The binding nature of international arbitral awards is clearly established in international investment law. Most international investment agreements (IIAs) (1)--as well as Articles 53(1) and 54(1) and 27 of the ICSID Convention, Article 34(2) of the UNCITRAL Arbitration Rules, and Article III of the 1958 New York Convention--clearly provide for the obligation of states to enforce international arbitral awards. However, the existence of an obligation to enforce these resolutions does not necessarily mean that in practice every state will always honor that legal commitment. Thus, my remarks will summarize the available mechanisms under international law to deal with situations when a state does not comply with the obligation to enforce an international investment award.
In this regard, there are two different hypothetical situations. The first one is where the obligation to enforce an arbitration award is breached by the country hosting the foreign investor and where the award is rendered against this same country. The second (which is at least possible in theory although not very likely in practice) is where another state, which was not party to the investment dispute, unlawfully refuses to recognize and enforce a valid international investment award. Due to time constraints, my remarks will focus only on the first scenario.
WHAT DOES POSITIVE INVESTMENT LAW PROVIDE WITH REGARD TO NON-COMPLIANCE WITH ARBITRAL AWARDS?
According to most IIAs, as well as Article 27 of the ICSID Convention, the main effect of a state ignoring its obligation to enforce an investor-state arbitration award is to enable the home state of the investor to exert diplomatic protection. Thus, some IIAs explicitly refer to the possibility of elevating the original investment claim to state-to-state dispute settlement. However, these instruments remain silent with respect to what can be done in situations in which, even after state-to-state dispute settlement procedures have been concluded--either under the applicable IIA or any other venue--the host state still refuses to comply with its obligation to enforce the original investor-state arbitral award or the award resulting from the state-to-state dispute settlement procedure.
Article 60 of the Vienna Convention on the Law of Treaties provides for the possibility for an affected state to terminate or suspend the operation of a treaty as a consequence of its breach by another contracting party. However, in the context of international investment relations, terminating or suspending the operation of the applicable IIA does not seem to be an adequate remedy to the lack of enforcement of international investment awards. Terminating or suspending the treaty does not contribute to repair the original source of the dispute, i.e., the need to compensate the damages caused by the host state to the foreign investor. Second, terminating or suspending the operation of an IIA may in fact be counterproductive as other investors of the home state remaining in the host state could be left unprotected.
One of the few remedies provided by international instruments to deal with situations of non-compliance with international investment arbitral awards is the World Bank Operational Manual OP 7.40. The operational policies of the World Bank (the Bank), explicitly allow it to block or refrain from making new loans to member countries that are unwilling to take steps to resolve disputes over its failure to service external debt, or that are not making reasonable efforts to settle disputes over unlawful expropriation of property of aliens. The Operational Manual provides the authorities of the Bank with significant discretion to apply those prerogatives, and also regulate the procedures by which they might be exercised. (2)
CUSTOMARY INTERNATIONAL LAW AND NON-COMPLIANCE WITH ARBITRAL AWARDS
Given the limited remedies provided by positive law to deal with situations of noncompliance with international investment arbitral awards, it is necessary to explore what customary international law and the general principles of law do provide on this matter. …