There have recently been various cases where investors successfully asserted a violation of an international investment treaty on the grounds that the host State failed to recognize and enforce a commercial arbitral award as foreseen in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”).
Effectively, investors have thus been able to recover damages for the non‑compliance with obligations under the New York Convention within the framework of investment arbitration. In the following, it will be set out that this is due to a shift towards more systemic integration: instead of applying international investment law in clinical isolation, arbitral tribunals are increasingly willing to take into consideration other sources of international law such as the New York Convention.
Importantly, however, this development has not led to a defragmentation of international law: international investment law remains a separate regime, which cannot be used as a mere vehicle to enforce obligations beyond investment law. For this reason, the possibility to obtain damages for non-compliance with obligations under the New York Convention within the framework of investment arbitration only exists under limited circumstances.
B. Procedural challenge
Investors who want to assert their rights before an ICSID tribunal face the procedural challenge that ICSID is not a forum where States can generally be held responsible for the non-compliance with their obligations under the New York Convention. Instead, its jurisdiction is limited to legal disputes arising “directly out of an investment”.
This jurisdictional requirement can, however, be met, if the transaction underlying the commercial award qualifies as an investment. To put it differently: an investor may initiate ICSID arbitration, if the host State fails to recognize and enforce a commercial arbitral award, which resulted from a transaction that qualifies as an investment.
The main precedent for this view was established by the arbitral tribunal in Saipem S.p.A. v. The People’s Republic of Bangladesh. In this case, the arbitral tribunal had to decide whether a dispute arising from the non-enforcement of an ICC award fell within its jurisdiction. The arbitral tribunal confirmed this. It held that the “entire operation” would have to be considered in order to determine whether there is an investment under Article 25 of the ICSID Convention. Given that the ICC award crystallized rights, which had arisen under a pipeline construction contract, an investment under Article 25 ICSID Convention would be given. The arbitral tribunal left open whether the ICC award as such qualified as an investment.
A similar approach was taken by the arbitral tribunal in ATA Construction, Industrial and Trading Company v. the Hashemite Kingdom of Jordan. In this case, the arbitral tribunal was confronted with the question whether an arbitral award, which had resulted from a dispute concerning a dike construction contract, qualified as an investment. The arbitral tribunal confirmed this on the grounds that the “entire operation” of which the arbitral award formed part, i.e., the construction of the dike, qualified as an investment.
The only case, where an ICSID tribunal refused to consider whether the underlying transaction, from which the arbitral award had arisen, qualified as an investment, was GEA Aktiengesellschaft v. Ukraine. Here, the arbitral tribunal argued that a sharp analytical distinction would have to be maintained between the commercial arbitral award and the transaction from which it arose. Given that the award itself involved none of the elements of an investment, such as a contribution to or relevant economic activity within Ukraine, the arbitral tribunal denied its jurisdiction.
While the arbitral tribunal was correct in its characterization that the commercial award did not – in and of itself –constitute an investment, there is little support for its proposition that a sharp analytical distinction has to be maintained between the commercial award and the underlying transaction. The practical consequence of this approach would be that parts of an investment (here,: the commercial award) could be denied protection simply by assessing them out of context (here, the underlying transaction). This is hardly desirable.
The jurisprudence of non-ICSID tribunals also confirms that arbitral awards cannot be assessed without taking into account the underlying transaction. As an example, one might consider the decision in White Industries Australia Limited v. The Republic of India. In this case, the question arose whether an ICC award, which had been rendered following a dispute under a contract for the supply of equipment and development of a coalmine, constituted an investment within the meaning of the Australia-India BIT. The arbitral tribunal confirmed this and endorsed the claimant’s view that the award, while not being an investment in itself, was part of the original investment. Even if one takes for granted that the notion of investment under Article 25 ICSID Convention cannot be equated with the notion of investment pursuant to the respective BIT, this decision lends support for the proposition that tribunals have to consider all relevant circumstances in taking their decisions, instead of considering parts of an investment in isolation.
The decisions of the arbitral tribunals in Frontier Petroleum Services vs. the Czech Republic and in Romak S.A. vs. The Republic of Uzbekistan allow for the same conclusion. While the arbitral tribunal in Romak S.A. vs. The Republic of Uzbekistan denied its jurisdiction to hear a dispute arising from the non-enforcement of a GATFA Award, it did so on the grounds that the underlying transaction was a wheat supply transaction and thus not an investment within the BIT. Again, this confirms that arbitral tribunal may have to look at the contractual relationship from which the commercial arbitral award arose in ruling upon its jurisdiction.
C. Substantive challenges
Even if ICSID tribunals have jurisdiction, they are not entitled to award damages based on a mere finding that the New York Convention has been violated. Instead, they have to assess, whether the non-enforcement of the commercial award triggers responsibility under the respective investment treaty. This is not to suggest that the New York Convention would be irrelevant. To the contrary, it is part of the normative environment, which will have to be taken into consideration by arbitral tribunals.
1. The New York Convention is relevant for the assessment of whether a treaty standard has been violated
Above all, the New York Convention provides interpretative guidance for the assessment of whether one of the treaty standards has been violated. In Saipem S.p.A. v. The People’s Republic of Bangladesh, for example, the arbitral tribunal had to assess whether Bangladesh had violated the protection against unlawful expropriation by depriving Saipem of the benefits under an ICC award. The arbitral tribunal confirmed this. It underlined that Bangladesh had acted unlawfully by abusing its rights and violating its obligations under the New York Convention. The arbitral tribunal thus had recourse to the New York Convention in order to assess the lawfulness of the deprivation of benefits under the commercial award. Conceptually, one might designate this as a form of systemic integration as foreseen by Article 31 (3) (c) Vienna Convention.
In ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan took a similar approach. The arbitral tribunal based its finding that Jordan had “violated both the letter and the spirit of the Turkey-Jordan BIT” on the fact that Jordan had unlawfully extinguished Claimant’s right to arbitration contrary to Article II New York Convention. While the arbitral tribunal refrained from specifying in greater detail which guarantee of the Turkey-Jordan BIT was violated, it mentioned that Jordan had assumed the obligation to accord Respondent’s investment fair and equitable treatment as well as treatment no less favorable than that required by international law.
Likewise, the arbitral tribunal in Frontier Petroleum Services vs. the Czech Republic took into consideration the New York Convention in assessing whether the host State had violated the fair and equitable treatment standard. The arbitral tribunal explicitly confirmed that it had the power to review the decision of a national court’s conception of the public policy exception under the New York Convention and rejected Respondent’s allegation to the contrary. However, it only examined whether the Czech courts had applied a plausible interpretation of the New York Convention, i.e., an interpretation that was tenable and made in good faith. This deference to the decision of the State courts seems reasonable in view of the fact that the fair and equitable treatment standard is only a yardstick for certain minimum treatment. Not every form of illegality triggers responsibility under this standard. In the case at hand, the arbitral tribunal considered that the Czech courts’ interpretation of the New York Convention was not unreasonable or impossible. Accordingly, the Czech courts had not acted arbitrarily, discriminatorily, or in bad faith so that no breach of the fair and equitable treatment standard was given.
2. The New York Convention is relevant for the assessment of the damages
The New York Convention is not only relevant when determining whether a BIT has been breached. It also has to be considered when assessing the quantum of damages flowing from such breach. Arbitral tribunals even have to enter into a more in-depth examination of the New York Convention in order to assess the damages.
The decision in White Industries v. The Republic of India is highly instructive in this regard. In that decision, the arbitral tribunal found that India had violated its obligation to provide for effective means of asserting claims and enforcing rights by delaying the decision on enforceability of an arbitral award over a period of nine years. In order to determine the damages flowing from this violation, the arbitral tribunal determined whether the arbitral award was enforceable in India. In doing so, it carefully examined whether there was a ground for refusing the recognition and enforcement of the award under the New York Convention. It concluded that the award was enforceable, since no such ground was given. In the view of the arbitral tribunal, White Industries was therefore entitled to full compensation for the loss it had suffered.
Interestingly, the arbitral tribunal seems to have felt a certain unease to enter into such full-fledged examination of grounds for refusing a declaration of enforceability under the New York Convention. It therefore explicitly asked the parties for a mandate to do so. Both parties agreed that the tribunal had been provided with sufficient material and that it should engage in a determination of the enforceability of the award in India.
One might wonder whether such mandate was necessary in the case at hand? While it is true that the New York Convention leaves it up to the domestic State courts to assess the enforceability of commercial arbitral awards, it is important to note the decision of the arbitral tribunal only resulted in an award to pay damages. The ICSID tribunal did not order the execution of the arbitral award as such. Against this background, it seems reasonable to conclude that the arbitral tribunal only acted out of precaution and in order to respect to the parties’ right to be heard.
International investment law stands in systemic relation with other sources of international law. As can be concluded from the above-mentioned jurisprudence, arbitral tribunals are increasingly willing to apply sources beyond international investment law such as the New York Convention. Importantly, however, such systemic integration only occurs, provided that the jurisdiction of the respective tribunal is given. Investors who seek damages for the non-enforcement of a commercial arbitral award before an ICSID tribunal therefore have to demonstrate that the underlying transaction, from which this award resulted, constitutes an investment.
Dr. Friedrich Rosenfeld, Hanefeld Rechtsanwälte, Hamburg, Germany.
 On fragmentation see Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission, Finalized by Martti Koskenniemi, UN Doc. A/CN.4/L.682, 13 April 2006.
 Art. 25 ICSID Convention.
 Saipem S.p.A. (Claimant) v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007.
 Ibid., para. 110.
 ATA Construction, Industrial and Trading Company (Claimant) and The Hashemite Kingdom of Jordan (Respondent), ICSID Case No. ARB/08/2, Award, 18 May 2010.
 Ibid., paras. 115, 120.
 GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, 31 March 2011.
 Ibid., para. 162.
 White Industries Australia Limited and The Republic of India, UNCITRAL Arbitration in Singapore under the Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, Final Award, 30 November 2011.
 Ibid., para. 7.6.4.
 Frontier Petroleum Services v. The Czech Republic, Final Award, PCA – UNCITRAL Arbitration Rules, 12 November 2010, para. 233.
 Romak S.A. (Switzerland) and The Republic of Uzbekistan, PCA Case No. AA280, Award, 26 November 2009.
 Saipem S.p.A. (Claimant) v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award, 30 June 2009, para. 170.
 On systemic integration see C. McLachlan, The Principle of Systemic Integration and Article 31 (3) (c) of the Vienna Convention, 54 ICLQ (2005) 279 (279 ff.). See also Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission, Finalized by Martti Koskenniemi, UN Doc. A/CN.4/L.682, 13 April 2006, paras. 410 ff. and M. Waibel, International Investment Law and Treaty Interpretation, in: R. Hofmann and C. Tams (eds.), International Investment Law and General International Law (Baden Baden, 2011), p. 29 ff.
 ATA Construction, Industrial and Trading Company (Claimant) and The Hashemite Kingdom of Jordan (Respondent), ICSID Case No. ARB/08/2, Award, 18 May 2010, para. 125.
 Ibid., para. 128 f.
 Ibid., para. 125 and footnote 16.
 Frontier Petroleum Services v. The Czech Republic, Final Award, PCA – UNCITRAL Arbitration Rules, 12 November 2010, para. 525.
 Ibid., para. 527.
 Ibid., para. 530.
 Ibid., para. 529.
 White Industries Australia Limited and The Republic of India, UNCITRAL Arbitration in Singapore under the Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments, Final Award, 30 November 2011, para. 10.4.19. By contrast, it held that the obligation to provide fair and equitable standard was not violated. In the view of the arbitral tribunal, White Industries could not have the legitimate expectation that India would apply the New York Convention properly (para. 10.3.13). While the delay of the Indian courts would be unsatisfactory, it would not yet have reached the stage of constituting a denial of justice, either (para. 10.4.22). Besides, the arbitral tribunal held that the delay in declaring the award enforceable would not constitute a form of expropriation (12.3.6).
 Ibid., para. 14.2.66.
 Ibid., para. 14.2.2.