Enforcement of Investment Arbitration Awards in the Context of Protectionism and Backlash

By: Christy Chidiac

Geopolitical context and international arbitration are intertwined. Contemporary political events illustrate an undeniable retreat of the most developed nations towards protectionism. In reaction to Brexit, many commentators concluded that enforceability of international commercial arbitration awards is safe thanks to the applicability of the New York Convention. Conversely, even if the enforcement of ICSID investment arbitration awards is automatic due to Article 54 of the ICSID Convention, its execution may depend on States willingness to render it efficient through the diverse applicable national laws on immunity from execution. After all, this decision falls within States sovereignty, and at the heart of States decisions, lies public opinion. Public disapproval towards globalization goes hand in hand with the growing mistrust for foreign investment and investment arbitration, as showed by the European protests to the recourse of Investor State mechanism as part of the TTIP or CETA. In this context, arbitration mechanisms are related to globalization and corporation’s governance, hence the fundamental risk is that limitations on arbitration may become popular. As Professor David Caron Caron asserts, State acts to reform the investment treaty regime are a response to, or even a form of, backlash against that regime. Procedural reforms of investment arbitration in the past fifteen years focused on an increase of transparency, including possibilities for public hearings, and publication of arbitral documents. Additional substantive reforms also took place, with more detailed treaties provisions. Moreover, commercial arbitration is not immune from the risk of growing mistrust, as it may adjudicate for illegal activities for instance, under protection of confidentiality. These observations raise questions about the possibility of rendering international arbitration more democratic. Moreover, may public opinion and political context not only affect the transparency but also the efficiency of international arbitration mechanisms? If so, how should the effects of contextual fluctuations on arbitration efficiency be countered? The recent evolution of French legislation illustrates these issues.

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Preserving Self-Determination in the Search for Peace in South Sudan

Photo Credit: https://www.flickr.com/photos/eeas/

By Guest Contributor:

Laura Nyantung Beny Professor of Law, University of Michigan Law School Co-editor of Sudan’s Killing Fields: Political Violence and Fragmentation

 

 

Following decades of civil war in Sudan, in 2011 South Sudan became an independent nation due to an internationally brokered peace agreement and referendum on secession. At independence, Southern Sudanese and many international supporters were jubilant and full of great hope for the new country, a region which had been in nearly perpetual conflict.

Early hopes and celebration gave way in December 2013 to an intractable conflict, now recognized as a civil war, between rival factions of the ruling Sudan People’s Liberation Movement/Army (the “SPLM/A”). The competing factions include forces loyal to President Salva Kiir, a Dinka, and former Vice President Riek Machar, a Nuer. The humanitarian situation is dire. The United Nations (UN) and other bodies have issued warnings about ethnic cleansing and impending genocide. Over 3 million people have been displaced, internally and in neighboring countries. The UN has declared famine status in several regions. Reports chronicle massive human rights abuses, including gender-based violations, such as rape and sexual harassment. Peace remains elusive.

The UN Security Council, governments, and civil society groups have put forth multiple proposals to end the conflict and restore peace to South Sudan. Proposed measures include: UN sanctions (general and targeted); criminal tribunals for culpable leaders; international peacekeeping forces (AU and UN); and national dialogue. Ironically, some have even proposed “neo-trusteeship” for South Sudan.

None of these preceding measures alone is sufficient to end the conflict. Some, like national dialogue, are necessary, while others, like criminal tribunals or sanctions, might be unnecessary for peace. This commentary gives an overview of several of the proposed measures and potential obstacles to their success. It concludes that the most promising, indeed indispensable, measure is an indigenous, all-inclusive peace process. Trusteeship is especially problematic, as it would entail a break from the foundational basis of South Sudan’s sovereignty – self-determination.

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Potential Issues with Enforcing International Arbitration Awards

By Arjun Ghosh

Arbitration is a useful way to settle commercial disputes because arbitration proceedings are usually faster and cheaper than traditional court proceedings. Parties can choose the governing law they wish to apply in advance as well as prescribe other features in the agreement, rather than be bound by the governing law in the jurisdiction where the proceeding is taking place. Traditional court proceedings are still preferred by some parties because when a court issues a judgment the winning party can rest assured that the government will enforce the award, even by force if necessary. In the United States, for example, if you were to win a judgment against another party in a court proceeding, and that party refused to pay the award, the court could send law enforcement officers to collect the payment.

When utilizing one country’s court system to settle an international dispute, however, enforcing an award in a country other than where the settlement was issued may become a problem. If an American company sues a Chinese company in an American court and wins, for example, the Chinese government is not required to dispatch their law enforcement officers to enforce an award issued by an American court. So while in domestic disputes, a court ruling is more enforceable than an arbitration award, in international disputes, arbitration awards are often more enforceable, and are therefore the preferred dispute resolution process. Arbitration awards can be easier to enforce than court awards because of international treaties; most notably, the New York Convention (NY Convention), which is ratified by 157 countries.

The NY Convention was first adopted by the United Nations in 1958. It stipulates two primary requirements for its members. First, members’ courts must recognize agreements between parties to arbitrate agreements (by for example, enforcing a mandatory arbitration agreement), and second, members must recognize and enforce any arbitration awards won in any other member state, with certain narrow exception.

While the NY Convention requires counties to honor these arbitration agreements, parties still have to go to court in the country where they seek to have their award enforced and have the court agree to enforce it. The NY Convention simply prescribes the court’s action in such an event. The NY Convention accomplishes this by requiring its members to pass laws which direct its courts to honor and enforce international arbitration awards. For example, in the United States the Federal Arbitration Act (FAA) requires courts to enforce foreign awards.

Like in domestic court proceedings, there are certain circumstances which might lead to a situation where an award is justifiably unenforceable. The NY Convention, like domestic laws, describes several situations in which a country may refuse to enforce an international arbitration award. For example, if a party to the arbitration was under some incapacity, or was coerced, or the victim of fraud, or several other situations described in the convention, then a court may be justified in not enforcing the award. In addition to the more general defenses a country may use to justify not enforcing an award, there are some specific reservations that counties may apply. For example, a country may choose to only recognize and enforce awards issued by other member countries, or only awards that are related to commercial disputes.

Currently, 157 countries have signed onto the NY Convention. Forty United Nations member nations, however, have not signed on. While most commercial transactions are occurring in countries that are signatories, there are some notable countries missing, Belize and Taiwan for example.

It is essential when entering into an international arbitration proceeding to select a signatory country as a forum, so that parties may have confidence in their ability to resolve a dispute and have the award enforced. Many international disputes have involved companies based in Taiwan and Belize or other non-signatory countries where foreign parties are unable to collect the awards they have won because those governments refuse to enforce awards. In a current case pending before the Supreme Court of Belize, Belize Bank Limited v. Government of Belize, the Bank seeks to force the government of Belize to enforce an award it won through an international arbitration. The ruling was struck down by the Caribbean Court of Justice (CCJ) as unenforceable in Belize as a matter of public policy. Belize Bank is now in the process of trying to have the award enforced in the U.S. The Supreme Court of the United States has ruled on the case and upheld the arbitration award in favor of Belize Bank, but the government of Belize rejected that judgment. They claimed first that they were not bound by decisions of US courts, and also that Belize Bank had no right to seek enforcement in U.S. courts because the CCJ is the highest regional judicial tribunal and therefore their decisions not subject to appeal.

Even given these limitations, enforcing an international arbitration award in a non-signatory country is possible, though it often requires a strategic application of local law. The U.S. has a policy on enforcement of international arbitration awards which provides guidance for addressing this increasingly common issue. The main strategy that the party seeking enforcement must use in such situations is employing economic leverage, and we can look back to Taiwan for an example.

Even though Taiwan is not a signatory to the NY Convention, it is a sophisticated player in international commerce and needs a viable mechanism in place for successful and complete commercial dispute resolution, or commercial activity would be greatly hampered. A party seeking to enforce an arbitration award in Taiwan will try to have a local Taiwanese court recognize the award, even though the NY Convention will not require them to. Instead, Taiwan has its own version of the FAA, the Taiwan Arbitration Act (TAA) which guides its arbitration proceedings. One of these guidelines is that the enforcement of arbitral awards be guided by the reciprocity principle, meaning that Taiwan will enforce arbitral awards rendered in countries that recognize and enforce arbitral awards rendered in Taiwan. Since Taiwan relies on trade with many other NY Convention signatory countries, they have essentially, with the TAA, bound their courts to enforce arbitral awards rendered in NY Convention countries, or fear economic retaliation in the form of loss of business or trade sanctions.

To mitigate these concerns, corporations should aim to engage in large-scale commercial transactions only with NY Convention signatory countries or with companies with substantial assets in signatory countries. Even in non-signatory countries, because of the increasing interdependence of national economies and growing trade, alternative strategies may be used to influence governments to encourage their courts to enforce international arbitration agreements. When large-scale international commercial disputes occur the stakes are usually quite high and the party seeking relief will want some assurance of justice. International treaties have increased the amount of certainty that parties can have when entering into these cross-border transactions, but because not all countries have signed onto the NY convention, there is still some uncertainty inherent in these transactions.