aria-v26-no1-olga-gerlichحصانة الدولة في التحكيم الاستثماري

STATE IMMUNITY FROM EXECUTION IN THE COLLECTION OF
AWARDS RENDERED IN INTERNATIONAL INVESTMENT

ARBITRATION: THE ACHILLES’ HEEL OF THE INVESTOR - STATE
ARBITRATION SYSTEM?
Olga Gerlich*
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
* Trainee attorney-at-law (aplikantka radcowska), Warsaw Regional Bar of Legal

Advisors. The author wishes to thank professors Céline Lévesque and John Currie of the
University of Ottawa for their helpful comments on the earlier drafts of this article. All
errors remain the author’s responsibility.
1
Hulley Enterprises Limited v. Russian Federation, PCA Case No. AA 226, Award,
July 18, 2014; Yukos Universal Limited v. Russian Federation, PCA Case No. AA 227,
Award, July 18, 2014; Veteran Petroleum Limited v. Russian Federation, PCA Case
No. AA 228, Award, July 18, 2014.
2
Irina Reznik, Henry Meyer & Jessica Morris, Yukos Owners Win $50 Billion in 10
Year Fight With Russia, BLOOMBERG (July 28, 2014), http://www.bloomberg.com/news/
2014-07-28/yukos-owners-win-50-billion-damage-award-vs-russia-gml-says.html.
3
Now Try Collecting, THE ECONOMIST (Aug. 2, 2014), available at http://www.
economist.com/news/business/21610284-business-disputes-taken-arbitration-winning-just-
start-now-try-collecting; Cody Olson, Enforcement of International Investment Arbitration
Awards Against the Russian Federation, 22 AM. REV. INT’L ARB. 711 (2011).
4
Mr. Franz Sedelmayer v. Russian Federation, SCC, Award, July 7, 1998.
47
48 THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION [Vol. 26
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
5
For a summary of the proceedings, see Andrea K. Bjorklund, State Immunity and the
Enforcement of Investor State Arbitral Awards, in INTERNATIONAL INVESTMENT LAW FOR
THE 21ST CENTURY: ESSAYS IN HONOUR OF CHRISTOPH SCHREUER 302, 314-16 (Christina
Binder, Ursula Kriebaum, August Reinisch & Stephan Wittich eds., 2009).
6
Convention on the Settlement of Investment Disputes Between States and Nationals
of Other States, Mar. 18, 1965, 575 U.N.T.S. 159.
7
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June
10, 1958, 330 U.N.T.S. 38.
8
The New York Convention will be applicable to those ICSID awards that are sought
to be enforced in a state that is not a party to the ICSID Convention.
9
JAN PAULSSON, NIGEL RAWDING & LUCY REED, GUIDE TO ICSID ARBITRATION 180
(2d ed. 2010).
10
A study conducted in 2008 demonstrates that nearly 90% of awards have been
voluntarily complied with by the respondents. See Loukas Mistelis & Crina Baltag,
Recognition and Enforcement of Arbitral Awards and Settlement in International
Arbitration: Corporate Attitudes and Practices, 19 AM. REV. INT’L ARB. 319, 324 (2008).
11
See Luke E. Peterson, How Many States Are Not Paying Awards under Investment
Treaties?, INV. ARB. REP., http://www.iareporter.com/articles/20100507_3. Other less-
known examples of recalcitrant states include Kazakhstan, Zimbabwe, Kyrgyzstan, and
Thailand. Id.
12
Some clarification regarding the terminology employed in this article is needed at
this point. Here, the term “state immunity from execution” will be used to describe the
immunity of state property from attachment by authorities of a state that exercises
jurisdiction over the territory where the property is located. “State immunity from
execution” is opposed to the term “state immunity from adjudication” which denotes the
principle that bars domestic courts of a state from adjudicating disputes brought against a
foreign state. The terms “measures of execution” and “measures of constraint” will be
used interchangeably to describe measures following the issuance of the award, its
recognition, and acknowledgement of its enforceability, which are aimed at satisfaction of
2015] STATE IMMUNITY FROM EXECUTION IN THE COLLECTION OF AWARDS 49
The application of the principle of state immunity in the execution of

investment awards13 can nullify the most attractive attributes of the investor-state
arbitration system as a method of dispute settlement from the perspective of
investors, namely independence from national legal systems, and the impartial and
apolitical character of dispute settlement.14 This article will answer the question of
whether sovereign immunity from execution constitutes an “Achilles’ heel” of the
investor-state arbitration system as suggested by Professor Schreuer.15
The article is divided into three parts. Part I will introduce the terminology
and provide an overview of the mechanisms of collection of investment awards
under both Conventions. Part II will be devoted to the principles on state
immunity from execution. It will examine the rules applicable under international
law and in selected domestic jurisdictions (France, Germany, Switzerland, the
United Kingdom, and the United States).16 The last part will provide an analysis of
the remedies to the defense of state immunity from execution in the collection of
international investment awards. Firstly, it will examine the possible solutions that
would directly address the problem of state immunity from execution. Secondly, it
will explore the remedies against recalcitrant states that may be available directly
to investors or to their home states. The effectiveness of these remedies in
mitigating the problem of state immunity will be assessed.
I. COLLECTION OF INTERNATIONAL INVESTMENT

ARBITRATION AWARDS
A. Collection Mechanism under the New York Convention
Unlike the ICSID Convention, the New York Convention was not designed
specifically to permit the enforcement of arbitral awards rendered in disputes
between private parties and foreign states. Its primary objective was to facilitate
the enforcement of awards rendered in disputes between private parties in
commercial arbitration.17
the award debt. The attachment of the assets in the adjudicatory state, i.e., prejudgment or
interlocutory measures, is beyond the scope of this article.
13
This article uses the expression “collection of award” to refer to the mechanism
leading to forcible recovery of the awarded compensation. This encompasses three distinct
steps of the process leading to the ultimate recovery of the pecuniary compensation:
recognition, enforcement, and execution of the award.
14
Ibrahim F.I. Shihata, Towards a Greater Depoliticization of Investment Disputes:
The Roles of ICSID and MIGA, 1 ICSID REV.-FOREIGN INVESTMENT L.J. 1 (1986).
15
As stated with regard to the ICSID Convention. See CHRISTOPH H. SCHREUER, THE
ICSID CONVENTION. A COMMENTARY 1154 (2d ed. 2009).
16
There are no available empirical data on the most popular fora for forcible
execution of international investment awards. However, as demonstrated throughout the
article, these jurisdictions were relevant in the known instances where the investment
arbitration cases reached the execution stage.
17
ALBERT JAN VAN DEN BERG, THE NEW YORK ARBITRATION CONVENTION OF 1958:
TOWARDS A UNIFORM JUDICIAL INTERPRETATION 277-82 (1981).
Article III contains an obligation to recognize as binding arbitral awards

coming within the scope of application of the Convention and to enforce them in
accordance with the procedures applicable under domestic laws. As a result, state
parties cannot impose substantially more onerous conditions or higher fees or
charges on the recognition or enforcement of Convention awards than on the
recognition and enforcement of domestic awards. The only specific requirement
imposed by the Convention on the party seeking recognition and enforcement is
that it must provide a court with the authenticated original award or a certified
copy, and the original arbitration agreement or a certified copy.18 Thus, recognition
and enforcement of non-ICSID awards will essentially be subject to domestic
laws. As the procedures for recognition and enforcement of the awards are
governed by the domestic rules of practice, they will vary by jurisdiction.
The New York Convention prescribes five grounds for refusing recognition
and enforcement in its Article V(1), and two additional grounds in Article V(2).
The five Article V(1) grounds must be established by a party resisting
enforcement, which bears the burden of proof. Article V(1) lists the following
grounds: (a) invalidity of the arbitration agreement; (b) violation of due process;
(c) excess by arbitrator of his or her authority; (d) irregularity in the composition
of the arbitral tribunal, or in the arbitral procedure; and (e) lack of binding force,
suspension or setting aside of the award in the country of origin. The two
additional grounds in Article V(2) can be examined by a court on its own
initiative. Pursuant to this provision, a court can refuse recognition and
enforcement of the award if its subject matter is incapable of settlement by
arbitration under the enforcing country’s laws or if recognition or enforcement of
the award would violate the enforcing country’s public policy.
Moreover, awards enforced in accordance with the New York Convention are
open to review by domestic courts of the state of arbitration, which can set the
award aside. The grounds for setting aside are not regulated in the Convention.19
Setting aside of an award in the state of arbitration has an extra-territorial effect,
as it may preclude enforcement in the other contracting states by virtue of Article
V(1)(e) of the Convention.20 This contrasts with the refusal of recognition and
enforcement, which has legal effects only in the jurisdiction where recognition
and enforcement are sought.21
18
New York Convention, supra note 7, Art. IV(1).
19
If the state of enforcement has implemented the UNCITRAL Model Law on
Commercial Arbitration, the grounds for setting aside the award will be identical to the
grounds for refusal of recognition and enforcement under Article V of the New York
Convention. See Article 34 of the UNCITRAL Model Law on Commercial Arbitration, 24
I.L.M. 1302 (1985).
20
Albert Jan van den Berg, Should the Setting Aside of the Arbitral Award Be
Abolished?, 29(2) ICSID REV.-FOREIGN INVESTMENT L.J. 263, 269 (2014).
21
Id.
B. Collection Mechanism under the ICSID Convention

The ICSID Convention governs recognition, enforcement, and execution of
awards in its Section 6 of Chapter IV, Articles 53-55. Article 53(1) in its first
sentence stipulates the following features of ICSID awards: binding force, finality,
and autonomous review within the ICSID system.22 Their binding force requires
the parties to a dispute to comply with the award. Non-compliance constitutes a
violation of states’ obligations under the Convention. The attribution of binding
force to ICSID awards in the first sentence of Article 53(1) is a restatement of the
pacta sunt servanda principle of customary international law.23 The obligation to
comply is further reinforced by the second sentence of Article 53(1) which
requires the parties to a dispute to “abide and comply with the terms of the award”
with the exception of cases where the enforcement of the award has been stayed in
accordance with the Convention. Finality refers to the res judicata effect of the
award. Once an award has been issued parties cannot seek a remedy in the same
dispute in another forum. Autonomous review under the ICSID Convention is
exhaustive and self-contained, meaning that the award cannot be subject to any
external review.24 Autonomous review of ICSID awards is a fundamental
difference from awards enforced in accordance with the New York Convention,
which are open to review by national courts of the state of arbitration. The
intention of the drafters of the ICSID Convention was to depart from a model
which allows intervention of domestic courts offered by the New York
Convention.25
The collection mechanism under Article 54 can be used when a party fails to
comply with the award in accordance with Article 53.26 Article 54(1) of the ICSID
Convention lays out the obligation of state parties to “recognize an award
rendered pursuant to this Convention as binding and enforce the pecuniary
obligations imposed by that award within its territories as if it were a final
judgment of a court in that State.”27 Some scholars have suggested that the
22
See SCHREUER, supra note 15, at 1097. The first sentence of Article 53 reads, “The
award shall be binding on the parties and shall not be subject to any appeal or to any other
remedy except those provided for in this Convention.”
23
Aron Broches, Awards Rendered Pursuant to the ICSID Convention: Binding
Force, Finality, Recognition, Enforcement, Recognition, 2(2) ICSID REV.-FOREIGN
INVESTMENT L.J. 287, 289 (1987).
24
The only review available is for revision and annulment under Articles 51 and 52 of
the Convention.
25
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentina,
ICSID Case No. ARB/97/3, Decision on the Argentine Republic’s Request for a
Continued Stay of Enforcement of the Award, ¶ 35 (Nov. 4, 2008) [hereinafter Vivendi,
Stay of Enforcement]; see SCHREUER, supra note 15, at 1118.
26
Stanimir A. Alexandrov, Enforcement of ICSID Awards: Articles 53 and 54 of the
ICSID Convention, in INTERNATIONAL INVESTMENT LAW FOR THE 21ST CENTURY, supra
note 5, at 322, 328.
27
Thus, non-monetary awards will be subject to the simplified recognition, but not to
enforcement under the ICSID Convention. They will be enforced in accordance with the
obligation under Article 54 to treat the awards “as if it were a final judgment of a
court” allows for challenges available to final judgments in some jurisdictions.28
However, Article 53 is clear on the point that awards “shall not be subject to any
appeal or any other remedy except those provided for in this Convention.”
Opening the door to domestic review would manifestly contravene this provision.
Article 54(2) of the ICSID Convention prescribes a simplified procedure for
recognition and enforcement of awards: “A party seeking recognition or
enforcement in the territories of a Contracting State shall furnish to a competent
court or other authority which such State shall have designated for this purpose a
copy of the award certified by the Secretary-General.” Recognition and
enforcement under Article 54 of the Convention is automatic, meaning that the
role of domestic authorities is limited to verification of the authenticity of the
award.29 Unlike the New York Convention,30 the ICSID Convention does not
allow states to refuse recognition and enforcement on any grounds. Unlike
recognition and enforcement, however, the execution of awards is governed by
laws of the state where the enforcement is sought, in accordance with Article
54(3) of the Convention. Article 55 provides an interpretative guideline stating,
“Nothing in Article 54 shall be construed as derogating from the law in force in
any Contracting State relating to immunity of that State or of any foreign State
from execution.”
The relationship between Articles 53 and 54 of the ICSID Convention was
questioned when Argentina argued that its obligation to comply with ICSID
awards under Article 53 is subject to the prevailing mechanism for enforcement of
awards under Article 54.31 Between 1998 and 2002 Argentina underwent a severe
financial crisis. In order to stabilize the domestic economy the Argentinian
government decided to dissolve the regulatory framework that was previously
aimed at attracting foreign capital. This decision was followed by a flood of over
40 investment arbitration claims.32 In several proceedings on the stay of
New York Convention, or subject to other applicable treaties or laws. See MARGARET L.
MOSES, THE PRINCIPLES AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION
237 (2d ed. 2012).
28
See, e.g., Edward Baldwin, Mark Kantor & Michael Nolan, Limits to Enforcement
of ICSID Awards, 23(1) J. INT’L ARB. 1, 9-14 (2006).
29
Albert Jan van der Berg, Some Recent Problems in the Practice of Enforcement
under the New York and ICSID Conventions, 2(2) ICSID REV.-FOREIGN INVESTMENT L.J.
439, 448 (1987).
30
New York Convention, Art. V.
31
Siemens A.G. v. Argentina, ICSID Case No. ARB/02/8, Argentina’s Response to
the Submission by the United States of America to the ad hoc Annulment Committee
(June 2, 2008); Enron Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case
No. ARB/01/3, Decision on the Argentine Republic’s Request for a Continued Stay of
Enforcement of the Award (Oct. 7, 2008); Compañiá de Aguas del Aconquija S.A. and
Vivendi Universal S.A. v. Argentina, ICSID Case No. ARB/97/3, Respondent’s Letter
Regarding Stay of Enforcement (Nov. 28, 2008) [hereinafter Vivendi, Respondent’s Letter].
32
As of August 6, 2014, see World Bank, List of ICSID Cases, available at
https://icsid.worldbank.org/apps/ICSIDWEB/cases/Pages/AdvancedSearch.aspx.
enforcement, Argentina has argued that the obligation to comply with awards
under Article 53 does not arise until the creditor has initiated enforcement
proceedings under Article 54.33 Argentina has claimed that the above relationship
between Articles 53 and 54 resulted from the obligation to treat an ICSID award
as if it were a final judgment of a domestic court in accordance with Article 54 of
the Convention. According to Argentina, the award creditor has to comply with
the same procedures that are applicable to the enforcement of final judgments in
local courts in Argentina. Until then, the obligation to pay the award under Article
53 does not arise.34
In the Enron case, the ICSID ad hoc annulment committee rejected
Argentina’s interpretation of Articles 53 and 54 and confirmed that the obligations
under these provisions are to be seen as separate and independent.35 The
committee held that a state’s obligation to comply is unconditional, meaning that
it arises directly after the award is rendered and remains unaffected by any
domestic procedure for collection.36 The committee analyzed in detail the
relationship between these two obligations and provided reasons for which it held
Argentina’s interpretation untenable.37 Firstly, the obligations under Articles 53
and 54 are directed to different subjects: the obligation to comply under Article 53
is addressed to a party to a dispute, whereas the obligation to recognize and
enforce is binding on all parties to the Convention.38 Secondly, in accordance with
Article 54, parties are obliged to enforce only pecuniary awards. Following
Argentina’ reasoning, there would never be an obligation to comply with non-
pecuniary obligations imposed by an ICSID award.39 Moreover, it was found that
Argentina’s interpretation was not supported by the subsequent practice of states
in terms of Article 31(3)(b) of the Vienna Convention on the Law of Treaties
(“VCLT”).40 In each of the four ICSID cases that reached the enforcement stage
before local courts, the enforcement was sought before courts of a third state,
rather than the courts of a state against which the award had been rendered.41
According to Argentina’s interpretation, in those cases the obligation to pay the
award could never arise because the claimants did not trigger the enforcement
proceedings before the domestic courts of the respondent states. This construction
of Articles 53 and 54 of the ICSID Convention was confirmed by the Vivendi II
annulment committee in its decision on the stay of enforcement.42
33
Siemens, supra note 31, ¶ 5; Enron, supra note 31, ¶ 57.
34
Enron, supra note 31, ¶ 56.
35
Id. ¶¶ 74-77.
36
Id. ¶¶ 67-69
37
Id. ¶¶ 54-78.
38
Id. ¶ 62.
39
Id. ¶ 66.
40
Vienna Convention on the Law of Treaties, May 23, 1969, entered into force Jan.
27, 1980, 1155 U.N.T.S. 331.
41
Enron, supra note 31, ¶ 70.
42
Vivendi, Stay of Enforcement, supra note 25, ¶¶ 31-36.
As noted by some commentators, the interpretation proposed by Argentina

would undermine fundamental principles of the enforcement regime under the
ICSID Convention.43 Argentina’s interpretation of Articles 53 and 54 would imply
a supervisory role for domestic courts in the enforcement of awards.44 As
explained by the Committee in Vivendi, this would open the possibility of local
authorities reviewing awards and deciding whether or not they should be
enforced based on domestic law.45 This is contrary to the intention of the
drafters of the Convention whose objective was to depart from the model offered
by the New York Convention and to eliminate state intervention in the field of
investment disputes by creating a self-contained review mechanism and its
enforcement procedure.46 Further, intervention by a judicial authority in the host
state would render the award simply “a piece of paper deprived from any legal
value and dependent on the will of state organs.”47 Such an interpretation would
defeat the object and purpose of Article 53 in violation of the rules of
interpretation under the VCLT.48
C. Terminological Confusion: Recognition, Enforcement, and Execution
Article 54 of the ICSID Convention, which prescribes the procedure for

collection of the awards, uses the terms “recognition,” “enforcement,” and
“execution.”49 The New York Convention uses only the terms “recognition” and
“enforcement.”50 The notions of “recognition,” “enforcement,” and “execution”
describe distinct steps in the process of collection of the award debt. As this
distinction has caused some trouble in practice, these terms ought to be clarified.
Recognition is the formal certification that an award is final and binding.51 Its
primary function is to attribute a res judicata quality to an award in a given
jurisdiction.52 In most cases recognition will be a first step towards enforcement
and execution of the award.
The notions of “enforcement” and “execution” have been the subject of
significant confusion in legal doctrine. Similar confusion is present in the
jurisprudence of domestic courts.53 In the context of the ICSID Convention, some
scholars draw a distinction between enforcement and execution, describing
43
See Alexandrov, supra note 26, at 323.
44
Vivendi, Respondent’s Letter, supra note 31, ¶ 5.
45
Vivendi, Stay of Enforcement, supra note 25, ¶ 36.
46
Id. ¶ 35.
47
Id. ¶ 36.
48
Id.
49
See ICSID Convention, supra note 6, Art. 53(2) and (3).
50
See New York Convention, supra note 7, Arts. III -V.
51
JAN PAULSSON, NIGEL RAWDING & LUCY REED, GUIDE TO ICSID ARBITRATION
179 (2010).
52
Id.
53
See infra notes 63-64; Liberian Eastern Timber Corp. (LETCO) v. Liberia, 650 F.
Supp. 73 (S.D.N.Y. 1986).
enforcement as a distinct step of the process,54 or a term encompassing recognition

and execution of awards.55 Others use these terms interchangeably.56
The distinction is crucial since Article 54(3) of the ICSID Convention subjects
execution to domestic laws, whereas recognition and enforcement are subject to
the automatic procedure under Article 54(2). The reason for the confusion is
present in the very text of the ICSID Convention. The decision of the drafters to
use different terms in Article 54 of the Convention would indicate that the words
“execution” and “enforcement” should be assigned different meanings.57
However, only the English version of Article 54 distinguishes between
enforcement and execution, as the French or Spanish versions operate with only
one term.58 Pointing to Article 33(4) of the VCLT, Schreuer suggests that, in the
absence of any indication to the contrary in the preparatory works to the
Convention, the difference should be reconciled by giving the terms “execution”
and “enforcement” the same meaning.59
The confusion is exacerbated by the use of terms “enforcement” and
“execution” in domestic statutes. For example, the United States Federal
Sovereign Immunities Act (“FSIA”) refers to “immunity from attachment in aid of
execution,”60 whereas the United Kingdom’s State Immunity Act (“SIA”)
describes sovereign immunity from execution as a principle according to which
“the property of a State shall not be subject to any process for the enforcement of
a judgment or arbitration award.”61 In the analysis below it will become evident
that in this context “execution” and “enforcement” denote the same meaning. This
distinction, which sometimes has no practical significance in domestic
jurisdictions,62 has serious repercussions for the collection of international
investment awards, as will be demonstrated below.
The practical consequences of this terminological confusion in the context of
the ICSID Convention are illustrated by two enforcement cases before the French
courts: Benvenuti & Bonfant v. Democratic Republic of Congo,63 and SOABI v.
54
Broches, supra note 23, at 318 (stating that the formulation “pecuniary obligations
imposed by the award shall be enforceable” would be more appropriate).
55
Susan Choi, Judicial Enforcement of Arbitration Awards Under the ICSID and New
York Conventions, 28 N.Y.U. J. INT’L L. & POL. 175, 178 (1995).
56
SCHREUER, supra note 15, at 1135; Bjorklund, supra note 5, at 302 n.4.
57
Broches, supra note 23, at 318.
58
In its paragraphs 1, 2 and 3 of Article 54, the French text of the ICSID Convection
consistently uses “l’exécution.” The terminology in the Spanish version is also consistent
in using “ejecutar” and “ejecuten” in Article 54(1), “ejecución” in Article 54(2), and
“ejecutará” and “ejecución” in Article 54(3).
59
SCHREUER, supra note 15, at 1134 -35.
60
Foreign Sovereign Immunities Act, 28 U.S.C. § 1610 (1976).
61
State Immunity Act 1978, c. 33, § 13(2)(b) (U.K.).
62
See Michael E. Schneider & Joachim Knoll, Enforcement of Foreign Arbitral
Awards Against Sovereigns–Switzerland, in ENFORCEMENT OF ARBITRAL AWARDS
AGAINST SOVEREIGNS 311, 345 (R. Doak Bishop ed., 2009).
63
SARL Benvenuti & Bonfant v. Congo, Decision of Dec. 23, 1980, Trib. gr. inst.
Paris, 1 ICSID REP. 370 (1993) (Fr.) (English translation) [hereinafter Benvenuti, Court of
Senegal.64 Benvenuti & Bonfant was an Italian company which obtained an award
in its favor against the Congo before an ICSID tribunal. 65 After the Congo refused
to pay, Benvenuti located assets belonging to the Congo in France and sought
enforcement before the local courts. The Court of First Instance of Paris declared
the award enforceable with a limiting condition, stating that “[n]o measure of
execution, or even a conservatory measure shall be taken pursuant to the said
award, on any assets located in France, without the prior authorization of this
Court.”66 Benvenuti successfully appealed this qualification before the Court of
Appeal of Paris.67 The company claimed that the lower judge conflated two stages
of the collection mechanism, enforcement and execution of the award.68
The Court of Appeal decided in favor of the appellant and deleted the limiting
condition. It correctly observed that a distinction must be made between
recognition and enforcement under Article 54(1), and the measure of execution
which involves the question of state immunity from execution dealt with in
Articles 54(3) and 55 of the ICSID Convention. It acknowledged that the arbitral
award did not itself constitute a measure of execution, but was only a decision
preceding possible measures of execution. The “automatic” enforcement
procedure in Article 54(2) restricts the function of a court to ascertaining the
authenticity of the award certified by the Secretary-General of ICSID.69 Thus, the
lower court judge could not deal with the second step, the execution of the award,
which raises issues of immunity from execution, without exceeding his authority.
The case of SOABI underwent a similar development. The ICSID award
against Senegal70 was declared enforceable in France by the Paris Court of First
Instance.71 On appeal by Senegal, the Paris Court of Appeal reversed the lower
court decision on the grounds that SOABI did not demonstrate “that the award
will be enforced on assets assigned by the state of Senegal to an economic and
commercial activity, and that no objection could therefore be made for immunity
First Instance]; SARL Benvenuti & Bonfant v. Congo, Decision of Jun. 6, 1981, CA Paris,
20 I.L.M. 877(1981) (Fr.) (English translation) [hereinafter Benvenuti, Court of Appeal].
64
Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal, Trib. gr. inst.,
not published (Fr.) [hereinafter: SOABI, Court of First Instance]; Société Ouest Africaine
des Bétons Industriels (SOABI) v. Senegal, Decision of Dec. 5, 1989, CA Paris, 29 I.LM.
1341 (1990) (Fr.) (English translation) [hereinafter SOABI, Court of Appeal]; Société
Ouest Africaine des Bétons Industriels (SOABI) v. Senegal, Decision of June 11, 1991,
Cass civ 1re, 30 I.L.M. 1169 (1991) (Fr.) (English translation) [hereinafter SOABI, Court
of Cassation].
65
SARL Benvenuti & Bonfant v. Congo, ICSID Case No. ARB/77/2, Award,
1 ICSID REP. 330 (1993) (Aug. 8, 1980).
66
Benvenuti, Court of First Instance, supra note 63.
67
Benvenuti, Court of Appeal, supra note 63.
68
Id. at 880
69
MOSES, supra note 27, at 237.
70
Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal, ICSID Case
No. ARB/82/1, Award (Feb. 25, 1988), reprinted in 6 ICSID REV.-FOREIGN INVESTMENT
L.J. 125 (1991).
71
SOABI, Court of First Instance, supra note 64.
from enforcement.”72 In the Court of Appeal’s opinion, recognition or

enforcement of the award in France would violate the principle of state immunity,
and was therefore contrary to international public order. The court considered
itself obliged to refuse the grant of enforcement under Article 1502(5) of the New
Code of Civil Procedure. This decision was itself reversed by the Court of
Cassation which declared the award against Senegal enforceable holding that
enforcement of awards under the ICSID Convention is independent from other
types of enforcement applicable to foreign or international awards in domestic or
international law.73
A clarification as to the meaning of the terms “enforcement” and “execution”
in Article 54 was provided in the decision on the stay of enforcement in Ioannis
Kardassopoulos v. Georgia.74 In this case, the ad hoc annulment committee held
that “[t]he simplified and automatic enforcement system of Article 54(1) of the
ICSID Convention should not be conflated with the measures of execution that
follow the order granted by the court or authority designated in accordance with
Article 54(2) for enforcement of the award and which are . . . governed by the
laws concerning the execution of judgments in force in the State in whose
territories such execution is sought.”75 Therefore, it is submitted that the order
granting recognition and enforcement of an arbitral award under Article 54(2)
cannot be considered a measure of execution, but merely constitutes a decision
preceding possible measures of execution subject to domestic law pursuant to
Article 54(3).
In some legal systems enforcement can generally refer to the judicial practice
of issuing “exequatur,” an order declaring that an arbitration award is in fact
enforceable.76 In other legal systems, “enforcement” loosely refers to an award
creditor’s legal right to execute its award.77 Based on the decisions discussed
above, the terms “enforcement” and “execution” can be defined as follows:
“enforcement” refers to recognition by domestic courts that the award is
enforceable. The term “execution” denotes the actual attachment of assets to
satisfy the award. This is without prejudice to the meaning of terms adopted in
national laws.
Unlike the ICSID Convention, the New York Convention does not explicitly
refer to “execution.” The obligation under Article III of the Convention requires
states to “recognize arbitral awards as binding and enforce them.” It is submitted
that there are three possible interpretations of the term “enforce” as used in the
text of the New York Convention. Firstly, it could be understood as the action of
“rendering the awards enforceable in a domestic jurisdiction.” Secondly,
“enforcement” could be synonymous with the term “execution” used in Articles
72
SOABI, Court of Appeal, supra note 64.
73
SOABI, Court of Cassation, supra note 64.
74
Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision of the
ad hoc Committee on the Stay of Enforcement of the Award (Nov. 12, 2010).
75
Id. ¶ 30.
76
PAULSSON, RAWDING & REED, supra note 51, at 179.
77
Id.
54(3) and 55 of the ICSID Convention and denote actual attachment of the assets
in order to collect the award. Lastly, it could be interpreted in a broad manner to
encompass both steps of the process.
This article argues that the term “enforce” in the New York Convention
should be understood in the same way as in the context of the ICSID Convention.
The list of defects of awards which justify refusal of enforcement under Article V
of the Convention pertains to the enforceability of the awards, rather than to their
actual execution. The objective of the process of recognition and enforcement of
the awards is to accord the award the same value as an enforceable domestic
judgment,78 provided that it is free of defects that would preclude it from giving
rise to obligations under domestic law.
The question of the meaning of the term “enforce” is related to the issue of the
stage of the awards collection mechanism at which the question of state immunity
from execution should be considered. There are two options: the sovereign
immunity defense could be placed either within the catalogue of reasons for
refusal of enforcement under Article V of the Convention, or considered at the
stage of execution under the domestic law of a state. If one were to agree that the
Convention regulates only “enforcement” within the meaning adopted in this
article, the actual execution of the award would not be governed by the
Convention but would remain a matter of domestic law.
As exemplified by the decision of the German Federal Supreme Court in
Werner Schneider (liquidator of Walter Bau AG) v. Thailand,79 contracting parties
to the New York Convention seem to recognize execution as a distinct stage of the
process of collection of the award which follows recognition and enforcement of
the award. In this case the German Federal Supreme Court had to place its
consideration of sovereign immunity from execution at the correct stage of the
collection procedure. The case was concerned with recognition and enforcement
of an investment award rendered in accordance with the UNCITRAL Rules of
Arbitration.80 The court had to determine whether Article 10(2) of the Germany-
Thailand BIT, which provided that “[t]he award shall be enforced in accordance
with domestic law,” constituted an implied waiver of immunity which would
allow for execution under German domestic law.81 The court found that the
78
However, arbitral awards will be subject to a specific regime of legal remedies,
different from domestic legal decisions, i.e., the arbitral awards governed by the New
York Convention will be subject to requests for setting aside of the award.
79
Decision of Jan. 30, 2013, Federal Supreme Court, 30 III ZB 40/12 (Ger.)
[hereinafter Werner Schneider, Federal Supreme Court]. For a commentary, see Roland
Kläger, Werner Schneider (liquidator of Walter Bau AG) v. Kingdom of Thailand.
Sovereign Immunity in Recognition and Enforcement Proceedings under German Law,
29(1) ICSID REV.-FOREIGN INVESTMENT L.J. 142 (2014).
80
Werner Schneider, acting in his capacity as insolvency administrator of Walter Bau
Ag (In Liquidation) v. Thailand (formerly Walter Bau AG (in liquidation) v. Thailand),
UNCITRAL, Award (July 1, 2009).
81
Werner Schneider, Federal Supreme Court, supra note 79, ¶ 2(c)(aa) (translated by
the author).
implied waiver in Article 10(2) of the BIT extended only to the adjudication stage,
i.e., recognition and enforcement of the award. The court characterized “recognition
and enforcement proceedings” as a sui generis type of adjudication proceeding to
which the principles of state immunity from jurisdiction applied.82 In other words, it
determined that enforcement constitutes a stage, to which sovereign immunity from
adjudication applies, which precedes actual measures of execution.
Understanding the obligation to enforce under Article III of the New York
Convention as a confirmation that an award is enforceable better corresponds with
the reality of domestic procedures. The distinction, which may have less
significance in the case of private parties, becomes relevant when state immunity
from execution is concerned. After the award is declared enforceable, the limited
availability of assets susceptible to execution may compel the award creditor to
institute multiple execution proceedings until state property that is exempt from
state immunity from execution is found. Such examples will be discussed in the
next part of this article. Understanding “enforcement” as a synonym of
“execution” or giving it a broad meaning encompassing both stages of the
collection of awards would imply that a domestic court would be allowed to
consider all of the reasons for refusal of the award under Article V(1) (and be
required to examine the award with regard to the grounds in Article V(2)) every
time a creditor seeks execution against a particular property. Such a solution
would be impracticable because of the duplication of the procedures, and the
potential for conflicting decisions.
D. Assessment
To conclude, “recognition,” “enforcement,” and “execution” are recognized as

distinct steps of the process of collection of awards under the ICSID and New
York Conventions. They differ in their functions, but more importantly for the
purposes of this article they belong to different stages of the judicial process.
Recognition and enforcement are a type of adjudicatory process. Post-judgment
measures of execution follow them and belong to the execution stage. This has
two important consequences. Firstly, state immunity from execution can be
invoked only at the stage of the actual attachment of state assets. It cannot bar the
proceedings pertaining to recognition and enforcement of international investment
awards. Secondly, placing state immunity from execution in the executory stage
limits the role of the domestic courts in recognition and enforcement of the
awards. Under the ICSID Convention, until the execution phase, the role of
domestic courts will be limited to verification of the authenticity of the award.
Only the execution stage will engage the examination of whether the assets in
question are protected by state immunity from execution. Similarly, state
immunity from execution cannot interfere with the recognition and enforcement of
the awards under the New York Convention. Although the role of domestic courts
82
Id. ¶ 2(a). Cf. Yugoslavia v. Société Européenne d’Etudes et d’Entreprises (SEEE),
Decision of July 6, 1970, Trib. gr. inst. Paris, 65 I.L.R. 46, 49 (Fr.) (English translation).
in the recognition and enforcement of non-ICSID awards is considerably more

significant, state immunity from execution does not belong to the catalogue of the
grounds for refusal of recognition and enforcement of awards under Article V of
the New York Convention. Thus, the question of state immunity from execution
will arise at the execution stage, which is governed by the domestic laws of the
state in which recognition, enforcement, and execution take place.
II. STATE IMMUNITY FROM EXECUTION
A. State Immunity from Execution under the ICSID and New York Conventions
It is generally accepted that an agreement to arbitrate a dispute should be

interpreted as a waiver of state immunity from adjudication in the supervisory
proceedings before domestic courts relating to the arbitration.83 It is acknowledged
that state immunity from jurisdiction and state immunity from execution are to be
treated separately.84 It follows that a waiver of immunity from jurisdiction does
not imply a waiver of immunity from execution.85 Article 55 of the ICSID
Convention makes clear that the collection procedure in Article 54 shall not “be
construed as derogating from the law in force in any Contracting State relating to
immunity of that State or of any foreign State from execution.” Article 55
constitutes a mere interpretative guide to Article 54, since equating an award to
the final judgment of a domestic court already preserves State immunity from
execution under domestic law.86 The drafting technique employed in Article 55
constitutes a dynamic reference; the renvoi to domestic law in force leaves room
for the law of immunity from execution to change over time.87
Unlike the ICSID Convention, the New York Convention does not explicitly
mention state immunity from execution. Bjorklund contends that in the context of
the New York Convention state immunity is likely to arise in one of two ways.88
83
George R. Delaume, Judicial Decisions Related to Sovereign Immunity and
Transnational Arbitration, 2(2) ICSID REV.-FOREIGN INVESTMENT L.J. 403, 405-406
(1987). Cf. United Nations Convention on Jurisdictional Immunities of States and Their
Property, GA Res 59/38, U.N.GAOR, 59th Sess, U.N. Doc A/RES/59/38 (2004), Art. 17;
European Convention on State Immunity, May 16, 1972, 1495 U.N.T.S. 181, Art. 12; SIA,
supra note 61, § 9.
84
XIAODONG YANG, STATE IMMUNITY IN INTERNATIONAL LAW 361 (2012); HAZEL
FOX, THE LAW OF STATE IMMUNITY 602 (2d ed. 2008); Chester Brown & Robert
O’Keefee, State Immunity from Measures of Constraint in Connection with Proceedings
before a Court, in THE UNITED NATIONS CONVENTION ON JURISDICTIONAL IMMUNITIES OF
STATES AND THEIR PROPERTY. A COMMENTARY 287, 288 (Roger O’Keefe & Christian J.
Tams eds., 2013).
85
YANG, supra note 84, at 391-92.
86
87
SCHREUER, supra note 15, at 1155.
88
Andrea K. Bjorklund, Sovereign Immunity as a Barrier to the Enforcement of
Investor-State Arbitral Awards: The Re-Politization of International Investment Disputes,
21 AM. REV. INT’L ARB. 211, 218 (2010).
Firstly, it can be considered part of the public policy exception in Article V(2)(b).
The second avenue is Article III, which subjects recognition and enforcement to
“the rules of procedure of the territory where the award is relied on.” This
conclusion is correct, but it regards only sovereign immunity from jurisdiction.
Both articles deal with recognition and enforcement, stages which precede the
actual attachment of assets. As noted above, recognition and enforcement referred
to in the New York Convention are to be treated as a special adjudicatory
procedure to which sovereign immunity from jurisdiction applies. Just as in the
case of the ICSID Convention, the execution phase remains subject to domestic
laws of the contracting parties. Thus, municipal law, including any domestically
applicable rules of international law, will govern whether particular assets of a
foreign state can be seized.
It must be noted that the obligation to comply with awards is unaffected by an
investor’s ability to execute that obligation against any particular assets.89 It
constitutes an obstacle to the attachment of the assets, but it does not provide a
valid defense to the actual obligation to comply with the award. Schreuer has
called sovereign immunity the “Achilles’ heel of the [ICSID] Convention.”90 The
otherwise effective and self-contained machinery of arbitration fails when it
comes to the actual execution against states of pecuniary obligations under
awards, as it allows intervention by domestic courts at the stage of execution.91
B. State Immunity from Execution under International Law: Rationale,

Evolution, and Sources
State immunity is a principle of customary international law protecting the

state and its property from the jurisdiction of municipal courts of another state.92
State immunity finds its origins in the principle of sovereign equality of states.93
The implication of this principle is that no sovereign state can exercise its
sovereign power over another equally sovereign state.94 A fortiori, no measures of
constraint can be exercised by the authorities of one state against another state and
its property.95 The once absolute doctrine of state immunity has been narrowed to
89
Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case
No. ARB/84/4, Interim Order No. 1 on Guinea’s Application for Stay of Enforcement of
the Award (Aug. 12, 1980), ¶ 25.
90
SCHREUER, supra note 15, at 1154
91
Id.
92
Peter-Tobias Stoll, State Immunity, in RÜDRIGER WOLFRUM, MAX PLANCK
ENCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW ONLINE at ¶ 1 (2011).
93
Jurisdictional Immunities of the State (F.R.G. v. Italy), 2012 I.C.J. 99, 123 (Feb. 3).
94
95
Draft Articles on Jurisdictional Immunities of States and Their Property with
Commentaries, in Report of the International Law Commission on the work of its forty-
third session, UN Doc. A/46/10, reprinted in [1991] 2(2) Y.B. INT’L L. COMM’N, 13, 56
U.N. Doc. A/CN.4/SER.A/1991/Add.l (Part 2).
sovereign immunity restricted by a number of exceptions. The restrictive doctrine

of state immunity is now accepted in the majority of jurisdictions.96
Through the development of the restrictive doctrine of immunity, immunity
from execution has evolved to be treated separately from immunity from
jurisdiction.97 This independence of the two immunities is evident in the
considerable limitation on the scope of immunity from adjudication, which does
not correspond to a similar development in the area of immunity from execution.98
Compared to immunity from adjudication, states still enjoy a significantly wider
immunity from execution. The rationale behind this development is that a seizure
of state property is regarded as a greater intrusion into state sovereignty than
submitting a state to foreign adjudicative jurisdiction. For this reason, the ILC
Special Rapporteur on Jurisdictional Immunities of States and their Property,
Sompong Sucharitkul, called immunity from execution “the last bastion of State
immunity.”99
The law relating to state immunity is placed on the borderline between
international law and domestic law.100 The international rules on state immunity
have developed from the practice of domestic courts to look to customary
international law.101 The rules on state immunity applied by domestic courts are a
mixture of customary international law, treaty law, and national laws. Common-
law systems have adopted comprehensive legislation on state immunity, which is
probably best exemplified by the American FSIA and British SIA.102 Civil-law
countries have not adopted comparable legislation. When necessary, they import
principles of international law that they develop through their case law.103
Efforts have been made to reach an international consensus on the rules of
state immunity. Special rules have been developed in particular contexts with
regard to specific kinds of property.104 Attempts to create universal treaty rules on
state immunity have met with more limited success. To date, there are two
conventions providing rules on state immunity: the European Convention on State
96
Id. at 36-39; YANG, supra note 84, at 12-13; FOX, supra note 84, at 35.
97
Draft Articles on Jurisdictional Immunities, supra note 95, at 56.
98
YANG, supra note 84, at 438.
99
Draft articles on Jurisdictional Immunities, supra note 95, at 56.
100
101
102
State immunity legislation was also adopted in other common-law jurisdictions
such as Australia, Canada, and Singapore. See Foreign States Immunities Act 1985 (Cth)
(Austr); State Immunity Act 1985, RSC 1985, c S-18 (Can.); State Immunity Act 1978
(1985 Rev. Ed. Sing.).
103
Jeremy Ostrander, The Last Bastion of Sovereign Immunity: A Comparative Look
at Immunity from Execution of Judgements, 22 BERKELEY J. INT’L L. 541, 551 (2004).
104
See, e.g. Vienna Convention on Diplomatic Relations, Apr. 18, 1961, 500 U.N.T.S.
95, Art. 22(3); International Convention for the Unification of Certain Rules Concerning
the Immunity of State-owned Vessels, Apr. 10, 1926, 179 L.N.T.S. 1999 [hereinafter
Brussels Convention], Arts. 1 and 3; United Nations Convention on the Law of the Sea,
Dec. 10, 1982, 1833 U.N.T.S. 3, Art. 32.
Immunity (“ECSI”),105 and the United Nations Convention on Jurisdictional

Immunities of States and Their Property (“UNCSI”).106 Apart from being the first
comprehensive international convention on state immunity, the significance of the
former is rather marginal. It was ratified by only eight parties out of 47 members
of the Council of Europe.107 Further, the ECSI never purported to constitute a
codification of general rules of international law on state immunity.108 It rather
represents evidence of what an important group of western European countries
regarded as the limits within which state immunity could be validly claimed under
international law at the time of its conclusion.109 The UNCSI, which has not yet
entered into force, requires a more detailed discussion.
Among the other international works on state immunity,110 the project
undertaken by the International Law Commission (“ILC”) and its ultimate result,
the UNCSI, deserve special attention. State immunity was recommended as a
topic for codification and progressive development by the ILC in 1977.111 In the
same year the General Assembly invited the Commission to commence work on
this subject.112 The interim result of the ILC’s discussions was the adoption of the
Draft Articles on Jurisdictional Immunities of States and Their Property in
1991.113 The ILC work on the set of principles proposed in the Draft Articles
continued until 2004 when the UNCSI was adopted by the General Assembly. In
accordance with its Article 30, the Convention will enter into force once the 30th
instrument of ratification, acceptance, approval or accession is deposited with the
Secretary General.114
105
Supra note 83.
106
Id.
107
See Council of Europe, European Convention on State Immunity, Chart of
Signatures and Ratifications, available at http://conventions.coe.int/Treaty/Commun/
ChercheSig.asp?NT=074&CM=&DF=&CL=ENG.
108
Ian M. Sinclair, The European Convention on State Immunity, 22 INT’L & COMP.
L.Q. 254, 283 (1973).
109
Id.
110
Other projects on codification of international law on state immunity included: the
Harvard Research project on state immunity, resolutions of the Institut de Droit
International, and Draft Montreal Convention by the International Law Association. See
FOX, supra note 84, at 194-200.
111
Report of the International Law Commission on the work of its twenty-ninth
session, UN Doc A/32/10, reprinted in [1977] 2(2) Y.B. INT’L L. COMM., U.N. Doc.
A/CN.4/SER.A/1977/Add.l (Part 2)) 130, ¶ 110.
112
Report of the International Law Commission, GA Res 32/151, U.N. GAOR, 32d
Sess. (1977)..
113
Draft articles on Jurisdictional Immunities, supra note 95.
114
To date, there are 28 signatories, and 16 parties to the Convention. See United
Nations Treaty Collection, Status of the United Nations Convention on Jurisdictional
Immunities of States and Their Property, available at https://treaties.un.org/Pages/View
Details.aspx?mtdsg_no=III-13&chapter=3&lang=en.
The UNCSI is aimed at providing a basis for substantial harmonization of

state practice in the area of state immunity.115 Once it enters into force it is likely
to achieve this objective. However, pending its entry into force, state parties are
not bound to observe the treaty provisions to the full extent, but only obliged not
to defeat the object and purpose of the UNCSI.116 The question remains whether
the principles laid out in the Convention that has not yet entered into force can
serve as a statement of the current state of customary international law, and as
such serve as a source of binding norms of international law.
The text of the Draft Articles which served as the basis for the negotiations
was prepared by the ILC, the mandate of which is both “codification and
progressive development of international law.”117 The Preamble to the Convention
expresses the belief that it will “contribute to the codification and development of
international law.”118 This means that some provisions of the Convention codify
the existing rules of customary international law, while others may rather reflect
“progressive development.” As observed by the ILC during its works on the Draft
Articles, there is a “grey area in which opinions and existing case law and, indeed,
legislation still vary.”119 In such grey areas, states may “take different positions
without necessarily departing from what is required by general international
law.”120 Probably the best evidence of the authoritative character of the UNSI is
the fact that its provisions were applied by both international121 and domestic122
courts representing the current international consensus on the principles of state
immunity from execution, and it will be treated as such in this article. This article
will point to the “grey areas” in which the practices of selected jurisdictions (the
United States, the United Kingdom, France, Germany, and Switzerland) differ. In
fact, these “grey areas” pose a substantial challenge to investors seeking execution
of investment arbitration awards, as they are required to possess intimate
knowledge of the particularities of different jurisdictions. The provisions of the
ECSI will also be analyzed as they are relevant to the analyzed domestic
jurisdictions.123
115
UNCSI, supra note 83, Preamble, ¶ 3.
116
VCLT, supra note 40, Art. 18(b).
117
Establishment of the International Law Commission, GA Res 174 (II), U.N.
GAOR, 2d. Sess, U.N. Doc. A/RES/174(II) (1947).
118
UNCSI, supra note 83, Preamble, ¶ 3.
119
Draft articles on Jurisdictional Immunities, supra note 95, at 23.
120
Jurisdictional Immunities of the State (F.R.G. v. Italy), 2012 I.C.J. 99, 318 (Feb. 3)
(Dissenting Opinion of Judge ad hoc Gaja).
121
Jurisdictional Immunities of the State (Germ. v. It.), 2012 I.C.J. 99, 123 (Feb. 3).
122
AIG Capital Partners Inc. v. Republic of Kazakhstan, [2005] EWHC 2239
(Comm), ¶ 80; Jones v. Ministry of Interior Al-Mamlaka Al-Arabiya AS Saudiya (the
Kingdom of Saudi Arabia), [2006] UKHL 26, ¶ 8; NML Capital v. Argentina, et al.,
Decision of Mar. 28, 2014, Cass civ 1re (Fr.), available at http://www.courdecassation.fr/
jurisprudence_2/premiere_chambre_civile_568/394_28_25871.html.
123
Germany, Switzerland, and the United Kingdom are parties to the ECSI.
C. Scope of Sovereign Immunity from Execution
1. Consent to Execution
a. Waiver of immunity from execution

Just like jurisdictional immunity, state immunity from execution is not
absolute; a state is free to waive it. A valid waiver must be given by an authority
competent to represent a state in the required form, which will differ depending on
the applicable law. Article 18(a) of the UNCSI requires an express waiver of
immunity from execution.124 Section 1610(a)(1) of the FSIA permits execution
against property used for commercial activity in the case of an express or implicit
waiver of immunity.125 The SIA and ECSI require the written consent of the state.126
With regard to the scope of the waiver, as observed by Reinisch, “[w]hen
national courts have to interpret waivers of immunity from enforcement measures
they tend to limit the scope of such waivers in order to avoid a possible conflict
with immunities derived from consular or diplomatic law.”127 The relation
between a waiver of immunity from execution and diplomatic immunities was at
the center of the NOGA (I) dispute before the French courts.128 NOGA, a French
company, sought execution of a commercial arbitration award, in a dispute
concerning a loan agreement, against bank accounts held by the Russian
Federation Embassy, the Permanent Delegation of the Russian Federation at
UNESCO, and the Commercial Bureau of the Russian Federation in France.129
The Paris Court of Appeal held that a waiver of immunity contained in the
contract between the company and the predecessor Soviet government could not
extend to these bank accounts. The general terms of the waiver provided that “[the
124
Article 18(a) of the UNCSI, supra note 83, reads: “No measures of constraint, such
as attachment, arrest and execution, against property of a State may be taken in connection
with a proceeding before a court of another State unless and except to the extent that: (a)
the State has expressly consented to the taking of such measures as indicated: (i) by
international agreement; (ii) by an arbitration agreement or in a written contract; or (iii) by
a declaration before the court or by a written communication after a dispute between the
parties has arisen.”
125
However, under Section 1611(b)(1) an express waiver will be required for an
attachment of property that is of a foreign central bank or monetary authority. FSIA, supra
note 60, §1611(b)(1).
126
SIA, supra note 61, §13(3); ECSI, supra note 83, Art. 23.
127
August Reinisch, European Court Practice Concerning State Immunity from
Enforcement Measures, 17(4) EUR. J. INT’L L. 803, 818 (2006).
128
Embassy of the Russian Federation in France, Permanent Delegation of the Russian
Federation at UNESCO, Commercial Bureau of the Russian Federation in France v.
Compagnie NOGA d’Importation et d’Exportation (NOGA), Decision of Aug. 10, 2000, CA
Paris (Fr.), excerpts reprinted in XXVI Y.B. COM. ARB. 237 (2001) (English translation).
129
It should be noted that the Delegation at UNESCO and the Commercial Bureau
constitute an integral part of the Embassy of the Russian Federation and benefit from the
Embassy’s immunities under an agreement concluded between the French Government
and the Government of the Soviet Union on September 3, 1951.
state] shall not rely, either directly or with respect to its assets or income, on any
immunity from jurisdiction, from execution, from attachment or from any other
judicial procedure in relation to its obligations under this contract.”130 The court
observed that the respective bank accounts were protected under Articles 22(3)
and 25 of the Vienna Convention on Diplomatic Relations (“VCDR”).131 It further
held that the diplomatic immunity from execution constituted “a specific regime ...
other than the regime that applies to the immunity from execution granted to
States.”132 The waiver failed to encompass the immunity of diplomatic accounts as
the Soviet government “showed no clear intention to waive diplomatic immunity
from execution.”133
This approach corresponds to Article 3(1) of the UNCSI which provides that
the Convention is “without prejudice to the privileges and immunities enjoyed by
a State under international law in relation to the exercise of the functions of its
diplomatic missions ….”134 It could be expected that the requirement of a specific
waiver will also be applied to property protected under a lex specialis regime of
immunity.135 The ILC in its Commentary to the Draft Articles indicated that a
general waiver of immunity without indication of any specific category of
property will not be sufficient to permit execution against property protected
under Article 21, which includes diplomatic property, property of central banks,
military property, and property forming part of the cultural heritage of a state.136
One of the most important questions regarding waiver of immunity in the
context of international arbitration is whether consent to arbitration constitutes a
waiver of execution of the award. Intuitively, a conclusion in the affirmative
would be supported by the principle of the effectiveness of international arbitral
130
NOGA, supra note 128, at 273.
131
Since the VCDR does not explicitly grant immunity to the embassy accounts, the
court inferred the diplomatic protection of the embassy accounts from Article 25 of the
VCDR which obligates the receiving state to “accord full facilities for the performance of
the functions of the mission.” VCDR, supra note 104, Art. 25.
132
NOGA, supra note 128, at 274.
133
Id. at 275. The French Cour de Cassation also ruled that a general waiver does not
encompass immunity of property of diplomatic missions in NML Capital Ltd. v. Argentina,
Decision of Sept. 28, 2011, Cass civ 1re, available at http://www.courdecassation.fr/
jurisprudence_2/premiere_chambre_civile_568/867_28_21103.html.
134
UNCSI, supra note 83, Art. 3(1).
135
E.g.: Art. 3(3) of the UNCSI provides that the “Convention is without prejudice to
the immunities enjoyed by a State under international law with respect to aircraft or space
objects owned or operated by a State.” UNCSI, supra note 83, Art. 3(3).
136
Draft Articles on Jurisdictional Immunities, supra note 95, at 59. An argument that
a specific waiver is necessary to exempt military property from immunity from execution
was advanced by Argentina in the dispute before the International Tribunal for the Law of
the Sea. See Case No. 20 ARA Liberdad (Argentina v. Ghana), Argentina’s Request for
Provisional Measures, at 42 (Nov. 9, 2012) available at http://www.itlos.org/fileadmin/
itlos/documents/cases/case_no.20/C20-Request_for_official_website.pdf. Regrettably, the
tribunal did not consider this argument.
awards.137 Execution is the final stage of the arbitral process. Submission to

arbitration implies a waiver of immunity from related judicial proceedings at the
adjudicatory stage, i.e. supervisory proceedings,138 as well as proceedings
pertaining to recognition and enforcement of the award.139 It might be reasonable
to regard execution as a continuation of and a logical consequence of this
adjudication stage. However, the general law on state immunity indicates the
contrary. A waiver of immunity from adjudication does not extend to the
execution stage.140 This is a consequence of the separate nature of immunity from
adjudication and immunity from execution. Expression of this principle is
contained in Article 20 of the UNCSI, which clearly prohibits inference of a
waiver of immunity from execution from a state’s consent to the exercise of
adjudicatory jurisdiction. What seems to be a general rule is the requirement for a
separate waiver of immunity from execution.141 Nonetheless, in state practice
there seem to be two notable exceptions to what seems to be the general rule: the
Swiss and French jurisdictions.
137
Emmanuel Gaillard, Effectiveness of Arbitral Awards, State Immunity from
Execution and Autonomy of State Entities Three Incompatible Principles, in IAI SERIES ON
INTERNATIONAL ARBITRATION NO. 4, STATE ENTITIES IN INTERNATIONAL ARBITRATION
179 (Emmanuel Gaillard & Jennifer Younan eds., 2008).
138
Article 17 of the UNCSI provides that “[i]f a State enters into an agreement in
writing with a foreign natural or juridical person to submit to arbitration differences
relating to a commercial transaction, that State cannot invoke immunity from jurisdiction
before a court of another State which is otherwise competent in a proceeding which relates
to: (a) the validity, interpretation or application of the arbitration agreement; (b) the
arbitration procedure; or (c) the confirmation or the setting aside of the award, unless the
arbitration agreement otherwise provides.”
139
During the works of the ILC a proposal was made to add “recognition and
enforcement” to the list of proceedings related to arbitration in which state immunity from
jurisdiction would be excluded. However, this proposal was not adopted in the final draft.
See Third Report on Jurisdictional Immunities of States and their Property, by Mr. Motoo
Ogiso, Special Rapporteur, UN Doc A/CN.4/431(1990), in Report of the International
Law Commission on the work of its forty-second session (UN Doc A/CN.4/431), reprinted
in [1990] 2(1) Y.B. INT’L L. COMM. 3, 17, ¶ 2, U.N. Doc. A/CN.4/SER.A/1990/Add.l (Part
1). As a consequence, Article 17(c) of the UNSCI mentions only “the confirmation or setting
aside of the award.” The rejection of the proposal was caused by the confusion as to the
proper understanding of the term “enforcement” as either the actual attachment of state’s
assets, referred to in this article as “execution,” or a preliminary order of obtaining an
exequatur, constituting a declaration of enforceability of the award. See Second Report on
Jurisdictional Immunities of States and their Property, by Mr. Motoo Ogiso, Special
Rapporteur, UN Doc A/CN.4/422 and Add 1 (1989), reprinted in [1989] 2(1) Y.B. INT’L L.
COMM. 59, 70-71, ¶ 38 U.N.DOC. A/CN.4/SER.A/1989/Add. 1 (Part 1). As demonstrated
above, domestic courts distinguish between enforcement of awards, which is covered by a
waiver of adjudicatory state immunity, and state immunity from execution which requires a
separate waiver of immunity. See, e.g., Werner Schneider, Federal Supreme Court, supra
note 79, ¶ 2(a); SEEE, supra note 82, at 49.
140
See UNCSI, supra note 83, Art. 20.
141
Id.; ECSI supra note 83, Art. 23; SIA, supra note 61, §13(3).
Swiss courts traditionally treat immunity as a single concept and do not

differentiate between immunity from adjudication and immunity from
execution.142 The Swiss Federal Tribunal sees immunity from execution as a
consequence of adjudication immunity.143 Therefore, a single waiver will be
required to allow proceedings at both the adjudicatory and execution stages.
However, this relaxed approach to immunity from measures of execution is
restricted by the jurisdictional requirement of inner connection (Binnenbeziehung)
which will be discussed below.144
The French Cour de Cassation has endorsed the concept of an implied waiver
of immunity from execution through an arbitration clause in its decision in
Creighton v. Qatar.145 The court found the basis for an implied waiver of
immunity from execution in Article 24 of the ICC Rules of Arbitration, which
conferred binding force on awards and contains an obligation for the parties to
comply with awards.146 This interpretation diverges from the prior line of
jurisprudence adopted by the French courts.147 The decision attracted strong
criticism.148 In particular, commentators point to the weakness of the analysis
employed by the court. Moreover, it has been pointed out that the decision left
some questions unanswered, e.g., as to whether the measures of execution could
be implemented against assets that are used for the state’s sovereign functions.149
This question was partly answered in the NOGA I decision, issued only a month
later.150 The decision clarified that a general waiver of immunity from jurisdiction
does not extend to property protected under diplomatic immunity. However, as
explained above, the exclusion from the scope of a general waiver of immunity
from execution extends only to property which is protected under a special regime
142
Jean-Flavien Lalive, Swiss Law and Practice in Relation to Measures of Execution
against the Property of a Foreign State, 10 NETHERLANDS Y.B. INT’L L. 153, 162 (1979);
Schneider & Knoll, supra note 62, at 329.
143
Reinisch, supra note 127, at 809.
144
Infra Section II.D.1.
145
Creighton Limited v. Minister of Finance of Qatar and Minister of Municipal Affairs
and Agriculture of Qatar, Decision of July 6, 2000, Cass., ILDC 772 (2000) (Fr.).
146
In their former version, equivalent to Article 34(6) of the 2012 Rules. See
ARBITRATION RULES OF THE INTERNATIONAL CHAMBER OF COMMERCE 2012, available at
http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Rules-of-
arbitration/ICC-Rules-of-Arbitration.
147
Sociétés Eurodif et consorts v. République Islamique d’Iran, Decision of Mar. 14,
1984, Cass civ. 1re, 23 I.L.M. 1062 (1984) (Fr.) (English translation). However, a line of
reasoning similar to Creighton was adopted by the Court of Appeal of Rouen in 1996. See
Société Bec Frères v. Office des Céréales de Tunisie, Decision of June 10, 1996, Decision
CA Rouen, 1997 REV. ARB. 263.
148
Nathalie Meyer-Fabre, Enforcement of Arbitral Awards against Sovereign States,
A New Milestone: Signing ICC Arbitration Clause Entails Waiver of Immunity From
Execution Held French Court of Cassation in Creighton v. Qatar, July 6, 2000, 15(9)
INT’L ARB. REP. 1 (2000).
149
Id. at 4.
150
NOGA, supra note 128.
of state immunity.151 It is submitted that extending this rule to a general exclusion

of all assets used for public purposes would undermine the significance of the
distinct “commercial assets” exception to sovereign immunity from execution.152
Exclusion of public assets from the scope of a waiver would render it purely
declaratory.153
Although the decision concerned a commercial arbitration award rendered in
accordance with the ICC Rules, it could potentially bear some significance for
decisions related to the execution of investment arbitration awards. However,
given the criticism and contrary practice of other jurisdictions, the impact of the
Creighton approach on future decisions relating to investment arbitration awards
is questionable.
In the context of the ICSID Convention, it has been argued that Article 55,
which provides that “[n]othing in Article 54 shall be construed as derogating from
the law in force in any Contracting State relating to immunity of that State or of
any foreign State from execution,” excludes the possibility of inferring an implied
waiver of immunity from execution from the obligation to comply with the award
in Article 53.154 This conclusion is not correct for two reasons. Firstly, Article
54(3) subjects execution to domestic laws of the forum state. Article 55 further
clarifies that this renvoi includes a state’s domestic laws regarding state immunity
from execution. Thus, the interpretation of a waiver of immunity from execution
is left to the domestic legal systems. Nothing in the ICSID Convention precludes
domestic courts from applying an interpretation of its domestic law on state
immunity according to which an arbitration clause would be considered equivalent
to a waiver of immunity from execution. Secondly, the language of Article 55
provides that “[n]othing in Article 54 shall be construed as derogating ….”
However, the possible waiver of immunity from execution could be implied in the
respondent state’s obligation to comply with the award under Article 53, not only
in the contracting state’s obligation to recognize and enforce awards under Article
54.155 Thus, theoretically, adopting the implied waiver approach would be possible
under the ICSID Convention.
151
See supra note 133.
152
See infra Section II.C.2. State property used for public purposes and not protected
under a special regime of state immunity from execution would include, for example,
taxes and administrative fees due to a state.
153
Section 1610(a)(1) of the FSIA allows for a waiver of immunity from execution
only in relation to property “used for a commercial activity in the United States.”
However, in this case, the requirement of commercial purpose of the property does not
diminish the significance of the commercial exception under Section 1610(a)(2). The
exception of a property used for commercial activity is further qualified by a requirement
of a connection between the commercial activity for which the property is used and the
underlying claim. A waiver of immunity from execution eliminates the linkage
requirement. FSIA, supra note 60, § 1610(a)(1).
154
155
Cf. Creighton, supra note 145.
b. Earmarked property
State property can be subject to measures of constraint if it has been allocated
or earmarked for the satisfaction of the claim which is the object of the
proceeding. Earmarking or allocation means that a state has identified assets to
pay its debt. This can be treated as a specific form of state consent (a waiver) to
execution against assets demonstrated by acts rather than by statements.156
Article 19(b) of the UNCSI provides an exception from immunity for property
that a state has allocated or earmarked for satisfaction of the claim which is the
object of that proceeding. The FSIA and SIA do not include a similar provision.
However, it could be argued that earmarking could be regarded as an implicit
waiver of immunity from execution against specific property, provided that it is
used for commercial activity under FSIA Section 1610(a)(1). The SIA does not
contain an exception for property allocated for satisfaction of a claim; neither does
it allow an implicit waiver. However, in a dictum in the judgment in the Alcom
case, the House of Lords indicated that earmarking of assets for satisfaction of
liabilities incurred in commercial transactions can indicate that the property is “in
use or intended for use for commercial purposes” under the commercial exception
of Section 13(4) of the SIA.157 A similar approach can be observed in the Cour de
Cassation’s reasoning in Eurodif.158 This approach blurs the distinction between
the exceptions for commercial assets and earmarked property, and should instead
be considered in the context of the former exception discussed immediately below.
2. Commercial Assets
The exception for commercial assets refers to the traditional distinction

between two capacities in which the state acts: sovereign acts of a state (acta iure
imperii) and acts of a state in its private capacity (acta iure gestionis). Following
this division, state property can be classified as property serving either sovereign
or commercial purposes.
The commercial assets exception is generally accepted in treaty and domestic
law. Article 19(c) of the UNCSI allows execution against property “in use or
intended for use by the State for other than government non-commercial
purposes” which “is in the territory of the State of the forum.” Article 26 of the
ECSI allows execution of a judgment in proceedings relating to an industrial or
commercial activity against property of the state against which judgment has been
given, used exclusively in connection with such an activity in the state of the
forum.159 Section 13(4) of the SIA allows execution against property which is “for
the time being in use or intended for use for commercial purposes.” The FSIA
permits execution of arbitration awards against foreign state property “used for a
156
FOX, supra note 84, at 631.
157
Alcom Limited v. Colombia, [1984] 74 I.L.R. 170, 185 (HL Eng).
158
Eurodif, supra note 147, at 1067.
159
It must be noted that Article 26 is part of the optional provisions of the ECSI.
commercial activity” in the territory of the United States.160 The commercial

assets exception is also generally accepted in the practice of states that do not have
immunity legislation,161 including the jurisdictions discussed in this article,
namely Germany,162 France,163 and Switzerland.164
The above examples show that the current law on state immunity favors the
“purpose test,” as opposed to the “nature test” which focuses on the nature of the
assets.165 The key concern is what is to be understood as coming within the term
“commercial activity” or “commercial purpose.” As will be demonstrated below,
the “purpose test” will require determination of two elements: whether the
relevant activity is commercial and whether the assets in question are used or
intended to be used for such an activity.
With regard to the first element, in 1977 the German Constitutional Court
observed that whether a state activity is sovereign or non-sovereign will in
principle have to be determined according to the national law applicable in each
case, since customary international law contains no criteria for establishing that
distinction.166 However, some context as to how to interpret the term “government
non-commercial purposes” under Article 19(c) of the UNCSI is provided by the
definition of a “commercial transaction” in Article 2(1)(c) of the Convention as
“(i) any commercial contract or transaction for the sale of goods or supply of
services; (ii) any contract for a loan or other transaction of a financial nature,
including any obligation of guarantee or of indemnity in respect of any such loan
or transaction; (iii) any other contract or transaction of a commercial, industrial,
trading or professional nature, but not including a contract of employment of
persons.”167 Similar definitions have been adopted in domestic state immunity
legislation. The FSIA, in Section 1603(d), defines “commercial activity” as “a
regular course of commercial conduct or a particular commercial transaction or
act.” It further provides that “[t]he commercial character of an activity shall be
determined by reference to the nature of the course of conduct or particular
transaction or act, rather than by reference to its purpose.”168 SIA Section 17
defines “commercial purpose” by reference to its Section 3(3), which describes
“commercial transaction” as “any contract for the supply of goods or services; any
160
FSIA, supra note 60, § 1610(a)(6).
161
162
Philippine Embassy Bank Account Case, Judgment of Dec. 13, 1977, Constitutional
Court, 65 I.L.R. 146, 155 (Ger.) (English translation).
163
Eurodif, supra note 147, at 1065; Société Sonatrach v. Migeon, Decision of Oct. 1,
1985, Cass civ 1re, 77 I.L.R. 525, 527 (English translation).
164
United Arab Republic v. Mrs X, Judgment of Feb. 10, 1960, Federal Tribunal, 65
I.L.R. 385, 391-92 (Switzerland) (English Translation).
165
YANG, supra note 84, at 393. The “nature test” which focuses on the nature of the
transaction is employed in the commercial exception from immunity from jurisdiction. See
id. at 86. Cf. FSIA, supra note 60, § 1603(d).
166
Philippine Embassy, supra note 162, at 185.
167
UNCSI, supra note 83, Art. 2(1)(c).
168
FSIA, supra note 60, § 1603(d).
loan or other transaction for the provision of finance and any guarantee or
indemnity in respect of any such transaction or of any other financial obligation;
and any other transaction or activity (whether of a commercial, industrial,
financial, professional or other similar character) into which a State enters or in
which it engages otherwise than in the exercise of sovereign authority.”169
As clarified in the context of the FSIA, “commercial activity” has been
formulated as a state activity which is analogous to an activity conducted by
private persons.170 The commercial character of an act will be determined by its
“nature” rather than its “purpose.” This means that the question is not whether the
foreign government is acting with a profit motive or with the aim of fulfilling
uniquely sovereign objectives, but whether the particular actions that the foreign
state performs are types of “actions by which a private party engages in trade and
traffic or commerce.”171
The second issue regarding the “commercial purpose” test is whether it is the
past, present, or future use of the property that is relevant for determination of the
purpose of the property. Using the phrase “used for commercial activity,” the
FSIA formulates the test in the past use.172 The SIA refers to present or past use.
The ILC Commentary indicates that the property must be used or intended to be
used for commercial purposes “at the time the proceeding for attachment or
execution is instituted.”173 Similarly, the German Constitutional Court held that it
is the “actual use” that is decisive.174 French courts take into consideration
“simultaneously the origin and use of the property.”175
Determining the purpose of the assets appears to be a challenging task.
Without any specific earmarking, the use of funds will be a matter within the
discretion of states. Domestic courts tend to be deferential to foreign states in this
regard. The property will be regarded as serving public purposes unless the
creditor can prove the contrary. This allocation of the burden of proof follows
from the general rule of immunity of state property in Sections 1609 of the
FSIA176 and 13(2)(b) of the SIA.177 French courts also apply a general
169
SIA, supra note 61, § 3(3).
170
As held by the United States Supreme Court in Argentina v. Weltover, a foreign
sovereign’s actions are “commercial” within the meaning of the FSIA when it acts “not as
a regulator of a market, but in the manner of a private player within it.” See Argentina v.
Weltover Inc., 504 U.S. 607, 614 (1992).
171
Id.
172
FOX, supra note 84, at 627.
173
174
Philippine Embassy, supra note 162, at 184.
175
Eurodif, supra note 147, at 1066.
176
The Section reads, “[A] foreign state shall be immune from attachment arrest and
execution except as provided in sections 1610 and1611 of this chapter.” FSIA, supra note
60, § 1609.
177
“(2) Subject to subsections (3) and (4) … (b) the property of a State shall not be
subject to any process for the enforcement of a judgment or arbitration award…” SIA,
supra note 61.
presumption that state property serves a sovereign purpose.178 Swiss courts,

however, have adopted a different approach. They will allow execution against
property which was not assigned for a sovereign purpose.179 The burden of
proving the sovereign purpose of the assets will be borne by the state.
Regardless of their commercial or public character, certain categories of
property will always be considered as serving a sovereign purpose, and thus be
immune to execution.180 The most significant exceptions concern the assets of
central banks, military property, and property used by diplomatic missions.181
Property of central banks is a fairly certain source of assets which makes it
particularly attractive for attachment by award creditors. However, due to the
peculiar character of these assets and their critical role in the functioning of a
state, they enjoy special protection under the regime of sovereign immunity. The
UNCSI as well as the domestic FSIA and SIA include non-rebuttable
presumptions of immunity of the assets.182 Attachment of central bank assets was
attempted in an ICSID case where the English court denied execution against
accounts held on behalf of the National Bank of Kazakhstan in order to satisfy an
ICSID award against Kazakhstan.183 There is, however, some state practice against
the presumption of immunity of central bank assets. In French courts, central
banks are treated no differently than other separate state entities addressed in the
following section.184 If a central bank has a legal personality distinct from that of a
178
Sonatrach, supra note 163, at 527.
179
FOX, supra note 84, at 628; Dana F. Freyer, Attachment of Debts Owed to
Sovereigns, in ENFORCEMENT OF ARBITRAL AWARDS AGAINST SOVEREIGNS, supra note
62, at 159, 175.
180
UNCSI, supra note 83, Art. 21(1). See Cedrik Ryngaert, Embassy Bank Accounts
and State Immunity from Execution: Doing Justice to the Financial Interests of Creditors,
26(1) LEIDEN J. INT’L L. 73, 78 (2013) (holding against the view that the catalogue under
Article 21 of the UNCSI represents customary international law).
181
Article 21 of the UNCSI lists five categories of property: “(a) property, including
any bank account, which is used or intended for use in the performance of the functions of
the diplomatic mission of the State or its consular posts, special missions, missions to
international organizations or delegations to organs of international organizations or to
international conferences; (b) property of a military character or used or intended for use
in the performance of military functions; (c) property of the central bank or other
monetary authority of the State; (d) property forming part of the cultural heritage of the
State or part of its archives and not placed or intended to be placed on sale; (e) property
forming part of an exhibition of objects of scientific, cultural or historical interest and not
placed or intended to be placed on sale.” Only the first three categories will be addressed
here. It should be noted that the catalogue in Article 21(1) is not exhaustive, as
demonstrated by the use of the term “in particular” in the chapeau of the provision.
UNSCI, supra note 83, Art. 21(1).
182
UNCSI, supra note 83, Art. 21(c); FSIA, supra note 60, § 1611(b)(1); SIA, supra
note 61, § 14(4).
183
AIG Capital Partners, supra note 122.
184
George K. Foster, Collecting from Sovereigns: The Current Legal Framework for
Enforcing Arbitral Awards and Court Judgements Against States and their
state, its assets will be denied immunity, but they can be attached only by its own
creditors, and not those of the state.185 The presumption of immunity will also not
arise in Switzerland. In Actimon, the Swiss Federal Tribunal refused to accept the
presumption that all funds held by the Central Bank of Libya were destined for
sovereign purposes.186 It held that immunity could only be claimed where the
assets at issue were allocated in an identifiable manner for the performance of
sovereign functions, and allowed attachment of the assets in question.187
The assets of diplomatic missions have proven to be another popular target of
award creditors.188 However, there is a well-established practice of domestic
courts to hold such assets immune as property serving sovereign purposes. They
are included in the catalogue of sovereign assets in Article 21(1) of the UNCSI.
The underlying idea is to protect the uninterrupted functioning of state missions.189
However, the assets listed in Article 21(1)(a) are limited to the property which is
in use or intended for use for the “purposes” of a state’s diplomatic functions.190
This excludes property, such as for example, bank accounts maintained by
embassies for commercial purposes.191
A controversy has arisen with regard to so called “mixed funds.” “Mixed
funds” are accounts maintained on behalf of a diplomatic mission but occasionally
used for payments for the supply of goods and services to the mission itself, and
are thus used simultaneously for public and commercial purposes.192 State practice
with regard to “mixed accounts” is deferential to foreign states.193 The current law
on state immunity tends to regard embassy accounts as one, indivisible sovereign
asset and to grant it immunity from execution.194 Indeed, a denial of immunity
could undermine the very rationale of immunity, which is to preserve the
Instrumentalities, and Some Proposals for its Reform, 25 ARIZ. J. INT’L & COMP. L. 665,
687 (2008).
185
Id.
186
Libyan Arab Socialist People’s Jamahiriya v. Actimon SA, Judgment of Apr. 24,
1985, Federal Tribunal, 82 I.L.R. 30, 31 (English translation).
187
Id.
188
E.g. Liberian Eastern Timber Corporation v. Liberia, 659 F. Supp. 606 (D.C. Cir.
1987) [hereinafter LETCO]; Decision of Oct. 4, 2005, Federal Supreme Court, VII ZB
8/05 (Ger.), available at http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.
py?Gericht=bgh&Art=en&nr=34537&pos=0&anz=1 [hereinafter Sedelmayer, German Federal
Supreme Court].
189
190
191
Id.
192
Id.
193
Based on state practice, the ILC supported the view on the inadmissibility of
attachment of the mixed accounts: “[T]he recent case law seems to suggest the trend that
the balance of such a bank account to the credit of the foreign State should not be subject
to an attachment order issued by the court of the forum State because of the non-
commercial character of the account in general.” Id.
194
YANG, supra note 84, at 420; Ryngaert, supra note 180, at 74-75.
performance of a state’s diplomatic functions.195 In the United Kingdom, this

general presumption is created by a peculiar requirement under SIA Section 13(5).
A certificate by the head of a foreign diplomatic mission that property is not used
or intended to be used for commercial purposes will be sufficient evidence to
establish the sovereign purpose of the assets, unless the creditor can prove the
contrary.196 The award creditor is thus charged with a difficult, nearly impossible
task of proving that the embassy’s assets are intended exclusively for commercial
uses. Such an inquiry could itself be considered inadmissible under the VCDR.
Article 24 stipulates that “[t]he archives and documents of the mission shall be
inviolable at any time.” Article 31(2) of the VCDR further provides that “[a]
diplomatic agent is not obliged to give evidence as a witness.”
Moreover, an additional difficulty in the execution of international arbitral
awards rendered against a foreign state lies in the overlap between state immunity
from execution and the immunity of diplomatic missions under the lex specialis
regime of diplomatic law. Article 3(1) of the UNCSI clarifies that the principles
laid down in the Convention are without prejudice to the “immunities enjoyed by
a State under international law in relation to the exercise of the functions
of…diplomatic missions.” Article 25 of the VCDR obligates the receiving state to
“accord full facilities for the performance of the functions of the mission.”197
Unless the sending state waives the immunity of the property of the diplomatic
mission, the execution of an award against an embassy of the respondent state will
be prevented under the VCDR.198 As stated by the Paris Court of Appeal in NOGA
I, with regard to the general waiver of state immunity from execution, establishing
an exception under the regime of state immunity of execution does not affect the
immunity afforded to the property under diplomatic law.199
In the case of military property, the sovereign purpose of the assets is evident.
Nonetheless, the UNCSI explicitly prescribes a presumption of sovereign
purpose.200 The FSIA renders military property absolutely immune from execution
and attachment.201 The property must be of a military character or be used or
195
LETCO, supra note 188, at 609. However, upholding the immunity from execution
of embassy accounts on the basis of diplomatic law has a shaky basis as these accounts are
not explicitly protected by the VCDR. See Ryngaert, supra note 180, at 76; cf. VCDR, supra
note 104, Art. 22(3). Nonetheless, in the NOGA case, as the VCDR does not explicitly grant
immunity to embassy accounts, the French court inferred the diplomatic protection of the
embassy accounts from Article 25 of the VCDR. See NOGA, supra note 128.
196
See Alcom, supra note 157. Likewise, the Supreme Court held that a statement of
use of the assets of a diplomatic mission exclusively for diplomatic purposes by the
counselor of the German embassy establishes prima facie evidence of the sovereign
purpose of the assets. Sedelmayer, supra note 188, at 4.
197
VCDR, supra note 104, Art. 25.
198
Sedelmayer, supra note 188, at 4.
199
NOGA, supra note 128, ¶¶ 5-6.
200
UNCSI, supra note 83, Art. 21(1).
201
FSIA, supra note 60, § 1611(b)(2).
intended for use in the performance of military functions.202 However, such

special status does not stop some creditors from attempting forced execution
against military assets. This can be illustrated in the attempted execution of a
judgment of the U.S. District Court for the Southern District of New York203
against an Argentinian warship, the ARA Libertad, by Argentina’s creditor, NML
Capital Investment, in 2012. The ship entered the port of Tema in Ghana and was
detained by the Ghanaian authorities after a local Ghanaian court granted NML’s
application for an injunction. At Argentina’s request, the International Tribunal for
the Law of the Sea issued a provisional measures order which upheld the
immunity of the ship and commanded its release pending constitution of an
arbitral tribunal.204
As demonstrated, due to presumptions and allocation of the burden of proof,
identifying commercial assets amenable to execution might be a very difficult
task. The difficulties that award creditors can face are well illustrated by the
decisions issued in the Sedelmayer saga. Sedelmayer’s failed attempts to collect
the award compensation granted by the tribunal at the Stockholm Chamber of
Commerce included unsuccessful applications to attach value added tax refunds
owed to Russia and paid into the accounts of the Russian Embassy in Berlin,205
payments owed by Lufthansa for overflight of Russian airspace,206 and property of
the Russian House of Science and Culture in Berlin.207 Nevertheless, Sedelmayer
achieved some prominent victories in his campaign. The first came in 2008, 12
years after the investment award was rendered, when the Cologne Court of
Appeals permitted execution against a Kremlin-owned apartment complex which
had formerly been used as an office of the Soviet trade mission.208 Sedelmayer
also obtained attachment of Russian assets in Sweden. The Swedish Supreme
202
Id.; UNCSI, supra note 83, Art. 21(1). The Brussels Convention clearly
distinguishes between state-owned ships in commercial service which are subject to
execution measures and military vessels enjoying immunity from execution. Brussels
Convention, supra note 104, Arts. 1 and 3.
203
NML Capital Ltd. v. Argentina, Dec. 18, 2006, not published (S.D.N.Y. 2006),
cited in ARA Libertad (Argentina v. Ghana), Case No. 2, Written statement of the
Repuiblic of Ghana (Nov. 18, 2012), available at https:/www.itlos.org/fileadmin/itlos/
documents/cases/case_no.20/WRITTEN_STATEMENT_OF_THE_REPUBLIC_OF_GH
ANA_-28_NOVEMBER_2012_2.pdf.
204
ARA Libertad (Argentina v. Ghana), Case No. 2, Order for prescription of
provisional measures, (Dec. 15, 2012), available at http://www.itlos.org/fileadmin/itlos/
documents/cases/case_no.20/C20_Order_15_12_2012.pdf. The matter was subsequently
settled and the arbitral proceedings were terminated.
205
Sedelmayer, supra note 188.
206
Decision of Oct. 4, 2005, Federal Supreme Court, VII ZB 9/05 (Ger.) available
at http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=
en&sid=6517d7e9cfb605db8841cd158bbcb8c2&nr=34320&pos=0&anz=1.
207
Decision of June 14, 2010, Court of Appeals, Berlin, 1 W 276/09 (Ger.) available
at http://www.italaw.com/sites/default/files/case-documents/italaw1524.pdf.
208
Decision of Mar. 18, 2008, Court of Appeals, Cologne, 22 U 98/07 (Ger.)
available at http://www.italaw.com/sites/default/files/case-documents/ita0764.pdf.
Court allowed execution against real estate constituting the former premises of the
Russian trade delegation.209
D. Particular Limitations to Execution of Awards Related to State Immunity from

Execution
1. Nexus Requirement
In some jurisdictions the courts will not allow execution against commercial-
purpose property unless the property is used for the activity upon which the claim
is based (subject-matter nexus), has a connection with the entity against which the
proceedings were instituted (entity nexus), or has a connection to the territory of
the state of enforcement and execution of the award (jurisdictional link).210
With regard to the first type of nexus requirement, a subject-matter connection
is prescribed by the FSIA. Section 1610(2) of the FSIA allows for execution against
property located in the United States and used for commercial purposes provided
that it is used for commercial activity upon which the claim was based. In relation to
arbitration awards, this limitation was removed through the 1988 amendment to the
FSIA which included an exception to the FSIA which was designed to facilitate
collection of arbitration awards in the United States.211 No link between the property
and the claim will be required when the judgment is based on an order confirming
an arbitral award rendered against a foreign state.212
Article 18(c) of the ILC Draft Articles on Jurisdictional Immunities of States
and Their Property required the property to have “a connection with the claim which
is the object of the proceeding or with the agency or instrumentality against which
the proceeding was directed.” This requirement proved to be controversial and was
dropped in the later work of the ILC.213 The UNCSI in its Article 19 contains a
modified linkage requirement which prescribes that the property must have “a
connection with the entity against which the proceeding was directed.” French
courts traditionally adhered to the subject-matter nexus requirement.214 However,
this requirement seems to have been abandoned in the more recent jurisprudence.215
Thus, the subject-matter connection requirement has lost much of its
significance. There is, however, one exception. Subject-matter nexus is required
by the ECSI. Article 26 of the ECSI provides that a judgment “may be enforced in
209
Russian Federation v. Franz J. Sedelmayer, Decision of July 1, 2011, Supreme
Court, Ö 170-10 (Sweden) (English translation), available at http://www.sccinstitute.com/
filearchive/4/41226/Case170_10ENG.pdf.
210
Generally on the nexus requirement, see Sun Jin, The Linkage Requirement in
Enforcement Immunity, 9 CH. J. INT’L L. 699 (2010).
211
Bjorklund, supra note 88, at 221.
212
FSIA, supra note 60, § 1610(a)(6).
213
214
Id. In Sonatrach the Cour de Cassation held that “[t]he assets of a foreign State
were not subject to attachment unless they had been allocated for a commercial activity
under private law upon which the claim was based.” Sonatrach, supra note 163, at 526.
215
Reinisch, supra note 127, at 822 (referring to the Creighton decision).
the State of the forum against property of the State against which judgment has
been given, used exclusively in connection with such an activity.”216
Creditors seeking collection of their awards in Switzerland may encounter an
additional difficulty, namely a requirement of a jurisdictional link of the
underlying dispute to Switzerland. The Swiss Federal Tribunal has developed in
its jurisprudence a specific requirement that must be met for enforcement of an
award in Switzerland. Namely, in order to initiate proceedings against state
property, a sufficient jurisdictional connexion with Switzerland must be
demonstrated.217 This is described by the German term “Binnenbeziehung.”218 The
Swiss Federal Tribunal has clarified when the connection to Swiss territory is
sufficient: “When the underlying claim arose in Switzerland, when it has been
performed there, or when the foreign State has performed in Switzerland acts
through which a place of performance has been created there.”219
It will not suffice that the debtor’s assets are located in Switzerland or that the
claim was confirmed by an arbitral tribunal having a seat in Switzerland.220
Binnenbeziehung qualifies the relaxed approach to state immunity in Switzerland.
In the context of investment arbitration, it will prevent execution of an award in a
very attractive jurisdiction. This was shown in the vacatur by the Swiss Federal
Tribunal of the attachment order rendered to satisfy an award arising from Libyan
nationalization in LIAMCO.221
Schneider and Knoll argue that Binnenbeziehung cannot be invoked in
relation to awards collected under the New York Convention because the nexus
requirement is not listed among the grounds to refuse enforcement under Article
V.222 They state that the situation is different in the context of the ICSID
Convention, which in Article 54(3) subjects execution of the awards to domestic
law.223 I do not agree with this contention. Binnenbeziehung pertains to the
enforceability of awards, not their actual execution. Therefore, it should not be
invoked in relation to ICSID awards as the ICSID Convention contains an
unqualified obligation to enforce the awards.224 The autonomous ICSID
enforcement regime was created specifically to shield awards from this kind of
interference on behalf of the domestic courts. The case of the New York
Convention is different as it lists permissible exceptions to recognition and
216
However, the actual impact of the ECSI with only eight parties and the optional
execution mechanism is questionable.
217
LIAMCO v Libya, Judgment of June 19, 1980, Federal Tribunal, 62 I.L.R. 228
(English translation) (Switz.).
218
German “Binnenbeziehung” stands for “inner connection.”
219
Moscow Center for Automated Traffic Control v. Geneva Supervisory
Commission of the Debt Collection Office, Judgment of Aug. 15, 2007, Federal Tribunal
(Switz.), cited in Schneider & Knoll, supra note 62, at 340-41.
220
Id.
221
LIAMCO, supra note 217.
222
Schneider & Knoll, supra note 62, at 344.
223
Id.
224
ICSID Convention, supra note 6, Article 54.
enforcement of the awards. It is submitted that Binnenbeziehung could fit into the
public policy exception under Article V(2)(b).
2. The Problem of Assets of Separate Entities

States often conduct their private law activities through agencies or separate
juridical entities owned or otherwise controlled by the state. Property owned by
these entities is likely to be targeted by investors as there will be strong evidence
that the property belonging to an entity engaged in commercial purposes will be
used for commercial purposes.225 However, such entities’ distinct legal personality
will often be an obstacle in the execution of an award against a state’s property. If
such entities were to be treated as separate from the foreign state, there would be a
strong incentive for the sovereigns to direct commercial revenues to the separate
entity’s organizational structure to avoid execution. Nonetheless, domestic legal
systems have developed methods to “pierce the corporate veil” of entities
controlled by a state to prevent such abuses.226 Analysis of the problem requires
answering the questions of whether the presumption of immunity applies to
property of separate entities and whether execution of arbitral awards can be
directed against their property once that presumption is rebutted.
The FSIA incorporates state agencies and instrumentalities into the definition
of a “foreign state” in Section 1603(a). In this way it extends the presumption of
immunity to state agencies and instrumentalities. FSIA defines an “agency or
instrumentality of a foreign state” as “any entity (1) which is a separate legal
person, corporate or otherwise, and (2) which is an organ of a foreign state or
political subdivision thereof, or a majority of whose shares or other ownership
interest is owned by a foreign state or political subdivision thereof, and (3) which
is neither a citizen of a State of the United States … nor created under the laws of
any third country.”227 The United States applies a presumption of “separateness”
to government instrumentalities.228 As clarified by the Supreme Court in Bancec,
this presumption can be rebutted when the entity is “so extensively controlled by
its owner that a relationship of principal and agent is created” or where
recognizing its separate status would “work fraud or injustice.”229 The criteria
taken into consideration in an “alter ego” inquiry include: the level of economic
control over the property by the government of the foreign state; whether the
profits of the property go to that government; the degree to which officials of that
government control the daily affairs of the property; whether that government is
the sole beneficiary in interest of the property; and whether establishing the
property as a separate entity would entitle the foreign state to benefits in United
States courts while avoiding its obligation.230
225
226
Id. at 287.
227
FSIA, supra note 60, § 1603(b).
228
FNC Bank v. Banco Para el Comercio, 462 U.S. 611, 626-27 (1983).
229
Id. at 629.
230
Cf. FSIA, supra note 60, § 1610 (g)(1).
The SIA takes a position different from that of the FSIA and does not accord a
presumption of immunity to separate entities. SIA Section 14(1) stipulates that
state immunities do not extend to “any entity…which is distinct from the
executive organs of the government of the State and capable of suing or being
sued.”231 Section 14(2) provides that a separate entity can invoke immunity from
jurisdiction before the courts of the United Kingdom only if the proceedings relate
to an act by that entity “in the exercise of sovereign authority” and if its parent
state in the same circumstances would be entitled to immunity. Thus, the assets of
separate entities will not be entitled to immunity, unless the entities are engaged in
sovereign activities and the assets are used for this activity.
The general rule is that the British courts must respect the separate legal
personality of the entities.232 Nonetheless, the courts will treat the assets of
separate entities as assets of a state under some circumstances. This will be the
case when the separate entity was created by a “sham” to avoid liability by the
state.233 Disregarding the entity’s separate personality might also find its basis in
the principal-agent relationship when the parent state controls and directs a
subsidiary so closely that the subsidiary has effectively functioned as the agent of
the state.234
French courts will permit attachment of the assets of a separate state agency or
instrumentality by an award creditor if it can be established that the entity can be
regarded as an emanation of the state. This will usually require dependence of the
entity’s “patrimony” upon the state, i.e., a determination that its budget relies on
contributions from the state, or that the state manages the entity’s finances.235 In
an ICSID case, Benvenuti & Bonfant, the Court of Cassation denied execution
against the funds held by Banque Commerciale Congolaise in a French bank as it
did not find sufficient control by the Congo to consider Banque Commerciale
Congolaise an emanation of the state. The control that the State of Congo
exercised over the bank was not enough to regard it as an emanation of the
State.236 It should be recalled that French courts treat central banks no differently
than other state entities.237
The UNCSI adopts a functionalist approach similar to that employed in the
SIA. It includes “agencies or instrumentalities of the State or other entities, to the
extent that they are entitled to perform and are actually performing acts in the
exercise of sovereign authority of the State” in its definition of a “state” under
Article 3(1)(b)(iii). The presumption of immunity of the property of an entity will
be dependent on the determination that the entity performs sovereign activities
and that the property is used or intended to be used for such activities. The
231
SIA, supra note 61, § 14(2).
232
Foster, supra note 184, at 685.
233
Id.
234
Id.
235
Id. at 686.
236
Benvenuti & Bonfant v. Banque Commerciale Congolaise, Decision of July 21,
1987, Cass, 82 I.L.R. 91, 92 (Fr.).
237
Supra at II.B.1.
property will be protected only to the extent that it is used for sovereign activities.
The separate entity bears the burden of proving that the entity is engaged in
sovereign activities.
This presumption can be rebutted by establishing that the “commercial assets”
exception under Article 19(c) of the UNCSI applies. It should be recalled that this
provision requires the property to have “a connection with the entity against which
the proceeding was directed” for the execution against it to take place. The term
“connection” is to be understood as broader than “ownership” or “possession.”238
As further clarified in the Annex to the Convention, “Article 19 does not prejudge
the question of ‘piercing the corporate veil,’ questions relating to a situation where
a State entity has deliberately misrepresented its financial position or subsequently
reduced its assets to avoid satisfying a claim, or other related issues.”239
E. Assessment
The development of the restrictive doctrine of state immunity has hardly

affected the scope of sovereign immunity from execution. In the light of the
recognition of the private sphere of activities of a state under the restrictive
doctrine, the nearly absolute state immunity from execution seems to be
reminiscent of the age of absolute state sovereignty.
One of the biggest challenges in analyzing international law on state immunity
is its structure. The current customary international law includes a “grey area” in
which states can adopt different legal solutions without departing from what is
required by general international law.240 This makes it difficult to identify the
common denominator under customary international law. Part II of this article
demonstrated that the approaches adopted in various jurisdictions differ in their
treatment of waivers of immunity from execution, the special role of central
banks, the allocation of burdens of proof with regard to separate entities, and
nexus requirements. This compels investors seeking execution to have intimate
knowledge of the peculiarities of the laws of different jurisdictions. A further
obstacle to execution of investment arbitration awards is posed by the
fragmentation of international immunity regimes, which complicates the situation
even further.
Part II identified two general exceptions to state immunity from execution:
waivers and state assets used exclusively for commercial purposes. As
exemplified by the NOGA I decision, a seemingly effective solution to the
executory state immunity problem such as a waiver of immunity from execution
by a state has limitations when it comes to attachment of property protected under
diplomatic law. The existing international law regime makes it extremely difficult
to identify state assets used for commercial purposes. Moreover, the most obvious
238
UNCSI, supra note 83, Annex.
239
Id.
240
As stated by Judge Gaja in his dissenting opinion in relation to the tort exception
under Article 12 of the UNCSI concerning military activities. Gaja, Dissenting Opinion,
supra note 120, at 318.
sources of assets, namely property of diplomatic missions, central banks, and

separate entities affiliated with a state are protected by presumptions of immunity,
which, as demonstrated, are often nearly impossible to rebut. Absent specific
earmarking for purposes of satisfaction of an award, award creditors will struggle
to identify the assets susceptible to execution and their initial victory in the
investment arbitration proceedings can prove illusory.
States are aware of their advantage. They can allocate their assets to entities
enjoying a non-rebuttable presumption of immunity. Commentators invoke the
example of Argentina, which has transferred its hard currency assets held by its
central bank to the Bank for International Settlements in Basel, the “central banks’
central Bank,” where they are exempt from execution due to the immunities
granted in Switzerland and other jurisdictions.241 States can also benefit from
challenges posed to investors by the allocation of the burden of proof in relation to
separate entities, which may permit recalcitrant states to bury their commercial
assets in the organizational structures of such entities.
III. MITIGATING THE PROBLEM OF SOVEREIGN IMMUNITY AGAINST

EXECUTION OF INVESTMENT AWARDS
A. Systemic Solution
Parts I and II identified a systemic problem in the mechanisms for collection

of international investment arbitration awards under the ICSID and New York
Conventions. Absent the respondent state’s voluntary compliance with the award,
investors are likely to be left with no effective remedy to execute the award due to
the principle of state immunity from execution. Proposals for a systemic solution
to the problem of state immunity from execution in the collection of international
investment awards can be divided into three groups: those pertaining to a change
in the general international law on sovereign immunity, solutions incorporated
into the investment law regime, and proposals related to a more efficient use of
the existing framework.
The ideal solution to the problem would require a change in the general
international law on the issue. States would need to adopt uniform restrictive rules
on state immunity from execution. This could be achieved, to some extent, once
the UNCSI enters into force. However, it is unlikely that it would reach a
ratification rate similar to that of the New York or ICSID Conventions.242
241
David W. Rivkin & Christopher K. Tahbaz, Attachment and Execution on
Commercial Assets, in ENFORCEMENT OF ARBITRAL AWARDS AGAINST SOVEREIGNS,
supra note 62, at 148.
242
Currently there are 150 parties to the New York Convention (as of Sept. 22, 2014),
see Status, Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention
_status.html, and 150 parties to the ICSID Convention, see List of Contracting States and
Other signatories of the Convention, available at https://icsid.worldbank.org/ICSID/
Moreover, it is not clear whether a wide adoption of the UNCSI would provide for
a unified regime of execution of international investment awards. The rules
contained in the UNCSI lack specificity and leave a substantial “grey area” which
allows for diverging interpretations by states, for instance in relation to the
commercial purpose of the use of state property in Article 18(1)(c).243 Therefore,
the creation of a uniform regime on sovereign immunity from execution in the
collection of international investment awards, even with the adoption of the
UNCSI by parties to the ICSID and New York Conventions, is very unlikely.
With regard to the potential reform of investment law, it is argued that
creating a lex specialis regime within international investment law is more
realistic than adopting an overarching set of rules on state immunity by the
international community. This could be achieved by adopting amendments to the
existing investment law treaties or creating a specialized treaty or soft law
instrument on state immunity. The former solution is not feasible given the
number of existing international investment treaties. It would not be feasible for
states to review over 3000 treaties currently existing, to introduce amendments
relating to the execution of international investment awards.244 With regard to
harmonization of domestic regimes through a soft law instrument, Fox proposed
the adoption of minimal international standards on state immunity from execution
in the collection of arbitral awards through an UNCITRAL Model Law on
attachment of state property and collection of international arbitration awards.245
Individual states could adopt the Model Law by incorporating it into their
domestic law. The plausibility of this solution is informed by the large success of
the UNCITRAL Model Law on International Commercial Arbitration, which has
been incorporated in more than 60 jurisdictions.246 Such rules should not depart
from the general solutions adopted in the UNCSI to avoid possible conflicts once
the Convention enters into force. However, they should avoid the biggest
deficiency of the Convention, namely its over-generality, and should precisely
regulate the exemptions from state immunity from execution which are subject to
diverging practice in different jurisdictions. In particular, they should lay down a
test for commercial purpose of the assets, conditions for waiver of state immunity
from execution, and formulate an “alter ego” test for separate state entities. The
FrontServlet?requestType=ICSIDDocRH&actionVal=ShowDocument&language=English.
This is compared to 16 parties to the UNCSI. See supra note 114.
243
Hazel Fox, State Immunity and Enforcement of Arbitral Awards: Do We Need an
UNCITRAL Model Law for Execution Against State Property?, 12 ARB. INT’L 89, 91
(1996).
244
The most comprehensive database for international investment agreements by the
UNCTAD covers more than 3400 treaties. See UNCTAD, IIA Database, available at
http://unctad.org/en/pages/DIAE/International%20Investment%20Agreements%20(IIA)/II
A-Tools.aspx.
245
Fox, supra note 243, at 93.
246
Stravos L. Brekoulakis & Laurence Shore, UNCITRAL Model Law. Introductory
Remarks, in CONCISE INTERNATIONAL ARBITRATION 581, 581 (Loukas A. Mistelis ed.,
2010).
rules should also address special regimes of immunity from execution, such as
these applicable to property of embassies and central banks. It is submitted that
these rules should adopt a creditor-friendly approach. This would be expressed in
balanced principles on burden of proof. Moreover, such rules could provide for a
uniform procedure on recognition, enforcement, and execution of awards and
eliminate the problems related to the application of collection mechanisms under
the ICSID and New York Conventions as presented in Part I of this article.
Rather than creating a comprehensive set of lex specialis principles on state
immunity, some more specific solutions could be adopted. An example of such a
solution could be represented by waivers of state immunity from execution. The
wording of such waivers was proposed by the ICSID in Model Clause 15. It reads:
“The Host State hereby waives any right of sovereign immunity as to it and its
property in respect of the enforcement and execution of any award rendered by an
Arbitral Tribunal constituted pursuant to this agreement.”247 So far, states have
been reluctant to include waivers of immunity in their investment treaties.
Generally, investment treaties do not include any provisions relating to
enforcement and execution of international investment awards. Changing the
investment law regime through wide adoption of waivers of state immunity from
execution is infeasible due to the large number of investment agreements.
Moreover, as presented in Part II, general waivers, such as that proposed by the
ICSID Model clause, create some interpretational difficulties. Following the
interpretation of general waivers of immunity by the French courts, supported by
the work of the ILC, such waivers would not extend to property protected under
the special regimes as indicated in Article 21 of the UNCSI. This could undermine
their practical significance.
Another alternative would be a mechanism established by international
convention whereby a fund would pay amounts due to creditors under awards
against participating states.248 Such a fund could be administered by the ICSID
and established through contributions from contracting states to the Convention,
from which eligible debts would be paid. Such a solution is unlikely to raise
controversy related to the existing rules on state immunity. Among the exceptions
from the principle of state immunity from execution, only earmarking is not
subject to differential treatment in domestic jurisdictions or creates
interpretational problems. However, there are some practical difficulties
concerning such a solution. States that have been challenged in investment
arbitration disputes will consider themselves likely to benefit from such a solution,
whereas states that have not had a similar experience may find the incentive to
join such a fund insufficient.
The least invasive solutions, which, however, do not provide a systemic
solution to the problem, would include increased transparency of domestic laws. For
example, the relevant laws on execution and state immunity in state parties to the
247
ICSID Model Clauses, available at https://icsid.worldbank.org/ICSID/Front
Servlet?actionVal=ModelClauses&requestType=ICSIDDocRH.
248
Foster, supra note 184, at 726.
ICSID Convention could be published by the ICSID Secretariat. Another solution

would be extending the protection under award arbitration default insurance
coverage available in contract-based arbitrations to investment arbitrations.
B. Remedies Available Directly to Investors
1. Post-Award Settlement
A post-award settlement can be an alternative to voluntary compliance with an

award and to the use of the collection mechanism involving action on the part of
domestic courts. Post-arbitral award settlement refers to an agreement concluded
between the parties to the original award, after the award has been rendered by the
arbitral tribunal, which modifies the rights and obligations arising from the award
by changing the terms of its performance.249 In exchange for a guarantee of
prompt payment, an investor may relinquish its rights under the original award
and agree to a lower amount of compensation, a different time frame, or payment
in installments.250 The quantitative data gathered in a survey conducted in 2008
reveal that 54% of the participating corporations negotiated a post-award
settlement amounting to over 50% of the award, whereas 35% of the corporations
settled for an amount in excess of 75% of the award.251
Investors may be likely to accept post-award settlement in order to avoid a
potentially lengthy and costly process of recognition and enforcement of the
award.252 The difficulty of locating assets of a recalcitrant state susceptible of
attachment in a third state can be another reason why investors would be inclined
to settle in a particular case. Post-award settlement might also be regarded as an
alternative to enforcement when the investor wishes to maintain reasonably good
business relations with the host state or a third state linked to it.253 Although such
settlements are rarely made public, there are reported cases of investors having
negotiated post-award settlements.254 For example, in 2013 Argentina reached a
post-award settlement with award creditors in the CMS, Azurix, Vivendi,
Continetal Casualty, and National Grid cases.255 The investors agreed to a lower
amount of compensation, paid in the form of Argentinian sovereign bonds.
249
Mistelis & Baltag, supra note 10, at 339.
250
Id.
251
Id. at 342.
252
Id. at 339.
253
Jorge E. Viñuales & Dolores Bentolila, The Use of Alternative (Non-Judicial)
Means to Enforce Investment Awards against States, in DIPLOMATIC AND JUDICIAL MEANS
OF DISPUTE SETTLEMENT 247, 257 (Laurence Boisson de Chazournes et al. eds., 2012).
254
For instance, the terms of the post–award settlement in Cargill v. Mexico remain
undisclosed. See Nate Raymond, REUTERS, Cargill settles NAFTA dispute with Mexico
(Feb. 21, 2013), available at http://www.reuters.com/article/2013/02/22/cargill-mexico-
idUSL1N0BLEIU20130222.
255
Allen & Overy Publications, Argentina settles five investment treaty awards,
available at http://www.allenovery.com/publications/en-gb/Pages/Argentina-settles-five-
investment-treaty-awards.aspx.
2. Human Rights Claims
In the Sedelmayer saga, the leading case on compliance with and execution of
international investment awards, a dispute related to non-execution of the award
rendered by a Stockholm Chamber of Commerce tribunal was brought before the
European Court of Human Rights (“ECtHR”).256 Mr. Sedelmayer claimed that the
conduct of the German authorities in the execution proceedings violated his rights
under Article 1 of Protocol No. 1 (protection of property), as well as Articles 6
(right to a fair trial) and 13 (right to an effective remedy) of the European
Convention on Human Rights (“ECHR”).257 The case concerned two joined
applications regarding non-execution of the award against value added tax
reimbursements owed to the Russian Federation and Russia’s claims to air traffic
fees against the German airline, Lufthansa. In both cases, the execution was
refused by the German authorities because the claims in question were protected
by the principle of sovereign immunity from execution.258 The Court qualified a
claim to compensation under an award as a possession in terms of Article 1 of
Protocol No. 1.259 However, the interpretation of the individual right guaranteed
under Article 1 required taking into account sovereign immunity as a principle of
customary international law in accordance with Article 31(3)(c) of the VCLT.260
The ECtHR observed that the principle of immunity of State property from
execution is subject to “certain strictly delimited exceptions” and “[a] State cannot
be required to override against its will the rule of State immunity.”261 In the
Court’s view, in this case “the German courts struck a fair balance between the
demands of the general interest of the community and the requirements of the
protection of the individual’s fundamental rights.”262 Sedelmayer’s claims were
found manifestly ill-founded and therefore declared inadmissible.263
Sedelmayer v. Germany was not the only case concerning execution of an
international arbitration award before the ECtHR. In Regent v. Ukraine, the Court
256
Franz J. Sedelmayer v. Germany, Decision on Admissibility, App.
Nos. 30190/06 and 30216/06 (Nov. 10, 2009) [hereinafter Sedelmayer, Admissibility].
257
European Convention for the Protection of Human Rights and Fundamental
Freedoms, as amended by Protocols Nos. 11 and 14, Apr. 11, 1950, 213 U.N.T.S. 221.
258
Sedelmayer, Admissibility, supra note 256, at 2.
259
Id. at 7. Article 1 of Protocol No. 1 to the ECHR reads:
Every natural or legal person is entitled to the peaceful enjoyment of his
possessions. No one shall be deprived of his possessions except in the public
interest and subject to the conditions provided for by law and by the general
principles of international law.
The preceding provisions shall not, however, in any way impair the right of a
State to enforce such laws as it deems necessary to control the use of property in
accordance with the general interest or to secure the payment of taxes or other
contributions or penalties.”
Protocol No. 1 to the ECHR, supra note 257, Article 1.
260
261
Id. at 9.
262
Id. at 10.
263
Id.
held that Ukraine’s continued non-execution of the award rendered by the

International Commercial Arbitration Court at the Chamber of Commerce and
Industry of Ukraine amounted to a violation of Article 1 of Protocol No. 1.264
Similarly, in Kin-Stib and Majkić v. Serbia, the Court found a violation of this
provision in the failure to execute the award of the Foreign Trade Arbitration
Court of the Yugoslav Chamber of Commerce by the Serbian courts.265 However,
the issue of sovereign immunity from execution arose in neither of these cases.
A human rights claim can serve as a remedy directed at a member state of the
Convention where the proceedings pertaining to enforcement and execution of the
award take place. Both cases where a violation of the Convention right to peaceful
enjoyment of possessions was found involved manifest failures to execute the
award by the domestic judiciary systems. The arbitral award in Regent was
granted enforcement in 1999. It had not been executed when the ECtHR’s
judgment was rendered in April 2008. In Kin-Stib and Majkić the award was
granted enforcement in 1996.266 The proceedings related to its execution were still
pending at the time when the judgment was rendered by the ECtHR in 2005.267
A human rights claim before the ECtHR could be a remedy against non-
enforcement and non-execution of an investment arbitral award caused by
deficiencies of the judicial systems of the member states of the Convention, or
bias of the national authorities against the award creditors. Ironically, investor-
state arbitration was created specifically to minimize the risk of bias of the host
states’ authorities towards investors and to avoid the deficiencies of under-
developed judicial systems. However, as demonstrated in Sedelmayer v. Germany,
a human rights claim in the ECtHR will not provide a remedy when execution is
denied because the property against which the award creditor seeks execution
enjoys immunity under international law.
3. Failure to Enforce and Execute an Arbitral Award as an Investment Claim
Theoretically, a failure to recognize, enforce, or execute an award could be
considered a violation of investors’ rights under a BIT, i.e., an expropriation or a
denial of justice.268 Such proposition relies on a determination of whether claims
related to an award can be regarded as an investment enabling an investment
tribunal to exercise jurisdiction. The application of such a proposition in practice
is conceivable, taking into consideration more recent arbitral jurisprudence.
State responsibility for non-enforcement of an arbitral award was first
confirmed in Saipem v. Bangladesh.269 The claimant instituted proceedings at
264
Regent Company v. Ukraine, App. No. 773/03 (Apr. 3, 2008).
265
Kin-Stib and Majkić v. Serbia, App. No. 12312/05 (Apr. 20, 2010).
266
Id. at 3.
267
Id. at 5.
268
See generally Loukas A. Mistelis, Award as an Investment: The Value of an
Arbitral Award or the Cost of Non-Enforcement, 28(1) ICSID REV.-FOREIGN INVESTMENT
L.J. 6 (2013).
269
Saipem SpA v. People’s Republic of Bangladesh, ICSID Case No. ARB/05/7,
Decision on Jurisdiction and Recommendation on Provisional Measures (Mar. 21, 2007)
[hereinafter Saipem, Jurisdiction].
ICSID in connection with the alleged violation of the expropriation provision of

the Italy-Bangladesh BIT through interference of Bangladeshi courts with an ICC
award. The dispute before the ICC concerned a contract for construction of a
pipeline concluded between Saipem, an Italian company, and Petrobangla, a
Bangladeshi State-owned company. The ICC tribunal rendered an award in favor
of Saipem.270 On the subsequent application by Petrobangla to set aside the award,
the Supreme Court of Bangladesh held that the award “is a nullity in the eye of the
law and . . . cannot be treated as an Award in the eye of the law as it is clearly
illegal and without jurisdiction.”271 Consequently, it found the award non-
existent.272 As such it could neither be set aside nor enforced.273 Saipem argued
that the lack of enforcement deprived it of the compensation award, which thus
constituted an unlawful expropriation. The ICSID tribunal found jurisdiction and
held that the unlawful interference of the court amounted to expropriation and
decided in favor of the investor.274 For the purpose of determining whether there is
an investment under Article 25 of the ICSID Convention, the tribunal considered
the entire operation and decided that the dispute arose out of the overall
investment.275 The rights embodied in the ICC award were not created by the
award, but arose out of the construction contract.276 According to the tribunal, the
award only crystallized the rights and obligations under the original contract.277
In Romak v. Uzbekistan an investment arbitration tribunal considered whether
the Uzbek courts’ failure to recognize and enforce a GAFTA arbitration award
amounted to a breach of the Switzerland-Uzbekistan BIT.278 Following reasoning
similar to that employed in Saipem, the tribunal held that the award represented “a
mere embodiment or crystallization of rights” arising from the transaction, and as
such could not “transform it into an investment.”279 It decided, on the facts in that
case, that the underlying transaction was a sales contract which did not meet the
requirements for an “investment.”280 Conversely, the tribunal in GEA v. Ukraine
found the Saipem approach unconvincing.281 The tribunal decided that the award
rendered by the International Commercial Arbitration Court at the Chamber of
270
Id. ¶ 34.
271
Id. ¶ 36.
272
Id.
273
Id.
274
Saipem SpA v. People’s Republic of Bangladesh, ICSID Case No. ARB/05/7,
Award (June 30, 2009).
275
Saipem, Jurisdiction, supra note 269, ¶¶ 110, 114.
276
Id. ¶ 127.
277
Id.
278
Romak S.A. v. Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280,
Award (Nov.26, 2009).
279
Id. ¶ 211.
280
Id. ¶ 241.
281
GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award
(Mar. 31, 2011). Interestingly, the dispute arose from the same set of facts as Regent v.
Ukraine before the ECtHR. See supra note 264.
Commerce and Industry of Ukraine could not amount to an “investment” in terms

of Article 1(1) of the Germany-Ukraine BIT or Article 25 of the ICSID
Convention.282 The White Industries v. India award rendered the same year
heavily criticized the approach applied in GEA v. Ukraine.283 The UNCITRAL
tribunal agreed with the reasoning employed by the Saipem tribunal and found
that the award was a part of White Industries’ original investment284 and the
failure to enforce an ICC award by the Indian courts amounted to a violation of
the Australia- India BIT.285
The above analysis of the jurisprudence shows that a failure to execute an
investment arbitration award can be considered a violation of the expropriation
provisions of an investment treaty. The condition for a tribunal to make such a
determination is that the overall operation which gave rise to the claims
adjudicated in the award must qualify as an “investment.” It is difficult to accept
that a claim submitted to an arbitral tribunal can offer an effective remedy to
investors struggling with a sovereign immunity bar to collection of their awards.
At the merits phase of the case a tribunal would need to determine whether there
was a violation of investment treaty provisions. The principle of sovereign
immunity would be taken into consideration by the tribunal either under Article
31(1)(c) of the VCLT286 or Article 42(1) of the ICSID Convention.287 An
investment tribunal would likely arrive at a conclusion similar to that reached by
the ECtHR in the Sedelmayer case and hold that state authorities did not violate
the rights granted to an investor under international investment law when the non-
execution of the award is caused by the application of the principle of sovereign
immunity from execution.288
282
Id. ¶¶ 158-164.
283
White Industries Australia Limited v. The Republic of India, UNCITRAL, Award
(Nov. 30, 2011) (“the conclusion expressed by the GEA Tribunal represents an incorrect
departure from the developing jurisprudence on the treatment of arbitral awards to the
effect that awards made by tribunals arising out of disputes concerning transformation of
the original investment.” Id. at ¶ 7.6.8).
284
Id. ¶ 7.6.10.
285
Id. ¶ 16.1.1.
286
The general rule of interpretation under Article 31(1)(c) of the VCLT provides that
“[t]here shall be taken into account, together with the context: (c) [a]ny relevant rules of
international law applicable in the relations between the parties.” VCLT, supra note 40,
Art. 31(1)(c).
287
ICSID Convention, supra note 6, Art. 42(1) (“The Tribunal shall decide a dispute
in accordance with such rules of law as may be agreed by the parties. In the absence of
such agreement, the Tribunal shall apply the law of the Contracting State party to the
dispute (including its rules on the conflict of laws) and such rules of international law as
may be applicable”).
288
Sedelmayer, Admissibility, supra note 256, at 9-10.
C. Remedies Involving Action by the State of Nationality of the Investor
1. Interstate Dispute Settlement
Diplomatic protection is an alternative and supplement to the mechanism for

collection of awards in Articles 53-55 of the ICSID Convention.289 The possibility
of recourse to diplomatic protection as a remedy available in the case of non-
compliance with awards, recognized in Article 27 of the ICSID Convention, was
designed to counterbalance state immunity against execution preserved by Article
55.290 According to Article 27, the parties to the Convention relinquish their right
to grant diplomatic protection to their nationals or to bring an international claim
in relation to a dispute that they have consented to submit to arbitration, unless
another contracting state “shall have failed to abide by and comply with the award
rendered in such dispute.”291 Article 27 allows for two types of international
recourse related to breach of the obligation to comply with awards. Firstly, the
state of the investor’s nationality can espouse the claim of the investor and
exercise diplomatic protection. Secondly, the state of the investor’s nationality can
initiate interstate proceedings without resorting to diplomatic protection.
Diplomatic protection is a concept of customary international law whereby a
state espouses the claim of its national based on an injury caused by an
internationally wrongful act by another state and pursues it in its own name.292
Customary international law sets forth three conditions for exercising diplomatic
protection by a state in relation to an injured person: a violation of international
law, exhaustion of local remedies, and a link of nationality between the person
and the state exercising protection.293 Article 17 of the ILC Draft Articles on
Diplomatic Protection provides that the rules codified therein “do not apply to the
extent that they are inconsistent with special rules of international law, such as
treaty provisions for the protection of investments.”294 This can modify the
requirements in relation to the diplomatic protection exception in non-compliance
with investment awards.295
The question that arises is what test of nationality of corporations should be
applicable for purposes of diplomatic protection exercised in accordance with
Article 27 of the ICSID Convention. The International Court of Justice (“ICJ”)
has traditionally adhered to a test focused on the locus of the corporation’s
289
290
Id. at 427.
291
ICSID Convention, supra note 6, Art. 27.
292
Draft Articles on Diplomatic Protection, Art. 1. Draft Articles on Diplomatic
Protection with commentaries, in Report of the International Law Commission to the
General Assembly on the works of its fifty-eighth Session, U.N. GAOR, 58st Sess. Supp.
No. 10, UN Doc A/61/10 (2006), 22, 24-25, ¶¶ 2-3.
293
Id. Arts. 3, 14
294
Id. Art. 17.
295
See Victorino J. Tejera Pérez, Diplomatic Protection Revival for Failure to Comply
with Investment Arbitration Awards, 3(2) J. INT’L DISP. SETTLEMENT 445, 461 (2012).
registered seat and/or of its incorporation.296 A similar test has been formulated in
Article 9 of the ILC Draft Articles on Diplomatic protection.297 Article 25(2)(b) of
the ICSID Convention offers a more flexible model in which the parties may
determine the nationality of the foreign investor by agreement under certain
circumstances. For purposes of non-compliance claims under the ICSID
Convention, the nationality test under Article 25 should be respected.298 This is
supported by the use of the expression “for the purposes of this Convention”
instead of “for purposes of the ICSID jurisdiction” in Article 25(2)(b) of the
ICSID Convention.299
The exclusion of the requirement of exhaustion of local remedies in ICSID
Article 26 should also apply to cases of diplomatic protection for non-
compliance.300 It seems, however, that the investor should first use the mechanism
for collection of the award under Article 54 of the ICSID Convention.301
Moreover, during negotiation of the ICSID Convention, the possibility of
resorting to diplomatic protection was regarded as an ultima ratio and a necessary
check on the shield provided to host states by immunity from execution.302 This
would imply that diplomatic protection can be exercised only when the investor is
not able to recover his award through ordinary action under the ICSID collection
mechanism in Article 54.
Despite the lack of provisions explicitly allowing for diplomatic protection, an
investor’s claim can be espoused by a state in cases of non-compliance with non-
ICSID awards. Violation of the obligation to comply with the investment award
under international law should provide a sufficient basis for a state to espouse the
claims of its nationals in accordance with customary international law.303
With regard to the second type of non-compliance claims, Article 64 of the
ICSID Convention provides that disputes between contracting parties concerning
296
Barcelona Traction, Light and Power Co. Ltd. (Belg. v. Spain), Judgment, 1970
I.C.J. 3 (Feb. 5).
297
However, Article 9 of the Draft Articles on Diplomatic Protection in its second
sentence provides for an exception to this general rule: “[W]hen the corporation is
controlled by nationals of another State or States and has no substantial business activities
in the State of incorporation, and the seat of management and the financial control of the
corporation are both located in another State, that State shall be regarded as the State of
nationality.”
298
299
Id.
300
Martins Paparinskis, Investment Arbitration and the Law of Countermeasures,
79 BRIT.Y.B. INT’L L. 264, 312 (2008).
301
See Pérez, supra note 395, at 464 (who comes to this conclusion through a
different reasoning. He asserts that the exhaustion of local remedies applies to diplomatic
protection in cases of non-compliance with the awards. In such cases, “the available
domestic remedy to be exhausted is requesting recognition and enforcement of the award
before the courts of the losing State.”).
302
Viñuales & Bentolila, supra note 253, at 269.
303
Pérez, supra note 295, at 474.
the interpretation or application of the Convention are to be referred to the ICJ.304

The scope of this provision is broader than that of Article 27 and arguably, allows
for submission of a dispute relating to compliance with the Convention to the ICJ
by every state party to the Convention in its own right, without the necessity to
prove a bond of nationality to an aggrieved investor.305 Moreover, resort to the ICJ
would also be possible against a state party to the ICSID Convention that was not
a party to the original ICSID proceedings if it fails to recognize and enforce an
award in violation of Article 54.306 Many bilateral investment agreements contain
similar provisions on state-to-state dispute settlement relating to interpretation and
application of those agreements.307
Some investment treaties also expressly provide for state-to-state arbitration in
case of non-compliance with awards, such as under Article 1136(5) of the North
American Free Trade Agreement (“NAFTA”).308 In the case of a failure to comply
with an award by the state of nationality, the investor may request the Free Trade
Commission to establish a panel in accordance with NAFTA Article 1136(5). The
panel can declare the failure to abide by the award inconsistent with the
obligations under the Agreement and recommend that the recalcitrant state party
comply with the award.309 To date the establishment of a panel under Article
1136(5) of NAFTA has not been requested. A compliance mechanism is also
provided in Article 34(8) of the 2012 United States Model BIT.310 It allows for
state-to-state proceedings before an arbitration tribunal which can make
determinations as to whether the non-compliance of the respondent state is
304
ICSID Convention, supra note 6, Art. 64.
305
See SCHREUER, supra note 15, at 423 (holding that a claim would be based on the
argument that every Contracting Party has an enforceable interest in the observance of the
Convention). However, it is not clear whether a failure to comply would be a sufficient
basis to give standing to parties to the Convention other than the state of nationality of the
investor. See Article 42 of the Articles on Responsibility of States for Internationally
Wrongful Acts, in Report of the International Law Commission on the work of its fifty-
third session, U.N. Doc A/56/10, reprinted in [2001] 2(2) Y.B. INT’L L. COMM’N 26,
U.N.Doc A/CN.4/SER.A/2001/Add.1 (Part 2).
306
SCHREUER, supra note 15, at 1261
307
See, e.g., Agreement between the Republic of India and the Kingdom of the
Netherlands for the Promotion and Protection of Investments, Nov. 6, 1995, Art. 10,
available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/1584; Agreement
Between the Government of the Republic of Turkey and the Government of the Islamic
Republic of Pakistan Concerning the Reciprocal Promotion and Protection of Investments,
May 22, 2012 (not yet in force). Art. 12, available at http://investmentpolicyhub.
unctad.org/Download/TreatyFile/2134; Agreement Between the Government of Canada
and the Government of the People’s Republic of China for the Promotion and Reciprocal
Protection of Investments, Sept. 9, 2012 (entry into force Oct. 1, 2014), Art. 1, available at
http://investmentpolicyhub.unctad.org/Download/TreatyFile/600.
308
North American Free Trade Agreement, Dec. 17, 1992, 32 I.L.M. 289 (1993).
309
Id. Art. 1136(5).
310
2012 United States Model BIT, available at http://www.state.gov/documents/
organization/188371.pdf.
consistent with its obligations under the Convention and recommend that the
respondent abide by or comply with the award. A similar mechanism is prescribed
by Article 45(5) of the 2004 Canadian model BIT.311
2. Diplomatic Pressure
The unilateral measures of retaliation that can be taken by a state to compel

another state to comply with obligations under international law can be divided
into two categories. The first describes measures that do not interfere with
countries’ rights and obligations under international law (retorsion); the second
refers to measures which would otherwise be inconsistent with international law
as breaching the rights of the target state under international law (reprisals).312
Within the first category, a state could suspend trade benefits granted to host states
in the case of non-compliance with arbitration awards rendered in favor of the first
state’s nationals. The Generalized System of Preferences (“GSP”) established by
the Enabling Clause313 allows members of the World Trade Organization to
reduce or eliminate tariffs on imports from developing states without necessitating
the lowering of tariffs on imports from developed states in accordance with the
Most Favoured Nation obligation.314 This regime is optional for developing
countries in the sense that they have a right to include programs in their national
laws, but they do not have an obligation to do so.315 Currently, only select
countries maintain GSP programs.316 Suspension of trade benefits applied as a
form of retorsion for failure to comply with investment awards already has a
precedent. In May 2012, the United States suspended Argentina’s preferential
status under its GSP.317 The suspension was a response to Argentina’s failure to
comply with the ICSID awards rendered in favor of United States investors in
CMS, Azurix, and Continental Casualty.318 The United States’ Trade Act of 1974
311
2004 Model Canada Foreign Investment Promotion and Protection Agreement,
available at http://italaw.com/documents/Canadian2004-FIPA-model-en.pdf.
312
Articles on Responsibility of States for Internationally Wrongful Acts with
Commentaries, in Report of the International Law Commission on the work of its fifty-
third session, U.N. Doc A/56/10, reprinted in [2001] 2(2)Y.B. INT’L L. COMM’N,
(UNDOC A/CN.4/SER.A/2001/Add.1 (Part 2) at 128, ¶ 3.
313
Differential and More Favourable Treatment, Reciprocity and Fuller Participation
of Developing Countries, GATT CP Decision of Nov. 28, 1979, GATT Doc. L/4903,
GATT, 26th Supp. BISD (1980) 203, Arts. 1 and 2.
314
Id. Arts. 1 and 2.
315
INTERNATIONAL TRADE LAW 682 (Andrew T. Guzman & Joost H. B. Pauwellyn
eds., 2012).
316
These countries include Australia, Canada, Japan, New Zealand, Switzerland, the
United States, and the European Union. See Charles B. Rosenberg, The Intersection of
International Trade and International Arbitration: The Use of Trade Benefits to Secure
Compliance with Arbitral Awards, 44 GEO. J. INT’L L. 503, 520 (2013).
317
The text of President Obama’s announcement, available at http://www.gpo.
gov/fdsys/pkg/FR-2012-03-29/html/X12-10329.htm.
318
Id.
explicitly provides that the President shall not designate a developing country as a
beneficiary of the GSP if that country fails to act in good faith in recognizing as
binding or in enforcing arbitral awards in favor of United States citizens or
corporations.319 It should be noted that the condition for eligibility for the GSP
addresses a state’s failure to recognize and enforce arbitral awards. It does not
refer to a state which fails to comply with the award, but to one that fails to
recognize and enforce the award on application of the award creditor. Thus, an
actual suspension of the trade benefits to the recalcitrant state will be dependent
on whether the award creditor has applied for recognition and enforcement before
that state’s authorities. Currently, the United States is the only country which has
formulated a requirement relating to enforcement of international arbitration
awards in its GSP.320 There is no obstacle for other states to adopt similar criteria
in their GSP programs to secure compliance with investment arbitration awards.321
The preferable formulation of the condition would refer to compliance with the
awards, instead of recognition and enforcement.
Moreover, the state of an investor’s nationality can lobby international
financial institutions, such as the World Bank and International Monetary Fund, to
withhold loans to host states which fail to comply with investment arbitration
awards. Operational Policy 7.40 of the World Bank specifically addresses such a
situation and provides that the World Bank takes an interest in disputes over a
failure to service external debt.322 As a consequence, the World Bank can decide
not to make new loans when the country is unwilling to take steps to resolve such
a dispute.323 A state of origin can also vote against granting loans to the state
319
Trade Act, 19 U.S.C., c12, § 2462(b)(2)(E) (1974) (“[t]he President shall not
designate any country a beneficiary developing country under this subchapter if … . Such
country fails to act in good faith in recognizing as binding or in enforcing arbitral awards
in favor of United States citizens or a corporation, partnership, or association which is 50
percent or more beneficially owned by United States citizens, which have been made by
arbitrators appointed for each case or by permanent arbitral bodies to which the parties
involved have submitted their dispute”).
320
Theodore R. Posner, Good Faith Recognition and Enforcement of Arbitral Awards
as a Criterion for Eligibility under the United States Generalized System of Preferences,
106 AM. SOC’Y INT’L L. PROC. 125, 127 (2012).
321
For example, in response to Argentina’s government decision to validate the
expropriation of the shares of a corporation owned by a European company, the European
Parliament adopted a resolution which urged “the European Commission and the Council
to explore and adopt any measures required to safeguard European interests in order to
avoid such situations arising again, including the possible partial suspension of the
unilateral tariff preferences under the GSP scheme.” European Parliament Resolution of
April 20, 2012 on the legal security of European investments outside the European Union
(2012/2619(RSP)), available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-
//EP//TEXT+TA+P7-TA-2012-0143+0+DOC+XML+V0//EN.
322
Rosenberg, supra note 316, at 516.
323
World Bank, Operational Manual, Operational Policy 7.40, July 2001 – Disputes
over Defaults on External Debt, Expropriation, and Breach of Contract, available at
http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/EXTPOLICIES/EXTOPMAN
which is in breach of its obligation to comply with the award in these

institutions.324
With regard to measures inconsistent with international rights of a state that
fails to comply with an award, possible measures include withholding payments
due to a state or freezing assets of the host state that are located in the state which
takes reprisals. To be legal, these actions must comply with the requirements for
lawful countermeasures under customary international law. These conditions have
been codified in Articles 49-54 of the ILC’s Articles on Responsibility of States
(“ARS”).325 These requirements include proportionality of countermeasures,326
prohibition of breaching certain obligations under international law,327 and
notification to the targeted state of intent to take countermeasures.328
It has been argued that attaching property within the territory of a state of
origin could be regarded as a legitimate countermeasure. As suggested by
Professor Schachter, “it seems logical that . . . if the successful state is free under
international law unilaterally to apply coercive measures against the recalcitrant
state . . ., it should be free to seize assets of the debtor state within its control for
the purpose of satisfying an award of damages.”329 Yet such a measure would be
subject to further conditions under Article 50(2)(a) and (b) of the ARS, which
provide that a state taking countermeasures is not relieved from fulfilling its
obligations under any dispute settlement procedure applicable between it and the
responsible state and that it must respect the inviolability of diplomatic or consular
agents, premises, archives and documents.330 It might be debatable whether the
mechanism for collection of the award under Article 54 qualifies as an “obligation
under any dispute settlement procedure.”331 Nonetheless, it seems that an investor
should resort to the collection mechanism under the ICSID Convention before its
state of origin takes any countermeasures.332 Article 50(2)(b) of the ARS clarifies
UAL/0,,contentMDK:20064628~menuPK:4564185~pagePK:64709096~piPK:64709108~the
SitePK:502184,00.html.
324
As a response to Argentina’s failure to comply with CMS and Azurix awards, the
United States voted against extending certain loans to Argentina in the World Bank and in
the Inter-American Development Bank. See Rosenberg, supra note 316, at 517.
325
Supra note 305.
326
ARS, supra note 305, Art. 51.
327
Article 50(1) of the ARS lists the obligation to refrain from the threat or use of
force as embodied in the Charter of the United Nations, obligations for the protection of
fundamental human rights, obligations of a humanitarian character prohibiting reprisals,
and other obligations under peremptory norms of general international law. See ARS,
supra note 305, Art. 51(1).
328
Id. Art. 52(1).
329
Oscar Schachter, The Enforcement of International Judicial and Arbitral
Decisions, 54 AM. J. INT’L L. 1, 7 (1960).
330
ARS, supra note 305, Art. 50(2)(a)(b).
331
Pérez, supra note 295, at 453.
332
Id.
that execution in the framework of countermeasures cannot affect the immunity of

state property under diplomatic law.333
D. Assessment
Currently, there are no remedies that directly address the problem of state
immunity from execution in the collection of international investment arbitration
awards under the ICSID and New York Conventions. This article has identified a
number of possible improvements to the existing system. However, it was
established that adoption of any of these solution in the near future is highly
unlikely. Creating a lex specialis regime within the international investment law
system through a soft law instrument constitutes the most feasible solution. Such
an instrument governing recognition, enforcement, and execution of investment
awards against state property could be adopted under the auspices of the
UNCITRAL. It should be complementary to the principles provided in the
UNCSI, further developing and specifying the rules contained therein.
The article also examined whether there are existing legal remedies that could
mitigate the lack of a systemic solution to the problem of state immunity from
execution. In the light of the analysis of the remedies directly available to the
investors and those involving action on the part of the investor’s state of
nationality, this question must be answered in the negative.
The remedies involving action by the state of an investor’s nationality are not
likely to provide an effective remedy for non-compliance with investment
arbitration awards by recalcitrant states. When exercising diplomatic protection, a
state pursues its own right “to ensure, in the person of its subjects, respect for the
rules of international law.”334 Thus, the remedies available under diplomatic
protection are remedies in favor of the investor’s state of nationality, not the
investor.335 The exercise of diplomatic protection lies, therefore, entirely within
the discretion of the state. The state of origin might not be interested in espousing
the claim of its national since such diplomatic protection indeed re-politicizes
investment disputes. It exposes the state of origin to deterioration of relations with
the host state. This is illustrated by the Sedelmayer case. The German government
refused to espouse Sedelmayer’s claim and even pressured him not to “create a
diplomatic incident” by seizing Russian assets exhibited at the aviation show in
Germany.336 Diplomatic protection also deprives investment arbitration of its most
attractive attributes from the investor’s perspective, i.e. direct compensation and
control over the course of the proceedings.
The situation is not particularly different in the case of individual remedies
available to investors. Post-award settlements do not always present an attractive
333
ARS, supra note 305, Art. 50(2)(b).
334
Mavrommatis Palestine Concessions (U. K. v. Greece), 1924 P.C.I.J. (Ser. A) No.
2, at 12 (Aug. 30).
335
Viñuales & Bentolila, supra note 253, at 259.
336
Rosenberg, supra note 316, at 519.
alternative. They require concessions on the part of the investor and put the
investor in a less advantageous position than if the award were properly executed.
Reduction of the value of the arbitral award undermines the compensatory
function of the remedy under international law. Post-award settlements can hardly
represent a satisfactory systematic solution to the problem. They rather
demonstrate that investors recognize the deficiencies of the system and are aware
of the difficulties they may face when seeking collection of their awards.
An investor may pursue a claim against a state where execution and
enforcement takes place before the ECtHR or an international investment
arbitration tribunal. Contrary to diplomatic protection, these claims do not aim at
securing compliance with the original award, but rather provide redress in cases of
a state’s failure to execute it. An execution claim is unlikely to succeed in relation
to execution of an award barred by the principle of state immunity. Responsibility
under international law requires an act attributable to a state that is in violation of
that state’s obligation under international law.337 In the scenario where an investor
seeks collection of an award in a jurisdiction other than the respondent state,
refusal of such a claim because of sovereign immunity from execution is unlikely
to result in a determination of responsibility under international law. There is a
manifest conflict between the principles of state immunity and non-expropriation
under human rights and investment law. A conflict of norms in international law is
defined as a situation where “two norms that are both valid and applicable point to
incompatible decisions so that a choice must be made between them.”338 The only
case in which an international court has been faced with resolution of such a
conflict was Sedelmayer v. Germany before the ECtHR. In that case, the court
observed that the concept of possession in the Convention was qualified by
international law in two ways. Firstly, the interpretation of the right to peaceful
enjoyment of possession under the Convention required consideration of
sovereign immunity in accordance with Article 31(3) of the VCLT.339 The second
limitation arose from the language of the Convention, which in Article 1 of
Protocol No. 1 provides that the concept of possessions is “subject to the
conditions provided for . . . by the general principles of international law.”340 State
immunity from execution, applied in accordance with Article 31(1) of the VCLT,
is likely to put a limitation on the individual right to non-expropriation under the
principles of international investment law.
Nonetheless, individual human rights and investment claims could provide a
remedy for another problem, namely the non-execution of awards in recalcitrant
respondent states. As the court and tribunals have refrained from making general
statements, and the relevant investment and human rights cases have dealt with
337
ARS, supra note 305, Art. 3.
338
Fragmentation of International Law: Difficulties Arising for the Diversification
and Expansion of International Law, in Report of the Study Group of the International
Law Commission Finalized by Martti Koskenniemi, ILC, 58th Sess, UN Doc.
A/CN.4/L/682 (2006), ¶ 2.
339
340
Id.
extreme deficiencies of domestic courts, it is difficult to indicate a required

threshold of misconduct.
CONCLUSIONS
In light of the above analysis, this article argues that sovereign immunity does
constitute the Achilles’ heel of investor-state arbitration. The same conclusion
could be extended to the whole mechanism of collection of international
investment arbitration awards in Articles 53-55 of the ICSID Convention and the
New York Convention. The system of international investment arbitration
therefore relies on voluntary compliance with the awards. This fact is evident in
the drafting history to the ICSID Convention. The drafters of the ICSID
Convention considered it highly unlikely that state parties to the Convention
would fail to carry out their obligation to comply with awards.341 The collection
mechanism in Article 54 was included rather to secure compliance with the
obligations imposed by awards on the investors than states.342 The instances where
investors have sought to collect awards against recalcitrant states show that the
drafters’ assumption of absolute compliance proved to be naïve, or short-sighted.
The renvoi to laws on execution in the state of execution creates a systemic
problem as it undermines some fundamental principles of investor-state
arbitration. It re-politicizes the disputes, and exposes execution to national bias
and deficiencies of domestic judicial systems. Investors seeking execution of the
award compensation in a non-respondent country are challenged by the complex
structure of the rules applicable to execution of assets of a foreign state. The rules
on state immunity applied by domestic courts are a mixture of customary
international law, treaty law, and national laws. An investor seeking collection of
his award must have knowledge of the particularities of domestic legal systems.
Furthermore, the availability of assets amenable to execution will be affected by
the overlap between general and special regimes of state immunity under
international law. As demonstrated in Part III, currently international investment
law provides no effective remedy to the challenges posed by recalcitrant
respondents that rely on their state immunity from execution.
A systemic solution to the problem of state immunity from execution in the
collection of international investment arbitration awards is needed. This article
presented some possible improvements to the existing regime. Implementation of
any of these solutions meets numerous difficulties: the quantity of investment
treaties, fragmentation of the regimes of state immunity, and states’ reluctance to
address the problem of execution of investment arbitration awards in international
investment agreements. The preferred solution is adoption of a soft law instrument
under the auspices of UNICITRAL that would address the issues of recognition,
enforcement, and execution of investment awards and would provide for a
uniform approach to the problem of state immunity from execution. Such a
341
342
Alexandrov, supra note 26, at 327.
solution is not only most feasible, but it could also most comprehensively address
the systemic problem of state immunity in the collection of international
arbitration awards.
The mythical demigod Achilles had only one weakness that could
compromise his overall strength. The metaphorical comparison between
international investment arbitration and Greek mythology ends here since
Achilles’ weakness, his heel, ultimately brought him to his downfall. It is unlikely
that problems related to sovereign immunity from execution will result in the
abandonment of investor-state arbitration as a method of dispute settlement by
investors. This does not mean that the problem can be understated. State immunity
from execution is a flaw in the otherwise efficient mechanism of dispute
settlement of international investment disputes. State immunity from execution is
likely to be a more significant problem given the increase in the number of
disputes. These probable future developments should encourage a discussion on a
systemic reform of the collection mechanisms under the ICSID and New York
Conventions in the international community.

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STATE IMMUNITY FROM EXECUTION IN THE COLLECTION OF

AWARDS RENDERED IN INTERNATIONAL INVESTMENT

* Trainee attorney-at-law (aplikantka radcowska), Warsaw Regional Bar of Legal

The application of the principle of state immunity in the execution of

I. COLLECTION OF INTERNATIONAL INVESTMENT

A. Collection Mechanism under the New York Convention

Article III contains an obligation to recognize as binding arbitral awards

B. Collection Mechanism under the ICSID Convention

As noted by some commentators, the interpretation proposed by Argentina

C. Terminological Confusion: Recognition, Enforcement, and Execution

Article 54 of the ICSID Convention, which prescribes the procedure for

enforcement as a distinct step of the process,54 or a term encompassing recognition

from enforcement.”72 In the Court of Appeal’s opinion, recognition or

To conclude, “recognition,” “enforcement,” and “execution” are recognized as

in the recognition and enforcement of non-ICSID awards is considerably more

II. STATE IMMUNITY FROM EXECUTION

It is generally accepted that an agreement to arbitrate a dispute should be

B. State Immunity from Execution under International Law: Rationale,

State immunity is a principle of customary international law protecting the

sovereign immunity restricted by a number of exceptions. The restrictive doctrine

Immunity (“ECSI”),105 and the United Nations Convention on Jurisdictional

The UNCSI is aimed at providing a basis for substantial harmonization of

C. Scope of Sovereign Immunity from Execution

a. Waiver of immunity from execution

awards.137 Execution is the final stage of the arbitral process. Submission to

Swiss courts traditionally treat immunity as a single concept and do not

of state immunity.151 It is submitted that extending this rule to a general exclusion

The exception for commercial assets refers to the traditional distinction

commercial activity” in the territory of the United States.160 The commercial

presumption that state property serves a sovereign purpose.178 Swiss courts,

performance of a state’s diplomatic functions.195 In the United Kingdom, this

intended for use in the performance of military functions.202 However, such

D. Particular Limitations to Execution of Awards Related to State Immunity from

2. The Problem of Assets of Separate Entities

The development of the restrictive doctrine of state immunity has hardly

sources of assets, namely property of diplomatic missions, central banks, and

III. MITIGATING THE PROBLEM OF SOVEREIGN IMMUNITY AGAINST

Parts I and II identified a systemic problem in the mechanisms for collection

ICSID Convention could be published by the ICSID Secretariat. Another solution

B. Remedies Available Directly to Investors

A post-award settlement can be an alternative to voluntary compliance with an

2. Human Rights Claims

held that Ukraine’s continued non-execution of the award rendered by the

ICSID in connection with the alleged violation of the expropriation provision of

Commerce and Industry of Ukraine could not amount to an “investment” in terms

C. Remedies Involving Action by the State of Nationality of the Investor

1. Interstate Dispute Settlement

Diplomatic protection is an alternative and supplement to the mechanism for

the interpretation or application of the Convention are to be referred to the ICJ.304

The unilateral measures of retaliation that can be taken by a state to compel

which is in breach of its obligation to comply with the award in these

that execution in the framework of countermeasures cannot affect the immunity of

extreme deficiencies of domestic courts, it is difficult to indicate a required

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