MARIKE PAULSSON, 2016 AMERICAS FORUM
ABA SECTION OF INTERNATIONAL LAW
2016 AMERICAS FORUM, MIAMI
ARBITRATING AND ENFORCING AGAINST STATES IN LATIN AMERICA
AN AGREEMENT WITHOUT STRINGS ATTACHED: IMPOSING PAROCHIAL NOTIONS OF THE
SOVEREIGN
MARIKE R. P. PAULSSON
Introduction
States do not only enter into -- and perhaps unwillingly -- arbitrations with
investors under BITs. States enter -- and more so willingly -- into commercial
engagements with businessmen: construction contracts, telecom, oil & gas: the sovereign
needs to engage in acte de iure gestionis: governing a country is a business after all.
Governments, government entities, ministries but also State owned companies
engage in commercial acts and often in the international context, both sides agree to
arbitration. A subsequent award against such State might need enforcement elsewhere
1
whether that is because assets are located around the globe or whether the State -- having
lost the arbitration -- might not willingly allow for its organs -- the courts -- to facilitate
an enforcement order and subsequent execution.
If the award is foreign, international, non-domestic or a-national: if under the
scope of the Convention, the question then becomes whether the fact that the losing party
is a sovereign State, is a problem. The development of arbitration and the judicial practice
of enforcing awards have evolved in Latin America. The good, the bad and the ugly? The
unhappy few? Or a pattern of States willingly engaging in business with investors but less
willingly arbitrating when disputes arise and not willingly complying with internationally
acceptable and binding awards? States avoid enforcement by setting aside awards
rendered against their entities or organs (Mexico) 1, renounce BITs when faced with asset
freezing or withdrawing from the ICSID Convention (Venezuela) 2 or engage in acts of
denial of justice vis-à-vis foreign investors (Uruguay and Ecuador) 3. Finally, the
implementation and application of the 1958 New York Convention is still developing in
Latin America.
Latin American
Decisions rendered under
jurisdictions 4
the 1958 New York
Convention reported in the
ICCA Yearbook
Argentina
4
Brazil
37
Chile
1
1
http://hsfnotes.com/arbitration/2013/09/18/us-district-court-confirms-arbitral-award-against-pemex-thatwas-nullified-at-its-seat/.
2
http://cadtm.org/Bolivia-Venezuela-and-Nicaragua and
http://www.wti.org/media/filer_public/6c/7e/6c7e7212-f47f-4a07-9bc9-5854f237ba0d/tv11-1article14_is_there_a_life_after_icsid_denunciation.pdf.
3
http://www.chevron.com/chevron/pressreleases/article/01222016_dutchcourtdecisiononarbitralawards.new
s.
4
Nine jurisdictions in Latin America have reported decisions in the Yearbook, in total 63 of 1800 reported
decisions in the Yearbook. To date 156 States are a party to the Convention. Most of the Latin American
countries have signed on to the Convention.
2
Columbia
9
Ecuador
1
Guatemala
2
Mexico
4
Peru
3
Venezuela
4
Awards against Latin American States and their enforcement
Problems when enforcing against States and their organs? The first thought that
comes to mind is immunity. The second is having to deal with immunity of jurisdiction
and then immunity of execution. What is the point of preserving assets when a head of
State renounces BITs as a way of retaliation? Such nebulous acts create cross-overs from
commercial arbitration to investment arbitration that do not, in any way, contribute to
proper enforcement of the Rule of Law.
Immunity from jurisdiction under the Convention
The Convention does not provide any rules on immunity from jurisdiction. One
must look locally. Contracting States to the Convention have their regimes on immunity.
In some jurisdictions the matter is entirely regulated by case law. Thus, the successful
party must look locally in order to anticipate how immunity issues might or might not be
a stopper to the enforcement of the award. However, most enforcement courts have used
their discretion to find ways to hold that States signing an arbitration agreement are held
to have waived their immunity from jurisdiction.
Therefore, there are no uniform rules in international law or under the Convention
providing any guidance as to when and how a State party would have immunity. Of
3
course, there is the dominant judicial application under the Convention but as always
with the Convention, one must look locally. 5
Even so, the take away that States by signing on to an arbitration agreement are
deemed to have waived their immunity from jurisdiction is one that we would all agree
to. It would be in line with generally recognized principles in international law and
commercial arbitration. Furthermore, immunity is not one of the refusal grounds as
exhaustively listed in Article V of the Convention. Therefore, immunity can only find its
way to the Convention under Article III -- rules of procedure -- and with that it becomes,
again, a local matter.
Two salient unexpected problems arising under the Convention: the courage to enforce
against States
What is more interesting are the effects other than those of immunity from
jurisdiction. Indeed States -- having lost an arbitration -- can attempt to invoke that
immunity or rely on its sovereign “right” when the successful party in an arbitration
requests another State -- its courts --to grant the enforcement title under the Convention.
Even if an immunity defense would not have been invoked, is there no peril in dealing
with States?
Two salient issues have surfaced under the application of the Convention: first,
States having lost an arbitration will attempt to defy the rule of law by using other
5
See Albert Jan van den Berg in his commentary on the New York Convention: “The Convention is
frequently applied to States and State agencies. In this field, the defence of sovereign immunity against
recognition of the arbitration agreement and enforcement of the arbitral award is virtually always rejected
on the basis of theories such as restrictive immunity, the waiver of immunity, the distinction between acta
de jure gestionis and acta de jure imperii, the reliance on pacta sunt servanda and the creation of an ordre
public réellement international.However, there remains a sharp (though, it is submitted, illogical)
distinction between immunity from jurisdiction and immunity from execution. Thus, notwithstanding the
fact that many courts endorse the aforementioned theories, a substantial number of them still considers
sovereign immunity to be absolute when, after having obtained the leave for enforcement, a party attempts
to seek actual execution of the award against the State or State agency.”
4
channels to exert pressure when faced with an arbitral procedure or enforcement of an
award.
In Consorcio Rive, following an arbitration in Mexico, the US Court of Appeals
for the Fifth Circuit held that courts were to apply a narrow idea of due process under
Article V(1)(b) and align that interpretation with a pro-enforcement attitude. 6 The parties
had entered into an agreement which included an arbitration clause providing for
arbitration in Mexico pursuant to the rules of the Inter-American Commercial Arbitration
Commission.7 The respondent had refused to participate in the arbitration on the grounds
that its chief executive was afraid to enter Mexico after the claimant had filed papers
requesting a criminal investigation against him. The respondent argued that it was thus
prevented from presenting its case. The court was not persuaded:
BC had ample opportunity to defend itself even without David Briggs’ physical
presence at the arbitration. … The strong federal policy in support of encouraging
arbitration and enforcing arbitration awards dictates that we narrowly construe the
defense that a party was “unable to present its case”. … BC could have simply
sent an attorney or other corporate representative to represent it at the arbitration.
Briggs himself could have participated by telephone. Additionally, BC
participated in the arbitration to the extent that it designated an arbitrator and filed
over 80 pages of legal argument and documentation in support of its position at
the arbitration. 8
Second, and quite a cause for concern as far as a successful application of the
Convention is concerned, State courts of the country where enforcement is sought have
been, at times, reluctant to grant the request for the enforcement of an award that was
rendered against a State. This might be out of notions of international comity; or a
hesitance to perform an act that might be one for the executive rather than for the
judiciary; or for fear of political or diplomatic backlash. A fear of reversed reciprocity.
6
Consorcio Rive, S.A. de C.V. (Mexico) v. Briggs of Cancun, Inc. (US) v. David Briggs Enterprises, Inc.
(US) (5th Cir. 2003) in Yearbook Commercial Arbitration XXXI (2006) (US no. 472) at 1429–1438.
7
Consorcio Rive, S.A. de C.V. (Mexico) v. Briggs of Cancun, Inc. (US) v. David Briggs Enterprises, Inc.
(US) (5th Cir. 2003) in Yearbook Commercial Arbitration XXXI (2006) (US no. 472) at 1429–1438, under
“Facts.”
8
Consorcio Rive, S.A. de C.V. (Mexico) v. Briggs of Cancun, Inc. (US) v. David Briggs Enterprises, Inc.
(US) (5th Cir. 2003) in Yearbook Commercial Arbitration XXXI (2006) (US no. 472) at 1429–1438, ¶¶
10–11.
5
Courts will in those instances rely on the discretion that has been expressly attributed to
them to refuse the enforcement of the award. They do not always do so under Article V
of the Convention which lists the exhaustively listed grounds for refusal. At times, refusal
is done under the banner of “rules of procedure” under Article III.
In Figueiredo, the US Court of Appeals for the Second Circuit denied the request
for the enforcement of an award rendered in Peru, on the basis of the US common law
doctrine of forum non conveniens: 9
International comity is the recognition which one nation allows within its territory
to the legislative, executive or judicial acts of another nation, having due regard
both to international duty and convenience, and to the rights of its own citizens or
other persons who are under the protection of its laws. 10
A Peruvian statute limited the amount of money that an agency of the Peruvian
government may pay annually to satisfy judgments or awards, to an aggregate of 3% of
the agency’s annual budget. When an applicant having secured an arbitral award against a
Peruvian state agency filed for the confirmation of the award in the US, the Republic of
Peru et al. objected thereto on the ground that recognition of the award would violate this
statute. The court dismissed the request on the basis of forum non conveniens: the Second
Circuit held that Peru was an adequate alternate forum because defendants were
undoubtedly amenable to process there and Peru provided a remedy. That Figueiredo
might recover less in Peru than it would in the US did not alter the conclusion that Peru
was an adequate alternate forum. 11 However, the Ministry of Peru had previously
attempted to challenge the award in Peru. The Court of Appeals in Lima had denied that
9
Figueiredo Ferraz Engenharia De Projecto Ltda. V. The Republic of Peru, Ministerio de Vivienda,
Construccion y Saneamiento, Programa Agua Para Todos (PAPT) (successor by intergration to Programa
De Apoyo A La reforma Del Sector Saneamiento (PARSSA), formerly known as Proyecto Especial
Programma Nacional De Agua Potable & Alcantarillado (PRONAP) (2nd Cir. 2011), 2011 US App. Lexis
24748.
10
Figueiredo Ferraz Engenharia De Projecto Ltda. V. The Republic of Peru, Ministerio de Vivienda,
Construccion y Saneamiento, Programa Agua Para Todos (PAPT) (successor by intergration to Programa
De Apoyo A La reforma Del Sector Saneamiento (PARSSA), formerly known as Proyecto Especial
Programma Nacional De Agua Potable & Alcantarillado (PRONAP) (2nd Cir. 2011), 2011 US App. Lexis
24748.
11
Figueiredo Ferraz Engenharia De Projecto Ltda. V. The Republic of Peru, Ministerio de Vivienda,
Construccion y Saneamiento, Programa Agua Para Todos (PAPT) (successor by intergration to Programa
De Apoyo A La reforma Del Sector Saneamiento (PARSSA), formerly known as Proyecto Especial
Programma Nacional De Agua Potable & Alcantarillado (PRONAP) (2nd Cir. 2011), 2011 US App. Lexis
24748, ¶ 391.
6
challenge: it considered the award to be domestic and to be rendered in equity. The US
Court, however, found it relevant that the prevailing party had not requested the
exequatur of the award in Peru. Figueiredo’s choice of forum, the US and not Peru, was
not entitled to much deference; and private and public interest factors, especially the
Peruvian cap statute, in its view favored dismissal. Accordingly, the Second Circuit
dismissed Figueiredo’s enforcement request on the ground of forum non conveniens
notwithstanding that the doctrine is not listed in the New York or Panama Conventions as
a basis for refusing to recognize foreign arbitral awards: 12,13
[T]here is nonetheless a public interest in assuring respect for a sovereign nation’s
attempt to limit the rate at which its funds are spent to satisfy judgments. …
[T]hat deferring to litigation in another jurisdiction is appropriate where the
litigation is intimately involved with sovereign prerogative and it is important to
ascertain the meaning of another jurisdiction’s statute from the only tribunal
empowered to speak definitively. …The rate at which public funds may be
disbursed to satisfy public obligations is surely intimately involved with sovereign
prerogative and the Peruvian courts are the only tribunals empowered to speak
authoritatively on the meaning and operation of the cap statute. 14
The court reasoned that forum non conveniens is a procedural matter and thus is to
be applied under the rules of procedure as referred to in Article III of the Convention. 15
Previously, the Second Circuit had found that the parties and the dispute had no
connection to New York and thus held, on the basis of Article III, that:
[E]ach Contracting State shall recognize arbitral awards as binding and enforce
them in accordance with the rules of procedure of the territory where the award is
relied upon and because forum non conveniens is a procedural rule, courts are
permitted to dismiss cases if there is an adequate alternative forum and if the
movant can meet the familiar factors in favour of dismissal. 16
12
Although the court dismissed the enforcement action in favor of the alternate forum in Peru, Figueiredo
remained free to pursue recognition and enforcement of its arbitral award in any country that is a signatory
to the New York or Panama Conventions.
13
See Art. V, New York Convention; Art. 5, Panama Convention.
14
Figueiredo Ferraz Engenharia De Projecto Ltda. V. The Republic of Peru, Ministerio de Vivienda,
Construccion y Saneamiento, Programa Agua Para Todos (PAPT) (successor by intergration to Programa
De Apoyo A La reforma Del Sector Saneamiento (PARSSA), formerly known as Proyecto Especial
Programma Nacional De Agua Potable & Alcantarillado (PRONAP) (2nd Cir. 2011), 2011 US App. Lexis
24748.
15
Monegasque de Reassurances s.a.m. (Monde Re) v. NAK Naftogaz of Ukraine, et al. (2nd Cir. 2002), in
Yearbook Commercial Arbitration XXVIII (2003) (US no. 422), at 1096–1111.
16
Monegasque de Reassurances s.a.m. (Monde Re) v. NAK Naftogaz of Ukraine, et al.) (2nd Cir. 2002), in
Yearbook Commercial Arbitration XXVIII (2003) (US no. 422), at 1096–1111. See also Milantic Trans.
7
Applying forum non conveniens to enforcement actions as an additional ground
for refusing to recognize or enforce arbitral awards is on its face contrary to the US’s
treaty obligations. 17 Forum non conveniens arises from courts’ inherent authority to
control their dockets and manage their affairs. It is not found in the texts of the treaties. 18
What to do with the sovereign when enforcing awards?
We all recognize that the New York Convention feels its effect mostly locally as
implemented by national legislators and as applied by national courts. However, the
Convention although implemented in 156 States is still a text that is defines as an
international legal instrument by drafters who wanted to bump up the idea of party
autonomy and contain the sovereign rights. It is a text that is identified as a treaty,
convention, international agreement and as such falls under the realm of international
public law and the Vienna Convention on the Law of Treaties. With that one must then
determine the scope of the treaty, the proper application and interpretation of the treaty
and any implication if the treaty is violated by States.
It is on that premise that we must return to the origin of the Convention which
gives us ammunition, for example, to hold courts accountable for the inappropriate use of
discretion and international comity as a stopper to enforcement against States.
S.A. v. Ministerio de Producción de la Provincia de Buenos Aires, et al. (Cámara de Apelación en lo
Contencioso Administrativo, La Plata, 2007), in Yearbook Commercial Arbitration XXXIII (2008)
(Argentina no. 2) at 327–330.
17
In 2013, the American Bar Association’s House of Delegates adopted Resolution 107c criticizing the use
of forum non conveniens to block recognition and enforcement of foreign arbitral awards. The resolution
and accompanying report was submitted by Barton Legum, the chair of the ABA’s section of international
law.
http://www.americanbar.org/content/dam/aba/uncategorized/international_law/2013_hod_annual_meeting_
107C.authcheckdam.pdf-92k-2013-11-08.
18
William W. Park, Respecting the New York Convention, 18 ICC Int’l Ct. of Arb. Bull. 65, 70 (2007) (The
“language relates to how recognition will be granted, not whether recognition will be granted at all.”).
Professor Park’s view was rejected by the court of appeals in Figueiredo, 665 F.3d at 390, n. 8, but he was
not alone in his criticism of Monegasque as Judge Lynch pointed out in his dissent. 665 F.3d at 399 (citing
numerous articles in which the author argued that the decision in Monegasque placed the United States in
violation of its treaty obligations).
8
[T]he draftsman of the New York Convention of 1958 were very conscious of the
fact that international law respected, the full-blown theory of national sovereignty,
and they decided that they there was no point to confront this head-on, or there
would be no New York Convention. 19
However, the delegates wanted to find a fine balance between party autonomy on
the one hand and sovereign rights of states on the other hand. The delegates anticipated
problems with States not willing to surrender their sovereign rights and wanted to contain
that risk. It is unacceptable for modern courts to rely on international comity vis-à-vis
another sovereign as a stopper to enforcement even if that sovereign had waived its
immunity by engaging in acte de iure gestionis and signing arbitration agreements and
participating in arbitral proceedings. I would conclude with urging counsel to persuade
courts and tribunals to rethink their role and mandate and show courage to hold States in
Latin America to their obligations entered into under the realm of international law. State
responsibility also means that valid arbitration agreements must be recognized and
binding awards enforced: intimidation antics such as renouncing BITs, withdrawing from
the ICSID Convention, setting aside valid awards, relying on some reversed notion of
international comity and pressuring courts into stopping enforcement are all State actions
that destroy trust in the system of international arbitration and international law and it is
then that we must not forget:
International law has not achieved much, but it is good that it is there. 20
***
19
Fali Nariman in his speech at the occasion of ICCA’s NYC Judicial Dialogue in New Delhi, 2013 at
http://www.arbitration-icca.org/media/2/13916005409590/nyc_roadshow_speech_23rd_nov_nariman.pdf.
20
Fali Nariman in his speech at the occasion of ICCA’s NYC Judicial Dialogue in New Delhi, 2013 at
http://www.arbitration-icca.org/media/2/13916005409590/nyc_roadshow_speech_23rd_nov_nariman.pdf.
9