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.

Environmental Impact Assessments and the Treaty on Biodiversity Beyond National Jurisdiction

By Iosif Sorokin

An Environmental Impact Assessment (EIA) is a procedure for evaluating the likely impact of a proposed activity on the environment. EIAs typically require a detailed analysis of the environmental impact of a proposed action, careful consideration of alternatives to the proposed action, and discussion of measures which could mitigate potential environmental harms. This is facilitated by gathering input from scientists, policymakers, and civil society to help identify activities that may cause harm to the environment. Public participation is also usually a crucial part of EIAs, including the opportunity for members of the public to comment on a proposed action and receive responses to their questions, and ultimately to review the final record reporting the results of the EIA. The overall objective of an EIA is to ensure that environmental considerations are explicitly addressed and incorporated into the decision making process prior to undertaking an action that may significantly affect the environment.

 

EIAs in International Law

EIAs have become tremendously important tools for environmental management across the globe. More than one hundred nations have domestic statutes that require consideration and assessment of the environmental impacts of domestic development activities to some degree. International treaties, customs, and decisions by international courts also require EIAs for activities that may cause environmental impacts across borders. The most definitive statement of this obligation came in the decision of the International Court of Justice (ICJ) in the Pulp Mills Case (Argentina v. Uruguay) where the court confirmed that “it may now be considered a requirement under general international law to undertake an environmental impact assessment where there is a risk that the proposed industrial activity may have a significant adverse impact in a transboundary context, in particular, on a shared resource.”

However, the international law is unsettled as to whether a similar requirement under customary international law exists to perform an EIA for proposed activities in areas beyond national jurisdiction, such as the high seas. Article 206 of the Law of the Sea Convention (LOSC) states that it is a requirement under the Convention that nations assess the potential effects of activities under their jurisdiction or control—including areas beyond national jurisdiction but subject to their control—that may cause “significant and harmful changes to the marine environment.” The Article states a fair amount of leeway in determining the significance of the harm (there must be “reasonable grounds” for believing that a project may harm the environment) and the degree to which they are required to respond (as far as practicable). The requirement to perform an EIA in Article 206 of the LOSC is binding for all 167 states that have joined the treaty. However, some nations have not yet ratified the treaty, including the United States. Article 206 may only apply to all nations if it is an accurate statement of customary international law, which many provisions of the LOSC are understood to be.

 

The Biodiversity Beyond National Jurisdiction Treaty Negotiations

Although still at the negotiation phase, the anticipated treaty on Biodiversity Beyond National Jurisdiction (BBNJ) would, if completed, have major implications for the requirement to perform EIAs in areas beyond national jurisdiction. The primary goal of the negotiations relating to EIAs is to operationalize the obligation in Article 206 of the LOSC. Included in this goal is the development of a global default framework to cover emerging activities in areas beyond national jurisdiction, including marine tourism, floating installations, and seismic testing. This global framework would also include thresholds for new activities that would require an EIA. Another significant objective being negotiated is how to address the cumulative impact of human activities in EIAs. This includes a discussion of the need for cross-sectoral assessments of conflicting activities such as fishing, seabed mining, and the laying of submarine cables.

Arguably the most groundbreaking aim being considered in BBNJ negotiations is how to give content to the obligation to perform an EIA for activities in areas beyond national jurisdiction. This would include guidelines for how to conduct an EIA and standards against which the outcome of the EIA and the final decision to authorize an activity would be tested. Many prior agreements, including the LOSC, include the obligation to perform EIAs for activities in areas beyond national jurisdiction, but none spell out the content of this obligation or give details for how to conduct satisfactory EIAs. Giving content to the EIA obligation through the BBNJ treaty would be a significant achievement that would accomplish much more than merely recognizing the obligation as a part of international law.

The development of a binding BBNJ agreement is a lengthy process, as negotiations have been ongoing since 2004. It is unclear what a final agreement will look like. In 2015, the United Nations General Assembly (UNGA) passed resolution 69/292 calling for the development of a legally binding UNCLOS implementing agreement on the conservation and sustainable use of BBNJ. To help prepare the draft text of that agreement and make recommendations to the UNGA on the substantive issues covered by the agreement, the UNGA established a Preparatory Committee for the development of a BBNJ agreement.

The Preparatory Committee is expected to report back to the UNGA by the end of 2017. However, it is uncertain when an actual agreement would be concluded because there may still be substantive disagreement even at the time of the deadline, which would necessitate additional debate within the UNGA. Also unclear is how long it would take to implement the agreement if and when it is reached, as well as whether all countries would sign onto the agreement. Thus, in the meantime, it may be more practical to rely on other means besides an overarching international agreement to compel nations to perform EIAs for activities in areas beyond national jurisdiction.

This Day in International Law: April 14

Russian-Estonian dual language sign in Rapla, Estonia.

By Ilya Akdemir

April 14th, 1978, marks the date of mass protests in the Soviet Republic of Georgia, mainly in its capital Tbilisi, over Georgians’ linguistic rights. Sparked by the announcement of a draft Georgian Constitution which was to replace the 1937 Georgian Constitution, the protest quickly gained traction, particularly among Georgian students and the local intelligentsia.

At the crux of the issue was Article 75 of the proposed Constitution, which made Russian the sole official language of the Georgian Soviet Republic, replacing Georgian language’s official state language status under the 1937 Georgian Constitution.

As the protests grew, the local Georgian Communist Party boss, Eduard Shevardnadze – essentially the de-facto leader of Soviet Georgia – began supporting the protests. Such open defiance of the party line and virtual independence in the decision-making was traditionally not well-tolerated by the Soviet authorities in Moscow, as perhaps was best demonstrated by the 1968 Invasion of Czechoslovakia. This time however, a peaceful solution was achieved.

Negotiating with the Soviet Government in Moscow, Shevarnadze – who went on to become the President of Georgia after the breakup of the Soviet Union in 1991 – was able to preserve Georgian language’s official status in the new Constitution as the sole state language, just as it was under the 1937 Georgian Constitution. The protests achieved their objective and the Soviet Government had to back down. This was perhaps the first time a people in the Soviet Union successfully stood up to preserve its linguistic rights.

But to this day, the issue of linguistic rights remains largely controversial in the geographical area of what once was the Soviet Union, which makes the Georgian protests of 1978 both relevant and important from an international legal perspective. Indeed, issues regarding language often lie at the heart of the disputes between Russia and states that were once part of the Soviet Union or aligned with it.

For instance, Russia’s 2014 intervention in Ukraine and the subsequent annexation of Crimea was justified in terms of Russian minority’s language rights – Yanukovych’s request for intervention, which was read by Russia’s representative at the Security Council Vitlaly Churkin, clearly states that “the people are being persecuted on the basis of their language and political beliefs.”

Similarly, Russia’s relations with the Balkan states have often been overshadowed by issues language and culture, such as the controversy surrounding the World War II Soviet war memorial in Estonia’s capital Tallinn, or Latvia’s referendum which led to the rejection of Russian as the official language, despite a significant Russian minority. On the other hand, leaders of Baltic states have expressed fears that Russia might use language-based justifications to annex parts of Baltic states that are populated by Russian minorities as it did in Ukraine.

Indeed, all these issues pose difficult international legal questions, from minority rights protection and their linguistic rights, to issues of war and intervention. The issues surrounding the 1978 Georgian demonstrations resonate to this day and demonstrate that language will remain an important factor in international law.