In-depth ICSID study confirms general effectiveness of the ICSID Convention’s compliance and enforcement regime

The International Centre for Settlement of Investment Disputes has recently published the most comprehensive study exclusively focused on compliance with and enforcement of ICSID awards (the “ICSID Study”).

The ICSID Study:

• provides a comprehensive overview of the ICSID Convention’s regime governing compliance with, recognition, enforcement and execution of an ICSID award, and
• ascertains the rate of compliance and enforcement of ICSID awards up to 31 December 2021.

The findings reveal that a vast majority of ICSID awards were satisfied, either through compliance, settlement, or successful enforcement.

The study also features a review of 124 publicly available domestic court decisions relating to enforcement. This case law confirms that a large majority of domestic courts recognise and enforce ICSID awards.

The overview of the ICSID Convention’s regime governing compliance and enforcement of ICSID awards

The ICSID Study highlights that the regime governing compliance and enforcement of ICSID awards is a critical aspect of the ICSID Convention, which constitutes one of the reasons why, in investment treaty disputes, investors, where possible, opt for ICSID arbitration over other arbitration mechanisms.

The system is designed to be self-contained, as awards are final and binding, not subject to appeal, and are only subject to post-award remedies provided for under the ICSID Convention (see the ICSID Background Paper on Annulment).

Furthermore, ICSID awards can be enforced by domestic courts of the signatory states as if they were final domestic judgments, and the ICSID Convention does not provide any ground to refuse recognition and enforcement such as those provided in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The ICSID system is thus designed to minimise the possibility of any challenge before domestic courts to a much greater extent than commercial arbitration awards.

The ICSID Secretariat notes that this regime instils confidence that parties will voluntarily comply with the award, or at least that the award will be upheld in case one of the parties seeks enforcement actions.

The rate of compliance and enforcement of ICSID awards

Overview of the results

The ICSID Study includes the study of 231 ICSID awards with pecuniary obligations (i.e. damages and/or costs awarded to a party), and shows that the ICSID Convention’s compliance and enforcement regime proves to be highly effective:

• parties voluntarily comply with, or reach post-award settlement of, the majority of awards, while only a few awards go to enforcement proceedings;
• enforcement in domestic courts is largely successful, subject only to immunity from execution. The Study notes that many domestic courts presented at the enforcement stage with defences based on immunity from jurisdiction have held that ICSID member states have waived their immunity from jurisdiction by joining the ICSID Convention.

Overall, amongst the cases with known outcomes, award creditors obtained satisfaction through voluntary compliance, post-award settlement or enforcement in respect of:

• 97% of awards that ordered a party to pay damages, or damages and costs (“Damages Awards”), with 90% obtained through voluntary compliance and post award settlement;
• 83% of awards ordering a party to pay costs only (“Costs Awards”). Award creditors seem less likely to pursue enforcement of Costs Awards, notably due to the lower amounts awarded compared to Damages Awards (35% of Costs Awards are below USD 1 million), as the expense of pursuing enforcement would outweigh the recoverable amount.

Detailed methodology

To ascertain the rate of compliance and enforcement of awards rendered under the ICSID Convention, the ICSID Secretariat analysed 565 arbitration proceedings that had concluded by 31 December 2021.

Amongst these 565 arbitration proceedings, the ICSID Study focused on the 231 awards:

• issued before 31 December 2021,
•  that impose pecuniary obligations,
• and for which information could be obtained.

It thus excludes: (i) 182 cases that were discontinued, (ii) 130 awards which do not impose pecuniary obligations, or which were annulled by an ad hoc committee, or for which post awards remedy proceedings (annulment, revision, supplementary decision or rectification) were still pending, and (iii) 22 awards for which no information was retrieved.

Amongst those 231 awards, the ICSID Study distinguished between:

• 151 Damages Awards, and
•  80 Costs Awards.

These totals, however, included a number of awards where enforcement outcomes were not known at the time of the ICSID study; being 40 of the Damages Awards and 39 of the Costs Awards.

Detailed results

As regards total Damages Awards, the ICSID Study showed that:

• award debtors voluntarily complied with or reached a post-award settlement in 66% of the Damages Awards;
• awards creditors did not pursue enforcement in respect of 3% of Damages Awards (eg. for economic considerations, when the financial burden of the enforcement proceedings can outweigh the benefits);
• enforcement was pursued in relation to only 31% of total Damages Awards (i.e. 47 awards). Of these, however, the outcome was only available in relation to 11 awards (i.e. 23% of those 47). In 8 of those, enforcement actions were successful (i.e. 73% of those 11).

As such, after excluding the 40 Damages Awards for which the outcome of enforcement actions was unavailable, or where enforcement was not pursued or still pending, the ICSID Study shows that:

• the rate of voluntary compliance and post-award settlement is 90%;
• a further 7% of Damages Awards were satisfied following successful enforcement proceedings;
• enforcement proceedings were unsuccessful at the time of the Study in relation to only 3% of Damages Awards.

In sum, satisfaction was obtained in relation to 97% of Damages Awards where the outcome is known.

As regards total Costs Awards, the ICSID Study shows that:

• award debtors voluntarily complied with 36% of the Costs Awards;
• award creditors did not pursue enforcement in respect of 30% of Costs Awards (eg. for economic considerations,when the financial burden of the enforcement proceedings can outweigh the benefits);
• enforcement was pursued in relation to only 34% of total Costs Awards (i.e. 27 awards). Of these. however, the outcome was only available in relation to 12 awards (i.e. 44% of those 27). In 5 of those, enforcement actions were successful (i.e. 42% of those 12).

As such, after excluding the 39 Costs Awards for which the outcome of enforcement actions was unavailable, or where enforcement was not pursued or still pending, the ICSID Study shows that:

• the rate of voluntary compliance and post-award settlement is 71%;
• a further 12% of Costs Awards were satisfied following successful enforcement proceedings;
• enforcement proceedings were unsuccessful at the time of the Study in relation to only 17% of Costs Awards.

In sum, satisfaction was obtained in relation to 83% of Costs Awards where the outcome is known.