Enforcement focus: trends in the enforcement of ICSID Awards

Since its entry into force in October 1966, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) has provided a framework for contracting States to the ICSID Convention, and investors of those States, to arbitrate investment disputes arising between them.

The ICSID Convention also provides investors with an avenue through which they can have an award obtained in such an arbitration (an ICSID Award) recognised and enforced against contracting States; it requires States to enact domestic legislation recognising an ICSID Award as if it were a domestic court judgment. By providing this framework, the ICSID Convention has afforded foreign investors additional certainty as to their ability to seek recourse against host States, whenever such States are reluctant to voluntarily comply with an ICSID Award rendered against them, and has thereby helped to encourage international investment across its 157 contracting States.

However, perhaps unsurprisingly, States who have robustly contested an ICSID arbitration are sometimes unwilling readily to accede to the recognition and enforcement of the investor’s claims following the issuance of an ICSID Award, and may seek to resist or delay enforcement. This Insight explores recent trends in States’ challenges to enforcement of ICSID Awards, and some of the difficulties States may face in doing so.

The starting point: staying enforcement pending annulment of the ICSID Award

Article 53(1) of the ICSID Convention provides that an ICSID Award shall be binding and not subject to any appeal except as provided for in the Convention. It further states that each party shall abide by and comply with the terms of the ICSID Award, except to the extent that enforcement shall have been stayed pursuant to the Convention. One of the circumstances in which enforcement of an ICSID Award may be stayed, is when such award is subject to annulment proceedings.¹

Annulment proceedings do not however automatically lead to a suspension of enforcement. It is indeed only if the ICSID annulment committee finds “that the circumstances so require”,² that a stay of enforcement – pending the decision on annulment – will be ordered.

The grounds for annulment under Article 52(1) of the ICSID Convention are moreover limited and only a small proportion of applications for annulment are successful. A 2021 study by the British Institute of International and Comparative Law (BIICL) found that, of 121 completed ICSID annulment proceedings, only 19 ICSID Awards were annulled (in part or in full) – i.e. a success rate of around 16%. Given the slim chances of annulling an ICSID Award, many States will therefore be forced to look beyond the ICSID annulment procedure if they wish to delay or resist enforcement of an ICSID award.

Recognition of an ICSID Award

Assuming that annulment has not been sought or is not granted, the next stage at which a state may seek to resist enforcement is upon the award being registered or recognised in domestic courts. Recognition is the necessary first step in the enforcement of an ICSID Award: an award must first be recognised by the domestic courts of a state if it is to be executed against the state’s assets in that jurisdiction.

Article 54(1) of the ICSID Convention may be relied upon by investors as shielding ICSID Awards from review by national courts at the recognition stage, stating (in relevant part) that:

“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...”

In England, the ICSID Convention – and specifically Article 54(1) - has been implemented into domestic law through the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act). Other commonwealth states, such as Australia, Canada, New Zealand, Nigeria and Singapore, have enacted similar legislation in their respective jurisdictions. In other jurisdictions, such as France for example,³ the ICSID Convention forms part of domestic legislation merely as a result of having ratified the Convention. ‎

Sections 1(2) and 2(1) of the 1966 English Act enact into English domestic law the right to have an ICSID Award registered in the High Court as if it were a final judgment of that court. Accordingly, the default position in England – as with other contracting States to the ICSID Convention - is that ICSID Awards will be recognised as enforceable by the domestic courts without further review.

Challenging recognition of an ICSID Award

Despite the position described above, States have been known to challenge ICSID Convention Awards at the recognition stage. Some States may seek to raise arguments based on state immunity – for example, by alleging that recognition of the ICSID Convention Award contravenes the State’s right to immunity from jurisdiction (e.g. under s.1(1) of the State Immunity Act 1978 (SIA 1978) in England).

Over the past few years, one of the most common bases on which EU member states have sought to challenge the recognition of an ICSID Convention Award is that the underlying tribunal did not have jurisdiction to hear the dispute because the arbitration agreement was invalid. These arguments are usually advanced on the basis of the Court of Justice of the European Union’s (CJEU) judgment in the Achmea case (Slovak Republic v Achmea BV, Case C-284/16), which held that intra-EU bilateral investment treaty claims are contrary to EU law (see our article here). Investors and states will also be mindful of the CJEU’s judgment extending this reasoning to intra-EU arbitrations under the Energy Charter Treaty (the ECT) in Republic of Moldova v Komstroy LLC (Case C-741/19). Under most national immunity laws (including the SIA 1978), the invalidity of the arbitration agreement allows the state to assert its immunity from jurisdiction, which is used by the state as a basis to resist recognition of the award.

Until recently, international investment tribunals had refused to decline jurisdiction in intra-EU investment treaty cases based on the reasoning in the Achmea and Komstroy cases – but on 16 June 2022, a tribunal constituted under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), in Green Power Partners K/S and SCE Solar Don Benito APS v The Kingdom of Spain (SCC Case No. 2016/135), determined that it did not have jurisdiction ratione voluntatis to hear the Danish investors’ claims against Spain under the ECT, inter alia on the basis of the CJEU’s decision in Komstroy.

Although one could consider that arguments based on Achmea / Komstroy are not appropriate at the recognition phase, since they relate to the jurisdiction of the underlying ICSID tribunal (and should therefore be raised in annulment proceedings), it is likely that the Green Power decision (although an SCC rather than an ICSID case) will only embolden States to continue to challenge recognition of intra-EU ICSID awards on these grounds at the recognition stage. Investors are likely to argue in response that by agreeing to arbitrate disputes under the ICSID Convention, States have agreed to waive their immunity from adjudicative jurisdiction in relation to an ICSID Award, and that only their immunity from execution is preserved (as to which, see the discussion below).

Putting objections relying on sovereign immunity in light of Achmea / Komstroy to one side, there are other, limited exceptions to the general rule regarding the recognition and enforcement of ICSID Awards on which ICSID Award debtors may seek to rely:

• For example, the English Supreme Court in Micula and others v Romania [2020] UKSC 5 recognised (at [78]) that there is scope for additional defences against the enforcement of an ICSID award in “certain exceptional or extraordinary circumstances which are not defined, if national law recognises them in respect of final judgments of national courts”. Although the Supreme Court’s language makes clear that it expects this defence to apply only in vary rare circumstances, it nevertheless opens the door for challenges to recognition / enforcement of an ICSID Award on the bases established for resisting the enforcement of foreign judgments under English law – e.g. where there is an allegation that the Award is obtained by fraud such as bribery or coercion of an arbitrator or evidence relied upon by the tribunal being created fraudulently.
• These strictly circumscribed grounds are reflected in similar form in other jurisdictions. In France for example, recognition of an ICSID Award may only be refused if the existence of such award has not been established, or if the award is “manifestly contrary to international public order” (pursuant to Article 1514 of the French Code of Civil Procedure).

These examples demonstrate the existing consensus amongst most national courts that their ability to re-examine an ICSID Award is very limited.

It remains to be seen, however, whether that consensus can withstand the rising tide of objections based on Achmea / Komstroy. In France, for example, the Paris Court of Appeal has recently applied the CJEU Achmea and PL Holdings (Republic of Poland v. PL Holdings Sàrl, Case C-109/20) decisions, to annul two intra-EU awards rendered pursuant to intra-EU Bilateral Investment Treaties, respectively under the auspices of the Permanent Court of Arbitration and of ICSID (see the Paris Court of Appeal’s decisions dated 19 April 2022, N° RG 20/14581 and 20/13085). In light of these decisions, it may be that we start to see a divergence in approach towards the recognition and enforcement of ICSID Awards between national courts inside and outside of the EU.

Execution of an ICSID Award

As noted above, and in contrast to the position when seeking recognition of an ICSID Award, the ICSID Convention expressly preserves state immunity from execution. This is made clear at Articles 54(3) and 55 of the ICSID Convention:

“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.
[…]
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.”

Therefore, whilst the ICSID Convention specifically purports to insulate ICSID Awards from review under national laws at the recognition stage, it offers no such protection at the time of execution against a state’s assets.

This presents an avenue for ICSID Award debtors to resist execution, even where a domestic court has recognised the ICSID Award. It is open to an award debtor state to raise state immunity arguments based on the domestic law of the Contracting State in which recognition and enforcement is sought, as a shield against the execution of an ICSID Award against its assets. Depending on the laws of the Contracting State in which execution is sought, this protection may (or may not) apply only to commercial assets.

The short read

There is likely to be a continuing trend of States seeking to rely on Achmea / Komstroy based jurisdictional objections as a final line of defence against the recognition and enforcement of intra-EU ICSID Awards. Whereas the defences to recognition and enforcement envisaged in Micula as applying exceptionally are likely to be available only in very rare cases, defences based on Achmea / Komstroy may be easier to establish. This will represent a challenge to the existing (investor-friendly) view held in many jurisdictions that the provisions of the ICSID Convention constitute a waiver of any state immunity from adjudicative jurisdiction at the recognition stage – particularly where EU courts are considering intra-EU investment treaty awards.

There is a delicate balance to be struck by the national courts considering these types of objections. To allow such objections could be perceived as undermining the purpose and importance of the ICSID Convention. National courts in many jurisdictions may feel that to do so would put at risk their reputation as jurisdictions which are arbitration and investor-friendly.

However, there is growing pressure from states to acknowledge the outcomes of the Achmea and Komstroy cases; indeed, the EU’s draft proposals for the modernisation of the ECT, released in June 2022, made clear its position that intra-EU arbitrations are to be expressly prohibited in the modernised version. In light of this development, together with the Green Power decision, it is possible that we will start to see a divergence in approach to the recognition of intra-EU ICSID Awards, between courts in EU States (who will be more naturally disposed towards recognising the CJEU’s judgments) and non-EU States.

¹ Interpretation and revision proceedings may also respectively lead to a stay of enforcement, pursuant to Articles 50(2) and 51(4) of the ICSID Convention.
² Article 52(5) of the ICSID Convention.
³ See the Loi n° 67-551 du 8 juillet 1967 autorisant la ratification de la convention pour le règlement des ‎différends relatifs aux investissements entre Etats et ressortissants d'autres Etats, du 18 mars 1965.