Enforcing an investment arbitration award against a sovereign State is not easy. It is particularly hard when that State firmly refuses to pay after losing an arbitration.
Such a situation is obviously problematic for an investor. An investor must spend considerable resources, usually in the realm of millions of dollars, prior to receiving a favorable award. An investor’s goal, however, and its decision to initiate investor-State arbitration, is generally predicated on collecting payment from a State.
This article will briefly explain how the immunity enjoyed by sovereign States poses difficulties in enforcing investment arbitration awards against States.
Agreements for Enforcing Investment Arbitration Awards
After having received a favorable award from an investment arbitration tribunal, an investor hopes that the state would pay the amount rendered in the award by the deadline fixed by the tribunal. This is the best case scenario. Unfortunately, States are often reluctant to pay, particularly when the amount of compensation awarded is large.
Arbitration tribunals cannot remedy this situation. They do not have the ability to enforce awards themselves. Investors must therefore enforce their award through the national courts of other States. Specifically, in States who are parties to international agreements in which they have undertaken an obligation to enforce the awards of arbitral tribunals. There are two main agreements providing mechanisms for enforcing investment arbitration awards:
To successfully enforce an investment arbitration under these two conventions, three things must take place:
- A party to the convention must recognize the award;
- The national court of that State party must grant its consent as to the enforceability of the award; and
- The national court of the State party must allow execution of the award against assets of the other sovereign State.
Enforcement under the New York Convention and the ICSID Convention
ICSID awards are subject to automatic recognition of contracting parties. Once awards survive the self-contained annulment mechanism, by treaty they obtain the value of a final judgement of a Court of any contracting State of the ICSID Convention. An investor in possession of a certified copy of an ICSID award is therefore entitled to execute that award in any contracting State.
Awards enforced under the New York Convention do not share this privilege. Their enforceability can be refused by Courts on seven limited grounds (Article V), such as the public policy exception.
The Conventions, however, do not differ in regard to the third step of enforcing an investment arbitration award, which is the most problematic: its execution.
Executing Investment Arbitration Awards against Sovereign Assets
The execution stage of enforcing an investment arbitration award is the most problematic. The majority of claimants who experience difficulties when enforcing their award experience them at this stage.
Claimants must overcome the sovereign immunity laws of the jurisdiction in which they are attempting to enforce their award. While these domestic sovereign immunity laws do have some variations, they generally protect sovereign assets from being seized.
Courts in France and Switzerland have occasionally been somewhat more permissive in this regard.  An amendment of rules in France and a Supreme Court decision in Switzerland have, however, appeared to put a stop to this.
A Claimant must locate commercial assets belonging to the losing State sovereign against which execution can be sought. This is a difficult task, as certain assets can never be considered commercial. This includes all assets owned by a foreign central bank, or any assets allocated for military purposes. Furthermore, any asset used for a governmental purpose is immune. Locating a commercial asset is therefore very difficult.
Enforcing an Investment Arbitration Award: Forum Shopping Necessary?
There is, however, a degree of variation in the manner different jurisdictions assess assets as being immune from execution. The first approach is to refuse execution against any asset that is partially used for a governmental purpose. The second approach is to allow execution against any asset used partially for a commercial purpose. The last approach is to allow execution against assets used for commercial purposes while protecting the portion of those assets used for governmental purposes, if applicable.
The second approach is the most favorable to claimants. It was utilized by Swedish Courts in the Sedelmayer v. Russian Federation case to allow execution against an apartment complex owned by the Russian Federation. Russia did use the apartment to house diplomats. It, however, also rented it for commercial purposes. As a result, the Swedish Court found that the distinction between governmental and commercial purpose was not sufficiently specific. It then proceeded to allow execution against this property to satisfy the award.
It is unlikely that many other jurisdictions would follow this approach.
Conclusion: Where Should Claimants Initiate Enforcement?
Claimants will have a very hard time enforcing awards against sovereigns in States that consider sovereign immunity to be absolute.
The methodology for determining the most appropriate state to initiate enforcement is as follows. First, it is necessary to locate significant commercial assets of the losing State in ICSID or New York Convention Contracting States. Ideally, one would find either one substantial asset, or a number of assets located in the same jurisdiction, valued at near the amount awarded in the arbitration award. This prevents enforcement proceedings in multiple jurisdictions.
After this, it is necessary to examine the application of sovereign immunity by that jurisdiction’s competent Court as it pertains to the protection of a foreign State’s assets. It is essential to bring the enforcement to Courts which are investor friendly in regards to enforcing an investment arbitration award.
 Joseph M. Cardosi, Precluding the Treasure Hunt: How the World Bank Group Can Help Investors Circumnavigate Sovereign Immunity Obstacles to ICSID Award Execution, (2013) p119
 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
 Convention on the Settlement of Investment Disputes between States and Nationals of Other States(1966)
 Jacob A. Kuipers, Too Big to Nail: How Investor-State Arbitration Lacks an Appropriate Execution Mechanism for the Largest Awards, 2016, p. 423
 Ibid 425
 Ibid 426
 JIEYING DING, ENFORCEMENT IN INTERNATIONAL INVESTMENT AND TRADE LAW: HISTORY,ASSESSMENT, AND PROPOSED SOLUTIONS, 2016, p. 1148
 Andrea K. Bjorklund, Sovereign Immunity as a Barrier to the Enforcement of Investor-State Arbitral Awards: The Re-Politicization of International Investment Disputes, 2010, p228
 Ibid, 1149
 States such as Brazil, Ecuador, Venezuela, Poland, and Japan, see more regarding forum shopping on this issue: http://arbitrationblog.kluwerarbitration.com/2016/06/24/preventing-forum-shopping-in-the-execution-of-icsid-awards-is-it-time-to-revive-the-un-convention-on-state-immunity/