UNCITRAL Working Group III Debate: Enforceability of awards by an appellate mechanism or an investment court under the ICSID and New York Conventions

During the discussions in the resumed 38th session of UNCITRAL Working Group III—held in Vienna from January 20 to 24, 2020—a principal issue under consideration by delegates was the enforceability of “awards” rendered by an appellate mechanism or an investment court. The centrality of the issue of enforcement in the discussions rests upon the requirement that in order for a new dispute resolution system to be effective and to create confidence among its users, its outcomes will need to be predictably enforceable.

A new appellate mechanism or investment court will need an enforcement mechanism

If states decide to create a multilateral appellate mechanism or an investment court, the instrument creating this new body will need to include a sui generis or self-contained mechanism for recognition and enforcement—in other words, a provision whereby the parties to the new body agree to be bound by and to enforce its awards. The language used in this respect would be fairly straightforward to draft and could be modelled on the language of Article 54 of the ICSID Convention[1]—to the effect that parties agree to recognize awards rendered by the new body, to treat them as binding and to enforce them within their territories as if they were final judgments of a court in that state.

Such a solution, however, would only bind parties to the new appeals body or investment court. It would not and could not bind states that do not join the institution and do not sign up to the new instrument. That then raises the critical question of how enforcement and recognition of awards could be affected in non-party states.

Enforcing awards in the existing ISDS regime: The ICSID and New York Conventions

In the present investor–state arbitration regime, the ICSID and New York Conventions provide an effective legal framework for the enforcement of arbitral awards in third states. Enforcement under these conventions, however, entails certain requirements. The awards in question must satisfy conditions that are set out in the conventions. ICSID Convention Article 54 requires that the award be one that has been “rendered pursuant to this Convention,” that is, has resulted from an arbitration conducted in accordance with the convention’s requirements.[2] In the case of the New York Convention, on the other hand, the requirements are somewhat more flexible. The convention applies to the enforcement and recognition of any foreign “arbitral award”—a term that is not strictly defined—with the proviso that individual states may reserve the right to apply the New York Convention to arbitral awards in “commercial” disputes only.[3]

These, then, are the enforcement mechanisms that have successfully underpinned the existing investor–state arbitration regime. The question that arises for the working group, however, is whether the outcomes produced through a new appellate mechanism or investment court will be able to take advantage of the enforcement regimes of the ICSID or New York Conventions. In other words, will they be compatible with this existing enforcement regime?

Enforcement under the ICSID Convention

Neither an appellate mechanism nor an investment court structure is compatible with the ICSID Convention. Article 53 notes that ICSID Convention awards “shall not be subject to any appeal or to any other remedy except those provided for in this Convention”[4]—such as the annulment mechanism under Article 52. Moreover, as noted, the ICSID Convention applies only to arbitration that proceeds “pursuant to” the convention’s terms, a condition that would not be satisfied by an arbitration that has been subject to an appellate mechanism or, even less, by an award issued by an investment court.

In principle, it is possible to amend the ICSID Convention either to provide for an appellate mechanism or to permit the establishment of one. The difficulty in this regard, however, is that amendment of the ICSID Convention requires the agreement of all parties to the convention,[5] which may not be politically feasible at present.

Alternatively, some of the parties to the ICSID Convention could enter into a so-called “inter se” amendment to modify the terms of the ICSID Convention among themselves. There is significant doubt and disagreement regarding this difficult question.[6]

At issue is whether it is permissible to modify a treaty inter se where the treaty specifically prohibits the proposed modification. VCLT Article 41 provides that an inter se modification may not be made where the modification in question is prohibited by the treaty. Arguably the ICSID Convention contains such a prohibition.[7] As noted, Article 53 mandates specifically that an ICSID Convention award “shall not be subject to any appeal or to any other remedy except those provided for in this Convention.”[8] Moreover, ICSID Convention Article 26 provides expressly that “consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy,” such as, for example, an appeal.[9]

Beyond this prohibition, VCLT Article 41 further prohibits inter se modifications where they affect the performance of the obligations of other parties to the treaty or are in conflict with the object and purpose of the treaty.[10] An inter se modification may indeed affect the performance of non-parties to the modification by expanding the scope of disputes over which their domestic courts will have no scope for even limited review in the event of recognition and enforcement. There is also the question whether it is in keeping with the object and purpose of the ICSID Convention to fragment the structure of ICSID arbitration into an “à la carte” mechanism in which there may coexist ICSID arbitrations not subject to appeal, ICSID arbitrations subject to an appellate mechanism and perhaps investor–state cases decided not by an ICSID tribunal but by an investment court. Again, these are difficult issues, but the working group will need to consider them going forward.

Enforcement under the New York Convention

Beyond these points about the compatibility—or lack of compatibility—of an appellate mechanism or investment court with the ICSID Convention, the working group must also consider the alternative possibility of using the New York Convention for enforcement and recognition. Here, there may be less cause for concern regarding compatibility and, indeed, there appears to be no major disagreement among scholars that have looked at the issue in depth.

As noted above, the New York Convention provides a flexible, internationalized mechanism for the enforcement of foreign arbitral awards in its more than 150 state parties. However, it applies only to “arbitral awards,” and so a question that arises in connection with an appellate mechanism—and more still with an investment court—is whether the outcomes produced through these processes can be considered “arbitral awards” for the purposes of the convention.

On this point, there appears to be an academic consensus that even with respect to a permanent investment court staffed by judges, without participation of the investor in their appointment, the outcomes of such a body or of an appellate mechanism should be treated as arbitral awards.[11] New York Convention Article I specifically notes that arbitral awards include those awards “made by permanent arbitral bodies to which the parties have submitted” their dispute. Moreover, there is some practice among states to support the conclusion that the awards of a standing arbitral body with state-appointed members should be treated as arbitral awards for the purposes of the New York Convention. Specifically, awards rendered by the Iran–United States Claims Tribunal—a tribunal constituted entirely by state-appointed judges—have been given recognition under the New York Convention,[12] as have, at an earlier point in history, awards rendered by the Courts of Arbitration of the Chambers of Commerce in Comecon States during the Soviet period.[13]

As to whether awards rendered in connection with an investment treaty can be treated as “commercial” for the purposes of the New York Convention—in the event that states have made a reservation to this effect—again, there is reason to think that such awards would satisfy the requirement. This issue has already arisen under the current investor–state arbitration regime, and domestic courts that have considered the issue have consistently concluded that an investment treaty arbitration qualifies as “commercial” for New York Convention purposes.[14]

There is one issue, however, on which there is some question about the application of the New York Convention to awards produced by an appellate mechanism or an investment court. In the working group’s discussions about an appellate mechanism or a court system, it has been noted that the new process should culminate in a final award that is not itself subject to further review. This is the approach pursued, for example, in the EU’s current bilateral practice.[15] New York Convention Article V, however, provides courts at the enforcement jurisdiction with a limited power of review—with respect to both aspects of procedural fairness and the public policy of the country in which enforcement is sought.[16]

The question that arises is whether the parties to an appellate mechanism or investment court could bypass this process of review by the courts of enforcing jurisdictions. The answer here is likely not. In the first place, it is for each state party to the New York Convention to determine for itself in good faith how to apply the convention’s provisions. Looking at state practice around the world, one finds that many states will not allow the parties to an arbitration to waive review either as to matters of procedural fairness or, more emphatically, as to the question of the enforcing jurisdiction’s public policy. This means that although the New York Convention would likely apply to support the recognition and enforcement of an appellate mechanism or investment court award, those awards would still be subject to review at the enforcing jurisdiction under Article V, and this cannot be avoided. This is not to say, incidentally, that New York Convention enforcement should be therefore seen as inadequate. To the contrary, the convention has proven to be an effective mechanism for enforcement in the current system. Rather, the point is to note the limits of relying on the New York Convention for the enforcement of appellate mechanism or investment court awards.

Concluding remarks

The issues raised by the question of enforceability are complex, difficult and subject to some disagreement among commentators. As a result, as the working group moves forward with its work, states will need to consider these issues carefully and to give them a complete and open airing. Failing to address these issues at the outset would lay the foundations for difficulties down the road.


Author

N. Jansen Calamita is Head of Investment Law & Policy at the Centre for International Law of the National University of Singapore, and Research Associate Professor at the Faculty of Law, National University of Singapore. This article is adapted from remarks made by the author during the resumed 38th session of UNCITRAL Working Group III on January 22, 2020.


Notes

[1] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Washington, signed March 18, 1965, entered into force October 14, 1966 [ICSID Convention]. https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%20Convention%20English.pdf

[2] ICSID Convention, supra note 1, Art. 54.

[3] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, signed June 10, 1958, entered into force June 7, 1959 [New York Convention]. https://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/New-York-Convention-E.pdf

[4] ICSID Convention, supra note 1, Art. 53.

[5] ICSID Convention, supra note 1, Art. 66.

[6] See, for example, Calamita, N. J. (2017). The (in)compatibility of appellate mechanisms with existing instruments of the investment regime. Journal of World Investment and Trade, 18(4), 585–627; Kaufmann-Kohler, G. & Potestà, M. (2016, June 3). Can the Mauritius Convention serve as a model for the reform of investor–state arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap. Geneva Centre for International Dispute Settlement (CIDS). https://www.uncitral.org/pdf/english/CIDS_Research_Paper_Mauritius.pdf; Reinisch, A. (2016). Will the EU’s proposal concerning an investment court system for CETA and TTIP lead to enforceable awards? – The limits of modifying the ICSID Convention and the nature of investment arbitration. Journal of International Economic Law, 19(4), 761–786.

[7] Vienna Convention on the Law of Treaties, signed May 23, 1969, entered into force January 27, 1980 [VCLT]. https://treaties.un.org/doc/publication/unts/volume%201155/volume-1155-i-18232-english.pdf

[8] ICSID Convention, supra note 1, Art. 53.

[9] ICSID Convention, supra note 1, Art. 26.

[10] VCLT, supra note 7, Art. 41.

[11] See supra note 6.

[12] See Ministry of Defense of Islamic Republic of Iran v. Gould, Inc., 887 F2d 1357 (9th Cir 1989), cert. denied, 110 S Ct 1319 (1990).

[13] See Van den Berg, A. J. (1981). The New York Convention of 1958: Towards a uniform judicial interpretation. Kluwer International, pp. 378–379.

[14] See Republic of Argentina v. BG Group PLC, 764 F Supp2d 21 (DDC 2011), reversed by 665 F3d 1363 (DC Cir 2012), reversed by 134 S Ct 1198, 1204 (2014). See also United Mexican States v. Metalclad Corp., 2001 BCSC 664 (British Columbia Sup Ct 2001), para. 44.

[15] See, for example, Singapore–European Union Investment Protection Agreement, signed October 15, 2018, Art 3.22(1). https://investmentpolicy.unctad.org/international-investment-agreements/treaties/treaties-with-investment-provisions/3545/eu—singapore-investment-protection-agreement-2018-

[16] New York Convention, supra note 3, Art. V.