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The Comparative Analysis of Enforcement Mechanisms

Introduction

In today fast pacing business regime, often the foreign investments are diluted or impeded due to the indecorous conduct of another party. To resolve the issues, there exist mechanism of International Legal Instruments (Bilateral Investment Treaties- BITS) that provide legal protection to the claimant. Usually, these treaties enable the Foreign Investors to seek action against wrongful act before an independent international arbitral tribunal. So they do not have to invoke the jurisdiction of local courts which may be subject to political influence.Although the foreign investors have some arbitration choices, the preferable among them the International Centre for Settlement of Investment Disputes (ICSID) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Other than this the BIT’s include a wide range of rights for the investors such as rights to repatriate profits and various other contractual guarantees

Before their existence, investors had almost no legal protection, and the protection was possible if their home country would consider taking up the case on their behalf but, that was uncertain as politics always played an influential role as to whether a case will be pursued or not. Hence, the immense growth in the Bilateral Investment Treaties has been in correlation with the growth of the Investment Treaty Arbitration. Because apparently the explosion of BITS means that many developing States believe that the existence of BITS with capital exporting countries is a factor in encouraging foreign investment.

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Therefore, the primary objective of this essay is to analyze and compare the two most commonly used enforcement systems that are ICSID and the New York Convention. As both, the ICSID and New York conventions created a comprehensive framework of international rules to provide an enforcement mechanism to parties. But the fundamental question is whether claimant gets its dues share or not?Therefore, the primary objective of this essay is to analyze and compare the two most commonly used enforcement systems that are ICSID and the New York Convention. As both, the ICSID and New York conventions created a comprehensive framework of international rules to provide an enforcement mechanism to parties. But the fundamental question is whether claimant gets its dues share or not?

The essay under consideration examines and argues that the choice of the enforcement under the Convention on the Settlement of Investment Dispute (ICSID) over the enforcement of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) or vice versa does not affect the chances of success for a claimant. In fact, either of them is superior to the other, and both share inadequacies. For that reason, this essay will be taking into account possible solutions to enforcement barriers under the systems.

  • Caron David, ‘Reputation and reality in the ICSID annulment process: understanding the distinction between annulment and appeal’ (2014).

ICSID v New York Convention

The ICSID, which in an arbitral institution under the omens of the World Bank has created a comprehensive international framework for the enforcement of international investment awards. And found that it bear the striking resemblance to the Roman Catholic canon law stating that marriage is final, and divorce is not an option. From the ICSID Convention's Article 53 and 54, it has been found that ICSID awards are binding and definitive with only one possible loophole that is if the act was initially flawed. In this case, the act is considered to have never occurred and is removed from the legal order. Tribunal was not appropriately constituted; the Tribunal has deliberately gone beyond its powers; the occurrences and the existence of corruption on behalf of the members of the Tribunal; a significant and critical departure from the primary rule of the procedure and lastly the award has appropriately stated the reasons on which it is based.

On another hand, New York Convention seeks to provide common legislative standards for the recognition of arbitration agreements and court recognition and enforcement of foreign and non-domestic arbitral awards as similar to ICSID. Hence, with the same object the both conventions differ in procedural aspect.

Often, “non-ICSID” awards are looked down upon as the awards that are rendered under the UNICITRAL rules such as the enforcement under the New York Convention results in extreme disaster. Similar to the ICSID Convention's Article 53 and 54 that states that the awards are final, the awards that are issued in the non-ICSID cases are also absolute and final as stated in the Article 34(2) of the UNCITRAL Arbitration Rules. The main difference between the two systems allegedly lies in the Article 54 (1) of the ICSID Convention clearly stating that each of the contracting State needs to recognize an award that is pursuant to the Convention to be binding and also needs to enforce the obligations that have been imposed as if it were the final judgement of a Court within that particular State. However, it has been noted that the Article rules apply only to pecuniary obligations only and not for the purpose of non-pecuniary damages. Furthermore, the Article also fails to incorporate the

  • Kim Dohyun, ‘Annulment Committee's Role in Multiplying Inconsistency in ICSID Arbitration: The Need to Move Away from an Annulment-Based System' (2011) NYUL Rev., 86, 242.
  • Antonio Parra, ‘The history of ICSID’ (2012).
  • Sergey Ripinsky, ‘Venezuela's withdrawal from ICSID: what it does and does not achieve' (2012) Investment Treaty News, 13.
  • Ibid 1
  • Tony Cole and Anuj Kumar Vaksha, ‘Power-conferring treaties: the meaning of ‘investment’in the ICSID convention’ (2011) 24(02), 305-330.

Often, “non-ICSID” awards are looked down upon as the awards that are rendered under the UNICITRAL rules such as the enforcement under the New York Convention results in extreme disaster. Similar to the ICSID Convention's Article 53 and 54 that states that the awards are final, the awards that are issued in the non-ICSID cases are also absolute and final as stated in the Article 34(2) of the UNCITRAL Arbitration Rules. The main difference between the two systems allegedly lies in the Article 54 (1) of the ICSID Convention clearly stating that each of the contracting State needs to recognize an award that is pursuant to the Convention to be binding and also needs to enforce the obligations that have been imposed as if it were the final judgement of a Court within that particular State. However, it has been noted that the Article rules apply only to pecuniary obligations only and not for the purpose of non-pecuniary damages. Furthermore, the Article also fails to incorporate the awards made under the ICSID Additional Facilities rules instead they are included in the rules of the New York Convention. Another striking difference between both mechanisms is that under NYC the control agent may also become the enforcer of the award, but in ICSID control agent has no role in the enforcement of an award.Moreover, in ICSID, the power of the appeal lies with an arbitral institution. However, as provided under Article 52 of the Convention, the parties may apply to the ICSID Secretary-General for an annulment of the award for the cases provided in a convention, whereas in New York Convention, the power of appeal lies with the national courts of the country in which an award is confirmed.

The ground for annulments and the refusal to recognize and enforce an award has been identified to be extremely similar. From the review of the Article V(1) of the New York Convention and the Article 52 of the ICSID Convention include similar clauses on which awards may be annulled or maybe refuse to be recognized and enforced. These grounds as an example, include the failure to address certain procedural rules such as the violation of the process or the absence of the consent to arbitrate or notify an arbitral proceeding’s initiation; the inappropriate constitution of a tribunal or excess power on the part of the committee that is taking the decision. However, differences have also emerged as on one hand the New York Convention has been found to be broader as it facilitates or allows the refusal of the enforcement as it does not necessarily require the power of the tribunal or the committee to be apparent or the procedural flaws to be severe. Moreover, on the other hand even though the Article 52 of the ICSID is equivalently viewed to be broad it is done so on two grounds that are not mentioned in the New York Convention that has been identified to be the annulment followed by corruption of a committee member and the failure to identify and mention the reasons for rendering the awards.

If to consider the enforcement mechanism than on the basis of the Micula case it has been observed that even though the ICSID awards are directly enforceable, the award is not an effective determination of enforcement success. Moreover, in consideration of enforcement under the New York Convention, there is a high risk of Public Policy Barrier to the enforcement. Having an ICSID award that provides for the pecuniary damages does not

  • Jane Willems, ‘The Settlement Of Investor-State Disputes And China: New Developments On ICSID Jurisdiction' (2011) 8(1).
  • Reinmar Wolff, New York Convention. (1st Edition München 2012)
  • Steven Seidenberg, ‘International arbitration loses its grip’ ABAJ 96 (2010) 50.
  • Nolan-Haley, Jacqueline. ‘Mediation: The New Arbitration’ (2012).
  • Donald McRae, The WTO Appellate Body: A Model for an ICSID Appeals Facility’ (2010) 1(2), 371-387.

If to consider the enforcement mechanism than on the basis of the Micula case it has been observed that even though the ICSID awards are directly enforceable, the award is not an effective determination of enforcement success. Moreover, in consideration of enforcement under the New York Convention, there is a high risk of Public Policy Barrier to the enforcement. Having an ICSID award that provides for the pecuniary damages does not always reflect that the compensation is paid off as soon as the award is rendered. The ICSID and the New York Convention awards have the potential of encountering two types of enforcement hurdles that have been identified as the challenges to the final judgement allowed under the domestic laws and the invocation of the State immunity from execution. Regarding both of the award systems, the final judgement in many jurisdictions can be challenged by a number of circumstances, such as unequal knowledge, the impartiality of the judge and bargaining power. These circumstances have been included in the Codes of Civil Procedure in many of the countries such a Switzerland, Belgium and Venezuela.In consideration of the second hurdle for the ICSID and the New York awards, the customary international law provides immunity from execution for a non-commercial property; hence, investors need to identify the State assets to be capable of seizure.

Even though Article 54 of the ICSID Convention requires the Member States to treat the award to be equivalent to the final judgement of its court, it does not necessarily require the Member State to go beyond that and undertake forced execution. In addition, it has been found that State Immunity against execution has not been referred to in the New York Convention, yet many regional treaties facilitate an explicit and implicit exception such as the Convention of Riyadh on the Judicial Cooperation among States of the Arab League, the Inter-American Convention on the Extraterritorial Validity of International Judgement and Arbitral Awards. The UN Convention on the Jurisdictional Immunities of State in 2004 it was found to exempt those properties that have been specifically in use or intended to be used by the State for purposes other than government non-commercial. The most significant hurdle under the national laws in consideration of the State immunity before a domestic court depends on whether the State property is serving a commercial purpose or not

Even though Article 54 of the ICSID Convention requires the Member States to treat the award to be equivalent to the final judgement of its court, it does not necessarily require the Member State to go beyond that and undertake forced execution. In addition, it has been found that State Immunity against execution has not been referred to in the New York Convention, yet many regional treaties facilitate an explicit and implicit exception such as the Convention of Riyadh on the Judicial Cooperation among States of the Arab League, the Inter-American Convention on the Extraterritorial Validity of International Judgement and Arbitral Awards. The UN Convention on the Jurisdictional Immunities of State in 2004 it was found to exempt those properties that have been specifically in use or intended to be used by the State for purposes other than government non-commercial. The most significant hurdle under the national laws in consideration of the State immunity before a domestic court depends on whether the State property is serving a commercial purpose or not

The claimants of the ICSID often have to turn to the national courts to ensure the effective enforcement of the awards; however the courts cannot review such awards. National reviews have often been viewed as a hardship, even though it is possible that parties may reap various benefits from having different legal institutions review the decision of a case that may still be

  • ChristophSchreuer, ‘From ICSID Annulment to Appeal Half Way Down the Slippery Slope’ (2011) 10(2), 211-225.
  • Jean Ho, ‘The meaning of ‘investment’in ICSID arbitrations’ (2010) 633-648.
  • Markus Burgstaller, and Charles Rosenberg. ‘Challenging International Arbitral Awards: To ICSID or not to ICSID’ (2011): 91-108.
  • Herbert Kronke, ‘Recognition and enforcement of foreign arbitral awards: a global commentary on the New York Convention’ (2010).

The claimants of the ICSID often have to turn to the national courts to ensure the effective enforcement of the awards; however the courts cannot review such awards. National reviews have often been viewed as a hardship, even though it is possible that parties may reap various benefits from having different legal institutions review the decision of a case that may still be under dispute.The final or the ultimate goal of resolving a dispute is not really to identify a winner or a loser but instead to develop a pathway of solutions that is acceptable and fair for both for the parties concerned. In consideration of reviewing a case under the New York Convention, it has been observed that the reviewer, unlike an annulment committee, is not at all associated with the same institution as the first tribunal that initially issued the decision. Hence, it is perceived to be comparatively more neutral by the concerned parties. In such a situation an original award that is reaffirmed by the reviewing authority may help the parties accept the outcomes.

In consideration of the annulment on the ground of corruption, it could be interpreted as being covered by Article V (1)(d) of the New York convention as it is not possible that corruption of a member of the tribunal is an integrated part of the agreement between the concerned partiesHowever, it can also be argued that the Article does not deal with their integrity after the tribunal has been constituted and instead deals with the composition of the strictosensu. Moreover, another argument is that it can be observed in the Article V (2) (b) of New York Convention that is pursuant to domestic public property. In regard to the annulment due to lack of reasoning, the grounds for it have only been found in the ICSID and not in the New York Convention that was devised on the basis of investor-state arbitration. In a commercial arbitration if the concerned parties want an entirely reasoned decision on purely legal grounds they bring the case before a regular court. Hence, it has been found that the enforcement authority of the New York Convention cannot in principle review the case based on the legal reasoning that has been presented in the original award.

One of the problems with enforcement of the award under the New York convention is that it allows for non-enforcement that has been set aside or has been suspended by an authoritative figure of a country in which the awards were rendered. While drafting this provision the European Convention on the International Commercial Arbitration made the attempt of restricting the possibly wide scope of the grounds that are similar to the New York

  • Strong, ‘What Constitutes an'Agreement in Writing'in International Commercial Arbitration?Conflicts between the New York Convention and the Federal Arbitration Act’ (2012) 48, 47.
  • Albert Jan, ‘The New York Convention of 1958: An Overview’ (2013).
  • Christopher Dugan, ‘Investor-State Arbitration’ (1st Edition Oxford University Press 2011).
  • Stephan Schill, ‘Enhancing International Investment Law's Legitimacy: Conceptual and Methodological Foundations of a New Public Law Approach’ (2011) 57.
  • , Beth Simmons, ‘Bargaining over BITs, arbitrating awards: The regime for protection and promotion of international investment’ (2014) 12-46.

One of the problems with enforcement of the award under the New York convention is that it allows for non-enforcement that has been set aside or has been suspended by an authoritative figure of a country in which the awards were rendered. While drafting this provision the European Convention on the International Commercial Arbitration made the attempt of restricting the possibly wide scope of the grounds that are similar to the New York convention. However, in practical implication, the provision has not been observed to create much upheaval. As an example, the French courts disregard the grounds for setting aside the awards and using only the French laws as a benchmark. Furthermore, the US courts were observed to do the same in the case of the Chromalloy Aero services vs. The Arab Republic of Egypt. In England and Germany awards that have been set aside are not usually enforced except for when the setting aside was an essential violation of the justice such as it happened to be obtained through means contrary to the public policies.

This has been identified to give rise to another challenge about the enforcement under the New York Convention with regard to the Article V (2) that facilitates for refusal to enforce on the grounds of public policy. However, in practice, it has been observed that the States cannot invoke this often for the purpose of avoiding the enforcement of an arbitral award. These grounds have nothing in similar to the ICSID as according to the Articles 52 and 53 the awards are not subject to any appeal and that public policy cannot be the ground for an annulment. However, it is possible those domestic courts may read an exception of the public policy into the ICSID convention or that the States may attempt to postpone the enforcement of the award by arguing such irrelevant and inapplicable exceptions before the national courts. These arguments can be used in the commercial arbitration cases as well as the investor-state cases. The arguments can be stronger in the investor-state cases as awards tend to impact directly the State and the Public interests.

Moreover, it has been found that when a domestic court refuses to enforce on the grounds or based on the reasons that are mentioned in the New York Convention the situation is not as extreme or drastic as compared to when the ICSID annulment team annuls an award. This is because in regard to the ICSID the annulled award is still existent in the international legal order even after the refusal to enforce. Also, an ambiguous situation that may be similar to when a tribunal committee refuses to annul, yet raises doubts on the legal validity of the initial reasoning of the award may occur in a case overseen under the ICSID. However, this cannot occur under the New York Convention when a national court refuses to enforce an

  • Ibid 16
  • Stone Sweet, ‘Investor-State Arbitration: Proportionality's New Frontier’ (2010) 4(1), 48-76.
  • Caroline Henckels, ‘Indirect expropriation and the right to regulate: revisiting proportionality analysis and the standard of review in investor-state arbitration’ (2012) 15(1) 223-255.
  • Anthea Roberts, ‘Power and persuasion in investment treaty interpretation: the dual role of states’(2010) 104(2), 179-225.
  • Julian Lew, ‘Contemporary problems in international arbitration’ (Springer Science & Business Media, 2013)

Moreover, it has been found that when a domestic court refuses to enforce on the grounds or based on the reasons that are mentioned in the New York Convention the situation is not as extreme or drastic as compared to when the ICSID annulment team annuls an award. This is because in regard to the ICSID the annulled award is still existent in the international legal order even after the refusal to enforce. Also, an ambiguous situation that may be similar to when a tribunal committee refuses to annul, yet raises doubts on the legal validity of the initial reasoning of the award may occur in a case overseen under the ICSID. However, this cannot occur under the New York Convention when a national court refuses to enforce an award. A claimant whose efforts to enforce an effort go in vain does not necessarily need to re-litigate the entire case from the start to get the claims, accepted by a different investor-state tribunal as done under the ICSID. Instead, the claimant only needs to apply for enforcement in a national court in any of the member states of the New York Convention.

Although, both the New York Convention and ICSID Convention have the highest rate of membership of all the multilateral treaties in force that is almost 75% of the States have ratified and approved either one or both of the Conventions. Under the International law of treaties, the States are allowed to withdraw from their agreements, according to the procedures that are mentioned in the concerned treaty. For the withdrawal or the denunciation of a State from the New York Convention it has been determined in Article XIII (1); that any of the contracting States may denounce the Convention by issuing a notification to the Secretary-General of the UN. The denunciation further takes effect after approximately one year of the notification. However, a State may denounce the ICSID Convention with a notification to the depository of the convention that takes effect six months after the notice.

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However, it is notable that some economically stable States have not been part of the ICSID system and are instead members of the New York Convention system such as India, Russia, Canada, Brazil, Mexico and South Africa. There are also many States that are members of the ICSID and not the New York system.

Conclusion and Recommendations

In light of the arguments and analysis made above, one can conclude that adoption of ICSID or New York Convention is not an assurance of claimant success. However, both systems successfully provide a safeguard in enforcing the award to avoid blind enforcement in a shape of annulment procedure and the national review procedure. Further, it has been evinced that enforcement and compliance rates are equally high under both systems.

  • YaraslauKryvoi, ‘Counterclaims in investor-state arbitration’ (2012) 21(2) 216-252.
  • StanimirAlexandrov, ‘Enforcement of ICSID Awards: Articles 53 and 54 of the ICSID Convention’ (International Investment Law 2016) accessed> accessed on 10 March 2016

Here, another significant point to discuss is that although there is a history of successful enforcement of awards at the same time, there are some glitches in the mechanism as well nonetheless like an example of recalcitrant states like Russia and Argentina.

However, another point to note is that various States has recorded their concern about the ICSID system and have even chosen to denounce from the system in comparison to the New York system membership that remains constant, which means the New York convention to be more popular than ICSID.

In consideration of the problems or hurdles that have been identified in the analysis above, the following recommendations have been presented to improve both of the systems and decrease the occurrences of the hurdles;

  • It is important that lawyers not only emphasize on a selection of ICSID. But instead lawyer must be well versed in both systems and their procedure before making a decision.
  • Prior to the initiation of the case before the tribunal committee, it is important that assessment is conducted to ensure that the tribunal may not be using any corruption to favour one party.
  • The New York convention should add clauses on the corruption of the tribunal members and the failure to address the real reason for which the award was rendered in their system.
  • The ICSID should also undertake to develop criteria due to which the claimant would not need to re-litigate the case from the beginning in front of another national court after refusing to enforcement from one.
  • These Conventions can work credibly if the states doesn't only ratify them, but introduce national legislations in harmony with them to enforce these awards by local courts.
  • See Luke E. Peterson, INVESTMENT ARBITRATION REPORTER, How the Many States Are Not Paying Awards under Investment Treaties? at http://www.iareporter.com/articles/20100507_3. Other, less – known examples of recalcitrant states include Kazakhstan, Zimbabwe, Kyrgyzstan, and Thailand. Ibid
  • To deal with the significant legal obstacle, namely state immunity from execution.

s an autonomous international institution established under the Washington Convention on the Settlement of Investment Disputes to provide facilities for conciliation and arbitration of international investment disputes. Its website provides information on its services, how it functions, its rules and regulations, a list of signatory countries and the text of the Convention.

References

  • Albert Jan, ‘The New York Convention of 1958: An Overview’ (2013).
  • Anthea Roberts, ‘Power and persuasion in investment treaty interpretation: the dual role of states’(2010) 104(2), 179-225.
  • Antonio Parra, ‘The history of ICSID’ (2012).
  • Beth Simmons, ‘Bargaining over BITs, arbitrating awards: The regime for protection and promotion of international investment’ (2014) 12-46.
  • Caroline Henckels, ‘Indirect expropriation and the right to regulate: revisiting proportionality analysis and the standard of review in investor-state arbitration’ (2012) 15(1) 223-255.
  • Caron David, ‘Reputation and reality in the ICSID annulment process: understanding the distinction between annulment and appeal’ (2014).
  • ChristophSchreuer, ‘From ICSID Annulment to Appeal Half Way Down the Slippery Slope’ (2011) 10(2), 211-225.
  • Christopher Dugan, ‘Investor-State Arbitration’ (1st Edition Oxford University Press 2011).
  • Donald McRae, The WTO Appellate Body: A Model for an ICSID Appeals Facility’ (2010) 1(2), 371-387.
  • Herbert Kronke, ‘Recognition and enforcement of foreign arbitral awards: a global commentary on the New York Convention’ (2010).
  • Jean Ho, ‘The meaning of ‘investment’in ICSID arbitrations’ (2010) 633-648.
  • Julian Lew, ‘Contemporary problems in international arbitration’ (Springer Science & Business Media, 2013)
  • Kim Dohyun, ‘Annulment Committee's Role in Multiplying Inconsistency in Icsid Arbitration: The Need to Move Away from an Annulment-Based System’ (2011) NYUL Rev., 86, 242.
  • Markus Burgstaller, and Charles Rosenberg. ‘Challenging International Arbitral Awards: To ICSID or not to ICSID’ (2011): 91-108.
  • MavludaSattorova, ‘Defining Investment Under the ICSID Convention and BITs: Of Ordinary Meaning, Telos, and Beyond’ (2012): 267-290.
  • Nolan-Haley, Jacqueline. ‘Mediation: The New Arbitration’ (2012).
  • Reinmar Wolff, New York Convention. (1st Edition München 2012)
  • Sergey Ripinsky, ‘Venezuela's withdrawal from ICSID: what it does and does not achieve' (2012) Investment Treaty News, 13.
  • Sergio Puig, ‘Emergence & Dynamism in International Organizations: ICSID, Investor-State Arbitration & International Investment Law’ (2012) 44, 531.
  • StanimirAlexandrov, ‘Enforcement of ICSID Awards: Articles 53 and 54 of the ICSID Convention’ (International Investment Law 2016) accessed> accessed on 10 March 2016
  • Stephan Schill, ‘Enhancing International Investment Law's Legitimacy: Conceptual and Methodological Foundations of a New Public Law Approach’ (2011) 57.
  • Steven Seidenberg, ‘International arbitration loses its grip’ ABAJ 96 (2010) 50.
  • Strong, ‘What Constitutes an'Agreement in Writing'in International Commercial Arbitration?Conflicts between the New York Convention and the Federal Arbitration Act’ (2012) 48, 47.
  • Susan Franck, ‘ICSID Effect-Considering Potential Variations in Arbitration Awards’ (2010)Va. J. Int'l L., 51, 825.
  • Tony Cole and Anuj Kumar Vaksha, ‘Power-conferring treaties: the meaning of ‘investment’in the ICSID convention’ (2011) 24(02), 305-330.
  • YaraslauKryvoi, ‘Counterclaims in investor-state arbitration’ (2012) 21(2) 216-252.

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