
PART-2: FINAL, BINDING AND DIRECTLY ENFORCEABLE AWARDS IN
INVESTMENT TREATY ARBITRATION ........................................................................ 20
2.1. ARTICLE 53 AND 54 – THE STRICT OBLIGATION TO RECOGNISE AND ENFORCE ICSID
AWARDS- DUTY TO ‘COMPLY AND ABIDE’ ............................................................................ .20
2.2. ARTICLE 55- STATE IMMUNITY RULES ON ENFORCEMENT MEASURES AS LAST
REMAINING OBSTACLE ......................................................................................................... 23
PART-3: THE BARRIER OF SOVEREIGN IMMUNITY- THE LAST RESORT FOR
STATE’S LAWLESSNESS OR IS IT? ................................................................................ 26
3.1. SOVEREIGN IMMUNITY FROM JURISDICTION .......................................................................
3.2. SOVEREIGN IMMUNITY FROM EXECUTION ...................................................................... 29
3.3. COMMERCIAL ACTIVITY EXCEPTION ALIAS DOCTRINE OF RESTRICTIVE IMMUNITY ...... 33
3.4. WAIVER DOCTRINE IN THE EXECUTION CONTEXT .......................................................... 35
PART-4: UNITED NATIONS CONVENTION ON JURISDICTIONAL IMMUNITIES
OF STATES AND THEIR PROPERTY (UNSCI) 2004 VIS-À-VIS MEASURES OF
CONSTRAINTS IN EXECUTION ...................................................................................... 38
4.1. ARTICLE 18, 19 & 20 UNSCI ........................................................................................ 39
4.2. ARTICLE 21 UNSCI- DE FACTO IMMUNITY ALBEIT THE COMMERCIAL PURPOSE ......... 42
PART-5: THE INTERNATIONAL COURT OF JUSTICE (ICJ) AND THE CENTRAL
BANK IMMUNITY ............................................................................................................... 44
5.1. GERMANY V ITALY (GREECE INTERVENING) [‘THE JURISDICTIONAL IMMUNITIES CASE’]
.............................................................................................................................................. 46
5.2. CERTAIN IRANIAN ASSETS (ISLAMIC REPUBLIC OF IRAN V. UNITED STATES OF AMERICA)
WITH SPECIAL FOCUS ON ‘BANK MARKAZI V. PETERSON’ (US SUPREME COURT) ................ 50
PART-6: ALTERNATIVE ENFORCEMENT MECHANISMS- CAVEAT EMPTOR . 55
6.1 MARKET APPROACH- ...................................................................................................... 56
6.1.1. POLITICAL AND INVESTMENT RISKS FOR DISOBEDIENT STATES ......................................
6.2.2. THIRD PARTY FUNDING DURING ENFORCEMENT PROCEEDINGS .................................. 58
6.3.3. THE WORLD BANK ROUTE OPEN FOR FRUSTRATED INVESTORS ................................... 60
6.2. ARCHITECTURAL APPROACH- ........................................................................................ 61
6.2.1 DEFERENCE OF COURT REVIEW OF AWARD .....................................................................
CONCLUDING REMARKS ................................................................................................. 64
BIBLIOGRAPHY .................................................................................................................. 68
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ACKNOWLEDGEMENTS
I would like to thank Prof. Kaj Hober for opening doors to knowledge in
international arbitration and helping to understand complex things in much more
simplistic manner. During my studies here in Uppsala, I would sincerely like to
thank Mr. Ylli Dautaj, not only my master supervisor, but a mentor and a friend.
He gave me the necessary guidance, motivation and the road map in moving
forward. He made this daunting task achievable with relative ease and wisdom. I
would also like to thank in particular Mr. Joel Dahlquist Cullborg, Mrs. Crina
Baltag and other guest lecturers at Uppsala University for sharing their respective
knowledge and practical expertise.
Finally, I cannot thank enough my beloved parents and friends, in and outside
Uppsala for believing in me and giving me encouragement.
Uppsala, June 2020
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AUTHORS DECLARATION
I, Aman Prasad, declare that this thesis is my own work and that all sources that
I have used or quoted have been indicated and or acknowledged by means of
complete referencing via the footnotes as well as in the table of authorities and a
separate bibliography.
Aman Prasad
Date: 1st June 2020
DISCLAIMER: This thesis is intended for submissions as part of Module-4
curriculum of Uppsala University and is a graded paper. The author takes whole
and sole responsibility for contents prescribed under it. The author has followed
footnoting and referencing guidelines as mandated. All references are duly noted
under the Bibliography section. The opinions and conclusion of the author are his
personal. Still, if any inadvertent error arises, it is the responsibility of the author.
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LIST OF ABBREVIATIONS
UNSCI 2004 United Nations Convention on
Jurisdictional Immunities of States and
Their Property, 2004
BIT(s) Bilateral Investment Treaty(s)
ISDS Investor-State Dispute Settlement
IIA(s) International Investment Agreements
UNCITRAL Arbitration Rules United Nations Convention on
International Trade Law Arbitration
Rules 1976
SWFs Sovereign Wealth Fund(s)
SOEs State-owned Enterprises
ICJ International Court of Justice
ITA Investment Treaty Arbitration
ICA International Commercial Arbitration
IIL International Investment Law
ILC International Law Commission
ICSID International Convention for Settlement
of Investment Disputes, 1965 alias The
Washington Convention, 1965
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NY Convention Convention on Recognition and
Enforcement of Arbitral Awards (10 June
New York 1958)
UN United Nations
IBRD International Bank for Reconstruction
and Development (‘World Bank’)
VCLT Vienna Convention on the Law of
Treaties
OECD Organization for Economic Trade and
Development
MIGA Multilateral Investment Guarantee
Agency
CETA Comprehensive Economic and Trade
Agreement
TTIP Transatlantic Trade and Investment
Partnership
IMF International Monetary Fund
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ABSTRACT
The past few decades have seen a veritable explosion of investment treaty and
other arbitration claims brought against States. Many of these claims have been
heard through ICSID arbitration. In comparison to other arbitration frameworks,
the ICSID regime has its own self-contained rules for enforcement. Thus, given
the significant increase in arbitration claims against States, on the one hand, and
States’ not too seldom invoking of the defence of sovereign immunity, on the
other hand, this treatise is timely in addressing various outstanding issues that
award-creditors have and will continue to encounter when dealing with defaulting
States.
The doctrine of sovereign immunity translates into the conventional wisdom that a
State cannot be sued without its consent in foreign courts. This doctrine derives
from the practical consequence that the sovereign makes the law, and
consequently can break it too. This idea is an extension of primarily the common
law doctrine to the international plane, which emerged largely as a result of
international comity.1 This concept is also based upon principles ‘equality’ in
terms of ‘equal sovereign status’. Some authors even call it ‘independence’ and
‘dignity’ etc., In this respect, the ICJ has also held that it was equality, that is the
basis, i.e. justification for the general rule of immunity.
The theory of immunity has gradually shifted from absolute to restrictive
immunity, making it significantly easier for award-creditors to enforce an arbitral
award. However, the barrier vis-à-vis immunity from execution makes the last
link in ITA vulnerable. This evolution has made substantially an easier task for
award-creditors in ITA and ISDS holding an arbitration award against a sovereign
State. In view of this relatively at ease syndrome that award-creditors now
possess, the immunity protections granted to State and its assets will be accessed
albeit the proportionality test of acta jure imperii (i.e. sovereign or government
purpose) & acta jure gestionis (i.e. commercial or mixed purpose) and the
1 R Doak Bishop (ed), Enforcement of Arbitral Awards against Sovereigns (JurisNet, LLC Publ 2009).
8
measurement standard applied to such tests is UNSCI 2004, which are now
largely constituting States customary international law.
Ultimately, to the author’s opinion, the value of international arbitration (‘ITA
and ISDS’) as a means and ends of solving disputes is dependent upon the extent
to which arbitral awards are honoured and enforced. In this light, the author can
vociferously say that sovereign immunity remains a significant impediment
against award-creditors seeking to enforce arbitral awards against unwilling
States. The barrier is not one that will fade away. Thus, outstanding award-
creditors could be advised to exercise some pressure through alternate and viable
forms of enforcement measures. Therefore, the States should not stand-alone to
shield their commercial assets from enforcement, attachment and execution,
especially for de minimis sovereign purposes.2
-----------------------------------------------------------------------------------------------
KEYWORDS: Investment Treaty Arbitration (ITA), Sovereign immunity,
Enforcement and Execution, Central Bank Assets, UNSCI 2004, International
Court of Justice (ICJ)
2 R Doak Bishop (ed), Enforcement of Arbitral Awards against Sovereigns (JurisNet, LLC Publ 2009).
9
PART-1: INTRODUCTION
The United Nations Convention on Recognition and Enforcement of Foreign
Arbitral Awards (New York 10 June 1958) (‘NY Convention’) regulates
recognition and enforcement in general. This route for recognition and
enforcement also applies equally to non-ICSID awards, including ICSID
Additional Facility awards or non-ICSID awards. The ICSID Convention is not
applicable to Additional Facility proceedings. 3 This means, in particular, that
unlike ICSID awards, awards rendered under the Additional Facility are subject to
review by domestic courts.4 It means that the provisions on enforcement and
recognition in the ICSID Convention are not applicable to Additional Facility
awards. Rather the 1958 NY Convention applies for recognition and enforcement
of such awards.5 For this reason, we have Article 19 6 of ICSID Additional
Facility Rules which states that arbitration proceedings to be held in the State that
is party to the ‘1958 Convention on Recognition and Enforcement of Foreign
Arbitral Award.’7
However, in contrast to what author has mentioned above, the NY Convention
plays no role in the enforcement and recognition of the awards rendered pursuant
to Convention on the Settlement of Disputes between States and Nationals of
Other States (‘ICSID Convention’). An ICSID arbitration is entirely
3 Christoph Schreuer, ‘International Centre for Settlement of Investment Disputes (ICSID)’ 11. 4 Christoph Schreuer, ‘International Centre for Settlement of Investment Disputes (ICSID)’ 11. 5 Christoph Schreuer, ‘International Centre for Settlement of Investment Disputes (ICSID)’ 11.
6 Article 19: Limitation on Choice of Forum- Arbitration proceedings shall be held only in States that are parties to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (at page 55).
<https://icsid.worldbank.org/en/Documents/icsiddocs/AFR_English-final.pdf> accessed 24 April 2020.
7 ‘ICSID Additional Facility Rules’ n Authors Note: For the purposes of delimiting the thesis topic, the author will not be any further discussing about the ICSID Additional Facility Rules. The author mentions Article 19 for enforcement connection purpose pursuant to NY Convention, only.
<https://icsid.worldbank.org/en/Pages/icsiddocs/ICSID-Additional-Facility-Rules.aspx> accessed 29 April 2020.
10
‘delocalized.’8 (‘delocalization9’) The law of the place of arbitration generally has
no impact at all on the ICSID arbitration process.10 The ICSID Convention is an
intergovernmental institution established by treaty.11 It is closely aligned with the
‘International Bank for Reconstruction and Development (‘IBRD’). 12 It is
designed to promote the settlement of disputes between States and private foreign
investors (whom we will refer to in this thesis as award-creditors), that are
constituted on an ad hoc basis for each dispute.13 As the ICSID Convention is a
self-contained, self-sustaining, detached and a heterogenous regime in itself and
thus, the awards are standalone final, binding and enforceable on the parties to the
dispute. This special mechanism of the ICSID Convention will be dealt by the
author in detail in part-2 of this thesis with some relatable ICSID Articles namely-
Article 5314, Article 5415 and the most important for the genesis of this thesis,
8 Margaret L Moses, The Principles and Practice of International Commercial Arbitration (Cambridge University Press 2017) s Special Features of ICSID Arbitration at page no.225
9 ‘Process Overview’ <https://icsid.worldbank.org/en/Pages/process/Overview.aspx> accessed 30 April 2020 10 Margaret L Moses, The Principles and Practice of International Commercial Arbitration (Cambridge University Press 2017). 11 Schreuer (n 4). 12 Schreuer (n 4). 13 Schreuer (n 4).
14 'International Centre for Settlement of Investment Disputes’: n Article 53-(1) 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. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. (2) For the purposes of this Section, ‘award’ shall include any decision interpreting, revising or annulling such award pursuant to Articles 50, 51 or 52. <http://icsidfiles.worldbank.org/ICSID/ICSID/StaticFiles/basicdoc/partAchap04.htm#s05>accessed 24 April 2020 15 'International Centre for Settlement of Investment Disputes’: Article 54-(1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state. (2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation. (3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.
<http://icsidfiles.worldbank.org/ICSID/ICSID/StaticFiles/basicdoc/partAchap04.htm#s05>accessed24 April 2020.
11
Article 55 16 . Now coming back to the NY Convention, the obligations as
contained in Article V17 i.e. grounds for refusal in recognition and enforcement of
an award, does not exclude obstacles to enforcement measures as a result of
general international law, such as, the rules on State immunity18. Now, reading
the NY Convention and ICSID Convention in conjunction, this to authors
understanding means, on one hand where Article V of NY Convention poses
certain limitations on recognition and enforcement of an award such as famously
on ‘public policy defences’, the NY Convention however fails to recognise
obstacles in enforcement from state immunity, while on the other hand, we have
Article 55 of ICSID Convention, which only talks about such obstacles of State
immunity but leaves the matter to be best decided in accordance to law in force in
any contracting party state relating to immunity of that state or any foreign state
from execution.
16 'International Centre for Settlement of Investment Disputes’: n Article 55-Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution. <http://icsidfiles.worldbank.org/ICSID/ICSID/StaticFiles/basicdoc/partAchap04.htm#s05> accessed 24 April 2020. 17 ‘United Nations Convention on the Recognition and Enforcement » New York Convention’ nArticle V- 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, has been set aside or suspended by a competent authority of the country in which, under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. <http://www.newyorkconvention.org/english> accessed 24 April 2020.
18 Reinisch August, Part VI the Post-Award Phase, 29 Enforcement of Investment Treaty Awards, vol 1 (Oxford UniversityPress2018) para 29.44.
<http://oxia.ouplaw.com/view/10.1093/law/9780198758082.001.0001/lw9780198758082-chapter-29> accessed 16 April 2020.
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To quote one of the noted scholar’s Sir James Crawford, as he said; ‘[i]mmunity
exists as a rule of international law, but its application depends substantially on
the law and procedural rules of the forum.’19
Also, as was held in Vivendi v Argentina (stay on enforcement decision): [O]ne of
the fundamental issues which the drafter of the ICSID Convention were keen to
achieve was a total divorce from the recognition and enforcement system which
prevailed under domestic laws or under the 1958 New York Convention.20 Thus,
to the authors opinion, this poses sudden and grave provocation for award-
creditors to shield their awards from such laws of state immunity, which the
author will interchangeably refer to as sovereign immunity.
This leaves ICSID to be so called the ‘quasi-automatic’ enforcement from
execution system. This features of ICSID being a quasi-automatic enforcement
from execution system, leaving the matters of attachment of state assets,
enforcement and finally execution of ‘those assets’, at the mercy, whims and
fancies of laws of State immunity i.e. law in force in any Contracting State
relating to immunity of that State or of any foreign State from any execution.
Thus, the author of this thesis is trying to motivate his understanding on such
State immunity laws as a possible sovereign immunity barrier from attachment
and execution of awards of award-creditors in ITA.
For all intents and purposes, the author deems fit to define what are ‘those assets’
as have been stated above. Those assets are of State namely- central bank assets
and such alleged Sovereign Wealth Funds (SWFs) used by State and State-owned
enterprises (SOEs) in conduct of States business. The author through such
examples of State assets from possible attachment and execution context, will
focus on them and come to conclusion of whether such Assets enjoy complete
19 Asif H Qureshi, ‘Manchester Journal’ 44; James Crawford, Brownlie’s Principles of Public International Law (Ninth edition, Oxford University Press 2019). 20 I Uchkunova and O Temnikov, ‘Enforcement of Awards Under the ICSID Convention--What Solutions to the Problem of State Immunity?’ (2014) 29 ICSID Review 187, n Compan˜ı´a de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3 (Second Annulment Proceeding), Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award (4 November 2008.
13
immunity from execution or partial immunity i.e. immunity of all such assets
minus those used for mixed purposes.
So, as we see, the barrier of state immunity is still prevalent with respect to
award-creditors. In particular that of immunity from execution. The restrictive
theory of immunity has been a milestone in liberalizing the law21. It separates
commercial acts (‘jure gestionis’) from governmental acts (‘jure imperii’).
However, the ‘nature’ test for determining the act with respect to immunity from
jurisdiction is exchanged for a ‘purpose’ test with respect to execution. This
complicates the question of what state assets can be executed against.22
This thesis focuses on the assets held by the award-debtor state’s central bank.
This area for discussion still represents various lingering issues, e.g. whether
assets used for ‘mixed’ purposes can be attached and executed against, etc. In
addition, the 2004 UN Convention23 (‘UNSCI’) includes these assets in its list of
assets immune per se or ipso facto.”
This thesis postulates the theory of State immunity in modern day international
law and how such immunity is being derogated by the State in exercising its
lawlessness in international investment community. This thesis asks whether the
theory of state immunity, despite some liberalization, goes far enough in holding
award-debtor States accountable to the rules-based system of public international
law? The focus of this thesis is on immunity from execution of central bank
assets.
Thus, the research question culminates in whether ‘all central bank assets of the
State should be considered immune from execution and attachment in accordance
with such international law and precedents, irrespective of States use of such
property for mixed purposes'? The author concludes that all central bank assets
21 Qureshi (n 19); ‘Enforcing Arbitral Awards against States and the Defence of Sovereign Immunity from Execution | ElectronicPublications’ n Author-Ylli Dautaj <https://www.electronicpublications.org/stuff/762> accessed 25 April 2020. 22 Qureshi (n 19); ‘Enforcing Arbitral Awards against States and the Defence of Sovereign Immunity from Execution | ElectronicPublications’ (n 21) n Author-Ylli Dautaj. 23 United Nations Conventions on Jurisdictional Immunities of States and Their Property, 2004 2004.
14
should not be immune ipso facto, and furthermore explains why the answer
should be nuanced.”
1.1. Research Question, Problem Formulation, and Purpose
The research question of the present thesis is: “Sovereign Immunity from
execution of arbitral awards with special focus on attaching and executing central
bank assets and 2004 UNSCI”
The study involves a discussion on sovereign immunity and how it imperils the
final attachment and execution of arbitral awards in today’s international
arbitration regime. This poses a significant threat to global investors, and
therefore the times are ripe when such investors should know much more about
how and to what fullest extent they can execute their due awards by attaching,
enforcing and executing central bank assets of the states, in totality or such assets
used for mixed purposes such as- commercial transactions, contractual benefits
etc., which to a large extent are immune from any safeguards of sovereignty of a
state.
The purpose of the topic is to discuss whether an award creditor can attach and
execute an arbitral award against central bank assets, and if yes? when States act
in a non-sovereign capacity, then how?
1.2. Methods and Sources
The research is based on several public international instruments. One of the
notable instruments existing as relevant source of sovereign immunity in a
broader realm of umbrella of international law is the international forum allowing
transnational representation known as the ‘International Court of Justice.’ The
sources to be utilized its Statute are those found in ‘Chapter II; Competence of the
Court Article 38 of the Statute of the International Court of Justice’ (‘ICJ’).24 This
24 ‘Statute of the Court | International Court of Justice’ n Article 38-1. The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply: (a) international conventions, whether general or particular, establishing
15
thesis will focus mainly focus the study on the ICSID Convention (Article 53, 54
& 55); the 2004 UNCSI; customary international law; and decisions of the
International Court of Justice (‘ICJ’). One caveat, the 2004 UNCSI has not yet
entered into force, but has been treated as customary international law by
municipal courts and the ICJ.25 Customary international law requires a study of
opinion juris and state practice in domestic courts. Therefore, various domestic
approaches to immunity from execution will be analysed. Moreover, to a large
extent the author has to engage with treaty interpretation (i.e. adhesion to the
VCLT) and also utilize the doctrinal methodology when analysing, inter alia,
domestic case law
In addition to the sources mentioned, the study is informed by scholarly work.
This source of law will contribute towards the discussion on what the law could
be, lex ferenda26 as opposed to what it currently is lex lata27 vis-à-vis prorogatum
in achieving finality and fairness in proceedings of international arbitrations.
The study is limited to focus on international investment disputes between foreign
investors and their host state giving a sparkling effect to the ICJ judgments in line
of States immunity as being a sovereign. The focus will be on specific legal
concepts, public international law, private international law, UNSCI, the New
York Convention, the ICSID Convention, VCLT. Other legal concepts mentioned
in the different sources are not addressed. The study is also limited to focus on
States sovereignty in regard to attachment and execution of States central bank
assets only, not regarding the other and varied State assets open in line for
execution. Also, in regard to international conventions, I will specifically be
focussing only on UNSCI, 2004, namely Articles 18, 19, 20 & Article 21 (c) i.e.
rules expressly recognized by the contesting states; (b) international custom, as evidence of a general practice accepted as law; (c) the general principles of law recognized by civilized nations; (d) subject to the provisions of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law. 2. This provision shall not prejudice the power of the Court to decide a case ex aequo et bono, if the parties agree thereto. <https://www.icj-cij.org/en/statute> accessed 25 April 2020. 25 Qureshi (n 19) ch Enforcing Arbitral Awards against States and the Defence of Sovereign Immunity from Execution by-Ylli Dautaj. 26 Peter Tzeng, ‘The Annulment of Interstate Arbitral Awards’ (Kluwer Arbitration Blog, 1 July 2017) <http://arbitrationblog.kluwerarbitration.com/2017/07/01/the-annulment-of-interstate-arbitral-awards/> accessed 29 April 2020. 27 Tzeng (n 26).
16
property of the central bank or other monetary authority of the State, touching
base with the New York Convention, a bit, and awards rendered pursuant to
UNCITRAL, only in regard to comparing the enforcement and recognition of
arbitral awards vis-à-vis ICSID awards. Sovereign Immunity is a broad concept
in international law and investment treaty arbitration, but seldom given its due
weightage and used by the States for the right intent and purposes it was
established, leading to cascading effects on investors legitimate claims, almost
emptying the award moneyless.
1.3. Delimitation
The law of state immunity is vast. Thus, delimitation is needed—indeed
mandated—in order to thoroughly discuss a single issue. This thesis focuses on
immunity from execution, in general, and enforcing arbitral awards against the
assets of a state’s central bank, in particular. This thesis will not focus on any
other state asset (see e.g. those mentioned in Article 21 (c) of UNSCI 2004); nor
will it deal with diplomatic property and immunity per se.
1.4. Definition and Terminology
Terminology that should be defined include, but may not necessarily be limited
to, sovereign/sovereignty, immunity, central bank assets, measures of constraint,
sovereign wealth funds (SWFs) and State-owned enterprises (SOEs).
Sovereign/Sovereignty28: The possession of sovereign power; supreme political
authority; paramount control of the constitution and frame of government and its
administration; the self-sufficient source of political power, from which all
specific political powers are derived ; the international independence of a state,
combined with the right and power of regulating its internal affairs without
foreign dictation; also a political society, or state, which is sovereign and
independent.
28 ‘What Is SOVEREIGNTY? Definition of SOVEREIGNTY (Black’s Law Dictionary)’ (The Law Dictionary, 7 November 2011) <https://thelawdictionary.org/sovereignty/> accessed 18 April 2020.
17
Immunity29: An exemption from serving in an office or performing duties which
the law generally requires or other citizens to perform.
Attachment30- The act or process of taking, apprehending, or seizing persons or
property, by virtue of a writ, summons, or other judicial order, and bringing the
same into the custody of the law; used either for the purpose of bringing a person
before the court, of acquiring jurisdiction over the property seized, to compel an
appearance, to furnish security for debt or costs, or to arrest a fund in the hands of
a third person who may become liable to pay it over.
Execution31-The completion, fulfilment, or perfecting of anything, or carrying it
into operation and effect. The signing, sealing, and delivery of a deed. The signing
and publication of a will. The performance of a contract according to its terms. In
practice. The last stage of a suit, whereby possession is obtained of anything
recovered. It is styled “final process,” and consists In putting the sentence of the
law in force.
Recognition 32 - Ratification; confirmation; an acknowledgment that something
done by another person in one’s name had one’s authority. An inquiry conducted
by a chosen body of men, not sitting as part of the court, into the facts in dispute
in a case at law.
Measures of Constraint33- ‘Measures of constraint’ is a generic term covering
both interlocutory, interim or pre-trial measures prior to final judgments and the
29 ‘What Is IMMUNITY? Definition of IMMUNITY (Black’s Law Dictionary)’ (The Law Dictionary, 9 November 2011) <https://thelawdictionary.org/immunity/> accessed 18 April 2020. 30 ‘What Is ATTACHMENT? Definition of ATTACHMENT (Black’s Law Dictionary)’ (The Law Dictionary, 4 November 2011) <https://thelawdictionary.org/attachment/> accessed 22 May 2020. 31 ‘What Is EXECUTION? Definition of EXECUTION (Black’s Law Dictionary)’ <https://thelawdictionary.org/execution/> accessed 22 May 2020. 32 ‘What Is RECOGNITION? Definition of RECOGNITION (Black’s Law Dictionary)’ (The Law Dictionary, 7 November 2011) <https://thelawdictionary.org/recognition/> accessed 22 May 2020.
33 Xiaodong Yang, State Immunity in International Law (Cambridge University Press 2012) ch 9. Measures of constraint at page no.343 <http://ebooks.cambridge.org/ref/id/CBO9781139016377> accessed 27 April 2020
18
execution or enforcement of judgments. In the context of State immunity, these are
coercive, or enforcement measures taken by the court either to restrain the
foreign State in the disposition of its property, normally in the form of
interlocutory injunctions, or otherwise to attach, arrest or seize the property of
the foreign State.
Central Bank 34 and its functions: Empowered by the national government to
manage and execute key monetary functions: (1) issue, manage, and preserve the
value of the country’s currency; (2) regulate the money supply; (3) supervise and
provide governance over the operations of commercial banks; (4) serve as a
banker’s bank and the local lender of last resort.
Central Bank Assets (‘general interpretation’): Central bank assets includes
securities, mainly in the form of Treasuries, foreign exchange reserves, which are
mainly held in the form of foreign bonds issued by foreign governments, and loans
to commercial banks.
Sovereign wealth funds35 (SWFs): Sovereign wealth funds (SWFs) are special
purpose investment funds or arrangements that are owned by the general
government for macroeconomics purposes, SWFs hold, manage or administer
assets to achieve financial objectives, and employ a set of investment strategies
that include investing in foreign financial assets. SWFs have diverse legal,
institutional, and governance structure. They are heterogeneous group,
comprising fiscal stabilization funds, savings fund, reserve investment
corporations, development funds, and pension reserve funds without explicit
pension liabilities.
34 ‘What Is CENTRAL BANK? Definition of CENTRAL BANK (Black’s Law Dictionary)’ (The Law Dictionary, 18 October 2012) <https://thelawdictionary.org/central-bank/> accessed 18 April 2020. 35 ‘Sovereign Wealth Funds- Generally Accepted Principles and Practices “Santiago Principles” by International Working Groups (IWG) of Sovereign Wealth Funds (October 2008)’ <https://www.ifswf.org/sites/default/files/santiagoprinciples_0_0.pdf>.
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State Owned Enterprises36 (SOEs): [SOEs] are ultimately owned by the general
public and the government agencies who exercise the ownership rights are
answerable to the general public. State-owned enterprises (SOEs) are most
prevalent in strategic sectors such as energy, minerals, infrastructure, other
utilities and in some countries, financial services.
1.5. Disposition and Road map
This study is divided into ‘six’ (6) parts.
Part 1 deals with the general introduction of the thesis which includes an overview
of overall contents included in the thesis.
Part 2 deals with the recognition and enforcement of ICSID arbitral awards. It
examines this Section 6 regime in light of the immunity barrier.
Part 3 deals with the issue of sovereign immunity and whether and how it
represents a barrier in the enforcement phase of arbitral awards.
Part 4 deals with the United Nations Convention on Jurisdictional Immunities of
States and Their Property (UNSCI), 2004 (which has yet to enter into force). This
section particularly deals Article 21 (c) UNSCI 2004. I will discuss whether all
such central bank properties/assets are immune from execution and attachment
against an arbitral award or whether such assets used for ‘mixed purposes’ should
be treated as executable assets by international courts and tribunals?
Part 5 deals with the ICJ decisions. Two notable and landmark decisions of the
ICJ will be covered, i.e. Germany v Italy (Greece Intervening) and USA v Iran.
The issue of implied and explicit waiver of sovereign immunity will also be dealt
with.
36 ‘Ownership and Governance of State Owned Enterprises (SOEs)- A Compendium of National Practices by OECD (2018)’ <http://www.oecd.org/corporate/Ownership-and-Governance-of-State-Owned-Enterprises-A-Compendium-of-National-Practices.pdf>.
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Finally, part 6 deals with the alternative enforcement mechanisms and/or
venues. 37 These alternatives methods in thesis discussion involves- political
pressures, joint institutional pressures of IBRD (‘World Bank’) and ICSID and cut
in inflow of FDIs.
PART-2: FINAL, BINDING AND DIRECTLY ENFORCEABLE AWARDS
IN INVESTMENT TREATY ARBITRATION
This part examines the regime for the enforcement of arbitral awards rendered
under the auspices of the International Centre for Settlement of Investment
Disputes (‘ICSID’) pursuant to its constituent treaty, the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States
(the ICSID Convention). 38 The arbitration procedures under ICSID are often
considered as truly delocalized or denationalized.39 This refers to the fact that the
international disputes governed pursuant to the ICSID Convention are regulated
by the Convention’s own rules and regulations of arbitration, which also includes
Convention’s own rules and regulations for ‘award annulment.’ This in process
makes the international law provisions of ICSID specialised and centralized
mechanism of dispute settlement, exempting the control and regulating powers
outside the courts of contracting States. Thus, Article 53 and Article 54 of ICSID
Convention are frequently mentioned in this context.
2.1. Article 5340 and Article 5441 The Strict Obligation to Recognize and
Enforce ICSID Awards- Duty to ‘Abide and Comply42’
37 YlliDautaj,‘SovereignImmunityfromExecutionCaveatEmptor(Http://Arbitrationblog.Kluwerarbitration.Com.Ezproxy.Its.Uu.Se/2018/0Immunity-Execution-Caveat-Emptor/)’ 10. 38 R Doak Bishop (ed), Enforcement of Arbitral Awards against Sovereigns (JurisNet, LLC Publ 2009) n The ICSID Convention and the regulations and rules adopted pursuant to it are reprinted in booklet form in ICSID Convention, Regulations and Rules, Doc. ICSID/15 (April 2006) and posted on the website of ICSID, www.worldbank.org/icsid. 39 Bishop (n 2); Nigel Blackaby and others (eds), Redfern and Hunter on International Arbitration: Student Version (6. ed, Oxford Univ Press 2015). 40 ‘ICSID Convention.Pdf’ Article 53, Page no. 27. Article 53- (1) 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. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed persuant to the relevant provisions of this Convention. (2) For the purpose of this Section, “award” shall include any decision interpreting, revising or annuling such award persuant to Articles 50, 51 or 52.
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Arbitral awards are binding, and parties are obliged to comply with the award.43
Pursuant to Article 53 of the ICSID Convention, arbitral awards are final and
binding on the parties.
Compared to the NY Convention awards, ICSID awards are automatically
enforced and subject only to an annulment procedure that is self-contained. This
process does not require any exterior enforcement agency such as- NY
Convention, to either enforce or refuse enforcement due to such grounds as we
understand to be enshrined under Article V44 of the New York Convention. Thus,
it is in this particular context that ICSID awards must be treated and valued just
41 Article 54- (1) Each Contracting state shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state. (2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation. (3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought. 42 Bishop (n 2) ch 6. The Enforcemnt of ICSID Arbitral Awards. 43 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Second edition, Oxford University Press 2012). 44 Article V of Convention on the Recognition and Enforcement of Foreign Arbitral Awards:1.Recognition and enforcement of the award may be refused, at the_request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:_(a) The parties to the agreement referred to in article II were, under_the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or_(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or_(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or_(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;or_(e) The award has not yet become binding on the parties, or has been_set aside or suspended by a competent authority of the country in which,or under the law of which, that award was made. _2.Recognition and enforcement of an arbitral award may also be ._refused if the competent authority in the country where recognition and enforcement is sought finds that:_(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or_(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
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like any other final judgment of a national court and award-creditors should be
able to bypass the confirmation process of an international body to enforce the
award directly in any state which is a signatory to the ICSID Convention.45 ICSID
Tribunals have held that Article 53(1) creates an independent obligation for the
award-debtors to enforce an ICSID award without any need for judicial
enforcement proceedings.46 This exclusive nature of control mechanisms of the
ICSID Convention was also confirmed by the ad-hoc Committee in the case;
MINE v Guinea, which held:47
Article 53 of the Convention 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’. The post-award procedures (remedies)
provided for in the Convention, namely, addition to, and correction of, the award
(Art. 49) and interpretation (Art. 50), revision (Art. 51) and annulment (Art. 52)
of the award are to be exercised within the framework of the Convention and in
accordance with its provisions. It appears from these provisions that the
Convention excludes any attack on the award in national courts48.
As evident, ICSID Convention is a self-contained system. As a result, the ICSID
awards should not be under any sought of scrutiny or attack in national municipal
court systems but only under those devised by the ICSID annulment committee.49
Thus, there is no review of ICSID awards by domestic courts in the course of
proceedings for their recognition and enforcement.50
45 Burzū Ṣabāḥī, Noah Rubins and Don Wallace, Investor-State Arbitration (Second edition, Oxford University Press 2019). 46 Burzū Ṣabāḥī, Noah Rubins and Don Wallace, Investor-State Arbitration (Second edition, Oxford University Press 2019) para 23.08. 47 Reinisch August, Part VI The Post-Award Phase, 29 Enforcement of Investment Treaty Awards, vol 1 (Oxford University Press 2018) para 29.68 <http://oxia.ouplaw.com/view/10.1093/law/9780198758082.001.0001/law-9780198758082-chapter-29> accessed 16 April 2020.
48 Matime International Nominees Establishment v. Republic of Guinea, CSID Case No. ARB/84/4.Reinisch August, Part VI the Post-Award Phase, 29 Enforcement of investment Treaty Awards, vol1 (OxfordUniversityPress2018)
<http://oxia.ouplaw.com/view/10.1093/law/9780198758082.001.0001/law9780198758082-chapter-29> accessed 16 April 2020.
49 Qureshi (n 19) pt Enforcing Arbitral Awards against States and the Defence of Sovereign Immunity from Execution-Ylli Dautaj (Part 4, Page no.19). 50 Schreuer (n 5).
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Article 53 highlights the binding and enforceability effect to the awards and thus
there comes to the role of Article 54, which requires the contracting parties to
treat the award same as any other judgement rendered pursuant to judicial
settlements. Article 54 (1) and the relevant para ‘as if it were a final judgment of a
court in that state’ underscores the importance of ICSID awards as being readily
enforceable and lay a duty on the enforcement forum of the contracting State to
recognize and enforce the award without any scrutiny or delay.
Furthermore, under Article 54 (1) of the ICSID Convention, as ICSID awards are
to be deemed as final local courts judgment. There is no review of ICSID awards
by domestic courts in the course of proceedings for recognition and
enforcement.51 It may not even examine whether the award is in conformity with
the forum States ordre public (public policy). 52 The only limited role that
domestic court plays in relation to ICSID awards is verifying that the award is
authentic.53
However, Article 55 provides an important exception to Article 54, leaving intact
the sovereign immunity defences that the State can assert under domestic law at
the place of enforcement during the enforcement and finally, at the execution
stage.54
2.2. Article 5555 - State Immunity Rules on Enforcement Measures as Last
Remaining Obstacles
On one hand whereas Article 54(3) pins to the point that ‘execution’ of the award
shall be governed by the laws concerning the execution of judgments in the State
where execution is sought, while we have Article 55 which reiterates that for
sovereign immunities nothing in the ICSID Convention should be construed as
51 Dolzer and Schreuer (n 43). 52 Dolzer and Schreuer (n 43). 53 Dolzer and Schreuer (n 43). 54 Ṣabāḥī, Rubins and Wallace (n 46) para 23.16. 55 ‘ICSID Convention.Pdf’. Article 55- Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.
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derogating from municipal laws on the matter. 56 Therefore, the lack of an
universally and uniformly accepted Convention on sovereign immunity of State
are primarily the reason to be blamed for States superiority of being a sovereign
from measures of execution. The ICSID Convention also plays very little to no
help when it comes to solving sovereign immunity issues.
It would seem that in the new era of State arbitrations, the issue of State immunity
is being raised more often than it should. But as one of the leading international
arbitration practitioner and professor said; for an international arbitrator, however,
the current status of the law of the State immunity is sufficient to resolve such
issues.57
The enforcement of the award shall be done pursuant to ‘Section 6’ of the ICSID
Convention, which is a self-contained regime of award enforcement, whereas
execution of the ICSID awards are to be done in compliance to Article 55 of the
ICSID Convention, which takes into account the municipal sovereign immunity
law in place of award execution.
Under Article 55 of the ICSID Convention, the obligation to enforce pecuniary
obligations arising from ICSID awards does not affect any immunity from
execution that States enjoy 58 . As State immunity is regulated by customary
international law, number of states have passed legislation in this field 59 .
However, to the authors opinion, Article 55 should serve as a ‘red flag’ to
investors and their counsel to be very aware of the pertinent local laws on
sovereign immunity.60
56 Qureshi (n 19) ch Enforcing Arbitral Awards against States and the Defence of Sovereign Immunity from Execution-Ylli Dautaj (Part 4, Page 19). 57 Kaj Hobér, Selected Writings on Investment Treaty Arbitration (Studentlitteratur 2013) Arbitration Involving States at page 25. 58 Dolzer and Schreuer (n 43) ch Settling Investment Disputes at page no. 310-12. 59 ‘United States: Foreign Sovereign Immunities Act (FSIA) 1976, 28 USC 1330, 1602-11, 15 ILM 1388 (1976), as Amended in 198’, 28 ILM 396 (1989) and in 1996/7, 36 ILM 759 (1997); United Kingdom: State Immunity Act (SIA) 1978, 17 ILM 1123 (1978); Australia: Foreign States Immunities Act 1985, 25 ILM 715 (1986). 60 Moses (n 10) ch 11. Investment Arbitration at page 227.
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Article 55 of the ICSID Convention complicates the enforcement procedure by
allowing States from shielding assets under sovereign immunity from execution
due to municipal judges understanding of or approach to the law of sovereign
immunity at the place of execution and attachment of States assets 61 . This
shielding of assets leaves award-creditors remediless for realising pecuniary value
attached with their awards. Thus, what was termed a self-contained regime where
the awards are to be considered final, binding and enforceable, such States use the
heavy artillery of Article 55 of asset blocking through their sovereign immunity
acts and even attacking the award on varied grounds leading to non-enforcement
procedures.
Although voluntary compliance to the ICSID awards by States is still higher in
comparison to its non-compliance. In fact ICSID, in 2016, conducted a ‘survey for
ICSID member states on compliance with ICSID awards’62 and it came to the
conclusion that; (a) most awards in favour of States are paid; (b) States generally
comply with awards in favour of claimants; and (c) States do not always seek to
enforce awards in their favour that have not been complied with. However, such
minority non-compliance to ICSID awards with the defence of Article 55 of State
sovereign immunity from execution, maligns and deter the award-creditors award
from gaining final, binding and enforceable effect of the ICSID Convention.
For the concern of such non-complying States or award-debtors in ITA, they
should remember that such non-compliance with an award, in particular ICSID
awards, could conceivably cause a contracting State to be regarded less
favourably by the World Bank at a future point when the State sought loans and
credit.63
Moreover, to conclude author’s discussion on Article 55 of ICSID Convention, it
may seem bit of an outlandish proposal nonetheless as per the arbitration
proceedings of the ICSID Convention, which to the authors knowledge, has not
61 Qureshi (n 19). 62 ‘Survey for ICSID Member States on Compliance with ICSID Awards’ <https://icsid.worldbank.org/en/Documents/about/Report%20on%20ICSID%20Survey.pdf> accessed 20 April 2020. 63 Moses (n 10) at 227.
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yet been tried as of now by either of the contracting States, “if a contracting States
does not comply with an ICSID award, then the award-creditors own State of
nationality, under Article 6464 of the ICSID Convention, bring a claim before the
International Court of Justice.”65
PART-3: THE BARRIER OF SOVEREIGN IMMUNITY- THE LAST
RESORT FOR STATES LAWLESSNESS OR IS IT?
The justification of sovereign immunity is often said to be ‘sovereign equality’
(‘par in parem non habet imperium’).66 As the author has noted above, the ICSID
Convention does nothing to address the issue with respect to immunity from
execution, quite the opposite, it explicitly subjects its awards to municipal
legislation. This may prove damaging to award-creditors if award-debtors seek to
shield itself from paying legitimate payments due to defence of sovereign
immunity.
3.1. Sovereign Immunity from Jurisdiction
It is a set rule under international law that, sovereign State being sovereign equals
cannot be subjected to the jurisdiction of another sovereign State or equals
without its consent to jurisdiction. The author is of the view that sovereign
immunity from jurisdiction of a State in an international arbitration such as- ISDS,
ITA and likewise, the legal theory underpinning the same has been pretty much
64 :: ‘:: International Centre for Settlement of Investment Disputes ’: n Article 64 -Any dispute arising between Contracting States concerning the interpretation or application of this Convention which is not settled by negotiation shall be referred to the International Court of Justice by the application of any party to such dispute, unless the States concerned agree to another method of settlement. <http://icsidfiles.worldbank.org/ICSID/ICSID/StaticFiles/basicdoc/partA-chap04.htm#s05> accessed 24 April 2020. 65 Moses (n 10) at 228. 66 Asif H Qureshi, ‘Manchester Journal’ 44, s Immunity from Adjudication and Immunity from Execution.Article 1 of the Montevideo Convention on the Rights and Duties of States (adopted 26 December 1933, entered into force 26 December 1934) provides that: ‘A State as a person of international law should possess a permanent population, a defined territory, a government and the capacity to enter into relations with other States’. The Declaration of Principles of International Law Concerning Friendly Relations and Co-operation Among States in Accordance with the Charter of the United Nations (adopted by GA Res 2625 (XXV) on the 24 October 1970). The declaration states that: ‘All States enjoy sovereign equality and independence. They have equal rights and duties and are equal members of the international community, notwithstanding differences of an economic, social, political or other nature’.
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tried, tested and established by the robust and constant growing jurisprudence of
ITA.
It is a widely accepted fact that a sovereign state, commonly known as host States
in ITA, when entering into IIAs with another sovereign State, commonly known
as the home state in ITA, such bilateral agreements are not to be considered as an
extension of the exercise of States sovereign acts. To put it differently: a
sovereign State must be sovereign enough to make a binding promise.67 The issue
of sovereign immunity in ITA from jurisdiction is a mere after though, a last
fortress, last bastion for such recalcitrant States honouring such international
obligations. Thus, wilful execution of IIAs should be deemed as a sovereign State
waiving its rights to raise jurisdictional claim before an international arbitral
forum because if not, then why did the State in the first place negotiate such terms
of the BITs? Right of state to arbitrate is another instance where such
jurisdictional claim of a disobedient sovereign State can be put to question and
rest, once and forever.
It is also not radical to argue that a State engaging in business, in competition with
private persons i.e. the foreign investors and such nationals of the home State,
should be answerable in the court of the country where the business is
conducted.68 In other words, a State should not be treated differently when acting
as private persons for private commercial gains.
Thus, when a state has signed an arbitration clause, it has ipso facto waived its
immunity from jurisdiction 69 . A State cannot raise the defence of sovereign
immunity, not just because of the notion of restrictive immunity of limiting
immunity only to sovereign acts, but because of its treaty obligations of good faith
principle as enshrined under Article 31 70 VCLT or pacta sunt servanda i.e.
67 Hobér, Selected Writings on Investment Treaty Arbitration (n 57) ch Sovereign Imunity and International Arbitration-Recent Developments at page no. 500. 68 Qureshi (n 19). 69 Qureshi (n 19). 70 ‘Vienna Convention on the Law of Treaties (1969)’ 31, s General rule of interpretation 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was
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agreements must be kept, when it agrees to arbitrate its disputes with a private
individual71. But however, as this waiver is generally not by default applied to
sovereign immunity from execution, the crux of the matter is to re-look into such
issues which majorly arises in ITA; shielding State assets vis-à-vis sovereign
immunity from execution.
As Professor Hober has rightly pointed out, for a sovereign State involved in
international arbitration, there is simply nothing to be immune from.72 With this
being said, the author wants to devote some attention of the readers on particularly
two Articles on ‘waiver of jurisdictional immunity’ as under UNSCI; Article 7,
which provides-
Article 7 UNSCI 2004:
A state cannot invoke immunity from jurisdiction in a proceeding before a court of
another State with regard to a matter or case it has expressly consented to the
exercise of jurisdiction by the court with regard to the matter or case: (a) by
international agreement; (b) in a written contract; or (c) by a declaration before
the court, or by means of a written communication in a specific proceeding.
Nor may the state, according to Article 8 of UNSCI, invoke immunity from
jurisdiction in a proceeding before a court of another state if it has itself instituted
the proceeding in question, intervened in that proceeding, or “taken any other step
relating to the merits.”73
made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. There shall be taken into account, together with the context: 12 (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties. 4. A special meaning shall be given to a term if it is established that the parties so intended. 71 ‘Enforcing Arbitral Awards against Sovereign States: The Validity of Sovereign Immunity Defense in Investor-State Arbitration’. Link: file:///Users/prasadaman/Downloads/ENFORCINGARBITRALAWARDSAGAINSTSOVEREIGNSTATES.THEVALIDITYOFSOVEVREIGNIMMUNITYDEFENCEININVESTOR-STATEARBITRATION..pdf 72 Kaj Hobér, ‘ARBITRATION INVOLVING STATES’ 24, 23–24. 73 Hobér, Selected Writings on Investment Treaty Arbitration (n 57).
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Moreover, the law is many common law countries such as- India74 etc., is well
settled that the objection to the continuance of the arbitration proceedings should
be filed prior or at the time of filling of the written statement or so to say before
‘first statement on the substance of the dispute’, if not it can be treated as waiver
of the arbitration clause. Thereby, States have waived their rights to bring a
jurisdictional claim by participation in arbitration.
3.2. Sovereign Immunity from Execution75
“…immunity from execution is independent from immunity from suit… the former
is neither the consequences of nor accessory to the latter, and that it continues to
prevail even if the latter is never invoked or applied”
- Cass. Civ. May 5, 1885: S. 1886, 1, 353, note by Chavegrin76
The enforcement stage is comprised of three steps: ‘recognition, enforcement and
execution’ of an arbitral award. The notion of sovereign immunity from execution
can be validly and most likely, be raised by such States during the time when such
private individuals known as foreign investors in an just concluded ITA dispute
want to enforce and execute its arbitral awards by possibly getting the State assets
attached from the court enforcement orders. With regards to the immunity from
74 ‘Lex Witness COVID-19 Special Issue.Pdf’ nn 1. Arbitration and Conciliation (Amendment) Act,2015, 2. Arbitration and Conciliation Act 1996, 3. Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, 4. Sharad P. Jagtiani v. Edelweiss Securities Ltd., 208 (2014) DLT 487, 5. Parasramka Holding Pvt. Ltd. v. Ambience Pvt. Ltd., 2018 SCC OnLine Del 6573, 6. Rashtriya Ispat Nigam Ltd. and Another v. Verma Transport Co, (2006) 7. SCC 275, 7. Krishan Radhu v. The Emmar MGF constrcution Pvt Ltd., 2016 SCC Online Del 6499 8. SSIPL Lifestyle Pvt. Ltd. v. VAMA Apparels (India) Pvt. Ltd.,9. Wellington Associates Ltd. v. Kirit Mehta, (2000) 4 SCC 272 10. Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, 11. Union of India v. Bharat Engineering Corporation, 1977 SCC OnLine Del 45 (DB), 12. Bhartia Cutler Hammer Ltd. v. AVN tubes Ltd., 1991 SCC OnLine Del 322, 13. A.V.N. Tubes Ltd. v. Bharatia Cutler Hammer Ltd., 46 (1992) DLT 453(DB), 14. Dharma Prathishthanam v. Madhok Construction Pvt. Ltd., (2005) 9 SCC 686 15. Emmsons International Ltd. v. Metal Distributors (UK), 116 (2005) DLT 559, 16. Lucent Technologies Inc. v. ICICI Bank Limited, 2009 SCC OnLine Del 3213 at page nos. 84-85. 75 AFM Maniruzzaman, ‘STATE ENTERPRISE ARBITRATION AND SOVEREIGN IMMUNITY ISSUES’: [2005] DISPUTE RESOLUTION JOURNAL 8, n See Cf. Bernini & Van den Berg, supra n. 16, at 359 (“The doctrine of restric tive immunity is not applied to immuni ty from execution by most States. In this field, most States continue to apply an absolute immunity.”). 76 ‘France: Court of Cassation Decision in EURODIF Corporation et al. v. Islamic Republic of Iran et al.* (Immunity from Execution; Attachment of Property; Commercial Transactions)’ (1984) 23 International Legal Materials 1062.
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execution, it can be denied if the waiver of immunity to execution is with respect
to specific State assets or property, which is used for States sovereign and public
purpose,77 i.e. acta jure imperii.
More to it, most domestic laws follow more or less, same restrictive theory on
State immunity from execution but the problem arises when each domestic law
might vary in the definition of what constitutes ‘a commercial activity’ i.e. to say
acta jure gestonis, when allowing or dis-allowing States assets execution to give
that pecuniary benefit to an arbitral award.
This, in trying to execute an arbitral award against a host state, an award-creditors
must demonstrate to the enforcement court that, that property or assets are used
for States other purposes than being sovereign i.e. States commercial purposes.
While the commercial activity exception, which will be our next part of
discussion (3.3.), in only against property in use or intended to be in use for a
commercial activity purpose, it is very much germane to the current of issue of
execution that, Article 21 of UNSCI, poses some limitations on execution of
States properties such as- ‘diplomatic missions’, ‘military property’, ‘central bank
assets’ , ‘cultural heritage property’ and ‘exhibition of objects of science’,
‘cultural interests.’ 78 These above mentioned State properties are ipso facto
immune 79 from execution as lacking territorial jurisdiction to honour an ITA
award for its intents and purpose of being a final, binding and enforceable award.
As one of the well renowned arbitration scholars C.H. Schreuer sums up the
position well in the following words:
77 Swedish Court of Appeal case. Mr. Franz Sedelmayer v The Russia Federation.Pdf’. https://www.biicl.org/files/3932_1998_sedelmayer_v_russia.pdf 78 ‘Enforcing Arbitral Awards against Sovereign States: The Validity of Sovereign Immunity Defense in Investor-State Arbitration’. Link: file:///Users/prasadaman/Downloads/ENFORCINGARBITRALAWARDSAGAINSTSOVEREIGNSTATES.THEVALIDITYOFSOVEVREIGNIMMUNITYDEFENCEININVESTOR-STATEARBITRATION..pdf 79 Hazel Fox and Philippa Webb, The Law of State Immunity (Third edition, Oxford University Press 2013). For a nice overview, see supra note 30, at Chapter 17 (“The Three Exceptions to Immunity from Enforcement and the Five Categories of State Property listed as immune').
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“For purposes of immunity of foreign States from jurisdiction the overwhelming
authority points towards a test that looks at the nature of the activity and not its
purpose. But the test for immunity from execution is usually the purpose of the
property that is to be seized although the origin of the property is also sometimes
taken into account.”80
Another well renowned arbitration scholar wrote that;
That fact that a state cannot claim immunity from jurisdiction does not
necessarily mean that the state is not immune from the actual execution of the
award. In most laws the exceptions to immunity from execution are narrower than
the exceptions to immunity from jurisdiction.81
A Doctrinal development has grown apart from the evolution seen with respect to
immunity from jurisdiction.82 An expert on sovereign immunity wrote that:
An examination of relevant State practice shows that, even though, as a general
rule, preventive measures and measures of forced execution against foreign States
and their property are permitted, such are subject to a number of conditions and
measures limitations. First, a clear distinction has been drawn between immunity
from the adjudicative process and immunity from measures of constraint […].
[…] Secondly, the ‘purpose’ test, much discredited in the context of adjudicative
jurisdiction, resurfaces as a determinative factor in the context of measures of
constraint. Generally speaking, the property of a foreign State enjoys immunity
from attachment, arrest and execution when it is used for sovereign or public
purposes, but not when it is used for commercial purposes. Thirdly, the territorial
nexus requirement is adhered to even more strictly in the process of enforcement
and execution of judgments against foreign State property. Finally, certain
80 Maniruzzaman (n 75) n See C.H. Schreuer, The ICSID Con vention: A Commentary 1160, ¶50 (CUP 2001); see also Schreuer, supra n. 1, at 143 et seq. 81 Julian DM Lew, Loukas A Mistelis and Stefan M Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003) bk supra note 10, at 750. 82 Qureshi (n 19).
32
categories of property still enjoy absolute immunity, even where the foreign State
has expressly waived its immunity from execution.83
Therefore, to sum up, following are some of the observations of the author. There
is (a) a distinct differentiation in functioning and applicability of sovereign
immunity from jurisdiction and sovereign immunity from execution84. The latter
is much narrower than the former; (b) purpose test is a dominant test to determine
the commerciality of the States assets; 85 (c) the nexus requirement 86 with
enforcement court vis-a-vis States property to be used for execution, under some
jurisdictions like- Switzerland87 etc., are still being followed, complicates things
further; (d) certain categories of States properties, as mentioned earlier, which
also forms part of Article 21 UNSCI, limits the execution remedy for award-
creditors as they are considered ipso facto immune.88
However, for all such award-creditors in ITA, the author suggests some possible
remedies to the immunity bar; (a) negotiation with States in executing such
application of explicit and implied waiver of State immunity in execution context
on a ‘reciprocity’ basis, however, such instances are an uncommon
phenomenon;89 (b) assertion of territorial connectivity between the enforcement
court and States assets; (c) earmarking list of attachable State assets90 during the
time of IIAs negotiations for award execution purpose.
Thus, State immunity from execution is merely a procedural bar to the award’s
enforcement but does not affect the obligation of the State to comply with it.
83 Xiaodong Yang, State Immunity in International Law (Cambridge University Press 2012) <http://ebooks.cambridge.org/ref/id/CBO9781139016377> accessed 16 April 2020. See supra note 57, at 343. 84 Qureshi (n 19). 85 Qureshi (n 19). 86 Qureshi (n 19). 87 ‘State Immunity’ <https://www.dfae.admin.ch/eda/en/fdfa/foreign-policy/international-law/privileges-and-immunities/state-immunity.html> accessed 23 April 2020. 88 Qureshi (n 19). 89 Uchkunova and Temnikov (n 20). 90 Uchkunova and Temnikov (n 20).
33
Therefore, successful reliance on State immunity does not alter the fact that non-
compliance with an award is a breach of the ICSID Convention.91
I want to end by quoting a notable arbitration and international law scholar Hazel
Fox. She says and I quote;
“States should ensure that their law on state immunity relating to enforcement of
arbitral awards conforms to the minimum international standard.”92
3.3. Commerciality Exception Alias Restrictive Immunity Theory
As Professor Ian Brownlie observed; “[O]n any view a satisfactory mode of
application of the principle of restrictive immunity has yet to be developed.93 For
example, courts in Europe and the United States apparently are divided on
whether the exploration and exploitation of natural gas or other natural resources
are sovereign or commercial acts.94 Faced with the conflicting positions on how to
resolve such issues, the International Law Commission (‘ILC’), in its 2003 Final
Draft on Jurisdictional Immunities of States and their Property, took a combined
nature/purpose approach.95
91 Dolzer and Schreuer (n 43) n The ad-hoc committee in MINE v Guinea (Interim Order No.1 on Guinea’s Application for Stat of Enforcement of the Award, 12 August 1998, para 25), noted in this respect that: It should be clearly understood...that State immunity may well afford a legal defense to forcible execution, but it provides neither argument nor excuse for failing to comply with an award. In fact, the issue of State immunity from forcible execution of an award will typically arise if the State refuses to comply with its treaty obligations. Non-compliance by a State constitutes a violation by that State of its international obligations and will attract its own sanctions. 92 Maniruzzaman (n 75) n See Hazel Fox, “State Immunity and Enforcement of Arbitral Awards: Do We Need an UNCITRAL Model Law Mark II for Execution Against State Property?,” 12 (1) Arb. Int’l 89, 93 (1996). 93 Maniruzzaman (n 75) n Determining the Nature of Acts and Transactions at page no.3. 94 Maniruzzaman (n 75) n Germany: National Iranian Oil Co. Legal Status, Oberlandesgericht Frankfurt, 1980, 65 I.L.R. 199 (1984); National Iranian Oil Co. Revenues from Oil Sales, Fed’l Constitutional Ct., 1983, BverfGE 64, 1, 65 I.L.R. 215 (1984); National Iranian Oil Co. Pipe line Contracts, Oberlandesgericht Frankfurt, 1982, RIW 439 (1982), 65 I.L.R. 212 (1984); N.V. Cabolent v. Na tional Iranian Oil Co., Ct. of Appeal, The Hague, 1968, 47 I.L.R. 138 (1974). France: Société SONATRACH c. Migeon, 1985, 113 Clunet 170 (1986). Cf. U.S.: International Ass’n of Machinists & Aerospace Workers v. OPEC, 477 F. Supp. 553 (C.D. Cal. 1979), 63 I.L.R. 284 (1982); Matter of Sedco, 543 F. Supp. 561 (S.D. Tex. 1982); Sedco v. Pemex, 767 F. 2d. 1140 (5th Cir. 1985). See also Mol. Inc. v. People’s Republic of Bangladesh, 736 F. 2d 1326 (9th Cir. 1984); Practical Concepts Inc. v. Republic of Bolivia, 615 F. Supp. 92, 94 (D.D.C. 1985). 95 Maniruzzaman (n 75).
34
In order to fully understand this restrictive theory of ‘commerciality exception’ on
States immunity rights, it has to be vis-à-vis understood in same legal parlance as
absolute theory on sovereign immunity. There are two main approaches to
sovereign immunity: absolute sovereign immunity and restrictive sovereign
immunity.96 The absolute sovereign immunity is called “structuralist” (ratione
personae), while the approach associated with restrictive immunity, which is our
centre of attention for this topic, is called “functionalist” (ratione materiae).97 The
former is concerned with the status of the party claiming sovereign immunity,
while the latter is concerned with the subject matter i.e. the conduct and its
effects, forming the basis for the claim of sovereign immunity. 98 We are
concerned more about the latter aspect forming the basis of claiming sovereign
immunity.
The trend towards restrictive jurisdictional immunity can also be understood with
its ratione materiae meaning attached under the UNSCI. Article 10 of UNSCI
provides:99
If a State engages in a commercial transaction with a foreign natural or juridical
person and, by virtue of the applicable rules of private international law,
differences relating to the commercial transaction fall within the jurisdiction of a
court of another State, the State cannot invoke immunity from that jurisdiction in
a proceeding arising out of that commercial transactions.
Article 10 must be read together with Article 2(1)(c) UNSCI 2004, which
provides:
‘commercial transaction’ means:
• Any commercial contract or transaction for the sale of goods or supply of
services;
96 Maniruzzaman (n 75). 97 Maniruzzaman (n 75). 98 Maniruzzaman (n 75). 99 Hobér, Selected Writings on Investment Treaty Arbitration (n 57).
35
• Contract for a loan or other transaction of financial nature, including any
obligation of guarantee or of indemnity in respect of any such loan or
transaction;
• Any other contract or transaction of a commercial, industrial, trading or
professional nature, but not including a contract of employment of
persons.
States of today are increasingly commencing commercial transactions with private
individuals, and ITA which is a public-private dispute resolution mechanism is
often contained as the preferred mode of dispute settlement between two States
and their nationals in the IIAs.100 As having mentioned above, such issues and
defences of sovereign immunity can be raised by the State party at any stage of
ISDS dispute settlement. If such an claim is allowed by the arbitral tribunals, the
investors and such nationals of a home state who has invested considerable
amount of wealth, will be left remediless, without any fair, adequate and prompt
compensation, which is required for such State measures leading to un-lawful
taking away of investors property. This in ITA regime is termed as
‘expropriation.’ The commercial activity exception, if looked upon from the lens
of a restrictive theory of States immunity, the States cannot raise a valid sovereign
immunity claim, both during the jurisdiction stage and during the final execution
proceedings.
If the States violate their international obligations arising under the umbrella of
IIAs, two things are for certain; (a) the States have wilfully and voluntarily, by
both implied and express waiver doctrine, have let go their rights to challenge
arbitration in terms of bringing jurisdictional claims as a valid arbitration
agreement/consent to arbitrate, constitutes waiver of jurisdictional claims and (b)
such States, be it sovereign or not, has to pay for the damages and the due
compensation it is owed towards such private individuals it had entered into
contract with through the BITs, which in whole and sole, constitutes ‘States
private agreement with private individuals’. The States irrespective, has to do the
good to the arbitral award rendered against it to complete its chain of liabilities
100 ‘Enforcing Arbitral Awards against Sovereign States: The Validity of Sovereign Immunity Defense in Investor-State Arbitration’ (n 71).
36
under an international forum. Any such defence of sovereign immunity impairs
the due process and the good faith principle under Article 31 VCLT and derails
the entire mechanism put forth for both, stability and longevity, in IIA regime.
3.4. Waiver Doctrine in the Execution Context, Either Explicitly or by
Implication: Must be Clear, Intentional and Specific
Waiver of immunity encompasses two things. First, there must be immunity to
waive; for if the State otherwise does not enjoy immunity it will be unnecessary to
speak of a waiver. Secondly, the State must have expressed its wish, so clear and
explicit as to be unmistakable, that it intends no to retain its immunity; or it must
have taken some action which indubitably signals that the State will not claim
immunity. 101 As has been highlighted by Yang, in actual practice, what
distinguishes an explicit waiver from an implicit waiver is only whether States
uses the word ‘waive/waiver’. 102 If for example, the defendant State says, ‘I
waive my immunity’, that is an express waiver.103 On the other hand, if it does
not say so but simply goes on to the court and starts defending itself on the merits
without mentioning its immunity, that is an implied waiver.104 Due to lack of
much differentiation between these two kinds of waiver doctrines, almost
identical requirements have been formulated for its functioning and applicability.
Thus, whether explicit or implicit, waiver must be intentional, displacing a
willingness on the part of the defendant foreign State to submit to the jurisdiction;
it must be clear, unambiguous and unmistakable; and it must be specific, in that it
must be directly related to the proceedings at hand.105
As we have discussed above, that there is a generally held view that a waiver from
jurisdiction does not conversely manifest a waiver of immunity from execution.106
If a State is to let go its immunity from execution, the State needs to expressly
state that in wordings under the IIAs, be it explicit or implied waiver doctrine
from execution. As we all know that a valid arbitration agreement constitutes a
101 Yang (n 83). 102 Yang (n 83). 103 Yang (n 83). 104 Yang (n 83). 105 Yang (n 83). 106 Crawford (n 19).
37
waiver from jurisdiction, but this is not the same for a waiver of sovereign
immunity of States facing execution proceedings. It is somewhat evident that the
move towards liberalisation of the law i.e. post IIA regime, that the development
towards improving the conditionalities of award execution has been the slowest
and the poorest by far. We may not even term this as a development as it has had
a cascading effect on the IIA regime. The States are now using this tool, which
was meant for growth and harmonization of investment law, for States to neglect
and ignore final award delivery to such award-creditors. This, amongst many
others, is one of the negative aspects of IIA regime and strong criticism leading to
possible ISDS reforms in future.
This is partly because execution of States assets is considered much more
intrusive upon the sovereignty of the State. In this light, ‘the purpose test is a
means of balancing respect for state sovereignty and the judgement debtor’s rights
to be paid amounts judged due and owing.107 As Fox and Webb have eloquently
highlighted a fatal bottleneck in the restrictive theory on sovereign immunity from
execution namely:108
Even where attachment of foreign State assets located in the forum State is legally
possible, the political consequences to the friendly relations of the forum State
with the foreign State may discourage the forum State’s support for such
enforcement.109
Therefore, to conclude, it is of the author’s opinion that no doubt, as we all know,
the mandate of an arbitrators, sitting in an international forum, comes to an end as
soon as a final, binding and enforceable award has been rendered by the tribunal.
On and after that point, the arbitrators are considered to be functus officio i.e. the
office of the arbitrators are vacated, and they are no more capable of exercising
powers of an international tribunal to that particular dispute. To this author’s point
of view, such mandate of an arbitrators should still continue to run until the point
107 Qureshi (n 19). 108 Asif H Qureshi, ‘Manchester Journal’ 44, pt Immunity from Execution at page 412; Hazel Fox and Philippa Webb, The Law of State Immunity (Third edition, Oxford University Press 2013. 109 Hazel Fox and Philippa Webb, The Law of State Immunity (Third edition, Oxford University Press 2013) n supra note 30, at 32.
38
where such arbitral awards has been at least provisionally attached i.e. pre-
judgement measures of constraint vis-à-vis Article 18 (a) & (b) UNSCI 2004 and
post-judgement measures of constraint vis-à-vis Article 19 (a), (b) & (c) UNSCI
2004. The arbitrators should continue to overlook such acceptance of request for
grant of letter of exequatur by the court of enforcement of the award. As the
arbitrators under the NY Convention has a specific mandate to render only
enforceable awards, commonly called the ‘pecuniary awards in ITA’, such
enforcement of awards cannot be only left at the helm of domestic courts, which
no matter how much restraint of review towards award it exercises, is swayed by
the might of the State before it and is finally satisfied of its sovereignty, not to
forget domestic courts are themselves an institution of such sovereign States.
Thus, the cost of non-enforcement proceedings leaves award-creditors penniless.
At this point, the legitimacy of ITA would be undermined and investors could
potentially stop utilizing the ISDS regime in greater numbers.110
It is also the author’s long gone thought that arbitration procedures are not a
’wholesome’ procedure. With that being said, arbitration cannot function without
domestic courts as it is the domestic courts who has the final say on the outcome
of an arbitral award, be it an ICSID award or non-ICSID. If the award is not
enforced and executed, arbitration fails and the award-creditors autonomy of
choosing arbitration over traditional domestic courtroom litigations has no
material value whatsoever. Thus, for the reasons as above-mentioned, tribunals
and courts should be considered two sides of the same coin, pari passu in relation
to dispute resolution and both should complement each other rather contradict.
Without any other clear alternative, this may be crucial to maintain the stability
and strength which is now, most required in ITA. 111 The courts being legal
apparatus of States should not exploit arbitration with States lawlessness.
PART-4: UNITED NATIONS CONVENTION ON JURISDICTIONAL
IMMUNITIES OF STATES AND THEIR PROPERTY (UNSCI) 2004 VIS-
À-VIS MEASURES OF CONTRAINTS IN EXECUTION
110 Jacob A Kuipers, ‘Too Big to Nail: How Investor-State Arbitration Lacks an Appropriate Execution Mechanism for the Largest Awards’ 39 Comparative Law Review 37. 111 Kuipers (n 110).
39
The 2004 United Nations Convention on Jurisdictional Immunities of States and
Their Property is an epoch-making document. 112 This Convention is the first
modern multilateral instrument to adopt a comprehensive approach to issues of
sovereign immunity from suits in foreign court.113 It marks the final establishment
of restrictive immunity as the prevailing doctrine in international law. 114 This
particular Convention has gone through relative higher and never-ending period of
gestation, thanks to the slow and gradual process of acceptance of this Convention
by so-called ‘sovereign States’. States somehow avoid codifying the Convention
for formerly adopting and advocating the restrictive theory of sovereign
immunity, which of course would lead to more award execution against such
sovereigns.
This Convention, which has not yet entered into force, was open for signature by
all States until 17 January 2007.115 It was signed by 28 States.116 So far eight
States have ratified the Convention.117 Thirty ratifications are required for the
Convention to enter into force.118
The illustration of the general rule on immunity can be found in UNSCI, in
Articles namely; Article 18 (pre-judgment measures of constraint), Article 19
(post-judgment measures of constraint) and Article 20 (effects of consent to such
112 Yang (n 83) ch The genisis of the UN Convention. 113 Hobér, Selected Writings on Investment Treaty Arbitration (n 57) n Sovereign Immunity and International Arbitration-Recent Developments at page no. 502. 114 Yang (n 83) ch The genesis of the UN Convention. 115 United Nations Conventions on Jurisdictional Immunities of States and Their Property, 2004 s See Article 28 of the Convention. 116 ‘UNTC’ n Austria, Belgium, China, Czech Republic, Denmark, Estonia, Finland, France, Iceland, India, Iran (Islamic Republic of), Japan, Kazakhstan, Lebanon, Madagascar, Mexico, Morocco, Norway, Paraguay, Portugal, Romania, Russian Federation, Senegal, Sierra Leone, Slovakia, Sweden, Switzerland, Timor-Leste and United Kingdom of the Great Britain and Northern Ireland. <https://treaties.un.org/Pages/ShowMTDSGDetails.aspx?src=UNTSONLINE&tabid=2&mtdsg_no=III-13&chapter=3&lang=en> accessed 27 April 2020. 117 ‘UNTC’ (n 116) n Austria, Iran (Islamic Republic of), Kazakhstan, Lebanon, Norway, Portugal, Romania and Sweden. 118 ‘UNTC’ (n 116) n See Article 30 (1) of the Convention, which provides: "The present Convention shall enter into force on the thirtieth day following the date of deposit of the thirtieth instrument of ratification, acceptance, approval or accession with the Secretary-General of the United Nations.".
40
measures of constraint as under Art. 18 & Art. 19). The Articles in detail, reads as
follows:
4.1. Article 18, 19 & 20 UNSCI 2004
Article 18 provides:
Article 18
State immunity from pre-judgment measures of constraint
No pre-judgment measures of constraint, such as attachment or arrest, against
property of a State may be taken in connection with a proceeding before a court
of another State unless and except to the extent that:
(a) the State has expressly consented to the taking of such measures as indicated:
(i) by international agreement;
(ii) by an arbitration agreement or in a written contract; or
(iii) by a declaration before the court or by a written communication after a
dispute between the parties has arisen; or
(b) the State has allocated or earmarked property for the satisfaction of the claim
which is the object of that proceeding.
Article 19 provides;
Article 19
State immunity from post-judgment measures of constraint
No post-judgment measures of constraint, such as attachment, arrest or execution,
against property of a State may be taken in connection with a proceeding before a
court of another State unless and except to the extent that:
(a) the State has expressly consented to the taking of such measures as indicated:
(i) by international agreement;
(ii) by an arbitration agreement or in a written contract; or
41
(iii) by a declaration before the court or by a written communication after a
dispute between the parties has arisen; or
(b) the State has allocated or earmarked property for the satisfaction of the claim
which is the object of that proceeding; or
(c) it has been established that the property is specifically in use or intended for
use by the State for other than government non-commercial purposes and is in the
territory of the State of the forum, provided that post-judgment measures of
constraint may only be taken against property that has a connection with the
entity against which the proceeding was directed.
Article 20 provides:
Article 20
Effect of consent to jurisdiction to measures of constraint
Where consent to the measures of constraint is required under articles 18 and 19,
consent to the exercise of jurisdiction under article 7 shall not imply consent to
the taking of measures of constraint.
Article 18, 19 and 20 UNSCI, uses the generic term “measures of constraint” to
describe the variety of mechanisms available under domestic law for enforcing
judicial orders. 119 Theses mechanisms includes- injunction, attachment, arrest,
execution, or other forms of preliminary and final relief.120 Articles 18 and 19
addresses pre and post judgment measures. The basic rule in either of the two
articles are restrictive, i.e. no measures of constraint may be taken against State
property for the satisfaction of the payment of debts (‘award’) owed to the award-
creditors, or the State has expressly consented to taking of such measures by an
international agreement, by an arbitration agreement or in a written contract, or by
a declaration before the court or in a written communication after a dispute has
arisen.121
119 David P Stewart, ‘The UN Convention on Jurisdictional Immunities of States and Their Property’ (2005) 99 The American Journal of International Law 194, at page 207. 120 Stewart (n 119) at page 207. 121 Stewart (n 119) nn 72 Arts. 18(a), (b), 19(a), (b). Importantly, Article 20 provides that for purposes of these two articles, consent to the exercise ofjurisdiction under Article 7 does not
42
With respect to post-judgment measures of constraint, an additional qualification,
set forth in Article 19 (c), permits such measures with regard to property in the
forum State’s territory i.e. “specifically in use or intended to be in use by the State
for other than government non-commercial purposes,” provided that the property
“has a connection with the entity against which the proceeding was directed.”122
4.2. Article 21 UNSCI- De Facto Immunity Albeit the Commercial Purpose?
Apart from a particular importance of the three exceptions found in Article 19 (a)
to (c), which we have discussed above, it is also of prime importance to highlight
the importance of de facto immunity granted to ‘five’ categories of properties as
found in Article 21 (1). Article 21 of UNSCI, provides:
Article 21
Specific categories of property
1. The following categories, in particular, of property of a State shall not be
considered
as property specifically in use or intended for use by the State for other than
government non-commercial purposes under article 19, subparagraph (c):
(a) property, including any bank account, which is used or intended for use in
the performance of the functions of the diplomatic mission of the State or its
consular posts, special missions, missions to international organizations or
imply consent to the taking of measures straint. Under FSIA section 1610(d), of course, prejudgment attachment is available against assets only if that state has explicitly waived its immunity from such attachment and if the purpose satisfaction of the judgment, not to obtain. 122 David P Stewart, ‘The UN Convention on Jurisdictional Immunities of States and Their Property’ (2005) 99 The American Journal of International Law 194, n 73 Art. 19(c). An annexed understanding provides that the term “entity” as used in this paragraph State as an independent legal personality, a constituent unit of a federal State, subdivision of a or instrumentality of a State or other entity, which enjoys independent legal personality.” It also the words ‘property that has a connection with the entity’ are to be understood as ‘broader than possession.’ Finally, the understanding states that Article 19 as a whole “does not prejudge ‘piercing the corporate veil’, questions relating to a situation where a State entity has deliberately misrepresented its financial position or subsequently reduced its assets to avoid satisfying a claim, or other related issues.“Understanding, supra note 20 (Art. 19).
43
delegations to organs of international organizations or to international
conferences;
(b) property of a military character or used or intended for use in the
performance of military functions;
(c) property of the central bank or other monetary authority of the State;
(d) property forming part of the cultural heritage of the State or part of its
archives and not placed or intended to be placed on sale;
(e) property forming part of an exhibition of objects of scientific, cultural or
historical interest and not placed or intended to be placed on sale.
2. Paragraph 1 is without prejudice to article 18 and article 19, subparagraphs
(a) and (b).
Article 21 states that certain categories of property may not be considered
“specifically in use or intended for use by the State for other than government
non-commercial purposes.”123 The exempted categories of properties are enlisted
under Article 21 (1) (a) to (e) categories of property, out of which “property
category (c)”, i.e. property of the central bank or other monetary authority of the
State, are of primal importance to the author.
In significant measure, the law of State or sovereign immunity has evolved in
State practice from judicial consideration of efforts to enforce judgement against
properties or assets belonging to foreign States, its agencies, or instrumentalities.
UNSCI text reflects an emergent global consensus, increasingly demonstrated in
doctrine as well as in practice, that State and States enterprises, can no longer
enjoy absolute unrestricted and unlimited sovereign immunity from proper
jurisdiction of foreign courts, especially for their commercial activities. As the
UNSCI 2004 codifies the basic customary international law principle that a:
“State enjoy immunity, in respect of itself and its property, from the jurisdiction
of the courts of another State,”124 however, the States should not enjoy immunity
by restructuring of its monetary instruments to the central banks under the garb of
foreign reserves and other immune properties. This not only exploits the
123 Stewart (n 119) at page no.207. 124 Hobér, Selected Writings on Investment Treaty Arbitration (n 57) at page no. 502 ('The UN Convention’); United Nations Conventions on Jurisdictional Immunities of States and Their Property, 2004 n See Article 5 of the Convention.
44
legitimate expectations of the award-creditors but also leaves the international
investment regime in a big vacuum i.e. it injects lifelessness into ISDS
mechanism and raises big question marks on its integrity.
To the authors opinion, the unmistakable trend is towards greater immunity to
States and its assets or properties from the measures of execution.125 This trend is
attributable in part to the effect that the UNSCI has had on domestic law-making,
in part to explicit efforts by some countries to attract deposits and investments by
foreign central banks, in part due to efforts to limits measures of execution against
foreign State assets 126 for e.g.- France, China, USA etc., Therefore, this
diversification of investments and pre-planned laundering of central bank
holdings, is likely to generate pressure to limit immunity in context of execution
of arbitral awards against State de facto immune assets , especially for assets and
activities which are clearly used for purposes other than foreign currency reserves
albeit non-governmental and purely commercial purposes.127
However, if UNSCI comes into force, we can expect many problems involving
sovereign immunity arising from the vagaries of national legislation to
disappear. 128 But there could still be overlapping problems of State rules on
sovereign immunity with such international rules implied by the UNSCI,
problems like- varied and in-coherent interpretation of UNSCI and national
sovereign immunity legislations, both by courts and arbitral tribunals. Let’s see
what happens as ‘time heals all wounds.’
PART-5: THE INTERNATIONAL COURT OF JUSTICE (‘ICJ’) AND THE
CENTRAL BANK IMMUNITY
125 Ingrid Wuerth, ‘Immunity from Execution of Central Bank Assets’ in Tom Ruys, Nicolas Angelet and Luca Ferro (eds), The Cambridge Handbook of Immunities and International Law(1stdn,CambridgeUniversityPress2019)<https://www.cambridge.org/core/product/identifier/9781108283632%23CNbp14/type/book_part>accessed 16 April 2020.
126 Ingrid Wuerth, ‘Immunity from Execution of Central Bank Assets’ in Tom Ruys, Nicolas Angelet and Luca Ferro (eds), The Cambridge Handbook of Immunities and International Law (1st edn, Cambridge University Press 2019) <https://www.cambridge.org/core/product/identifier/9781108283632%23CN-bp-14/type/book_part> accessed 16 April 2020. 127 Wuerth (n 126). 128 Maniruzzaman (n 75).
45
The topic for discussion in this part for the author is the role of the ICJ in
adjudicating disputes concerning a part, which is immunity from execution of
central bank properties. This aspect of the ICJ shall be analysed vis-a-vis
immunity from execution in light of namely two ICJ Jurisprudence.
As we will later in this part come to know that the ICJ has treated this aspect of
UNSCI i.e. immunity from execution of central bank assets, as partly forming the
customary international law, which means that the two, ICJ jurisprudence and
UNSCI, should be read together. It is by large stretch, a tested and settled notion,
both by court case decisions (‘local jurisprudence’) and scholarly writings
(‘transnational jurisprudence’) that, State should protect the property of the central
bank from execution so long as it is used for central banking functions or for
government or sovereign purposes, or they generally limit enforcement measures
against State-owned properties. 129 Whereas on the other hand, there are least
protective group of so-called ‘third States’ which provides no special protections
for the property of central banks and therefore in process, denies any immunity
whatsoever already existing in comparison to other group of States which
provides immunity to the opposite. This particular assessment by the author is
irrespective of what UNSCI Article 21 (c) says, which agreed, is yet to be
codified, nonetheless has turned out to be an existential jurisprudence, at times, in
verbatim, found in States sovereign immunity laws.
Generally speaking, there is a trend toward greater protection of the central bank
assets, with rich nations having majority of the trading activities such as- China,
France, Russia, Japan etc., all ramping up its national legislations towards
providing immunity from enforcement for central bank assets. 130 This part is
dedicated in focussing the role of the ICJ through its notable rulings on
enforcement and execution proceedings brought by such States against the central
bank assets and we will also determine, how immunity to such State banking and
financial assets are determined in accordance to the ‘nature and purpose’ role of a
State entity.
129 Wuerth (n 126). 130 Wuerth (n 126).
46
The ICJ jurisprudence on the topic is limited to two cases namely; (5.1.) Federal
Republic of Germany v The Italian Republic (Greece Intervening) 131
(‘Jurisdictional Immunities’ judgement) and (5.2.) Certain Iranian Assets (Islamic
Republic of Iran v. United States of America), 132 with special focus on US
Supreme Court decision in ‘Bank Markazi v. Peterson.’ These will be analysed
below.
5.1. Federal Republic of Germany v The Italian Republic (Greece
Intervening)
On 3 February 2012, the International Court of Justice (‘ICJ’) adjudged a dispute
between the Federal Republic of Germany and the Italian Republic- the Hellenic
Republic intervening (‘Greece’).133 The dispute concerned Germany’s purported
immunity in Italian courts for atrocities committed by German troops during
World War-II.134 Ultimately Germany’s immunity was upheld, marking a pivotal
moment in foreign sovereign immunity and also bringing the arguments of
‘human rights exceptions to State immunity’ to rest.135 However, it should be
noted that, the author only intends to solely discuss the Jurisdictional Immunities
131 Pernille Walther, ‘Australian International Law Journal’ 7, n Jurisdictional Immunities of the State (Germany v Italy: Greece intervening) (Judgment) (International Court of Justice, General List No 143, 3 February 2012) (‘Germany v Italy’). 132 E McCullough, ‘Summary of the Judgment of 13 February 2019’ 15, n Certain Iranian Assets (Islamic Republic of Iran v. United States of America) Summary of the Judgment of 13 February 2019. 133 Pernille Walther, ‘Australian International Law Journal’ 7; ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ n On 13 January 2011, Greece filed an Application requesting permission to intervene in the case. In its Application, Greece stated that it wished to intervene in the aspect of the procedure relating to judgments rendered by its own courts on the Distomo massacre and enforced (exequatur) by the Italian courts. The Court, in an Order of 4 July 2011, considered that it might find it necessary to consider the decisions of Greek courts in the Distomo case, light of the principle of State immunity, for the purposes of making findings with regard to Germany’s submission that Italy had breached its jurisdictional immunity by declaring enforceable in Italy decisions of Greek courts founded on violations of international humanitarian law committed by the German Reich during the Second World War. This permitted the conclusion that Greece had an interest of a legal nature which might have been affected by the judgment in the case and, consequently, that Greece could be permitted to intervene as a non-party “in so far as this intervention is limited to the decisions of Greek courts [in the Distomo case]”. <https://www.icj-cij.org/en/case/143> accessed 1 May 2020. 134 Walther (n 131). 135 Walther (n 131).
47
judgement aspect involving the role of customary international law rules when the
question of enforceability of judgement against a foreign State comes into the
light and none others.136
“Overview of the Case”: The ICJ in this case, referred to the UNSCI
Convention’s; ‘Part IV’ i.e. State immunity from measures of constraint in
connection with proceedings before a court, which includes; Article 18, Article
19, Article 20 and Article 21 (which the author has discussed in detail in the
preceding part of this thesis) and ‘Part V’ i.e. Miscellaneous provisions of the
UNSCI. The ICJ concluded, as regards post judgement proceedings and applied
the third exception to immunity found in Article 19 (c)137, which allows post
judgement enforcement non-commercial purposes.138 The ICJ judgement provides
a new understanding of the extent to which a State’s property enjoy immunity
from the jurisdiction of national courts enforcing a judgment of a national court
given in another country in respect of acts of the State held to enjoy no immunity.
Enumerating this, the ICJ laid down certain standards which applied to Part-IV of
the UNSCI, when enforcing a judgement given against a foreign State. It is
important to mention that, from the written and oral proceedings standpoint of
view of both the disputing parties, none of the parties to proceeding had brought
forth the argument concerning customary international law’s provision relating to
enforcement.139 All of the party’s arguments were ‘against’ granting Germany,
136 ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ (n 133). 137 United Nations Conventions on Jurisdictional Immunities of States and Their Property, 2004 2004 n Relevant Article 19 (c) states that; Article 19- State immunity from post-judgment measures of constraint No post-judgment measures of constraint, such as attachment, arrest or execution, against property of a State may be taken in connection with a proceeding before a court of another State unless and except to the extent that: (c) it has been established that the property is specifically in use or intended for use by the State for other than government non-commercial purposes and is in the territory of the State of the forum, provided that post-judgment measures of constraint may only be taken against property that has a connection with the entity against which the proceeding was directed. 138 Hazel Fox, ‘When Can Property of a State Be Attached to Enforce a Foreign Judgment Given against It in Another Country? Some Guidance in the Icj Judgment in the Jurisdictional Immunities Case’ in Rüdiger Wolfrum, Maja Seršić and Trpimir Šošić (eds), Contemporary Developments in International Law (Brill | Nijhoff 2016) <https://brill.com/view/book/edcoll/9789004245624/B9789004245624-s006.xml> accessed 16 April 2020. 139 Wuerth (n 126).
48
immunity from adjudication in time of international armed conflict.140 Thus, it
was ultimately left to the ICJ to decide the issue ex aequo et bono on the aspect of
customary international law relating to property of a foreign State with regards to
the State’s immunity from enforcement.141
In Part V of its judgement, the ICJ marked out differences in two types of
immunity from adjudication and immunity from enforcement, to quote the
relevant para of the judgement: “the rules of customary international law
governing immunity from enforcement are distinct from and go further than those
governing jurisdictional immunity, and must be separately applied” (para 131).142
However, as per the detailed judgement, it was known that the ICJ treated the two
types of immunity, as above mentioned, as distinct and relied, with one caveat.143
The ICJ chose to address the second stage of enforcement first, considering that, a
property concerned (‘Villa Vigoni’), a German State property situated in Italian
territory, was the seat of cultural centre intended to promote cultural exchanges
between Germany and Italy and hence, used for government, sovereign, and non-
commercial purpose.144
On 3 February 2012, the ICJ first examined the question ‘whether Italy had
violated Germany’s jurisdictional immunity by allowing civil claims to be
brought against Germany in the Italian courts.’ The court held that actions of Italy
in their civil courts amounted to breach of Italy’s international obligations towards
Germany. ICJ further observed and made it clear that, the rules of State immunity
were confined to determining whether or not the courts of one State could
140 Wuerth (n 126). 141 Wuerth (n 126). 142 Fox (n 138). 143 Hazel Fox, ‘When Can Property of a State Be Attached to Enforce a Foreign Judgment Given against It in Another Country? Some Guidance in the Icj Judgment in the Jurisdictional Immunities Case’ in Rüdiger Wolfrum, Maja Seršić and Trpimir Šošić (eds), Contemporary Developments in International Law (Brill | Nijhoff 2016) n “The Court considers that it is unnecessary for purposes of the present case for it to decide whether all aspects of Article 19 reflect current customary international law” (para.117). Apart from four decisions which the ICJ cited, no reference was made to the us Foreign Sovereign Immunities Act (FSIA) s. 1609 and the uk State Immunity Act (SIA) s. 13, despite both con taining provisions dealing specifically with enforcement, nor to the extensive relevant State practice. <https://brill.com/view/book/edcoll/9789004245624/B9789004245624-s006.xml> accessed 16 April 2020. 144 Fox (n 138).
49
exercise jurisdiction in respect of another State.145 Thus, it came to conclusion
that, the legality of measures of restraints of registering a legal charge on the
property in question ‘Villa Vigoni’ imposed by Florence court of Italy constituted
violation by Italy of its international obligation to respect the Germany’s
immunity (see para. 120 of the judgement).146 Therefore, in the words of Article
19 (c) of the UNSCI i.e. “for government, non-commercial purposes”, Germany
continued to enjoy immunity from enforcement. 147 Germany had in no way
consented for taking away of ‘Villa Vigoni’ (‘German property’) to satisfy a
judicial claim against it, which meant that conditions permitting a measure of
constraint to be taken against property belonging to a foreign State had not been
met in this case.148
Finally, to sum up the ICJ’s ruling, it held in so deciding, laid down a rule of
customary international law for application by a national recognizing court when
assessing the enforceability of a judgment given against a foreign State.149 It did
so on the basis of fundamental assumption that all national jurisdictions adopt the
ICJ’s categorisation of the customary rule and in determining immunity will look
up to the underlying transaction on which the claim to immunity is based, in this
case Germany used its property for government, non-commercial purposes and
hence, aided by ‘nature use test’ of the property, claiming sovereign immunity.150
(Note: For latest developments in the case, see foot note.151)
145 ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ (n 133). 146 ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ (n 133). 147 Fox (n 138). 148 ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ (n 133). 149 Fox (n 138). 150 Fox (n 138). 151 ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ n It should be noted that, on 14 January 2013, the Italian Parliament adopted a draft law concerning the accession of Italy to the United Nations Convention on Jurisdictional Immunities of States and Their Property, and provisions adapting national law. This law was published in the Official Journal of the Italian Republic on 29 January 2013. Article 3 thereof, entitled “Compliance with the judgments of the International Court of Justice” states that the International Court of Justice having excluded the possibility of certain acts of another State being submitted to the Italian civil jurisdiction, court hearing the dispute relating to those acts shall find on its own motion that it lacks jurisdiction, even when a preliminary judgment establishing its jurisdiction has already become res judicata, and whatever the state or phase of the proceedings. It adds that any ruling having the effect of res judicata which is not consonant with a judgment of the
50
This, this leaves the author at pivotal time of the thesis, in discussing the
immunity from execution of central bank properties/assets from encashing a
judicial claim towards honouring international obligations amongst States. In the
upcoming case analysis (‘overview’), we will discuss the analogies involved in
recently decided case by the ICJ involving Islamic Republic of Iran and its certain
assets such as- central bank assets, from execution, by USA towards an
international court ruling which held Iran to be liable for ‘State sponsored
Terrorism’, an exception which is a ground for automatic judgement enforcement
according to ‘Foreign State Immunity Act 1976152’ (‘FSIA’) (State immunity law
of USA).
5.2. Certain Iranian Assets (Islamic Republic of Iran v United States of
America153), with special focus on ‘Bank Markazi v. Peterson’ (US Supreme
Court Decision)
The author before discussing this case, would like to mention that, the ICJ did not
perhaps go as much into the issue of sovereign immunity as they could have, and
that the focus on the US Supreme Court Decision in Bank Markazi v. Peterson, is
therefore, instrumental for the purposes of this thesis. In this context, the author
would limit the analysis of sovereign immunity from execution of central bank
assets and will not thoroughly discuss the ‘terrorism exception’ found in US FSIA
1976, even though it was the reason for attaching and executing against the central
bank assets in the US regime.
International Court of Justice, where that judgment is rendered subsequently, may also be subject to revision for lack of civil jurisdiction. <https://www.icj-cij.org/en/case/143> accessed 1 May 2020. 152 See 28 U.S.C. Article 1605A (2012).
<https://crsreports.congress.gov/product/pdf/LSB/LSB10140> accessed 1 May 2020 153 E McCullough, ‘Summary of the Judgment of 13 February 2019’ 15, n The author will only be discussing the case which was brought before the ICJ, subsequent to the US Supreme Court ruling in the matter ‘Bank Markazi v Peterson’ 136 S. Ct. 1310 (2016) wherein Iran was directed against seeking immunity from exeuction of central bank assets. This particular aspect of one of the landmark judgment in 'sovereign immuni' and 'certain asset execution' will be discussed by the author in the forthcoming part-5 of the thesis i.e. State Immunity Laws in relation to notable municipal law judgments. However, it will germane to issue to discuss the factual background and history of the proceedings between the parties (USA and Iran).
51
“Overview of the Case”: On 14 June 2016, the Government of the Islamic
Republic of Iran (‘Iran’) filed in the registry of ICJ, an application instituting
proceedings against the United States of America (‘USA’) with regard to a
dispute concerning alleged violations by the USA of the ‘Treaty of Amity,
Economic Relations, and Consular Rights154’, which was signed by the two States
in Tehran on 15 August 1955 and entered into force on 16 June 1957.155 The
jurisdiction of ICJ was established by Iran on Article 36156, paragraph 1 of the
Statute of the ICJ and on the Treaty of Amity, Article XXI157, paragraph 2.158
In 1984, when USA designated Iran as a ‘State sponsor of terrorism’, following
the Iranian revolution in early 1979 and the seizure of the USA embassy in Tehran
(‘Iran’) on 4 November 1979 and in October 1983, when the US Marine Corps
barracks in Beirut, Lebanon, were bombed, killing 241 US servicemen who were
part of a multinational peacekeeping force.159 Therefore, the dispute had long
arisen between the two States where USA had claimed that Iran was responsible
154 ‘UNTC’ (n 116); ‘Wayback Machine’ (31 October 2017) <https://web.archive.org/web/20171031095520/https://www.state.gov/documents/organization/275251.pdf> accessed 2 May 2020. 155 McCullough (n 132). 156 ‘Statute of the Court | International Court of Justice’ n Article 36- 1. The jurisdiction of the Court comprises all cases which the parties refer to it and all matters specially provided for in the Charter of the United Nations or in treaties and conventions in force. 2. The states parties to the present Statute may at any time declare that they recognize as compulsory ipso facto and without special agreement, in relation to any other state accepting the same obligation, the jurisdiction of the Court in all legal disputes concerning: the interpretation of a treaty; any question of international law; the existence of any fact which, if established, would constitute a breach of an international obligation; the nature or extent of the reparation to be made for the breach of an international obligation. 3. The declarations referred to above may be made unconditionally or on condition of reciprocity on the part of several or certain states, or for a certain time. 4. Such declarations shall be deposited with the Secretary-General of the United Nations, who shall transmit copies thereof to the parties to the Statute and to the Registrar of the Court. 5. Declarations made under Article 36 of the Statute of the Permanent Court of International Justice and which are still in force shall be deemed, as between the parties to the present Statute, to be acceptances of the compulsory jurisdiction of the International Court of Justice for the period which they still have to run and in accordance with their terms. 6. In the event of a dispute as to whether the Court has jurisdiction, the matter shall be settled by the decision of the Court. <https://www.icj-cij.org/en/statute> accessed 25 April 2020. 157 ‘Wayback Machine’ (31 October 2017) n Article XXI- 1. Each High Contracting Party shall accord sympathetic consideration to, and shall afford adequate opportunity for consultation regarding, such representations as the other High Contracting Party may make with respect to any matter affecting the operation of the present Treaty. 2. Any dispute between the High Contracting Parties as to the interpretation or application of the present Treaty, not satisfactorily adjusted by diplomacy, shall be submitted to the International Court of Justice, unless the High Contracting Parties agree to settlement by some other pacific means <https://web.archive.org/web/20171031095520/https://www.state.gov/documents/organization/275251.pdf> accessed 2 May 2020. 158 McCullough (n 132). 159 McCullough (n 132).
52
for the bombings and for subsequent acts of terrorism and violations of
international law.
In 1996, the USA amended its FSIA so as to remove the immunity from suit
before its courts of States designated as ‘State sponsors of terrorism’ in certain
cases involving allegations of torture, extrajudicial killing, aircraft sabotage,
hostage taking, or the provision of material support for such acts; it also provided
exceptions to immunity from execution applicable in such cases.160 Thus, it was
from this juncture that several of the plaintiffs in the US courts began to bring suit
for execution of State property, i.e. central bank assets/withholdings of Iran to
satisfy their damages as sought for in judicial claims. This was the action which
particularly gave rise to US Supreme Court case “Bank Markazi v Peterson”
(which the author has referred to in his foot note ‘169’).161 Further in 2002, the
USA adopted the ‘Terrorism Risk Insurance Act’ 162 , which established
enforcement measures for judgments entered following the 1996 amendments to
the FSIA, as highlighted above.163 Furthermore, the USA further amended the
FSIA in 2008, enlarging the scope of categories of assets available for execution.
Now, in 2012, which was hallmark year for USA’s position on attachment and
execution of certain deemed to be State’s sovereign assets such as- central banks,
ready and available for satisfaction of a judicial claim, which was finally
incorporated as an ‘exception regime’ or ‘terrorism exception164’ in the current
FSIA of USA. The then President of the USA Mr. Barack Obama, issued
Executive Order 13599165 (which blocked all assets) of Iran, including those of
the Iran’s central bank ‘Bank Markazi Jomhouri Islami Iran’ (‘Bank Markazi’).
160 McCullough (n 132). 161 ‘Bank Markazi v. Peterson’ n For the sake of information of the audience, it is important to mention that, during the proceedings of 'Bank Markazi v Peterson', Iran declined to appear in those lawsuits on the ground that the USA legislation was in violation of the international law on State immunities. <https://harvardlawreview.org/2016/11/bank-markazi-v-peterson/> accessed 1 May 2020. 162 ‘Terrorism Risk Insurance Act of 2002’ 22; ‘Terrorism Risk Insurance Program | U.S. Department of the Treasury’ <https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program> accessed 2 May 2020. 163 McCullough (n 132). 164 Wuerth (n 126) n See IV. Issues Ahead: Central Bank Immunity before the International Court of Justice at page no. 21-24. 165 Adam Liptak, ‘Supreme Court Rules Iran Bank Must Pay for Terrorist Attacks’ The New York Times (20 April 2016) <https://www.nytimes.com/2016/04/21/business/supreme-court-rules-iran-bank-must-pay-for-terrorist-attacks.html> accessed 1 May 2020.
53
Also, in 2012, the USA adopted the ‘Iran Threat Reduction and Syria Human
Rights Act 166’, Section 502 167 of which, inter alia, made the assets of Bank
Markazi subject to execution in order to satisfy default judgments (‘ex parte’)
against Iran in the ‘Bank Markazi v Peterson’ case.168 Iran, in its defence also
argued that USA had disregarded the separate judicial status of the Bank
Markazi. 169 Finally, following all the measures adopted and put in active
operation by the courts in USA, assets of Iran and Iranian State-owned entities,
including- Bank Markazi, are now subject to judicial satisfaction and such
enforcement proceedings by all the judgement-creditors in various cases across
the courts of USA or abroad.
Therefore, on 14 June 2016, Government of Islamic Republic of Iran, filed a case
before the ICJ for quashing of the enforcement measures directed by the US
Supreme Court. To sum up, following are some worthy observations of the ICJ
judgment of 13 February 2019 (publicly available170); (a) The USA may have
violated the customary international law by permitting enforcement against the
property of Bank Markazi, rather than Iran itself, because the underlying
judgment was rendered against Iran;171 (b) A ‘nexus’ requirement for enforcement
actions set out in Article 19 (c) of the UNSCI requires that the post-judgment
measures of constraint may only be taken against property that has connection
with the entity against which the proceeding was directed.172 Thus, USA ordering
attachment and execution of property belonging to Bank Markazi, would violate
the law under Article 19 (c) UNSCI; (c) USA has a law requirements similar to
Article 19 (c) UNSCI. This requirement is not imposed by FSIA, but USA’s own
166<https://www.treasury.gov/resourcecenter/sanctions/Documents/hr_1905_pl_112_158.pdf>accessed2May 2020. 167 ‘Hr_1905_pl_112_158.Pdf’ n See Article 502 at page no. H. R.1905-45 to 47 <https://www.treasury.gov/resource-center/sanctions/Documents/hr_1905_pl_112_158.pdf> accessed 2 May 2020. 168 McCullough (n 132). 169 Wuerth (n 126) n Iran alleges that the US has disregarded the seperate judicial status of Bank Markazi, but not specifically in the context of immunity.; McCullough (n 132). 170 ‘Judgments | Certain Iranian Assets (Islamic Republic of Iran v. United States of America) | International Court of Justice’ <https://www.icj-cij.org/en/case/164/judgments> accessed 2 May 2020. 171 Wuerth (n 126). 172 Wuerth (n 126).
54
federal common law articulated in the context of central banks173, however, this
act was superseded by the ‘Iran Threat Reduction Act’, which specifically
approved that central bank assets can be attached to satisfy a judgement against
Iran174; (d) Bank Markazi’s assets were blocked by USA in 2012 by an executive
order (‘blocking all assets, financial holdings’) and designated for execution by
the Iran Threat Reduction Act, without any due regards to assets intended use or
purpose. Finally, as argued by Iran, ICJ held that Bank Markazi’s assets were
State performing assets, which was part of Iran’s ‘foreign currency reserves’.175
Thus, it was on this intended use and purpose of holding ‘foreign currency
reserves’ (‘sovereign/public act’) that the ICJ held these assets as performing
government, sovereign and non-commercial purposes of the State of Iran and
thereby, granting official State immunity to central bank assets of Bank Markazi
from attachment and execution proceedings.
To quote the ICJ in this case and in Jurisdictional Immunities176 case;
“under customary international law as it presently stands, a State is not deprived
of immunity by reason of the fact that it is accused of serious violations of human
rights or the international law of armed conflict”
It seems that ‘restrictive immunity’ is the answer to sovereign capacity of a State
and its entities (SOEs). In both the ICJ rulings as discussed in this part of the
thesis, with the help of jurisprudence that the ICJ has provided, it is both
abundantly and evidently clear that UNSCI 2004, Article 21 (c) should be given
due weightage as forming part of customary international law of a sovereign
State. The central banks should be given restrictive immunity in accordance to the
173 Ingrid Wuerth, ‘Immunity from Execution of Central Bank Assets’ in Tom Ruys, Nicolas Angelet and Luca Ferro (eds), The Cambridge Handbook of Immunities and International Law (1st edn, Cambridge University Press 2019) n Supreme Court of the United States, First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 17 June 1983. <https://www.cambridge.org/core/product/identifier/9781108283632%23CN-bp-14/type/book_part> accessed 16 April 2020. 174 Wuerth (n 126). 175 Wuerth (n 126) n See Markazi v. Peterson, Brief of Petitioner, Bank Markazi v. Peterson, 2015 WL 7294865, 9 (U.S. 2015). 176 ‘Latest Developments | Jurisdictional Immunities of the State (Germany v. Italy: Greece Intervening) | International Court of Justice’ para 91 at page 139. <https://www.icj-cij.org/en/case/143> accessed 1 May 2020.
55
results of ‘nature test’ of the assets being used by respective States in performance
of State’s sovereign acts only i.e. acta jure imperii. Whereas on the contrary, if
the State defence of sovereign immunity from execution of central bank assets are
being put forward in spite of the results of ‘nature test’ of its assets used for acta
jure gestonis i.e. commercial and all non-sovereign purposes, the author till this
point of research, has reached to an emphatic stand that, ‘even the central bank
assets used for non-sovereign purposes are not immune from international
attachment and execution to the satisfaction of a judicial and arbitral claims’ i.e.
‘central bank assets to be only used for sovereign, not mixed purposes.’
Now, one could wonder, whether these central bank assets constitute State
sovereign wealth funds (SWFs) or not? Does the ‘nature test’ and ‘commerciality
exception’ apply mutatis mutandis to such SWFs too? These are issues which
merits a thesis in and itself. Nonetheless, these are some brewing debates in the
current world of diversification of central bank holdings and large scale IIAs and
State specific multilateral treaty such as- ‘Treaty of Amity, Economic Relations,
and Consular Rights’ between USA and Iran, which are likely to generate
pressures on restricting immunity and sovereignty of State, especially if the assets
which are used for other than ‘foreign currency reserve’ purposes.177
PART-6: ALTERNATIVE ENFORCEMENT MECHANISMS- CAVEAT
EMPTOR
The issues pertaining to sovereign immunity in international arbitration are not
new.178 Nevertheless, several aspects of this age-old immunity blockade remain
shrouded in mystery till date. Sovereign immunity is one of the oldest customary
international law rules179 and it is unlikely that States will sacrifice it for a greater
good of ITA and ISDS mechanisms. After all, lets accept it, States do not
participate in ITA and ISDS for making the system more dynamic, robust, less
177 Wuerth (n 126). 178 Ylli Dautaj, ‘Sovereign Immunity From Execution – Caveat Emptor (Http://Arbitrationblog.Kluwerarbitration.Com.Ezproxy.Its.Uu.Se/2018/0 Immunity-Execution-Caveat-Emptor/)’ 10. 179 Uchkunova and Temnikov (n 20).
56
cumbersome and for bringing in overall re-generative ideas to an international
system.
On the contrary, States are there for greater good of themselves, its participants in
SOEs and other State shielded assets such as- central bank and all other monetary
units. States be a party to an ITA and ISDS for refuting claims, fighting off with
double edged sword provided by a machinery in public international law and
more often than not, losing the battle but wining the war. This war which the
States proudly term as ‘sovereign immunity from execution’, which makes the
author think that, is the last chain of link to ITA and ISDS system the weakest?180
Sovereign immunity from execution is also said to be the ‘last fortress’, ‘last
bastion’ of State immunity. The reason for this is the States in spite of being
rendered wanted for due compensations for violation of both, international private
obligations towards investors (through ‘BITs’ or ‘IIA’) and violation of general
principles of international law, in particular public international law facade, the
pecuniary award remains unpaid.
The aspiration of investment arbitration is, always to promote and facilitate
neutrality, flexibility, efficiency and finality.181 Nowadays, due to such sovereign
barriers, investment arbitration has been pointless, cumbersome, costly,
ineffective and most importantly such investors are left remediless.
Nevertheless, non-compliance with the awards of the award-creditors by States
remains an ‘exception’ and voluntary compliance majorly remains the ‘rule.’182 It
is in this note that even the minority threatened ratio of awards in ITA, seeks
additional and alternative remedies to un-hindered enforcement in future
proceedings when State sovereignty wins. Such rogue States can and have from
time to time, masked assets purely commercial in nature and given it a ‘sovereign
label.’ Therefore, other means of enforcement for investors are alternatives they
should consider when met with sovereign immunity barriers.
180 Qureshi (n 19) 422. 181 Dautaj (n 178). 182 Uchkunova and Temnikov (n 20).
57
6.1. Market Solution183
6.1.1. Political and Investment Risks for Disobedient States
There does not seem to be any accepted definition of political risk.184 But at the
conceptual level, however, it is submitted that political risk is the likelihood of the
States taking extraordinary measures negatively affecting foreign investments.185
Political risk is broadly defined by ‘Multilateral Investment Guarantee Agency’
(‘MIGA’) as ‘the probability of disruption of the operations of multinational
enterprises by political forces or events due to change in international
environment.186
Political risks in ISDS can be in the nature of cutting ties or business relationship
by the home State of the investor with the host State in ITA, by mounting
diplomatic pressures through international diplomatic channels, State legislations
for diplomats under customary international law, by levying various trade
sanctions and policy embargo’s to the recalcitrant State, by cutting the influx of
foreign aid and capital expenditures, by globally shaming such defaulters in the
form of States in the United Nations and other financial organisations such as-
IMF, World Bank, WTO etc., These measures may be out of control for the
investors directly but nonetheless such measures can be taken on behalf of
investors home State.
It is fascinating for the author to think that, as ICSID Convention was formed for
the very purpose of providing a neutral forum for dispute resolution between two
foreign parties, one a sovereign State and one a private investor of a home State.
This private nature of ICSID was formed for de-politization of disputes and trade
relations between States and its nationals, if and when it arises. Thus, when the
insurmountable barrier of sovereign immunity which shields such States from
attachment, enforcement and execution proceedings in the national courts, this is
183 Dautaj (n 178). 184 Hobér, Selected Writings on Investment Treaty Arbitration (n 57) ch Political Risk Insurance and Investment Treaty Protection. 185 Hobér, Selected Writings on Investment Treaty Arbitration (n 57). 186 Hobér, Selected Writings on Investment Treaty Arbitration (n 57).
58
one point in international law where investors may take ‘U-turn’ and fall back on
the path of engaging in diplomatic and political stand offs, the ultimate
beneficiary may be investors in the long run. This alternative however, may take
many years to politicize and issues escalate, but investors can be rest assured that
in all future proceedings, such options may always be available in international
relations.
Thus, as investment arbitration can only be effective and functional as long as it
provides for effective remedies to private parties. Such effective remedies can
only be available when States voluntarily comply with their international
obligations, be it during the ISDS process or even after, through mediation,
negotiation and other means of peaceful settlement between government of two
States. Political risks have that tendencies.
6.1.2. Third-Party Funding During Enforcement Proceedings
Third party funding can provide an investor with an expert assistance in the
pursuit of asset realization.187 Third party funders can fund the enforcement phase
of arbitration in exchange for a contingency or percentage cut in the investors
award, if and when the award is realized. This can relieve the award-creditors
from the burden of cost, energy and time. As itself arbitration proceedings are no
less costly, if the investors are made to fight the long and hard battle again, this
time in a completely different and cumbersome court proceeding environment, it
is very easy for such investors to lose the battle without fighting for a war. Third
party funders by all means intends to fill the legal vacuum during enforcement
proceedings. It is also to borne in mind that, sincere efforts to attach and execute
State owned assets and other connected properties requires some amount of
professional expertise and strategic development, which these third-party funders
can bear in mind before acting as a stopgap in an international arbitration.
With large awards having heavy financial implications on income of the investors,
asset tracking or asset hunting (‘commercial’) are required prior to the
187 Dautaj (n 178).
59
enforcement proceedings. These third-party funders can also play the role of ‘peer
pressure’ in international dispute before a public forum where the court ought to
consider the rights and interests of such parties, connected hereto, with the
proceedings. This label’s the investors as being genuine award-creditors.
In the field of investment arbitration, the Comprehensive Economic and Trade
Agreement 188 (CETA) between Canada and the European Union dated 14
September 2016 contains explicit provisions on third-party funding. 189 The
Transatlantic Trade and Investment Partnership190 (TTIP), also includes rules on
third-party funding. 191 Finally, the International Centre for Settlement of
Investment Disputes (ICSID) is currently working on a way to address third-party
funding in arbitrations conducted under the ICSID Rules of Procedure for
Arbitration Proceedings (Arbitration Rules), 2006.192 Also, UNCITRAL Working
188 ‘COMPREHENSIVE ECONOMIC AND TRADE AGREEMENT (CETA) - between Canada, of the One Part, and the European Union and Its Member States, of the Other Part’ 1057, n See Article 8.1 'Definitions' of Third Party Funding i.e. third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute;cand Article 8.26 ‘Third Party Funding’ i.e. 1.Where there is third party funding, the disputing party benefiting from it shall disclose to the other disputing party and to the Tribunal the name and address of the third party funder. 2.The disclosure shall be made at the time of the submission of a claim, or, if the financing agreement is concluded or the donation or grant is made after the submission of a claim, without delay as soon as the agreement is concluded or the donation or grant is made.
189 ‘Third-Party Funding in International Arbitration: To Regulate or Not to Regulate?’ (KluwerArbitrationBlog,12December2017)<http://arbitrationblog.kluwerarbitration.com/2017/12/12/third-party-funding-international-arbitration-regulate-not-regulate/>accessed 9 May 2020. 190 ‘TTIP-Third Party Funding.Pdf’ n Available at https://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf. See Article 1 'Scope and Definitions' i.e. “Third Party funding” means any funding provided by a natural or legal person who is not a party to the dispute but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings in return for a remuneration dependent on the outcome of the dispute or in the form of a donation or grant. Also see Article 8 'Third Party Funding' i.e. 1. Where there is a third party funding, the disputing party benefiting from it shall notify to the other disputing party and to the Tribunal, or where the division of the Tribunal is not established, to the President of the Tribunal, the name and address of the third party funder. 2. Such notification shall be made at the time of submission of a claim, or, where the financing agreement is concluded or the donation or grant is made after the submission of a claim, without delay as soon as the agreement is concluded or the donation or grant is made. 191 ‘Third-Party Funding In International Arbitration: To Regulate Or Not To Regulate?’ (Kluwer Arbitration Blog, 12 December 2017) <http://arbitrationblog.kluwerarbitration.com/2017/12/12/third-party-funding-international-arbitration-regulate-not-regulate/> accessed 9 May 2020. 192 ‘Third-Party Funding In International Arbitration: To Regulate Or Not To Regulate?’ (n 191).
60
Group-III (Investor-State Dispute Settlement Reform), in its 38th Session in
Vienna (October 2019) discussed the ‘possible reform of ISDS’ in relation to
‘third-party funding and possible solutions.’193
As the intent of international organisations in introducing and regulating third-
party funding are very clear, such solutions can fill in for the vacuum created by
barriers of sovereign immunity. Thus, the third-party funders have the capacity to
facilitate liquidity in monetary supply wherein, they specialise in reining in the
outstanding credit, with interest, and over time. 194 This alternative is less
burdensome and cost effective for all the investors fighting the battle in the
national courts.
6.1.3. The World Bank Route Open for Frustrated Investors
The institutional linkage between the International Bank for Reconstruction and
Development (‘IBRD’) alias the World Bank with the ICSID Convention may be
used to negatively change the investment climate on the host States decision not
to comply with arbitration award. This institutional and hybrid linkage between
two primary governing bodies in their respective fields has the potential to put
additional pressure for investment receiving States to comply with, at least ICSID
awards.195 Also, in the part years an ICSID ad-hoc committee has also shared this
concept, stating that ‘a State’s refusal to enforce an ICSID award may have a
negative effect on this State’s position in the international community with respect
to the continuation of international financing or the inflow of other
investments.196
193 ‘UNCITRAL-Third Party Funding.2019.Pdf’ n Available at https://uncitral.un.org/sites/uncitral.un.org/files/wp_172_21_aug.pdf. 194 Dautaj (n 178). 195 August (n 47) n See Cf. S. Franck, who argues that with arbitration ‘before ICSID, an entity affiliated with the World Bank, there may be institutional gravitas that creates an incentive for sovereigns to comply with ICSID awards, lest they have difficulty securing future World Bank financing’: see S. Franck, Foreign Direct Investment, Investment Treaty Arbitration, and the Rule of Law, 19 PAC. MCGEORGE GLOBAL BUS. & DEV. L.J. 337, 372. 196 Reinisch August, Part VI The Post-Award Phase, 29 Enforcement of Investment Treaty Awards, vol 1 (Oxford University Press 2018) n See Mitchell v. Congo, supra note 154, Decision on the Stay of Enforcement of the Award (Nov. 30 2004), ¶ 41. <http://oxia.ouplaw.com/view/10.1093/law/9780198758082.001.0001/law-9780198758082-chapter-29> accessed 16 April 2020.
61
In fact, the World Bank ‘Operational Manual’ foresees under ‘Disputes over
Defaults on External Debt, Expropriation, and Breach of Contract’ that under such
circumstances, no new loans may be made to the countries resisting and
defaulting on outstanding payments.197
As one author Mr. Ylli Dautaj, proposed in his article such alternative
enforcement mechanisms (‘Caveat Emptor’). Three of the proposals strikes accord
with the author. Those are;
“(2) it (‘World Bank’) can increase the role of the Multilateral Investment
Guarantee Agency (MIGA) to be a more integral part of ICSID arbitration and
then use the overall functions of the World Bank to force compliance, or structure
long-term plans for repaying the outstanding credit;198
(3) it can essentially establish an investment bank and ‘purchase’ unpaid awards
by paying out the outstanding debts and use its platform to rein in the credit with
interest;199
(4) States can turn to the World Bank for a loan in order to settle with the
awardee-creditor or to pay the award.200”
At daggers drawn, it is for all to see whether such lucrative proposals by such
frustrated investors will be accessible and exercised or not. Time will tell.
6.2. Architectural Solution201
6.2.1. Deference of Court Review of Arbitral Awards
The court’s architectural approach will have a significant impact on whether
investors are able to realize their assets during enforcement proceedings or not?202
197 August (n 47) n II WORLD BANK OPERATIONAL MANUAL, BP 7.40, provides: ‘When a dispute over default, expropriation, or governmental breach of contract comes to the attention of a Bank staff member, the staff member informs the country department (CD) director and Legal Department (LEG). In consultation with LEG, CD director recommends a Bank position to the Regional vice president (RVP). If, on this basis, the RVP decides not to make any new loans to the country, RVP informs the relevant managing director and Senior Vice President and General Counsel’. 198 Dautaj (n 178). 199 Dautaj (n 178). 200 Dautaj (n 178). 201 Dautaj (n 178).
62
This will largely depend upon the attitude that the court at the enforcement forum
adopts or applies. Whether courts would deem fit in intervening in the
enforcement process by laying stricter assessment of non-commerciality of States
assets? Or Whether it will apply continued interference approach wherein they
scrutinize the awards rendered by an arbitral tribunal? It will also depend upon the
general arbitration friendliness of the court or the State where such enforcement
proceedings takes place.
The court in order to see a better and bigger good under international law, making
ITA and ISDS mechanism, which are major part of State legal apparatus, needs to
adopt ‘deference approach’ when met with enforcement matters. They should not
go deep down to the merits of the award rather only exercise limited authority.
This authority will depend upon the type of arbitral award rendered, i.e. is it
UNCITRAL or an ICSID award? If the award rendered is pursuant to
UNCITRAL, then the court would apply the Article V tests of NY Convention,
primarily whether the award runs foul to the public policy of the enforcing State
or not? And if it is an ICSID award, the court has the power under Article 55 of
the ICSID Convention to determine the finality and enforcement readiness of an
award in accordance to the law of State immunity in place in the enforcement
forum. Either ways, for making the last link the strongest in ITA and ISDS, courts
will have a major, pivotal role to play in achieving the same.
In addition, other small steps too can be taken by courts in an ‘architectural
manner.’203 The courts can impose lower threshold for proving burden of proof
for investors, commerciality and restrictive immunity of States assets etc.,
As the author has said before in his thesis too, that the regime of international
arbitration cannot run lopsided i.e. to say national courts and international
arbitration are two sides of the same coin pari passu international adjudication of
justice in all forms. One cannot do without the other.
202 Dautaj (n 178). 203 Dautaj (n 178).
63
To conclude, this part would have been necessary if the law wouldn’t have failed
investors. The shield of sovereign immunity remains the most significant barrier
to ITA awards achieving final, binding and enforceable effect and possibly
becoming res judicata. This flaw in ISDS has the potential to undermine the
travaux préparatoires of ICSID drafters, the legislative intent of having automatic
enforceability effect to ICSID awards. This in process can derail the upcoming
arbitration clauses in BITs, MITs and contracts.204
Architectural solutions to alternative remedies in enforcement of arbitral awards
behaves in much more realistic and holistic manner than market approach. For the
reasons that, it is always better for expecting a sea change of wave in the attitude
and judicial functioning of the national courts, sounds for convincing. Moreover,
Arbitration is the by-product of ‘litigation’ and thus, divorce between them would
be catastrophic for international dispute resolution community.
In addition, as the author was researching on other prospective alternative
measures which can be granted to investors for award realization, the author came
across the recently published (‘May 2020’) ‘ICSID205 and UNCITRAL206 (part of
UNCITRAL Working Group-III) Anticipated Draft Code of Conduct for
Adjudicators in Investor-State Dispute Settlement.’ The draft code addresses
many key ethical and contested issues identified by UNCITRAL WG-III members
and more generally by the ISDS’s critics and provides policy makers with
numerous choices on how to best regulate adjudicators behaviour through a code
of conduct.207 Amongst just to highlight few suggestions from the representatives
of some member states 208 , they have suggested putting monetary sanctions,
disciplinary measures and reputational sanctions on States not adhering to the
204 Dautaj (n 178). 205 Chiara Giorgetti, ‘Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement’ 24. 206 ‘Code of Conduct | United Nations Commission On International Trade Law’ <https://uncitral.un.org/en/codeofconduct> accessed 9 May 2020. 207 Chiara Giorgetti, ‘ICSID and UNCITRAL Publish the Anticipated Draft of the Code of Conduct for Adjudicators in Investor-State Dispute Settlement (Http://Arbitrationblog.Kluwerarbitration.Com.Ezproxy.Its.Uu.Se/2020/0 and-Uncitral-Publish-the-Anticipated-Draft-of-the-Code-of-Conduct- for-Adjudicators-in-Investor-State-Dispute-Settlement/)’ 9. 208 Available at https://undocs.org/en/A/CN.9/1004
64
principles ISDS.209 Some are also in favour of creation of a ‘permanent court’,
other new institutions, or the establishment of an advisory centre which can act as
a meet-up point for investors gaining expert feedbacks on future course of actions
and technical know-how’s.210
CONCLUDING REMARKS
Generally speaking, the jurisdiction of a State within its own territory is complete
and absolute. 211 Perhaps, this is considered as a general rule of territorial
sovereignty. However, there is also a rule under international law that de facto de-
limits such absolute State powers. That is the doctrine of State immunity. State
Immunity is a concept that denotes; one sovereign State cannot be subjected to the
courts of another sovereign State without its consent. Thus, State in this sense
enjoys absolute immunity. In any form of international arbitration, such States
voluntarily submit themselves, with consent, to the jurisdiction of a private
international arbitral forum, to adjudicate all or any disputes arising between the
contracting parties.
Therefore, the all-encompassing mandatory requirement of ‘consent’ is present,
and States later on cannot dispute jurisdiction, their standing before such
international arbitral forum. This now has long been, accepted as a general rule of
locus standi in international arbitration. However, where on one side jurisdictional
immunity is a settled matter in ITA, execution in the context of award
enforcement remains troublesome for award-creditors and largely un-settled
doctrine due to sovereign immunity issues. One of the major controversies in
execution context is attaching and enforcing awards against central bank assets.
Long have now States contested that central bank and its assets are de facto
sovereign and therefore, enjoys absolute immunity from execution. The author in
this thesis has tried to delve into the issues of this absolute immunity enjoyed by
central bank assets and how in the coming times, this absolute can/should be
turned into restrictive immunity vis-à-vis commerciality exception.
209 Giorgetti (n 207). 210 Giorgetti (n 207). 211 Martin Dixon, Textbook on International Law (6th ed, Oxford University Press 2007).
65
This unmistakable trend towards providing greater immunity to foreign central
bank assets from measures of execution212 needs to pass the doctrine of restrictive
immunity. As UNSCI prevents, pre or post execution of such assets, the author is
of the opinion that no commercial activity, should be eligible to enjoy the perks of
central bank immunities and hence, it should be the duty of all forthcoming
arbitral tribunals, courts, to consider piercing the corporate veil as well as the
vehicle.
In ITA as well as ICA, the main advantage is considered to be that the award is
enforceable.213 Alternatives to ITA does not have this central element. Even more
worrisome would be a shift back to ‘diplomatic protection’ for the resolution of
investment disputes. Such would re-politicize ISDS system and would be contrary
to the legislative thinker’s jurisprudence. Hence, we should carefully scrutinize
any threat to the key features and fundamental elements of ITA. This thesis deals
with the issues of enforcement, being amongst the most important adjudicatory
role of ITA.
Amongst many dimensions of arbitration, some of them which stands out are;
party autonomy, expertise, neutrality, flexibility, finality and enforceability.214
Practically speaking, the reasons behind this grand success of arbitration is due to
the fact of loss of public trust215 in their own judicial systems. This loss of public
trust is owed to; lack of independence of the judiciary, lack of due process of law,
partial decision making when State and its actors are involved and most
importantly, intricacies with respect to the recognition or enforcement of a foreign
judgment rendered pursuant to a municipal law. As Professor Hober stated in his
book; ‘there is simply no other realistic alternative.’216
212 Wuerth (n 126). 213 Qureshi (n 19). 214 Qureshi (n 19) n See Stephen B. Goldberg, Frank E. A. Sander and Nancy H. Rogers, Dispute Resolution, Negotiation, Mediation, and other Processes (1999), at 234. 215 Qureshi (n 19) n If States refuse to comply with their undertakings, private parties will not trust the State as a reliable actor in the market. 216 Hobér, Selected Writings on Investment Treaty Arbitration (n 57) ch Does Investment Arbitration Have a Future?
66
Arbitration provided an alternative to dysfunctional judicial practice. However,
arbitration should not be looked upon as a complete replacement of courts. Courts
compliment any transnational judicial venue, in fact, they mostly play the last
fiddle role as award enforcement forums. Nonetheless, this final, binding and
directly enforceable feature of arbitration is what drives mass exodus of disputes
from the realm of lengthy and largely politicised court proceedings to a time
bound, comparatively less expensive and a neutral dispute resolution in
arbitration.
Any obstacle to this final, binding and direct enforcement is a threat serious
enough to be addressed with intense scrutiny. 217 To quote Professor Loukas
Mistelis;
‘Ultimately, it is the enforceability and indeed the enforcement of the award that
gives credence to the entire arbitration process and justifies the cost and time that
the parties to a dispute have invested in the resolution process.’218
The completion to ITA disputes will be only be possible if both the means and the
ends to dispute works. One cannot weight down the other. One cannot supersede
the other.
It is in this light, the sovereign immunity issues in international arbitration arises,
particularly under Article 55 of the ICSID Convention. Sovereign immunity from
execution of arbitral awards by way of attachment and execution of State assets,
needs some serious considerations. Such considerations can be in the form of-
ratifying multilateral framework e.g. UNSCI 2004, by adopting uniform State219
sovereign immunity laws (the trend nowadays is more towards restrictive theory
to immunity/commerciality exceptions), limiting the role of SWFs and SOEs in
217 Qureshi (n 19). 218 Qureshi (n 19) n See Mistelis (2013), supra note 32, at 2. 219 Hobér, Selected Writings on Investment Treaty Arbitration (n 57) n Under Swedish law, as there is no general legislation in Sweden on sovereign immunity, Sweden has, however, ratified the UN Convention. The Swedish Parliament has decided that if and when the UN Convention enters into force, the text of the Convention will be incorporated into Swedish law, as a Swedish statute; Kaj Hobér, International Commercial Arbitration in Sweden (Oxford University Press 2011).
67
capital restructuring for evading foreign arbitral awards, vigilantism role of
international organisations such as- The World Bank, United Nations, acting as
ombudsmen, whistle-blower and watchdog over such activities of recalcitrant
States.
In ITA, States are always in a position of invoking State immunities as a shield
from award enforcements.220 This unfortunately, after years of debates, exposures
and experiences in international regime, still remains an issue that is meritorious
for serious debate. 221 If not, this has the potential of directly threatening the
legitimacy and creditability of the current regime of ISDS and ITA.
Therefore, sovereign immunity from execution of arbitral awards is an
unreasonable and unjustified hurdle acting as a barrier to transnational award and
asset realization. When a State successfully circumvents its international legal
obligations owed towards private individuals, it has turned the de facto nature
automatic enforcement of awards into a mere de jure legal opinion without any
binding force.222 Thus, the author would like to end by stating that;
A foreign sovereign should not be immune from anything under international
arbitration.223 The same way as international arbitrators adjudging international
disputes rely on arbitration agreement i.e. pacta sunt servanda, a sovereign
entering into private obligations with home State investors should be deemed to
have waived ‘all or any’ rights under the BITs ( and other agreements) to exercise
acts of sovereign authority which would deliberately impede or erode the essence
of arbitration. After all, a sovereign should claim sovereignty against another
sovereign, not with private commercial profitable seeking investors.’ The treaty
obligations should be given its full legal effect in good faith.
220 Qureshi (n 19). 221 Qureshi (n 19). 222 Qureshi (n 19). 223 Hobér, Selected Writings on Investment Treaty Arbitration (n 57).
68
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