Sovereign immunity and enforcement of arbitral awards

It should be noted that the aforementioned provisions were adopted recently with the goal of establishment of lawful possibility to seize foreign State property.

Initially, in Eurodif v. Islamic Republic of IranEurodif v. Islamic Republic of Iran, p. 1069. Retrieved from http://www.jstor.org/stable/20692759 French Court of Cassation, dealing with qualification of consent to arbitration, concluded:

“As our law now stands, there can be no contesting the fact that the arbitration clause, in and of itself, cannot be regarded as an agreement to have the award enforced”.

By stating that the Court established the necessity in separate waiver of immunity from execution, however, mentioning the existence of assumption, presented in legal doctrine, that a State, consenting to arbitration, undertook an obligation to honor findings of a tribunal, and, therefore, “the stipulation of an arbitration clause would imply waiver of immunity from execution”. Ibid., p. 1068

“By entering into an arbitration agreement … the Tunisian State has thus accepted the ordinary legal rules of international trade; by doing so, it has waived its immunity from jurisdiction and, as agreements must be performed in good faith, its immunity from execution.” CA Rouen, June 20, 1996, Bec Frиres v. Office des cйrйales de Tunisie, 1997 REV. ARB. 263, 267 (note by E. Gaillard).

Further, in Creighton v. Qatar, the Claimant was trying to enforce an award, issued in accordance with ICC Rules. Initially, the Courts of first and appellate instances refused execution, particularly due to the absence of waiver of immunity from execution. However, the Court of Cassation overturned the previous rulings and concluded that by signing the ICC arbitration clause, Qatar waived its immunity from execution. Creighton v. Ministиre des Finances de l'Etat du Qatar, 127 J.D.I. 1054, 1055 (2000)

The approach in Creighton may be compared with Swiss one. Unlike the majority of countries Switzerland refuses the dichotomy between immunity from jurisdiction and immunity from execution, maintaining that one is irrevocably following from another. Thus, in Kingdom of Greece v. Julius Bar and Co Kingdom of Greece v Julius Bar and Co., Swiss Federal Tribunal, 6 June 1956; 23 ILR 195,, the Swiss Federal Tribunal came to the conclusion 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 the party against which it is rendered… there is thus no reason to modify the case-law of the Federal Tribunal insofar as it treats immunity from jurisdiction and immunity from execution on a similar footing.”

Conclusively, despite the fact that Article 20 of the UN Convention Jurisdictional Immunities of States and Their Property seems to establish the general rule, that consent to jurisdiction does not imply the consent to measures of constraint, requiring a separate waiver, which can be manifested in an international agreement, an arbitration agreement or written contract, or through a court declaration after the dispute has arisen between the parties UN Convention Jurisdictional Immunities of States and Their Property, Article 19(l)(a)(i)-(iii)., practice of some states demonstrates rather pro-investor approach, extending arbitration clause to execution proceedings. Although, this attitude is not universally recognized, it can potentially influence practice of other States, while balancing principles of effectiveness and finality of arbitral awards and interests of sovereign States.

2.4 Limitations to execution

Executable property

Even after establishing either explicit or implicit waiver, national courts usually impose additional requirements for execution of an award.

The most common prerequisite for execution of an award is the existence of non-governmental property, not serving a sovereign purpose, in the State, where execution is sought. State practice on enforcement highlights the necessity in balancing of interests of both competing parties: an investor, seeking a remedy, and a State, trying to prevent interference in its sovereign rights. If there is no restriction on the nature of property, the execution may be levied on property, used for specific purposes of governmental character, undermining the value of sovereignty. At the same time, it would be unconscionable to leave a victorious party, having reasonable expectations about fulfillment of obligations by a State, without remedy.

In order to reconcile this conflict, the majority of States undertook an approach, introduced in Empire of Iran case, where it was specified that

“…immunity from execution is based on the public good of the assets, objects of the writ of execution, which depends not on their belonging to the actual patrimony of the state but on their purpose of an activity of public power such as the exercise of a public service”.

By the aforementioned ruling, the German Constitutional Court implied that States enjoy immunity from execution only with respect to property used for sovereign purposes, but not regarding assets used for commercial needs.

While considering, whether State property serves commercial purposes, courts, depending on circumstances of the case, consider the purpose or nature of assets. The former test requires establishment of two elements: the existence of commercial activity and the fact that assets in question are used or intended to be used for commercial purposes. The latter is based on the distinction of nature of property, against which a measure of constraint is directed. C. Schreuer claims that regarding immunity from execution the purpose of assets that is to be seized is usually taken into account but the origin of the property may be also relevant Schreuer, C. (2009). The ICSID convention: a commentary (pp. 1160). Cambridge: Cambridge Univ. Press. . It should be noted, however, that focusing solely on purpose of property may create a “loophole, for any property could be made immune by using it, at one time or another, for some minor public purpose” Birch Shipping Corp v Embassy of the United Republic of Tanzania, 507 F.Supp. 311 (D.D.C. 1980).. Therefore, it is assumed to be more effective to apply both tests, as provided by Article 2 (2) of the UN Convention on Jurisdictional Immunities of States and Their Property. 2. In determining whether a contract or transaction is a “commercial transaction” under paragraph 1 (c), reference should be made primarily to the nature of the contract or transaction, but its 3 purpose should also be taken into account if the parties to the contract or transaction have so agreed, or if, in the practice of the State of the forum, that purpose is relevant to determining the non-commercial character of the contract or transaction.

One of the problems, connected with tests, constitutes in establishment of party on whom the onus to prove the commercial nature of property lies. It is considered more preferable to “require the state to prove that the property sought to be attached is not governmental in nature or that it is in non-commercial use. H. Fox, `State immunity and enforcement of arbitral awards: Do we need an UNCITAL model law mark II for execution against state property?', 12 Arb. Int'l 89 (1996), pp. 93. However, typically, a Claimant must provide evidence that assets concerned are used for non-commercial purposes, what follows, for instance, from Sections 1609 of the FSIA and 13(2)(b) of the SIA, state practice of courts Alcom Ltd v Republic of Colombia, Eurodif v Iran.

The difficulties, which investors can meet, proving the commercial character of foreign property, are well illustrated by decision of state courts issued in the Sedelmayer saga. Mr. Franz J. Sedelmayer obtained an arbitral award against the Russian Federation, obliging the State to pay an amount of USD 2,350,000 as well as interest thereon at a rate of 10 per cent per annum.Mr. Franz Sedelmayer v. The Russian Federation. Retrieved from https://www.italaw.com/cases/982 However, Russia refused to comply with an award, what resulted in several attempts of the investor to enforce an award against different categories of property, belonging to Russia. Thus, Sedelmayer unsuccessfully applied to attach value added tax refunds owed to Russia and paid into the accounts of the Russian Embassy in Berlin; payments from Lufthansa, German airlines, for use of Russian airspace; and property of the Russian House of Science and Culture in Berlin. German courts refused to execute against the aforementioned assets, in particular because Sedelmayer failed to prove the commercial nature of the property, all the assets were recognized as immune from attachment.

Article 21 of the UN Convention on Jurisdictional Immunities of States and Their Property specifies categories of property, which is used or intended for use by a State exclusively for non-commercial property, namely: diplomatic property including bank accounts, military objects, property of central banks, property belonging to the cultural heritage of the State and property belonging to an exhibition of objects of scientific, cultural or historical interest. These categories of property may be susceptible for execution only by earmarking by a State or by specific waiver with regard to certain categories of property. According to Commentary to UN Convention on Jurisdictional Immunities of States and Their Property, a general waiver or a waiver in respect of all property, without mention of any of the specific categories, would not suffice for the purposes of execution against aforementioned categories of property Draft Articles on Jurisdictional Immunities, p. 59..

This conclusion is illustrated by the recent decision of French Supreme Court dated 10 January, 2018. In Commisimpex v. Democratic Republic of Congo https://www.courdecassation.fr/jurisprudence_2/premiere_chambre_civile_568/3_10_38342.html, the Claimant, after successful arbitral proceedings, was trying to attach bank account of Congo in Paris. Although lower courts allowed execution due to the fact that Congo definitively and irrevocably waived all immunities from jurisdiction and enforcement, the Supreme Court overruled the decisions. It stated, in particular, that the waiver of immunity from execution, although being expressed, was invalid, because property-specific requirement was not satisfied. The same practice NOGA, Cameroon v. Winslow Bank & Trust case Решение Федерального Конституционного суда Германии от 6 декабря 2006. Case No. 2 BvM 9/03//NJW 2007,2605.

Diplomatic property

It should be noted that the provisions of the UN Convention reflect the general practice of States on possibility of execution against specific categories of property. Thus, the fact that diplomatic property enjoys immunity is widely accepted in international community, what is confirmed by international conventions Art. 22(3), Art. 30, Vienna Convention on Diplomatic Relations 1961, 18 April 1961, 500 UNTS 95; Art. 31,

Vienna Convention on Consular Relations 1963, 24 April 1963, 596 UNTS 261, national legislation United States Foreign Sovereign Immunities Act 1976, reprinted in 15 ILM 1388 (1976); Section 16(1), United Kingdom State Immunity Act 1978, reprinted in 17 ILM

1123 (1978) and case law. For instance, in 767 Third Avenue Associates v. Permanent Mission of the Republic of Zaire 767 Third Avenue Associates v. Permanent Mission of the Republic of Zaire to the United Nations https://openjurist.org/988/f2d/295/third-avenue-associates-v-permanent-mission-republic-of-zaire-united-nations, the Claimant sought to evict Zaire's Mission to the United States from its rental premises due to failure to fulfill rental obligations. Zaire objected and raised diplomatic immunity defense in order to prevent eviction. The Court upheld the position of Zaire and concluded that eviction would be contrary to provisions of international treaty (Vienna Convention on Diplomatic Relations), to which United States was a party. The similar position can be found in SS Machinery Co. v. Masinexportimport, 802 F supp. 1109 (1992), 8 October 1992, 107 ILR 239, 240-241; Embassy Eviction Case, Greece, Tribunal of First

Instance, Athens, 1965, 65 ILR 248, 252

The majority of cases regarding diplomatic property concern embassy bank accounts used for financing of diplomatic missions. One of the leading cases in this respect is Philippine Embassy Bank Account Case The Philippine Embassy Bank Account, German Federal Constitutional Court (13 December 1977),, where the German Constitutional Court answered the question, whether diplomatic immunity excludes execution in any situation or only if it would affect diplomatic functioning of an embassy. The Court established an existence of general rule of international law that foreign state property used for performance of diplomatic function would always enjoy immunity. The Court further concluded:

“claims against a general bank account of the embassy of a foreign state which exists in the State of the forum and the purpose of which is to cover the embassy costs and expenses are not subject to forced execution by the State of the forum.”

At the same time, it is assumed that States enjoy immunity with regard to diplomatic property only if it is used for sovereign functions, therefore, assets, which serve for commercial goals, should not be immune. Draft Articles on Jurisdictional Immunities, p. 59. The problem may arise, when certain property is used for both sovereign and non-sovereign needs, so called “mixed purpose” property. It should be pointed out that practice of States on execution of arbitral awards against embassy accounts, served mixed purposes is rather differential, depending on legislation or position taken by courts.

For instance, UK legislation stipulates an opportunity to provide special certificate, issued by a head of foreign diplomatic mission, confirming that property is used solely for non-governmental purposes. This certificate is sufficient for purposes of establishment the sovereign character of property, unless the other party provide evidence, supporting the contrary. This provision charges a creditor with almost impossible task to prove that assets are used entirely for commercial activities.

Thus, in Alcom Ltd. v. Republic of Colombia Alcom Ltd. v. Republic of Colombia, the Claimant sought enforcement of judgement against Columbia by garnishing its embassy's accounts. Colombian ambassador provided a certificate, which confirmed that funds, deposited on bank accounts, were not used or intended to use for commercial purposes, but only for covering the day-to-day expenses of an Embassy. Lord Diplock accepted the certificate as sufficient evidence of sovereign purpose of the accounts and noted that execution against mixed funds could affect duly functioning of the diplomatic mission. He further stated that:

“Even though the type of accounts involved might be used to pay for the supply of goods or services to a diplomatic mission, such accounts were intended to meet many other expenditures falling outside the scope of the concept of “commercial purpose”, and that, therefore, the monies in these accounts could not be subject to measures of execution.” Alcom Ltd. v. Republic of Colombia

Another approach was demonstrated in LETCO v. Liberia. The Claimant was trying to execute an ICSID award and obtained a writ, attaching the bank accounts, used for functioning of the Liberian Embassy. The Court held that accounts enjoyed immunity, referring to Vienna Convention on Diplomatic Relations and on FSIA, and noted that “the US Congress did not intend the FSIA to affect diplomatic immunity under the Vienna Convention because the FSIA was enacted subject to existing international agreements to which the US is the party” Liberia Eastern Timber Corporation v Liberia, The District Court for the Southern District of Columbia, 659 F. Supp. 606 (D.C.C. 1987), at 608.. By this ruling the Court declined to order that embassy's account lost immunity, even if it was partially used for commercial activities, therefore, concluding that mixed account were immune from execution.

French Courts provide different protection for embassy bank accounts, as it was illustrated above in Commisimpex v. Democratic Republic of Congo Commisimpex v. Democratic Republic of Congo and also in Russian Federation et.al v. Compagnie NOGA d'importation et d'exportation (NOGA) Russian Federation et.al v. Compagnie NOGA d'importation et d'exportation (NOGA). According to these Rulings, bank account will be attachable for execution, if State will expressly waive its immunity regarding certain type of property, protected by international law on diplomatic immunities. Thus, without existence of the waiver, courts will consider bank accounts immune and refuse execution.

Accordingly, case law illustrates the intention of States to protect property of foreign States, used for sovereign or diplomatic functions. However, it is hard to reveal the universally recognized approach on immunity regarding property, used for mixed purposes. Therefore, it seems reasonable to propose that, while deliberating on problem of mixed funds, courts should consider the character of commercial activity. If it is rather incidental, than the funds should be immune. On the other hand, if account is used solely for masking of commercial activity, it will be fair to refuse immunity. Hence, courts should establish, whether attachment of funds may affect sovereign activities of States and whether commercial activity is necessary for proper conduct of governmental functions of foreign State.

Property of Central banks

Due to the fact that Central banks play crucial role in functioning of States, their property usually enjoy additional protection under regime of sovereign immunity, what is illustrated by provisions of UN Convention on Jurisdictional Immunities of States and Their Property, the FSIA, the SIA, Federal Law On Jurisdictional Immunities of a Foreign State and the Property of a Foreign State in the Russian Federation UNCSI, supra note 83, Art. 21(c); FSIA, supra note 60, 1611(b)(1); SIA, supra

note 61, 14(4). пунктом 5 статьи 16. The presumption of immunity of Central banks assets is illustrated by the Judgment of English High Court of Justice in AIG Capital Partners Inc. AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. The Republic of Kazakhstan, ICSID Case No. ARB/01/6  In the following case the Claimants were trying to enforce the ICSID award against Kazakhstan in the UK, attempting to attach assets held by the third parties in the name and for the benefit of the National Bank of Kazakhstan. The Claimants considered that cash and securities held in the UK were the property of Kazakhstan, and therefore, could be seized in order to execute the award. The Court refused execution of the award against these assets, stating that the right to enforce an arbitral award was not absolute but subject to legitimate and proportionate limitations, prescribed by the SIA. The Court held that, according to specific section of the SIA, all property of Central bank of a foreign State should not be regarded as in use or intended for use for commercial purposes and enjoyed sovereign immunity from execution.

However, the opposite state practice on immunity of Central banks exists. Thus, French courts refuse to grant absolute immunity to Central banks accounts, used for both sovereign and non-sovereign purposes. In Englander v. Banque d'Etat Tchйcoslovaque, the Court of Appeals initially refused enforcement against assets of State banks, stating that as it was impossible to make a distinction between private and public funds as the distinction between private and public funds, the attachment “might deprive the foreign state of resources which it needs in order to assure the well-functioning of its services or to fulfill obligations accepted by virtue of its attributes of sovereign power”. Englander v. Statni Banka Ceskoslovenska, Постановление Кассационного суда Франции 1969 г. (см.: Paulsson J. Sovereign Immunity from Execution in France // International Lawyer. Vol. 11. N 1. Winter, 1977. P. 676

https://www.jstor.org/stable/40705136?Search=yes&resultItemClick=true&searchText=Sovereign&searchText=Immunity&searchText=from&searchText=Execution&searchText=in&searchText=France&searchUri=%2Faction%2FdoBasicSearch%3FQuery%3DSovereign%2BImmunity%2Bfrom%2BExecution%2Bin%2BFrance%26amp%3Bfc%3Doff%26amp%3Bwc%3Don%26amp%3Bacc%3Doff%26amp%3Bgroup%3Dnone&refreqid=search%3A44091764401b86d77bddfb73cae59254&seq=1#page_scan_tab_contents The Cassation Court overturned the position of Appellate Court and concluded that existence of simple risk of inability to separate public from private funds could not create immunity from execution for all assets on state bank account.

Moreover, Swiss Federal Tribunal also rejected to accept that all assets held by the Central Bank of Libya were appointed to serve sovereign purposes, claiming that only assets unarguably dedicated for the performance of governmental functions enjoyed immunity and allowed execution against assets in question. Lybia v. Actimon SA (Swiss Federal Tribunal, 24.04.1985, 82 ILR 30)

Conclusively, the possibility of execution against property of Central Banks significantly differs depending on jurisdiction. It is supposed that absolute immunity of Central banks accounts may adversely affect right of successful investors to effective remedy during execution proceedings and, therefore, courts should apply restrictive approach and consider a possibility of segregation of funds in order to allow execution against property of Central banks used for commercial activity and at the same time grant immunity to the rest of funds used for duly functioning of Central banks.

Military property

It is well-established that military property is immune from enforcement measures due to its evident sovereign character. This conclusion is confirmed both by national immunity legislation Section 1611(b)(2), United States Foreign Sovereign Immunities Act 1976, reprinted in 15 ILM 1388 (1976);

Section 32(3)(a), Australia Foreign States Immunities Act 1985, reprinted in 25 ILM 715 (1986); Art. 12(3),

Canada State Immunity Act 1982, reprinted in 21 ILM 798 (1982). Russian Federal Law and international documents Art. 21(1)(b), United Nations Convention on Jurisdictional Immunities of States and Their Property, 2

December 2004, Annexe, UN-Doc. A/RES/59/38; Art. VIII(C)(2), Revised Draft Articles for a Convention on State Immunity, ILA Report of the 66th Conference (Buenos Aires 14-20 August 1994); Art. 4(2)(b), Resolution of l'Institut de Droit International on Contemporary Problems Concerning the Immunity of States in Relation to Questions of Jurisdiction and Enforcement, 2 September 1991.. At the same time, creditors, regardless of special character of military objects, still attempt to attach these assets of States. Thus, NML Capital Investment was trying to attach Argentinean warship, entered into port of Ghana and detained there, pursuant to injunction order in favor of NML. Argentina requested International Tribunal for the Law of the Sea the prescription of provisional measures, enabling the warship to leave the port. The Tribunal confirmed that warships enjoy autonomous type of immunity and prescribed to immediately release the warship. ARA Libertad (Argentina v. Ghana), Case No. 2, Order for prescription of provisional measures, (Dec. 15, 2012) https://www.itlos.org/fileadmin/itlos/documents/cases/case_no.20/published/C20_Order_151212.pdf

The UN Convention on Jurisdictional Immunities of States and Their Property in Article 21 specifies that property, forming part of the cultural heritage of the State, and property, forming part of an exhibition of objects of scientific, cultural or historical interest, are exempted from execution as not intended for use by the State for commercial purposes. The approach, adopted in the Convention, correlated with the Declaration on Jurisdictional Immunities of State Owned Cultural Property, which provides that cultural property of a State should not be subject to any measures of constraint. Therefore, execution against such type of property is only available “if immunity is expressly waived for a clearly specified property by the competent national authorities of the State owning the property or if the property has been allocated or earmarked by that State for the satisfaction of the claim which is the object of the proceeding concerned”. https://rm.coe.int/declaration-on-immunities-en/168071bb2d Although the Declaration represents legally non-binding act, it illustrates a general understanding of Sates that cultural property on exhibition enjoys immunity. This proposition is illustrated by several decisions of state courts.

Thus, in NOGA/Pushkin museum paintings case the Swiss company NOGA, which was awarded compensation by the Stockholm Court of Arbitration, requested seizure of paintings from the Pushkin State Art Museum, exhibited in Switzerland. Initially execution was granted and painting were seized but subsequently the Swiss Federal Council overturned judgement of competent authority and adopted an unappealable decision, requiring prompt release of paintings. Although the Swiss Federal Council is executive organ, it interfered in judicial proceedings in order to safeguard sovereign immunity and ensure protection of cultural property. Francioni, F., & Gordley, J. (2014). Enforcing International Cultural Heritage Law. Oxford: OUP Oxford.

Conclusively, both state practice and customary international law grant special protection to cultural heritage of States, providing that this type of property should be immune from execution.

Nexus requirement

Even if it undisputed that property of foreign State serves commercial purposes, the courts in some jurisdictions are permitted to allow execution only if the property in question is used for activity connected with the claim (subject-matter nexus) or related to the territory of State, where execution of an award is sought (jurisdictional link). Olga Gerlich, 77 The rationale behind this requirement is to grant more protection to foreign property located abroad and at the same time to prevent forum shopping for the most preferential domestic regulations. The absence of the nexus makes it impossible for a private party to execute against property of foreign State.

The following requirement can be found in the US FSIA, which allows execution against property of foreign State, if it is used for commercial purposes and has a connection with the claim in the US. Section 1610(a) (2) However, the nexus requirement with regard to arbitral awards was removed from the US FSIA by the 1988 amendment, what facilitated collection of arbitral awards in the US. Section 1610(a) (6) of the US FSIA stipulates that foreign property used for a commercial activity in the United States does not enjoy immunity from execution if a judgment is based on an order confirming an arbitral award against a foreign State. Hence, an investor is no longer obliged to prove existence of jurisdictional link between commercial property and subject matter of a claim for purposes of execution of an arbitral award, in contrast to situation of execution of judgments against foreign property.

At the same time, in the absence of domestic regulations on sovereign immunities, case law of several States reveals a trend to apply the nexus requirement in order to refuse execution of arbitral awards. For instance, Swiss practice illustrates the necessity in existence of jurisdictional link (Binnenbeziehung) with Switzerland for purposes of execution of arbitral award. In order to allow execution, Swiss Tribunals need to establish a sufficient connection, which emerges “when the underlying claim arose in Switzerland, when it has been performed there, or when the foreign State has performed in Switzerland acts through which a place of performance has been created there.” Moscow Center for Automated Traffic Control v. Geneva Supervisory Commission of the Debt Collection Office, Judgment of Aug. 15, 2007, Federal Tribunal (Switz.), cited in Schneider & Knoll, supra note 62, at 340-41 Thus, in Libyan American Oil Co.v. Socialist People's Libyan Arab Jamahriya (LIAMCO) Libyan American Oil Co.v. Socialist People's Libyan Arab Jamahriya (LIAMCO), the Swiss Federal Tribunal refused execution against Libya's assets located in Switzerland, due to the lack of jurisdictional link. The Tribunal found that underlying transaction was not connected with Switzerland, affirming that choice of arbitration locus in Switzerland did not suffice for purposes of establishment of inner connection.

The similar approach can be found in practice of French courts. The Cassation Court in Eurodif case FRANCE: COURT OF CASSATION DECISION IN EURODIF CORPORATION ET AL. v. ISLAMIC REPUBLIC OF IRAN ET AL. (Immunity from Execution; Attachment of Property; Commercial Transactions). (1984). International Legal Materials, 23(5), 1062-1070. Retrieved from http://www.jstor.org/stable/20692759 p. 1069 annulled the ruling of Appellate Court, which refused attachment against Iranian property, claiming that the Government of Iran was entitled to invoke its sovereign immunity from execution, as it did not waive it. The Cassation Court highlighted that principle of sovereign immunity from execution could be ignored in situations, when the foreign property was used for economic or commercial activity upon which the claim was based.

Further in Sonatrach FRANCE: COURT OF CASSATION DECISION IN SONATRACH v. MIGEON (Sovereign Immunity and State Enterprises). (1987). International Legal Materials, 26(4), 998-1003. Retrieved from http://www.jstor.org/stable/20693136 the Cassation Court upheld the requirement for a link between foreign property and subject-matter of the claim. The Court stipulated that assets of State instrumentalities could be subject to attachment despite the lack of connection between the property and private claim, at the same time emphasizing that measures of execution against property of foreign State were allowed, when the assets “are intended for economic or commercial activities of a private nature from which the claim of creditor” FRANCE: COURT OF CASSATION DECISION IN SONATRACH v. MIGEON (Sovereign Immunity and State Enterprises). (1987). International Legal Materials, 26(4), 998-1003. Retrieved from http://www.jstor.org/stable/20693136 1003.

However, in Creighton case Creighton the Appellate Court seemed to overturn the approach, upheld in Eurodif and Sonatrach. Paris Court of Appeal did not explicitly elaborate on the matter of nexus requirement but allowed execution against assets of Ministry of Qatar in France without establishing a connection with a subject-matter claim.

Accordingly, despite the fact that the majority of countries abandoned to apply the nexus requirement for purposes of execution against State property, the establishment of connection with subject-matter or forum State remains to be a difficulty for a private party in some jurisdictions during execution proceedings. Therefore, it seems necessary to suggest that foreign property, which serves commercial purposes, should not be immune from execution without nexus requirement, as the otherwise approach would compromise the effectiveness of arbitral award.

Chapter III. Interim measures and sovereign immunity

3.1 Provisional measures

Provisional measures in international arbitration serve a number of functions, in particular, they are aimed to facilitate the conduct of proceedings, protect rights of a party, maintain the status quo, preserve evidence, and support enforcement of an arbitral award. Maniruzzaman Interim Measures of Protection in International Investment

Arbitration: Challenge to State Sovereignty? P.5-6 Despite the relevance of these measures, both the ICSID Convention and the UNICITRAL Rules, which usually apply in investor-state dispute settlement, are silent about the binding force of these measures and, accordingly, their enforceability.

Article 47 of the ICSID Convention provides that “the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party” 47 ICSID. Initially, the text of the Convention envisaged the word “prescribe” rather than “recommend”, affirming the binding nature of provisional measures and empowering tribunals to impose sanctions in case of incompliance. Christopher H. Schreuer, The ICSID Convention: A Commentary (Cambridge University Press, 2001), p.746 However, such wording of an article encountered opposition mostly due to possible interference with sovereignty of States and the word “prescribe” was replaced by softer version. Taking this amendment into account, C. Schreuer highlighted that “the Convention's legislative history shows clearly that a conscious decision was made not to grant the Tribunal the power to order binding provisional measures” Christopher H. Schreuer, The ICSID Convention: A Commentary (Cambridge University Press, 2001), p.758. The similar approach in Lawrence Collins, Essays in International Litigation and the Conflict of Laws (Clarendon Press, Oxford, 1994), p.74..

However, the practice of tribunals illustrates the opposite approach to character of provisional measures. In the landmark case Maffezini v. Spain Emilio Agustнn Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7 https://www.italaw.com/cases/641, the ICSID Tribunal for the first time explicitly established that the word “recommend” was equivalent to the word “order”. The Tribunal pointed out:

“The Tribunal does not believe that the parties to the Convention meant to create a substantial difference in the effect of these two words. The Tribunal's authority to rule on provisional measures is no less binding than that of a final award.” Emilio Agustнn Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7 https://www.italaw.com/cases/641

Para 9

Although the approach was criticized FORTIER, Interim Measures: An Arbitrator's Provisional Views, Fordham Law School Conference on International Arbitration and Mediation dated 16 June 2008, New York, 6., it was subsequently upheld by the rulings of other tribunals. Thus, in Tokios Tokelйs v. Ukraine the Tribunal held that “provisional measures “recommended” by an ICSID tribunal are legally compulsory; they are in effect “ordered” by the tribunal, and the parties are under a legal obligation to comply with them” Tokios Tokelйs v. Ukraine (ICSID Case No. ARB/02/18) Order № 1 https://www.italaw.com/cases/1099 para 4

Similar practice in Roussalis v. Romani, City Oriente Ltd. v. Ecuador, Occidental Petroleum Corp and Occidental Exploration and Prodcution Co. v. Ecuador. Moreover, in City Oriente v. Ecuador, the Tribunal stipulated that “a failure to comply with orders given to respondents by the tribunal in accordance with Art. 47 will entail a violation of Art. 26 (the contractual obligation to submit to ICSID jurisdiction) and engage respondent's liability” City Oriente Limited v. Republic of Ecuador and Empresa Estatal Petrуleos del Ecuador (Petroecuador) [I], ICSID Case No. ARB/06/21, para 53 https://www.italaw.com/cases/3432 .

Accordingly, despite the intentions of drafters of the ICSID Convention, provisional measures are still regarded as binding in a majority of cases.

Article 26 of the 2010 UNCITRAL Arbitration Rules expresses the approach, analogues to the ICSID Convention, stipulating that “the arbitral tribunal may, at the request of a party, grant interim measures” Article 26 UNCITRAL. However, the binding force of provisional measures impliedly follows from the wording of paragraph 2, which highlights that the tribunal orders a measure. Article 26 (2) UNCITRAL

An interim measure is any temporary measure by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party

The binding force of provisional measures indicates that the provisional decision of arbitral tribunal may be subject to enforcement in case of non-compliance by a State. It should be noted, that neither the ICSID Convention, nor UNCITRAL Rules contain provisions on enforcement of provisional measures. The ICSID Convention only provides rules on enforcement of awards, final judgments, which are not subject to modification or revocation, contrary to provisional temporal measures. At the same time, it seems possible to obtain assistance of domestic courts by referring to obligation of States, consented to ICSID arbitration, not to frustrate the object of proceedings, which extends to judiciaries of those States. Hence, pursuant to the following interpretation, domestic courts would be obliged to enforce decisions on provisional measures for duly conduct of arbitral proceedings. MAVROGORDATO, SIDERE, The Nature and Enforceability of ICSID Provisional Measures, Arbitration, Vol. 75, Issue 1, 2009, 44, Provisional Measures in International Investment Arbitration Ph.D. Thesis - Federico Lenci p. 252-253

Enforcement of awards under the UNCITRAL rules may be theoretically ensured by the application of the NY Convention. According to the UNCITRAL rules, the arbitral tribunal is able to issue provisional measures in form of an award or an order. Undeniably, the award form is more preferable for the purposes of enforcement, since the NY Convention refers only to “awards”. It was noted, however, that the form of provisional decision could be changed. Thus, in Chevron Corp. v. Republic of Ecuador Chevron Corp. v. Republic of Ecuador, Order for interim measures dated 9 February 2011 p.2 https://www.italaw.com/cases/257, the Tribunal pointed out that:

“As to form, the Tribunal records that, whilst this decision under Article 26 of the UNCITRAL Rules is made in the form of an order and not an interim award, given the urgency required for such decision, the Tribunal may decide (upon its own initiative or any Party's request) to confirm such order at a later date in the form of an interim award under Articles 26 and 32 of the UNCITRAL Rules, without the Tribunal hereby intending conclusively to determine the status of this decision, one way or the other, as an award under the 1958 New York Convention”.

Despite the fact, that the question of enforceability of interim awards under the NY Convention remains controversial, state practice of courts indicates the possibility of enforcement of awards on provisional measures against States pursuant to the NY Convention. For example, in Sperry International Trade, Inc. v. Government of Israel US District Court for the Southern District of New York - 532 F. Supp. 901 (S.D.N.Y. 1982) February 24, 1982, Sperry International Trade, Inc. v. Government of Israel https://law.justia.com/cases/federal/district-courts/FSupp/532/901/2145421/ , the Claimant was seeking a confirmation of an award on a provisional measure, granted by an arbitral tribunal, the respondent objected the request, contending that the award was not final and, therefore, unenforceable. The Court, affirming that by issuing an award the arbitrators did not finally resolve the dispute, however allowed the confirmation of an award, holding that the award would be “meaningless and frustrated exercise of the Arbitrators' powers”, unless confirmed by this Court and enforced.

After establishment of binding force and possibility of enforcement of provisional measures it seems necessary to identify, how sovereign immunity may affect provisional measures.

Waiver of immunity from pre-judgment measures

Undoubtedly, States enjoy a wide immunity from pre-judgment measures of constraint, as the nature of this remedy, allowing attachment of foreign assets before a final decision of merits, may significantly affect sovereignty of States. The United Nations Convention on Jurisdictional Immunities of States and Their Property stipulates that pre-judgment measures against a State and its property are not allowed, unless a State expressly consented to them by international agreement, arbitration agreement or by declaration before the court after emergence of the dispute. Article 18 UN Convention Accordingly, in order to oppose provisional measures a State may raise its sovereign immunity defense before domestic courts, denying the existence of waiver of immunity from provisional measures.

State practice on this question varies depending on the jurisdiction. Section 1610(d) of the US FSIA allows pre-judgment measures against commercial property of a foreign State, if a State has explicitly waived its immunity from attachment and the purpose of the attachment is to secure satisfaction of a judgment but not obtaining jurisdiction. 1610 (d) FSIA In contrast to the waiver from execution, waiver of immunity from provisional measures has to be explicit, demonstrating an unambiguous intention to waive immunity from pre-judgment measures. US courts usually require clear evidence, confirming a will of a State to waive its immunity from pre-judgment measures, although this phrase is not always necessary. Thus, in Libra Bank Ltd. v. Banco Nacional de Costa Rica, the Court refused to vacate a pre-judgment attachment of defendant's property pursuant to the FSIA, due to the existence of clear waiver of immunity. The Court specified that the wording “waives any right or immunity from legal proceedings including suit judgment and execution on grounds of sovereignty which it or its property may now or hereafter enjoy” is sufficient for purposes of pre-judgment attachment. The Court also noted that:

“Section 1610(d)(1) does not require recitation of the words "prejudgment attachment" as an operative formula. Although the legislative history is silent on this point, the purpose of 1610(d)(1) is to preclude inadvertent, implied, or constructive waiver in cases where the intent of the foreign state is equivocal or ambiguous. Under this interpretation of the statute, Banco Nacional's waiver clearly was explicit.” Libra Bank Ltd. v. Banco Nacional de Costa Rica, para 17 https://www.ravellaw.com/opinions/41238b37630c9a5fed14c8ea66b55304

“The FSIA creates a strong presumption against such pre-judgment attachments. It would be an excessively liberal interpretation of the words "or other liability" … to find that they properly waived the immunity from pre-judgment attachments.” Security Pacific National Bank v. Government and State of Iran https://law.justia.com/cases/federal/district-courts/FSupp/513/864/1613763/

The UK SIA provides that “relief shall not be given against a State by way of injunction or order for specific performance or for the recovery of land or other property” UK SIA Section 13 (2), (3) without prior written consent of State to such provisional measure, while the waiver of immunity from jurisdiction does not constitute a waiver of immunity from pre-judgment measures. The same way as the US FSIA, the UK SIA requires that a waiver should be explicit and may be contained in prior agreement. Therefore, in order to waive immunity from pre-judgment measures, the State should clearly demonstrate its consent for these measures in writing. However, sometimes the courts are hesitant to limit their enforcement powers in circumstances under which arbitral tribunals issue interim measure or peremptory orders In Pearl Petroleum Company Ltd & Ors v The Kurdistan Regional Government of Iraq http://freecases.eu/Doc/CourtAct/4931846 the Court elaborated on the question of the waiver of immunity from pre-judgment measures during the enforcement proceeding of an arbitral order. In the following case the arbitral tribunal issued a ruling on provisional measure, ordering Respondent to pay a sum of money to the Claimant. While the Respondent did not comply with an interim order, the Claimant successfully applied for a peremptory order and obtained a permission of a Tribunal to enforce this order. The Respondent was opposing the enforcement, particularly, due to lack of consent to interim measures. The Respondent noted that by the wording “waives on its own behalf …any claim to immunity for itself and assets" he did not waive the immunity against injunctive relief and against other forms of interim measures, prescribed by the Section 13(2) of the US SIA. The Court disagreed and concluded that the aforementioned clause would amount to a waiver of immunity from suit, including relief by injunction Para 44.

Considering the aforementioned, it is undisputed that provisional measures can be issued and enforced only if a State previously consented to them, waiving its immunity. However, state practice is not consistent about the wording of this waiver to be effective. Taking into account the purpose of the provisional measures and their urgency, it may be supposed that State should be regarded to waive its immunity from pre-judgment attachment, if it agreed to jurisdiction of a tribunal, empowered to issue binding provisional measures, and demonstrated consent to measures of execution.

Applicable provisional measures

It is well accepted that sovereign character of a State may drastically influence the way “in which a tribunal disposes of an application for interim measures” Yves Fortier, Interim Measures: An Arbitrator's Provisional Views, Fordham Law School Conference on International Arbitration and Mediation - Investor-State Arbitration, June 16, 2008, http://www.arbitrationicca.org/media/4/01137866264927/media0122329529899201115_001.pdf. . Tribunals remain cautious while issuing provisional decisions, balancing the interests of States and private parties, what is illustrated by proposition made in Saipem S.p.A v. The People's Republic of Bangladesh. The Tribunal pointed out that