Recognition and enforcement of investment arbitral awards under the New York 1958 Convention and jurisdictional immunity

Recognition and enforcement of investment arbitral awards remains a key issue for international investment disputes, in all jurisdictions that fall under the scope of the New York Convention of 1958 (the “NY Convention”). To preserve the confidence granted by the international community in arbitration as a neutral and effective method to solve investment disputes, states and particularly their judiciaries should remain cautious in applying jurisdictional and execution immunities in recognition and enforcement scenarios. 

Recognition and enforcement of awards constitutes a core value and critical element of an efficient international investment disputes system, as they represent the genuine materialisation of justice among its participants. In short, a significant part of the reliability of the international investment protection system rests upon the effectiveness of the tools for recognition and enforcement of arbitral awards against host states in a wide array of jurisdictions.

In the case of investment awards rendered in accordance with the UNCITRAL Arbitration Rules, the framework of the NY Convention provides such a tool. Articles I, III, IV and V, impose an international obligation to provide full recognition and enforcement to foreign awards, as defined per Article (1 and 2). Any contracting state to the NY Convention (“Contracting State”), including their judicial system, is therefore obliged to recognise and enforce foreign arbitral awards under the rules of the NY Convention. This includes denying such recognition exclusively under the limited grounds of Article V.

Notably, recognition courts should not raise ex officio issues of immunity of jurisdiction and execution as grounds to deny recognition and enforcement. Such means of defence are exclusive to the host state and should be raised only when these immunities have not been waived in accordance with international law. 

Nonetheless, as it often occurs with the application of the NY Convention by local courts, some approaches tend to deviate from this logic. Such is the case with a recent decision by the Colombian Supreme Court, currently pending appeal, where jurisdictional immunity was raised ex officio to decline the Court’s own jurisdiction to serve as recognition authority under the NY Convention. The case concerns an investor seeking recognition and enforcement in Colombia of an investment award rendered against an EU State. 

The decision appears daunting because it is a reminder of a time where the NY Convention and the whole international arbitration system was not available to foreign investors and host states to resolve investment disputes. 

There are more than a few historical references to cases in which the states turn to “diplomacy by force” and military power to settle disputes. This occurred in the absence of a neutral dispute settlement forum for their nationals who are foreign investors vis-à-vis other states. 

For example, in Colombia in 1821officials of the Gran Colombia, exercising the nascent state’s sovereignty, did not honour the debt of sovereign bonds held by an English national, James Mackintosh. In the absence of a diplomatic solution, Mackintosh turned to the UK for assistance. A military intervention was set in motion as means for the collection of the debt. 

A similar situation occurred in Venezuela during 1902, the well-known Incidente de las Cañoneras. For several years, British, German and Italian fleets besieged and attacked the Venezuelan coasts as a mechanism to intercede in the collection of debts that the state had not honoured with nationals of these nations. 

The Don Pacifico incident is another important precedent of international law on the application of "diplomacy by force". Greece did not grant compensation to the English diplomat Don Pacifico, who saw his house destroyed during riots in Athens during 1850. Faced with the refusal to be compensated by the Greek State, Pacifico resorted to the British navy, which de facto executed a blockade on the Greek port of Piraeus as a mechanism for the collection of compensation. This, in turn, unleashed a diplomatic and military crisis between the UK and the Russian Empire, protector of the Greek State against Ottoman expansion, which caused damage to thousands of inhabitants of the territories involved.

The contemporary framework of bilateral and multilateral treaties for the protection of foreign investment, along with arbitration as the most appropriate forum to solve investment disputes, have been established to leave such incidents in the past. It is this framework that allows the free flow of capital through foreign investment, a pillar of our contemporary globalised economy. In Colombia alone, foreign investment accounted for an estimated USD 5,899 million for the first half of 2022 alone.  

The NY Convention constitutes a vital mechanism of such an international framework. A system that both provides protection to the legitimate interests of investors and host states by way of a peaceful and serious dispute resolution alternative and an effective means to execute decisions, even against sovereign states. 

The effectiveness and stability of the system lies in the fulfilment of the obligations by Contracting States. It is essential that states recognise the binding nature of awards issued by international arbitral tribunals. This is even more important whenever recognition and enforcement are sought in another Contracting State’s jurisdiction, different from that of the host state, where assets are located.

The recognition of a foreign arbitral award against states cannot rely on their good will. Furthermore, jurisdiction and execution immunities should only be raised by the state opposing recognition, not ex officio by the courts of the Contracting State where recognition is sought.  

Such a situation undermines investment arbitration, since it represents a rejection of the application of the NY Convention. Even under article V(2), refusal of recognition should not constitute an immunity that the affected state does not raise, since it implies replacing the state’s consent and denying previous waivers to the said immunity.

On the contrary, jurisdictional immunity cannot be regarded as an absolute rule depriving other Contracting States of jurisdiction to enforce and recognise awards against the host state under the NY Convention. In such cases, the recognition and enforcement would be limited to the jurisdiction of the host state, which once more implies that compliance with the award relies only on the decision of this state’s authorities and nothing more. 

One clear example of this situation has arisen in recent years in Europe, regarding several investment treaties (e.g. Energy Charter Treaty 1994) where compensation for damages was granted against states that refused to comply with awards. Plaintiff states have argued both a lack of jurisdiction with the investment tribunals and, once the dispute has been settled with a final decision, jurisdictional immunity vis-à-vis recognition courts in other jurisdictions. 

However, this breaches the treaty under which the arbitration award was rendered and denies the international obligations of Contracting States under the NY Convention.

Several courts have stated opposite positions. They have made it clear that states, by means of the arbitration agreement in their investment treaties or commercial contracts, waived their immunity from jurisdiction not only before the arbitral tribunal but also before the courts of other states when recognition and enforcement of the award is sought. 

Thus, for example, in Creighton v. Qatar 1 , the French Court of Cassation upheld that when the sovereign State of Qatar consented to arbitration under the ICC Rules, it had thereby further waived its immunity from jurisdiction for the purposes of recognition and enforcement of the award, which in that case was rendered in France, not in Qatar. 

A similar stance was held in Germany, where the Federal Court of Justice recognised and enforced an investment arbitration award that ordered the Kingdom of Thailand to pay damages in favour of a German investor. 2 Specifically, the court held that the waiver of jurisdictional immunity enshrined in the arbitration agreement included in the bilateral investment treaty had to be extended to the recognition and enforcement of the award. 

In Colombia, once a decision has been recognised the Constitutional Court determines that even state immunity from execution is subject to limitations. For example, in judgment SU-443 of 2016 the Court set out the following criteria:

In accordance with customary international law, an asset belonging to a State is subject to immunity from execution, unless one of the following conditions is met: (1), that the property is not used for activities that do not pursue non-commercial public service purposes, (2) that the State has expressed its consent to the attachment or coercive measure on its property, or (3) which has earmarked the property for payment of the respective judicial claim.

Therefore, whenever a sovereign state agrees to arbitration, it waives jurisdictional immunity and that waiver extends to the recognition and enforcement of the award. The waiver should be reinforced by the fact that both the host state and the state where recognition and enforcement is sought are Contracting States to the NY Convention. 

The system would not offer material protection to the investor if recognition courts apply jurisdictional immunity ex officio to deny the substantive application of the NY Convention. In such a scenario, investors must resort to diplomacy or de facto ways to collect an award that is not spontaneously recognised by the condemned state, which is precisely the scenario that the international framework for investment protection aims to leave in the past.