State Immunity in the Context of Enforcement of Investment Arbitration Awards
In enforcing an investment arbitral award against the debtor State, state immunity is engaged in both the recognition stage and at the execution stage. While forum States are more prepared to withhold immunity at the recognition stage, whether by waiver or otherwise, state immunity from execution remains to be the thorny issue standing in the investor’s way to collect the award. The chapter considers that immunity from execution being the “Achilles’ heel” of the investor-State arbitration system is an over-statement, in particular when the 2017 ICSID’s survey suggested that States generally complied with awards made in favor of investors. Waiver remains an important exception to both types of immunity and forum States generally accept contractual waiver. While “caveat emptor” may still apply in cross-border investment involving a State, the risk can be reduced (though not eliminated) by an agreement with a properly drafted waiver clause.
KeywordsICSID Enforcement Immunity
An investor, having succeeded its claim in an investment arbitration against a State, from time to time faces obstacles in putting its hands on the debtor State’s assets due to the plea of state immunity. In fact, state immunity, in particular immunity from execution, has been described as the “Achilles’ heel” of the investor-State arbitration system.1
In this chapter, the author discusses what the stages that a creditor investor needs to go through in enforcing an investment arbitration award against a State are, and explains by reference to treaties, statutes, and case law the different legal issues involved in each stage. For the purpose of this chapter, the awards referred to herein are awards resulted from arbitrations commenced by investors against States (excluding States’ agencies or instrumentalities)2 with respect to any legal dispute arising directly out of an investment, whether such arbitrations are commenced pursuant to the ICSID Convention or otherwise.
This full and absolute territorial jurisdiction being alike the attribute of every sovereign, and being incapable of conferring extra-territorial power, would not seem to contemplate foreign sovereigns nor their sovereign rights as its objects. One sovereign being in no respect amenable to another, and being bound by obligations of the highest character not to degrade the dignity of his nation, by placing himself or its sovereign rights within the jurisdiction of another, can be supposed to enter a foreign territory only under an express licence, or in the confidence that the immunities belonging to his independent sovereign station, though not expressly stipulated, are reserved by implication, and will be extended to him.
This perfect equality and absolute independence of sovereigns, and this common interest compelling them to mutual intercourse, and an interchange of good offices with each other, have given rise to a class of cases in which every sovereign is understood to waive the exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to be the attribute of every nation.
… [The State practice] shows that, whether in claiming immunity for themselves or according it to others, States generally proceed on the basis that there is a right to immunity under international law, together with a corresponding obligation on the part of other States to respect and give effect to that immunity.
The Court considers that the rule of State immunity occupies an important place in international law and international relations. It derives from the principle of sovereign equality of States, which, as Article 2, paragraph 1, of the Charter of the United Nations makes clear, is one of the fundamental principles of the international legal order. This principle has to be viewed together with the principle that each State possesses sovereignty over its own territory and that there flows from that sovereignty the jurisdiction of the State over events and persons within that territory. Exceptions to the immunity of the State represent a departure from the principle of sovereign equality. Immunity may represent a departure from the principle of territorial sovereignty and the jurisdiction which flows from it.4
Traditionally, state immunity was said to be absolute in that without consent of that State (i.e., waiver), that State and its assets could never be made subject to legal proceedings of another State. Inroads have been made since the last century in that, at least insofar as immunity from suit is concerned, the “restrictive” approach is said to have gained the floor to be the norm replacing the traditional “absolute” approach.
The said Article lays down the default position that a State is entitled to immunity unless it is otherwise provided in UNSCI. This approach is shared by many jurisdictions practicing “restrictive” approach. For instance, in the United Kingdom, s.1(1) of the State Immunity Act 1978 (“UKSIA”) provides that:
A state enjoys immunity, in respect of itself and its property, from the jurisdiction of the courts of another State subject to the provisions of the present Convention.
Also, in, §§1604 and 1609 of the US Foreign Sovereign Immunities Act (“USFSIA”) provides:
A State is immune from jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.
Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the Jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.
The default position (subject to exceptions created by law) is important: it is because even the “restrictive” approach is practiced, the forum State has to identify an exception to the default position, whether statutory or otherwise, before it assumes jurisdiction over the defendant foreign State. Absent any applicable exception, the forum is obliged to afford immunity to the defendant State as a matter of international legal obligation.
Subject to existing international agreements to which the United States is a party at the time of enactment of this Act the property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter.
Immunity from Suit and from Execution
Theoretically, immunity from suit is separate from immunity from execution in the sense that the former refers exclusively to immunity from the forum State exercising adjudicative power to hear and decide a substantive claim against the defendant State and the latter the immunity from forum State’s measures of execution over the foreign State with respect to its property.
There have been instances where national courts did not draw such a distinction and held that a defendant State would not be entitled to assert immunity from execution if it is found to have not been entitled to assert immunity from suit: “Le pouvoir d’ exécution est la consequence du pouvoir de jurisdiction” (“execution was the necessary consequence of jurisdiction”): e.g., Société Commerciale de Belgique v. L’État Hellenique (“SOCOBEL v. Greece”) (Belgium)6; and Kingdom of Greece v. Julius Bär & Co (Switzerland).7
The distinction, the author considers, is important. Unlike immunity from suit to which substantial inroads have been made by States’ practices, immunity from execution remains to be “the last bastion of State immunity”. The ICJ held in the Jurisdictional Immunities Case:
(2) The practice of States has evidenced several theories in support of immunity from execution as separate from and not interconnected with immunity from jurisdiction. Whatever the theories, for the purposes of this article, the question of immunity from execution does not arise until after the question of jurisdictional immunity has been decided in the negative and until there is a judgment in favour of the plaintiff. Immunity from execution may be viewed, therefore, as the last bastion of State immunity. If it is admitted that no sovereign State can exercise its sovereign power over another equally sovereign State …, it follows a fortiori that no measures of constraint by way of execution or coercion can be exercised by the authorities of one State against another State and its property. Such a possibility does not exist even in international litigation, whether by judicial settlement or arbitration.8
In the context of an investment award, the distinction is further illustrated by the ICSID Convention in which Article 55 expressly preserves the defendant State’s immunity from execution (but silent on immunity from suit) afforded by the forum State in accordance with the law of the forum State.
… the Court observes that the immunity from enforcement enjoyed by States in regard to their property situated on foreign territory goes further than the jurisdictional immunity enjoyed by those same States before foreign courts. Even if a judgment has been lawfully rendered against a foreign State, in circumstances such that the latter could not claim immunity from jurisdiction, it does not follow ipso facto that the State against which judgment has been given can be the subject of measures of constraint on the territory of the forum State or on that of a third State, with a view to enforcing the judgment in question. Similarly, any waiver by a State of its jurisdictional immunity before a foreign court does not in itself mean that that State has waived its immunity from enforcement as regards property belonging to it situated in foreign territory. The rules of customary international law governing immunity from enforcement and those governing jurisdictional immunity (understood stricto sensu as the right of a State not to be the subject of judicial proceedings in the courts of another State) are distinct, and must be applied separately.9
Recognition of an Investment Award Being a Distinct and Separate Stage from Execution
While an investment award may by itself give rise to an obligation owed by the debtor State to satisfy the award, a creditor investor is still required to go through the domestic legal system of the forum State to enforce the award.
Article 54 of the ICSID Convention uses the terms “recognition,” “enforcement,” and “execution” to prescribe the procedures for collection of the awards while the New York Convention the terms “recognition” and “enforcement.” These terms need to be clarified for they refer to distinct and separate stages.
It is considered that a creditor investor needs to go through two distinct stages, namely, the recognition stage and the execution stage, in enforcing an award. Recognition refers to the formal confirmation by the forum State that the award in question is enforceable within the forum State. Upon completion of the recognition stage, the award becomes a binding and enforceable decision in the eyes of the forum State and can be executed against the award debtor (subject to any defences available to the said debtor).
Accordingly, when a creditor investor engages the jurisdiction of the court of the forum State to recognize an ICSID arbitral award, the contracting forum State is obliged to accede to the investor’s application, subject to the investor’s compliance with its duty to furnish the forum State with a copy of the award certified by the ICSID Secretary-General.11
Each Contracting State shall recognize an award pursuant to [the ICSID Convention] as binding and enforce the pecuniary obligation imposed by that award within its territories as if it were a final judgment of a court in that State.10
In the context of a non-ICSID award, the New York Convention provides an avenue through which an award creditor may seek recognition of the award in a contracting forum State. Article III of the New York Convention provides that a contracting forum State, upon the investor’s compliance with the requirements under Article IV, is obliged to recognize an award (including an investment award unless the contracting forum State has excluded it from the scope of application)12 made in the territory of another contracting State in accordance with its rules of procedures. That obligation, however, is subject to the grounds of refusal to recognize a Convention award exhaustively set out in Article V of the Convention.
It is to be noted that neither the ICSID Convention nor the New York Convention makes the presence of the defendant State’s assets as a precondition for the contracting forum State to recognize the award,13 though a territorial nexus may be required by some States.14 It follows that the “recognition” stage, while in most cases being the first step towards seizing the award debtor’s assets situated in the forum State to satisfy the award, remains a distinct and separate stage.
The “recognition” stage being accepted as a distinct and separate stage is crucial. It is because the recognition stage is the first step that an investor needs to embark on in collecting its award, and the Article 54(1) of the ICSID Convention and Article III of the New York Convention for that purpose, respectively, provide for summary procedures, leaving the problems (both legal and factual) concerning actual execution to be dealt with at a later stage.
This view was echoed in Ioannis Kardassopoulos v. Georgia,16 in which the ad hoc annulment committee held:
[The ICSID Convention] has instituted in Articles 53 and 54 an autonomous and simplified regime for recognition and enforcement which excludes that provided for in Articles 1498 and following of the New Code of Civil Procedure and, in particular, the remedies which are provided therein.15
Similarly, in the context of the New York Convention, in Norsk Hydro ASA v. State Property Fund of Ukraine,17 Gross J. held:
30. … The 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 referred to in Article 54(3) providing that ‘[e]xecution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought’. …
The “mechanistic” approach adopted by the United Kingdom at the recognition stage is echoed by the French decision of Benevenuti & Bonfant v. Congo.18 In that case, the investor obtained an ICSID award in its favor. The court of first instance of Paris recognized the award but imposed a condition 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.” The investor appealed against the condition and contended that the first instance judge had confused two different stages, namely, that relating to the obtaining of an exequatur and that relating to actual execution. The Cour d’ appel allowed to the investor’s appeal and held:
Ss. 100 and following of the [English] Arbitration Act 1996 … provide for the recognition and enforcement of New York Convention Awards. There is an important policy interest, reflected in this country’s treaty obligations, in ensuring the effective and speedy enforcement of such international arbitration awards; the corollary, however, is that the task of the enforcing court should be as ‘mechanistic’ as possible. Save in connection with the threshold requirements for enforcement and the exhaustive grounds on which enforcement of a New York Convention award may be refused …, the enforcing court is neither entitled nor bound to go behind the award in question, explore the reasoning of the arbitration tribunal or second-guess its intentions. Additionally, the enforcing court seeks to ensure that an award is carried out by making available its own domestic law sanctions. … Viewed in this light, as a matter of principle and instinct, an order providing for enforcement of an award must follow the award.
It is considered that the Cour d’ appel was correct in holding that the question of immunity from execution was not engaged at the recognition stage. Similar view was expressed by the Hong Kong Court of Final Appeal in FG Hemisphere Associates LLC v. D.R. Congo.19 In that case, D.R. Congo pleaded immunity from suit to resist the award creditor’s attempt to have the award recognized in the Hong Kong SAR. In considering the question of waiver, the majority of the Court held:
The judge at first instance, acting on a request pursuant to Article 54 of [the ICSID Convention] could not therefore, without exceeding his competence, become involved in the second stage, that of execution, to which the question of immunity from execution of foreign State relates.
379. …It is well-established at common law that a party seeking to enforce an arbitration award (or a judgment) against a foreign State on the basis of a waiver of state immunity must establish a waiver at two distinct stages. The impleaded State must have waived both its jurisdictional immunity from suit in the forum State and the immunity of its property from execution by the forum State’s process.
382. An application for the grant of leave to enforce the award, often referred to as the ‘recognition’ phase of enforcement, therefore involves discretionary adjudicative proceedings in which the impleaded State may claim state immunity.
383. It is furthermore clear, as stated above, that even where the recognition proceedings are successful, when the applicant subsequently seeks to execute the award (now treated like a judgment of the court), the impleaded State has a further right to object to execution against the targeted property on the ground of state immunity. The parties have jointly requested the Court to focus only on the recognition proceedings, leaving aside questions of execution.
Neither the ICSID Convention nor the New York Convention prescribes the procedures to be followed after the recognition stage. This is not surprising because after the investment award has been recognized by the forum State, it remains for the creditor investor to execute the award in accordance with the domestic rules of the forum State as if it were a judgment of the forum State. From that point of time the creditor investor has moved to the execution stage.
Immunity from Suit at the Recognition Stage
As discussed above, the forum State is not to impose any measures of constraint on the debtor State’s assets at this stage and accordingly the issue of immunity from execution does not arise. The only issue remains to be considered is whether the debtor State is entitled to assert immunity from suit at the recognition stage.
Is Immunity Engaged at All?
One view is that state immunity is simply not engaged at all at this stage because the recognition stage (1) is the tail end (or the “final step”20) of the arbitration itself from which the impleaded State has waived the immunity, and/or (2) is purely an administrative (or ministerial) act of the forum State not involving its adjudicative function.
It [was] argued that the application to enforce the award must be considered as a mere continuation of the arbitration …. I do not think that contention can be sustained. The application for leave to enforce the award is not a matter which takes place in the arbitration. It is no more a continuation of the arbitration than an action on the award would be.
It can now be stated with reasonable certainty … that international law limits the scope of jurisdictional immunities of a State Party to an international commercial arbitration in the first stage of adjudication and permits national courts to exercise a supervisory jurisdiction in support of the arbitration agreement and the arbitral proceedings. As to the removal of State immunity when the arbitral award is sought to be enforced in a national court, the differing requirements which have to be met in national legislation indicate that there is no generally accepted rule sufficient to constitute a customary international rule permitting measures of constraint without express consent where only an exception to immunity for an arbitration exception applies.24
The fact that an act does not involve the exercise of judgment by the court does not mean that it is not the exercise of jurisdiction. The issue of a claim form may be said to be an administrative act; it is nonetheless an exercise of jurisdiction. …
The provisions of section 9 of the 1920 Act are essentially procedural. The Act created a less costly and more efficient means of enforcing a judgment of a superior court of a part of Her Majesty’s dominions outside the United Kingdom than a common law action on such a judgment and the registration of a judgment have the same consequence: they bring into existence of a judgment of the High Court which may be the subject of process of execution in this country. The registration of a judgment under the 1920 Act on an application made without notice is at least as much an exercise of jurisdiction as the entering of a judgment in default of, say, the filing of an acknowledgement of service by a defendant. The entry of such a judgment might also be described as a non-adjudicative act.
In any event, however, it is clear that the registration of a judgment under the 1920 Act is an adjudicative act. Section 9 of that Act confers a discretion on the court to order a judgment to be registered not a duty …
While the Master will normally order the registration of a judgment if the application for its registration … appears to be regular, he must nonetheless apply his judgment to the application and the written evidence in support in order to determine whether the requirements of the Act have been satisfied, and that it is just and convenient for the foreign judgment … to be enforced in this country. The fact that the application is made without notice does not mean that the court does not adjudicate on it …
I do not agree that the grant of leave [to enforce a foreign arbitral award] is, or is in the nature of a ministerial act. True it is that s.44 of the Arbitration Ordinance provides that enforcement of a [New York Convention] award shall not be refused except in the cases mentioned in the section – for example, where a party to the arbitration agreement was under some incapacity – but not only does the court necessarily exercise its jurisdiction when it grants or refuse leave, but it also embarks upon an adjudicative function. The fact that the application for leave is prescribed to be made ex parte is not to the point, for the applicant is not thereby relieved of his obligation to disclose possible defences and it is open to the party against whom the award was made to seek to set aside leave, if granted. ….26
The Court will then explain how it views the issue of jurisdictional immunity in relation to a judgment which rules not on the merits of a claim brought against a foreign State, but on an application to have a judgment rendered by a foreign court against a third State declared enforceable on the territory of the State of the court where that application is brought (a request for exequatur). The difficulty arises from the fact that, in such cases, the court is not being asked to give judgment directly against a foreign State invoking jurisdictional immunity, but to enforce a decision already rendered by a court of another State, which is deemed to have itself examined and applied the rules governing the jurisdictional immunity of the respondent State.
… The relevant question, from the Court’s point of view and for the purposes of the present case, is whether the Italian courts did themselves respect Germany’s immunity from jurisdiction in allowing the application for exequatur….
Where a court is seized, as in the present case, of an application for exequatur of a foreign judgment against a third State, it is itself being called upon to exercise its jurisdiction in respect of the third State in question. It is true that the purpose of exequatur proceedings is not to decide on the merits of a dispute, but simply to render an existing judgment enforceable on the territory of a State other than that of the court which ruled on the merits. It is thus not the role of the exequatur court to re-examine in all its aspects the substance of the case which has been decided. The fact nonetheless remains that, in granting or refusing exequatur, the court exercises a jurisdictional power which results in the foreign judgment being given effects corresponding to those of a judgment rendered on the merits in the requested State. The proceedings brought before that court must therefore be regarded as being conducted against the third State which was the subject of the foreign judgment.27
The reasoning of AIC, FG Hemisphere and the Jurisdictional Immunities Case has force in the context of recognizing a New York Convention award for the forum State, under the New York Convention, has a discretion to decline recognizing the award if one or more of the “Article V” grounds is made out, and such process invokes the adjudicative power of the forum State. However, this reasoning is weaker vis-à-vis recognition of an ICSID award for the forum Court, under Article 54(1), has no discretion similar to that under the New York Convention not to recognize an ICSID award.28 In that confined context, it may be argued that state immunity from suit has no place at the recognition stage. However, the better view, the author considers, is that Article 54(1) should be read together with Article 53(1), pursuant to which the debtor State waives its immunity from suit and thereby allowing the forum State to recognize an ICSID award without attracting legal liability for not affording the defendant State immunity.
It is considered that the better view is to approach the recognition stage on the basis that immunity from suit is engaged, subject to exceptions recognized by the forum State.
Article 7(1) of UNCSI provides three ways for a defendant State to waive immunity from suit, namely, by international agreement, contractual waiver, and/or submissions to jurisdiction of the court of the forum State.
Waiver by International Agreement
Article 7(1)(a) of UNCSI allows a State to waive its immunity from suit in advance by way of an international agreement.
Article 53(1) of the ICSID Convention imposes an obligation on the contracting debtor State to comply with the terms of the award and Article 54(1) imposes an obligation on the contracting forum State to recognize the award. Both Articles, taken together, provide a forceful argument that a debtor State has waived its immunity from suit at the recognition stage, and such wavier could be relied upon by the court of the contracting forum State29: pacta sunt servanda.30 This argument is reinforced by the resounding silence of Article 55 with respect to immunity from suit.
On the other hand, the above argument does not apply if the award concerned is sought to be recognized in a non-ICSID State. It is because a non-ICSID State, not being privy to the ICSID Convention, is precluded from the benefit or advantage to be derived from the debtor State’s obligation made under Article 53(1) – which is the basis upon which waiver is said to have been made. Further, as discussed below, no waiver can be implied from the debtor State being a party to the New York Convention, which only imposes an obligation on the contracting forum State to recognize a Convention award (subject to Article V thereof) but is silent with respect to legal duties owed by the defendant State (award debtor) to the investor (award creditor). The fact that the debtor State happened to be a contracting party to the New York Convention does not take the creditor investor’s case further for one cannot logically infer an international legal duty to comply with the award from a treaty obligation to recognize an award in its own jurisdiction.
Article 7(1)(b) of UNCSI provides that immunity from suit can be waived in advance by contract and this method is said to be “[a]n easy and indisputable proof of consent.”31 Contractual waiver of immunity is widely accepted: e.g., s.2(2) of UKSIA. In Bayerisher Rundfunk v. Schiavetti Magnani,32 the Italian Corte di Cassazione held that by reason of the fact that the defendant (allegedly acting on behalf of Germany) concluding the contract which declared that “they willingly and clearly accepted the jurisdiction of the Italian courts …,” the defendant was not entitled to invoke immunity. Also, in Atwood Turnkey Drilling Inc. v. Petroleo Brasileiro,33 the US Court of Appeal (5th Circuit) found that the state agent, by having concluded the contract which provided that it “expressly and irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any court or from any execution of attachment in aid of execution prior to judgment or otherwise) … agrees not to assert any such right or claim in any such action or proceeding” had waived the immunity.
To the arbitration the Government of Kelantan had no objection; they attended the proceedings throughout. It was only when it was proposed to take a step which involved the right to execution against the Government that there was any occasion to raise the objection of sovereignty.34
… on the authorities no mere inter partes agreement could bind the State to such a waiver, but only an undertaking or consent given to the Court itself at the time when the Court is asked to exercise jurisdiction over or in respect of the subject matter of the immunities….35
At common law, sovereign immunity could be waived by or on behalf of the foreign State, but waiver had to have taken place at the time the court was asked to exercise jurisdiction and could not be constituted by, or inferred from, a prior contract to submit to the jurisdiction of the court or to arbitration. The  Act, however, has made a far-reaching and beneficial change….36
We are, with respect, not persuaded that such a change would be wise or desirable. Whether or not a particular State accepts a commercial exception, the rationale of state immunity remains the par in parem principle. Mutual recognition as co-equal sovereign States leads each State to refrain from exercising jurisdiction over the foreign State concerned without the latter’s consent. Questions of waiver only arise where the impleaded State does qualify for jurisdictional immunity in the forum State, or else there is nothing to waive. In such circumstances, the common law rule as to waiver is consonant with elementary good sense by requiring an unequivocal submission to the jurisdiction of the forum State at the time when the forum State’s jurisdiction is invoked against the impleaded State. Courts would be ill-advised to attempt to deem an impleaded State to have submitted to their jurisdiction when it has not done so explicitly by its words or conduct and where its objection to such jurisdiction is made clear in the recognition proceedings. Such a course is likely to be damaging to the relations between the two States and may very well be ineffectual in any event.38
As Dr F A Mann said, ‘the proposition that a waiver or submission had to be declared in the face of the court was a peculiar (and unjustifiable) rule of English law: (1991) 107 LQR 362, 364. In a classic article (Cohn, Waiver of Immunity (1958) 34 BYIL 260) Dr E J Cohn showed that from the 19th century civil law countries had accepted that sovereign immunity could be waived by a contractual provision, and that the speeches in Duff Development on the point were obiter (and did not constitute a majority) and that both Duff Development and Kahan v Pakistan Federation had overlooked the fact that submission in the face of the court was not the only form of valid submission since the introduction in 1920 in RSC Ord 11, r 2A (reversing the effect of British Wagon Co Ltd v Gray  1 QB 35) of a rule that the English court would have jurisdiction to entertain an action where there was a contractual submission. In particular, in Duff Development Lord Sumner had overlooked the fact that British Wagon Co v Gray was no longer good law.
The principle enunciated in Kahan v. Federation of Pakistan was reversed by section 2(2) of the 1978 Act, which provided that a State could submit to the jurisdiction ‘by a prior written agreement.’ This is consistent with international practice …
Lord Collins’ observation certainly has force and his view is said to be the “correct version of the common law rule.”40 Common law is not treated as fossilized in its own time, and customary international law, which governs the law of state immunity including waiver, can and should shape the common law whenever it can do so consistently with domestic constitutional principles, statutes, and common law rules.41 Contractual waiver, which itself is permitted under Article 7(1)(b) of UNCSI, does not offend any constitutional principles and acceptance of it is consonant with justice.
A contractual waiver has to be unequivocal. For instance, in both Atwood and NML Capital, the defendant States concerned have in their respective contracts waived state immunities in clear terms.
A frequently raised question is whether an agreement to arbitrate per se gives rise to a waiver of immunity in recognition proceedings. Many eminent scholars have advocated affirmatively,42 and Professor Bachand even intimates that this has become a “general rule of international law.”43
Indeed, building on to the arbitrator’s reasons, by the mere fact that a state entity should have entered into an arbitration agreement providing for arbitration in a country signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, without reserving its right to jurisdictional immunity, it must be taken to have known and accepted that any resulting award could be subject to recognition and enforcement by judicial process, and thus, have waived jurisdictional immunity in relation to the recognition of the award. Counsel for the State of Ukraine at any rate conceded at the hearing that if the State of Ukraine itself had executed the 1999 Constituent Contract with its arbitration clause, it would indeed be taken to have waived jurisdictional immunity in subsequent recognition proceedings.
By the very fact of becoming a party to an arbitration clause the Yugoslav State agreed to waive its immunity from jurisdiction with regard to arbitrators and their award up to and including the proceeding for granting an exequatur which was necessary for the award to acquire full force.
The above position was reaffirmed by the French Cour de cassation in SOABI v. Senegal (supra),46 which held “that a foreign State which has submitted to arbitral jurisdiction has thereby accepted that the award may be made the subject of an exequatur which does not itself constitute of act of execution …”
Creighton seeks support in three cases in which the court found an implied waiver where a foreign government had agreed (like Qatar) to arbitrate in the territory of a state that had signed the New York Convention. See Seetransport …; M.B.L. Int’l Contractors v. Republic of Trinidad Tobago …; Ipitrade Int’l S.A. v. Federal Republic of Nigeria …. In each of these cases, however, the defendant sovereign was (unlike Qatar) a signatory to the Convention. In Seetransport the Second Circuit reasoned, correctly we think, that ‘when a country becomes a signatory to the Convention, by the very provisions of the Convention, the signatory state must have contemplated enforcement actions in other signatory states.’
Qatar not having signed the Convention, we do not think that its agreement to arbitrate in a signatory country, without more, demonstrates the requisite intent to waive its sovereign immunity in the United States. As Creighton directs us to no other evidence of such an intent, we hold that §1605(a)(1) does not confer subject matter jurisdiction upon the district court.
In my judgment, the logic underlying the decision [of Creighton] is cogent and has been said to be ‘consistent with Crawford’s view that international agreements cannot be interpreted as waiving immunity of a State which is not a party to the international agreement “since it would violate the pacta tertiis rule”, a rule reflected in art. 34 of the Vienna Convention:
‘A treaty does not create either obligations or rights for a third State without its consent.’
The rationale for the decision, as well as my unease with the decisions to the contrary by the Court of Cassation in Creighton … find their root in the principle underlying Duff and Mighell, namely, that since equals do not have authority over each other, consent for the exercise of such authority must be unequivocal and communicated by one to the other, from which it follows that, absent legislative permission to imply permission that is not directly communicated, a refusal to consent may well … constitute a breach of agreement between the foreign State and the claimant but the agreement itself does not, without more, confer jurisdiction upon the forum court. It is different if the foreign State is party to an international agreement to which the forum State is also a party, by the terms of which State parties undertake to enforce awards: in such circumstances each State party that enters upon that international agreement clearly says to each other State party: ‘We hereby expressly represent to you, and to all other States that are party to this arrangement, that you may enforce such award as is made against us and as is covered by this international agreement.’ It cannot in my judgment be said that by entering upon an ICC arbitration agreement with a private party, a foreign State that is not a party to the New York Convention is going beyond the making of a representation to the private party and is making a representation to each Convention State that it consents to the enforcement against it in the Convention State of such arbitral award as may be made. It seems to me that jurisdiction in the forum State can, in such circumstances, only be conferred by legislation or by an express representation by the foreign State to the forum State.50
The proposition held by scholars that an arbitration clause gives rise to a waiver, at best, is lex ferdenda. Neither there is sufficient opinio juris nor sufficient state practice to make it a customary international law, and this is evidenced by the waiver under Article 17 of UNCSI “stop short of enforcement of the arbitral award.”51 In fact, on balance, the conclusions of Creighton and FG Hemisphere are more convincing and avoid stretching the arbitration clause to the breaking point.52
Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration.
A foreign state shall not be immune from the jurisdictions of the courts of the United States or of the States in any case – …
in which the action is brought, … to confirm an award made pursuant to such an agreement to arbitrate, if (A) the arbitration takes place or is intended to take place in the United States, (B) the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards, (C) the underlying claim, save for the agreement to arbitrate, could have been brought in a United States court under this section or section 1607, or (D) paragraph (1) of this subsection is otherwise applicable.
This exception has to be distinguished from that created by Article 17 of UNCSI, the extent of which only “[covers] the adjudication stage of arbitration but stop short of enforcement of the arbitral award.”55
In the context of investment arbitration, the arbitration clause contained in an investment treaty is considered to have satisfied the written arbitration agreement requirement, albeit the treaty is concluded between States: e.g., PAO Tatneft v. Ukraine.56 It has also been held that the scope of the statutory exception to state immunity is wide enough to cover recognition proceedings: Svenska Petroleum Exploration AB v. Lithuania (No 2).57
The “Commercial” Exception
Article 10(1) of UNCSI provides for the “commercial” exception pursuant to which a State cannot invoke immunity from suit in a proceeding arising out of a commercial transaction, subject to exceptions created in Article 10(2).
UK: “A State is not immune as respects proceedings relating to … a commercial transaction entered into by the State …”: s.3(1)(a) of UKSIA.
Canada: “A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.”: s.5 of the Canada State Immunity Act (“CSIA”).
Australia: “A foreign State is not immune in a proceeding in so far as the proceeding concerns a commercial transaction.”: s.11 of the Australian Foreign State Immunities Act (“AFSIA”).
An important question to be considered is whether in considering the applicability of the “commercial” exception, the forum court should direct itself to the subject matter of the recognition proceedings (i.e., the award) or the source of the legal relationship which has given rise to the award (i.e., the transaction giving rise to the dispute for arbitration).
Common law jurisdictions, while having similarly drafted statutory “commercial” exceptions, do not speak with one voice.
In Canada, the courts tend to proceed on the basis that it is the source of the legal relationship, rather than the award itself, that should be considered in deciding whether to withhold immunity under the “commercial” exception58: e.g., TMR Energy v. Ukraine (in obiter),59 Collavino Inc v. Yemen (Tihama Development Authority),60 and Kuwait Airways Corp v. Iraq.61
In the Hong Kong SAR (where state immunity is governed by common law), despite arguments on this issue were laid before the Hong Kong Court of Appeal in the FG Hemisphere case, the court decided to adopt the source of legal relationship as the point of reference (if restrictive immunity were to be applied) by reason of D.R. Congo’s own concession.62
Australia has sided with Canada. The High Court of Australia in Firebird Global Master Fund II Ltd. v. Nauru63 had the benefit of the Jurisdictional Immunities Case and the NML Capital Ltd. Case and held that “the fact that such a proceeding might also be described as one which concerns the registration of a foreign judgment does not detract from the semasiological propriety of describing it as a proceeding which concerns a commercial transaction” and that by reference to the ICJ’s decision the Court should consider the underlying transaction itself (i.e., “the case in which that judgment was given”).
UK has taken the opposite position. The courts have consistently construed that the statutory “commercial” exception64 did not include recognition proceedings: see AIC Ltd v. Nigeria, Svenska Petroleum Exploration AB v. Lithuania (No 2), and NML Capital case.65
One may think that UK prefers the narrow interpretation of the “commercial” exception because award recognition proceedings have already covered under the “arbitration” exception, while that “arbitration” exception does not exist at common law or in CSIA. However, Lord Phillips, Lord Collins, and Lord Clark in NML Capital rejected it being a ground of preferring a narrow interpretation of the “commercial” exception. In fact, Australia, of which AFSIA has provided for the “arbitration” exception, also preferred the broad interpretation.
It follows … that the court seised of an application for exequatur of a foreign judgment rendered against a third State has to ask itself whether the respondent State enjoys immunity from jurisdiction — having regard to the nature of the case in which that judgment was given — before the courts of the State in which exequatur proceedings have been instituted. In other words, it has to ask itself whether, in the event that it had itself been seised of the merits of a dispute identical to that which was the subject of the foreign judgment, it would have been obliged under international law to accord immunity to the respondent State (see to this effect the judgment of the Supreme Court of Canada in Kuwait Airways Corp. v. Iraq …), and the judgment of the United Kingdom Supreme Court in NML Capital Limited v. Republic of Argentina ….66
In practical terms, the conflicting views may not matter much for a creditor investor certainly will rely on all possible exceptions allowed under the laws of the forum State to resist the debtor State’s plea of immunity from suit at the recognition stage.
Assuming the forum court has decided to look behind the award, the next question is whether the underlying transaction falls within the “commercial” exception. The “purpose” test initially adopted by States in the earliest cases has proved to be over-inclusive in relation to economic activities of the State and attracted criticism.67 On the other hand, the “nature” test, originated back in 1920s in Switzerland and followed by a few continental European States, started gaining floor and has become the prevailing test: e.g., s.1603(d) of USFSIA. The UK adopts the “contextual” approach in which the court “must consider the whole context in which the claim against the State is made”: I Congreso del Partiodo68; Holland v. Lampen-Wolfe.69 Article 2(2) of UNCSI, which seems to be a compromise reached, has provided for the “two-pronged” approach, namely, the “nature” test and the “purpose” test to be applied successively. Hence, if the transaction appears to be commercial under the “nature” test, it is open to the defendant State to contest this finding by reference to the purpose of the transaction if in its practice, that purpose is relevant to determining the non-commercial character of the transaction.70
States adhering to the absolutist approach generally do not admit the “commercial” exception to state immunity. For instance, in the FG Hemisphere case, the Hong Kong Court of Final Appeal, in the light of China’s absolutist approach, dismissed the award creditor’s application to have the recognized in Hong Kong.71 That said, it does not logically follow that an award creditor can never have the award recognized against the debtor State in an “absolutist” jurisdiction. After all, even the “absolutist” jurisdictions allow immunity to be waived, and there are, as discussed above, respectable arguments in favor of treaty and/or contractual waiver in the context of enforcing an investment award under the ICSID Convention or the New York Convention.
The States’ practice suggests that forum States are more and more inclined to withhold immunity from suit at the recognition stage vis-à-vis the debtor State, whether by way of statutes or waiver. In jurisdictions where the law on state immunity has been codified, the creditor investors generally can rely on one or more statutory exceptions to resist the debtor State’s assertion of immunity. Absent such exceptions (including States practicing “absolute” immunity), waiver becomes the only argument which a creditor investor relies on. From an investor’s perspective, perhaps the best it can do to protect the position is to insert an unambiguous waiver clause in the concession concluded with the host State.
Immunity from Execution at the Execution Stage
Immunity from Execution as Distinct from Immunity from Suit
… It does not follow, simply because general customary international law embodies a minimum obligation in the case of trial proceedings, namely the granting of immunity in respect of acts iure imperii; that it also demands only relative immunity in the case of execution, since preventive measures and measures of forced execution generally have a much more direct or drastic impact on the exercise of sovereignty by the foreign State than do judicial judgments. It is therefore necessary to consider separately whether and to what extent general rules of international law preclude forced execution.72
… [the appellant] raises the question whether a distinction should not be drawn between the exercise of jurisdiction and measures of execution, and whether an absolute immunity should not be accorded to foreign States in respect of measures of execution. This question must be answered in the negative … As soon as one admits that in certain cases a foreign State may be a party before Swiss court to an action designed to determine its rights and obligations under a legal relationship in which it had become concerned, one must admit also that that foreign State may in Switzerland be subjected to measures intended to ensure the forced execution of a judgment against it. If that were not so, the judgment would lack its most essential attribute, namely, that it will be executed even against the will of a party against which it is rendered. It would become a mere legal opinion. Moreover, while its effect would be less directly felt than those of measures of execution, such an opinion would also affect the sovereignty of the foreign States. If, therefore, measures of execution against a foreign State were prohibited in order to safeguard its sovereignty, logically the exercise of jurisdiction would likewise have to be prohibited. That would be contrary to current practice. …
… Article 5 of the Resolution adopted by the Institute of International Law on April 30, 1954, prohibits the attachment of or measures of execution against the assets of foreign States only if these assets are used in the exercise of a governmental activity which has no relation to any commercial transaction. There is thus no reason to modify the case law of the Federal Tribunal in so far as it treats immunity from jurisdiction and immunity from execution on a similar footing.74
When a State possesses funds in another State and allocates those funds for its diplomatic service or for another mission incumbent upon it in its own capacity as a public power it may oppose the subjection of such funds to attachment. In such circumstances the funds are in actual fact designed for the performance of acts of sovereignty. Like such acts, the funds are protected by immunity from jurisdiction and consequently by immunity from enforcement.
… it suffices for the Court to find that there is at least one condition that has to be satisfied before any measure of constraint may be taken against property belonging to a foreign State: that the property in question must be in use for an activity not pursuing government non-commercial purposes [the “commercial property” exception], or that the State which owns the property has expressly consented to the taking of a measure of constraint [i.e. the “waiver” exception”], or that that State has allocated the property in question for the satisfaction of a judicial claim [i.e. the “earmarked property” exception]…76
The “Waiver” Exception
Like immunity from suit, a debtor State may waive immunity from execution with respect to its property located in the forum State. In fact, Articles 18(a) and 19(a) of UNCSI can be broadly categorized as waivers, whether such waivers are made prior to, or after, commencement of execution proceedings before the forum State.
Waiver by International Agreement
Although Articles 18(a)(i) and 19(a)(i) provide that a State may waive its immunity from execution by its express consent made by an international agreement, such provision cannot be invoked against a debtor State with respect to an ICSID award due to express exclusion of such implied waiver by Article 55 of the ICSID Convention. For the reasons discussed in the context of immunity from suit, this argument is even weaker in the context of the New York Convention.
Articles 18(a)(ii) and 19(a)(ii) of UNCSI permit contractual waiver.
A question frequently comes up is whether the debtor State’s agreement to arbitrate constitutes a waiver from execution.
… I have no doubt that the TDA [i.e. the State organ] waived immunity for enforcement purposes pursuant to s.12 of the State Immunity Act [concerning immunity from execution]. It did so by agreeing to international commercial arbitration. Otherwise, the effect of an Award could be thwarted by successfully claiming state immunity in jurisdictions where the TDA has exigible assets.77
Similar view was expressed by the US Court of Appeal (5th Circuit) in Walker International Holdings Ltd. v. Congo.78
Waiver of jurisdictional immunity did not in any way imply waiver of immunity from execution. The order granting an exequatur for the award did not, however, constitute a measure of execution but merely a preliminary measure prior to measures of execution. The pronouncement of such a measure, affirming the validity of the award for all purposes, constituted merely the necessary sequel of the award and did not violate in any way the immunity from execution enjoyed by the Yugoslav State.79
In ordering the vacation of all these attachments, the Court of Appeal of Paris held that it has not been established by Creighton Ltd that the State of Qatar has renounced its immunity from execution and that the acceptance of an arbitration clause does not lead to a presumption of waiver of such immunity, which is distinct from jurisdictional immunity.
By ruling in this manner, even though an undertaking entered into by a State signing an arbitration clause, to comply with the award in accordance with the provision of Article 24 of the Arbitration Rules of the International Chamber of Commerce implies waiver by that State of its immunity from execution, the Court of Appeal violated both the provisions of international law governing State immunity and Article 24.
It is considered that an agreement to arbitrate, without more, cannot by itself be deemed to be a waiver of immunity from execution, and this has been made loud and clear by Article 55 of the ICSID Convention: see also, e.g., In re Suarez,81 The “Cristina,”82 and the FG Hemisphere case (HKCFA).83 The decisions holding otherwise have been said to be “[logically] difficult to follow”84 because “an undertaking to carry out [an award] is not the same thing as [the debtor State] surrendering an immunity.”85 Such decisions are also not adopted in the UK: see Orascom Telecom Holding SAE v. Chad.86
Contrast can be made to another decision of the US Court of Appeal (5th Circuit) in Atwood Turnkey Drilling Inc. v. Petroleo Brasileiro,87 in which the court found that the state agent had waived the immunity from execution by reason of the contract it entered into with the plaintiff. The decision of Walker International (which heavily relied on Atwood) perhaps could be better explained by the fact that Congo had by agreement waived its immunity in “any procedure relating to any arbitration decision …” and such the garnishee proceeding therein fell within the scope of such procedure.88 On such premises, the two US cases were not exceptions but instances falling within Articles 18(a)(ii) and 19(a)(ii) in that the relevant debtor States not only expressed consent to arbitrate but also to waiver of immunity from execution.
As to whether a waiver can be validly made prior to the proceedings commenced before the forum State, UNCSI allows such a possibility while the traditional common law (which is subject to criticism) takes a different view – see the discussion above.
The “Earmarked Property” Exception
Goods destined by a State for the satisfaction of the claim in question or reserved by it to this end may be seized, instead of all other goods of the foreign State situated in the forum State or intended to be used for commercial purposes, without it being necessary to establish that such goods were destined for the entity against which the proceedings had been brought.90
A distinction has to be drawn between property allocated or earmarked to satisfy the claim which is the object of the proceeding on one hand and property earmarked to meet commercial liabilities owed to creditors in general. It is considered that property falling within the latter category are not property referred to in Articles 18(b) and 19(b) of UNCSI for such property are not earmarked or allocated to satisfy a specific claim. The property concerned should be more appropriately analyzed under the “commercial” exception.
The “Commercial Property” Exception
The “commercial property” exception is a result of the distinction between acta iure imperii and acta iure gestionis adopted by States practicing “restrictive” immunity. Traditionally, a dichotomy is maintained in that a State’s property is divided into property serving governmental purpose and those serving commercial purpose: e.g., the Brussels Convention 1926.91 The dichotomy was not controversial in drafting the UNCSI and the ILC finally adopted the formulation of “other than governmental non-commercial purposes.”92 UKSIA allows execution against the debtor State’s property “for the time being in use or intended for use for commercial purposes.”93 USFSIA allows execution against the debtor State’s property in the US used for a commercial activity.94
In determining whether a particular property is a “commercial property,” the current States’ practice and academic opinions favor the “purpose test.” It is because even under the restrictive approach, the defendant State’s ability to carry out its governmental functions remains protected. Accordingly, in the context of immunity from execution, the focus is not on how such property came about but whether the deprivation the defendant State of such property would prejudice its current or future carrying out of its governmental function.
It is clear in the present case that the property which was the subject of the measure of constraint at issue is being used for governmental purposes that are entirely non-commercial, and hence for purposes falling within Germany’s sovereign functions. Villa Vigoni is in fact the seat of a cultural centre intended to promote cultural exchanges between Germany and Italy. This cultural centre is organized and administered on the basis of an agreement between the two Governments concluded in the form of an exchange of notes dated 21 April 1986. Before the Court, Italy described the activities in question as a ‘centre of excellence for the Italian-German co-operation in the fields of research, culture and education’, and recognized that Italy was directly involved in ‘its peculiar bi-national … managing structure’. ….95
A natural follower of the “purpose” test is that a property’s character does not depend on how it came about (i.e., the origin) but on the present or future use to which the State has chosen to put it: AIC Ltd. v. Nigeria (UK),96 SerVaas Inc v. Radfidain Bank (UK),97 Connecticut Bank of Commerce v. Congo (USA),98 and FG Hemisphere (the Hong Kong SAR).99 It is therefore not to say, that “the fact that an act iure gestionis is at stake makes that also all objects of the foreign State should be labelled as intended for commercial purposes.”100 The ILC also commented that the property is classified as “commercial property” if it is in use or intended for use by the defendant State for such purpose “at the time the proceeding for attachment or execution is instituted.”101
The States’ practice have generally placed the burden of proof on the creditor to show that a particular asset is a “commercial property” liable for execution.102 Many States have in their legislation provided for a mechanism through which the defendant State can issue a statement or certificate with respect to the use of the property concerned.103 While it has been suggested that general international law does not prohibit the forum State from asking the defendant State to substantiate the fact claimed in the statement or certificate, forum States,104 however, generally defer to statements or certificates issued by the defendant States, or at least accept as prima facie evidence, unless the creditor can prove to the contrary: e.g., Alcom Ltd v. Colombia (UK),105 SerVaas Inc v. Radfidain Bank (UK), and Iran v. Eurodif (France).106
… To require the State in question to justify the use of its bank account for all its diplomatic activities or activities affecting the proper functioning of its mission would constitute unacceptable interference with that State and an infringement of its sovereignty. …
To require proof of the allocation of funds to be the responsibility of the State against which the attachment is sought would be contrary to the very principle of immunity that, by definition, establishes a presumption in favour of the State that enjoys immunity. The imposition of a duty on a State to prove systematically and at any moment that it is indeed entitled to rely on its immunity would in practice exclude reliance on its immunity.108
On the other hand, the approach taken by Switzerland is more preferential to creditors. In United Arab Republic v. Mrs X,109 the court not only placed the burden on Egypt to prove that the attached property was designated for sovereign purpose but also tested (and consequently rejected) Egypt’s assertion against other evidence. Also, Australia reverses the burden of proof on the defendant State with respect to property which is apparently vacant or apparently not in use, though it admits the defendant State’s certificate of use as prima facie evidence: ss.32(3)(b) and 41 of AFSIA.
Another complicity in applying the “purpose” test is mixed funds. The requirement that the property must be “specifically” in use or intended use for commercial purpose under Articles 18(1)(c) and 19(1)(c) suggests that mixed funds should be immune from execution.110 This accords with the State practices: Alcom v. Colombia (UK), Benamar v. Embassy of the Democratic and Popular Republic of Algeria (Italy),111 Philippine Embassy Bank Account Case,112 and Liberian Eastern Timber Corp v. Liberia (USA).113 On the other hand, there are instances where national courts allow segregation of funds and afford immunity only to the funds segregated for governmental purpose: Republic of “A” Embassy Bank Account Case114 (Austria – placing the burden on the creditor); and Libya v. Actimon115 (Switzerland – placing the burden on the defendant State).
Article 21(1) of UNCSI provides a list of categories of property of a State which shall fall outside the scope of “commercial property,” of which includes property which is used or intended for use for the purposes of the State’s diplomatic functions. It reinforces Article 3(1)(a) that UNCSI is without prejudice to the privileges and immunities enjoyed by a State under international law in relation to the exercise of its diplomatic function, and such protection is also afforded by the Vienna Convention of Diplomatic Relations 1961 and Vienna Convention on Consular Relations 1963 etc. It is said that a general waiver or a waiver in respect of all property of the defendant State is insufficient to waive immunity with respect to the property referred to in Article 21(1),116 and that was also the position of France in Russian Federation v. NOGA117 as later codified in Sapin II Law.118
Property of central bank of the State, like assets of diplomatic missions, are generally deemed not to be “commercial assets” and are immune from execution: e.g., Article 19(1) of UNCSI, s.14(4) of UKSIA, Article 1 of China’s Law on Immunity of the Property of Foreign Banks from Compulsory Judicial Measures,119 etc. On the other hand, in Switzerland, the Federal Court refused to take this blanket approach and held it was incumbent on the defendant State to prove the funds held by the Central Bank of Lybia were designated for governmental purpose.120
Finally, it is worth discussing whether assets of state-owned entities (“SOE”) are liable to be seized to satisfy arbitral awards made against the State. Under the “commercial property” exception of Article 19(1)(c) of UNCSI, the property intended to be subject to post-judgment measures must “[have] a connection with the entity against which the proceeding was directed.”121 An issue arises therefrom is whether an investor State can seize the assets of an SOE to satisfy the award rendered against the debtor State, and the focal point is whether the corporate veil of an SOE can be lifted so that an investor creditor can lay hands on the SOE’s assets to satisfy the award against the debtor State.
UNCSI leaves this matter to be decided by the forum States – in the United Nations Judicial Yearbook 2004, at 254, it is stated “Article 19 does not prejudge the question of ‘piercing the corporate veil 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.”
What then is the correct approach to distinguishing between an organ of the state and a separate legal entity? And is this distinction relevant not only to questions of immunity, but also to questions of substantive liability and enforcement? … In the board’s opinion, it is now appropriate in both contexts to have regard to the formulation of the more nuanced principles governing immunity in current international and national law. These … express the need for full and appropriate recognition of the existence of separate juridical entities established by states, particularly for trading purposes. They do this, even where such entities exercise certain sovereign authority jure imperii, providing them in return (as already noted) with a special functional immunity if and so far, as they do exercise such sovereign authority. A similar recognition of their existence and separateness would be expected for purposes of liability and enforcement.
Separate juridical status is not however conclusive. An entity’s constitution, control and functions remain relevant … But constitutional and factual control and the exercise of sovereign functions do not without more convert a separate entity into an organ of the State. Especially where a separate juridical entity is formed by the State for what are on the face of it commercial and industrial purposes, with its own management and budget, the strong presumption is that its separate corporate status should be respected, and that it and the State forming it should not have to bear each other’s liabilities. It will in the Board’s view take quite extreme circumstances to displace this presumption. The presumption will be displaced if in fact the entity has, despite its juridical personality, no effective separate existence. But for the two to be assimilated generally, an examination of the relevant constitutional arrangements, as applied in practice, as well as of the State’s control exercised over the entity and of the entity’s activities and functions would have to justify the conclusion that the affairs of the entity and the State were so closely intertwined and confused that the entity could not properly be regarded for any significant purpose as distinct from the State and vice versa. The assets which are … protected by State immunity should be the same as those against which the State’s liabilities can be enforced …
There may also be particular circumstances in which the state has so interfered with or behaved towards a state-owned entity that it would be appropriate to look through or past the entity to the state, lifting the veil of incorporation. But any remedy should in that event be tailored to meet the particular circumstances and need. That is the position under domestic law … It must equally be so in the board’s view under international law. Merely because a state’s conduct makes it appropriate to lift the corporate veil to enable a third party or creditor of a state-owned corporation to look to the state does not automatically entitle a creditor of the state to look to the state-owned corporation. Lifting the veil may mean that a corporation is treated as part of the state for some purposes, but not others.
With regard to the relationship between a State and State enterprise, the Chinese Delegation maintained that in principle a State enterprise or any other entity set up by a State should not enjoy State immunities, so long as the State enterprise or the other entity has independent act and the capacity to sue or be sued and has the capacity to acquire, possess or own or dispose property, including the property they operate and manage authorized by the State. At the same time, the Chinese Government maintained that it was necessary to differentiate clearly a State and a State enterprise or any other entity set up by a State and that a State enterprise or any other entity set up by a State should independently bear civil liabilities and a State, in principle, should not bear joint and several liabilities for commercial acts and liabilities of debts of a state enterprise or any other entity.
With regard to state immunities from compulsory measures, the Chinese Government was of the opinion that once the Court enforces compulsory measures on the property of a defendant state, it must strictly satisfy the following requirements: (1) The property is in the territory of the country where the Court is located; (2) It is specifically used for the purpose that may be intended for uses other than the non-commercial uses of the government. (3) It is related to the demand of the object of proceeding or the institutions or departments of the sued. Among them, the third requirement is particularly important. The debt of a state can only be cleared off with the property which is demanded by the object of the proceeding and used by the institution of the sued for the purpose other than non-commercial purpose, and cannot be cleared off with the property of a state enterprises or any other entity. If the property for compulsory measure to be compulsorily enforced is not strictly defined, there will exist the possibility of misuse of compulsory measure by the court against the state property of the defendant state or the property of a state enterprise or entity not related to the litigation.125
While the international law has provided for certain exceptions to immunity from execution, States’ practice shows that forum States tend to apply those exceptions narrowly and has swayed towards the direction of upholding immunity: e.g., the recent legislation of Belgium and France which has made judicial authorization a requirement before measures of constraint can be imposed.126 Even waiver is a possible way to tackle the assertion of immunity, an investor still bears an onerous burden to prove the purpose of the property and encounters difficulty in cases with complications, such as mixed funds and assets not directly owned by States.
In enforcing an investment arbitral award against the debtor State, state immunity is engaged in both the recognition stage (immunity from suit) and at the execution stage (immunity from execution). While forum States are more prepared to withhold immunity at the recognition stage, whether by waiver or otherwise, state immunity from execution remains to be the thorny issue standing in the investor’s way to collect the award. That said, the author considers that immunity from execution being the “Achilles’ heel” of the investor-State arbitration system is an over-statement, in particular when the 2017 ICSID’s survey suggested that States generally complied with awards made in favor of investors.127
In fact, waiver remains an important exception to both types of immunity and forum States generally accept contractual waiver. While “caveat emptor” may still apply in cross-border investment involving a State,128 the risk can be reduced (though not eliminated) by an agreement with a properly drafted waiver clause.
Schreuder CH (2009) The ICSID convention. A commentary, 2nd edn. p 1154
Accordingly, discussion on the law treating an entity to be an agent or instrumentality of a State is beyond the scope of this article.
 7 Cranch 16
Judgment, I.C.J. Reports 2012, at 99, paras 56–57
Resolution of the UN General Assembly 59/38 (A/Res/59/38)
(1952) 79 Clunet 244 (Belgium); 18 ILR 3 (1951) at 7
Swiss Federal Tribunal, 6 June 1956; 23 ILR 195 (1960)
Report of the International Law Commission on the work of its forty-third session (Doc A/46/10) (1991) YBILC, vol II, part 2, at 56
Id. at para 113
Article 54(1) of the ICSID Convention
Article 54(2) of the ICSID Convention. See Chaisse J (2015) The issue of treaty shopping in international law of foreign investment – structuring (and restructuring) of investments to gain access to investment agreements. Hastings Bus Law Rev 11(2):225–306
Some States pursuant to Article I(3) of the Convention make reservations confining the application to differences arising out of commercial legal relationship as defined by their respective domestic laws. For instance, China has expressly excluded awards made with respect to disputes between foreign investors and the host State from the application: see the “Circular of Supreme People’s Court on Implementing Convention on the Recognition and Enforcement of Foreign Arbitral Awards Entered by China”
Article IV of the New York Convention, however, does not prohibit the contracting forum State to impose such a pre-condition as part of its own rules of procedures.
For instance, Swiss case law requires a “sufficient domestic connection” with Switzerland (known as “Binnenbeziehung”) before an award can be enforced in Switzerland, and this has recently been reaffirmed. In A Ltd v. Uzbekistan (Second Civil Law Court, 7 September 2018), the court, in refusing to enforce a New York Convention award against Uzbekistan, held (1) that the Binnenbeziehung requirement went to the jurisdiction of the court to recognize and enforce an award; (2) that the Binnenbeziehung requirement was compatible with New York Convention for it permits contracting States to enforce awards “in accordance with the rules of procedure of the territory where the award is relied upon”; (3) that the Binnenbeziehung requirement could be satisfied if (a) the legal relationship underlying the award was established in Switzerland or to be fulfilled there; or (b) the award debtor undertook certain positive acts to establish that the award could be executed in Switzerland; and (c) mere presence of assets in Switzerland or the award being made in Switzerland would be insufficient.
113 ILR 440 (1999), at 445
ICSID Case No. ARB/05/18, Decision of the ad hoc Committee on the Stay of Enforcement of the Award (12 November 2010)
 EWHC 2120 (Comm)
Cour d’ appel, Paris, 26 June 1981, 65 ILR 88 (1984)
(2011) 14 HKCFAR 95, 147 ILR 376 (2011)
Bernini G., Van den Berg AJ (1987) The enforcement of arbitral awards against a state: the problem of immunity from execution. In: Lew JDM (ed) Contemporary problems in international arbitration. Springer, Dordrecht
 1 QB 368
 2 HKLRD 66, paras 176–177. The decision of the Hong Kong Court of Appeal was reversed by the Hong Kong Court of Final Appeal: see (2011) 14 HKCFAR 95, 147 ILR 376 (2011) and (2011) 14 HKCFAR 395, 150 ILR 684 (2011) on different grounds (namely the Hong Kong SAR could not as a matter of legal and constitutional principle adhere to a doctrine of state immunity different from that adopted by China).
Fox H. The law of state immunity, Revised and Updated 3rd edn, at 395; also ILC’s Report, at 55 (supra, note 8)
Id., at 397
 EWHC 1357, 129 ILR 571 (2007), at paras 19–21. The conclusion was approved first by the Court of Appeal in Svenska Petroleum Exploration AB v. Lithuania (No 2)  QB 886 (at para 137) and later by the Supreme Court (by majority) in NML Capital Ltd v. Argentina  2 AC 495, 147 ILR 575 (2011)
Supra, note 22, at para 174
Supra, note 4, paras 126–128, see also paras 129–130
Albeit such proceedings are still regarded as proceedings having been instituted against the debtor State by reason of that State being named as a party thereto: see Article 6(2) of the UNCSI
ILC Report, supra, note 8, at 27. Also: Delaume GR (1987) Sovereign immunity and transnational arbitration. In: Lew JDM (ed) Contemporary problems in international arbitration. Springer, Dordrecht, p 316
Article 26 of the Vienna Convention on the Law of Treaties 1969
ILC Report, supra, note 8, at 27
Italian Corte di Cassazione, 12 January 1987; 87 ILR 38 (1992)
875 F.2d 1174 (5th Cir. 1989). The relevant provision reads: “The Borrower … expressly and irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any court or from any execution of attachment in aid of execution prior to judgment or otherwise) or claim thereto which may now or hereafter exist, and agrees not to assert any such right or claim in any such action or proceeding, whether in the United States or otherwise.”
 AC 797 (HL), at 819
 2 Lloyd’s R 520, at 524
Dicey, Morris, Collins. The conflict of laws, 15th edn, vol I, at para 10-028
Supra, note 19, at para 390
Id. at para 392
 2 AC 495 (SC) at paras 125–126, 147 ILR 575 (2011). See also Pearl Petroleum Co Ltd v. Kurdistan Regional Government of Iraq (Dubai International Financial Centre Courts, 20 August 2017, ARB 003/2017), at paras 29–30
FOX, supra, note 23, at 379–380
Keyu v. Secretary of State for Foreign and Commonwealth Affairs  AC 1355 (SC), per Lord Mance at para 150
Bachand F (2009) Overcoming immunity-based objections to the recognition and enforcement in Canada of investor-state awards. J Int Arbitr 26(1):67; Delaume GR, id. at 315; Toope (1990) Mixed international arbitration: studies in arbitration between states and private persons. pp 146–150
Bachand, supra note 42, at 69. Fox, however, suggests otherwise: supra note 24.
2003 FC 1517, at para 65
Decision of 6 July 1970, Trib. gr. inst. Paris, 65 ILR 46 (1984)
Supra, note 15, at 445
(US District Court for the District of Columbia) 465 F Supp 824 (1978), (1978) 17 ILM 1395
181 F 3d 118 (DC Cir 1999)
See also the observation of the Supreme Court of the Netherlands in N.N. v. The State of The Netherlands (14 October 2016, ECLI:NL:HR:2016:2371, 15/01944) that the forum State’s responsibility lies primarily with its international law duty to afford immunity to the debtor State, not with the satisfaction of the award.
At paras 170–171. See also the judgment of the Hong Kong Court of First Instance on this issue by Reyes J.  1 HKLRD 410, at para 116
Supra, note 23
Creighton and FG Hemisphere seem to be suggesting that the New York Convention is capable of giving rise to a waiver where there is a trio of (a) a contracting State in which the award is made, (b) the debtor State being a contracting State, and (c) the forum State also being a contracting State. However, this suggestion, with respect, conflates a contracting State’s international legal duty as the forum State to enforce an award with its civil legal duty as the award debtor to comply with the award. The US Court of Appeal’s “contemplation” logic equally applies to a non-contracting State (like Qatar) which knowingly agreed to arbitrate in the territory of a contracting State. The better view, the author considers, is that the New York Convention does not give rise to a waiver of immunity.
Section 17(2) of the Australian Foreign States Immunities Act 1985
Section 11 of the Singapore State Immunity Act 1979
Supra, note 23
 EWHC 1797 (Comm), at paras 25–27
 QB 886, at para 117
S.5 of the Canadian State Immunity Act provides: “A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.”
Supra, note 44, para 64
(2007) ABQB 212, paras 130–135
 2 SCR 571, para 33
Supra, note 22 (para 268)
 HCA 43
S.3(1)(a) of the UKSIA provides: “A state is not immune as respects proceedings relating to (a) a commercial transaction entered into by the state …”
Supra, notes 25, 57, and 39 (by majority).
Supra, note 4, at para 130. It is unclear to which part of the UK Supreme Court’s judgment in NML Capital Ltd. v. Argentina the ICJ referred when the majority of the court held that the statutory “commercial” exception did not apply.
FOX, supra, note 23, at 410
 1 AC 244; 64 ILR 307 (1983)
 1 WLR 1573, at 1580
ILC Report (supra, note 8, at 20)
(2011) 14 HKCFAR 395
German Federal Constitutional Court, 14 December 1977, 65 ILR 146 (1984), at 166
Supra, fn. 6
Supra, note 7, at 198–199
Federal Tribunal of Switzerland, 10 February 1960, 65 ILR 385 (1984) at 391)
Supra, note 4, at para 118
Supra, note 60, para 139
(2004) 395 F 3d 229
See also Benevenuti & Bonfant v. Congo, supra, note 18
ch civ.1, 6 July 2000; 127 ILR 154 (2005)
 2 Ch 131, at 131–139
 AC 485, at 490–491
Supra, note 19, at paras 378–379
The majority judgment of the Hong Kong Court of Appeal in FG Hemisphere Associates LLC v. D.R. Congo (supra, note 22 at paras 155–163)
FG Hemisphere Associates LLC v. D.R. Congo  1 HKLRD 410 (Hong Kong Court of First Instance), at paras 108–113
 1 All ER (Comm) 315
875 F.2d 1174 (5th Cir. 1989). The relevant provision reads: “The Borrower … expressly and irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any court or from any execution of attachment in aid of execution prior to judgment or otherwise) or claim thereto which may now or hereafter exist, and agrees not to assert any such right or claim in any such action or proceeding, whether in the United States or otherwise.”
The relevant provision reads: “[t]he Congo hereby irrevocably renounces to claim any immunity during any procedure relating to any arbitration decision handed down by an Arbitration Court….” The court held that the garnishee proceeding “relates to the ‘arbitration decision’ since Walker seeks to garnish funds owed to [Congo] to collect on the ICC’s judgment.”
Cour d’ appel, Paris, 12 December 2001  Revue de l’arbitrage 417
Reinisch A (2006) European Court practice concerning state immunity from enforcement measures. Eur J Int Law 17(4):803, at 820–821 (English translation of the excerpt of the judgment extracted from footnote 115 thereof)
International Convention for the Unification of Certain Rules Concerning the Immunity of State-Owned Ships 1926
ILC Report (supra, note 8), at 51
S.13(4) of UKSIA. The term “commercial purposes” is defined as, amongst others, any transaction or activity into which a State enters or in which it engages otherwise than in the exercise of sovereign authority”.
The term “commercial activity” is defined by reference to the nature of the course of conduct or particular transaction or act, rather than by its purpose: s.1603(d) of USFSIA
Supra, note 4, at para 119. See also the judgment of Tribunal de grande instance de Paris in Hulley Enterprises Ltd. v. Russian Federation (28 April 2016), in which the court held that the church and cultural center built by Russia were immune from execution.
Supra, note 25
 1 AC 595 (SC)
(2002) 309 F 3d 240 (US Court of Appeal, 5th Circuit)
Supra, note 22, paras 179 and 277
van Woudenberg N (2012) State immunity and cultural objects on loan. Martinus Nijhoff, Leiden, p 56 citing Spiegel J (2001) Vreemde staten voor de Nederlandse rechter [Foreign States in Dutch courts], Amsterdam, at 105–106
ILC Report (supra, note 8, at 58)
Ss.32(3)(b) and 41 of the Australia Foreign State Immunities Act 1985 (“AFSIA”)
E.g., s.13(5) of UKSIA, s.41 of the AFSIA. Also Article 16(6) of UNCSI
See Philippine Embassy Bank Account Case (supra, note 72, at 189)
 AC 580 (HL); 74 ILR 170 (1987)
Cour de cassation, 14 March 1984; 77 ILR 513 (1980) at 515. See also the case law of the continental Europe referred to in the article of REINISCH A. (supra, note 89, at 829–833)
Submissions of Advocate General Gulphe in Iran v. Eurodif (Id., at 520)
Belgian Court of Appeal, Brussel (9th Chamber), 4 October 2002, 127 ILR 101 (2005) at 105–106
Supra, note 74
ILC Report (supra, note 8, at 59)
Corte di Cassazione, plenary session, 4 May 1989, in which the Italian Supreme Court held that the main approach to the issue of immunity from execution as to the bank accounts of the defendant State or its diplomatic mission is that the sums in question were destined for public purposes and that an enquiry by a court as to the precise destination of these funds by diplomatic mission would amount to an interference in the activities of that mission: RUBINO-SAMMARTANO M., International Arbitration Law and Practice, 3rd ed. (2014), at 1415
Supra, note 72, at 188
659 F Supp 606 (DDC 1987, 16 April 1987)
Austrian Supreme Court, 3 April 1986; 77 ILR 489 (1980) at 494
Swiss Federal Tribunal, 24 April 1985; 82 ILR 30 (1990), at 35
ILC Report on draft Article 19(2) (which has now become Article 21(2) of UNCSI), supra, note 8, at 59
Paris Cour d’ appel, 10 August 2000
Article L.111-1-3 of the French Civil Enforcement Procedure Code requires a waiver of immunity to be express and specific if it is to apply to diplomatic assets. See also Commisimpex v. Congo (French Cour d’cassation, 10 January 2018, overturning its own decision of 13 May 2015, in which it held that customary international law required nothing more than an express waiver.)
This Law was added to Annex III of the Hong Kong SAR Basic Law, and accordingly is to be brought into force in the Hong Kong SAR through executive promulgation or local legislation.
The Actimon Case, supra note 114
Similar requirement can be found in domestic law: e.g., the French SAPIN II Article L.111-1-1(3).
See First National City Bank v. Banco Para el Comercio Exterior de Cuba 462 US 611 (1983). However, a statutory exception is created under s.1605(g) of USFSIA, pursuant to which assets of SOE can be seized to satisfy judgment entered against a foreign State under s.1605A thereof with respect to terrorist acts.
 1 All ER 409 (PC), at 422f-423f, applied in Estate of Michael Heiser v. Iran  EWHC 2074. Compare Kensington International Ltd. v. Congo  2 BCLC 296 (UK QBD), in which the forum State found that the corporate veil was purely a sham and a façade, pierced the corporate veil and held that the property of the SOE were those of the defendant State. That said, Lord Neuberger in VTB Capital Inc v. Nutritek International Corp  2 AC 337 (SC) (at para 127) doubted the correctness of Kensington.
See also the letter of the Hong Kong and Macao Affairs Office of the State Council of China issued with respect to TNB Fuel Services Sdn Bhd v. China National Coal Group Corp  3 HKC 588
It is worth adding a caveat that although China’s statement seems to be adopting a position closer to the “restrictive” state immunity approach, China, which has not yet ratified UNCSI, still practices absolute immunity: see the English translation of the letter of the Office of the Commission of the Ministry of Foreign Affairs of the People’s Republic of China dated 21 May 2009, referred to in the decision of the Hong Kong Court of Final Appeal in the FG Hemisphere case (supra, note 19), at para 46. The original version can be found at the same case but reported in (2011) 14 HKCFAR 266.
E.g., Belgium (Article 142quinquies of the Belgian Judicial Code); France (Sapin II Law adding Articles L.111-1-1 to 111-1-3 to the Code of Civil Enforcement Proceedings), both requiring judicial authorization to be granted before measures of constraint can be made over the debtor State’s property, and such judicial authorization will be granted only if the creditor can show either (i) express waiver of the State, (ii) the property concerned has been earmarked to satisfy the claim; or (iii) the property concerned are used or are intended for use for other than non-governmental purposes. Insofar as France is concerned, it is further provided that assets intended to be used in diplomatic functions, military property and property forming part of the cultural heritage etc. are immune from execution.
See ICSID’s Survey for ICSID Member States on Compliance with ICSID Awards
Dautaj Y. Sovereign immunity from execution – caveat emptor. http://arbitrationblog.kluwerarbitration.com/2018/06/04/sovereign-immunity-execution-caveat-emptor/