State Immunity from Execution in the Collection of Awards Rendered in International Investment Arbitration: The Achilles' Heel of the Investor-State Arbitration System? - ARIA - Vol. 26, No. 1

Author(s):

Olga Gerlich

Page Count:

54 pages

Media Description:

1 PDF Download

Published:

July, 2015

PDF817.21 KB

$40.00

Description:

Originally from American Review of International Arbitration - ARIA

Preview Page

INTRODUCTION

In July 2014 the Permanent Court of Arbitration in The Hague rendered three

awards in the investment arbitration against the Russian government brought by

the shareholders of Yukos, once Russia’s largest oil and gas company, under the

Energy Charter Treaty.1 The compensation granted for expropriation of the

investor’s assets makes them the largest awards in the history of investment

arbitration.2 However, as indicated by commentators, the Russian Federation is

unlikely to voluntarily comply with these awards.3 The remedy available to the

investors against Russia’s non-compliance, namely the forcible execution of the

compensation awarded in third states, will be barred in the case of most of the

Russian assets by virtue of the principle of state immunity from execution.

Another case concerning Russia illustrates well the potential problems

regarding state immunity pleas in the execution of investment awards. Sedelmeyer

was the sole owner of a company dedicated to the training of police and security

personnel which entered into a joint venture with the Leningrad police department

in 1991. Following expropriation of his capital contribution in the joint venture,

Sedelmayer initiated arbitration under the Germany-Russia bilateral investment

treaty (“BIT”) at the Stockholm Chamber of Commerce. In 1998 the tribunal

rendered an award in his favor, ordering Russia to pay $2.35 million, plus

interest.4 It took Mr. Sedelmayer 12 years and over 30 domestic execution cases to

collect part of the award compensation. During that time Russia successfully

evaded paying the awarded compensation by raising its state immunity from

execution before national courts.5

At the international law level, the enforcement of international investment

arbitration awards is governed by the Convention on the Settlement of Investment

Disputes Between States and Nationals of Other States (“ICSID Convention”)6

and the Convention on the Recognition and Enforcement of Foreign Arbitral

Awards (“New York Convention”).7 The first applies to awards rendered in

accordance with the ICSID Arbitration Rules,8 the latter to awards rendered under

other arbitration rules, including the ICSID Additional Facility Rules and the

UNCITRAL Arbitration Rules.9 In the light of the rather successful history of

compliance with investment awards,10 the limitations to these collection

mechanisms are yet to be fully explored in practice. Nonetheless, the examples of

recalcitrant states like Russia and Argentina11 reveal some serious deficiencies in the

investor-state arbitration system which this article aims to analyze. Investors

challenged by recalcitrant states are frequently forced to collect their compensation

award in jurisdictions other than the respondent state. However, there they

encounter a significant legal obstacle, namely state immunity from execution.12