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Ad hoc committee confirms its power to grant conditional stay of enforcement
Practical Law Legal Update 9-504-0906 (Approx. 5 pages)
Ad hoc committee confirms its power to grant conditional stay of enforcement
by PLC Arbitration
| Published on 01 Dec 2010 • International, USA |
In Kardassopoulos and Fuchs v Georgia (ICSID Case Nos ARB/05/18 and ARB/07/15), an ICSID ad hoc committee considered its power to stay the enforcement of the award.
Speedread
Georgia applied for annulment of the awards issued in favour of Messrs Kardassopoulos and Fuchs, and requested a stay of enforcement of the awards pending the annulment proceedings. Georgia was only partially successful. The annulment committee granted a stay of enforcement conditional on the provision of a bank guarantee.
The committee found that the lack of a proper mechanism to ensure the implementation of ICSID awards under Georgian law, and the delay in payment of compensation that would result from the annulment proceedings, justified the imposition of conditions to the stay of enforcement.
The decision confirms the wide discretion of ICSID ad hoc committees to impose conditions where enforcement is stayed pending annulment proceedings, and provides guidance on the factors that may be relevant to the imposition of a stay. (Kardassopoulos and Fuchs v Georgia (ICSID Case Nos ARB/05/18 and ARB/07/15) (12 November 2010).)
Background
Article 53(1) of the ICSID Convention provides:
(1) The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.
Article 54(1)-(3) of the ICSID Convention provides:
(1) Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. ...
(2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.
(3) Execution 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."
Facts
Georgia filed for annulment of ICSID awards issued in favour of two oil traders, Messrs Kardassopoulos and Fuchs (the respondents). Georgia further requested a stay of enforcement of the awards pending the ad hoc committee's decision on annulment, under Article 54(2) of the ICSID Convention.
Georgia argued that an unconditional stay of enforcement should be granted because:
- Its application for annulment raised important issues of international law.
- The committee's power to impose conditions should be exercised restrictively. There was no provision in the ICSID Convention or ICSID Rules expressly entitling an ad hoc committee to grant a conditional stay of enforcement and no uniform practice of granting such conditional stays existed.
- Georgia was under an international legal obligation (by virtue of Article 53 of the ICSID Convention) to comply with the award if it were not annulled. The prospect of compliance with Article 53 was relevant to the question of whether a stay should be granted and whether it should be conditional. In this connection, the existence of "justifiable doubts" that Georgia would not comply with this obligation was not sufficient to justify the imposition of a stay. Only certainty or near certainty of non-compliance, viewed in the light of all circumstances of the case, would suffice.
- Even if an ad hoc committee found that a state would not comply with Article 53, an unconditional stay might be granted in the light of "all relevant circumstances".
- Article 54 of the ICSID Convention (which concerned private parties) was not relevant to the question of whether a state would comply with an ICSID award under Article 53.
- To the extent there was any doubt whether Georgia would comply with the award, it would be willing to provide the Respondents with a letter of assurance of compliance.
The respondents did not oppose stay of enforcement but argued that Georgia should be required to post security. They argued that the ad hoc committee was empowered to require the posting of security where justifiable doubts existed as to the host State's intentions to honour an ICSID award. The respondents argued that justifiable doubts existed because:
- Georgia was already in breach of Article 53 of the ICSID Convention as it had failed to satisfy the ICSID award rendered against in the matter of Ares v MetalGeo.
- Georgia had failed to implement Article 54 of the ICSID Convention, which required it to provide for the enforcement of ICSID awards in its national courts. In particular:
- Georgian legislation improperly subjected ICSID awards to potential non-recognition on the grounds similar to those in Article V of the New York Convention. Under Georgian law, recognition of Georgia's obligations under the ICSID Convention were secondary to the requirements of its Constitution;
- Georgian law denied private parties legal standing to seize state assets in satisfaction of an ICSID award;
- there was evidence (in the Ares v MetalGeo case) that Georgian law and procedure failed to provide any adequate remedy to creditors seeking to enforce an ICSID award; and
- the enforcement mechanism allowed Georgia complete control over whether the enforcement proceedings could be brought.
- Georgia's treatment of the Respondents furnished further evidence that it would fail to comply with the award:
- in the award itself the tribunal condemned Georgia's broken promises to compensate the Respondents despite a lengthy compensation procedure;
- Georgia had treated the Respondents as non-strategic investors and with hostility; and
- Georgia had conducted its defence in the ICSID arbitration proceedings in a dilatory manner which created additional doubts whether it would comply with the award in good faith.
Decision
The ad hoc committee granted Georgia stay of enforcement until the decisions on annulment, subject to provision by Georgia of a bank guarantee.
In relation to the parties' arguments, the committee decided that:
- The committee had a broad discretion to stay enforcement under Article 52(5) of the ICSID Convention. Its discretion did not have to be exercised restrictively.
- The committee could only assess whether a conditional stay was necessary on the basis of the objective and concrete circumstances of the case.
- Georgia had failed to designate an enforcing authority as required by Article 54(2) of the ICSID Convention. This was one of the factors giving rise to doubts whether Georgia would comply with the award.
- The imposition of conditions was further justified by the following facts:
- the payment of compensation, which had already been delayed by the protracted character of the dispute and discussions over the claims for compensation and reimbursement of losses, would be delayed further by the stay of enforcement; and
- there was no proper mechanism to ensure the implementation of ICSID awards under Georgian law.
- Georgia's offer of written assurance was not satisfactory and was made too late.
- Georgia had provided no evidence of any budgetary constraints for affording to pay the costs of the bank guarantee.
However, in exercising its discretion committee declined to take into account the following factors:
- The submission that Georgia's obligations under the ICSID Convention were secondary to the requirements of its Constitution was not established on the evidence.
- The question of whether Georgia was in breach of the ICSID Convention was outside the committee's mandate by virtue of Article 64 of the ICISD Convention.
- There was no evidence that Georgia violated its obligations in the investment arbitration proceedings by applying dilatory tactics.
- The seriousness or importance of Georgia's arguments in support of the annulment application was not relevant for the purposes of deciding whether to grant a stay of enforcement.
The committee will now proceed to analyse Georgia's application for annulment.
Comment
The decision confirms that, in spite of the absence of any express provision in the ICSID Convention or the ICSID Rules, the ad hoc committee has a broad discretion to stay enforcement subject to conditions. Any conditions must be justified by the objective and concrete circumstances of the case. In this case, the lack of any proper mechanism to ensure enforcement of the award in accordance with the rules set in the ICSID Convention proved to be an important factor in the committee's decision to grant a conditional rather than unconditional stay of enforcement.